<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1997
REGISTRATION NO. 333-23875
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
AMENDMENT NO. 3
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FLAGSTAR COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5812 13-3487402
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification Code
Number)
</TABLE>
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 29319-9966
(864) 597-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RHONDA J. PARISH, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
FLAGSTAR COMPANIES, INC.
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 29319-9966
(864) 597-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
RANDALL C. BASSETT, ESQ. GARY C. IVEY, ESQ. MARTIN J. BIENENSTOCK, ESQ.
LATHAM & WATKINS PARKER, POE, ADAMS & BERNSTEIN L.L.P. WEIL, GOTSHAL & MANGES L.L.P.
633 WEST FIFTH STREET, SUITE 4000 2500 CHARLOTTE PLAZA 767 FIFTH AVENUE
LOS ANGELES, CA 90071 CHARLOTTE, NC 28244 NEW YORK, NY 10153
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. h
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
FLAGSTAR COMPANIES, INC.
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGISTRATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page of Prospectus and Outside Back Cover Page
of Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Forepart of Registration Statement; Prospectus Summary; Certain
Risk Factors; Selected Historical Financial Data; Pro Forma
Financial Statements; Projected Financial Information
4. Terms of the Transaction........................ Prospectus Summary; Certain Risk Factors; The Plan of
Reorganization; Pro Forma Financial Statements; Projected Financial
Information; Description of Indebtedness; Description of Old Equity
Securities; Description of New Senior Notes; Description of New
Common Stock; Description of New Warrants; Certain Federal Income
Tax Considerations
5. Pro Forma Financial Information................. Pro Forma Financial Statements
6. Material Contracts with the Company Being
Acquired........................................ Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... Not Applicable
8. Interests of Named Experts and Counsel.......... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
10. Information with Respect to S-3 Registrants..... Not Applicable
11. Incorporation of Certain Information by
Reference....................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information with Respect to Registrants Other
than S-3 or S-2 Registrants..................... Selected Historical Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of Operations; Market
and Trading Information; Business; Consolidated Financial
Statements
15. Information with Respect to S-3 Companies....... Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other than
S-3 or S-2 Companies............................ Not Applicable
18. Information if Proxies, Consents or Authori-
zations are to be Solicited..................... Outside Front Cover Page of Prospectus; The Plan of Reorgan-
ization; Management; Management Compensation; Ownership of Capital
Securities; Certain Transactions
19. Information if Proxies, Consents or Authori-
zations are not to be Solicited or in an
Exchange Offer.................................. Not Applicable
</TABLE>
<PAGE>
PROSPECTUS (SUBJECT TO CHANGE)
FLAGSTAR COMPANIES, INC.
AND
FLAGSTAR CORPORATION
SOLICITATION OF VOTES WITH RESPECT
TO PREPACKAGED PLAN OF REORGANIZATION (THE "PLAN")
OF
FLAGSTAR COMPANIES, INC. ("FCI") AND FLAGSTAR CORPORATION ("FLAGSTAR"),
A WHOLLY-OWNED SUBSIDIARY OF FCI
FCI AND FLAGSTAR HEREBY SOLICIT VOTES WITH RESPECT TO THE PLAN WHICH
PROVIDES, AMONG OTHER THINGS, FOR THE SECURITIES OF FCI AND FLAGSTAR TO BE
EXCHANGED FOR THE CONSIDERATION SET FORTH BELOW (THE "SOLICITATION"). THE TERM
"REORGANIZED FLAGSTAR" MEANS THE SURVIVING CORPORATION RESULTING FROM THE MERGER
OF FLAGSTAR WITH AND INTO FCI FROM AND AFTER THE EFFECTIVE DATE OF THE PLAN (THE
"EFFECTIVE DATE").
<TABLE>
<CAPTION>
EACH HOLDER OF: WILL RECEIVE:
<S> <C>
FLAGSTAR'S 10 7/8% SENIOR NOTES DUE SUCH HOLDER'S PRO RATA PORTION (SHARING WITH ALL OTHER SUCH HOLDERS) OF 100% OF THE
2002 (THE "10 7/8 SENIOR NOTES") AND 11 1/4% SENIOR NOTES DUE 2007 OF REORGANIZED FLAGSTAR (THE "NEW SENIOR NOTES") TO BE
10 3/4% NOTES DUE 2001 (THE "10 3/4% OUTSTANDING ON THE EFFECTIVE DATE IN EXCHANGE FOR 100% OF THE PRINCIPAL AMOUNT OF THE
SENIOR NOTES") (COLLECTIVELY, THE OLD SENIOR NOTES AND ACCRUED INTEREST THEREON ($1,058 IN PRINCIPAL AMOUNT (REPRESENTING P
"OLD SENIOR NOTES") PRINCIPAL AND ACCRUED INTEREST ESTIMATED AS OF OCTOBER 1, 1997) IN NEW SENIOR NOTES PER
$1,000 PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES AND $1,036 IN PRINCIPAL AMOUNT
(REPRESENTING PRINCIPAL AND ACCRUED INTEREST ESTIMATED AS OF OCTOBER 1, 1997) IN NEW
SENIOR NOTES PER $1,000 PRINCIPAL AMOUNT OF 10 7/8% SENIOR NOTES) (SUBJECT TO THE RIGHT
OF REORGANIZED FLAGSTAR TO PAY CASH FOR INTEREST ACCRUED THROUGH THE EFFECTIVE DATE);
PROVIDED, HOWEVER, THAT IF THE CLASS OF HOLDERS OF OLD SENIOR NOTES DOES NOT CONSENT TO p
THE PLAN, THE OLD SENIOR NOTES SHALL EITHER BE, IN THE SOLE DISCRETION OF REORGANIZED
FLAGSTAR, UNIMPAIRED (WITH NO CHANGE TO THE INTEREST RATES, MATURITY DATES OR OTHER
TERMS OR PROVISIONS OF THE OLD SENIOR NOTES) OR EXCHANGED FOR NEW SENIOR NOTES WHICH
WILL BEAR INTEREST AT A RATE WHICH THE BANKRUPTCY COURT FINDS APPROPRIATE UNDER THE
CRAMDOWN PROVISIONS OF 11 U.S.C. (SECTION MARK) 1129(B) (WITH A MATURITY DATE AND
HAVING OTHER TERMS AND PROVISIONS SET FORTH HEREIN FOR THE NEW SENIOR NOTES). SEE
"DESCRIPTION OF NEW SENIOR NOTES."
FLAGSTAR'S 11.25% SENIOR SUCH HOLDER'S PRO RATA PORTION (SHARING WITH ALL OTHER SUCH HOLDERS) OF SHARES OF $.01
SUBORDINATED DEBENTURES DUE 2004 PAR VALUE COMMON STOCK OF REORGANIZED FLAGSTAR (THE "NEW COMMON STOCK") EQUIVALENT TO
(THE "11.25% DEBENTURES") AND 95.5% OF THE NEW COMMON STOCK TO BE OUTSTANDING ON THE EFFECTIVE DATE (44.986 SHARES OF
11 3/8% SENIOR SUBORDINATED NEW COMMON STOCK PER $1,000 PRINCIPAL AMOUNT OF 11.25% DEBENTURES AND 45.614 SHARES OF
DEBENTURES DUE 2003 (THE "11 3/8% NEW COMMON STOCK PER $1,000 PRINCIPAL AMOUNT OF 11 3/8% DEBENTURES). SEE "DESCRIPTION
DEBENTURES") (COLLECTIVELY, THE OF NEW COMMON STOCK."
"SENIOR SUBORDINATED DEBENTURES")
FLAGSTAR'S 10% CONVERTIBLE JUNIOR SUCH HOLDER'S PRO RATA PORTION (SHARING WITH ALL OTHER SUCH HOLDERS) OF SHARES OF NEW
SUBORDINATED DEBENTURES DUE 2014 COMMON STOCK EQUIVALENT TO 3.25% OF THE NEW COMMON STOCK TO BE OUTSTANDING ON THE
(THE "JUNIOR SUBORDINATED EFFECTIVE DATE (13.097 SHARES OF NEW COMMON STOCK PER $1,000 PRINCIPAL AMOUNT OF JUNIOR
DEBENTURES") SUBORDINATED DEBENTURES).
FCI'S $2.25 SERIES A CUMULATIVE SUCH HOLDER'S PRO RATA PORTION (SHARING WITH ALL OTHER SUCH HOLDERS) OF SHARES OF NEW
CONVERTIBLE EXCHANGEABLE PREFERRED COMMON STOCK EQUIVALENT TO 1.25% OF THE NEW COMMON STOCK TO BE OUTSTANDING ON THE
STOCK (THE "OLD FCI PREFERRED EFFECTIVE DATE (0.079365 SHARES OF NEW COMMON STOCK PER SHARE OF OLD FCI PREFERRED
STOCK") STOCK).
FCI'S $.50 PAR VALUE COMMON STOCK SUCH HOLDER'S PRO RATA PORTION (SHARING WITH ALL OTHER SUCH HOLDERS) OF WARRANTS (THE
(THE "OLD FCI COMMON STOCK") "NEW WARRANTS") TO PURCHASE NEW COMMON STOCK REPRESENTING 7% OF THE NEW COMMON STOCK ON
A FULLY DILUTED BASIS, SUCH WARRANTS EXERCISABLE FOR FIVE YEARS FROM THE EFFECTIVE DATE
AT A PER SHARE EXERCISE PRICE OF $21.19 (NEW WARRANTS TO PURCHASE 0.07095 SHARES OF NEW
COMMON STOCK PER SHARE OF OLD FCI COMMON STOCK). SEE "DESCRIPTION OF NEW WARRANTS."
</TABLE>
NEITHER THE SECURITIES NOR THE PLAN HAVE BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1997 (COVER CONTINUED ON FOLLOWING PAGE)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
BECAUSE NO CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE (AS DEFINED BELOW)
HAS BEEN COMMENCED, THIS PROSPECTUS HAS NOT BEEN APPROVED BY ANY BANKRUPTCY
COURT WITH RESPECT TO WHETHER IT CONTAINS ADEQUATE INFORMATION WITHIN THE
MEANING OF SECTION 1125 OF THE BANKRUPTCY CODE. NONETHELESS, IF A REORGANIZATION
CASE SUBSEQUENTLY IS COMMENCED, FCI AND FLAGSTAR EXPECT TO SEEK PROMPTLY AN
ORDER OF THE BANKRUPTCY COURT THAT THE SOLICITATION OF VOTES ON THE PLAN BY
MEANS OF THIS PROSPECTUS WAS IN COMPLIANCE WITH SECTION 1125 OR 1126(B) OF THE
BANKRUPTCY CODE.
NEITHER FCI NOR FLAGSTAR HAS COMMENCED A CASE (A "REORGANIZATION CASE")
UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE "BANKRUPTCY CODE")
AT THIS TIME. THIS PROSPECTUS CONSTITUTES A DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OR SECTION 1126(B) OF THE BANKRUPTCY CODE. THE SOLICITATION IS
BEING CONDUCTED AT THIS TIME IN ORDER TO OBTAIN A SUFFICIENT NUMBER OF
ACCEPTANCES BEFORE THE FILING OF A VOLUNTARY PETITION FOR REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE. FCI AND FLAGSTAR ANTICIPATE THAT BY
CONDUCTING THE SOLICITATION IN ADVANCE OF SUCH FILING, THE PENDENCY OF THE
BANKRUPTCY PROCEEDINGS WILL BE SIGNIFICANTLY SHORTENED AND THEIR ADMINISTRATION
WILL BE SIGNIFICANTLY SIMPLIFIED AND LESS COSTLY. THIS PROSPECTUS SOLICITS
ACCEPTANCES OF THE PLAN AND CONTAINS INFORMATION RELEVANT TO A DECISION TO
ACCEPT OR REJECT THE PLAN.
FCI AND FLAGSTAR BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF HOLDERS
(AS DEFINED HEREIN) OF OLD SENIOR NOTES, SENIOR SUBORDINATED DEBENTURES, JUNIOR
SUBORDINATED DEBENTURES, OLD FCI PREFERRED STOCK AND OLD FCI COMMON STOCK
(COLLECTIVELY, THE "SOLICITED CLASSES"). ACCORDINGLY, MEMBERS OF THE SOLICITED
CLASSES ARE URGED TO VOTE IN FAVOR OF THE PLAN. VOTING INSTRUCTIONS ARE SET
FORTH AT PAGES 41 TO 46 OF THIS PROSPECTUS. TO BE COUNTED, YOUR BALLOT MUST BE
DULY COMPLETED, EXECUTED AND ACTUALLY RECEIVED NO LATER THAN 5:00 P.M, EASTERN
TIME, ON , 1997 (TWENTY (20) BUSINESS DAYS AFTER THE MAILING OF THE
SOLICITATION TO HOLDERS). THE SOLICITED CLASSES ARE ENCOURAGED TO READ AND
CONSIDER CAREFULLY THIS ENTIRE PROSPECTUS, INCLUDING THE PLAN OF REORGANIZATION
ATTACHED HERETO AS EXHIBIT 1 AND THE MATTERS DESCRIBED IN THIS PROSPECTUS UNDER
"CERTAIN RISK FACTORS," PRIOR TO VOTING. THE VOTE OF THE SENIOR SUBORDINATED
DEBENTURES WITH RESPECT TO THE PLAN IS ACCOMPANIED BY A VOTE WITH RESPECT TO A
PROPOSED AMENDMENT TO THE INDENTURES FOR THE SENIOR SUBORDINATED DEBENTURES TO
IMPLEMENT CERTAIN FEATURES OF THE PLAN, IF NOT APPROVED BY ALL OF THE SOLICITED
CLASSES.
SEE "CERTAIN RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT DECISION.
THE TERMS OF THE PLAN HAVE BEEN DEVELOPED IN THE COURSE OF NEGOTIATIONS
WITH AN AD HOC COMMITTEE OF HOLDERS (THE "AD HOC DEBENTUREHOLDERS COMMITTEE") OF
THE SENIOR SUBORDINATED DEBENTURES. SEE "THE PLAN OF
REORGANIZATION -- INTRODUCTION." THE AD HOC DEBENTUREHOLDERS COMMITTEE AS OF
MARCH 21, 1997 CONSISTED OF LOOMIS SAYLES & COMPANY, INC. (AS INVESTMENT ADVISOR
FOR CERTAIN DISCRETIONARY ACCOUNTS), MAGTEN ASSET MANAGEMENT CORPORATION (AS
INVESTMENT ADVISOR FOR CERTAIN DISCRETIONARY ACCOUNTS) AND MOORE CAPITAL
MANAGEMENT, INC., WHO COLLECTIVELY HELD OR MANAGED APPROXIMATELY 48% OF THE
TOTAL PRINCIPAL AMOUNT OUTSTANDING OF THE SENIOR SUBORDINATED DEBENTURES AND
HAVE AGREED TO VOTE OR USE REASONABLE BEST EFFORTS TO CAUSE TO BE VOTED SUCH
SENIOR SUBORDINATED DEBENTURES TO APPROVE THE PLAN. THE AD HOC DEBENTUREHOLDERS
COMMITTEE DOES NOT PURPORT TO REPRESENT SOLICITED CLASSES OTHER THAN THE SENIOR
SUBORDINATED DEBENTURES AND, ACCORDINGLY, THERE MAY EXIST CERTAIN CONFLICTS OF
INTEREST BETWEEN THE AD HOC DEBENTUREHOLDERS COMMITTEE AND SUCH OTHER SOLICITED
CLASSES.
SEE "THE PLAN OF REORGANIZATION -- INTRODUCTION" FOR INFORMATION CONCERNING
DISCUSSIONS BETWEEN THE COMPANY'S MANAGEMENT AND THEIR ADVISORS WITH
REPRESENTATIVES OF AN INFORMAL COMMITTEE OF HOLDERS OF OLD SENIOR NOTES AND A
REPRESENTATIVE OF CERTAIN HOLDERS OF JUNIOR SUBORDINATED DEBENTURES.
THE BOARDS OF DIRECTORS OF FCI AND FLAGSTAR HAVE EACH UNANIMOUSLY APPROVED
THE TERMS OF THE PLAN AND RECOMMEND THAT THE HOLDERS OF CLAIMS AND INTERESTS IN
ALL SOLICITED CLASSES VOTE TO ACCEPT THE PLAN.
THE AD HOC DEBENTUREHOLDERS COMMITTEE HAS UNANIMOUSLY APPROVED THE PLAN AND
AGREED TO VOTE IN FAVOR OF THE PLAN AND CONSENT TO THE SENIOR SUBORDINATED
INDENTURE AMENDMENT (AS DEFINED HEREIN) AND RECOMMENDS THAT THE HOLDERS OF
SENIOR SUBORDINATED DEBENTURES VOTE TO ACCEPT THE PLAN AND CONSENT TO THE SENIOR
SUBORDINATED INDENTURE AMENDMENT.
THE HOLDER OF A MAJORITY OF THE OLD FCI COMMON STOCK HAS ALSO APPROVED THE
PLAN.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES OF THIS
PROSPECTUS MAY BE DIRECTED TO THE INFORMATION AGENT, AS SET FORTH HEREIN UNDER
"THE PLAN OF REORGANIZATION -- VOTING AND CONFIRMATION OF THE
PLAN -- INFORMATION AGENT."
ii
<PAGE>
AVAILABLE INFORMATION
FCI has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (which term shall encompass
any amendments, exhibits, annexes and schedules thereto) under the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder with respect to the New Senior Notes, New Common Stock
and New Warrants offered hereby (the "Registration Statement"). This Prospectus,
which constitutes part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission, and to which reference is hereby made.
Statements made in this Prospectus concerning the contents of the Registration
Statement, or of any contract, agreement or other document, are not necessarily
complete. With respect to the content of the Registration Statement and each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the Registration Statement and to
such exhibit for a more complete description of the matter involved, and each
such statement in this Prospectus shall be deemed qualified in its entirety by
such reference.
FCI and Flagstar are each subject to the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file periodic reports, proxy statements and
other information with the Commission. The Registration Statement and the
exhibits thereto, as well as such reports, statements and other information, may
be inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and also should be available for
inspection and copying at the regional offices of the Commission located at
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of such
materials may be obtained from any such office upon payment of the fees
prescribed by the Commission. The Commission maintains an Internet Web Site that
contains reports, proxy and information statements, and other information
regarding FCI and Flagstar and other registrants that file electronically with
the Commission. The address of such site is: http://www.sec.gov.
No person has been authorized to give any information or to make any
representation in connection with the Plan or the solicitation of votes for the
Plan, other than those contained in this Prospectus and the exhibits attached
hereto or incorporated by reference or referred to herein. If given or made,
such other information or representation may not be relied upon as having been
authorized by either FCI or Flagstar. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
those to which it relates, or an offer to sell or a solicitation of an offer to
buy any securities in any jurisdiction in which, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any distribution of securities hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the information set forth herein or in the affairs of FCI or Flagstar
since the date hereof. Any estimates of Claims (as defined herein) and Interests
(as defined herein) set forth in this Prospectus may vary from the final amounts
of Claims or Interests allowed by the Bankruptcy Court.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY............................................................................................................... vi
PROSPECTUS SUMMARY..................................................................................................... 1
The Company.......................................................................................................... 1
The Plan of Reorganization........................................................................................... 2
Certain Risk Factors................................................................................................. 6
Solicitation......................................................................................................... 7
CERTAIN RISK FACTORS................................................................................................... 9
Highly Leveraged Position............................................................................................ 9
Risks Relating to the DIP Facility and Exit Facility................................................................. 9
Risks Relating to the Projections.................................................................................... 10
Assumptions Regarding Value of FCI's and Flagstar's Assets........................................................... 10
Disruption of Operations Relating to Bankruptcy Filing............................................................... 10
Business and Competition............................................................................................. 10
Capital Requirements................................................................................................. 11
Holding Company Structure............................................................................................ 11
Dividend Restrictions................................................................................................ 11
Certain Federal Income Tax Considerations; Reduction and Limitation of Corporate Tax Benefits........................ 11
Certain Risks of Non-Confirmation.................................................................................... 12
Noncomparability of Historical Financial Information................................................................. 12
Seasonality.......................................................................................................... 12
Flagstar's Employees................................................................................................. 12
Economic, Market and Other Conditions................................................................................ 12
Importance of Locations.............................................................................................. 13
Government Regulations............................................................................................... 13
Restrictions on Resale of Securities of Reorganized Flagstar......................................................... 13
Lack of Trading Market; Volatility................................................................................... 13
THE PLAN OF REORGANIZATION............................................................................................. 14
Introduction......................................................................................................... 14
Overview of the Plan................................................................................................. 17
Treatment of Claims and Interests Under the Plan..................................................................... 19
Reorganized Flagstar................................................................................................. 28
Ownership of Stock by Certain Stockholders........................................................................... 28
Securities to be Issued and Transferred Under the Plan............................................................... 29
Other Indebtedness of Reorganized Flagstar........................................................................... 31
Distributions Under the Plan......................................................................................... 31
General Information Concerning the Plan.............................................................................. 34
Voting and Confirmation of the Plan.................................................................................. 41
Chapter 7 Liquidation Analysis....................................................................................... 46
Compliance with Applicable Provisions of the Bankruptcy Code......................................................... 51
Alternatives if the Plan is Not Confirmed and Consummated............................................................ 51
Recommendation and Conclusion........................................................................................ 52
SELECTED HISTORICAL FINANCIAL DATA..................................................................................... 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................................................................ 55
Results of Operations................................................................................................ 55
Liquidity and Capital Resources...................................................................................... 68
PRO FORMA FINANCIAL STATEMENTS......................................................................................... 72
PROJECTED FINANCIAL INFORMATION........................................................................................ 80
MARKET AND TRADING INFORMATION......................................................................................... 87
BUSINESS............................................................................................................... 89
Restaurants.......................................................................................................... 89
Competition.......................................................................................................... 95
Government Regulations............................................................................................... 95
Environmental Matters................................................................................................ 96
Properties........................................................................................................... 96
Employees............................................................................................................ 97
Legal Proceedings.................................................................................................... 98
MANAGEMENT............................................................................................................. 99
Directors of FCI and Flagstar........................................................................................ 99
Executive Officers of FCI and Flagstar............................................................................... 100
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
MANAGEMENT COMPENSATION................................................................................................ 101
Summary Compensation Table........................................................................................... 101
Stock Options........................................................................................................ 102
Retirement Plans..................................................................................................... 103
Employment Agreements................................................................................................ 104
Compensation and Benefits Committee Interlocks and Insider Participation............................................. 106
Compensation of Directors............................................................................................ 107
OWNERSHIP OF CAPITAL SECURITIES........................................................................................ 107
The Stockholders' Agreement.......................................................................................... 108
Adamson Shareholder Agreement........................................................................................ 109
CERTAIN TRANSACTIONS................................................................................................... 109
DESCRIPTION OF INDEBTEDNESS............................................................................................ 109
Existing Flagstar Indebtedness....................................................................................... 109
New Reorganized Flagstar Indebtedness................................................................................ 112
Mortgage Financings.................................................................................................. 114
The FRI-M Credit Facility............................................................................................ 114
The FRD Senior Notes................................................................................................. 115
DESCRIPTION OF OLD EQUITY SECURITIES................................................................................... 115
Old FCI Common Stock................................................................................................. 115
Old FCI Preferred Stock.............................................................................................. 116
DESCRIPTION OF NEW SENIOR NOTES........................................................................................ 117
General.............................................................................................................. 117
Optional Redemption.................................................................................................. 117
Certain Definitions.................................................................................................. 118
Certain Covenants.................................................................................................... 123
Events of Default and Remedies....................................................................................... 129
Recourse Against Officers, Directors and Stockholders................................................................ 130
Transfer and Exchange................................................................................................ 130
Defeasance........................................................................................................... 130
Modification of Indenture............................................................................................ 131
Concerning the Trustee............................................................................................... 131
Certain Differences between the New Senior Notes and the Old Senior Notes............................................ 131
DESCRIPTION OF NEW COMMON STOCK........................................................................................ 136
General.............................................................................................................. 136
Registration Rights of Affiliates.................................................................................... 136
DESCRIPTION OF NEW WARRANTS............................................................................................ 137
General.............................................................................................................. 137
Adjustments.......................................................................................................... 138
Amendment............................................................................................................ 138
Governing Law........................................................................................................ 138
Reports.............................................................................................................. 139
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.............................................................................. 139
Federal Income Tax Consequences to FCI and Flagstar.................................................................. 139
Federal Income Tax Consequences to Holders of Old Senior Notes....................................................... 140
Federal Income Tax Consequences to Holders of Senior Subordinated Debentures and Junior Subordinated Debentures...... 142
Federal Income Tax Consequences to Holders of Old FCI Preferred Stock................................................ 143
Federal Income Tax Consequences to Holders of Old FCI Common Stock................................................... 143
Federal Income Tax Consequences to Holders of Old Warrants........................................................... 144
Accrued Interest..................................................................................................... 144
Backup Withholding................................................................................................... 144
LEGAL MATTERS.......................................................................................................... 145
EXPERTS................................................................................................................ 145
INDEX TO FINANCIAL STATEMENTS.......................................................................................... F-1
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
Exhibit I Joint Plan of Reorganization of Flagstar Companies, Inc. and Flagstar Corporation Under Chapter 11 of the
Bankruptcy Code........................................................................................ I-1
</TABLE>
v
<PAGE>
GLOSSARY
Set forth below is a list of certain defined terms used herein and the page
of this Prospectus on which each such term is defined. Certain additional
defined terms not set forth below but used in this Prospectus shall have the
meanings assigned to them in the Plan, which is attached hereto as Exhibit I.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Acquisition Indebtedness.................... 118
Ad Hoc Debentureholders Committee........... ii
Adamson Employment Agreement................ 104
Adamson Option.............................. 105
Adamson Shareholder Agreement............... 109
Adjusted Consolidated Net Worth............. 118
Administrative Claim........................ 24
Advance..................................... 110
Affiliate................................... 118
Asset Sale.................................. 126
Asset Segment............................... 118
Associates.................................. 1
Associates Registrable Securities........... 108
Average Compensation........................ 104
Bankruptcy Code............................. ii
Borrower.................................... 114
Business Segment............................ 118
Capital Stock............................... 118
Cash Equivalents............................ 118
Cash Interest Expense....................... 110
CDGP........................................ 107
CD Associates............................... 107
Change of Control........................... 129
Change of Control Date...................... 128
Change of Control Offer..................... 129
Chase....................................... 2
Class 7..................................... 22
Code........................................ 11, 119
COI......................................... 139
Commission.................................. iii
Company..................................... 1
Compensation................................ 104
Confirmation Date........................... 113
Consolidated Fixed Charges.................. 119
Consolidated Net Income..................... 119
Consolidated Net Worth...................... 119
Continuing Directors........................ 129
Controlled Corporation...................... 124
Controlled Corporation EBITDA Amount........ 119
covenant defeasance......................... 130
Credit Agent................................ 120
Credit Agreement............................ 2
December 13, 1996 Option Repricing.......... 102
Default..................................... 120
DIP Facility................................ 2
discharge................................... 130
Disqualified Stock.......................... 120
DLJ......................................... 2
EBITDA...................................... 69, 113,
111, 120
Effective Date.............................. cover
Equity Interests............................ 120
Exchange Act................................ iii
Exchange Debentures......................... 116
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Excluded Property........................... 120
Exercise Price.............................. 137
Existing Indebtedness....................... 120
Exit Facility............................... 2
Expiration Date............................. 7, 137
FCI......................................... cover
Filing...................................... 25
Fixed Charge Coverage Ratio................. 120
Flagstar.................................... cover
Flagstar Retirement Plan.................... 103
FRD......................................... 69
FRD Notes................................... 115
FRI......................................... 89
FRI-M....................................... 89
FRI-M Credit Facility....................... 114
FRI-M Revolver.............................. 114
FRI-M Term Loan............................. 114
Funded Debt................................. 111
Guarantors.................................. 112
H&G......................................... 14
HFS......................................... 91
HLHZ........................................ 5
Holder...................................... 7
Indebtedness................................ 120
Indenture................................... 5
Informal Senior Notes Committee............. 15
Information Agent........................... 45
Instruments................................. 32
Interest Rate Agreement..................... 121
Investment.................................. 121
ISSC........................................ 71
Junior Debentureholder Representative....... 15
Junior Subordinated Debentures.............. cover
KKR......................................... 1
KKR Partners II............................. 1
Letter Agreement............................ 14
Lien........................................ 121
Loan Party.................................. 115
loss corporation............................ 140
Maturity Date............................... 112
MBM......................................... 94
Merger...................................... 11
Monthly Fee................................. 25
Mortgage Financing(s)....................... 2, 121
Mortgage Financing Proceeds................. 121
Mortgage Refinancing........................ 121
Mortgage Refinancing Proceeds............... 121
Net Income.................................. 121
Net Proceeds................................ 121
Net Proceeds Offer.......................... 127
Net Proceeds Offer Amount................... 127
New Common Stock............................ cover
New Registration Rights Agreement........... 136
New Senior Notes............................ cover
</TABLE>
vi
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<TABLE>
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New Senior Notes Guarantee.................. 128
New Warrants................................ cover
NOLs........................................ 139
Non-Transaction Fees........................ 25
Note Payable to FCI......................... 3
Obligations................................. 122
Old Debt.................................... 7
Old Debt Exchanges.......................... 142
Old Equity Securities....................... 7
Old FCI Common Stock........................ cover
Old FCI Preferred Stock..................... cover
Old Securities.............................. 7
Old Senior Notes............................ cover
Old Warrants................................ 23
Operating Units............................. 50
Other Secured Claims........................ 20
Permitted Investments....................... 122
Petition Date............................... 1
PFC......................................... 54
Plan........................................ cover
Plan Participant............................ 37
POS......................................... 70
Potentially Affiliated Holder............... 136
Prepackaged Plan............................ 2
Prepayment Date............................. 113
Projections................................. 10
Proposed Regulations........................ 143
Restricted Payments......................... 123
PTF......................................... 54
Purchase Agreement.......................... 108
Recapitalization............................ 1
Record Date................................. 7
Refinancing Indebtedness.................... 125
Refunding Capital Stock..................... 124
Registration Statement...................... iii
Releasees................................... 37
Remaining Section 355 Amount................ 122
Reorganization Case......................... ii
Reorganized Flagstar........................ cover
Restricted Investments...................... 122
Restricted Subsidiaries..................... 111
Retainer Fee................................ 25
Retired Capital Stock....................... 124
Rolling Period.............................. 111, 115
<CAPTION>
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Ryback...................................... 108
Schedules................................... 39
Section 341 Meeting......................... 39
Section 355 Percentage...................... 122
Section 355 Transaction..................... 122
Section 382 Limitation...................... 140
Securities Act.............................. iii
Senior Indebtedness......................... 122
Senior Note Exchanges....................... 140
Senior Subordinated Debentures.............. cover
Senior Subordinated Indenture
Amendment................................. 4
Service..................................... 139
Significant Subsidiary...................... 122
Solicitation................................ cover
Solicitation Agent.......................... 45
Solicited Classes........................... ii
Specified Company EBITDA.................... 123
Statement................................... 39
Stockholder Parties......................... 108
Stockholders' Agreement..................... 108
Subject Person.............................. 119
Subordinated Indebtedness Guarantee......... 128
Subsidiary.................................. 123
Surplus Cash................................ 111
Tax Counsel................................. 139
Total Debt.................................. 111
Transaction................................. 25
Transaction Fee............................. 25
Trustee..................................... 5
TW Associates............................... 1
TWRS........................................ 53
Unrestricted Subsidiary..................... 111, 123
Voting Deadline............................. 44
VS.......................................... 53
Warrant Agent............................... 137
Warrant Agreement........................... 137
Warrant Shares.............................. 137
Weighted Average Life to Maturity........... 123
10 3/4% Senior Notes........................ cover
10 7/8% Senior Notes........................ cover
11.25% Debentures........................... cover
11 3/8% Debentures.......................... cover
1989 Option Plan............................ 102
</TABLE>
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO), APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED HEREIN, EXCEPT AS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"COMPANY" REFERS TO FCI, TOGETHER WITH FLAGSTAR AND ITS SUBSIDIARIES AND, AS
APPLICABLE FOR THE PERIOD FOLLOWING CONSUMMATION OF THE PLAN, REORGANIZED
FLAGSTAR AND ITS SUBSIDIARIES. UNLESS EXPRESSLY STATED OTHERWISE HEREIN, ALL
INFORMATION IN THIS PROSPECTUS RELATING TO THE REORGANIZATION IS PRESENTED BASED
ON THE ASSUMPTIONS SET FORTH IN "THE PLAN OF REORGANIZATION" AND THE PREAMBLE TO
"PRO FORMA FINANCIAL STATEMENTS."
THE SUMMARIES OF THE PLAN AND OTHER DOCUMENTS CONTAINED IN THIS PROSPECTUS
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN ITSELF, THE EXHIBITS
THERETO, AND ALL DOCUMENTS DESCRIBED HEREIN AND THEREIN. THE INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING THE INFORMATION REGARDING THE HISTORY,
BUSINESSES AND OPERATIONS OF FCI AND FLAGSTAR, THE HISTORICAL AND PROJECTED
FINANCIAL INFORMATION OF FCI AND FLAGSTAR (INCLUDING THE PROJECTED RESULTS OF
OPERATIONS OF REORGANIZED FLAGSTAR), AND THE LIQUIDATION ANALYSIS RELATING TO
FCI AND FLAGSTAR, IS INCLUDED HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF
THE PLAN. AS TO CONTESTED MATTERS, HOWEVER, SUCH INFORMATION IS NOT TO BE
CONSTRUED AS ADMISSIONS OR STIPULATIONS, BUT RATHER AS STATEMENTS MADE IN
SETTLEMENT NEGOTIATIONS.
THROUGHOUT THIS PROSPECTUS, THE COMPANY HAS ASSUMED JULY 31, 1997 TO BE THE
DATE OF THE FILING OF THE PETITION COMMENCING THE REORGANIZATION CASES (THE
"PETITION DATE") AND OCTOBER 1, 1997 TO BE THE EFFECTIVE DATE OF THE PLAN. THE
COMPANY INTENDS TO MOVE AS QUICKLY AS POSSIBLE TO SOLICIT ACCEPTANCES OF THE
PLAN, PRIOR TO THE PETITION DATE, AND TO OBTAIN CONFIRMATION OF THE PLAN. THE
ACTUAL PETITION DATE AND THE EFFECTIVE DATE MAY BE DIFFERENT THAN THE DATES
ASSUMED HEREIN.
THE COMPANY
FCI, through its wholly-owned subsidiary Flagstar, is one of the largest
restaurant companies in the United States, operating (directly and through
franchisees) more than 3,200 moderately priced restaurants.
Flagstar's operations are conducted through six restaurant chains or
concepts, four chains in the full-service mid-scale dining segment and two in
the quick-service segment. Denny's is the nation's largest chain of family-style
full-service restaurants, with almost 1,600 units in 49 states, two U.S.
territories and six foreign countries, with its largest domestic concentration
in California and Florida, with 531 units in these two states. Management
believes that Denny's has the leading share of the national market in the
family-style category. Quincy's, with 199 locations, is one of the largest
chains of family-steak restaurants in the southeastern United States. El Pollo
Loco is a chain of 241 quick-service restaurants featuring flame-broiled chicken
and steak products and related Mexican food items. Coco's is a regional bakery
restaurant chain operating 466 units in seven western states and two foreign
countries, offering a wide variety of fresh-baked goods and value priced meals
that capitalize on emerging food trends in the western United States. The
Carrows chain, consisting of 160 units in seven western states, specializes in
traditional American food, with emphasis on quality, homestyle fare at an
excellent value. Hardee's is a chain of quick-service restaurants of which
Flagstar, with 580 units located primarily in the Southeast, is the largest
franchisee. Although specializing in sandwiches, Flagstar's Hardee's restaurants
serve fried chicken and offer a breakfast menu that accounts for approximately
44% of total sales and features the chain's famous "made-from-scratch" biscuits.
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.
FCI is a holding company that was organized in Delaware in 1988 in order to
effect the acquisition of Flagstar in 1989. In 1992, FCI and Flagstar
consummated the principal elements of a recapitalization (the
"Recapitalization"), as a result of which two partnerships affiliated with
Kohlberg, Kravis, Roberts & Co. ("KKR"), TW Associates, L.P. ("TW Associates")
and KKR Partners II, L.P. ("KKR Partners II" and, together with TW Associates,
"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.
The Company's principal executive offices are located at 203 East Main
Street, Spartanburg, South Carolina 29319-9966. Its telephone number is (864)
597-8000.
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<PAGE>
THE PLAN OF REORGANIZATION
As further described elsewhere herein, the Company's management has
concluded, in light of operating trends experienced by the Company since 1989
(and continuing through 1996 and into 1997) and the Company's liquidity and
capital needs, that the reorganizational alternative best designed to
recapitalize the Company's enterprise over the long-term and maximize the
recovery of all stakeholders is through a prepackaged plan pursuant to Chapter
11 of the Bankruptcy Code (a "Prepackaged Plan"). Toward that end, in January
1997, FCI and Flagstar hired Donaldson, Lufkin and Jenrette Securities
Corporation ("DLJ") to serve as their financial advisor and, beginning in
February 1997, commenced intensive negotiations with various creditors
(including with respect to the Senior Subordinated Debentures, the Ad Hoc
Debentureholders Committee) in an effort to enable the Company to restructure
its indebtedness through such a prepackaged filing. The Plan, the principal
terms of which were announced by FCI and Flagstar on March 17, 1997, represents
the results of such negotiation and effort. For additional information
concerning the events leading to FCI's and Flagstar's development of the Plan,
and the role of the Ad Hoc Debentureholders Committee therein, see "The Plan of
Reorganization -- Introduction."
The purpose of the Plan is to effect a reorganization of the capital
structure of FCI and Flagstar through a prepackaged Chapter 11 bankruptcy filing
with a view to enabling Reorganized Flagstar to continue as a going concern with
adequate capitalization. FCI and Flagstar believe that their stakeholders will
derive greater benefit from their continued operation following the
reorganization proposed herein than from a liquidation or orderly sale of its
businesses or assets. Accordingly, the Plan is designed to ensure Reorganized
Flagstar's long-term financial stability and economic viability for the benefit
of all stakeholders. FCI and Flagstar desire to implement their reorganization
without causing any of Flagstar's operating subsidiaries to commence their own
bankruptcy proceedings. The obligations of the Company's subsidiaries
(including, without limitation, the Company's 10.25% Guaranteed Secured Bonds
due 2000, the Company's 11.03% Notes due 2000 (collectively, the "Mortgage
Financings"), all capital lease obligations and miscellaneous notes) will be
unaffected by the Plan.
As of April 2, 1997, the Company had total indebtedness outstanding of
$2,227.7 million. As a result of the Plan, certain of this debt will be
impaired. Debt which will remain unimpaired based on amounts outstanding at
April 2, 1997 consist of (i) the Mortgage Financings and other secured debt
($366.8 million), (ii) the FRI-M Term Loan (as defined below) ($46.4 million),
(iii) the FRD Notes (as defined below) ($156.9 million), and (iv) capital lease
obligations ($161.0 million). If the Plan is consummated, debt with a principal
balance at April 2, 1997 of $946.7 million will be converted to equity resulting
in a remaining balance of $1,281.0 million (based on April 2, 1997 amounts).
The Company proposes the basis of the Plan be a merger of FCI and Flagstar
and a complete conversion to common equity of Flagstar's Senior Subordinated
Debentures, Junior Subordinated Debentures and Old FCI Preferred Stock. Other
material features of the Plan are summarized below.
<TABLE>
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Senior Secured Indebtedness........................... Flagstar's secured guarantee of the obligations under the Second
Amended and Restated Credit Agreement, dated as of April 10, 1996,
among TWS Funding, Inc., as borrower, Flagstar, certain lenders and
co-administrative agents named therein, and Citibank, N.A., as
funding agent (as amended from time to time through March 7, 1997,
the "Credit Agreement"), will be refinanced by the DIP Facility (as
defined below).
The Company has entered into written commitment letters pursuant to
which it has received commitments from The Chase Manhattan Bank
("Chase") for (i) a $200 million debtor-in-possession revolving
credit facility (the "DIP Facility"), which facility will be used to
refinance the Credit Agreement and otherwise be available during the
pendency of the Reorganization Cases (until the earlier to occur of
(x) the date that is one year after the commencement of the
Reorganization Cases and (y) the substantial consummation of the
Plan), for working capital advances and letters of credit, and (ii) a
$200 million senior secured revolving credit facility (the "Exit
Facility") for the benefit of the Company's operating subsidiaries,
which facility will refinance the DIP Facility upon the emergence of
Reorganized Flagstar from the Reorganization Cases and be used
thereafter for working capital advances and letters of credit. The
Exit Facility will have a maturity five (5) years from the date of
Reorganized Flagstar's emergence from Chapter 11 (subject to earlier
termination of commitments in certain events). The closing of each of
the DIP Facility and the Exit Facility is subject, among
</TABLE>
2
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<TABLE>
<S> <C>
other conditions, to negotiation of definitive agreements with Chase,
and in the case of the Exit Facility, the initial borrowing
thereunder having been made on or before the earlier of July 31, 1998
and the date that is twelve months after the date on which FCI and
Flagstar commence the Reorganization Cases. For additional
information concerning the DIP Facility and the Exit Facility, see
"Description of Indebtedness -- New Reorganized Flagstar
Indebtedness."
Old Senior Notes...................................... Flagstar's 10 3/4% Senior Notes due 2001 and 10 7/8% Senior Notes due
2002 (including principal and accrued interest, subject to the right
of Reorganized Flagstar to pay cash for interest accrued through the
Effective Date) will be converted into 11 1/4% Senior Notes due 2007
representing 100% of the principal amount of the New Senior Notes to
be outstanding as of the Effective Date; provided, however, that if
the Class of Holders of Old Senior Notes does not consent to the
Plan, the Old Senior Notes shall either be, in the sole discretion of
Reorganized Flagstar, unimpaired (with no change to the interest
rates, maturity dates or other terms or provisions of the Old Senior
Notes) or exchanged for New Senior Notes which will bear interest at
a rate which the Bankruptcy Court finds appropriate under the
cramdown provisions of 11 U.S.C. (section mark) 1129(b) (with a
maturity date and having other terms and provisions set forth herein
for the New Senior Notes). See "Description of New Senior Notes."
Senior Subordinated Debentures........................ Flagstar's 11.25% Senior Subordinated Debentures due 2004 and the
11 3/8% Senior Subordinated Debentures due 2003 will be converted
into the right to receive 95.5% of the New Common Stock to be
outstanding as of the Effective Date. See "Description of New Common
Stock."
Junior Subordinated Debentures........................ Flagstar's 10% Convertible Junior Subordinated Debentures due 2014
will be converted into the right to receive 3.25% of the New Common
Stock to be outstanding as of the Effective Date.
Old FCI Preferred Stock............................... FCI's $2.25 Series A Cumulative Convertible Exchangeable Preferred
Stock will be converted into the right to receive 1.25% of the New
Common Stock to be outstanding as of the Effective Date. The $150
million subordinated promissory note dated as of July 28, 1992 made
by Flagstar to FCI (the "Note Payable to FCI") relating to the Old
FCI Preferred Stock will be cancelled and receive no distribution
pursuant to the Plan.
Old FCI Common Stock.................................. Each share of FCI's $.50 par value Common Stock outstanding at the
time the Reorganization Cases are filed will be converted into the
right to receive a pro rata portion of the New Warrants. The New
Warrants will represent 7% of the New Common Stock to be outstanding
as of the Effective Date, on a fully diluted basis, and will have a
five year maturity and a per share exercise price of $21.19. See
"Description of New Warrants."
Old Warrants and Options.............................. The currently outstanding warrants and options to purchase Old FCI
Common Stock will be cancelled and receive no distribution pursuant
to the Plan.
</TABLE>
<TABLE>
<CAPTION>
FOR EACH $1,000 PRINCIPAL AMOUNT
OR SHARE, AS APPLICABLE, OF: EACH HOLDER WILL RECEIVE:
<S> <C>
Old Senior Notes
10 3/4% Senior Notes................................ $1,058 in principal amount (representing principal and accrued
interest estimated as of October 1, 1997) in 11 1/4% Senior Notes due
2007 or, at the Company's option, $1,000 in principal amount of
11 1/4% Senior Notes due 2007 and $58 in cash.
10 7/8% Senior Notes................................ $1,036 in principal amount (representing principal and accrued
interest estimated as of October 1, 1997) in 11 1/4% Senior Notes due
2007 or, at the Company's option, $1,000 in principal amount of
11 1/4% Senior Notes due 2007 and $36 in cash.
</TABLE>
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<TABLE>
<S> <C>
Senior Subordinated Debentures
11.25% Debentures................................... 44.986 shares of New Common Stock.
11 3/8% Debentures.................................. 45.614 shares of New Common Stock.
Junior Subordinated Debentures........................ 13.097 shares of New Common Stock.
Old FCI Preferred Stock............................... 0.079365 shares of New Common Stock.
Old FCI Common Stock.................................. New Warrants to purchase 0.07095 shares of New Common Stock.
</TABLE>
OTHER TERMS OF THE PLAN
Under the terms of the Plan (but subject to the agreements to be made by
Holders (as defined below) of Senior Subordinated Debentures described in the
following paragraph), (i) in the event that the Holders of Junior Subordinated
Debentures do not accept the Plan, then each Holder of Senior Subordinated
Debentures will also be entitled to receive its pro rata share of the 4.50% of
the New Common Stock that would otherwise have been distributed to Holders of
Junior Subordinated Debentures and Old FCI Preferred Stock and its pro rata
share of the New Warrants that would otherwise have been distributed to Holders
of the Old FCI Common Stock, and (ii) in the event that the Holders of the Old
FCI Preferred Stock do not accept the Plan but the Holders of Junior
Subordinated Debentures accept the Plan, then each Holder of Senior Subordinated
Debentures will also be entitled to receive its pro rata share of the 1.25% of
the New Common Stock that would otherwise have been distributed to the Holders
of the Old FCI Preferred Stock and will be entitled to receive its pro rata
share of the New Warrants that would otherwise have been distributed to Holders
of the Old FCI Common Stock, and (iii) in the event that Holders of the Old FCI
Common Stock do not accept the Plan but Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock accept the Plan, then each Holder of
Senior Subordinated Debentures will also be entitled to receive its pro rata
share of the New Warrants that would otherwise have been distributed to Holders
of the Old FCI Common Stock.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures will be asked to consent to an amendment to the
indentures governing the Senior Subordinated Debentures (collectively, the
"Senior Subordinated Indenture Amendment") which will effect the redistribution
of the Plan consideration to which such Holders are entitled if either or both
of the Classes of Holders of Junior Subordinated Debentures and Holders of Old
FCI Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Senior Subordinated Indenture
Amendment, (i) if the Holders of the Junior Subordinated Debentures do not
accept the Plan but the Holders of the Old FCI Preferred Stock accept the Plan,
Holders of the Old FCI Preferred Stock will receive New Common Stock
representing 1.25% of the New Common Stock of Reorganized Flagstar, and (ii) if
the Holders of Junior Subordinated Debentures or the Holders of the Old FCI
Preferred Stock do not accept the Plan but Holders of the Old FCI Common Stock
accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Senior Subordinated
Indenture Amendment with respect to either one of the indentures governing a
portion of the Senior Subordinated Debentures that such Senior Subordinated
Indenture Amendment also be approved and effective with respect to the other
such indenture.)
Also as part of the Plan, the management of Reorganized Flagstar will
participate in a new management incentive program described further in
"Management Compensation -- Employment Agreements -- Post-Petition Employment
Arrangements." It is anticipated that the Board of Directors of Reorganized
Flagstar will consist of seven members, including James B. Adamson, as Chairman,
and whose composition will otherwise be determined at or prior to the
Confirmation Hearing. Officers, directors, stockholders, the Ad Hoc
Debentureholders Committee and Designated Professionals (as defined in the Plan)
will receive broad releases and indemnification under the Plan. Reorganized
Flagstar will use its best efforts to list the New Common Stock on the New York
Stock Exchange or NASDAQ National Market. The Company has agreed to provide to
all holders of 10% or more of the New Common Stock certain registration rights
permitting such holders to have Reorganized Flagstar register under the
Securities Act certain resales of the New Common Stock. See "Description of New
Common Stock -- Registration Rights of Affiliates."
Under the Plan, senior secured claims and general unsecured claims
(excluding Claims of Holders of the Old Senior Notes, the Senior Subordinated
Debentures and Junior Subordinated Debentures) will be reinstated in full on the
Effective Date, and thus are unimpaired. Upon filing for relief under Chapter 11
of the Bankruptcy Code, FCI and Flagstar will seek an order permitting FCI or
Flagstar, as applicable, to pay currently the claims of those trade creditors
who provide FCI or
4
<PAGE>
Flagstar, as applicable, with customary trade terms. See "The Plan of
Reorganization -- Overview of the Plan", " -- Securities to be Issued and
Transferred Under the Plan" and " -- Distributions Under the Plan," together
with the other information regarding the foregoing and related matters contained
elsewhere in this Prospectus.
FCI and Flagstar presently intend to seek to consummate the Plan and to
cause the Effective Date to occur on or about October 1, 1997. There can be no
assurance, however, as to when the Effective Date actually will occur.
Procedures for the distribution of securities pursuant to the Plan, including
matters that are expected to affect the timing of the receipt of distributions
by Holders and that could affect the amount of distributions ultimately received
by such Holders, are described in "The Plan of Reorganization -- Distributions
Under the Plan."
In certain circumstances, the Holders of Junior Subordinated Debentures,
Old FCI Preferred Stock and Old FCI Common Stock may receive nothing under the
Plan. See "The Plan of Reorganization -- Voting and Confirmation of the Plan --
Acceptance or Cramdown."
Directors, executive officers and affiliates of FCI and Flagstar and
holders of 5% or more of the Old FCI Common Stock, to the knowledge of the
Company, hold no Old Senior Notes, Senior Subordinated Debentures, Junior
Subordinated Debentures or Old FCI Preferred Stock. Such persons hold
approximately 67% of the outstanding Old FCI Common Stock and are generally
expected to vote in favor of the Plan.
In making an investment decision, Solicited Classes must rely on their own
examination of FCI and Flagstar and the terms of the reorganization, including
the merits and risks involved. Each Solicited Class should consult with its own
legal, business, financial and tax advisors with respect to any such matters
concerning this Prospectus, this Solicitation, the Plan and the transactions
contemplated hereby and thereby.
The Boards of Directors of FCI and Flagstar did not seek or obtain an
opinion with respect to the Plan from any financial advisor but were assisted in
formulating the terms of the Plan and negotiating the Plan with creditors by
DLJ.
The Ad Hoc Debentureholders Committee was assisted in analyzing and
negotiating the Plan with the Company by Houlihan Lokey Howard & Zukin ("HLHZ").
The Ad Hoc Debentureholders Committee did not seek or obtain any opinion from
HLHZ.
See "The Plan of Reorganization -- Introduction" for information concerning
discussions between the Company's management and their advisors with
representatives of an informal committee of Holders of Old Senior Notes and a
representative of certain Holders of Junior Subordinated Debentures.
THE NEW SECURITIES
NEW SENIOR NOTES
<TABLE>
<S> <C>
Issuer................................................ Reorganized Flagstar.
Aggregate Principal Amount; Interest.................. $575.9 million (assuming an October 1, 1997 Effective Date and
assuming Reorganized Flagstar does not pay cash for interest accrued
through the Effective Date) aggregate principal amount of 11 1/4%
Senior Notes due 2007, to be issued under an Indenture (the
"Indenture") to be dated as of the Effective Date, between
Reorganized Flagstar and First Trust National Association, as trustee
(the "Trustee"), to holders of the Old Senior Notes.
Interest Payment Dates................................ On the six month anniversary of the Effective Date and semi-annually
thereafter.
Maturity Date......................................... The ten year anniversary of the Effective Date.
Optional Redemption................................... The New Senior Notes may not be redeemed prior to the five year
anniversary of the Effective Date. After the five year anniversary of
the Effective Date, the New Senior Notes will be redeemable, in whole
or in part, at 105.625% of their principal amount, at decreasing
amounts thereafter to and including the eight year anniversary of the
Effective Date, and thereafter at 100% of their principal amount,
together in each case with accrued interest. Notwithstanding the
foregoing, from the Effective Date until the three year anniversary
of the Effective Date, Reorganized Flagstar may redeem up to 35% of
the aggregate principal amount of New Senior Notes, at a redemption
price of 110%, plus accrued and
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
unpaid interest, if any, to the redemption date, from the net
proceeds of any public offering for cash of any equity security of
Reorganized Flagstar or any subsidiary thereof.
Ranking............................................... The New Senior Notes will be senior unsecured obligations of
Reorganized Flagstar and will rank PARI PASSU in right of payment
with all Senior Indebtedness (as defined in the Indenture) and will
be senior to all existing (if any) and future subordinated
indebtedness of Reorganized Flagstar.
Covenants............................................. The Indenture will contain covenants that, among other things, will
limit the ability of Reorganized Flagstar to incur additional
indebtedness, pay dividends or make other distributions, make certain
loans and investments, enter into asset sales (and use the proceeds
thereof), create liens, enter into certain transactions with
affiliates, merge, consolidate or transfer substantially all its
assets or make investments in unrestricted subsidiaries. The
Indenture will also grant holders of New Senior Notes certain "put"
rights upon a Change of Control (as defined) of the Company. For
additional information, see "Description of New Senior Notes."
NEW COMMON STOCK...................................... For information concerning the New Common Stock, see "Description of
New Common Stock."
NEW WARRANTS.......................................... For information concerning the New Warrants, see "Description of New
Warrants."
</TABLE>
CERTAIN RISK FACTORS
Prior to deciding whether to vote in favor of the Plan, Holders of Claims
and Interests in the Solicited Classes should consider carefully all of the
information contained in this Prospectus, especially the factors mentioned in
the following paragraph and more fully described in "Certain Risk Factors."
Holders should consider that: (i) the Company is now highly leveraged and,
although completion of the reorganization proposed herein will significantly
reduce the Company's debt obligations, the Company will still have a substantial
amount of indebtedness after the reorganization; (ii) consummation of each of
the DIP Facility and the Exit Facility to provide working capital and letter of
credit financing during the pendency of the Reorganization Cases and thereafter
is subject to material conditions, including the negotiation of definitive
agreements; (iii) the projections contained herein are inherently uncertain and,
although considered reasonable by management as of the date hereof, are subject
to significant risks that could cause actual results to differ materially from
those projected; (iv) although the projections contained herein assume
Reorganized Flagstar will generate funds sufficient to meet its capital
expenditure needs for the foreseeable future, the ability of Reorganized
Flagstar to gain access to additional capital, if needed, cannot be assured; (v)
there are several risks associated with the filing of a Prepackaged Plan,
including, among others, disruption of business operations and the risk of
non-confirmation of the Plan by the Bankruptcy Court; (vi) upon consummation of
the Plan and the transactions contemplated thereby, the financial conditions and
operating results of Reorganized Flagstar may not be comparable to that
reflected in FCI's and Flagstar's historical financial statements; (vii) the
Company's restaurant operations are subject to substantial competition from a
variety of national, regional and local restaurant companies, some of which have
substantially greater financial resources than the Company; (viii) the Company's
restaurant operations are subject to changes in consumer tastes, national,
regional and local economic conditions and demographic trends; and (ix) there is
no existing market for the New Senior Notes, the New Common Stock or the New
Warrants and no assurance that one will develop following the reorganization.
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SOLICITATION
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Record Date................... May 23, 1997 has been fixed as the record date (the "Record Date") for determining the
members of Solicited Classes entitled to vote on the Plan.
Expiration Date............... The Ballots must be received by the Information Agent (as defined herein) at 5:00 P.M.,
Eastern Time, on , 1997, (twenty (20) business days after the mailing of the
Solicitation to Holders) (the "Expiration Date"), unless the Expiration Date is extended, in
which case the term "Expiration Date" shall mean the last date to which such solicitation is
extended. FCI and Flagstar will notify the Information Agent of any extension by oral or
written notice and will make a public announcement thereof, prior to 9:00 a.m., Eastern Time,
on the next business day after the previously scheduled expiration date. See "The Plan of
Reorganization -- Voting and Confirmation of the Plan."
Holder........................ The term "Holder" with respect to a vote on the Plan means a beneficial holder of Old Senior
Notes, Senior Subordinated Debentures, Junior Subordinated Debentures, Old FCI Preferred
Stock and Old FCI Common Stock on the Record Date. The term "Holder" with respect to other
Claims and Interests means the person in possession of such Claim or Interest.
How to Vote for the Plan...... Holders of Claims and Interests in Solicited Classes who elect to vote on the Plan should
complete and sign the Ballot (as defined in the Plan) in accordance with the instructions
thereon, being sure to check the appropriate box entitled "Accept the Plan" or "Reject the
Plan." See "The Plan of Reorganization -- Voting and Confirmation of the Plan -- Voting
Procedures and Requirements."
The applicable duly completed Ballot or Master Ballot (as defined in the Plan) must be mailed
or delivered to the Information Agent at the address set forth on the back cover page of this
Prospectus in order to be counted. Requests for additional copies of Ballots and Master
Ballots should be directed to the Company in writing or the Information Agent.
IT IS IMPORTANT THAT ALL HOLDERS OF CLAIMS AND INTERESTS IN THE SOLICITED CLASSES VOTE TO
ACCEPT OR REJECT THE PLAN. THE BANKRUPTCY CODE PROVIDES THAT ONLY HOLDERS WHO VOTE WILL BE
COUNTED FOR PURPOSES OF DETERMINING WHETHER THE REQUISITE ACCEPTANCES HAVE BEEN RECEIVED.
FAILURE BY A HOLDER TO DELIVER A DULY COMPLETED AND SIGNED BALLOT WILL BE DEEMED TO
CONSTITUTE AN ABSTENTION BY SUCH HOLDER AND WILL NOT BE COUNTED AS A VOTE FOR OR AGAINST THE
PLAN.
Special Procedures for
Holders of Old Securities..... ONLY BENEFICIAL OWNERS (OR THEIR AUTHORIZED SIGNATORY) OF THE OLD SENIOR NOTES, THE SENIOR
SUBORDINATED DEBENTURES AND THE JUNIOR SUBORDINATED DEBENTURES (COLLECTIVELY, THE "OLD DEBT")
AND THE OLD FCI PREFERRED STOCK AND THE OLD FCI COMMON STOCK (COLLECTIVELY, THE "OLD EQUITY
SECURITIES" AND TOGETHER WITH THE OLD DEBT, THE "OLD SECURITIES") ARE ELIGIBLE TO VOTE ON THE
PLAN. A brokerage firm, commercial bank, trust company, or other nominee which is the
registered holder of Old Securities for a beneficial owner can only vote on behalf of such
beneficial owner by (i) distributing a copy of this Prospectus and a Ballot to each such
owner, (ii) collecting all such completed and executed Ballots, (iii) completing a Master
Ballot compiling the votes and other information from the Ballots collected, and (iv)
transmitting such completed Master Ballot to the Information Agent. A proxy intermediary
acting on behalf of a brokerage firm or bank may follow the procedures outlined in the
preceding sentence to vote on behalf of such beneficial owner. A brokerage firm, commercial
bank, trust company or other nominee which is the registered holder of Old Securities for
only one beneficial owner also may arrange for such beneficial owner to vote by executing the
appropriate Ballot and by distributing a copy of the Prospectus and such executed Ballot to
such beneficial owner for voting and returning such Ballot to the Information Agent.
Any beneficial owner holding Old Securities in his or her own name can vote on the Plan by
completing and signing the enclosed Ballot and returning it directly to the Information
Agent. Any beneficial owner holding Old Securities in "street name" (I.E., through a
brokerage firm, bank, trust company or other nominee) or such beneficial owner's authorized
signatory can vote by (i) completing the applicable information on the Ballot, (ii) signing
the Ballot (unless already signed by the bank, trust company or other nominee), and (iii)
returning the Ballot in the enclosed envelope. See "The Plan of Reorganization -- Voting and
Confirmation of the Plan -- Voting Procedures and Requirements."
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Amendments to Indentures for
Senior Subordinated
Debentures.................... The Ballot solicited from the Holders of Senior Subordinated Debentures includes a consent to
the Senior Subordinated Debenture Amendment to permit certain junior classes to receive a
distribution of Plan consideration even though Holders of the Junior Subordinated Debentures
or Holders of the Old FCI Preferred Stock have not accepted the Plan. See "Prospectus
Summary -- The Plan of Reorganization -- Other Terms of the Plan" and "The Plan of
Reorganization -- Treatment of Claims and Interests Under the Plan." The consent of both a
majority of the outstanding principal amount of the 11.25% Debentures and a majority of the
outstanding principal amount of the 11 3/8% Debentures is required to amend the indentures
for the Senior Subordinated Debentures.
Further Information........... For further information generally, contact Kissel-Blake Inc., 110 Wall Street, New York, New
York 10005. Telephone: (212) 344-6733 (banks and brokers) or (800) 554-7733 (all others).
</TABLE>
This Prospectus contains projected financial information regarding FCI,
Flagstar and their operating subsidiaries and regarding Reorganized Flagstar
following the effectiveness of the Plan and certain other forward-looking
statements, all of which are based on various estimates and assumptions believed
by management to be reasonable. Such information and statements are subject to
inherent uncertainties and to a wide variety of significant business, economic
and competitive risks, including, among others, those described herein. See
"Certain Risk Factors." Consequently, actual events, circumstances, effects and
results may vary significantly from those included in or contemplated by such
projected financial information and such other forward-looking statements. The
projected financial information contained herein, therefore, is not necessarily
indicative of the future financial condition or results of operations of
Reorganized Flagstar, which may vary significantly from those set forth in such
projected financial information. Consequently, the projected financial
information contained herein should not be regarded as a representation by FCI
or Flagstar, FCI's or Flagstar's advisors or any other person that the projected
condition or results can or will be achieved.
Forward-looking statements provided by FCI and Flagstar herein pursuant to
the safe harbor established under the Private Securities Litigation Reform Act
of 1995 should be evaluated in the context of the estimates, assumptions,
uncertainties and risks described herein.
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CERTAIN RISK FACTORS
THE NEW SENIOR NOTES, THE NEW COMMON STOCK AND THE NEW WARRANTS TO BE
ISSUED PURSUANT TO THE PLAN ARE SUBJECT TO A NUMBER OF MATERIAL RISKS, INCLUDING
THOSE ENUMERATED BELOW. THE RISK FACTORS ENUMERATED BELOW (OTHER THAN THOSE
DESCRIBED IN " -- RISKS RELATING TO THE DIP FACILITY AND EXIT FACILITY" AND
" -- CERTAIN RISKS OF NON-CONFIRMATION" GENERALLY ASSUME THE CONFIRMATION AND
CONSUMMATION OF THE PLAN AND ALL TRANSACTIONS CONTEMPLATED THEREBY, AND, EXCEPT
AS INDICATED, DO NOT GENERALLY INCLUDE MATTERS THAT COULD PREVENT OR DELAY
CONFIRMATION. SEE "THE PLAN OF REORGANIZATION -- TREATMENT OF CLAIMS AND
INTERESTS UNDER THE PLAN -- CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN" AND " -- VOTING AND CONFIRMATION OF THE PLAN" FOR A
DISCUSSION OF SUCH MATTERS. PRIOR TO DECIDING WHETHER AND HOW TO VOTE ON THE
PLAN, EACH HOLDER OF A CLAIM OR INTEREST IN A SOLICITED CLASS SHOULD CAREFULLY
CONSIDER ALL OF THE INFORMATION CONTAINED IN THIS PROSPECTUS, ESPECIALLY THE
FACTORS MENTIONED IN THE FOLLOWING PARAGRAPHS.
HIGHLY LEVERAGED POSITION
The Company is now highly leveraged and although the reorganization will
significantly reduce the Company's debt obligations, the Company will still have
substantial indebtedness and debt service requirements, both in absolute terms
and in relation to shareholders' equity. At April 2, 1997, the Company had
indebtedness of $2,227.7 million and a shareholders' deficit of $(1,279.3)
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 to the Consolidated Financial Statements of
the Company appearing elsewhere in this Prospectus. After giving effect to the
reorganization, the Company's estimated aggregate indebtedness would total
approximately $1,318.8 million and shareholders' equity would be $379.1 million.
See "Pro Forma Financial Statements."
The Company's management believes that, based on its forecasts, the Company
will have sufficient operating cash flow from operations (together with funds
available under a working capital and letter of credit bank facility) to pay
interest and scheduled amortization on all of its outstanding indebtedness and
to fund anticipated capital expenditures through 1999, after giving effect to
the reorganization. See "Pro Forma Financial Statements." However, even if the
reorganization is completed, the Company's ability to meet its debt service
obligations will depend on a number of factors, including management's ability
to maintain operating cash flow, and there can be no assurance that targeted
levels of operating cash flow will actually be achieved. The Company's ability
to maintain or increase operating cash flow will depend upon consumer tastes,
the success of marketing initiatives and other efforts by the Company to
increase customer traffic in its restaurants, the success of the Company in
obtaining advantageous commercial real estate sites suitable for restaurants,
prevailing economic conditions and other factors, many of which are beyond the
control of the Company.
The Company's highly leveraged position may limit its ability to obtain
additional financing in the future on terms and subject to conditions deemed
acceptable by Company management. Even after the reorganization, a substantial
portion of its cash flow from operations must be dedicated to the payment of
interest and principal on outstanding debt. The agreements governing that debt
will impose significant operating and financial restrictions on the Company.
Futhermore, because the Company's Mortgage Financings, which at April 2, 1997
amounted to approximately $350 million in aggregate principal amount
outstanding, will remain outstanding following the reorganization (of which
approximately $312.5 million will mature in the year 2000), the Company will be
required, even after the reorganization, to refinance the Mortgage Financings.
The Company's highly leveraged position may limit its ability to do so on
acceptable terms. See "The Plan of Reorganization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 4 to the Consolidated Financial Statements of the
Company appearing elsewhere in this Prospectus.
RISKS RELATING TO THE DIP FACILITY AND EXIT FACILITY
The Company has entered into written commitment letters pursuant to which
it has received commitments from Chase for a $200 million debtor-in-possession
revolving credit facility covering the pendency of the Reorganization Cases
(until the earlier to occur of (x) the date that is one year after the
commencement of the Reorganization Cases and (y) the substantial consummation of
the Plan) and a $200 million senior secured revolving credit facility for the
benefit of the operating subsidiaries of Reorganized Flagstar from and after the
Effective Date. Consummation of the DIP Facility is regarded as critical to the
operation of the Company during the pendency of the Reorganization Cases, and
consummation of Exit Facility is regarded as critical to the successful
emergence of Reorganized Flagstar from the Reorganization Cases and to its
operations thereafter. The closing of each such facility, however, is subject,
among other conditions, to the negotiation of definitive agreements with Chase
on mutually acceptable terms, and in the case of the Exit Facility, the initial
borrowing thereunder having been made on or before the earlier of July 31, 1998
and the date that is twelve months after the date on which FCI and Flagstar
commence the Reorganization Cases. No assurance can be given as to the ability
of the Company to satisfy the
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conditions under the DIP Facility or the Exit Facility or as to the outcome of
such negotiations. For additional information concerning the DIP Facility and
the Exit Facility, see "Description of Indebtedness -- New Reorganized Flagstar
Indebtedness."
RISKS RELATING TO THE PROJECTIONS
The management of FCI and Flagstar have prepared the projected financial
information contained in this Prospectus relating to Reorganized Flagstar (the
"Projections") in connection with the development of the Plan and in order to
present the anticipated effects of the Plan and the transactions contemplated
thereby. The Projections assume the Plan and the transactions contemplated
thereby will be implemented in accordance with their terms and represent
management's best estimate of the results of Reorganized Flagstar's operations
following the Effective Date. The assumptions and estimates underlying such
Projections are inherently uncertain and, although considered reasonable by
management as of the date hereof, are subject to significant business, economic
and competitive risks and uncertainties that could cause actual results to
differ materially from those projected, including, among others, (1) the
uncertain ability of Reorganized Flagstar to generate sufficient funds or to
gain access to additional capital, if needed, to meet its capital expenditure
and refinancing needs; (2) seasonality; (3) the possible effects that
commencement of the Reorganization Cases, even in connection with the Plan, may
have on Flagstar's and its subsidiaries' relationships with their customers,
suppliers, employees and franchisees; and (4) price cutting by competitors.
Accordingly, the Projections are not necessarily indicative of the future
financial condition or results of operations of Reorganized Flagstar.
Consequently, the projected financial information contained herein should not be
regarded as a representation by the Company, the Company's advisors or any other
person that the Projections can or will be achieved. See "Pro Forma Financial
Statements," "Projected Financial Information" and "The Plan of
Reorganization -- Reorganized Flagstar -- Projected Financial Information."
ASSUMPTIONS REGARDING VALUE OF FCI'S AND FLAGSTAR'S ASSETS
It has been generally assumed in the preparation of the Pro Forma Financial
Statements and the Projections included elsewhere in this Prospectus that the
historical book value of FCI's and Flagstar's assets approximates the fair value
thereof, except for specific adjustments discussed in the notes to the Pro Forma
Financial Statements. See "Pro Forma Financial Statements." For financial
reporting purposes, the fair value of the assets of FCI and Flagstar must be
determined as of the Effective Date. Such determination will be based on an
independent valuation. Although such valuation is not presently expected to
result in values that are materially greater or less than the values assumed in
the preparation of such Pro Forma Financial Statements and the Projections,
there can be no assurance with respect thereto.
DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
FCI's and Flagstar's solicitation of acceptances of the Plan, or any
subsequent commencement of the Reorganization Cases, even in connection with the
Plan, could adversely affect Flagstar's and its subsidiaries' relationships with
their customers, suppliers, employees and franchisees and their ability to
franchise new restaurants. Employees of Flagstar generally are not parties to
employment contracts. FCI and Flagstar believe that, due to uncertainty about
the Company's financial condition, it may be difficult to retain or attract high
quality employees. If Flagstar's and its subsidiaries' relationships with
customers, suppliers, employees and franchisees are adversely affected, the
Company's operations could be materially affected. Weakened operating results
could adversely affect FCI's and Flagstar's ability to complete the Solicitation
of acceptances of the Plan or, if such Solicitation is successfully completed,
to obtain confirmation of the Plan. FCI and Flagstar anticipate, however, that
they will have sufficient cash to service the obligations that they intend to
pay during the period prior to and through the consummation of the Plan.
BUSINESS AND COMPETITION
Due to continuing declines in customer traffic resulting from aggressive
discounting by competitors and other factors, the Company's Hardee's operations
have experienced declines in comparable store sales for more than 36 consecutive
months. The Company believes such declines are, in major part, a result of a
general failure of the Hardee's franchisor to adequately support the Hardee's
brand. Because the Company does not control the Hardee's brand, it is limited in
its ability to effect a turnaround of its Hardee's operations and there can be
no assurance that it will be able to do so. For additional information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Restaurants -- Hardee's."
The Company's future performance will be subject to a number of factors
that affect the restaurant industry generally, including competition. The
restaurant business is highly competitive and the competition can be expected to
increase. Price,
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restaurant location, food quality, quality and speed of service and
attractiveness of facilities are important aspects of competition as are the
effectiveness of marketing and advertising programs. The competitive environment
is also often affected by factors beyond the Company's or a particular
restaurant's control. The Company's restaurants compete with a wide variety of
restaurants ranging from national and regional restaurant chains (some of which
have substantially greater financial resources than the Company) to
locally-owned restaurants. There is also active competition for advantageous
commercial real estate sites suitable for restaurants.
CAPITAL REQUIREMENTS
Reorganized Flagstar's businesses are expected to have substantial capital
expenditure needs. While the Projections assume that Reorganized Flagstar will
generate sufficient funds to meet its capital expenditure needs for the
foreseeable future, the ability of Reorganized Flagstar to gain access to
additional capital, if needed, cannot be assured, particularly in view of
competitive factors and industry conditions. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and "The Plan of
Reorganization -- Reorganized Flagstar."
HOLDING COMPANY STRUCTURE
FCI and Flagstar are both holding companies, which currently conduct their
operations through consolidated subsidiaries. Substantially all of the assets of
FCI and Flagstar are owned by Flagstar's subsidiaries. Dividends, loans and
advances from certain subsidiaries to FCI or Flagstar are, and from certain
subsidiaries to Reorganized Flagstar will be, subject to certain contractual
restrictions and contingent upon the earnings of such subsidiaries.
DIVIDEND RESTRICTIONS
Neither FCI nor Flagstar has ever paid dividends on its common stock.
Furthermore, restrictions contained in the instruments governing the outstanding
indebtedness of Flagstar restrict its ability to pay dividends or otherwise
provide funds that might otherwise be used by FCI for the payment of dividends
on the Old FCI 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. Restrictions contained in the instruments governing indebtedness of
Reorganized Flagstar following consummation of the Plan will continue to
restrict the ability of Reorganized Flagstar to pay dividends. Accordingly, it
is not anticipated that any cash dividends will be paid on the New Common Stock
in the foreseeable future.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS; REDUCTION AND LIMITATION OF CORPORATE
TAX BENEFITS
Generally, holders of Old Debt should not recognize any gain or loss for
federal income tax purposes upon their receipt of New Senior Notes and New
Common Stock pursuant to the Plan (except to the extent such New Senior Notes or
New Common Stock are attributable to accrued but unpaid interest, which
generally will be taxable to holders as ordinary income). Depending on the
trading price of the New Senior Notes following issuance, the New Senior Notes
may be issued with original issue discount, in which event holders would be
required to include amounts in income before receiving cash attributable to such
income. Holders of Old FCI Preferred Stock will not recognize any gain or loss
for federal income tax purposes upon their receipt of New Common Stock pursuant
to the Plan. Holders exchanging Old FCI Common Stock for New Warrants pursuant
to the Plan will recognize gain or loss for federal income tax purposes equal to
the difference between the fair market value of the New Warrants and the
holders' adjusted tax basis in the Old FCI Common Stock exchanged therefor.
Neither FCI nor Flagstar should recognize any gain or loss for federal
income tax purposes as a result of the merger of Flagstar with and into FCI (the
"Merger") as contemplated by the Plan. In addition, Flagstar will not recognize
any cancellation of indebtedness income upon consummation of the Plan but will
be required to reduce certain of its tax attributes (including net operating and
capital losses and loss carryforwards, tax credits and/or tax basis in assets)
by the amount of the cancellation of indebtedness income not recognized as
taxable income. As a result, FCI believes that a significant amount of its net
operating and capital losses and loss carryforwards will be eliminated upon
consummation of the Plan. Consummation of the Plan will also trigger an
ownership change of the FCI consolidated group for purposes of Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"), with the result that
Reorganized Flagstar's use of surviving pre-ownership change net operating and
capital loss carryforwards and tax credits will be limited annually by an amount
computed under Section 382(1)(6) of the Code. See "Certain Federal Income Tax
Considerations."
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CERTAIN RISKS OF NON-CONFIRMATION
Even if the requisite acceptances are received, there can be no assurance
that the Bankruptcy Court will confirm the Plan. A non-accepting creditor of FCI
or Flagstar or a stockholder of FCI might challenge the adequacy of the
disclosure or the balloting procedures and results as not being in compliance
with the Bankruptcy Code. Even if the Bankruptcy Court were to determine that
the disclosure and the balloting procedures and results were appropriate, the
Bankruptcy Court could still decline to confirm the Plan if it were to find that
any statutory conditions to confirmation had not been met. In this regard, there
is a risk that if the Bankruptcy Court were to determine that certain third
party release provisions of the Plan (as described at "The Plan of
Reorganization -- General Information Concerning the Plan -- Release and Certain
Settlements Under the Plan; Related Injunction; Indemnity") contravene
applicable provisions of the Bankruptcy Code, the Bankruptcy Court could
determine not to confirm the Plan. Any Holder of Claims or Interests could
object to the Plan in this regard. Furthermore, if the Bankruptcy Court were to
determine, as asserted by the Junior Subordinated Representative (as defined
below) that the Junior Subordinated Debentures are PARI PASSU with the Old
Senior Notes and Senior Subordinated Debentures (which the Company vigorously
contests), it may be unable or unwilling to confirm the Plan as set forth
herein. See "The Plan of Reorganization -- Introduction." Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation and requires, among
other things, a finding by the Bankruptcy Court that the confirmation of the
Plan is not likely to be followed by a liquidation or a need for further
financial reorganization and that the value of distributions to non-accepting
creditors and Interest Holders will not be less than the value of distributions
such creditors and Interest Holders would receive if FCI and Flagstar were
liquidated under Chapter 7 of the Bankruptcy Code. While there can be no
assurance that the Bankruptcy Court will conclude that these requirements have
been met, FCI and Flagstar believe that the Plan will not be followed by a need
for further financial reorganization and that non-accepting creditors and
Interest Holders will receive distributions at least as great as would be
received following a liquidation pursuant to Chapter 7 of the Bankruptcy Code.
See "The Plan of Reorganization -- Voting and Confirmation of the
Plan -- Chapter 7 Liquidation Analysis."
The confirmation and consummation of the Plan are also subject to certain
other conditions. See "The Plan of Reorganization -- Treatment of Claims and
Interests Under the Plan -- Conditions Precedent to Confirmation and
Consummation of the Plan."
If the Plan, or a plan determined not to require resolicitation of any
Classes by the Bankruptcy Court, were not to be confirmed, it is unclear whether
a reorganization could be implemented and what holders of Claims and Interests
would ultimately receive with respect to their Claims and Interests. If an
alternative reorganization could not be agreed to, it is possible that FCI and
Flagstar would have to liquidate their assets, in which case it is likely that
Holders of Claims and Interests would receive less than they would have received
pursuant to the Plan.
NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
As a result of the consummation of the Plan and the transactions
contemplated thereby, the financial condition and results of operations of
Reorganized Flagstar from and after the Effective Date may not be comparable to
the financial condition or results of operations reflected in the historical
financial statements of FCI and Flagstar set forth elsewhere herein.
SEASONALITY
The Company's business is moderately seasonal. Restaurant sales are
generally greater in the second and third calendar quarters (April through
September) than in the first and fourth calendar quarters (October through
March). Occupancy and other operating costs, which remain relatively constant,
have a disproportionately negative effect on operating results during quarters
with lower restaurant sales. The Company's working capital requirements also
fluctuate seasonally, with its greatest needs occurring during its first and
fourth quarters.
FLAGSTAR'S EMPLOYEES
One of the Company's primary assets is its group of highly skilled
professionals who have the ability to leave the Company and so deprive it of
valuable skills and knowledge that increase the profitability of the Company's
business operations. Although the Company has taken steps to retain its key
management personnel through the pendency of the Reorganization Cases and
thereafter, no assurance can be given that it will ultimately be able to do so
and, if not, that it will be able to replace such personnel with comparable
results.
ECONOMIC, MARKET AND OTHER CONDITIONS
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic trends. The
performance of individual restaurants may be adversely affected by factors such
as traffic patterns, demographic considerations and the type, number and
location of competing restaurants. Multi-unit food service chains such as the
Company's can also be materially and adversely affected by publicity resulting
from food quality, illness,
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injury or other health concerns or operating issues stemming from one restaurant
or a limited number of restaurants. Dependence on frequent deliveries of fresh
produce and groceries subjects food service businesses to the risk that
shortages or interruptions in supply, caused by adverse weather or other
conditions, could adversely affect the availability, quality and cost of
ingredients. In addition, unfavorable trends or developments concerning factors
such as inflation, increased food, labor and employee benefit costs (including
increases in hourly wage and minimum unemployment tax rates), regional weather
conditions and the availability of experienced management and hourly employees
may also adversely affect the food service industry in general and the Company's
results of operations and financial condition in particular.
IMPORTANCE OF LOCATIONS
The success of Company and franchised restaurants is significantly
influenced by location. There can be no assurance that current locations will
continue to be attractive, as demographic patterns change. It is possible the
neighborhood or economic conditions where restaurants are located could decline
in the future, resulting in potentially reduced sales in those locations.
GOVERNMENT REGULATIONS
The Company and its franchisees are subject to federal, state and local
laws and regulations governing health, sanitation, environmental matters,
safety, the sale of alcoholic beverages and hiring and employment practices.
Restaurant operations are also subject to federal and state laws that prohibit
discrimination and laws regulating the design and operation of facilities, such
as the Americans With Disabilities Act of 1990. The operation of the Company's
franchisee system is also subject to regulations enacted by a number of states
and rules promulgated by the Federal Trade Commission. The Company cannot
predict the effect on its operations, particularly on its relationship with
franchisees, caused by the future enactment of additional legislation regulating
the franchise relationship.
RESTRICTIONS ON RESALE OF SECURITIES OF REORGANIZED FLAGSTAR
Only the offer of the securities of Reorganized Flagstar in advance of the
commencement of the Reorganization Cases has been registered under the
Securities Act. The securities of Reorganized Flagstar will be distributed, not
pursuant to registration under the Securities Act, but in accordance with the
Plan pursuant to a Bankruptcy Code exemption from registration under the
Securities Act. Such exemption does not apply to any subsequent sale, exchange,
transfer or other disposition of such securities or any interest therein.
Resales of the securities of Reorganized Flagstar distributed in accordance with
the Plan will not be registered pursuant to the Registration Statement of which
this Prospectus is a part. Although sales by non-affiliates of Reorganized
Flagstar will generally be covered by an exemption from Securities Act
registration requirements provided at Section 4(1) thereof, subsequent sales,
exchanges, transfers or other dispositions of such securities or any interest
therein by "affiliates" of Reorganized Flagstar or "underwriters" as defined in
Section 1145(b) may not have the benefit of such statutory exemption. See "The
Plan of Reorganization -- Securities to be Issued and Transferred Under the
Plan -- Applicability of Federal and Other Securities Laws -- Subsequent
Transfers of New Senior Notes, New Common Stock and New Warrants Under Federal
Securities Laws."
Any person (or group of persons who act in concert) who receives a
substantial amount of securities of Reorganized Flagstar pursuant to the Plan
may be deemed to be an "affiliate." Absent registration under the Securities
Act, any person deemed to be an affiliate of Reorganized Flagstar or an
underwriter would be subject to the resale restrictions imposed by the
Commission's Rule 144, under the Securities Act, which would allow affiliates
and underwriters to sell, exchange, transfer or otherwise dispose of only
specified limited quantities of securities of Reorganized Flagstar, and only
subject to compliance with the other requirements imposed on "affiliates" under
Rule 144. See "The Plan of Reorganization -- Securities to be Issued and
Transferred Under the Plan -- Market and Trading Information" and "The Plan of
Reorganization -- Securities to be Issued and Transferred Under the
Plan -- Applicability of Federal and Other Securities Laws -- Subsequent
Transfers of New Senior Notes, New Common Stock and New Warrants under Federal
Securities Laws." The Company has agreed to provide to all holders of 10% or
more of the New Common Stock certain registration rights permitting such holders
to have Reorganized Flagstar register under the Securities Act certain resales
of the New Common Stock. See "Description of New Common Stock -- Registration
Rights of Affiliates."
LACK OF TRADING MARKET; VOLATILITY
There can be no assurance that an active market for the New Senior Notes,
the New Common Stock or the New Warrants will develop or, if any such market
does develop, that it will continue to exist, or as to the degree of price
volatility in any such market that does develop. Accordingly, no assurance can
be given as to the liquidity of the market for any of the New Senior Notes, the
New Common Stock or the New Warrants or the price at which any sales may occur.
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THE PLAN OF REORGANIZATION
INTRODUCTION
This Prospectus relates to the Plan for FCI and Flagstar. A copy of the
Plan is attached hereto as Exhibit I. Wherever this Prospectus refers to defined
terms of the Plan not otherwise defined herein, such defined terms are
incorporated herein by reference to the Plan. For a description of FCI's and
Flagstar's businesses, see "Business".
In an attempt to reduce Flagstar's debt requirements, FCI and Flagstar
underwent a Recapitalization in 1992 consisting primarily of a $300 million
equity investment by Associates and the refinancing of the substantial majority
of Flagstar's debt. Additionally, from 1994 to 1996, Flagstar embarked on a
program to divest itself of its non-restaurant businesses in order for
management to focus its attention on the Company's core businesses -- its
various restaurant concepts.
Since 1989, the Company has not achieved the revenue and earnings
projections prepared at the time of Flagstar's acquisition, due in large part to
increased competition, intensive pressure on pricing due to discounting, adverse
economic conditions and relatively limited capital resources to respond to these
changes. Such trends have generally continued through 1996 and into 1997. The
Company's cash flows have been sufficient to fund its operations and make
interest payments when due (although in anticipation of the Plan, Flagstar did
not make the March 15, 1997 interest payment on its 11 3/8% Debentures or the
May 1, 1997 interest payment on its 11.25% Debentures or Junior Subordinated
Debentures). However, the Company's core businesses have not experienced cash
flow growth sufficient to provide adequate funds to invest for future growth.
To address the Company's short-term and long-term financial needs,
management began developing plans to maintain the Company's liquidity and
improve its capital structure. Specifically, FCI's Board of Directors elected
not to declare the January 15, 1997 or April 15, 1997 quarterly dividends on the
Old FCI Preferred Stock. In addition, the new management that has been put in
place during the last eighteen months has identified cost reduction and revenue
enhancement strategies intended to improve operations. In addition, on March 6,
1997, the Credit Agreement was amended to provide for less restrictive financial
covenants for measurement periods ending on April 2, 1997 and July 2, 1997, as
well as to provide Flagstar flexibility to forego scheduled interest payments
due in March, May and June 1997 under the 10 3/4% Senior Notes, the 10 7/8%
Senior Notes, the 11 3/8% Debentures, the 11.25% Debentures and the Junior
Subordinated Debentures without triggering a default under the Credit Agreement,
unless any such debt is declared to be due and payable as a result of the
failure to pay any such interest. (For a discussion of Flagstar's election not
to make certain interest payments on March 17, 1997 and May 1, 1997 pursuant to
such amendment and in anticipation of the Plan and the effects of such defaults,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Financial Resources.") The Company also retained DLJ
as its exclusive financial advisor pursuant to the terms of a letter agreement,
dated as of January 16, 1997 (the "Letter Agreement"), among FCI, Flagstar and
DLJ to advise the Company on, among other things, the reorganization of the
Company's capital structure. (For a discussion of the terms of DLJ's engagement,
see "The Plan of Reorganization -- Treatment of Claims and Interests Under the
Plan -- Treatment of Trade Creditors, Employees and Certain Professionals under
the Plan.")
While the foregoing actions may enhance the short-term financial position
of the Company, management has concluded that the reorganizational alternative
best designed to recapitalize the Company's enterprise over the long-term and
maximize the recovery for all stakeholders is through a Prepackaged Plan. As a
result, FCI and Flagstar have conducted intensive negotiations with various
creditors in an effort to enable the Company to restructure its indebtedness
through a Prepackaged Plan. The Plan represents the results of such negotiation
and effort.
In connection with such negotiations, in February 1997, three Holders of
Senior Subordinated Debentures, consisting of Loomis Sayles & Company, Inc. (as
investment manager for certain discretionary accounts), Magten Asset Management
Corporation (as investment manager for certain discretionary accounts), and
Moore Capital Management, Inc. formed an informal group which became the Ad Hoc
Debentureholders Committee. The Ad Hoc Debentureholders Committee retained Hebb
& Gitlin, a Professional Corporation ("H&G"), to serve as their special legal
counsel, and H&G in turn retained HLHZ to serve as special financial
consultants.
On February 27, 1997, H&G and HLHZ entered into confidentiality agreements
with Flagstar, and on March 11, 1997, the members of the Ad Hoc Debentureholders
Committee entered into confidentiality agreements with Flagstar (which
agreements have now expired by their terms). Starting on March 11, 1997, the Ad
Hoc Debentureholders Committee and Flagstar (and their respective advisors)
engaged in discussions concerning the possible terms of a financial
restructuring of FCI and Flagstar, and following those discussions Flagstar
announced the principal terms of the Plan on March 17, 1997. On March 21, 1997,
FCI, Flagstar and the Ad Hoc Debentureholders Committee (who as of March 21,
1997 held or could direct the
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voting with respect to approximately 48% of the total principal amount
outstanding of the Senior Subordinated Debentures) agreed to the terms of an
Agreement Concerning Voting pursuant to which each of the Consenting
Debentureholders (as defined therein) separately agree, subject to certain
conditions and the nonoccurrence of certain termination events, to vote (or,
with respect to managed accounts, use their reasonable best efforts to cause
votes to be cast) in favor of the Plan. On May 21, 1997, FCI, Flagstar and the
Consenting Debentureholders entered into a Supplement to Agreement Concerning
Voting pursuant to which each of the Consenting Debentureholders further agree
(subject to the same conditions and other provisions of the Agreement Concerning
Voting) to consent to the Senior Subordinated Indenture Amendment.
Following FCI's and Flagstar's negotiations and agreement with the Ad Hoc
Debentureholders Committee, in April 1997, the Company's management and their
advisors engaged in discussions concerning the Plan with representatives of an
informal committee of Holders of Old Senior Notes (the "Informal Senior Notes
Committee"), such committee purportedly representing approximately 40% in
aggregate principal amount of the Old Senior Notes. In the course of such
discussions, representatives of the Informal Senior Notes Committee (i) informed
the Company's management and their advisors that such committee would reject the
Plan as set forth in this Registration Statement (as originally filed on March
24, 1997) and would recommend that other such Holders vote to reject the Plan,
and (ii) presented to the Company a term sheet outlining alternative terms for
the New Senior Notes, the material features of which included a higher interest
rate, certain up front fees and a shorter maturity for the New Senior Notes. On
May 28, 1997, following unsuccessful negotiations between the Company and the
Informal Senior Notes Committee, such discussions and negotiations were
terminated.
Also following the Company's agreement with the Ad Hoc Debentureholders
Committee, the Company's advisors were contacted by a representative of certain
Holders of the Junior Subordinated Debentures (the "Junior Debentureholder
Representative"), purportedly representing approximately 44% of the Junior
Subordinated Debentures who (i) informed the Company's advisors that the Holders
of the Junior Subordinated Debentures represented by the Junior Debentureholder
Representative would reject the Plan as presented in the Registration Statement
(as originally filed on March 24, 1997), and (ii) asserted that a supplemental
indenture dated August 7, 1992, that amended the indenture governing the Junior
Subordinated Debentures had not been validly effected and that, as a
consequence, the Junior Subordinated Debentures are PARI PASSU with the Old
Senior Notes and Senior Subordinated Debentures. Inasmuch as the supplemental
indenture was duly executed and delivered by Flagstar and the trustee for the
Junior Subordinated Debentures pursuant to the requirements under the indenture
therefor, the Company believes such assertion is completely without merit and
that such supplemental indenture was validly effected. On May 30, 1997, FCI,
Flagstar, certain Holders of Junior Subordinated Debentures and the Junior
Debentureholder Representative entered into a standstill agreement pursuant to
which such Junior Subordinated Debentureholders and the Junior Debentureholder
Representative agree not to take certain remedial actions in respect of the
Junior Subordinated Debentures through June 16, 1997 and providing for good
faith negotiations between the parties with respect to the Plan.
Notwithstanding the above-described positions of the Informal Senior Notes
Committee and the Junior Debentureholder Representative, FCI and Flagstar
believe that the Plan is fair and equitable and in the best interests of all
stakeholders, including Holders of the Old Senior Notes and Holders of the
Junior Subordinated Debentures.
FCI and Flagstar submit this Prospectus in connection with its solicitation
of acceptances of the Plan. The overall purpose of the Plan is to provide for
the reorganization of FCI's and Flagstar's liabilities in a manner designed to
maximize recoveries to all stakeholders. Specifically, the Plan is designed to
eliminate all of Flagstar's existing debt obligations to Holders of the Senior
Subordinated Debentures and Junior Subordinated Debentures, as well as FCI's Old
Equity Securities, by exchanging such Allowed Claims and Allowed Interests for
the New Common Stock and the New Warrants.
In general, the Plan provides for, among other things: (i) merging FCI and
Flagstar into a single corporate entity; (ii) distributing a cash distribution
to Holders of Administrative Claims, Priority Claims and general Unsecured
Claims; (iii) restructuring the Old Senior Notes; (iv) issuing and distributing
New Common Stock to Holders of Senior Subordinated Debentures; (v) issuing and
distributing New Common Stock to Holders of Junior Subordinated Debentures; (vi)
issuing and distributing New Common Stock to Holders of Old FCI Preferred Stock;
(vii) issuing and distributing the New Warrants to Holders of Old FCI Common
Stock; and (viii) assuming or rejecting executory contracts and unexpired leases
to which FCI or Flagstar is a party. SEE " -- OVERVIEW OF THE PLAN,"
" -- SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN," " -- DISTRIBUTIONS
UNDER THE PLAN" AND " -- GENERAL INFORMATION CONCERNING THE PLAN," TOGETHER WITH
THE OTHER INFORMATION REGARDING THE FOREGOING AND RELATED MATTERS CONTAINED
ELSEWHERE IN THIS PROSPECTUS. BECAUSE AN ACCEPTANCE OF THE PLAN WILL CONSTITUTE
AN ACCEPTANCE OF ALL OF THE PROVISIONS THEREOF, INCLUDING THOSE WHICH PROVIDE
FOR THE ALTERNATIVE TREATMENT DESCRIBED HEREIN, CREDITORS ARE URGED TO CONSIDER
CAREFULLY THE INFORMATION REGARDING SUCH ALTERNATIVE TREATMENT CONTAINED IN THIS
PROSPECTUS.
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FCI AND FLAGSTAR INTEND TO CONTINUE OPERATING THEIR BUSINESSES IN CHAPTER
11 IN THE ORDINARY COURSE AND TO SEEK TO OBTAIN THE NECESSARY RELIEF FROM THE
BANKRUPTCY COURT TO PAY THEIR EMPLOYEES, TRADE AND CERTAIN OTHER CREDITORS IN
FULL AND ON TIME. SUCH CREDITORS ARE NOT IMPAIRED UNDER THE PLAN.
At this time, FCI and Flagstar have not commenced the Reorganization Cases,
but are soliciting acceptances of the Plan from the following Holders of
Impaired Claims against and Impaired Interests in FCI and Flagstar: Holders of
Old Senior Notes, Holders of Senior Subordinated Debentures, Holders of Junior
Subordinated Debentures, Holders of Old FCI Preferred Stock and Holders of Old
FCI Common Stock. If sufficient votes for acceptance of the Plan are received,
FCI and Flagstar expect to file the Reorganization Cases and to seek
Confirmation of the Plan immediately following the Bankruptcy Court's approval
of a disclosure statement in substantially the same form as this Prospectus. See
" -- General Information Concerning the Plan -- Actions Intended to be Taken
Concurrently with the Commencement of the Reorganization Cases." If FCI and
Flagstar do not receive the requisite acceptances by the Expiration Date (as set
forth below), they will be forced to evaluate other available options, including
filing a non-prepackaged Chapter 11 case.
THE BOARDS OF DIRECTORS OF FCI AND FLAGSTAR BELIEVE THAT THE PLAN IS IN THE
BEST INTERESTS OF ALL CREDITORS AND EQUITY SECURITY HOLDERS. ALL CREDITORS AND
EQUITY SECURITY HOLDERS ENTITLED TO VOTE ARE URGED TO VOTE IN FAVOR OF THE PLAN
NOT LATER THAN THE EXPIRATION DATE OF , 1997 (TWENTY (20)
BUSINESS DAYS FROM THE MAILING OF THE SOLICITATION TO HOLDERS). As described in
greater detail elsewhere in this Prospectus, among the factors which have led
the Company and the Boards of Directors of each of FCI and Flagstar to conclude
that the Plan is preferable to all other alternatives and in the best interests
of all creditors and equity security holders, are the following: (i) the
Company's schedule of debt maturities over the next five years and beyond and
the necessity of a reorganization to allow the Company to meet or refinance its
long-term debt obligations; (ii) the Company's operating and cash flow trends
since the 1989 leveraged buyout of Flagstar and the continuation of those trends
through 1996 and into 1997 due to increased competition, intense pressure on
pricing due to discounting and relatively limited capital resources to respond
to these factors; (iii) the likelihood, in the opinion of the Boards, that such
trends would continue into the future should the Company seek to continue to
operate under the limited liquidity and capital resource constraints imposed by
the large debt service requirements of its current capitalization; (iv) the
Company's need for additional liquidity and capital flexibility to fund future
growth through additional investments in its restaurants in order to compete in
the quick-service and family-style full-service segments of the restaurant
industry; (v) the Boards' judgment, based on advice of the Company's management,
concerning the relatively limited prospects for a sale of one or more of the
Company's operating units on terms acceptable to the Company (the Company having
undertaken and completed from 1994 through 1996 a divestiture program with
respect to its non-restaurant operations); (vi) the desirability of implementing
a prepackaged plan of reorganization under current market conditions and prior
to any further deterioration in the Company's financial condition when its
overall enterprise value may be reduced to the detriment of all creditors and
equity holders; (vii) the likelihood, in the opinion of the Boards, that a
Prepackaged Plan will (A) afford junior Classes a greater recovery than would be
available to them in a bankruptcy proceeding not pursuant to a Prepackaged Plan,
and (B) allow senior Classes to realize the benefits of an improved credit
following a prompt emergence of Reorganized Flagstar from the Chapter 11
proceeding; (viii) the Company's analysis of the liquidation value of the
enterprise as described at " -- Chapter 7 Liquidation Analysis" below; and (ix)
the analysis and advice of the Company's management (in consultation with DLJ,
as the Company's financial advisor) regarding the terms of the Plan and
negotiations with creditors. For additional information see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THE AD HOC DEBENTUREHOLDERS COMMITTEE HAS UNANIMOUSLY APPROVED THE PLAN AND
AGREED TO VOTE IN FAVOR OF THE PLAN AND CONSENT TO THE SENIOR SUBORDINATED
INDENTURE AMENDMENT AND RECOMMENDS THAT HOLDERS OF SENIOR SUBORDINATED
DEBENTURES VOTE TO ACCEPT THE PLAN AND CONSENT TO THE SENIOR SUBORDINATED
INDENTURE AMENDMENT. HOWEVER, NEITHER THE AD HOC DEBENTUREHOLDERS COMMITTEE NOR
ANY MEMBER THEREOF WILL BE A PROPONENT OF THE PLAN, AND NEITHER THE AD HOC
DEBENTUREHOLDERS COMMITTEE NOR ANY MEMBER THEREOF HAS SOLICITED OR WILL SOLICIT
ANY VOTE IN FAVOR OF THE PLAN BY, OR OFFERED TO JOIN IN ANY OFFER OF ANY
SECURITIES TO, ANY OTHER HOLDER OF SENIOR SUBORDINATED DEBENTURES, WHETHER BY
THIS PROSPECTUS OR ANY OTHER MEANS. THE AD HOC DEBENTUREHOLDERS COMMITTEE DOES
NOT PURPORT TO REPRESENT SOLICITED CLASSES OTHER THAN THE SENIOR SUBORDINATED
DEBENTURES AND, ACCORDINGLY, THERE MAY EXIST CERTAIN CONFLICTS OF INTEREST
BETWEEN THE AD HOC DEBENTUREHOLDERS COMMITTEE AND SUCH OTHER SOLICITED CLASSES.
The Bankruptcy Code provides that only Holders who vote on the Plan will be
counted for purposes of determining whether the requisite acceptances of the
Classes of Claims and Interests have been received. Failure by a Holder of a
Claim
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or Interest to deliver a duly completed and signed ballot will constitute an
abstention by such Holder with respect to a vote on the Plan. Abstentions will
not be counted as votes to accept or reject the Plan, and therefore will have no
effect on the voting with respect to the Plan. The requirements for confirmation
of the Plan, including the vote of creditors and equity security holders to
accept the Plan and certain of the statutory findings that must be made by the
Bankruptcy Court, are described below under the caption " -- Voting and
Confirmation of the Plan."
Confirmation of the Plan and the occurrence of the Effective Date are
subject to a number of material conditions precedent, which are summarized in
" -- Treatment of Claims and Interests Under the Plan -- Conditions Precedent to
Confirmation and Consummation of the Plan." There can be no assurance that these
conditions will be satisfied or waived.
OVERVIEW OF THE PLAN
BRIEF EXPLANATION OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is authorized
to reorganize its business for the benefit of itself and its creditors and
stockholders. In addition to permitting rehabilitation of the debtor, another
goal of Chapter 11 is to promote equality of treatment of creditors and equity
security holders, respectively, who hold substantially similar claims or
interests with respect to the distribution of the value of a debtor's assets. In
furtherance of these two goals, upon the filing of a petition for relief under
Chapter 11, Section 362 of the Bankruptcy Code generally provides for an
automatic stay of substantially all acts and proceedings against the debtor and
its property, including all attempts to collect claims or enforce liens that
arose prior to the commencement of the debtor's Chapter 11 case.
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 case. A plan of reorganization sets forth the means for satisfying
claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Bankruptcy Court makes the plan binding upon the debtor,
any issuer of securities under the plan, any person or entity acquiring property
under the plan and any creditor of or equity security holder in the debtor,
whether or not such creditor or equity security holder (i) is impaired under or
has accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan, and
terminates all rights and interests of prepetition equity security holders.
The following is an overview of certain material provisions of the Plan of
FCI and Flagstar, which is attached hereto as Exhibit I. Such Plan (and related
ballots, Master Ballots and other related documents) contemplates the filing of
the Reorganization Cases with the Bankruptcy Court in the District of Delaware.
FCI and Flagstar reserve the right to file the Reorganization Cases in any other
jurisdiction determined by them to be appropriate and advisable, including,
without limitation, any appropriate district in the State of New York (and, in
such case, to make appropriate changes to such Plan, ballots, Master Ballots and
other related documents.) The following summaries of the material provisions of
the Plan do not purport to be complete and are qualified in their entirety by
reference to all the provisions of the Plan, including all exhibits thereto, all
documents described therein and the definitions therein of certain terms used
below. Wherever defined terms of the Plan not otherwise defined in this
Prospectus are used, such defined terms shall have the meanings assigned to them
in the Plan. For a description of certain other significant terms and provisions
of the Plan, see " -- Securities to be Issued and Transferred Under the Plan,"
" -- General Information Concerning the Plan" and " -- Distributions Under the
Plan." See also "Certain Risk Factors" for a description of significant risk
factors related to the Plan.
SOLICITATION OF ACCEPTANCES OF THE PLAN
Under the Plan, all Claims and Interests have been separated into 12
classes, and each Class has been determined to be either Impaired or Unimpaired
by the Plan's terms. See " -- Treatment of Claims and Interests Under the Plan,"
and " -- Voting and Confirmation of the Plan." Except as discussed below under
" -- Voting and Confirmation of the Plan -- Acceptance or Cramdown," as a
condition to confirmation, Section 1129(a) of the Bankruptcy Code requires that
(i) each impaired class of claims and interests that receives or retains
property under a plan of reorganization vote to accept the plan and (ii) the
plan meet the other requirements of Section 1129(a). Classes of claims and
interests that do not receive or retain any property under a plan on account of
such claims and interests are deemed to have rejected the plan and are not
entitled to vote, and classes of claims or interests that are not impaired under
a plan are deemed to have accepted the plan and are not entitled to vote.
Therefore, acceptances of the Plan are being solicited only from those who hold
Claims and Interests in an Impaired Class that is receiving a distribution under
the Plan. An Impaired Class of Claims will be deemed to have accepted the Plan
if
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it is accepted by Holders of at least two-thirds in dollar amount and a majority
in number of Claims of such class held by Holders who cast timely votes to
accept the Plan. An Impaired Class of Interests will be deemed to have accepted
the Plan if it is accepted by Holders of at least two-thirds in amount of the
Interests in such Class who cast timely votes to accept the Plan. Holders of
Claims or Interest who fail to vote or who abstain from voting on the Plan are
not counted for purposes of determining either acceptance or rejection of the
Plan by any Impaired Class of Claims or Interests. Therefore, the Plan could be
accepted by any Impaired Class of Claims with the affirmative vote of
significantly less than two-thirds in dollar amount and a majority in number of
the Class of Claims, or by any Impaired Class of Interests with the affirmative
vote of significantly less than two-thirds in amount of the Class of Interests.
If at least one Impaired Class of Claims votes to accept a plan of
reorganization (not counting the votes of insiders), the Plan may be confirmed
despite rejection by the other impaired Classes if the "cramdown" provisions of
Section 1129(b) of the Bankruptcy Code are satisfied. The "cramdown" provisions
of Section 1129(b) essentially provide that a plan may be confirmed over the
rejection of an impaired Class of Claims or Interests if the plan "does not
discriminate unfairly" and is "fair and equitable" with respect to such
rejecting impaired Class. See " -- Voting and Confirmation of the
Plan -- Acceptance or Cramdown."
GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Plan provides for payment in full or other reinstatement of
Administrative Claims, Priority Tax Claims, Priority Claims, Secured Claims, and
Unsecured Claims. In addition, the Plan provides for the restructuring of Old
Senior Notes. The Plan also provides that Holders of Allowed Impaired Senior
Subordinated Claims and Holders of Allowed Impaired Junior Subordinated Claims
will receive New Common Stock in exchange for their Allowed Claims.
The Plan also provides that Holders of Old Equity Securities, which will be
cancelled pursuant to the Plan, will receive New Common Stock on account of
their Allowed Old FCI Preferred Stock and New Warrants on account of their
Allowed Old FCI Common Stock. See " -- Securities to be Issued and Transferred
Under the Plan" and "Description of New Common Stock" for a description of the
New Common Stock, and "Description of New Warrants" for a description of the New
Warrants.
To allow FCI and Flagstar to complete a financial restructuring in the
manner which will maximize its enterprise value, FCI and Flagstar are soliciting
prepetition acceptances of the Plan from Holders of Impaired Claims and
Interests prior to filing the Reorganization Cases. FCI and Flagstar presently
intend to seek to consummate the Plan and to cause the Effective Date to occur
as soon as practicable. There can be no assurance, however, as to when the
Effective Date will actually occur. Procedures for the distribution of cash and
securities pursuant to the Plan, including matters that are expected to affect
the timing of the receipt of distributions by Holders of Claims and Interests in
certain Classes and that could affect the amount of distributions ultimately
received by such Holders, are described in " -- Distributions Under the Plan."
Management of FCI and Flagstar believes that the Plan provides
consideration to all Classes of Claims and Interests reflecting an appropriate
resolution of their Claims and Interests, taking into account the differing
nature and priority of such Claims and Interests. The Bankruptcy Court must
find, however, that a number of statutory tests are met before it may confirm
the Plan. See " -- Voting and Confirmation of the Plan." Many of these tests are
designed to protect the interests of Holders of Claims or Interests who do not
vote to accept the Plan, but who will be bound by the provisions of the Plan if
it is confirmed by the Bankruptcy Court. The "cramdown" provisions of Section
1129(b) of the Bankruptcy Code, for example, permit confirmation of a Chapter 11
plan of reorganization in certain circumstances even if the plan is not accepted
by all impaired classes of claims and interests. See " -- Voting and
Confirmation of the Plan -- Acceptance or Cramdown." FCI and Flagstar have
reserved the right to request confirmation pursuant to the cramdown provisions
of the Bankruptcy Code and to amend the Plan, if and to the extent necessary, if
any Class of Claims or Interests fails to accept the Plan. Although FCI and
Flagstar believe that, if necessary, the Plan could be confirmed under the
cramdown provisions of the Bankruptcy Code if certain Classes of Claims or
Interests do not accept the Plan, there can be no assurance that the
requirements of such provisions would be satisfied.
SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims of a debtor's creditors and equity interest holders.
In compliance therewith, the Plan divides Claims and Interests into 12 Classes
and sets forth the treatment for each Class. In accordance with Section 1123(a),
Administrative Claims and Priority Tax Claims have not been classified. FCI and
Flagstar also are required, under Section 1122 of the Bankruptcy Code, to
classify Claims against and Interests in FCI and Flagstar into Classes that
contain Claims and Interests that are substantially similar to the
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other Claims and Interests in such Classes. FCI and Flagstar believe that the
Plan has classified all Claims and Interests in compliance with the provisions
of section 1122, but once the Reorganization Cases have been commenced, it is
possible that a Holder of a Claim or Interest may challenge the classification
of Claims and Interests and that the Bankruptcy Court may find that a different
classification is required for the Plan to be confirmed. In such event, FCI and
Flagstar intend, to the extent permitted by the Bankruptcy Court and the Plan,
to make such reasonable modifications of the classifications under the Plan to
permit Confirmation and to use the Plan acceptances received in this
solicitation for the purpose of obtaining the approval of the reconstituted
Class or Classes of which the accepting Holder is ultimately deemed to be a
member. Any such reclassification could adversely affect the Class in which such
Holder was initially a member, or any other Class under the Plan, by changing
the composition of such Class and the vote required of that Class for approval
of the Plan. Furthermore, a reclassification of a Claim or Interest after
approval of the Plan could necessitate a resolicitation of acceptances of the
Plan.
The classification of Claims and Interests and the nature of distributions
to Holders of Impaired Claims or Impaired Interests in each Class are summarized
below. See " -- Securities to be Issued and Transferred Under the Plan" for a
description of the manner in which the number of shares of New Common Stock will
be determined and "Certain Risk Factors" for a discussion of various other
factors that could materially affect the value of the New Common Stock
distributed pursuant to the Plan.
Pursuant to Bankruptcy Rule 9019 and in consideration for the distributions
and other benefits provided under the Plan, the provisions of the Plan will
constitute a good faith compromise and settlement of all claims or controversies
relating to amounts and allowability of: (i) Impaired Old Senior Notes (Class
4); (ii) Impaired Senior Subordinated Claims (Class 5); (iii) Impaired Junior
Subordinated Claims (Class 6); and (iv) the Impaired Interests of Holders of Old
FCI Preferred Stock and the Interests of Holders of Old FCI Common Stock
(Classes 8 and 9, respectively), and a good faith compromise and settlement of
all claims or controversies relating to the termination of all contractual,
legal, and equitable subordination rights that a Holder of a Claim or Interest
may have with respect to any Allowed Claim or Interest, or any distribution to
be made pursuant to the Plan on account of such Claim or Interest. The entry of
the Confirmation Order shall constitute the Bankruptcy Court's approval of the
compromise or settlement of all such claims or controversies and the Bankruptcy
Court's finding that such compromise or settlement is in the best interests of
the Company, Reorganized Flagstar and their respective property and Claim and
Interest Holders, and is fair, equitable and reasonable.
Except for Disputed Claims, distributions will be deemed made on the
Effective Date if made on the Effective Date or as promptly thereafter as
practicable, but in any event no later than (i) 10 days after the Effective Date
or (ii) such later date when the applicable conditions under the Plan relating
to such distributions are satisfied. See " -- Distributions Under the Plan" for
a discussion of Plan provisions that may affect the timing of distributions
under the Plan. Distributions on accounts of Claims that become Allowed Claims
after the Effective Date will be made pursuant to Section V.B of the Plan
(relating to timing and calculation of amounts to be distributed under the Plan)
and Section V.I of the Plan (relating to distributions on account of Disputed
Claims once they are allowed). See " -- Distributions Under the Plan -- Timing
and Methods of Distribution" and " -- Disputed Claims; Reserve and
Estimations -- Distributions on Account of Disputed Claims Once They Are
Allowed."
The treatment of Claims described below is subject to the Plan provisions
described in " -- Additional Information Regarding Treatment of Certain Claims."
TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN
DESCRIPTION OF CLAIMS OR INTERESTS
-- UNCLASSIFIED CLAIMS
ADMINISTRATIVE CLAIMS. Subject to certain additional requirements for
professionals and certain other entities, each Holder of an Allowed
Administrative Claim will receive on the Effective Date cash equal to the amount
of such Allowed Administrative Claim, unless the Holder and FCI and Flagstar or
Reorganized Flagstar agree to other terms, or an order of the Bankruptcy Court
provides for other terms; provided that if incurred in the ordinary course of
business or otherwise assumed by FCI and Flagstar pursuant to the Plan, an
Allowed Administrative Claim (including Administrative Claims of governmental
units for taxes) will be assumed on the Effective Date and paid, performed or
settled by Reorganized Flagstar when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation.
PRIORITY TAX CLAIMS. Each Holder of an Allowed Priority Tax Claim due and
payable on or prior to the Effective Date will receive on the Effective Date
cash equal to the amount of such allowed Priority Tax Claim, unless the Holder
and FCI and Flagstar or Reorganized Flagstar agree to other terms, or an order
of the Bankruptcy Court provides for other terms. The
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amount of any other Priority Tax Claim and the rights of the Holder of such
Claim, if any, to payment in respect thereof will not be discharged, and will
survive the Effective Date and consummation of the Plan and be resolved as if
the Reorganization Cases had not been commenced. In accordance with Section 1124
of the Bankruptcy Code, the Plan leaves unaltered the legal, equitable and
contractual rights of each Holder of an Allowed Priority Tax Claim.
-- CLASSIFIED CLAIMS AND INTERESTS
CLASS 1 -- BANK CLAIMS. Class 1 consists of all Claims, if any, against FCI
and Flagstar arising from the Credit Agreement, including all Claims arising
pursuant to any guarantee thereof and any pledge of assets as security therefor.
Class 1 is Unimpaired and, accordingly, is not entitled to vote on the Plan.
Prior to the Effective Date, all Bank Claims will be paid in full.
The Company has received a commitment from Chase, subject to certain
conditions, for a $200 million DIP Facility, which facility will be used to pay
in full all Bank Claims promptly following the Petition Date. See "Description
of Indebtedness -- New Reorganized Flagstar Indebtedness -- The DIP Facility."
CLASS 2A ET SEQ. -- OTHER SECURED CLAIMS. All Secured Claims that are not
included in Class 1 (defined in the Plan as the "Other Secured Claims") shall be
classified in Classes 2A et seq. These Classes will be further divided into
subclasses designated by letters of the alphabet (Class 2A, Class 2B, and so
on), so that each Holder of any Other Secured Claim is in a Class by itself,
except to the extent that there are Other Secured Claims that are substantially
similar to each other and may be included within a single Class. FCI and
Flagstar shall file a schedule of each Other Secured Claim on or before ten (10)
days prior to the commencement of the Confirmation Hearing. Each Allowed Other
Secured Claim will be treated as follows: either (a) the Plan shall leave
unaltered the legal, equitable and contractual rights to which such Claim
entitles the Holder; (b) (i) FCI and Flagstar shall cure any default with
respect to such Claim that occurred before or after the relevant Petition Date,
(ii) the maturity of such Claim shall be reinstated as such maturity existed
before any such default, (iii) the Holder of such Claim shall be compensated for
any damages incurred as a result of any reasonable reliance by the Holder on any
right to accelerate its Claim, and (iv) the legal, equitable, and contractual
rights of such Holder will not otherwise be altered; or (c) such Claim shall
receive such other treatment to which the Holder shall consent. The Holder of
each Allowed Other Secured Claim which is treated as set forth in clause (a),
(b), or (c) of this paragraph will be Unimpaired and will not be entitled to
vote for or against the Plan.
CLASS 3 -- UNSECURED PRIORITY CLAIMS. Class 3 Claims are Unimpaired. Class
3 consists of all Allowed unsecured Priority Claims. A Priority Claim is a Claim
for an amount entitled to priority under Sections 507(a)(3), 507(a)(4),
507(a)(5) or 507(a)(6) of the Bankruptcy Code, and does not include any
Administrative Claim or Tax Claim. These unsecured Priority Claims include,
among others: (a) unsecured Claims for accrued employee compensation earned
within 90 days prior to the Petition Date, to the extent of $4,000 per employee;
(b) contributions to employee benefit plans arising from services rendered
within 180 days prior to the Petition Date, but only for such plans to the
extent of (i) the number of employees covered by such plans multiplied by
$4,000, less (ii) the aggregate amount paid to such employees under Section
507(a)(3) of the Bankruptcy Code, plus the aggregate amount paid by the estate
on behalf of such employees to any other employee benefit plan.
The Plan provides that unless otherwise agreed to by the parties, each
Holder of an Allowed Claim in Class 3 will be paid the Allowed Amount of such
Claim in full in cash by Reorganized Flagstar on or before the later of (i) the
Effective Date, (ii) the date such Claim becomes an Allowed Claim and (iii) such
other date as is mutually agreed upon by the parties. Allowed Claims in Class 3
are not Impaired under the Plan and the Holders of Allowed Claims in Class 3
will be deemed to have accepted the Plan.
CLASS 4 -- CLAIMS ARISING FROM OLD SENIOR NOTES. Class 4 will consist of
Claims in respect of the Old Senior Notes, including an aggregate principal
amount of approximately $550 million and aggregate accrued and unpaid interest
of approximately $16 million through, but not including, the Petition Date
(assuming the Petition Date occurs on July 31, 1997). Class 4 Claims are
Impaired; each Holder will receive a Pro Rata portion of the New Senior Notes
representing 100% of the principal amount of the Old Senior Notes currently
outstanding and accrued interest thereon (subject to the right of Reorganized
Flagstar to pay cash for interest accrued through the Effective Date); provided,
however, that if the Class of Holders of Old Senior Notes does not consent to
the Plan, the Old Senior Notes shall either be, in the sole discretion of
Reorganized Flagstar, unimpaired (with no change to the interest rates, maturity
dates or other terms or provisions of the Old Senior Notes) or exchanged for New
Senior Notes which will bear interest at a rate which the Bankruptcy Court finds
appropriate under the cramdown provisions of 11 U.S.C. (section mark) 1129(b)
(with a maturity date and having other terms and provisions set forth
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herein for the New Senior Notes). The Company has proposed an 11 1/4% interest
rate for the New Senior Notes as a compromise arising from negotiations with the
Informal Senior Notes Committee. See " -- Introduction." While the Company
believes that interest rate is reasonable as a compromise, if Class 4 does not
vote to accept the Plan the Company will withdraw that compromise. Depending on
the prevailing market interest rates and the best interests of the Estates as of
the Confirmation Date, the Company reserves the right to seek a Bankruptcy Court
order imposing a lower interest rate on the New Senior Notes.
CLASS 5 -- CLAIMS ARISING FROM SENIOR SUBORDINATED DEBENTURES. Class 5 will
consist of Claims in respect of the 11.25% Debentures, including an aggregate
principal amount of approximately $722 million and aggregate accrued and unpaid
interest of approximately $61 million through, but not including, the Petition
Date (assuming the Petition Date occurs on July 31, 1997) and Claims in respect
of the 11 3/8% Debentures, including an aggregate principal amount of $125
million and aggregate accrued and unpaid interest of approximately $12 million
through, but not including, the Petition Date (assuming the Petition Date occurs
on July 31, 1997). Class 5 is Impaired; each Holder of an Allowed Class 5 Claim
will receive on the Effective Date or as soon as practicable thereafter, on
account of the unpaid principal amount plus unpaid interest which accrued prior
to the Petition Date on its Senior Subordinated Debentures, 45.614 shares of New
Common Stock for each $1,000 of 11 3/8 Debentures and 44.986 shares of New
Common Stock for each $1,000 of 11.25% Debentures which it holds. Holders of
Allowed Senior Subordinated Claims will receive in the aggregate, on a Pro Rata
basis, 95.5% of the New Common Stock to be issued and outstanding on the
Effective Date.
In addition, (i) in the event that Class 9 does not accept the Plan but
Classes 6 and 8 accept the Plan, then each Holder of an Allowed Class 5 Claim
will be entitled under the Plan to receive its Pro Rata share of 100% of the New
Warrants; (ii) in the event that Class 8 does not accept the Plan but Class 6
accepts the Plan, then each Holder of an Allowed Class 5 Claim will be entitled
under the Plan to receive its Pro Rata share of 100% of the New Warrants and its
Pro Rata share of the 1.25% of the New Common Stock that would otherwise have
been distributed to Class 8; and (iii) in the event that Class 6 does not accept
the Plan, then each Holder of an Allowed Class 5 Claim will be entitled under
the Plan to receive its Pro Rata share of 100% of the New Warrants and its Pro
Rata share of the 4.50% of the New Common Stock that would otherwise have been
distributed to Classes 6 and 8.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to the Senior Subordinated
Indenture Amendment which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming the Senior Subordinated Indenture Amendment is
adopted, (i) if the Holders of the Junior Subordinated Debentures do not accept
the Plan but the Holders of the Old FCI Preferred Stock accept the Plan, Holders
of the Old FCI Preferred Stock will receive New Common Stock representing 1.25%
of the New Common Stock of Reorganized Flagstar, and (ii) if the Holders of
Junior Subordinated Debentures or the Holders of the Old FCI Preferred Stock do
not accept the Plan but Holders of the Old FCI Common Stock accept the Plan,
Holders of the Old FCI Common Stock will receive the New Warrants. (It is a
condition to the effectiveness of the Senior Subordinated Indenture Amendment
with respect to either one of the indentures governing a portion of the Senior
Subordinated Debentures that such Senior Subordinated Indenture Amendment also
be approved and effective with respect to the other such indenture.)
CLASS 6 -- CLAIMS ARISING FROM JUNIOR SUBORDINATED DEBENTURES. Class 6 will
consist of Claims in respect of the Junior Subordinated Debentures, including an
aggregate principal amount of approximately $99 million and aggregate accrued
and unpaid interest of approximately $7 million through, but not including, the
Petition Date (assuming the Petition Date occurs on July 31, 1997). Class 6 is
Impaired; each Holder of an Allowed Class 6 Claim will receive on the Effective
Date or as soon as practicable thereafter, on account of the unpaid principal
amount plus all unpaid interest which accrued prior to the Petition Date on its
Junior Subordinated Debentures, 13.097 shares of New Common Stock for each
$1,000 of Junior Subordinated Debentures which it holds. Holders of Allowed
Junior Subordinated Claims will receive in the aggregate, on a Pro Rata basis,
3.25% of the New Common Stock to be issued and outstanding on the Effective
Date.
In the event that Class 6 does not accept the Plan, then (x) no Holder of
any Claim or Interest junior to the Allowed Class 6 Claims shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 6 Claims shall not receive or retain any interest or property under the
Plan.
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Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to the Senior Subordinated
Indenture Amendment which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming the Senior Subordinated Indenture Amendment is
adopted, (i) if the Holders of the Junior Subordinated Debentures do not accept
the Plan but the Holders of the Old FCI Preferred Stock accept the Plan, Holders
of the Old FCI Preferred Stock will receive New Common Stock representing 1.25%
of the New Common Stock of Reorganized Flagstar, and (ii) if the Holders of
Junior Subordinated Debentures or the Holders of the Old FCI Preferred Stock do
not accept the Plan but Holders of the Old FCI Common Stock accept the Plan,
Holders of the Old FCI Common Stock will receive the New Warrants.
CLASSES 7A AND 7B -- GENERAL UNSECURED CLAIMS. Classes 7A and 7B
(collectively, "Class 7") are Unimpaired. Class 7A consists of all Claims
against Flagstar and Class 7B consists of all claims against FCI, except, in
each case, Administrative Claims, Tax Claims and Claims in Classes 1 through 6,
and including, but not limited to, Claims arising under damages resulting from
the rejection of leases or executory contracts.
The Plan provides that unless otherwise agreed to by the parties, the
legal, equitable and contractual rights of each Holder of an Allowed Claim in
Class 7 will either (a) not be altered by the Plan or (b) at the option of the
Company, receive such other treatment that will result in such Allowed Claim
being deemed unimpaired under Section 1124 of the Bankruptcy Code. Allowed
Claims in Class 7 are not Impaired under the Plan and the Holders of Claims in
Class 7 will be deemed to have accepted the Plan. Class 7 also includes Trade
Claims.
A Trade Claim is defined in the Plan as any unsecured Claim against FCI or
Flagstar arising from (i) the delivery of goods or services in the ordinary
course of business or (ii) insurance-related service (including insurance
premiums). Trade Claim excludes Claims (i) arising under Section 502(g) and
502(e) of the Bankruptcy Code, (ii) of the type described in Section 726(a)(4)
of the Bankruptcy Code, or (iii) arising in tort for personal injury or property
loss. The Plan sets forth FCI's and Flagstar's intention to treat Trade Claims
as if the Reorganization Cases had never been commenced. Accordingly, after
commencement of the Reorganization Cases, FCI and Flagstar will seek Bankruptcy
Court approval to pay in the ordinary course of business all outstanding Trade
Claims to trade creditors who continue to provide normal trade credit terms to
FCI and Flagstar or who have previously agreed to compromise their Claims. In
any event, all Allowed Claims in Class 7 that have become due and owing on or
before the Effective Date (unless previously paid during the Reorganization
Cases) will be paid in full, in cash (with interest, to the extent permitted by
the Bankruptcy Court), on, or as soon as practicable after, the Effective Date,
or at such other time as is mutually agreed upon by FCI or Flagstar, as the case
may be, and the Holder of such Claim, or if not due and owing on the Effective
Date, such Trade Claims shall be Reinstated and paid in full in accordance with
their respective terms or otherwise rendered Unimpaired in accordance with
Section 1124 of the Bankruptcy Code. The legal, equitable, and contractual
rights of the Holders of these Claims will be unaffected by the Plan.
Allowed Claims in Class 7 are not impaired under the Plan and the Holders
of Claims in Class 7 will be deemed to have accepted the Plan. Under the Plan,
Holders of Claims in Class 7 would not be required to file proofs of claim with
the Bankruptcy Court and no bar date would be enforced as to such Claims.
CLASS 8 -- INTERESTS OF HOLDERS OF OLD FCI PREFERRED STOCK. Class 8 will
consist of Interests aggregating 6,300,000 shares of Old FCI Preferred Stock.
Class 8 is Impaired; each Holder of an Allowed Class 8 Interest will receive on
the Effective Date or as soon as practicable thereafter on account of each share
of Old FCI Preferred Stock which it holds .079365 shares of New Common Stock.
Holders of Old FCI Preferred Stock will receive in the aggregate, on a Pro Rata
basis, approximately 1.25% of the New Common Stock to be issued and outstanding
on the Effective Date.
In the event that Class 6 or 8 does not accept the Plan, then (x) no Holder
of any Claim or Interest junior to the Allowed Class 8 Interests shall receive
or retain any interest or property under the Plan, and (y) the Holders of
Allowed Class 8 Interests shall not receive or retain any interest or property
under the Plan.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to the Senior Subordinated
Indenture Amendment
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which will effect the redistribution of the Plan consideration to which such
Holders are entitled if either or both of the Classes of Holders of Junior
Subordinated Debentures and Holders of Old FCI Preferred Stock do not accept the
Plan and either or both of the Classes of Holders of Old FCI Preferred Stock and
Holders of Old FCI Common Stock do accept the Plan. Accordingly, assuming the
Senior Subordinated Indenture Amendment is adopted, (i) if the Holders of the
Junior Subordinated Debentures do not accept the Plan but the Holders of the Old
FCI Preferred Stock accept the Plan, Holders of the Old FCI Preferred Stock will
receive New Common Stock representing 1.25% of the New Common Stock of
Reorganized Flagstar, and (ii) if the Holders of Junior Subordinated Debentures
or the Holders of the Old FCI Preferred Stock do not accept the Plan but Holders
of the Old FCI Common Stock accept the Plan, Holders of the Old FCI Common Stock
will receive the New Warrants.
CLASS 9 -- INTERESTS OF HOLDERS OF OLD FCI COMMON STOCK. On the Effective
Date or as soon as practicable thereafter, in the event Class 9 accepts the
Plan, each Holder of an Allowed Class 9 Claim will receive, on a Pro Rata basis,
on account of each share of Old FCI Common Stock which it holds .07095 New
Warrants.
In the event Class 6, 8 or 9 does not accept the Plan, Holders of Allowed
Class 9 Interests shall not receive or retain any interests or property under
the Plan.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to the Senior Subordinated
Indenture Amendment which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming the Senior Subordinated Indenture Amendment is
adopted, (i) if the Holders of the Junior Subordinated Debentures do not accept
the Plan but the Holders of the Old FCI Preferred Stock accept the Plan, Holders
of the Old FCI Preferred Stock will receive New Common Stock representing 1.25%
of the New Common Stock of Reorganized Flagstar, and (ii) if the Holders of
Junior Subordinated Debentures or the Holders of the Old FCI Preferred Stock do
not accept the Plan but Holders of the Old FCI Common Stock accept the Plan,
Holders of the Old FCI Common Stock will receive the New Warrants.
CLASS 10 -- INTERESTS OF HOLDERS OF OLD STOCK RIGHTS AND ALL CLAIMS ARISING
OUT OF SUCH OLD STOCK RIGHTS. Class 10 is Impaired. Although Class 10 is
Impaired under the Plan, the votes of holders of Class 10 Interests are not
being solicited. Holders of Class 10 Interests will not receive or retain any
property under the Plan on account of such Interests. FCI and Flagstar currently
do not believe any such holders exist, other than Holders of warrants which
became exercisable on March 31, 1995 (the "Old Warrants") and Holders of stock
options under the Company's 1989 Option Plan (as defined elsewhere in this
Prospectus).
CLASS 11 -- SECURITIES CLAIMS. Class 11 consists of Securities Claims (if
any exist). Although Class 11 is impaired under the Plan, the votes of holders
of Class 11 Claims (if any) are not being solicited. If there are any such
claims, FCI and Flagstar intend to seek to cramdown Class 11 pursuant to Section
1129(b) of the Bankruptcy Code. Any Allowed Securities Claims shall be treated
with the same priority as the Old FCI Common Stock pursuant to Section 510(b) of
the Bankruptcy Code, and the Holders of such Allowed Securities Claims shall
receive that portion of the New Common Stock which would otherwise be
distributed to Class 9 (Old FCI Common Stock) which the Bankruptcy Court
determines to be necessary to enable the Plan to comply with 11 U.S.C.
(section mark) 1129(b). FCI and Flagstar are currently unaware of any Securities
Claims.
CLASS 12 -- FCI'S 100% OWNERSHIP INTEREST IN FLAGSTAR. Class 12 is
Impaired; pursuant to the Plan, FCI and Flagstar will be merged. Although Class
12 is Impaired under the Plan, the vote of the holder of the Class 12 Interest
is not being solicited.
ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS
TREATMENT OF UNCLASSIFIED CLAIMS
The Bankruptcy Code does not require classification of certain priority
claims against a debtor. In this case, these unclassified claims include
Administrative Claims and Priority Tax Claims. All distributions referred to
below that are scheduled for the Effective Date will be made on the Effective
Date or as soon as practicable thereafter.
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ADMINISTRATIVE CLAIMS. An "Administrative Claim" is a claim for payment of
an administrative expense of a kind specified in Section 503(b) of the
Bankruptcy Code and referred to in Section 507(a)(1) of the Bankruptcy Code,
including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a Chapter 11 case of preserving the estate or
operating the business of the company (including wages, salaries and commissions
for services), loans and advances to the company made after the petition date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under Chapter 123 of Title 28, United States Code. Under the Plan, each
Holder of an Allowed Administrative Claim will receive cash equal to the unpaid
portion of such Allowed Administrative Claim on the latest of (i) the Effective
Date, (ii) the date on which such Claim becomes an Allowed Administrative Claim
and (iii) the date on which such Claim becomes payable pursuant to any agreement
between the Holder of such Claim and the Company. Holders of Administrative
Claims (other than Trade Claims arising in the ordinary course of business and
employee claims) shall have until 60 days after the Effective Date to file
requests for payment.
CLAIMS BY PROFESSIONALS. Professionals or other entities requesting
compensation or reimbursement of expenses pursuant to Sections 327, 328, 330,
331, 503(b) and 1103 of the Bankruptcy Code for post-petition services rendered
before the Effective Date (including compensation requested pursuant to Section
503(b)(4) of the Bankruptcy Code by any professional or other entity for making
a substantial contribution in the Reorganization Cases) must file and serve on
Reorganized Flagstar and counsel for Reorganized Flagstar an application for
final allowance of compensation and reimbursement of expenses no later than 60
days after the Effective Date, unless such filing and service deadline is
extended by the Bankruptcy Court; PROVIDED, HOWEVER, that any professional who
may receive compensation or reimbursement of expenses pursuant to the Ordinary
Course Professionals' Order without having filed an application may continue to
receive compensation or reimbursement for services rendered before the Effective
Date without further Bankruptcy Court review or approval pursuant to the
Ordinary Course Professionals' Order. Objections to applications of
professionals or other entities for compensation or reimbursement of expenses
must be filed and served on Reorganized Flagstar, counsel for Reorganized
Flagstar and the requesting professional or other entity no later than 30 days
after the date on which the applicable application for compensation or
reimbursement was filed.
To the extent H&G remain advisors to the Ad Hoc Debentureholder Committee
during the pendency of the Reorganization Cases, H&G's reasonable fees and
expenses, as applicable, will be paid by TWS Funding, a subsidiary of Flagstar,
subject to the Debtors' (a) unilateral right to terminate TWS Funding's
obligation hereunder on 24 hour notice to H&G and without requirement for notice
to the Bankruptcy Court or a hearing and (b) right to dispute any H&G fees and
expenses as unreasonable.
HLHZ will remain as advisors to the Ad Hoc Debentureholder Committee during
the pendency of the Reorganization Cases. The Debtors will assume HLHZ's
pre-petition retainer agreement (dated February 27, 1997) for fees and expenses.
Under such agreement, Flagstar or HLHZ or H&G may terminate HLHZ's engagement on
5 days' written notice. The agreement will automatically terminate upon the
consummation of the Reorganization Cases.
PRIORITY TAX CLAIMS. A Priority Tax Claim is a claim for an amount entitled
to priority under Section 507(a)(8) of the Bankruptcy Code. Unless otherwise
agreed to by FCI and Flagstar and a Holder of a Priority Tax Claim, each Holder
of an Allowed Priority Tax Claim shall receive (i) cash equal to the unpaid
portion of such Allowed Priority Tax Claim on the later of (a) the Effective
Date and (b) the date on which such Claim becomes an Allowed Priority Tax Claim;
or (ii) payment at such time as specified under applicable laws; PROVIDED,
HOWEVER, that Reorganized Flagstar shall have the right to pay in whole or in
part any Allowed Priority Tax Claim, or any remaining portion thereof, at any
time after the Effective Date, without premium or penalty of any kind. The
foregoing treatment of Allowed Priority Tax Claims is consistent with the
provisions of Section 1129(a)(9)(C) of the Bankruptcy Code, and the Holders of
Allowed Priority Tax Claims are not entitled to vote on the Plan. Pursuant to
Section 1123(a)(1) of the Bankruptcy Code, Priority Tax Claims are not
designated a Class of Claims for purposes of the Plan.
TREATMENT OF TRADE CREDITORS, EMPLOYEES AND CERTAIN PROFESSIONALS UNDER THE
PLAN
PROVISIONS FOR TRADE CREDITORS. When FCI and Flagstar file the Plan, FCI
and Flagstar intend that all Claims of its trade creditors will be unimpaired
and paid in full. The Plan's treatment of Trade Claims (included in Class 7
under the Plan) is intended to maximize the preservation of working capital by
encouraging the maintenance of favorable trade credit terms. Notwithstanding
provisions of the Bankruptcy Code that may defer payment of pre-petition Claims
until the effectiveness of the Plan, FCI and Flagstar intend to seek immediate
authorization from the Bankruptcy Court to make payments of Trade
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Claims reflected on their books and records arising in the ordinary course of
business. FCI and Flagstar will ask the Bankruptcy Court for authority to make
payments to creditors holding such Claims who, following commencement of the
Reorganization Cases, agree to continue to provide FCI and Flagstar with
customary trade terms or to reinstate customary trade terms.
If the Plan is confirmed, Holders of Trade Claims will not be required to
file proofs of claim with the Bankruptcy Court and no bar date will be enforced
as to such Trade Claims. On and after the Effective Date (and, subject to
Bankruptcy Court approval, prior to the Effective Date), all undisputed,
non-contingent and liquidated Trade Claims not already paid will be paid in full
in the ordinary course of business of Reorganized Flagstar. If Flagstar disputes
any Trade Claim, such dispute will be determined, resolved or adjudicated, as
the case may be, in the manner in which such dispute would have been determined,
resolved or adjudicated if the Reorganization Cases had not been commenced, and
will survive the Effective Date and the consummation of the Plan as if the
Reorganization Cases had not been commenced.
Any Claim arising from the rejection of an executory contract or unexpired
lease under the Plan does not constitute a Trade Claim and will be paid when
such Claim is Allowed by the Bankruptcy Court. See " -- General Information
Concerning the Plan -- Executory Contracts and Unexpired Leases."
PROVISIONS FOR EMPLOYEES. When FCI and Flagstar file the Plan, Flagstar
also intends that salaries or wages, as the case may be, accrued paid vacation,
health related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits will be unaffected. Employee Claims that accrue pre-petition will
receive Unimpaired treatment under the terms of the Plan. To ensure the
continuity of the Company's work force and to further accommodate the unimpaired
treatment of employee benefits, Flagstar intends to seek immediate authorization
from the Bankruptcy Court to honor payroll checks outstanding as of the Petition
Date (or to issue replacement checks), to permit employees to utilize paid
vacation time accrued prior to the Petition Date (so long as they remain
employees of the Company) and to continue paying medical and other benefits
under all applicable insurance plans. All undisputed, non-contingent and
liquidated Employee Claims and benefits not paid or honored prior to
consummation of the Plan will be paid or honored upon consummation of the Plan
or as soon thereafter as such payment or other obligation becomes due or
performable. Employees will not be required to file proofs of claim on account
of Employee Claims. If the Company disputes any Employee Claim, such dispute
will be determined, resolved or adjudicated, as the case may be, in the manner
in which such dispute would have been determined, resolved or adjudicated if the
Reorganization Cases had not been commenced, and will survive the Effective Date
and the consummation of the Plan as if the Reorganization Cases had not been
commenced.
TREATMENT OF CERTAIN PROFESSIONALS' CLAIM
In January 1997, DLJ was retained as the Company's financial advisor
pursuant to the Letter Agreement to advise the Company on, among other things,
the reorganization (the "Transaction") of the Company's capital structure. Under
the Letter Agreement, DLJ is entitled to receive (i) $350,000 (the "Retainer
Fee"), which has already been paid, (ii) reimbursement for all out-of-pocket
expenses incurred in connection with DLJ's performance under the Letter
Agreement, including reasonable fees and expenses of DLJ's counsel, and (iii)
$150,000 (the "Monthly Fee" and, together with the Retainer Fee, the "Non-
Transaction Fees") monthly beginning on February 1, 1997 and ending on the
earliest of (a) the filing (the "Filing") of a voluntary petition for
reorganization relief under Chapter 11 of the Bankruptcy Code, (b) the
consummation of the Transaction, (c) December 31, 1997, or (d) the Date of
Termination (as defined in the Letter Agreement).
In the event of a Transaction, DLJ will also be entitled to receive a fee
(the "Transaction Fee") equal to the sum of (a) the product of (I) 0.70% and
(II) the amount by which the principal amount of the Senior Subordinated
Debentures, the Junior Subordinated Debentures, and the Old FCI Preferred Stock
outstanding as of December 31, 1996 (including for such purposes accrued but
unpaid interest and the liquidation preference of preferred stock) is reduced
through an exchange for equity or otherwise and (b) the product of (I) 0.50% and
(II) the principal amount of the Old Senior Notes outstanding as of December 31,
1996 that are exchanged for debt securities of the Company that, among other
things, require no mandatory sinking fund payments before and have a final
maturity at least twenty-four months beyond the maturity date of the Old Senior
Notes. If the Transaction is intended to be effected pursuant to a prepackaged
plan of reorganization, 50 percent of the Transaction Fee will be payable upon
the receipt of a sufficient number of votes from the Company's creditors to
confirm such prepackaged plan of reorganization, and the balance will be payable
upon consummation of the Transaction. If the Transaction is intended to be
effected pursuant to a prearranged plan of reorganization, 33 1/3 percent of the
Transaction Fee will be payable upon obtaining indications of support from
creditors sufficient to justify, in the good faith judgment of the Board of
Directors of FCI, a Filing, and shall be payable on the day before the Filing,
and the balance will be payable upon the consummation of the Transaction. If
such votes or indications of support are not obtained by September 30, 1997, any
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Non-Transaction Fees paid by the Company shall be credited against the portion
of the Transaction Fee that is payable before the Filing.
When the Company has obtained such votes or indications of support, DLJ
shall have completed all the work contemplated to be performed by DLJ under the
Letter Agreement, and all fees payable under the Letter Agreement shall have
been earned in full. Any expenses and fees of DLJ, including fees and expenses
of DLJ's counsel and any other amounts due under the Letter Agreement, that
remain unpaid at the time of the Filing shall constitute claims for pre-petition
services, which claims shall be treated as unimpaired Trade Claims under the
Plan.
CRAMDOWN
The so-called "cramdown" provisions of Section 1129(b) of the Bankruptcy
Code permit confirmation of a Chapter 11 plan of reorganization in certain
circumstances even if the plan is not accepted by all impaired classes of claims
and interests. See " -- Voting and Confirmation of the Plan -- Acceptance or
Cramdown." In the event that at least one impaired Class of Claims votes to
accept the Plan (and at least one impaired Class either votes to reject the Plan
or is deemed to have rejected the Plan), FCI and Flagstar reserve the right to
request the Bankruptcy Court to confirm the Plan under the cramdown provisions
of the Bankruptcy Code. In that event, FCI and Flagstar have reserved the right
to modify the Plan to the extent, if any, that Confirmation pursuant to Section
1129(b) of the Bankruptcy Code requires or permits modification of the Plan. If
a request to confirm the Plan pursuant to the cramdown provisions of the
Bankruptcy Code were to be granted by the Bankruptcy Court and, if necessary,
corresponding modifications of the Plan were to be made in connection therewith,
the dissenting Classes could receive, in certain circumstances, alternative
treatment under the Plan. IF FCI AND FLAGSTAR ARE REQUIRED TO SEEK CONFIRMATION
PURSUANT TO SUCH ALTERNATIVE CRAMDOWN PROVISIONS, THERE CAN BE NO ASSURANCE THAT
THE REQUIREMENTS OF SUCH PROVISIONS WILL BE SATISFIED OR, EVEN IF SUCH
REQUIREMENTS ARE SATISFIED, THAT SUCH ALTERNATIVE TREATMENT WILL NOT MATERIALLY
AFFECT THE PROPOSED CONSIDERATION TO BE DISTRIBUTED TO CERTAIN HOLDERS OF CLAIMS
AND INTERESTS.
SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation Order, all
cash necessary for Reorganized Flagstar to make payments pursuant to the Plan
will be obtained from Reorganized Flagstar's cash balances, the operations of
FCI, Flagstar or Reorganized Flagstar or the DIP Facility.
CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN
CONDITIONS TO CONFIRMATION
The Plan provides that the Bankruptcy Court will not enter the Confirmation
Order unless the Confirmation Order is acceptable in form and substance to FCI
and Flagstar (after consultation with the Ad Hoc Debentureholders Committee),
and the Confirmation Order expressly authorizes and directs FCI, Flagstar and
Reorganized Flagstar to perform those actions specified in Section X of the
Plan.
In addition to the foregoing conditions to Confirmation, there are a number
of procedural and substantive confirmation requirements under the Bankruptcy
Code that must be satisfied for the Plan to be confirmed pursuant to Section
1129 of the Bankruptcy Code. See " -- Voting and Confirmation of the Plan."
There can be no assurance that the Confirmation conditions or the conditions set
forth in Section 1129 of the Bankruptcy Code will be satisfied, or, if so
permitted, waived by FCI and Flagstar.
CONDITIONS TO EFFECTIVE DATE
The Effective Date is defined as a Business Day, as determined by FCI and
Flagstar, that is as soon as reasonably practicable but that is at least 11 days
after the Confirmation Date and on which all conditions to the Effective Date
set forth in the Plan have been satisfied or, if permitted, waived by FCI and
Flagstar (after consultation with the Ad Hoc Debentureholders Committee)
pursuant to Section X.C of the Plan, as described in " -- Waiver of Conditions
to Confirmation and Effective Date," and on which no stay of the Confirmation
Order is in effect. The Effective Date will not occur and the Plan will not be
consummated unless and until each of the following conditions has been satisfied
or, if permissible, duly waived:
(i) The Confirmation Order shall authorize and direct that FCI,
Flagstar and Reorganized Flagstar take all actions necessary or appropriate
to enter into, implement and consummate the contracts, instruments,
releases, leases, indentures and other agreements or documents created in
connection with the Plan.
(ii) The Confirmation Order shall have become a Final Order.
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(iii) The lenders with respect to the Exit Facility shall be obligated
to fund the Exit Facility on terms acceptable to FCI and Flagstar.
WAIVER OF CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE
Each of the conditions to Confirmation and the Effective Date, other than
the conditions expressly set forth in Sections X.B.iv of the Plan, may be waived
in whole or in part by FCI and Flagstar at any time, without notice or an Order
of the Bankruptcy Court. The failure to satisfy or to waive any condition may be
asserted by FCI and Flagstar regardless of the circumstances giving rise to
failure of such condition to be satisfied (including any action or inaction by
FCI and Flagstar). The failure of FCI and Flagstar to exercise any of the
foregoing rights will not be deemed a waiver of any other rights and each such
right will be deemed an ongoing right that may be asserted at any time.
If each condition to the Effective Date has not been satisfied or duly
waived within 60 days after the Confirmation Date, then (unless the period for
satisfaction or waiver of conditions has been extended for a period not
exceeding 120 days pursuant to Section X.C of the Plan) upon motion by any party
in interest pursuant to the Plan, made before the time that each of the
conditions has been satisfied or duly waived and upon notice to such parties in
interest as the Bankruptcy Court may direct, the Confirmation Order may be
vacated by the Bankruptcy Court; PROVIDED, HOWEVER that notwithstanding the
filing of such motion, the Confirmation Order may not be vacated if each of the
conditions to the Effective Date is either satisfied or duly waived before the
Bankruptcy Court order granting such motion becomes a Final Order. If the
Confirmation Order is vacated pursuant to Section X.C of the Plan, the Plan
shall be deemed null and void in all respects, including the discharge of Claims
and termination of Interests pursuant to Section 1141 of the Bankruptcy Code and
the assumptions or rejections of executory contracts and unexpired leases
pursuant to Section VII of the Plan, and nothing contained in the Plan shall (1)
constitute a waiver or release of any claims by or against, or any interests in,
FCI and Flagstar or (2) prejudice in any manner the rights of FCI and Flagstar.
FCI and Flagstar are not presently aware of any circumstances that would cause a
material delay in the occurrence of the Effective Date and the satisfaction of
the conditions described above.
MODIFICATION OR REVOCATION OF THE PLAN; SEVERABILITY
FCI and Flagstar may seek to amend, modify or revoke the Plan at any time
prior to the Confirmation Date in the manner provided for by Section 1127 of the
Bankruptcy Code or as otherwise permitted by law without additional disclosure
pursuant to Section 1125 of the Bankruptcy Code, except as the Bankruptcy Court
may otherwise order. The potential impact of any such amendment or modification
on the Holders of Claims and Interests cannot presently be foreseen, but may
include a change in the economic impact of the Plan on some or all of the
Classes or a change in the relative rights of such Classes. If any of the terms
of the Plan are amended in a manner determined by FCI and Flagstar to constitute
a material change, FCI and Flagstar will promptly disclose any such amendment in
a manner reasonably calculated to inform the Holders of Impaired Claims and
Interests of such amendment and FCI and Flagstar will extend the solicitation
period for acceptances of the Plan for a period which FCI and Flagstar in their
discretion deem appropriate, depending upon the significance of the amendment
and the manner of disclosure to Holders of Impaired Claims and Interests, if the
solicitation period would otherwise expire during such period. Any such
extension shall, prior to the filing of the Plan, be in compliance with the
applicable rules and regulations of the Commission including, to the extent
applicable, Regulation 14A and Rules 13e-4 and 14e-1 under the Exchange Act.
FCI and Flagstar reserve the right to amend the terms of the Plan or waive
any conditions thereto if and to the extent FCI and Flagstar determine that such
amendments or waivers are necessary or desirable in order to consummate the
Plan. FCI and Flagstar will give all Holders of Claims and Interests notice of
such amendments or waivers as may be required by applicable law and the
Bankruptcy Court. If, after receiving sufficient acceptances but prior to
Confirmation of the Plan, FCI and Flagstar were to seek to modify the Plan, FCI
and Flagstar could only use such previously solicited acceptances if (i) all
adversely affected creditors and equity interest Holders accepted the
modifications in writing or (ii) the Bankruptcy Court determined, after notice
to official committees or other affected parties, that such modification were DE
MINIMIS or purely technical. FCI and Flagstar reserve the right to use
acceptances of the Plan received in this solicitation to seek Confirmation of
the Plan under any other circumstances, including the filing of an involuntary
petition, subject to approval of the Bankruptcy Court.
If, prior to Confirmation, any term or provision of the Plan is held by the
Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court will
have the power, upon the request of FCI and Flagstar, to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision will then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
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Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
REORGANIZED FLAGSTAR
A DESCRIPTION OF VARIOUS MATTERS RELATING TO REORGANIZED FLAGSTAR,
INCLUDING (I) A DESCRIPTION OF THE MERGER OF FCI AND FLAGSTAR, (II) INFORMATION
RELATING TO THE BUSINESS TO BE CONDUCTED BY REORGANIZED FLAGSTAR FOLLOWING THE
EFFECTIVE DATE, (III) CERTAIN PRO FORMA AND PROJECTED FINANCIAL INFORMATION,
(IV) THE PROPOSED MANAGEMENT OF REORGANIZED FLAGSTAR AND PROPOSED COMPENSATION
AND OTHER ARRANGEMENTS RELATING THERETO, AND (V) CERTAIN CORPORATE GOVERNANCE
MATTERS, IS SET FORTH OR REFERENCED BELOW.
THE MERGER
Pursuant to the Plan, Flagstar will merge with and into FCI on the
Effective Date with the surviving corporation having such name as shall be
determined prior to Confirmation by the Board of Directors of FCI. As a result
of such Merger, the separate existence of Flagstar shall cease from and after
the Effective Date, and Flagstar will no longer have separate reporting
obligations under the Exchange Act.
BUSINESS OF REORGANIZED FLAGSTAR
Following the Effective Date, Reorganized Flagstar and its subsidiaries
will continue to operate the businesses presently operated by the Company. For a
description of the Company's current business operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
PROJECTED FINANCIAL INFORMATION
For information relating to the Projections, see "Projected Financial
Information."
MANAGEMENT OF REORGANIZED FLAGSTAR
BOARD OF DIRECTORS
It is anticipated that the Board of Directors of Reorganized Flagstar will
consist of seven members, including James B. Adamson, as Chairman, and whose
composition will otherwise be determined at or prior to the time of the
Confirmation Hearing.
EXECUTIVE OFFICERS
It is anticipated that the current executive officers of FCI and Flagstar
will be the executive officers of Reorganized Flagstar immediately after the
Effective Time. For information relating to the current executive officers of
FCI and Flagstar, see "Management -- Executive Officers of FCI and Flagstar."
For information relating to compensation of certain officers of the
Company, see "Management Compensation."
CERTAIN CORPORATE GOVERNANCE MATTERS
REORGANIZED FLAGSTAR CERTIFICATE OF INCORPORATION AND REORGANIZED FLAGSTAR
BYLAWS
The Reorganized Flagstar Certificate of Incorporation and the Reorganized
Flagstar Bylaws will be substantially similar to the current Restated
Certificate of Incorporation and Bylaws of FCI, copies of which are attached as
exhibits to the Registration Statement of which this Prospectus is a part.
OWNERSHIP OF STOCK BY CERTAIN STOCKHOLDERS
For information relating to the amount of Old FCI Common Stock and, upon
the consummation of the Reorganization Cases, the New Common Stock held by
directors, executive officers and certain other stockholders of the Company, see
"Ownership of Capital Securities."
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SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN
A DESCRIPTION OF THE NEW SENIOR NOTES, NEW COMMON STOCK AND NEW WARRANTS TO
BE ISSUED AND TRANSFERRED UNDER THE PLAN, INCLUDING THE APPLICABILITY OF FEDERAL
AND OTHER SECURITIES LAWS, IS SET FORTH OR REFERENCED BELOW.
As of the Effective Date, Reorganized Flagstar will issue the New Senior
Notes, the New Common Stock and the New Warrants. The New Senior Notes will be
issued for distribution in accordance with the Plan to Holders of Allowed Class
4 Claims. The New Common Stock will be issued for distribution in accordance
with the Plan to Holders of Allowed Class 5 and 6 Claims and Allowed Class 8
Interests. The New Warrants will be issued for distribution in accordance with
the Plan to Holders of Allowed Class 9 Interests. See " -- Overview of the
Plan -- Summary of Classes and Treatment of Claims and Interests,"
" -- Distributions Under the Plan" and "Certain Risk Factors."
THE NEW SENIOR NOTES
For a description of the New Senior Notes, see "Description of New Senior
Notes" elsewhere herein.
THE NEW COMMON STOCK
For a description of the New Common Stock, see "Description of New Common
Stock" elsewhere herein.
THE NEW WARRANTS
For a description of the New Warrants, see "Description of New Warrants"
elsewhere herein.
MARKET AND TRADING INFORMATION
For information relating to the market for the New Senior Notes, New Common
Stock and New Warrants, see "Certain Risk Factors -- Lack of Trading Market;
Volatility."
It is not anticipated that dividends will be paid at any time in the
foreseeable future with respect to the New Common Stock, because restrictions
contained in the instruments governing indebtedness of Reorganized Flagstar
following consummation of the Plan will restrict the ability of Reorganized
Flagstar to pay dividends. See "Certain Risk Factors -- Dividend Restrictions."
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
STATE SECURITIES LAWS APPLICABLE TO OFFER OF NEW SENIOR NOTES, NEW COMMON
STOCK AND NEW WARRANTS
State securities laws provide broad exemptions from securities registration
requirements for the sale of securities listed on a national exchange or traded
on the NASDAQ National Market. Such laws generally provide registration and
qualification exemptions or exceptions by virtue of the definitions of "offer"
and "sale" contained in such laws, and also provide exemptions for offers in
connection with private placements to institutional investors. It is expected
that these exemptions or exceptions or the exemption from state regulation
provided pursuant to Section 18 of the Securities Act will apply to the offer of
the New Senior Notes, New Common Stock and New Warrants pursuant to this
solicitation and the solicitation of votes.
ISSUANCE OF NEW SENIOR NOTES, NEW COMMON STOCK AND NEW WARRANTS: BANKRUPTCY
CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS AND TRANSFER RESTRICTIONS
Section 1145(a)(1) of the Bankruptcy Code creates certain exemptions from
the registration and other requirements of certain federal and state securities
laws with respect to the issuance and resale of New Senior Notes, New Common
Stock and New Warrants pursuant to the Plan.
ISSUANCE OF NEW SENIOR NOTES, NEW COMMON STOCK AND NEW WARRANTS
Section 1145 of the Bankruptcy Code exempts the issuance of securities
under a plan of reorganization from registration under the Securities Act and
under state securities laws if three principal requirements are satisfied: (i)
the securities must be issued "under a plan" of reorganization by the debtor or
its successor under a plan or by an affiliate participating in a joint plan of
reorganization with the debtor; (ii) the recipients of the securities must hold
a pre-petition or administrative expense claim against the debtor or an interest
in the debtor; and (iii) the securities must be issued entirely in exchange for
the recipient's claim against or interest in the debtor, or "principally" in
such exchange and "partly" for cash or property.
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Although the issuance of New Senior Notes, New Common Stock and New Warrants
under the Plan satisfies the requirements of Section 1145(a)(1) of the
Bankruptcy Code and is, therefore, exempt from registration under federal and
state securities laws, under certain circumstances subsequent transfers of such
securities may be subject to registration requirements under such securities
laws.
SUBSEQUENT TRANSFERS OF NEW SENIOR NOTES, NEW COMMON STOCK AND NEW
WARRANTS UNDER FEDERAL SECURITIES LAWS
The New Senior Notes, the New Common Stock and New Warrants issued pursuant
to the Plan as well as shares of New Common Stock issuable upon the exercise of
New Warrants will not be "restricted securities" within the meaning of Rule 144
under the Securities Act and may be freely transferred by Holders of Allowed
Class 5 and 6 Claims and Holders of Allowed Class 8 and 9 Interests under the
Securities Act. With respect to subsequent transfers of New Common Stock under
state securities laws, see " -- Subsequent Transfers of New Senior Notes, New
Common Stock and New Warrants Under State Securities Laws." Accordingly, all
resales and subsequent transactions in the New Senior Notes, New Common Stock
and New Warrants are exempt from registration under the Securities Act pursuant
to Section 4(1) of the Securities Act, unless the Holder is deemed to be an
"underwriter" with respect to such securities or an "affiliate" of an issuer.
Section 1145(b) of the Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(ii) persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) persons who offer to buy securities from the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities and (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an "issuer" includes any
"affiliate" of the issuer, which means any person directly or indirectly through
one or more intermediaries controlling, controlled by or under common control
with the issuer. ANY HOLDER OF AN ALLOWED CLAIM OR INTEREST (OR GROUP OF HOLDERS
OF SUCH CLAIMS AND/OR INTERESTS WHO ACT IN CONCERT) WHO RECEIVES A SUBSTANTIAL
AMOUNT OF NEW COMMON STOCK PURSUANT TO THE PLAN MAY BE DEEMED TO BE AN
"AFFILIATE" OF AN ISSUER AND THEREFORE AN "ISSUER" AND THEREFORE AN
"UNDERWRITER" UNDER THE FOREGOING DEFINITIONS.
To the extent that Holders of Allowed Claims or Interests deemed to be
"underwriters" receive New Senior Notes, New Common Stock or New Warrants
pursuant to the Plan, resales by such Holders would not be exempted from
registration under the Securities Act. Holders deemed to be underwriters,
however, may be able to sell such securities without registration subject to the
registration exemption provided by Rule 144, which permits "affiliates" of an
issuer to publicly sell within any three-month period a number of shares that
does not exceed the greater of 1% of the number of outstanding securities in
question or the average weekly trading volume in the securities in question,
during the four calendar weeks preceding the date on which notice of such sale
was filed pursuant to Rule 144, subject to the satisfaction of certain other
requirements of Rule 144 regarding the manner of sale, notice requirements and
the availability of current public information regarding the issuer. In
addition, it is anticipated that Holders of 10% or more of the New Common Stock
will be granted certain shelf, demand and piggyback registration rights
permitting such Holders to have Reorganized Flagstar register under the
Securities Act certain resales of the New Common Stock. See "Description of New
Common Stock -- Registration Rights of Affiliates."
Whether or not any particular person would be deemed to be an "underwriter"
or an "affiliate" with respect to any security to be issued pursuant to the Plan
would depend upon various facts and circumstances applicable to that person.
Accordingly, the Debtors express no view as to whether any person would be an
"underwriter" or an "affiliate" with respect to any security to be issued
pursuant to the Plan. See "Certain Risk Factors -- Restrictions on Resale of
Securities of Reorganized Flagstar."
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY
BE AN UNDERWRITER, FCI AND FLAGSTAR MAKE NO REPRESENTATIONS CONCERNING THE RIGHT
OF ANY PERSON TO TRADE IN THE SECURITIES TO BE TRANSFERRED PURSUANT TO THE PLAN.
FCI AND FLAGSTAR RECOMMEND THAT HOLDERS OF ALLOWED CLAIMS AND ALLOWED INTERESTS
CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH
SECURITIES.
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No precise predictions can be made of the effect, if any, that market sales
of New Senior Notes, New Common Stock or New Warrants or the availability of
such securities for sale will have on the market prices, if any, of such
securities prevailing from time to time. Nevertheless, sales of substantial
amounts of the New Senior Notes, New Common Stock or New Warrants in the public
market or the perception that such sales could occur could adversely affect the
prevailing market prices of the New Senior Notes, New Common Stock and New
Warrants and could impair FCI's and Flagstar's ability to raise capital at that
time through the sale of securities. See "Certain Risk Factors -- Lack of
Trading Market; Volatility."
SUBSEQUENT TRANSFERS OF NEW SENIOR NOTES, NEW COMMON STOCK AND NEW
WARRANTS UNDER STATE SECURITIES LAWS
The state securities laws generally provide registration exemptions for
subsequent transfers by a bona fide owner for his or her own account and
subsequent transfers to institutional or accredited investors.
OTHER INDEBTEDNESS OF REORGANIZED FLAGSTAR
OUTSTANDING LONG-TERM DEBT NOT RETIRED PURSUANT TO PLAN
For information relating to material indebtedness to be retained by certain
subsidiaries of Reorganized Flagstar, see "Description of
Indebtedness -- Mortgage Financings," " -- The FRI-M Credit Facility," and
" -- The FRD Senior Notes."
NEW INDEBTEDNESS OF REORGANIZED FLAGSTAR
For information relating to material indebtedness of Reorganized Flagstar
to be incurred in connection with the Plan, see "Description of
Indebtedness -- New Reorganized Flagstar Indebtedness."
DISTRIBUTIONS UNDER THE PLAN
GENERAL
On the Effective Date or as soon as practicable thereafter to the extent
that the Plan provides for distributions on account of Allowed Claims or Allowed
Interests in the applicable Class, each Holder of an Allowed Claim or Allowed
Interest will receive the full amount of the distributions that the Plan
provides for Allowed Claims or Allowed Interests in the applicable Class.
Beginning on the date that is 30 days after the end of the calendar quarter
following the Effective Date and 30 days after the end of each calendar quarter
thereafter, distributions will also be made, pursuant to Section V.I. of the
Plan, respectively (a) to Holders of Claims or Interests to whom a distribution
has become deliverable during the preceding calendar quarter and (b) to Holders
of Disputed Claims or Disputed Interests in any such Class whose Claims or
Interests were Allowed during the preceding calendar quarter. Such quarterly
distributions will also be in the full amount that the Plan provides for Allowed
Claims or Allowed Interests in the applicable Class.
Except as otherwise provided in the Plan or the Confirmation Order, all
cash necessary for Reorganized Flagstar to make payments pursuant to the Plan
will be obtained from FCI's and Flagstar's existing cash balances, the
operations of FCI, Flagstar or Reorganized Flagstar and the DIP Facility and
Exit Facility, as applicable. See " -- Overview of the Plan -- Summary of
Classes and Treatment of Claims and Interests" and " -- Overview of the
Plan -- Sources of Cash to Make Plan Distributions." Reorganized Flagstar, or
such Person(s) as FCI and Flagstar may employ in their sole discretion, will
serve as Disbursing Agent. The Disbursing Agent will make all distributions of
cash and securities required to be distributed under the applicable provisions
of the Plan. Any Disbursing Agent may employ or contract with other entities to
assist in or make the distributions required by the Plan. Each Disbursing Agent
will serve without bond, and each Disbursing Agent, other than Reorganized
Flagstar, will receive, without further Bankruptcy Court approval, reasonable
compensation for distribution services rendered pursuant to the Plan and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services from Reorganized Flagstar on terms acceptable to Reorganized
Flagstar.
Cash payments made pursuant to the Plan will be in U.S. dollars by checks
drawn on a domestic bank selected by FCI, Flagstar or Reorganized Flagstar, or
by wire transfer from a domestic bank, at the option of FCI and Flagstar or
Reorganized Flagstar. Cash payments of $1,000,000 or more to be made pursuant to
the Plan will, to the extent requested in writing no later than five days after
the Confirmation Date, be made by wire transfer from a domestic bank. Cash
payments to foreign creditors may be made, at the option of FCI and Flagstar or
Reorganized Flagstar, in such funds and by such means as are necessary or
customary in a particular foreign jurisdiction.
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The Plan provides that the Disbursing Agent will make all distributions
required under the applicable provisions of the Plan. No distributions under the
Plan will be made to or on behalf of any Holder of any Allowed Claim or Allowed
Interest evidenced by the instruments, securities or other documentation
cancelled pursuant to Section IX.C of the Plan, unless such Holder first tenders
the applicable instruments, securities or other documentation to the Disbursing
Agent. See " -- Surrender of Cancelled Debt Instruments or Securities."
TIMING AND METHODS OF DISTRIBUTIONS
TRANSFERS OF NEW COMMON STOCK
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Common Stock will be issued or transferred, as the case may be,
pursuant to the Plan. When any distribution on account of an Allowed Claim or
Interest pursuant to the Plan would otherwise result in the issuance or transfer
of a number of shares of New Common Stock that is not a whole number, the actual
distribution will be rounded to the next higher or lower whole number as
follows: (a) fractions of 1/2 or greater will be rounded to the next higher
whole number and (b) fractions of less than 1/2 will be rounded to the next
lower whole number. The total number of shares of New Common Stock to be
distributed to a Class of Claims or Interests will be adjusted as necessary to
account for the rounding provided for in Section V.C.2 of the Plan. No
consideration will be provided in lieu of fractional shares that are rounded
down.
COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable, the Disbursing Agent
must comply with all tax withholding and reporting requirements imposed on it by
any governmental unit, and all distributions pursuant to the Plan will be
subject to such withholding and reporting requirements. The Disbursing Agent
will be authorized to take any and all actions that may be necessary or
appropriate to comply with such withholding and reporting requirements.
Notwithstanding any other provision of the Plan: (i) each Holder of an
Allowed Claim or Interest that is to receive a distribution of cash or New
Senior Notes, New Common Stock or New Warrants pursuant to the Plan will have
sole and exclusive responsibility for the satisfaction and payment of any tax
obligations imposed by any governmental unit, including income, withholding and
other tax obligations, on account of such distribution; and (ii) no distribution
will be made to or on behalf of such Holder pursuant to the Plan unless and
until such Holder has made arrangements satisfactory to the Disbursing Agent for
the payment and satisfaction of such tax obligations. Any cash, New Senior
Notes, New Common Stock or New Warrants to be distributed pursuant to the Plan
will, pending the implementation of such arrangements, be treated as an
undeliverable distribution pursuant to Section V.C of the Plan.
RECORD DATE
As of the close of business on the Record Date, the transfer registers for
the Old Equity Securities maintained by FCI and Flagstar, or their respective
agents, will be closed. The Disbursing Agent and the respective agents of FCI
and Flagstar will have no obligation to recognize the transfer of the Old Debt
and the Old Equity Securities occurring after the Record Date, and will be
entitled for all purposes relating to the Plan to recognize and deal only with
those Holders of record as of the close of business on the Record Date.
SURRENDER OF CANCELLED DEBT INSTRUMENTS OR SECURITIES
Under Section V.F of the Plan, as a condition precedent to receiving any
distribution pursuant to the Plan on account of an Allowed Claim or Allowed
Interest evidenced by the instruments, securities or other documentation
("Instruments") canceled pursuant to the Plan, the Holder of such Claim or
Interest shall tender the applicable Instruments evidencing such Claim or
Interest to the Disbursing Agent pursuant to a letter of transmittal furnished
by the Disbursing Agent. Any cash or New Senior Notes, New Common Stock or New
Warrants to be distributed pursuant to the Plan on account of any such Claim or
Interest will, pending such surrender, be treated as an undeliverable
distribution pursuant to Section V.G of the Plan.
SPECIAL PROCEDURES FOR LOST, STOLEN, MUTILATED OR DESTROYED INSTRUMENTS
In addition to any requirements under FCI's or Flagstar's Certificates of
Incorporation or FCI's or Flagstar's Bylaws, any Holder of a Claim or an
Interest evidenced by an Instrument that has been lost, stolen, mutilated or
destroyed will, in lieu of surrendering such Instrument, deliver to the
Disbursing Agent: (a) evidence satisfactory to the Disbursing Agent of the loss,
theft, mutilation or destruction; and (b) such security or indemnity as may be
required by the Disbursing Agent to hold the Disbursing Agent harmless from any
damages, liabilities or costs incurred in treating such individual as a Holder
of an
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Instrument. Upon compliance with Section V.F of the Plan, the Holder of a Claim
or Interest evidenced by such an Instrument will, for all purposes under the
Plan, be deemed to have surrendered an Instrument, as applicable.
FAILURE TO SURRENDER CANCELLED INSTRUMENT
Any Holder of an Instrument that fails to surrender or be deemed to have
surrendered such Instrument within two years after the Effective Date will have
its claim for a distribution pursuant to the Plan on account of such Instrument
discharged and shall be forever barred from asserting any such claim against
Reorganized Flagstar or its property. In such cases, any cash or New Senior
Notes, New Common Stock or New Warrants held for distribution on account of such
claim will be disposed of pursuant to the provisions of Section V.G of the Plan.
UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
If the distribution to any Holder of an Allowed Claim or Allowed Interest
is returned to a Disbursing Agent as undeliverable, no further distributions
will be made to such Holder unless and until the applicable Disbursing Agent is
notified in writing of such Holder's then-current address. Undeliverable
distributions will remain in the possession of the Disbursing Agent pursuant to
Section V.G of the Plan until such time as a distribution becomes deliverable.
Undeliverable cash will be held in trust in segregated bank accounts in the name
of the Disbursing Agent for the benefit of the potential claimants of such
funds, and will be accounted for separately. The Disbursing Agent holding
undeliverable cash shall invest such cash in a manner consistent with FCI's and
Flagstar's investment and deposit guidelines. Undeliverable New Senior Notes,
New Common Stock or New Warrants will be held in trust for the benefit of the
potential claimants of such securities by the Disbursing Agent in principal
amounts or number of shares sufficient to fund the unclaimed amounts of such
securities and shall be accounted for separately.
Pending the distribution of any New Common Stock, pursuant to the Plan, the
Disbursing Agent will cause the New Common Stock held by it in its capacity as
Disbursing Agent to be: (A) represented in person or by proxy at each meeting of
the stockholders of Reorganized Flagstar; and (B) voted with respect to any
matter of Reorganized Flagstar, proportionally with the votes cast by other
stockholders of Reorganized Flagstar.
OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS; CLAIMS RESOLUTION
After the Confirmation Date, only FCI, Flagstar and Reorganized Flagstar
will have the authority to file objections, settle, compromise, withdraw or
litigate to judgment objections to Claims and Interests. From and after the
Confirmation Date, FCI, Flagstar and Reorganized Flagstar may settle or
compromise any Disputed Claim or Disputed Interest without approval of the
Bankruptcy Court.
DISPUTED CLAIMS; RESERVE AND ESTIMATIONS
TREATMENT OF DISPUTED CLAIMS
NO PAYMENT ON ACCOUNT OF DISPUTED CLAIMS AND DISPUTED CLAIMS RESERVE.
Notwithstanding any other provisions of the Plan, no payments or distributions
will be made on account of a Disputed Claim or a Disputed Interest until such
Claim or Interest becomes an Allowed Claim or Allowed Interest. Prior to the
Petition Date, FCI and Flagstar will deliver Stipulations of Amount and Nature
of Claim to the Holders of Bank Claims and to Indenture Trustees. Such
stipulations, once executed, will be treated as Allowed Claims as of the
Petition Date in the amounts set forth in such Stipulation of Amount and Nature
of Claim and will not be treated as Disputed Claims. FCI and Flagstar or
Reorganized Flagstar may, at any time, request that the Bankruptcy Court
estimate any contingent or unliquidated Claim pursuant to Section 502(c) of the
Bankruptcy Code, irrespective of whether FCI and Flagstar or Reorganized
Flagstar has previously objected to such Claim or whether the Bankruptcy Court
has ruled on any such objection. The Bankruptcy Court will retain jurisdiction
to estimate any contingent or unliquidated Claim at any time during litigation
concerning any objection to the Claim, including during the pendency of any
appeal relating to any such objection. If the Bankruptcy Court estimates any
contingent or unliquidated Claim, that estimated amount will constitute either
the Allowed Amount of such Claim or a maximum limitation on such Claim, as
determined by the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on such Claim, FCI and Flagstar or Reorganized Flagstar may
elect to pursue any supplemental proceedings to object to any ultimate payment
on account of such Claim. All of these Claims objection, estimation and
resolution procedures are cumulative and not necessarily exclusive of one
another. In addition to seeking estimation of Claims as provided in Section V.I
of the Plan, FCI and Flagstar or Reorganized Flagstar may resolve or adjudicate
certain Disputed Claims of Holders in Unimpaired Classes in the
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manner in which the amount of such Claim and the rights of the Holder of such
Claim would have been resolved or adjudicated if the Reorganization Cases had
not been commenced, subject to any applicable discharge and limitations on
amounts of claims and remedies available under bankruptcy law. Claims may be
subsequently compromised, settled, withdrawn or resolved by FCI and Flagstar or
Reorganized Flagstar pursuant to Section V.I of the Plan.
DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY ARE ALLOWED
Within 30 days after the end of each calendar quarter following the
Effective Date, the Disbursing Agent will make all distributions on account of
any Disputed Claim or Disputed Interest that has become an Allowed Claim or
Allowed Interest during the preceding calendar quarter. Such distributions will
be made pursuant to the provisions of the Plan governing the applicable Class.
Holders of Disputed Claims or Disputed Interests that are ultimately allowed
will also be entitled to receive, on the basis of the amount ultimately allowed:
(i) matured and payable interest, if any, at the rate provided for the Class to
which such Claim belongs; and (ii) any dividends or other payments made on
account of New Common Stock held pending distribution.
SETOFFS
Except with respect to claims of FCI and Flagstar or Reorganized Flagstar
released pursuant to the Plan or any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, FCI and
Flagstar or Reorganized Flagstar may, pursuant to Section 553 of the Bankruptcy
Code or applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that FCI and Flagstar or Reorganized Flagstar may
hold against the Holder of such Allowed Claim; provided, however, that neither
the failure to effect such a setoff nor the allowance of any Claim hereunder
will constitute a waiver or release by FCI and Flagstar or Reorganized Flagstar
of any such claims, rights and causes of action that FCI and Flagstar or
Reorganized Flagstar may possess against such Holder.
TERMINATION OF SUBORDINATION
The classification and manner of satisfying all Claims and Interests under
the Plan take into consideration all contractual, legal and equitable
subordination rights, whether arising under general principles of equitable
subordination, Section 510(c) of the Bankruptcy Code or otherwise, that a Holder
of a Claim or Interest may have against other Claim or Interest Holders with
respect to any distribution made pursuant to the Plan. On the Confirmation Date,
all contractual, legal or equitable subordination rights that a Holder of a
Claim or Interest may have with respect to any distribution to be made pursuant
to the Plan will be discharged and terminated, and all actions related to the
enforcement of such subordination rights will be permanently enjoined.
Accordingly, distributions pursuant to the Plan to Holders of Allowed Claims and
Allowed Interests shall not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or other
legal process by any beneficiary of such terminated subordination rights.
GENERAL INFORMATION CONCERNING THE PLAN
The following is a summary of certain additional information concerning the
Plan. This summary is qualified in its entirety by reference to the provisions
of the Plan. For a discussion of the classification and treatment of Claims and
Interests under the Plan, see " -- Overview of the Plan -- Summary of Classes
and Treatment of Claims and Interests."
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under Section 365 of the Bankruptcy Code, FCI and Flagstar have the right,
subject to Bankruptcy Court approval, to assume or reject any executory
contracts or unexpired leases. If an executory contract or unexpired lease
entered into before the Petition Date is rejected by FCI and Flagstar, it will
be treated as if FCI and Flagstar breached such contract or lease on the date
immediately preceding the Petition Date, and the other party to the agreement
may assert an Unsecured Claim for damages incurred as a result of the rejection.
In the case of rejection of employment agreements and real property leases,
damages are subject to certain limitations imposed by Sections 365 and 502 of
the Bankruptcy Code.
ASSUMPTIONS
Except as otherwise provided in the Plan, including Section VII of the
Plan, or in any contract, instrument, release, indenture or other agreement or
document entered into in connection with the Plan, on the Effective Date,
pursuant to Section
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365 of the Bankruptcy Code, Reorganized Flagstar will assume each executory
contract and unexpired lease entered into by FCI and Flagstar prior to the
Petition Date that has not previously (a) expired or terminated pursuant to its
own terms or (b) been assumed or rejected pursuant to Section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an Order of the
Bankruptcy Court approving the assumptions described in Section VII. A of the
Plan, pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
CURE OF DEFAULTS IN CONNECTION WITH ASSUMPTION
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant to
Section 365(b)(1) of the Bankruptcy Code, at the option of FCI and Flagstar or
Reorganized Flagstar: (a) by payment of the default amount in cash on the
Effective Date or (b) on such other terms as are agreed to by the parties to
such executory contract or unexpired lease. If there is a dispute regarding: (i)
the amount of any cure payments; (ii) the ability of Reorganized Flagstar to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
REJECTIONS
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to Section 365 of the Bankruptcy
Code, FCI and Flagstar will reject each of the executory contracts and unexpired
leases listed on an exhibit to the Plan; provided, however, that FCI and
Flagstar reserve the right, at any time prior to the Effective Date, to amend
such exhibit to delete any executory contract or unexpired lease listed therein,
thus providing for its assumption pursuant to Section VII of the Plan. Each
contract and lease listed on such exhibit will be rejected only to the extent
that any such contract or lease constitutes an executory contract or unexpired
lease. Listing a contract or lease on such exhibit will not constitute an
admission by FCI and Flagstar or Reorganized Flagstar that such contract or
lease is an executory contract or unexpired lease or that FCI and Flagstar or
Reorganized Flagstar has any liability thereunder. The Confirmation Order shall
constitute an Order of the Bankruptcy Court approving such rejections, pursuant
to Section 365 of the Bankruptcy Code, as of the Effective Date.
BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant to
Section VII. C of the Plan gives rise to a Claim by the other party or parties
to such contract or lease, such Claim shall be forever barred and shall not be
enforceable against FCI, Flagstar, Reorganized Flagstar, their successors or
properties unless (a) a Stipulation of Amount and Nature of Claim has been
entered into with respect to the rejection of such executory contract or
unexpired lease or (b) a proof of Claim is Filed and served on Reorganized
Flagstar and counsel for Reorganized Flagstar within 30 days after the Effective
Date or such earlier date as established by the Bankruptcy Court.
CONTINUATION OF CERTAIN RETIREMENT AND OTHER BENEFITS
All employment, retirement and other related agreements and incentive
compensation programs to which FCI or Flagstar is a party are treated as
executory contracts under the Plan, and, on the Effective Date, will be assumed
pursuant to Sections 365 and 1123 of the Bankruptcy Code.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER OBLIGATIONS
INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other obligations
incurred after the Petition Date by FCI and Flagstar shall be performed by FCI,
Flagstar or Reorganized Flagstar in the ordinary course of their businesses.
Accordingly, such executory contracts, unexpired leases and other obligations
shall survive and remain unaffected by entry of the Confirmation Order.
LEGAL EFFECTS OF THE PLAN
CONTINUED CORPORATE EXISTENCE; VESTING OF ASSETS IN REORGANIZED FLAGSTAR
Reorganized Flagstar will exist after the Effective Date as a separate
corporate entity, with all of the powers of a corporation under the general
corporation law of Delaware, and without prejudice to any right to alter or
terminate its existence (whether by merger or otherwise). Except as otherwise
provided in the Plan, on and after the Effective Date, all property of
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the Estates, including all claims, rights and causes of action (other than those
released pursuant to Section XI.C of the Plan), and any property acquired by
FCI, Flagstar or Reorganized Flagstar under or in connection with the Plan, will
vest in Reorganized Flagstar free and clear of all Claims, liens, charges,
encumbrances and Interests. On and after the Effective Date, Reorganized
Flagstar may operate its business and may use, acquire and dispose of property
and compromise or settle any Claims or Interests without supervision or approval
by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules, other than restrictions expressly imposed by the Plan or the
Confirmation Order. Without limiting the foregoing, Reorganized Flagstar may pay
the charges that it incurs on or after the Effective Date for professionals'
fees, disbursements, expenses or related support services without application to
the Bankruptcy Court, except for compensation or reimbursement of expenses for
any services rendered after the Effective Date in connection with any
applications for compensation and reimbursement pending on the Effective Date or
Filed and served after the Effective Date pursuant to Section IV.A.2.d(2) of the
Plan.
PRESERVATION OF RIGHTS OF ACTION HELD BY FCI, FLAGSTAR OR REORGANIZED
FLAGSTAR
Except as provided in the Plan, or in any contract, instrument, release,
indenture or other agreement entered into in connection with the Plan, in
accordance with Section 1123(b) of the Bankruptcy Code, Reorganized Flagstar
will retain and may enforce any claims, rights and causes of action that FCI,
Flagstar or their Estates may hold against any entity. Reorganized Flagstar or
its successors may pursue such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of Reorganized Flagstar.
DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS; RELATED INJUNCTION
DISCHARGE. Except as provided in the Plan or the Confirmation Order,
Confirmation will: (a) discharge FCI and Flagstar from all Claims or other debts
that arose before the Confirmation Date and all debts of the kind specified in
Sections 502(g), 502(h) or 502 (i) of the Bankruptcy Code, whether or not: (i) a
proof of Claim based on such debt is filed or deemed filed pursuant to Section
501 of the Bankruptcy Code, (ii) a Claim based on such debt is Allowed pursuant
to Section 502 of the Bankruptcy Code or (iii) the Holder of a Claim based on
such debt has accepted the Plan; and (b) terminate all Interests and other
rights of equity security holders in FCI and Flagstar.
As of the Confirmation Date, except as provided in the Plan or the
Confirmation Order, all entities will be precluded from asserting against FCI
and Flagstar, Reorganized Flagstar, Plan Participants (as defined below), their
successors or their property, any other or further claims, debts, rights, causes
of action, liabilities or equity interests relating to FCI and Flagstar based
upon any act, omission, transaction or other activity of any nature that
occurred on or prior to the Confirmation Date. In accordance with the foregoing,
except as provided in the Plan or the Confirmation Order, the Confirmation Order
will be a judicial determination of discharge of all such Claims and other debts
and liabilities against FCI and Flagstar and termination of all such Interests
and other rights of equity security holders in FCI and Flagstar, pursuant to
Sections 524 and 1141 of the Bankruptcy Code, and such discharge will void any
judgment obtained against FCI and Flagstar at any time, to the extent that such
judgment relates to a discharged Claim or terminated Interest.
INJUNCTIONS. Except as provided in the Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Interest or
other right of an equity security holder that is terminated pursuant to the
terms of the Plan are permanently enjoined from taking any of the following
actions against FCI, Flagstar, Reorganized Flagstar or its property on account
of any such discharged Claims, debts or liabilities or terminated Interests or
rights: (a) commencing or continuing, in any manner or in any place, any action
or other proceeding; (b) enforcing, attaching, collecting or recovering in any
manner any judgment, award, decree or order; (c) creating, perfecting or
enforcing any lien or encumbrance; (d) asserting a setoff, right of subrogation
or recoupment of any kind against any debt, liability or obligation due to FCI,
Flagstar or Reorganized Flagstar; and (e) commencing or continuing, in any
manner or in any place, any action that does not comply with or is inconsistent
with the provisions of the Plan.
RELEASED CLAIMS. As of the Effective Date, all entities that have held,
currently hold or may hold a claim, demand, debt, right, cause of action or
liability that is released pursuant to Section XI.C of the Plan are permanently
enjoined from taking any of the following actions on account of such released
claims, demands, debts, rights, causes of action or liabilities: (a) commencing
or continuing in any manner any action or other proceeding; (b) enforcing,
attaching, collecting or recovering in any manner any judgment, award, decree or
order; (c) creating, perfecting or enforcing any lien or encumbrance; (d)
asserting a setoff, right of subrogation or recoupment of any kind against any
debt, liability or obligation due to any released entity; and (e) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
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RELEASES AND CERTAIN SETTLEMENTS UNDER THE PLAN; RELATED INJUNCTION; INDEMNITY
On the Effective Date, the Company will release unconditionally (i) each of
the Company's officers, directors, stockholders, employees, consultants,
attorneys, accountants, financial advisors and other representatives, (ii) the
Creditors' Committee and, solely in their capacity as members or representatives
of the Creditors' Committee, each member, consultant, attorney, accountant or
other representative of the Creditors' Committee, (iii) the Ad Hoc
Debentureholders Committee and, solely in their capacity as members or
representatives of the Ad Hoc Debentureholders Committee, each member,
consultant, attorney, accountant or other representative of the Ad Hoc
Debentureholders Committee and (iv) the Indenture Trustees, in their respective
capacities as Indenture Trustee (the entities specified in clauses (i), (ii),
(iii), and (iv) and their respective Designated Professionals are referred to
collectively as the "Releasees"), from any and all claims, obligations, suits,
judgments, damages, rights, causes of action and liabilities whatsoever, whether
known or unknown, foreseen or unforeseen, existing or hereafter arising, in law,
equity or otherwise, based in whole or in part upon any act or omission,
transaction, event or other occurrence taking place on or prior to the Effective
Date in any way relating to the Releasees, the Company, the Reorganization Cases
or the Plan.
On the Effective Date, each holder of a Claim or Interest shall be deemed
to have unconditionally released the Releasees from any and all rights, claims,
causes of action, obligations, suits, judgments, damages and liabilities
whatsoever which any such holder may be entitled to assert, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part upon any act or omission, transaction,
event or other occurrence taking place on or before the Effective Date in any
way relating to the Company, the Reorganization Cases or the Plan.
The Company has also indemnified the Company's officers, directors,
employees, consultants, attorneys, financial advisors, accountants and other
representatives and the Ad Hoc Debentureholders Committee, the members thereof,
in their capacity as members, and its consultants, advisors, attorneys,
accountants and other representatives for any matter in connection with or
related to the Plan and the reorganization other than matters arising from such
person's gross negligence or willful misconduct. The indemnification obligations
will be assumed by Reorganized Flagstar.
LIMITATION OF LIABILITY
Section 1123(b)(5) of the Bankruptcy Code provides that a plan of
reorganization may contain any appropriate provision that is not inconsistent
with the applicable provisions of the Bankruptcy Code. Pursuant to Section
1125(e) of the Bankruptcy Code, the Plan provides that a person that solicits
acceptance or rejection of plan (a "Plan Participant") will neither have nor
incur any liability to any entity, including, specifically any Holder of a Claim
or Interest, for any act taken or omitted to be taken in connection with or
related to the formulation, preparation, dissemination, implementation,
Confirmation or consummation of the Plan, the Prospectus, the Confirmation Order
or any contract, instrument, release or other agreement or document created or
entered into, or any other act taken or omitted to be taken in connection with
the Plan, the Prospectus or the Confirmation Order, including solicitation of
acceptances of the Plan. Reorganized Flagstar will indemnify each Plan
Participant, hold each Plan Participant harmless from, and reimburse each Plan
Participant for, any and all losses, costs, expenses (including attorneys' fees
and expenses), liabilities and damages sustained by a Plan Participant arising
from any liability described in Section XI. D of the Plan.
The limitation of liability described above is in addition to the so-called
"safe harbor" provision of Section 1125(e) of the Bankruptcy Code. Section
1125(e) provides in general that a person who, in good faith and in compliance
with the applicable provisions of the Bankruptcy Code, either (i) solicits
acceptance or rejection of a plan of reorganization, or (ii) participates in the
offer, issuance, sale or purchase of a security under a plan, is not liable on
account of such solicitation or participation for violation of any applicable
law governing solicitation of acceptance or rejection of a plan of
reorganization or the offer, issuance, sale or purchase of securities under a
plan. If FCI and Flagstar commence the Reorganization Cases and file the Plan
with the Bankruptcy Court, FCI and Flagstar expect promptly to seek an Order
from the Bankruptcy Court finding that their solicitation of acceptances and
rejections from Holders of Claims was in compliance with the Securities Act and
the Exchange Act and the rules and regulations thereunder and the provisions of
Sections 1125 and 1126 of the Bankruptcy Code. If the Bankruptcy Court makes
such a finding, management of FCI and Flagstar believe that the limitations of
liability provided under Section 1125(e) of the Bankruptcy Code will be applied
to this solicitation of acceptances of the Plan, and FCI and Flagstar may
request that the Bankruptcy Court make such a finding in connection with
Confirmation.
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RETENTION OF BANKRUPTCY COURT JURISDICTION
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court will retain such jurisdiction over the
Reorganization Cases after the Effective Date, including, without limitation,
jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or
Interest, including the resolution of any request for payment of any
Administrative Claim, the resolution of any objections to the allowance or
priority of Claims or Interests and the resolution of any dispute as to the
treatment necessary to reinstate a Claim pursuant to the Plan;
(ii) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending before the Effective Date;
(iii) Resolve any matters related to the assumption or rejection of
any executory contract or unexpired lease to which FCI or Flagstar is a
party or with respect to which FCI or Flagstar may be liable, and to hear,
determine and, if necessary, liquidate any Claims arising therefrom;
(iv) Ensure that distributions to Holders of Allowed Claims or Allowed
Interests are accomplished pursuant to the provisions of the Plan;
(v) Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving FCI, Flagstar or Reorganized Flagstar that may be pending on the
Effective Date;
(vi) Enter such Orders as may be necessary or appropriate to implement
or consummate the provisions of the Plan and all contracts, instruments,
releases, indentures and other agreements or documents created in
connection with the Plan, the Prospectus or the Confirmation Order, except
as otherwise provided herein;
(vii) Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of
the Plan or the Confirmation Order, including the release and injunction
provisions set forth in and contemplated by the Plan and the Confirmation
Order, or any entity's rights arising under or obligations incurred in
connection with the Plan or the Confirmation Order;
(viii) Subject to any restrictions on modifications provided in any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, modify the Plan before or after the
Effective Date pursuant to Section 1127 of the Bankruptcy Code or modify
the Prospectus, the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document created in connection
with the Plan, the Prospectus or the Confirmation Order; or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court
Order, the Plan, the Prospectus, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan, the Prospectus or the Confirmation Order, in such
manner as may be necessary or appropriate to consummate the Plan, to the
extent authorized by the Bankruptcy Code;
(ix) Issue injunctions, enter and implement other Orders or take such
other actions as may be necessary or appropriate to restrain interference
by any entity with consummation, implementation or enforcement of the Plan
or the Confirmation Order;
(x) Enter and implement such Orders as are necessary or appropriate if
the Confirmation Order is for any reason modified, stayed, reversed,
revoked or vacated;
(xi) Determine any other matters that may arise in connection with or
relating to the Plan, the Prospectus, the Confirmation Order or any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, the Prospectus or the Confirmation
Order, except as otherwise provided in the Plan; and
(xii) Enter an Order concluding the Reorganization Cases.
ACTIONS INTENDED TO BE TAKEN CONCURRENTLY WITH THE COMMENCEMENT OF THE
REORGANIZATION CASES
FCI and Flagstar do not expect the Reorganization Cases to be protracted.
To expedite their emergence from Chapter 11, FCI and Flagstar intend to seek the
relief detailed below, among other relief, from the Bankruptcy Court on the
Petition Date. Such relief, if granted, will facilitate the administration of
the Reorganization Cases; there can be no assurance, however, that the
Bankruptcy Court will grant the relief sought.
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APPLICATIONS FOR RETENTION OF PROFESSIONALS; ORDINARY COURSE PROFESSIONALS
FCI and Flagstar intend to seek retention of certain professionals to
represent it and assist it in connection with the Reorganization Cases. These
professionals were intimately involved with the negotiation and development of
the Plan. These professionals may include, among others: (i) Latham & Watkins,
as counsel for FCI and Flagstar; (ii) Parker, Poe, Adams & Bernstein L.L.P., as
counsel for FCI and Flagstar; (iii) Weil, Gotshal & Manges L.L.P., as counsel
for FCI and Flagstar; and (iv) Young, Conaway, Stargatt & Taylor, as counsel for
FCI and Flagstar; FCI and Flagstar also intend to seek authority to retain
certain professionals to assist with the operations of the Company's businesses
in the ordinary course; these so-called "ordinary course professionals" will not
be involved in the administration of the Reorganization Cases.
MOTION TO WAIVE FILING OF SCHEDULES AND STATEMENT OF FINANCIAL AFFAIRS
Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007 direct that
debtors must prepare and file certain schedules of claims, executory contracts
and unexpired leases and related information (the "Schedules") and a statement
of financial affairs (the "Statement") when a Chapter 11 case is commenced. The
purpose of filing the Schedules and the Statement is to provide a debtor's
creditors, equity interest holders and other interested parties with sufficient
information to make informed decisions regarding the debtor's reorganization.
Filing the Schedules and the Statement is not mandatory, however. A bankruptcy
court may modify or dispense with the filing of the Schedules and the Statement
pursuant to Section 521 of the Bankruptcy Code. FCI and Flagstar believe that
the Reorganization Cases constitute ideal cases wherein the filing of the
Statement and the Schedules should not be required. Therefore, FCI and Flagstar
intend to request that the Bankruptcy Court waive the necessity of filing the
Schedules and the Statement.
MOTION TO MAIL NOTICES AND TO PROVIDE ONLY PUBLICATION NOTICE OF FIRST
MEETING OF CREDITORS TO UNIMPAIRED CREDITORS
Pursuant to the Bankruptcy Rules, the Clerk of the Bankruptcy Court, or
another party that the court may direct, must provide notice of the commencement
of the Reorganization Cases and of the first meeting of creditors held pursuant
to Section 341 of the Bankruptcy Code (the "Section 341 Meeting") to all
creditors. In addition, at least two other notices, notice of the hearing to
approve the Prospectus/Confirmation of the Plan and notice of the entry of an
Order Confirming the Plan must be given to all creditors and equity security
Holders. Due to the size of the Reorganization Cases and the large number of
creditors and equity security holders, FCI and Flagstar shall request that FCI
and Flagstar, or their noticing agent, be authorized to mail all required
notices in the Reorganization Cases. In addition, because several classes of
claims, which include thousands of creditors, are not impaired under the Plan
and will pass through the Reorganization Cases unaffected, FCI and Flagstar
shall request that they be authorized to provide only publication notice of the
events set forth above, in several newspapers of national circulation, to
Holders of Unimpaired Claims.
MOTION TO CONTINUE USING EXISTING CASH MANAGEMENT SYSTEM
Because FCI and Flagstar expect the Reorganization Cases to be pending for
less than two months, and because of the administrative hardship that any
operating changes would impose on them, FCI and Flagstar intend to seek
authority to continue using their existing cash management system, bank accounts
and business forms and to follow their internal investment and deposit
guidelines. Absent the Bankruptcy Court's authorization of the continued use of
the cash management system, cash flow among FCI and Flagstar would be impeded,
to the detriment of their Estates and their creditors.
Continued use of their existing cash management system will facilitate
FCI's and Flagstar's smooth and orderly transition into Chapter 11, minimize the
disruption to their businesses while in Chapter 11 and expedite their emergence
from Chapter 11. As a result of set-up time and expenses, requiring FCI and
Flagstar to adopt and implement a new cash management system would likely
increase the costs of the Reorganization Cases. For the same reasons, requiring
FCI and Flagstar to cancel their existing bank accounts and establish new
accounts or requiring FCI and Flagstar to create new business forms would only
frustrate FCI's and Flagstar's efforts to reorganize expeditiously.
MOTION FOR AUTHORITY TO ENTER INTO DIP FACILITY; USE OF CASH COLLATERAL
Management of FCI and Flagstar believes that the DIP Facility is critical
to FCI's and Flagstar's operations during the pendency of the Reorganization
Cases, and has entered into a written commitment letter pursuant to which it has
a commitment from Chase, subject to certain conditions, regarding the DIP
Facility. FCI and Flagstar will seek authorization to enter into the DIP
Facility, on terms customary for Chapter 11 debtor in possession credit
facilities. Depending upon the relief granted by the Bankruptcy Court with
respect to such facility, FCI and Flagstar might also seek authorization to use
cash collateral, as that term is defined in Section 363(a) of the Bankruptcy
Code.
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MOTION FOR AUTHORITY TO PAY PREPETITION TRADE CLAIMS
Trade Claims are defined in the Plan as prepetition General Unsecured
Claims against FCI and Flagstar arising from or with respect to the delivery of
goods or services to FCI and Flagstar in the ordinary course of FCI and
Flagstar's business; they are included in Class 7. Notwithstanding provisions of
the Bankruptcy Code that would otherwise require FCI and Flagstar to defer
payment of Trade Claims until the Effective Date, FCI and Flagstar intend to
seek authority from the Bankruptcy Court to pay Trade Claims in the ordinary
course of their businesses.
MOTION FOR AUTHORITY TO PAY PREPETITION EMPLOYEE WAGES AND ASSOCIATED
BENEFITS
FCI and Flagstar believe that any delay in paying prepetition compensation
or benefits to their employees would destroy the Company's relationships with
employees and irreparably harm employee morale at a time when the dedication,
confidence and cooperation of the Company's employees are most critical.
Accordingly, FCI and Flagstar will seek authority to pay compensation and
benefits which were accrued but unpaid as of the Petition Date.
MOTION FOR AUTHORITY TO MAINTAIN WORKERS' COMPENSATION INSURANCE POLICIES
AND TO PAY PREPETITION WORKERS' COMPENSATION CLAIMS
To ensure that the Company's workers' compensation, automobile and general
liability insurance coverage remain in effect, FCI and Flagstar shall seek
authority to assume and maintain their workers' compensation, automobile and
general liability insurance policies.
In this motion, FCI and Flagstar shall also seek to pay retroactive
prepetition premiums on certain other workers' compensation insurance policies
and to honor prepetition workers' compensation claims. The failure to maintain
such insurance by the payment of the premiums could subject FCI and Flagstar or
their officers to criminal penalties.
TIMETABLE FOR REORGANIZATION CASES
Following the Petition Date, FCI and Flagstar expect the Reorganization
Cases to proceed on the following estimated timetable. There can be no
assurance, however, that the Bankruptcy Court's Orders to be entered on or after
the Petition Date will permit the Reorganization Cases to proceed as
expeditiously as anticipated.
FCI and Flagstar anticipate that the hearing on the adequacy of this
Prospectus as constituting the Disclosure Statement in the Reorganization Cases
would occur on or about Day 30 of the Reorganization Cases. If the Bankruptcy
Court approves FCI's and Flagstar's Disclosure Statement as containing "adequate
information," as that term is defined in Section 1125 of the Bankruptcy Code,
then FCI and Flagstar will immediately seek Confirmation of the Plan on the same
day as the hearing on the Disclosure Statement.
Assuming that the Plan is confirmed at the initial Confirmation Hearing,
the Plan provides that the Effective Date will be a Business Day, as determined
by FCI and Flagstar, that is as soon as reasonably practicable but that is at
least 11 days after the Confirmation Date and on which: (a) no stay of the
Confirmation Order is in effect and (b) all conditions to the Effective Date set
forth in Section X of the Plan have been satisfied or waived (if available)
pursuant to Section X.C of the Plan.
Under the foregoing timetable, FCI and Flagstar would emerge from the
Reorganization Cases within 45 to 60 days after the Petition Date. There can be
no assurance, however, that this projected timetable can be achieved.
COMMITTEES
To facilitate negotiations and otherwise provide for a unified and
efficient representation of unsecured creditors and equity interest holders with
similar rights and interests, the U.S. Trustee will generally appoint one or
more statutory committees as soon as practicable after the Petition Date,
pursuant to Section 1102 of the Bankruptcy Code. Ordinarily, one committee will
be appointed to represent unsecured creditors, but the U.S. Trustee may appoint
additional committees to represent equity interest holders and/or creditors if
deemed necessary to assure adequate representation of creditors or equity
interest holders. A creditors' committee will ordinarily consist of those
creditors willing to serve who hold the seven largest claims against FCI and
Flagstar of those claims to be represented by the committee, or such other
number of creditors as appointed by the U.S. Trustee. The fees and expenses of
such committees, including those of legal counsel and financial advisors, are
paid for from FCI and Flagstar's Estates. The committees organized prior to the
Petition Date may serve as official committees during FCI's and Flagstar's
Chapter 11 case if the U.S. Trustee determines that such committees' members
were fairly chosen and representative of the claims or equity interest to be
represented, and such committees' members indicate their
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willingness to serve. Holders of equity interests are not ordinarily represented
by an official committee, but such a committee may be appointed if the
Bankruptcy Court determines such an official committee to be necessary to assure
the adequate representation of Interest Holders. Committees appointed by the
U.S. Trustee would be considered parties in interest and would have a right to
be heard on all matters concerning the Chapter 11 cases, including the
Confirmation of the Plan, and, additionally, would be entitled to consult with
FCI and Flagstar concerning the administration of the Reorganization Cases and
perform such other functions and services that would further the interests of
those creditors or Interest Holders they represent.
VOTING AND CONFIRMATION OF THE PLAN
The Bankruptcy Code requires that, in order to confirm the Plan, the
Bankruptcy Court must make a series of findings concerning the Plan and FCI and
Flagstar, including, without limitation, that (i) the Plan has classified Claims
and Interests in a permissible manner, (ii) the Plan complies with applicable
provisions of the Bankruptcy Code, (iii) FCI and Flagstar have complied with
applicable provisions of the Bankruptcy Code, (iv) FCI and Flagstar have
proposed the Plan in good faith and not by any means forbidden by law, (v) the
disclosure required by Section 1125 of the Bankruptcy Code has been made, (vi)
the Plan has been accepted by the requisite votes of creditors (except to the
extent that cramdown is available under Section 1129(b) of the Bankruptcy Code)
(see " -- Acceptance or Cramdown"), (vii) the Plan is feasible and Confirmation
is not likely to be followed by the liquidation or the need for further
financial reorganization of FCI and Flagstar, (viii) the Plan is in the "best
interests" of all Holders of Claims or Interests in an impaired Class in that it
provides to such Holders on account of their Claims or Interests property of a
value, as of the Effective Date, that is not less than the amount that such
Holder would receive or retain in a Chapter 7 liquidation, unless each Holder of
a Claim or Interest in such Class has accepted the Plan, (ix) all fees and
expenses payable under 28 U.S.C. (section mark) 1930, as determined by the
Bankruptcy Court at the hearing on Confirmation, have been paid or the Plan
provides for the payment of such fees on the Effective Date, and (x) the Plan
provides for the continuation after the Effective Date of all retiree benefits,
as defined in Section 1114 of the Bankruptcy Code, at the level established at
any time prior to Confirmation pursuant to Sections 1114(e)(1)(B) or 1114(g) of
the Bankruptcy Code, for the duration of the period that FCI and Flagstar have
obligated themselves to provide such benefits.
VOTING PROCEDURES AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only Classes of Claims and Interests that
are "impaired," as defined in Section 1124 of the Bankruptcy Code, under the
Plan are entitled to vote to accept or reject the Plan. A Class is impaired if
the legal, equitable or contractual rights to which the Claims or Interests of
that Class entitle the Holders of such Claims or Interests are modified, other
than by curing defaults and reinstating the debt or by payment in full in cash.
Classes of Claims and Interests that are not impaired are conclusively presumed
to have accepted the Plan and thus are not entitled to vote on the Plan. Classes
of Claims and Interests whose Holders receive or retain no property under the
Plan are deemed to have rejected the Plan and are not entitled to vote on the
Plan. The classification of Claims and Interests is summarized, together with
notations as to whether each Class of Claims or Interests is impaired or
unimpaired, in " -- Overview of the Plan -- Summary of Classes and Treatment of
Claims and Interests." Additional information regarding voting is contained in
the instructions accompanying the ballots.
Under Section 1126(b) of the Bankruptcy Code, a Holder of a claim or
interest that has accepted a plan of reorganization before the commencement of a
Chapter 11 case will be deemed to have accepted the plan for purposes of
confirmation under Chapter 11 of the Bankruptcy Code if the bankruptcy court
determines that the solicitation of such acceptance was in compliance with any
applicable nonbankruptcy and bankruptcy law governing the adequacy of disclosure
in connection with such a solicitation. Solicitations of acceptances of a plan
of reorganization before the commencement of a Chapter 11 case shall be rejected
by a bankruptcy court if the court finds that (i) the plan was not transmitted
to substantially all creditors and equity interest holders of the same class,
(ii) an unreasonably short time was prescribed for such creditors or equity
interest holders to vote on the plan or (iii) the solicitation was not in
compliance with Section 1126(b) of the Bankruptcy Code. FCI and Flagstar believe
that their solicitation of acceptances of the Plan complies with the
requirements of Section 1126(b) and all applicable securities laws for purposes
of solicitation of acceptances or rejections of the Plan. If the Bankruptcy
Court finds such compliance, then Holders casting ballots to accept or reject
the Plan will be deemed by the Bankruptcy Court to have accepted or rejected the
Plan. Unless the Bankruptcy Court later determines that any acceptances of the
Plan may be revoked, all such acceptances will remain in full force and effect
until the Bankruptcy Court determines whether such acceptances constitute
acceptances or rejections for purposes of Confirmation under the Bankruptcy
Code. FCI and Flagstar also reserve the right to use acceptances of the Plan
received in this solicitation to seek Confirmation under any other
circumstances,
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including the filing of an involuntary bankruptcy petition against either FCI or
Flagstar. For a discussion of other significant conditions to Confirmation under
the Bankruptcy Code, see " -- Acceptance or Cramdown."
This Prospectus and the appropriate ballot are being distributed to all
Holders of Claims who are entitled to vote on the Plan. There is a separate
ballot designated for each Class of Claims and Interests in order to facilitate
vote tabulation; however, all ballots are substantially similar in form and
substance and the term "ballot" is used without intended reference to the ballot
of any specific Class of Claims or Interests.
The Company will pay the costs of solicitation of acceptances of the Plan,
including the cost of assembling and mailing this Prospectus and the material
enclosed herewith. In additional to the use of the mails, acceptances of the
Plan may be solicited personally, or by telephone or telegraph, by corporate
officers and employees of the Company without additional compensation. The
Company intends to request brokers and banks holding Old Securities in their
names or in the names of nominees to solicit acceptances of the Plan from their
customers who own such Old Securities, where applicable, and will reimburse them
for their reasonable expenses of mailing solicitation materials to their
customers.
WHO MAY VOTE
Under the Plan, the Claims against and the Interests in FCI and Flagstar
divided into 12 Classes as more fully described in " -- Overview of the
Plan -- Treatment of Claims and Interests Under the Plan." Pursuant to the
Bankruptcy Code, only Classes of Claims or Interests that are Impaired but who
receive or retain property under the Plan are entitled to vote on the Plan.
Claims or Interests in the following Classes are Impaired and receive or retain
property under the Plan and therefore may vote on the Plan.
IMPAIRED CLAIMS AGAINST AND INTERESTS IN FLAGSTAR RECEIVING OR RETAINING
PROPERTY UNDER THE PLAN
Class 4. Claims arising from Old Senior Notes.
Class 5. Claims arising from Senior Subordinated Debentures.
Class 6. Claims arising from Junior Subordinated Debentures.
Class 8. Interests of Holders of Old FCI Preferred Stock.
Class 9. Interests of Holders of Old FCI Common Stock.
Only beneficial owners of Old Equity Securities on the Distribution Record
Date, or their authorized signatories, are eligible to vote on the Plan. See
" -- Beneficial Owners of Old Debt or Old Equity Securities" below. The Record
Date is May 23, 1997.
Classes 10, 11 and 12 shall receive no property or Cash under the Plan and
are therefore deemed to have rejected the Plan. FCI and Flagstar will thus not
solicit votes from the members of Classes 10, 11 and 12.
VOTING PROCEDURES FOR HOLDERS OF OLD DEBT AND/OR OLD EQUITY SECURITIES
If you are a registered Holder of Old Debt and/or Old Equity Securities,
you will receive the ballot relating to the securities you hold of record.
Registered Holders may include brokerage firms, commercial banks, trust
companies or other nominees. If such entities do not hold Old Debt and/or Old
Equity Securities for their own account, they should provide copies of this
Prospectus and an appropriate ballot to their customers and to beneficial
owners. For further instructions, see " -- Beneficial Owners of Old Debt or Old
Equity Securities" below. Any beneficial owner who has not received a Prospectus
or ballot should contact their brokerage firm or nominee or the Information
Agent.
All votes to accept or reject the Plan must be cast by using the ballot or,
in the case of a brokerage firm or other nominee holding Old Debt and/or Old
Equity Securities in its own name on behalf of a beneficial owner, the Master
Ballot, enclosed with this Prospectus. Brokerage firms or other nominees holding
Old Debt and/or Old Equity Securities for the account of only one beneficial
owner may use a ballot. Purported votes which are cast in any other manner will
not be counted. Ballots and Master Ballots must be received by the Information
Agent no later than 5:00 p.m., Eastern Time, on , 1997 (twenty (20)
business days after the mailing of the Solicitation to Holders), the Expiration
Date, which may be extended at FCI's and Flagstar's discretion.
You may receive a ballot relating to Old Debt and/or Old Equity Securities
that you did not beneficially own on the Record Date. You should complete only
the ballot corresponding to each class of Old Debt and/or Old Equity Securities
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which you beneficially owned on the Record Date. Holders who purchase or whose
purchase is registered after the Distribution Record Date, and who wish to vote
on the Plan must arrange with their seller to receive a proxy from the Holder of
record on the Record Date, a form of which is provided with each ballot and
Master Ballot.
Holders of Old Debt and/or Old Equity Securities who elect to vote on the
Plan should complete and sign the ballot in accordance with the instructions
thereon being sure to check the appropriate box entitled "Accept the Plan" or
"Reject the Plan." Holders may not split their vote on the Plan with respect to
a particular class of Old Debt and/or Old Equity Securities. A Holder must vote
all securities beneficially owned in a particular class in the same way (i.e.,
all "accept" or all "reject") even if such Old Debt and/or Old Equity Securities
are owned through more than one broker or bank. Abstentions and broker non-votes
will not be counted in determining the number of each Class of Old Securities
voted in favor of the the Plan. HOLDERS OF SENIOR SUBORDINATED DEBENTURES ARE
ALSO REQUESTED TO VOTE ON THE SENIOR SUBORDINATED INDENTURE AMENDMENT.
Delivery of all documents must be made to the Information Agent at its
address set forth on the back cover of this Prospectus. The method of such
delivery is at the election and risk of the Holder. If such delivery is by mail,
it is recommended that Holders use an air courier with a guaranteed next day
delivery or registered mail, properly insured, with return receipt requested. In
all cases, sufficient time should be allowed to assure timely delivery.
YOU MAY RECEIVE MULTIPLE MAILINGS OF THIS PROSPECTUS, ESPECIALLY IF YOU OWN
YOUR OLD DEBT OR OLD EQUITY SECURITIES THROUGH MORE THAN ONE BROKER OR BANK. IF
YOU SUBMIT MORE THAN ONE BALLOT FOR A CLASS OR ISSUE OF OLD DEBT OR OLD EQUITY
SECURITIES BECAUSE YOU BENEFICIALLY OWN SUCH OLD DEBT OR OLD EQUITY SECURITIES
THROUGH MORE THAN ONE BROKER OR BANK, BE SURE TO INDICATE IN ITEM 3 OF THE
BALLOT(S), THE NAMES OF ALL BROKER DEALERS OR OTHER INTERMEDIARIES WHO HOLD OLD
DEBT OR OLD EQUITY SECURITIES FOR YOU.
BENEFICIAL OWNERS OF OLD DEBT OR OLD EQUITY SECURITIES
Section 1126(b) of the Bankruptcy Code has been interpreted to require that
a solicitation for acceptances prior to filing a plan of reorganization must
include the beneficial owners of securities, regardless of whether such
beneficial owners are the holders of record. Accordingly, a beneficial owner of
Old Debt or Old Equity Securities on the Record Date is eligible to vote on the
Plan, whether the Old Debt or Old Equity Securities were held on the Record Date
in such beneficial owner's name or in the name of a brokerage firm, commercial
bank, trust company or other nominee.
Any beneficial owner holding Old Debt or Old Equity Securities in its own
name can vote by completing and signing the enclosed ballot and returning it
directly to the Information Agent using the enclosed pre-addressed stamped
envelope.
A beneficial owner holding Old Debt or Old Equity Securities in "street
name" (i.e., through a brokerage firm, bank, trust company or other nominee) or
a beneficial owner's authorized signatory (a broker or other intermediary having
power of attorney to vote on behalf of a beneficial owner) can vote by following
the instructions set forth below:
1. Fill in all the applicable information on the ballot.
2. Sign the ballot (unless the ballot has already been signed by the bank,
trust company or other nominee).
3. Return the ballot to the addressee in the preaddressed, stamped envelope
enclosed with the ballot. If no envelope was enclosed, contact the Information
Agent for instructions.
Authorized signatories voting on behalf of more than one beneficial owner
must complete a separate ballot for each such beneficial owner. Any ballot
submitted to a brokerage firm or proxy intermediary will not be counted until
such brokerage firm or proxy intermediary (i) properly executes and delivers
such ballot to the Information Agent or (ii) properly completes and delivers a
corresponding Master Ballot to the Information Agent.
By submitting a vote for or against the Plan, you are certifying that you
are the beneficial owner of the Old Debt or Old Equity Securities being voted or
an authorized signatory for such a beneficial owner. Your submission of a ballot
will also constitute a request that you (or in the case of an authorized
signatory, the beneficial owner) be treated as the record holder of such
securities for purposes of voting on the Plan.
BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
A brokerage firm, commercial bank, trust company or other nominee which is
the registered holder of an Old Debt or Old Equity Security for a beneficial
owner, or its a participant in a securities clearing agency and is authorized to
vote in the name of such securities clearing agency pursuant to an omnibus proxy
(as described below) and is acting for a beneficial
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owner, can vote on behalf of such beneficial owner by (i) distributing a copy of
this Prospectus and all appropriate ballots to such owner, (ii) collecting all
such ballots, (iii) completing a Master Ballot compiling the votes and other
information from the ballots collected, and (iv) transmitting such completed
Master Ballot to the Information Agent. A proxy intermediary acting on behalf of
a brokerage firm or bank may follow the procedures outlines in the preceding
sentence to vote on behalf of such beneficial owner. A brokerage firm,
commercial bank, trust company or other nominee which is the registered holder
of an Old Debt or Old Equity Security for only one beneficial owner also may
arrange for such beneficial owner to vote by executing the appropriate ballot
and by distributing a copy of the Prospectus and such executed ballot to such
beneficial owner for voting and returning such ballot to the Information Agent.
SECURITIES CLEARING AGENT
The Depository Trust Company, as nominee holder of Old Debt or Old Equity
Securities, will execute an omnibus proxy in favor of its respective
participants. As a result of the omnibus proxy, each such participant will be
authorized to vote the securities owned by it and held in the name of such
securities clearing agency.
VOTING DEADLINE AND EXTENSIONS
In order to be counted for purposes of voting on the Plan, all of the
information requested by the applicable ballot must be provided. Ballots
indicating acceptance or rejection of the Plan must be received by the
Information Agent at its address set forth on the back cover of this Prospectus
no later the 5:00 p.m., Eastern Time, on , 1997, the Expiration Date
(twenty (20) business days after the mailing of the Solicitation to Holders).
FCI and Flagstar reserve the right, in their sole discretion, to extend the
Expiration Date, in which case the term "Expiration Date" shall mean the latest
date on which a ballot will be accepted.
In order to extend the Expiration Date, FCI and Flagstar will notify the
Information Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m., Eastern Time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that FCI and Flagstar is extending the Plan voting deadline for a
specified period of time or on a daily basis until 5:00 p.m., Eastern Time, on
the date on which sufficient acceptances required to seek confirmation of the
Plan have been received.
THE VOTING DEADLINE IS , 1997, 5:00 P.M., EASTERN TIME (TWENTY
(20) BUSINESS DAYS AFTER THE MAILING OF THE SOLICITATION TO HOLDERS). Ballots
must be received by the Information Agent at its address set forth on the
applicable ballot. To be counted for purposes of voting on the Plan, all of the
information requested on the applicable ballot must be provided. FCI and
Flagstar reserve the right, in their sole discretion, to extend the Voting
Deadline, in which case the term "Voting Deadline" shall mean the latest date on
which a ballot will be accepted. To extend the Voting Deadline, FCI and Flagstar
will make an announcement thereof, prior to 9:00 a.m., Eastern Time, on the next
business day after the previously scheduled Voting Deadline. Such announcement
may state that FCI and Flagstar are extending the Voting Deadline for a
specified period of time or on a daily basis until 5:00 p.m., Eastern Time, on
the date on which sufficient acceptances required to seek Confirmation of the
Plan have been received.
WITHDRAWAL OF VOTES ON THE PLAN
The solicitation of acceptances of the Plan will expire on the Expiration
Date. A properly submitted ballot may be withdrawn by delivering a written or
facsimile transmission notice of withdrawal to the Information Agent at its
address set forth on the back cover page of this Prospectus at any time prior to
the earlier of (i) the Expiration Date and (ii) the Petition Date. Thereafter,
withdrawal may be effected only with the approval of the Bankruptcy Court.
In order to be valid, a notice of withdrawal must (i) specify the name of
the holder who submitted the votes on the Plan to be withdrawn; (ii) contain the
description of the Claim or Interest to which it relates and the aggregate
principal amount or number of shares represented by such Claim or Interest; and
(iii) be signed by the holder in the same manner as on the ballot. FCI and
Flagstar expressly reserves the absolute right to contest the validity of any
such withdrawals of votes on the Plan.
Any holder who has previously submitted to the Information Agent prior to
the Expiration Date a properly completed ballot, may revoke and change such vote
by submitting to the Information Agent prior to the Expiration Date a subsequent
properly completed ballot for acceptance or rejection of the Plan. In the case
where more than one timely, properly completed ballot is received, only the one
which bears the latest date will be counted for purposes of determining whether
sufficient acceptances required to seek confirmation of the Plan have been
received. If more than one Master Ballot is submitted and the later dated Master
Ballot(s) supplement rather than supersede the earlier Master Ballot(s), please
mark the subsequent
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Master Ballot(s) with the words "Additional Votes" or such other language as is
customarily used to indicate additional votes that are not meant to revoke
earlier votes.
INFORMATION AGENT
Kissel-Blake Inc. has been appointed as Information Agent (the "Information
Agent") for the Plan (designated as the "Solicitation Agent" in the ballots and
Master Ballots). Questions and requests for assistance may be directed to the
Information Agent. Requests for additional copies of this Prospectus, the
ballots or the Master Ballots should be directed to the Information Agent.
ACCEPTANCE OR CRAMDOWN
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and more than one-half in number of claims of that
class vote to accept the plan. A plan is accepted by an impaired class of
interests if holders of at least two-thirds of the number of shares in such
class vote to accept the plan. Only those holders of claims or interests who
actually vote count in these tabulations.
In addition to this voting requirement, Section 1129 of the Bankruptcy Code
requires that a plan be accepted by each holder of a claim or interest in an
impaired class or that the plan otherwise be found by the bankruptcy court to be
in the best interests of each holder of a claim or interest in such class. In
addition, each impaired class must accept the plan for the plan to be confirmed
without application of the "fair and equitable" and "unfair discrimination"
tests in Section 1129(b) of the Bankruptcy Code discussed below.
The Bankruptcy Code contains provisions authorizing the confirmation of a
plan even if it is not accepted by all impaired classes, as long as at least one
impaired class of claims (without including any acceptance of the plan by an
insider) has accepted it. These so-called "cramdown" provisions are set forth in
Section 1129(b) of the Bankruptcy Code. As indicated above, a plan may be
confirmed under the cramdown provisions if, in addition to satisfying the other
requirements of Section 1129 of the Bankruptcy Code, it (i) is "fair and
equitable" and (ii) "does not discriminate unfairly" with respect to each class
of claims or interests that is impaired under, and has not accepted, the plan.
The "fair and equitable" standard, also known as the "absolute priority rule,"
requires, among other things, that unless a dissenting class of claims or a
class of interests receives full compensation for its allowed claims or allowed
interests, no holder of claims or interests in any junior class may receive or
retain any property on account of such claims. The Bankruptcy Code establishes
different "fair and equitable" tests for secured creditors, unsecured creditors
and equity holders, as follows:
(a) Secured Creditors: either (i) each impaired secured creditor
retains its liens securing its secured claim and receives on account of its
secured claim deferred cash payments having a percent value equal to the
amount of its allowed secured claim, (ii) each impaired secured creditor
realizes the "indubitable equivalent" of its allowed secured claim, or
(iii) the property securing the claim is sold free and clear of liens with
such liens to attach to the proceeds, and the liens against such proceeds
are treated in accordance with clause (i) or (ii) of this subparagraph (a).
(b) Unsecured Creditors: either (i) each impaired unsecured creditor
receives or retains under the plan or reorganization property of a value
equal to the amount of its allowed claim, or (ii) the holders of claims and
equity interests that are junior to the claims of the nonaccepting class do
not receive any property under the plan of reorganization on account of
such claims and equity interests.
(c) Equity Holders: either (i) each equity holder will receive or
retain under the plan of reorganization property of a value equal to the
greater of (a) the fixed liquidation preference or redemption price, if
any, of such stock or (b) the value of the stock, or (ii) the holders of
interests that are junior to the nonaccepting class will not receive any
property under the plan of reorganization.
The "fair and equitable" standard has also been interpreted to prohibit any
class senior to a dissenting class from receiving under a plan more than 100% of
its allowed claims. The requirement that a plan not "discriminate unfairly"
means, among other things, that a dissenting class must be treated substantially
equally with respect to other classes of equal rank.
FCI and Flagstar believe that, if necessary, the Plan may be crammed down
over the dissent of Classes of certain Claims and Interests, in view of the
treatment proposed for such Classes. See " -- Treatment of Claims and Interests
Under the Plan" for information concerning the treatment of various Classes
depending on which Classes vote to accept or reject the Plan. If necessary and
appropriate, FCI and Flagstar intend to amend the Plan to permit cramdown of
dissenting Classes of Claims or Interests. There can be no assurance, however,
that the requirements of Section 1129(b) of the Bankruptcy Code would be
satisfied even if the Plan treatment provisions were amended or withdrawn as to
one or more Classes. FCI and Flagstar
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believe that the treatment under the Plan of the Holders of Interests in Classes
10, 11 and 12 will satisfy the "fair and equitable" test since, although no
distribution will be made in respect of Interests in such Class and, as a
result, such Class will be deemed pursuant to Section 1126 of the Bankruptcy
Code to have rejected the Plan, no Class junior to such non-accepting Class will
receive or retain any property under the Plan.
In addition, FCI and Flagstar do not believe that the Plan unfairly
discriminates against any Class that may not accept or otherwise consent to the
Plan. A plan of reorganization "does not discriminate unfairly" if (i) the legal
rights of a nonaccepting class are treated in a manner that is consistent with
the treatment of other classes whose legal rights are similarly situated to
those of the nonaccepting class, and (ii) no class receives payments in excess
of that which it is legally entitled to receive for its claims or equity
interests. The Company believes the Plan does not discriminate unfairly.
FCI AND FLAGSTAR RESERVE THE ABSOLUTE RIGHT TO SEEK CONFIRMATION OF THE
PLAN UNDER SECTION 1129(b) OF THE BANKRUPTCY CODE IN THE EVENT THE PLAN IS NOT
ACCEPTED BY ALL IMPAIRED CLASSES.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan is not confirmable pursuant to Section 1129 of
the Bankruptcy Code will not limit or affect FCI's and Flagstar's ability to
modify the Plan to satisfy the Confirmation requirements of Section 1129 of the
Bankruptcy Code.
CHAPTER 7 LIQUIDATION ANALYSIS
The "Best Interest Test" under Section 1129 of the Bankruptcy Code requires
that Holders of Impaired Claims or Impaired Interests receive property with a
value not less than the amount such Holder would receive in a Chapter 7
liquidation. As indicated above, FCI and Flagstar believe that under the Plan,
Holders of Impaired Claims or Impaired Interests will receive property with a
value equal to or in excess of the value such Holder would receive in a
liquidation of FCI and Flagstar under Chapter 7 of the Bankruptcy Code. The
Chapter 7 Liquidation Analysis set forth herein demonstrates that the Plan
satisfies the requirements of the "Best Interest Test."
To estimate the potential returns to Holders of Claims and Interests in a
Chapter 7 liquidation, FCI and Flagstar determined, as might a Bankruptcy Court
conducting such an analysis, the amount of liquidation proceeds that might be
available for distribution and the allocation of such proceeds among the Classes
of Claims and Interests based on their relative priority. FCI and Flagstar
considered a number of factors and data, including the market values of publicly
traded restaurant companies reasonably comparable to the operating businesses of
the Company. FCI and Flagstar assumed dispositions of their assets in multiple
transactions, rather than as an entirety or a piecemeal liquidation of FCI's and
Flagstar's operating assets, over a 12-month period ending in September 1998.
The liquidation proceeds available to FCI and Flagstar for distribution to
Holders of Claims against and Interests in FCI and Flagstar would consist of the
net proceeds from the disposition of the assets of FCI and Flagstar, augmented
by any other cash held and generated during the assumed holding period stated
herein by FCI and Flagstar and after deducting the incremental expenses of
operating the businesses pending disposition.
The relative priority of distribution of liquidation proceeds with respect
to any Claim or Interest depends on (i) its status as secured, priority
unsecured or nonpriority unsecured and (ii) its relative subordination. The
capital structure of the Company's Unrestricted Subsidiary, FRD (as defined
below), results in a secured claim against FRD's assets. Consequently, the
estimated net proceeds from its assumed liquidation were first applied to its
existing indebtedness. Proceeds in excess of FRD's debt were assumed available
for distribution to the Holders of Claims against and Interests in FCI and
Flagstar. See "Description of Indebtedness -- The FRI-M Credit Facility" and
" -- The FRD Senior Notes."
In general, as to each entity, liquidation proceeds would be allocated in
the following priority: (i) first, to the Claims of secured creditors to the
extent of the value of their collateral; (ii) second, to the costs, fees and
expenses of the liquidation, as well as other administrative expenses of FCI's
and Flagstar's Chapter 7 cases, including tax liabilities; (iii) third, to the
unpaid Administrative Claims of the Reorganization Cases (if commenced); (iv)
fourth, to Priority Tax Claims and other Claims entitled to priority in payment
under the Bankruptcy Code; (v) fifth, to Unsecured Claims; (vi) sixth, to
Holders of Old FCI Preferred Stock; and (vii) seventh, to Holders of Old FCI
Common Stock. FCI's and Flagstar's liquidation costs in a Chapter 7 case would
include the compensation of a bankruptcy trustee, as well as compensation of
counsel and of other professionals retained by such trustee, asset disposition
expenses, applicable taxes, litigation costs, Claims arising from the operation
of FCI and Flagstar during the pendency of the Chapter 7 cases and all unpaid
Administrative Claims incurred by FCI and Flagstar during the Reorganization
Case (if commenced) that are Allowed in the Chapter 7 case. The liquidation
itself might trigger certain Priority Claims, such as Claims for severance pay,
and would likely accelerate or, in the case of taxes, make it likely that the
Internal Revenue Service would assert all of its claims as Priority Tax Claims
rather than
46
<PAGE>
asserting them in due course as is expected to occur under the Reorganization
Cases. These Priority Claims would be paid in full out of the net liquidation
proceeds, after payment of secured Claims, Chapter 7 costs of administration and
other Administrative Claims, before the balance would be made available to pay
Unsecured Claims or to make any distribution in respect of Interests.
The following Chapter 7 liquidation analysis is provided solely to discuss
the effects of a hypothetical Chapter 7 liquidation of FCI and Flagstar and is
subject to the assumptions set forth herein. There can be no assurance that such
assumptions would be accepted by a Bankruptcy Court. The Chapter 7 Liquidation
Analysis has not been independently audited or verified.
LIQUIDATION VALUE OF FCI AND FLAGSTAR
The table below details the computation of FCI's and Flagstar's liquidation
value and the estimated distributions to Holders of Impaired Claims and Impaired
Interests in a Chapter 7 liquidation of FCI and Flagstar. This analysis is based
upon a number of estimates and assumptions that are inherently subject to
significant uncertainties and contingencies, many of which would be beyond the
control of FCI and Flagstar. Accordingly, while the analyses that follow are
necessarily presented with numerical specificity, there can be no assurance that
the values assumed would be realized if FCI and Flagstar were in fact
liquidated, nor can there be any assurance that a Bankruptcy Court would accept
this analysis or concur with such assumptions in making its determinations under
Section 1129(a) of the Bankruptcy Code. ACTUAL LIQUIDATION PROCEEDS COULD BE
MATERIALLY LOWER OR HIGHER THAN THE AMOUNTS SET FORTH BELOW; NO REPRESENTATION
OR WARRANTY CAN OR IS BEING MADE WITH RESPECT TO THE ACTUAL PROCEEDS THAT COULD
BE RECEIVED IN A CHAPTER 7 LIQUIDATION OF FCI AND FLAGSTAR. THE LIQUIDATION
VALUATIONS HAVE BEEN PREPARED SOLELY FOR PURPOSES OF ESTIMATING PROCEEDS
AVAILABLE IN A CHAPTER 7 LIQUIDATION OF THE ESTATES AND DO NOT REPRESENT VALUES
THAT MAY BE APPROPRIATE FOR ANY OTHER PURPOSE. NOTHING CONTAINED IN THESE
VALUATIONS IS INTENDED OR MAY CONSTITUTE A CONCESSION OR ADMISSION OF FCI AND
FLAGSTAR FOR ANY OTHER PURPOSE.
In addition to the specific assumptions described in the footnotes to the
table below, the following general assumptions were used in formulating the
liquidation analysis:
ESTIMATED LIQUIDATION PROCEEDS. While FCI and Flagstar are knowledgeable
and experienced in operating restaurants and a significant restaurant company,
they are not experienced in selling or attempting to sell all or substantially
all of the assets or stock of an enterprise comprised of over 2,100 restaurants,
or any material portion thereof, as is contemplated in this hypothetical
liquidation analysis. Moreover, neither FCI, Flagstar, nor any of the parties
retained thereby did or was authorized to solicit, and in fact did not solicit,
inquiries with respect to an acquisition of FCI and Flagstar or any of their
business assets. The following information and factors, not listed in order of
importance, were among others, generally considered by FCI and Flagstar in
estimating the proceeds which might be received from the liquidation sales:
(a) FCI's and Flagstar's operating and projected financial performance.
(b) The attractiveness of each of the operating divisions to potential
buyers.
(c) The potential universe of possible buyers.
(d) The potential impact of a Chapter 7 case upon the operating divisions
as well as possible buyers' pricing strategies.
(e) The relative timing of the potential sales of the operating divisions.
(f) The possible real and personal property value of the Company's Quincy's
operating entity, as distinguished from its sale as an ongoing concern
in a liquidation sale.
(g) The impact of simultaneously marketing approximately 2,100 restaurants,
most of which are in the family dining segment of the industry.
(h) Analysis of the liabilities and obligations of FCI's and Flagstar's
operating divisions.
In estimating the liquidation proceeds and applying the foregoing factors
and considerations to make such estimate, both the general economic environment
as well as the current condition of FCI's and Flagstar's businesses were
considered. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" for information regarding the current
condition of FCI's and Flagstar's business. The Company did not seek, nor did it
obtain, a financial advisor's opinion relating to the accuracy of the
liquidation analysis included herein.
IMPACT ON FCI'S AND FLAGSTAR'S OPERATIONS OF THE CONVERSION TO A CHAPTER 7
LIQUIDATION. Management believes that a conversion to a Chapter 7 liquidation
and the resulting pendency of sales of FCI's and Flagstar's assets would
adversely
47
<PAGE>
affect the business' management and employee morale as well as significantly
impair its ability to maintain adequate working capital.
NATURE AND TIMING OF THE LIQUIDATION PROCESS. Under Section 704 of the
Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and
convert the property of the debtor's estate to cash and close the estate as
expeditiously as is compatible with the best interests of the parties in
interest. Solely for purposes of preparing this liquidation analysis, it is
assumed that FCI and Flagstar would file the Reorganization Cases on July 31,
1997 and the case would be voluntarily converted to a Chapter 7 liquidation on
September 30, 1997. FCI and Flagstar assumed dispositions of their assets in
multiple transactions, rather than as an entirety or a piecemeal liquidation of
FCI's and Flagstar's operating assets, over a 12-month period ending in
September 1998.
ADDITIONAL LIABILITIES AND RESERVES. FCI and Flagstar believe that there
would be certain actual and contingent liabilities and expenses for which
provision would be required in a Chapter 7 liquidation before distributions
could be made to creditors in addition to the expenses that would be incurred in
a Chapter 11 reorganization, including: (a) certain liabilities that are not
dischargeable pursuant to the Bankruptcy Code; (b) Administrative Claims
including the fees of a trustee and of counsel and other professionals
(including financial advisors and accountants) and other liabilities (including
retirement, vacation pay, and other employee-related administrative costs and
liabilities) that would be funded from continuing operations if FCI and Flagstar
were reorganized as a going concern; and (c) certain administrative costs
including the incremental expenses of continuing to operate the businesses
pending disposition. Management believes that there is significant uncertainty
as to the reliability of FCI's and Flagstar's estimates of the amounts related
to the foregoing that have been assumed in the liquidation analysis.
DISTRIBUTIONS; ABSOLUTE PRIORITY. Under a Chapter 7 liquidation all secured
claims are required to be satisfied from the proceeds of the collateral securing
such claims before any such proceeds would be distributed to any other claim
holders. The following analysis assumes the application of the rule of absolute
priority of distributions with respect to the remaining proceeds of FCI and
Flagstar. Under that rule, no junior creditor receives any distribution until
all senior creditors are paid in full. To the extent that proceeds remain after
satisfaction of all secured claims, the proceeds would first be distributed to
the Administrative and Priority Claimants, and then to the unsecured claimants.
CONCLUSION
In summary, FCI and Flagstar believe that a Chapter 7 liquidation of FCI
and Flagstar would result in a substantial diminution in the value to be
realized by the Holders of Claims and Interests. As set forth in the table
below, FCI's and Flagstar's management estimates that the total liquidation
proceeds available for distribution would aggregate approximately $1.4 billion.
FCI and Flagstar believe that the Holders of Claims and Interests other than the
(i) FRD creditors (as to the FRD operating entity only), (ii) secured creditors,
(iii) Chapter 7 trustees, professionals and related expenses, (iv) capitalized
lease lessors, and (v) the Old Senior Notes would receive no value in a
liquidation of FCI and Flagstar under Chapter 7 of the Bankruptcy Code. The
Holders of the Old Senior Notes are expected to receive recoveries under the
Plan in excess of that shown in a Chapter 7 liquidation. The recovery for FCI's
and Flagstar's creditors and equity security holders, in aggregate, would be
less than the proposed distribution under the Plan. Consequently, FCI and
Flagstar believe that the Plan, which provides for the continuation of FCI's and
Flagstar's businesses, will provide a substantially greater ultimate return to
Holders of Claims and Interests than would a Chapter 7 liquidation.
In estimating the net proceeds from a Chapter 7 liquidation, FCI and
Flagstar evaluated several alternatives. However, they believe that absent a
successful reorganization, a Chapter 7 liquidation would most likely be effected
through a sale of Flagstar's operating divisions as set forth below.
48
<PAGE>
LIQUIDATION ANALYSIS
ESTIMATED AS AT OCTOBER 1, 1997
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PERCENTAGE LIQUIDATION
($ IN THOUSANDS) BOOK VALUE RECOVERY VALUE
<S> <C> <C> <C>
CORPORATE ASSETS (A)
Cash and cash equivalents........................................................... $ $
Other current assets................................................................ 1,148 100.0% 1,148
Equipment........................................................................... 6,357 25.0 1,590
Other assets........................................................................ 32,500 0.0
Total corporate assets.............................................................. 40,005 6.8 2,738
RESTAURANT OPERATIONS AND REAL PROPERTY (B)
Restaurant current assets........................................................... 110,236
Property............................................................................ 1,119,522
Goodwill and other intangible assets................................................ 226,866
Other restaurant assets............................................................. 56,308
Total restaurant operations......................................................... 1,512,932 91.4 1,382,843
Other real property interests (c)................................................... 34,550 37.9 13,100
Total restaurant operations and real property....................................... 1,547,482 90.2 1,395,943
Total Assets........................................................................ $ 1,587,487 88.1 $ 1,398,681
</TABLE>
49
<PAGE>
APPLICATION OF PROCEEDS TO CLAIMS AND INTERESTS
ESTIMATED AS AT OCTOBER 1, 1997
<TABLE>
<CAPTION>
ESTIMATED PROCEEDS
AMOUNT OF AVAILABLE TO LIQUIDATION
($ IN THOUSANDS) CLAIMS SATISFY CLAIMS PERCENTAGE
<S> <C> <C> <C>
TOTAL ESTIMATED LIQUIDATION PROCEEDS AVAILABLE FOR DISTRIBUTION $1,398,681
Less: FRD Liquidation Value (d)..................................................... 237,999
Net Estimated Liquidated Proceeds Available for Distribution........................ 1,160,682
SECURED DEBT
Revolver Debt....................................................................... $ 9,200 9,200 100%
Mortgage Notes...................................................................... 368,305 368,305 100
Capital Lease Obligations........................................................... 148,000 148,000 100
Available to Pay Bankruptcy Expenses and Unsecured Claims........................... 635,177
BANKRUPTCY EXPENSES AND TAX LIABILITIES
Chapter 7 Expenses (e)
Trustee's Fees.................................................................... 19,055 19,055
Operating Costs................................................................... 24,000 24,000
Chapter 7 Professional Fees and Other Administrative Expenses..................... 3,000 3,000
Chapter 11 Expenses................................................................. 5,000 5,000
Tax Liabilities (f)................................................................. 10,000 10,000
Available to Pay Unsecured Claims................................................... 574,122
UNSECURED CLAIMS
Old Senior Notes/Trade Payables (g)................................................. 750,025 574,122 76.5
Senior Subordinated Debentures...................................................... 847,411 0 0.0
Junior Subordinated Debentures...................................................... 99,259 0 0.0
INTERESTS
Old FCI Preferred Stock............................................................. 0 0.0
Old FCI Common Stock................................................................ 0 0.0
Old Warrants........................................................................ 0 0.0
Total Claims........................................................................ $2,283,255
</TABLE>
NOTES TO LIQUIDATION ANALYSIS
(a) CORPORATE ASSETS. The assets of the corporate parent consist of cash,
equipment, and other assets. The equipment consists primarily of
computer equipment and furniture and fixtures. It is estimated that
these pieces of equipment could bring 25% of their book value in the
resale market. The book value is based on FCI's and Flagstar's best
estimates. Other assets consist of deferred financing costs and
receivables from subsidiaries, which would not be realized in the
event of liquidation.
(b) RESTAURANT OPERATIONS. The assets used in the operations of the
restaurants consist of cash, inventory, real estate, buildings and
equipment and certain other assets integral to the restaurant concepts.
These assets are owned by the operating subsidiaries ("Operating
Units"). The Company believes that, in the event of a Chapter 7
liquidation, the Operating Units would be sold as going concerns, with
the exception of Quincy's, for which liquidation of the underlying real
and personal property would yield more proceeds than a liquidation of
the concept as a going concern. The going concern values of the
Operating Units (other than Quincy's) were estimated through
application of "cash flow multiples" to the cash flow of each of the
Operating Units is expected to achieve in fiscal 1997 (cash flow is,
for these purposes, defined as EBITDA). Such a process is the
methodology most often employed in the valuation of restaurant
companies. EBITDA multiples, once applied, result in estimates of value
for aggregate long-term tangible and intangible assets, which includes
working capital. Valuation of the Operating Units reflected, among
other things:
(Bullet) The restaurant industry segment each of the Operating Units
competes in, through consideration of a group of publicly
traded comparable companies, and multiples of EBITDA for such
companies.
50
<PAGE>
(Bullet) The current and anticipated near term (fiscal 1997) operating
performance of the Operating Units.
(Bullet) Estimates of general and administrative expenses necessary to
autonomously operate the Operating Units (estimated to be
approximately 50% of the amount of corporate general and
administrative expenses incurred annually).
(Bullet) For Denny's only, inclusion of an amount reflecting the
Company's obligation arising from its consent decree with the
U.S. Department of Justice.
(Bullet) Management's assessment of the Operating Units in relation to
the comparable companies, the market in which the Operating
Units would be offered for sale including consideration of
other similar concepts which may currently be for sale and
would compete for potential buyers for the Operating Units, and
performance trends of the Operating Units.
(Bullet) EBITDA multiples paid in transactions involving a variety of
restaurant companies participating in the quick-service,
family-dining, and other segments of the industry.
(Bullet) The relative marketability of the Operating Units (e.g., El
Pollo Loco was assumed to sell more quickly than Hardee's).
(Bullet) The impact of a Chapter 7 selling environment on the Operating
Units. A Chapter 7 liquidation requires that a business (or
businesses, in the instant case) be sold on an expeditious
basis. While a quick sale is the goal in a Chapter 7, there is
a risk that delays, even significant delays, may occur.
Additionally, potential buyers can be assumed to reflect the
distressed nature of the Company in bidding for the Operating
Units.
(Bullet) The costs and expenses necessary to effect sale of the
Operating Units.
(Bullet) Real estate values for Quincy's were estimated based on an
assessment of estimates provided by real estate brokers.
Equipment values reflect management's estimate of the likely
proceeds from the sale of the kitchen and related equipment
package in the resale market.
(c) OTHER REAL PROPERTY. Other real property consists of corporate
headquarters and other miscellaneous real estate, the liquidation
value of which has been estimated generally based on appraisals, net
of estimated costs of disposition.
(d) Liquidation proceeds available for distribution have been reduced by
the amount of estimated proceeds from the liquidation of FRD, that
would be used to satisfy FRD's creditors and would not be available for
the claims and interests of the Company. The claims of FRD's creditors
are estimated to be $237,999.
(e) Trustee's fees are estimated based on 3% of the amount available to pay
bankruptcy expenses and unsecured claims. Operating costs, Chapter 7
professional fees, and other administrative expenses represent the
estimated corporate general and administrative costs and other
professional fees during the liquidation.
(f) Based on the projected level of liquidation proceeds, and after taking
into account FCI's net operating loss carryforwards and available tax
credits, the liquidation would not result in the payment of any income
tax liabilities. Management estimates approximately $10 million of
income tax and non-income tax liabilities would be payable in
connection with certain tax assessments against the Company.
(g) The estimated amount of claims of Trade Payables includes, among other
things, claims arising from the rejection of contracts and leases and
severance claims.
COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the Plan comply
with the applicable provisions of the Bankruptcy Code. FCI and Flagstar believe
that the Plan satisfies this requirement.
ALTERNATIVES IF THE PLAN IS NOT CONFIRMED AND CONSUMMATED
ALTERNATIVE RESTRUCTURING
If FCI and Flagstar do not receive sufficient acceptances to seek
Confirmation of the Plan, FCI and Flagstar will consider all alternatives
available to it at such time, which may include the implementation of an
alternative restructuring plan
51
<PAGE>
outside of bankruptcy, or the commencement or continuation of a Chapter 11 case
without a preapproved plan of reorganization, or the commencement of, or
conversion to, a liquidation under Chapter 7 of the Bankruptcy Code. As compared
to the Plan, a nonprepackaged Chapter 11 case would likely be lengthier, involve
more contested issues with creditors and other parties in interest, and result
in significantly increased Chapter 11 administrative expenses, a negative impact
on cash flow due to weakened trade and advertiser relations, and a corresponding
reduction in the consideration received by Holders of unsecured or undersecured
claims.
RECOMMENDATION AND CONCLUSION
FOR ALL OF THE REASONS SET FORTH IN THIS PROSPECTUS, FCI AND FLAGSTAR
BELIEVE THAT THE CONFIRMATION AND CONSUMMATION OF THE PLAN IS PREFERABLE TO ALL
OTHER ALTERNATIVES. CONSEQUENTLY, FCI AND FLAGSTAR URGE ALL HOLDERS OF IMPAIRED
CLAIMS AND INTERESTS TO VOTE TO ACCEPT THE PLAN, AND TO DULY COMPLETE AND RETURN
THEIR BALLOTS SUCH THAT THEY WILL BE ACTUALLY RECEIVED ON OR BEFORE 5:00 P.M.
EASTERN TIME ON , 1997 (TWENTY (20) BUSINESS DAYS AFTER THE MAILING
OF THE SOLICITATION TO HOLDERS).
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are certain selected financial data concerning the Company
for each of the five years ended December 31, 1996. Such data generally have
been derived from the Consolidated Financial Statements of the Company for such
periods, which have been audited. Also set forth below are selected financial
data for the quarters ended March 31, 1996 and April 2, 1997, which have been
derived from the unaudited Consolidated Financial Statements of the Company and
which, in the opinion of management, include all adjustments necessary for a
fair presentation of the financial condition and results of operations of the
Company for such periods. The following information should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Pro Forma Financial Statements" presented elsewhere
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
($ IN MILLIONS, EXCEPT RATIOS MARCH 31, APRIL 2,
AND PER SHARE AMOUNTS) 1992 (A) 1993 (A) 1994 (A) 1995 (A) 1996 (B) 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Income Statement data:
Operating revenue........................... $2,443.0 $2,615.2 $2,666.0 $2,571.5 $2,542.3 $ 550.4 $ 675.8
Operating income (loss)..................... 196.7 (1,102.4)(c) 211.5(d) 98.2(e) 156.4 27.5 23.0
Loss from continuing operations (f)......... (39.2) (1,238.6) (16.8) (132.9) (85.5) (27.3 ) (51.7)
Primary loss per share applicable to common
shareholders from continuing
operations............................... (1.82) (29.56) (0.14) (3.47) (2.35) (.73 ) (1.30)
Fully diluted income (loss) per share
applicable to common shareholders from
continuing operations.................... (1.82) (29.56) 0.26 (3.47) (2.35) (.73 ) (1.30)
Cash dividends per common share (g).........
Ratio of earnings to fixed charges (h)......
Deficiency in the coverage of fixed charges
to earnings before fixed charges (h)..... 45.8 1,318.2 19.3 133.0 101.9 30.2 51.1
Balance Sheet data (at end of period):
Current assets (i).......................... 98.4 122.2 186.1 285.3 185.5 114.8
Working capital (deficiency) (i)(j)......... (256.3) (273.0) (205.6) (122.2) (297.7) (1,288.9)
Net property and equipment.................. 1,269.9 1,167.2 1,196.4 1,104.4 1,168.6 1,153.4
Total assets................................ 3,170.9 1,538.9 1,587.5 1,507.8 1,687.4 1,591.8
Long-term debt.............................. 2,171.3 2,341.2 2,067.6 1,996.1 2,179.4 1,226.7
</TABLE>
(a) Certain amounts for the four years ended December 31, 1995 have been
reclassified to conform to the 1996 presentation.
(b) Reflects the acquisition in May 1996 of Coco's and Carrows.
(c) 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.
(d) Operating income for the year ended December 31, 1994 reflects a recovery of
restructuring charges of $7.2 million.
(e) 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.
(f) The Company has classified as discontinued operations, Canteen Corporation,
a food and vending subsidiary, sold in 1994, TW Recreational Services, Inc.
("TWRS"), a recreation services subsidiary, and Volume Services, Inc.
("VS"), a stadium concessions subsidiary. TWRS and VS were sold during 1995.
(g) The 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.
(h) 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.
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<PAGE>
(i) The current assets and working capital deficiency amounts presented exclude
assets held for sale of $480.8 million, $103.2 million, and $77.3 million as
of December 31, 1992 through 1994, respectively and $5.1 million as of
December 31, 1996. Such assets held for sale relate primarily to the
Company's food and vending and concessions and recreation services
subsidiaries.
(j) A negative working capital position is not unusual for a restaurant
operating company. 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 ("PFC"), net of current
assets and liabilities of such subsidiary, and (ii) the concession and
recreation services subsidiaries. The increase in the working capital
deficiency from December 31, 1995 to December 31, 1996 reflects the use of
the proceeds from the 1995 sales noted above and the proceeds of the sale of
both Portion-Trol Foods, Inc. and the Mother Butler Pies division of
Denny's, Inc., a subsidiary of Flagstar (Portion-Trol Foods, Inc. and the
Mother Butler Pies division are hereinafter collectively referred to as
"PTF") for operating needs and for the acquisition of Coco's and Carrows.
The increase in the working capital deficiency from December 31, 1996 to
April 2, 1997 is attributable primarily to an increase in current
liabilities related to the reclassification to current of the long-term debt
which is in default or for which the Company has failed to make interest
payments when due and to a reduction in cash and cash equivalents which has
been used for Company operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements and other
more detailed financial information appearing elsewhere herein. For information
concerning the reorganization and its pro forma effect on the Company, see "Pro
Forma Financial Statements" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's Management's Discussion and Analysis is divided into two
sections. The first section analyzes the results of operations; first on a
consolidated basis, then for each of Flagstar's six restaurant concepts. The
second section addresses the Company's liquidity and capital resources.
RESULTS OF OPERATIONS
COMPANY CONSOLIDATED
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 2,
($ IN MILLIONS) 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Net Company Sales.......................................................... $2,620 $2,512 $2,471 $ 534 $657
Franchise Revenue.......................................................... 46 59 71 16 19
Total Revenue.............................................................. 2,666 2,571 2,542 550 676
Operating Expenses......................................................... 2,455 2,473 2,386 523 653
Operating Income........................................................... 211 98 156 27 23
Net Interest Expense From Continuing Operations............................ 227 229 255 58 69
Income Tax (Benefit) Provision............................................. (2) 0 (16) (3) 1
Net Income (Loss).......................................................... $ 364 $ (55) $ (85) $ (27) $(52)
</TABLE>
55
<PAGE>
RESTAURANT UNIT ACTIVITY
<TABLE>
<CAPTION>
UNITS UNITS
CONVERTED CONVERTED
FROM FROM
ENDING COMPANY TO ENDING COMPANY TO ENDING
UNITS UNITS UNITS FRANCHISE UNITS UNITS UNITS FRANCHISE UNITS
12/31/95 OPENED CLOSED (TURNKEY) 12/31/96 OPENED CLOSED (TURNKEY) 4/2/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Denny's
Company Owned 933 (20) (19) 894 -- (1) (2) 891
Franchised Units 596 72 (10) 19 677 21 (6) 2 694
Int'l Licensees 24 1 25 -- -- -- 25
1,553 73 (30) 1,596 21 (7) -- 1,610
Hardee's 593 1(b) (14) 580(c) -- -- -- 580(c)
Quincy's 203 (4) 199 -- -- -- 199
El Pollo Loco
Company Owned 103 1 (8) 96 -- -- (1) 95
Franchised Units 112 15 8 135(c) 3 -- 1 139(c)
Int'l Licensees 2 8 10 -- -- -- 10
217 24 241 3 -- -- 244
Subtotal 2,566 98 (48) 2,616 24 (7) -- 2,633
Coco's (a)
Company Owned 188 (5) 183 1 -- -- 184
Franchised Units 6 (1) 5 -- -- -- 5
Int'l Licensees 252 26 278 4 (1) -- 281
446 26 (6) 466 5 (1) -- 470
Carrows (a)
Company Owned 161 2 (3) -- 160 -- (2) -- 158
Franchised Units -- -- -- -- -- 1 -- -- 1
161 2 (3) -- 160 1 (2) -- 159
Subtotal 607 28 (9) -- 626 6 (3) -- 629
3,173 126 (57) -- 3,242 30 (10) -- 3,262
<CAPTION>
ENDING
UNITS
3/31/96
<S> <C>
Denny's
Company Owned 919
Franchised Units 610
Int'l Licensees 25
1,554
Hardee's 580
Quincy's 199
El Pollo Loco
Company Owned 100
Franchised Units 120
Int'l Licensees 5
225
Subtotal 2,558
Coco's (a)
Company Owned 186
Franchised Units 6
Int'l Licensees 255
447
Carrows (a)
Company Owned 162
Franchised Units --
162
Subtotal 609
3,167
</TABLE>
(a) Coco's and Carrows were acquired by Flagstar in May of 1996. Year-to-date
and March 31, 1996 data are provided for comparison purposes only. Coco's
and Carrows restaurant unit activity since acquisition date for the year
ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
UNITS
CONVERTED
FROM
COMPANY
UNITS AT TO ENDING
ACQUISITION UNITS UNITS FRANCHISE UNITS
DATE OPENED CLOSED (TURNKEY) 12/31/96
<S> <C> <C> <C> <C> <C>
Coco's
Company Owned 184 (1) 183
Franchised Units 6 (1) 5
Int'l Licensees 257 21 278
Carrows 163 (3) 160
610 21 (5) 626
</TABLE>
(b) Represents the re-opening of a unit that was temporarily closed at December
31, 1995.
(c) Unit count includes one Hardee's and El Pollo Loco dual brand unit.
56
<PAGE>
COMPANY CONSOLIDATED
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
The Company's CONSOLIDATED REVENUE for the first quarter of 1997 increased
by $125.4 million (22.8%) as compared with the 1996 comparable quarter. The
revenue increase is primarily attributable to two factors: the estimated $24.0
million impact due to the additional days in the first quarter of 1997 in
comparison to the prior year quarter for Denny's and El Pollo Loco and the
operations of Coco's and Carrows (with revenue in the first quarter of 1997 of
$71.5 million and $55.6 million, respectively) which were not included in the
prior year quarter. Excluding the impact of the extra days and the Coco's and
Carrows acquisition, revenue for the 1997 quarter decreased $25.7 million in
comparison to the prior year quarter. This decrease reflects decreases in
comparable store sales at all of the Company's concepts as well as a 33-unit
decrease in Company-owned units (excluding Coco's and Carrows). Such decreases
are slightly offset by a $2.7 million increase in franchise revenue due to a
103-unit increase in franchise units at Denny's and El Pollo Loco.
CONSOLIDATED OPERATING EXPENSES for the first quarter of 1997 increased by
$129.8 million (24.8%) as compared with the 1996 comparable quarter. The expense
increase is primarily attributable to two factors: the estimated $20.3 million
impact due to the additional days in the first quarter of 1997 in comparison to
the prior year quarter for Denny's and El Pollo Loco and the operations of
Coco's and Carrows (with operating expenses in the first quarter of 1997 of
$67.2 million and $52.8 million, respectively) which were not included in the
prior year quarter. Excluding the impact of the extra days and the Coco's and
Carrows acquisition, operating expenses for the 1997 quarter decreased $10.5
million in comparison to the prior year quarter. This decrease primarily
reflects a decline in costs associated with the decline in revenue, the positive
impact of cost cutting measures (reflected in improved operating margins at
Denny's and El Pollo Loco), and a 33-unit decrease in Company-owned units
(excluding Coco's and Carrows). Such decreases are somewhat offset by an
increase in general and administrative expenses related to retention and other
bonuses totaling $3.0 million, company contributions to its profit sharing plan
of $0.7 million (no contributions having been made in the prior year) and an
increase in the costs to monitor the consent decree over the prior year of $0.5
million.
CONSOLIDATED OPERATING INCOME for the first quarter of 1997 decreased by
$4.5 million (16.2%) as compared with the 1996 comparable quarter as a result of
the factors noted above.
NET CONSOLIDATED INTEREST AND DEBT EXPENSE totaled $68.6 million during the
first quarter of 1997 as compared with $57.7 million during the comparable 1996
period. The increase is due principally to the addition of $7.5 million of
interest and debt expense associated with the Coco's and Carrows acquisition in
May 1996 and a $2.0 million decrease in interest income during 1997 due to
decreased cash and cash equivalents subsequent to the purchase of Coco's and
Carrows.
REORGANIZATION EXPENSES include professional fees and other expenditures
incurred by the Company in conjunction with the planned reorganization under
Chapter 11 of the Bankruptcy Code as further discussed in Note 4 to the
consolidated financial statements included herein.
THE PROVISION (BENEFIT) FOR INCOME TAXES from continuing operations for the
quarter has been computed based on management's estimate of the annual effective
income tax rate applied to loss before taxes. The Company recorded an income tax
provision reflecting an effective income tax rate of approximately 1.2% for the
1997 quarter compared to a benefit for the comparable 1996 quarter reflecting an
approximate rate of (9.6%). The change in the effective income tax rate from the
prior year can be attributed to the recognition in the prior year of anticipated
refunds due to the carryback of prior year tax losses.
The NET LOSS was $51.7 million in the first quarter of 1997 as compared to
$27.3 million for the prior year quarter. The increase in net loss is due to the
factors noted above.
1996 VS. 1995
OPERATING TRENDS: During 1996, the Company experienced comparable store
sales increases at Denny's and El Pollo Loco, due to the continued success of
Denny's value menu strategy, El Pollo Loco's successful menu positioning and new
product introduction efforts, dual branding at El Pollo Loco with Foster's
Freeze, and favorable results from remodeled restaurants. However, the Company
continued to experience significant declines in comparable store sales at
Hardee's due to continued competitive promotions by quick-service competitors.
Quincy's also showed comparable store sales declines reflecting the general
trend in the mid-scale family-steak category as well as operational issues
relative to training, food quality, service and facilities. During the third
quarter management began to address these operational issues. New products were
developed and tested, training was implemented at all levels, facilities were
improved and management made plans to relaunch the Quincy's brand. This program
is still in its early stages and it will take time to measure its full impact on
results.
57
<PAGE>
Primarily as a result of the lower revenues at Quincy's, the Company experienced
a reduction in operating income of $7.3 million (after removing the impact on
1995 results of the restructuring and impairment charges taken in 1995 and
removing the impact on 1996 results of the operating income decrease in 1996
resulting from the dispositions of PFC and PTF and the increases in operating
income in 1996 attributable to the acquisition of Coco's and Carrows). Overall,
the trends experienced by the Company since the 1989 leveraged buyout generally
have continued through 1996; operating income has been insufficient to cover the
interest and debt expense resulting in continued losses from continuing
operations. The external factors that have contributed to these trends,
including increased competition and intensive pressure on pricing due to
discounting, are expected to continue.
In recognition of these matters, in addition to addressing the negative
trends at Hardee's and Quincy's, management has taken steps to address the
Company's debt burden and its impact on operations. For further information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company's CONSOLIDATED REVENUE for 1996 was $2,542.3 million, a
decrease of $29.2 million, or 1.1%, compared to 1995. The impact on revenues of
the Coco's and Carrows acquisition ($163.7 million and $131.4 million,
respectively in revenue was contributed by Coco's and Carrows in 1996), was
somewhat offset by the loss of revenue attributable to the dispositions of the
Company's food distribution and processing operations, PFC and PTF, in September
1995 and 1996, respectively (the decrease in revenue in 1996 as compared to 1995
as a result of these dispositions totaled $218.2 million). Excluding the effects
of such acquisition and dispositions, revenue, on a comparable basis, was
$2,245.9 million in 1996, a decrease of $106.0 million (4.5%) compared to 1995.
The revenue decrease primarily reflects the impact of lower comparable store
sales at Hardee's and Quincy's and 63 fewer Company-operated restaurants as
compared with the prior year (excluding the impact of the Coco's and Carrows
acquisition), somewhat offset by an increase in franchise revenue of $11.7
million, reflecting 133 additional franchised units in 1996. At Hardee's and
Quincy's, comparable store sales decreased 7.2% and 10.8%, respectively.
Comparable store sales at Denny's and El Pollo Loco increased 1.7% and 7.2%,
respectively; however due to decreases in the number of Company-operated
restaurants in comparison to 1995, neither concept reported increases in revenue
from Company-operated units.
OPERATING EXPENSES decreased by $87.3 million (3.5%) in 1996 to $2,385.9
million as compared to 1995. This decrease reflects the impact of several
significant events which affect the comparability of 1996 and 1995 results,
including: a restructuring charge and charge for impaired assets totaling $67.2
million in 1995; a decrease in depreciation expense in 1996 of $5.4 million due
to the impairment write-down in 1995; and a decrease in expenses in 1996 of
$201.6 million due to the sales of PTF and PFC. These items are offset, in part,
by the impact of the operating expenses of Coco's and Carrows which were
acquired in 1996 and total $280.2 million.
Excluding the effect of the items noted above, operating expenses decreased
$93.3 million in 1996 in comparison to 1995. This decrease is primarily
attributable to a decline in costs associated with the decline in operating
revenue, the positive impact of cost cutting measures (reflected in improved
margins at Denny's, Hardee's and El Pollo Loco), and the increase of $8.2
million of the current year amortization of the deferred gains attributable to
the sales of PFC and PTF over the prior year amount. This amortization is
recorded as a reduction of product costs. These decreases in operating expense
are somewhat offset by a decrease in gains from the sales of restaurants to
franchisees reflected in operating expenses from $24.5 million in 1995 to $8.4
million in 1996 and an increase in the cost to administer the consent decree
entered into in 1993 of $5.9 million over the prior year to $11.3 million.
OPERATING INCOME for 1996 increased by $58.2 million to $156.4 million in
comparison to 1995 as a result of the factors noted in the preceding paragraphs.
INTEREST AND DEBT EXPENSE, NET, from continuing operations and discontinued
operations totaled $254.7 million for the year ended December 31, 1996 as
compared to $248.0 million for the prior year. The net increase is due
principally to the addition of $17.6 million in interest and debt expense
associated with the Coco's and Carrows acquisition. This increase is partially
offset by the following: a decrease in interest expense of approximately $5.3
million due to a lower level of principal outstanding during the 1996 period
(excluding the impact of the Coco's and Carrows acquisition) resulting primarily
from the repurchase of approximately $25.0 million of senior indebtedness on
September 30, 1995 and the scheduled repayments of long-term debt during 1996;
an increase in interest income of $3.2 million during 1996 due to increased cash
and cash equivalents prior to the acquisition of Coco's and Carrows; a decline
of $1.6 million in interest expense during the 1996 period associated with lower
interest rates related to interest rate exchange agreements; and the elimination
of $0.8 million in interest expense associated with various operations that were
sold in 1995.
58
<PAGE>
THE BENEFIT FROM INCOME TAXES from continuing operations for the year ended
December 31, 1996 reflects an effective income tax rate of 16% compared with 0%
for 1995. The change from the prior year can be attributed to the recognition of
refunds in the current period due to the carryback of current year tax losses
and the reversal of certain reserves established in prior years in connection
with proposed deficiencies from the Internal Revenue Service (See Note 6 to the
accompanying Consolidated Financial Statements for additional information).
THE LOSS FROM CONTINUING OPERATIONS was $85.5 million for the year ended
December 31, 1996 as compared with $132.9 million for the prior year. The net
loss for the 1996 year end was $85.5 million compared to a net loss for the
prior year of $55.2 million. The prior year included $77.2 million of income
from discontinued operations reflecting gains of $77.9 million on the related
sales of the discontinued operations in the fourth quarter of 1995.
RESTRUCTURING
Effective in the fourth quarter of 1995, as a result of a comprehensive
financial and operational review, the Company approved a restructuring plan
resulting in a provision for restructuring of $15.9 million. The 1995
restructuring plan was substantially completed in 1996 except for certain asset
replacement projects (where the assets to be replaced were written down as part
of the restructuring) which were postponed in 1996 due to the Company's capital
constraints. Such projects are expected to be completed in 1997. Pursuant to the
restructuring plan, approximately 74 employees, primarily corporate and field
management, have been terminated as of December 31, 1996, resulting in payments
of approximately $4.5 million as of that date.
ACCOUNTING CHANGE
In 1996, the Company adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement 123, "Accounting for Stock Based
Compensation" (SFAS 123) while continuing to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The adoption of SFAS 123 did not impact the
Statements of Consolidated Operations or the Consolidated Balance Sheets
included herein.
1995 VS. 1994
The Company's CONSOLIDATED REVENUE for 1995 decreased by approximately
$94.5 million (3.5%) as compared with 1994 primarily reflecting the sale of PFC
in September 1995 coupled with the continued weakness of the Company's Hardee's
operations.
The Company's OPERATING EXPENSES, 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. Such
decrease is principally due to a decrease of approximately $43.6 million
attributable to the sale of Denny's distribution subsidiary, PFC, which was sold
in September 1995 and an increase in gains on sales of restaurants from $10.0
million in 1994 to $24.5 million in 1995.
TOTAL INTEREST AND DEBT EXPENSE from continuing and discontinued operations
decreased by $18.1 million in 1995 as compared to 1994 (an $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 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 related to other
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 resulting in a net gain of $77.9 million. These businesses have been
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
59
<PAGE>
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, 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.
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 involved a 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.
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 reflected the write-down of 99 units which the Company planned to
continue to operate and an additional 36 units which were to be closed or sold
in 1996. Of the 36 units, the Company had closed 29 units through 1996. It
intends to dispose of two of the remaining units in 1997 and continue to operate
the other five.
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 $25.0
million 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 totalling $11.7 million, net of income tax
benefits of $0.2 million representing the charge-off of unamortized deferred
financing costs associated with the prepayment in June 1994 of senior bank debt.
RESTAURANT OPERATIONS
DENNY'S
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
($ IN MILLIONS, EXCEPT AVG. UNIT DATA)
Net Company Sales (a)...................................................... $1,508 $1,442 $1,202 $ 293 $ 300
Franchise Revenue.......................................................... 40 49 55 12 15
Total Revenue (a).......................................................... 1,548 1,491 1,257 305 315
Operating Expenses (a)..................................................... 1,425 1,394 1,135 284 291
Operating Income (a)(b).................................................... $ 123 $ 97 $ 122 $ 21 $ 24
Comparable Store Sales Increase (Decrease)................................. 0.3% 2.4% 1.7% 3.2% (2.4%)
AVERAGE UNIT DATA:
Average Unit Sales ($ in thousands):
Company Operated......................................................... $1,248 $1,283 $1,313 $ 316 $ 336
Franchised............................................................... 1,060 1,086 1,090 260 276
Average Guest Check........................................................ $ 4.75 $ 4.86 $ 5.03 $ 4.85(c) $ 5.39(c)
Average Weekly Traffic Count............................................... 5,047 5,071 5,025 --(d) --(d)
Operated Units
Company Operated......................................................... 978 933 894 919 891
Franchise................................................................ 512 596 677 610 694
International............................................................ 58 24 25 25 25
Total............................................................... 1,548 1,553 1,596 1,554 1,610
</TABLE>
60
<PAGE>
(a) Includes the operating results of the Company's food processing (PTF) and
distribution (PFC) operations.
(b) 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 Notes 1 and 3 to the Consolidated Financial Statements.
(c) Calculated on a comparable store basis.
(d) Data not provided on a quarterly basis.
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Denny's NET COMPANY SALES increased by $7.5 million (2.6%) during the 1997
quarter as compared with the prior year comparable quarter. This increase
reflects an estimated $21.7 million impact due to an additional five days in the
first quarter of 1997 in comparison to the prior year quarter due to the change
in the fiscal year end, somewhat offset by the impact of a 28-unit decrease in
Company-owned units and a decrease in comparable store sales. The decrease in
Company-owned units, the majority of which were converted to franchise units, is
consistent with the Company's strategy of focusing on growth through franchising
and the sale of Company-owned restaurants to franchisees, along with selected
closures where continued operation is considered uneconomical. The decline in
comparable store sales was driven by lower guest counts, partially offset by an
increase in average guest check, both changes reflecting the impact of the
September 1996 price increase which eliminated certain value pricing. FRANCHISE
REVENUE for the quarter increased by $2.3 million (18.2%), reflecting 84 more
franchised units at the 1997 quarter-end than at the 1996 quarter-end.
Denny's OPERATING EXPENSES for the 1997 quarter as compared with the 1996
quarter increased by $6.7 million (2.4%) reflecting an estimated $18.5 million
impact due to five additional days in the first quarter of 1997 in comparison to
the prior year quarter. This increase is somewhat offset by the impact of the
28-unit decrease in Company-owned units; an improvement in food cost as a
percent of revenue due to a shift to higher margin items in the 1997 quarter;
and a $1.4 million increase in the current quarter amortization of the deferred
gain attributable to the sales of Proficient Food Company and Portion-Trol
Foods, Inc. and Mother Butler Pies over the prior quarter amounts.
Denny's OPERATING INCOME for the 1997 quarter improved by $3.1 million
(14.8%) as compared to the prior year quarter as a result of the factors noted
above.
1996 VS. 1995
REVENUE from Company-owned units for 1996 decreased by $240.1 million
(16.7%) from 1995 to $1,201.6 million. $218.2 million of this decrease can be
attributed to the dispositions of PFC and PTF in 1995 and 1996, respectively.
The remaining decrease of $52.2 million primarily results from operating 39
fewer Company-owned restaurants, partially offset by gains in comparable store
sales of $30.3 million.
Average unit sales in 1996 increased by 2.4% versus 1995. This increase is
comprised of a 0.7% gain resulting from the impact of closed restaurants and
those sold to franchisees, and a 1.7% gain in comparable store sales. The gains
in comparable store sales were driven by an increase in average guest check,
which was somewhat offset by a decrease in customer traffic. The full year gains
in average check were aided by a September price increase that eliminated the
$1.99 tier from the value menu. This price increase was triggered by commodity
cost increases, minimum wage legislation and labor rate pressures. While the
price increase had a positive impact on guest check averages, this increase was
somewhat offset by a decline in customer counts.
FRANCHISE REVENUE in 1996 increased by $6.2 million (12.7%) over 1995, to
$55.1 million. The increase in franchise revenue is primarily attributable to 82
additional franchised units in 1996. $2.2 million of the increase was generated
from initial fees from new franchise openings while the balance reflects an
increase in royalties from units added in 1995 and 1996. Nineteen Company-owned
units were sold to franchisees during 1996, generating $7.7 million in gains
which are reflected as a reduction in operating expense.
OPERATING EXPENSES for 1996 compared to 1995 decreased by $258.9 million
(18.6%) to $1,134.9 million. This decrease is partially due to the restructuring
charge and charge for impaired assets included in the 1995 results ($5.4 million
and $23.9 million, respectively), a $2.8 million decrease in 1996 depreciation
expense related to the 1995 impairment write-down, a $4.7 million increase in
the current year amortization of the deferred gain attributable to the sales of
PFC and PTF over the prior year amounts and a decrease of $201.6 million due to
the dispositions of PFC and PTF. The effect of these
61
<PAGE>
items is somewhat offset by a decrease in the gains from restaurants sold to
franchisees ($20.7 million in 1995 versus $7.7 million in 1996). Excluding these
items, operating expenses decreased $33.5 million from the prior year. This
decrease reflects several factors. Food costs and restaurant labor were
favorable in comparison to 1995 by $14.0 million and $8.8 million, respectively,
reflecting the decline in the number of Company-owned restaurants as well as the
positive impact of cost control measures in the restaurants. These decreases
were offset, in part, by higher commodity prices (particularly for pork, dairy,
eggs and bread) over the prior year and increases in the Federal and state
minimum wages.
OPERATING INCOME for 1996 improved by $25.1 million (25.8%), as compared to
1995, to $121.9 million as a result of the factors noted above.
1995 VS. 1994
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.
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. 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 $6.0 million.
HARDEE'S
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
($ IN MILLIONS, EXCEPT AVG. UNIT DATA)
Revenue.................................................................... $ 701 $ 660 $ 603 $ 145 $ 138
Operating Expenses......................................................... 625 656 562 140 135
Operating Income (a)....................................................... $ 76 $ 4 $ 41 $ 5 $ 3
Comparable Store Sales (Decrease).......................................... (3.6%) (8.6%) (7.2%) (7.5%) (6.5%)
AVERAGE UNIT DATA:
Average Unit Sales ($ in thousands)........................................ $1,206 $1,104 1,041 $ 250 $ 237
Average Guest Check........................................................ $ 3.11 $ 3.16 $ 3.17 $3.13(b) $ 3.21(b)
Average Weekly Traffic Count............................................... 7,459 6,713 6,320 --(c) --(c)
Operated Units............................................................. 595 593 580 580 580
</TABLE>
(a) 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 Notes 1 and 3 to the Consolidated Financial Statements.
(b) Calculated on a comparable store basis.
(c) Data not provided on a quarterly basis.
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Hardee's REVENUE decreased by $7.6 million (5.2%) during the 1997 quarter
as compared with the 1996 quarter, reflecting a 6.5% decline in comparable store
sales. The decrease in comparable store sales reflects an 8.4% decline in
traffic which was partially offset by a 2.6% increase in average guest check.
The decrease in traffic count reflects the impact of continuing
62
<PAGE>
aggressive promotions by competitors within the quick-service category
compounded by the persistent weakness of Hardee's brand positioning and
advertising programs.
Hardee's OPERATING EXPENSES in the 1997 quarter decreased by $5.8 million
(4.1%) due to the "flow-through" impact of the lower comparable store sales
noted above as well as the impact of the cost reduction program implemented in
the second half of 1996.
Hardee's OPERATING INCOME for the 1997 quarter decreased by $1.8 million
(39.1%) as compared to the prior year quarter as a result of the factors noted
above.
1996 VS. 1995
REVENUE for Hardee's for 1996 decreased by $56.9 million (8.6%) from 1995,
to $602.9 million. The revenue decrease was primarily driven by 13 fewer
restaurants in the Company's chain and a decrease in average unit sales in
comparison to 1995. Comparable store sales decreased by 7.2% primarily due to
decreased customer traffic in the face of continued aggressive
"value/discounting" promotions by competitors within the quick-service segment
and inclement weather during the first quarter. In the second half of the year,
Flagstar's Hardee's began focusing less on discounting and more on overall
value, introducing items which are somewhat higher priced but which management
believes still offer good value for the money. The latest such promotion
introduces the "Monster" line of items, featuring a large burger and a large
omelet biscuit. This strategy has helped drive guest check averages; however,
the increased average guest check has only marginally offset the decrease in
traffic.
OPERATING EXPENSES in 1996 decreased $93.4 million (14.2%), to $562.2
million, as compared to 1995. This decrease is partially driven by the
restructuring charge and charge for impaired assets included in the 1995 results
($7.8 million and $23.7 million, respectively), a $2.3 million decrease in 1996
depreciation and amortization expense resulting from the impairment write-down
in 1995 and a $1.9 million increase in the current year amortization of the
deferred gain attributable to the sales of PFC and PTF over the prior year
amount. This decrease also reflects the impact of lower comparable store sales,
a decrease in the number of restaurants and management's increased focus on
achieving improvement in operating efficiencies. The success of such cost
control efforts is reflected by the fact that even after removing the impact on
1995 of the restructuring and impairment charges and the related reduction in
depreciation in 1996, operating income would have increased $2.7 million over
1995, despite a decrease in revenue of $56.9 million. Labor savings had the most
significant impact in reducing operating expenses. Labor as a percent of sales
was 1% lower than in 1995. This was accomplished primarily by reducing in-store
labor to become more competitive and more in line with quick-service industry
standards, allowing management to reduce costs despite the impact of an
increased Federal minimum wage.
OPERATING INCOME for 1996 improved by $36.5 million, to $40.7 million, in
comparison to 1995 as a result of the factors described above.
1995 VS. 1994
Hardee's REVENUE 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. The decline in traffic was impacted by continued aggressive promotions
and discounting by quick-service competitors. During 1995, the Company remodeled
59 Hardee's restaurants.
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 $13.6 million decrease in
product costs directly associated with decreased revenues in 1995.
63
<PAGE>
QUINCY'S
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
($ IN MILLIONS, EXCEPT AVG. UNIT DATA)
Revenue.................................................................... $ 284 $ 294 $ 259 $ 69 $ 64
Operating Expenses......................................................... 261 272 252 64 64
Operating Income (a)....................................................... $ 23 $ 22 $ 7 $ 5 $ --
Comparable Store Sales Increase (Decrease)................................. 2.9% 4.8% (10.8%) (4.2%) (6.8%)
AVERAGE UNIT DATA:
Average Unit Sales ($ in thousands)........................................ $1,350 $1,438 $1,301 $ 343 $ 323
Average Guest Check........................................................ $ 5.79 $ 5.88 $ 6.06 $6.08(b) $ 6.30(b)
Average Weekly Traffic Count............................................... 4,486 4,703 4,132 --(c) --(c)
Operated Units............................................................. 207 203 199 199 199
</TABLE>
(a) Operating income reflects a restructuring charge and charge for impaired
assets of $0.6 million for the year ended December 31, 1995. For a
discussion of the provision for restructuring and charge for impaired assets
see Notes 1 and 3 to the Consolidated Financial Statements.
(b) Calculated on a comparable store basis.
(c) Data not provided on a quarterly basis.
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Quincy's REVENUE decreased by $4.3 million (6.3%) during the 1997 quarter
as compared with the 1996 quarter, reflecting a 6.8% decline in comparable store
sales. The decrease in comparable store sales resulted from a 10.0% decrease in
traffic which was partially offset by a 3.6% increase in average guest check.
The decline in customer traffic reflects, among other things, continuing traffic
declines in the family-steak category in general, and the difficulty of "winning
back" customers that have been lost as a result of problems at Quincy's relating
to a lack of focus and consistency of service and products over the past two
years.
Despite the decrease in revenue, Quincy's OPERATING EXPENSES in the 1997
quarter increased by $0.6 million (0.9%) over the prior year quarter. This
reflects an increase in product costs as a percent of revenue due to the higher
quality food items offered in connection with the "Relaunch" program; increased
labor costs due to the Federal minimum wage increase; and the fact that certain
labor and other fixed costs cannot be reduced in proportion to the significant
decrease in sales.
Quincy's OPERATING INCOME for the 1997 quarter decreased by $4.9 million
(94.2%) as compared to the prior year quarter as a result of the factors noted
above.
1996 VS. 1995
REVENUE for Quincy's in 1996 decreased by $35.1 million (11.9%) from 1995,
to $259.2 million. The revenue decrease was primarily driven by a decrease in
customer traffic, as well as four fewer restaurants, offset somewhat by an
increase in the average guest check. Customer traffic, which decreased by 12%
versus 1995, was primarily responsible for the 10.8% decrease in comparable
store sales. The significant decline in customer traffic reflects, among other
things, continued traffic declines in the family-steak category, in general, as
well as a difficult comparison to the prior year (which benefited from several
newly remodeled units), in addition to the unsuccessful introduction of a new
steak product earlier in the year. Also, over the last two years management has
experimented with various formats at Quincy's, which has led to some customer
confusion and a lack of focus for the concept.
To address this issue, in October 1996, management initiated a "Relaunch"
program to re-establish the brand and give customers a consistent experience. In
this regard, during the third quarter of 1996, new products were developed and
tested, training was implemented at all levels, facilities were improved, and
management rolled out a new value steak promotion, the "No Mistake Steak", which
also introduced a number of new products accompanied by increased media
advertising. Although the "Relaunch" results to date have been positive,
management notes that the program is still in its early stages and that it will
take time to measure its full impact on results.
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<PAGE>
OPERATING EXPENSES in 1996 as compared to 1995 decreased by $19.4 million
(7.1%), to $252.5 million. This decrease was driven by the decline in sales and
a $1.2 million increase in the current year amortization of the deferred gain
attributable to the sales of PFC and PTF over the prior year amount. These
decreases were partially offset by the additional costs in product, labor and
advertising to institute the "Relaunch" program. Primarily due to the training
efforts related to re-launching the brand, labor costs increased $3.0 million
(1.2%) over 1995. Also, after a period of no advertising for Quincy's in August
and September as the Relaunch plan was formulated, advertising was increased
significantly in the fourth quarter to support the reintroduction of the brand,
resulting in an overall increase in advertising expense of approximately $3.0
million in 1996 over the prior year.
OPERATING INCOME in 1996 as compared to 1995 declined by $15.7 million, to
$6.6 million, as a result of the factors described above.
1995 VS. 1994
Quincy's REVENUES increased by $9.9 million (3.5%) during 1995 as compared
to 1994 despite a four-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
restaurants.
An increase in OPERATING EXPENSES is principally attributable to increases
in payroll and benefits expense of $4.4 million, product costs of $3.3 million
associated primarily with the increase in revenues during 1995, and advertising
expense of $2.7 million.
EL POLLO LOCO
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
($ IN MILLIONS, EXCEPT AVG. UNIT DATA)
Net Company Sales.......................................................... $ 127 $ 117 $ 114 $ 28 $ 29
Franchise Revenue.......................................................... 6 10 14 3 3
Total Revenue.............................................................. 133 127 128 31 32
Operating Expenses......................................................... 124 114 114 28 29
Operating Income........................................................... $ 9 $ 13 $ 14 $ 3 $ 3
Comparable Store Sales Increase............................................ 6.5% 2.0% 7.2% 7.9% (3.6%)
AVERAGE UNIT DATA:
Average Unit Sales ($ in thousands):
Company Operated......................................................... $ 932 $1,019 $1,155 $ 276 $ 301
Franchised............................................................... 893 858 852 209 221
Average Guest Check........................................................ $ 6.59 $ 6.76 $ 6.63 $6.64(a) $ 6.58(a)
Average Weekly Traffic Count............................................... 2,720 2,894 3,350 --(b) --(b)
Operated Units:
Company Operated......................................................... 127 103 96 100 95
Franchise................................................................ 78 112 135 120 139
International............................................................ 4 2 10 5 10
Total............................................................... 209 217 241 225 244
</TABLE>
(a) Calculated on a comparable store basis.
(b) Data not provided on a quarterly basis.
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
El Pollo Loco's NET COMPANY SALES increased $0.5 million (1.8%) during the
1997 quarter as compared with the 1996 quarter. This increase reflects an
estimated $2.3 million impact due to the additional week in the first quarter of
1997 in comparison to the prior year quarter due to the change in the fiscal
year end, somewhat offset by the impact of a five-unit
65
<PAGE>
decrease in Company-owned units and a decrease in comparable store sales. The
decrease in Company-owned units, all of which were converted to franchise units,
is consistent with the Company's strategy of focusing on growth through
franchising and the sale of Company-owned restaurants to franchisees. The
decline in comparable store sales was primarily a result of a difficult
comparison versus the introduction of the extremely successful Pollo Bowl during
the first quarter last year. FRANCHISE REVENUE for the quarter increased by $0.4
million (13.3%), primarily due to 19 more franchise units at the 1997
quarter-end as compared with the 1996 quarter-end and an increase in franchise
average unit sales.
El Pollo Loco's OPERATING EXPENSES for the 1997 quarter as compared with
the 1996 quarter increased by $0.9 million (3.2%) reflecting an estimated $1.8
million impact due to the additional week in the first quarter of 1997 in
comparison to the prior year quarter. This increase is somewhat offset by the
impact of the five-unit decrease in Company-owned units; lower product costs
associated with the Pollo Bowl and other new "Bowl" products; a decrease in
direct labor costs due to improved labor scheduling and staffing initiatives;
and food cost control measures.
El Pollo Loco's OPERATING INCOME for the 1997 quarter, excluding the impact
on the prior year of gains on the sale of restaurants, improved by $0.3 million
(11.5%) as compared to the prior year quarter as a result of the factors noted
above.
1996 VS. 1995
REVENUE from Company-owned El Pollo Loco units for 1996 decreased by $1.6
million (1.4%) from 1995 to $114.7 million. The revenue decrease was primarily
driven by a net decrease of seven restaurants (eight units sold to franchisees,
one Company-owned unit opened), partially offset by gains in comparable store
sales.
Comparable store sales increased 7.2%, driven by increased guest traffic,
which on a comparable store basis, increased 9.9%. The increased traffic was
principally attributable to the highly successful "Pollo Bowl," rolled out in
late 1995, which currently accounts for 11% of the menu mix, as well as other
key promotions. Comparable store sales also benefited from the Foster's Freeze
rollout. The decrease in average guest check was driven by a change in value
focus in 1996. During 1995, most of the value offerings featured very large
amounts of food (such as the $14.99 Holiday Feast), whereas in 1996, value was
approached on a quantity and price basis (such as the Pollo Bowl and $9.99 for
12 pieces of chicken).
FRANCHISE REVENUE in 1996 increased $3.3 million (31.7%) over 1995 to $13.7
million. The increase in revenue is primarily due to 31 additional franchise
units in 1996. Of the increase in revenue, $0.8 million was generated from
initial fees collected as new franchised units were opened, with the remainder
coming from the ongoing royalty stream of the additional units. Eight units were
sold to franchisees during 1996, generating $0.7 million in gains which are
reflected as a reduction of operating expenses.
OPERATING EXPENSES increased $0.5 million in 1996 over the prior year, to
$114.6 million, due to a decrease in gains recognized on the sale of restaurants
to franchisees, from $3.8 million in 1995 to $0.7 million in 1996. Removing the
impact of the decrease in restaurant sales to franchisees, El Pollo Loco
experienced a net decrease in operating expenses of $2.6 million reflecting,
among other things, lower product costs associated with the Pollo Bowl and other
new products, a decrease in direct labor costs due to improved labor scheduling
and staffing initiatives, food cost control measures and a $0.4 million increase
in the current year amortization of the deferred gain attributable to the sales
of PFC and PTF over the prior year amount. These improvements were attained
despite an increase in chicken prices versus 1995, and the increased Federal and
state minimum wages.
OPERATING INCOME for 1996 in comparison to 1995, improved by $1.2 million
(9.5%) to $13.8 million as a result of the factors discussed above.
1995 VS. 1994
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 sale 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 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 during
1995 included gains on the sale of restaurants of $3.8 million as compared with
$1.2 million during 1994.
66
<PAGE>
COCO'S AND CARROWS
The following information is provided for analysis purposes only as it
includes information for periods prior to the acquisition of Coco's and Carrows
by the Company on May 23, 1996:
CONSOLIDATED
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER MARCH 31, APRIL 2,
1995 1996 1996 1997
<S> <C> <C> <C> <C>
($ IN MILLIONS, EXCEPT AVG. UNIT DATA)
Net Company Sales........................................................... $ 502 $ 487 $ 119 $ 126
Franchise Revenue........................................................... 4 4 1 1
Total Revenue............................................................... 506 491 120 127
Operating Expenses.......................................................... 474 477 115 120
Operating Income............................................................ $ 32 $ 14 $ 5 $ 7
COCO'S
Comparable Store Sales (Decrease)........................................... (5.0%) (1.6%) (0.5%) (0.8%)
AVERAGE UNIT DATA:
Average Unit Sales (Company-operated) ($ in thousands)...................... $1,506 $1,462 $ 357 $ 386
Average Guest Check (c)..................................................... $ 6.72 $ 6.79 $6.76(a) $ 6.60(a)
Average Weekly Traffic Count (c)............................................ 4,271 4,159 --(b) --(b)
Operated Units:
Company Operated.......................................................... 188 183 186 184
Franchise................................................................. 6 5 6 5
International............................................................. 252 278 255 281
Total................................................................ 446 466 447 470
CARROWS
Comparable Store Sales (Decrease) Increase.................................. (0.2%) 0.1% 2.0% (0.8%)
AVERAGE UNIT DATA:
Average Unit Sales (Company-operated) ($ in thousands)...................... $1,372 $1,343 $ 324 $ 349
Average Guest Check (c)..................................................... $ 6.09 $ 6.26 $6.13(a) $ 6.37(a)
Average Weekly Traffic Count (c)............................................ 4,363 4,252 --(b) --(b)
Operated Units
Company Operated.......................................................... 161 160 162 158
Franchise................................................................. -- -- -- 1
Total................................................................ 161 160 162 159
</TABLE>
(a) Calculated on a comparable unit basis.
(b) Data not provided on a quarterly basis.
(c) The method for determining weekly customer traffic and average guest check
was changed in September 1996 in order to better conform to Flagstar's
methodology. Amounts for periods prior to September 1996 have not been
restated. Relative to Coco's, the new method will generally result in higher
weekly traffic counts and lower average guest checks than calculated under
the previous method. Relative to Carrows, the new method will generally
result in lower weekly traffic counts and higher average guest checks.
QUARTER ENDED APRIL 2, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Coco's NET COMPANY SALES for the first quarter ended April 2, 1997
increased $4.0 million (6.0%) as compared to the prior year comparable quarter.
This increase reflects an estimated $4.8 million impact due to six additional
days in the first quarter of 1997 in comparison to the prior year quarter due to
the change in the fiscal year end, somewhat offset by a decrease in comparable
store sales. The decrease in comparable store sales was driven by a decrease in
average check, slightly offset by an increase in customer counts. In addition,
the Company experienced a two-unit decrease in the number of Company-operated
restaurants.
67
<PAGE>
FRANCHISE AND FOREIGN LICENSING REVENUE decreased by $0.1 million (12.5%)
for the first quarter of 1997 as compared to the first quarter of 1996. The
decrease is the result of a stronger dollar versus the yen in 1997 as compared
to 1996 and is partially offset by an increase in the number of franchisees and
foreign licensees from 261 at March 31, 1996 to 286 at April 2, 1997.
Coco's OPERATING EXPENSES for the first quarter of 1997 increased by $2.7
million (4.2%), as compared to the prior year quarter. This increase is
primarily due to six additional days in the first quarter of 1997 as compared to
the prior year quarter. The increase is somewhat offset by a decrease in product
cost and labor of approximately $1.4 million due to an increased operations
focus on cost controls, waste reduction and labor initiatives. Such cost savings
were achieved despite a general increase in commodity prices and the impact of
the Federal and state minimum wage increases.
Carrows' NET COMPANY SALES for the first quarter ended April 2, 1997
increased $3.4 million (6.5%) as compared to the prior year comparable quarter.
This increase reflects an estimated $3.8 million impact due to six additional
days in the first quarter of 1997 in comparison to the prior year quarter due to
the change in the fiscal year end, somewhat offset by a decrease in comparable
store sales. The decrease in comparable store sales was driven by a decrease in
customer counts, slightly offset by an increase in average guest check. In
addition, the Company experienced a four-unit decrease in the number of
Company-operated restaurants.
Carrows opened its first domestic franchise location in the first quarter
of 1997, recording $16,000 in franchise revenue.
Carrows' OPERATING EXPENSES for the first quarter of 1997 increased by $2.6
million (5.2%), as compared to the prior year quarter. This increase is
primarily due to the six additional days in the first quarter of 1997 as
compared to the prior year quarter. The increase is somewhat offset by a
decrease in product cost and labor of approximately $1.2 million due to an
increased operations focus on cost controls, waste reduction and labor
initiatives. Such cost savings were achieved despite a general increase in
commodity prices and the impact of the Federal and state minimum wage increases.
1996 VS. 1995
The Company's operating results for the year ended December 31, 1996
include 31 weeks of Coco's and Carrows operations subsequent to their
acquisition in May. Coco's and Carrows revenues for the period were $163.7
million and $131.4 million, respectively. Operating expenses for Coco's and
Carrows were $155.5 million and $124.7 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has met its liquidity requirements with
internally generated funds, external borrowings, and in recent years, proceeds
from asset sales. Prior to the Petition Date, the Company expects to continue to
rely on internally generated funds, supplemented by available working capital
advances under the Credit Agreement, and other external borrowings as its
primary sources of liquidity.
The following table sets forth, for each of the periods indicated, a
calculation of the Company's cash from operations available for debt repayment,
dividends on the Old FCI Preferred Stock, and capital expenditures:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31, APRIL 2,
($ IN MILLIONS) 1995 1996 1996 1997
<S> <C> <C> <C> <C>
Net loss..................................................... $(55.2) $(85.5) $ (27.3) $(51.7)
Charge for impaired assets................................... 51.4 -- -- --
Provision for restructuring charges.......................... 15.9 -- -- --
Non-cash charges............................................. 120.3 119.9 30.5 34.5
Deferred income tax benefit.................................. (3.5) (9.0) (.1) (.3)
Discontinued operations...................................... (77.2) -- -- --
Extraordinary items, net..................................... (0.5) -- -- --
Change in certain working capital items...................... (6.1) 7.4 (19.3) (14.9)
Change in other assets and other liabilities, net............ (31.0) (16.1) (5.8) (4.6)
Cash from (used in) operations available for debt repayment,
dividends on Old FCI Preferred Stock, and capital
expenditures............................................... $ 14.1 $ 16.7 $ (22.0) $(37.0)
</TABLE>
68
<PAGE>
The cash flows generated by Coco's and Carrows, which was acquired in May
1996, are required by the instruments governing the indebtedness incurred to
finance such acquisition, to service the debt issued by FRD Acquisition Co.
("FRD"), Flagstar's acquisition subsidiary and, therefore, other than for the
payment of certain management fees and tax reimbursements payable to Flagstar
under certain conditions, are currently unavailable to be used to service the
debt of Flagstar and its other subsidiaries. Coco's and Carrows' cash flows from
operations included in the Company's total cash flow from operations were $21.2
million and $2.8 million for the year ended December 31, 1996 and the quarter
ended April 2, 1997, respectively.
The Credit Agreement, which expires on April 10, 1999, provides Flagstar
with a $150 million revolving credit facility. It is available for working
capital advances and letters of credit, with a working capital advance sublimit
of $75 million. As of April 2, 1997, there were no working capital advances
outstanding under the Credit Agreement, although approximately $82.9 million
letters of credit were outstanding; accordingly, $67.1 million was available for
additional letters of credit or working capital borrowings. The 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 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.
In connection with the acquisition of Coco's and Carrows, FRI-M, which
became thereby a wholly-owned subsidiary of the Company, obtained a new credit
facility consisting of a $56 million term loan, which matures on August 31,
1999, and a $35 million revolving credit facility, which is available until
August 31, 1999 for Coco's and Carrows general working capital advances and
letters of credit. Such facility is unavailable to Flagstar and its other
subsidiaries.
As of December 31, 1996, scheduled debt maturities of long-term debt
relative to Flagstar and its subsidiaries for the years 1997 and thereafter are
as follows:
<TABLE>
<CAPTION>
FLAGSTAR
($ IN MILLIONS) EXCLUDING FRD FRD
<S> <C> <C>
1997............................................................. $ 43.3(a) $ 19.6
1998............................................................. 34.2 23.6
1999............................................................. 27.5 23.7
2000............................................................. 323.3 3.4
2001............................................................. 277.9 3.1
Thereafter....................................................... 1,298.0 164.7
</TABLE>
(a) Does not reflect $947 million of long-term debt scheduled to mature
subsequent to 2001 that has been reclassified to current as of April 2,
1997. See Note 14 of the Consolidated Financial Statements.
In addition to scheduled maturities of principal, on a consolidated basis,
should the Plan not be consummated, approximately $255 million of cash will be
required in 1997 to meet interest payments on long-term debt and $14 million
would be required for dividends on the Old FCI Preferred Stock should FCI's
Board of Directors declare such dividends.
Since the leveraged buyout of Flagstar in 1989, the Company has not
achieved the revenue and earnings projections prepared at the time of the
transaction, due in large part to increased competition, intensive pressure on
pricing due to discounting, adverse economic conditions and relatively limited
capital resources to respond to these changes. Such trends have generally
continued through 1996 and into 1997. The Company's cash flows have been
sufficient to fund its operations and make interest payments when due (although
in anticipation of the Plan, Flagstar did not make the March 15, 1997 interest
payment on its 11 3/8% Debentures or the May 1, 1997 interest payments on its
11.25% Debentures or Junior Subordinated Debentures). However, the Company's
core businesses have not experienced cash flow growth sufficient to provide
adequate funds to invest for future growth.
These conditions present both short-term and long-term financial challenges
to the Company. To address these matters, management has developed and is
continuing to develop plans to maintain the Company's liquidity and improve its
capital structure. Specifically, the Board of Directors elected not to declare
the January 15, 1997 and April 15, 1997 quarterly dividends on the Old FCI
Preferred Stock. In addition, on March 6, 1997, the Credit Agreement was amended
to provide for less restrictive financial covenants for measurement periods
ending on April 2, 1997 and July 2, 1997, as well as to provide Flagstar
flexibility to forego scheduled interest payments due in March, May and June
1997 under the 10 3/4% Senior Notes, the 10 7/8% Senior Notes, the 11 3/8%
Debentures, the 11.25% Debentures and the Junior Subordinated Debentures without
69
<PAGE>
triggering a default under the Credit Agreement, unless any such debt is
declared to be due and payable as a result of the failure to pay any such
interest. On March 17, 1997, in anticipation of the Plan, Flagstar elected not
to make an interest payment due and payable as of that date with respect to the
11 3/8% Debentures. As a result, and as a result of a continuation of such
non-payment for 30 days following the due date, Flagstar is in default under the
indenture governing the 11 3/8% Debentures, and the holders of 25% of such
debentures or the trustee therefor may declare such debt to be due and payable.
If such debt is declared to be due and payable this will create an event of
default relative to the 10 3/4% Senior Notes and the 10 7/8% Senior Notes
entitling 30% of the holders of such indebtedness or the trustee therefor to
declare such indebtedness also to be due and payable. In addition, on May 1,
1997, in anticipation of the Plan, Flagstar elected not to make interest
payments due and payable as of that date with respect to the 11.25% Debentures
and the Junior Subordinated Debentures. If Flagstar does not make such payments
within 30 days following the due date, Flagstar will be in default under the
indentures governing such debentures and, in either such case, the holders of
25% of such debentures or the trustee therefor may declare such debt to be due
and payable (with similar cross-acceleration rights accruing under the 10 3/4%
Senior Notes and the 10 7/8% Senior Notes as described above).
Management has concluded that, over the long-term, a substantial
restructuring or refinancing of the Company's debt will be required to allow the
Company to meet its long-term debt obligations and will be a prerequisite to
future growth through additional investment in its restaurants. In this regard,
FCI and Flagstar have developed a financial restructuring plan which was agreed
to in principle on March 17, 1997 by the Ad Hoc Debentureholders Committee.
Based thereon, FCI and Flagstar have decided to pursue a restructuring of their
debt and equity through a Prepackaged Plan, as further described elsewhere in
this Prospectus. The Company's operating subsidiaries would not be a party to
any such filings under the Bankruptcy Code. See "The Plan of Reorganization."
With respect to short-term liquidity, management believes that through a
combination of cash generated from operations, funds available through the
Credit Agreement, various cash management measures and other sources, adequate
liquidity exists to meet the Company's working capital, debt service and capital
expenditure requirements through the filing of the Reorganization Cases (before
taking into account the reclassification of indebtedness under the Senior
Subordinated Debentures and Junior Subordinated Debentures from long-term to
current as a result of the interest payment defaults described above). Although
no assurances can be given in this regard, management believes, based on the
Company's historical relationship with its banks, that it would be able, as
necessary, to maintain access to funds available under the Credit Agreement
(prior to the satisfaction of the conditions to use of the DIP Facility).
The Company has entered into written commitment letters pursuant to which
it has received commitments from Chase for a $200 million debtor-in-possession
revolving credit facility for the period covering the pendency of the
Reorganization Cases, until the earlier to occur of (x) the date that is one
year after the commencement of the Reorganization Cases and (y) the substantial
consummation of the Plan, and a $200 million senior secured revolving credit
facility to refinance the DIP Facility and otherwise be available for the
benefit of the operating subsidiaries of Reorganized Flagstar from and after the
Effective Date. The Exit Facility will have a maturity five (5) years from the
date of Reorganized Flagstar's emergence from Chapter 11 (subect to earlier
termination of commitments in certain events). The closing of each such facility
is subject, among other conditions, to the negotiation of definitive agreements
with Chase on mutually acceptable terms and, in the case of the Exit Facility,
the initial borrowing thereunder having been made on or before the earlier of
July 31, 1998 and the date that is twelve months after the date on which FCI and
Flagstar commence the Reorganization Cases. See "Description of
Indebtedness -- New Reorganized Flagstar Indebtedness." The Company believes the
DIP Facility and Exit Facility, together with cash generated from operations,
various cash management measures and other sources, will provide the Company
with adequate liquidity to meet its working capital, debt service and capital
expenditure requirements for at least the next twelve months.
With respect to the long-term liquidity of the Company, the Company's
management believes that, based on its forecasts, after giving effect to the
Plan, the Company will have sufficient operating cash flow from operations
(together with funds available under the Exit Facility) to pay interest and
scheduled amortization on all of its outstanding indebtedness and to fund
anticipated capital expenditures through 1999. However, even if the
reorganization is completed, the Company's ability to meet its debt service
obligations will depend on a number of factors, including management's ability
to maintain operating cash flow. See "Certain Risk Factors -- Highly Leveraged
Position."
The Company's principal capital requirements are those associated with
opening new restaurants and remodeling and maintaining its existing restaurants
and facilities. During 1996, total capital expenditures were approximately $67.3
million, of which approximately $1.3 million was used to remodel existing
restaurants, $21.8 million was used to refurbish existing restaurants, $7.5
million was used for point-of-sale ("POS") systems and other information
technology assets, $0.8 million was used to open new restaurants, and $35.9
million was used to maintain existing facilities and equipment. Of the total
70
<PAGE>
capital expenditures, approximately $12.3 million were financed through capital
leases. Cash capital expenditures during 1997 (excluding capital leases) are
expected to total approximately $67.2 million; however, the Company is not
committed to spending this amount and could spend less if circumstances warrant.
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,
1996 and April 2, 1997, the Company's working capital deficiency, exclusive of
net assets held for sale, was $297.7 million and $1,288.9 million, respectively,
as compared with $122.2 million at the end of 1995. Such increase reflects an
increase in current liabilities related to the reclassification to current at
April 2, 1997 of the long-term debt which is in default or for which the Company
has failed to make interest payments when due and the use of the Company's
excess cash at December 31, 1995, which resulted from the sales of the Company's
non-restaurant business in 1995, to acquire the Coco's and Carrows restaurant
chains and to fund the Company's operations.
On February 22, 1996, the Company entered into an agreement with Integrated
Systems Solutions Corporation ("ISSC"). The ten year agreement for $340.6
million (including $17.6 million for FRD), which requires annual payments by the
Company ranging from $24.0 million to $47.5 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 POS technology.
71
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma capitalization table, unaudited pro forma condensed
consolidated balance sheets and unaudited pro forma condensed statements of
consolidated operations presented on the following pages are based upon the
historical results of operations of the Company for the year ended December 31,
1996 and the historical financial position and results of operations of the
Company as of and for the quarter ended April 2, 1997. The pro forma adjustments
made to the historical results of operations (based on the assumptions set forth
below) give effect to the reorganization as if that entire series of
transactions, including (i) the merger of Flagstar and FCI into a single
corporate entity; (ii) the issuance of 38,200,000 shares of New Common Stock to
Holders of the Senior Subordinated Debentures; (iii) the issuance of 1,300,000
shares of New Common Stock to Holders of the Junior Subordinated Debentures;
(iv) the issuance of 500,000 shares of New Common Stock to Holders of Old FCI
Preferred Stock; (v) the issuance of the New Warrants to Holders of Old FCI
Common Stock; and (vi) the issuance of New Senior Notes with an interest rate of
11 1/4% and a ten year maturity to Holders of the Old Senior Notes (assuming the
Company paid all accrued interest in cash through the Effective Date), had
occurred on January 1, 1996. In addition, since the reorganization is to be
effectuated through a prepackaged plan of reorganization under Chapter 11 of the
Bankruptcy Code, the provisions of Statement of Position (SOP) 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code", which
require the application of fresh start reporting, have been reflected in the
statements of operations as of January 1, 1996. The unaudited pro forma
capitalization table, and unaudited pro forma condensed consolidated balance
sheets as of April 2, 1997 presented below are based upon the historical balance
sheet as of April 2, 1997 and include pro forma adjustments as if the
reorganization and adoption of fresh start reporting had been completed on that
date. The pro forma condensed statements of consolidated operations, condensed
consolidated balance sheets and pro forma capitalization table are unaudited and
were derived by adjusting the historical financial statements of the Company for
certain transactions as described in the respective notes thereto. THESE PRO
FORMA FINANCIAL STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE FINANCIAL CONDITIONS OR RESULTS
OF OPERATIONS OF THE COMPANY HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN
CONSUMMATED ON THE RESPECTIVE DATES INDICATED AND ARE NOT INTENDED TO BE
PREDICTIVE OF THE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANY AT
ANY FUTURE DATE OR FOR ANY FUTURE PERIOD.
The pro forma adjustments are based on available information and upon
certain assumptions that FCI and Flagstar believe are reasonable under the
circumstances. The pro forma financial data and accompanying notes should be
read in conjunction with the historical Consolidated Financial Statements of the
Company, including the Notes thereto, and the other information pertaining to
the Company appearing elsewhere in this Prospectus.
72
<PAGE>
PRO FORMA CAPITALIZATION
APRIL 2, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
AS ADJUSTED
FOR THE
REORGANIZATION AND
FRESH START
HISTORICAL REPORTING
<S> <C> <C>
($ IN THOUSANDS, EXCEPT PAR VALUE)
Long-term debt: (1)
Borrowings under Exit Facility............................................................ $ 7,218
Mortgage notes payable
10.25% Guaranteed Secured Bonds Due 2000............................................... $ 190,164 208,232
11.03% Notes Due 2000.................................................................. 160,000 167,200
Other secured debt........................................................................ 16,631 14,855
Term Loan of FRI-M........................................................................ 46,380 46,380
12 1/2% FRD Senior Notes Due 2004......................................................... 156,897 163,957
Capital lease obligations (2)............................................................. 160,953 160,953
10 3/4% Senior Notes Due 2001............................................................. 270,000
10 7/8% Senior Notes Due 2002............................................................. 280,025
11 1/4% Senior Notes Due 2007............................................................. 550,025
11.25% Senior Subordinated Debentures Due 2004............................................ 722,411
11 3/8% Senior Subordinated Debentures Due 2003........................................... 125,000
10% Convertible Junior Subordinated Debentures Due 2014................................... 99,259
Total long-term debt................................................................... 2,227,720 1,318,820
Shareholders' equity (deficit):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
Historical -- $.10 par value; 25,000 shares authorized; 6,300 shares issued and
outstanding; liquidation preference $157,500 excluding dividends in arrears......... 630
Common Stock:
Historical -- $.50 par value; shares authorized -- 200,000; issued and
outstanding -- 42,434; Pro Forma -- $.01 par value; shares authorized -- 100,000;
issued and outstanding -- 40,000.................................................... 21,218 400
Paid-in capital........................................................................... 724,912 378,680
Deficit................................................................................... (2,025,093)
Minimum pension plan liability adjustment................................................. (922)
Total shareholders' equity (deficit)................................................... (1,279,255) 379,080
Total capitalization................................................................... $ 948,465 $1,697,900
</TABLE>
(1) Includes current maturities of $1,001,013 and $54,343 (historical and as
adjusted, respectively). See Notes 4 and 14 to the Consolidated Financial
Statements for a description of long-term debt.
(2) See Note 5 to the Consolidated Financial Statements for information
concerning capital lease obligations.
73
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 2, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS ADJUSTMENTS AFTER
FOR AFTER FOR FRESH START FRESH START
HISTORICAL REORGANIZATION REORGANIZATION REPORTING REPORTING
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................ $ 31,775 $ (16,775)(1) $ 15,000 $ 15,000
Receivables, net......................... 10,482 10,482 10,482
Merchandise and supply inventories....... 30,579 30,579 30,579
Other.................................... 41,961 41,961 41,961
114,797 (16,775) 98,022 98,022
Property:
Property owned -- net.................... 1,034,596 1,034,596 1,034,596
Property held under capital
leases -- net......................... 118,775 118,775 118,775
1,153,371 1,153,371 1,153,371
Other Assets:
Goodwill, net............................ 204,153 204,153 $ (204,153)(10)
Other intangible assets, net............. 26,810 26,810 26,810
Deferred financing costs................. 61,553 (19,389)(2) 42,164 (32,414)(11) 9,750
Other.................................... 31,136 31,136 31,136
Reorganization value in excess of amounts
allocable to identifiable assets...... $ 885,520(12) 885,520
323,652 (19,389) 304,263 648,953 953,216
$ 1,591,820 $ (36,164) $ 1,555,656 $ 648,953 $ 2,204,609
LIABILITIES
Current Liabilities:
Current maturities of long-term debt..... $ 1,001,013 $ (946,670)(3) $ 54,343 $ 54,343(19)
Accounts payable......................... 108,353 108,353 108,353
Accrued salaries and vacations........... 58,792 58,792 58,792
Accrued insurance........................ 56,087 56,087 56,087
Accrued taxes............................ 22,682 22,682 22,682
Accrued interest......................... 73,910 (45,740)(4) 28,170 28,170
Other.................................... 82,811 82,811 82,811
1,403,648 (992,410) 411,238 411,238
Long-Term Liabilities:
Debt, less current maturities............ 1,226,707 7,218(5) 1,233,925 $ 30,552(13) 1,264,477(19)
Deferred income taxes.................... 15,993 (69,984)(6) (53,991) (26,229)(14) (80,220)
Liability for self-insured claims........ 57,515 57,515 57,515
Other non-current liabilities and
deferred credits...................... 167,212 167,212 5,307(15) 172,519
1,467,427 (62,766) 1,404,661 9,630 1,414,291
Shareholders' Equity (Deficit):
Capital stock............................ 21,848 (21,448)(7) 400 400
Paid-in capital.......................... 724,912 384,769(8) 1,109,681 (731,001)(16) 378,680
Deficit.................................. (2,025,093) 655,691(9) (1,369,402) 1,369,402(17)
Minimum pension liability adjustment..... (922) (922) 922(18)
(1,279,255) 1,019,012 (260,243) 639,323 379,080
$ 1,591,820 $ (36,164) $ 1,555,656 $ 648,953 $ 2,204,609
</TABLE>
See notes to pro forma condensed consolidated balance sheets.
74
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
ADJUSTMENTS FOR THE REORGANIZATION
The pro forma adjustments related to the reorganization and related
transactions are summarized in the following table and are more fully described
in the notes thereto. Column numbers refer to footnotes from the Pro Forma
Condensed Consolidated Balance Sheets.
<TABLE>
<CAPTION>
(3) (5)
(2) CURRENT DEBT, (6)
FOOTNOTE DEFERRED MATURITIES (4) LESS DEFERRED (7) (8)
NUMBER (1) FINANCING OF LONG- ACCRUED CURRENT INCOME CAPITAL PAID-IN
($ IN THOUSANDS) CASH COSTS TERM DEBT INTEREST MATURITIES TAXES STOCK CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) $ (2,937 )
(b) $(16,775) 9,750 7,218
(c) (20,865 ) ($ 847,411) $ (41,604) $ 382 $347,057
(d) (5,337 ) (99,259) (4,136) 13 15,869
(e) 5 (5)
(f) (21,848) 21,848
(g) $(69,984)
Total $(16,775) $(19,389 ) $ (946,670) $ (45,740) $ 7,218 $(69,984) $(21,448) $384,769
<CAPTION>
FOOTNOTE
NUMBER (9)
($ IN THOUSANDS) DEFICIT
<S> <C>
(a) $ (2,937)
(b) (14,243)
(c) 520,711
(d) 82,176
(e)
(f)
(g) 69,984
Total $655,691
</TABLE>
(a) To write-off unamortized deferred financing costs related to the Credit
Agreement.
(b) To record estimated fees and expenses consisting of estimated deferred
financing costs ($9.8 million) and expenses related to the reorganization
($14.2 million) and bank borrowings to fund cash for operations. Fees and
expenses totaling $4 million have been incurred through April 2, 1997. Total
estimated fees and expenses are $28 million.
(c) To reflect the issuance of 38.2 million shares of New Common Stock to the
Holders of the Senior Subordinated Debentures and the estimated gain on
such transaction of $520.7 million. The gain is based on the difference
between the carrying value of the debt (including principal, accrued
interest and deferred financing costs) and the estimated fair value of the
debt on May 9, 1997.
(d) To reflect the issuance of 1.3 million shares of New Common Stock to the
Holders of the Junior Subordinated Debentures and the estimated gain on such
transaction of $82.2 million. The gain is based on the difference between
the carrying value of the debt (including principal, accrued interest and
deferred financing costs) and the estimated fair value of the debt on May 9,
1997.
(e) To reflect the issuance of 500,000 shares of New Common Stock to the
Holders of the Old FCI Preferred Stock.
(f) To reflect the cancellation of the Old FCI Common Stock and the Old FCI
Preferred Stock.
(g) To reflect the reduction of the valuation allowance against Federal deferred
tax assets, as a result of the reorganization.
ADJUSTMENTS FOR FRESH START REPORTING
The specific pro forma adjustments related to fresh start reporting are
summarized in the following table and are more fully described in the notes
thereto. Column numbers refer to footnotes from the Pro Forma Condensed
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
(12) (13) (14) (15)
REORGANIZATION DEBT, LESS DEFERRED OTHER (16)
FOOTNOTE (10) VALUE IN CURRENT INCOME NONCURRENT PAID-IN (17)
NUMBER GOODWILL EXCESS MATURITIES TAXES LIABILITIES CAPITAL DEFICIT
(11)
DEFERRED
FINANCING
COSTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) $(204,153) $ 204,153
(b) $ (32,414) 32,414
(c) 30,552 $ 30,552
(d) (26,229) $(26,229)
(e) (731,001) $(731,001)
(f) 1,369,402 $1,369,402
(g) 6,229 $5,307
Total $(204,153) $ (32,414) $ 885,520(h) $ 30,552 $(26,229) $5,307 $(731,001) $1,369,402
<CAPTION>
(18)
MINIMUM
FOOTNOTE PENSION
NUMBER LIABILITY
<S> <C>
(a)
(b)
(c)
(d)
(e)
(f)
(g) $ 922
Total $ 922
</TABLE>
75
<PAGE>
(a) To write-off unamortized goodwill.
(b) To write-off unamortized deferred financing costs.
(c) To adjust outstanding debt to estimated fair value.
(d) To record tax effect of fresh start adjustments.
(e) To establish the value attributed to shareholders' equity.
(f) To eliminate historical deficit.
(g) To eliminate minimum pension liability adjustment and to record excess of
the projected benefit obligation over the fair value of plan assets for the
Company's defined benefit plans.
(h) To record the reorganization value in excess of amounts allocable to
identifiable assets.
The Company proposes to account for the reorganization and the related
transactions using the principles of fresh start reporting as required by SOP
90-7. The Company has estimated a range of reorganization value between
approximately $1,626 million and $1,770 million. For purposes of determining
reorganization value, the Company has used the midpoint of this range of $1,698
million. Such reorganization value is based upon a review of the operating
performance of seventeen companies in the restaurant industry that offer
products and service that are comparable to or competitive with the Company's
various operating concepts. The following multiples were established for these
companies: (i) enterprise value (defined as market value of outstanding equity,
plus debt, minus cash and cash equivalents)/revenues for the four most recent
fiscal quarters; (ii) enterprise value/earnings before interest, taxes,
depreciation, and amortization for the four most recent fiscal quarters; and
(iii) enterprise value/earnings before interest and taxes for the four most
recent fiscal quarters. The Company did not independently verify the information
for the comparative companies considered in its valuations, which information
was obtained from publicly available reports. The foregoing multiples were then
applied to the Company's financial forecast by operating concept included
elsewhere in this Prospectus. See "Projected Financial Information." Valuations
achieved in selected merger and acquisition transactions involving comparable
businesses were used as further validation of the valuation range. The valuation
takes into account the following factors, not listed in order of importance:
(i) The Company's emergence from Chapter 11 proceedings pursuant to the
Plan as described herein was assumed to occur during the fourth quarter of 1997.
(ii) The continuity of the present senior management team has been assumed.
(iii) The tax position of Reorganized Flagstar was considered.
(iv) The general financial and market conditions as of the assumed
consummation date of the Plan will not differ materially from those prevailing
as of the date of this Prospectus.
The total reorganization value of $1,698 million (the midpoint of the range
of $1,626 million and $1,770 million) includes a value attributed to
shareholders' equity of $379 million and the net long-term indebtedness
contemplated by the Plan of $1,319 million. In accordance with fresh start
accounting principles, this reorganization value has been allocated, based on
estimated fair market values, to specific tangible and identifiable intangible
assets. The fair values of specific tangible and identified intangible assets
have been assumed to equal their carrying values. The Company has recorded an
intangible asset in the amount of $886 million which equals the Company's
reorganization value in excess of amounts allocable to identifiable assets. The
Company will continue to assess the fair market value of its assets, and
consequently the value of those assets and the reorganization value in excess of
amounts allocable to identifiable assets are subject to change. The
reorganization value in excess of amounts allocable to identifiable assets will
be amortized over five years. The amount of shareholders' equity in the fresh
start balance sheet is not an estimate of the trading value of the New Common
Stock after confirmation of the Plan, which value is subject to many
uncertainties and cannot be reasonably estimated at this time. Neither the
Company nor its financial advisors make any representation as to the trading
value of the shares to be issued under the Plan.
76
<PAGE>
LONG-TERM DEBT
(19) Long-term debt at April 2, 1997 as adjusted for the reorganization and
fresh start reporting consists of the following:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ADJUSTMENTS FOR AFTER FOR FRESH START
($ IN THOUSANDS) HISTORICAL REORGANIZATION REORGANIZATION REPORTING
<S> <C> <C> <C> <C>
Borrowings under Exit Facility................... $ 7,218 $ 7,218
Mortgage Notes Payable
10.25% Guaranteed Secured Bonds
Due 2000.................................... $ 190,164 190,164 $ 18,068
11.03% Notes Due 2000.......................... 160,000 160,000 7,200
Other secured debt............................... 16,631 16,631 (1,776)
Term Loan of FRI-M............................... 46,380 46,380
12 1/2% FRD Senior Notes......................... 156,897 156,897 7,060
Capital lease obligations........................ 160,953 160,953
10 3/4% Senior Notes............................. 270,000 (270,000)
10 7/8% Senior Notes............................. 280,025 (280,025)
11 1/4% Senior Notes............................. 550,025 550,025
11.25% Senior Subordinated Debentures............ 722,411 (722,411)
11 3/8% Senior Subordinated Debentures........... 125,000 (125,000)
10% Junior Subordinated Debentures............... 99,259 (99,259)
2,227,720 (939,452) 1,288,268 30,552
Less current maturities.......................... 1,001,013 (946,670) 54,343
Debt, less current maturities.................... $1,226,707 $ 7,218 $1,233,925 $ 30,552
<CAPTION>
AFTER
FRESH START
($ IN THOUSANDS) REPORTING
<S> <C>
Borrowings under Exit Facility................... $ 7,218
Mortgage Notes Payable
10.25% Guaranteed Secured Bonds
Due 2000.................................... 208,232
11.03% Notes Due 2000.......................... 167,200
Other secured debt............................... 14,855
Term Loan of FRI-M............................... 46,380
12 1/2% FRD Senior Notes......................... 163,957
Capital lease obligations........................ 160,953
10 3/4% Senior Notes.............................
10 7/8% Senior Notes.............................
11 1/4% Senior Notes............................. 550,025
11.25% Senior Subordinated Debentures............
11 3/8% Senior Subordinated Debentures...........
10% Junior Subordinated Debentures...............
1,318,820
Less current maturities.......................... 54,343
Debt, less current maturities.................... $ 1,264,477
</TABLE>
Scheduled maturities for the next five fiscal years as of December 31, 1996
follow.
<TABLE>
<CAPTION>
(IN THOUSANDS) PRO FORMA
AFTER
YEAR OF FRESH START
MATURITY HISTORICAL REPORTING
<S> <C> <C>
1997................................................................... $ 62,890(a) $ 62,890
1998................................................................... 57,830 57,830
1999................................................................... 51,169 51,169
2000................................................................... 326,666 326,666
2001................................................................... 280,999 10,999
</TABLE>
(a) Does not reflect $947 million of long-term debt scheduled to mature
subsequent to 2001 that has been reclassified to current as of April 2,
1997. See Note 14 of the Consolidated Financial Statements.
77
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
PRO FORMA(7)
ADJUSTMENTS ADJUSTMENTS
FOR AFTER FOR FRESH START
HISTORICAL REORGANIZATION REORGANIZATION REPORTING
<S> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenue.................................. $2,542,302 $2,542,302
Operating expenses................................. 2,385,910 2,385,910 $ 174,027(4)
Operating income................................... 156,392 156,392 (174,027)
Other charges:
Interest and debt expense........................ 261,633 $ (104,261)(1) 157,372 (11,752)(5)
Interest income.................................. (6,926) (6,926)
Other............................................ 3,537 3,537
258,244 (104,261) 153,983 (11,752)
Income (loss) before income taxes.................. (101,852) 104,261 2,409 (162,275)
Provision (benefit) for income taxes............... (16,392) 4,744(3) (11,648) 4,936(6)
Net (loss) income.................................. $ (85,460) $ 99,517 $ 14,057 $(167,211)
Loss per share applicable to common shareholders... $ (2.35)
Average outstanding and equivalent common shares... 42,434
<CAPTION>
AFTER
FRESH START
REPORTING
<S> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenue.................................. $ 2,542,302
Operating expenses................................. 2,559,937
Operating income................................... (17,635)
Other charges:
Interest and debt expense........................ 145,620
Interest income.................................. (6,926)
Other............................................ 3,537
142,231
Income (loss) before income taxes.................. (159,866)
Provision (benefit) for income taxes............... (6,712)
Net (loss) income.................................. $ (153,154)
Loss per share applicable to common shareholders... $ (3.83)
Average outstanding and equivalent common shares... 40,000
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 2, 1997
PRO FORMA(7)
ADJUSTMENTS ADJUSTMENTS
FOR AFTER FOR FRESH START
HISTORICAL REORGANIZATION REORGANIZATION REPORTING
<S> <C> <C> <C> <C>
Operating revenue.................................... $ 675,775 $675,775
Operating expenses................................... 652,748 652,748 42,948(4)
Operating income..................................... 23,027 23,027 (42,948)
Other charges:
Interest and debt expense.......................... 69,162 $(26,250)(1) 42,912 (3,186)(5)
Interest income.................................... (571) (571)
Other.............................................. 1,533 1,533
70,124 (26,250) 43,874 (3,186)
Income (loss) before reorganization expenses and
taxes.............................................. (47,097) 26,250 (20,847) (39,762)
Reorganization expenses.............................. 4,007 (4,007)(2)
Income (loss) before income taxes.................... (51,104) 30,257 (20,847) (39,762)
Provision (benefit) for income taxes................. 624 (9,056)(3) (8,432) 1,275(6)
Net (loss) income.................................... $ (51,728) $ 39,313 $(12,415) $ (41,037)
Loss per share applicable to common shareholders:.... $ (1.30)
Average outstanding and equivalent common shares..... 42,434
<CAPTION>
AFTER
FRESH START
REPORTING
<S> <C>
Operating revenue.................................... $ 675,775
Operating expenses................................... 695,696
Operating income..................................... (19,921)
Other charges:
Interest and debt expense.......................... 39,726
Interest income.................................... (571)
Other.............................................. 1,533
40,688
Income (loss) before reorganization expenses and
taxes.............................................. (60,609)
Reorganization expenses..............................
Income (loss) before income taxes.................... (60,609)
Provision (benefit) for income taxes................. (7,157)
Net (loss) income.................................... $ (53,452)
Loss per share applicable to common shareholders:.... $ (1.34)
Average outstanding and equivalent common shares..... 40,000
</TABLE>
78
<PAGE>
ADJUSTMENTS FOR REORGANIZATION
(1) The following table details the net adjustment to interest expense
related to the reorganization:
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED ENDED
DECEMBER 31, 1996 APRIL 2, 1997
<S> <C> <C>
($ IN THOUSANDS)
Elimination of amortization of deferred financing cost
on debt securities retired........................... $ (2,921) $ (915)
Elimination of interest on debt securities retired..... (105,415) (26,354)
Amortization of deferred financing cost of Exit
Facility............................................. 1,400 350
Amortization of deferred financing cost related to
exchange of Old Senior Notes......................... 275 69
Increase in interest expense due to exchange of Old
Senior Notes......................................... 2,400 600
Net adjustment to interest expense..................... $(104,261) $ (26,250)
</TABLE>
(2) To remove the impact of reorganization expenses which would not be
reflected in the post-reorganization statement of operations.
(3) To record the estimated income tax effects of the reorganization.
ADJUSTMENTS FOR FRESH START REPORTING
(4) To reflect, for the year ended December 31, 1996 and the quarter ended
April 2, 1997 the removal of the amortization of goodwill of $3.1
million and $1.3 million, respectively, and the addition of the
amortization of reorganization value in excess of amounts allocable to
identifiable assets assuming a 5-year life of $177.1 million and $44.3
million, respectively.
(5) To record, for the year ended December 31, 1996 and the quarter ended
April 2, 1997 the impact on interest expense of the amortization of the
premium on long-term debt of $5.8 million and $1.4 million,
respectively and the impact of the write-off of the remaining
pre-reorganization deferred financing costs of $6.0 million and $1.7
million, respectively.
(6) To adjust the income tax provision to reflect the effects of fresh
start reporting.
ADJUSTMENT BASED ON UNIMPAIRMENT OF OLD SENIOR NOTES
(7) As described elsewhere in this Prospectus, if the Class of Holders of
Old Senior Notes does not consent to the Plan, the Old Senior Notes
shall either be, in the sole discretion of Reorganized Flagstar,
unimpaired (with no change to their existing interest rates (10 7/8%
for approximately $280 million in aggregate principal amount of Old
Senior Notes and 10 3/4% for $270 million in aggregate principal amount
of Old Senior Notes), maturity dates or other terms or provisions of
the Old Senior Notes) or exchanged for New Senior Notes which will bear
interest at a rate which the Bankruptcy Court finds appropriate under
the cramdown provisions of 11 U.S.C. (section mark)1129(b) (with a
maturity date and having other terms and provisions set forth herein
for the New Senior Notes). In the event of such unimpairment, interest
and debt expense, income (loss) before income taxes, net (loss) income
and loss per share applicable to common shareholders in each case on a
pro forma basis for the year ended December 31, 1996, would be $143.2
million, $(157.5 million), $(151.7 million), and ($3.79), respectively.
Similarly, in the event of such unimpairment, interest and debt
expense, income (loss) before reorganization expenses and taxes, income
(loss) before income taxes, net (loss) income, and loss per share
applicable to common shareholders in each case on a pro forma basis for
the quarter ended April 2, 1997, would be $39.1 million, $(60.0
million), $(60.0 million), $(53.1 million), and ($1.33), respectively.
See "The Plan of Reorganization -- Treatment of Claims and Interests
Under the Plan -- Description of Claims and Interests -- Classified
Claims and Interests -- Class 4 -- Claims Arising Under Old Senior
Notes".
79
<PAGE>
MATERIAL NON-RECURRING CHARGES NOT REFLECTED IN THE PRO FORMA CONDENSED
STATEMENTS OF CONSOLIDATED OPERATIONS
Certain material non-recurring charges (gains) related to the
reorganization are not reflected in the Pro Forma Condensed Statements of
Consolidated Operations as they are not expected to have a continuing impact on
the Company's operations. These charges (gains) will be included in the
Company's operating results prior to its emergence from the reorganization and
are summarized below (in millions):
<TABLE>
<S> <C>
Reorganization costs............................................................ $ 18.2
Extraordinary gains on exchange of debt for equity (including the elimination of
accrued interest of $79.1 million for the period from January 1, 1997 through
the estimated effective date of October 1, 1997).............................. 655.6
Write-off of deferred financing costs related to terminated credit facility..... 2.9
Tax benefit resulting from reduction of valuation allowance against Federal
deferred tax assets........................................................... 70.0
Fresh Start Reporting Adjustments............................................... 639.3
</TABLE>
PROJECTED FINANCIAL INFORMATION
The following Projections were prepared by FCI and Flagstar, based upon,
among other things, the anticipated future financial condition and results of
operations of Reorganized Flagstar.
The Projections do not reflect certain matters which have been identified
by FCI and Flagstar as potentially affecting the future financial condition and
results of operations of Reorganized Flagstar. Unreflected matters which could
favorably affect Reorganized Flagstar's financial condition and results of
operations include, among others, improvement in the competitive position of the
Hardee's brand in the marketplace. Unreflected matters which could adversely
affect Reorganized Flagstar's financial condition and results of operations
include, among others, substantial discounting by competitors and higher than
expected food cost and labor cost inflation.
The Projections assume the Plan will be implemented in accordance with its
terms, and present the anticipated effects of the consummation of the Plan and
various other factors on Reorganized Flagstar's financial condition and results
of operations following the Effective Date. THE ASSUMPTIONS AND ESTIMATES
UNDERLYING THE PROJECTIONS ARE INHERENTLY UNCERTAIN AND, THOUGH CONSIDERED
REASONABLE BY THE MANAGEMENT OF FCI AND FLAGSTAR AS OF THE DATE HEREOF, ARE
SUBJECT TO A WIDE VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED, INCLUDING, AMONG OTHERS, RISKS AND UNCERTAINTIES RELATING
TO: (I) THE ABILITY OF THE COMPANY TO ACHIEVE SUBSTANTIAL IMPROVEMENTS AS
COMPARED TO RECENT OPERATING RESULTS; (II) THE POTENTIALLY ADVERSE EFFECTS THAT
THE FILING OF THE REORGANIZATION CASES COULD HAVE ON THE COMPANY'S BUSINESS
RELATIONSHIPS, INCLUDING RELATIONSHIPS WITH CUSTOMERS, SUPPLIERS AND EMPLOYEES;
(III) THE ABILITY OF FCI AND FLAGSTAR TO EFFECT THE TRANSACTIONS CONTEMPLATED BY
THE PLAN IN A TIMELY MANNER; (IV) THE ABILITY OF REORGANIZED FLAGSTAR TO
GENERATE SUFFICIENT FUNDS OR TO GAIN ACCESS TO ADDITIONAL CAPITAL, IF NEEDED, TO
MEET ITS CAPITAL EXPENDITURE NEEDS (INCLUDING, IF NECESSARY, THE REFINANCING OF
THE MORTGAGE FINANCINGS); AND (V) SEASONALITY AND THE EFFECT OF ECONOMIC
DOWNTURNS. SEE "CERTAIN RISK FACTORS." ACCORDINGLY, THE PROJECTIONS ARE NOT
NECESSARILY INDICATIVE OF THE FUTURE FINANCIAL CONDITION OR RESULTS OF
OPERATIONS OF REORGANIZED FLAGSTAR, WHICH MAY VARY SIGNIFICANTLY FROM THOSE SET
FORTH IN THE PROJECTIONS. CONSEQUENTLY, THE PROJECTED INFORMATION CONTAINED
HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY FCI OR FLAGSTAR, THEIR
ADVISORS OR ANY OTHER PERSON THAT THE PROJECTED CONDITION OR RESULTS CAN OR WILL
BE ACHIEVED.
Flagstar does not generally publish its business plans and strategies or
make external projections of its anticipated financial position or results of
operations. Accordingly, after the Effective Date, Reorganized Flagstar does not
intend to update or otherwise revise the Projections to reflect circumstances
existing since their preparation in early 1997 or to reflect the occurrence of
unanticipated events, even in the event that any or all of the underlying
assumptions are shown to be in error. Furthermore, Reorganized Flagstar does not
intend to update or revise the Projections to reflect changes in general
economic or industry conditions. However, Reorganized Flagstar's regular
quarterly and annual financial statements, and the accompanying discussion and
analysis, contained in Reorganized Flagstar's Quarterly Reports on Form 10-Q and
Annual Reports on Form 10-K, will contain disclosure concerning Reorganized
Flagstar's actual financial condition and results of operations during the
period covered by the Projections.
The Projections were not prepared with a view toward general use, but
rather for the limited purpose of providing information in conjunction with the
Plan. Accordingly, the Projections were not intended to be presented in
accordance with the published guidelines of the American Institute of Certified
Public Accountants regarding financial projections, nor have they been presented
in lieu of pro forma historical financial information, and accordingly, are not
intended to comply with
80
<PAGE>
Rule 11-03 of Regulation S-X of the Commission. In addition, the independent
auditors of FCI and Flagstar have neither examined nor compiled the Projections
and accordingly assume no responsibility for them.
Projected unaudited income statement, balance sheet and cash flow
statements for the Company are included for the period from April 3, 1997
through October 1, 1997 prior to an assumed Effective Date of October 1, 1997.
Projections for Reorganized Flagstar are included for the three months ended
December 31, 1997 and for each twelve-month period ended December 1998, 1999,
2000 and 2001.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below. See "Certain Risk Factors" for a
discussion of various other factors that could materially affect Reorganized
Flagstar's financial condition, results of operations, businesses, prospects and
securities.
1. EFFECTIVE DATE AND PLAN TERMS. The Projections assume that the Plan will
be confirmed in accordance with its terms, and that all transactions
contemplated by the Plan will be consummated by the Effective Date, which for
purposes of these Projections is assumed to be October 1, 1997. Any significant
delay in the Effective Date of the Plan could have a significant unfavorable
impact on financial performance, including projected EBITDA for the period ended
December 31, 1997, and could result in additional reorganization expenses.
EBITDA should not be considered an alternative to net income as an indication of
the Company's performance or as an alternative to cash flows as a measure of
liquidity.
2. GENERAL ECONOMIC CONDITIONS. The Projections were prepared assuming
economic conditions, including prevailing inflation rates, labor supply and
other factors, in the markets served by Flagstar and its subsidiaries do not
differ materially over the next five years from current economic conditions.
3. REVENUE. Projected revenues for Reorganized Flagstar are assumed to
increase at a compound annual growth rate of 1.8% from 1997 to 2001. This
moderate growth reflects two key factors: (1) a highly competitive market
environment in the restaurant industry characterized by continued downward
pressure on prices due to the consumers' focus on low price and value; and (2)
no material increase in Company-owned units during the period, as the Company
focuses on growth through franchising rather than through building Company
stores. While franchised stores are projected to increase significantly in
several of the operating concepts, franchise revenue to the Company includes
only the assumed 4% royalty fee on total franchise unit sales and, therefore,
does not materially increase Flagstar revenue.
Denny's revenue is assumed to grow by 1.4% compounded annually from 1997 to
2001, as moderate growth reflects the mature nature of the family dining segment
in which Denny's operates. While the Company projects moderate revenue growth in
Company-owned units, Denny's is assumed to aggressively expand its franchise
store unit count and realize revenue growth in royalites on franchise unit
sales. Hardee's revenue is assumed to decline 4.7% in 1997 followed by
relatively flat sales during the remainder of the projection period, reflecting
a highly competitive market segment and current weakness in the Hardee's brand.
Quincy's revenue is assumed to decline 3.5% in 1997, but then to grow by 2%
compounded annually through 2001 as improvements in food quality and in the
consumers' value perception of the brand serve to reverse recent sales declines.
El Pollo Loco is assumed to achieve the highest revenue growth in Reorganized
Flagstar, averaging 7.2% annually from 1997 to 2001. El Pollo Loco is assumed to
grow revenue from both Company-owned units and franchise units as the concept
continues to expand in the Southwest U.S. due to strength of the brand in its
regional marketplace. Coco's and Carrows revenue is assumed to grow at a
compound annual rate of 3% from 1997 to 2001, reflecting moderate revenue growth
in Company stores combined with growth in royalties from franchise units and
international licensing.
4. EBITDA. While revenue growth is moderate during the projection period,
the Projections include average annual growth in EBITDA of 7.8% from 1997 to
2001. These increases are derived primarily from margin improvement in Denny's,
El Pollo Loco, Coco's and Carrows in two key areas: (1) productivity
improvements from re-engineering of Company restaurants; and (2) growth in
franchise royalties from which the Company realizes high margins. Total Company
margins are projected to increase from 11.1% in 1997 to 13.9% in 2001 as
improvements from re-engineering and franchise growth are assumed to more than
offset inflation and minimum wage increases.
The Company intends to implement re-engineering projects which will examine
operations, products and service delivery in its restaurants. The goal is to
identify and implement the best practices in areas such as labor scheduling,
food preparation processes, kitchen layout and design and guest service. Assumed
profit margin improvements would be realized through better capacity planning,
staffing, and equipment utilization. Projected margin improvements from
restaurant re-engineering at Denny's, El Pollo Loco, Coco's and Carrows range
from .5% to 2% beginning in 1998.
Denny's EBITDA margins are assumed to increase from 13.8% in 1997 to 17.4%
in 2001, reflecting productivity improvements from re-engineering, especially
improved labor utilization, and increased royalty income from growth in the
number of franchised restaurant units. Hardee's EBITDA margins are assumed to
decline from 12.9% in 1996 to 11.3% in
81
<PAGE>
1997 due to the revenue decline. Hardee's EBITDA is assumed to remain flat
through 2001 as recent sales declines moderate. Quincy's EBITDA margins are
assumed to improve from 7.2% in 1997 to 9.2% in 2001, driven primarily by an
assumed reduction in advertising spending. El Pollo Loco's margins are assumed
to increase from 14.7% in 1997 to 17.7% in 2001, reflecting growth in franchise
royalties and re-engineering productivity gains. Finally, Coco's and Carrows'
EBITDA margins are projected to grow from 12.4% in 1997 to 16.7% in 2001. The
margin improvements result from assumed increases in royalties from domestic
franchising and international licensing of both the Coco's and Carrows brands.
Coco's and Carrows are also assumed to benefit from restaurant re-engineering
and from productivity improvements being implemented since the May 1996
acquisition by Flagstar.
5. CORPORATE GENERAL AND ADMINISTRATIVE COSTS. Projected corporate general
and administrative costs are assumed to increase over the period from 1997 to
2001 by approximately $1.0 million annually, reflecting normal inflationary cost
increases.
6. INTEREST EXPENSE. The Projections reflect a reduction in interest
expense resulting from lower levels of indebtedness after the reorganization and
lower interest rates on the debt remaining after the reorganization due to the
impact of the amortization of the premium related to the net write-up of
long-term debt to fair value, partially offset by the increase in interest
expense due to the issuance of the New Senior Notes in exchange for the Old
Senior Notes.
7. INTEREST INCOME. Interest at a rate of 5.0% is assumed on excess cash
balances.
8. GAIN ON DEBT RETIREMENT. The gain results from the extinguishment of
debt in exchange for issuance of New Common Stock and is based on the difference
between the carrying value of the debt (including principal, accrued interest
and deferred financing costs) and the estimated fair value of the debt as of May
9, 1997.
9. INCOME TAXES. Projected income taxes are based on an assumed federal tax
rate of 35%, a blended state effective income tax rate of 5% and additional
amounts of approximately $1.5 million annually for foreign taxes. Amortization
and write-off of any non-tax deductible goodwill and reorganization value along
with gains from extraordinary items and certain fresh start adjustments must be
reflected as an adjustment to projected income before taxes before applying
these rates. The tax benefit for the nine-month period ended October 1, 1997
includes a net tax benefit of $42 million which represents a tax benefit from
the reversal of approximately $57 million of valuation allowance, net of a
reduction of approximately $15 million from 1997 net operating losses which
would be eliminated in connection with the Reorganization Cases.
10. FRESH START REPORTING. Pursuant to SOP 90-7, the Company has determined
the reorganization value of the Company and recorded an intangible asset
representing the reorganization value in excess of amounts allocable to
identifiable tangible and intangible assets. The effect of the increase in net
assets, net of the elimination of goodwill and deferred financing costs of the
Company is included, in the statement of operations for the period from April 3,
1997 through October 1, 1997. The fair values of the assets and liabilities of
Reorganized Flagstar (and thus the amount allocable to reorganization value in
excess of amounts allocable to identifiable tangible and intangible assets) are
subject to revision following the results of appraisals and other studies which
will be performed after consummation of the reorganization and the related
transactions. The Projections assume that the reorganization value in excess of
amounts allocable to identifiable assets will be amortized over five years. The
amount of shareholders' equity in the fresh start balance sheet is not an
estimate of the trading value of the New Common Stock after confirmation of this
Plan, which value is subject to many uncertainties and cannot be reasonably
estimated at this time. Neither the Company nor its financial advisors make any
representation as to the trading value of the shares to be issued under the
Plan.
11. BALANCE SHEET CONSIDERATIONS. Projections of changes in certain balance
sheet accounts such as accounts receivable and accounts payable are based on
historic ratios.
12. LONG-TERM DEBT. The Projections assume that the 11.03% Notes Due 2000
and the 10.25% Guaranteed Secured Bonds Due 2000 will be refinanced at maturity
into notes bearing interest at 9.25% maturing in 2005. The principal balances of
the notes and guaranteed secured bonds at maturity are projected to be $160
million and $140 million, respectively. The accompanying projected condensed
consolidated balance sheets includes deferred financing costs equal to 2% of the
amount expected to be refinanced in such transaction.
13. CAPITAL EXPENDITURES. Cash capital expenditures of $67.2 million in
1997 are assumed to increase to $89 million and $91 million in 1998 and 1999,
respectively, before declining to $76 million in 2000 and again in 2001. The
increases in 1998 and 1999 are assumed to cover normal maintenance needs in
Company restaurants plus certain maintenance deferred in recent years as the
Company was cash constrained. The Projections for 2000 and 2001 reflect ongoing
maintenance for Company restaurants. The Projections do not include any
significant funds for building new Company stores.
82
<PAGE>
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY
PROJECTED REORGANIZED FLAGSTAR(B)
PERIOD FROM PROJECTED
HISTORICAL APRIL 3, 1997 THREE MONTHS
YEAR ENDED QUARTER ENDED THROUGH ENDED PROJECTED FISCAL YEAR ENDED
DECEMBER 31, APRIL 2, OCTOBER 1, DECEMBER 31, DECEMBER
1996 1997 1997 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
Operating revenue........................ $2,542.3 $ 675.8 $ 1,380.6 $ 685.0 $2,767.7 $2,816.2 $2,876.1
Operating expenses, excluding
amortization of excess reorganization
value.................................. 2,385.9 652.8 1,287.6 634.0 2,566.6 2,589.5 2,623.6
Amortization of excess reorganization
value.................................. 43.0 172.2 172.2 172.2
Operating income......................... 156.4 23.0 93.0 8.0 28.9 54.5 80.3
Other charges:
Interest expense....................... 261.6 69.2 136.9 39.0 152.2 144.5 138.9
Interest income........................ (6.9) (.6) (0.2) (0.7) (3.2) (3.9) (7.3)
Other.................................. 3.5 1.5 1.4 1.0 3.5 3.6 3.6
258.2 70.1 138.1 39.3 152.5 144.2 135.2
Loss before reorganization expenses and
taxes.................................. (101.9) (47.1) (45.1) (31.3) (123.6) (89.7) (54.9)
Reorganization expenses.................. 4.0 14.2
Adjustments from applying fresh start
reporting.............................. (598.7)
Provision (benefit) for income taxes..... (16.4) .6 (90.5) 6.6 21.4 34.1 46.8
Net income (loss) before extraordinary
gain................................... (85.5) (51.7) 629.9 (37.9) (145.0) (123.8) (101.7)
Extraordinary gain on debt retirement,
net of tax............................. 656.3
Net income (loss)........................ $ (85.5) $ (51.7) $ 1,286.2 $ (37.9) $ (145.0) $ (123.8) $ (101.7)
EBITDA................................... $ 286.4 $ 57.7 $ 161.7 $ 84.4 $ 332.4 $ 357.5 $ 381.3
Additional Detail by Concept:
Revenue
Denny's.............................. $1,255.3 $ 315.0 $ 631.5 $ 323.3 $1,272.2 $1,292.1 $1,315.8
Hardee's............................. 602.9 137.5 294.7 142.5 571.7 571.5 574.3
Quincy's............................. 259.2 64.2 127.7 58.1 255.0 260.1 265.3
El Pollo Loco........................ 128.4 32.0 70.3 34.1 144.9 153.4 165.3
Coco's/Carrows (a)................... 295.0 127.1 256.4 127.0 523.9 539.1 555.4
Portion-Trol, net of eliminations.... 1.5
Total.................................. $2,542.3 $ 675.8 $ 1,380.6 $ 685.0 $2,767.7 $2,816.2 $2,876.1
EBITDA
Denny's.............................. $ 165.4 $ 36.1 $ 86.8 $ 52.1 $ 192.9 $ 206.4 $ 218.7
Hardee's............................. 78.0 12.0 36.2 16.8 65.0 65.0 65.0
Quincy's............................. 18.0 3.3 10.2 4.5 19.9 21.9 23.3
El Pollo Loco........................ 20.1 4.3 10.1 5.6 22.8 24.6 27.9
Coco's/Carrows (a)................... 33.4 14.6 33.1 15.4 70.1 79.0 86.7
Portion-Trol......................... 9.1
Corporate G&A and other.............. (37.6) (12.6) (14.7) (10.0) (38.3) (39.4) (40.3)
Total.................................. $ 286.4 $ 57.7 $ 161.7 $ 84.4 $ 332.4 $ 357.5 $ 381.3
<CAPTION>
2001
<S> <C>
($ IN MILLIONS)
Operating revenue........................ $2,946.5
Operating expenses, excluding
amortization of excess reorganization
value.................................. 2,664.8
Amortization of excess reorganization
value.................................. 172.2
Operating income......................... 109.5
Other charges:
Interest expense....................... 139.3
Interest income........................ (11.0)
Other.................................. 3.6
131.9
Loss before reorganization expenses and
taxes.................................. (22.4)
Reorganization expenses..................
Adjustments from applying fresh start
reporting..............................
Provision (benefit) for income taxes..... 58.9
Net income (loss) before extraordinary
gain................................... (81.3)
Extraordinary gain on debt retirement,
net of tax.............................
Net income (loss)........................ $ (81.3)
EBITDA................................... $ 409.8
Additional Detail by Concept:
Revenue
Denny's.............................. $1,342.1
Hardee's............................. 580.0
Quincy's............................. 270.6
El Pollo Loco........................ 180.3
Coco's/Carrows (a)................... 573.5
Portion-Trol, net of eliminations....
Total.................................. $2,946.5
EBITDA
Denny's.............................. $ 233.3
Hardee's............................. 65.0
Quincy's............................. 24.9
El Pollo Loco........................ 31.9
Coco's/Carrows (a)................... 96.0
Portion-Trol.........................
Corporate G&A and other.............. (41.3)
Total.................................. $ 409.8
</TABLE>
(a) Revenue and EBITDA for Coco's/Carrows for 1996 represent operations for the
period from May 23, 1996 (date of acquisition) through December 26, 1996.
(b) As described elsewhere in this Prospectus, if the Class of Holders of Old
Senior Notes does not consent to the Plan, the Old Senior Notes shall either
be, in the sole discretion of Reorganized Flagstar, unimpaired (with no
change to their existing interest rates (10 7/8% for approximately $280
million in aggregate principal amount of Old Senior Notes and 10 3/4% for
$270 million in aggregate principal amount of Old Senior Notes), maturity
dates or other terms or provisions of the Old Senior Notes) or exchanged for
New Senior Notes which will bear interest at a rate which the Bankruptcy
Court finds appropriate under the cramdown provisions of 11 U.S.C.
(section mark)1129(b) (with a maturity date having other terms
83
<PAGE>
and provisions set forth herein for the New Senior Notes). In the event of
such unimpairment, and assuming no capitalization of interest expense and
assuming refinancing of such Old Senior Notes at their maturity, projected
interest and debt expense for the three months ended December 31, 1997 and
for the fiscal years ended December 1998, 1999, 2000 and 2001, would be
$37.7 million, $146.6 million, $139.0 million, $133.4 million, and $134.0
million, respectively. Similarly, in the event of such unimpairment,
projected (loss) before income taxes for the three months ended December 31,
1997 and for the fiscal years ended December 1998, 1999, 2000 and 2001,
would be $(30.6) million, $(121.9) million, $(87.9) million, $(53.0)
million, and $(20.8) million, respectively, and projected net (loss) for the
three months ended December 31, 1997 and for the fiscal years ended December
1998, 1999, 2000 and 2001, would be $(37.2) million, $(144.8) million,
$(123.6) million, $(101.5) million, and $(81.2) million, respectively. See
"The Plan of Reorganization -- Treatment of Claims and Interests Under the
Plan -- Description of Claims and Interests -- Classified Claims and
Interest -- Class 4 -- Claims Arising Under Old Senior Notes".
84
<PAGE>
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY
REORGANIZED FLAGSTAR(A)
HISTORICAL PROJECTED
DECEMBER 31, APRIL 2, OCTOBER 1, PROJECTED AS OF DECEMBER
1996 1997 1997 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
ASSETS
Current Assets:
Cash and cash
equivalents............... $ 92.4 $ 31.8 $ 22.2 $ 49.8 $ 55.4 $ 65.0 $ 175.1
Receivables, net............ 17.8 10.5 19.2 21.0 22.2 23.6 25.7
Merchandise and supply
inventories............... 31.5 30.6 31.5 31.5 31.5 31.5 31.5
Other....................... 48.9 41.9 41.9 35.2 40.1 48.4 14.0
190.6 114.8 114.8 137.5 149.2 168.5 246.3
Property, net................. 1,168.6 1,153.4 1,160.4 1,147.3 1,114.9 1,083.4 1,037.8
Goodwill, net................. 205.4 204.2
Reorganization value in excess
of amounts allocable to
identifiable assets, net.... 861.0 817.9 645.7 473.5 301.3
Deferred financing costs...... 64.2 61.6 9.8 9.3 7.7 6.0 9.9
Other......................... 58.6 57.8 57.8 57.2 52.9 45.1 38.3
Total Assets.............. $ 1,687.4 $1,591.8 $ 2,203.8 $ 2,169.2 $ 1,970.4 $ 1,776.5 $ 1,633.6
LIABILITIES
Current Liabilities:
Current maturities of
long-term debt............ $ 62.9 $1,001.0 $ 63.3 $ 66.4 $ 67.1 $ 40.0 $ 20.8
Accounts payable and accrued
expenses.................. 344.3 319.9 260.1 280.5 282.6 285.7 289.1
Other current liabilities... 76.1 82.8 88.8 86.6 93.0 99.8 104.2
483.3 1,403.7 412.2 433.5 442.7 425.5 414.1
Long-Term Liabilities:
Debt, less current
maturities................ 2,179.4 1,226.7 1,273.1 1,253.3 1,190.1 1,147.6 1,120.4
Deferred income taxes....... 16.3 16.0 (75.3 ) (69.4) (56.1) (40.9) (29.1)
Other non-current
liabilities and deferred
credits................... 235.9 224.7 228.8 224.7 211.5 185.9 171.6
Total Liabilities......... 2,914.9 2,871.1 1,838.8 1,842.1 1,788.2 1,718.1 1,677.0
Shareholders' Equity:
Capital stock............... 21.8 21.8 0.4 0.4 0.4 0.4 0.4
Paid-in capital............. 724.9 724.9 364.6 364.6 364.6 364.6 364.6
Deficit..................... (1,973.3) (2,025.1) (37.9) (182.8) (306.6) (408.4)
Minimum pension liability
adjustment................ (0.9) (0.9)
(1,227.5) (1,279.3) 365.0 327.1 182.2 58.4 (43.4)
Total Liabilities and
Shareholders' Equity.... $ 1,687.4 $1,591.8 $ 2,203.8 $ 2,169.2 $ 1,970.4 $ 1,776.5 $ 1,633.6
<CAPTION>
2001
<S> <C>
($ IN MILLIONS)
ASSETS
Current Assets:
Cash and cash
equivalents............... $ 299.9
Receivables, net............ 28.7
Merchandise and supply
inventories............... 31.5
Other....................... 13.9
374.0
Property, net................. 991.9
Goodwill, net.................
Reorganization value in excess
of amounts allocable to
identifiable assets, net.... 129.1
Deferred financing costs...... 7.1
Other......................... 31.7
Total Assets.............. $ 1,533.8
LIABILITIES
Current Liabilities:
Current maturities of
long-term debt............ $ 13.6
Accounts payable and accrued
expenses.................. 293.8
Other current liabilities... 102.3
409.7
Long-Term Liabilities:
Debt, less current
maturities................ 1,105.9
Deferred income taxes....... (21.4)
Other non-current
liabilities and deferred
credits................... 164.3
Total Liabilities......... 1,658.5
Shareholders' Equity:
Capital stock............... 0.4
Paid-in capital............. 364.6
Deficit..................... (489.7)
Minimum pension liability
adjustment................
(124.7)
Total Liabilities and
Shareholders' Equity.... $ 1,533.8
</TABLE>
(a) In the event of unimpairment of the Old Senior Notes as described in note
(b) to the Projected Condensed Statements of Consolidated Operations, cash
and cash equivalents of Reorganized Flagstar projected as of October 1, 1997
and as of December 1997, 1998, 1999, 2000, and 2001, would be $18.7 million,
$28.3 million, $36.0 million, $47.6 million, $160.5 million and $280.1
million, respectively.
85
<PAGE>
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY
PROJECTED REORGANIZED FLAGSTAR
PERIOD FROM PROJECTED
HISTORICAL APRIL 3, 1997 THREE MONTHS
YEAR ENDED QUARTER ENDED THROUGH ENDED PROJECTED FISCAL YEAR
DECEMBER 31, APRIL 2, OCTOBER 1, DECEMBER 31, ENDED DECEMBER
1996 1997 1997 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
Operating Activities:
Net (loss) income.......................... $ (85.5) $ (51.7) $ 1,286.2 $(37.9) $(145.0) $(123.8) $(101.7)
Adjustments to Reconcile Net Income (Loss)
to Cash Flows from Operating Activities:
Depreciation and amortization............ 129.9 34.7 68.7 76.4 303.5 303.1 301.0
Amortization of deferred financing
costs.................................. 8.9 2.7 5.3 .4 1.7 1.7 2.1
Deferred taxes........................... (9.0) (0.3) (91.3) 6.0 13.3 15.2 11.8
Extraordinary items, net................. (656.3)
Subordinated interest expense............ 79.1
Senior interest expense capitalized...... 25.9
Fresh start adjustments.................. (598.7)
Amortization of deferred gains........... (11.1) (4.1) (8.6) (4.2) (16.9) (16.9) (16.9)
Amortization of debt premium credited to
interest expense....................... (2.2) (9.0) (9.0) (7.3)
Other.................................... (7.9) 1.2 (2.1) (.8)
Net changes in working capital............. 7.4 (14.9) (33.1) 23.0 2.6 0.2 41.2
Net changes in other assets and
liabilities.............................. (16.0) (4.6) (3.3) (1.1) 1.5 (7.5) 2.0
Net cash flows from (used in) operating
activities............................... 16.7 (37.0) 71.8 59.6 151.7 163.0 232.2
Investing Activities:
Purchases of property.................... (55.0) (8.9) (41.7) (16.6) (89.0) (91.0) (76.0)
Proceeds from dispositions of property... 14.3 7.0 1.0
Proceeds from sales of subsidiaries...... 63.0
Acquisition of business, net of cash
acquired............................... (127.0)
Other.................................... (4.7) (5.6)
Net cash flows used in investing
activities............................... (109.4) (1.9) (47.3) (15.6) (89.0) (91.0) (76.0)
Financing Activities:
Net borrowings under credit agreements... 56.0 1.2 2.3 5.9 (4.3) (5.1)
Deferred financing costs................. (9.6) (9.8) (6.0)
Long-term debt payments.................. (44.1) (21.7) (25.5) (18.7) (63.0) (58.1) (35.0)
Cash dividends on preferred stock........ (14.2)
Net cash flows used in financing
activities............................... (11.9) (21.7) (34.1) (16.4) (57.1) (62.4) (46.1)
Increase (decrease) in cash and cash
equivalents.............................. (104.6) (60.6) (9.6) 27.6 5.6 9.6 110.1
Cash and Cash Equivalents at:
Beginning of period...................... 197.0 92.4 31.8 22.2 49.8 55.4 65.0
End of period............................ $ 92.4 $ 31.8 $ 22.2 $ 49.8 $ 55.4 $ 65.0 $ 175.1
<CAPTION>
2001
<S> <C>
($ IN MILLIONS)
Operating Activities:
Net (loss) income.......................... $(81.3)
Adjustments to Reconcile Net Income (Loss)
to Cash Flows from Operating Activities:
Depreciation and amortization............ 300.3
Amortization of deferred financing
costs.................................. 2.9
Deferred taxes........................... 7.7
Extraordinary items, net.................
Subordinated interest expense............
Senior interest expense capitalized......
Fresh start adjustments..................
Amortization of deferred gains........... (15.8)
Amortization of debt premium credited to
interest expense....................... (0.9)
Other....................................
Net changes in working capital............. 7.1
Net changes in other assets and
liabilities.............................. 1.5
Net cash flows from (used in) operating
activities............................... 221.5
Investing Activities:
Purchases of property.................... (76.0)
Proceeds from dispositions of property...
Proceeds from sales of subsidiaries......
Acquisition of business, net of cash
acquired...............................
Other....................................
Net cash flows used in investing
activities............................... (76.0)
Financing Activities:
Net borrowings under credit agreements...
Deferred financing costs.................
Long-term debt payments.................. (20.7)
Cash dividends on preferred stock........
Net cash flows used in financing
activities............................... (20.7)
Increase (decrease) in cash and cash
equivalents.............................. 124.8
Cash and Cash Equivalents at:
Beginning of period...................... 175.1
End of period............................ $299.9
</TABLE>
86
<PAGE>
SELECTED PROJECTED FINANCIAL DATA
(UNAUDITED)
The following financial data reflects Reorganized Flagstar excluding
Coco's/Carrows (an Unrestricted Subsidiary (as defined herein)).
<TABLE>
<CAPTION>
PROJECTED
PERIOD FROM
APRIL 3, PROJECTED
HISTORICAL HISTORICAL 1997 THREE MONTHS
YEAR ENDED QUARTER ENDED THROUGH ENDED PROJECTED FISCAL YEAR ENDED
DECEMBER 31, APRIL 2, OCTOBER 1, DECEMBER 31, DECEMBER
1996 1997 1997 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN MILLIONS)
Revenue................ $2,247.3 $ 548.7 $ 1,124.2 $ 558.0 $2,243.8 $2,277.1 $2,320.7
EBITDA (1)............. 253.0 43.1 132.4 74.4 276.8 292.0 310.2
Interest expense,
net.................. 237.0 61.1 122.2 31.8 123.9 117.8 111.1
Long-term debt, net
(2).................. 1,926.8 1,999.9 1,100.2 1,058.4 1,009.0 958.9 838.2
Cash capital
expenditures......... 52.3 7.4 30.5 13.7 75.0 75.0 60.0
EBITDA/Interest
expense, net......... 2.2x 2.5x 2.8x
EBITDA-Cash capital
expenditures/Interest
expense, net......... 1.6 1.8 2.3
Long-term debt,
net/EBITDA........... 3.6 3.3 2.7
<CAPTION>
2001
<S> <C>
($ IN MILLIONS)
Revenue................ $2,373.0
EBITDA (1)............. 330.2
Interest expense,
net.................. 110.1
Long-term debt, net
(2).................. 738.3
Cash capital
expenditures......... 60.0
EBITDA/Interest
expense, net......... 3.0x
EBITDA-Cash capital
expenditures/Interest
expense, net......... 2.5
Long-term debt,
net/EBITDA........... 2.2
</TABLE>
(1) EBITDA has been adjusted to include certain management fees and tax
reimbursements payable to Flagstar from Coco's/Carrows.
(2) Long-term debt less cash balances in excess of amount required for
operations, assumed to be $15 million.
MARKET AND TRADING INFORMATION
The Old Senior Notes, the Senior Subordinated Debentures and the Junior
Subordinated Debentures are traded in the over-the-counter market. In general,
trading of these securities has been limited and sporadic. Quotations for such
securities that are not widely traded may differ from actual trading prices and
should be viewed as approximations. The quotations for the Old Senior Notes, the
Senior Subordinated Debentures and the Junior Subordinated Debentures set forth
below are stated as a percentage of the principal amount. Holders are urged to
obtain current information with respect to the current market prices of such
securities.
<TABLE>
<CAPTION>
SENIOR JUNIOR
OLD SUBORDINATED SUBORDINATED
SENIOR NOTES DEBENTURES DEBENTURES
HIGH LOW HIGH LOW HIGH LOW
BID BID BID BID BID BID
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter............... 97.00% 90.00% 85.50% 80.75% 73.50% 69.00%
Second quarter.............. 95.50 92.50 85.00 77.00 72.50 66.50
Third quarter............... 95.00 92.00 85.00 76.50 74.63 67.50
Fourth quarter.............. 94.00 89.50 78.00 70.00 70.63 54.75
1996
First quarter............... 93.00 89.50 73.50 65.00 59.75 54.88
Second quarter.............. 91.00 87.50 73.50 66.50 59.38 51.75
Third quarter............... 88.50 86.50 66.50 57.00 55.00 32.00
Fourth quarter.............. 92.00 86.25 59.00 41.50 30.13 24.63
1997
First quarter............... 98.00 91.50 43.00 35.00 15.00 10.00
Second quarter (through May
27, 1997)................ 99.00 98.00 44.00 36.00 15.00 15.00
</TABLE>
87
<PAGE>
The Old FCI Common Stock and Old FCI Preferred Stock, through May 16, 1997,
were traded on the NASDAQ National Market System under the symbol "FLST" and
"FLSTP," respectively. As of the close of business on May 16, 1997, the Old FCI
Common Stock and the Old FCI Preferred Stock were delisted from trading on the
NASDAQ National Market. As a consequence, it is anticipated that, although such
securities will continue to be traded in the over-the-counter market, such
trading activity will be limited and sporadic.
As of May 27, 1997, 42,434,668 shares of Old FCI Common Stock and 6,300,000
shares of Old FCI Preferred Stock were outstanding, and there were approximately
12,700 record and beneficial holders of Old FCI Common Stock and approximately
2,300 record and beneficial holders of Old FCI Preferred Stock. FCI has not paid
and does not expect to pay dividends on the outstanding Old FCI 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 the Old FCI Common Stock. FCI did not
make the quarterly dividend payments on the Old FCI Preferred Stock accruing in
December 1996 or March 1997. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Liquidity and Capital
Resources" and Note 4 to the accompanying Consolidated Financial Statements of
the Company.
The following table lists the high and low closing sales prices of the Old
FCI Preferred Stock and Old FCI Common Stock, respectively, for each quarter in
the last two fiscal years and through May 27, 1997. The sales prices were
obtained from the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
OLD FCI PREFERRED
STOCK
HIGH LOW
<S> <C> <C>
1995
First quarter........................................................................... $19 3/4 $18
Second quarter.......................................................................... 20 1/4 17 1/2
Third quarter........................................................................... 20 18 3/8
Fourth quarter.......................................................................... 17 1/4 10 3/8
1996
First quarter........................................................................... 15 11 9/16
Second quarter.......................................................................... 14 3/4 12 1/2
Third quarter........................................................................... 12 7/8 6 3/4
Fourth quarter.......................................................................... 7 3/8 2
1997
First quarter........................................................................... 2 1/16 13/16
Second quarter (through May 27, 1997)................................................... 1 1/32 5/8
<CAPTION>
OLD FCI COMMON
STOCK
HIGH LOW
<S> <C> <C>
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
1996
First quarter........................................................................... 5 2 7/8
Second quarter.......................................................................... 4 1/4 2 7/8
Third quarter........................................................................... 3 5/16 1 15/16
Fourth quarter.......................................................................... 2 1/8 29/32
1997
First quarter........................................................................... 1 7/32 25/64
Second quarter (through May 27, 1997)................................................... /32 9/32
</TABLE>
88
<PAGE>
BUSINESS
INTRODUCTION
The Company is one of the largest restaurant companies in the United
States, operating (directly and through franchisees) more than 3,200 moderately
priced restaurants.
FCI is a holding company that was organized in Delaware in 1988 in order to
effect the leveraged buyout of Flagstar in 1989. On November 16, 1992, FCI and
Flagstar consummated the Recapitalization, which included, among other things,
an equity investment by Associates. 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 a result of the 1989 leveraged buyout of Flagstar, the Company became
and remains very highly leveraged. While the Company's cash flows have been
sufficient to cover interest costs, operating results since the buyout in 1989
have fallen short of expectations. Such shortfalls have resulted from negative
operating trends 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. These
operating trends have generally continued through 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for additional information.
On May 23, 1996, the Company, through FRD, a newly formed subsidiary,
consummated the acquisition of the Coco's and Carrows restaurant chains
consisting of 347 Company-owned units within the mid-scale family-style dining
category in order to capitalize on the Company's experience in the restaurant
industry and the California market and to maximize the synergies among the
Company's restaurant chains, including increased purchasing power. The ultimate
acquisition price of $313.4 million was paid in consideration for all of the
outstanding stock of FRI-M Corporation ("FRI-M"), the subsidiary of Family
Restaurants, Inc. ("FRI") which owns the Coco's and Carrows chains. The
acquisition was accounted for using the purchase method of accounting and is
reflected in the Company's Consolidated Financial Statements and Notes thereto
included herein as of the acquisition date.
During the third quarter of 1996, the Company sold PTF, its food processing
operations, marking the last in a series of non-restaurant divestitures which
began with the sale of Canteen Corporation, the Company's food and vending
business, in 1994 and also included the 1995 sales of TW Recreational Services,
Inc., a concession and recreation services subsidiary; VS, a stadium concession
services subsidiary; and PFC, the Company's food distribution subsidiary.
On March 17, 1997, the Company announced that it had reached an agreement
in principle with an Ad Hoc Debentureholders Committee with respect to the Plan.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "The Plan of Reorganization"
for additional information.
RESTAURANTS
Flagstar's operations are conducted through six restaurant chains or
concepts, four chains in the full-service mid-scale dining segment and two in
the quick-service segment. Denny's, Flagstar's largest concept, is the nation's
largest chain of family-style full-service restaurants, with almost 1,600 units
in 49 states, two U.S. territories, and six foreign countries. Denny's largest
concentration domestically is in California and Florida with 531 units in these
two states. Management believes that Denny's has the leading share of the
national market in the family-style category. Quincy's, with 199 locations, is
one of the largest chains of family-steak restaurants in the southeastern United
States, offering steak, chicken and seafood entrees as well as a buffet bar,
called "America's Home Plate." A weekend breakfast buffet is also available at
most Quincy's locations. Flagstar also operates El Pollo Loco, a chain of 241
quick-service restaurants featuring flame-broiled chicken and steak products and
related Mexican food items, with a strong regional presence in California. As
indicated above, Flagstar acquired the Coco's and Carrows chains in 1996. Coco's
is a regional bakery restaurant chain operating 466 units in seven western
states and two foreign countries. Coco's offers a wide variety of fresh-baked
goods and value priced meals that capitalize on emerging food trends in the
western United States. The Carrows chain, consisting of 160 units in seven
western states, specializes in traditional American food, with an emphasis on
quality, homestyle fare at an excellent value. Hardee's is a chain of
quick-service restaurants of which Flagstar, with 580 units located primarily in
the Southeast, is the largest franchisee. Although specializing in sandwiches,
Flagstar's Hardee's restaurants serve fried chicken and offer a breakfast menu
that accounts for approximately 44% of total sales and features the chain's
famous "made-from-scratch" biscuits. For a breakdown of the total revenues
contributed by each referenced concept for the last three years, see the
corresponding section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
89
<PAGE>
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 1996, the
Company continued its strategy of growth through franchising, adding a net 66
total units to the system (excluding the impact of the additional 610 units
acquired through the Coco's and Carrows acquisition), representing an increase
of 133 franchise units, offset by a decline of 67 Company-operated units. The
increase in franchise units and the decrease in Company-operated units includes
27 units which were sold to franchisees (turnkeyed). The Company intends to
continue focusing on growth in the franchise arena in 1997.
The Company believes its restaurant operations benefit from the diversity
of the restaurant concepts represented by its six chains, the generally strong
market positions and consumer recognition enjoyed by 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. Denny's, Quincy's, Coco's
and Carrows may benefit from the demographic trend of aging baby boomers and the
growing population of elderly persons. The largest percentage of "mid-scale"
customers comes from the 35 and up age group. In the quick-service segment, the
Company is making efforts to recapture Hardee's restaurants' traditionally
strong market position in the Southeast, and expects El Pollo Loco to increase
its strong position in the Southwest.
During the fourth quarter of 1993, the Company approved a restructuring
plan for its restaurant concepts which included, among other things, the
identification of units for sale, closure or conversion to another concept. At
December 31, 1996 four units remain relative to the 1993 restructuring plan, of
which two are scheduled for disposal in 1997. Management has decided to continue
to operate the remaining two units.
During 1995, the Company identified 36 additional underperforming units for
sale or closure of which 29 units were disposed of through 1996 and two are
scheduled for disposal in 1997. Management has decided to continue to operate
the remaining five units.
See Note 3 to the Consolidated Financial Statements for additional
information concerning these identified units.
DENNY'S
Denny's is the largest full-service family-style restaurant chain in the
mid-scale segment in the United States in terms of both number of units and
total revenues. Denny's restaurants currently operate in 49 states, two U.S.
territories, and six foreign countries, with principal concentrations in
California, Florida, Texas, Arizona, Washington, Illinois, Ohio, 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
items, steaks, seafood, hamburgers, chicken and sandwiches) and provide both
counter and table service. In 1996, Denny's sales were evenly distributed across
each of its dayparts, with breakfast and lunch representing approximately 60% of
total traffic. Denny's restaurants had a 1996 average guest check of $5.03 and
average annual unit sales of $1.3 million. Denny's currently employs
approximately 41,000 people.
In 1994, the Company began a "reimaging" strategy designed to enhance the
competitive positioning of Denny's. This reimaging strategy involved all
restaurants within a market area and included an updated exterior, new signage,
an improved interior layout with more comfortable seating and enhanced lighting.
The Company completed the reimaging of 306 restaurants through 1995. During
1995, management curtailed this reimaging program in order to focus its
attention and resources on programs specifically designed to enhance the
customer's experience at Denny's by improving service and value positioning. In
1996, the Company started limited exterior refurbishments on 588 units primarily
focusing on exterior improvements, such as landscaping, exterior lighting, sign
replacement and parking lot repairs to enhance the curb appeal of the
restaurants. At December 31, 1996, approximately three-quarters of the 588 units
scheduled to receive this limited refurbishment have been completed.
Historically, Denny's has had the lowest average guest check within the
family-style category. In January 1996, Denny's rolled out a value menu that
featured value priced items for breakfast, lunch and dinner with tiered pricing
starting at $1.99, $2.99 and $3.99, respectively. At the same time, the Company
launched several initiatives (including a more operationally focused
organizational structure, modern information systems and reengineered restaurant
processes) designed to deliver better service and more consistent product
quality. The Company expects to refine and accelerate these efforts in 1997.
90
<PAGE>
During 1997, the Company intends to continue its focus on opening new
franchise units, and to capitalize on its status as a leading franchisor. For
the last three years, Denny's has opened more new units than any competitor in
the mid-scale segment. Furthermore, Denny's has supplemented its franchise
development efforts by selectively selling Company-owned units to franchisees.
During 1996, the Company added a net 82 new Denny's franchise units,
including the sale of 19 Company-owned units to franchisees, bringing the total
franchised units to 702, or 44% of all Denny's restaurants. The initial fee for
a single Denny's franchise is $35,000, and the current royalty payment is
approximately 4% of gross sales.
HARDEE'S
The Company's Hardee's restaurants are operated under licenses from Hardees
Food Systems, Inc. ("HFS"). A subsidiary of the Company is HFS' largest
franchisee, operating 16% of Hardee's restaurants nationwide. HFS is the seventh
largest chain in the United States based on national systemwide sales. Of the
580 Hardee's restaurants operated by the Company at December 31, 1996, 557 were
located in nine southeastern states. Flagstar's Hardee's currently employ
approximately 22,000 people. The Company's Hardee's restaurants provide uniform
menus in a quick-service format targeted to a broad spectrum of customers. The
restaurants offer hamburgers, chicken, roast beef and fish sandwiches, hot dogs
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
completed the rollout of fresh fried chicken as a menu item in 1993.
Substantially all of the Company's Hardee's restaurants have drive-thru
facilities, which provided 51% of the chain's revenues in 1996. Most of the
restaurants are open 16-17 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 44% of total sales at the Company's
Hardee's restaurants. The average guest check at the Company's Hardee's was
$3.17 in 1996, and average annual unit sales for the Company's Hardee's
restaurants was $1.0 million.
Management implemented several action plans in the second half of 1996 to
focus on customer satisfaction. These initiatives included new menu boards in
all 580 units and a "touch-up" project in 276 units. The "touch-up" project
included new roofs, paint, trim and wallpaper as well as minor landscaping and
parking lot repairs and is substantially complete. Hardee's has also installed
new microwaves in all units and implemented procedures to provide customers with
a hot product. Additionally, management costs have been reduced by the
elimination of two layers of management and the streamlining of management
reporting relationships. During 1996, the Company closed 14 under-performing
Hardee's units. Management continues to review under-performing units and may in
the future decide to close additional units.
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. Each year, 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, HFS and other Hardee's franchisees along with the
Company are permitted to open Hardee's restaurants in such territory.
In 1997, the focus of the Company will be to better position its Hardee's
restaurants in the marketplace through a variety of means, including dual
branding, refurbishment, and in appropriate circumstances, subject to legal
obligations and restrictions, conversion to another concept.
The Company does not believe HFS has satisfied its contractual obligations
to support the Hardee's franchise. On March 19, 1997, the Company notified HFS,
pursuant to its various license agreements, that its subsidiary was seeking to
arbitrate certain claims of the subsidiary against HFS. In its demand for
arbitration, the Company's subsidiary alleges, among other things (i) breach by
HFS of its license agreements with the Company's subsidiary, (ii) breach of
fiduciary duty and
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negligence by HFS in mishandling and misapplying funds of the Company's
subsidiary held for advertising, and (iii) unfair trade practices. No assurances
can be given as to the outcome of such arbitration proceeding or its impact on
the Company's Hardee's operations. For additional information concerning the
Company's Hardee's operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
QUINCY'S
Ranked by 1996 sales, Quincy's is the sixth largest family-steak (grill
buffet) chain in the country and is one of the largest such chains in the
southeastern United States. The Quincy's chain, employing approximately 11,000
people, currently consists of 199 Company-operated limited service restaurants,
which are designed to provide value conscious customers with a varied menu,
abundant portions and great steaks at moderate prices. The average guest check
at Quincy's in 1996 was $6.06. All Quincy's are open seven days a week for lunch
and dinner. The dinner daypart is Quincy's strongest, representing 63% of total
sales in 1996. The average annual unit sales for a Quincy's restaurant was
approximately $1.3 million in 1996. The restaurants serve steak, chicken and
seafood entrees along with a buffet-style food bar, called "America's Home
Plate," offering hot foods, soups, salads and desserts. In addition, weekend
breakfast service, which is available at most locations, allows Quincy's to
utilize its base assets more efficiently.
After experimenting with a number of formats at Quincy's from 1993 through
1995, including enhancements to the scatter bar buffet and a few buffet only
restaurants, management has determined that a repositioning of Quincy's with
better quality food and the "No Mistake Steak" would provide a more effective
marketing strategy. In that regard, Quincy's initiated a "Relaunch" program in
October 1996 designed to improve service basics, food quality and the marketing
effectiveness of Quincy's, and to differentiate Quincy's from other family-steak
restaurants. While the initial results have been positive, the program is still
in its early stages and additional time will be required to measure its full
impact on results.
EL POLLO LOCO
El Pollo Loco is the leading chain specializing in flame-broiled chicken in
the quick-service segment of the restaurant industry. Of the total 241 El Pollo
Loco restaurants, which are located in five southwestern states and two foreign
countries, 86% are located in Southern California. El Pollo Loco currently
employs approximately 2,500 people.
El Pollo Loco restaurants are generally open 12 hours a day, seven days a
week for lunch and dinner. A majority of the Company's El Pollo Loco restaurants
have drive-thru facilities, which provided 33% of the chain's revenues in 1996.
The dinner daypart for El Pollo Loco is the strongest, representing 54% of total
sales.
El Pollo Loco directs its marketing at customers desiring an alternative to
traditional fast food products, offering unique tasting and high quality
products which help position the brand as high quality fast food at a
competitive price. The restaurants are designed to facilitate customer viewing
of the preparation of the flame-broiled chicken, and the food is served quickly,
but prepared slowly, using fresh ingredients. Much of the brand's recent growth
can be attributed to successful menu positioning, new product offerings, dual
branding with the complementary Fosters Freeze dessert line, which commenced in
late 1995, and restaurant remodeling. The average guest check at El Pollo Loco
in 1996 was $6.63 and average annual Company-owned restaurant sales reached
record levels of approximately $1.2 million in 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. In 1997, the Company intends to open
relatively few Company-owned El Pollo Loco restaurants and focus instead on its
franchising efforts. To accelerate the franchise expansion, in 1996 the Company
sold eight units to franchisees which were not part of the growth strategy for
Company-owned El Pollo Loco 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.
In 1996 the chain had a net increase of 24 units, representing a net 31
franchise unit increase, offset by a Company-operated decrease of seven units.
The initial fee for a single El Pollo Loco franchise is $35,000 and the current
royalty payment rate is 4% of gross sales.
El Pollo Loco recently launched a co-branding effort with Flagstar's
Hardee's restaurants in South Carolina. This partnership, which is intended to
take advantage of Hardee's exceptional breakfast business and El Pollo Loco's
strong lunch and dinner dayparts, will serve as an initial test of the appeal of
El Pollo Loco to consumers in the eastern United States.
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COCO'S
Coco's is a regional bakery restaurant chain operating primarily in
California, Arizona, and Texas, as well as Japan and Korea. Coco's currently
consists of 183 Company-operated, five domestic franchised and 278 international
licensed restaurants, and employs approximately 9,000 people. Coco's offers a
variety of fresh-baked goods such as pies, muffins and cookies and value-priced,
innovative menu items that capitalize on emerging food trends in the western
United States. The chain has positioned itself at the upper end of the mid-scale
family-style category, offering a variety of great food, great service, and a
pleasant atmosphere at fair prices, to answer the needs of quality conscious
family diners. The restaurants are generally open 18 hours a day, with several
units opened 24 hours a day on weekends. Coco's restaurants have uniform menus
and serve breakfast, lunch and dinner, as well as a "late night" menu in those
restaurants open around the clock.
Lunch and dinner dayparts are Coco's strongest, comprising 37% and 39% of
1996 sales, respectively. In 1996, the average guest check was $6.79, with
average annual unit sales of approximately $1.5 million.
With a foreign presence that is among the largest of any U.S. based,
non-fast food restaurant chain, Coco's has laid the foundation to aggressively
expand its international operations. Internationally, 21 units have been added
to the system since the Company acquired the chain in May 1996. Additionally,
Coco's is placing new emphasis on domestic franchising as an opportunity to
achieve further growth of the brand. The initial fee for a single Coco's
franchise is $35,000 and the current royalty payment rate is 4% of net sales.
CARROWS
Carrows is a regional mid-scale family-style restaurant chain operating
primarily in seven western states. Carrows currently consists of 160
Company-operated units and employs approximately 7,000 people. Carrows
specializes in traditional American food, with an emphasis on quality, homestyle
fare at an excellent value. The concept appeals strongly to families with
children as well as to mature adults -- two groups expected to grow rapidly into
the next century. The menu is always current, but not trendy, and is revised
regularly to reflect the most appealing foods that guests demand. The
restaurants are generally open 18 hours a day, with 25% open 24 hours a day.
Carrows restaurants have uniform menus and serve breakfast, lunch and dinner, as
well as a "late night" menu in those restaurants open 24 hours a day.
Lunch and dinner dayparts are Carrows' strongest, comprising 30% and 44% of
1996 sales, respectively. In 1996, the average guest check was $6.26, with
average annual unit sales of approximately $1.3 million.
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, region, district
and restaurant level managers or leaders, the Company standardizes
specifications for the preparation and efficient service of quality food, the
maintenance and repair of its premises and the appearance and conduct of its
employees. Major emphasis is placed on the proper preparation and delivery of
the product to the consumer and on the cost-effective procurement and
distribution of quality products.
A principal feature of the Company's restaurant operations is the constant
focus on improving operations at the unit level. Unit managers are especially
hands-on and versatile in their supervisory activities. Region and district
leaders have no offices and spend substantially all of their time in the
restaurants. A significant majority of restaurant management personnel began as
hourly employees in the restaurants and therefore perform restaurant functions
and train by example. The Company benefits from an experienced management team.
Each of the Company's restaurant chains maintains training programs for
employees and restaurant managers. Restaurant managers and assistant managers
receive training at specially designated training units. Areas of training for
managers include customer interaction, kitchen management and food preparation,
data processing and cost control techniques, equipment and building maintenance
and leadership skills. Video training tapes demonstrating various restaurant job
functions are located at each restaurant location and are viewed by employees
prior to a change in job function or using 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 with HFS.
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Financial and management control is facilitated by the use of POS systems
in all of the Company's restaurants which transmit detailed sales reports,
payroll data and periodic inventory information for management review. During
the fourth quarter of 1996, the Company began rolling out new POS systems in its
Company-owned Denny's restaurants. These systems are expected to help the
restaurants improve customer service by providing more accurate and faster
turnaround of customer orders and better inventory control. In addition, the new
POS systems will aid in decision-making by providing sales information on a more
timely basis, with a higher level of detail for better data analysis. Over the
next two years, management intends to install new POS systems in all of
Flagstar's Company-owned restaurants pursuant to its information services
agreement with ISSC as more fully discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ADVERTISING
The Company uses an integrated process to promote its concepts, including
media, menu strategy, interior/exterior building design, style of service and
specialized promotions to help differentiate itself in the marketplace. Media
advertising is primarily product oriented, generally featuring high margin,
special entrees or meal combinations presented and priced to convey high value.
Such advertising is conducted through national, regional and local television
advertising as well as radio, outdoor and print advertising depending on the
target market. Sophisticated consumer marketing research techniques are utilized
to measure customer satisfaction and customers' evolving expectations. During
1996, the Company spent from 3% to 7% of its concepts' gross sales on
advertising.
In accordance with the HFS licensing agreements, the Company spent
approximately 7.1% of its Hardee's units' total gross sales on marketing and
advertising during 1996. Of this amount, approximately 3.0% of total gross sales
is contributed to media cooperatives and HFS' national advertising fund. The
balance was directed by the Company at local levels.
SITE SELECTION
The success of any restaurant is influenced significantly by 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.
RAW MATERIALS SOURCES AND AVAILABILITY
The Company has a centralized purchasing program which is designed to
ensure uniform product quality as well as reduced food, beverage and supply
costs. The Company's size provides it with significant purchasing power which
often enables it to obtain products at more favorable prices from several
nationally recognized manufacturers.
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, PFC, to MBM, the
Company entered into an eight year distribution agreement, subsequently extended
to ten years, with MBM under which PFC/MBM will continue to distribute and
supply certain products and supplies to the Company's Denny's, Hardee's,
Quincy's and El Pollo Loco restaurants. Beginning in November 1997, Coco's and
Carrows will become subject to similar agreements. There are no volume
requirements relative to these agreements; however, the products named therein
must be purchased through PFC/MBM unless they are unable to make delivery within
a reasonable period. During the third quarter of 1996, the Company sold
Portion-Trol Foods, Inc. and the Mother Butler Pies division of Denny's, its two
food processing operations. In conjunction with each of these sales, the Company
entered into a five year purchasing agreement with the acquirer under which the
Company is required to purchase certain minimum annual volumes. If such volumes
are not purchased, the agreements provide for the payment of penalties.
The Company believes that satisfactory sources of supply are generally
available for all the items regularly used by its restaurants and has not
experienced any material shortages of food, equipment, or other products which
are necessary to its restaurant operations.
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SEASONALITY
The Company's business is moderately seasonal. Restaurant sales are
generally greater in the second and third calendar quarters (April through
September) than in the first and fourth calendar quarters (October through
March). Occupancy and other operating costs, which remain relatively constant,
have a disproportionately negative effect on operating results during quarters
with lower restaurant sales. The Company's working capital requirements also
fluctuate seasonally, with its greatest needs occurring during its first and
fourth quarters.
TRADEMARKS AND SERVICE MARKS
The Company, either directly or through wholly-owned subsidiaries, has
registered certain trademarks and service marks with the United States Patent
and Trademark office and in international jurisdictions, some of which include
Denny's(Register mark), El Pollo Loco(Register mark), Quincy's(Register mark),
Coco's(Register mark), Carrows(Register mark), and Grand Slam
Breakfast(Register mark). The Company regards its trademarks and service marks
as important to the identification of its restaurants and believes they are of
material importance to the conduct of its business. Domestic trademark and
service mark registrations are renewable at various intervals from 10 to 20
years, while international trademark and service mark registrations have various
durations from five to 20 years. The Company generally intends to renew
trademarks and service marks which come up for renewal. The Company owns or has
rights to all trademarks it believes are material to its restaurant operations.
RESEARCH AND DEVELOPMENT
The Company engages in research and development on an ongoing basis,
testing new products and procedures for possible introduction into the Company's
systems. The Company has also frequently helped HFS develop and test-market new
products. While research and development activities are important to the
Company's business, amounts expended for these activities are not material.
COMPETITION
The restaurant industry can be divided into three main segments:
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 Coco's, Carrows, Denny's
and Quincy's, is characterized by complete meals, menu variety and moderate
prices ($5-$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 (generally, $3-$5
average check), finger foods, fast service, and convenience. A small number of
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.
Management believes the Company's principal competitive strengths include
its restaurants' brand name recognition; the value, variety and quality of food
products served; the quality and training of its employees; and the Company's
market penetration, which has resulted in economies of scale in a variety of
areas, including advertising, distribution and field supervision.
GOVERNMENT REGULATIONS
The Company and its franchisees are subject to various local, state and
Federal laws and regulations governing various aspects of the restaurant
business, including, but not limited to, health, sanitation, environmental
matters, safety, disabled persons' access to its restaurant facilities, the sale
of alcoholic beverages and regulations regarding hiring and employment
practices. The operation of the Company's franchise system is also subject to
regulations enacted by a number of states and
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rules promulgated by the Federal Trade Commission. The Company believes that it
is in material compliance with applicable laws and regulations, but it cannot
predict the effect on operations of the enactment of additional requirements in
the future.
The Company is subject to Federal and state laws governing matters such as
minimum wage, overtime and other working conditions. At December 31, 1996, a
substantial number of the Company's employees were paid the minimum wage.
Accordingly, increases in the minimum wage or decreases in the allowable tip
credit (which reduces the minimum wage that must be paid to tipped employees in
certain states) increase the Company's labor costs. This is especially the case
in California, where there is no tip credit. In November, 1996, an initiative in
California was passed raising the minimum wage in California from $4.25 to $5.00
per hour, effective March 1, 1997, and to $5.75 per hour effective March 1,
1998. Also the Federal minimum wage increased from $4.25 per hour to $4.75 per
hour on October 1, 1996 and will increase again to $5.15 per hour on September
1, 1997. Employers must pay the higher of the Federal or state minimum wage. The
Company will attempt to offset increases in the minimum wage through pricing and
other cost control efforts; however, there can be no assurance that the Company
or its franchisees will be able to pass such additional costs on to its
customers.
ENVIRONMENTAL MATTERS
Federal, state and local environmental laws and regulations have not
historically had a material impact on the operations of the Company; however,
the Company cannot predict the effect on its operations of possible future
environmental legislation or regulations.
PROPERTIES
Most of the Company's restaurants are free-standing facilities. Presented
below is a schedule of the average property and building square footage, as well
as average seating capacity for each of the Company's concepts:
<TABLE>
<CAPTION>
AVERAGE AVERAGE AVERAGE
PROPERTY BUILDING SEATING
CONCEPT SIZE IN SQ. FT. SIZE IN SQ. FT. CAPACITY
<S> <C> <C> <C>
Carrows...................................................... 35,000 5,400 160
Coco's....................................................... 35,000 5,000 160
Denny's...................................................... 42,000 4,750 150
El Pollo Loco................................................ 20,000 2,100 60
Hardee's..................................................... 52,000 3,400 95
Quincy's..................................................... 64,000 7,100 250
</TABLE>
The following table sets forth certain additional information regarding the
Company's restaurant properties as of December 31, 1996:
<TABLE>
<CAPTION>
LAND LEASED
LAND AND AND LAND AND
BUILDING BUILDING BUILDING
CONCEPT OWNED OWNED LEASED TOTAL
<S> <C> <C> <C> <C>
Carrows.................................................. 3 10 147 160
Coco's................................................... 2 39 142 183
Denny's.................................................. 254 36 604 894
El Pollo Loco............................................ 9 33 54 96
Hardee's................................................. 288 100 192 580
Quincy's................................................. 152 41 6 199
Total.................................................. 708 259 1,145 2,112
</TABLE>
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The number and location of the Company's restaurants in each chain as of
December 31, 1996 are presented below:
<TABLE>
<CAPTION>
DENNY'S EL POLLO LOCO COCO'S
FRANCHISED FRANCHISED FRANCHISED
STATE OWNED LICENSED HARDEE'S QUINCY'S OWNED LICENSED OWNED LICENSED CARROWS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama...................... 1 8 156 45 -- -- -- -- --
Alaska....................... -- 8 -- -- -- -- -- -- --
Arizona...................... 27 47 -- -- 1 1 17 1 9
Arkansas..................... 1 5 3 -- -- -- -- -- --
California................... 223 129 -- -- 95 123 135 4 120
Colorado..................... 25 13 -- -- -- -- 6 -- --
Connecticut.................. 5 3 -- -- -- -- -- -- --
Delaware..................... 3 -- -- -- -- -- -- -- --
District of Columbia......... -- -- -- -- -- -- -- -- --
Florida...................... 102 77 56 41 -- -- -- -- --
Georgia...................... -- 24 10 11 -- -- -- -- --
Hawaii....................... 4 2 -- -- -- -- -- -- --
Idaho........................ -- 7 -- -- -- -- -- -- --
Illinois..................... 47 10 -- -- -- -- -- -- --
Indiana...................... 14 9 -- -- -- -- 3 -- --
Iowa......................... -- 5 -- -- -- -- -- -- --
Kansas....................... 9 4 -- -- -- -- -- -- --
Kentucky..................... -- 20 -- -- -- -- -- -- --
Louisiana.................... 7 2 1 -- -- -- -- -- --
Maine........................ -- 4 -- -- -- -- -- -- --
Maryland..................... 14 16 -- -- -- -- -- -- --
Massachusetts................ 9 -- -- -- -- -- -- -- --
Michigan..................... 38 2 -- -- -- -- -- -- --
Minnesota.................... 13 4 -- -- -- -- -- -- --
Mississippi.................. 2 2 40 8 -- -- -- -- --
Missouri..................... 29 6 -- -- -- -- 2 -- --
Montana...................... -- 5 -- -- -- -- -- -- --
Nebraska..................... -- 4 -- -- -- -- -- -- --
Nevada....................... 12 6 -- -- -- 6 -- -- 7
New Hampshire................ 2 1 -- -- -- -- -- -- --
New Jersey................... 11 2 -- -- -- -- -- -- --
New Mexico................... 2 12 -- -- -- -- -- -- 4
New York..................... 17 18 -- -- -- -- -- -- --
North Carolina............... 7 12 58 39 -- -- -- -- --
North Dakota................. -- 3 -- -- -- -- -- -- --
Ohio......................... 33 22 18 1 -- -- -- -- --
Oklahoma..................... 9 13 -- -- -- -- -- -- --
Oregon....................... 5 18 -- -- -- -- -- -- 9
Pennsylvania................. 51 3 2 -- -- -- -- -- --
Rhode Island................. -- -- -- -- -- -- -- -- --
South Carolina............... 9 5 123 42 -- 1 -- -- --
South Dakota................. -- 1 -- -- -- -- -- -- --
Tennessee.................... 3 11 110 9 -- -- -- -- --
Texas........................ 62 57 -- -- -- 4 14 -- 10
Utah......................... 7 12 -- -- -- -- -- -- --
Vermont...................... -- 2 -- -- -- -- -- -- --
Virginia..................... 19 8 3 3 -- -- -- -- --
Washington................... 50 19 -- -- -- -- 6 -- 1
West Virginia................ -- 3 -- -- -- -- -- -- --
Wisconsin.................... 12 7 -- -- -- -- -- -- --
Wyoming...................... -- 6 -- -- -- -- -- -- --
Canada....................... 10 20 -- -- -- -- -- -- --
International................ -- 25 -- -- -- 10 -- 278 --
Total...................... 894 702 580 199 96 145 183 283 160
</TABLE>
In addition to the restaurant locations set forth above, the Company,
through wholly owned subsidiaries, also owns a nineteen 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 sixteen floors of the tower, with the balance leased to others.
The Company recently sold its 107,000 square foot building located in Irvine,
California.
See "Description of Indebtedness" and Note 4 to the accompanying
Consolidated Financial Statements for information concerning encumbrances on
certain properties of the Company.
EMPLOYEES
At December 31, 1996, the Company had approximately 93,000 employees, none
of whom are subject to collective bargaining agreements. 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.
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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
remaining plaintiffs, who are 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. 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 six of the plaintiffs leaving two plaintiff
franchisees remaining in the lawsuit. With respect to the remaining plaintiffs,
discovery has been completed, and a trial date to hear the outstanding issues in
the case is anticipated sometime during 1997.
In 1994, Flagstar was advised of proposed deficiencies from the Internal
Revenue Service for Federal income taxes totaling approximately $12.7 million.
The proposed deficiencies relate to examinations of certain income tax returns
filed by the Company for the seven taxable periods ended December 31, 1992. In
the third quarter of 1996 this proposed deficiency was reduced by approximately
$7.0 million as a direct result of the passage of the Small Business Jobs
Protection Act in August 1996. The Small Business Jobs Protection Act includes a
provision that clarified Internal Revenue Code Section 162(k) to allow for
amortization of borrowing costs incurred by a corporation in connection with a
redemption of its stock. The Company believes the remaining proposed
deficiencies relating to the proposed disallowance of certain costs incurred in
connection with the 1989 leveraged buyout of Flagstar are substantially
incorrect, and it intends to continue to contest such proposed deficiencies.
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. The defendants
deny any wrongdoing. There has been limited discovery in this action to date
with the parties having reached an agreement in principle as to a settlement of
the action. The settlement agreement received preliminary approval from the
court on April 24, 1997 and final approval on May 30, 1997. Settlement of such
claim will include resolution of the Company's claims against its insurance
carriers with respect to such 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 the ultimate
disposition of these matters will not materially affect the financial position
or results of operations of the Company.
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MANAGEMENT
DIRECTORS OF FCI AND FLAGSTAR
The name, age, present principal occupation or employment, and the material
occupations, positions, offices or employments for the past five years, of each
director of FCI and Flagstar are set forth below. Unless otherwise indicated,
each such person has held the occupation listed opposite his or her name for at
least the past five years.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
James B. Adamson 49 Director of FCI and Flagstar; President and Chief Executive Officer of FCI and
Flagstar (1995-present); Chief Executive Officer of Burger King Corporation
(1993-1995); 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). Director of Kmart Corporation and Oxford
Health Plans, Inc.
Michael Chu 48 Director of FCI and Flagstar; President and Chief Executive Officer of ACCION
International (1994-present); Director of Latin American Operations, ACCION
International (1993-1994); Executive of KKR and a Limited Partner of KKR
Associates (1989-1993); Director of Banco Solidario S.A. and FINANSOL Compania de
Financiamiento Commercial.
Vera King Farris 56 Director of FCI and Flagstar; President of The Richard Stockton College of New
Jersey (1983-present); Director of National Utilities Investors, Inc.
Nicholas deB. Katzenbach 75 Director of FCI and Flagstar; Attorney in private practice (1994-present);
Partner and of Counsel with the law firm of Riker, Danzig, Scherer, Hyland &
Perretti (1986-1994).
Henry R. Kravis (a) 53 Director of FCI and Flagstar; Managing Member of the general partner of KKR since
January 1, 1996 (prior thereto a Founding Partner of KKR) and General Partner of
KKR Associates; Director of Auto Zone, Inc., Borden, Inc., Bruno's, Inc., The
Gillette Company, IDEX Corporation, K-III Communications Corporation, Merit
Behavioral Care Corporation, Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
Safeway, Inc., Sotheby's Holdings, Inc., Union Texas Petroleum Holdings, Inc. and
World Color Press, Inc.
Paul E. Raether 50 Director of FCI and Flagstar, Member of the general partner of KKR since January
1, 1996 (prior thereto a General Partner of KKR) and General Partner of KKR
Associates; Director of Bruno's, Inc., FRD Acquisition Co., and IDEX Corporation.
Clifton S. Robbins 39 Director of FCI and Flagstar; Member of the general partner of KKR, (from January
1, 1993 to January 1, 1996 a General Partner of KKR, prior thereto an executive
of KKR) and General Partner of KKR Associates; Director of AEP Industries, Inc.,
Borden, Inc., Borden Chemicals & Plastics, L.P., IDEX Corporation, Kindercare
Learning Centers, Inc., and Newsquest Capital, PLC.
George R. Roberts (a) 53 Director of FCI and Flagstar; Managing Member of the general partner of KKR since
January 1, 1996 (prior thereto a Founding Partner of KKR) and General Partner of
KKR Associates; Director of Auto Zone, Inc., Borden, Inc., Bruno's Inc., IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care Corporation,
Newsquest Capital, PLC, Owens-Illinois, Inc., Owens-Illinois Group, Inc.,
Safeway, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc.
Elizabeth A. Sanders 51 Director of FCI and Flagstar; Management Consultant, The Sanders Partnership,
Sutter Creek, California (1990 to Present); Vice President and General Manager of
Nordstrom, Inc. (1981-1990); Director of H.F. Ahmanson & Co., Wal-Mart Stores,
Inc., Wellpoint Health Networks and Wolverine Worldwide, Inc.
Michael T. Tokarz 47 Director of FCI and Flagstar; Member of the general partner of KKR since January
1, 1996 (prior thereto a General Partner of KKR) and General Partner of KKR
Associates; Director of FRD Acquisition Co., IDEX Corporation, K-III
Communications Corporation, Safeway, Inc., Spalding & Evenflo Companies, Inc. and
Walter Industries, Inc.
</TABLE>
(a) Messrs. Kravis and Roberts are first cousins.
99
<PAGE>
EXECUTIVE OFFICERS OF FCI AND FLAGSTAR
The following table sets forth information with respect to each executive
officer of FCI, along with senior level executive officers of Flagstar.
<TABLE>
<CAPTION>
CURRENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
James B. Adamson 49 Chairman, President and Chief Executive Officer of FCI and Flagstar (1995-present);
Chief Executive Officer of Burger King Corporation (1993-1995); 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).
Craig S. Bushey 41 Senior Vice President of Flagstar and President of Hardee's Division (May 1996-
present); Managing Director, Vice President (Western Europe) of Burger King (1995-May
1996); Region Vice President (Central Region) of Burger King (1994-1995); Burger King
Reengineering Team (1993-1994); Region Vice President (Midwest Retail) of Burger King
(1992-1993); Region Vice President (Atlanta Retail) of Burger King (1990-1992).
C. Robert Campbell 52 Executive Vice President and Chief Financial Officer of FCI (May 1997); Vice President
and Chief Financial Officer of FCI (1995-May 1997); Executive Vice President and Chief
Financial Officer of Flagstar (1995-present); Executive Vice President of Human
Resources and Administration for Ryder System, Inc. (1991-1995); Executive Vice
President -- Finance of Vehicle Leasing and Services Division of Ryder System, Inc.
(1981-1991).
Ronald B. Hutchison 47 Vice President and Treasurer of FCI (May 1997); Vice President and Treasurer of
Flagstar (1995 to present); Vice President and Treasurer of Leaseway Transportation
Corp. (1988-1995).
Nelson Marchioli 47 Senior Vice President of Flagstar and President of El Pollo Loco Division (May 1997);
Executive Vice President and Chief Operating Officer of Bruegger's Corporation
(1996-May 1997); Senior Vice President of Worldwide Supply for Burger King Corporation
(1995-1996); Senior Vice President, International Operations and Sales for Burger King
Corporation (1994-1995); Vice President -- General Manager, Latin America Restaurant
Operations for Burger King Corporation (1994); Senior Vice President, Quality and Cost,
Burger King Corporation (1993-1994); Vice President, Operations Standards and System
Quality Assurance, Burger King Corporation (1989-1993).
Edna K. Morris 45 Executive Vice President of Flagstar and President of Quincy's Division (April
1996-present); Executive Vice President, Human Resources and Corporate Affairs of
Flagstar (1995-April 1996); Senior Vice President, Human Resources of Flagstar
(1993-1995); Vice President, Education and Development of Flagstar (1992-1993); Senior
Vice President/Human Resources of HFS (1987-1992).
Rhonda J. Parish 40 Senior Vice President and General Counsel of FCI (May 1997); Vice President and General
Counsel of FCI (1995-May 1997); Senior Vice President and General Counsel of Flagstar
(1995-present); Secretary of FCI and Flagstar (1995-present); Assistant General Counsel
of Wal-Mart Stores, Inc. (1990-1994); Corporate Counsel of Wal-Mart Stores, Inc.
(1983-1990).
John A. Romandetti 46 Senior Vice President of Flagstar and President, Denny's Division (January 1997-
present); Senior Vice President of Flagstar (1995-present); President of El Pollo Loco
(1995-1996); Vice President of Operations for Burger King Corporation (1989-1995).
Mark L. Shipman 47 Senior Vice President of Flagstar and President of Coco's/Carrows Division (May
1996-present); Vice President of Acquisitions and Development of Flagstar (1995-May
1996); Vice President of Administration of Denny's Division (1993-1995); Vice President
of Operations (West) of Denny's Division (1991-1993).
Paul R. Wexler 53 Senior Vice President, Procurement and Distribution of Flagstar (1995-present); Vice
President, Procurement and Quality Assurance -- Marriott International (1991-1995).
Stephen W. Wood 39 Senior Vice President, Human Resources and Corporate Affairs of Flagstar (April
1996-present); Vice President, Compensation, Benefits, and Employee Information Systems
and Corporate Office Human Resources of Flagstar (1993-April 1996); Senior Director,
Compensation, Benefits and Employee Information Systems of Flagstar (1993); Director,
Benefits and Executive Compensation of Hardee's Food System (1991-1993).
</TABLE>
100
<PAGE>
MANAGEMENT COMPENSATION
No executive officer of FCI is compensated directly by FCI in connection
with services provided to the Company. All such executive compensation is paid
by Flagstar. Set forth below is information for 1996, 1995 and 1994 with respect
to compensation for services to the Company of the Company's Chief Executive
Officer and the four most highly compensated executive officers, other than the
Chief Executive Officer, who were serving as executive officers at the end of
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
NAME AND ANNUAL COMPENSATION (1) SECURITIES UNDERLYING
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($)(3) OPTIONS(#)(4)
<S> <C> <C> <C> <C>
James B. Adamson 1996 $ 947,068 $ -- 100,000
Chairman and Chief Executive 1995 894,211 -- 800,000
Officer of Flagstar 1994 -- -- --
C. Robert Campbell 1996 320,799 40,000 150,000
Executive Vice President and 1995 214,300 (7) -- 100,000
Chief Financial Officer of Flagstar 1994 -- -- --
Craig S. Bushey 1996 183,973 (7) 40,000 200,000
Senior Vice President of Flagstar and 1995 -- -- --
President, Hardee's Division 1994 -- -- --
John A. Romandetti 1996 226,275 112,200 125,000
Senior Vice President of Flagstar and 1995 7,078 (7) -- 75,000
President, Denny's Division 1994 -- -- --
Mark L. Shipman 1996 223,384 47,400 175,000
Senior Vice President of Flagstar and 1995 149,423 65,762 25,000
President, Coco's/Carrows Division 1994 127,017 -- --
<CAPTION>
ALL
OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)(5)(6)
<S> <C>
James B. Adamson $ 364,133
Chairman and Chief Executive 1,250,693
Officer of Flagstar --
C. Robert Campbell 50,000
Executive Vice President and 405,957
Chief Financial Officer of Flagstar --
Craig S. Bushey 213,678
Senior Vice President of Flagstar and --
President, Hardee's Division --
John A. Romandetti 90,793
Senior Vice President of Flagstar and --
President, Denny's Division --
Mark L. Shipman 149,047
Senior Vice President of Flagstar and 17,102
President, Coco's/Carrows Division --
</TABLE>
(1) The amounts shown for each named executive officer exclude perquisites and
other personal benefits that did not exceed, in the aggregate, the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for
the named executive officer for any year included in this table.
(2) The amounts in this column reflect certain costs and credits to the named
executive officers relating to certain life, health and disability insurance
coverage provided through the Company.
(3) The amounts shown in this column reflect payments received by the named
executive officers under the Company's 1996 Incentive Compensation Plan.
(4) Excluding Mr. Adamson, amounts shown for 1996 for each named executive
officer reflect the 1996 option repricing (more fully described in note 2 to
the 1996 Option Grant table under "Management Compensation -- Stock
Options") which for the purposes of this table is shown for 1996 as a grant
of an option to purchase a number of securities corresponding to the number
of securities underlying all of the outstanding options granted to the named
executive officer under the Company's stock option plan as of the date of
such repricing. The 1995 amount shown for Mr. Shipman reflects an option
repricing on June 21, 1995 with respect to an option representing 10,000
shares.
(5) The amounts shown for 1995 and 1996 for Mr. Adamson consist of Company paid
life insurance premium payments of $8,440 and $16,880, respectively. The
1996 amount for Mr. Adamson also reflects tax payments in the amount of
$16,920 as well as additional compensation and/or reimbursement paid
($330,333) in connection with the renegotiation and amendment of Mr.
Adamson's employment agreement related to the extension of his employment
term. The remaining amount for 1995 for Mr. Adamson reflects additional
compensation and/or expense reimbursement paid to Mr. Adamson at or near the
time of, or otherwise arising in connection with, his initial employment
with the Company. For additional information see "Management
Compensation -- Employment Agreements -- Adamson Employment Agreement."
(6) The amounts shown for Messrs. Bushey, Campbell and Romandetti consist of
additional compensation and/or expense reimbursement paid to the respective
named executive officers at or near the time of, or otherwise arising in
connection with, their initial employment with the Company. The 1996 amount
for Mr. Shipman includes $118,417 paid to him in connection with his
promotion to Senior Vice President of Flagstar and President of the Coco's
and Carrows division and his related relocation to California as well as a
$30,630 bonus paid to him in connection with the Company's acquisition
101
<PAGE>
of Coco's and Carrows. The 1995 amount for Mr. Shipman reflects payments
made to him in connection with his service on the Company's re-engineering
team.
(7) Reflects base salary paid for only the portion of the year in which the
named executive officer was employed by Flagstar.
STOCK OPTIONS
Set forth below is information with respect to individual grants of stock
options with respect to the Old FCI Common Stock made pursuant to the Company's
1989 Non-Qualified Stock Option Plan (the "1989 Option Plan") during 1996 to
Messrs. Adamson, Bushey, Campbell, Romandetti and Shipman.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SECURITIES GRANTED VALUE AT ASSUMED
UNDERLYING TO EXERCISE ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES OR BASE PRICE APPRECIATION FOR
GRANTED IN PRICE EXPIRATION OPTION TERM
NAME (#)(1) 1996(6) ($/SH)(4) DATE(5) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
James B. Adamson 100,000 2.6% $2.75 08-13-06 $172,946 $438,279
C. Robert Campbell 25,000 .6 2.75 08-13-06 43,237 109,570
100,000 2)(3) 2.6 1.25 05-01-05 53,738 138,960
25,000 (2) .6 1.25 08-13-06 16,326 43,337
Craig S. Bushey 75,000 1.9 6.00 05-20-06 38,668 328,123
25,000 .6 2.75 08-13-06 43,237 109,570
75,000 (2) 1.9 1.25 05-20-06 47,364 125,100
25,000 (2) .6 1.25 08-13-06 16,326 43,337
John A. Romandetti 25,000 .6 2.75 08-13-06 43,237 109,570
75,000 (2) 1.9 1.25 12-15-05 44,452 116,364
25,000 (2) .6 1.25 08-13-06 16,326 43,337
Mark A. Shipman 50,000 1.3 6.00 05-23-06 20,689 210,643
25,000 .6 2.75 08-13-06 43,237 109,570
25,000 (2) .6 1.25 06-21-05 13,740 35,625
50,000 (2) 1.3 1.25 05-23-06 31,614 83,514
25,000 (2) .6 1.25 08-13-06 16,326 43,337
</TABLE>
(1) Except as otherwise noted, such options listed for the named executive
officers have a term of 10 years and become exercisable at a rate of 20% per
annum for five consecutive years beginning on the date of grant. The date of
grant of each option listed is exactly ten years preceding the expiration
date listed for each option.
(2) These amounts reflect the December 13, 1996 repricing of all the outstanding
options of certain 1989 Option Plan participants to $1.25, the closing price
of the Old FCI Common Stock on December 12, 1996 (the "December 13, 1996
Option Repricing"). The December 13, 1996 Option Repricing did not amend or
adjust the vesting terms or expiration dates of such options repriced.
(3) This option to purchase 100,000 shares becomes exercisable at a rate of 50%
as of May 1, 1997 and an additional 25% each of the next two anniversary
dates thereafter.
(4) With the exception of certain options granted in 1996 to Messrs. Bushey and
Shipman which have exercise prices greater than the fair market value of the
Old FCI Common Stock as of the date of grant and the December 13, 1996
Option Repricing, the exercise price for these options was established at
the closing sales price for the Old FCI Common Stock as of the date of
grant. Under the 1989 Option Plan, the exercise price upon the exercise of
an option may be paid in cash or by surrender of other shares of Old FCI
Common Stock having a fair market value on the date of exercise equal to
such exercise price, or in a combination of cash and such shares.
(5) Upon termination of employment of a holder, all of such holder's options not
then exercisable expire and terminate. If such termination is by reason of
death, retirement or disability, such holder's exercisable options remain
exercisable for one year following termination. If such termination is
voluntary or without cause, such holder's exercisable options generally
remain exercisable for sixty days following termination. If such termination
is for cause, such holder's exercisable options expire and terminate as of
the date of termination.
102
<PAGE>
(6) Includes options deemed granted pursuant to the December 13, 1996 Option
Repricing, described in further detail in note 2 above.
The following table sets forth information with respect to the 1996
year-end values of unexercised options, all of which were granted by the Company
pursuant to the 1989 Option Plan, held by each of the persons named in the
Summary Compensation Table above:
AGGREGATED OPTION EXERCISES IN 1996 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY OPTIONS
UNEXERCISED AT FISCAL
OPTIONS AT FISCAL YEAR-END
YEAR-END (#) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
James B. Adamson 160,000/740,000 -- / --
C. Robert Campbell -- /125,000 -- / --
Craig S. Bushey -- /100,000 -- / --
John A. Romandetti 15,000/ 85,000 -- / --
Mark A. Shipman 5,000/ 95,000 -- / --
</TABLE>
No options held by the foregoing named executive officers were exercised in
1996.
RETIREMENT PLANS
A tax qualified defined benefit retirement plan is maintained by Flagstar
and certain other Flagstar subsidiaries. Such plan is described below.
The following table shows the estimated annual benefits for a single life
annuity that could be payable under the Flagstar Retirement Plan (as defined),
as amended, and the ancillary plan described below upon a person's normal
retirement at age 65 if that person were in one of the following classifications
of assumed compensation and years of credited service.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
REMUNERATION
OVER YEARS OF SERVICE
A FIVE-YEAR PERIOD 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000........................................................ $ 42,932 $ 57,242 $ 71,553 $ 85,864 $100,000
250,000....................................................... 54,182 72,242 90,303 108,364 125,000
300,000....................................................... 65,432 87,242 109,053 130,864 150,000
350,000....................................................... 76,682 102,242 127,803 153,364 175,000
400,000....................................................... 87,932 117,242 146,553 175,864 200,000
500,000....................................................... 110,432 147,242 184,053 220,864 250,000
600,000....................................................... 132,932 177,242 221,553 265,864 300,000
700,000....................................................... 155,432 207,242 259,053 310,864 350,000
800,000....................................................... 177,932 237,242 296,553 355,864 400,000
900,000....................................................... 200,432 267,242 334,053 400,864 450,000
1,000,000....................................................... 222,932 297,242 371,553 445,864 500,000
1,200,000....................................................... 267,932 357,242 446,553 535,864 600,000
1,400,000....................................................... 312,932 417,242 521,553 625,864 700,000
1,600,000....................................................... 357,932 477,242 596,553 715,864 800,000
</TABLE>
The Flagstar Pension Plan (the "Flagstar Retirement Plan") is
noncontributory and generally covers all employees of Flagstar and its
subsidiaries (other than employees of the Denny's, El Pollo Loco, Coco's and
Carrows concepts) who have attained the age of 21 and who have completed one
thousand hours of service. There are two entry dates per year for new employees,
January 1 and July 1. As a result of a plan amendment effective January 1, 1989,
a participant's annual retirement benefit under the Flagstar Retirement Plan at
normal retirement age is calculated by multiplying the number of years of
participation in the Flagstar Retirement Plan (not to exceed 35 years) by the
sum of one percent of the average Compensation
103
<PAGE>
(as defined below) paid during 60 consecutive calendar months chosen to produce
the highest average ("Average Compensation" for the purposes of this paragraph)
plus an additional one-half of one percent of the Average Compensation in excess
of the average Social Security wage base. Benefits payable cannot exceed 50% of
the Average Compensation. Plan benefits are normally in the form of a life
annuity or, if the retiree is married, a joint and survivor annuity.
"Compensation" for the purposes of this paragraph generally consists of all
remuneration paid by the employer to the employee for services rendered as
reported or reportable on Form W-2 for federal income tax withholding purposes
(including the amount of any 1995 year-end bonus paid in 1996), excluding
reimbursements and other expense allowances, fringe benefits, moving expenses,
deferred compensation and welfare benefits (such exclusions including, without
limitation, severance pay, relocation allowance, gross-up pay to compensate for
taxable reimbursements, hiring bonuses, cost of living differentials, special
overseas premiums, compensation resulting from participation in, or cancellation
of, stock option plans, contributions by the employer to the Flagstar Retirement
Plan or any other benefit plan and imputed income resulting from the use of
Company property or services). Except for limited purposes described in the
plan, Compensation also includes any deferred compensation under a Section
401(k) plan maintained by the employer and salary reduction amounts under a
Section 125 plan maintained by the employer. The funding of the Flagstar
Retirement Plan is based on actuarial determinations.
Ancillary to the Flagstar Retirement Plan is a nonqualified plan for key
executive employees that provides future service benefits and benefits in excess
of the annual maximum benefits limit under the Code to certain key employees.
"Compensation" and "Average Compensation" are defined in this ancillary plan the
same way they are defined in the Flagstar Retirement Plan. Benefits payable
under the ancillary plan are included in the table above.
The maximum annual pension benefit payable under the Flagstar Retirement
Plan for 1996 was $120,000 (or, if greater, the participant's 1982 accrued
benefit).
Except for the exclusion of 1996 bonuses paid in 1997 and the accrual of
certain nonqualified benefits as described herein, the Compensation included
under the Flagstar Retirement Plan (including the ancillary nonqualified plan)
generally corresponds with the annual compensation of the named executive
officers in the Summary Compensation Table above. Includable Compensation for
1996 for Messrs. Adamson, Bushey, Campbell, Romandetti and Shipman was $950,000,
$261,538, $486,875, $0 and $154,364, respectively.
As of December 31, 1996, the estimated credited years of service under the
Flagstar Retirement Plan for Messrs. Adamson, Bushey, Campbell, Romandetti and
Shipman at normal retirement age was 18, 24, 14, 20 and 41, respectively.
The early retirement provisions of the Flagstar Retirement Plan were
amended effective January 1, 1989 to provide an improved benefit for long
service employees. Employees with age and service equalling or exceeding 85 and
who are within five years of the Social Security retirement age will receive no
reduction of accrued benefits. Employees who are at least 55 years of age with
15 years of service will receive a reduction of three percent in accrued
benefits for the first five years prior to normal retirement date and six
percent for the next five years. Accrued benefits for employees retiring with
less than 15 years of service will be actuarially reduced beginning at age 55.
Vesting of retirement benefits was also changed to comply with the law from
12-year graduating vesting to five-year cliff vesting for the plan.
EMPLOYMENT AGREEMENTS
ADAMSON EMPLOYMENT AGREEMENT
Concurrently with the execution of the Adamson Shareholder Agreement, Mr.
Adamson and FCI entered into an employment agreement (as amended on February 27,
1995 and December 31, 1996, the "Adamson Employment Agreement") which took
effect on January 23, 1995 and which provides that FCI will employ Mr. Adamson
as President and Chief Executive Officer of FCI until January 31, 1999 or until
his earlier death or termination of employment by reason of permanent
disability, voluntary termination of employment or involuntary termination with
or without cause (as defined). Pursuant to the Adamson Employment Agreement, Mr.
Adamson was appointed the Chairman of the Board of Directors of FCI. The Adamson
Employment Agreement prohibits Mr. Adamson from soliciting for employment the
employees of the Company or its affiliates and from engaging in certain
competitive activities generally during his term of employment and for a period
of two years after the later of the termination of his employment or the date on
which the Company is no longer required to make certain termination benefits.
The Adamson Employment Agreement further prohibits Mr. Adamson from using or
disclosing certain "confidential" or "proprietary" information for purposes
other than carrying out his duties with the Company.
104
<PAGE>
Under the Adamson Employment Agreement, Mr. Adamson is entitled to receive
(i) an annual base salary at the annual rate of $950,000, $1,000,000, $1,050,000
and $1,100,000 for the first, second, third and fourth years of employment,
respectively, (ii) a one-time signing bonus equal to $500,000, (iii) an annual
performance bonus at an annual rate up to 200% of his base salary (targeted to
equal 75% of his base salary) if the Company and Mr. Adamson achieve budgeted
financial and other performance targets to be established by the Compensation
and Benefits Committee, with a guaranteed minimum bonus of $500,000 for his
first year of employment, (iv) 65,306 shares of Old FCI Common Stock (plus an
amount in cash to reimburse Mr. Adamson in part for his income tax liabilities
with respect to such shares), and (v) the grant under the 1989 Option Plan of a
ten-year option to purchase 800,000 shares of Old FCI Common Stock, to become
exercisable at the rate of 20% per year beginning on January 9, 1996 and each
anniversary thereafter (conditioned upon Mr. Adamson's continuing to be employed
by the Company on such dates), and subject to an exercise price of $6.125 per
share (the "Adamson Option"). Vested shares of Old FCI Common Stock acquired by
Mr. Adamson pursuant to (iv) and (v) above (including shares as to which Mr.
Adamson is entitled, under certain circumstances, to accelerated vesting) are
subject to and have the rights and benefits of the Adamson Shareholder
Agreement. See "Ownership of Capital Securities -- Adamson Shareholder
Agreement." The Adamson Employment Agreement also entitles Mr. Adamson to
reimbursement of expenses of relocation and certain other privileges and
benefits, including participation in all of the Company's benefit plans
applicable to the Company's executive officers generally. Notwithstanding such
contract terms, Mr. Adamson declined his guaranteed first year bonus and salary
increase for his second year of employment as set forth above.
In the event of Mr. Adamson's termination of employment during the term of
the Adamson Employment Agreement, the Company is required to make payments as
follows based upon the cause of such termination: (i) if by reason of death, Mr.
Adamson's surviving spouse is entitled to be paid an amount equal to Mr.
Adamson's base salary and annual bonus and continuation of certain benefits for
a one-year period after his death; (ii) if by reason of permanent disability,
Mr. Adamson is entitled to be paid one-half of his base salary and annual bonus
and continuation of certain benefits for a period of two years after termination
of employment; and (iii) if by FCI other than for "cause," Mr. Adamson is, in
general, entitled to (a) a lump sum in the amount of the base salary remaining
to be paid over the remaining unexpired contract term but not less than an
amount equal to two years' base salary, (b) a pro rata portion of the annual
bonus otherwise payable during the calendar year of termination, (c) the
continued vesting of the Adamson Option until the option to purchase an
aggregate of 480,000 shares thereunder shall have become exercisable, and (d)
continuation of certain benefits and other contract rights; provided, however,
that in the event of termination by FCI without "cause" following a "change of
control," the Adamson Option shall be 100% vested and exercisable as of the date
of such termination and Mr. Adamson shall be entitled to a lump sum payment on
such date equal to 200% of his targeted bonus for the year during which such
termination occurs. Furthermore, the Adamson Option shall expire and terminate
as follows in the event of Mr. Adamson's termination of employment for the
following reasons: (i) if for "cause" or voluntary termination, the Adamson
Option shall expire and terminate as of the date of termination; (ii) if by
reason of death, permanent disability or without "cause" following a "change in
control", the Adamson Option shall expire and terminate on the later of (a) the
date the Company is no longer required to provide certain termination benefits,
and (b) the first anniversary of the date of termination; and (iii) if without
"cause" (but not following a "change in control"), the Adamson Option shall
expire and terminate on the latest of January 9, 1999 and (a) and (b) above.
In connection with the extension of Mr. Adamson's employment term and
pursuant to the December 31, 1996 amendment to the Adamson Employment Agreement,
the Company: (i) paid Mr. Adamson an annual bonus for calendar year 1996 in the
amount of $100,000, (ii) forgave in full its advance of $325,000 of Mr.
Adamson's 1996 base salary made on March 26, 1996, and (iii) paid Mr. Adamson a
retention bonus of $1,550,000 in January 1997, and agreed to pay retention
bonuses of $2,000,000 in January 1998, and $3,000,000 in January 1999 provided
Mr. Adamson is employed by the Company on such dates or, if prior to such dates,
Mr. Adamson is terminated by the Company without "cause" or Mr. Adamson
voluntarily terminates his employment following a material breach of the Adamson
Employment Agreement by the Company. Additionally, with respect to the
referenced retention bonuses, should Mr. Adamson's employment be terminated by
reason of his death or permanent disability, the amount of such bonuses shall be
$1,000,000 if termination occurs in 1997 and $1,500,000 if termination occurs in
1998. The December 31, 1996 amendment further provides that in the event of a
change of control (defined as the date on which designees of Associates no
longer constitute a majority of the Board) during Mr. Adamson's term of
employment, for a period of 6 months thereafter, Mr. Adamson would be entitled
to tender his resignation and, upon such termination, the Company shall pay Mr.
Adamson a lump sum payment equal to 299% of the sum of (x) his base salary for
the twelve month period immediately preceding the date of termination and (y) a
targeted bonus amount equal to 75% of such base salary. Further, for a two year
period following Mr. Adamson's termination after a change of control, Mr.
Adamson and his family would be entitled to receive health and welfare benefits
comparable to what Mr. Adamson was receiving while employed and the Adamson
Option would be vested and exercisable as of the date of such termination. The
obligation to pay Mr. Adamson the retention bonuses in 1998 and 1999 and the
other termination benefits,
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including the payment due Mr. Adamson after a change of control, are guaranteed
by certain subsidiaries and are secured by a $5,000,000 bank account.
OTHER EMPLOYMENT ARRANGEMENTS
During 1996, Messrs. Bushey, Campbell, Romandetti and Shipman were each
party to employment arrangements with the Company providing for specified base
salaries, subject to annual adjustment by the Compensation and Benefits
Committee, an annual performance bonus and options to purchase Old FCI Common
Stock. These agreements also contained provisions for the payment of certain
additional compensation to each of the named executive officers at or near the
time of their initial employment. See the Summary Compensation Table above.
Additionally, these agreements contain termination provisions for the payment of
severance benefits (generally equal to two years' annual base salary) upon
termination of employment under certain circumstances. In January 1997, these
agreements were amended further to provide: (1) retention bonuses at June 30 in
amounts of $50,000 and at December 31 in amounts of $100,000, $125,000 and
$175,000 for years 1997, 1998 and 1999 respectively, provided the named
executive officers remain employed with the Company, as of such dates; (2) a
change of control benefit entitling the named executive to tender his
resignation, at any time during the first six months after a change of control
(defined as the date on which designees of Associates no longer constitute a
majority of the Board of Directors of FCI), and receive within five (5) business
days, subject to certain provisions pertaining to Section 280G of the Code, (a)
200% of the executive's base salary, (b) 200% of the Executive's target
performance bonus under the Company's Incentive Plan, and (c) 167% of the
Company's actual subsidy for the Executive's (and his family members') medical
coverage for an 18 month period following such resignation; (3) for the payment
of the above referenced severance benefit within five (5) business days
following any such termination; and (4) that such payment obligations of the
Company with respect to the above referenced retention bonus, change of control
and severance payment benefits shall be guaranteed by certain subsidiaries of
the Company.
Five other senior level executives are each a party to employment
arrangements with the Company which provide for retention bonuses, change of
control benefits and severance arrangements with substantially the same terms as
described above for Messrs. Bushey, Campbell, Romandetti and Shipman.
Additionally, certain other officers of the Company (vice presidents and
above) are entitled to receive, as long as they remain employed as officers with
the Company, retention bonuses at June 30 in amounts generally of $10,000 for
the years 1997 and 1998 and $25,000 for 1999, and at December 31 in amounts of
$15,000 for the years 1997 and 1998 and $50,000 for 1999. Further, such officers
and certain other employees are entitled to receive severance benefits, upon
termination of employment under certain circumstances, consisting of the
continuation of base pay for periods ranging from two weeks to one year.
FCI intends to assume the Adamson Employment Agreement and related
agreements and Flagstar intends to assume all of the other above-described
Employment Agreements at or prior to the Confirmation Hearing.
POST-PETITION EMPLOYMENT ARRANGEMENTS
As a part of the Plan, a new management incentive program is to be
developed for the management of Reorganized Flagstar. In that regard an
agreement in principle has been reached between the Company and the Ad Hoc
Debentureholders Committee as follows: (1) the existing retention bonus,
incentive bonus, and severance program for management as outlined above will
generally remain in effect, (2) ten percent (10%) of the New Common Stock, on a
fully diluted basis, will be reserved as of the Confirmation Date for a new
management stock option program, (3) payment will be made to Mr. Adamson, as
soon as practicable following the Confirmation Date, of shares of New Common
Stock (to be purchased by the Company on the open market) the value of which,
along with a corresponding tax gross-up, will equal $3.75 million, in lieu of
the January 1999 $3 million retention bonus payment, described above, and in
exchange for his relinquishing his right to voluntarily terminate employment and
receive a severance package upon a change of control, as described above, and
(4) stock option grants to each member of management under the stock option
program referred to in (2) above will be contingent upon his or her
relinquishing the right to the change of control benefits described above.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Raether, Robbins and Tokarz served on the Company's Compensation
and Benefits Committee during 1996. Messrs. Tokarz and Raether serve as officers
of certain subsidiaries of the Company. Messrs. Raether, Robbins and Tokarz are
general partners of KKR. In 1996, KKR received an annual financial advisory fee
of $1,250,000.
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COMPENSATION OF DIRECTORS
Directors of the Company other than Mr. Adamson are entitled to an annual
retainer of $40,000. Directors are also reimbursed for expenses incurred in
attending meetings of the Board of Directors and its committees. In addition to
the annual retainer, Ms. Sanders and Mr. Katzenbach are compensated at a rate of
$500 per hour plus expenses (with a cap of $2,500 per day for Ms. Sanders) for
their service on the Special Litigation Committee of the Company's Board of
Directors.
OWNERSHIP OF CAPITAL SECURITIES
All of Flagstar's outstanding common stock, par value $.50 per share, is
owned, beneficially and of record, by FCI. The following table sets forth, as of
May 19, 1997 (both historically and on a pro forma basis), the beneficial
ownership of the Old FCI Common Stock (and thereby proportionate beneficial
ownership of Flagstar) by each shareholder known by FCI to own more than 5% of
the outstanding shares, by each director of FCI, by each executive officer of
the Company included in the Summary Compensation Table in "Management
Compensation" above, and by all directors and executive officers of FCI and
Flagstar as a group. Except as otherwise noted, the persons named in the table
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
PRO
AMOUNT AND NATURE OF PERCENTAGE OF OLD FCI PRO FORMA FORMA
BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK AMOUNT (6) PERCENTAGE (7)
<S> <C> <C> <C> <C>
KKR Associates
(and related entities)
9 West 57th Street
New York, NY 10019................................ 38,035,839(1)(2) 66.22% 1,634,393 3.93%
Ryback Management Corporation
(and related entities)
7711 Carondelet Avenue
St. Louis, MO 63105............................... 2,251,699(3) 5.05% 131,595 *
James B. Adamson.................................... 385,306(4) * 4,633 *
Michael Chu......................................... -- -- -- *
Vera King Farris.................................... 100 * 7 *
Nicholas deB. Katzenbach............................ -- -- -- *
Henry R. Kravis (1)................................. -- -- -- *
Paul E. Raether (1)................................. -- -- -- *
Clifton S. Robbins (1).............................. -- -- -- *
George R. Roberts (1)............................... -- -- -- *
Elizabeth A. Sanders................................ 2,000 * 142 *
Michael T. Tokarz (1)............................... -- -- -- *
Craig S. Bushey..................................... 30,350(4) * 1,089 *
C. Robert Campbell.................................. 53,000(4) * 213 *
John Romandetti..................................... 25,000(4) * 710 *
Mark L. Shipman..................................... 20,000(4) * -- *
All current directors and executive officers as a
group (20 persons)................................ 631,056(4)(5) 1.5% 7,170 *
</TABLE>
*Less than one percent.
(1) Shares shown as owned by KKR Associates include 23,035,840 shares owned of
record by TW Associates (19,913,333 shares), CD Associates, L.P. ("CD
Associates") (3,035,840 shares) and KKR Partners II (86,666 shares). KKR
Associates is the sole general partner and possesses sole voting and
investment power as to each of TW Associates and KKR Partners II. CD GP, LLC
("CDGP") is the sole general partner of CD Associates and possesses sole
voting and investment power as to CD Associates. Messrs. Kravis and Roberts
(directors of FCI and Flagstar), as members of the Executive Committee, and
Messrs. Raether, Robbins and Tokarz (also directors of FCI and Flagstar) and
Messrs. Edward A. Gilhuly, Perry Golkin, James H. Greene, Jr., Robert J.
MacDonnell, Michael W. Michelson and Scott Stuart, as the general partners
of KKR Associates, may be deemed to share beneficial ownership of all shares
shown as beneficially owned by KKR Associates. Messrs. Kravis and Roberts,
as managing members of CDGP, and each of Messrs. MacDonnell, Raether,
Michelson, Greene, Tokarz, Gilhuly, Golkin, Robbins and Stuart, as other
members of CDGP, may be
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deemed to beneficially own the shares of Old FCI Common Stock owned by CDGP.
Such persons disclaim beneficial ownership of such shares.
(2) Also includes 15,000,000 shares of Old FCI Common Stock underlying the Old
Warrants which were acquired by TW Associates (14,935,000 shares) and KKR
Partners II (65,000 shares) under a Stock and Warrant Purchase Agreement
dated August 11, 1992 by and between FCI and TW Associates (the "Purchase
Agreement"). The Old Warrants were issued pursuant to a Warrant Agreement
dated November 16, 1992 by and between FCI and Associates, and expire on
November 16, 2000. Each Old Warrant entitles the holder thereof to purchase
one fully paid and nonassessable share of Old FCI Common Stock at an
exercise price of $17.50, subject to adjustment from time to time upon the
occurrence of certain events.
(3) Shares shown as owned by Ryback Management Corporation ("Ryback") and
related entities are as reported on the latest Schedule 13D or 13G filings
by Ryback. Shares held by Ryback include 2,251,699 shares of Old FCI Common
Stock Ryback would be entitled to receive upon the conversion of the Old FCI
Preferred Stock by Ryback. Based on such filings, Ryback holds
appproximately 26% of Old FCI Preferred Stock.
(4) Includes for the following persons shares which such persons have the right
to acquire within 60 days after May 19, 1997 through the exercise of stock
options: (i) Messrs. Adamson (320,000 shares), Bushey (15,000 shares),
Campbell (50,000 shares), Romandetti (15,000 shares) and Shipman (20,000
shares); and (ii) all current directors and executive officers as a group
(530,000 shares). Each of the above mentioned options were granted by the
Company pursuant to the 1989 Option Plan.
(5) Excludes shares owned by KKR Associates through TW Associates and KKR
Partners II and those shares owned by CD Associates through CDGP as set
forth above.
(6) Consists of shares of New Common Stock issuable upon exercise of New
Warrants to be received by holders of Old FCI Common Stock pursuant to the
Plan. See "Description of New Warrants."
(7) For additional information concerning the effects of the Plan and the
transactions contemplated thereby on current holders of the Old FCI Common
Stock and the anticipated stock ownership and control of Reorganized
Flagstar, see "The Plan of Reorganization -- Securities to Be Issued and
Transferred Under the Plan."
As of May 19, 1997, 42,434,668 shares of Old FCI Common Stock were issued
and outstanding.
THE STOCKHOLDERS' AGREEMENT
Concurrently with the execution of the Purchase Agreement, TW Associates,
certain other stockholders (the "Stockholder Parties") and FCI entered into an
agreement (as amended from time to time thereafter, the "Stockholders'
Agreement") pursuant to which each of the Stockholder Parties agreed to nominate
and vote all shares of Old FCI Common Stock owned by it to elect as directors
six persons designated by Associates and two independent directors. The
Stockholder Parties further agreed to increase by two the number of directors
constituting the entire Board of Directors of FCI and to nominate (if requested)
and vote to elect as directors two additional persons to be designated by
Associates if at any time the holders of the Old FCI Preferred Stock, voting
together as a class with all other classes or series of preferred stock ranking
junior to or on a parity with the Old FCI Preferred Stock, are entitled to elect
two additional directors; provided that the two Associates' designees so elected
shall resign and the size of the FCI Board of Directors shall be reduced
accordingly at such time as the directors elected by preferred stockholders
shall resign or their terms shall end.
Under the Stockholders' Agreement, the holders of a majority of all shares
of Old FCI Common Stock and Old Warrants issued to Associates and all shares of
Old FCI Common Stock issued or issuable to Associates upon exercise of any Old
Warrant (the "Associates Registrable Securities") may make five written requests
to FCI for registration of all or part of such securities under the Securities
Act. In addition, the Stockholder Parties and Associates have customary
"piggyback" registration rights to include their securities, subject to certain
limitations, in any other registration statement filed by FCI, pursuant to any
of the foregoing requests or otherwise under the Securities Act.
The Company has agreed to pay all expenses in connection with the
performance of its obligations to effect demand or "piggyback" registrations
under the Securities Act of securities covered by the registration rights of the
Stockholder Parties, and to indemnify and hold harmless, to the full extent
permitted by law, each holder of such securities against liability under the
securities law.
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The Stockholders' Agreement will terminate upon the sale of all shares of
Old FCI Common Stock now owned or hereafter acquired by the Stockholder Parties.
The provisions of the Stockholders' Agreement with respect to voting
arrangements and restrictions will terminate no later than ten years from the
date of the Stockholders' Agreement, subject to extension in accordance with
applicable law by the agreement of the remaining parties to the Stockholders'
Agreement.
It is anticipated that the Stockholders' Agreement will be terminated in
connection with the Company's implementation of the Plan described elsewhere in
this Prospectus.
ADAMSON SHAREHOLDER AGREEMENT
Pursuant to a shareholder agreement (the "Adamson Shareholder Agreement")
dated January 10, 1995 between Mr. Adamson and Associates, Associates has agreed
to vote all shares of Old FCI Common Stock owned by it to elect Mr. Adamson to
the Board of Directors of FCI as long as Mr. Adamson is employed by FCI. If at
any time during Mr. Adamson's Employment Term (as defined in the Adamson
Employment Agreement) while Mr. Adamson is an active employee of the Company,
Associates proposes to sell or exchange any shares of its Old FCI Common Stock
to any third party which is not an affiliate of Associates, then Mr. Adamson has
the right to have included in such sale or exchange a number of his shares of
Old FCI Common Stock determined by multiplying (i) the total number of shares of
Old FCI Common Stock proposed to be sold or exchanged by Associates by (ii) a
fraction, the numerator of which is equal to the number of such shares of Old
FCI Common Stock owned by Mr. Adamson and the denominator of which is equal to
the aggregate number of such shares of Old FCI Common Stock owned by Mr. Adamson
and the number of shares owned by Associates. The Adamson Shareholder Agreement
terminates upon the termination of Mr. Adamson's Employment Term. For additional
information, see "Management Compensation -- Adamson Employment Agreement."
It is anticipated that the Adamson shareholder Agreement will be terminated
in connection with the Company's implementation of the Plan described elsewhere
in this Prospectus.
CERTAIN TRANSACTIONS
For information concerning certain transactions in which KKR (and their
affiliates) and Mr. Adamson have an interest, see "Management Compensation" and
"Ownership of Capital Securities."
DESCRIPTION OF INDEBTEDNESS
The following summary of the principal terms of the indebtedness of the
Company does not purport to be complete and is qualified in its entirety by
reference to the documents governing such indebtedness, including the
definitions of certain terms therein, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Whenever particular provisions of such documents are referred to herein, such
provisions are incorporated by reference, and the statements are qualified in
their entirety by such reference.
EXISTING FLAGSTAR INDEBTEDNESS
THE FLAGSTAR CREDIT AGREEMENT
On April 10, 1996 Flagstar entered into the Credit Agreement which
established a $150 million senior secured working capital and letter of credit
facility, with a $75 million sublimit for working capital advances.
Under the Credit Agreement, Flagstar is required to permanently reduce the
facility by the aggregate amount of Net Cash Proceeds (as defined therein)
received from (i) the sale, lease, transfer or other disposition of certain
assets of Flagstar or any of its Restricted Subsidiaries (as defined therein)
and (ii) the sale or issuance by FCI or any of its Restricted Subsidiaries of
any Debt (as defined therein) (other than Debt permitted by the terms of the
Credit Agreement and to the extent the Net Cash Proceeds are applied to
refinance certain existing Subordinated Debt (as defined therein)).
The Credit Agreement contains covenants customarily found in credit
agreements for leveraged financings that restrict, among other things, the
ability of Flagstar and its Restricted Subsidiaries to make, engage in or incur
(i) liens and security interests other than liens securing the obligations under
the Credit Agreement, certain liens existing as of the date of effectiveness of
the 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) Debt, other than Debt under the Loan Documents (as
defined therein), certain capital lease obligations, certain Debt in existence
on the date of the Credit Agreement, certain Debt in connection with the
financing of capital expenditures,
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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 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
Credit Agreement; (v) sales of assets, other than certain dispositions of
inventory and obsolete or surplus equipment in the ordinary course of business,
certain dispositions in the ordinary course of business of properties no longer
used or useful to the business of the Company, certain intercompany
transactions, certain dispositions in connection with sale and leaseback
transactions, certain exchanges of real property, fixtures and improvements for
other real property, fixtures and improvements, certain dispositions of a
portion of certain restaurant assets of Denny's Holdings, Inc., certain
dispositions in connection with the sale of PTF and its subsidiaries, and
dispositions of certain underperforming restaurants; (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) payments of dividends or other
distributions with respect to capital stock of Flagstar, other than dividends
from Flagstar to FCI to enable FCI to repurchase Old FCI 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 enabling Flagstar
and its Restricted Subsidiaries to pay their tax liabilities and certain other
exceptions; (viii) sales or dispositions of the capital stock of subsidiaries
other than sales by Restricted Subsidiaries of Flagstar to Flagstar or certain
other subsidiaries and certain other exceptions; (ix) 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) prepayments of Debt,
other than certain payments of Debt in existence on the date of the Credit
Agreement, certain payments to retire Debt in connection with permitted
dispositions of assets, certain prepayments of advances under the Credit
Agreement and certain other exceptions.
The Credit Agreement (as amended through March 7, 1997) also contains
covenants that require Flagstar to meet certain financial ratios and tests
described below:
TOTAL DEBT TO EBITDA RATIO. Flagstar is required not to permit the ratio of
(a) Total Debt (as defined below) outstanding on the last day of any fiscal
quarter less surplus cash to (b) EBITDA (as defined below) of Flagstar and its
Restricted Subsidiaries on a consolidated basis for the Rolling Period (as
defined below) then ended to be more than a specified ratio, ranging from a
ratio of 8.40:1.00 applicable on December 31, 1996, to a ratio of 9.50:1.00
applicable on March 31, 1997, to a ratio of 9.95:1.00 applicable on June 30,
1997, to a ratio of 6.00:1.00 applicable on or after December 31, 1998.
SENIOR DEBT TO EBITDA RATIO. Flagstar is required not to permit the ratio
of (a) Senior Debt (as defined therein) outstanding on the last day of any
fiscal quarter less surplus cash to (b) EBITDA of Flagstar and its Restricted
Subsidiaries on a consolidated basis for the Rolling Period then ended to be
more than a specified ratio, ranging from a ratio of 4.05:1.00 applicable on
December 31, 1996, to a ratio of 4.70:1.00 on March 31, 1997, to a ratio of 5.00
to 1.00 on June 30, 1997, to a ratio of 2.90:1.00 on or after December 31, 1998.
INTEREST COVERAGE RATIO. Flagstar is required not to permit the ratio,
determined on the last day of each fiscal quarter for the Rolling Period then
ended, of (a) EBITDA of Flagstar and its Restricted Subsidiaries on a
consolidated basis to (b) Cash Interest Expense (as defined below) of Flagstar
and its Restricted Subsidiaries on a consolidated basis to be less than a
specified ratio, ranging from a ratio of 1.05:1.00 applicable on December 31,
1996, to a ratio of 0.95:1:00 on March 31, 1997, to a ratio of 0.92:1.00 on June
30, 1997, to a ratio of 1.50:1.00 on or after December 31, 1998.
CAPITAL EXPENDITURES TEST. Flagstar and its Restricted Subsidiaries on a
consolidated basis are prohibited from making capital expenditures in excess of
$80.0 million, $115.0 million and $115.0 million in the aggregate for the fiscal
years ending December 31, 1996 through 1998, respectively. For the fiscal
quarter ending March 31, 1999 Flagstar and its Restricted Subsidiaries are
prohibited from making capital expenditures in excess of the sum of $30.0
million.
CERTAIN DEFINED TERMS. As used in the Credit Agreement, the following terms
shall have the following meanings.
"Advance" means a working capital advance or a swing line advance or a
letter of credit advance.
"Cash Interest Expense" means, 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 (as defined above), the Senior Notes (as defined therein)
and the Subordinated Debt (as defined therein), (b) commissions and other fees
and charges payable in
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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 paid
in cash (including amortization of discount and deferred debt expenses), all as
determined in accordance with generally accepted accounting principles.
"EBITDA" of any person means, 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.
"Funded Debt" means the principal amount of Debt in respect of Advances (as
defined above) and the principal amount of all Debt that should, in accordance
with generally accepted accounting principles, be recorded as a liability on a
balance sheet and matures more than one year from the date of creation or
matures within one year from such date but is renewable or extendible, at the
option of the debtor, to a date more than one year from such date or arises
under a revolving credit or similar agreement that obligates the lender or
lenders to extend credit during a period of more than one year from such date,
including, without limitation, all amounts of Funded Debt required to be paid or
prepaid within one year from the date of determination.
"Restricted Subsidiaries" means all subsidiaries of Flagstar other than the
Unrestricted Subsidiaries (as defined below).
"Rolling Period" means, for any fiscal quarter, such quarter and the three
preceding fiscal quarters.
"Surplus Cash" means, as of any date, the lesser of (a) cash reflected on
consolidated balance sheet of Flagstar and its Restricted Subsidiaries in excess
of $13.0 million and (b) the aggregate of amounts on deposit in the Borrower
Cash Collateral Account (as defined therein) and in Collateral Investment
Accounts (as defined therein).
"Total Debt" outstanding on any date means the sum, without duplication, of
(a) the aggregate principal amount of all Debt of Flagstar and its Restricted
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 Restricted 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 (as defined
above) of Flagstar and its Restricted Subsidiaries on a consolidated basis
consisting of obligations, contingent or otherwise, under acceptance, letter of
credit or similar facilities.
"Unrestricted Subsidiary" means FRD, and such other subsidiaries of
Flagstar as Flagstar shall designate as an Unrestricted Subsidiary in writing to
the agents and the lenders under the Credit Agreement in accordance with the
terms of the Credit Agreement, and any subsidiaries thereof.
Under the Credit Agreement, an event of default will occur if, among other
things, (i) any person or group of two or more persons acting in concert (other
than KKR, 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 Credit Agreement would be entitled to exercise a number of
remedies, including acceleration of all amounts owed under the Credit Agreement.
Pursuant to the most recent amendment to the Credit Agreement, non-payment
of certain indebtedness through June 30, 1997 (including the non-payment of
interest on the 11 3/8% Debentures on March 17, 1997 and the non-payment of
interest on the 11.25% Debentures and the Junior Subordinated Debentures on May
1, 1997) is not an event of default.
FLAGSTAR 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 (of
which $280 million remains outstanding) and issued pursuant to an exchange offer
for previously outstanding debt issues $722.4 million principal amount of the
11.25% Debentures. On September 23, 1993,
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Flagstar consummated the sale of $275 million aggregate principal amount of
10 3/4% Senior Notes (of which $270 million remains outstanding) and $125
million aggregate principal amount of the 11 3/8% Debentures. The 10 7/8% Notes
and the 10 3/4% Notes are general unsecured obligations of Flagstar and rank
PARI PASSU in right of payment with Flagstar's obligations under the 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
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 Junior Subordinated Debentures.
THE SENIOR NOTES. Interest on the 10 7/8% Notes is payable semi-annually in
arrears on each June 1 and December 1. They will mature on December 1, 2002. The
10 7/8% Notes will be redeemable, in whole or in part, at the option of
Flagstar, at any time on or after December 1, 1997, initially at a redemption
price equal to 105.4375% of the principal amount thereof to and including
November 30, 1998, at a decreased price thereafter to and including November 30,
1999 and thereafter at 100% of the principal amount thereof, together in each
case with accrued interest.
Interest on the 10 3/4% Notes is payable semi-annually in arrears on each
March 15 and September 15. They will mature on September 15, 2001. The 10 3/4%
Notes may not be redeemed prior to maturity.
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
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 JUNIOR SUBORDINATED DEBENTURES. Interest on the Junior Subordinated
Debentures is payable semi-annually in arrears on each May 1 and November 1. The
Junior Subordinated Debentures mature on November 1, 2014. Unless previously
redeemed, the Junior Subordinated Debentures are convertible at any time at the
option of the holders thereof by exchange into shares of Old FCI Common Stock at
a conversion price of $24.00 per share, subject to adjustment. The Junior
Subordinated 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 Junior Subordinated 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, the Company made
such an offer to repurchase the $100 million of Junior Subordinated Debentures
then outstanding. On March 24, 1993 the Company repurchased $741,000 principal
amount of the Junior Subordinated Debentures validly tendered and accepted
pursuant to such offer.
NEW REORGANIZED FLAGSTAR INDEBTEDNESS
Set forth below is a summary of the DIP Facility and of the Exit Facility
for which the Company has obtained written commitments in connection with the
Plan. Such commitments are subject to, among other conditions, the negotiation
subsequent to the date of this Prospectus of definitive agreements among the
Company and Chase.
THE DIP FACILITY
As of May 19, 1997, the Company entered into a written commitment letter
pursuant to which it has received a commitment from Chase for the DIP Facility,
pursuant to which a $200 million debtor-in-possession revolving credit and
letter of credit facility will be established to refinance the Credit Agreement
and otherwise be available during the pendency of the Reorganization Cases
(until the earlier to occur of the date that is twelve (12) months after the
commencement of the Reorganization Cases and the substantial consummation of the
Plan) for working capital advances and letters of credit. The DIP Facility will
be guaranteed by the Company's operating subsidiaries (the "Guarantors") and
generally be secured by liens on the same collateral that currently secures the
Company's obligations under the Credit Agreement. The DIP Facility will, subject
to satisfaction of certain conditions, become effective promptly upon entry of
the Interim Order by the Bankruptcy Court.
The DIP Facility will mature at the earliest of (i) the date that is twelve
(12) months after the filing of the Reorganization Cases (the "Maturity Date"),
(ii) thirty days after the entry of the Interim Order if the Final Order has not
been entered by the
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Bankruptcy Court prior to the expiration of such thirty day period (the
"Prepayment Date"), (iii) the substantial consummation (as defined in Section
1101 of the Bankruptcy Code and including the Effective Date) of the Plan which
is confirmed pursuant to an order entered by the Bankruptcy Court in the
Reorganization Cases (the "Confirmation Date") and (iv) the acceleration of the
loans and the termination of the DIP Facility in accordance with the terms
thereof.
The DIP Facility will contain covenants customarily found in credit
agreements involving debtors-in-possession that, among other things, restrict
(i) liens and security interests other than liens securing obligations under the
DIP Facility, certain liens existing as of the date of the Reorganization Cases
and certain other exceptions; (ii) the incurrence of indebtedness, other than
certain indebtedness in existence on the date of the filing of the
Reorganization Cases, certain purchase money indebtedness and certain other
exceptions; (iii) lease rentals for real and personal property, excluding
capitalized leases; (iv) mergers or consolidations; (v) sales of assets, other
than certain dispositions of inventory, fixtures and equipment in the ordinary
course of business and sales of other assets having a fair market value not
exceeding amounts to be negotiated; (vi) investments, other than certain
intercompany indebtedness and investments made in certain short-term
obligations; (vii) payment of dividends or other distributions, other than
dividends and distributions from Subsidiaries to Flagstar or to other
Subsidiaries; (viii) guaranties of obligations of others, except under limited
circumstances; (ix) material transactions with affiliates other than Flagstar
and Subsidiaries thereof, except for transactions that are entered into in the
ordinary course of Flagstar's business in good faith and upon commercially
reasonable terms, and no less favorable to Flagstar than would be obtained in an
arms-length transaction with a non-affiliate; (x) modification or alteration in
any material manner of the nature and type of business of the Company or the
manner in which such business is conducted, except as required by the Bankruptcy
Code; (xi) the creation or existence of any other super-priority claim which is
PARI PASSU with or senior to the claims of the lenders under the DIP Facility
except for certain limited carve-outs; (xii) capital expenditures in an
aggregate amount exceeding amounts to be negotiated; and (xiii) EBITDA from
falling below amounts, and for periods, to be negotiated.
For purposes of the DIP Facility, "EBITDA" will mean, for any period, all
as determined in accordance with GAAP, the consolidated net income (or net loss)
of Flagstar and the Guarantors for such period, plus (a) the sum of (i)
depreciation expense, (ii) amortization expense, (iii) other non-cash charges,
(iv) provision for LIFO adjustment for inventory evaluation, (v) net total
federal, state and local income tax expense, (vi) gross interest expense for
such period less the gross interest income for such period, (vii) extraordinary
losses, (viii) any non-recurring charge or restructuring charge which, in
accordance with GAAP, is excluded from operating income, (ix) the cumulative
effect of any change in accounting principles, and (x) "Chapter 11 expenses" (or
"administrative costs reflecting Chapter 11 expenses") as shown on Flagstar's
consolidated statement of income for such period less (b) extraordinary gain
plus or minus (c) the amount of cash received or spent in such period in respect
of any amount which, under clause (viii) above, was taken into account in
determining EBITDA for such or any prior period.
Under the DIP Facility, events of default will include the occurrence of,
among other things, certain events pertaining to the Reorganization Cases or the
Plan in the Bankruptcy Court (including dismissal of the Reorganization Cases or
their conversion to a Chapter 7 case, the granting of certain super-priority
claims therein, the amendment, modification or withdrawal of, or the court's
declining to confirm the Plan, or the court granting relief from the automatic
stay under the Bankruptcy Code to permit foreclosure on the Company's assets in
excess of certain amounts), the bankruptcy of a Subsidiary, payments by the
Company of pre-petition indebtedness for borrowed money, nonpayment of
principal, interest or fees under the DIP Facility, violation of covenants,
breaches of representations and warranties, material judgments against the
Company, certain ERISA-related events, and a change of control (as defined) of
the Company.
THE EXIT FACILITY
As of May 19, 1997, the Company entered into a written commitment letter
pursuant to which it has received a commitment from Chase for the Exit Facility,
pursuant to which a $200 million senior secured revolving credit facility will,
subject to satisfaction of certain conditions, be established for the benefit of
the Company's operating subsidiaries following the emergence of Reorganized
Flagstar from Chapter 11. Such facility will refinance the DIP Facility and will
otherwise be used for working capital advances and letters of credit. The Exit
Facility will be guaranteed by Reorganized Flagstar and, subject to certain
exceptions, by the Company's subsidiaries that are not borrowers thereunder and
generally be secured by liens on the same collateral that currently secures the
Company's obligations under the Credit Agreement (with additional liens on the
Company's corporate headquarters in Spartanburg, South Carolina and accounts
receivable).
The Exit Facility will mature on the date that is five years after
emergence of Reorganized Flagstar from Chapter 11 (the "Maturity Date"), subject
to earlier termination on March 31, 2000 in the event that the Mortgage
Financings have not, on or prior to such date, been refinanced with other
indebtedness that (a) matures at least 90 days after the Maturity Date, and (b)
is otherwise satisfactory to the lenders. Commitments under the Exit Facility
will be reduced in amounts equal to (a) a percentage of the net cash proceeds of
all non-ordinary course asset sales or other dispositions of property by
Reorganized Flagstar,
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subject to certain exceptions, and (b) 100% of the net cash proceeds of
issuances of debt obligations of Reorganized Flagstar, subject to certain
exceptions (including exceptions for certain subordinated indebtedness).
The Exit Facility will contain covenants customarily found in credit
agreements for leveraged financings that, among other things, place limitations
on (i) dividends on capital stock; (ii) redemptions and repurchases of capital
stock; (iii) prepayments, redemptions and repurchases of debt (other than loans
under the Exit Facility); (iv) liens and sale-leaseback transactions; (v) loans
and investments; (vi) incurrence of debt; (vii) capital expenditures; (viii)
operating leases; (ix) mergers and acquisitions; (x) asset sales; (xi)
transactions with affiliates; (xii) changes in the business conducted by
Reorganized Flagstar and its subsidiaries; and (xiii) amendment of debt and
other material agreements.
The Exit Facility also will contain covenants that require Reorganized
Flagstar and its subsidiaries on a consolidated basis to meet certain financial
ratios, including (a) a maximum total debt to EBITDA ratio, (b) a maximum senior
secured debt to EBITDA ratio, (c) a minimum interest coverage ratio, and (d) a
minimum fixed charge coverage ratio, in each case with definitions and levels to
be agreed upon.
Under the Exit Facility, events of default will include the occurrence of,
among other things, a reversal, modification or stay, in whole or in part, of
any of the orders issued by the Bankruptcy Court, nonpayment of principal or
interest, violations of covenants, breaches of representations and warranties,
the triggering of certain cross-default and cross-acceleration provisions,
certain events of bankruptcy, material judgments against Reorganized Flagstar or
its subsidiaries, and the occurrence of a change in control (the definition of
which will be as set forth in the definitive documentation for the Exit
Facility).
The Company expects to pay Chase (and any other lenders pursuant to the DIP
Facility and the Exit Facility) customary fees in connection with the
consummation of such facilities in connection with the implementation of the
Plan.
MORTGAGE FINANCINGS
A subsidiary of Flagstar had issued and outstanding, at December 31, 1996,
$190.2 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 1997 through 1999; and $152.7 million in 2000. The bonds
are secured by a financial guaranty insurance policy issued by Financial
Security Assurance, Inc. and by collateral assignment of mortgage loans on 238
Hardee's and 148 Quincy's restaurants.
Another subsidiary of Flagstar has outstanding $160 million aggregate
principal amount of 11.03% Notes due 2000. Interest is payable quarterly in
arrears, with the principal maturing in a single installment payable in July
2000. These notes are redeemable, in whole, at the subsidiary's option, upon
payment of a premium. They are secured by a pool of cross-collateralized
mortgages on approximately 240 Denny's restaurant properties.
THE FRI-M CREDIT FACILITY
In connection with the acquisition by FRD of Coco's and Carrows on May 23,
1996, FRI-M (the "Borrower"), a wholly-owned subsidiary of FRD, obtained a new
credit facility (the "FRI-M Credit Facility") consisting of a $56 million term
loan (the "FRI-M Term Loan") and a $35 million working capital facility (the
"FRI-M Revolver"). Proceeds from the FRI-M Term Loan were used to fund the
Coco's and Carrows acquisition and to pay the transactions costs associated
therewith. Proceeds from the FRI-M Revolver are to be used for working capital
requirements and other general corporate purposes, which may include the making
of intercompany loans to any of the Borrower's wholly-owned subsidiaries for
their own working capital and other general corporate purposes. Letters of
credit may be issued under the FRI-M Revolver for the purpose of supporting (i)
workers' compensation liabilities of the Borrower or any of its subsidiaries;
(ii) the obligations of third party insurers of the Borrower or any of its
subsidiaries; and (iii) certain other obligations of the Borrower and its
subsidiaries.
The FRI-M Term Loan matures on August 31, 1999. Principal installments of
the FRI-M Term Loan are payable quarterly as follows: $4 million per quarter for
four consecutive quarters beginning February 28, 1997; $5 million for four
consecutive quarters beginning February 28, 1998; $6 million on February 28,
1999; and $7 million for two consecutive quarters beginning May 31, 1999. All
amounts owing under the FRI-M Term Loan are required to be repaid on August 31,
1999. The commitment to make loans or issue letters of credit pursuant to the
FRI-M Revolver expires, and all amounts outstanding under the FRI-M Revolver
must be repaid, on August 31, 1999. All borrowings under the FRI-M Credit
Facility accrue interest at a variable rate based on a base rate (as defined
therein) or an adjusted Eurodollar rate. The rate at year end 1996 was 8.125%.
The FRI-M Credit Facility requires the Borrower to make mandatory
prepayments in certain circumstances out of its Consolidated Excess Cash Flow
(as defined therein), out of cash proceeds of certain asset sales, out of assets
distributed to
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FRD, the Borrower or any of Borrower's direct or indirect subsidiaries (each, a
"Loan Party") in connection with an employee benefit plan termination and out of
net cash proceeds received by a Loan Party from certain other sources. Any
mandatory partial prepayment of the FRI-M Term Loan shall be applied to
installments scheduled to be paid during the twelve months immediately following
the date of such prepayment, with any excess being applied ratably to the
scheduled installments of the FRI-M Term Loan.
The FRI-M Credit Facility contains certain restrictive covenants which,
among other things, limit (subject to certain exceptions) the Borrower and its
subsidiaries with respect to (a) incurrence of debt; (b) the existence of liens;
(c) investments and joint ventures; (d) the declaration or payment of dividends;
(e) the making of guarantees and other contingent obligations; (f) the amendment
or waiver of certain related agreements; (g) mergers, consolidations,
liquidations and sales of assets (including sale and leaseback transactions);
(h) payment obligations under leases; (i) transactions with shareholders and
affiliates; (j) the sale, assignment, pledge or other disposition of shares of
Borrower or its subsidiaries by Borrower or its subsidiaries; (k) capital
expenditures; and (l) material changes in their business.
The FRI-M Credit Facility also imposes on FRD, the Borrower and its
subsidiaries certain financial tests and minimum ratios which, among other
things, require that the Borrower (a) shall not permit the ratio determined on
the last day of each fiscal quarter for such quarter and the three preceding
quarters ("Rolling Period") then ended of Consolidated Adjusted EBITDA (as
defined therein) to Consolidated Interest Expense (as defined therein) to be
less than levels increasing from 1.50:1.00 on September 26, 1996 to 2.10:1.00 on
September 23, 1999 and each fiscal quarter end thereafter; (b) permit the ratio
determined on the last day of each fiscal quarter for the Rolling Period then
ended of Consolidated Total Debt (as defined therein) to Consolidated Adjusted
EBITDA (as defined) to exceed a level varying from 5.65:1.00 on September 26,
1996 to 3.65:1.00 on September 23, 1999 and each fiscal quarter end thereafter;
and (c) shall not permit Consolidated Adjusted EBITDA determined on the last day
of each fiscal quarter for the Rolling Period then ended to be less than an
amount increasing from $11.2 million for the Rolling Period ending September 26,
1996 to $49.5 million for the Rolling Period ending June 25, 1998 and each
Rolling Period thereafter.
FRD and all of the Borrower's subsidiaries have guaranteed the obligations
of the Borrower under the FRI-M Credit Facility and the other Loan Documents (as
defined therein). All of the issued and outstanding common stock of the Borrower
and its subsidiaries has been pledged as security for the obligations of FRD
under the FRI-M Credit Facility and the other Loan Documents. The obligations of
the Borrower under the FRI-M Credit Facility and the other Loan Documents are
secured by substantially all assets of the Borrower and its subsidiaries.
THE FRD SENIOR NOTES
In connection with the May 23, 1996 acquisition of FRI-M, FRD issued $156.9
million principal amount of 12 1/2% FRD Senior Notes due 2004 (the "FRD Notes").
Interest on the FRD Notes accrues at the rate of 12 1/2% per annum and is
payable semi-annually in arrears on January 15 and July 15, commencing on July
15, 1996. They will mature on July 15, 2004. The FRD Notes are senior unsecured,
general obligations of FRD and rank senior in right of payment to all existing
and future subordinated indebtedness of FRD and rank PARI PASSU in right of
payment with all existing and future unsubordinated indebtedness of FRD. The FRD
Notes are effectively subordinated to secured indebtedness of FRD, including
borrowings under the FRI-M Credit Facility to the extent of the value of FRD's
assets securing such indebtedness. Borrowings under the FRI-M Credit Facility
are secured by substantially all of FRD's assets (The FRD Notes are structurally
subordinated to all indebtedness of the Borrower (as defined above), including
its indebtedness under the FRI-M Credit Facility).
DESCRIPTION OF OLD EQUITY SECURITIES
The Company's authorized capital stock consists of 200 million shares of
Old FCI Common Stock and 25 million shares of Old FCI Preferred Stock.
The following summary description of FCI's capital stock does not purport
to be complete and is qualified in its entirety by this reference to FCI's
Restated Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
OLD FCI COMMON STOCK
The holders of validly issued and outstanding shares of Old FCI Common
Stock are entitled to one vote per share of record on all matters to be voted on
by stockholders. At a meeting of stockholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which a different vote is required by express provisions of law, or FCI's
Restated Certificate of Incorporation or Bylaws. There is no cumulative voting
with respect to the election of directors (or any other matter). The holders of
a majority of the shares at a meeting at which a quorum is present can,
therefore, elect all the directors if they choose to do so, and, in such event,
the holders of the remaining shares will not be able to elect any directors.
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The holders of Old FCI Common Stock have no preemptive rights and have no
rights to convert their Old FCI Common Stock into any other securities.
Subject to the rights of holders of Old FCI Preferred Stock, if any, in the
event of a liquidation, dissolution or winding up of FCI, holders of Old FCI
Common Stock are entitled to participate equally, share for share and all assets
remaining after payment of liabilities.
OLD FCI PREFERRED STOCK
FCI has authorized the issuance of 25,000,000 shares of $2.25 Series A
Cumulative Convertible Exchangeable Preferred Stock, par value $.10 per share. A
total of 6,300,000 shares of Old FCI Preferred Stock are outstanding. The Board
of Directors is authorized to issue preferred stock from time to time in series
and to establish as to each series the designation and number of shares to be
issued, the dividend rate, the redemption price and terms (if any), the amount
payable upon voluntary or involuntary dissolution, sinking fund provisions (if
any), the terms of the conversion or exchange into any other class or series of
shares (if provided for), and any other special rights, preferences,
qualifications, limitations or restrictions thereof.
The holders of the Old FCI Preferred Stock are entitled to receive, when,
as and if declared by FCI's Board of Directors, out of funds of the Company
legally available therefor, cumulative cash dividends at a rate of $2.25 per
annum per share, payable on each January 15, April 15, July 15 and October 15,
commencing October 15, 1992. The Board of Directors of FCI elected not to
declare the January 15, 1997 or April 15, 1997 quarterly dividend on the Old FCI
Preferred Stock. The Old FCI Preferred Stock, unless previously redeemed, is
convertible at the option of the holder at any time into Old FCI Common Stock at
a conversion price of $3.68 per share of Old FCI Common Stock, subject to
adjustment under certain circumstances. The Company also has the right to redeem
the Old FCI Preferred Stock, in whole or in part, on or after July 15, 1994 at
$26.80 per share, if redeemed during the 12-month period beginning July 15,
1994, and thereafter at prices declining annually to $25.00 per share on or
after July 15, 2002, together with accrued and unpaid dividends to the date of
redemption, except that no such redemption may be accrued and unpaid dividends
to the date of redemption, except that no such redemption may be made prior to
July 15, 1995 unless the closing price of the Old FCI Common Stock for 20
trading days within a period of 30 consecutive trading days ending on the fifth
trading day preceding the redemption notice is at least 150% of the conversion
price per share then in effect.
The Old FCI Preferred Stock may be exchanged at the option of FCI, as a
whole or in up to two parts (the first exchange being for all or half the shares
of Old FCI Preferred Stock then outstanding, and the second exchange, if any,
being for all the remaining shares of Old FCI Preferred Stock then outstanding),
on any divided payment date for FCI's 9% Convertible Subordinated Debentures due
July 15, 2017 (the "Exchange Debentures") in a principal amount equal to $25.00
per share of Old FCI Preferred Stock so exchanged. The Exchange Debentures, if
issued, will be convertible at the option of the holder at any time, unless
previously redeemed, into Old FCI Common Stock at a price initially equivalent
to the conversion price applicable to the Old FCI Preferred Stock for which the
Exchange Debentures were exchanged. Upon a change of control, as defined in the
indenture governing the Exchange Debentures, holders of the Exchange Debentures
will have a special conversion right, subject to certain limitations.
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DESCRIPTION OF NEW SENIOR NOTES
The New Senior Notes will be issued, pursuant to the Plan, under an
Indenture to be dated as of the Effective Date between Reorganized Flagstar and
First Trust National Association, as Trustee. The terms of the New Senior Notes
will include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 as in effect on the date of the
Indenture. The New Senior Notes will be subject to all such terms, and holders
of the New Senior Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act. Copies of the
proposed forms of the Indenture and the New Senior Notes will be filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Wherever this Prospectus refers to defined terms of the Indenture not otherwise
defined herein, such defined terms are incorporated herein by reference.
GENERAL
The New Senior Notes will be issued only in registered form without coupons
in denominations of $1,000 or multiples thereof. Principal of, premium, if any,
and interest on the New Senior Notes will be payable, and the New Senior Notes
will be transferable and exchangeable, at the corporate trust office or agency
of the Trustee in St. Paul, Minnesota maintained for such purposes. In addition,
interest may be paid, at the option of Reorganized Flagstar, by wire transfer or
check mailed to the person entitled thereto as shown on the register for the New
Senior Notes.
An aggregate of $575.9 million (assuming an October 1, 1997 Effective Date
and assuming Reorganized Flagstar does not pay cash interest accrued through the
Effective Date) principal amount of New Senior Notes are being offered hereby.
The New Senior Notes will be senior unsecured obligations and will be PARI PASSU
in right of payment to all Senior Indebtedness. Interest on the New Senior Notes
will accrue at a rate equal to 11 1/4% per annum, payable in arrears on the six
month anniversary of the Effective Date and semi-annually thereafter, to holders
of record of New Senior Notes at the close of business on the fifteenth (15th)
day of the month next preceding the interest payment date. Interest on the New
Senior Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the Effective Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The New Senior
Notes will mature on the ten year anniversary of the Effective Date.
OPTIONAL REDEMPTION
The New Senior Notes may not be redeemed prior to the five year anniversary
of the Effective Date. After the five year anniversary of the Effective Date,
the New Senior Notes will be redeemable, in whole or in part, at the option of
Reorganized Flagstar, at the redemption prices (expressed as percentages of the
principal amount) set forth below, plus accrued and unpaid interest, if any, to
the redemption date, if redeemed during the 12-month period beginning on the
anniversary of the Effective Date in the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002..................................................................................... 105.625%
2003..................................................................................... 103.750
2004..................................................................................... 101.875
2005 and thereafter...................................................................... 100.000
</TABLE>
PROVIDED that, if the date fixed for redemption is on an interest payment date,
then the interest payable on such date shall be paid to the holder of record on
the fifteenth (15) day of the month next preceding such interest payment date.
Notwithstanding the foregoing, from the Effective Date until the three year
anniversary of the Effective Date, Reorganized Flagstar may redeem up to 35% of
the aggregate principal amount of New Senior Notes outstanding on the date of
the Indenture of a redemption price (expressed as a percentage of the principal
amount), of 110%, plus accrued and unpaid interest, if any, to the redemption
date, from the net proceeds of any public offering for cash of any equity
securities of Reorganized Flagstar or any subsidiary thereof.
SELECTION AND NOTICE. Notice of redemption shall be mailed at least 30 and
not more than 60 days prior to the redemption date to each holder of New Senior
Notes to be redeemed. In the event of a redemption of less than all of the New
Senior Notes, the Trustee shall select, in such manner as it shall deem
appropriate and fair but generally pro rata or by lot, which New Senior Notes
shall be redeemed in whole or in part, and shall promptly notify Reorganized
Flagstar in writing of the New Senior Notes selected for redemption.
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On and after the redemption date, interest ceases to accrue on the New
Senior Notes or portions thereof called for redemption and all rights of the
holder with respect to such redeemed New Senior Notes, except the right to
payment of amounts payable on such redemption, shall cease.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definitions of all
terms set forth below and used in such Indenture as well as for any other
capitalized terms used under "Description of New Senior Notes" for which no
definition is provided.
"Acquisition Indebtedness" means Indebtedness of any person existing at the
time such person becomes a Subsidiary of Reorganized Flagstar (or at the time
such person is merged with or into a Subsidiary of Reorganized Flagstar),
excluding Indebtedness of any Subsidiary of Reorganized Flagstar (other than
such person) incurred in connection with, or in contemplation of, such person
becoming a Subsidiary of Reorganized Flagstar.
"Adjusted Consolidated Net Worth" with respect to Reorganized Flagstar
means, as of any date, the Consolidated Net Worth of Reorganized Flagstar plus
(i) the respective amounts reported on Reorganized Flagstar's most recent
consolidated balance sheet with respect to any preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by Reorganized Flagstar upon issuance of such
preferred stock or of securities converted into such preferred stock, excluding
(ii) any amount reflecting any equity adjustment resulting from a foreign
currency translation on a consolidated balance sheet of Reorganized Flagstar,
but only to the extent not excluded in calculating Consolidated Net Worth of
Reorganized Flagstar, plus (iii) any gain realized upon the sale or other
disposition of any Business Segments to the extent such gains do not exceed the
sum of the aggregate amount of any losses included (on a net after tax basis) in
the computation of Consolidated Net Worth plus (iv) transaction fees and
expenses related to the Plan or any related transactions, including amortization
thereof, but only to the extent such fees and expenses were included in
calculating Consolidated Net Worth of Reorganized Flagstar.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with Reorganized
Flagstar. For the purposes of this definition, beneficial ownership of 10% or
more of the voting common equity of a person shall be deemed to be control
unless ownership of a lesser amount may be deemed to be control under the Trust
Indenture Act.
"Asset Segment" means (i) Denny's Holdings, Inc., (ii) Spartan Holdings,
Inc., (iii) FRD, or (iv) any Subsidiary, group of Subsidiaries or group of
assets (other than inventory held for sale in the ordinary course of business)
of Reorganized Flagstar or its Subsidiaries which (A) accounts for at least 20
percent of the total assets of Reorganized Flagstar and its Subsidiaries on a
consolidated basis as of the end of the last fiscal quarter immediately
preceding the date for which such determination is being made or (B) accounts
for at least 20 percent of the income from continuing operations before income
taxes, extraordinary items and cumulative effects of changes in accounting
principles of Reorganized Flagstar and its Subsidiaries on a consolidated basis
for the four full fiscal quarters immediately preceding the date for which such
calculation is being made.
"Business Segment" means (i) each of Reorganized Flagstar's Significant
Subsidiaries, (ii) the capital stock of any of Reorganized Flagstar's
Subsidiaries or (iii) any group of assets of Reorganized Flagstar or any
Subsidiary whether now owned or hereafter acquired, PROVIDED, in each case, that
the sale (other than the sale of inventory in the ordinary course of business),
lease, conveyance or other disposition of such Significant Subsidiary, capital
stock or group of assets, as the case may be, either in a single transaction or
group of related transactions that are part of a common plan, results in Net
Proceeds to Reorganized Flagstar of $50 million or more.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit with a maturity date not more than one year from the
date of acquisition issued by any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000 or a commercial
bank organized under the laws of any other country that is a member of the
Office for Economic Cooperation and Development and having total assets in
excess of $500,000,000, (iii) repurchase obligations with a term of not more
than 7 days for underlying securities of the types described in clause (i) above
entered into with any bank
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meeting the qualifications specified in clause (ii) above, (iv) commercial paper
issued by the parent corporation of any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000 and commercial
paper issued by others rated at least A-2 or the equivalent thereof by Standard
& Poor's Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within one year after the date
of acquisition and (v) investments in money market funds substantially all of
whose assets comprise securities of the types described in clauses (i) through
(iv) above.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Consolidated Fixed Charges" means, with respect to any person for a given
period, consolidated interest expense of such person and its consolidated
Subsidiaries to the extent deducted in computing Consolidated Net Income
(including, without limitation, amortization of original issue discount and
non-cash interest payments, all net payments and receipts in respect of Interest
Rate Agreements and the interest component of capital leases, but excluding
deferred financing costs existing immediately after the date of the Indenture or
incurred in connection with the Plan and amortization thereof) plus the amount
of all cash dividend payments on any series of preferred stock of such person;
PROVIDED that if, during such period, (i) such person or any of its Subsidiaries
shall have made any asset sales (other than, in the case of Reorganized Flagstar
and its Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries), Consolidated Fixed Charges of such person and its
Subsidiaries for such period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to the assets which are the
subject of such asset sales for such period and (ii) such person or any of its
Subsidiaries has made any acquisition of assets or Capital Stock (occurring by
merger or otherwise), including, without limitation, any acquisition of assets
or Capital Stock occurring in connection with the transaction causing a
calculation to be made under the Indenture, Consolidated Fixed Charges of such
person and its Subsidiaries shall be calculated on a pro forma basis as if such
acquisition of assets or Capital Stock (including the incurrence of any
Indebtedness in connection with any such acquisition and the application of the
proceeds thereof) took place on the first day of such period and provided
further, that in the case of Reorganized Flagstar, if any aspect of the Plan
occurred during such period, Consolidated Fixed Charges of Reorganized Flagstar
and its Subsidiaries for such period shall be calculated on a pro forma basis as
if such closing (including the incurrence of any Indebtedness in connection with
such closing and the application of the proceeds thereof) took place on the
first day of such period.
"Consolidated Net Income" means, with respect to any person (the "Subject
Person") for a given period, the aggregate of the Net Income of such Subject
Person and its Subsidiaries for such period, on a consolidated basis, determined
in accordance with generally accepted accounting principles; PROVIDED that (i)
the Net Income of any person that is not a Subsidiary of the Subject Person or
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to such Subject
Person and its Subsidiaries, (ii) the Net Income of any person that is a
Subsidiary (other than a Subsidiary of which at least 80% of the capital stock
having ordinary voting power for the election of directors or other governing
body of such Subsidiary is owned by the Subject Person directly or indirectly
through one or more Subsidiaries) shall be included only to the extent of the
lesser of (a) the amount of dividends or distributions paid to the Subject
Person and its Subsidiaries and (b) the Net Income of such person, (iii) the Net
Income of any person acquired by the Subject Person and its Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the Net Income (if positive) of any
person that becomes a Subsidiary of Reorganized Flagstar after the date of the
Indenture shall be included only to the extent that the declaration or payment
of dividends on Capital Stock or any similar distributions, by that Subsidiary
to Reorganized Flagstar or to any other consolidated Subsidiary of Reorganized
Flagstar, of such Net Income is at the time permitted under the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations binding upon or applicable to that
Subsidiary, PROVIDED that, if the exclusion from an otherwise positive Net
Income of certain amounts pursuant to this clause (iv) would cause such Net
Income to be negative, then such Net Income shall be deemed to be zero.
"Consolidated Net Worth" means, with respect to any person, at any date of
determination, the sum of the Capital Stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of such person and its
Subsidiaries on a consolidated basis, each item to be determined in conformity
with generally accepted accounting principles (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52), except that all effects of
the application of Accounting Principles Board Opinions Nos. 16 and 17 and
related interpretations shall be disregarded.
"Controlled Corporation EBITDA Amount" means, for any Controlled
Corporation, securities of which have been distributed in a Section 355
Transaction, the EBITDA of the Controlled Corporation for the four full fiscal
quarters of the Company preceding the date such Section 355 Transaction is
effected.
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"Credit Agent" means managing agent (or a similar capacity) under the Exit
Facility, or any successor thereto; PROVIDED that "Credit Agent" shall also mean
any person acting as managing agent (or in a similar capacity) under any
agreement pursuant to which the Exit Facility is refunded or refinanced if such
person is designated as such by each person that is at the time of such
designation a Credit Agent; and PROVIDED FURTHER that if at any time there shall
be more than one Credit Agent, then "Credit Agent" shall mean each such Credit
Agent, and any notice, consent or waiver to be given by, action to be taken by,
or notice to be given to, the Credit Agent shall be given or taken by, or given
to, each such Credit Agent.
"Default" means any event that is, or after notice or passage of time would
be, an Event of Default.
"Disqualified Stock" means any capital stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the New Senior Notes.
"EBITDA" means, with respect to any person and its consolidated
Subsidiaries for a given period, the Consolidated Net Income of such person for
such period plus (i) an amount equal to any net loss realized upon the sale or
other disposition of any Business Segment (to the extent such loss was deducted
in computing Consolidated Net Income), (ii) any provision for taxes based on
income or profits deducted in computing Consolidated Net Income and any
provision for taxes utilized in computing net loss under clause (i) hereof,
(iii) consolidated interest expense (including amortization of original issue
discount and non-cash interest payments, all net payments and receipts in
respect of Interest Rate Agreements and the interest component of capital
leases) and (iv) depreciation and amortization (including amortization of
goodwill, deferred financing costs existing immediately after the date of the
Indenture or incurred in connection with the Plan and other intangibles) to the
extent required under generally accepted accounting principles, all on a
consolidated basis; PROVIDED that if, during such period, (x) such person or any
of its Subsidiaries shall have made any asset sales (other than, in the case of
Reorganized Flagstar and its Subsidiaries, sales of the Capital Stock of or any
assets of Unrestricted Subsidiaries), EBITDA of such person and its Subsidiaries
for such period shall be reduced by an amount equal to the EBITDA directly
attributable to the assets which are the subject of such asset sales for such
period, and (y) such person or any of its Subsidiaries has made any acquisition
of assets or Capital Stock (occurring by merger or otherwise), including,
without limitation, any acquisition of assets or Capital Stock occurring in
connection with the transaction causing a calculation to be made under the
Indenture, EBITDA of such person and its Subsidiaries shall be calculated,
excluding any expenses which in the good faith estimate of management will be
eliminated as a result of such acquisition, on a pro forma basis as if such
acquisition of assets or Capital Stock (including the incurrence of any
Indebtedness in connection with any such acquisition and the application of the
proceeds thereof) took place on the first day of such period; and provided,
further, that in the case of Reorganized Flagstar, if the closing of any aspect
of the Plan occurred during such period, EBITDA of Reorganized Flagstar and its
Subsidiaries for such period shall be calculated on a pro forma basis as if such
closing (including the incurrence of any Indebtedness in connection with such
closing and the application of the proceeds thereof) took place on the first day
of such period.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into or exchangeable for Capital Stock).
"Excluded Property" means Reorganized Flagstar's corporate headquarters
property located in Spartanburg, South Carolina.
"Existing Indebtedness" means Indebtedness of Reorganized Flagstar or any
subsidiary of Reorganized Flagstar existing on the date of the Indenture.
"Fixed Charge Coverage Ratio" means, with respect to any person for a given
period, the ratio of the EBITDA of such person for such period to the
Consolidated Fixed Charges of such person for such period.
"Indebtedness" with respect to any person, means at any date, without
duplication, (i) all obligations of such person for borrowed money, (ii) all
obligations of such person evidenced by bonds, debentures, notes or other
similar instruments other than Interest Rate Agreements, (iii) all reimbursement
obligations and other liabilities of such person with respect to letters of
credit issued for such person's account, (iv) all obligations of such person to
pay the deferred purchase price of property or services, except accounts payable
arising in the ordinary course of business, (v) all obligations of such person
as lessee in respect of capital lease obligations under capital leases and (vi)
all obligations of others of a nature described in any of clauses (i) through
(v) above guaranteed by such person; PROVIDED that, in the case of clauses (i)
through (v) above, Indebtedness shall include only obligations reported as
liabilities in the financial statements of such person in accordance with
generally accepted accounting principles.
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"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge arrangement to or under which Reorganized
Flagstar or any of its subsidiaries is or becomes a party or a beneficiary.
"Investment" means any direct or indirect advance (other than advances to
customers in the ordinary course of business, which are recorded as accounts
receivable on the balance sheet of any person or its subsidiaries), loan or
other extension of credit or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of capital stock,
bonds, notes, debentures or other securities issued by, any other person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any capital
lease, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by Reorganized Flagstar or a
Subsidiary of Reorganized Flagstar of any Indebtedness secured by a mortgage or
other Lien on real property acquired or improved by Reorganized Flagstar or any
Subsidiary of Reorganized Flagstar after the date of the Indenture.
"Mortgage Financing Proceeds" means, with respect to any Mortgage
Financing, the aggregate amount of cash proceeds received or receivable by
Reorganized Flagstar or any Subsidiary of Reorganized Flagstar in connection
with such financing after deducting therefrom brokerage commissions, legal fees,
finder's fees, closing costs and other expenses incidental to such Mortgage
Financing and the amount of the taxes payable in connection with or as a result
of such transaction, to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a person
that is not an Affiliate and are properly attributable to such transaction or to
the asset that is the subject thereof.
"Mortgage Refinancing" means the incurrence by Reorganized Flagstar or a
Subsidiary of Reorganized Flagstar of any Indebtedness secured by a mortgage or
other Lien on real property subject to a mortgage or other Lien existing on the
date of the Indenture or created or incurred subsequent to the date of the
Indenture as permitted by the terms of the Indenture and owned by Reorganized
Flagstar or any Subsidiary of Reorganized Flagstar.
"Mortgage Refinancing Proceeds" means, with respect to any Mortgage
Refinancing, the aggregate amount of cash proceeds received or receivable by
Reorganized Flagstar or any Subsidiary of Reorganized Flagstar in connection
with such refinancing after deducting therefrom the original mortgage amount of
the underlying Indebtedness refinanced therewith and brokerage commissions,
legal fees, finder's fees, closing costs and other expenses incidental to such
Mortgage Refinancing and the amount of the taxes payable in connection with or
as a result of such transaction, to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid to a
person that is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" of any person shall mean the net income (loss) of such person,
determined in accordance with generally accepted accounting principles,
excluding, however, (i) any gain or loss, together with any related provision
for taxes on such gain or loss, realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) of a Business Segment, (ii) any charges arising as a result of the
Plan, and (iii) any gain or loss realized upon the sale or other disposition by
such person of any capital stock or marketable securities.
"Net Proceeds" with respect to any Asset Sale, sale and leaseback
transaction or sale or other disposition of a Business Segment, means (i) cash
(freely convertible into U.S. dollars) received by Reorganized Flagstar or any
Subsidiary of Reorganized Flagstar from such transaction, after (a) provision
for all income or other taxes measured by or resulting from such transaction,
(b) payment of all brokerage commissions and other expenses (including, without
limitation, the payment of principal, premium (if any) and interest on
Indebtedness required (other than pursuant to the provisions described in the
first paragraph under "Certain Covenants -- Restrictions on Sale of Assets") to
be paid as a result of such transaction) in connection with such transaction and
(c) deduction of appropriate amounts to be provided by Reorganized Flagstar as a
reserve, in accordance with generally accepted accounting principles, against
any liabilities associated with the asset disposed of in such transaction and
retained by Reorganized Flagstar after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction and (ii) promissory
notes received by Reorganized Flagstar or any Subsidiary of Reorganized Flagstar
in connection with such transaction upon the liquidation or conversion of such
notes into cash.
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"Obligations" means, with respect to any Indebtedness or any Interest Rate
Agreement, any principal, premium, interest (including, without limitation,
interest, whether or not allowed, after the filing of a petition initiating
certain bankruptcy proceedings), penalties, commissions, charges, expenses,
fees, indemnifications, reimbursements and other liabilities or amounts payable
under or in respect of the documentation governing such Indebtedness or such
Interest Rate Agreement.
"Permitted Investments" means (i) cash (including major foreign currency or
currency of a country in which Reorganized Flagstar or any of its Subsidiaries
has operations) or Cash Equivalents, (ii) investments that are in persons at
least a majority of whose revenues are derived from food service operations,
ancillary operations or related activities and that have the purpose of
furthering the food service operations of Reorganized Flagstar or any of its
Subsidiaries, (iii) advances to employees not in excess of $5,000,000 at any one
time outstanding, (iv) accounts receivable created or acquired in the ordinary
course of business, (v) obligations or shares of stock received in connection
with any good faith settlement or bankruptcy proceeding involving a claim
relating to a Permitted Investment, (vi) evidences of Indebtedness, obligations
or other investments not exceeding $5,000,000 in the aggregate held at any one
time by Reorganized Flagstar or any of its Subsidiaries and (vii) currency swap
agreements and other similar agreements designed to hedge against fluctuations
in foreign exchange rates entered into in the ordinary course of business in
connection with the operation of the business.
"Remaining Section 355 Amount" means at any time an amount equal to (i) 30%
of the Specified Company EBITDA less (ii) the sum of the Controlled Corporation
EBITDA Amounts for the Controlled Corporations in each Section 355 Transaction
effected by Reorganized Flagstar prior to such time.
"Restricted Investments" means any investments in, capital contributions,
loans or advances to or purchases of Equity Interests in, any person that is not
a wholly owned subsidiary, or other transfers of assets to Subsidiaries or
Affiliates that are not wholly owned (other than any such other transfers of
assets to Subsidiaries or Affiliates that are not wholly owned in transactions
the terms of which are fair and reasonable to the transferor and are at least as
favorable as the terms that could be obtained by the transferor in a comparable
transaction made on an arms' length basis between unaffiliated parties (as
conclusively determined, for any such transfer involving aggregate consideration
in excess of $5 million, by a majority of the directors of Reorganized Flagstar
that are unaffiliated with the transferee or, if there are no such directors, by
a majority of the directors of Reorganized Flagstar, and otherwise as
conclusively determined by Reorganized Flagstar)) except in each case for
Permitted Investments and any such investments existing on the date of the
Indenture.
"Section 355 Percentage" means, for the first Section 355 Transaction
effected after the date of the Indenture, 30%, and shall thereafter be subject
to reduction as follows: Immediately after the time at which any Section 355
Transaction is effected through a distribution of securities of a Controlled
Corporation pursuant to clause (v) of the second paragraph under "Certain
Covenants -- Dividend, Stock Purchase and Debt Repayment Restrictions," the
Section 355 Percentage shall equal (i) the Section 355 Percentage immediately
prior to such time less (ii) the percentage of (x) the EBITDA of the Company for
the four full fiscal quarters of the Company last preceding the date such
Section 355 Transaction is effected represented by (y) the EBITDA of such
Controlled Corporation for such period.
"Section 355 Transaction" means a transaction that qualifies for tax-free
treatment under Section 355 of the Code, or any similar taxable transaction, any
of which is effected after the date of the Indenture.
"Senior Indebtedness" means (i) all obligations of Reorganized Flagstar and
its Subsidiaries now or hereafter existing under or in respect of the Exit
Facility, and the New Senior Notes, whether for principal, interest (including,
without limitation, interest accruing after the filing of a petition initiating
any bankruptcy, insolvency or similar proceeding, whether or not such interest
is an allowable claim under such proceeding), penalties, commissions, charges,
indemnifications, liabilities, reimbursement obligations in respect of letters
of credit, fees, expenses or other amounts payable under or in respect of the
Exit Facility and all obligations and claims related thereto, (ii) all
Obligations of Reorganized Flagstar in respect of Interest Rate Agreements and
(iii) additional Indebtedness (including refinancing Indebtedness) permitted by
the covenant limiting additional Indebtedness which is not expressly by its
terms subordinated to the New Senior Notes and all Obligations and claims
related thereto; PROVIDED, that Senior Indebtedness shall not include (x) any
Indebtedness of Reorganized Flagstar to any of its Subsidiaries or (y)
Indebtedness incurred for the purchase of goods or services (other than services
provided by a party to an agreement evidencing Senior Indebtedness in connection
with such agreement) obtained in the ordinary course of business.
"Significant Subsidiary" means any Subsidiary of Reorganized Flagstar that
would be a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X
under the Securities Act and the Exchange Act (as such Regulation is in effect
on the date of the Indenture) (excluding, except for the purposes of determining
an Event of Default, subparagraph (c) of such definition).
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"Specified Company EBITDA" means the EBITDA of Reorganized Flagstar for the
four full fiscal quarters of Reorganized Flagstar last preceding the date of the
first Section 355 Transaction effected after the date of the Indenture.
"Subsidiary" of any person means any entity of which shares of the capital
stock or other equity interests (including partnership interests) entitled to
cast at least a majority of the votes that may be cast by all shares or equity
interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such person directly and/or through
one or more Subsidiaries; PROVIDED that each Unrestricted Subsidiary shall be
excluded from the definition of "Subsidiary."
"Unrestricted Subsidiary" means (i) any subsidiary of Reorganized Flagstar
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors, as provided below) and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any subsidiary of
Reorganized Flagstar (including any Subsidiary and any newly acquired or newly
formed subsidiary) to be an Unrestricted Subsidiary unless such subsidiary owns
any Capital Stock of, or owns, or holds any Lien on, any property of, any
Subsidiary of Reorganized Flagstar (other than any subsidiary of the subsidiary
to be so designated), PROVIDED that (a) any Unrestricted Subsidiary must be an
entity of which shares of the capital stock or other equity interests (including
partnership interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary voting power for
the election of directors or other governing body are owned, directly or
indirectly, by Reorganized Flagstar, (b) Reorganized Flagstar certifies that
such designation complies with the covenants described under "Certain
Covenants -- Dividend, Stock Purchase and Debt Repayment Restrictions" and
" -- Investments in Unrestricted Subsidiaries" and (c) each of (I) the
subsidiary to be so designated and (II) its subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of Reorganized
Flagstar or any of its Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Subsidiary; PROVIDED that, immediately after
giving effect to such designation, Reorganized Flagstar could incur at least $1
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described under "Certain Covenants -- Restrictions on Additional Indebtedness
and Issuance of Disqualified Stock" on a pro forma basis taking into account
such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
aggregate principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
CERTAIN COVENANTS
DIVIDEND, STOCK PURCHASE AND DEBT REPAYMENT RESTRICTIONS. The Indenture
provides that Reorganized Flagstar will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of Reorganized Flagstar's or any Subsidiary's
capital stock or other Equity Interests (other than (A) dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
Reorganized Flagstar or such Subsidiary and (B) dividends or distributions
payable by a Subsidiary so long as, in the case of any dividend or distribution
payable on any class or series of securities issued by a Subsidiary other than a
wholly owned Subsidiary, Reorganized Flagstar or a Subsidiary of Reorganized
Flagstar receives at least its pro rata share of such dividend or distribution
in accordance with its Equity Interest in such class or series of securities),
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Reorganized Flagstar or any Subsidiary of Reorganized Flagstar
(other than any such Equity Interests owned by Reorganized Flagstar or any
Subsidiary of Reorganized Flagstar); (iii) voluntarily prepay any Indebtedness
that is subordinated to the New Senior Notes other than in connection with any
(I) refinancing of such Indebtedness specifically permitted by the terms of the
Indenture, (II) Indebtedness between Reorganized Flagstar and a Subsidiary of
Reorganized Flagstar or between Subsidiaries of Reorganized Flagstar or (III)
Mortgage Financing or Mortgage Refinancing; or (iv) make any Restricted
Investments (other than an Investment in any Unrestricted Subsidiary) (all such
dividends, distributions, purchases, redemptions or other acquisitions,
retirements, prepayments or Restricted Investments being collectively referred
to as "Restricted Payments"), if, at the time of such Restricted Payment:
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(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(b) immediately after such Restricted Payment and after giving effect
thereto on a pro forma basis, Reorganized Flagstar would not be able to
incur $1 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test described under "Restrictions on Additional Indebtedness and
Issuance of Disqualified Stock" below; or
(c) such Restricted Payment, together with (A) the aggregate of all
other Restricted Payments made after the date of the Indenture and (B) the
amount by which the aggregate of all then outstanding investments in
Unrestricted Subsidiaries (other than the Investment in FRD) exceeds $75
million, is greater than the sum of: (v) 50% of the aggregate Consolidated
Net Income of Reorganized Flagstar for the period (taken as one accounting
period) from the beginning of the first quarter immediately after the date
of the Indenture to the end of Reorganized Flagstar's most recently ended
fiscal quarter at the time of such Restricted Payment; PROVIDED that if
Consolidated Net Income for such period is less than zero, then minus 100%
of the amount of such loss PLUS (w) 100% of the aggregate amortization of
goodwill and excess reorganization value for the period specified in clause
(v) above, PLUS (x) 100% of the aggregate net cash proceeds and the fair
market value, as determined in good faith by the Board of Directors, of
marketable securities received by Reorganized Flagstar from the issue or
sale, after the date of the Indenture, of capital stock of Reorganized
Flagstar (other than capital stock issued and sold to a Subsidiary of
Reorganized Flagstar and other than Disqualified Stock), or any
Indebtedness or other security convertible into any such capital stock that
has been so converted PLUS (y) 100% of the aggregate amounts contributed to
the capital of Reorganized Flagstar PLUS (z) 100% of the aggregate amounts
received in cash and the fair market value of marketable securities (other
than Restricted Investments) received from (i) the sale or other
disposition of Restricted Investments made by Reorganized Flagstar and its
Subsidiaries or (ii) the sale of the stock of an Unrestricted Subsidiary or
the sale of all or substantially all of the assets of an Unrestricted
Subsidiary to the extent that a liquidating dividend is paid to Reorganized
Flagstar or any Subsidiary from the proceeds of such sale, subject to
certain adjustments (in determining the amount expended for Restricted
Payments in accordance with this clause (c)) for payments permitted to be
made under the Indenture as described in the paragraph below.
Notwithstanding the foregoing, the Indenture permits (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the retirement of any shares of Reorganized Flagstar's Capital
Stock (the "Retired Capital Stock") in exchange for, or out of the net proceeds
of the substantially concurrent sale (other than to a Subsidiary of Reorganized
Flagstar) of, other shares of Reorganized Flagstar's Capital Stock (the
"Refunding Capital Stock"), other than any Disqualified Stock; (iii) payments
for the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests in Reorganized Flagstar issued to members of management of
Reorganized Flagstar and its subsidiaries pursuant to subscription and option
agreements in effect on the date of the Indenture and Equity Interests in
Reorganized Flagstar issued to future members of management pursuant to
subscription agreements executed subsequent to the date of the Indenture,
containing provisions for the repurchase of such Equity Interests upon death,
disability or termination of employment of such persons which are substantially
identical to those contained in the subscription agreements in effect on the
date of the Indenture, PROVIDED that the amount of such dividends or
distributions, after the date of the Indenture, in the aggregate will not exceed
the sum of (A) $30 million plus (B) the cash proceeds from any reissuance of
such Equity Interests by Reorganized Flagstar to members of management of
Reorganized Flagstar and its subsidiaries, (iv) the repurchase, redemption or
other acquisition or retirement for value of Indebtedness of Reorganized
Flagstar which is subordinated in right of payment to the New Senior Notes in
exchange for or with the proceeds of the issuance of shares of Reorganized
Flagstar's Equity Interests (other than Disqualified Stock); (v) the redemption,
repurchase or retirement for value of any Indebtedness that is subordinated to
the New Senior Notes (A) with the proceeds of, or in exchange for, Indebtedness
incurred pursuant to clause (ii) of the third paragraph under "Restrictions on
Additional Indebtedness and Issuance of Disqualified Stock" below or (B) if,
after giving effect to such redemption, repurchase or retirement, Reorganized
Flagstar could incur at least $1 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test described under "Restrictions on Additional
Indebtedness and Issuance of Disqualified Stock" below; (vi) the distribution to
stockholders of securities of a corporation controlled by Reorganized Flagstar
(a "Controlled Corporation") in a Section 355 Transaction, but only if (a) the
EBITDA of the Controlled Corporation for the four full fiscal quarters of
Reorganized Flagstar last preceding the date the Section 355 Transaction is
effected is no greater than (I) in the case of the first Section 355 Transaction
effected after the date of the Indenture, a percentage of the Specified Company
EBITDA equal to the Section 355 Percentage at the time such first Section 355
Transaction is effected and (II) in the case of any subsequent Section 355
Transaction, the lesser of (A) the Remaining Section 355 Amount at the time of
such Section 355 Transaction and (B) the Section 355 Percentage at the time such
Section 355 Transaction is effected multiplied by the EBITDA of Reorganized
Flagstar for the four full fiscal quarters of Reorganized Flagstar last
preceding the date such Section 355 Transaction is effected, (b) Reorganized
Flagstar's Fixed Charge Coverage Ratio for its four full fiscal quarters last
preceding the
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date the Section 355 Transaction is effected would have been at least 2:1,
determined on a pro forma basis as if the Section 355 Transaction had been
effected at the beginning of such four-quarter period and (c) the ratio of the
Indebtedness of Reorganized Flagstar immediately after the Section 355
Transaction to EBITDA of Reorganized Flagstar for its four full fiscal quarters
last preceding the date the Section 355 Transaction is effected, determined on a
pro forma basis as if such transaction had occurred at the beginning of such
four fiscal quarter period, would be no greater than the ratio of the
Indebtedness of Reorganized Flagstar immediately prior to the Section 355
Transaction to EBITDA of Reorganized Flagstar for its four full fiscal quarters
last preceding the date the Section 355 Transaction is effected; and (vii) the
purchase, redemption or other acquisition or retirement for value of Equity
Interests of any Subsidiary of Reorganized Flagstar (other than any such Equity
Interests owned by Reorganized Flagstar or any Subsidiary of Reorganized
Flagstar) in an aggregate cumulative amount not to exceed $5 million annually.
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK.
The Indenture provides that (i) Reorganized Flagstar will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume or guarantee any Indebtedness (other than Indebtedness between
Reorganized Flagstar and a Subsidiary of Reorganized Flagstar or between
Subsidiaries of Reorganized Flagstar or guarantees by a Subsidiary of
Reorganized Flagstar of Indebtedness of any Subsidiary of Reorganized Flagstar
or of Reorganized Flagstar) and (ii) Reorganized Flagstar will not issue any
Disqualified Stock, unless (a) such Indebtedness or Disqualified Stock is either
Acquisition Indebtedness or is created, incurred, issued, assumed or guaranteed
by Reorganized Flagstar and not a Subsidiary of Reorganized Flagstar and (b)
Reorganized Flagstar's Fixed Charge Coverage Ratio for its four full fiscal
quarters last preceding the date such additional Indebtedness is created,
incurred, assumed or guaranteed, or such additional stock is issued, is at least
2:1, determined on a pro forma basis (including a pro forma application of the
net proceeds of such Indebtedness or such issuance of stock) as if the
additional Indebtedness had been created, incurred, assumed or guaranteed, or
such additional stock had been issued, at the beginning of such four-quarter
period.
The foregoing limitations will not apply to the incurrence by Reorganized
Flagstar or any of its Subsidiaries of any Indebtedness pursuant to the Exit
Facility; PROVIDED, HOWEVER, that the principal amount of such Indebtedness
incurred pursuant to the Exit Facility for this purpose will not exceed the
greater of $250 million or the aggregate amount of the commitments under the
Exit Facility on the date of the Indenture.
In addition, the foregoing limitations notwithstanding, (i) Reorganized
Flagstar or any Subsidiary of Reorganized Flagstar may create, incur, issue,
assume or guarantee Indebtedness pursuant to the Exit Facility or otherwise, (a)
in connection with or arising out of Mortgage Financings, Mortgage Refinancings
or sale and lease-back transactions, PROVIDED the Mortgage Financing Proceeds,
Mortgage Refinancing Proceeds (excluding any Mortgage Refinancing Proceeds
received in connection with any refinancing of any Indebtedness secured by a
mortgage or Lien on the Excluded Property) or Net Proceeds, as the case may be,
incurred, assumed or created in connection therewith are used to pay any
outstanding Senior Indebtedness, (b) constituting purchase money obligations for
property acquired in the ordinary course of business or other similar financing
transactions (including, without limitation, in connection with Mortgage
Financings), PROVIDED that, in the case of Indebtedness exceeding $2 million for
any such obligation or transaction, such Indebtedness exists at the date of the
purchase or transaction or is created within 180 days thereafter, (c)
constituting capital lease obligations, (d) in connection with capital
expenditures, (e) constituting reimbursement obligations with respect to letters
of credit, including, without limitation, letters of credit in respect of
workers' compensation claims issued for the account of Reorganized Flagstar or a
Subsidiary of Reorganized Flagstar in the ordinary course of its business, or
other Indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims, (f) constituting additional Indebtedness in an
aggregate principal amount of up to $250,000,000 at any one time outstanding,
whether incurred under the Exit Facility or otherwise, (g) constituting
Indebtedness secured by the Excluded Property; and (h) constituting Existing
Indebtedness and permitted refinancings thereof in accordance with clause (ii)
of this paragraph; (ii) Reorganized Flagstar or any Subsidiary may create,
incur, issue, assume or guarantee any Indebtedness which serves to refund,
refinance or restructure its Existing Indebtedness or any other Indebtedness
incurred as permitted under the Indenture, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness, including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness"), prior to its respective maturity, PROVIDED,
HOWEVER, that such Refinancing Indebtedness (a) bears an interest rate per annum
which is equal to or less than the interest rate per annum then payable under
such Indebtedness being refunded or refinanced (calculated in accordance with
any formula set forth in the documents evidencing any such Indebtedness) unless
such Refinancing Indebtedness is incurred, created or assumed within twelve
months of the scheduled maturity of the Indebtedness being refinanced, (b) has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness is
incurred which is not less than the remaining Weighted Average Life to Maturity
of such Indebtedness being refunded or refinanced, and (c) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated to the New Senior
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Notes, such Refinancing Indebtedness is subordinated to the New Senior Notes at
least to the same extent as the Indebtedness being refinanced or refunded, and
PROVIDED, FURTHER, that subclauses (a), (b) and (c) of this clause (ii) will not
apply to any refunding or refinancing of any Senior Indebtedness; and (iii) any
unconsolidated subsidiary of Reorganized Flagstar created after the date of the
Indenture may create, incur, issue, assume, guarantee or otherwise become liable
with respect to any additional Indebtedness, PROVIDED that such Indebtedness is
nonrecourse to Reorganized Flagstar and its consolidated Subsidiaries, and
Reorganized Flagstar and its consolidated Subsidiaries have no liability with
respect to such additional Indebtedness.
RESTRICTION ON LIENS. The Indenture provides that, subject to certain
exceptions, Reorganized Flagstar shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien upon any asset now owned or hereafter acquired, except with
respect to Liens existing on the date of the Indenture, Liens securing or
arising under or in connection with any Indebtedness of Reorganized Flagstar not
expressly by its terms subordinate or junior in right of payment to any other
Indebtedness of Reorganized Flagstar (including, without limitation, Liens
permitted by or required pursuant to the Exit Facility), Liens relating to
judgments to the extent permitted under the Indenture, any Lien on the Excluded
Property and Liens arising in connection with certain other circumstances
provided for in the Indenture. The Indenture provides that, notwithstanding the
foregoing, Reorganized Flagstar or any Subsidiary of Reorganized Flagstar may
create or assume any Lien upon its properties or assets if Reorganized Flagstar
shall cause the New Senior Notes to be equally and ratably secured with all
other Indebtedness secured by such Lien as long as such other Indebtedness shall
be so secured.
RESTRICTIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture provides that Reorganized Flagstar will not, and
will not permit any of its Subsidiaries (other than unconsolidated subsidiaries)
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
such Subsidiary to (i) pay dividends or make any other distributions on its
capital stock or any other interest or participation in, or measured by, its
profits, owned by Reorganized Flagstar or any Subsidiary of Reorganized Flagstar
or pay any Indebtedness owed to, Reorganized Flagstar or any Subsidiary of
Reorganized Flagstar, (ii) make loans or advances to Reorganized Flagstar or any
Subsidiary of Reorganized Flagstar or (iii) transfer any of its properties or
assets to Reorganized Flagstar or a Subsidiary of Reorganized Flagstar, except
in each case for such encumbrances or restrictions existing under or by reason
of (a) applicable law, (b) the Indenture, (c) the Exit Facility or any other
agreement entered into in connection therewith or as contemplated thereby, (d)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of Reorganized Flagstar or any Subsidiary of Reorganized
Flagstar, (e) any instrument governing Indebtedness of a person acquired by
Reorganized Flagstar or any Subsidiary of Reorganized Flagstar at the time of
such acquisition, (f) Existing Indebtedness, or additional Indebtedness in an
aggregate principal amount of up to $250,000,000 at any one time outstanding or
other contractual obligation of Reorganized Flagstar or any of its Subsidiaries
existing on the date of the Indenture or any amendment, modification, renewal,
extension, replacement, refinancing or refunding thereof, PROVIDED that the
restrictions contained in any such amendment, modification, renewal, extension,
replacement, refinancing or refunding are no less favorable in all material
respects to the holders of the New Senior Notes, (g) any Mortgage Financing or
Mortgage Refinancing, (h) any Permitted Investment or (i) contracts for the sale
of assets.
RESTRICTIONS ON SALE OF ASSETS. The Indenture provides that neither
Reorganized Flagstar nor any Subsidiary of Reorganized Flagstar (other than
unconsolidated Subsidiaries) shall (A) (x) sell, lease, convey or otherwise
dispose of, in any transaction or group of transactions that are a part of a
common plan, all or substantially all of the assets or capital stock of any
Asset Segment (PROVIDED that the sale, lease, conveyance or other disposition of
all or substantially all of Reorganized Flagstar's assets will be governed by
the provisions described under " -- Merger, Consolidation or Sale of All or
Substantially All Assets") or (y) issue or sell equity securities of any Asset
Segment (each of the foregoing an "Asset Sale") or (B) sell, lease, convey or
otherwise dispose of any Business Segment, unless in each case Reorganized
Flagstar shall apply the Net Proceeds from such Asset Sale or such sale, lease,
conveyance or other disposition of a Business Segment to one or more of the
following in such combination as Reorganized Flagstar may choose: (i) an
investment in another asset or business in the same line of business as, or a
line of business similar to that of, the line of business of Reorganized
Flagstar and its Subsidiaries and such investment occurs within 366 days of such
Asset Sale or such sale, lease, conveyance or other disposition of a Business
Segment, (ii) a Net Proceeds Offer (as defined below) expiring within 366 days
of such Asset Sale or such sale, lease, conveyance or other disposition of a
Business Segment or (iii) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness within 366 days of such Asset Sale
or such sale, lease, conveyance or other disposition of a Business Segment;
PROVIDED, HOWEVER, if the net amount not invested pursuant to clause (i) above
or applied pursuant to clause (iii) above is less than $15,000,000, Reorganized
Flagstar shall not be further obligated to offer to repurchase New Senior Notes
pursuant to clause (ii) above. Notwithstanding the foregoing, (i) the receipt of
all proceeds of insurance paid on account of the loss of or damage to any
Business Segment and awards of compensation for any such Business
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Segment taken by condemnation or eminent domain which result in Net Proceeds to
Reorganized Flagstar of $50,000,000 or more (excluding proceeds to be used for
replacement of such Business Segment, PROVIDED the Trustee has received notice
from Reorganized Flagstar, within 90 days of such receipt, of its intention to
use such proceeds for such purpose) will be deemed an "Asset Sale" and (ii)
Permitted Investments and sales, leases, conveyances or other dispositions of
assets by Reorganized Flagstar or any Subsidiary to Reorganized Flagstar or any
wholly owned Subsidiary of Reorganized Flagstar will not be deemed an "Asset
Sale" or a sale or other disposition of a Business Segment.
For purposes of clause (ii) of the preceding paragraph, Reorganized
Flagstar shall apply the Net Proceeds of the Asset Sale or the sale, lease,
conveyance or other disposition of a Business Segment to make a tender offer in
accordance with applicable law (a "Net Proceeds Offer") to repurchase New Senior
Notes at a price not less than 100% of the principal amount thereof plus accrued
and unpaid interest. Any Net Proceeds Offer shall be made by Reorganized
Flagstar only if and to the extent permitted under, and subject to prior
compliance with, the terms of any agreement governing Senior Indebtedness. If
securities of Reorganized Flagstar ranking PARI PASSU in right of payment with
the New Senior Notes are at the time outstanding, and the terms of such
securities provide that a similar offer is to be made with respect thereto, then
the Net Proceeds Offer for the New Senior Notes shall be made concurrently with
such other offer, and securities of each issue shall be accepted pro rata in
proportion to the aggregate principal amount of securities of each issue which
the holders of securities of such issue elect to have repurchased. After the
last date on which holders of the New Senior Notes are permitted to tender their
New Senior Notes in a Net Proceeds Offer, Reorganized Flagstar shall not be
restricted under the "Restrictions on Sale of Assets" covenant of the Indenture
as to its use of any Net Proceeds available to make such Net Proceeds Offer (up
to the amount of Net Proceeds that would have been used to repurchase New Senior
Notes assuming 100% acceptance of the Net Proceeds Offer) but not used to
repurchase New Senior Notes pursuant thereto.
Notwithstanding any other provision of the Indenture to the contrary, for a
period of 120 days after the last date on which holders of the New Senior Notes
are permitted to tender their New Senior Notes in the Net Proceeds Offer,
Reorganized Flagstar may use any Net Proceeds available to make such Net
Proceeds Offer but not used to repurchase New Senior Notes pursuant thereto to
purchase, redeem or otherwise acquire or retire for value any securities of
Reorganized Flagstar ranking junior in right of payment to the New Senior Notes
at a price, stated as a percentage of the principal or face amount of such
junior securities, not greater than the price, stated as a percentage of the
principal amount of the New Senior Notes, offered in the Net Proceeds Offer;
PROVIDED that, if the Net Proceeds Offer is for a principal amount (the "Net
Proceeds Offer Amount") of the New Senior Notes less than the aggregate
principal amount of the New Senior Notes then outstanding, then the Net Proceeds
available for use by Reorganized Flagstar for such a purchase, redemption or
other acquisition or retirement for value of junior securities shall not exceed
the Net Proceeds Offer Amount.
RESTRICTION ON TRANSACTIONS WITH AFFILIATES. Except as otherwise set forth
in the Indenture, Reorganized Flagstar shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, enter into any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) involving aggregate consideration in
excess of $5,000,000 for any one transaction with any Affiliate, except for (i)
transactions (including any investments, loans or advances by or to any
Affiliate) in good faith the terms of which are fair and reasonable to
Reorganized Flagstar or such Subsidiary, as the case may be, and are at least as
favorable as the terms that could be obtained by Reorganized Flagstar or such
Subsidiary, as the case may be, in a comparable transaction made on an arm's
length basis between unaffiliated parties (in each case as conclusively
determined by a majority of the directors of Reorganized Flagstar unaffiliated
with such Affiliate or, if there are no such directors, as conclusively
determined by a majority of the directors of Reorganized Flagstar), (ii)
transactions in which Reorganized Flagstar or any of its Subsidiaries, as the
case may be, delivers to the holders of the New Senior Notes a written opinion
of a nationally recognized investment banking firm stating that such transaction
is fair to Reorganized Flagstar or such Subsidiary from a financial point of
view, (iii) transactions between Reorganized Flagstar and its subsidiaries or
between subsidiaries of Reorganized Flagstar which are not otherwise prohibited
by the covenant described under "Dividend, Stock Purchase and Debt Repayment
Restrictions," and (iv) payments or loans to employees or consultants pursuant
to employment or consultancy contracts which are approved by the Board of
Directors of Reorganized Flagstar in good faith.
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Indenture provides that
Reorganized Flagstar will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make any Investment in any Unrestricted Subsidiary
unless (i) the amount of such Investment does not exceed the amount then
permitted to be used to make a Restricted Payment pursuant to clause (c) of the
first paragraph under "Dividend, Stock Purchase and Debt Repayment Restrictions"
above and (ii) immediately after such Investment, and after giving effect
thereto on a pro forma basis deducting from net income the amount of any
Investment the Company has made in an Unrestricted Subsidiary during the four
full fiscal quarters last preceding the date of such Investment, Reorganized
Flagstar or any Subsidiary of Reorganized Flagstar would be able to incur $1 of
additional Indebtedness
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pursuant to the Fixed Charge Coverage Ratio test described under "Restrictions
on Additional Indebtedness and Issuance of Disqualified Stock" above.
Notwithstanding clause (i) and (ii) of this paragraph or any other provision
contained in the Indenture, Reorganized Flagstar and its Subsidiaries shall be
permitted to make Investments (i) of up to $75 million in FRD as an Unrestricted
Subsidiary, and (ii) in other Unrestricted Subsidiaries in an aggregate amount
not to exceed $75 million (without regard to any Investment in FRD) at any one
time outstanding. The amount by which the aggregate of all Investments in
Unrestricted Subsidiaries exceeds $75 million (without regard to the FRD
Investment) shall be counted in determining the aggregate permissible amount of
Restricted Payments pursuant to clause (c) of the first paragraph under
"Dividend, Stock Purchase and Debt Repayment Restrictions" above. Reorganized
Flagstar will not permit any Unrestricted Subsidiary to become a Subsidiary
except pursuant to the last sentence of the definition of "Unrestricted
Subsidiary."
MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that Reorganized Flagstar shall not consolidate or merge with
or into, or sell, transfer, lease or convey all or substantially all of its
assets to, any person unless: (i) the person formed by or surviving any such
consolidation or merger (if other than Reorganized Flagstar), or to which such
sale, transfer, lease or conveyance shall have been made, is a corporation
organized and existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the corporation formed by or surviving any such
consolidation or merger (if other than Reorganized Flagstar), or to which such
sale, transfer, lease or conveyance shall have been made, assumes all the
obligations of Reorganized Flagstar pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee under the New Senior Notes and the
Indenture; (iii) immediately after such transaction no Default or Event of
Default exists; (iv) Reorganized Flagstar or any corporation formed by or
surviving any such consolidation or merger, or to which such sale, transfer,
lease or conveyance shall have been made, shall have an Adjusted Consolidated
Net Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater than
the Adjusted Consolidated Net Worth of Reorganized Flagstar immediately
preceding the transaction; PROVIDED, HOWEVER, that clause (iv) will not apply to
any transaction where the consideration consists solely of New Common Stock or
other Equity Interests of Reorganized Flagstar or any surviving corporation and
any liabilities of such person are not assumed by and are specifically
non-recourse to Reorganized Flagstar or such surviving corporation; and (v)
after giving effect to such transaction and immediately thereafter, Reorganized
Flagstar or any corporation formed by or surviving any such consolidation or
merger, or to which such sale, transfer, lease or conveyance shall have been
made, shall be permitted to incur at least $1 of additional Indebtedness as
provided under clause (ii) of the first paragraph under "Restrictions on
Additional Indebtedness and Issuance of Disqualified Stock" above; PROVIDED
that, if the Fixed Charge Coverage Ratio of Reorganized Flagstar prior to such
transaction is within the range set forth in Column A below, then the pro forma
Fixed Charge Coverage Ratio of Reorganized Flagstar or the surviving entity, as
the case may be, shall be at least equal to the lesser of (1) the ratio
determined by multiplying the percentage set forth in column (B) below by the
Fixed Charge Coverage Ratio of Reorganized Flagstar prior to such transaction
and (2) the ratio set forth in column (C) below:
<TABLE>
<CAPTION>
(A) (B) (C)
<S> <C> <C>
1.11:1 to 1.99:1....................................................................... 90 % 1.5:1
2.00:1 to 2.99:1....................................................................... 80 % 2.1:1
3.00:1 to 3.99:1....................................................................... 70 % 2.4:1
4.00:1 or more......................................................................... 60 % 2.5:1
</TABLE>
and PROVIDED, FURTHER, that if, immediately after giving effect to such
transaction on a pro forma basis, the Fixed Charge Coverage Ratio of the Company
or the surviving entity, as the case may be, is 2.5:1 or more, the calculation
in the preceding proviso shall be inapplicable and such transaction shall be
deemed to have complied with the requirements of such provision.
COMPANY TO CAUSE CERTAIN SUBSIDIARIES TO BECOME GUARANTORS. Reorganized
Flagstar will not permit any of its Subsidiaries to guarantee the payment of any
Indebtedness of Reorganized Flagstar that is expressly by its terms subordinate
or junior in right of payment to any other Indebtedness of Reorganized Flagstar
(a "Subordinated Indebtedness Guarantee") unless (i) such Subsidiary executes
and delivers a supplemental indenture evidencing its guarantee of the
Obligations of Reorganized Flagstar under the New Senior Notes on a
substantially similar basis (the "New Senior Notes Guarantee") and (ii) the New
Senior Notes Guarantee is senior in right of payment to such Subordinated
Indebtedness Guarantee to the same extent as the New Senior Notes are senior in
right of payment to such junior Indebtedness of Reorganized Flagstar; PROVIDED
that if such Subordinated Indebtedness Guarantee ceases to exist for any reason,
then the New Senior Notes Guarantee shall thereupon automatically cease to
exist.
CHANGE OF CONTROL. The Indenture provides that, if at any time (the "Change
of Control Date") (i) all or substantially all of Reorganized Flagstar's assets
are sold as an entirety to any person or related group of persons, (ii)
Reorganized Flagstar is merged with or into another corporation or another
corporation is merged with or into Reorganized Flagstar with the effect
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that immediately after such transaction the stockholders of Reorganized Flagstar
immediately prior to such transaction hold less than a majority in interest of
the total voting power entitled to vote in the election of directors, managers
or trustees of the person surviving such transaction, (iii) any person or
related group of persons acquires a majority in interest of the total voting
power or voting stock of Reorganized Flagstar, (iv) the persons constituting the
board of directors of Reorganized Flagstar on the date of the Indenture or
persons nominated or elected to the board of directors of Reorganized Flagstar
by a majority vote of such directors (the "Continuing Directors") or by a
majority vote of the Continuing Directors do not constitute a majority of the
members of the board of directors of Reorganized Flagstar (each, a "Change of
Control"), then Reorganized Flagstar will notify the holders of the New Senior
Notes in writing of such occurrence and will make an offer to purchase in
accordance with the terms of the Indenture (the "Change of Control Offer") all
New Senior Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date; PROVIDED, HOWEVER, that such repurchase will only occur if
there has been no acceleration which has not been withdrawn or paid pursuant to
the Exit Facility prior to the time of notice of a Change of Control Offer.
Prior to the mailing of the notice to holders provided for above, Reorganized
Flagstar will (x)(I) to the extent then repayable or prepayable, repay in full
all Indebtedness under the Exit Facility and, to the extent not then repayable
or prepayable, offer to repay in full all such Indebtedness and to repay the
Indebtedness of each lender under the Exit Facility who has accepted such offer
or (II) obtain the requisite consent under the Exit Facility to permit the
repurchase of the New Senior Notes. Reorganized Flagstar shall first comply with
the proviso in the preceding sentence before it shall be required to repurchase
the New Senior Notes pursuant to this covenant.
Reorganized Flagstar will comply with all applicable tender offer rules
(including without limitation Rule 14e-1 under the Exchange Act, if applicable)
in the event that the repurchase option is triggered under the circumstances
described herein. Not less than 30 or more than 60 days following any Change of
Control, Reorganized Flagstar will mail a notice to each holder of any New
Senior Notes stating, among other things, (a) that a Change of Control has
occurred and that a Change of Control Offer is being made as described in this
provision, (b) the purchase price and the Change of Control Payment Date and (c)
the instructions determined by the Company, consistent with this provision, that
a holder of the New Senior Notes must follow in order to have such holder's New
Senior Notes repurchased.
EVENTS OF DEFAULT AND REMEDIES
"Events of Default" under the Indenture include: (i) default for 30 days in
payment of interest on any of the New Senior Notes; (ii) default in payment when
due of principal; (iii) failure by Reorganized Flagstar for 30 days after notice
to comply with any of its other agreements in the Indenture or the New Senior
Notes; (iv) default under any instrument governing any Indebtedness of
Reorganized Flagstar or any Subsidiary of Reorganized Flagstar (other than (I)
Indebtedness of Reorganized Flagstar or any Subsidiary of Reorganized Flagstar
to Reorganized Flagstar or any Subsidiary of Reorganized Flagstar or (II)
Indebtedness of an unconsolidated Subsidiary of Reorganized Flagstar which is
nonrecourse to Reorganized Flagstar or its consolidated Subsidiaries) if (a)
either (x) such default results from the failure to pay principal upon the final
maturity of such Indebtedness (after the expiration of any applicable grace
period) or (y) as a result of such default the maturity of such Indebtedness has
been accelerated prior to its final maturity, (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which the principal amount remains unpaid upon its final
maturity (after the expiration of any applicable grace period), or the maturity
of which has been so accelerated, aggregates $30,000,000 or more and (c) such
default does not result from compliance with any applicable law or any court
order or governmental decree to which Reorganized Flagstar or any of its
Subsidiaries is subject; (v) failure by Reorganized Flagstar or a Subsidiary of
Reorganized Flagstar to pay certain final judgments aggregating in excess of
$10,000,000 (net of amounts covered by insurance, treating any deductibles,
self-insurance or retention as not so covered) which judgments remain
undischarged for a period of 60 days after their entry by a competent tribunal;
and (vi) certain events of bankruptcy or insolvency. An Event of Default shall
not be deemed to have occurred under clause (iv) or (v) until Reorganized
Flagstar shall have received written notice thereof from the Trustee or the
holders of at least 30% in principal amount of the New Senior Notes then
outstanding.
If an Event of Default, other than in respect of any events of bankruptcy
or insolvency, occurs and is continuing with respect to the New Senior Notes,
the Trustee or the holders of at least 30% (or 25% in the case of an Event of
Default with respect to payment of principal of or interest on the New Senior
Notes) in principal amount of the New Senior Notes then outstanding may declare
in writing 100% of the principal amount of, and any accrued but unpaid interest
on, the New Senior Notes to be due and payable immediately; PROVIDED, HOWEVER,
that if any Senior Indebtedness is outstanding pursuant to the Exit Facility,
then all the New Senior Notes shall be due and payable upon the earlier of (x)
the day that is five Business Days after the provision to Reorganized Flagstar
and the Credit Agent of such written notice of acceleration, unless such Event
of
129
<PAGE>
Default is cured or waived prior to such date, and (y) the date of acceleration
of any Senior Indebtedness under the Exit Facility. In the event of a
declaration of acceleration because an Event of Default described in clause (iv)
of the immediately preceding paragraph has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if such payment
default is cured or waived or the holders of the Indebtedness which is the
subject of such event of default have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or rescission and no
other Event of Default described in clause (iv) of the preceding paragraph has
occurred and is continuing with respect to which 60 days have elapsed since the
declaration of acceleration of the Indebtedness which is the subject thereof
(without rescission of the declaration of acceleration of such Indebtedness).
Upon an Event of Default arising from certain events of bankruptcy or
insolvency, the unpaid principal of and any accrued but unpaid interest on all
the New Senior Notes will immediately become due and payable without further
action or notice. Holders of the New Senior Notes may not enforce the Indenture
or the New Senior Notes except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the New Senior Notes
then outstanding may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the New Senior Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines in good faith that
withholding notice is in the interests of such holders.
The holders of a majority in aggregate principal amount of the New Senior
Notes then outstanding may on behalf of the holders of all of the New Senior
Notes waive any past Default or Event of Default under the New Senior Notes
Indenture and its consequences, except a continuing Default or Event of Default
in the payment of the principal of or interest on the New Senior Notes.
Reorganized Flagstar is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and, upon an officer of
Reorganized Flagstar becoming aware of any Event of Default or of certain
Defaults, a statement specifying such Event of Default or Default and what
action Reorganized Flagstar is taking or proposes to take with respect thereto.
RECOURSE AGAINST OFFICERS, DIRECTORS AND SHAREHOLDERS
No recourse shall be had against any officer, director or shareholder, as
such, of Reorganized Flagstar for any obligation under the New Senior Notes or
the Indenture, and each holder of the New Senior Notes by accepting a New Senior
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the New Senior Notes. Nothing in this
provision limits the liability, if any, of any officer, director or shareholder,
as such, under the federal securities laws.
TRANSFER AND EXCHANGE
Reorganized Flagstar may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
exchange or registration of transfer of New Senior Notes. No service charge will
be made for any registration of transfer or exchange of the New Senior Notes.
The Trustee is not required to transfer or exchange any New Senior Notes
selected for redemption except, in the case of any New Senior Note where public
notice has been given that such New Senior Note is to be redeemed in part, the
portion thereof not so to be redeemed. Also, the Trustee is not required to
transfer or exchange any New Senior Note for a period of 15 days before the
mailing of a notice of redemption of New Senior Notes to be redeemed.
The registered holder of a New Senior Note will be treated as its owner for
all purposes.
DEFEASANCE
The Indenture and the New Senior Notes provide that Reorganized Flagstar
will be discharged (a "discharge") from any and all obligations in respect of
the New Senior Notes (except for certain obligations to register the transfer,
substitution or exchange of New Senior Notes to replace stolen, lost or
mutilated New Senior Notes and to maintain paying agencies, and except for the
right of the holders of the New Senior Notes to receive payments of principal,
premium, if any, and interest, and the rights, obligations and immunities of the
Trustee), or that Reorganized Flagstar may terminate its obligations under
certain covenants in the Indenture (a "covenant defeasance") upon the deposit
with the Trustee, in trust, of money and/or U.S. Government obligations which
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the principal
of (and premium, if any) and each installment of interest on
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<PAGE>
the New Senior Notes on the stated maturity of such payments or on a selected
date of redemption in accordance with the terms of the Indenture and the New
Senior Notes. Such a trust may only be established if, among other things,
Reorganized Flagstar has delivered to the Trustee either (i) an opinion of
counsel to the effect that holders of the New Senior Notes will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such deposit, discharge or covenant defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, discharge or covenant defeasance had
not occurred or (ii) a private letter ruling to such effect directed to the
Trustee received from the Internal Revenue Service.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than a majority in aggregate
principal amount of the New Senior Notes at the time outstanding, Reorganized
Flagstar, when authorized by a resolution of its Board of Directors, and the
Trustee may, from time to time and at any time, enter into an indenture or
indentures supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the New Senior Notes; PROVIDED that no such
supplemental indenture shall (a) extend the final maturity of any New Senior
Notes, reduce the principal amount thereof, reduce the rate or extend the time
of payment of interest thereon or reduce the premium, if any, payable thereon,
or reduce any amount payable on redemption thereof, impair or affect the right
of any holder to institute suit for the payment thereof, waive a default in the
payment of principal of, premium, if any, or interest on any New Senior Notes,
change the currency of payment of principal of, premium, if any, or interest on
any New Senior Notes, or modify any provision in the Indenture with respect to
the priority of the New Senior Notes in right of payment without the consent of
the holder of each New Senior Note so affected, or (b) reduce the aforesaid
percentage of New Senior Notes, the consent of the holders of which is required
for any such supplemental indenture, without the consent of the holders of all
New Senior Notes then outstanding.
CONCERNING THE TRUSTEE
First Trust National Association, St. Paul, Minnesota, will act as Trustee
under the Indenture and will initially be paying agent and registrar for the New
Senior Notes. Notices to the Trustee should be directed to First Trust National
Association, First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101 Attention: Richard H. Prokosch, Trust Officer.
CERTAIN DIFFERENCES BETWEEN THE NEW SENIOR NOTES AND THE OLD SENIOR NOTES
The following comparison sets forth material differences between the terms
of the Old Senior Notes and the New Senior Notes. This comparison is a summary
which does not purport to be complete and is qualified in its entirety by
reference to the New Senior Notes and the Indenture. Copies of the proposed form
of New Senior Notes and the Indenture will be filed as exhibits to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used below are defined in the Indenture or in the New Senior Notes. Only those
provisions with respect to which there are material differences between the Old
Senior Notes and New Senior Notes are discussed below. For further information
concerning the Old Senior Notes, see "Description of Indebtedness -- Flagstar
Public Debt."
[CAPTION]
<TABLE>
<CAPTION>
NEW SENIOR NOTES 10 3/4% SENIOR NOTES 10 7/8% SENIOR NOTES
<S> <C> <C>
<CAPTION>
AGGREGATE PRINCIPAL OR FACE AMOUNT
<S> <C> <C>
$575.9 million (assuming an October 1, $270 million. Approximately $280 million.
1997 Effective Date and assuming
Reorganized Flagstar does not pay cash
for interest accrued through the
Effective Date).
<CAPTION>
MATURITY
<S> <C> <C>
The ten year anniversary of the September 15, 2001. December 1, 2002.
Effective Date.
<CAPTION>
INTEREST
<S> <C> <C>
11 1/4%, payable in cash on the six 10 3/4%, payable semi-annually in cash 10 7/8%, payable semi-annually in cash
month anniversary of the Effective Date on March 15 and September 15. on June 1 and December 1.
and semi-annually thereafter.
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
NEW SENIOR NOTES 10 3/4% SENIOR NOTES 10 7/8% SENIOR NOTES
<S> <C> <C>
<CAPTION>
OPTIONAL REDEMPTION
<S> <C> <C>
Redeemable, in whole or in part, during None Redeemable, in whole or in part, on or
the 12-month period beginning on the after:
anniversary of the Effective Date in the December 1, 1997 at 105.438%
years and at the redemption prices December 1, 1998 at 102.719%
(expressed as percentages of the
principal amount) indicated below:
YEAR PERCENTAGE December 1, 1997 at 105.438%
2002 105.625% December 1, 1998 at 102.719%
2003 103.750 December 1, 1999 at 100%
2004 101.875 plus accrued interest.
2005 and thereafter 100.000
plus accrued interest. From the
Effective Date until the three year
anniversary of the Effective Date, up to
35% of the New Senior Notes are
redeemable at 110% plus accrued
interest, from the net proceeds of a
public equity offering for cash of
Reorganized Flagstar or a subsidiary
thereof.
<CAPTION>
CHANGE OF CONTROL OFFER
<S> <C> <C>
If at any time a Change of Control (as None None
defined) occurs, Reorganized Flagstar is
required to offer to purchase all
outstanding New Senior Notes at a
purchase price equal to 101% of the
principal amount thereof plus accrued
interest to the repurchase date, subject
to certain conditions.
<CAPTION>
LIMITATIONS ON RESTRICTED PAYMENTS
<S> <C> <C>
With certain exceptions described below, The indenture for the 10 3/4% Senior Substantially the same as the indenture
Reorganized Flagstar will not, and will Notes contains substantially the same for the 10 3/4% Senior Notes, except
not permit any Subsidiary to make, a limitations on Restricted Payments as that the calculation in (iii), to
Restricted Payment if (i) a Default or the Indenture, except that in the determine whether a Restricted Payment
an Event of Default exists or would calculation in (iii), to determine is permissible, such calculation runs
occur as a result thereof, (ii) after whether a Restricted Payment is from the date of the indenture for the
giving effect to the Restricted Payment permissible, (A) the $75 million limit 10 7/8% Senior Notes.
on a pro forma basis, Restricted in Investment in Unrestricted
Flagstar would not be able to incur $1 Subsidiaries includes the Investment in
of additional indebtedness pursuant to FRD, (B) 50% of aggregate amortization
the Fixed Charge Coverage Test described of goodwill, rather than 100% of
in "Restrictions on Additional aggregate amortization of goodwill and
Indebtedness and Disqualifying Stock", excess reorganization value, is the
or (iii) such Restricted Payment, applicable amortization component, and
together with all other Restricted (C) such calculation runs from the date
Payments made after the date of the of the indenture for the 10 3/4% Senior
Indenture, and the amount by which the Notes.
aggregate of all then outstanding
Investments in Unrestricted Subsidiaries
(other than the Investment in FRD)
exceeds $75 million is greater than the
sum of: (a) 50% of aggregate
Consolidated Net Income since the
beginning of the first fiscal quarter
after the date of the Indenture, to the
end of the most recently ended fiscal
quarter at the time of such Restricted
Payment (provided that if Consolidated
Net Income for
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
NEW SENIOR NOTES 10 3/4% SENIOR NOTES 10 7/8% SENIOR NOTES
<S> <C> <C>
such period is less than zero, then minus
100% of the amount of such loss) plus
(b) 100% of aggregate amortization of
goodwill and excess reorganization value
for such period, plus (c) 100% of
aggregate net proceeds received in cash
and marketable securities by Reorganized
Flagstar since the date of the Indenture
from sales of capital stock of Reorganized
Flagstar or any Indebtedness or security
convertible into such capital stock that
has been so converted or the sale or
other disposition of Restricted
Investments or Unrestricted Subsidiaries,
plus (d) 100% of aggregate amounts
contributed to the capital of Reorganized
Flagstar.
The limitation on Restricted Payments The limitation on Restricted Payments
does not prohibit certain payments and does not prohibit certain payments and
distributions, including (A) the payment distributions, including (A) the payment
of any dividend within 60 days of of any dividend within 60 days of
declaration, if at the date of declaration, if at the date of
declaration such payment was permitted, declaration such payment was permitted,
(B) the retirement of shares of (B) the retirement of shares of Flagstar
Reorganized Flagstar capital stock out capital stock out of the proceeds of the
of the proceeds of the sale of other sale of other shares of Flagstar capital
shares of Reorganized Flagstar capital stock, (C) the payment of dividends to
stock, (C) payments for certain finance certain repurchases of FCI
repurchases of Reorganized Flagstar capital stock (up to a specified maximum
capital stock (up to a specified maximum amount) and to enable FCI to pay certain
amount), (D) the retirement fees and
of subordinated Indebtedness with expenses, (D) the retirement of
proceeds from a Reorganized Flagstar subordinated Indebtedness with the
equity offering, (E) the retirement of proceeds from a Flagstar equity
subordinated Indebtedness, if, after offering, (E) the payment of dividends
giving effect to such retirement, the to holders of preferred stock of
Company would be able to incur $1 of Flagstar in certain circumstances, (F)
additional indebtedness under the Fixed the retirement of subordinated
Charge Coverage Ratio test described in Indebtedness, if, after giving effect to
"Restrictions on Additional Indebtedness such retirement, the Company would be
and Disqualifying Stock; (F) the able to incur $1 of additional
distribution to stockholders of indebtedness under the Fixed Charge
Reorganized Flagstar of securities of a Coverage Ratio test described in
corporation controlled by Reorganized "Restrictions on Additional Indebtedness
Flagstar in certain limited and Disqualifying Stock; (G) the
circumstances, and (G) purchases of distribution to stockholders of Flagstar
Equity Interests of Subsidiaries of securities of a corporation controlled
Reorganized Flagstar in an aggregate by Flagstar in certain limited
cumulative amount not to exceed $5 circumstances, (H) the declaration and
million annually. payment of dividends on Flagstar's
common stock following a public offering
of Old FCI Common Stock of up to 6% per
annum of the proceeds of such offering,
(I) repayments of outstanding
obligations under certain existing
public debt (including premiums and fees
incurred in connection therewith), (J)
payments by Flagstar or any Subsidiary
pursuant to tax sharing agreements with
FCI, Flagstar or any Subsidiary of FCI
and,
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
NEW SENIOR NOTES 10 3/4% SENIOR NOTES 10 7/8% SENIOR NOTES
<S> <C> <C>
(K) purchases of Equity Interests
of Subsidiaries of Flagstar in an
aggregate cumulative amount not to
exceed $5 million annually.
<CAPTION>
LIMITATIONS ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
<S> <C> <C>
With certain exceptions described below, Substantially the same as the Indenture Substantially the same as the Indenture
Reorganized Flagstar will not and will except as indicated below. except as indicated below.
not permit any Subsidiary to incur any
Indebtedness (except certain
intercompany Indebtedness) unless such
Indebtedness is Acquisition Indebtedness
or is incurred by Reorganized Flagstar
and not a Subsidiary of Reorganized
Flagstar and the Fixed Charge Coverage
Ratio of Reorganized Flagstar for the
four full fiscal quarters preceding the
date of incurrence of such Indebtedness,
determined on a pro forma basis as if
such Indebtedness were incurred at the
beginning of such period, would have
been at least 2:1.
Notwithstanding the foregoing, Notwithstanding the foregoing, Flagstar Notwithstanding the foregoing, Flagstar
Reorganized Flagstar or any Subsidiary may incur Indebtedness (i) pursuant to may incur Indebtedness (i) pursuant to
may incur Indebtedness (i) pursuant to its bank credit agreement then in effect its bank credit agreement then in effect
the Exit Facility to the extent of the to the extent of the commitments to the extent of the commitments
greater of $250 million or the amount of thereunder on the date of the indenture P thereunder on the date of the indenture
the commitments thereunder on the date for the 10 3/4% Senior Notes and (ii) for the 10 7/8% Senior Notes and (ii)
of the Indenture, (ii) in connection otherwise pursuant to provisions otherwise pursuant to provisions
with Mortgage Financings, certain generally the same as in the Indenture. generally the same as in the Indenture.
Mortgage Refinancings, or sale and
lease-back transactions if, in each
case, the net proceeds are used to
repay Senior Indebtedness, (iii)
constituting purchase money obligations
for property acquired in the ordinary
course of business or similar financing
transactions (including, without
limitation, in connection with Mortgage
Financings), provided that in the case
of Indebtedness exceeding $2 million for
any such obligation, such Indebtedness
exists at, or is created within 180 days
after, the date of the purchase or
transaction, (iv) constituting capital
lease obligations, (v) in connection
with capital expenditures, (vi)
constituting reimbursement obligations
with respect to letter of credit issued
in the ordinary course of business,
(vii) constituting additional
Indebtedness in an aggregate principal
amount up to $250 million at any one
time outstanding, (viii) constituting
Indebtedness secured by the Excluded
Property and (ix) to refinance existing
Indebtedness (including additional
Indebtedness incurred to pay premiums
and fees in connection therewith),
provided that, unless the Indebtedness
being refinanced is Senior Indebtedness,
the
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
NEW SENIOR NOTES 10 3/4% SENIOR NOTES 10 7/8% SENIOR NOTES
<S> <C> <C>
new Indebtedness has an interest rate
no greater than and a weighted average
life to maturity no less than, and is
subordinated at least to the same
extent as, the Indebtedness being
refinanced.
<CAPTION>
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
<S> <C> <C>
Reorganized Flagstar will not permit any Substantially the same as the Indenture Substantially the same as the indenture
Subsidiary to make any Investment in any except as indicated below. for the 10 3/4% Senior Notes.
Unrestricted Subsidiary unless (i) the
amount of such Investment does not
exceed the amount then permitted to be
used to make a Restricted Payment
pursuant to clause (iii) of the first
paragraph under "Limitations on
Restricted Payments" above and (ii)
after the Investment (after giving
effect thereto on a pro forma basis,
deducting from net income the amount of
any Investment in an Unrestricted
Subsidiary during the four full fiscal
quarters last preceding such
Investment), Reorganized Flagstar would
be able to incur $1 of additional
Indebtedness pursuant to the Fixed
Charge Coverage Ratio test under
"Limitations on Incurrence of Additional
Indebtedness" above.
Notwithstanding the foregoing, Notwithstanding the foregoing, Flagstar
Reorganized Flagstar may make may make Investments in Unrestricted
Investments (i) of up to $75 million in Subsidiaries (including FRD) in an
FRD as an Unrestricted Subsidiary, and aggregate amount not to exceed $75
(ii) in other Unrestricted Subsidiaries million at any one time outstanding.
in an aggregate amount not to exceed
$75 million (without regard to any
Investment in FRD) at any one time
outstanding.
The amount by which all Investments in
Unrestricted Subsidiaries (other than
FRD) exceeds $75 million will be counted
in determining the permissible amount of
Restricted Payments pursuant to clause
(iii) of the first paragraph under
"Limitations on Restricted Payments"
above.
</TABLE>
135
<PAGE>
DESCRIPTION OF NEW COMMON STOCK
GENERAL
As of the Effective Date, Reorganized Flagstar will have 100,000,000
authorized shares of New Common Stock, par value $.01 per share, and 25,000,000
authorized shares of preferred stock. 40,000,000 shares of New Common Stock will
be issued in connection with the Plan (not including Warrant Shares (as defined
below) and shares issuable upon the exercise of stock options granted to
Reorganized Flagstar's employees and directors under bona fide employee benefit
plans). All of the New Common Stock issued and outstanding as of the Effective
Date will be fully paid and nonassessable.
The following summary description of the New Common Stock does not purport
to be complete and is qualified in its entirety by this reference to Reorganized
Flagstar's Certificate of Incorporation and Bylaws. Reorganized Flagstar's
Certificate of Incorporation and Bylaws are substantially identical to the
Restated Certificate of Incorporation and Bylaws of FCI, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
The holders of validly issued and outstanding shares of New Common Stock
will be entitled to one vote per share of record on all matters to be voted upon
by Reorganized Flagstar stockholders. At a meeting of stockholders at which a
quorum is present, a majority of the votes cast will decide all questions,
unless the matter is one upon which a different vote is required by express
provision of law or Reorganized Flagstar's Certificate of Incorporation or
Bylaws. There will be no cumulative voting with respect to the election of
directors (or any other matter). The holders of a majority of the shares at a
meeting at which a quorum is present will be able to elect all of the directors
to be elected.
The holders of New Common Stock will have no preemptive rights and have no
rights to convert the New Common Stock into any other securities.
Subject to the rights of holders of preferred stock of Reorganized
Flagstar, if any, in the event of a liquidation, dissolution or winding up of
Reorganized Flagstar, holders of New Common Stock will be entitled to
participate equally, share for share, in all assets remaining after payment of
liabilities.
The holders of New Common Stock will be entitled to receive ratably such
dividends as the Board of Directors may declare out of funds legally available
therefor, when and if so declared. The Exit Facility and the Indenture governing
the New Senior Notes will contain negative covenants that restrict, among other
things, the ability of Reorganized Flagstar to pay dividends.
The Board of Directors of Reorganized Flagstar will also be authorized to
issue, from time to time, up to 25,000,000 shares of preferred stock. The Board
of Directors may issue preferred stock in one or more series and may fix the
relative rights and preferences for each such series, including annual dividend
rates, redemption prices, sinking fund provisions, liquidation preferences,
conversion rights and voting rights.
REGISTRATION RIGHTS OF AFFILIATES
Reorganized Flagstar will enter into a Registration Rights Agreement (the
"New Registration Rights Agreement") on the Effective Date with each Holder of
10% or more of the New Common Stock (a "Potentially Affiliated Holder").
Pursuant to the New Registration Rights Agreement, Reorganized Flagstar will
agree to file and use its best efforts to cause to become effective a shelf
registration statement covering resales by the Potentially Affiliated Holders
from time to time, and use its best efforts to cause such shelf Registration
Statement to remain effective for a period of three years from the Effective
Date (or five years from the Effective Date if Reorganized Flagstar becomes
entitled to use a registration statement on Form S-3 under the Securities Act).
In addition, the Potentially Affiliated Holders may make three written demands
to Reorganized Flagstar for registration under the Securities Act of all or a
part of the New Common Stock issued to them pursuant to the Plan, and may make
unlimited demands for registrations so long as such registrations may be
effected on Form S-3 registration statements. In addition, the Potentially
Affiliated Holders will have customary "piggyback" registration rights to
include their shares of New Common Stock, subject to certain limitations, in
other registration statements filed by Reorganized Flagstar under the
Securities Act.
Reorganized Flagstar will agree to pay all expenses in connection with the
performance of the obligations to effect the shelf, demand and piggyback
registrations under the Securities Act of the New Common Stock covered by the
New Registration Rights Agreement, other than (a) underwriting fees, discounts,
commissions or other similar selling expenses attributable to the sale of New
Common Stock under the New Registration Rights Agreement; and (b) any expenses
(other than internal expenses of its own officers and employees) in connection
with any additional demand registration on Form S-3 after the
136
<PAGE>
three designated demand registrations. Reorganized Flagstar will agree to
indemnify and hold harmless, to the fullest extent permitted by law, each
Potentially Affiliated Holder against certain securities law liabilities
(including, under certain circumstances, liabilities unrelated to the
participation of a Potentially Affiliated Holder in a registered offering or
sale of the New Common Stock) and, in lieu thereof, to contribute to payments
required to be made by such Potentially Affiliated Holders.
The obligations of Reorganized Flagstar to effect and maintain the
effectiveness of any registration required by the New Registration Rights
Agreement will terminate upon the earliest of (a) the sale of all shares of the
New Common Stock subject to the New Registration Rights Agreement that are held
by the Potentially Affiliated Holders; (b) with respect to any Potentially
Affiliated Holder, upon notice from such Potentially Affiliated Holder that it
no longer needs the benefits of the New Registration Rights Agreement; and (c)
with respect to any Potentially Affiliated Holder, when such Potentially
Affiliated Holder has received an opinion of recognized securities counsel to
the effect that the New Common Stock held by such Potentially Affiliated Holder
may be freely resold by such Potentially Affiliated Holder without resort to the
provisions of Rule 144.
DESCRIPTION OF NEW WARRANTS
The New Warrants will be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") between Reorganized Flagstar and Continental Stock Transfer
& Trust Company, as Warrant Agent (the "Warrant Agent"). The following summary
of certain provisions of the Warrant Agreement and the Warrants does not purport
to be complete and is qualified in its entirety by reference to the Warrant
Agreement and the Warrants, including the definitions therein of certain terms
used below. The Warrant Agreement and the Warrants will be substantially in the
form of the Warrant Agreement filed as an Exhibit to the Registration Statement
of which this Prospectus is a part.
GENERAL
Each New Warrant, when exercised, will entitle the holder thereof to
purchase one fully paid and non-assessable share of New Common Stock (such
shares, the "Warrant Shares") at an exercise price of $21.19 per share (the
"Exercise Price"). The Exercise Price and the number of Warrant Shares are both
subject to adjustment in certain cases referred to below. The New Warrants will
entitle the holders thereof to purchase in the aggregate 3,010,753 Warrant
Shares, or approximately 7% of Reorganized Flagstar's New Common Stock on a
fully diluted basis as of the Effective Date (without giving effect to any
options granted to management).
The New Warrants will be exercisable on or after the Effective Date and
prior to 5:00 p.m., Eastern Time, on the five year anniversary of the Effective
Date (the "Expiration Date"). The exercise and transfer of the New Warrants will
be subject to applicable federal and state securities laws.
The New Warrants may be exercised by surrendering to Reorganized Flagstar
at the office of the Warrant Agent the warrant certificates evidencing the New
Warrants to be exercised with the accompanying form of election to purchase
properly completed and executed, together with payment of the Exercise Price.
Payment of the Exercise Price may be made (i) in the form of cash or by
certified or official bank check payable to the order of Reorganized Flagstar or
(ii) by tendering additional New Warrants having a fair market value (equal to
the closing sales price on the day prior to the date of such tender on the
principal trading market therefor, if any, and otherwise as determined in good
faith by the Board of Directors of Reorganized Flagstar equal to the Exercise
Price or (iii) any combination of cash and New Warrants. Upon surrender of the
warrant certificate and payment of the Exercise Price, Reorganized Flagstar will
deliver or cause to be delivered, to or upon the written order of such holder,
stock certificates representing the number of whole Warrant Shares to which such
holder is entitled. No fractional Warrant Shares will be issued upon exercise of
the New Warrants. If less than all of the Warrants evidenced by a warrant
certificate are to be exercised, a new warrant certificate will be issued for
the remaining number of Warrants. The Warrant Shares to be issued upon exercise
of the New Warrants will be registered under the Securities Act.
The holders of the New Warrants will have no right to vote on matters
submitted to the stockholders of Reorganized Flagstar and will have no right to
receive dividends. The holders of the New Warrants will not be entitled to share
in the assets of Reorganized Flagstar in the event of the liquidation,
dissolution or winding up of Reorganized Flagstar. In the event a subsequent
bankruptcy or reorganization is commenced by or against Reorganized Flagstar, a
bankruptcy court may hold that unexercised New Warrants are executory contracts
which may be subject to rejection by Reorganized Flagstar with approval of the
bankruptcy court, and the holders of the New Warrants may, even if sufficient
funds are available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their New
Warrants prior to the commencement of any such case.
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In the event of a taxable distribution to holders of New Common Stock that
results in an adjustment to the number of shares of New Common Stock or other
consideration for which a New Warrant may be exercised, the holders of the New
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain Federal Income Tax Considerations."
ADJUSTMENTS
The number of Warrant Shares purchasable upon exercise of New Warrants and
the Exercise Price will be subject to adjustment in certain events including:
(i) the issuance by Reorganized Flagstar of dividends (and other distributions)
on its New Common Stock payable in New Common Stock, (ii) subdivisions,
combinations and reclassifications of New Common Stock, (iii) the issuance to
all holders of New Common Stock of rights, options or warrants entitling them to
subscribe for New Common Stock or securities convertible into, or exchangeable
or exercisable for, New Common Stock within sixty (60) days after the record
date for such issuance of rights, options or warrants at an offering price (or
with an initial conversion, exchange or exercise price plus such offering price)
which is less than the current market price per share (as defined) of New Common
Stock, (iv) the distribution to all holders of New Common Stock of any of
Reorganized Flagstar's assets (including cash), debt securities, preferred stock
or any rights or warrants to purchase any such securities (excluding those
rights and warrants referred to in clause (iii) above), (v) the issuance of
shares of New Common Stock for a consideration per share less than the current
market price per share (excluding securities issued in transactions referred to
in clauses (i) through (iv) above), and (vi) the issuance of securities
convertible into or for New Common Stock for a conversion or exchange price
(plus the amount per share of Common Stock paid for such security) that is than
the current market price for a share of New Common Stock (excluding securities
issued in transactions referred to in clauses (iii) or (iv) above). The events
described in clauses (v) and (vi) above are subject to certain exceptions
described in the Warrant Agreement including, without limitation, (A) certain
bona fide public offerings and private placements to persons that are not
affiliates of Reorganized Flagstar and (B) New Common Stock (and options
exercisable therefor) issued to Reorganized Flagstar's employees and directors
under bona fide employee benefit plans in an aggregate amount not to exceed 10%
of the New Common Stock outstanding at the time of issuance.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; PROVIDED, HOWEVER, that any adjustment that is not made will be
carried forward and taken into account in any subsequent adjustment. In
addition, Reorganized Flagstar may at any time reduce the Exercise Price to any
amount (but not less than the par value of the New Common Stock) for any period
of time (but not less than twenty (20) business days) deemed appropriate by the
Board of Directors of Reorganized Flagstar.
In the case of certain consolidations or mergers of Reorganized Flagstar,
or the sale of all or substantially all of the assets of Reorganized Flagstar to
another corporation, each New Warrant will thereafter be exercisable for the
right to receive the kind and amount of shares of stock or other securities or
property to which such holder would have been entitled as a result of such
consolidation, merger or sale had the New Warrants been exercised immediately
prior thereto.
AMENDMENT
From time to time, Reorganized Flagstar and the Warrant Agent, without the
consent of the holders of the New Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not materially adversely affect the rights of any
holder. Any amendment or supplement to the Warrant Agreement that has a material
adverse effect on the interests of the holders of the New Warrants will require
the written consent of the holders of a majority of the then outstanding New
Warrants (excluding New Warrants held by Reorganized Flagstar or any of its
Affiliates). The consent of each holder of the New Warrants affected will be
required for any amendment pursuant to which (a) the Exercise Price would be
increased, (b) the time to exercise the New Warrants would be shortened or
(c) the number of Warrant Shares purchasable upon exercise of New Warrants
would be decreased (other than pursuant to adjustments provided in the Warrant
Agreement).
GOVERNING LAW
The Warrant Agreement and the New Warrants will be governed by, and
construed in accordance with, the laws of the State of New York without regard
to the principles of conflicts of law thereof.
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REPORTS
Whether or not Reorganized Flagstar is subject to the reporting
requirements of the Exchange Act, Reorganized Flagstar shall cause copies of
annual reports and other periodic reports to be filed with the Commission (to
the extent permitted) and the Warrant Agent and mailed to the holders of New
Warrants at their addresses appearing in the register maintained by the Warrant
Agent to the same extent as such reports are furnished to the holders of New
Common Stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins (for purposes of this section, "Tax Counsel") has advised
FCI and Flagstar that the following discussion expresses their opinion as to the
material federal income tax consequences expected to result from the
consummation of the Plan. This discussion is based on current provisions of the
Code, applicable Treasury Regulations, judicial authority and current
administrative rulings and pronouncements of the Internal Revenue Service (the
"Service"), any of which may be altered with retroactive effect, thereby
changing the federal income tax consequences discussed below. There can be no
assurance that the Service will not take a contrary view, and no ruling from the
Service has been or will be sought.
The tax treatment of a holder of Old Senior Notes, Senior Subordinated
Debentures, Junior Subordinated Debentures, Old FCI Preferred Stock, Old FCI
Common Stock, Old Warrants, New Senior Notes, New Common Stock and New Warrants
may vary depending upon such holder's particular situation. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. This discussion is limited to those who have held the Old
Senior Notes, Senior Subordinated Debentures, Junior Subordinated Debentures,
Old FCI Preferred Stock, Old FCI Common Stock and Old Warrants as "capital
assets" and who will hold the New Senior Notes, New Common Stock and New
Warrants as "capital assets" (generally, property held for investment) within
the meaning of Section 1221 of the Code. EACH HOLDER SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING, HOLDING AND
DISPOSING OF THE OLD SENIOR NOTES, SENIOR SUBORDINATED DEBENTURES, JUNIOR
SUBORDINATED DEBENTURES, OLD FCI PREFERRED STOCK, OLD FCI COMMON STOCK, OLD
WARRANTS, NEW NOTES, NEW COMMON STOCK AND NEW WARRANTS, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO FCI AND FLAGSTAR
MERGER OF FLAGSTAR INTO FCI
The Merger of Flagstar with and into FCI with FCI surviving should
constitute a reorganization within the meaning of Section 368(a) of the Code. As
a result, neither Flagstar nor FCI will recognize any gain or loss for federal
income tax purposes as a result of the Merger, and FCI's tax basis in the assets
received from Flagstar in the Merger will be equal to Flagstar's adjusted tax
basis in such assets immediately prior to the Merger.
CANCELLATION OF INDEBTEDNESS
Flagstar generally will realize cancellation of indebtedness ("COI") income
to the extent that the sum of (i) the issue price of the New Senior Notes and
(ii) the fair market value of the New Common Stock received by holders of Old
Debt is less than the adjusted issue price (plus the amount of any accrued but
unpaid interest) of such Old Debt discharged thereby. Under Section 108 of the
Code, however, COI income will not be recognized if the COI income occurs in a
case brought under Chapter 11 of the Bankruptcy Code, provided the taxpayer is
under the jurisdiction of a court in such case and the cancellation of
indebtedness is granted by the court or is pursuant to a plan approved by the
court. Accordingly, because the cancellation of Flagstar's indebtedness will
occur in a case brought under Chapter 11 of the Bankruptcy Code and will be
pursuant to the Plan, Flagstar will not be required to recognize any COI
income realized as a result of the implementation of the Plan under Section
108(a) of the Code.
Under Section 108(a) of the Code, however, Flagstar will be required to
reduce certain tax attributes, including net operating and capital losses and
loss carryforwards ("NOLs"), certain tax credits and tax basis in assets (but
not below the amount of liabilities remaining after the discharge of
indebtedness), in an amount equal to the amount of COI income excluded from
income as described in the preceding paragraph. As a result of the application
of Section 108(b) of the Code, Flagstar believes that a significant amount of
its NOLs will be eliminated after consummation of the Plan. In addition,
Reorganized Flagstar may be required to reduce its tax basis in its assets as of
the beginning of the taxable year following
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consummation of the Plan by the amount of COI income realized in excess of the
amount of NOLs and tax credits so reduced.
SECTION 382 LIMITATIONS ON NOLS
Under Section 382 of the Code, if a corporation with NOLs (a "loss
corporation") undergoes an "ownership change," the use of such NOLs and tax
credits will generally be limited annually to the product of the long-term
tax-exempt rate (published monthly by the Service) and the value of the loss
corporation's outstanding stock immediately before the ownership change
(excluding certain capital contributions) (the "Section 382 Limitation").
In general, an "ownership change" occurs if the percentage of the value of
the loss corporation's stock owned by one or more direct or indirect "five
percent shareholders" has increased by more than 50 percentage points over the
lowest percentage of that value owned by such five percent shareholder or
shareholders at any time during the applicable "testing period" (generally the
shorter of (i) the three-year period preceding the testing date or (ii) the
period of time since the most recent ownership change of the corporation).
Section 382 of the Code will not, however, limit the use of NOLs to offset
taxable income allocable to the pre-ownership change portion of the taxable year
in which the ownership change occurs or taxable income which constitutes
"recognized built-in gain."
Two alternative bankruptcy exceptions for loss corporations undergoing an
ownership change pursuant to a bankruptcy proceeding are provided for in the
Code. Section 382(1)(5) of the Code provides complete relief from the Section
382 Limitation otherwise applicable to pre-ownership change NOLs but requires
that such NOLs be reduced by certain interest deductions taken by the loss
corporation on indebtedness exchanged for stock. Alternatively, Section
382(l)(6) of the Code requires no reduction of pre-ownership change NOLs but
provides relief in the form of a relaxed computation of the Section 382
Limitation. In that regard, Section 382(1)(6) of the Code provides that the
value of the loss corporation's outstanding stock for purposes of computing the
Section 382 Limitation will be increased to reflect the cancellation of
indebtedness in the bankruptcy case, but without taking into account
contributions to capital by new investors.
Flagstar estimates that it has approximately $92 million of consolidated
NOL carryforwards as of December 31, 1996 and approximately $29 million of
consolidated tax credits as of December 31, 1996.
The Plan will trigger an ownership change of the FCI consolidated group on
the Effective Date. Due to the significant reduction of NOLs and tax credits
that would be required by Section 382(1)(5) of the Code, Reorganized Flagstar
intends to elect to apply Section 382(1)(6) of the Code to such "ownership
change." Accordingly, Reorganized Flagstar's use of pre-ownership change NOLs
and tax credits will be limited annually to the product of the long-term
tax-exempt rate and the value of Reorganized Flagstar's stock increased to
reflect the cancellation of indebtedness pursuant to the Plan.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD SENIOR NOTES
EXCHANGE OF OLD SENIOR NOTES FOR NEW SENIOR NOTES
Whether the exchanges of Old Senior Notes for New Senior Notes pursuant to
the Plan (the "Senior Note Exchanges") will be nontaxable recapitalizations
under the Code will depend in part upon whether the Old Senior Notes and the New
Senior Notes are considered to be "securities" within the meaning of the
provisions of the Code governing reorganizations. The test as to whether a debt
instrument is a "security" involves an overall evaluation of the nature of the
debt instrument, with the term of the debt instrument usually regarded as a
significant factor.
Although the treatment of the 10 3/4% Senior Notes is not entirely certain
because the stated term of such instruments is less than ten years, the 10 3/4%
Senior Notes and New Senior Notes should, and the 10 7/8% Senior Notes will, be
treated as "securities" for federal income tax purposes. Accordingly, (except
to the extent the New Senior Notes are attributable to accrued but unpaid
interest on the Old Senior Notes, in which event holders would generally be
required to include amounts in ordinary interest income (see " -- Accrued
Interest")) the Senior Note Exchanges should constitute recapitalizations for
federal income tax purposes and, as a result, exchanging holders should not
recognize any gain or loss although Tax Counsel is unable to opine on the
issue because the treatment of the 10 3/4% Notes and New Senior Notes as
"securities" for federal income tax purposes is uncertain. A holder's initial
tax basis in the New Senior Notes received in a Senior Note Exchange will be
equal to such holder's adjusted tax basis in the Old Senior Notes exchanged
therefor.
If the 10 3/4% Senior Notes were determined not to constitute "securities"
for federal income tax purposes, then exchanging holders would recognize gain or
loss equal to the difference between (i) the fair market value of the New Senior
Notes received and (ii) the holders' adjusted tax basis in the 10 3/4% Senior
Notes exchanged therefor. Similarly, if the New Senior
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Notes were determined not to constitute "securities" for federal income tax
purposes, then exchanging holders would recognize gain or loss equal to the
difference between (i) the fair market value of the New Senior Notes received
and (ii) the holders' adjusted tax basis in the Old Senior Notes exchanged
therefor. Any such gain or loss would be long-term capital gain or loss,
provided the Old Senior Notes had been held for more than one year. In
addition, in this event, a holders' initial tax basis in the New Senior Notes
received would be equal to the issue price of the New Senior Notes on the date
of the exchange.
NEW SENIOR NOTES
STATED INTEREST
The holders of the New Senior Notes will be required to include stated
interest in gross income for federal income tax purposes in accordance with
their method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
GENERAL ORIGINAL ISSUE DISCOUNT RULES. The amount of original issue
discount, if any, on a debt instrument is the excess of its "stated redemption
price at maturity" over its "issue price," subject to a statutorily-defined DE
MINIMIS exception. The "issue price" of a debt instrument issued in exchange for
another debt instrument depends on whether either debt instrument is "traded on
an established securities market." If neither is so traded, the issue price of
the debt instrument received will be equal to its stated principal amount,
assuming the debt instrument provides for "adequate stated interest" (I.E.,
interest at least at the applicable federal rate), and will be equal to its
"imputed principal amount" if the debt instrument does not provide for "adequate
stated interest." If the debt instrument received is "traded on an established
securities market," then its issue price will be its trading price immediately
following issuance. If the exchanged debt instrument is so traded (but the debt
instrument received in exchange therefor is not), the issue price of the debt
instrument received will generally be equal to the fair market value of the debt
instrument exchanged therefor. The "stated redemption price at maturity" of a
debt instrument is the sum of its principal amount plus all other payments
required thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of intervals
between payments).
In general, the holder of a debt instrument issued with original issue
discount must include in gross income for federal income tax purposes the sum of
the daily portions of original issue discount with respect to such debt
instrument for each day during the taxable year or portion of a taxable year on
which such holder holds the debt instrument. The daily portion is determined by
allocating to each day of any accrual period a PRO RATA portion of an amount
equal to the "adjusted issue price" of the debt instrument at the beginning of
the accrual period multiplied by the yield to maturity of the debt instrument.
The "adjusted issue price" is the issue price of the debt instrument increased
by the accrued original issue discount for all prior accrual periods (other than
qualified stated interest payments). The tax basis of the debt instrument in the
hands of the holder will be increased by the amount of original issue discount,
if any, on the debt instrument that is included in the holder's gross income and
will be decreased by the amount of any cash payments (other than qualified
stated interest payments) received with respect to the debt instrument, whether
such payments are denominated as principal or interest.
NEW SENIOR NOTES. FCI and Flagstar intend to take the position that the New
Senior Notes will be "traded on an established securities market." As a result,
the issue price of the New Senior Notes will be equal to their trading price
immediately following issuance. If the issue price of the New Senior Notes is
less than their stated principal amount by more than the statutorily-defined DE
MINIMIS amount, then the New Senior Notes will be issued with original issue
discount. In this event, holders of New Senior Notes will be required to
include original issue discount in income (before the receipt of cash
attributable thereto) in accordance with the rules set forth above.
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds to
the extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" is a debt obligation purchased at a market
discount subject to a statutorily-defined DE MINIMIS exception. For this
purpose, a purchase at a market discount includes a purchase at or after the
original issue at a price below the stated redemption price at maturity, or, in
the the case of a debt instrument issued with original issue discount, at a
price below (i) its "issue price," plus (ii) the amount of original issue
discount includible in income by all prior holders of the debt
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instrument, minus (iii) all cash payments (other than payments constituting
qualified stated interest) received by such previous holders. The accrued
market discount generally equals a ratable portion of the bond's market
discount, based on the number of days the taxpayer has held the bond at the
time of such disposition, as a percentage of the number of days from the date
the taxpayer acquired the bond to its date of maturity.
An exception is made for certain tax-free exchanges, such as the exchange
of Old Senior Notes for New Senior Notes. In such cases, on a subsequent taxable
disposition of the stock or securities received in such non-recognition
transactions, gain is treated as ordinary income to the extent of market
discount accrued prior to the nontaxable exchange in the case of stock and prior
to and after the nontaxable exchange in the case of securities. In that regard,
the New Senior Notes received by a holder of Old Senior Notes will contain
accrued market discount to the extent of an allocable portion of the market
discount accrued in the Old Senior Notes but not recognized at the time of the
exchange.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
Amortizable bond premium will be treated under the Code as an offset to interest
income on the related debt instrument for federal income tax purposes, subject
to the promulgation of Treasury regulations altering such treatment.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
In general, a holder of a New Senior Note will recognize gain or loss upon
the sale, retirement or other taxable disposition of such New Senior Note in an
amount equal to the difference between (i) the amount of cash and the fair
market value of property received in exchange therefor (except to the extent
attributable to the payment of accrued but unpaid interest or original issue
discount, which generally will be taxable to a holder as ordinary income) and
(ii) the holder's adjusted tax basis in such New Senior Note. A holder's tax
basis in a New Senior Note generally will be equal to its adjusted tax basis in
the Old Senior Note exchanged therefor, increased by the amount of original
issue discount, if any, included in gross income prior to the date of
disposition. Any gain or loss recognized on the sale, retirement, or other
taxable disposition of a New Senior Note generally will be long-term capital
gain or loss provided the New Senior Note had been held for more than one year.
ELECTION
In the event the New Senior Notes are issued with original issue discount,
a holder of New Senior Notes, subject to certain limitations, may elect to
include all interest and discount of the New Senior Notes in gross income under
the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount, original issue discount, DE MINIMIS
market discount and market discount, as adjusted by any acquisition premium.
Such election, if made in respect of a market discount bond, will constitute an
election to include market discount in income currently on all market discount
bonds acquired by such Holder on or after the first day of the first taxable
year to which the election applies. See " -- Market Discount."
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SENIOR SUBORDINATED DEBENTURES AND
JUNIOR SUBORDINATED DEBENTURES
Whether the exchanges of Senior Subordinated Debentures and Junior
Subordinated Debentures for New Common Stock pursuant to the Plan (the "Old Debt
Exchanges") will be nontaxable recapitalizations under the Code will depend in
part upon whether the Senior Subordinated Debentures and Junior Subordinated
Debentures are considered to be "securities" within the meaning of the
provisions of the Code governing reorganizations. The test as to whether a debt
instrument is a "security" involves an overall evaluation of the nature of the
debt instrument, with the term of the debt instrument usually regarded as a
significant factor.
Although the treatment of the 11 3/8% Debentures is not entirely certain
because the stated term of such instruments is less than ten years, the 11 3/8%
Debentures should, and the Junior Subordinated Debentures and the 11.25%
Debentures will, be treated as "securities" for federal income tax purposes.
Accordingly, the Old Debt Exchanges should constitute recapitalizations for
federal income tax purposes and, as a result, exchanging holders should not
recognize any gain or loss (except to
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the extent the New Common Stock is attributable to accrued but unpaid interest
on the Senior Subordinated Debentures or the Junior Subordinated Debentures,
in which event holders would generally be required to include amounts in
ordinary interest income (see " -- Accrued Interest")). A holder's initial tax
basis in the New Common Stock received in an Old Debt Exchange will be equal
to such Holder's adjusted tax basis in the Senior Subordinated Debentures and
Junior Subordinated Debentures exchanged therefor.
If the 11 3/8% Debentures were determined not to constitute "securities"
for federal income tax purposes, then exchanging holders would recognize gain or
loss equal to the difference between (i) the fair market value of the New Common
Stock received and (ii) the holders' adjusted tax basis in the 11 3/8%
Debentures exchanged therefor. Such gain or loss would be long-term capital gain
or loss, provided the 11 3/8% Debentures had been held for more than one year.
In addition, in this event, a holder's initial tax basis in the New Common Stock
received would be equal the fair market value of such New Common Stock on the
date of the exchange.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD FCI PREFERRED STOCK
Holders exchanging Old FCI Preferred Stock for New Common Stock (including
New Common Stock attributable to accrued but unpaid dividends on Old FCI
Preferred Stock) pursuant to the Plan will not recognize any gain or loss for
federal income tax purposes. A holders' tax basis in New Common Stock received
will be equal to its tax basis in the Old FCI Preferred Stock surrendered
therefor.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD FCI COMMON STOCK
GENERAL
Holders exchanging Old FCI Common Stock for New Warrants pursuant to the
Plan will recognize gain or loss for federal income tax purposes equal to the
difference between (i) the fair market value of the New Warrants and (ii) the
holders' adjusted tax basis in the Old FCI Common Stock exchanged therefor. Such
gain or loss will be long-term capital gain or loss provided the holders held
the Old FCI Common Stock for more than one year. It should be noted that
restrictions apply to the deduction of net capital losses. Noncorporate
taxpayers may deduct no more than $3,000 of capital losses from ordinary income
(with any excess capital losses available as a carryforward to subsequent years)
and corporations may deduct capital losses only from capital gains.
ALTERNATIVE TREATMENT. The Service has published proposed Treasury
regulations (the "Proposed Regulations") providing that, for purposes of
Sections 354 and 356 of the Code, rights to acquire stock, such as New Warrants,
will be treated as "securities" issued with no principal amount. The Proposed
Regulations are not proposed to be effective prior to the date that is 60 days
after the date on which such Proposed Regulations are finalized. If the Proposed
Regulations were adopted in their current form on or prior to the Effective
Date, holders who hold both Old FCI Preferred Stock and Old FCI Common Stock and
who exchange such stock for New Common Stock and New Warrants generally would
not recognize any gain or loss for federal income tax purposes (on the other
hand, holders who hold only Old FCI Common Stock and receive only New Warrants
pursuant to the Plan would continue to be subject to the treatment described in
the preceding paragraph). There can be no assurance that the Proposed
Regulations will be finalized prior to the Effective Date or that the final
Treasury regulations will not differ materially from the Proposed Regulations.
As a result, FCI and Flagstar intend to take the position that, unless they are
finalized before the Effective Date, the Proposed Regulations will not apply to
the exchanges pursuant to the Plan.
NEW WARRANTS
SALE OR EXPIRATION. Upon the sale or exchange of a New Warrant (including
the receipt of cash in lieu of fractional interests in shares of New Common
Stock upon exercise of a New Warrant), a holder will recognize gain or loss in
an amount equal to the difference between the amount of cash and the fair market
value of property received therefor and the holder's tax basis in the New
Warrant. A holder's initial tax basis in a New Warrant will be equal to the fair
market value of the New Warrant upon receipt. Such gain or loss generally will
be long-term capital gain or loss provided the New Warrant had been held for
more than one year. A repurchase of the New Warrant by Reorganized Flagstar may
not qualify for capital gain or loss treatment, however, and a holder instead
may be required to treat such gain or loss as ordinary income or loss.
If a New Warrant expires without being exercised, the holder will recognize
a loss in an amount equal to its tax basis in the New Warrant. Such loss will be
a long-term capital loss provided the New Warrant had been held for more than
one year.
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EXERCISE. The exercise of a New Warrant for cash will not result in a
taxable event to the holder of the New Warrant (except to the extent of cash, if
any, received in lieu of fractional interests in shares of New Common Stock).
Upon such exercise, the holder's tax basis in the New Common Stock obtained will
be equal to the sum of such holder's tax basis in the New Warrant (described
above) and the exercise price of the New Warrant; the holder's holding period
with respect to such New Common Stock will commence on the day after the date of
exercise. The receipt of cash in lieu of a fractional interest in a share of New
Common Stock will be taxable as if the fractional interest had been issued and
then redeemed for cash. Accordingly, a holder will recognize gain or loss in an
amount equal to the different between the amount of cash received for the
fractional interest and the holder's tax basis in the fractional interest.
ADJUSTMENTS. Adjustments to the Exercise Price of the New Warrants, or the
failure to make adjustments, may in certain circumstances result in the receipt
of taxable constructive dividends by the holder, in which event the holder's tax
basis in the New Warrants would be increased by an amount equal to the
constructive dividend.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD WARRANTS
Although not free from doubt, holders whose Old Warrants are cancelled
pursuant to the Plan should be entitled to recognize a loss in an amount equal
to their tax basis in the Old Warrants. Such loss should generally be long-term
capital loss provided the Old Warrants had been held for more than one year.
ACCRUED INTEREST
Reorganized Flagstar intends to allocate the New Notes and New Common Stock
first to accrued but unpaid interest and then to the principal amount of Old
Debt. Under this allocation, holders of Old Debt will recognize ordinary
interest income equal to the lesser of (i) the accrued but unpaid interest or
(ii) the issue price of the New Senior Notes and the fair market value of the
New Common Stock that is allocated to interest accrued during the holders'
holding periods for the Old Debt.
BACKUP WITHHOLDING
A holder of New Senior Notes, New Common Stock and New Warrants may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, original issue discount accrued on, and gross proceeds from a
sale of the New Senior Notes, New Common Stock or New Warrants unless (i) such
holder is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and complies with applicable requirements of the backup withholding
rules. A holder of New Senior Notes, New Common Stock or New Warrants who does
not provide Reorganized Flagstar with his or her correct taxpayer identification
number may be subject to penalties imposed by the Service.
Reorganized Flagstar will report to holders of the New Senior Notes, New
Common Stock and New Warrants and the Service the amount of any "reportable
payments" (including any interest and dividends paid, and original issue
discount accrued, on the New Senior Notes and New Common Stock) and any amount
withheld with respect to the New Senior Notes, New Common Stock and New Warrants
during the calendar year.
144
<PAGE>
LEGAL MATTERS
Certain tax matters addressed in this Prospectus will be passed upon for
FCI by Latham & Watkins, Los Angeles, California. Certain other matters will be
passed upon for FCI by Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North
Carolina.
EXPERTS
The consolidated balance sheets of FCI and its subsidiaries at December 31,
1996 and 1995 and the related statements of consolidated operations and cash
flows for the years ended December 31, 1996, 1995 and 1994 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the Registration
Statement. The combined balance sheets of FRI-M and its subsidiaries at December
25, 1994 and December 31, 1995 and the related statements of operations and cash
flows for the year ended December 26, 1993, the one month ended January 26,
1994, the eleven months ended December 25, 1994 and the year ended December 31,
1995 included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the Registration Statement. Such financial statements have been so included
in reliance upon such reports given upon the authority of these firms as experts
in accounting and auditing.
145
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FLAGSTAR COMPANIES, INC.
Independent Auditors' Report........................................................................................... F-2
Statements of Consolidated Operations for the Three Years Ended December 31, 1994, 1995 and 1996 and for
the (unaudited) Quarters Ended March 31, 1996 and April 2, 1997...................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 and (unaudited) April 2, 1997............................. F-4
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 1994, 1995 and 1996 and for the
(unaudited) Quarters Ended March 31, 1996 and April 2, 1997.......................................................... F-5
Notes to Consolidated Financial Statements............................................................................. F-7
PRO FORMA FINANCIAL INFORMATION OF FLAGSTAR COMPANIES, INC.
Pro Forma Condensed Statements of Consolidated Operations for the Year Ended December 31, 1996
(unaudited).......................................................................................................... F-28
Notes to Pro Forma Condensed Statements of Consolidated Operations (unaudited)......................................... F-29
FRI-M COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................................... F-32
Combined Balance Sheets as of December 25, 1994 and December 31, 1995.................................................. F-33
Combined Statements of Operations for the Year Ended December 26, 1993, the One Month Ended January 26, 1994, the
Eleven Months Ended December 25, 1994 and the Year Ended December 31, 1995........................................... F-34
Combined Statements of Cash Flows for the Year Ended December 26, 1993, the One Month Ended January 26, 1994, the
Eleven Months Ended December 25, 1994 and the Year Ended December 31, 1995........................................... F-35
Notes to Combined Financial Statements................................................................................. F-36
FRI-M UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
Combined Condensed Balance Sheet as of March 31, 1996 (unaudited)...................................................... F-44
Combined Condensed Statments of Operations for the three months ended March 26, 1995 (unaudited) and the three months
ended March 31, 1996 (unaudited)..................................................................................... F-45
Combined Condensed Statements of Cash Flows for the three months ended March 26, 1995 (unaudited) and the three months
ended March 31, 1996 (unaudited)..................................................................................... F-46
Notes to Combined Condensed Financial Statements (unaudited)........................................................... F-47
</TABLE>
NOTE: WHILE THIS PROSPECTUS SOLICITS VOTES AND RELATES TO SECURITIES ISSUED BY
BOTH FLAGSTAR COMPANIES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, FLAGSTAR
CORPORATION, ONLY FLAGSTAR COMPANIES, INC. IS A REGISTRANT IN THIS FILING.
ACCORDINGLY, THE FINANCIAL STATEMENTS OF FLAGSTAR COMPANIES, INC., AND NOT
THE SEPARATE FINANCIAL STATEMENTS OF ITS WHOLLY-OWNED SUBSIDIARY, FLAGSTAR
CORPORATION, ARE INCLUDED HEREIN.
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, 1995 and 1996,
and the related statements of consolidated operations and consolidated cash
flows for each of the three years in the period ended December 31, 1996. 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,
1995 and 1996 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, 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 13, 1997
F-2
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
QUARTERS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
(UNAUDITED)
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Operating revenue...................................... $2,665,966 $2,571,487 $2,542,302 $ 550,425
Operating expenses:
Product cost......................................... 919,087 864,505 744,072 160,028
Payroll & benefits................................... 919,928 916,951 945,772 214,531
Depreciation & amortization expense.................. 129,633 132,872 129,948 29,047
Utilities expenses................................... 99,021 98,212 104,477 22,754
Other................................................ 394,012 393,482 461,641 96,579
Provision for (recovery of) restructuring charges
(Note 3)........................................... (7,207) 15,873 -- --
Charge for impaired assets (Note 3).................. -- 51,358 -- --
2,454,474 2,473,253 2,385,910 522,939
Operating income....................................... 211,492 98,234 156,392 27,486
Other charges (credits):
Interest and debt expense (Note 4)................... 232,515 232,874 261,633 60,301
Interest income (Note 12)............................ (5,077) (3,725) (6,926) (2,589)
Other -- net (Note 12)............................... 3,087 2,005 3,537 (26)
230,525 231,154 258,244 57,686
Loss before reorganization expenses and taxes.......... (19,033) (132,920) (101,852) (30,200)
Reorganization expenses................................ -- -- -- --
Loss before income taxes............................... (19,033) (132,920) (101,852) (30,200)
Benefit from income taxes (Note 6)..................... (2,213) (14) (16,392) (2,890)
Loss from continuing operations........................ (16,820) (132,906) (85,460) (27,310)
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: 1994 -- $471;
1995 -- $(1,361) (Note 13)........................... (6,518) (636) -- --
Income (loss) before extraordinary items............... 375,850 (55,665) (85,460) (27,310)
Extraordinary items, net of income tax provision
(benefit) of: 1994 -- $(174); 1995 -- $25 (Note
11).................................................. (11,757) 466 -- --
Net income (loss)...................................... 364,093 (55,199) (85,460) (27,310)
Dividends on preferred stock........................... (14,175) (14,175) (14,175) (3,544)
Net income (loss) applicable to common shareholders.... $ 349,918 $ (69,374) $ (99,635) $ (30,854)
Per share amounts applicable to common shareholders
(Note 10):
Primary
Loss from continuing operations...................... $ (0.14) $ (3.47) $ (2.35) $ (0.73)
Income from discontinued operations, net............. 7.52 1.82 -- --
Income (loss) before extraordinary items............. 7.38 (1.65) (2.35) (0.73)
Extraordinary items, net............................. (0.22) 0.01 -- --
Net income (loss).................................... $ 7.16 $ (1.64) $ (2.35) $ (0.73)
Average outstanding and equivalent common shares..... 52,223 42,431 42,434 42,434
Fully diluted
Income (loss) from continuing operations............. $ 0.26 $ (3.47) $ (2.35) $ (0.73)
Income from discontinued operations, net............. 6.05 1.82 -- --
Income (loss) before extraordinary items............. 6.31 (1.65) (2.35) (0.73)
Extraordinary items, net............................. (0.18) 0.01 -- --
Net income (loss).................................... $ 6.13 $ (1.64) $ (2.35) $ (0.73)
Average outstanding and equivalent shares............ 64,921 42,431 42,434 42,434
<CAPTION>
APRIL 2,
1997
<S> <C>
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Operating revenue...................................... $ 675,775
Operating expenses:
Product cost......................................... 197,692
Payroll & benefits................................... 256,787
Depreciation & amortization expense.................. 34,682
Utilities expenses................................... 27,480
Other................................................ 136,107
Provision for (recovery of) restructuring charges
(Note 3)........................................... --
Charge for impaired assets (Note 3).................. --
652,748
Operating income....................................... 23,027
Other charges (credits):
Interest and debt expense (Note 4)................... 69,162
Interest income (Note 12)............................ (571)
Other -- net (Note 12)............................... 1,533
70,124
Loss before reorganization expenses and taxes.......... (47,097)
Reorganization expenses................................ 4,007
Loss before income taxes............................... (51,104)
Benefit from income taxes (Note 6)..................... 624
Loss from continuing operations........................ (51,728)
Gain on sale of discontinued operation, net of income
tax provision of: 1994 -- $9,999; 1995 -- $10,092
(Note 13)............................................ --
Loss from discontinued operations, net of income tax
provision (benefit) of: 1994 -- $471;
1995 -- $(1,361) (Note 13)........................... --
Income (loss) before extraordinary items............... (51,728)
Extraordinary items, net of income tax provision
(benefit) of: 1994 -- $(174); 1995 -- $25 (Note
11).................................................. --
Net income (loss)...................................... (51,728)
Dividends on preferred stock........................... (3,544)
Net income (loss) applicable to common shareholders.... $ (55,272)
Per share amounts applicable to common shareholders
(Note 10):
Primary
Loss from continuing operations...................... $ (1.30)
Income from discontinued operations, net............. --
Income (loss) before extraordinary items............. (1.30)
Extraordinary items, net............................. --
Net income (loss).................................... $ (1.30)
Average outstanding and equivalent common shares..... 42,434
Fully diluted
Income (loss) from continuing operations............. $ (1.30)
Income from discontinued operations, net............. --
Income (loss) before extraordinary items............. (1.30)
Extraordinary items, net............................. --
Net income (loss).................................... $ (1.30)
Average outstanding and equivalent shares............ 42,434
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FLAGSTAR COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, APRIL 2,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 196,966 $ 92,369 $ 31,775
Receivables, less allowance for doubtful accounts of: 1995 -- $2,506;
1996 -- $2,405; 1997 -- $2,563.......................................... 29,844 17,812 10,482
Loan receivable from former officer (Note 12)............................. -- 13,922 --
Merchandise and supply inventories........................................ 32,445 31,543 30,579
Net assets held for sale.................................................. -- 5,114 2
Other..................................................................... 26,087 29,895 41,959
285,342 190,655 114,797
Property:
Property owned (at cost) (Notes 2, 3 and 4):
Land.................................................................... 255,719 253,067 252,789
Buildings and improvements.............................................. 838,956 891,512 895,081
Other property and equipment............................................ 484,684 536,886 541,738
Total property owned........................................................ 1,579,359 1,681,465 1,689,608
Less accumulated depreciation............................................... 569,079 629,676 655,012
Property owned -- net....................................................... 1,010,280 1,051,789 1,034,596
Buildings and improvements, vehicles, and other equipment held under capital
leases (Note 5)........................................................... 170,859 210,533 218,410
Less accumulated amortization............................................... 76,778 93,740 99,635
Property held under capital leases -- net................................... 94,081 116,793 118,775
1,104,361 1,168,582 1,153,371
Other Assets:
Goodwill net of accumulated amortization of: 1996 -- $3,077;
1997 -- $4,380 (Note 2)................................................. -- 205,389 204,153
Other intangible assets, net of accumulated amortization: 1995 --
$17,051; 1996 -- $20,611; 1997 -- $15,329............................... 22,380 27,595 26,810
Deferred financing costs -- net (Note 11)................................. 63,482 64,153 61,553
Other (including loan receivable from former officer of: 1995 -- $16,454)
(Note 12)............................................................... 32,186 30,996 31,136
Reorganization value in excess of amounts allocable to identifiable
assets.................................................................... -- -- --
118,048 328,133 323,652
$ 1,507,751 $ 1,687,370 $ 1,591,820
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Notes 4 and 14)..................... 38,835 62,890 1,001,013
Accounts payable.......................................................... 125,467 160,444 108,353
Accrued salaries and vacations............................................ 41,102 58,838 58,792
Accrued insurance......................................................... 48,060 52,244 56,087
Accrued taxes............................................................. 30,705 25,060 22,682
Accrued interest and dividends............................................ 42,916 47,676 73,910
Other..................................................................... 80,445 76,123 82,811
407,530 483,275 1,403,648
Long-Term Liabilities:
Debt, less current maturities (Notes 4 and 14)............................ 1,996,111 2,179,393 1,226,707
Deferred income taxes (Note 6)............................................ 18,175 16,361 15,993
Liability for self-insured claims......................................... 53,709 57,665 57,515
Other non-current liabilities and deferred credits........................ 163,203 178,203 167,212
2,231,198 2,431,622 1,467,427
Commitments and Contingencies (Notes 4, 5 and 8)
Shareholders' Equity (Deficit) (Notes 7 and 9):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
$0.10 par value; 1995, 1996 and 1997, 25,000 shares authorized; 6,300
shares issued and outstanding; liquidation preference $157,500,
excluding dividends in arrears........................................ 630 630 630
Common Stock:
$0.50 par value; shares authorized -- 200,000; issued and outstanding
1995, 1996 and 1997 -- 42,434
Pro forma -- $0.01 par value; shares authorized -- 100,000; issued and
outstanding -- 40,000................................................. 21,218 21,218 21,218
Paid-in capital........................................................... 724,912 724,912 724,912
Deficit................................................................... (1,877,274) (1,973,365) (2,025,093)
Minimum pension liability adjustment...................................... (463) (922) (922)
(1,130,977) (1,227,527) (1,279,255)
$ 1,507,751 $ 1,687,370 $ 1,591,820
<CAPTION>
PRO FORMA
APRIL 2,
1997
<S> <C>
NOTE 1
<S> <C>
($ IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 15,000
Receivables, less allowance for doubtful accounts of: 1995 -- $2,506;
1996 -- $2,405; 1997 -- $2,563.......................................... 10,482
Loan receivable from former officer (Note 12)............................. --
Merchandise and supply inventories........................................ 30,579
Net assets held for sale.................................................. 2
Other..................................................................... 41,959
98,022
Property:
Property owned (at cost) (Notes 2, 3 and 4):
Land.................................................................... 252,789
Buildings and improvements.............................................. 736,752
Other property and equipment............................................ 45,055
Total property owned........................................................ 1,034,596
Less accumulated depreciation............................................... --
Property owned -- net....................................................... 1,034,596
Buildings and improvements, vehicles, and other equipment held under capital
leases (Note 5)........................................................... 118,775
Less accumulated amortization............................................... --
Property held under capital leases -- net................................... 118,775
1,153,371
Other Assets:
Goodwill net of accumulated amortization of: 1996 -- $3,077;
1997 -- $4,380 (Note 2)................................................. --
Other intangible assets, net of accumulated amortization: 1995 --
$17,051; 1996 -- $20,611; 1997 -- $15,329............................... 26,810
Deferred financing costs -- net (Note 11)................................. 9,750
Other (including loan receivable from former officer of: 1995 -- $16,454)
(Note 12)............................................................... 31,136
Reorganization value in excess of amounts allocable to identifiable
assets.................................................................... 885,520
953,216
$2,204,609
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Notes 4 and 14)..................... 54,343
Accounts payable.......................................................... 108,353
Accrued salaries and vacations............................................ 58,792
Accrued insurance......................................................... 56,087
Accrued taxes............................................................. 22,682
Accrued interest and dividends............................................ 28,170
Other..................................................................... 82,811
411,238
Long-Term Liabilities:
Debt, less current maturities (Notes 4 and 14)............................ 1,264,477
Deferred income taxes (Note 6)............................................ (80,220 )
Liability for self-insured claims......................................... 57,515
Other non-current liabilities and deferred credits........................ 172,519
1,414,291
Commitments and Contingencies (Notes 4, 5 and 8)
Shareholders' Equity (Deficit) (Notes 7 and 9):
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock:
$0.10 par value; 1995, 1996 and 1997, 25,000 shares authorized; 6,300
shares issued and outstanding; liquidation preference $157,500,
excluding dividends in arrears........................................
Common Stock:
$0.50 par value; shares authorized -- 200,000; issued and outstanding
1995, 1996 and 1997 -- 42,434
Pro forma -- $0.01 par value; shares authorized -- 100,000; issued and
outstanding -- 40,000................................................. 400
Paid-in capital........................................................... 378,680
Deficit...................................................................
Minimum pension liability adjustment......................................
379,080
$2,204,609
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED QUARTER ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
($ IN THOUSANDS)
Cash Flows from Operating Activities:
Net income (loss)....................................... $ 364,093 $ (55,199) $ (85,460) $ (27,310) $(51,728)
Adjustments to Reconcile Net Income (Loss) to Cash Flows
from Operating Activities:
Provision for (recovery of) restructuring charges.... (7,207) 15,873 -- -- --
Charge for impaired assets........................... -- 51,358 -- -- --
Depreciation and amortization of property............ 122,870 126,488 120,059 27,646 31,706
Amortization of goodwill............................. -- -- 3,077 -- 1,303
Amortization of other intangible assets.............. 6,763 6,384 6,812 1,400 1,673
Amortization of deferred financing costs............. 6,453 7,504 8,920 1,847 2,663
Deferred income tax benefit.......................... (2,793) (3,451) (9,031) (118) (317)
Gains on sales of Company-owned restaurants.......... (10,007) (24,456) (8,360) (258) (770)
Other................................................ 2,644 4,428 (10,644) (94) (2,101)
Loss from discontinued operations, net............... 6,518 636 -- -- --
Gain on sale of discontinued operation, net.......... (399,188) (77,877) -- -- --
Extraordinary items, net............................. 11,757 (466) -- -- --
Changes in Assets and Liabilities Net of Effects of
Acquisition,
Dispositions and Restructurings:
Decrease (increase) in assets:
Receivables.......................................... (4,452) (4,713) 327 3,178 3,378
Inventories.......................................... 340 (848) (833) 768 963
Other current assets................................. (11,849) (7,086) (3,964) (8,212) 1,790
Other assets......................................... 2,241 (2,622) (5,456) (4,352) (2,899)
Increase (decrease) in liabilities:
Accounts payable..................................... 9,029 16,496 19,132 (39,583) (52,085)
Accrued salaries and vacations....................... 8,821 (5,551) 4,560 6,055 2,482
Accrued taxes........................................ (9,582) (429) (5,502) (5,978) (2,397)
Other accrued liabilities............................ (16,696) (4,014) (6,283) 24,475 31,012
Other noncurrent liabilities and deferred credits.... (25,198) (28,364) (10,628) (1,476) (1,696)
Net cash flows from operating activities.................. 54,557 14,091 16,726 (22,012) (37,023)
Cash Flows from Investing Activities:
Purchase of property.................................... (154,480) (123,739) (55,026) (2,818) (8,869)
Proceeds from dispositions of property.................. 20,135 25,693 14,323 461 6,986
Advances to discontinued operations, net................ (9,670) (6,952) -- -- --
Proceeds from sale of discontinued operations........... 447,073 172,080 -- -- --
Proceeds from sales of subsidiaries..................... -- 122,500 62,992 -- --
Acquisition of business, net of cash acquired........... -- -- (127,068) -- --
Other long-term assets, net............................. (6,205) (3,217) (4,670) 51 (31)
Net cash flows provided by (used in) investing
activities.............................................. 296,853 186,365 (109,449) (2,306) (1,914)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FLAGSTAR COMPANIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED QUARTER ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, APRIL 2,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
($ IN THOUSANDS)
Cash Flows from Financing Activities:
Net borrowings (repayments) under credit agreements..... $ (93,000) $ -- $ 56,000 $ -- $ --
Deferred financing costs................................ (25) -- (9,591) -- --
Long-term debt payments................................. (201,664) (56,035) (44,108) (6,914) (21,657)
Cash dividends on preferred stock....................... (14,175) (14,175) (14,175) (3,544) --
Net cash flows used in financing activities............. (308,864) (70,210) (11,874) (10,458) (21,657)
Increase (decrease) in cash and cash equivalents........ 42,546 130,246 (104,597) (34,776) (60,594)
Cash and Cash Equivalents at:
Beginning of period..................................... 24,174 66,720 196,966 196,966 92,369
End of period........................................... $ 66,720 $196,966 $ 92,369 $ 162,190 $ 31,775
Supplemental Cash Flow Information:
Income taxes paid....................................... $ 8,035 $ 3,591 $ 2,196
Interest paid........................................... $ 244,478 $238,832 $239,284
Non-cash financing activities:
Capital lease obligations............................ $ 18,800 $ 5,505 $ 12,310
Dividends declared but not paid...................... $ 3,544 $ 3,544 $ --
Non Cash investing activities:
Notes receivable related to sales of restaurants..... $ 3,024 $ 3,738 $ 1,217
Other investing...................................... $ -- $ 8,185 $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND APRIL 2, 1997
IS UNAUDITED)
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.
Flagstar, through its wholly-owned subsidiaries, Denny's Holdings, Inc.,
Spartan Holdings, Inc. and FRD Acquisition Co. (and their respective
subsidiaries), owns and operates the Denny's, El Pollo Loco, Quincy's Family
Steakhouse, Coco's and Carrows restaurant brands and is the largest franchisee
of Hardee's. Denny's, a family-style restaurant chain, operates in forty-nine
states, two U.S. territories, and six foreign countries, with principal
concentrations in California, Florida, Texas, Washington, Arizona, Pennsylvania,
Illinois, and Ohio. Hardee's competes in the quick-service hamburger category
and Quincy's operates in the family-steak restaurant category. 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. Coco's and
Carrows restaurant chains, acquired by Flagstar in May 1996, compete in the
family-style category and are located primarily in the western United States.
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:
The consolidated balance sheet as of April 2, 1997 and the statements of
consolidated operations and cash flows for the quarters ended March 31, 1996 and
April 2, 1997 are unaudited. In the opinion of management, these statements
contain all adjustments necessary to present fairly the financial position of
the Company and subsidiaries as of April 2, 1997 and the results of their
operations and their cash flows for the quarters ended March 31, 1996 and April
2, 1997. All such adjustments are of a normal recurring nature.
(a) CONSOLIDATED FINANCIAL STATEMENTS. The Consolidated Financial
Statements include the accounts of the Company, and its subsidiaries.
Certain prior year amounts have been reclassified to conform to the
1996 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 revenues
and expenses during the period reported. Actual results could differ
from those estimates.
(c) CASH AND CASH EQUIVALENTS. 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. Owned property is stated at cost and is
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 the net assets acquired of FRI-M Corporation (see Note 2 for
further details) is being amortized over a 40-year period on the
straight-line method. Other intangible assets consist primarily of
costs allocated 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
F-7
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
of the operating agreements. The Company assesses the recoverability of
goodwill and other intangible assets by projecting future net income
related to the acquired business, before the effect of amortization of
intangible assets, over the remaining amortization period of such
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 3 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 direct incremental
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. The total discounted self-insurance liabilities recorded
at December 31, 1995 and 1996 were $91.0 million and $100.1 million
respectively, reflecting a 4% discount rate. The related undiscounted
amounts at such dates were $98.0 million and $111.1 million,
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. Production costs for radio and television
advertising are expensed as of the date the commercials are initially
aired. Advertising expense for the years ended December 31, 1994, 1995
and 1996 was $85.8 million, $93.0 million, and $114.3 million,
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
the years ended December 31, 1994 and 1995 was $37.4 million and $18.9
million, respectively.
(o) DEFERRED GAINS. In September 1995, the Company sold its distribution
subsidiary, Proficient Food Company (PFC), for 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. During the third quarter of 1996, the
Company sold Portion-Trol Foods, Inc. and the Mother Butler Pies
division of Denny's, its two food processing operations. The sales were
finalized in the fourth quarter of 1996 pursuant to the purchase price
adjustment provisions of the related agreements. Consideration from the
sales totaled approximately $72.1 million, including the receipt of
approximately $60.6 million in cash. In conjunction with each of the
sales, the Company entered into five year purchasing agreements with
the acquirers. These transactions resulted in deferred gains totaling
approximately $41.5 million that are being amortized over the lives of
the respective purchasing agreements as a
F-8
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
reduction of product cost. The portion of the deferred gains recognized
as a reduction in product costs in 1995 and 1996 was approximately $2.8
million and $11.1 million, respectively.
(p) CASH OVERDRAFTS. The Company has included in accounts payable on the
accompanying consolidated balance sheets cash overdrafts totalling
$54.4 million and $51.6 million at December 31, 1995 and 1996,
respectively.
(q) FRANCHISE AND LICENSE FEES. Initial franchise and license fees are
recognized when all material services have been performed and
conditions have been satisfied. Initial fees for all periods presented
are insignificant. Monthly fees are accrued as earned based on the
respective monthly sales. Such fees totaled $46.4 million, $59.3
million, and $71.1 million for the years ended December 31, 1994, 1995
and 1996, respectively.
(r) GAINS ON SALES OF COMPANY-OWNED RESTAURANTS. Gains on the sales of
Company-owned restaurants to franchisees are recognized in accordance
with Statement of Financial Accounting Standards Statement No. 66,
"Accounting for Sales of Real Estate". In this regard, gains on such
sales are recognized when the cash proceeds from the sale exceed 20% of
the sales price. During the years ended December 31, 1994, 1995 and
1996 the Company recognized gains related to sales of Company-owned
restaurants of approximately $10.0 million, $24.5 million and $8.4
million, respectively, receiving cash proceeds of $11.1 million, $26.1
million and $8.5 million, respectively. Such gains are included as a
reduction of other operating expenses in the accompanying statements of
consolidated operations. Deferred gains and the non-cash portion of
proceeds related to such transactions are not significant.
(s) UNAUDITED PRO FORMA INFORMATION. The unaudited pro forma information
gives effect to the restructuring plan discussed in Note 14, as if such
plan had been consummated on April 2, 1997. In conjunction with such
plan, the Company has decided to pursue a restructuring of its debt and
preferred stock through "prepackaged" bankruptcy filings to be made
under Chapter 11 of the Bankruptcy Code by Flagstar Companies, Inc.,
and its wholly-owned subsidiary, Flagstar Corporation. The Company's
operating subsidiaries would not be a party to any such filings under
the Bankruptcy Code. In accordance with the principles of AICPA
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code", the restructuring would
result in the application of fresh start reporting. Such reporting
results in the revaluation of assets and liabilities to estimated
current fair value. The unaudited pro forma information reflects the
impact of the conversion of certain issuances of long-term debt and
preferred stock to common stock, the revaluation of the net assets of
the Company to estimated reorganization value, the revaluation of debt
obligations not compromised to estimated current fair value, and the
elimination of goodwill and deferred financing costs. The
reorganization value was determined by estimating the fair value of the
Company. The carrying values of the identifiable assets and liabilities
other than debt obligations were assumed to represent their fair values
for purposes of this pro forma information; such carrying values are
subject to revision following the results of appraisals and other
studies.
(t) CHANGE IN FISCAL YEAR. Effective January 1, 1997, the Company changed
its fiscal year end from December 31 to the last Wednesday of the
calendar year. Concurrent with this change, the Company changed to a
four-four-five week quarterly closing calendar which is the restaurant
industry standard, and generally results in four thirteen-week quarters
during the year with each quarter ending on a Wednesday. Due to the
timing of this change, the first quarter of 1997 includes more than
thirteen weeks of operations. Carrows and Coco's include an additional
six days, Denny's includes an additional five days, El Pollo Loco
includes an additional week and Hardee's and Quincy's include an
additional day. The prior year comparable quarter consisted of thirteen
weeks.
(u) PRO FORMA EARNINGS PER SHARE. The Company will adopt Statement of
Financial Accounting Standards Statement No. 128, "Earnings per Share"
in the quarter ended December 31, 1997. In conjunction with such
adoption, per share computations for prior interim and annual periods
will be restated. This standard will require the presentation of
"basic" and "diluted" earnings (loss) per share. For the quarters ended
April 2, 1997 and March 31, 1996, basic loss per share under the new
standard will not differ from loss per share as presented in the
consolidated financial statements. For such periods, under the new
standard, diluted per share amounts will not differ from basic per
share amounts since the Company's options, warrants and convertible
debt and preferred stock will have an antidilutive impact on per share
amounts due to the losses in those periods.
F-9
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 ACQUISITION
On May 23, 1996, the Company, through FRD Acquisition Co. ("FRD"), a newly
formed subsidiary, consummated the acquisition of the Coco's and Carrows
restaurant chains consisting of 347 company-owned units within the family-style
category. The acquisition price of $313.4 million plus acquisition costs (which
was paid in exchange for all of the outstanding stock of FRI-M Corporation
("FRI-M"), the subsidiary of Family Restaurants Inc. ("FRI") which owns the
Coco's and Carrows chains) was financed with $125.0 million in cash ($75.0
million of which was provided from the Company's cash balances and the remaining
$50.0 million pursuant to bank term loans which totaled $56.0 million with the
remaining $6.0 million being used to pay transaction fees), the issuance of
$156.9 million in senior notes of FRD to the seller, including an additional
$6.9 million principal amount of notes issued by FRD to FRI pursuant to the
purchase price adjustment provisions of the Stock Purchase Agreement on
September 4, 1996 and the assumption of certain capital lease obligations of
approximately $31.5 million. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the assets and liabilities and
results of operations of Coco's and Carrows are included in the Company's
consolidated financial statements for the period subsequent to the acquisition.
In accordance with the purchase method of accounting, the purchase price
has been allocated to the underlying assets and liabilities of FRI-M based on
their estimated respective fair values at the date of acquisition. The purchase
price exceeded the fair value of the net assets acquired by approximately $209
million. The resulting goodwill is being amortized on a straight line basis over
40 years. This amount reflects a decrease from the original estimate of
approximately $12 million. The revision, which was recorded during the fourth
quarter of 1996, is primarily due to the completion of certain valuations and
other studies which were prepared in order to estimate the fair value of the net
assets acquired. No further revisions to the purchase price allocation are
expected except for the potential impact of adjustments related to deferred
income taxes, which are expected to be resolved in early 1997.
The following unaudited pro forma financial information shows the results
of operations of the Company as though the acquisition occurred as of January 1,
1995. These results include the straight-line amortization of the excess of
purchase price over the net assets acquired over a 40-year period, a reduction
of overhead expenses resulting from the elimination of management fees formerly
paid to FRI, an increase in interest expense as a result of the debt issued to
finance the acquisition, and a reduction in FRI-M's income tax expense to
reflect the fact that the Company's net operating losses will offset FRI-M's
separate income tax provision (except for current foreign and state income
taxes) when calculated on a consolidated basis.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1995 1996
<S> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue............................................................ $3,077.1 $2,738.2
Loss from continuing operations.................................... (126.6) (83.4)
Net Loss........................................................... (48.9) (83.4)
Loss per common share:
Loss from continuing operations.................................. (3.32) (2.30)
Net loss......................................................... (1.49) (2.30)
</TABLE>
The pro forma financial information presented above does not purport to be
indicative of either (i) the results of operations had the acquisition taken
place on January 1, 1995 or (ii) future results of operations of the combined
businesses.
NOTE 3 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 the Company
intended to continue to operate were identified as impaired as the future
undiscounted cash flows of each of these units was estimated to be insufficient
to recover the related carrying value. As such, the carrying
F-10
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS -- Continued
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 was written
down to estimated fair value, based on sales of similar units or other estimates
of selling price, less costs to sell. The 36 units identified in 1995 for
disposal had aggregate operating revenues of approximately $26.1 million, an
operating loss of approximately $2.9 million during 1995, and an aggregate
carrying value of approximately $5.8 million as of December 31, 1995. As of
December 31, 1996, 29 units have been closed or sold. Management intends to
dispose of two of the remaining units in 1997 and continue to operate the other
five. The two units to be disposed of in 1997 had aggregate operating revenues
of approximately $1.6 million and operating income of $0.04 million during 1996
and an aggregate carrying amount of $0.3 million at December 31, 1996.
Charges attributable to the restructuring plan and the adoption of SFAS No.
121 during the year ended December 31, 1995 are comprised of the following:
<TABLE>
<S> <C>
($ in thousands)
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>
The 1995 restructuring plan was substantially completed in 1996 except for
certain asset replacement projects (where the assets to be replaced were written
down as part of the restructuring) which were postponed in 1996 due to the
Company's capital constraints. Such projects are expected to be completed in
1997. Pursuant to the restructuring plan, approximately 74 employees, primarily
corporate and field management, have been terminated as of December 31, 1996,
resulting in payments of approximately $4.5 million as of that date.
Effective in the fourth quarter of 1993, the Company approved a
restructuring plan, which, among other things, resulted in the identification
for sale, conversion to another concept or closure of 240 restaurants. As of
December 31, 1996, four units remain relative to the 1993 restructuring plan, of
which two are scheduled for disposal in 1997. Management has decided to continue
to operate the remaining two units. The two units to be disposed of in 1997 had
operating revenues of approximately $1.3 million and operating income of $0.03
million during 1996 and an aggregate carrying amount that was immaterial at
December 31, 1996.
NOTE 4 DEBT
At December 31, 1996, the Flagstar Second Amended and Restated Credit
Agreement (the "Credit Agreement") includes a working capital and letter of
credit facility of up to a total of $150.0 million which includes a working
capital advance sublimit of $75.0 million. At such date, the Company had no
working capital advances outstanding; however, letters of credit outstanding
were $79.7 million. The Credit Agreement terminates on April 10, 1999 and is
subject to mandatory prepayments and commitment reductions under certain
circumstances upon the Company's sale of assets or incurrence of additional
debt. See also the discussion below.
F-11
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
($ IN THOUSANDS)
Notes and Debentures:
10.75% Senior Notes due September 15, 2001, interest payable semi-annually...................... $ 270,000 $ 270,000
10.875% Senior Notes due December 1, 2002, interest payable semi-annually....................... 280,025 280,025
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
12.5% Senior Notes of FRD due July 15, 2004, interest payable semi-annually..................... -- 156,897
Mortgage Notes Payable:
10.25% Guaranteed Secured Bonds due 2000........................................................ 202,715 190,164
11.03% Notes due 2000........................................................................... 160,000 160,000
Term loan of FRI-M, principal payable in quarterly installments................................... -- 56,000
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)............................. 17,415 13,561
Capital lease obligations (see Note 5)............................................................ 144,573 160,226
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).................................. 13,548 8,740
Total............................................................................................. 2,034,946 2,242,283
Less current maturities (c)....................................................................... 38,835 62,890
$1,996,111 $2,179,393
</TABLE>
(a) Collateralized by restaurant and other properties with a net book value of
$20.9 million at December 31, 1996.
(b) Collateralized by equipment with a net book value of $13.2 million at
December 31, 1996.
(c) Aggregate annual maturities during the next five years of long-term debt are
as follows ($ in thousands): 1997 -- $62,890; 1998 -- $57,830;
1999 -- $51,169; 2000 -- $326,666; and 2001 -- $280,999. See Note 14 for
discussion regarding current maturities at April 2, 1997.
The borrowings under the Credit Agreement are secured by the stock of
certain operating subsidiaries and certain of 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 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 restricted 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 Credit Agreement contains 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 Credit Agreement at
December 31, 1996. Under the most restrictive provision of the Credit Agreement
(ratio of senior debt to EBITDA, as defined), at December 31, 1996, the Company
could incur approximately $28.4 million of additional indebtedness.
With respect to short-term liquidity, management believes that through a
combination of cash generated from operations, funds available through the bank
credit facility, various cash management measures and other sources, adequate
liquidity exists to meet the Company's working capital, debt service and capital
expenditure requirements for at least the next twelve months. Although no
assurances can be given in this regard, management believes, based on the
Company's historical
F-12
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
relationship with its banks, that it will be able, as necessary, to maintain
access to funds available under the credit agreement. See also Note 14,
"Subsequent Events -- Financial Restructuring (unaudited)."
At December 31, 1996, 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, 1996, the restaurant properties and
equipment had a net book value of $317.6 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 are
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 (or on a five
year average basis) to maintain the properties at least $19.3 million in 1997
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, 1996 of
$220.9 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, upon payment
of a premium. 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.
In connection with the acquisition by FRD of Coco's and Carrows on May 23,
1996, FRI-M (the "Borrower"), a wholly-owned subsidiary of FRD, obtained a new
credit facility (the "FRI-M Credit Facility") consisting of a $56 million,
39-month term loan (the "FRI-M Term Loan") and a $35 million working capital
facility (the "FRI-M Revolver"). Proceeds from the FRI-M Term Loan were used to
fund the Coco's and Carrows acquisition, and to pay the transactions costs
associated therewith. Proceeds from the FRI-M Revolver are to be used for
working capital requirements and other general corporate purposes, which may
include the making of intercompany loans to any of the Borrower's wholly owned
subsidiaries for their own working capital and other general corporate purposes.
Letters of credit may be issued under the FRI-M Revolver for the purpose of
supporting (i) workers' compensation liabilities of the Borrower or any of its
subsidiaries; (ii) the obligations of third party insurers of the Borrower or
any of its subsidiaries; and (iii) certain other obligations of the Borrower and
its subsidiaries. At December 31, 1996, there were no working capital borrowings
outstanding; however, letters of credit outstanding were $20.8 million.
Principal installments of the FRI-M Term Loan are payable quarterly as follows:
$4.0 million per quarter for four consecutive quarters beginning February 28,
1997; $5.0 million for four consecutive quarters beginning February 28, 1998; $6
million on February 28, 1998; and $7 million for two consecutive quarters
beginning May 31, 1999. The FRI-M Credit Facility expires, and all amounts under
the Facility must be repaid, on August 31, 1999. All borrowings under the FRI-M
Credit Facility accrue interest at a variable rate based on a base rate or an
adjusted Eurodollar rate (8.125% at year end 1996) and are secured by the issued
and outstanding stock, as well as substantially all the assets, of FRI-M and its
subsidiaries.
The FRI-M Credit Facility and the indenture under which the 12.5% senior
notes have been issued contain a number of restrictive covenants which, among
other things, limit (subject to certain exceptions) FRD and its subsidiaries
with respect to the incurrence of debt, existence of liens, investments and
joint ventures, the declaration or payment of dividends, the making of
guarantees and other contingent obligations, mergers, the sale of assets,
capital expenditures and material change in their business. In addition, the
FRI-M Credit Facility contains certain 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), maintenance of a minimum level of
EBITDA, and limitations on annual capital expenditures. The cash flows from FRD
are required to be used to service the debt issued in the Coco's and Carrows
acquisition (the FRI-M Credit Facility and the 12.5% Senior Notes), and,
therefore, other than for the payment of certain management fees and tax
reimbursements payable to Flagstar under certain conditions, are currently
unavailable to service the debt of Flagstar and its other subsidiaries. FRD's
cash flows from operating activities, included in the Company's total cash flow
from operating activities, were $21.2 million in 1996.
F-13
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 DEBT -- Continued
FRD and its subsidiaries were in compliance with the terms of the FRI-M
Credit Facility at December 31, 1996. Under the most restrictive provision of
the FRI-M Credit Facility (ratio of Consolidated Adjusted EBITDA to interest
expense), at December 31, 1996, FRD's consolidated EBITDA for the six months
ended December 31, 1996 could be $5.6 million less and the Company would still
be in compliance.
At December 31, 1996, the Company has $575 million aggregate notional
amount in effect of reverse interest rate exchange agreements with maturities
ranging from one to thirty-six 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 $9.2 million, $3.1 million, and $1.4 million for the years ended
December 31, 1994, 1995, and 1996, respectively. Management intends to maintain
its exchange agreements until maturity, unless there is a material change in the
underlying hedged instruments of the Company.
The counterparties to the Company's interest rate exchange agreements are
major financial institutions who participate in the Company's senior bank credit
facility. Such financial institutions are leading market-makers in the financial
derivatives markets, are well capitalized, and are expected to fully perform
under the terms of such exchange agreements, thereby mitigating the credit risk
to the Company.
The Company is exposed to market risk for such exchange agreements due to
the interest rate differentials described above. The Company monitors its market
risk by periodically preparing sensitivity analyses of various interest rate
fluctuation scenarios and the results of such scenarios on the Company's cash
flows on a nominal and discounted basis. In addition, the Company obtains
portfolio mark-to-market valuations from market-makers of financial derivatives
products.
Information regarding the Company's reverse interest rate exchange
agreements at December 31, 1996 is as follows ($ in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AMOUNT OF
YEAR OF NOTIONAL INTEREST RATE
MATURITY PAYMENT RECEIVED PAID
<S> <C> <C> <C>
1997 $ 275 5.22% 5.74%
1998 200 5.58% 5.72%
1999 100 5.82% 5.72%
$ 575 5.45% 5.73%
</TABLE>
The estimated fair value of the Company's long-term debt (excluding capital
lease obligations) is approximately $1.7 billion at December 31, 1996. Such
computations are based on market quotations for the same or similar debt issues
or the estimated borrowing rates available to the Company. At December 31, 1996,
the estimated fair value of the $575 million notional amount of reverse interest
rate swaps was a net payable of approximately $3.7 million and represents the
estimated amount that the Company would be required to pay to terminate the swap
agreements at December 31, 1996. This estimate is based upon a mark-to-market
valuation of the Company's swap portfolio obtained from a major financial
institution which is one of the counterparties to the exchange agreements.
On January 21, 1997, the Company hired Donaldson, Lufkin & Jenrette
Securities Corporation as a financial advisor to assist in exploring
alternatives to improve the Company's capital structure. Management intends to
explore all alternatives to reduce the Company's debt service requirements,
which may include a negotiated restructuring or other exchange transaction. See
Note 14 "Subsequent Events -- Financial Restructuring (Unaudited)" for
information regarding the status of these plans.
F-14
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 LEASES AND RELATED GUARANTEES
The Company's operations utilize property, facilities, equipment and
vehicles leased from others. In addition, certain owned and leased property,
facilities and equipment are leased to others.
Buildings and facilities leased from others primarily are for restaurants
and support facilities. At December 31, 1996, restaurants were operated under
lease arrangements which generally provide for a fixed basic rent, and, in some
instances, contingent rental based on a percentage of gross operating profit or
gross revenues. Initial terms of land and restaurant building leases generally
are not less than twenty years exclusive of options to renew. Leases of other
equipment primarily consist of merchandising equipment, computer systems and
vehicles, etc.
Information regarding the Company's leasing activities at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
MINIMUM MINIMUM MINIMUM MINIMUM
LEASE SUBLEASE LEASE SUBLEASE
PAYMENTS RECEIPTS PAYMENTS RECEIPTS
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
Year:
1997........................................................................ $ 41,517 $ 6,865 $ 61,395 $7,589
1998........................................................................ 35,321 6,363 58,514 7,422
1999........................................................................ 29,221 5,753 54,997 7,067
2000........................................................................ 23,380 4,938 51,173 6,749
2001........................................................................ 20,257 4,285 44,655 6,402
Subsequent years............................................................ 124,917 21,353 238,326 45,957
Total.................................................................... 274,613 $49,557 $509,060 $81,186
Less imputed interest......................................................... 114,387
Present value of capital lease obligations.................................... $160,226
</TABLE>
Payments for certain FRD operating leases are being made by FRI in
accordance with the provisions of the Stock Purchase Agreement. As such, these
payments have been excluded from the amount of minimum lease payments and
minimum sublease receipts reported above.
The total rental expense included in the determination of operating income
for the years ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
($ IN THOUSANDS)
Base rents........................................................................ $ 49,234 $ 48,269 $ 59,322
Contingent rents.................................................................. 12,178 11,274 10,929
Total........................................................................... $ 61,412 $ 59,543 $ 70,251
</TABLE>
Total rental expense does not reflect sublease rental income of $9,975,000,
$14,426,000, and $16,282,000 for the years ended December 31, 1994, 1995, and
1996, respectively.
F-15
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES
A summary of the provision for (benefit from) income taxes attributable to
the loss before discontinued operations and extraordinary items is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
($ IN THOUSANDS)
Current:
Federal......................................................................... $ 365 $ 1,940 $ (6,074)
State, Foreign and Other........................................................ 215 1,497 (1,287)
580 3,437 (7,361)
Deferred:
Federal......................................................................... -- -- (6,797)
State, Foreign and Other........................................................ (2,793) (3,451) (2,234)
(2,793) (3,451) (9,031)
Benefit from income taxes......................................................... $ (2,213) $ (14) $(16,392)
The total provision for (benefit from) income taxes related to:
Loss before discontinued operations and extraordinary items..................... $ (2,213) $ (14) $(16,392)
Discontinued operations......................................................... 10,470 8,731 --
Extraordinary items............................................................. (174) 25 --
Total provision for (benefit from) income taxes................................... $ 8,083 $ 8,742 $(16,392)
</TABLE>
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, for the year ended December 31, 1996,
the Company recorded a $7.3 million deferred Federal tax benefit related to the
reversal of certain reserves established in connection with the proposed
deficiencies from the Internal Revenue Service.
F-16
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 INCOME TAXES -- Continued
The following represents the approximate tax effect of each significant
type of temporary difference and carryforward giving rise to deferred income tax
liabilities or assets:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
($ IN THOUSANDS)
Deferred tax assets:
Deferred income......................................................................................... $24,326 $39,953
Self-insurance reserves................................................................................. 33,522 43,006
Capitalized leases...................................................................................... 15,823 19,869
Amortization of intangible assets....................................................................... -- 2,949
Other accruals and reserves............................................................................. 6,924 18,054
Alternative minimum tax credit carryforwards............................................................ 18,444 10,459
General business credit carryforwards................................................................... 21,623 19,232
Net operating loss carryforwards........................................................................ 9,764 32,135
Less: valuation allowance............................................................................... (54,452) (83,828)
Total deferred tax assets............................................................................... 75,974 101,829
Deferred tax liabilities:
Depreciation of fixed assets............................................................................ 89,787 118,190
Amortization of intangible assets....................................................................... 4,362 --
Total deferred tax liabilities.......................................................................... 94,149 118,190
Total deferred income tax liability..................................................................... $18,175 $16,361
</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 and extraordinary items is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Statutory rate.................................................................... 35% 35% 35%
Differences:
State, foreign, and other taxes, net of federal income tax benefit.............. 12 -- 2
Amortization of goodwill........................................................ -- -- 1
Reversal of certain reserves established in connection with proposed Internal
Revenue Service deficiencies................................................. -- -- 7
Portion of losses not benefited as a result of the establishment of valuation
allowance.................................................................... (35) (35) (29)
Effective tax rate................................................................ 12% --% 16%
</TABLE>
At December 31, 1996, the Company has available, to reduce income taxes
that become payable in the future, general business credit carryforwards of
approximately $19 million, most of which expire in 2002 through 2007; and
alternative minimum tax (AMT) credits of approximately $10 million. The AMT
credits may be carried forward indefinitely. In addition, the Company has
available regular income tax net operating loss carryforwards of approximately
$92 million which expire in 2007 through 2011. 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 the recapitalization will
be limited to a specified annual amount. The annual limitation for the
utilization of the tax credit carryforwards is approximately $8 million. The net
operating loss carryforward arose subsequent to the recapitalization and is
presently not subject to any annual limitation.
F-17
<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, 1994, 1995, and 1996 amounted to $4.0 million, $5.6 million and
$3.5 million, respectively, of which $3.3 million related to funded defined
benefit plans for all three years and $0.7 million, $2.3 million and $0.2
million related to nonqualified unfunded supplemental defined benefit plans for
executives.
The components of net pension cost of the funded and unfunded defined
benefit plans for the years ended December 31, 1994, 1995, and 1996 determined
under SFAS No. 87 follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
($ IN THOUSANDS)
Service cost...................................................................... $ 3,076 $ 2,829 $ 3,151
Interest cost on projected benefit obligations.................................... 2,427 2,651 2,895
Actual return on plan assets...................................................... 761 (3,722) (2,277)
Net amortization and deferral..................................................... (2,269) 2,074 (242)
Curtailment/settlement losses (due to early retirements of certain participants).. -- 1,762 --
Net pension cost.................................................................. $ 3,995 $ 5,594 $ 3,527
</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,
1995 1996
<S> <C> <C>
($ IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits....................................................................................... $23,993 $27,661
Non-vested benefits................................................................................... 1,466 1,488
Accumulated benefit obligations......................................................................... $25,459 $29,149
Plan assets at fair value............................................................................... $26,513 $31,109
Projected benefit obligation............................................................................ (32,059) (36,416)
Funded status........................................................................................... (5,546) (5,307)
Unrecognized net loss from past experience different from that assumed.................................. 6,301 6,890
Unrecognized prior service cost......................................................................... 69 --
Prepaid pension costs................................................................................... $ 824 $ 1,583
</TABLE>
Assets held by the Company's plans are invested in money market and other
fixed income funds as well as equity funds.
F-18
<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,
1995 1996
<S> <C> <C>
($ IN THOUSANDS)
Actuarial present value of accumulated benefit obligations:
Vested benefits........................................................................................ $ 4,080 $ 4,924
Non-vested benefits.................................................................................... 12 33
Accumulated benefit obligations.......................................................................... $ 4,092 $ 4,957
Plan assets at fair value................................................................................ $ -- $ --
Projected benefit obligation............................................................................. (4,188) (5,051)
Funded status............................................................................................ (4,188) (5,051)
Unrecognized net (gain) loss from past experience different from that assumed............................ (112) 616
Unrecognized prior service cost.......................................................................... 109 68
Unrecognized net asset at January 1, 1987 being amortized over 15 years.................................. (49) (9)
Additional liability..................................................................................... (543) (974)
Other.................................................................................................... 24 --
Accrued pension costs.................................................................................... $(4,759) $(5,350)
</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 1996
<S> <C> <C> <C>
Discount rate......................................................... 8.3% 8.0% 8.0%
Rates of salary progression........................................... 4.0% 4.0% 4.0%
Long-term rates of return on assets................................... 10.0% 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 $3.9 million for the years ended December 31,
1994 and 1995 respectively. The Company made no matching contributions for the
year ended December 31, 1996.
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,
1994, 1995, and 1996 were as follows: $4.2 million, $0.6 million, and $1.9
million. In addition to these incentive compensation plans, certain operations
have incentive plans in place under which regional, divisional and local
management participate.
At December 31, 1996, the Company has two stock-based compensation plans,
which are described below. The company has adopted the disclosure-only
provisions of Financial Accounting Standards Board Statement 123, "Accounting
for Stock Based Compensation" (SFAS 123) while continuing to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its stock-based compensation
plans. Under APB 25, because the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
The 1989 Stock Option Plan (the 1989 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 Plan
authorizes grants of up to 6.5 million common shares. The exercise price of each
option equals or exceeds the market price of the Company's stock on the date of
grant. Options granted to officer level employees vest at a rate of 20% per
annum beginning on the first anniversary date of the grant. Options granted to
non-officer level employees
F-19
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
prior to August 13, 1996 vest at a rate of 25% per annum. Those granted on
August 13, 1996 or subsequent thereto, vest at a rate of 20% per annum If not
exercised, all options expire ten years from the date of grant.
During January 1995, the Company issued 65,306 shares of common stock (Note
9) and granted an option under the 1989 Stock Option Plan to purchase 800,000
shares of the Company's common stock to an executive officer, at market value at
date of grant, for a ten year period. Such grant becomes exercisable at a rate
of 20% per year beginning on January 9, 1996 and each anniversary thereafter.
On June 21, 1995, generally all of the outstanding options held by the then
current employees of the Company under the 1989 Plan were repriced to $6.00 per
share, the market value of the common stock on that date. 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-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.
Options of 4.3 million were outstanding at December 31, 1995, of which
728,221 were exercisable. Such options had exercise prices of between $5.13 and
$17.50 per share. During 1995 no options were exercised.
On December 13, 1996, the outstanding options of certain officers and
senior staff, representing approximately 2.2 million outstanding options, were
repriced to $1.25 per share, the closing price of the common stock on December
12, 1996. The repricing did not impact the option vesting schedules.
In 1990, the Board of directors adopted a 1990 Non-qualified Stock Option
Plan (the 1990 Plan) for its directors who do not participate in management and
are not affiliated with GTO (See Note 12). Such plan authorizes the issuance of
up to 110,000 shares of common stock. The plan is substantially similar in all
respects to the 1989 Plan described above. At both December 31, 1995 and 1996,
options outstanding under the 1990 Option Plan totaled 10,000 shares.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options granted or repriced during 1995 and 1996 under
the fair value method of that statement. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1995 and 1996,
respectively: dividend yield of 0.0% for both years; expected volatility of
0.438 for both years; risk-free interest rates of 5.6% and 5.7%; and a weighted
average expected life of the options of 8.3 years and 8.9 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
($ IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE) 1995 1996
<S> <C> <C>
Pro forma net loss............................................................. $(57,719) $(87,124)
Pro forma loss per share:
Primary...................................................................... (1.68) (2.39)
Fully diluted................................................................ (1.68) (2.39)
</TABLE>
Due to the fact that the pro forma amounts above include only the impact of
the application of fair value accounting to options issued in 1995 and 1996 as
prescribed by Statement 123, they are not, and will not be, indicative of future
pro forma amounts until fair value accounting is applied to all outstanding
nonvested awards.
F-20
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 EMPLOYEE BENEFIT PLANS -- Continued
A summary of the Company's stock option plans as of December 31, 1996 and
changes during the year ended December 31, 1996 is presented below:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE
<S> <C> <C>
Outstanding at beginning of year.......................................... 4,338 $ 8.02
Granted
Exercise price equals fair value at grant date.......................... 687 2.75
Exercise price exceeds fair value at grant date......................... 3,167 2.68
Exercised.................................................................
Forfeited/Expired......................................................... (3,873) 6.05
Outstanding at end of year................................................ 4,319 $ 5.04
Exercisable at year-end................................................... 1,154 $ 9.84
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 1.25-$1.25 2,210,895 9.06 $ 1.25 191,358 $ 1.25
$ 2.75-$2.75 126,700 9.62 2.75 -- --
$ 6.00-$6.13 1,381,280 7.71 6.07 482,475 6.04
$15.00-$17.50 600,000 1.88 17.08 480,000 17.08
4,318,875 7.64 $ 5.04 1,153,833 $ 9.84
</TABLE>
The weighted average fair value per option of options granted during the
years ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Exercise price equals fair value at grant date....................................... $3.06 $1.65
Exercise price exceeds fair value at grant date...................................... 2.97 .78
</TABLE>
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 businesses, 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, 1996, over and above any
insurance coverage in respect to certain of them, are not specifically
determinable at this time.
In 1994, Flagstar was advised of proposed deficiencies from the Internal
Revenue Service for federal income taxes totaling approximately $12.7 million.
The proposed deficiencies relate to examinations of certain income tax returns
filed by the Company and Flagstar for the seven taxable periods ended December
31, 1992. In the third quarter of 1996, this proposed deficiency was reduced by
approximately $7.0 million as a direct result of the passage of the Small
Business Jobs Protection Act ("the Act") in August 1996. The Act included a
provision that clarified Internal Revenue Code Section 162(k) to allow for the
amortization of borrowing costs incurred by a corporation in connection with a
redemption of its stock. As the Company believes the remaining proposed
deficiencies are substantially incorrect, it intends to continue to contest such
proposed deficiencies.
The Company's Hardee's restaurants are operated under licenses from
Hardee's Food Systems, Inc. ("HFS"). The Company does not believe HFS has
satisfied its contractual obligations to support the Hardee's franchise and on
March 19, 1997, the Company notified HFS, pursuant to its various license
agreements, that its subsidiary was seeking to arbitrate certain
F-21
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 COMMITMENTS AND CONTINGENCIES -- Continued
claims of the subsidiary against HFS. In its demand for arbitration, the
Company's subsidiary alleges (i) breach by HFS of its license agreements with
the Company's subsidiary, (ii) breach of fiduciary duty and negligence by HFS in
mishandling and misapplying funds of the Company's subsidiary held for
advertising, and (iii) unfair trade practices. No assurances can be given as to
the outcome of such arbitration proceeding or its impact on the Company's
Hardee's operations.
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, liquidity or
results of operations of the Company.
The Company is guarantor on capital lease obligations of approximately $4.5
million at December 31, 1996 from the sale of PFC. See Note 1(o).
On February 22, 1996, the Company entered into an agreement with Integrated
Systems Solutions Corporation (ISSC). The ten year agreement for $340.6 million
(including an additional $17.6 million for FRD), which requires annual payments
ranging from $24.0 million to $47.5 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. Under the agreement,
ISSC has full oversight responsibilities for the data center operations,
applications development and maintenance, voice and data networking, help desk
operations, and point-of-sale technology.
In conjunction with the sales of Portion-Trol Foods, Inc. and the Mother
Butler Pies division of Denny's, the Company entered into five year purchasing
agreements with the acquirers under which the Company is required to make
minimum annual purchases over the contract terms. The aggregate estimated
commitments remaining at December 31, 1996 relative to Portion-Trol Foods, Inc.
and Mother Butler Pies, respectively, are approximately $450 million and $54
million.
F-22
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
TOTAL SHAREHOLDERS'
OTHER EQUITY DEFICIT EQUITY (DEFICIT)
<S> <C> <C> <C>
($ IN THOUSANDS)
Balance December 31, 1993....................................................... $735,269 $(2,157,818) $ (1,422,549)
Activity:
Net Income................................................................. -- 364,093 364,093
Dividends declared 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 declared on Preferred Stock...................................... -- (14,175) (14,175)
Issuance of Common Stock (Note 7).......................................... 400 -- 400
Minimum pension liability adjustment....................................... 497 -- 497
Balance December 31, 1995....................................................... 746,297 (1,877,274) (1,130,977)
Activity:
Net Loss................................................................... -- (85,460) (85,460)
Dividends declared on Preferred Stock...................................... -- (10,631) (10,631)
Minimum pension liability adjustment....................................... (459) (459)
Balance December 31, 1996....................................................... 745,838 (1,973,365) (1,227,527)
Activity:
Net Loss................................................................... (51,728) (51,728)
Balance April 2, 1997........................................................... $745,838 $(2,025,093) $ (1,279,255)
</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.
The Company did not make the fourth quarter 1996 or first quarter 1997
dividend payments on its Preferred stock. Such cumulative dividends that have
not been declared or paid total $3.5 million, or $.08 per share, at December 31,
1996 and $7.1 million or $.17 per share at April 2, 1997.
At December 31, 1996, 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.
F-23
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS -- Continued
The calculations of primary and fully diluted loss per share amounts for
the years ended December 31, 1995 and 1996 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 1995 and 1996 because they have an antidilutive effect on loss
per share.
For the year ended December 31, 1994, the calculation of primary earnings
per share has been based on the weighted average number of outstanding shares as
adjusted by the assumed dilutive effect that would occur if the outstanding
warrants and stock options were exercised, using the modified treasury stock
method. The calculation of fully diluted earnings per share has been based on
additional adjustments to the primary earnings per share amount for the dilutive
effect of the assumed conversion of the $2.25 Preferred Stock and 10%
Convertible Debentures.
NOTE 11 EXTRAORDINARY ITEMS
The Company recorded losses from extraordinary items as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
INCOME LOSSES,
TAX NET OF
LOSSES BENEFITS TAXES
<S> <C> <C> <C>
($ 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 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 loans 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 $25.0 million principal amount of certain senior indebtedness, net of the
charge-off of the related unamortized deferred financing costs of $0.9 million.
NOTE 12 RELATED PARTY TRANSACTIONS
The Company expensed annual advisory fees of $250,000 for the year ended
December 31, 1994 for Gollust Tierney & Oliver, Incorporated (GTO), a
stockholder of the Company.
KKR received annual financial advisory fees of approximately $1.3 million
for the years ended December 31, 1994, 1995, and 1996.
During January 1997, the Company settled its employment and benefits
arrangments with, and loan receivable from, a former officer previously
scheduled to mature in November 1997. The Company received net proceeds of $8.2
million and
F-24
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 RELATED PARTY TRANSACTIONS -- Continued
recorded a net charge of approximately $3.5 million which has been included in
other non-operating expenses in the accompanying 1996 Statement of Consolidated
Operations.
Interest income for the loan receivable from the former officer for the
years ended December 31, 1994, 1995 and 1996 totaled $842,000, $886,000 and
$935,000, respectively.
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 $75.8 million, 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, 1994, and 1995 were $859.7 million, and $322.3 million and $32.6
million, and $17.1 million, respectively.
NOTE 14 SUBSEQUENT EVENTS -- FINANCIAL RESTRUCTURING (UNAUDITED)
On March 17, 1997, the Company reached an agreement in principle on the
terms of a financial restructuring plan with an ad hoc committee representing
holders of both its 11 3/8% Senior Subordinated Debentures due 2003 and its
11.25% Senior Subordinated Debentures due 2004. In conjunction with such plan,
the Company has decided to pursue a restructuring of its debt and preferred
stock through "prepackaged" bankruptcy filings to be made under Chapter 11 of
the Bankruptcy Code by Flagstar Companies, Inc. and its wholly-owned subsidiary,
Flagstar Corporation. The Company's operating subsidiaries would not be a party
to any such filings under the Bankruptcy Code. Pursuant to such restructuring,
the Company intends to offer 100% of the common shares of the reorganized
company to holders of the senior subordinated debentures, the 10% Convertible
Junior Subordinated Debentures due 2014 and the $2.25 Series A Cumulative
Convertible Exchangeable Preferred Stock, in exchange for such securities. The
existing common equity holders would receive 5-year out-of-the-money warrants to
purchase 7% of the common stock of the reorganized company on a fully diluted
basis. The plan provides, among other things, for the merger of Flagstar
Companies, Inc. and Flagstar Corporation into a single corporation. Consummation
of the plan is subject to certain conditions, including without limitation
confirmation of the plan by the United States Bankruptcy Court.
In addition, on March 6, 1997, the Company's credit agreement was amended
to provide for less restrictive financial covenants for measurement periods
ending on April 2, 1997 and July 2, 1997, as well as to provide the Company
flexibility to forego scheduled interest payments due in March, May and June
1997 under the 10 3/4% Senior Notes, the 10 7/8% Senior Notes, the 11 3/8%
Senior Subordinated Debentures, the 11.25% Senior Subordinated Debentures, and
the 10% Junior Subordinated Debentures without triggering a default under the
agreement, unless any such debt is declared to be due and payable as a result of
the failure to pay any such interest.
On March 17, 1997, in anticipation of the plan, the Company elected not to
make an interest payment due and payable as of that date to holders of its
11 3/8% Senior Subordinated Debentures. As a result, and as a result of a
continuation of such non-payment for 30 days following the due date, Flagstar is
in default under the indenture governing such debentures, and the holders of 25%
of such debentures or the trustee therefor may declare such debt to be due and
payable. Such debt is reflected as a current liability in the accompanying
consolidated balance sheet at April 2, 1997. If such debt is declared to be due
and payable this will create an event of default relative to the 10 3/4% Senior
Notes and the 10 7/8% Senior Notes, entitling 30% of the holders of such
indebtedness or the trustee therefore to declare such indebtedness also to be
due and payable. In addition,
F-25
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 SUBSEQUENT EVENTS -- FINANCIAL RESTRUCTURING (UNAUDITED) -- Continued
on May 1, 1997, in anticipation of the plan, Flagstar elected not to make
interest payments due and payable as of that date with respect to the 11.25%
Senior Subordinated Debentures and the 10% Convertible Junior Subordinated
Debentures. Such debt is reflected as a current liability in the accompanying
consolidated balance sheet at April 2, 1997. If Flagstar does not make such
payments within 30 days following the due date, Flagstar will be in default
under the indentures governing such debentures and, in either such case, the
holders of 25% of such debentures or the trustee therefor may declare such debt
to be due and payable (with similar cross-acceleration rights accruing under the
10 3/4% Senior Notes and the 10 7/8% Senior Notes as described above).
The Company has received commitments from a bank for bank facilities that
will allow for working capital advances and letters of credit during the time
period beginning at the date of a Chapter 11 filing and continuing through
emergence from Chapter 11, subject to certain conditions. Specifically, the
Company has a commitment for a $200 million debtor-in-possession revolving
credit facility (the "DIP Facility") which will refinance the Credit Agreement
at the point in time of a Chapter 11 filing and will be available from that
point through the earlier of one year or the substantial consummation of the
plan, and a $200 million senior secured revolving credit facility (the "Exit
Facility") which will refinance the DIP Facility upon the Company's emergence
from Chapter 11. The closing of each facility is subject, among other
conditions, to negotiation of definitive agreements with the bank, and, in the
case of the Exit Facility, the initial borrowing thereunder having been made on
or before the earlier of July 31, 1998 and twelve months after the date of a
Chapter 11 filing. The Company believes that the DIP Facility and Exit Facility,
together with cash generated from operations, various cash management measures
and other sources, will provide the Company with adequate liquidity to meet its
working capital, debt service and capital expenditure requirements for at least
the next twelve months.
F-26
<PAGE>
FLAGSTAR COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 QUARTERLY DATA (UNAUDITED)
The results for each quarter include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for
interim periods. The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim or an
annual basis. Selected consolidated financial data for each quarter within 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, 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)
Year Ended December 31, 1996:
Operating Revenue............................................................ $550,425 $626,570 $703,838 $661,469
Operating expenses:
Product costs.............................................................. 160,028 184,842 206,777 192,425
Payroll & benefits......................................................... 214,531 235,605 258,613 237,023
Depreciation & amortization expense........................................ 29,047 30,006 33,555 37,340
Utilities expense.......................................................... 22,754 24,329 30,698 26,696
Other...................................................................... 96,579 108,428 125,868 130,766
Operating income............................................................. $ 27,486 $ 43,360 $ 48,327 $ 37,219
Loss before extraordinary item............................................... $(27,310) $(17,435) $(12,519) $(28,196)
Net loss applicable to common shareholders................................... $(30,854) $(20,979) $(16,062) $(31,740)
Primary and fully diluted per share amounts applicable to common
shareholders:
Loss before extraordinary items............................................ $ (0.73) $ (0.49) $ (0.38) $ (0.75)
Net loss................................................................... $ (0.73) $ (0.49) $ (0.38) $ (0.75)
</TABLE>
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 all of the
1995 and 1996 quarters were anti-dilutive. Accordingly, the primary and fully
diluted loss per share amounts for such quarters are equivalent.
F-27
<PAGE>
FLAGSTAR COMPANIES, INC.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed statements of consolidated
operations (the "Pro Forma Statements") are required by the rules of the
Securities and Exchange Commission ("SEC") and are provided for information
purposes only. The Pro Forma Statements should not be considered indicative of
the results that would have been or will be attained since they are based on
historical rather rather than prospective information and include certain
assumptions and estimates which are subject to change.
The Pro Forma Statements illustrate the effects of the transaction between
the Registrant and FRI, whereby the Registrant acquired the Coco's and Carrows
restaurant chains from FRI, and are based on the historical financial statements
of the Registrant and of FRI-M, the subsidiary of FRI which owned the Coco's and
Carrows chains, as of and for the year ended December 31, 1996. The Pro Forma
Statements reflect how the Registrant's condensed consolidated statements of
operations for the year ended December 31, 1996 might have appeared if the
transaction had occurred on January 1, 1996.
The Pro Forma Statements are unaudited and should be read in conjunction
with the accompanying notes thereto and with the historical financial statements
and related notes of the Registrant and FRI-M. The pro forma purchase
adjustments are based on assumptions and estimates made specifically for the
purpose of preparing these Pro Forma Statements and are not necessarily
indicative of the results that actually would have occurred had the acquisition
been consummated on the dates indicated or the results that may occur or be
obtained in the future.
F-28
<PAGE>
FLAGSTAR COMPANIES, INC.
PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
(A) (B)
FLAGSTAR FRI-M PRO-FORMA
(IN THOUSANDS) COMPANIES, INC. CORPORATION ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C>
Operating revenue.................................................. $ 2,542,302 $ 195,943 $ 2,738,245
Operating expenses................................................. 2,385,910 193,461 $(4,462)(c) 2,574,909
Operating income................................................... 156,392 2,482 4,462 163,336
Other charges:
Interest and debt expense, net................................... 254,707 4,658 5,445(d) 264,810
Other, net....................................................... 3,537 (5,437) (1,900)
Income (loss) before income taxes from continuing operations....... (101,852) 3,261 (983) (99,574)
Provision (benefit) for Income taxes............................... (16,392) 2,160 (1,960)(e) (16,192)
Net income (loss).................................................. $ (85,460) $ 1,101 $ 977 $ (83,382)
Loss per common share.............................................. $ (2.35) $ (2.30)
</TABLE>
See notes to pro forma condensed statements of consolidated operations.
F-29
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
On May 23, 1996, Flagstar Companies, Inc. ("FCI"), through FRD Acquisition
Co. ("FRD"), a newly formed subsidiary, consummated the acquisition of the
Coco's and Carrows restaurant chains. The acquisition price of $313.4 million
was paid in exchange for all of the outstanding stock of FRI-M Corporation
("FRI-M"), the subsidiary of Family Restaurants Inc. ("FRI") which owns the
Coco's and Carrows restaurant chains. The total purchase price and the
components thereof are as follows:
<TABLE>
<S> <C>
(in thousands)
FCI cash investment............................................... $ 75,000
Senior notes payable to FRI....................................... 156,897
Proceeds of term loan............................................. 50,000
Assumption of capital lease obligations........................... 31,500
Acquisition price $313,397
</TABLE>
The purchase price to be allocated to the assets acquired and liabilities
assumed in accordance with the purchase method of accounting is calculated as
follows:
<TABLE>
<S> <C>
Acquisition price $313,397
Direct costs of the acquisition 3,100
Capital lease obligations assumed (31,500)
$284,997
</TABLE>
The purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair market values. This allocation is
summarized as follows:
<TABLE>
<S> <C>
Current assets................................................ $ 10,896
Property, plant and equipment................................. 152,391
Goodwill...................................................... 208,466
Other Intangibles............................................. 8,858
Current liabilities........................................... (71,713)
Long-term liabilities......................................... (23,901)
$ 284,997
</TABLE>
The above reflects the final allocation of the purchase price in December
1996 as the result of the finalization of appraisals of the assets acquired. As
a result of such finalization, property, plant and equipment was increased by
approximately $12 million as compared to the preliminary allocation, with a
corresponding decrease in goodwill.
(a) Includes the results of operations of FRI-M for the period subsequent to the
acquisition by FRD.
(b) Includes the results of operations of FRI-M for the five months ended May
23, 1996.
(c) Includes the following pro forma adjustments as further described below:
<TABLE>
<S> <C>
(in thousands)
(1) Adjustment of amortization $ 102
(2) Adjustment for reduction in general and administrative expenses (4,564)
Total $(4,462)
</TABLE>
(1) To reflect the reversal of amortization expense related to
reorganization costs of FRI-M of $2,200,000 and to reflect the
amortization of the excess of the purchase price paid by FRD
over the net assets acquired of $2,302,000. The previous
reorganization costs were being amortized over a 30 year period
and the acquisition related goodwill is being amortized over a
40 year period.
(2) The adjustment for general and administrative expenses
represents reductions in corporate overhead charges previously
incurred by FRI-M of $3,892,000 and elimination of the
management fee of
F-30
<PAGE>
$1,630,000, both charged to FRI-M by its former parent, offset
by an estimated increase in the Registrant's overhead expense of
approximately 0.5% of FRI-M operating revenues. The net decrease
in general and administrative expenses reflects anticipated cost
savings and efficiencies from combining the operations of the
Registrant and FRI-M.
(d) To reflect the elimination of interest of $5,658,000 on FRI-M's loan payable
to banks, including amortization of deferred financing costs and to reflect
interest on (i) the $156,897,000 of notes payable to FRI at an annual interest
rate of 12.5%, (ii) the $56,000,000 term loan (including the current portion of
$4,000,000) at an annualized interest rate of 8.5%, (iii) assumed borrowings of
$5,000,000 on the revolving portion of the Credit Facility at an assumed annual
interest rate of 8.5% and (iv) use of $23,000,000 of the revolving portion of
the Credit Facility to support letters of credit at an annual interest rate of
3.0% and a commitment fee of 0.5% annually on the unused portion of the
revolving portion of the Credit Facility ($7,000,000). The adjustment also
includes amortization of the deferred financing costs incurred in connection
with the financing of the Acquisition and the accretion of interest on the
discounted self insurance reserves. The deferred financing costs of $3,900,000
in connection with the Credit Facility and $600,000 on the Notes are amortized
over 39 months and 8 years, respectively.
(e) The pro forma adjustment reflects the fact that the Registrant's net
operating losses will offset FRI-M's separate tax provision when calculated on a
consolidated basis, except for current foreign and state income taxes.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FRD Acquisition Co.:
We have audited the accompanying combined balance sheets of FRI-M which includes
FRI-M Corporation, a wholly owned subsidiary of Family Restaurants, Inc. (The
Parent), and certain subsidiaries including those restaurants that make up the
Family Restaurant Division and including the FRD Commissary (collectively FRI-M
or the Company) as of December 25, 1994 and December 31, 1995 and the related
combined statements of operations and net combined equity and cash flows for the
year ended December 26, 1993 and the one month ended January 26, 1994
(FRI-Predecessor Company), and the eleven months ended December 25, 1994 and the
year ended December 31, 1995 (FRI-Successor Company). These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the combined 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, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 25, 1994 and December 31, 1995 and the results of their operations and
their cash flows for the year ended December 26, 1993 and the one month ended
January 26, 1994 (FRI-Predecessor Company), and the eleven months ended December
25, 1994 and the year ended December 31, 1995 (FRI-Successor Company) in
conformity with generally accepted accounting principles.
As discussed in note 1 to the combined financial statements, the Parent
commenced a Chapter 11 bankruptcy case on November 23, 1993, which was confirmed
by the United States Bankruptcy Court for the District of Delaware on January 7,
1994. Accordingly, the accompanying combined financial statements have been
prepared in conformity with American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting for Entities in Reorganization
Under the Bankruptcy Code."
KPMG PEAT MARWICK LLP
Orange County, California
February 9, 1996 except as to the fifth
paragraph of note 7 and note 14 which
are as of May 23, 1996
F-32
<PAGE>
FRI-M (NOTE 1)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................................... $ 4,220 $ 5,497
Receivables.................................................................................... 7,414 5,439
Merchandise inventories........................................................................ 6,063 5,288
Net assets held for sale....................................................................... -- 13,248
Other.......................................................................................... 2,220 2,240
Total current assets........................................................................ 19,917 31,712
Property and equipment, net...................................................................... 165,285 146,042
Reorganization value in excess of amounts allocable to identifiable assets, net.................. 150,632 145,352
Other assets..................................................................................... 15,159 9,741
$350,993 $332,847
LIABILITIES AND NET COMBINED EQUITY
Current liabilities:
Loans payable to bank.......................................................................... $ 59,600 $ 79,815
Current maturities of long-term debt, including capitalized lease obligations.................. 4,347 4,915
Accounts payable............................................................................... 18,930 23,316
Self-insurance reserve......................................................................... 13,870 16,868
Other.......................................................................................... 29,393 27,830
Total current liabilities................................................................... 126,140 152,744
Debt, including capitalized lease obligations, less current maturities........................... 32,499 27,502
Net combined equity.............................................................................. 192,354 152,601
$350,993 $332,847
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE>
FRI-M (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FRI-PREDECESSOR COMPANY FRI-SUCCESSOR COMPANY
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Operating revenues................................................. $487,433 $43,538 $460,636 $501,248
Product cost....................................................... 143,619 12,946 131,436 143,206
Payroll and benefits............................................... 187,757 17,175 170,346 180,922
Occupancy and other operating expenses............................. 78,370 7,130 72,509 79,331
Depreciation and amortization...................................... 10,042 778 23,221 28,447
General, administrative and selling expenses....................... 41,035 4,341 40,083 43,535
Franchise fees..................................................... (4,850) (539) (5,389) (4,371)
Loss on disposition of properties, net............................. 938 -- 3,064 2,269
456,911 41,831 435,270 473,339
Operating income................................................... 30,522 1,707 25,366 27,909
Interest expense................................................... 4,594 458 6,476 16,515
Income before income taxes......................................... 25,928 1,249 18,890 11,394
Pro forma income tax provision..................................... 10,692 532 9,496 6,670
Net income....................................................... $ 15,236 $ 717 9,394 4,724
Net combined equity, beginning of period........................... 242,275 192,354
Intercompany and equity activity, net.............................. (59,315) (44,477)
Net combined equity, end of year................................... $192,354 $152,601
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE>
FRI-M (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FRI-PREDECESSOR COMPANY FRI-SUCCESSOR COMPANY
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income.................................................... $ 15,236 $ 717 $ 9,394 $ 4,724
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 10,042 778 23,221 28,447
Amortization of debt issuance costs................................ -- -- 463 4,785
Loss on disposition of properties........................... 938 -- 3,064 2,269
(Increase) decrease in assets:
Receivables.............................................. (3,032) 503 (486) 1,975
Inventories.............................................. 1,413 199 (377) 775
Other current assets..................................... (1,510) 3,365 (3,941) (2,888)
Increase (decrease) in liabilities:
Accounts payable......................................... (748) (312) (4,376) 4,386
Self-insurance reserves.................................. 1,917 (2,430) (1,776) 2,998
Other accrued liabilities................................ (2,003) 2,029 3,431 (1,598)
Total adjustments...................................... 7,017 4,132 19,223 41,149
Net cash provided by operating activities.............. 22,253 4,849 28,617 45,873
Cash flows from investing activities -- proceeds from disposal of
property and equipment........................................... 346 -- 283 7,866
Capital expenditures............................................... (14,720) (412) (23,742) (22,890)
Other.............................................................. 650 317 (199) (881)
Net cash used in investing activities.................. (13,724) (95) (23,658) (15,905)
Cash flows from financing activities:
Net intercompany and equity activity............................. (5,730) (4,425) (59,315) (44,477)
Borrowings (repayments) of loans payable to bank and long-term
debt, including capitalized lease obligations................. (1,746) (686) 56,184 15,786
Net cash used in financing activities.................. (7,476) (5,111) (3,131) (28,691)
Net increase (decrease) in cash and cash equivalents... 1,053 (357) 1,828 1,277
Cash and cash equivalents at beginning of period................... 1,696 2,749 2,392 4,220
Cash and cash equivalents at end of period......................... $ 2,749 $ 2,392 $ 4,220 $ 5,497
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(1) ORGANIZATION AND BASIS OF PRESENTATION
The FRI-M combined financial statements combine the financial position and
operations of FRI-M Corporation, a wholly owned subsidiary of Family
Restaurants, Inc. (the Parent), and certain subsidiaries including those
restaurants that make up the Family Restaurant Division (FRD) and including the
FRD Commissary, a division of the Parent (collectively, the Company). FRD
primarily represents the Coco's and Carrows concept restaurants. The FRI-M
combined financial statements exclude the financial position and operations of
FRI-MRD Corporation, a wholly owned subsidiary of the FRI-M Corporation which
owns El Torito Restaurants, Inc. and Chi-Chi's, Inc., the Traditional
Dinnerhouse Division, which operates the Charley Brown's and Reuben's concept
restaurants, FRI-Admin Corporation and the Parent. See note 14 regarding the
sale of the Company.
Reference to the "FRI-Predecessor Company" refers to the period of ownership of
the Company by The Restaurant Enterprises Group, Inc. prior to January 27, 1994.
Reference to the "FRI-Successor Company" refers to the period of ownership of
the Company by Family Restaurants, Inc. giving effect to information about
events occurring upon the Parent's emergence from a Chapter 11 bankruptcy code
reorganization (the Reorganization).
At December 31, 1995, the Company operated 349 full-service restaurants located
in 10 states, with approximately 74% of its restaurants located in California.
FRD restaurants primarily offer moderately priced breakfast, lunch and dinner
items. Additionally, as of December 31, 1995, the Company was the licensor of
251 full-service restaurants in Japan and South Korea and the franchisor of 6
family restaurants in the United States.
The combined financial statements of the FRI-Predecessor Company were prepared
on a going concern basis, which contemplated continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. While the reorganization plan was in process, the Parent continued in
possession of its properties and operated and managed its business as a
debtor-in-possession pursuant to the bankruptcy code. The Company applied the
provisions of the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," (SOP 90-7) in the December 23, 1993 combined financial
statements.
Pursuant to SOP 90-7, the FRI-Predecessor Parent qualified for fresh start
reporting as of January 27, 1994. Under this concept, all assets and liabilities
of the Parent are restated to current value at the date of reorganization. The
Parent obtained an appraisal of the assets and liabilities of the FRI-Successor
Company. This appraisal determined the reorganization value (i.e., fair value)
of the assets and liabilities of the FRI-Successor Company. The Company utilized
the results of this appraisal to implement fresh start reporting, which resulted
in reorganization value in excess of amounts allocable to identifiable assets of
$155,540,000 at January 27, 1994.
The retained earnings of the FRI-Predecessor Company and the receivable from the
Parent Company were eliminated as required by fresh start reporting. The
combined balance sheets of the Company as of December 25, 1994 and December 31,
1995 and the accompanying combined statements of operations for the eleven
months ended December 25, 1994 and the year ended December 31, 1995 represent
that of the FRI-Successor Company which, in effect, is a new entity with assets
and liabilities having carrying values not comparable with prior periods. The
accompanying combined statements of operations for the year ended December 26,
1993 and for the one month ended January 26, 1994 represent that of the
FRI-Predecessor Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company reported 1993 and 1994 results of operations based on 52 weeks
ending on last Sunday in December.
The Company reported 1995 results of operations based on 53 weeks ending on the
last Sunday in December.
F-36
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the operations
described in note 1 including their affiliated subsidiaries. All significant
affiliated intercompany balances and transactions have been eliminated.
ESTIMATIONS
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 disclosure of
contingent assets and liabilities at the date of the combined financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories consist primarily of food and liquor and are stated at the lower of
cost or market. Costs are determined using the first-in, first-out (FIFO)
method.
NET ASSETS HELD FOR SALE
Net assets held for sale are carried at the lower of their cost or their fair
values, less estimated selling costs.
PRE-OPENING EXPENSES
Certain costs incurred in connection with opening a restaurant which consist
solely of direct incremental costs which the Company believes provide a specific
quantifiable benefit to future periods and are probable of recovery (principally
stocking the restaurant and training staff) are capitalized and amortized on a
straight-line basis over one year after opening. Capitalized pre-opening
expenses are classified as other current assets in the accompanying combined
balance sheet and amounted to $1,285,000 and $745,000 at December 25, 1994 and
December 31, 1995, respectively. Amortization of pre-opening expenses, included
in depreciation and amortization in the combined statements of income, was
$2,747,000 for the year ended December 26, 1993, $235,000 for the one month
ended January 26, 1994, $2,644,000 for the eleven months ended December 25, 1994
and $1,917,000 for the year ended December 31, 1995.
PROPERTY AND EQUIPMENT
Property and equipment are stated at appraised value or cost and are depreciated
on a straight-line basis over estimated useful lives (buildings principally over
25 to 35 years and furniture, fixtures and equipment over 3 to 10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter
of estimated useful lives or the terms of related leases. Property under
capitalized leases is amortized over the terms of the leases using the
straight-line method.
Losses on disposition of properties are recognized when a commitment to divest a
restaurant property is made by the Company and include estimated carrying costs
through the expected date of disposal.
REORGANIZATION VALUE
Reorganization value in excess of amounts allocable to identifiable assets is
amortized using the straight-line method over 30 years. Accumulated amortization
of reorganization value amounted to $4,912,000 and $10,192,000 at December 25,
1994 and December 31, 1995, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment by comparison of the
carrying value of the assets to estimated undiscounted cash flows expected to be
generated from the asset over its estimated useful life. In addition, the
Company's evaluation considers data such as continuity of personnel, changes in
the operating environment, name identification, competitive information and
market trends. Finally, the evaluation considers changes in management's
strategic direction or market emphasis. When the foregoing considerations
suggest that a deterioration of the financial condition of the Company or any of
its restaurants has occurred, the Company measures the amount of an impairment,
if any, based on the estimated fair value of
F-37
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
each of its restaurants over the remaining amortization period. The Company
believes its long-lived assets are not impaired as of December 25, 1994 and
December 31, 1995.
SELF-INSURANCE RESERVES
The Parent is self-insured for workers compensation and general liability claims
up to $500,000. Provisions for expected future payments are accrued based on the
Parent's estimate of its aggregate liability for all open claims, using
actuarially determined methods.
FRANCHISE AND LICENSE FEES
Initial franchise and license fees are recognized when all material services
have been performed and conditions have been satisfied. Initial fees for all
periods presented are insignificant. Monthly fees are accrued as earned based on
the respective monthly sales. Such fees totaled $4,850,000 for the year ended
December 26, 1993, $539,000 for the one month ended January 26, 1994, $5,389,000
for the eleven months ended December 25, 1994 and $4,371,000 for the year ended
December 31, 1995.
ADVERTISING
Production costs of commercials, programming and the costs of other advertising,
promotion and marketing programs are expensed in the year incurred and are
included in occupancy and other operating expenses in the combined statement of
operations. Such costs totaled $12,910,000 for the year ended December 26, 1993,
$1,318,000 for the one month ended January 26, 1994, $13,068,000 for the eleven
months ended December 25, 1994 and $16,328,000 for the year ended December 31,
1995.
PRO FORMA INCOME TAXES
The accompanying combined financial statements combine the accounts of
subsidiaries and divisions and exclude some operations of the combined entities.
Some combined entities are not taxable entities, but all are included in the
consolidated tax return of the parent. For financial reporting purposes, a pro
forma tax expense has been provided at 40% of reported combined income excluding
amortization of certain intangibles.
(3) RECEIVABLES
A summary of receivables follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Trade, principally credit cards........................................... $ 886,000 $ 924,000
License and franchise fees and related receivables........................ 4,751,000 3,286,000
Receivable from distributors.............................................. 668,000 645,000
Note receivable, net...................................................... 751,000 31,000
Other, net................................................................ 358,000 553,000
$7,414,000 $5,439,000
</TABLE>
(4) Net Assets Held for Sale
As a result of the Parent's efforts to improve cash flows (see note 7), the
Company has identified certain FRD restaurants for potential sale/leaseback
financing transactions. During 1995, the Company entered into 8 such
transactions, resulting in proceeds of $8,665,000, $999,000 less than carrying
values. As of December 31, 1995, 12 additional restaurants, whose estimated fair
value approximates carrying value, are to be financed under this program. The
carrying value of these restaurants at December 31, 1995 is $13,248,000. These
transactions result in estimated proceeds being less than carrying amounts by
$1,869,000, which will be deferred and amortized over the lease terms, as these
net losses result from financing transactions and the estimated fair values
cover the deferred losses.
F-38
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land................................................................. $ 19,783,000 $ 11,821,000
Buildings and improvements........................................... 110,974,000 110,385,000
Furniture, fixtures and equipment.................................... 41,090,000 54,569,000
Projects under construction.......................................... 7,885,000 3,662,000
179,732,000 180,437,000
Less accumulated depreciation and amortization....................... (14,447,000) (34,395,000)
$165,285,000 $146,042,000
</TABLE>
Property under capitalized leases in the amount of $37,520,000 and $36,869,000
at December 25, 1994 and December 31, 1995, respectively, is included in
buildings and improvements. Accumulated amortization of property under capital
leases amounted to $4,219,000 and $8,811,000 at December 25, 1994 and December
31, 1995, respectively. Capital leases primarily relate to the building on
certain restaurants properties; the land portions of these leases are accounted
for as operating leases.
Depreciation and amortization relating to property and equipment was $6,494,000
for the year ended December 26, 1993, $463,000 for the one month ended January
26, 1994, $15,728,000 for the eleven months ended December 25, 1994, and
$21,297,000 for the year ended December 31, 1995, of which $2,600,000, $204,000,
$4,647,000 and $4,624,000, respectively, was related to amortization of property
under capitalized leases.
A majority of the capitalized and operating leases have original terms of 25
years, and substantially all of these leases expire in the year 2005 or later.
Most leases have renewal options. The leases generally provide for payment of
minimum annual rent, real estate taxes, insurance and maintenance and, in most
cases, contingent rent, calculated as a percentage of sales, in excess of
minimum rent. The total amount of contingent rent under capitalized leases for
the year ended December 26, 1993, the one month ended January 26, 1994, the
eleven months ended December 25, 1994 and the year ended December 31, 1995 was
$3,089,000, $207,000, $2,914,000 and $3,107,000 respectively. Total rental
expense for all operating leases comprised the following:
<TABLE>
<CAPTION>
ONE MONTH ELEVEN MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Minimum rent............................. $ 11,130,000 $ 845,000 $ 11,066,000 $ 12,568,000
Contingent rent.......................... 1,651,000 113,000 1,621,000 2,245,000
Leased equipment rent.................... 2,070,000 189,000 1,810,000 1,343,000
Sublease rent............................ (81,000) (5,000) (174,000) (321,000)
$ 14,770,000 $ 1,142,000 $ 14,323,000 $ 15,835,000
</TABLE>
F-39
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1995, the present value of capitalized lease payments and the
future minimum lease payments on noncancelable operating leases were:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
DUE IN LEASES LEASES
<S> <C> <C>
1996.................................................................. $ 6,699,000 $ 13,711,000
1997.................................................................. 6,559,000 13,041,000
1998.................................................................. 6,297,000 12,692,000
1999.................................................................. 5,867,000 12,157,000
2000.................................................................. 5,095,000 11,365,000
Later years........................................................... 14,137,000 74,027,000
Total minimum lease payments........................................ 44,654,000 $136,993,000
Interest.............................................................. (13,201,000)
Present value of minimum lease payments............................. $31,453,000
</TABLE>
The future lease payments summarized above include commitments for lease
properties included in the Company's divestiture program.
(6) OTHER ASSETS
A summary of other assets follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Debt issuance costs.................................................... $ 5,534,000 $ --
Franchise operating rights............................................. 8,728,000 8,108,000
Liquor licenses........................................................ 383,000 411,000
Other.................................................................. 514,000 1,222,000
$15,159,000 $ 9,741,000
</TABLE>
Franchise operating rights are stated at their appraised value determined as of
the date of the Reorganization, based on royalty income streams, and are
amortized over 15 years. Debt issuance costs are amortized over the term of the
related debt agreement (see note 7).
(7) LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations, is comprised of the
following:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Revolving credit facility.............................................. $59,600,000 $79,815,000
Capitalized lease obligations.......................................... $35,591,000 $31,453,000
Mortgage notes, 12 1/4%-12 1/2%, due 1996-1998......................... 1,005,000 750,000
Other.................................................................. 250,000 214,000
36,846,000 32,417,000
Amount due within one year............................................. 4,347,000 4,915,000
$32,499,000 $27,502,000
</TABLE>
In January 1994, FRI-M Corporation entered into a Credit Facility Agreement with
$150 million in senior secured revolving credit facilities with a $100 million
sub-limit for standby letters of credit which is used for general corporate
purposes including working capital, debt service and capital expenditure
requirements. The Credit Facility terminates and obligations thereunder are
immediately due and payable on January 27, 1999.
Borrowings outstanding under the Credit Facility bear interest at a rate of
10.0% at December 31, 1995. On August 1, 1995, the Company borrowed $14,625,000
under this Credit Facility to fund an interest payment made on the Parent's
10 7/8%
F-40
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Senior Subordinated Notes (Senior Notes). This amount was paid off in December
1995. On February 1, 1996, the Company borrowed $14,625,000 to fund an
additional interest payment on the Parent's Senior Notes.
Standby letters of credit are issued under the Credit Facility primarily to
provide security for future amounts payable by the Company under its workers'
compensation insurance program ($37,600,000 of such letters of credit were
outstanding as of December 31, 1995).
The Credit Facility contains various covenants including the maintenance of
certain financial ratios. At December 31, 1995, the Parent and certain of its
subsidiaries were suffering from deficit cash flows from operations and made
required debt service payments on other obligations through borrowings on the
Credit Facility. Accordingly, the Parent has failed to comply with certain of
such financial covenants. However, the banks under the Credit Facility (the
Banks) have agreed to waive such noncompliance, through July 31, 1996. In
accordance with generally accepted accounting principles, and since the waivers
only extend to July 31, 1996, at this time the Company classified the
outstanding balance of $79,815,000 at December 31, 1995 as a current liability.
Further, the amortization of the related debt issuance costs was accelerated
assuming the debt will be retired or replaced earlier. In connection with the
sale of the Company (see note 14), the Credit Facility was paid off and is not
available for additional borrowings by FRI-M.
The mortgage notes were issued to a group of institutional lenders and are
collateralized by mortgages covering nine restaurants having book values of
approximately $8,197,000 at December 31, 1995.
Maturities of long-term debt, including capitalized lease obligations, during
the five years subsequent to December 31, 1995 are as follows: $4,915,000 in
1996, $4,307,000 in 1997, $4,300,000 in 1998, $4,009,000 in 1999, $3,661,000 in
2000 and $11,225,000 thereafter.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash, self-insurance reserves, other
accrued liabilities, and revolving credit borrowings at December 25, 1994 and
December 31, 1995 approximate fair value. The fair value of the Company's
long-term debt, excluding capitalized lease obligations, based on an estimate
using a discount rate which the Company believes would be currently available to
it for debt with similar terms and average maturities, approximates its carrying
value.
(9) OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Wages, salaries, accrued vacation and bonuses.......................... $13,128,000 $13,894,000
Sales tax.............................................................. 6,363,000 4,452,000
Property taxes......................................................... 1,225,000 1,354,000
Accrued rent........................................................... 2,584,000 2,707,000
Utilities.............................................................. 1,255,000 1,300,000
Other.................................................................. 4,838,000 4,123,000
$29,393,000 $27,830,000
</TABLE>
(10) PRO FORMA INCOME TAXES
The Company reported income before income tax provision for the year ended
December 26, 1993, the one month ended January 26, 1994, the eleven months ended
December 25, 1994 and the year ended December 31, 1995. For financial reporting
purposes, a pro forma tax expense equal to 40% of reported earnings, excluding
certain amortization of intangibles, has been provided in the statements of
operations.
F-41
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Upon the Reorganization on January 27, 1994, the Parent's net operating loss
carryovers and other tax attributes were reduced significantly for Federal
income tax purposes. In addition, because the consummation of the Reorganization
triggered an ownership change of the Parent for Federal income tax purposes, the
Parent's and the Company's post-Reorganization use of its remaining net
operating loss carryovers for regular and alternative minimum Federal income tax
purposes is subject to an annual limitation in an amount equal to the product of
(i) the long-term tax-exempt rate prevailing on the closing date of the
Reorganization and (ii) the value of the Parent's stock, increased to reflect
the cancellation of indebtedness pursuant to the Reorganization (but without
taking into account contributions to capital pursuant to the Reorganization).
The Parent's annual limit is approximately $5,300,000.
At December 31, 1995, the Parent and its subsidiaries had additional tax credit
carryforwards of approximately $1,981,000 not utilized by a former owner (Former
Owner). In accordance with a previous acquisition, the Parent must reimburse the
Former Owner for 75% of the benefit of these tax credits if they are utilized in
future Company tax returns.
(11) RELATIONSHIPS WITH PARENT
The Company's FRI-Successor and FRI-Predecessor Parent provide certain
financial, administrative, legal and staff functions and services. These costs
are allocated to the Company based on number of opened and operating units. The
Company believes that this method is reasonable. The management fee for these
services was $3,410,000 for the year ended December 26, 1993, $257,000 for the
one month ended January 26, 1994, $2,626,000 for the eleven months ended
December 25, 1994, and $2,634,000 for the year ended December 31, 1995. These
costs are included in general and administrative expenses in the combined
statements of operations. Further, interest expense associated with the
revolving credit loan is also allocated to the subsidiaries, based on current
liabilities outstanding. The Company deposits cash in excess of its operating
requirements with its Parent, and the Parent advances funds to the Company to
finance expansion of its restaurant business. These deposits and advances have
been made on an interest-free basis.
The Company is charged premiums by its Parent for certain insurance coverage
provided under the Parent's insurance plans (employee group medical and life,
workers compensation, general liability and property insurance). During the year
ended December 26, 1993, the one month ended January 26, 1994, the eleven months
ended December 25, 1994 and the year ended December 31, 1995, such premium
charges amounted to $16,393,000, $1,286,000, $14,358,000 and $12,730,000,
respectively.
A summary of intercompany and equity activity, for 1994 and 1995 follows.
FRI-Predecessor information is not presented as it is not considered relevant.
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
DECEMBER 25, DECEMBER 31,
1994 1995
<S> <C> <C>
Net combined equity, beginning of period................................ $ 242,275 $192,354
Allocation of management expenses....................................... 2,626 2,634
Pro forma income tax provision.......................................... 9,496 6,670
(Borrowings) repayments on revolving credit facility.................... (56,184) (15,786)
Self-insurance premium charges.......................................... 14,358 12,730
Change in intercompany.................................................. (29,611) (50,725)
Net income.............................................................. 9,394 4,724
Net combined equity, end of period...................................... $ 192,354 $152,601
</TABLE>
(12) BENEFIT PLANS
The Parent maintains several incentive compensation and related plans for
executives and key operating personnel of its subsidiaries, including restaurant
and field management. Total expenses for these plans included in the combined
statements of operations were $5,252,000 for the year ended December 26, 1993,
$413,000 for the one month ended January 26, 1994, $4,718,000 for the eleven
months ended December 25, 1994 and $2,235,000 for the year ended December 31,
1995.
F-42
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
The Company participated in savings and investment plans sponsored by the
Parent. Substantially all of the Company's salaried employees were eligible to
participate in the plans. The Company's expenses under such plans for the year
ended December 26, 1993, the one month ended January 26, 1994, the eleven months
ended December 25, 1994, and the year ended December 31, 1995 were $15,000, $0,
$17,000 and $159,000, respectively.
(13) CONTINGENCIES
The Parent and the Company are involved in various litigation matters incidental
to their business. The Company does not believe that any of the claims or
actions filed against it will have a material adverse effect upon the combined
financial position and results of operations of the Company.
(14) SUBSEQUENT EVENTS
Flagstar Corporation (Flagstar), through a newly-formed company, FRD Acquisition
Co. (Acquisition Co.), acquired 100% of the capital stock of FRI-M Corporation
and certain of its Family Restaurant Division operating subsidiaries (see note
1) on May 23, 1996 for a purchase price of approximately $306,000,000 (the
Acquisition). Acquisition Co. financed the Acquisition with $125,000,000 in
cash, $150,000,000 in 12 1/2% senior notes and the assumption of approximately
$31,000,000 in lease and other debt obligations of FRI-M Corporation. The
$125,000,000 in cash paid to the Parent was funded by a $75,000,000 equity
investment from Flagstar and a $50,000,000 loan from FRI-M Corporation. In order
to fund the loan and provide a source of working capital, FRI-M obtained at the
May 23, 1996 closing of the Acquisition, a new credit facility consisting of a
$56,000,000, 39-month senior term loan and a $35,000,000 working capital
facility to support letters of credit and for working capital purposes.
F-43
<PAGE>
FRI-M (NOTE 1)
COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1996
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................................................... $ 5,410
Receivables.................................................................................................... 6,958
Merchandise inventories........................................................................................ 5,184
Net assets held for sale....................................................................................... 2,338
Other.......................................................................................................... 1,812
Total current assets........................................................................................ 21,702
Property and equipment, net...................................................................................... 141,671
Reorganization value in excess of amounts allocable to indentifiable assets, net................................. 144,056
Other assets..................................................................................................... 9,755
$ 317,184
LIABILITIES AND NET COMBINED EQUITY
Current liabilities:
Loans payable to bank.......................................................................................... $ 91,223
Current maturities of long-term debt, including capitalized lease obligations.................................. 4,912
Accounts payable............................................................................................... 21,923
Self-insurance reserve......................................................................................... 18,091
Other.......................................................................................................... 23,056
Total current liabilities................................................................................... 159,205
Debt, including capitalized lease obligations, less current maturities........................................... 25,780
Net combined equity.............................................................................................. 132,199
$ 317,184
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE>
FRI-M (NOTE 1)
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, MARCH 31,
1995 1996
<S> <C> <C>
(UNAUDITED)
Operating revenues.............................................................................. $117,596 $118,996
Product cost.................................................................................... 33,503 33,090
Payroll and benefits............................................................................ 44,492 45,271
Occupancy and other operating expenses.......................................................... 23,330 22,347
Depreciation and amortization................................................................... 6,471 6,926
General and administrative expenses............................................................. 6,878 7,361
Franchise fees.................................................................................. (1,415) (844)
Loss on disposition of properties, net.......................................................... 5 120
113,264 114,271
Operating income................................................................................ 4,332 4,725
Interest expense, net........................................................................... 2,750 3,931
Income before income taxes...................................................................... 1,582 794
Income tax provision............................................................................ 1,161 846
Net income (loss)............................................................................... $ 421 $ (52)
Net combined equity, beginning of period........................................................ 192,354 152,601
Intercompany and equity activity, net........................................................... (36,253) (20,350)
Net combined equity, end of period.............................................................. $156,522 $132,199
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE>
FRI-M
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, MARCH 31,
1995 1996
<S> <C> <C>
(UNAUDITED)
Increase (decrease) in cash:
Cash flows from operating activities:
Net income (loss).......................................................................... $ 421 $ (52)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization............................................................ 6,471 6,926
Amortization of debt issuance costs...................................................... 5,052 738
Loss on disposition of properties........................................................ 5 120
(Increase) decrease in assets:
Receivables........................................................................... (1,396) (1,519)
Inventories........................................................................... 682 104
Other current assets.................................................................. 816 (1,083)
Increase (decrease) in liabilities:
Accounts payable...................................................................... 2,215 (1,393)
Self-insurance reserves............................................................... 4,630 1,223
Other accrued liabilities............................................................. (5,427) (5,034)
Total adjustments................................................................... 13,048 82
Net cash provided by operating activities........................................... 13,469 30
Cash flows from investing activities -- proceeds from disposal of property and equipment........ 5,166 11,649
Capital expenditures............................................................................ (8,825) (1,335)
Other........................................................................................... -- (26)
Net cash provided by (used in) investing activities................................. (3,659) 10,288
Cash flows from financing activities:
Net intercompany and equity activity.......................................................... (36,253) (20,350)
Repayment of loans payable to bank and long-term debt, including capitalized lease
obligations................................................................................ 27,589 9,945
Net cash used in financing activities............................................... (8,664) (10,405)
Net increase (decrease) in cash and cash equivalents................................ 1,146 (87)
Cash and cash equivalents at beginning of period................................................ 4,220 5,497
Cash and cash equivalents at end of period...................................................... $ 5,366 $ 5,410
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE>
FRI-M
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
MARCH 26, 1995 AND MARCH 31, 1996
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The combined condensed financial statements combine the financial position
and operations of FRI-M Corporation, a wholly owned subsidiary of Family
Restaurants, Inc. (the Parent), and certain subsidiaries including those
restaurants that make up the Family Restaurant Division (FRD) and including the
FRD Commissary, a division of the Parent (collectively, the Company). FRD
primarily represents the Coco's and Carrows concept restaurants.
(2) FINANCIAL STATEMENTS
The accompanying combined condensed financial statements have been prepared
in accordance with Securities and Exchange Commission Regulation S-X. Reference
is made to the notes to the combined financial statements for the year ended
December 31, 1995, for information with respect to the Company's significant
accounting and financial reporting policies as well as other pertinent
information. The Company believes that all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of the interim periods presented have been made. The results of operations for
the quarter ended March 31, 1996, are not necessarily indicative of those for
the full year.
(3) IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No, 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which generally requires the assessment of certain long-lived assets for
possible impairment when events or circumstances indicate the carrying value of
these assets may not be recoverable.
The Company evaluates property and equipment for impairment by comparison
of the carrying value of the assets to estimated undiscounted cash flows (before
interest charges) expected to be generated by the asset over its estimated
useful life. In addition, the Company's evaluation considers data such as
continuity of personnel, changes in the operating environment, name
identification, competitive information and market trends. Finally, the
evaluation considers changes in management's strategic direction or market
emphasis. When the foregoing considerations suggest that a deterioration of the
financial condition of the Company or any of its assets has occurred, the
Company measures the amount of an impairment, if any, based on the estimated
fair value of each of its assets over the remaining amortization period.
The Company believes that there has been no impairment of its long-lived
assets based on re-engineering and re-positioning plans currently under
development, other than impairment already recognized in connection with various
properties held for sale.
F-47
<PAGE>
APPENDIX I
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. [ ]
)
FLAGSTAR COMPANIES, INC., ) Chapter 11
FLAGSTAR CORPORATION, )
)
Debtors. )
)
- -------------------
</TABLE>
DEBTORS' JOINT PLAN OF REORGANIZATION
DATED AS OF [ ], 1997
IMPORTANT: A BANKRUPTCY CASE HAS NOT BEEN FILED AS OF THE DATE HEREIN
Robert A. Klyman
Gregory O. Lunt
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
(213) 485-1234
Martin N. Flics
LATHAM & WATKINS
885 Third Avenue, Suite 1000
New York, NY 10022
(212) 906-1200
COUNSEL FOR
FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
Martin J. Bienenstock
WEIL, GOTSHAL & MANGES L.L.P.
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
CO-COUNSEL FOR
FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
Laura Davis Jones
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, Eleventh Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
CO-COUNSEL FOR
FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I. INTRODUCTION................................................................................................... 4
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION.......................................................... 5
A. Definitions................................................................................................. 5
B. Interpretation And Computation Of Time...................................................................... 10
1. Defined Terms............................................................................................ 10
2. Rules Of Interpretation.................................................................................. 10
3. Time Periods............................................................................................. 10
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS................................................................. 11
A. Secured Claims.............................................................................................. 11
B. Unsecured Claims............................................................................................ 11
C. Interests And Claims Relating To Interests.................................................................. 11
IV. GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS....................................................... 11
A. Unclassified Claims......................................................................................... 11
1. Administrative Claims.................................................................................... 11
a. General..................................................................................................... 11
b. Payment Of Statutory Fees................................................................................... 12
c. Treatment Of Priority Tax Claims............................................................................ 12
d. Bar Date For Administrative Claims.......................................................................... 12
(1) General Provisions......................................................................................... 12
(2) Professionals.............................................................................................. 12
(3) Ordinary Course Liabilities................................................................................ 12
(4) Tax Claims................................................................................................. 13
B. Treatment of Secured Claims................................................................................. 13
1. Class 1 (Bank Claims).................................................................................... 13
2. Class 2A et seq. (Other Secured Claims).................................................................. 13
C. Treatment of Unsecured Claims............................................................................... 13
1. Class 3 (Priority Claims)................................................................................ 13
2. Class 4 (Senior Unsecured Claims)........................................................................ 13
3. Class 5 (Senior Subordinated Claims)..................................................................... 13
4. Class 6 (Junior Subordinated Claims)..................................................................... 14
5. Class 7 (General Unsecured Claims)....................................................................... 14
D. Interests................................................................................................... 15
1. Class 8 (Interests of Holders of Old FCI Preferred Stock)................................................ 15
2. Class 9 (Interests of Holders of Old FCI Common Stock)................................................... 15
3. Class 10 (Interests of Holders of Old Stock Rights and all Claims arising
out of such Old Stock Rights)............................................................................ 16
4. Class 11 (Securities Claims)............................................................................. 16
5. Class 12 (FCI's 100% Ownership Interest in Flagstar)..................................................... 16
E. Treatment of Trade Creditors and Employees under the Plan................................................... 16
1. Treatment of Trade Claims................................................................................ 16
2. Treatment of Employee Claims............................................................................. 16
F. Modification of Treatment of Claims......................................................................... 17
G. Registration of New Common Stock............................................................................ 17
H. Listing of New Common Stock................................................................................. 17
V. DISTRIBUTIONS UNDER THE PLAN................................................................................... 18
A. Disbursing Agent............................................................................................ 18
B. Timing of Distributions..................................................................................... 18
C. Methods of Distributions.................................................................................... 18
1. Cash Payments............................................................................................ 18
2. Transfers of New Common Stock and New Warrants........................................................... 18
3. Compliance With Tax Requirements......................................................................... 18
D. Pro Rata Distribution....................................................................................... 19
E. Record Date................................................................................................. 19
F. Surrender of Cancelled Debt Instruments or Securities....................................................... 19
1. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments.................................. 19
2. Failure to Surrender Cancelled Instrument................................................................ 19
G. Undeliverable or Unclaimed Distributions.................................................................... 19
H. Objections to Claims and Authority to Prosecute Objections; Claims Resolution............................... 20
1. Generally................................................................................................ 20
2. Professionals, Administrative Claims, Trade Claims and Employee Claims................................... 20
I. Disputed Claims; Reserve and Estimations.................................................................... 20
1. Treatment of Disputed Claims............................................................................. 20
2. Distributions on Account of Disputed Claims Once They Are Allowed........................................ 21
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
J. Setoffs..................................................................................................... 21
<S> <C> <C>
K. Termination of Subordination................................................................................ 21
VI. INDIVIDUAL HOLDER PROOFS OF INTEREST........................................................................... 21
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.......................................................... 21
A. Assumptions................................................................................................. 21
B. Cure of Defaults in Connection with Assumption.............................................................. 21
C. Rejections.................................................................................................. 22
D. Bar Date for Rejection Damages.............................................................................. 22
VIII. ACCEPTANCE OR REJECTION OF THIS PLAN........................................................................... 22
A. Voting Classes.............................................................................................. 22
B. Presumed Acceptance of Plan................................................................................. 22
C. Presumed Rejections of Plan................................................................................. 22
D. Voting Instructions......................................................................................... 22
E. Voting Deadline and Extensions.............................................................................. 22
F. Confirmability of Plan and Cramdown......................................................................... 23
IX. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN............................................................. 23
A. Merger...................................................................................................... 23
B. Corporate Action............................................................................................ 23
1. Cancellation Of Old Securities And Related Agreements.................................................... 23
2. Certificate Of Incorporation And Bylaw Amendments........................................................ 23
3. Management Of Reorganized Flagstar....................................................................... 23
C. New Credit Agreement........................................................................................ 23
D. Implementation.............................................................................................. 24
E. Other Documents And Actions................................................................................. 24
F. Payment of Statutory Fees................................................................................... 24
G. Term of Injunctions or Stays................................................................................ 24
H. No Interest................................................................................................. 24
I. Retiree Benefits............................................................................................ 24
J. Issuance of New Securities.................................................................................. 24
X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS..................................................................... 24
A. Conditions To Confirmation.................................................................................. 24
B. Conditions To Effective Date................................................................................ 25
C. Waiver of Conditions to Confirmation and Effective Date..................................................... 25
XI. EFFECTS OF PLAN CONFIRMATION................................................................................... 25
A. Discharge Of Debtors And Injunction......................................................................... 25
B. Limitation Of Liability..................................................................................... 26
C. Releases.................................................................................................... 26
D. Indemnification............................................................................................. 26
E. Vesting of Assets........................................................................................... 27
F. Preservation Of Causes Of Action............................................................................ 27
G. Retention of Bankruptcy Court Jurisdiction.................................................................. 27
H. Failure of Bankruptcy Court to Exercise Jurisdiction........................................................ 28
I. Committees.................................................................................................. 28
XII. MISCELLANEOUS PROVISIONS....................................................................................... 29
A. Final Order................................................................................................. 29
B. Modification Of The Plan.................................................................................... 29
C. Revocation Of The Plan...................................................................................... 29
D. Severability Of Plan Provisions............................................................................. 29
E. Successors And Assigns...................................................................................... 29
F. Saturday, Sunday Or Legal Holiday........................................................................... 30
G. Post-Effective Date Effect Of Evidences Of Claims Or Interests.............................................. 30
H. Headings.................................................................................................... 30
I. Governing Law............................................................................................... 30
J. No Liability For Solicitation Or Participation.............................................................. 30
K. No Admissions or Waiver of Objections....................................................................... 31
</TABLE>
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<PAGE>
I.
INTRODUCTION
Flagstar Companies, Inc. (defined herein as FCI) and its wholly-owned
subsidiary Flagstar Corporation (defined herein as FLAGSTAR, and collectively
with FCI as Debtors) hereby propose the following Plan of Reorganization
(defined herein as the PLAN) for the resolution of the Debtors' outstanding
creditor claims and equity interests and request Confirmation of the Plan
pursuant to Section 1129 of the Bankruptcy Code.
All Holders of Claims and Interests are encouraged to read the Plan and the
accompanying solicitation materials in their entirety before voting to accept or
reject the Plan. No materials, other than the accompanying solicitation
materials and any exhibits and schedules attached thereto or referenced therein,
have been approved by the Debtors for use in soliciting acceptances or
rejections of the Plan.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, ALL STATEMENTS IN THIS
PLAN AND THE ACCOMPANYING SOLICITATION MATERIALS CONCERNING THE HISTORY OF THE
DEBTORS' BUSINESSES, THE PAST OR PRESENT FINANCIAL CONDITION OF THE DEBTORS,
TRANSACTIONS TO WHICH THE DEBTORS WERE OR ARE PARTY, OR THE EFFECT OF
CONFIRMATION OF THE PLAN ON SECURED CREDITORS, UNSECURED CREDITORS OR EQUITY
SECURITY HOLDERS ARE ATTRIBUTABLE EXCLUSIVELY TO THE DEBTORS AND NOT TO ANY
OTHER PARTY.
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<PAGE>
II.
DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION
A. DEFINITIONS.
In addition to such other terms as are defined in other sections of the
Plan, the following terms (which appear in the Plan as capitalized terms) have
the following meanings as used in the Plan:
1. "10 3/4% SENIOR NOTES" means the $270 million of 10 3/4% Senior Notes
due on September 15, 2001 issued by Flagstar in September 1993.
2. "10 7/8% SENIOR NOTES" means the $280 million of 10 7/8% Senior Notes
due on December 1, 2002 issued by Flagstar in November 1992.
3. "11.25% DEBENTURES" means the $722.4 million of 11.25% Senior
Subordinated Debentures due on November 1, 2004 issued by Flagstar in November
1992.
4. "11 3/8% DEBENTURES" means the $125 million of 11.375% Senior
Subordinated Debentures due on September 15, 2003 issued by Flagstar in
September 1993.
5. "AD HOC DEBENTUREHOLDERS COMMITTEE" means Loomis Sayles & Company, Inc.
(as investment manager for certain discretionary accounts), Magten Asset
Management Corporation (as investment manager for certain discretionary
accounts), Moore Capital Management, Inc., or such other representatives of the
Senior Subordinated Claims as may be designated from time to time.
6. "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in section 503(b) of the Bankruptcy Code and
referred to in Section 507(a)(1) of the Bankruptcy Code, including, without
limitation, the actual and necessary costs and expenses incurred after the
commencement of a Chapter 11 case of preserving the estate or operating the
business of the Company (including wages, salaries and commissions for
services), loans and advances to the Company made after the Petition Date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under chapter 123 of Title 28, United States Code.
7. "ALLOWED CLAIM" or "ALLOWED INTEREST" means a Claim against or Interest
in the Debtors to the extent that
a. a proof of such Claim or Interest
(1) was timely Filed and served upon the Debtors and no objection to
the Claim or Interest is Filed within the time fixed by the Bankruptcy Court for
such objections; or
(2) is deemed Filed under applicable law or pursuant to a Final Order
of the Bankruptcy Court and no objection to the Claim or Interest is Filed
within the time fixed by the Bankruptcy Court for such objections; or
(3) is Allowed pursuant to subparagraphs b or c of this paragraph 7.
b. If the Debtors File an objection to a proof of Claim or Interest
within a time fixed by the Bankruptcy Court, the Claim or Interest shall be
Allowed to the extent of
(1) any amount of such Claim or Interest to which the Debtors did not
object;
(2) any amount otherwise authorized by Final Order or the Plan; or
(3) any amount temporarily allowed by an Order for purposes of voting
on the Plan.
c. Upon the execution of the Stipulations of Amount and Nature of Claim
referred to in Section [V.I.1] hereof, the relevant claimant's claim shall be
deemed allowed for all purposes under this Plan, including but not limited to
voting on this Plan and receiving distributions under this Plan, without the
necessity of filing any proofs of Claim with respect thereto.
"ALLOWED ADMINISTRATIVE CLAIM," "ALLOWED PRIORITY TAX CLAIM," "ALLOWED
SECURED CLAIM" and "ALLOWED UNSECURED CLAIM" have correlative meanings.
8. "ALLOWED CLASS ... CLAIM" means an Allowed Claim in the particular
Class described.
9. "ALLOWED CLASS ... INTEREST" means an Allowed Interest in the
particular Class described.
I-5
<PAGE>
10. "BANK CLAIMS" means obligations of Flagstar, if any, under its secured
guarantee of the obligations under the Second Amended and Restated Credit
Agreement, dated as of April 10, 1996, among TWS Funding, Inc., as borrower,
Flagstar, certain lenders and co-administrative agents named therein, and
Citibank, N.A., as funding agent.
11. "BANKRUPTCY CODE" means title 11 of the United States Code, as now in
effect or hereafter amended if such amendments are made applicable to the
Reorganization Cases.
12. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District in which the Reorganization Cases are Filed, or if such Court ceases to
exercise jurisdiction over the Reorganization Cases, such court or adjunct
thereof that exercises jurisdiction over the Reorganization Cases in lieu of the
United States Bankruptcy Court for such District.
13. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure, as
applicable from time to time in the Reorganization Cases.
14. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
"LEGAL HOLIDAY" (as defined in Bankruptcy Rule 9006(a)).
15. "CASH" means currency, a certified check, a cashier's check or a wire
transfer of good funds from any source, or a check drawn on a domestic bank from
Reorganized Flagstar or other Person making any distribution under the Plan.
16. "CLAIM" means a claim against either of the Debtors, whether or not
asserted or allowed, as defined in section 101(5) of the Bankruptcy Code.
17. "CLASS" means a class of Claims or Interests designated pursuant to the
Plan.
18. "CLERK" means the Clerk of the Bankruptcy Court.
19. "COMMITTEE" means any statutory committee of creditors or equity
interest Holders of the Debtors appointed by the United States Trustee pursuant
to Section 1102 of the Bankruptcy Code.
20. "COMPANY" means Flagstar and FCI, collectively and individually as
appropriate from the context, as Debtors.
21. "CONFIRMATION" means the entry by the Bankruptcy Court of the
Confirmation Order.
22. "CONFIRMATION DATE" means the date on which the Clerk enters the
Confirmation Order on the Docket.
23. "CONFIRMATION HEARING" means the hearing on confirmation of the Plan,
as the Plan may be modified hereafter.
24. "CONFIRMATION ORDER" means the Order of the Bankruptcy Court confirming
the Plan under section 1129 of the Bankruptcy Code.
25. "CREDITORS COMMITTEE" means the official committee of creditors of the
Debtors appointed by the United States Trustee pursuant to Section 1102 of the
Bankruptcy Code or, if no such committee is appointed, the Ad Hoc
Debentureholders Committee.
26. "DEBTORS" means, collectively, FCI and Flagstar, as debtors and Debtors
In Possession.
27. "DEBTORS IN POSSESSION" means the Debtors, when acting in the capacity
of representatives of the Estates in the Reorganization Cases.
28. "DESIGNATED PROFESSIONAL" means Latham & Watkins; Parker, Poe, Adams &
Bernstein L.L.P.; Weil, Gotshal & Manges, LLP; Young, Conaway, Stargatt &
Taylor; Hebb & Gitlin, a Professional Corporation; Richards, Layton & Finger;
Skadden, Arps, Slate, Meagher & Flom; Donaldson, Lufkin & Jenrette Securities
Corporation; and Houlihan Lokey Howard & Zukin.
29. "DIP FACILITY" means the debtor in possession credit agreement dated as
of , 1997 between the Debtors and the DIP Lender.
30. "DIP LENDER" means, collectively, The Chase Manhattan Bank and any
other lenders participating in the DIP Facility.
31. "DISBURSING AGENT" means the Person responsible for making distribution
under the Plan. Reorganized Flagstar, or such Person(s) as the Debtors may
employ in their sole discretion, will serve as Disbursing Agent.
32. "DISCLOSURE STATEMENT" means the Disclosure Statement Pursuant to
Section 1125 or Section 1126(b) of the Bankruptcy Code with Respect to Plan of
Reorganization of Flagstar Companies, Inc. and Flagstar Corporation Under
Chapter 11
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<PAGE>
of the Bankruptcy Code (and all exhibits and schedules annexed thereto or
referred to therein), as it may be amended or supplemented from time to time.
33. "DISPUTED CLAIM" means a Claim, not otherwise Allowed or paid pursuant
to the Plan, as to which (i) a proof of claim has been Filed or deemed Filed and
(ii) an objection has been Filed timely or deemed Filed timely and which
objection has not been withdrawn on or before any date fixed for Filing such
objections by the Plan or Order of the Bankruptcy Court and (if not withdrawn)
has not been overruled or denied by a Final Order. A Claim shall be considered a
Disputed Claim to the extent of any Filed or deemed Filed objection.
34. "DISPUTED INTEREST" means an Interest as to which an objection has been
or may be timely Filed or deemed timely Filed and which objection has not been
withdrawn on or before any date fixed for Filing such objections by the Plan or
Order of the Bankruptcy Court and (if not withdrawn) has not been overruled or
denied by a Final Order. An Interest shall be considered a Disputed Interest to
the extent of any Filed or deemed Filed objection.
35. "DISTRIBUTION RECORD DATE" means the date or dates fixed by the
Bankruptcy Court as the record date for determining the Holders of 10 3/4%
Senior Notes, 10 7/8% Senior Notes, 11.25% Debentures, 11 3/8% Debentures,
Junior Subordinated Claims, Old FCI Preferred Stock and Old FCI Common Stock,
respectively, who are entitled to receive distributions under this Plan.
36. "DOCKET" means the docket in the Reorganization Cases maintained by the
Clerk.
37. "EFFECTIVE DATE" means a Business Day, as determined by the Debtors in
consultation with the Ad Hoc Debentureholders Committee, that is as soon as
reasonably practicable but that is at least 11 days after the Confirmation Date
and on which all conditions to the Effective Date set forth herein have been
satisfied or, if permitted, waived by the Debtors, and on which no stay of the
Confirmation Order is in effect; provided that, upon request of the Debtors or
Reorganized Flagstar, the Bankruptcy Court may extend the deadline for the
Effective Date to occur following notice and a hearing.
38. "EMPLOYEE CLAIMS" means Claims which are asserted by employees of the
Debtors in connection with their employment including, without limitation,
Claims arising from or relating to salaries or wages, accrued paid vacation,
health related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits.
39. "ESTATES" means the estates created in the Debtors' Reorganization
Cases under section 541 of the Bankruptcy Code.
40. "FILE" or "FILED" means filed with the Bankruptcy Court in the
Reorganization Cases.
41. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, as
entered on the Docket in the Reorganization Cases, which has not been reversed,
stayed, modified or amended, and as to which (a) the time to appeal or seek
certiorari has expired and no appeal or petition for certiorari has been timely
filed, or (b) any appeal that has been or may be taken or any petition for
certiorari that has been or may be filed has been resolved by the highest court
to which the order or judgment was appealed or from which certiorari was sought.
42. "FCI" means Flagstar Companies, Inc.
43. "FLAGSTAR" means Flagstar Corporation, a wholly-owned subsidiary of
FCI.
44. "HOLDER" means a Person who holds a Claim or Interest. Where the
identity of the Holder of a Claim or Interest is set forth on a register or
other record maintained by or at the direction of the Debtors, the Holder of
such Claim or Interest shall be deemed to be the holder as identified on such
register or record unless the Debtors are otherwise notified in a writing
authorized by such Holder.
45. "IMPAIRED" shall have the definition given to it in Section 1124 of the
Bankruptcy Code. Section 1124 states:
"[A] class of claims or interests is impaired under a plan unless,
with respect to each claim or interest of such class, the plan --
(1) leaves unaltered the legal, equitable, and contractual rights to
which such claim or interest entitles the Holder of such claim or interest; or
(2) notwithstanding any contractual provision or applicable law that
entitles the Holder of such claim or interest to demand or receive accelerated
payment of such claim or interest after the occurrence of a default --
(A) cures any such default that occurred before of after the
commencement of the case under this title, other than a default of a kind
specified in section 365(b)(2) of this title;
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(B) reinstates the maturity of such claim or interest as such maturity
existed before such default;
(C) compensates the Holder of such claim or interest for any damages
incurred as a result of any reasonable reliance by such Holder on such
contractual provision or such applicable law; and
(D) does not otherwise alter the legal, equitable, or contractual
rights to which such claim or interest entitles the Holder of such claim or
interest."
An Impaired Class is entitled to vote on the Plan; PROVIDED, HOWEVER, that
Classes of Claims and Interests that do not receive or retain any property under
the Plan on account of such Claims and Interests are deemed to have rejected the
Plan and are not entitled to vote.
46. "INDENTURE TRUSTEES" means First Trust National Association, The Bank
of New York, and United States Trust Company of New York, as indenture trustees
for the 10 3/4% Senior Notes and the 10 7/8% Senior Notes, the 11.25% Debentures
and the 11 3/8% Debentures and the Junior Subordinated Debentures, respectively.
47. "INDENTURE TRUSTEE EXPENSES" means any unpaid Indenture Trustee's fees,
and reasonable unpaid out-of-pocket costs or expenses incurred through the
Effective Date by an Indenture Trustee, including, without limitation,
reasonable out-of-pocket costs and expenses and reasonable fees of legal counsel
to the Indenture Trustee, which are secured or which are entitled to be secured
under the Indenture by a lien or other priority in payment against distributions
to be made to Holders of Claims under the respective Indenture.
48. "INSTRUMENT" means any share of stock, security, promissory note or
other "INSTRUMENT," within the meaning of that term, as defined in section
9105(1) (i) of the UCC.
49. "INTERCOMPANY CLAIMS" means any and all claims and causes of action
which either of the Debtors holds against any Subsidiary or which any Subsidiary
holds against either of the Debtors.
50. "INTEREST" means the interest of any equity security Holder of the
Debtors, whether or not asserted, as defined in section 101(17) of the
Bankruptcy Code.
51. "JUNIOR SUBORDINATED CLAIMS" means the Claims arising from the Junior
Subordinated Debentures.
52. "JUNIOR SUBORDINATED DEBENTURES" means the $99.3 million of 10.0%
Junior Subordinated Convertible Debentures due on November 1, 2014 issued by
Flagstar.
53. "LOCAL BANKRUPTCY RULES" means the local rules of the Bankruptcy Court,
as applicable from time to time in the Reorganization Cases.
54. "NEW CREDIT FACILITY" means the post-Confirmation working capital and
letter of credit facility to be entered into between Reorganized Flagstar and
lenders to be determined.
55. "NEW COMMON STOCK" means common stock of Reorganized Flagstar, par
value $.01 per share, which may be issued by Reorganized Flagstar on and after
the Effective Date pursuant to the Plan or otherwise.
56. "NEW SENIOR NOTES" means $ aggregate principal amount of
11 1/4% Senior Notes due 2007, to be issued under an Indenture (the "Indenture")
to be dated as of , 1997, between Reorganized Flagstar and First
Trust National Association, as trustee (the "Trustee"), to holders of the Old
Senior Notes.
57. "NEW WARRANTS" means the warrants to purchase New Common Stock
representing 7% of the New Common Stock on a fully diluted basis.
58. "OLD DEBT" means, collectively, the Old Senior Notes, Senior
Subordinated Debentures and the Junior Subordinated Debentures.
59. "OLD FCI COMMON STOCK" means the common stock of FCI, par value $.50
per share, issued and outstanding as of the Petition Date.
60. "OLD FCI PREFERRED STOCK" means the $2.25 Series A Cumulative
Convertable Exchangeable Preferred Stock of FCI, par value $.10 per share,
issued and outstanding as of the Petition Date.
61. "OLD SECURITIES" means, collectively, the Old Debt, the Old FCI Common
Stock and the Old FCI Preferred Stock.
62. "OLD SENIOR NOTES" means the 10 3/4% Senior Notes and the 10 7/8%
Senior Notes.
63. "OLD STOCK RIGHTS" means, collectively, any Old Warrants, and any other
rights or options, to purchase or otherwise acquire Old Securities, and any
stock appreciation or similar rights relating to Old Securities, existing prior
to the Effective Date. "Old Stock Rights" do not include any rights arising out
of the ownership of Old Securities.
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64. "OLD WARRANTS" means warrants to purchase 15,000,000 shares of Old FCI
Common Stock issued pursuant to a Stock and Warrant Purchase Agreement dated as
of August 11, 1992.
65. "ORDER" means an order or judgment of the Bankruptcy Court as entered
on the Docket.
66. "ORDINARY COURSE PROFESSIONALS' ORDER" means the order which, if
entered by the Clerk, will authorize the Debtors to (a) employ various
professionals who are not directly working to implement the Reorganization Cases
and (b) pay such professionals without need for application, hearing and Final
Order.
67. "OTHER SECURED CLAIM" means any Allowed Secured Claim not classified in
Class 1. Other Secured Claims are classified in Class 2A et seq.
68. "PERSON" means any individual, corporation, general partnership,
limited partnership, limited liability partnership, limited liability company,
association, joint stock company, joint venture, government or political
subdivision, official committee appointed by the United States Trustee,
unofficial committee of creditors or equity Holders, or other entity (as defined
in the Bankruptcy Code).
69. "PETITION DATE" means __________, 1997, the date on which the
Reorganization Cases were Filed.
70. "PLAN" means this plan of reorganization for the Debtors in the
Reorganization Cases and all exhibits and schedules annexed hereto or referred
to herein, as such may be amended, modified or supplemented from time to time.
71. "POST-PETITION TAX CLAIMS" means Administrative Claims and other Claims
by a governmental unit for taxes (and for interest and/or penalties related to
such taxes) for any tax year or period, all or any portion of which occurs or
falls within the period from and including the Petition Date through and
including the Effective Date.
72. "PREPETITION CREDIT FACILITY" means the Second Amended and Restated
Credit Agreement, dated as of April 10, 1996, and amended through March 7, 1997,
among TWS Funding, Inc., as borrower, Flagstar, certain lenders and
co-administrative agents named therein and Citibank, N.A., as funding agent.
73. "PRIORITY CLAIM" means an Allowed Claim entitled to priority under
sections 507(a)(3) through 507(a)(7) of the Bankruptcy Code, but excludes
Priority Tax Claims.
74. "PRIORITY TAX CLAIM" means an Allowed Claim for an amount entitled to
priority under section 507(a)(8) of the Bankruptcy Code.
75. "PRO RATA" means proportionately so that, with respect to any Class,
the ratio of (a) the amount of consideration distributed on account of a
particular Allowed Claim or Allowed Interest to (b) the amount of the Allowed
Claim or Allowed Interest, is the same as the ratio of (x) the amount of
consideration distributed on account of all Allowed Claims or Allowed Interests
of the Class in which the particular Allowed Claim or Allowed Interest is
included to (y) the aggregate amount of all Allowed Claims or Allowed Interests
of that Class.
76. "PROSPECTUS" means the Disclosure Statement used to solicit prepetition
votes on the Plan.
77. "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement between Reorganized Flagstar and all holders of 10% or more of the New
Common Stock substantially in the form of Exhibit 4.39 to the Registration
Statement on Form S-4 of FCI of which the Prospectus is a part.
78. "REINSTATED," means, with respect to any Allowed Claim or Allowed
Interest, that such Claim or Interest shall be treated as Unimpaired on or prior
to the Effective Date.
79. "REORGANIZATION CASES" means the Debtors' cases under chapter 11 of the
Bankruptcy Code.
80. "REORGANIZED FLAGSTAR" means the corporation having such name as shall
be determined prior to the Confirmation Date by the Board of Directors of FCI, a
Delaware corporation, as the surviving corporation in the merger of Flagstar
with and into FCI as of the Effective Date.
81. "REORGANIZED FLAGSTAR BYLAWS" means the amended and restated bylaws of
Reorganized Flagstar that will be effective on the Effective Date, in the form
which will be Filed at or prior to the Confirmation Hearing, which bylaws shall
be prepared in consultation with the Ad Hoc Debentureholders Committee.
82. "REORGANIZED FLAGSTAR CERTIFICATE OF INCORPORATION" means the amended
and restated certificate of incorporation that will be effective on the
Effective Date, in the form which will be Filed at or prior to the Confirmation
Hearing, which certificate of incorporation shall be prepared in consultation
with the Ad Hoc Debentureholders Committee.
83. "SECURED CLAIM" means any Claim that is secured by a lien on property
in which the Estates have an interest or that is subject to setoff under section
553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's
interest in the
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Estates' interest in such property or to the extent of the amount subject to
setoff, as applicable, as determined pursuant to section 506(a) of the
Bankruptcy Code.
84. "SECURITIES CLAIM" means (a) any Claim arising from rescission of a
purchase or sale of Old FCI Common Stock or for damages arising from the
purchase or sale of Old FCI Common Stock, or (b) any Claim for indemnity,
reimbursement, or contribution on account of any such Claim.
85. "SENIOR SUBORDINATED CLAIMS" means Claims arising from the 11.25%
Debentures and the 11 3/8% Debentures.
86. "SENIOR SUBORDINATED DEBENTURES" means, collectively, the 11.25%
Debentures and the 11 3/8% Debentures.
87. "SENIOR UNSECURED CLAIMS" means Claims arising from the Old Senior
Notes.
88. "SUBSIDIARY" means any directly or indirectly wholly-owned subsidiary
of either of the Debtors.
89. "TRADE CLAIMS" means any unsecured Claim against the Company arising
from (i) the delivery of goods or services in the ordinary course of business
(ii) any claim of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
arising under the Letter Agreement, dated as of January 16, 1997, among FCI,
Flagstar, and DLJ or (iii) insurance-related service (including insurance
premiums). "Trade Claim" excludes Claims (i) arising under Sections 502(e) and
502(g) of the Bankruptcy Code, (ii) of the type described in Section 726(a)(4)
of the Bankruptcy Code, or (iii) arising in tort for personal injury or property
loss.
90. "UCC" means the Delaware Uniform Commercial Code, as in effect at any
relevant time.
91. "UNIMPAIRED" means, with reference to a Class of Claims or Interests,
that the Class is not Impaired. An Unimpaired Class is not entitled to vote on
the Plan.
92. "UNSECURED CLAIM" means any Claim that is not an Administrative Claim,
Priority Claim, Priority Tax Claim or Secured Claim.
93. "VOTING DEADLINE" means the date on which Ballots must be received by
the Debtors at their address set forth on the applicable Ballot. For purposes of
the Plan, the Voting Deadline is , 1997, or, if the Debtors extend the
Voting Deadline pursuant to Section VIII.E below, the latest date on which a
Ballot will be accepted.
B. INTERPRETATION AND COMPUTATION OF TIME.
1. DEFINED TERMS.
Any term used in the Plan that is not defined in the Plan, either in
Article II (Definitions) or elsewhere, but that is used in the Bankruptcy Code,
the Bankruptcy Rules or the Local Bankruptcy Rules, has the meaning assigned to
that term in the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy
Rules, as the case may be.
2. RULES OF INTERPRETATION.
For purposes of the Plan: (a) whenever it appears appropriate from the
context, each term, whether stated in the singular or the plural, shall include
both the singular and the plural; (b) any reference in the Plan to a contract,
instrument, release or other agreement or document being in a particular form or
on particular terms and conditions means that such document shall be
substantially in such form or substantially on such terms and conditions;
provided, however, that any change to such form, terms, or conditions which is
material to a party to such document shall not be made without such party's
consent; (c) any reference in the Plan to an existing document or exhibit Filed
or to be Filed means such document or exhibit, as it may have been or (to the
extent otherwise permitted, hereafter) may be amended, modified or supplemented
from time to time; (d) unless otherwise specified in a particular reference, all
references in the Plan to paragraphs, sections, articles and Exhibits are
references to paragraphs, sections, articles and Exhibits of or to the Plan; (e)
the words "herein," "hereof," "hereto," "hereunder" and others of similar import
refer to the Plan in its entirety rather than to only a particular portion of
the Plan; (f) captions and headings to Articles and paragraphs are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretations of the Plan; (g) the rules of construction set forth in
section 102 of the Bankruptcy Code shall apply; and (h) all exhibits to the Plan
are incorporated into the Plan, and shall be deemed to be included in the Plan,
provided that they are Filed no later than the Confirmation Hearing.
3. TIME PERIODS.
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
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III.
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests under
the Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified and are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class, and is classified in another Class or Classes to
the extent that any remainder of the Claim or Interest qualifies within the
description of such other Class or Classes. A Claim or Interest is classified in
a particular Class only to the extent that the Claim or Interest is an Allowed
Claim or Allowed Interest in that Class and has not been paid, released or
otherwise satisfied before the Effective Date; a Claim or Interest which is not
an Allowed Claim or Allowed Interest is not in any Class. A Disputed Claim or
Disputed Interest, to the extent that it subsequently becomes an Allowed Claim
or Allowed Interest, shall be included in the Class for which it would have
qualified had it not been disputed. Notwithstanding anything to the contrary
contained in the Plan, no distribution shall be made on account of any Claim or
Interest which is not an Allowed Claim or an Allowed Interest.
A. SECURED CLAIMS.
CLASS 1: Bank Claims.
CLASS 2A
ET SEQ.: Other Secured Claims.
B. UNSECURED CLAIMS.
CLASS 3: Priority Claims.
CLASS 4: Senior Unsecured Claims.
CLASS 5: Senior Subordinated Claims.
CLASS 6: Junior Subordinated Claims.
CLASS 7A: General Unsecured Claims against Flagstar.
CLASS 7B: General Unsecured Claims against FCI.
C. INTERESTS AND CLAIMS RELATING TO INTERESTS.
CLASS 8: Allowed Interests of Holders of Old FCI Preferred Stock.
CLASS 9: Allowed Interests of Holders of Old FCI Common Stock.
CLASS 10: Allowed Interests of Holders of Old Stock Rights and all Allowed
Claims arising out of any such Old Stock Rights, including,
without limitation, all Claims arising out of the rejection of
Old Stock Rights.
CLASS 11: Securities Claims.
CLASS 12: FCI's Interest in Flagstar.
IV.
GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS
A. UNCLASSIFIED CLAIMS.
1. ADMINISTRATIVE CLAIMS.
A. GENERAL.
Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized Flagstar shall pay to each Holder of
an Allowed Administrative Claim, on account of its Administrative Claim and in
full satisfaction thereof, Cash equal to the amount of such Allowed
Administrative Claim, unless the Holder and the Debtors or Reorganized Flagstar
agree or shall have agreed to other treatment of such Claim, or an order of the
Bankruptcy Court provides for other terms; provided that if incurred in the
ordinary course of business or otherwise assumed by the Debtors pursuant to the
Plan (including Administrative Claims of governmental units for taxes), an
Allowed Administrative Claim will be assumed
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on the Effective Date and paid, performed or settled by Reorganized Flagstar
when due in accordance with the terms and conditions of the particular
agreement(s) governing the obligation in the absence of the Reorganization
Cases.
B. PAYMENT OF STATUTORY FEES.
On or before the Effective Date, all fees payable pursuant to 28 U.S.C.
(section mark)1930, as determined by the Bankruptcy Court at the Confirmation
Hearing, shall be paid in Cash equal to the amount of such Administrative Claim.
C. TREATMENT OF PRIORITY TAX CLAIMS.
Unless otherwise agreed to by the Debtors and a Holder of a Priority Tax
Claim, each Holder of an Allowed Priority Tax Claim shall receive (i) Cash equal
to the unpaid portion of such Allowed Priority Tax Claim on the later of (a) the
Effective Date and (b) the date on which such Claim becomes an Allowed Priority
Tax Claim; or (ii) payment at such time as specified under applicable laws. The
Holders of Allowed Priority Tax Claims are not entitled to vote on the Plan:
Pursuant to Section 1123(a)(1) of the Bankruptcy Code, Priority Tax Claims are
not designated a Class of Claims for purposes of the Plan.
D. BAR DATE FOR ADMINISTRATIVE CLAIMS.
(1) GENERAL PROVISIONS.
Except as provided below for (i) non-tax liabilities incurred in the
ordinary course of business by the Debtors in Possession and (ii) Post-petition
Tax Claims, requests for payment of Administrative Claims must be Filed and
served on counsel for the Debtors and Reorganized Flagstar no later than (x)
sixty (60) days after the Effective Date, or (y) such later date, if any, as the
Bankruptcy Court shall order upon application made prior to the end of such
60-day period. Holders of Administrative Claims (including, without limitation,
professionals requesting compensation or reimbursement of expenses and the
Holders of any Claims for federal, state or local taxes) that are required to
File a request for payment of such Claims and that do not File such requests by
the applicable bar date shall be forever barred from asserting such Claims
against the Debtors or Reorganized Flagstar, or any of their respective
properties.
(2) PROFESSIONALS.
All professionals or other Persons requesting compensation or reimbursement
of expenses pursuant to any of sections 327, 328, 330, 331, 503(b) and 1103 of
the Bankruptcy Code for services rendered on or before the Effective Date
(including, without limitation, any compensation requested by any professional
or any other Person for making a substantial contribution in the Reorganization
Cases) shall File and serve on Reorganized Flagstar and counsel for Reorganized
Flagstar an application for final allowance of compensation and reimbursement of
expenses no later than (i) sixty (60) days after the Effective Date, or (ii)
such later date, if any, as the Bankruptcy Court shall order upon application
made prior to the end of such 60-day period; PROVIDED, HOWEVER, that any
Professional who may receive compensation or reimbursement of expenses pursuant
to the Ordinary Course Professionals' Order without having filed an application
may continue to receive compensation or reimbursement for services rendered
before the Effective Date without further Bankruptcy Court review or approval
pursuant to the Ordinary Course Professionals' Order. Objections to applications
of professionals for compensation or reimbursement of expenses must be Filed and
served on Reorganized Flagstar, counsel for Reorganized Flagstar and the
professionals to whose application the objections are addressed on or before the
later of (x) ninety (90) days after the Effective Date and (y) thirty (30) days
after such date as the Bankruptcy Court shall establish as the bar date for such
applications. Any professional fees and reimbursements or expenses incurred by
Reorganized Flagstar subsequent to the Effective Date may be paid by Reorganized
Flagstar without application to the Bankruptcy Court.
To the extent Hebb & Gitlin remain advisors to the Ad Hoc Debentureholder
Committee during the pendency of the Reorganization Cases, Hebb & Gitlin's
reasonable fees and expenses will be paid by TWS Funding, a subsidiary of
Flagstar, subject to the Debtor's (a) unilateral right to terminate TWS
Funding's obligation hereunder on 24 hour notice to Hebb & Gitlin, and without
requirement for notice to the Bankruptcy Court or a hearing and (b) right to
dispute any Hebb & Gitlin fees and expenses as unreasonable.
Houlihan, Lokey, Howard & Zukin ("HLHZ") will remain as advisors to the Ad
Hoc Debentureholder Committee during the pendency of the Reorganization Cases.
The Debtors will assume HLHZ's pre-petition retainer agreement (dated February
27, 1997) for fees and expenses. Under such agreement, Flagstar or HLHZ or Hebb
& Gitlin may terminate HLHZ's engagement on 5 days' written notice. The
agreement will automatically terminate upon the consummation of the
Reorganization Cases.
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(3) ORDINARY COURSE LIABILITIES.
Holders of Administrative Claims based on liabilities incurred in the
ordinary course of the Debtors' businesses (other than Claims of governmental
units for taxes or Claims and/or penalties related to such taxes) shall not be
required to File any request for payment of such Claims. Such Administrative
Claims shall be assumed and paid by Reorganized Flagstar pursuant to the terms
and conditions of the particular transaction giving rise to such Administrative
Claim, without any further action by the Holders of such Claims.
(4) TAX CLAIMS.
All requests for payment of Post-petition Tax Claims, for which no bar date
has otherwise been previously established, must be Filed on or before the later
of (i) sixty (60) days following the Effective Date; and (ii) 120 days following
the filing of the tax return for such taxes for such tax year or period with the
applicable governmental unit. Any Holder of any Post-petition Tax Claim that is
required to File a request for payment of such taxes and that does not File such
a Claim by the applicable bar date shall be forever barred from asserting any
such Post-petition Tax Claim against any of the Debtors, Reorganized Flagstar,
or any of their respective properties, whether any such Post-petition Tax Claim
is deemed to arise prior to, on, or subsequent to, the Effective Date.
B. TREATMENT OF SECURED CLAIMS.
1. CLASS 1 (BANK CLAIMS).
CLASS 1 consists of all Claims, if any, of the Banks against the Debtors
arising from the Prepetition Credit Facility including all Claims arising
pursuant to any guarantee thereof and any pledge of assets as security therefor.
Class 1 is Unimpaired and, accordingly, is not entitled to vote on the Plan. On
the Effective Date, the Prepetition Credit Facility and, to the extent provided,
the related guarantees and pledges (collectively, the "GUARANTEES") by the
Company, will be Reinstated with Reorganized Flagstar as the guarantor under the
Guarantees.
2. CLASS 2A ET SEQ. (OTHER SECURED CLAIMS).
CLASS 2A ET SEQ. All Secured Claims that are not included in Class 1
(defined in the Plan as the "Other Secured Claims") shall be classified in
Classes 2A et seq.). These Classes will be further divided into subclasses
designated by letters of the alphabet (CLASS 2A, CLASS 2B, and so on), so that
each Holder of any Other Secured Claim is in a Class by itself, except to the
extent that there are Other Secured Claims that are substantially similar to
each other and may be included within a single Class. The Debtors shall File a
schedule of each Other Secured Claim on or before ten (10) days prior to the
commencement of the Confirmation Hearing. Each Allowed Other Secured Claim will
be treated as follows: Either (a) the Plan shall leave unaltered the legal,
equitable and contractual rights to which such Claim entitles the Holder; (b)
(i) the Debtors shall cure any default with respect to such Claim that occurred
before or after the relevant Petition Date, (ii) the maturity of such Claim
shall be reinstated as such maturity existed before any such default, (iii) the
Holder of such Claim shall be compensated for any damages incurred as a result
of any reasonable reliance by the Holder on any right to accelerate its Claim,
and (iv) the legal, equitable, and contractual rights of such Holder will not
otherwise be altered; or (c) such Claim shall receive such other treatment to
which the Holder shall consent. The Holder of each Allowed Other Secured Claim
which is treated as set forth in clause (a), (b) or (c) of this paragraph will
be Unimpaired and will not be entitled to vote for or against the Plan.
C. TREATMENT OF UNSECURED CLAIMS.
1. CLASS 3 (PRIORITY CLAIMS).
CLASS 3 consists of the Allowed Priority Claims. Class 3 Claims are
Unimpaired and, accordingly, Holders of Allowed Class 3 Claims are not entitled
to vote on the Plan. Each Holder of an Allowed Class 3 Claim shall be entitled
to receive Cash equal to the amount of such Claim, unless the Holder of such
Claim and Reorganized Flagstar agree to a different treatment, on the latest of
(a) the Effective Date or as soon as practicable thereafter, (b) the date such
Claim becomes an Allowed Priority Claim, and (c) the date that such Claim would
be paid in accordance with any terms and conditions of any agreements or
understandings relating thereto between the Debtors and the Holder of such
Claim.
2. CLASS 4 (SENIOR UNSECURED CLAIMS).
CLASS 4 consists of the Allowed Unsecured Claims of Holders of Old Senior
Notes. Class 4 is Impaired and, accordingly, is entitled to vote on the Plan.
Each Holder will receive a Pro Rata portion of the New Senior Notes representing
100% of the principal amount of the Old Senior Notes currently outstanding and
accrued interest thereon (subject to the right of Reorganized Flagstar to pay
cash for interest accrued through the Effective Date); provided, however, that
if the Class of Holders of Old Senior Notes does not consent to the Plan, the
Old Senior Notes shall either be, in the sole discretion of
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Reorganized Flagstar, unimpaired (with no change to the interest rates, maturity
dates or other terms or provisions of the Old Senior Notes) or exchanged for New
Senior Notes which will bear interest at a rate which the Bankruptcy Court finds
appropriate under the cramdown provisions of 11 U.S.C. (section mark)1129(b)
(with a maturity date and having other terms and provisions set forth herein for
the New Old Senior Notes). Class 4 will consist of Claims in respect of the Old
Senior Notes, including an aggregate principal amount of $550 million and
aggregate accrued and unpaid interest of $16 million through, but not including,
the Petition Date (assuming the Petition Date occurs on July 31, 1997).
3. CLASS 5 (SENIOR SUBORDINATED CLAIMS).
CLASS 5 consists of Allowed Unsecured Claims of Holders of Senior
Subordinated Debentures. Class 5 is Impaired and, accordingly, is entitled to
vote on the Plan. On the Effective Date or as soon as practicable thereafter,
each Holder of an Allowed Class 5 Claim will receive on account of the unpaid
principal amount plus unpaid interest which accrued prior to the Petition Date
on its Senior Subordinated Debentures, 44.986 shares of New Common Stock for
each $1,000 of 11.25% Debentures and 45.614 shares of New Common Stock for each
$1,000 of 11 3/8% Senior Debentures which it holds. Holders of Allowed Senior
Subordinated Claims will receive in the aggregate, on a Pro Rata basis, 95.5% of
the New Common Stock to be issued and outstanding on the Effective Date.
In addition, (i) in the event that Class 9 does not accept the Plan but
Classes 6 and 8 accept the Plan, then each Holder of an Allowed Class 5 Claim
will also receive its Pro Rata share of 100% of the New Warrants; (ii) in the
event that Class 8 does not accept the Plan but Class 6 accepts the Plan, then
each Holder of an Allowed Class 5 Claim will also receive its Pro Rata share of
100% of the New Warrants and its Pro Rata share of the 1.25% of the New Common
Stock that would otherwise have been distributed to Class 8; and (iii) in the
event that Class 6 does not accept the Plan, then each Holder of an Allowed
Class 5 Claim will also receive its Pro Rata share of 100% of the New Warrants
and its Pro Rata share of the 4.50% of the New Common Stock that would otherwise
have been distributed to Classes 6 and 8.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to an amendment to the
indentures for the Senior Subordinated Debentures which will effect the
redistribution of the Plan consideration to which such Holders are entitled if
either or both of the Classes of Holders of Junior Subordinated Debentures and
Holders of Old FCI Preferred Stock do not accept the Plan and either or both of
the Classes of Holders of Old FCI Preferred Stock and Holders of Old FCI Common
Stock do accept the Plan. Accordingly, assuming such senior subordinated
indenture amendments are adopted, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants.
4. CLASS 6 (JUNIOR SUBORDINATED CLAIMS)
CLASS 6 consists of Allowed Unsecured Claims of Holders of Junior
Convertible Subordinated Debentures. Class 6 is Impaired and, accordingly, is
entitled to vote on the Plan. On the Effective Date or as soon as practicable
thereafter, in the event Class 6 accepts the Plan, each Holder of an Allowed
Class 6 Claim will receive on account of the unpaid principal amount plus all
unpaid interest which accrued prior to the Petition Date on its Junior
Subordinated Convertible Debentures, 13.097 shares of New Common Stock for each
$1,000 of Junior Subordinated Convertible Debentures which it holds. Holders of
Allowed Junior Subordinated Claims will receive in the aggregate, on a Pro Rata
basis, 3.25% of the New Common Stock to be issued and outstanding on the
Effective Date.
In the event that Class 6 does not accept the Plan, then (x) no Holder of
any Claim or Interest junior to the Allowed Class 6 Claims shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 6 Claims shall not receive or retain any interest or property under the
Plan.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to an amendment to the
indentures for the Senior Subordinated Debentures which will effect the
redistribution of the Plan consideration to which such Holders are entitled if
either or both of the Classes of Holders of Junior Subordinated Debentures and
Holders of Old FCI Preferred Stock do not accept the Plan and either or both of
the Classes of Holders of Old FCI Preferred Stock and Holders of Old FCI Common
Stock do accept the Plan. Accordingly, assuming such senior subordinated
indenture amendments are adopted, (i) if the
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Holders of the Junior Subordinated Debentures do not accept the Plan but the
Holders of the Old FCI Preferred Stock accept the Plan, Holders of the Old FCI
Preferred Stock will receive New Common Stock representing 1.25% of the New
Common Stock of Reorganized Flagstar, and (ii) if the Holders of Junior
Subordinated Debentures or the Holders of the Old FCI Preferred Stock do not
accept the Plan but Holders of the Old FCI Common Stock accept the Plan, Holders
of the Old FCI Common Stock will receive the New Warrants.
5. CLASSES 7A AND 7B (GENERAL UNSECURED CLAIMS).
Classes 7A and 7B (collectively, "Class 7") are Unimpaired. Class 7A
consists of all Claims against Flagstar and Class 7B consists of all Claims
against FCI, except Administrative Claims, Priority Tax Claims and Claims in
Classes 1 through 6, and including, but not limited to, Claims resulting from
the rejection of leases or executory contracts.
Unless otherwise agreed to by the parties, the legal, equitable and
contractual rights of each Holder of an Allowed Claim in Class 7 will either (a)
not be altered by this Plan or (b) at the option of the Debtors, receive such
other treatment that will result in such Allowed Claim being deemed Unimpaired.
Class 7 also includes Trade Claims. As set forth in IV.E.1 below, the
Debtors intend to seek Bankruptcy Court approval to pay in the ordinary course
of business all outstanding Trade Claims to trade creditors who continue to
provide normal trade credit terms to or have reinstated normal trade credit
terms for the Company or who have previously agreed to compromise their Claims
in a manner acceptable to the Debtor. In any event, all Allowed Claims in Class
7 that have become due and owing on or before the Effective Date (unless
previously paid during the Reorganization Cases) will be paid in full, in Cash
(with interest, to the extent permitted by the Bankruptcy Court), on, or as soon
as practicable after the Effective Date, or at such other time as is mutually
agreed upon by the Debtors and the Holder of such Claim, or if not due and owing
on the Effective Date, such Trade Claims shall be Reinstated and paid in full in
accordance with their respective terms or otherwise rendered Unimpaired.
Allowed Claims in Class 7 are not Impaired and will be deemed to have
accepted the Plan. Holders of Claims in Class 7 are not required to file proofs
of claim with the Bankruptcy Court and no bar date will be enforced as to such
Claims.
D. INTERESTS.
1. CLASS 8 (INTERESTS OF HOLDERS OF OLD FCI PREFERRED STOCK).
CLASS 8 consists of the Allowed Interests of Holders of Old FCI Preferred
Stock. Class 8 is Impaired and, accordingly, is entitled to vote on the Plan. On
the Effective Date or as soon as practicable thereafter, each Holder of an
Allowed Class 8 Claim will receive on account of each share of Old FCI Preferred
Stock which it holds, 0.079365 shares of New Common Stock. Holders of Allowed
Class 8 Interests will receive in the aggregate, on a Pro Rata basis, 1.25% of
the New Common Stock to be issued and outstanding on the Effective Date. The
intercompany note related to the Old FCI Preferred Stock will be cancelled on
the Effective Date and no distribution shall be made on account of such note.
In the event that Class 8 does not accept the Plan, then (x) no Holder of
any Claim or Interest junior to the Allowed Class 8 Interests shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 8 Interests shall not receive or retain any interest or property under the
Plan.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to an amendment to the
indentures governing the Senior Subordinated Debentures which will effect the
redistribution of the Plan consideration to which such Holders are entitled if
either or both of the Classes of Holders of Junior Subordinated Debentures and
Holders of Old FCI Preferred Stock do not accept the Plan and either or both of
the Classes of Holders of Old FCI Preferred Stock and Holders of Old FCI Common
Stock do accept the Plan. Accordingly, assuming such senior subordinated
indenture amendments are adopted, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants.
2. CLASS 9 (INTERESTS OF HOLDERS OF OLD FCI COMMON STOCK).
CLASS 9 consists of the Allowed Interests of Holders of Old FCI Common
Stock. Class 11 is Impaired and, accordingly, is entitled to vote on the Plan.
On the Effective Date or as soon as practicable thereafter, in the event Class 9
accepts the Plan
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each Holder of an Allowed Class 9 Claim will receive, on a Pro Rata basis, on
account of each share of Old FCI Common Stock which it holds New Warrants to
purchase 0.07095 shares of New Common Stock.
In the event Class 6, 8 or 9 votes to reject the Plan, Holders of Allowed
Class 9 Interests shall not receive or retain any interests or property under
the Plan.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes, by consenting to an amendment to the
indentures governing the Senior Subordinated Debentures which will effect the
redistribution of the Plan consideration to which such Holders are entitled if
either or both of the Classes of Holders of Junior Subordinated Debentures and
Holders of Old FCI Preferred Stock do not accept the Plan and either or both of
the Classes of Holders of Old FCI Preferred Stock and Holders of Old FCI Common
Stock do accept the Plan. Accordingly, assuming such senior subordinated
indenture amendments are adopted, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants.
3. CLASS 10 (INTERESTS OF HOLDERS OF OLD STOCK RIGHTS AND ALL CLAIMS
ARISING OUT OF SUCH OLD STOCK RIGHTS).
CLASS 10 consists of Interests of Holders of Old Stock Rights and all
Claims arising out of any such Old Stock Rights, including, without limitation,
all Claims arising out of the rejection of Old Stock Rights. The Holders of
Allowed Class 10 Interests, if any, shall not receive any interests or property
on account of their Interests. Class 10 is Impaired and is deemed to have
rejected the Plan. Accordingly, Class 10 is not entitled to vote on the Plan.
4. CLASS 11 (SECURITIES CLAIMS).
CLASS 11 consists of Securities Claims (if any exist). Although Class 11 is
Impaired under the Plan, the votes of Holders of Class 11 Claims (if any) are
not being solicited: if there are any such claims, the Debtors intend to seek to
cram down Class 11 pursuant to Section 1129(b) of the Bankruptcy Code. Any
Allowed Securities Claims arising from Old FCI Common Stock shall be treated
with the same priority as the Old FCI Common Stock pursuant to Section 510(b) of
the Bankruptcy Code, and the Holders of such Claims shall receive that portion
of the New Warrants which would otherwise be distributed to Class 9 (Old FCI
Common Stock) which the Bankruptcy Court determines to be necessary to enable
the Plan to comply with 11 U.S.C. (section mark) 1129(b). The Debtors are
currently unaware of any Securities Claims.
5. CLASS 12 (FCI'S 100% OWNERSHIP INTEREST IN FLAGSTAR).
CLASS 12 consists of Interests of FCI arising from its 100% ownership
interest in Flagstar. Because FCI and Flagstar will be merged pursuant to this
Plan, Class 12 is Impaired.
E. TREATMENT OF TRADE CREDITORS AND EMPLOYEES UNDER THE PLAN.
1. TREATMENT OF TRADE CLAIMS.
Trade Claims are Unimpaired and will be paid in full under the Plan.
Notwithstanding provisions of the Bankruptcy Code that may defer payment of the
Trade Claims until the effectiveness of the Plan, the Debtors have sought or
will seek simultaneously with the Filing of this Plan authority from the
Bankruptcy Court to immediately pay Holders of Trade Claims arising in the
ordinary course who, following commencement of the Reorganization Cases, agree
to continue to provide the Company with customary trade terms or to reinstate
customary trade terms or who have previously agreed to compromise their Claims
in a manner acceptable to the Debtors.
Holders of Trade Claims will not be required to file proofs of claim with
the Bankruptcy Court and no bar date will be enforced as to such Trade Claims.
On and after the Effective Date, all undisputed, noncontingent and liquidated
Trade Claims not already paid will be paid in full or in the ordinary course of
business of Reorganized Flagstar. If the Company or Reorganized Flagstar
disputes any Trade Claim, such dispute will be determined, resolved or
adjudicated, as the case may be, in the manner in which such dispute would have
been determined, resolved or adjudicated if the Reorganization Cases had not
been commenced, and will survive the Effective Date and the consummation of the
Plan as if the Reorganization Cases had not been commenced.
Any Claim arising from the rejection of an executory contract or unexpired
lease under the Plan shall not be treated as a Trade Claim, will be determined
in accordance with the procedures set forth in Section VII.D. hereof, and will
be paid as a Class 7 Claim when and to the extent such Claim is Allowed by the
Bankruptcy Court.
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2. TREATMENT OF EMPLOYEE CLAIMS.
Employee Claims that accrue pre-petition will receive Unimpaired treatment
under the terms of the Plan. To ensure the continuity of the Debtors' work force
and to further accommodate the Unimpaired treatment of Employee Claims, the
Debtors have sought or simultaneous with the Filing of this Plan will seek
immediate authorization from the Bankruptcy Court to honor payroll checks
outstanding as of the Petition Date (or to issue replacement checks), to permit
employees to utilize paid vacation time accrued prior to the Petition Date (so
long as they remain employees of the Debtors or Reorganized Flagstar) and to
continue paying medical and other benefits under all applicable insurance plans.
Employee Claims and benefits not paid or honored prior to the Effective Date
will be paid or honored upon the Effective Date or as soon thereafter as such
payment or other obligation becomes due or performable. Employees will not be
required to file proofs of claim on account of Employee Claims. If the Company
or Reorganized Flagstar disputes any Employee Claim, such dispute will be
determined, resolved or adjudicated, as the case may be, in the manner in which
such dispute would have been determined, resolved or adjudicated if the
Reorganization Cases had not been commenced, and will survive the Effective Date
and the consummation of the Plan as if the Reorganization Cases had not been
commenced.
F. MODIFICATION OF TREATMENT OF CLAIMS.
The Debtors reserve the right to modify the treatment of any Allowed Claim
or Interest in any manner adverse only to the Holder of such Claim or Interest
at any time after the Effective Date upon the consent of the creditor or
interest holder whose Allowed Claim or Interest, as applicable, is being
adversely affected.
G. REGISTRATION OF NEW COMMON STOCK.
Each person or entity receiving a distribution of New Common Stock or New
Warrants as of the Effective Date representing at least 10% of the fully diluted
equity interests in Reorganized Flagstar shall have the right to become a party
to the Registration Rights Agreement. The Registration Rights Agreement shall
include, without limitation, the terms and conditions to be negotiated.
H. LISTING OF NEW COMMON STOCK.
Reorganized Flagstar shall use its best efforts to cause the shares of New
Common Stock to be listed on the New York Stock Exchange or the NASDAQ National
Market.
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V.
DISTRIBUTIONS UNDER THE PLAN
A. Disbursing Agent
Reorganized Flagstar, or such Person(s) as the Debtors may employ in their
sole discretion, will act as Disbursing Agent under the Plan. The Disbursing
Agent will make all distributions of Cash, New Senior Notes, New Common Stock
and New Warrants required to be distributed under the applicable provisions of
the Plan. Any Disbursing Agent may employ or contract with other entities to
assist in or make the distributions required by the Plan. Each Disbursing Agent
will serve without bond, and each Disbursing Agent, other than Reorganized
Flagstar, will receive, without further Bankruptcy Court approval, reasonable
compensation for distribution services rendered pursuant to the Plan and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services from Reorganized Flagstar on terms acceptable to Reorganized
Flagstar.
B. Timing of Distributions
Property to be distributed hereunder on account of Allowed Claims and
Allowed Interests in an Impaired Class (a) shall be distributed on the Effective
Date or as soon as practicable thereafter to each Holder of an Allowed Claim or
an Allowed Interest in that Class that is an Allowed Claim or an Allowed
Interest as of the Effective Date, and (b) shall be distributed to each Holder
of an Allowed Claim or an Allowed Interest of that Class that becomes an Allowed
Claim or Allowed Interest after the Effective Date, as soon as practicable after
the order of the Bankruptcy Court allowing such Claim or Interest becomes a
Final Order. Property to be distributed under the Plan on account of Claims in a
Class that are not Impaired or on account of an Administrative Claim shall be
distributed on the later of (i) the Effective Date or as soon as practicable
thereafter, or if any Claim is not an Allowed Claim, on the date the order
allowing such Claim becomes a Final Order and (ii) the date on which the
distribution to the Holder of the Claim would have been due and payable in the
ordinary course of business or under the terms of the Claim if the
Reorganization Cases had not been commenced.
C. Methods of Distributions
1. Cash Payments
Cash payments made pursuant to the Plan will be in U.S. dollars. Cash
payments of $1,000,000 or more to be made pursuant to the Plan will, to the
extent requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a domestic bank. Cash payments to foreign
creditors may be made, at the option of the Debtors or Reorganized Flagstar, in
such funds and by such means as are necessary or customary in a particular
foreign jurisdiction. Cash payments made pursuant to the Plan in the form of
checks issued by Reorganized Flagstar shall be null and void if not cashed
within 90 days of the date of the issuance thereof. Requests for reissuance of
any check shall be made directly to the Disbursing Agent as set forth in Section
V.G below.
2. Transfers of New Common Stock
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Common Stock will be issued or transferred, as the case may be,
pursuant to the Plan. When any distribution on account of an Allowed Claim or
Interest pursuant to the Plan would otherwise result in the issuance or transfer
of a number of shares of New Common Stock that is not a whole number, the actual
distribution of shares of such New Common Stock, will be rounded to the next
higher or lower whole number as follows: (a) fractions of 1/2 or greater will be
rounded to the next higher whole number and (b) fractions of less than 1/2 will
be rounded to the next lower whole number. The total number of shares of New
Common Stock to be distributed to a Class of Claims or Interests, will be
adjusted as necessary to account for the rounding provided for in this Section.
No consideration will be provided in lieu of fractional shares that are rounded
down.
3. Compliance With Tax Requirements
In connection with the distributions set forth herein, to the extent
applicable, the Disbursing Agent shall comply with all tax withholding and
reporting requirements imposed on it by any governmental unit, and all
distributions pursuant to this Plan will be subject to such withholding and
reporting requirements. The Disbursing Agent will be authorized to take any and
all actions that may be necessary or appropriate to comply with such withholding
and reporting requirements.
Notwithstanding any other provision contained herein: (i) each Holder of an
Allowed Claim or Interest that is to receive a distribution of Cash, New Common
Stock or New Warrants pursuant to the Plan will have sole and exclusive
responsibility for the satisfaction and payment of any tax obligations imposed
by any governmental unit, including income, withholding
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and other tax obligations, on account of such distribution; and (ii) no
distribution will be made to or on behalf of such Holder pursuant to the Plan
unless and until such Holder has made arrangements satisfactory to the
Disbursing Agent for the payment and satisfaction of such tax obligations. Any
Cash, New Common Stock or New Warrants to be distributed pursuant to the Plan
will, pending the implementation of such arrangements, be treated as an
undeliverable distribution pursuant to Section V.G of the Plan.
D. Pro Rata Distribution
Where the Plan provides for Pro Rata distribution, the property to be
distributed under this Plan shall be divided Pro Rata among the Holders of
Allowed Claims or Allowed Interests of the relevant Class.
E. Distribution Record Date
As of the close of business on the Distribution Record Date, the transfer
registers for the Old Securities maintained by the Debtors, or their respective
agents, will be closed. The Disbursing Agent and its respective agents will have
no obligation to recognize the transfer of any Old Securities occurring after
the Distribution Record Date, and will be entitled for all purposes relating to
this Plan to recognize and deal only with those Holders of record as of the
close of business on the Distribution Record Date.
F. Surrender of Cancelled Debt Instruments or Securities
As a condition precedent to receiving any distribution pursuant to this
Plan on account of an Allowed Claim or Allowed Interest evidenced by the
instruments, securities or other documentation ("Instruments") cancelled
pursuant to Section [ ] hereof, the Holder of such Claim or Interest shall
tender the applicable Instruments evidencing such Claim or Interest to the
Disbursing Agent pursuant to a letter of transmittal furnished by the Disbursing
Agent. Any Cash, New Common Stock or New Warrants to be distributed pursuant to
this Plan on account of any such Claim or Interest will, pending such surrender,
be treated as an undeliverable distribution pursuant to Section V.G below.
1. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments
In addition to any requirements under the Debtors' pre-petition
Certificates of Incorporation or Bylaws, any Holder of a Claim or an Interest
evidenced by an Instrument that has been lost, stolen, mutilated or destroyed
will, in lieu of surrendering such Instrument, deliver to the Disbursing Agent:
(a) evidence satisfactory to the Disbursing Agent of the loss, theft, mutilation
or destruction; and (b) such security or indemnity as may be required by the
Disbursing Agent to hold the Disbursing Agent harmless from any damages,
liabilities or costs incurred in treating such individual as a Holder of an
Instrument. Upon compliance with this Section, the Holder of a Claim or Interest
evidenced by any such lost, stolen, mutilated or destroyed Instrument will, for
all purposes under the Plan, be deemed to have surrendered such Instrument.
2. Failure to Surrender Cancelled Instrument
Any Holder of an Instrument that fails to surrender or be deemed to have
surrendered such Instrument within two years after the Effective Date will have
its claim for a distribution pursuant to the Plan on account of such Instrument
discharged and shall be forever barred from asserting any such claim against
Reorganized Flagstar or its property. In such cases, any Cash, New Common Stock
or New Warrants held for distribution on account of such claim will be disposed
of pursuant to the provisions of Section V.G hereof.
G. Undeliverable or Unclaimed Distributions
Any Person that is entitled to receive a Cash distribution under this Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized Flagstar for the amount of the
original check, without any interest, if such person requests the Disbursing
Agent to reissue such check and provides the Disbursing Agent with such
documentation as the Disbursing Agent requests to verify that such Person is
entitled to such check, prior to the second anniversary of the Effective Date.
If a Person fails to cash a check within 90 days of its issuance and fails to
request reissuance of such check prior to the second anniversary of the
Effective Date, such Person shall not be entitled to receive any distribution
under this Plan. If the distribution to any Holder of an Allowed Claim or
Allowed Interest is returned to a Disbursing Agent as undeliverable, no further
distributions will be made to such Holder unless and until the applicable
Disbursing Agent is notified in writing of such Holder's then-current address.
Undeliverable distributions will remain in the possession of the applicable
Disbursing Agent pursuant to Section V.A. of the Plan until such time as a
distribution becomes deliverable. Undeliverable Cash will be held in trust in
segregated bank accounts in the name of the applicable Disbursing
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Agent for the benefit of the potential claimants of such funds, and will be
accounted for separately. Any Disbursing Agent holding undeliverable Cash shall
invest such Cash in a manner consistent with the Debtors' investment and deposit
guidelines. Undeliverable New Common Stock and New Warrants will be held in
trust for the benefit of the potential claimants of such securities by the
applicable Disbursing Agent in principal amounts or number of shares sufficient
to fund the unclaimed amounts of such securities and shall be accounted for
separately.
Pending the distribution of any New Common Stock, pursuant to the Plan, the
Disbursing Agent will cause the New Common Stock held by it in its capacity as
Disbursing Agent to be: (A) represented in person or by proxy at each meeting of
the stockholders of Reorganized Flagstar; and (B) voted with respect to any
matter of Reorganized Flagstar, proportionally with the votes cast by other
stockholders of Reorganized Flagstar.
H. Objections to Claims and Authority to Prosecute Objections; Claims Resolution
1. Generally
Except as otherwise provided in paragraph H.2 below and except as otherwise
ordered by the Bankruptcy Court after notice and a hearing, objections to
Claims, including without limitation Administrative Claims, shall be Filed and
served upon the Holder of such Claim or Administrative Claim no later than the
later of (a) 60 days after the Effective Date, and (b) 60 days after a proof of
claim or request for payment of such Claim is Filed, unless this period is
extended by the Bankruptcy Court; such extension may be granted on an ex parte
basis without notice or hearing. After the Confirmation Date, only the Debtors
and Reorganized Flagstar will have the authority to File objections, settle,
compromise, withdraw or litigate to judgment objections to Claims and Interests.
From and after the Confirmation Date, the Debtors and Reorganized Flagstar may
settle or compromise any Disputed Claim or Disputed Interest without approval of
the Bankruptcy Court.
2. Professionals, Administration Claims, Trade Claims and Employee Claims
Except as otherwise ordered by the Bankruptcy Court, objections to claims
of professionals shall be governed by the provisions of section IV.A.1.d(2)
hereof. Objections to Administrative Claims based upon ordinary course
liabilities, Trade Claims and Employee Claims shall be governed by applicable
law as if the Reorganization Cases had not been commenced.
I. Disputed Claims; Reserve and Estimations
1. Treatment of Disputed Claims
Notwithstanding any other provisions of this Plan, no payments or
distributions will be made on account of a Disputed Claim or a Disputed Interest
until such Claim or Interest becomes an Allowed Claim or Allowed Interest. Prior
to the Petition Date, the Debtors will deliver Stipulations of Amount and Nature
of Claim to the Holders of Bank Claims and the Indenture Trustees. Such
Stipulations, once executed and to the extent unpaid, will be treated as Allowed
Claims as of the Petition Date in the amounts set forth in such Stipulation of
Amount and Nature of Claim and will not be treated as Disputed Claims. The
Debtors or Reorganized Flagstar may, at any time, request that the Bankruptcy
Court estimate any contingent or unliquidated Claim pursuant to section 502(c)
of the Bankruptcy Code, irrespective of whether the Debtors or Reorganized
Flagstar has previously objected to such Claim or whether the Bankruptcy Court
has ruled on any such objection unless such ruling has become a final order. The
Bankruptcy Court will retain jurisdiction to estimate any contingent or
unliquidated Claim at any time during litigation concerning any objection to the
Claim, including during the pendency of any appeal relating to any such
objection. If the Bankruptcy Court estimates any contingent or unliquidated
Claim, that estimated amount will constitute either the amount of such Allowed
Claim or a maximum limitation on such Claim, as determined by the Bankruptcy
Court. If the estimated amount constitutes a maximum limitation on such Claim,
the Debtors or Reorganized Flagstar may elect to pursue any supplemental
proceedings to object to any ultimate payment on account of such Claim. All of
these Claims objection, estimation and resolution procedures are cumulative and
not necessarily exclusive of one another. In addition to seeking estimation of
Claims as provided in this Section, the Debtors or Reorganized Flagstar may
resolve or adjudicate certain Disputed Claims of Holders in Unimpaired Classes
in the manner in which the amount of such Claim and the rights of the Holder of
such Claim would have been resolved or adjudicated if the Reorganization Cases
had not been commenced, provided, however, that the amount of such claim and the
remedies available shall not be limited by the discharge and other applicable
bankruptcy law. Claims may be subsequently compromised, settled, withdrawn or
resolved by the Debtors or Reorganized Flagstar pursuant to Section H hereof.
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2. Distributions on Account of Disputed Claims Once They Are Allowed
Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed Interest during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class. Holders of Disputed Claims or Disputed Interests that are
ultimately allowed will also be entitled to receive, on the basis of the amount
ultimately allowed: (i) matured and payable interest, if any, at the rate
provided for the Class to which such Claim belongs; and (ii) any dividends or
other payments made on account of New Common Stock held pending distribution.
J. Setoffs
Except with respect to claims of the Debtors or Reorganized Flagstar
released pursuant to the Plan or any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the Debtors or
Reorganized Flagstar may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors or Reorganized Flagstar may hold
against the Holder of such Allowed Claim; provided, however, that neither the
failure to effect such a setoff nor the Allowance of any Claim hereunder will
constitute a waiver or release by the Debtors or Reorganized Flagstar of any
such claims, rights and causes of action that the Debtors or Reorganized
Flagstar may possess against such Holder.
K. Termination of Subordination
The classification and manner of satisfying all Claims and Interests under
the Plan take into consideration all contractual, legal and equitable
subordination rights, whether arising under general principles of equitable
subordination, section 510(c) of the Bankruptcy Code or otherwise, that a Holder
of a Claim or Interest may have against other Claim or Interest Holders with
respect to any distribution made pursuant to this Plan. On the Confirmation
Date, all contractual, legal or equitable subordination rights that a Holder of
a Claim or Interest may have with respect to any distribution to be made
pursuant to this Plan will be discharged and terminated, and all actions related
to the enforcement of such subordination rights will be permanently enjoined.
Accordingly, distributions pursuant to the Plan to Holders of Allowed Claims and
Allowed Interests shall not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or other
legal process by any beneficiary of such terminated subordination rights.
VI.
INDIVIDUAL HOLDER PROOFS OF INTEREST
Individual Holders of Interests in Classes 8 and 9 are not required to File
proofs of Interests unless they disagree with the number of shares set forth on
the Debtors' stock register.
VII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumptions
Except as otherwise provided herein, or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with this Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will assume each executory contract and unexpired lease
entered into by the Debtors prior to the Petition Date that has not previously
(a) expired or terminated pursuant to its own terms or (b) been assumed or
rejected pursuant to section 365 of the Bankruptcy Code. The Confirmation Order
will constitute an Order of the Bankruptcy Court approving the assumptions
described in this Section, pursuant to section 365 of the Bankruptcy Code, as of
the Effective Date.
B. Cure of Defaults in Connection with Assumption
Any monetary amounts by which each executory contract and unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, at the option of the Debtors or
Reorganized Flagstar: (a) by payment of the default amount in Cash on the
Effective Date or as soon as practicable thereafter or (b) on such other terms
as are agreed to by the parties to such executory contract or unexpired lease.
If there is a dispute regarding:
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(i) the amount of any cure payments; (ii) the ability of Reorganized Flagstar to
provide "adequate assurance of future performance" (within the meaning of
section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
C. Rejections
Except as otherwise provided herein or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, on the Effective Date, pursuant to section 365 of the Bankruptcy
Code, the Debtors will reject each of the executory contracts and unexpired
leases listed on a schedule to be filed prior to the Confirmation Hearing (the
"Schedule") hereto; provided, however, that the Debtors reserve the right, at
any time prior to the Effective Date, to amend such schedule to delete any
executory contract or unexpired lease listed therein, thus providing for its
assumption pursuant to Sections VII A and B above. Each contract and lease
listed on the Schedule will be rejected only to the extent that any such
contract or lease constitutes an executory contract or unexpired lease. Listing
a contract or lease on the Schedule does not constitute an admission by the
Debtors or Reorganized Flagstar that such contract or lease is an executory
contract or unexpired lease or that the Debtors or Reorganized Flagstar has any
liability thereunder. The Confirmation Order shall constitute an Order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.
D. Bar Date for Rejection Damages
If the rejection of an executory contract or unexpired lease pursuant to
the preceding Section gives rise to a Claim by the other party or parties to
such contract or lease, such Claim shall be forever barred and shall not be
enforceable against the Debtors, Reorganized Flagstar, their successors or
properties unless (a) a Stipulation of Amount and Nature of Claim has been
entered into with respect to the rejection of such executory contract or
unexpired lease or (b) a proof of Claim is Filed and served on Reorganized
Flagstar and counsel for Reorganized Flagstar within 30 days after the Effective
Date or such earlier date as established by the Bankruptcy Court.
VIII.
ACCEPTANCE OR REJECTION OF THIS PLAN
A. Voting Classes
The Holders of Allowed Claims in Classes 4, 5 and 6 and Allowed Interests
in Classes 8, 9, 11 and 12 are Impaired and shall be entitled to vote to accept
or reject the Plan.
B. Presumed Acceptance of Plan
The Holders of Allowed Claims and Interests in Classes 1, 2, 3 and 7 are
not Impaired under the Plan, and therefore are conclusively presumed to accept
the Plan.
C. Presumed Rejections of Plan
Class 10 will not be entitled to receive or retain any property under this
Plan, and pursuant to Section 1126(g) of the Bankruptcy Code, is deemed not to
have accepted this Plan.
D. Voting Instructions
Each Holder of an Allowed Claim or an Allowed Interest entitled to vote on
the Plan will receive a Ballot. The Ballot will contain two boxes, one
indicating acceptance of the Plan and the other indicating rejection of the
Plan. Holders of Allowed Claims or Allowed Interests who elect to vote on the
Plan must mark one or the other box pursuant to the instructions contained on
the Ballot. Any executed Ballot that does not indicate acceptance or rejection
of the Plan will be considered a non-vote and will not be counted as an
acceptance or rejection of the Plan.
E. Voting Deadline and Extensions
THE VOTING DEADLINE IS , 1997, 5:00 P.M., EASTERN TIME.
Ballots must be received by the Debtors at their address set forth on the
applicable Ballot. To be counted for purposes of voting on the Plan, all of the
information requested on the applicable Ballot must be provided. The Debtors
reserve the right,
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in their sole discretion (after consultation with the Ad Hoc Debentureholders
Committee), to extend the Voting Deadline, in which case the term "Voting
Deadline" shall mean the latest date on which a Ballot will be accepted. To
extend the Voting Deadline, the Debtors will make an announcement thereof (via a
press release), prior to 9:00 a.m., Eastern Daylight Time, not later than the
next business day immediately preceding the previously scheduled Voting
Deadline. Such announcement may state that the Debtors are extending the Voting
Deadline for a specified period of time or on a daily basis until 5:00 p.m.,
Eastern Daylight Time, on the date on which sufficient acceptances required to
obtain Confirmation of the Plan have been received.
F. Confirmability of Plan and Cramdown
In the event at least one impaired Class of Claims votes to accept the Plan
(and at least one impaired Class either votes to reject the Plan or is deemed to
have rejected the Plan), the Debtors reserve the right to request the Bankruptcy
Court to confirm the Plan under the cramdown provisions of the Bankruptcy Code.
IX.
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. Merger
On the Effective Date, Flagstar will merge with and into FCI, with the
surviving corporation having the name of "Flagstar Corporation."
B. Corporate Action
1. Cancellation Of Old Securities And Related Agreements
On the Effective Date, the Old Securities and the Old Stock Rights, and all
obligations of the Debtors under all of the foregoing, shall be terminated,
canceled and extinguished.
2. Certificate Of Incorporation And Bylaw Amendments
On the Effective Date, Reorganized Flagstar shall adopt the Reorganized
Flagstar Certificate of Incorporation and the Reorganized Flagstar Bylaws
pursuant to applicable non-bankruptcy law and section 1123(a)(5)(I) of the
Bankruptcy Code. The Reorganized Flagstar Certificate of Incorporation and the
Reorganized Flagstar Bylaws will, among other provisions: (i) authorize the
issuance of the New Common Stock; and (ii) prohibit the issuance of nonvoting
equity securities to the extent required by section 1123(a)(6) of the Bankruptcy
Code. The Reorganized Flagstar Certificate of Incorporation and the Reorganized
Flagstar Bylaws, in substantially the form of Flagstar's pre-petition Restated
Certificate of Incorporation and Bylaws attached hereto as Exhibits [ ] and [ ],
respectively, will become effective upon the last to occur of the following: (1)
Confirmation of the Plan, (2) the occurrence of the Effective Date and (3) the
filing with the Delaware Secretary of State of the Reorganized Flagstar
Certificate of Incorporation.
3. Management Of Reorganized Flagstar
As of the Effective Date, the Persons identified on Exhibit [ ] to this
Plan will serve as the initial members of the Board of Directors of Reorganized
Flagstar, which Exhibit [ ] may be Filed with the Bankruptcy Court on or prior
to the Confirmation Date. Such Persons shall be deemed elected to the Board of
Directors, and such elections shall be deemed effective as of the Effective
Date, without any requirement of further action by stockholders of the Debtors
or Reorganized Flagstar. The Persons identified as such in the Disclosure
Statement will serve as the initial officers of Reorganized Flagstar as of the
Effective Date. Subject to any requirement of Bankruptcy Court approval under
Section 1129(a)(5) of the Bankruptcy Code, those persons designated as directors
and officers of Reorganized Flagstar in Exhibit [ ] and the Disclosure Statement
shall assume their offices as of the Effective Date and shall continue to serve
in such capacities thereafter, pending further action of the Board of Directors
or stockholders of Reorganized Flagstar in accordance with the Reorganized
Flagstar Bylaws, Reorganized Flagstar Certificate and applicable state law.
C. New Credit Agreement
The Debtors anticipate entering into a bank facility from and after the
Effective Date. There are no commitments in place as of the date hereof.
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<PAGE>
D. Implementation
The Debtors shall be authorized to take all necessary steps, and perform
all necessary acts, to consummate the terms and conditions of the Plan. On or
before the Effective Date, the Debtors may file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
or further evidence the terms and conditions of this Plan and the other
agreements referred to herein.
E. Other Documents And Actions
The Debtors and Reorganized Flagstar may, and shall, execute such documents
and take such other actions as are necessary to effectuate the transactions
provided for in the Plan.
F. Payment of Statutory Fees
All fees payable pursuant to 28 U.S.C. (section mark) 1930 (U.S. Trustee
Fees) as determined by the Bankruptcy Court at the Confirmation Hearing shall be
paid by the Debtors on or before the Effective Date.
G. Term of Injunctions or Stays
Unless otherwise provided, all injunctions or stays imposed in the
Reorganization Cases pursuant to Sections 105 and 362 of the Bankruptcy Code or
otherwise and in effect on the Confirmation Date shall remain in full force and
effect until the Effective Date.
H. No Interest
Except as expressly provided herein, no Holder of an Allowed Class or
Allowed Interest shall receive interest on the distribution to which such Holder
is entitled hereunder, regardless of whether such distribution is made on the
Effective Date or thereafter.
I. Retiree Benefits
On and after the Effective Date, to the extent required by section
1129(a)(13) of the Bankruptcy Code, Reorganized Flagstar shall continue to pay
all retiree benefits (if any), as the term "retiree benefits" is defined in
section 1114(a) of the Bankruptcy Code, maintained or established by the Debtors
prior to the Confirmation Date.
J. Issuance of New Securities
The issuance of the following securities by Reorganized Flagstar is hereby
authorized and directed without further act or action under applicable law,
regulation, order or rule:
(a) 100,000,000 shares of New Common Stock, of which approximately
40,000,000 shares shall be issued and distributed pursuant to the Plan;
(b) the New Warrants; and
(c) the New Senior Notes.
X.
CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. Conditions To Confirmation
Confirmation of this Plan cannot occur until all of the substantive
confirmation requirements under the Bankruptcy Code have been satisfied pursuant
to section 1129 of the Bankruptcy Code. In addition, the Bankruptcy Court will
not enter the Confirmation Order unless the Confirmation Order is acceptable in
form and substance to the Debtors (after consultation with the Ad Hoc
Debentureholders Committee), and the Confirmation Order expressly authorizes and
directs the Debtors and Reorganized Flagstar to perform those actions specified
herein. Finally, it shall be a condition to Confirmation that each of the events
and actions required by the Plan to occur or to be taken prior to Confirmation
shall have occurred or be taken, or the Debtors (after consultation with the Ad
Hoc Debentureholders Committee), or the party whose obligations are conditioned
by such occurrences or actions, as applicable, shall have waived such
occurrences or action and the Bankruptcy Court shall confirm the Plan without
such occurrence or action.
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<PAGE>
B. Conditions To Effective Date
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors (after consultation with the Ad Hoc Debentureholders Committee):
(i) The Confirmation Order shall authorize and direct that the Debtors and
Reorganized Flagstar take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases,
leases, indentures and other agreements or documents created in
connection with the Plan, including those actions contemplated by the
provisions of this Plan set forth in Section XI hereof.
(ii) The Confirmation Order shall have become a Final Order.
(iii) The lenders under the New Credit Facility shall be obligated to fund
the New Credit Facility on terms acceptable to the Debtors.
(iv) The statutory fees owing the U.S. Trustee shall have been paid in
full.
(v) All other actions and documents necessary to implement the provisions
of the Plan shall have been effected or executed or, if waivable,
waived by the Person or Persons entitled to the benefit thereof.
C. Waiver of Conditions to Confirmation and Effective Date
Each of the conditions to Confirmation and the Effective Date, other than
the conditions set forth in Section X.B.iv of the Plan, may be waived in whole
or in part by the Debtors at any time (after consultation with the Ad Hoc
Debentureholders Committee), without notice or an Order of the Bankruptcy Court.
The failure to satisfy or to waive any condition may be asserted by the Debtors
regardless of the circumstances giving rise to failure of such condition to be
satisfied (including any action or inaction by the Debtors). The failure of the
Debtors to exercise any of the foregoing rights will not be deemed a waiver of
any other rights and each such right will be deemed an ongoing right that may be
asserted at any time.
If each condition to the Effective Date has not been satisfied or duly
waived within 60 days after the Confirmation Date, then (unless the period for
satisfaction or waiver of conditions has been extended at the option of the
Debtors after consultation with the Ad Hoc Debentureholders Committee for a
period not exceeding 120 days) upon motion by any party in interest, made before
the time that each of the conditions has been satisfied or duly waived and upon
notice to such parties in interest as the Bankruptcy Court may direct, the
Confirmation Order will be vacated by the Bankruptcy Court; provided, however
that notwithstanding the Filing of such motion, the Confirmation Order may not
be vacated if each of the conditions to the Effective Date is either satisfied
or duly waived before the Clerk enters a Final Order granting such motion. If
the Confirmation Order is vacated pursuant to this Section, the Plan shall be
deemed null and void in all respects, including without limitation the discharge
of Claims and termination of Interests pursuant to section 1141 of the
Bankruptcy Code and the assumptions or rejections of executory contracts and
unexpired leases provided for herein, and nothing contained herein shall (1)
constitute a waiver or release of any claims by or against, or any interests in,
the Debtors or (2) prejudice in any manner the rights of the Debtors.
XI.
EFFECTS OF PLAN CONFIRMATION
A. Discharge Of Debtors And Injunction
Except as otherwise provided in the Plan or the Confirmation Order: (i) on
the Effective Date, the Debtors shall be deemed discharged and released to the
fullest extent permitted by section 1141 of the Bankruptcy Code from all Claims
and Interests, including, but not limited to, demands, liabilities, Claims and
Interests that arose before the Confirmation Date and all debts of the kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not: (A) a proof of Claim or proof of Interest based on such debt or Interest
is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code, (B) a
Claim or Interest based on such debt or Interest is allowed pursuant to section
502 of the Bankruptcy Code or (C) the Holder of a Claim or Interest based on
such debt or Interest has accepted the Plan; and (ii) all Persons shall be
precluded from asserting against Reorganized Flagstar, its successors, or its
assets or properties any other or further Claims or Interests based upon any act
or omission, transaction, or other activity of any kind or nature that occurred
prior to the Confirmation Date. Except as otherwise provided in the Plan or the
Confirmation Order, the Confirmation Order shall act as a discharge of any and
all Claims against and all debts and liabilities of the Debtors, as provided in
sections 524 and 1141 of the Bankruptcy
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Code, and such discharge shall void any judgment against the Debtors at any time
obtained to the extent that it relates to a Claim discharged.
Except as otherwise provided in the Plan or the Confirmation Order, on and
after the Effective Date, all Persons who have held, currently hold or may hold
a debt, Claim or Interest discharged pursuant to the terms of the Plan are
permanently enjoined from taking any of the following actions on account of any
such discharged debt, Claim or Interest: (i) commencing or continuing in any
manner any action or other proceeding against the Debtors or Reorganized
Flagstar or their successors or their respective properties; (ii) enforcing,
attaching, collecting or recovering in any manner any judgment, award, decree or
order against the Debtors or Reorganized Flagstar, or their successors or their
respective properties; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors or Reorganized Flagstar, or their successors or
their respective properties; and (iv) commencing or continuing any action, in
any manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan or the Confirmation Order. Any Person injured by any
willful violation of such injunction shall recover actual damages, including
costs and attorneys' fees, and, in appropriate circumstances, may recover
punitive damages, from the willful violator.
B. Limitation Of Liability
Neither the Debtors nor Reorganized Flagstar nor the Ad Hoc
Debentureholders Committee, nor any of their respective post-Petition Date
employees, officers, directors, agents, or representatives, or any professional
persons employed by any of them (including without limitation their respective
Designated Professionals), shall have any responsibility, or have or incur any
liability, to any Person whatsoever, under any theory of liability (except for
any claim based upon wilful misconduct or gross negligence), for any act taken
or omission made in good faith directly related to formulating, implementing,
confirming, or consummating the Plan, the Disclosure Statement, or any contract,
instrument, release, or other agreement or document created in connection with
the Plan, provided that nothing in this paragraph shall limit the liability of
any Person for breach of any express obligation it has under the terms of this
Plan or under any agreement or other document entered into by such Person either
post-petition or in accordance with the terms of this Plan or for any breach of
a duty of care owed to any other Person occurring after the Effective Date.
C. Releases
On the Effective Date, the Company will release unconditionally, and hereby
is deemed to release unconditionally (i) each of the Company's officers,
directors, shareholders, employees, consultants, attorneys, accountants,
financial advisors and other representatives (including without limitation their
respective Designated Professionals), (ii) the Creditors' Committee and, solely
in their capacity as members of representatives of the Creditors' Committee,
each member, consultant, attorney, accountant or other representative of the
Creditors' Committee (including without limitation their respective Designated
Professionals), (iii) the Ad Hoc Debentureholders Committee and, solely in their
capacity as members or representatives of the Ad Hoc Debentureholders Committee,
each member, consultant, attorney, accountant or other representative of the Ad
Hoc Debentureholders Committee (including without limitation their respective
Designated Professionals), and (iv) the Indenture Trustees, in their respective
capacity as Indenture Trustee (the entities specified in clauses (i), (ii),
(iii), and (iv) are referred to collectively as the "Releasees"), from any and
all claims, obligations, suits, judgments, damages, rights, causes of action and
liabilities whatsoever, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based on whole or in
part upon any act or omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Releasees,
the Company, the Reorganization Cases or the Plan.
On the Effective Date, each holder of a Claim or Interest shall be deemed
to have unconditionally released the Releasees, from any and all rights, claims,
causes of action, obligations, suits, judgments, damages and liabilities
whatsoever which any such holder may be entitled to assert, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part upon any act or omission, transaction,
event or other occurrence taking place on or before the Effective Date in any
way relating to the Company, the Reorganization Cases or the Plan.
D. Indemnification
The obligations of the Debtors as of the Petition Date to indemnify their
present, and any individuals who formerly were, directors or officers,
respectively, against any obligations pursuant to the Debtors' certificates of
incorporation, by-laws, applicable state law or specific agreement, or any
combination of the foregoing, shall survive confirmation of the Plan, remain
unaffected thereby, be assumed by Reorganized Flagstar and not be discharged.
The Debtors shall fully indemnify and Reorganized Flagstar shall assume the
Debtors' obligations to indemnify any person by reason of the fact that he or
she is or was a director, officer, employee or agent, Designated Professional,
member of other authorized representative of either of
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the Debtors, the Creditors Committee, the Ad Hoc Debentureholders Committee or
the Indenture Trustees (the "Indemnitees") against any claims, liabilities,
actions, suits, damages, fines, judgments or expenses (including reasonable
attorney's fees), arising during the course of, or otherwise in connection with
or in any way related to, the negotiation, preparation, formulation,
solicitation, dissemination, implementation, confirmation and consummation of
the Plan and the transactions contemplated thereby; provided, however, that the
foregoing indemnification shall not apply to any liabilities arising from the
gross negligence or wilful misconduct of any Indemnitee. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Reorganized Flagstar, the Indemnitee shall promptly
notify Reorganized Flagstar in writing and Reorganized Flagstar shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnitee, and the payment of all expenses. The Indemnitee shall have the
right to employ separate counsel in any such claim, action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) Reorganized Flagstar has
agreed to pay the fees and expenses of such counsel, or (b) Reorganized Flagstar
shall have failed promptly to assume the defense of such claim, action or
proceeding and employ counsel reasonably satisfactory to the Indemnitee in any
such claim, action or proceeding, or (c) the named parties to any such claim,
action or proceeding (including any impleaded parties) include both the
Indemnitee and Reorganized Flagstar, and the Indemnitee believes, in the
exercise of its business judgment and in the opinion of its legal counsel,
reasonably satisfactory to Reorganized Flagstar, that the joint representation
of Reorganized Flagstar and the Indemnitee will likely result in a conflict of
interest (in which case, if the Indemnitee notifies Reorganized Flagstar in
writing that it elects to employ separate counsel at the expense of Reorganized
Flagstar, Reorganized Flagstar shall not the right to assume the defense of such
action or proceeding on behalf of the Indemnitee). In addition, Reorganized
Flagstar shall not effect any settlement or release from liability in connection
with any matter for which the Indemnitee would have the right to indemnification
from Reorganized Flagstar, unless such settlement contains a full and
unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee.
E. Vesting Of Assets
Except as otherwise provided in any provision of the Plan, on the Effective
Date, all property of the Estates shall vest in Reorganized Flagstar, all free
and clear of all Claims, liens, encumbrances and Interests of Holders of Claims
and Holders of Old Securities and Old Stock Rights. From and after the Effective
Date, Reorganized Flagstar may operate its business and use, acquire, and
dispose of property and settle and compromise claims or interests arising
post-Confirmation without supervision by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, other than those restrictions expressly imposed by the Plan
and the Confirmation Order.
F. Preservation Of Causes Of Action
Except as otherwise provided herein, or in any contract, instrument,
release, or other agreement entered into in connection with the Plan, in
accordance with section 1123(b) of the Bankruptcy Code, Reorganized Flagstar
shall retain (and may enforce) any claims, rights and causes of action that the
Debtors or the Estates may hold against any Person, including, inter alia, any
claims, rights or causes of action under sections 544 through 550 of the
Bankruptcy Code or any similar provisions of state law, or any other statute or
legal theory.
G. Retention of Bankruptcy Court Jurisdiction
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court will retain such jurisdiction over the
Reorganization Cases after the Effective Date, including, without limitation,
jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify, estimate or
establish the priority or secured or unsecured status of any Claim or
Interest, including the resolution of any request for payment of any
Administrative Claim, the resolution of any objections to the allowance or
priority of Claims or Interests and the resolution of any dispute as to the
treatment necessary to Reinstate a Claim pursuant to the Plan;
(ii) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending before the Effective Date;
(iii) Resolve any matters related to the assumption or rejection of
any executory contract or unexpired lease to which the either of the
Debtors is a party or with respect to which either of the Debtors may be
liable, and to hear, determine and, if necessary, liquidate any Claims
arising therefrom;
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<PAGE>
(iv) Ensure that distributions to Holders of Allowed Claims or Allowed
Interests are accomplished pursuant to the provisions of the Plan;
(v) Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving the Debtors or Reorganized Flagstar that may be pending on the
Effective Date;
(vi) Enter such Orders as may be necessary or appropriate to implement
or consummate the provisions of the Plan and all contracts, instruments,
releases, indentures and other agreements or documents created in
connection with the Plan, the Disclosure Statement or the Confirmation
Order, except as otherwise provided herein;
(vii) Resolve any cases, controversies, suits or disputes that may
arise in connection with the consummation, interpretation or enforcement of
the Plan or the Confirmation Order, including the release and injunction
provisions set forth in and contemplated by the Plan and the Confirmation
Order, or any entity's rights arising under or obligations incurred in
connection with this Plan or the Confirmation Order;
(viii) Subject to any restrictions on modifications provided in any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, modify this Plan before or after the
Effective Date pursuant to section 1127 of the Bankruptcy Code or modify
the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with the Plan, the Disclosure Statement or the Confirmation
Order; or remedy any defect or omission or reconcile any inconsistency in
any Bankruptcy Court Order, this Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or other
agreement or document created in connection with the Plan, the Disclosure
Statement or the Confirmation Order, in such manner as may be necessary or
appropriate to consummate this Plan, to the extent authorized by the
Bankruptcy Code;
(ix) Issue injunctions, enter and implement other Orders or take such
other actions as may be necessary or appropriate to restrain interference
by any entity with consummation, implementation or enforcement of the Plan
or the Confirmation Order;
(x) Enter and implement such Orders as are necessary or appropriate if
the Confirmation Order is for any reason modified, stayed, reversed,
revoked or vacated;
(xi) Determine any other matters that may arise in connection with or
relating to the Plan, the Disclosure Statement, the Confirmation Order or
any contract, instrument, release, indenture or other agreement or document
created in connection with this Plan, the Disclosure Statement or the
Confirmation Order, except as otherwise provided in this Plan; and
(xii) Enter an Order Closing the Reorganization Cases.
H. Failure of Bankruptcy Court to Exercise Jurisdiction
If the Bankruptcy Court abstains from exercising or declines to exercise
jurisdiction, or is otherwise without jurisdiction over any matter arising out
of the Reorganization Cases, including the matters set forth in Section [ ]
above, Section [ ] shall not prohibit or limit the exercise of jurisdiction by
any other court having competent jurisdiction with respect to such matter.
I. Committees
On the Effective Date, all Committees, if any, shall be dissolved and the
members of such Committees shall be released and discharged from all further
rights and duties arising from or related to the Reorganization Cases. The
professionals retained by such Committees and the members thereof shall not be
entitled to compensation or reimbursement of expenses incurred for services
rendered after the Effective Date other than for services rendered pursuant to
the Plan or in connection with other activities reserved to such Committees or
such professionals under the Plan or the Confirmation Order or in connection
with any application for allowance of compensation and reimbursement of expenses
pending as of, or Filed after, the Effective Date.
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<PAGE>
XII.
MISCELLANEOUS PROVISIONS
A. Final Order
Any requirement in this Plan that an Order be a Final Order may be waived
by the Debtors, provided that nothing contained herein or elsewhere in this Plan
shall prejudice the right of any party in interest to seek a stay pending appeal
with respect to such order.
B. Modification Of The Plan
The Debtors reserve the right to amend or modify the Plan at any time prior
to the Confirmation Date in the manner provided for by Section 1127 of the
Bankruptcy Code or as otherwise permitted by law without additional disclosure
pursuant to Section 1125 of the Bankruptcy Code, except as the Bankruptcy Court
may otherwise order. If any of the terms of the Plan are amended in a manner
determined by the Debtors to constitute a material adverse change, the Debtors
will promptly disclose any such amendment in a manner reasonably calculated to
inform the Holders of Old Securities of such amendment and the Debtors will
extend the solicitation period for acceptances of this Plan for a period which
the Debtors, in their sole discretion, deem appropriate, depending upon the
significance of the amendment and the manner of disclosure to Holders of the Old
Securities, if the solicitation period would otherwise expire during such
period.
The Debtors reserve the right to amend the terms of the Plan or waive any
conditions thereto if and to the extent the Debtors determine, after
consultation with the Ad Hoc Debentureholders Committee, that such amendments or
waivers are necessary or desirable in order to consummate the Plan. The Debtors
will give all Holders of Claims and Interests notice of such amendments or
waivers as may be required by applicable law and the Bankruptcy Court. If, after
receiving sufficient acceptances but prior to Confirmation of the Plan, the
Debtors seek to modify the Plan, the Debtors can only use such previously
solicited acceptances to the extent permitted by applicable law. The Debtors
reserve the right to use acceptances of the Plan received during its
pre-petition solicitation of acceptances under any other circumstances,
including the filing of an involuntary petition, subject to approval of the
Bankruptcy Court.
C. Revocation Of The Plan
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan, or if
Confirmation does not occur, then the Plan shall be null and void, and nothing
contained in the Plan shall: (i) constitute a waiver or release of any Claims by
or against, or any Interests in, the Debtors; or (ii) prejudice in any manner
the rights of the Debtors in any further proceedings involving the Debtors.
D. Severability Of Plan Provisions
If, prior to Confirmation, any term or provision of the Plan is held by the
Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court will
have the power, upon the request of the Debtors, to alter and interpret such
term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision will then be
applicable as altered or interpreted. To the extent such request seeks to
negatively impact distributions to Class 5 or modify the terms of the New Common
Stock, the Debtors shall consult with the Ad Hoc Debentureholders Committee
prior to making such request. Notwithstanding any such holding, alteration or
interpretation, the remainder of the terms and provisions of this Plan will
remain in full force and effect and will in no way be affected, impaired or
invalidated by such holding, alteration or interpretation. The Confirmation
Order will constitute a judicial determination and will provide that each term
and provision of this Plan, as it may have been altered or interpreted in
accordance with the foregoing, is valid and enforceable pursuant to its terms.
E. Successors And Assigns
The rights, benefits and obligations of any Person named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, trustee, administrator, successor or assign of such Person.
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<PAGE>
F. Saturday, Sunday Or Legal Holiday
If any payment or act under the Plan is required to be made or performed on
a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
but shall be deemed to have been completed as of the required date.
G. Post-Effective Date Effect Of Evidences Of Claims Or Interests
Notes, bonds, stock certificates and other evidences of Claims against or
Interests in the Debtors, and all Instruments of the Debtors (in either case,
other than those executed and delivered as contemplated hereby in connection
with the consummation of the Plan), shall, effective upon the Effective Date,
represent only the right to participate in the distributions contemplated by the
Plan.
H. Headings
The headings used in the Plan are inserted for convenience only and neither
constitute a portion of the Plan nor in any manner affect the provisions of the
Plan.
I. Governing Law
Unless a rule of law or procedure is supplied by (i) federal law (including
the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules), (ii)
an express choice of law provision in any agreement, contract, instrument, or
document provided for, or executed in connection with, the Plan, or (iii)
applicable non-bankruptcy law, the rights and obligations arising under the Plan
and any agreements, contracts, documents, and instruments executed in connection
with the Plan shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware without giving effect to the principles
of conflict of laws thereof.
J. No Liability For Solicitation Or Participation
As specified in section 1125(e) of the Bankruptcy Code, Persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under the Plan,
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, shall not be liable, on account of such solicitation or participation, for
violation of any applicable law, rule, or regulation governing the solicitation
of acceptances or rejections of the Plan or the offer, issuance, sale, or
purchase of securities.
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<PAGE>
K. No Admissions or Waiver of Objections
Notwithstanding anything herein to the contrary, nothing contained in the
Plan shall be deemed as an admission by the Debtors or any other party with
respect to any matter set forth herein including, without limitation, liability
on any Claim or the propriety of any Claims classification. The Debtors are not
bound by any statements herein or in the Disclosure Statement as judicial
admissions.
DATED: , 1997:
FLAGSTAR COMPANIES, INC.
a Delaware corporation
By
[Name]
[Title]
FLAGSTAR CORPORATION,
a Delaware corporation
By
[Name]
[Title]
(Signatures continued on next page)
I-31
<PAGE>
Presented by:
Robert A. Klyman
Gregory O. Lunt
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
(213) 485-1234
Martin N. Flics
LATHAM & WATKINS
885 Third Avenue, Suite 1000
New Tork, NY 10022
(212) 906-1200
COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION.
By
ROBERT A. KLYMAN
COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
Martin J. Bienenstock
WEIL, GOTSHAL & MANGES L.L.P.
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
CO-COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
By
MARTIN J. BIENENSTOCK
CO-COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
Laura Davis Jones
YOUNG, CONWAY, STARGATT & TAYLOR
Rodney Square North, Eleventh Floor
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
CO-COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
By
LAURA DAVIS JONES
CO-COUNSEL FOR FLAGSTAR COMPANIES, INC.
AND FLAGSTAR CORPORATION
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<PAGE>
FLAGSTAR COMPANIES, INC. AND
FLAGSTAR CORPORATION
SOLICITATIONS OF PREPACKAGED
PLAN ACCEPTANCES
THE INFORMATION AGENT:
KISSEL-BLAKE INC.
<TABLE>
<S> <C>
BY MAIL/OVERNIGHT DELIVERY/HAND BY FACSIMILE
Kissel-Blake Inc. Kissel-Blake Inc.
110 Wall Street (212) 809-1208
New York, New York 10005 CONFIRM BY TELEPHONE
(212) 344-6733 (212) 344-6733 (Banks and Brokers)
(800) 554-7733 (All Others)
</TABLE>
ADDITIONAL COPIES
Requests for additional copies of this Prospectus or any consent,
proxy or ballot should be directed to the Information Agent. You may
also contact your local broker, dealer, commercial bank, trust company
or nominee for assistance concerning the Plan.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FCI is a Delaware corporation. Reference is made to Section 102(b)(7) of
the Delaware General Corporation Law (the "DGCL"), which enables a corporation
in its original certificate of incorporation or an amendment thereto to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation or is or was serving at the
request of such corporation as an officer, director, employee or agent of such
corporation or is or was serving at the request of such corporation as an
officer, director, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A Delaware corporation may indemnify officers,
directors, employees and agents in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses that such officer, director, employee or agent actually and reasonably
incurred.
Article Eleventh of the Restated Certificate of Incorporation of the
Company provides for the elimination of liability of directors to the extent
permitted by Section 102(b)(7) of the DGCL. Article 5, Section 14 of the By-Laws
of the Company provides for indemnification of officers and directors to the
extent permitted by Section 145 of the DGCL. The Adamson Employment Agreement
(attached as Exhibit 10.42 to this Registration Statement) also provides for
indemnification by the Company to the extent permitted by Delaware law and, in
connection therewith, calls for the advancement of attorney's fees and expenses
(subject to repayment in certain circumstances). The Registration Rights
Agreement (attached as Exhibit 4.39 to this Registration Statement) will provide
for indemnification by Reorganized Flagstar of the Holders of Registrable
Securities party thereto for control person liability, if any, in respect of
certain claims under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
<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 24, 1996 (incorporated by reference to Exhibit 3.1 to FCI's 1996 Form 10-K,
File No. 0-18051 (the "1996 Form 10-K")).
* 4.1 Specimen certificate of Common Stock of FCI (incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-1 (No. 33-29769) of FCI (the "Form S-1")).
* 4.2 Specimen certificate of $2.25 Series A Cumulative Convertible Exchangeable Preferred Stock of FCI (incorporated by
reference to Exhibit 4.25 to the Registration Statement on Form S-1 (No. 33-47339) of FCI (the "Preferred Stock
S-1")).
* 4.3 Indenture between Flagstar and United States Trust Company of New York, as Trustee, relating to the 10% Debentures
(including the form of security) (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form
S-4 (No. 33-48923) of Flagstar (the "11.25% Debentures S-4")).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 4.4 Supplemental Indenture, dated as of August 7, 1992, between Flagstar and United States Trust Company of New York,
as Trustee, relating to the 10% Debentures (incorporated by reference to Exhibit 4.9A to the 11.25% Debentures
S-4).
* 4.5 Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing, and Assignment of
Leases and Rents, from Denny's Realty, Inc. to State Street Bank and Trust Company, dated July 12, 1990
(incorporated by reference to Exhibit 4.9 to Post-effective Amendment No. 1 to the Registration Statement on Form
S-1 (No. 33-29769) of FCI (the "Form S-1 Amendment")).
* 4.6 Lease between Denny's Realty, Inc. and Denny's, Inc., dated as of December 29, 1989, as amended and restated as of
July 12, 1990 (incorporated by reference to Exhibit 4.10 to the Form S-1 Amendment).
* 4.7 Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State Street Bank and Trust Company relating
to certain mortgage notes (incorporated by reference to Exhibit 4.11 to the Form S-1 Amendment).
* 4.8 Mortgage Note in the amount of $10,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.15 to the 11.25% Debentures S-4).
* 4.9 Mortgage Note in the amount of $52,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.16 to the 11.25% Debentures S-4).
* 4.10 Mortgage Note in the amount of $98,000,000 of Denny's Realty, Inc., dated as of July 12, 1990 (incorporated by
reference to Exhibit 4.17 to the 11.25% Debentures S-4).
* 4.11 Indenture between Secured Restaurants Trust and The Citizens and Southern National Bank of South Carolina, dated
as of November 1, 1990, relating to certain Secured Bonds (incorporated by reference to Exhibit 4.18 to the 11.25%
Debentures S-4).
* 4.12 Amended and Restated Trust Agreement between Spartan Holdings, Inc., as Depositor for Secured Restaurants Trust,
and Wilmington Trust Company, dated as of October 15, 1990 (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-11 (No. 33-36345) of Secured Restaurants Trust (the "Form S-11")).
* 4.13 Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8% Notes
(incorporated by reference to Exhibit 4.13 to the 1992 Form 10-K).
* 4.14 Supplemental Indenture between Flagstar and First Trust National Association, as Trustee, relating to the 10 7/8%
Notes (incorporated by reference to Exhibit 4.14 to the 1992 Form 10-K).
* 4.15 Form of 10 7/8% Note (incorporated by reference to Exhibit 4.15 to the 1992 Form 10-K).
* 4.16 Indenture between Flagstar and NationsBank of Georgia, National Association, as Trustee, relating to the 11.25%
Debentures (incorporated by reference to Exhibit 4.16 to the 1992 Form 10-K).
* 4.17 Form of 11.25% Debenture (incorporated by reference to Exhibit 4.17 to the 1992 Form 10-K).
* 4.18 Second Amended and Restated Credit Agreement, dated as of April 10, 1996 among TWS Funding, Inc., as borrower,
Flagstar Corporation, certain lenders and co-agents named therein, and Citibanks, N.A., as funding agent
(incorporated by reference to Exhibit 10.2 to FCI's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (the "1996 Second Quarter 10-Q").
* 4.19 Amendment and Consent to the Second Amended and Restated Credit Agreement dated as of July 18, 1996 among TWS
Funding, Inc., as borrower, Flagstar Corporation, certain lenders and co-agents named therein, and Citibank, N.A.,
as funding agents. (incorporated by reference to Exhibit 10.2.1 to FCI's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (the "1996 Third Quarter 10-Q").
* 4.20 Second Amendment to the Second Amended and Restated Credit Agreement, dated as of August 6, 1996 (incorporated by
reference to Exhibit 10.2.2 to the 1996 Third Quarter 10-Q).
* 4.21 Third Amendment and Consent to the Second Amended and Restated Credit Agreement, dated as of September 30, 1996
(incorporated by reference to Exhibit 10.2.3 to the 1996 Third Quarter 10-Q).
* 4.22 Credit Agreement, dated as of May 23, 1996, among FRD, FRI-M, certain lenders and co-agents named therein, and
Credit Lyonnais New York Branch as administrative agent (the "FRI-M Credit Agreement") (incorporated by reference
to Exhibit 10.1 of the Registration Statement on Forms S-1 and S-4 (333-07601) of FRD (the "FRD Form S-1/S-4").
* 4.23 First Amendment to the FRI-M Credit Agreement, dated July 1, 1996 (incorporated by reference to Exhibit 10.3.1 to
the 1996 Third Quarter 10-Q).
* 4.24 Second Amendment to the FRI-M Credit Agreement, dated November 19, 1996 (incorporated by reference to Exhibit 4.24
of the 1996 Form 10-K).
* 4.25 Indenture dated as of May 23, 1996 between FRD and the Bank of New York, as Trustee (the "FRD Indenture")
(incorporated by reference to Exhibit 4.1 to the FRD Form S-1/S-4).
* 4.26 Form of First Supplemental Indenture to the FRD Indenture dated as of August 23, 1996 (incorporated by reference
to Exhibit 4.1.1 to the FRD Form S-1/S-4).
* 4.27 Stock Purchase Agreement dated as of March 1, 1996 by and among Flagstar, Flagstar Companies, Inc., the Company,
and Family Restaurants, Inc. (incorporated by reference to Exhibit 4.2 to the FRD Form S-1/S-4).
* 4.28 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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 4.29 Form of 10 3/4% Note (incorporated by reference to Exhibit 4.24 to the 1993 Form 10-K).
* 4.30 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).
* 4.31 Form of 11 3/8% Debenture (incorporated by reference to Exhibit 4.26 to the 1993 Form 10-K).
4.32 Form of Indenture relating to the New Senior Notes (including the form of security).
4.33 Specimen certificate of the New Common Stock of Reorganized Flagstar.
4.34 Form of New Warrant Agreement (including the form of New Warrant).
* 4.35 Fourth Amendment to the Second Amended and Restated Credit Agreement, dated as of March 6, 1997 (incorporated by
reference to Exhibit 4.1 to FCI's Quarterly Report on Form 10-Q for the quarter ended April 2, 1997, File No.
1-18051 (the "1997 First Quarter Form 10-Q")).
* 4.36 Third Amendment to the FRI-M Credit Agreement, dated as of March 17, 1997 (incorporated by reference to Exhibit
4.2 to the 1997 First Quarter Form 10-Q).
4.37 Form of Supplemental Indenture between Flagstar and The Bank of New York, as Trustee, relating to the 11.25%
Debentures.
4.38 Form of Supplemental Indenture between Flagstar and The Bank of New York, as Trustee, relating to the 11 3/8%
Debentures.
4.39 Form of Registration Rights Agreement.
5.1 Opinion of Parker, Poe, Adams & Bernstein L.L.P regarding the legality of securities to be issued.
8 Opinion of Latham & Watkins regarding certain tax matters.
* 10.1 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).
* 10.2 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 Registration Statement on Form S-2 (No. 33-49843) of Flagstar
(the "Form S-2")).
* 10.3 Fair Share Agreement dated July 1, 1993 between FCI and the NAACP (incorporated by reference to Exhibit 10.43 to
the Form S-2).
* 10.4 Amendment No. 2 to Stockholders' Agreement, dated as of April 6, 1993, among FCI, Gollust Tierney & Oliver ("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).
* 10.5 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).
* 10.6 Form of Agreement providing certain supplemental retirement benefits (incorporated by reference to Exhibit 10.7 to
the 1992 Form 10-K).
* 10.7 Form of Supplemental Executive Retirement Plan Trust of Flagstar (incorporated by reference to Exhibit 10.8 to the
1992 Form 10-K).
* 10.8 FCI 1989 Non-Qualified Stock Option Plan, as adopted December 1, 1989 and amended through December 13, 1996
(incorporated by reference to Exhibit 10.8 to the 1996 10-K).
* 10.9 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).
* 10.10 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).
* 10.11 Form of Mortgage related to Secured Restaurants Trust transaction (incorporated by reference to Exhibit 10.1 to
the Form S-11).
* 10.12 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).
* 10.13 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).
* 10.14 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).
* 10.15 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).
* 10.16 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).
* 10.17 Intercreditor Agreement, dated as of November 1, 1990, related to Secured Restaurants Trust transaction
(incorporated by reference to Exhibit 10.17 to the 11.25% Debentures S-4).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 10.18 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).
* 10.19 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).
* 10.20 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).
* 10.21 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).
* 10.22 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).
* 10.23 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).
* 10.24 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).
* 10.25 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).
* 10.26 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).
* 10.27 Form of Hardee's License Agreement related to Secured Restaurants Trust transaction (incorporated by reference to
Exhibit 10.14 to the Form S-11).
* 10.28 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).
* 10.29 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).
* 10.30 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).
* 10.31 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).
* 10.32 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).
* 10.33 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).
* 10.34 Development Agreement between the Company and Hardee's Food Systems, Inc., dated January 1992 (incorporated by
reference to Exhibit 10.33 to the Preferred Stock S-1).
* 10.35 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).
* 10.36 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).
* 10.37 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).
* 10.38 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).
* 10.39 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).
* 10.40 Amended and Restated Employment Agreement, dated as of January 1, 1996, between Flagstar and Jerome J. Richardson
(incorporated by reference to Exhibit 10.41 to FCI's 1995 Form 10-K, File No. 0-18051).
* 10.41 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).
* 10.42 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.)
* 10.43 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).
* 10.44 Form of Agreement providing certain severance benefits (incorporated by reference to Exhibit 10.48 to the 1994
Form 10-K)
* 10.45 Amended Consent Decree dated May 24, 1994 (incorporated by reference to Exhibit 10.50 to the 1994 Form 10-K).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 10.46 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 Exhibit 10.51 to the 1994 Form 10-K).
* 10.47 Second Amendment to Employment Agreement, dated December 31, 1996, between FCI and James B. Adamson (incorporated
by reference to Exhibit 10.47 to the 1996 Form 10-K).
* 10.48 Form of Agreement providing certain retention incentives, severance and change of control benefits for Company
management (incorporated by reference to Exhibit 10.48 to the 1996 10-K).
* 10.49 Information Systems Management Agreement, dated February 22, 1996 between Flagstar and Integrated Systems
Solutions Corporation (incorporated by reference to Exhibit 10.49 to the 1996 Form 10-K).
* 10.50 Employment Agreement, dated as of April 24, 1995, between Flagstar and C. Robert Campbell (incorporated by
reference to Exhibit 10.50 to the 1996 Form 10-K).
* 10.51 Employment Agreement, dated as of April 22, 1996, between Flagstar and Craig S. Bushey (incorporated by reference
to Exhibit 10.51 to the 1996 Form 10-K).
* 10.52 Employment Agreement, dated as of November 21, 1995, between Flagstar and John A. Romandetti (incorporated by
reference to Exhibit 10.52 to the 1996 Form 10-K).
* 10.53 Employment Agreement, dated as of May 24, 1996, between Flagstar and Mark L. Shipman (incorporated by reference to
Exhibit 10.53 to the 1996 Form 10-K).
* 10.54 Guaranty and Security Agreement, dated as of January 16, 1997, among Denny's, Inc., El Pollo Loco, Inc., DFO,
Inc., Flagstar Enterprises, Inc., Quincy's Restaurants, Inc. and James B. Adamson (incorporated by reference to
Exhibit 10.1 to the 1997 First Quarter Form 10-Q).
***10.55 Agreement Concerning Voting dated as of March 21, 1997 by and among FCI, Flagstar, Magten Asset Management
Corporation, Loomis Sayles & Company and Moore Capital Management, Inc.
***10.56 Supplement to Agreement Concerning Voting dated as of May 21, 1997 by and among FCI, Flagstar, Magten Asset
Management Corporation, Loomis Sayles & Company and Moore Capital Management, Inc.
* 11 Computation of Earnings (Loss) Per Share (incorporated by reference to Exhibit 11 to the 1996 Form 10-K).
* 12 Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 to the 1996 Form 10-K).
* 21 Subsidiaries of Flagstar (incorporated by reference to Exhibit 21 to the 1996 Form 10-K).
23.1 Consent of Latham & Watkins (included in Exhibit 8 to this Registration Statement).
23.2 Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration Statement).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
***24 Power of Attorney.
99.1 Form of Master Ballot for Class 4: Holders of Old Senior Notes.
99.2 Form of Master Ballot for Class 5: Holders of Senior Subordinated Debentures.
99.3 Form of Master Ballot for Class 6: Holders of Junior Subordinated Debentures.
99.4 Form of Master Ballot for Class 8: Holders of Old FCI Preferred Stock.
99.5 Form of Master Ballot for Class 9: Holders of Old FCI Common Stock.
99.6 Form of Ballot for Class 4: Holders of Old Senior Notes.
99.7 Form of Ballot for Class 5: Holders of Senior Subordinated Debentures.
99.8 Form of Ballot for Class 6: Holders of Junior Subordinated Debentures.
99.9 Form of Ballot for Class 8: Holders of Old FCI Preferred Stock.
99.10 Form of Ballot for Class 9: Holders of Old FCI Common Stock.
***99.13 Statement of Eligibility Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee on
Form T-1 of First Trust National Association.
</TABLE>
* Certain of the exhibits to this Registration Statement on Form S-4, 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.
** To be filed by amendment.
*** Previously filed.
(b) -- 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.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registrant Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change in such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or payed by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
direct, officer or controlling person in connection with the security being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one (1) business day of receipt of
such request, and to send the incorporated documents by first-class mail, or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the Registration Statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Spartanburg, State of South Carolina, on June 2, 1997.
FLAGSTAR COMPANIES, INC.
By: /s/ Rhonda J. Parish
RHONDA J. PARISH
(SENIOR VICE PRESIDENT AND GENERAL
COUNSEL)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons 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 June 2, 1997
Executive Officer (Principal Executive
(James B. Adamson) Officer) June 2, 1997
/s/ C. ROBERT CAMPBELL*
(C. Robert Campbell) Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) June 2, 1997
/s/ MICHAEL CHU*
(Michael Chu) Director June 2, 1997
/s/ VERA KING FARRIS*
(Vera King Farris) Director June 2, 1997
/s/ NICHOLAS DEB. KATZENBACH*
(Nicholas deB. Katzenbach) Director June 2, 1997
/s/ HENRY R. KRAVIS*
(Henry R. Kravis) Director June 2, 1997
/s/ PAUL E. RAETHER*
(Paul E. Raether) Director June 2, 1997
(Clifton S. Robbins) Director
/s/ GEORGE R. ROBERTS*
(George R. Roberts) Director June 2, 1997
/s/ ELIZABETH A. SANDERS*
(Elizabeth A. Sanders) Director June 2, 1997
/s/ MICHAEL T. TOKARZ*
(Michael T. Tokarz) Director June 2, 1997
</TABLE>
*By /s/ James B. Adamson
(James B. Adamson)
(attorney in fact for each of
the persons indicated)
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
<C> <S> <C>
4.32 Form of Indenture relating to the New Senior Notes (including the form of security).
4.33 Specimen Certificate of the New Common Stock of Reorganized Flagstar.
4.34 Form of New Warrant Agreement (including the Form of New Warrant).
4.37 Form of Supplemental Indenture between Flagstar and The Bank of New York, as Trustee, relating to the
11.25% Debentures.
4.38 Form of Supplemental Indenture between Flagstar and The Bank of New York, as Trustee, relating to the
11 3/8% Debentures.
4.39 Form of Registration Rights Agreement.
5.1 Opinion of Parker, Poe Adams & Bernstein L.L.P. regarding the legality of the securities to be issued.
8 Opinion of Latham & Watkins regarding certain tax matters.
23.1 Consent of Latham & Watkins (included in Exhibit 8 to this Registration Statement).
23.2 Consent of Parker, Poe Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration Statement).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
99.1 Form of Master Ballot for Class 4: Holders of Old Senior Notes.
99.2 Form of Master Ballot for Class 5: Holders of Senior Subordinated Debentures.
99.3 Form of Master Ballot for Class 6: Holders of Junior Subordinated Debentures.
99.4 Form of Master Ballot for Class 8: Holders of Old FCI Preferred Stock.
99.5 Form of Master Ballot for Class 9: Holders of Old FCI Common Stock.
99.6 Form of Ballot for Class 4: Holders of Old Senior Notes.
99.7 Form of Ballot for Class 5: Holders of Senior Subordinated Debentures.
99.8 Form of Ballot for Class 6: Holders of Junior Subordinated Debentures.
99.9 Form of Ballot for Class 8: Holders of Old FCI Preferred Stock.
99.10 Form of Ballot for Class 9: Holders of Old FCI Common Stock.
</TABLE>
Exhibit 4.32
- -------------------------------------------------------------------------------
FLAGSTAR COMPANIES, INC.
AND
First Trust National Association, Trustee
Indenture
Dated as of , 1997
------------------------------------
$ ,000,000
11-1/4% Senior Notes Due 2007
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES...........................................................................................................1
RECITALS
Authorization of Indenture...............................................................................1
Form of Face of Security.................................................................................1
Form of Reverse of Security..............................................................................3
Form of Trustee's Certificate of Authentication........................................................^ 6
Compliance with Legal Requirements.....................................................................^ 6
Purpose of and Consideration for Indenture.............................................................^ 6
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined..................................................................... 6
Acquisition Indebtedness.................................................... 7
Adjusted Consolidated Net Worth............................................. 7
Affiliate................................................................... 7
Agent .................................................................... 7
Asset Segment............................................................... 7
Bankruptcy Law.............................................................. 7
Board of Directors.......................................................... 7
Business Day................................................................ 8
Business Segment............................................................ 8
Capital Stock............................................................... 8
Cash Equivalents............................................................ 8
Code .................................................................... 8
Commission.................................................................. 8
CHANGE OF CONTROL.......................................................... 31
CHANGE OF CONTROL DATE..................................................... 31
CHANGE OF CONTROL OFFER.................................................... 31
Consolidated Fixed Charges.................................................. 8
Consolidated Net Income..................................................... 9
Consolidated Net Worth...................................................... 9
CONTINUING DIRECTORS....................................................... 31
Controlled Corporation EBITDA Amount........................................ 9
Corporate Trust Office...................................................... 9
Credit Agent................................................................ 9
Credit Agreement............................................................ 10
Default .................................................................... 10
Disqualified Stock.......................................................... 10
EBITDA .................................................................... 10
Equity Interests............................................................ 10
Event of Default............................................................ 10
i
<PAGE>
Excluded Property........................................................... 10
Existing Indebtedness....................................................... 10
Fixed Charge Coverage Ratio................................................. 11
FRD .................................................................... 11
FRD Investment.............................................................. 11
Holder", "holder of Securities",
"securityholder..................................................... 11
Indebtedness................................................................ 11
Indenture................................................................... 11
Interest Rate Agreement..................................................... 11
Investment.................................................................. 11
Issuer .................................................................... 11
Lien .................................................................... 11
Mortgage Financing.......................................................... 11
Mortgage Financing Proceeds................................................. 12
Mortgage Refinancing........................................................ 12
Mortgage Refinancing Proceeds............................................... 12
Net Income.................................................................. 12
Net Proceeds................................................................ 12
Obligations................................................................. 12
OECD .................................................................... 13
Officers' Certificate....................................................... 13
Opinion of Counsel.......................................................... 13
Outstanding................................................................. 13
Permitted Investments....................................................... 13
Plan........................................................................ 13
Preferred Stock............................................................. 13
principal................................................................... 14
Remaining Section 355 Amount................................................ 14
Responsible Officer......................................................... 14
Restricted Investments...................................................... 14
Section 355 Percentage...................................................... 14
Section 355 Transaction..................................................... 14
Security or Securities...................................................... 14
Senior Indebtedness......................................................... 14
Significant Subsidiary...................................................... 15
Specified Issuer EBITDA..................................................... 15
Subsidiary.................................................................. 15
Trustee .................................................................... 15
Trust Indenture Act of 1939................................................. 15
Unrestricted Subsidiary..................................................... 15
Weighted Average Life to Maturity........................................... 16
ARTICLE TWO
ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES
SECTION 2.1 Authentication and Delivery of Securities..................................................16
SECTION 2.2 Execution of Securities................................................................... 16
ii
<PAGE>
SECTION 2.3 Certificate of Authentication............................................................. 17
SECTION 2.4 Form, Denomination and Date of
Securities; Payments of Interest.............................................................. 17
SECTION 2.5 Registration, Transfer and Exchange....................................................... 17
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost
and Stolen Securities......................................................................... 18
SECTION 2.7 Cancellation of Securities;
Destruction Thereof........................................................................... 19
SECTION 2.8 Temporary Securities...................................................................... 19
ARTICLE THREE
COVENANTS OF THE ISSUER AND THE TRUSTEE
SECTION 3.1 Payment of Principal and Interest......................................................... 19
SECTION 3.2 Offices for Payments, etc................................................................. 20
SECTION 3.3 Appointment to Fill a Vacancy in
Office of Trustee............................................................................. 20
SECTION 3.4 Paying Agents............................................................................. 20
SECTION 3.5 Certificates to Trustee................................................................... 21
SECTION 3.6 Securityholder Lists...................................................................... 21
SECTION 3.7 Reports by the Issuer..................................................................... 21
SECTION 3.8 Reports by the Trustee.................................................................... 21
SECTION 3.9 Limitation on Restricted Payments......................................................... 22
SECTION 3.10 Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries................................................... 24
SECTION 3.11 Limitation on Additional
Indebtedness and Issuance of Disqualified Stock............................................... 25
SECTION 3.12 Limitation on Transactions with
Affiliates.................................................................................... 26
SECTION 3.13 Sale of Assets........................................................................... 26
SECTION 3.14 Corporate Existence...................................................................... 28
SECTION 3.15 Limitation on Liens...................................................................... 28
SECTION 3.16 Issuer to Cause Certain Subsidiaries
to Become Guarantors.......................................................................... 29
SECTION 3.17 Investments in Unrestricted Subsidiaries................................................. 29
SECTION 3.18 OFFER TO PURCHASE UPON CHANGE OF CONTROL................................................. 31
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 4.1 Events of Default....................................................................... ^ 31
SECTION 4.2 Acceleration............................................................................ ^ 33
SECTION 4.3 Other Remedies.......................................................................... 34
SECTION 4.4 Waiver of Defaults...................................................................... ^ 34
SECTION 4.5 Control by Majority..................................................................... ^ 34
SECTION 4.6 Limitation on Suits..................................................................... ^ 34
SECTION 4.7 Rights of Holders to Receive Payment...................................................... 35
SECTION 4.8 Collection Suit by Trustee.............................................................. ^ 35
SECTION 4.9 Trustee May File Proofs of Claim........................................................ ^ 35
SECTION 4.10 Priorities............................................................................... 35
SECTION 4.11 Undertaking for Costs.................................................................. ^ 36
iii
<PAGE>
ARTICLE FIVE
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the
Trustee; During Default; Prior to Default................................................... ^ 36
SECTION 5.2 Certain Rights of the Trustee........................................................... ^ 37
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of
Proceeds Thereof............................................................................ ^ 38
SECTION 5.4 Trustee and Agents May Hold
Securities; Collections, etc................................................................ ^ 38
SECTION 5.5 Moneys Held by Trustee.................................................................... 38
SECTION 5.6 Compensation and Indemnification of
Trustee and Its Prior Claim................................................................... 38
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc............................................................................ ^ 39
SECTION 5.8 Persons Eligible for Appointment as
Trustee..................................................................................... ^ 39
SECTION 5.9 Resignation and Removal; Appointment
of Successor Trustee........................................................................ ^ 39
SECTION 5.10 Acceptance of Appointment by
Successor Trustee............................................................................. 40
SECTION 5.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee........................................................... ^ 41
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by
Securityholders............................................................................... 41
SECTION 6.2 Proof of Execution of Instruments and
of Holding of Securities: Record Date......................................................... 41
SECTION 6.3 Holders to Be Treated as Owners......................................................... ^ 42
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding................................................................................. ^ 42
SECTION 6.5 Right of Revocation of Action Taken....................................................... 42
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without
Consent of Securityholders.................................................................. ^ 43
SECTION 7.2 Supplemental Indentures With Consent
of Securityholders.......................................................................... ^ 43
SECTION 7.3 Effect of Supplemental Indenture.......................................................... 44
SECTION 7.4 Documents to Be Given to Trustee........................................................ ^ 44
SECTION 7.5 Notation on Securities in Respect of
Supplemental Indentures..................................................................... ^ 44
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.1 When Issuer May Merge, etc.............................................................. ^ 45
--
SECTION 8.2 Successor Corporation Substituted......................................................... 46
iv
<PAGE>
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE
SECTION 9.1 Satisfaction and Discharge of Indenture................................................... 46
SECTION 9.2 Application by Trustee of Funds
Deposited for Payment of Securities......................................................... ^ 47
SECTION 9.3 Repayment of Moneys Held by Paying Agent...................................................47
SECTION 9.4 Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three Years........................................................ 47
SECTION 9.5 Defeasance.............................................................................. ^ 47
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders,
Officers and Directors of Issuer Exempt from
Individual Liability........................................................................ ^ 48
SECTION 10.2 Provisions of Indenture for the Sole
Benefit of Parties and Securityholders...................................................... ^ 49
SECTION 10.3 Successors and Assigns of Issuer
Bound by Indenture............................................................................ 49
SECTION 10.4 Notices and Demands on Issuer,
Trustee and Securityholders................................................................... 49
SECTION 10.5 Officers' Certificates and Opinions
of Counsel; Statements to Be Contained Therein.............................................. ^ 49
SECTION 10.6 Payments Due on Saturdays, Sundays
and Holidays................................................................................ ^ 50
SECTION 10.7 Conflict of Any Provision of
Indenture with Trust Indenture Act of 1939.................................................. ^ 50
SECTION 10.8 New York Law to Govern................................................................. ^ 50
SECTION 10.9 Counterparts............................................................................. 51
SECTION 10.10 Effect of Headings...................................................................... 51
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 11.1 Right of Optional Redemption............................................................. 51
SECTION 11.2 Notice of Redemption; Partial Redemptions...............................................^ 51
SECTION 11.3 Payment of Securities called for
Redemption.................................................................................... 52
SECTION 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption.................................................... ^ 52
SECTION 11.5 Offer to Repurchase by Application
of Net Proceeds............................................................................... 52
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of , 1997 between
Flagstar Companies, Inc., a Delaware corporation (the "Issuer"),
and First Trust National Association, as Trustee (the "Trustee"),
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue of its ^
11-1/4% Senior Notes Due 2007 (the "Securities") and, to provide, among other
things, for the authentication, delivery and administration thereof, the Issuer
has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Securities and the Trustee's certificate of
authentication shall be in substantially the following form:
[FORM OF FACE OF SECURITY]
No. $
FLAGSTAR COMPANIES, INC.
^ 11-1/4% Senior Notes Due 2007
Flagstar Companies, Inc., a Delaware corporation (the
"Issuer"), for value received hereby promises to pay to or registered
assigns the principal sum of Dollars at the Issuer's office or agency for
said purpose on , 2007 in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually on and of
each year, on said principal sum in like coin or currency at the rate per annum
set forth above at said office or agency from the or the , as the case
may be, next preceding the date of this Security to which interest on the
Securities has been paid or duly provided for, unless the date hereof is a date
to which interest on the Securities has been paid or duly provided for, in which
case from the date of this Security, or unless no interest has been paid or duly
provided for on the Securities, in which case from , 1997 until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after or , as the case may be, and
before the following or this Security shall bear interest from
such or ; provided that if the Issuer shall default in the payment of
interest due on such or , then this Security shall bear interest from
the next preceding or to which interest on the Securities has been paid
or duly provided for, or, if no interest has been paid or duly provided for on
the Securities, from , 1997. The interest so payable on any or will,
except as otherwise provided in the Indenture referred to on the reverse hereof,
be paid to the person in whose name this Security is registered at the close of
business on the or preceding such or , whether or not such day
is a business day; provided that interest may be paid, at the option of the
Issuer, by mailing a check therefor payable to the registered holder entitled
thereto at his last address as it appears on the Security register or by wire
transfer to such holder.
Reference is made to the further provisions set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Security shall not be valid or obligatory until the
certificate of authentication hereon shall have been duly signed by the Trustee
acting under the Indenture.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed under its corporate seal.
Dated:
[Seal]
2
<PAGE>
[FORM OF REVERSE OF SECURITY]
Flagstar Companies, Inc.
^ 11-1/4% Senior Notes Due 2007
This Security is one of a duly authorized issue of debt securities of the
Issuer, limited to the aggregate principal amount of $ ,000,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an indenture dated as of , 1997 (the "Indenture"),
duly executed and
delivered by the Issuer to First Trust National Association, as Trustee (herein
called the "Trustee"). Reference is hereby made to the Indenture and all
indentures supplemental thereto for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the Issuer
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Securities.
If an Event of Default, as defined in the Indenture, shall
have occurred and be continuing, the Trustee or the holders of at least 30% (or
25% in the case of a default with respect to payment of principal of, premium,
if any, or interest on the Securities) in principal amount of the then
outstanding Securities may declare the principal amount of the Securities to be
due and payable immediately; provided, however, that if any Senior Indebtedness
is outstanding pursuant to the Credit Agreement, upon a declaration of
acceleration, such principal and interest shall be payable upon the earlier of
(x) the day that is five Business Days after the provision to the Issuer and the
Credit Agent of such written notice unless such Event of Default has been cured
or waived prior to such date and (y) the date of acceleration of any Senior
Indebtedness under the Credit Agreement. In the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all outstanding
Securities become due and payable immediately without further action or notice.
The Indenture provides that in certain events a declaration of acceleration and
its consequences may be waived by the holders of a majority in aggregate
principal amount of the Securities then outstanding and that the holders of a
majority in aggregate principal amount of the Securities then outstanding may
waive any default under the Indenture and its consequences except a default in
the payment of principal of, premium, if any, or interest on any of the
Securities. Any such consent or waiver by the holder of this Security (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
holder and upon all future holders and owners of this Security and any Security
which may be issued in exchange or substitution herefor, whether or not any
notation thereof is made upon this Security or such other Securities.
The Indenture permits the Issuer and the Trustee, with the consent of the
holders of not less than a majority in aggregate principal amount of the
Securities at the time outstanding, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the holders of
the Securities; provided that no such supplemental indenture shall (a) extend
the final maturity of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
premium, if any, payable thereon, or reduce any amount payable on the redemption
thereof or impair or affect the rights of any Securityholder to institute suit
for the payment thereof, or waive a default in the payment of principal of,
premium, if any, or interest on any security, change the currency of payment of
principal of, premium, if any, or interest on any Security, or modify any
provision in the Indenture with respect to the priority of the Securities in
right of payment without the consent of the holder of each Security so affected;
or (b) reduce the aforesaid percentage of Securities, the consent of the holders
of which is required for any such supplemental indenture, without the consent of
the holders of all Securities then outstanding.
3
<PAGE>
The Securities are senior unsecured obligations of the Issuer
and will rank pari passu in right of payment to all Senior Indebtedness.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on this Security at the place, times, and rate, and in the
currency, herein prescribed.
The Securities are issuable only as registered Securities
without coupons in denominations of $1,000 and any multiple of $1,000.
At the office or agency of the Issuer referred to on the face
hereof and in the manner and subject to the limitations provided in the
Indenture, Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations.
Upon due presentment for registration of transfer of this
Security at the above-mentioned office or agency of the Issuer, a new Security
or Securities of authorized denominations, for a like aggregate principal
amount, will be issued to the transferee as provided in the Indenture. No
service charge shall be made for any such transfer, but the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto.
^ THE Securities may NOT be redeemed, ^ EITHER in whole or in
part, ^ prior to , 2002. After , 2002, the Securities will be
redeemable, in whole or in part, at the option of the Issuer, at the redemption
prices (expressed as percentages of the principal amount) set forth below, plus
accrued and unpaid interest, if any, to the redemption date, if redeemed during
the 12-month period beginning of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2002.............................................................................................105.625%^
2003..............................................................................................103.750%
2004..............................................................................................101.875%
2005 and thereafter...............................................................................100.000%
</TABLE>
provided that, if the dated fixed for redemption is or , then the interest
payable on such date shall be paid to the holder of record on the next preceding
or .
NOTWITHSTANDING THE FOREGOING, FROM , 1997 UNTIL ,
2000, THE ISSUER MAY REDEEM UP TO 35% OF THE AGGREGATE PRINCIPAL AMOUNT OF
SECURITIES OUTSTANDING ON THE DATE OF THE INDENTURE AT A REDEMPTION PRICE
(EXPRESSED AS A PERCENTAGE OF THE PRINCIPAL AMOUNT) OF 110%, PLUS ACCRUED
AND UNPAID INTEREST, IF ANY, TO THE REDEMPTION DATE FROM THE NET PROCEEDS
OF ANY PUBLIC OFFERING FOR CASH OF ANY EQUITY SECURITIES OF THE ISSUER OR
ANY SUBSIDIARY THEREOF.
Notice of redemption shall be mailed at least 30 and not more
than 60 days prior to the date fixed for redemption to each holder of Securities
to be redeemed at his registered address. Securities may be redeemed in part
only in multiples of $1,000.
4
<PAGE>
Subject to the terms of the Indenture, if the Issuer
consummates any Asset Sale or sells a Business Segment (as such terms are
defined in the Indenture), the Issuer shall be obligated to apply the proceeds
thereof to one or more of the following in such combination as the Issuer may
choose: (i) an investment in another asset or business in the same line of
business as the Issuer and its Subsidiaries, provided such investment occurs
within 366 days of such Asset Sale or sale of a Business Segment, (ii) an offer,
expiring within 366 days of such Asset Sale or such sale of a Business Segment,
to redeem Securities at a redemption price not less than 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the redemption date
(a "Net Proceeds Offer") or (iii) the prepayment of outstanding Senior
Indebtedness within 366 days of such Asset Sale or sale of a Business Segment;
provided, however, that if the net amount not invested pursuant to clause (i) or
applied pursuant to clause (iii) above to the prepayment of Senior Indebtedness
is less than $15,000,000, the Issuer shall not be further obligated to offer to
redeem Securities pursuant to clause (ii) above. Holders of Securities which are
the subject of an offer to redeem shall receive an offer to redeem from the
Issuer prior to any related redemption date, and may elect to have such
Securities redeemed by completing the form entitled "Option of Holder to Elect
to Have Security Redeemed" appearing below. Notwithstanding any provision of the
Indenture to the contrary, the Issuer may, for a period of 120 days after the
last date on which holders of Securities are permitted to elect to have their
Securities redeemed in a Net Proceeds Offer, use any Net Proceeds that were
available to make such Net Proceeds Offer but not used to redeem Securities
pursuant thereto, to purchase, redeem or otherwise acquire or retire for value
securities of the Issuer ranking junior in right of payment to the Securities at
a price, stated as a percentage of the principal or face amount of such junior
securities, not greater than the price, stated as a percentage of the principal
amount of the Securities, offered in the Net Proceeds Offer; provided that if
the Net Proceeds Offer is for a principal amount (the "Net Proceeds Offer
Amount") of the Securities less than the aggregate principal amount of the
Securities then outstanding, then the Net Proceeds available for use by the
Issuer for such a purchase, redemption or other acquisition or retirement for
value of junior securities shall not exceed the Net Proceeds Offer Amount.
Subject to payment by the Issuer (by deposit with the Trustee
or otherwise) of a sum sufficient to pay the amount due on redemption, interest
on this Security (or portion hereof if this Security is redeemed in part) shall
cease to accrue upon the date duly fixed for redemption of this Security (or
portion hereof if this Security is redeemed in part) and all rights of the
holder with respect to such redeemed Security (or portion thereof if this
Security is redeemed in part) hereunder or under the Indenture, except the right
to payment of amounts payable on such redemption, shall cease.
The Issuer, the Trustee, and any authorized agent of the
Issuer or the Trustee, may deem and treat the registered holder hereof as the
absolute owner of this Security (whether or not this Security shall be overdue
and notwithstanding any notation of ownership or other writing hereon made by
anyone other than the Issuer or the Trustee or any authorized agent of the
Issuer or the Trustee), for the purpose of receiving payment of, or on account
of, the principal hereof and premium, if any, and, subject to the provisions on
the face hereof, interest hereon and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of
or premium, if any, or the interest on this Security, for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture or any indenture supplemental thereto, against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Issuer or of any successor corporation, either directly or through the Issuer or
any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
5
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
[ ]
, as Trustee
Authorized Signatory
OPTION OF HOLDER TO ELECT TO HAVE SECURITY REDEEMED
If you have received a Net Proceeds Offer from the Issuer and
want to elect to have this Security redeemed by the Issuer pursuant to Section
11.5 of the Indenture, check the box:
|-|
Date:____________________ Your Signature:
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:_____________________________
AND WHEREAS, all things necessary to make the Securities, when
executed by the Issuer and authenticated and delivered by the Trustee as in this
Indenture provided, the valid, binding and legal obligations of the Issuer, and
to constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the
Securities by the holders thereof, the Issuer and the Trustee mutually covenant
and agree for the equal and proportionate benefit of the respective holders from
time to time of the Securities as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms (except
as otherwise expressly provided or unless the context otherwise clearly
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section. All other
terms used in this Indenture which are defined in the Trust Indenture Act of
1939 or the definitions of which in the Securities Act of 1933 are referred to
in the Trust
6
<PAGE>
Indenture Act of 1939 (except as herein otherwise expressly provided or unless
the context otherwise clearly requires), shall have the meanings assigned to
such terms in said Trust Indenture Act and in said Securities Act as in force at
the date of this Indenture. All accounting terms used herein and not expressly
defined shall have the meanings given to them in accordance with generally
accepted accounting principles, and the term "generally accepted accounting
principles" shall mean such accounting principles which are generally accepted
at the date or time of any computation or at the date hereof. The words
"herein", "hereof" and "hereunder" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article include the plural as well as the
singular.
"Acquisition Indebtedness" means Indebtedness of any person
existing at the time such person becomes a Subsidiary of the Issuer (or at the
time such person is merged with or into a Subsidiary of the Issuer), excluding
Indebtedness of any Subsidiary of the Issuer (other than such person) incurred
in connection with, or in contemplation of, such person becoming a Subsidiary of
the Issuer.
"Adjusted Consolidated Net Worth" with respect to the Issuer
means, as of any date, the Consolidated Net Worth of the Issuer plus (i) the
respective amounts reported on the Issuer's most recent consolidated balance
sheet with respect to any preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends unless such dividends
may be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by the
Issuer upon issuance of such preferred stock or of securities converted into
such preferred stock, excluding (ii) any amount reflecting any equity adjustment
resulting from a foreign currency translation on a consolidated balance sheet of
the Issuer, but only to the extent not excluded in calculating Consolidated Net
Worth of the Issuer, plus (iii) any gain realized upon the sale or other
disposition of any Business Segments to the extent such gains do not exceed the
sum of the aggregate amount of any losses included (on a net after tax basis) in
the computation of Consolidated Net Worth plus (iv) transaction fees and
expenses related to the Plan or any related transactions including amortization
thereof, but only to the extent such fees and expenses were included in
calculating Consolidated Net Worth of the Reorganized Flagstar.
"Affiliate" means any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Issuer. For the purposes of this definition, beneficial ownership of 10% or more
of the voting common equity of a person shall be deemed to be control unless
ownership of a lesser amount may be deemed to be control under the Trust
Indenture Act.
"Agent" means any registrar, paying agent or coregistrar for
the Securities.
"Asset Segment" means (i) Denny's Holdings, Inc., (ii) Spartan
Holdings, Inc., (iii) FRD, or (iv) any Subsidiary, group of Subsidiaries or
group of assets (other than inventory held for sale in the ordinary course of
business) of the Issuer or its Subsidiaries which (A) accounts for at least 20
percent of the total assets of the Issuer and its Subsidiaries on a consolidated
basis as of the end of the last fiscal quarter immediately preceding the date
for which such determination is being made or (B) accounts for at least 20
percent of the income from continuing operations before income taxes,
extraordinary items and cumulative effects of changes in accounting principles
of the Issuer and its Subsidiaries on a consolidated basis for the four full
fiscal quarters immediately preceding the date for which such calculation is
being made.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
"Board of Directors" means either the Board of Directors of
the Issuer or any committee of such Board duly authorized to act hereunder.
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"Business Day" means a day which in the city (or in any of the
cities if more than one) where amounts are payable in respect of the Securities,
as specified on the face of the form of Security recited above, is neither a
legal holiday nor a day on which banking institutions are authorized by law or
regulation to close.
"Business Segment" means: (i) each of the Issuer's Significant
Subsidiaries, (ii) the capital stock of any of the Issuer's Subsidiaries or
(iii) any group of assets of the Issuer or any Subsidiary whether now owned or
hereafter acquired, provided, in each case, that the sale (other than the sale
of inventory in the ordinary course of business), lease, conveyance or other
disposition of such Significant Subsidiary, capital stock or group of assets, as
the case may be, either in a single transaction or group of related transactions
that are part of a common plan, results in Net Proceeds to the Issuer and its
Subsidiaries of $50 million or more.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock.
"Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit with a maturity date not more than one year from the
date of acquisition issued by any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000 or a commercial
bank organized under the laws of any other country that is a member of the OECD
and having total assets in excess of $500,000,000 with a maturity date of not
more than one year from the date of acquisition, (iii) repurchase obligations
with a term of not more than 7 days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
the parent corporation of any domestic commercial bank of recognized standing
having capital and surplus in excess of $500,000,000 and commercial paper issued
by others rated at least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by Moody's Investors
Service, Inc. and in each case maturing within one year after the date of
acquisition and (v) investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses (i) through (iv)
above.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Consolidated Fixed Charges" means, with respect to any person
for a given period, consolidated interest expense of such person and its
consolidated Subsidiaries to the extent deducted in computing Consolidated Net
Income (including, without limitation, amortization of original issue discount
and non-cash interest payments, all net payments and receipts in respect of
Interest Rate Agreements and the interest component of capital leases, but
excluding deferred financing costs existing immediately after the date hereof
or incurred in connection with the Plan and amortization thereof) plus the
amount of all cash dividend payments on any series of preferred stock of such
person; provided that if, during such period (i) such person or any of its
Subsidiaries shall have made any asset sales (other than, in the case of the
Issuer and its Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries), Consolidated Fixed Charges of such person and its
Subsidiaries for such period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to the assets which are the
subject of such asset sales for such period and (ii) such person or any of its
Subsidiaries has made any acquisition of assets or Capital Stock (occurring by
merger or otherwise), including, without limitation, any acquisition of assets
or Capital Stock occurring in connection with the transaction causing a
calculation to be made hereunder, Consolidated Fixed Charges of such person
and its Subsidiaries shall be calculated on a pro
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forma basis as if such acquisition of assets or Capital Stock (including the
incurrence of any Indebtedness in connection with any such acquisition and the
application of the proceeds thereof) took place on the first day of such period
and provided further, that in the case of Reorganized Flagstar, if any aspect
of the Plan occurred during such period, Consolidated Fixed Charges of
Reorganized Flagstar and its Subsidiaries for such period shall be calculated on
a pro forma basis as if such closing (including the incurrence of any
Indebtedness in connection with such closing and the application of the proceeds
thereof) took place on the first day of such period.
"Consolidated Net Income" with respect to any person (the
"Subject Person") means, for a given period, the aggregate of the Net Income of
such Subject Person and its Subsidiaries for such period, on a consolidated
basis, determined in accordance with generally accepted accounting principles,
provided that (i) the Net Income of any person that is not a Subsidiary of the
Subject Person or is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid to
the Subject Person and its Subsidiaries, (ii) the Net Income of any person that
is a Subsidiary (other than a Subsidiary of which at least 80% of the capital
stock having ordinary voting power for the election of directors or other
governing body of such Subsidiary is owned by the Subject Person directly or
indirectly through one or more Subsidiaries) shall be included only to the
extent of the lesser of (a) the amount of dividends or distributions paid to the
Subject Person and its Subsidiaries and (b) the Net Income of such person, (iii)
the Net Income of any person acquired by the Subject Person and its Subsidiaries
in a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the Net Income (if positive) of any
person that becomes a Subsidiary of the Issuer after the date
hereof shall be included only to the extent that the declaration or payment of
dividends on Capital Stock or similar distributions by that Subsidiary to the
Issuer or to any other consolidated Subsidiary of the Issuer of such Net Income
is at the time permitted under the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations binding upon or applicable to that Subsidiary, provided that if the
exclusion from an otherwise positive Net Income of certain amounts pursuant to
this clause (iv) would cause such Net Income to be negative, then such Net
Income shall be deemed to be zero.
"Consolidated Net Worth" means, with respect to any person, at
any date of determination, the sum of the Capital Stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of such person and
its Subsidiaries on a consolidated basis, each item to be determined in
conformity with generally accepted accounting principles (excluding the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52), except that all
effects of the application of Accounting Principles Board Opinions Nos. 16 and
17 and related interpretations shall be disregarded.
"Controlled Corporation EBITDA Amount" means, for any
Controlled Corporation securities of which have been distributed in a Section
355 Transaction, the EBITDA of the Controlled Corporation for the four full
fiscal quarters of the Issuer last preceding the date such Section 355
Transaction is effected.
"Corporate Trust Office" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular time,
be principally administered, which office is, at the date as of which this
Indenture is dated, located at .
"Credit Agent" means , as managing agent (or a similar
capacity) under the Credit Agreement, or any successor thereto; provided that
"Credit Agent" shall also mean any person acting as managing agent (or in a
similar capacity) under any agreement pursuant to which the Credit Agreement is
refunded or refinanced if such person is designated as such by each person that
is at the time of such designation a Credit Agent; and provided further that if
at any time there shall be more than one Credit Agent, then "Credit Agent" shall
mean each such Credit Agent, and any notice, consent or waiver to be given by,
action to be taken by, or notice to be given to, the Credit Agent shall be given
or taken by, or given to, each such Credit Agent.
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"Credit Agreement" means , including any and all related notes, collateral
and security documents, instruments and agreements executed in connection
therewith (including, without limitation, all Loan Documents (as defined in
such Credit Agreement)) and all obligations of the Issuer and its Subsidiaries
incurred thereunder or in respect thereof, and in each case as amended,
supplemented, restructured or otherwise modified, extended or renewed and each
other agreement pursuant to which any or all of the foregoing may be refunded
or refinanced, from time to time.
"Default" means any event that is, or after notice or passage
of time would be, an Event of Default.
"Disqualified Stock" means any capital stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Securities.
"EBITDA" means, with respect to any person and its
consolidated Subsidiaries for a given period, the Consolidated Net Income of
such person for such period plus (i) an amount equal to any net loss realized
upon the sale or other disposition of any Business Segment (to the extent such
loss was deducted in computing Consolidated Net Income), (ii) any provision for
taxes based on income or profits deducted in computing Consolidated Net Income
and any provision for taxes utilized in computing net loss under clause (i)
hereof, (iii) consolidated interest expense (including amortization of original
issue discount and noncash interest payments, all net payments and receipts in
respect of Interest Rate Agreements and the interest component of capital
leases) and (iv) depreciation and amortization (including amortization of
goodwill, deferred financing costs existing immediately after the date hereof
or incurred in connection with the Plan and other intangibles) to the extent
required under generally accepted accounting principles, all on a consolidated
basis; provided that if, during such period (A) such person or any of its
Subsidiaries shall have made any asset sales (other than, in the case of the
Issuer and its Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries), EBITDA of such person and its Subsidiaries for such
period shall be reduced by an amount equal to the EBITDA directly attributable
to the assets which are the subject of such asset sales for such period and
(B) such person or any of its Subsidiaries has made any acquisition of assets
or Capital Stock (occurring by merger or otherwise), including, without
limitation, any acquisition of assets or Capital Stock occurring in connection
with the transaction causing a calculation to be made hereunder, EBITDA of
such person and its Subsidiaries shall be calculated, excluding any expenses
which in the good faith estimate of management will be eliminated as a result
of such acquisition, on a pro forma basis as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place
on the first day of such period; and provided, further, that in the case of
Reorganized Flagstar, if the closing of any aspect of the Plan occurred during
such period, EBITDA of Reorganized Flagstar and its subsidiaries for such period
shall be calculated on a pro forma basis as if such closing (including the
incurrence of any Indebtedness in connection with such closing and the
application of the proceeds thereof) took place on the first day of such period.
"Equity Interests" means Capital Stock or warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into or exchangeable for Capital Stock).
"Event of Default" means any event or condition specified as
such in Section 4.1 which shall have continued for the period of time, if any,
therein designated.
"Excluded Property" means the Issuer's corporate headquarters
property in Spartanburg, South Carolina.
"Existing Indebtedness" means Indebtedness of the
Issuer or any subsidiary existing on the date hereof.
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"Fixed Charge Coverage Ratio" means, with respect to any
person, for a given period, the ratio of the EBITDA of such person for such
period to the Consolidated Fixed Charges of such person for such period.
"FRD" means FRD Acquisition Co., a Delaware
corporation.
"FRD Investment" means up to $75,000,000 of Investments by the
Issuer and its Subsidiaries in FRD as an Unrestricted Subsidiary.
"Holder", "holder of Securities", "securityholder" or other
similar terms means the registered holder of any security.
"Indebtedness" with respect to any person means at any date,
without duplication, (i) all obligations of such person for borrowed money, (ii)
all obligations of such person evidenced by bonds, debentures, notes or other
similar instruments other than Interest Rate Agreements, (iii) all reimbursement
obligations and other liabilities of such person with respect to letters of
credit issued for such person's account, (iv) all obligations of such person to
pay the deferred purchase price of property or services, except accounts payable
arising in the ordinary course of business, (v) all obligations of such person
as lessee in respect of capital lease obligations under capital leases and (vi)
all obligations of others of a nature described in any of clauses (i) through
(v) above guaranteed by such person; provided that in the case of clauses (i)
through (v) above, Indebtedness shall include only obligations reported as
liabilities in the financial statements of such person in accordance with
generally accepted accounting principles.
"Indenture" means this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge arrangement to or under which the
Issuer or any of its subsidiaries is or becomes a party or a beneficiary.
"Investment" means any direct or indirect advance (other than
advances to customers in the ordinary course of business, which are recorded as
accounts receivable on the balance sheet of any person or its subsidiaries),
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
capital stock, bonds, notes, debentures or other securities issued by, any other
person.
"Issuer" means (except as otherwise provided in Article Five)
Flagstar Companies, Inc., a Delaware corporation and, subject to Article Eight,
its successors and assigns.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
capital lease, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the Issuer or a
Subsidiary of the Issuer of any Indebtedness secured by a mortgage or other Lien
on real property acquired or improved by the Issuer or any Subsidiary of the
Issuer after the date hereof.
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"Mortgage Financing Proceeds" means, with respect to any
Mortgage Financing, the aggregate amount of cash proceeds received or receivable
by the Issuer or any Subsidiary of the Issuer in connection with such financing
after deducting therefrom brokerage commissions, legal fees, finder's fees,
closing costs and other expenses incidental to such Mortgage Financing and the
amount of taxes payable in connection with or as a result of such transaction,
to the extent, but only to the extent, that the amounts so deducted are, at the
time of receipt of such cash, actually paid to a person that is not an Affiliate
and are properly attributable to such transaction or to the asset that is the
subject thereof.
"Mortgage Refinancing" means the incurrence by the Issuer or a
Subsidiary of the Issuer of any Indebtedness secured by a mortgage or other Lien
on real property subject to a mortgage or other Lien existing on the date hereof
or created or incurred subsequent to the date hereof as permitted hereby and
owned by the Issuer or any Subsidiary of the Issuer.
"Mortgage Refinancing Proceeds" means, with respect to any
Mortgage Refinancing, the aggregate amount of cash proceeds received or
receivable by the Issuer or any Subsidiary of the Issuer in connection with such
refinancing after deducting therefrom the original mortgage amount of the
underlying indebtedness refinanced therewith and brokerage commissions, legal
fees, finder's fees, closing costs and other expenses incidental to such
Mortgage Refinancing and the amount of taxes payable in connection with or as a
result of such transaction, to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid to a
person that is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" of any person shall mean the net income (loss) of
such person, determined in accordance with generally accepted accounting
principles, excluding, however, (i) any gain or loss, together with any related
provision for taxes on such gain or loss, realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to sale and
leaseback transactions) of a Business Segment, (ii) any charges arising as a
result of the Plan, and (iii) any gain or loss realized upon the sale or other
disposition by such person of any capital stock or marketable securities.
"Net Proceeds" with respect to any Asset Sale, sale and
leaseback transaction or sale or other disposition of a Business Segment, means
(i) cash (freely convertible into U.S. dollars) received by the Issuer or any
Subsidiary from such transaction, after (a) provision for all income or other
taxes measured by or resulting from such transaction, (b) payment of all
brokerage commissions and other expenses (including, without limitation, the
payment of principal, premium (if any) and interest on Indebtedness required
(other than pursuant to Section 3.13(a)) to be paid as a result of such
transaction) in connection with such transaction and (c) deduction of
appropriate amounts to be provided by the Issuer as a reserve, in accordance
with generally accepted accounting principles, against any liabilities
associated with the asset disposed of in such transaction and retained by the
Issuer after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction and (ii) promissory notes received
by the Issuer or any Subsidiary of the Issuer in connection with such
transaction upon the liquidation or conversion of such notes into cash.
"Obligations" means, with respect to any Indebtedness or any
Interest Rate Agreement, any principal, premium, interest (including, without
limitation, interest, whether or not allowed, after the filing of a petition
initiating certain bankruptcy proceedings), penalties, commissions, charges,
expenses, fees, indemnifications, reimbursements and other liabilities or
amounts payable under or in respect of the documentation governing such
Indebtedness or such Interest Rate Agreement.
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"OECD" means the Organization for Economic Cooperation
and Development.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board of Directors or the President or any Vice President
(whether or not designated by a number or numbers or a word or words added
before or after the title "Vice President") and by the Treasurer or the
Secretary or any Assistant Secretary of the Issuer and delivered to the Trustee.
Each such certificate shall comply with Section 314 of the Trust Indenture Act
of 1939 and include the statements provided for in Section 10.5.
"Opinion of Counsel" means an opinion in writing signed by
legal counsel who may be an employee of or counsel to the Issuer. Each such
opinion shall comply with Section 314 of the Trust Indenture Act and include the
statements provided for in Section 10.5, if and to the extent required hereby.
"Outstanding", when used with reference to securities, shall,
subject to the provisions of Section 6.4, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee under this Indenture,
except
(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other
than the Issuer) or shall have been set aside, segregated and held in
trust by the Issuer (if the Issuer shall act as its own paying agent);
provided that if such Securities are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as
herein provided, or provision satisfactory to the Trustee shall have
been made for giving such notice; and
(c) Securities in substitution for which other Securities
shall have been authenticated and delivered, or which shall have been
paid, pursuant to the terms of Section 2.6 (unless proof satisfactory
to the Trustee is presented that any of such Securities is held by a
person in whose hands such Security is a legal, valid and binding
obligation of the Issuer).
"Permitted Investments" means (i) cash (including major
foreign currency or currency of a country in which the Issuer or any of its
Subsidiaries has operations) or Cash Equivalents, (ii) investments that are in
persons at least a majority of whose revenues are derived from food service
operations, ancillary operations or related activities and that have the purpose
of furthering the food service operations of the Issuer or any of its
Subsidiaries, (iii) advances to employees not in excess of $5,000,000 at any one
time outstanding, (iv) accounts receivable created or acquired in the ordinary
course of business, (v) obligations or shares of stock received in connection
with any good faith settlement or bankruptcy proceeding involving a claim
relating to a Permitted Investment, (vi) evidences of Indebtedness, obligations
or other investments not exceeding $5,000,000 in the aggregate held at any one
time by the Issuer or any of its Subsidiaries and (vii) currency swap agreements
and other similar agreements designed to hedge against fluctuations in foreign
exchange rates entered into in the ordinary course of business in connection
with the operation of the business.
"Plan" means the plan of reorganization of Flagstar Companies,
Inc. and Flagstar Corporation, as predecessors to the Issuer pursuant to
Chapter 11 of Title 11 of the United States Code.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however designated)
of such person's preferred or preference stock whether now outstanding or issued
after the date of the Indenture.
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"principal" wherever used with reference to the Securities or
any Security or any portion thereof, shall be deemed to include "and premium, if
any".
"Remaining Section 355 Amount" means at any time an amount
equal to (i) 30% of the Specified Issuer EBITDA less (ii) the sum of the
Controlled Corporation EBITDA Amounts for the Controlled Corporations in each
Section 355 Transaction effected
by the Issuer prior to such time.
"Responsible Officer" when used with respect to the Trustee
means the chairman of the board of directors, any vice chairman of the board of
directors, the chairman of the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the president, any vice
president (whether or not designated by numbers or words added before or after
the title "vice president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant vice president, any
assistant cashier, any assistant secretary, any assistant treasurer, or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Investments" means any investments in, capital
contributions, loans or advances to or purchases of equity interests in, any
person that is not a wholly owned subsidiary, or other transfers of assets to
Subsidiaries or Affiliates that are not wholly owned (other than any such other
transfers of assets to Subsidiaries or Affiliates that are not wholly owned in
transactions the terms of which are fair and reasonable to the transferor and
are at least as favorable as the terms that could be obtained by the transferor
in a comparable transaction made on an arm's length basis between unaffiliated
parties (as conclusively determined, for any such transfer involving aggregate
consideration in excess of $5 million, by a majority of the directors of the
Issuer unaffiliated with such Subsidiary or Affiliate or, if there are no such
directors, by a majority of the directors of the Issuer, and otherwise as
conclusively determined by the Issuer), except in each case for Permitted
Investments and any such investments existing on the date hereof.
"Section 355 Percentage" means, for the first Section 355
Transaction effected after the date hereof, 30%, and shall thereafter be subject
to reduction as follows: Immediately after the time at which any Section 355
Transaction is effected through a distribution of securities of a Controlled
Corporation pursuant to clause (5) of the second paragraph of Section 3.9
hereof, the Section 355 Percentage shall equal (i) the Section 355 Percentage
immediately prior to such time less (ii) the percentage of (x) the EBITDA of the
Issuer for the four full fiscal quarters of the Issuer last preceding the date
such Section 355 Transaction is effected represented by (y) the EBITDA of such
Controlled Corporation for such period.
"Section 355 Transaction" means a transaction that qualifies
for tax-free treatment under Section 355 of the Code, or any similar taxable
transaction, any of which is effected after the date hereof.
"Security" or "Securities" means any of the ^ 11-1/4% Senior
Notes Due 2007 authenticated and delivered under this Indenture.
"Senior Indebtedness" means (i) all obligations of the Issuer
and its Subsidiaries now or hereafter existing under or in respect of the Credit
Agreement and the Securities, whether for principal, interest (including,
without limitation, interest accruing after the filing of a petition initiating
any proceeding referred to in Section 4.1(6) or Section 4.1(7) hereof, whether
or not such interest is an allowable claim under such proceeding), penalties,
commissions, charges, indemnifications, liabilities, reimbursement obligations
in respect of letters of
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credit, fees, expenses or other amounts payable under or in respect of the
Credit Agreement and all obligations and claims related thereto, (ii) all
Obligations of the Issuer in respect of Interest Rate Agreements and (iii)
additional Indebtedness permitted by Section 3.11(a), Section 3.11(b) or Section
3.11(c) hereof which is not expressly by its terms subordinated to the
Securities and all Obligations and claims related thereto.
Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness shall not include (x) any Indebtedness of the Issuer to any
of its Subsidiaries or (y) Indebtedness incurred for the purchase of goods or
materials or for services (other than services provided by the Credit Agent in
connection with the Credit Agreement or any other party to an agreement
evidencing Senior Indebtedness in connection with such agreement) obtained in
the ordinary course of business. Senior Indebtedness under or in respect of the
Credit Agreement and the Securities shall continue to constitute Senior
Indebtedness for all purposes of this Indenture notwithstanding that such Senior
Indebtedness or any obligations or claims in respect thereof may be disallowed,
avoided or subordinated pursuant to any Bankruptcy Law or other applicable
insolvency law or equitable principles.
"Significant Subsidiary" means any Subsidiary of the Issuer
that would be a "significant subsidiary" as defined in Rule 1-02 of Regulation
S-X under the Securities Act of 1933, as amended (the "Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (as such Regulation is in
effect on the date of the Indenture) (excluding, except for the purposes of
determining an Event of Default, subparagraph (c) of Rule 1-02 of Regulation
S-X).
"Specified Issuer EBITDA" means the EBITDA of the Issuer for
the four full fiscal quarters of the Issuer last preceding the date of the first
Section 355 Transaction effected after the date hereof.
"Subsidiary" of any person means any entity of which shares of
the capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all shares
or equity interests having ordinary voting power for the election of directors
or other governing body of such entity is owned by such person directly and/or
through one or more Subsidiaries; provided that each Unrestricted Subsidiary
shall be excluded from the definition of "Subsidiary".
"Trustee" means the entity identified as "Trustee" in the
first paragraph hereof and, subject to the provisions of Article Five, shall
also include any successor trustee.
"Trust Indenture Act of 1939" (except as otherwise provided in
sections 7.1 and 7.2) means the Trust Indenture Act of 1939 as in force at the
date as of which this Indenture was originally executed.
"Unrestricted Subsidiary" means (i) any subsidiary of the
Issuer which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors, as provided below) and (ii) any subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
subsidiary of the Issuer (including any Subsidiary and any newly acquired or
newly formed subsidiary) to be an Unrestricted Subsidiary unless such subsidiary
owns any Capital Stock of, or owns, or holds any Lien on, any property of, any
Subsidiary of the Issuer (other than any subsidiary of the subsidiary to be so
designated), provided that (a) any Unrestricted Subsidiary must be an entity of
which shares of the capital stock or other equity interests (including
partnership interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary voting power for
the election of directors or other governing body are owned, directly or
indirectly, by the Issuer, (b) the Issuer certifies that such designation
complies with Section 3.9 and Section 3.17 and (c) each of (I) the subsidiary to
be so designated and (II) its subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect
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to any Indebtedness pursuant to which the lender has recourse to any of the
assets of the Issuer or any of its Subsidiaries. The Board of Directors may
designate any Unrestricted Subsidiary to be a Subsidiary; provided that,
immediately after giving effect to such designation, the Issuer and its
Subsidiaries could incur at least $1 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section 3.11(a) on a pro forma
basis taking into account such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding aggregate principal amount of such Indebtedness into (ii) the total
of the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
ARTICLE TWO
ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES
SECTION 2.1 Authentication and Delivery of Securities.
Upon the execution and delivery of this Indenture, or from time
to time thereafter, Securities in an aggregate principal amount not in excess of
the amount specified in the form of Security hereinabove recited (except as
otherwise provided in Section 2.6) may be executed by the Issuer and delivered
to the Trustee for authentication, and the Trustee shall thereupon authenticate
and deliver said Securities to or upon the written order of the Issuer, signed
by both (a) the Issuer's Chairman of the Board of Directors, or any Vice
chairman of the Board of Directors, or its President or any Vice President
(whether or not designated by a number or numbers or a word or words added
before or after the title "Vice President") and (b) by the Issuer's Treasurer or
any Assistant Treasurer without any further action by the Issuer.
SECTION 2.2 Execution of Securities. The Securities shall be
signed on behalf of the Issuer by both (a) its Chairman of the Board of
Directors or any Vice Chairman of the Board of Directors or its President or any
Vice President (whether or not designated by a number or numbers or a word or
words added before or after the title "Vice President") and (b) by its Treasurer
or any Assistant Treasurer or its Secretary or any Assistant Secretary, under
its corporate seal which may, but need not, be attested. Such signatures may be
the manual or facsimile signatures of the present or any future such officers.
The seal of the Issuer may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Securities.
Typographical and other minor errors or defects in any such reproduction of the
seal or any such signature shall not affect the validity or enforceability of
any Security which has been duly authenticated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of
the Securities shall cease to be such officer before the Security so signed
shall be authenticated and delivered by the Trustee or disposed of by the
Issuer, such Security nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Security had not ceased to be
such officer of the Issuer; and any security may be signed on behalf of the
Issuer by such persons as, at the actual date of the execution of such Security,
shall be the proper officers of the Issuer, although at the date of the
execution and delivery of this Indenture any such person was not such officer.
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SECTION 2.3 Certificate of Authentication. Only such
Securities as shall bear thereon a certificate of authentication substantially
in the form hereinbefore recited, executed by the Trustee by manual signature of
one of its authorized signatories, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. Such certificate by the
Trustee upon any Security executed by the Issuer shall be conclusive evidence
that the Security so authenticated has been duly authenticated and delivered
hereunder and that the holder is entitled to the benefits of this Indenture.
SECTION 2.4 Form, Denomination and Date of Securities;
Payments of Interest. The Securities and the Trustee's certificates of
authentication shall be substantially in the form recited above. The Securities
shall be issuable as registered securities without coupons and in denominations
provided for in the form of Security above recited. The Securities shall be
numbered, lettered, or otherwise distinguished in such manner or in accordance
with such plans as the officers of the Issuer executing the same may determine
with the approval of the Trustee.
Any of the Securities may be issued with appropriate
insertions, omissions, substitutions and variations, and may have imprinted or
otherwise reproduced thereon such legend or legends, not inconsistent with the
provisions of this Indenture, as may be required to comply with any law, or with
any rules or regulations pursuant thereto, or with the rules of any securities
market in which the Securities are admitted to trading, or to conform to general
usage.
Each Security shall be dated the date of its authentication,
shall bear interest from the applicable date and shall be payable on the dates
and in the manner specified on the face of the form of Security recited above.
The person in whose name any Security is registered at the
close of business on any record date with respect to any interest payment date
shall be entitled to receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of such Security
subsequent to the record date and prior to such interest payment date, except if
and to the extent the Issuer shall default in the payment of the interest due on
such interest payment date, in which case such defaulted interest shall be paid
to the persons in whose names outstanding Securities are registered at the close
of business on a subsequent record date (which shall be not less than five
business days prior to the date of payment of such defaulted interest)
established by notice given by mail by or on behalf of the Issuer to the holders
of Securities not less than 15 days preceding such subsequent record date. The
term "record date" as used with respect to any interest payment date (except a
date for payment of defaulted interest) shall mean if such interest payment date
is the first day of a calendar month, the fifteenth day of the next preceding
calendar month and shall mean, if such interest payment date is the fifteenth
day of a calendar month, the first day of such calendar month, whether or not
such record date is a business day. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 2.5 Registration, Transfer and Exchange. The Issuer
will keep at each office or agency to be maintained for the purpose as provided
in Section 3.2 a register or registers in which, subject to such reasonable
regulations as it may prescribe, it will register, and will register the
transfer of, Securities as in this Article provided. Such register shall be in
written form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable times such
register or registers shall be open for inspection by the Trustee.
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Upon due presentation for registration of transfer of any
Security at each such office or agency, the Issuer shall execute and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Security or Securities in authorized denominations for a like aggregate
principal amount.
Any Security or Securities may be exchanged for a Security or
Securities in other authorized denominations, in an equal aggregate principal
amount. Securities to be exchanged shall be surrendered at each office or agency
to be maintained by the Issuer for such purpose as provided in Section 3.2, and
the Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor the Security or Securities which the Securityholder making the
exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.
All Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed by, the holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
exchange or registration of transfer of Securities. No service charge shall be
made for any such transaction.
The Trustee shall not be required to exchange or register a
transfer of (a) any Securities for a period of 15 days next preceding the first
mailing of notice of redemption of Securities to be redeemed or (b) any
Securities selected, called or being called for redemption except, in the case
of any Security where public notice has been given that such security is to be
redeemed in part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of
Securities shall be valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen
Securities. In case any temporary or definitive Security shall become mutilated,
defaced or be apparently destroyed, lost or stolen, the Issuer in its discretion
may execute, and upon the written request of any officer of the Issuer, the
Trustee shall authenticate and deliver, a new Security, bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated or
defaced Security, or in lieu of and substitution for the Security so apparently
destroyed, lost or stolen. In every case the applicant for a substitute Security
shall furnish to the Issuer and to the Trustee and any agent of the Issuer or
the Trustee such security or indemnity as may be required by them to indemnify
and defend and to save each of them harmless and, in every case of destruction,
loss or theft evidence to their satisfaction of the apparent destruction, loss
or theft of such Security and of the ownership thereof.
Upon the issuance of any substitute Security, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith. In case any Security
which has matured or is about to mature, or has been called for redemption in
full, shall become mutilated or defaced or be apparently destroyed, lost or
stolen, the Issuer may, instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated or defaced Security), if the applicant for such payment shall
furnish to the Issuer and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may require to save each of
them harmless from all risks, however
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remote, and, in every case of apparent destruction, loss or theft, the applicant
shall also furnish to the Issuer and the Trustee and any agent of the Issuer or
the Trustee evidence to their satisfaction of the apparent destruction, loss or
theft of such Security and of the ownership thereof.
Every substitute Security issued pursuant to the provisions of
this Section by virtue of the fact that any Security is apparently destroyed,
lost or stolen shall constitute an additional contractual obligation of the
Issuer, whether or not the apparently destroyed, lost or stolen Security shall
be at any time enforceable by anyone and shall be entitled to all the benefits
of (but shall be subject to all the limitations of rights set forth in) this
Indenture equally and proportionately with any and all other Securities duly
authenticated and delivered hereunder. All Securities shall be held and owned
upon the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of
mutilated, defaced, or apparently destroyed, lost or stolen Securities and shall
preclude any and all other rights or remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without their surrender.
SECTION 2.7 Cancellation of Securities; Destruction Thereof.
All Securities surrendered for payment, redemption, registration of transfer or
exchange, if surrendered to the Issuer or any agent of the Issuer or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be cancelled by it; and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. The Trustee shall destroy cancelled securities held by it and deliver
a certificate of destruction to the Issuer. If the Issuer shall acquire any of
the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless and until
the same are delivered to the Trustee for cancellation.
SECTION 2.8 Temporary Securities. Pending the preparation of
definitive Securities, the Issuer may execute and the Trustee shall authenticate
and deliver temporary Securities (printed, lithographed, typewritten or
otherwise reproduced, in each case in form satisfactory to the Trustee).
Temporary Securities shall be issuable as registered Securities without coupons,
of any authorized denomination, and substantially in the form of the definitive
Securities but with such omissions, insertions and variations as may be
appropriate for temporary Securities, all as may be determined by the Issuer
with the concurrence of the Trustee. Temporary Securities may contain such
reference to any provisions of this Indenture as may be appropriate. Every
temporary Security shall be executed by the Issuer and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Securities. Without unreasonable delay the Issuer
shall execute and shall furnish definitive Securities and thereupon temporary
Securities may be surrendered in exchange therefor without charge at each office
or agency to be maintained by the Issuer for the purpose pursuant to Section
3.2, and the Trustee shall authenticate and deliver in exchange for such
temporary Securities a like aggregate principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
be entitled to the same benefits under this Indenture as definitive Securities.
ARTICLE THREE
COVENANTS OF THE ISSUER AND THE TRUSTEE
SECTION 3.1 Payment of Principal and Interest. The Issuer
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of, and interest on, each of the Securities at the place or places
at the respective times and in the manner provided in the Securities. Each
installment of interest on the
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Securities may, at the option of the Issuer, be paid by wire transfer or by
check mailed to the holders of Securities entitled thereto as they shall appear
on the registry books of the Issuer.
SECTION 3.2 Offices for Payments, etc. So long as any of the
Securities remains outstanding, the Issuer will maintain the following: (a) an
office or agency where the Securities may be presented for payment, (b) an
office or agency where the Securities may be presented for registration of
transfer and for exchange as in this Indenture provided and (c) an office or
agency where notices and demands to or upon the Issuer in respect of the
Securities or of this Indenture may be served. The Issuer will give to the
Trustee written notice of the location of any such office or agency and of any
change of location thereof. The Issuer hereby initially designates the Corporate
Trust Office of the Trustee as the office or agency for each such purpose. In
case the Issuer shall fail to maintain any such office or agency or shall fail
to give such notice of the location or of any change in the location thereof,
presentations and demands may be made and notices may be served at the Corporate
Trust Office.
SECTION 3.3 Appointment to Fill a Vacancy in Office of
Trustee. The Issuer, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 5.9, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 3.4 Paying Agents. Whenever the Issuer shall appoint a
paying agent other than the Trustee, it will cause such paying agent to execute
and deliver to the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as such agent
for the payment of the principal of or interest on the Securities
(whether such sums have been paid to it by the Issuer or by any other
obligor on the Securities) in trust for the benefit of the holders of
the Securities or of the Trustee,
(b) that it will give the Trustee notice of any failure by the
Issuer (or by any other obligor on the Securities) to make any payment
of the principal of or interest on the Securities when the same shall
be due and payable, and
(c) that it will pay any such sums so held in trust by it to
the Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of the principal
of or interest on the Securities, deposit with the paying agent a sum sufficient
to pay such principal or interest, and (unless such paying agent is the Trustee)
the Issuer will promptly notify the Trustee of any failure to take such action.
If the Issuer shall act as its own paying agent, it will, on
or before each due date of the principal of or interest on the Securities, set
aside, segregate and hold in trust for the benefit of the holders of the
Securities a sum sufficient to pay such principal or interest so becoming due.
The Issuer will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the
Issuer may at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Issuer or any paying agent hereunder,
as required by this Section, such sums to be held by the Trustee upon the trusts
herein contained.
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Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section are subject to the
provisions of Sections 9.3 and 9.4.
SECTION 3.5 Certificates to Trustee. The Issuer will, so long
as any of the Securities are outstanding:
(a) deliver to the Trustee, forthwith upon becoming aware of
any default or defaults in the performance of any covenant, agreement
or condition contained in this Indenture (including notice of any event
of default which with the giving of notice and lapse of time would
become an Event of Default under Section 4.1 hereof), an Officers'
Certificate specifying such default or defaults; and
(b) deliver to the Trustee within 120 days after the end of
each fiscal year of the Issuer beginning with the fiscal year ending
December 31, 1997, an Officers' Certificate in compliance with Section
314(a)(4) of the Trust Indenture Act of 1939.
SECTION 3.6 Securityholder Lists. If and so long as the
Trustee shall not be the Security registrar, the Issuer will furnish or cause to
be furnished to the Trustee a list in such form as the Trustee may reasonably
require of the names and addresses of the holders of the Securities pursuant to
Section 312 of the Trust Indenture Act (a) semi-annually not more than 15 days
after each record date for the payment of semi-annual interest on the
Securities, as hereinabove specified, as of such record date, and (b) at such
other times as the Trustee may request in writing, within thirty days after
receipt by the Issuer of any such request as of a date not more than 15 days
prior to the time such information is furnished.
SECTION 3.7 Reports by the Issuer. The Issuer
covenants:
(a) to file with the Commission and, within 15 days after the
Issuer is required to file the same with the Commission, with the
Trustee copies of the annual reports and of the information, documents,
and other reports which the Issuer may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act
and, if the Issuer is not required to file such information, documents,
or reports with the Commission, to file with the Commission and the
Trustee the same such information, documents or reports as if the
Issuer were so subject;
(b) to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time
to time by the Commission, such additional information, documents, and
reports with respect to compliance by the Issuer with the conditions
and covenants provided for in this Indenture as may be required from
time to time by such rules and regulations; and
(c) to transmit by mail to the Holders of Securities, within
30 days after the filing thereof with the Trustee, any information,
documents and reports required to be filed by the Issuer with the
Trustee pursuant to (a) and (b) of this Section 3.7.
SECTION 3.8 Reports by the Trustee. Within 60 days after of
each year, beginning , 1998, for so long as any Securities are outstanding
hereunder, the Trustee shall transmit by mail to all Securityholders, as their
names and addresses appear in the registry books, in the manner and to the
extent provided in Section 313(c) of the Trust Indenture Act of 1939, a brief
report dated as of such if required by and in compliance with Section
313(a) of the Trust Indenture Act of 1939.
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SECTION 3.9 Limitation on Restricted Payments. Subject to the
other provisions of this Section 3.9, the Issuer shall not and shall not permit
any of its Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution on
account of the Issuer's or any Subsidiary's capital stock or other
Equity Interests (other than (i) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Issuer or such
Subsidiary and (ii) dividends or distributions payable by a Subsidiary
so long as, in the case of any dividend or distribution payable on any
class or series of securities issued by a Subsidiary other than a
wholly owned Subsidiary, the Issuer or a Subsidiary of the Issuer
receives at least its pro rata share of such dividend or distribution
in accordance with its Equity Interest in such class or series of
securities); or
(b) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Issuer or any Subsidiary of the Issuer
(other than any such Equity Interests owned by the Issuer or any
Subsidiary of the Issuer); or
(c) voluntarily prepay Indebtedness that is subordinated to
the Securities other than in connection with any (i) refinancing of
such Indebtedness specifically permitted pursuant to Section 3.11(c)
hereof, (ii) Indebtedness between the Issuer and a Subsidiary of the
Issuer or between Subsidiaries of the Issuer or (iii) Mortgage
Financing or Mortgage Refinancing; or
(d) make any Restricted Investments (other than an
Investment in any Unrestricted Subsidiary)
(all of the foregoing dividends, distributions, purchases, redemptions or other
acquisitions, retirements, prepayments or Restricted Investments set forth in
clauses (a) through (d) above being collectively referred to as "Restricted
Payments"), if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have
occurred and be continuing or shall occur as a
consequence thereof;
(ii) immediately after such Restricted Payment and
after giving effect thereto on a pro forma basis, the Issuer
would not be able to incur $1 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in
Section 3.11(a); or
(iii) such Restricted Payment, together with (A) the
aggregate of all other Restricted Payments (in each case
valued, where other than cash, at their fair market value as
of the date such Restricted Payments are made) made after the
date hereof and (B) the amount by which the aggregate of all
then outstanding Investments in Unrestricted Subsidiaries
(other than the FRD Investment) exceeds $75 million, is
greater than the sum of: (v) 50% of the aggregate Consolidated
Net Income of the Issuer for the period (taken as one
accounting period) from the beginning of the first quarter
immediately after the date hereof to the end of the Issuer's
most recently ended fiscal quarter at the time of such
Restricted Payment (provided that if Consolidated Net Income
for such period is less than zero, then minus 100% of the
amount of such loss) plus (w) 100% of the aggregate
amortization of goodwill and excess reorganization value for
the period specified in (v) above, plus (x) 100% of the
aggregate net cash proceeds and the fair market value of
marketable securities received by the Issuer from the issue or
sale, after the date hereof, of capital stock of the Issuer
(other than capital stock issued and sold to a Subsidiary of
the Issuer
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and other than Disqualified Stock), or any Indebtedness or
other security convertible into any such capital stock that
has been so converted plus (y) 100% of the aggregate amounts
contributed to the capital of the Issuer plus (z) 100% of the
aggregate amounts received in cash and the fair market value
of marketable securities (other than Restricted Investments)
received from (I) the sale or other disposition of Restricted
Investments made by the Issuer and its Subsidiaries or (II)
the sale of the stock of an Unrestricted Subsidiary or the
sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating
dividend is paid to the Issuer or any Subsidiary from the
proceeds of such sale.
For purposes of clause (iii) above, the fair market value of property other than
cash may be conclusively determined in good faith by the Board of Directors.
The provisions of this Section 3.9 shall not prohibit:
(1) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment
would have complied with the provisions hereof;
(2) the retirement of any shares of the Capital Stock of the
Issuer (the "Retired Capital Stock") in exchange for, or out of the net
proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Issuer) of, other shares of the Capital Stock of the
Issuer (the "Refunding Capital Stock"), other than any Disqualified
Stock;
(3) payments for the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests in the
Issuer issued to members of management of the Issuer and its
subsidiaries pursuant to subscription and option agreements in effect
on the date hereof and Equity Interests in the Issuer issued to future
members of management pursuant to subscription agreements executed
subsequent to the date hereof, containing provisions for the repurchase
of such Equity Interests upon death, disability or termination of
employment of such persons which are substantially identical to those
contained in the subscription agreements in effect on the date hereof,
provided that the amount of such dividends or distributions, after the
date hereof, in the aggregate will not exceed the sum of (I) $30
million plus (II) the cash proceeds from any reissuance of such Equity
Interests by the Issuer to members of management of the Issuer and its
subsidiaries;
(4) the repurchase, redemption or other acquisition or
retirement for value of Indebtedness of the Issuer which is
subordinated in right of payment to the Securities in exchange for or
with the proceeds of the issuance of shares of the Issuer's Equity
Interests (other than Disqualified Stock);
(5) the redemption, repurchase or retirement of any
Indebtedness that is subordinated to the Securities (A) with the
proceeds of, or in exchange for, Indebtedness incurred pursuant to
Section 3.11(c) or (B) if, after giving effect to such redemption,
repurchase or retirement, the Issuer could incur at least $1 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 3.11(a);
(6) the distribution to stockholders of securities of a
corporation controlled by the Issuer (a "Controlled Corporation") in a
Section 355 Transaction, but only if (a) the EBITDA of the Controlled
Corporation for the four full fiscal quarters of the Issuer last
preceding the date the Section 355 Transaction is effected is no
greater than (I) in the case of the first Section 355 Transaction
effected after
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the date hereof, a percentage of the Specified Issuer EBITDA equal to
the Section 355 Percentage at the time such first Section 355
Transaction is effected and (II) in the case of any subsequent Section
355 Transaction, the lesser of (A) the Remaining Section 355 Amount at
the time of such Section 355 Transaction and (B) the Section 355
Percentage at the time such Section 355 Transaction is effected
multiplied by the EBITDA of the Issuer for the four full fiscal
quarters of the Issuer last preceding the date such Section 355
Transaction is effected, (b) the Issuer's Fixed Charge Coverage Ratio
for its four full fiscal quarters last preceding the date the Section
355 Transaction is effected would have been at least 2:1, determined on
a pro forma basis as if the Section 355 Transaction had been effected
at the beginning of such four-quarter period and (c) the ratio of the
Indebtedness of the Issuer and its Subsidiaries on a consolidated basis
immediately after the Section 355 Transaction to EBITDA of the Issuer
for its four full fiscal quarters last preceding the date the Section
355 Transaction is effected, determined on a pro forma basis as if such
transaction had occurred at the beginning of such four quarter period,
would be no greater than the ratio of the Indebtedness of the Issuer
and its Subsidiaries on a consolidated basis immediately prior to the
Section 355 Transaction to EBITDA of the Issuer for its four full
fiscal quarters last preceding the date the Section 355 Transaction is
effected;
(7) the purchase, redemption or other acquisition or
retirement for value of Equity Interests of any Subsidiary of the
Issuer (other than any such Equity Interests owned by the Issuer or any
Subsidiary of the Issuer) in an amount of (a) up to $5 million for the
first year following the date hereof and (b) for each year thereafter,
up to $5 million plus the unused portion of the amount permitted to be
expended for such purpose in all preceding years;
provided that in determining the aggregate amount expended for Restricted
Payments in accordance with clause (iii) and of the first paragraph of this
Section 3.9, (i) no amounts expended under clauses (2), (4), (5) and (6) of this
paragraph shall be included, (ii) 100% of the amounts expended under clauses (3)
and (7) of this paragraph shall be included, and (iii) 100% of the amounts
expended under clause (1), to the extent not included under subclauses (i) or
(ii) of this proviso, shall be included.
SECTION 3.10 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Issuer shall not, and shall not permit
any of its Subsidiaries (other than unconsolidated subsidiaries) to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any such Subsidiary to
(a) pay dividends or make any other distributions on its capital stock or any
other interest or participation in, or measured by, its profits, owned by the
Issuer or any Subsidiary of the Issuer, or pay any Indebtedness owed to, the
Issuer or a Subsidiary of the Issuer, (b) make loans or advances to the Issuer
or a Subsidiary of the Issuer or (c) transfer any of its properties or assets to
the Issuer or a Subsidiary of the Issuer, except in each case for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) the Indenture, (iii) the Credit Agreement or any other agreement entered
into in connection therewith or as contemplated thereby, (iv) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Issuer or a Subsidiary of the Issuer, (v) any
instrument governing Indebtedness of a Person acquired by the Issuer or any
Subsidiary of the Issuer at the time of such acquisition, (vi) Existing
Indebtedness, or additional Indebtedness in an aggregate principal amount of up
to $250,000,000 at any one time outstanding or other contractual obligation of
the Issuer or any of its Subsidiaries existing on the date hereof or any
amendment, modification, renewal, extension, replacement, refinancing or
refunding thereof, provided that the restrictions contained in any such
amendment, modification, renewal, extension, replacement, refinancing or
refunding are no less favorable in all material respects to the Holders, (vii)
any Mortgage Financing or Mortgage Refinancing, (viii) any Permitted Investment
or (ix) contracts for the sale of assets.
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SECTION 3.11 Limitation on Additional Indebtedness and
Issuance of Disqualified Stock.
(a) Subject to the other provisions of this Section
3.11,
(x) the Issuer shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur,
issue, assume or guarantee any Indebtedness (other than
Indebtedness between the Issuer and a Subsidiary of the Issuer
or between Subsidiaries of the Issuer, or guarantees by any
Subsidiary of Indebtedness of a Subsidiary or the Issuer) and
(y) the Issuer shall not issue any Disqualified
Stock,
unless (i) such Indebtedness or Disqualified Stock is either Acquisition
Indebtedness or is created, incurred, issued, assumed or guaranteed by the
Issuer and not a Subsidiary of the Issuer and (ii) the Issuer's Fixed Charge
Coverage Ratio for its four full fiscal quarters last preceding the date such
additional Indebtedness is created, incurred, assumed or guaranteed, or such
additional stock is issued, would have been at least 2:1, determined on a pro
forma basis (including a pro forma application of the net proceeds of such
Indebtedness or such issuance of stock) as if the additional Indebtedness had
been created, incurred, assumed or guaranteed, or such additional stock had been
issued, at the beginning of such four-quarter period.
The limitations of this Section 3.11(a) shall not apply
to the incurrence by the Issuer or any of its Subsidiaries of any
Indebtedness pursuant to the Credit Agreement; provided, however, that the
principal amount of such Indebtedness incurred pursuant to the Credit Agreement
for this purpose shall not exceed the greater of (i) $250 million and (ii) the
aggregate amount of the commitments under the Credit Agreement on the date
hereof.
(b) The limitations of Section 3.11(a) hereof notwithstanding,
the Issuer or any Subsidiary may create, incur, issue, assume or
guarantee Indebtedness pursuant to the Credit Agreement or otherwise
(i) in connection with or arising out of Mortgage Financings, Mortgage
Refinancings or sale and lease-back transactions, provided the Mortgage
Financing Proceeds, Mortgage Refinancing Proceeds (excluding any
Mortgage Refinancing Proceeds received in connection with any
refinancing of any Indebtedness secured by a mortgage or Lien on the
Excluded Property) or Net Proceeds, as the case may be, incurred,
assumed or created in connection therewith are used to pay any
outstanding Senior Indebtedness, (ii) constituting purchase money
obligations for property acquired in the ordinary course of business or
other similar financing transactions (including, without limitation, in
connection with Mortgage Financings), provided that in the case of
Indebtedness exceeding $2 million for any such obligation or
transaction, such Indebtedness exists at the date of the purchase or
transaction or is created within 180 days thereafter, (iii)
constituting capital lease obligations, (iv) in connection with capital
expenditures, (v) constituting reimbursement obligations with respect
to letters of credit, including, without limitation, letters of credit
in respect of workers' compensation claims issued for the account of
the Issuer or a Subsidiary of the Issuer in the ordinary course of its
business, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims, (vi) constituting
additional Indebtedness in an aggregate principal amount of up to
$250,000,000 at any one time outstanding, whether incurred under the
Credit Agreement or otherwise, (vii) constituting Indebtedness secured
by the Excluded Property and (viii) constituting Existing Indebtedness
and permitted refinancings thereof in accordance with Section 3.11(c)
hereof.
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(c) The limitations of Section 3.11(a) hereof notwithstanding,
the Issuer or any Subsidiary may create, incur, issue, assume or
guarantee any Indebtedness which serves to refund, refinance or
restructure its Existing Indebtedness or any other Indebtedness
incurred as permitted under this Indenture or any Indebtedness issued
to so refund, refinance or restructure such Indebtedness, including
additional Indebtedness incurred to pay premiums and fees in connection
therewith (the "Refinancing Indebtedness"), prior to its respective
maturity; provided, that such Refinancing Indebtedness (i) bears an
interest rate per annum which is equal to or less than the interest
rate per annum then payable under such Indebtedness being
refunded or refinanced (calculated in accordance with any formula set
forth in the documents evidencing any such Indebtedness) unless such
Refinancing Indebtedness is incurred, created or assumed within twelve
months of the scheduled maturity of the Indebtedness being refinanced,
(ii) has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is incurred which is not less than the
remaining Weighted Average Life to Maturity of such Indebtedness being
refunded or refinanced, and (iii) to the extent such Refinancing
Indebtedness refinances Indebtedness subordinated to the Securities,
such Refinancing Indebtedness is subordinated to the Securities at
least to the same extent as the Indebtedness being refinanced or
refunded; and provided further, however, that clauses (i), (ii) and
(iii) above shall not apply to any refunding or refinancing of any
Senior Indebtedness.
(d) The limitations of Section 3.11(a) hereof notwithstanding,
any unconsolidated subsidiary of the Issuer created after the date of
this Indenture may create, incur, issue, assume, guarantee or otherwise
become liable with respect to any additional Indebtedness, provided
that such Indebtedness is nonrecourse to the Issuer and its
consolidated Subsidiaries, and the Issuer and its consolidated
Subsidiaries have no liability with respect to such additional
Indebtedness.
SECTION 3.12 Limitation on Transactions with Affiliates. The
Issuer shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
service) involving aggregate consideration in excess of $5,000,000 for any one
transaction with any Affiliate, except for (a) transactions (including any
investments or loans or advances by or to any Affiliate) in good faith the terms
of which are fair and reasonable to the Issuer or such Subsidiary, as the case
may be, and are at least as favorable as the terms which could be obtained by
the Issuer or such Subsidiary, as the case may be, in a comparable transaction
made on an arm's length basis between unaffiliated parties (in each case as
conclusively determined by a majority of the directors of the Issuer
unaffiliated with such Affiliate or, if there are no such directors, as
conclusively determined by a majority of the Board of Directors), (b)
transactions in which the Issuer or any of its Subsidiaries, as the case may be,
delivers to the Holders a written opinion of a nationally recognized investment
banking firm stating that such transaction is fair to the Issuer or such
Subsidiary from a financial point of view, (c) transactions between the Issuer
and its subsidiaries or between subsidiaries of the Issuer which are not
otherwise prohibited under Section 3.9 of this Indenture and (d) payments or
loans to employees or consultants pursuant to employment or consultancy
contracts which are approved by the Board of Directors in good faith.
SECTION 3.13 Sale of Assets.
(a) Neither the Issuer nor any of its Subsidiaries (other than
unconsolidated Subsidiaries) shall (A) (I) sell, lease, convey or
otherwise dispose of in any transaction, or group of transactions that
are part of a common plan, all or substantially all of the assets or
capital stock of any Asset Segment (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the
Issuer's assets shall not be subject to this Section 3.13 but shall be
governed by the provisions of Section 8.1 hereof) or (II) issue or sell
equity securities of any Asset Segment (each of the foregoing, an
"Asset
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Sale") or (B) sell, lease, convey or otherwise dispose of any Business
Segment, unless in each case, the Issuer shall apply the Net Proceeds
from such Asset Sale or such sale, lease, conveyance or other
disposition of a Business Segment to one or more of the following in
such combination as the Issuer may choose: (i) an investment in another
asset or business in the same line of business as, or a line of
business similar to that of, the line of business of the Issuer and its
Subsidiaries and such investment occurs within 366 days of such Asset
Sale or such sale, lease, conveyance or other disposition of a Business
Segment, (ii) a Net Proceeds Offer (as defined below) expiring within
366 days of such Asset Sale or such sale, lease, conveyance or other
disposition of a Business Segment or (iii) the purchase, redemption or
other prepayment or repayment of outstanding Senior Indebtedness within
366 days of such Asset Sale or such sale, lease, conveyance or other
disposition of a Business Segment; provided, however, if the net amount
not invested pursuant to clause (i) above or applied pursuant to clause
(iii) above is less than $15,000,000 the Issuer shall not be further
obligated to offer to repurchase Securities pursuant to clause (ii)
above. Notwithstanding the foregoing, (i) the receipt of all proceeds
of insurance paid on account of the loss of or damage to any Business
Segment and awards of compensation for any such Business Segment taken
by condemnation or eminent domain which result in Net Proceeds to the
Issuer and its Subsidiaries of $50 million or more (excluding proceeds
to be used for replacement of such Business Segment, provided the
Trustee has received notice from the Issuer, within 90 days of such
receipt, of its intention to use such proceeds for such purpose) will
be deemed an "Asset Sale" and (ii) Permitted Investments and sales,
leases, conveyances or other dispositions of assets by the Issuer or
any Subsidiary to the Issuer or any wholly owned Subsidiary of the
Issuer will not be deemed an "Asset Sale" or a sale or other
disposition of a Business Segment.
(b) For purposes of subsection (ii) of clause (a) of this
Section, the Issuer shall apply the Net Proceeds of the Asset Sale or
the sale, lease, conveyance or other disposition of a Business Segment
to make a tender offer in accordance with applicable law (a "Net
Proceeds Offer") to repurchase the Securities at a price not less than
100% of the principal amount of the Securities plus accrued and unpaid
interest thereon. Any Net Proceeds Offer shall be made by the Issuer
only if and to the extent permitted under, and subject to prior
compliance with, the terms of any agreement governing Senior
Indebtedness. If on the date any Net Proceeds Offer is commenced,
securities of the Issuer ranking pari passu in right of payment with
the Securities are outstanding and the terms of such securities provide
that an offer to repurchase such securities similar to the Net Proceeds
Offer is to be made with respect thereto, then the Net Proceeds Offer
shall be made concurrently with such other offer, and securities of
each issue shall be accepted on a pro rata basis, in proportion to the
principal or face amount, as the case may be, of securities of each
issue which the holders thereof elect to have repurchased. After the
last date on which holders of the Securities are permitted to tender
their Securities in a Net Proceeds Offer, the Issuer shall not be
restricted under this Section 3.13 as to its use of any Net Proceeds
available to make such Net Proceeds Offer (up to the amount of Net
Proceeds that would have been used to redeem Securities assuming 100%
acceptance of the Net Proceeds Offer) but not used to repurchase
Securities pursuant thereto.
(c) Notwithstanding any other provision hereof to the
contrary, for a period of 120 days after the last date on which holders
of the Securities are permitted to elect to have their Securities
redeemed in the Net Proceeds Offer, the Issuer may use any Net Proceeds
available to make such Net Proceeds Offer but not used to redeem
Securities pursuant thereto to purchase, redeem or otherwise acquire or
retire for value any securities of the Issuer ranking junior in right
of payment to the Securities at a price, stated as a percentage of the
principal or face amount of such junior securities, not greater than
the price, stated as a percentage of the principal amount of the
Securities offered in the Net Proceeds
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Offer; provided that if the Net Proceeds Offer is for a principal
amount (the "Net Proceeds Offer Amount") of the Securities less than
the aggregate principal amount of the Securities then outstanding, then
the Net Proceeds available for use by the Issuer for such a purchase,
redemption or other acquisition or retirement for value of junior
securities shall not exceed the Net Proceeds Offer Amount.
(d) An offer to repurchase Securities pursuant to this Section
3.13 shall be made pursuant to the provisions of Section 11.5 hereof.
Simultaneously with the notification of such offer of redemption to the
Trustee as required by Section 11.5 hereof, the Issuer shall provide
the Trustee with an Officers' Certificate setting forth the information
required to be included therein by Section 10.5 hereof and, in
addition, setting forth the calculations used in determining the amount
of Net Proceeds to be applied to the redemption of Securities.
(e) In the event that the Issuer shall make any payment of Net
Proceeds to the Trustee which, to the actual knowledge of a trust
officer of the Trustee, should properly have been made to holders or to
the representative of the holders of any Senior Indebtedness for the
prepayment or repayment of such Senior Indebtedness pursuant to the
provisions of this Section 3.13, such payment shall be held by the
Trustee for the benefit of, and, upon written request of the holders of
such Senior Indebtedness or their representative, shall be paid
forthwith over and delivered to, the holders of such Senior
Indebtedness or their representative for application in accordance with
the provisions of this Section 3.13. With respect to the holders of
such Senior Indebtedness, the Trustee undertakes to perform only such
obligations on the part of the Trustee as are specifically set forth in
this Section 3.13(e), and no implied covenants or obligations with
respect to the holders of such Senior Indebtedness shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of such Senior Indebtedness. If
Net Proceeds are received by Holders which, pursuant to the provisions
of this Section 3.13, should properly have been received by the holders
of such Senior Indebtedness or their representative for the prepayment
or repayment of such Senior Indebtedness, the Holders who receive such
Net Proceeds shall hold such Net Proceeds in trust for, and pay such
Net Proceeds over to, the holders of such Senior Indebtedness or their
representative.
(f) Notwithstanding the foregoing, Permitted Investments and
sales, leases, conveyances or other dispositions of assets by the
Issuer or any Subsidiary to the Issuer or any wholly owned Subsidiary
of the Issuer shall not be deemed an Asset Sale or a sale or other
disposition of a Business Segment.
SECTION 3.14 Corporate Existence. Subject to Article 8 hereof
and other than as permitted by the Credit Agreement, the Issuer shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each Significant Subsidiary in accordance with the respective organizational
documents as they may be from time to time amended of the Issuer and each such
Subsidiary and the rights (charter and statutory), governmental licenses and
governmental franchises of the Issuer and its Subsidiaries; provided, however,
that the Issuer shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any such
Subsidiary, if the preservation thereof is no longer necessary in the conduct of
the business of the Issuer and its Subsidiaries taken as a whole and the loss
thereof is not adverse in any material respect to the Holders (which
determination, if made in good faith by the Board of Directors, shall be
conclusive).
SECTION 3.15 Limitation on Liens.
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(a) The Issuer shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired by the
Issuer or any such Subsidiary, except:
(i) Liens existing on the date hereof, Liens securing
or arising under or in connection with any Indebtedness of the
Issuer not expressly by its terms subordinate or junior in
right of payment to any other Indebtedness of the Issuer
(including, without limitation, Liens permitted by or required
pursuant to the Credit Agreement), Liens arising under or in
connection with Section 9.1 hereof and Liens relating to
judgments to the extent such judgments do not give rise to an
Event of Default pursuant to Section 4.1(5) hereof;
(ii) Liens for taxes or assessments and similar
charges either (x) not delinquent or (y) contested in good
faith by appropriate proceedings and as to which the Issuer or
a Subsidiary shall have set aside on its books such reserves
as may be required pursuant to generally accepted accounting
principles;
(iii) Liens incurred or pledges and deposits in
connection with workers' compensation, unemployment insurance
and other social security benefits, or securing performance
bids, tenders, leases, contracts (other than for the repayment
of borrowed money), statutory obligations, progress payments,
surety and appeal bonds and other obligations of like nature,
incurred in the ordinary course of business;
(iv) Liens imposed by law, such as mechanics',
carriers', warehousemen's, materialmen's and vendors' Liens,
incurred in good faith in the ordinary course of business;
(v) zoning restrictions, easements of licenses,
covenants, reservations, restrictions on the use of real
property or minor irregularities of title incident thereto
which do not in the aggregate materially detract from the
value of the property or assets of the Issuer and its
Subsidiaries, taken as a whole, or materially impair the
operation of the business of the Issuer and its Subsidiaries,
taken as a whole;
(vi) Liens created by Subsidiaries to secure
Indebtedness of such Subsidiaries to the Issuer or its
Subsidiaries;
(vii) pledges of or Liens on raw materials or on
manufactured products as security for any drafts or bills of
exchange in connection with the importation of such raw
materials or manufactured products in the ordinary course of
business;
(viii) a Lien on any assets (x) securing
Indebtedness incurred or assumed pursuant to Section
3.11(b) hereof for the purpose of financing all or any
part of the cost of acquiring such asset or construction
thereof or thereon or (y) existing on assets or businesses at
the time of the acquisition thereof;
(ix) the Lien granted to the Trustee pursuant to
Section 5.6 hereof and any substantially equivalent Lien
granted to the respective trustees under the indentures for
other debt securities of the Issuer;
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(x) Liens arising in connection with any
Mortgage Financing or Mortgage Refinancing by the Issuer or
any of its Subsidiaries;
(xi) Liens securing reimbursement obligations
with respect to letters of credit issued for the account of
the Issuer or any of its Subsidiaries in the ordinary
course of business;
(xii) any Lien on the Excluded Property;
(xiii) Liens securing an interest of a landlord
in real property leases;
(xiv) all other Liens incurred in the ordinary course
of business; provided that the aggregate amount of
Indebtedness secured by such Liens shall not exceed $5,000,000
at any one time outstanding; or
(xv) Liens created in connection with the refinancing
of any Indebtedness secured by Liens permitted to be incurred
or to exist pursuant to the foregoing clauses; provided,
however, that no additional assets are encumbered by such
Liens in connection with such refinancing, unless permitted by
clause (i) above or Section 3.15(b).
(b) Notwithstanding the provisions of paragraph (a) above, the
Issuer or any Subsidiary may create or assume any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, if the
Issuer makes or causes to be made effective provision whereby the
Securities will be equally and ratably secured with any and all other
Indebtedness secured by such Lien as long as any such other
Indebtedness shall be so secured, provided that if such Lien ceases to
exist, such equal and ratable Lien shall thereupon automatically cease
to exist.
SECTION 3.16 Issuer to Cause Certain Subsidiaries to Become
Guarantors. The Issuer shall not permit any of its Subsidiaries to guarantee the
payment of any Indebtedness of the Issuer that is expressly by its terms
subordinate or junior in right of payment to any other Indebtedness of the
Issuer (a "Subordinated Indebtedness Guarantee") unless (i) such Subsidiary
executes and delivers a supplemental indenture evidencing its guarantee of the
Issuer's Obligations hereunder and under the Securities on a substantially
similar basis (the "Securities Guarantee") and (ii) the Securities Guarantee is
senior in right of payment to such Subordinated Indebtedness Guarantee to the
same extent as the Securities are senior in right of payment to such junior
Indebtedness of the Issuer; provided that if such Subordinated Indebtedness
Guarantee ceases to exist for any reason, then the Securities Guarantee shall
thereupon automatically cease to exist.
SECTION 3.17 Investments in Unrestricted Subsidiaries.
The Issuer will not, and will not permit any of its Subsidiaries
to, directly or indirectly, make any Investment in any Unrestricted Subsidiary
unless (i) the amount of such Investment does not exceed the amount then
permitted to be used to make a Restricted Payment pursuant to clause (iii) of
the first paragraph of Section 3.9 and (ii) immediately after such Investment,
and after giving effect thereto on a pro forma basis deducting from net income
the amount of any Investment the Issuer or any Subsidiary of the Issuer has made
in an Unrestricted Subsidiary during the four full fiscal quarters last
preceding the date of such Investment, the Issuer or any Subsidiary of the
Issuer would be able to incur $1 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section 3.11(a). Notwithstanding
clause (i) and (ii) of this Section 3.17 or any other provisions hereof to the
contrary, the Issuer and its Subsidiaries shall be permitted to make (i) the FRD
Investment and (ii) Investments in other Unrestricted Subsidiaries in an
aggregate amount not to exceed $75 million (without regard to the FRD
Investment) at any
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one time outstanding. The amount by which the aggregate of all Investments in
Unrestricted Subsidiaries exceeds $75 million (without regard to the FRD
Investment) shall be counted in determining the permissible amount of Restricted
Payments pursuant to clause (iii) of the first paragraph of Section 3.9. The
Issuer will not permit any Unrestricted Subsidiary to become a Subsidiary except
pursuant to the last sentence of the definition of Unrestricted Subsidiary set
forth in Section 1.1.
SECTION 3.18 OFFER TO PURCHASE UPON CHANGE OF CONTROL. IF AT
ANY TIME (THE "CHANGE OF CONTROL DATE") (I) ALL OR SUBSTANTIALLY ALL OF THE
ISSUER'S ASSETS ARE SOLD AS AN ENTIRETY TO ANY PERSON OR RELATED GROUP OF
PERSONS, (II) THE ISSUER IS MERGED WITH OR INTO ANOTHER CORPORATION OR ANOTHER
CORPORATION IS MERGED WITH OR INTO THE ISSUER WITH THE EFFECT THAT IMMEDIATELY
AFTER SUCH TRANSACTION THE STOCKHOLDERS OF THE ISSUER IMMEDIATELY PRIOR TO SUCH
TRANSACTION HOLD LESS THAN A MAJORITY IN INTEREST OF THE TOTAL VOTING POWER
ENTITLED TO VOTE IN THE ELECTION OF DIRECTORS, MANAGERS OR TRUSTEES OF THE
PERSON SURVIVING SUCH TRANSACTION, (III) ANY PERSON OR RELATED GROUP OF PERSONS
ACQUIRES A MAJORITY IN INTEREST OF THE TOTAL VOTING POWER OR VOTING STOCK OF THE
ISSUER, (IV) THE PERSONS CONSTITUTING THE BOARD OF DIRECTORS OF THE ISSUER ON
THE DATE HEREOF OR PERSONS NOMINATED OR ELECTED TO THE BOARD OF DIRECTORS OF THE
ISSUER BY A MAJORITY VOTE OF SUCH DIRECTORS (THE "CONTINUING DIRECTORS") OR BY A
MAJORITY VOTE OF THE CONTINUING DIRECTORS DO NOT CONSTITUTE A MAJORITY OF THE
MEMBERS OF THE BOARD OF DIRECTORS OF THE ISSUER (EACH, A "CHANGE OF CONTROL"),
THEN THE ISSUER WILL NOTIFY THE HOLDERS OF THE SECURITIES IN WRITING OF SUCH
OCCURRENCE AND WILL MAKE AN OFFER TO PURCHASE IN ACCORDANCE WITH THE TERMS OF
THIS INDENTURE (THE "CHANGE OF CONTROL OFFER") ALL SECURITIES THEN OUTSTANDING
AT A PURCHASE PRICE EQUAL TO 101% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED
AND UNPAID INTEREST, IF ANY, TO THE REPURCHASE DATE; PROVIDED, HOWEVER, THAT
SUCH REPURCHASE WILL ONLY OCCUR IF THERE HAS BEEN NO ACCELERATION WHICH HAS NOT
BEEN WITHDRAWN OR PAID PURSUANT TO THE CREDIT AGREEMENT PRIOR TO THE TIME OF
NOTICE OF A CHANGE OF CONTROL OFFER. PRIOR TO THE MAILING OF THE NOTICE TO
HOLDERS PROVIDED FOR ABOVE, THE ISSUER WILL (X)(I) TO THE EXTENT THEN REPAYABLE
OR PREPAYABLE, REPAY IN FULL ALL INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND, TO
THE EXTENT NOT THEN REPAYABLE OR PREPAYABLE, OFFER TO REPAY IN FULL ALL SUCH
INDEBTEDNESS AND TO REPAY THE INDEBTEDNESS OF EACH LENDER UNDER THE CREDIT
AGREEMENT WHO HAS ACCEPTED SUCH OFFER OR (II) OBTAIN THE REQUISITE CONSENT UNDER
THE CREDIT AGREEMENT TO PERMIT THE REPURCHASE OF THE SECURITIES. THE ISSUER
SHALL FIRST COMPLY WITH THE PROVISO IN THE PRECEDING SENTENCE BEFORE IT SHALL BE
REQUIRED TO REPURCHASE THE SECURITIES PURSUANT TO THIS SECTION 3.18.
THE ISSUER SHALL COMPLY WITH ALL APPLICABLE TENDER OFFER RULES
(INCLUDING WITHOUT LIMITATION RULE 14E-1 UNDER THE EXCHANGE ACT, IF APPLICABLE)
IN THE EVENT THAT THE REPURCHASE OPTION IS TRIGGERED UNDER THE CIRCUMSTANCES
DESCRIBED HEREIN. NO LESS THAN 30 OR MORE THAN 60 DAYS FOLLOWING ANY CHANGE OF
CONTROL, THE ISSUER SHALL MAIL A NOTICE TO EACH HOLDER OF ANY SECURITIES
STATING, AMONG OTHER THINGS, (A) THAT A CHANGE OF CONTROL HAS OCCURRED AND THAT
A CHANGE OF CONTROL OFFER IS BEING MADE AS DESCRIBED IN THIS SECTION 3.18, (B)
THE PURCHASE PRICE AND THE CHANGE OF CONTROL PAYMENT DATE AND (C) THE
INSTRUCTIONS DETERMINED BY THE COMPANY, CONSISTENT WITH THIS PROVISION, THAT A
HOLDER OF THE SECURITIES MUST FOLLOW IN ORDER TO HAVE SUCH HOLDER'S SECURITIES
REPURCHASED.
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 4.1 Events of Default. An "Event of Default" occurs
if:
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(1) the Issuer defaults in the payment of interest on
any Security when the same becomes due and payable and the
Default continues for a period of 30 days;
(2) the Issuer defaults in the payment of the
principal of any Security when the same becomes due and
payable at maturity, upon redemption or otherwise;
(3) the Issuer fails to comply with any of its other
agreements or covenants in, or any other provisions of, the Securities
or this Indenture and the Default continues for the period and after
the notice specified in this Section 4.1;
(4) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Issuer
or any of its Subsidiaries (or the payment of which is guaranteed by
the Issuer or any of its Subsidiaries) other than (i) Indebtedness of
the Issuer or any Subsidiary of the Issuer to the Issuer or any
Subsidiary of the Issuer or (ii) Indebtedness permitted pursuant to
Section 3.11(d) hereof, whether such Indebtedness or guarantee now
exists or shall be created hereafter, if (a) either (x) such default
results from the failure to pay principal upon the final maturity of
such Indebtedness (after the expiration of any applicable grace period)
or (y) as a result of such default the maturity of such Indebtedness
has been accelerated prior to its final maturity, (b) the principal
amount of such Indebtedness, together with the principal amount of any
such Indebtedness with respect to which the principal amount remains
unpaid upon its final maturity (after the expiration of any applicable
grace period), or the maturity of which has been so accelerated,
aggregates $30,000,000 or more and (c) such default does not result
from compliance with any applicable law or any court order or
governmental decree to which the Issuer or any of its Subsidiaries is
subject;
(5) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Issuer or any of its Subsidiaries and such judgment or
judgments remain undischarged for a period (during which execution
shall not be effectively stayed) of 60 days, provided that the
aggregate of all such judgments (net of amounts covered by insurance,
treating any deductibles, self insurance or retention as not so
covered) exceeds $10,000,000;
(6) the Issuer or any Significant Subsidiary of the
Issuer pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian
of it or for all or substantially all of its property, or
(d) makes a general assignment for the benefit
of its creditors; or
(7) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:
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(a) is for relief against the Issuer or any
Significant Subsidiary of the Issuer in an involuntary
case,
(b) appoints a Custodian of the Issuer or any
Significant Subsidiary of the Issuer or for all or
substantially all of its property, or
(c) orders the liquidation of the Issuer or any
Significant Subsidiary of the Issuer,
and the order or decree remains unstayed and in effect for
60 days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
An Event of Default shall not be deemed to have occurred under
clause (4) or (5) until the Issuer shall have received written notice from the
Trustee or the Holders of at least 30% in principal amount of the then
outstanding Securities. A Default under clause (3) is not an Event of Default
until the Trustee notifies the Issuer, or the Holders of at least 30% in
principal amount of the then outstanding Securities notify the Issuer and the
Trustee, of the Default and the Issuer does not cure the Default within 30 days
after receipt of the notice. The notice must specify the Default, demand that
it be remedied and state that the notice is a "Notice of Default".
In the case of any Event of Default pursuant to the provisions
of this Section 4.1 occurring by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Issuer with the intention of
avoiding payment of the premium which the Issuer would have to pay if the Issuer
then had elected to redeem the Securities pursuant to Section 11.1, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the securities
contained to the contrary notwithstanding.
SECTION 4.2 Acceleration. If an Event of Default (other than
an Event of Default specified in clause (6) or (7) of Section 4.1) occurs and is
continuing, the Trustee may, by written notice to the Issuer, or the Holders of
at least 30% (or 25% in the case of an Event of Default specified in Section
4.1(1) or 4.1(2)) in principal amount of the then outstanding Securities may, by
written notice to the Issuer and the Trustee, and the Trustee shall, upon the
request of such Holders, declare 100% of the unpaid principal of and any accrued
but unpaid interest on the Securities to be due and payable. Upon such
declaration the principal and interest shall be due and payable immediately;
provided, however, that if any Senior Indebtedness is outstanding pursuant to
the Credit Agreement, upon a declaration of acceleration, such principal and
interest shall be due and payable upon the earlier of (x) the day that is five
Business Days after the provision to the Issuer and the Credit Agent of such
written notice, unless such Event of Default is cured or waived prior to such
date, and (y) the date of acceleration of any Senior Indebtedness under the
Credit Agreement. In the event of a declaration of acceleration because an Event
of Default specified in Section 4.1(4) has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if such payment
default is cured or waived or the holders of the Indebtedness which is the
subject of such Event of Default have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or rescission and no
other Event of Default under Section 4.1(4) has occurred and is continuing with
respect to which 60 days have elapsed since the declaration of acceleration of
the indebtedness which is the subject of such other event of default (without
rescission of the declaration of acceleration of such Indebtedness). If an Event
of Default specified in clause (6) or (7) of Section 4.1 occurs, the unpaid
principal of and any accrued but unpaid interest on all the Securities shall
ipso facto become and be immediately due and payable without any
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declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding Securities by written
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived. No such
rescission shall affect any subsequent Default or Event of Default or impair any
right consequent thereto.
SECTION 4.3 Other Remedies. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. Except as set
forth in Section 2.6 hereof, all remedies are cumulative to the extent permitted
by law.
SECTION 4.4 Waiver of Defaults. Subject to Section 7.2 hereof,
the Holders of a majority in principal amount of the then outstanding Securities
by notice to the Trustee may waive any past Default or Event of Default and its
consequences except a continuing Default or Event of Default in the payment of
the principal of or interest on any Security. Upon any such waiver, such Default
or Event of Default shall cease to exist and together with any Event of Default
arising therefrom, shall be deemed to have been cured for every purpose of this
Indenture, but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 4.5 Control by Majority. The Holders of a majority in
principal amount of the then outstanding securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may (i)
refuse to follow any direction that conflicts with law or this
Indenture, that the Trustee reasonably determines may be unduly prejudicial to
the rights of other Holders or that may subject the Trustee to personal
liability or (ii) take any other action that it deems proper that is not
inconsistent with such decision.
The Trustee shall be entitled to indemnification reasonably satisfactory to it
against losses or expenses caused by the taking or not taking of such action.
SECTION 4.6 Limitation on Suits. A Holder may pursue a remedy
with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee written notice of
a continuing Event of Default;
(2) the Holders of at least 30% (or 25% in the case of an
Event of Default specified in Section 4.1(1) or 4.2(2) hereof) in
principal amount of the then outstanding Securities make a written
request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer and, if requested,
provide, to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 4.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest on the Security, on or after the
respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
SECTION 4.8 Collection Suit by Trustee. If an Event of Default
specified in section 4.1(1) or (2) occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Issuer for the whole amount of principal and interest
remaining unpaid on the Securities and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee its agents and counsel.
SECTION 4.9 Trustee May File Proofs of Claim. The Trustee is
authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and the Holders allowed in any judicial
proceedings relative to the Issuer (or any other obligor upon the securities),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 5.6 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 5.6 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding. If
the Trustee does not file a proper claim or proof of debt in the form required
in any such proceeding prior to 30 days before the expiration of the time to
file such claim or claims, then the Credit Agent shall have the right to file
and is hereby authorized to file an appropriate claim for and on behalf of the
Holders.
SECTION 4.10 Priorities. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for
amounts due under section 5.6, including payment of all
compensation, expense and liabilities incurred, and all
advances made, by the Trustee and the costs and expenses of
collection;
Second: to the Holders for amounts due and unpaid on
the Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and
interest, respectively; and
Third: to the Issuer.
The Trustee may fix a record date and payment date for
any payment to Holders.
SECTION 4.11 Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 4.7, or a suit by
Holders of more than 10% in principal amount of the then outstanding Securities.
ARTICLE FIVE
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the Trustee; During
Default; Prior to Default. The Trustee, prior to the occurrence of an Event of
Default and after the curing or waiving of all Events of Default which may have
occurred undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of Default
which may have occurred:
(i) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any statements, certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such statements,
certificates or
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opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a responsible officer or responsible officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal
amount of the Securities at the time outstanding relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there shall be reasonable ground for
believing that the repayment of such funds or adequate indemnity against such
liability is not reasonably assured to it.
This Section 5.1 is in furtherance of and subject to Sections
315 and 316 of the Trust Indenture Act of 1939.
SECTION 5.2 Certain Rights of the Trustee. In furtherance of
and subject to the Trust Indenture Act of 1939, and subject to Section 5.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, note, coupon, security or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Issuer
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
secretary or an assistant secretary of the Issuer;
(c) the Trustee may consult with counsel and any advice or
opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred therein or
thereby;
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(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless
requested in writing so to do by the holders of not less than a
majority in aggregate principal amount of the Securities then
outstanding; provided that, if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a
condition to proceeding; the reasonable expenses of every such
examination shall be paid by the Issuer or, if paid by the Trustee or
any predecessor trustee, shall be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys not regularly in its employ and the Trustee
shall not be responsible for any misconduct or negligence on the part
of any such agent or attorney appointed with due care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals, Disposition
of Securities or Application of Proceeds Thereof. The recitals contained herein
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
securities or as to the adequacy of any disclosure document used in connection
with the sale of the Securities. The Trustee shall not be accountable for the
use or application by the Issuer of any of the Securities or of the proceeds
thereof.
SECTION 5.4 Trustee and Agents May Hold Securities;
Collections, etc. The Trustee or any agent of the Issuer or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
with the same rights it would have if it were not the Trustee or such agent and
may otherwise deal with the Issuer and receive, collect, hold and retain
collections from the Issuer with the same rights it would have if it were not
the Trustee or such agent.
SECTION 5.5 Moneys Held by Trustee. Subject to the provisions
of Section 9.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of Trustee and
Its Prior Claim. The Issuer covenants and agrees to pay to the Trustee from time
to time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on
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behalf of it in accordance with any of the provisions of this Indenture
(including the reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ) except
any such expense, disbursement or advance as may arise from its negligence or
bad faith. The Issuer also covenants to indemnify the Trustee and each
predecessor Trustee for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Issuer under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture. Such additional indebtedness shall
be a senior claim to that of the securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Securities, and the securities are hereby subordinated
to such senior claim. If the Trustee incurs expenses or renders services after
an Event of Default specified in clause (6) or (7) of Section 4.1 occurs, such
expenses and the compensation for such services are intended to constitute
expenses of administration under any Bankruptcy Law.
SECTION 5.7 Right of Trustee to Rely on Officers' Certificate,
etc. Subject to Sections 5.1 and 5.2, whenever in the administration of the
trusts of this Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering or omitting any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officers' Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as Trustee. The
Trustee hereunder shall at all times be a corporation having a combined capital
and surplus of at least $5,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act of 1939. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
SECTION 5.9 Resignation and Removal; Appointment of
Successor Trustee.
(a) The Trustee may at any time resign by giving written
notice of resignation to the Issuer and by mailing notice thereof by
first-class mail to holders of Securities at their last addresses as
they shall appear on the Security register. Upon receiving such notice
of resignation, the Issuer shall promptly appoint a successor trustee
by written instrument in duplicate, executed by authority of the Board
of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide holder of a Security or
Securities for at least six months may, on behalf of himself and all
others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a successor trustee.
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(b) In case at any time any of the following shall
occur:
(i) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act
of 1939, after written request therefor by the Issuer or by
any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of section 5.8 and shall fail
to resign after written request therefor by the Issuer or by
any such Securityholder; or
(iii) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or a receiver or
liquidator of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors of the Issuer, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee, or, subject to Section 315(e) of the Trust
Indenture Act of 1939, any Securityholder who has been a bona fide
holder of a Security or Securities for at least six months may on
behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Securities at the time outstanding may at any time remove the
Trustee and appoint a successor trustee by delivering to the Trustee so
removed, to the successor trustee so appointed and to the Issuer the
evidence provided for in Section 6.1 of the action in that regard taken
by the Securityholders.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of
this Section 5.9 shall become effective upon acceptance of appointment
by the successor trustee as provided in Section 5.10.
SECTION 5.10 Acceptance of Appointment by Successor Trustee.
Any successor trustee appointed as provided in Section 5.9 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act deed or conveyance, shall become vested with all rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as trustee herein; but, nevertheless, on the written request of
the Issuer or of the successor trustee, upon payment of its charges then unpaid,
the trustee ceasing to act shall be, subject to Section 9.4, pay over to the
successor trustee all moneys at the time held by it hereunder and shall execute
and deliver an instrument transferring to such successor trustee all such
rights, powers, duties and obligations. Upon request of any such successor
trustee, the Issuer shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such trustee to
secure any amounts then due it pursuant to the provisions of Section 5.6.
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Upon acceptance of appointment by a successor trustee as
provided in this Section 5.10, the Issuer shall mail notice thereof by
first-class mail to the holders of Securities at their last addresses as they
shall appear in the Security register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
5.9. If the Issuer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Issuer.
SECTION 5.11 Merger, Conversion, Consolidation or Succession
to Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under the provisions of Section 5.8, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor Trustee; and in all such cases such certificate
shall have the full force which it is anywhere in the securities or in this
Indenture provided that the certificate of the Trustee shall have; provided,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Securities in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by Securityholders. Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 5.1 and 5.2) conclusive in favor of the Trustee and the Issuer, if made
in the manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of Holding
of Securities: Record Date. Subject to Sections 5.1 and 5.2, the execution of
any instrument by a Securityholder or his agent or proxy may be proved in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of securities shall be proved by the Security register or by a
certificate of the registrar thereof. The Issuer may set a record date for
purposes of determining the identity of holders of Securities entitled to vote
or consent to any action referred to in Section 6.1, which record date may be
set at any time or from time to time by notice to the Trustee, for any date or
dates (in the case of any adjournment or resolicitation) not more than 60 days
nor less than five days prior to the proposed date of such
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vote or consent, and thereafter, notwithstanding any other provisions hereof,
only holders of Securities of record on such record date shall be entitled to so
vote or give such consent or to withdraw such vote or consent.
SECTION 6.3 Holders to Be Treated as Owners. The Issuer, the
Trustee and any agent of the Issuer or the Trustee may deem and treat the person
in whose name any Security shall be registered upon the Security register as the
absolute owner of such Security (whether or not such Security shall be overdue
and notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of and, subject
to the provisions of this Indenture, interest on such Security and for all other
purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or
the Trustee shall be affected by any notice to the contrary. All such payments
so made to any such person, or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.
SECTION 6.4 Securities Owned by Issuer Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate principal amount
of Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Issuer or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Issuer or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such securities and that
the pledgee is not the Issuer or any other obligor upon the Securities or any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on the Securities.
In case of a dispute as to such right, the advice of counsel shall be full
protection in respect of any decision made by the Trustee in accordance with
such advice. Upon request of the Trustee, the Issuer shall furnish to the
Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Issuer to be owned or held by or for the
account of any of the above-described persons; and, subject to Sections 5.1 and
5.2, the Trustee shall be entitled to accept such Officers' Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are outstanding for the purpose of any such
determination.
SECTION 6.5 Right of Revocation of Action Taken. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
6.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action, any holder of a Security the certificate number of which is
shown by the evidence to be included among the certificate numbers of the
Securities the holders of which have consented to such action may, by filing
written notice at the Corporate Trust Office and upon proof of holding as
provided in this Article, revoke such action so far as concerns such Security.
Except as aforesaid any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security and of any Securities issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon any such Security. Any action taken by the holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action shall be conclusively binding upon the Issuer, the
Trustee and the holders of all the securities.
ARTICLE SEVEN
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SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without Consent of
Securityholders. The Issuer, when authorized by a resolution of its Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to evidence the succession of another corporation to the
Issuer, or successive successions and the assumption by the successor
corporation of the covenants, agreements and obligations of the Issuer
pursuant to Article Eight;
(b) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of
the holders of Securities, and to make the occurrence, or the
occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in
respect of any such additional covenant, restriction, condition or
provision such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such an Event of Default or may limit the
remedies available to the Trustee upon such an Event of Default or may
limit the right of the holders of a majority in aggregate principal
amount of the Securities to waive such an Event of Default;
(c) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other provisions in
regard to matters or questions arising under this Indenture or under
any supplemental indenture as the Board of Directors may deem necessary
or desirable and which shall not materially and adversely affect the
interests of the holders of the Securities; and
(d) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable as to
principal only) and to provide for exchangeability of such Securities
with Securities issued hereunder in fully registered form, and to make
all appropriate changes for such purpose.
The Trustee is hereby authorized to join in the execution of
any such supplemental indenture, to make any further appropriate agreements and
stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed without the consent of the holders of any of the
Securities at the time outstanding, notwithstanding any of the provisions of
Section 7.2.
SECTION 7.2 Supplemental Indentures With Consent of
Securityholders. With the consent (evidenced as provided in Article Six) of the
holders of not less than a majority in aggregate principal amount of the
Securities at the time outstanding, the Issuer, when authorized by a resolution
of its Board of Directors,
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and the Trustee may, from time to time and at any time, enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of any supplemental indenture or of modifying in any manner the rights of the
holders of the Securities; provided, that no such supplemental indenture shall
(a) extend the final maturity of any Security, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon or
reduce the premium, if any, payable thereon, or reduce any amount payable on
redemption thereof, or impair or affect the right of any Securityholder to
institute suit for the payment thereof, or waive a default in the payment of
principal of, premium, if any, or interest on any security, change the currency
of payment of principal of, premium, if any, or interest on any Security, or
modify any provision of this Indenture with respect to the priority of the
Securities in right of payment without the consent of the holder of each
Security so affected, or (b) reduce the aforesaid percentage of Securities, the
consent of the holders of which is required for any such supplemental indenture,
without the consent of the holders of all Securities then outstanding.
Upon the request of the Issuer, accompanied by a copy of a
resolution of the Board of Directors certified by the Secretary or an Assistant
Secretary of the Issuer authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Securityholders and other documents, if any, required by Section 6.1, the
Trustee shall join with the Issuer in the execution of such supplemental
indenture unless such supplemental indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Issuer shall mail a notice thereof by first-class mail to the holders of
Securities at their addresses as they shall appear on the registry books of the
Issuer, setting forth in general terms the substance of such supplemental
indenture. Any failure of the Issuer to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 7.3 Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Issuer and the holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 7.4 Documents to Be Given to Trustee. The Trustee,
subject to the provisions of Sections 5.1 and 5.2, may receive an Officers'
Certificate and an opinion of Counsel as conclusive evidence that any such
supplemental indenture complies with the applicable provisions of this
Indenture.
SECTION 7.5 Notation on Securities in Respect of Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article may bear a
notation in form approved by the Trustee as to any matter provided for by such
supplemental indenture or as to any action taken at any such meeting. If the
Issuer or the Trustee shall so determine, new
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Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Issuer, authenticated by the
Trustee and delivered in exchange for the Securities then outstanding.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.1 When Issuer May Merge, etc. The Issuer shall not
consolidate or merge with or into, or sell, transfer, lease or convey all or
substantially all of its assets to, any person unless:
(1) the person formed by or surviving any such consolidation
or merger (if other than the Issuer), or to which such sale, transfer,
lease or conveyance shall have been made, is a corporation organized
and existing under the laws of the United States, any state thereof or
the District of Columbia;
(2) the corporation formed by or surviving any such
consolidation or merger (if other than the Issuer), or to which such
sale, transfer, lease or conveyance shall have been made, assumes by
supplemental indenture in a form reasonably satisfactory to the Trustee
all the obligations of the Issuer under the Securities and this
Indenture;
(3) immediately after the transaction no Default or
Event of Default exists;
(4) the Issuer or any corporation formed by or surviving any
such consolidation or merger, or to which such sale, transfer, lease or
conveyance shall have been made, shall have an Adjusted Consolidated
Net Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or
greater than the Adjusted Consolidated Net Worth of the Issuer
immediately preceding the transaction; provided, however, that this
clause (4) shall not apply to any transaction where the consideration
consists solely of common stock or other Equity Interests of the Issuer
or any surviving corporation and any liabilities of such other person
are not assumed by and are specifically non-recourse to the Issuer or
such surviving corporation; and
(5) after giving effect to such transaction and immediately
thereafter, the Issuer or any corporation formed by or surviving any
such consolidation or merger, or to which such sale, transfer, lease or
conveyance shall have been made, shall be permitted to incur at least
$1.00 of additional Indebtedness pursuant to Section 3.11(a), provided
that, if the Fixed Charge Coverage Ratio of the Issuer immediately
prior to such transaction is within the range set forth in Column A
below, then the pro forma Fixed Charge Coverage Ratio of the Issuer or
the surviving entity, as the case may be, immediately after such
transaction, shall be at least equal to the lesser of (1) the ratio
determined by multiplying the percentage set forth in column (B) below
by the Fixed Charge Coverage Ratio of the Issuer prior to such
transaction and (2) the ratio set forth in column (C) below:
(A) (B) (C)
1.11:1 to 1.99:1............. 90% 1.5:1
2.00:1 to 2.99:1............. 80% 2.1:1
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3.00:1 to 3.99:1............. 70% 2.4:1
4.00:1 or more............... 60% 2.5:1
and provided, further, that if, immediately after giving effect to such
transaction on a pro forma basis, the Fixed Charge Coverage Ratio of
the Issuer or the surviving entity, as the case may be, is 2.5:1 or
more, the calculation in the preceding proviso shall be inapplicable
and such transaction shall be deemed to have complied with the
requirements of this clause (5).
The Issuer shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate to the
foregoing effect and an Opinion of Counsel stating that the proposed transaction
and such supplemental Indenture comply with this Section 8.1. The Trustee shall
be entitled to rely conclusively upon such Officers' Certificate and Opinion of
Counsel.
SECTION 8.2 Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, transfer, lease, conveyance or other
disposition of all or substantially all of the assets of the Issuer in
accordance with Section 8.1, the successor corporation formed by such
consolidation or into or with which the Issuer is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if such successor person has been named
as the Issuer herein and thereafter, except in the case of a lease, the
predecessor corporation shall be relieved of all obligations and covenants under
this Indenture and the Securities.
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS; DEFEASANCE
SECTION 9.1 Satisfaction and Discharge of Indenture. If at any
time (a) the Issuer shall have paid or caused to be paid the principal of and
interest on all the Securities outstanding hereunder, as and when the same shall
have become due and payable, or (b) the Issuer shall have delivered to the
Trustee for cancellation all Securities theretofore authenticated (other than
any Securities which shall have been destroyed, lost or stolen and which shall
have been replaced or paid as provided in Section 2.6) or (c) all Securities not
theretofore cancelled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within 1
year or are to be called for redemption within 1 year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Issuer shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all the Securities (other than any Securities
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in Section 2.6) not theretofore cancelled or
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or redemption date, as the case may
be, but excluding, however, the amount of any moneys for the payment of
principal of or interest on the Securities theretofore repaid to the Issuer in
accordance with the provisions of section 9.4 or paid to any State or the
District of Columbia pursuant to its unclaimed property or similar laws, and if
the Issuer shall also pay or cause to be paid all other sums payable hereunder
by the Issuer, then this Indenture shall cease to be of further effect (except
as to (i) rights of registration of transfer and exchange, and the Issuer's
right of optional redemption, (ii) substitution of apparently mutilated,
defaced, destroyed, lost or stolen securities, (iii) rights of holders to
receive payments of principal thereof and
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interest thereon, (iv) the rights, obligations and immunities of the Trustee
hereunder, (v) the rights of the Securityholders as beneficiaries hereof with
respect to the property so deposited with the Trustee payable to all or any of
them and (vi) the obligation of the Issuer to maintain an office or agency as
provided in Section 3.2) and the Trustee, on demand of the Issuer accompanied by
an Officers' Certificate and an opinion of Counsel and at the cost and expense
of the Issuer, shall execute proper instruments acknowledging such satisfaction
of and discharging this Indenture. The Issuer agrees to reimburse the Trustee
for any costs or expenses thereafter reasonably and properly incurred and to
compensate the Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or the Securities.
SECTION 9.2 Application by Trustee of Funds Deposited for
Payment of Securities. Subject to Section 9.4, all moneys deposited with the
Trustee pursuant to Section 9.1 or 9.5 shall be held in trust and applied by it
to the payment, either directly or through any paying agent (including the
Issuer acting as its own paying agent), to the holders of the particular
Securities for the payment or redemption of which such moneys have been
deposited with the Trustee, of all sums due and to become due thereon for
principal and interest; but such money need not be segregated from other funds
except to the extent required by law.
SECTION 9.3 Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture all moneys then
held by any paying agent under the provisions of this Indenture shall, upon
demand of the Issuer, be repaid to it or paid to the Trustee and thereupon such
paying agent shall be released from all further liability with respect to such
moneys.
SECTION 9.4 Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Three Years. Any moneys deposited with or paid to the Trustee or
any paying agent for the payment of the principal of or interest on any Security
and not applied but remaining unclaimed for three years after the date upon
which such principal or interest shall have become due and payable, shall, upon
the written request of the Issuer and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property law, be
repaid to the Issuer by the Trustee or such paying agent, and the holder of such
Security shall, unless otherwise required by mandatory provisions of applicable
escheat or abandoned or unclaimed property laws, thereafter look only to the
Issuer for any payment which such holder may be entitled to collect, and all
liability of the Trustee or any paying agent with respect to such moneys shall
thereupon cease.
SECTION 9.5 Defeasance. At the Issuer's option, either (a) the
Issuer shall be deemed to have been Discharged (as defined below) from its
respective obligations under the Securities on the 91st day after the applicable
conditions set forth below have been satisfied or (b) the Issuer shall cease to
be under any obligation to comply with any term, provision or condition set
forth in Sections 3.9 through 3.17, 8.1 and 8.2 with respect to the Securities
at any time after the applicable conditions set forth below have been satisfied:
(1) the Issuer shall have deposited or caused to be deposited
irrevocably with the Trustee as funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
the Securities (i) funds in an amount sufficient to pay the principal
amount of the Securities in full on the date of maturity of the
Securities or a selected date of redemption of the Securities as
permitted under this Indenture (if such Securities are to be called for
redemption and satisfactory arrangements have been made with the
Trustee for the giving of notice of redemption) and the interest on
such aggregate principal amount to the date of maturity of the
securities or such date of redemption, taking into account all
intervening interest payment dates, for the period from the date
through which interest on the Securities has been paid to the date of
maturity of the Securities or such date of redemption and all other
sums payable hereunder by the Issuer; and provided that such funds, if
invested, shall be invested only in U.S.
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Government obligations maturing prior to the date of maturity of the
Securities or, to the extent applicable, such date of redemption and
such intervening interest payment dates; and, provided further,
however, that the Trustee shall have no obligation to invest such
funds; or (ii) U.S. Government obligations in such aggregate principal
amount and maturity on such dates as will, together with the income or
increment to accrue thereon, but without consideration of any
reinvestment of such income or increment, be sufficient to pay when due
(including any intervening interest payment dates) the amounts set
forth in the foregoing clauses (A) and (B); or (iii) a combination of
(i) and (ii), sufficient (in the cases of deposits made pursuant to
(ii) or (iii)), in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge each installment
of principal of, and interest on, the outstanding Securities on the
dates such installments of principal or interest are due;
(2) no Event of Default or event which with notice or lapse of
time would become an Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit;
(3) the Issuer shall have delivered to the Trustee (A) an
Opinion of Counsel to the effect that the deposit of such funds or
investments or both to defease the issuer's obligations in respect of
the Securities is in accordance with the provisions of this Indenture
and (B) either (i) an Opinion of Counsel to the effect that Holders of
the Securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of the exercise of the
option under this Section 9.5 and will be subject to United States
Federal income tax on the same amount and in the same manner and at the
same time as would have been the case if such option had not been
exercised, or (ii) a private letter ruling to that effect directed to
the Trustee received from the United States Internal Revenue Service;
and
(4) the deposit of such funds or investments shall not
contravene applicable law.
"Discharged" means that the Issuer shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities and to have satisfied all the obligations under this
Indenture and the Securities (and the Trustee, at the request and the expense of
the Issuer, shall execute proper instruments acknowledging the same), except (i)
the rights of Holders of securities to receive, from the trust fund described in
clause (1) above, payment of the principal of and the interest on the Securities
when such payments are due; (ii) the Issuer's obligations with respect to the
Securities under Section 2.5, 2.6, and 9.4; (iii) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, and (iv) the obligation of the
Issuer to maintain an office or agency as provided in Section 3.2.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders, Officers and
Directors of Issuer Exempt from Individual Liability. No recourse under or upon
any obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, as such, or against any past, present or future stockholder,
officer or director, as such, of the Issuer or of any successor, either directly
or through the Issuer or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or
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otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the holders thereof and as part of the
consideration for the issue of the Securities.
SECTION 10.2 Provisions of Indenture for the Sole Benefit of
Parties and Securityholders. Nothing in this Indenture or in the Securities,
expressed or implied, shall give or be construed to give to any person, firm or
corporation, other than the parties hereto and their successors and the holders
of Senior Indebtedness and the holders of the Securities, any legal or equitable
right, remedy or claim under this Indenture or under any covenant or provision
herein contained, all such covenants and provisions being for the sole benefit
of the parties hereto and their successors and of the holders of Senior
Indebtedness and the holders of the Securities.
SECTION 10.3 Successors and Assigns of Issuer Bound by
Indenture. All the covenants, stipulations, promises and agreements in this
Indenture contained by or in behalf of the Issuer shall bind its successors and
assigns, whether so expressed or not.
SECTION 10.4 Notices and Demands on Issuer, Trustee and
Securityholders. Any notice or demand which by any provision of this Indenture
is required or permitted to be given or served by the Trustee or by the holders
of Securities to or on the Issuer may be given or served by hand delivery, by
overnight courier or by being deposited postage prepaid, first-class mail
(except, in each case, as otherwise specifically provided herein), in each case
addressed (until another address of the Issuer is filed by the Issuer with the
Trustee) to Flagstar Companies, Inc., 203 East Main Street, Spartanburg, South
Carolina 29319, Attention: Chief Financial Officer. Any notice, direction,
request or demand by the Issuer or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office.
Where this Indenture provides for notice to holders, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and delivered by hand, delivered by overnight courier or mailed,
first-class postage prepaid, to each holder entitled thereto, at his last
address as it appears in the Security register. In any case where notice to
holders is given by any of the foregoing means, neither the failure to give such
notice by such means, nor any defect in any notice so given, to any particular
holder shall affect the sufficiency of such notice with respect to other
holders. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein. Upon any application or demand by the Issuer
to the Trustee to take any action under any of the provisions of this Indenture,
the Issuer shall furnish to the Trustee an Officers' Certificate stating that
all conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such
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documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters information with respect to which is in the
possession of the Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer, unless such counsel
knows that the certificate, statement or opinion or representations with respect
to the matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of the
Issuer or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.
SECTION 10.6 Payments Due on Saturdays, Sundays and Holidays.
If the date of maturity of interest on or principal of the Securities or the
date fixed for redemption of any Security shall not be a Business Day, then
payment of interest or principal need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption, and no interest shall
accrue for the period after such date.
SECTION 10.7 Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with another provision included in this Indenture
by operation of Sections 310 to 317, inclusive, of the Trust Indenture Act of
1939 (an "incorporated provision"), such incorporated provision shall control.
SECTION 10.8 New York Law to Govern. This Indenture and each
Security shall be deemed to be a contract under the laws of the State of New
York, and for all purposes shall be construed in accordance with the laws of
said State, except as may otherwise be required by mandatory provisions of law.
50
<PAGE>
SECTION 10.9 Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 10.10 Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 11.1 Right of Optional Redemption. The Securities NOT
may be redeemed, in whole or in part, at the option of the Issuer prior to ,
^ 2002. THEREAFTER, THE SECURITIES MAY BE REDEEMED, IN WHOLE OR IN PART, AT THE
OPTION OF THE ISSUER UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN
THE FORM OF SECURITY HEREINABOVE RECITED. NOTWITHSTANDING THE FOREGOING,
FROM , 1997 until , 2000, the Issuer may redeem up to 35% of the
aggregate principal amount of Securities outstanding on the date hereof at a
redemption price (expressed as a percentage of the principal amount) of ^ 110%,
plus accrued and unpaid interest, if any, to the redemption date, from the net
proceeds of any public offering for cash of any Equity Interests of the Issuer
or any subsidiary thereof. ^
SECTION 11.2 Notice of Redemption; Partial Redemptions .
Notice of redemption to the holders of Securities to be redeemed as a whole or
in part shall be given by mailing notice of such redemption by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to such holders of Securities at their last addresses as
they shall appear upon the registry books. Any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the holder receives the notice. Failure to give notice by mail,
or any defect in the notice to the holder of any Security designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
The notice of redemption to each such holder shall specify the
principal amount of each Security held by such holder to be redeemed, the date
fixed for redemption, the redemption price, the place or places of payment, that
payment will be made upon presentation and surrender of such Securities, that
interest accrued to the date fixed for redemption will be paid as specified in
said notice and that on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. In case any Security is to be
redeemed in part only the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof will be
issued.
The notice of redemption of securities to be redeemed at the
option of the Issuer shall be given by the Issuer or, at the Issuer's request,
by the Trustee in the name and at the expense of the Issuer.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Issuer will deposit with the
Trustee or with one or more paying agents (or, if the Issuer is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
3.4) an amount of money sufficient to redeem on the redemption date all the
Securities so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. If less than
all the outstanding
51
<PAGE>
Securities are to be redeemed the Issuer will deliver to the Trustee at least 70
days prior to the date fixed for redemption an Officers' Certificate stating the
aggregate principal amount of Securities to be redeemed.
If less than all the Securities are to be redeemed the Trustee
shall select in such manner as it shall deem appropriate and fair but generally
pro rata or by lot, Securities to be redeemed in whole or in part. Securities
may be redeemed in part in multiples of $1,000 only. The Trustee shall promptly
notify the Issuer in writing of the Securities selected for redemption and, in
the case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed. For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed.
SECTION 11.3 Payment of Securities called for Redemption. If
notice of redemption has been given as above provided, the Securities or
portions of securities specified in such notice shall become due and payable on
the date and at the place stated in such notice at the applicable redemption
price, together with interest accrued to the date fixed for redemption, and on
and after said date (unless the Issuer shall default in the payment of such
Securities at the redemption price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue and, except as provided in Sections 5.5 and 9.4, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such securities except the right to
receive the redemption price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such Securities at a place of
payment specified in said notice said securities or the specified portions
thereof shall be paid and redeemed by the Issuer at the applicable redemption
price, together with interest accrued thereon to the date fixed for redemption;
provided that any semi-annual payment of interest becoming due on the date fixed
for redemption shall be payable to the holders of such Securities registered as
such on the relevant record date subject to the terms and provisions of Section
2.4 hereof.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Security.
Upon presentation of any Security redeemed in part only, the
Issuer shall execute and the Trustee shall authenticate and deliver to or on the
order of the holder thereof, at the expense of the Issuer, a new Security or
Securities, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
SECTION 11.4 Exclusion of Certain Securities from Eligibility
for Selection for Redemption. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in a written statement signed by an authorized officer of the Issuer and
delivered to the Trustee at least 40 days prior to the last date on which notice
of redemption may be given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Issuer or (b) an entity specifically
identified in such written statement directly or indirectly controlling or
controlled by or under direct or indirect common control with the Issuer.
SECTION 11.5 Offer to Repurchase by Application of Net
Proceeds. At such time as the Issuer determines to make a Net Proceeds Offer
pursuant to the provisions of Section 3.13 hereof, the Issuer shall deliver to
the Trustee a notice to such effect specifying the aggregate principal amount of
the Securities for which
52
<PAGE>
the Net Proceeds Offer will be made. Within 15 days thereafter, the Trustee
shall select the Securities to be offered to be redeemed in accordance with
Section 11.2 hereof. Within 10 days thereafter the Issuer shall mail or cause
the Trustee to mail (in the Issuer's name and at its expense and pursuant to an
Officer's Certificate as required by Section 3.13 hereof) a Net Proceeds Offer
to repurchase to each Holder of Securities whose Securities are to be offered to
be redeemed. The Net Proceeds Offer shall identify the Securities to which it
relates and shall contain the information required by the second paragraph of
Section 11.2 hereof and shall provide for a redemption date no earlier than 65
days after the mailing of the Net Proceeds Offer.
A Holder receiving a Net Proceeds Offer may elect to have
redeemed the Securities to which the Net Proceeds Offer relates by providing
written notice thereof to the Trustee and the Issuer on or before 35 days
preceding the redemption date and shall thereafter complete the form entitled
"Option of Holder to Elect to Have Security Redeemed" on the reverse of the
Security and surrender the Security to the Issuer, or depositary, if appointed
by the Issuer, or a paying agent at least three days prior to the redemption
date. A Holder may not elect to have redeemed less than all of the Securities to
which the Net Proceeds Offer relates.
Other than as specifically provided in this Section 11.5, any
redemption pursuant to this Section 11.5 shall be made pursuant to the
provisions of Sections 11.2 through 11.4 hereof.
53
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed and attested, all as of the date first above
written.
FLAGSTAR COMPANIES, INC.
By
Title:
Attest:
By ________________________
Title:
FIRST TRUST NATIONAL ASSOCIATION, as
Trustee
By
Title:
Attest:
By ________________________
Title:
54
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of , 1997, before me
personally came , to me known, who being by me
personally sworn, did depose and say that he is the
of Flagstar Companies, Inc., the corporation described in and on behalf of
which he has executed the above instrument, and that he is authorized by said
corporation to execute the same.
--------------------------------
Notary Public
55
<PAGE>
STATE OF )
: ss.:
COUNTY OF )
On this day of , 1997, before me
personally came , to me known, who being by me
personally sworn, did depose and say that he is the
of , the corporation described in and on behalf of which he has executed
the above instrument, and that he is authorized by said corporation to execute
the same.
--------------------------------
Notary Public
56
<PAGE>
THIS CERTIFICATE MAY BE PRESENTED COMMON STOCK
FOR TRANSFER IN JERSEY CITY N.J.
OR NEW YORK, N.Y.
INCORPORATED UNDER THE LAWS CUSIP
OF THE STATE OF DELAWARE
This Certifies That
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
.herein called the corporation transferable upon the
books of the corporation by the holder hereof in-person or by dully authorize
attorney-upon surrender of the certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the seal of the corporation and the signatures of its duly authorized
officers.
Dated
CHAIRMAN
COUNTERSIGNED AND REGISTERED
CONFIDENTIAL STOCK TRANSFER & TRUST COMPANY
[JERSEY CITY, N.J] TRANSFER AGENT
AND REGISTRAR
SEAL
AUTHORIZED SIGNATURE SECRETARY
EXHIBIT 4.34
FLAGSTAR COMPANIES, INC.
and
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
AS
WARRANT AGENT
WARRANT AGREEMENT
Dated as of , 1997
<PAGE>
INDEX
<TABLE>
<S> <C>
Section 1. Appointment of Warrant Agent..................................................................1
Section 2. Form of Warrant Certificates..................................................................1
Section 3. Signature and Registration....................................................................1
Section 4. Transfer, Split Up, Combination and Exchange of Warrant Certificates;
Mutilated, Destroyed, Lost or Stolen Warrant Certificates.......................................2
Section 5. Subsequent Issue of Warrant Certificates......................................................3
Section 6. Exercise of Warrants; Exercise Price; Expiration Date.........................................3
Section 7. Cancellation and Destruction of Warrant Certificates..........................................4
Section 8. Reservation and Availability of Common Stock..................................................4
Section 9. Common Stock Record Date......................................................................5
Section 10. Adjustment of Exercise Price, Number of Shares or Number of Warrants
...............................................................................................5
Section 11. Certification of Adjusted Exercise Price and Number of Shares Issuable
..............................................................................................12
Section 12. Consolidation, Merger or Sale of Assets.................................................. 13
Section 13. Fractional Shares...........................................................................13
Section 14. Rights of Action............................................................................13
Section 15. Agreements, Representations and Warranties and Indemnity Obligations of
Warrant Recipient and Warrant Certificate Holders........................................... 14
Section 16. Warrant Agent...............................................................................14
Section 17. Change of Warrant Agent.....................................................................15
Section 18. Issuance of New Warrant Certificates........................................................16
Section 19. Notice of Proposed Actions............................................................... 17
<PAGE>
Section 20. Reports.....................................................................................17
Section 21. Notices to Company, Warrant Agent and Warrant Holders.......................................17
Section 22. Supplements and Amendments..................................................................17
Section 23. Successors..................................................................................18
Section 24. Benefits of This Agreement..................................................................18
Section 25. New York Contract...........................................................................18
Section 26. Counterparts................................................................................18
Section 27. Descriptive Headings........................................................................19
EXHIBIT A: Form of Warrant Certificate................................................................A-1
</TABLE>
<PAGE>
WARRANT AGREEMENT
This Warrant Agreement, dated as of , 1997 (this "Warrant Agreement" or
"Agreement"), is between [FLAGSTAR COMPANIES, INC.], a Delaware corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, as set forth in a Registration Statement on Form S-4
originally filed as of March 24, 1997 and as amended thereafter (file no.
333-23875) (the "Registration Statement") and pursuant to the plan of
reorganization as defined and described therein, the Company proposes to issue
warrants as hereinafter described (the "Warrants") to purchase up to an
aggregate of 3,010,753 shares, subject to adjustment as hereafter provided (the
"Warrant Shares"), of the Company's common stock, par value $.01 per share (the
"Common Stock"), each Warrant entitling the holder thereof to purchase one share
of Common Stock, upon the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the terms
and conditions hereinafter set forth in this Agreement and the Warrant Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Warrant Agents as it may deem necessary or desirable.
SECTION 2. FORM OF WARRANT CERTIFICATES. The Warrant Certificates (the
"Warrant Certificates") (and the forms of election to purchase shares and
assignment to be attached on the reverse thereto) shall be substantially of the
tenor and purport recited in Exhibit A hereto and may have such letters, numbers
or other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Warrant
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrant Certificates may from time to time be listed, or
to conform to usage. Subject to the provisions of Section 19 hereof, the Warrant
Certificates shall be dated as of the date of issuance thereof by the Company,
either upon initial issuance or upon transfer or exchange, and each warrant
shall entitle the holder thereof to purchase one share of Common Stock each at
the price per share set forth therein (the "Exercise Price"), but the number of
such shares and the Exercise Price per share shall be subject to adjustments as
provided herein.
<PAGE>
SECTION 3. SIGNATURE AND REGISTRATION. The Warrant Certificates shall
be executed on behalf of the Company by the Chief Executive Officer or any Vice
President, by facsimile signature and have affixed thereto a facsimile of the
Company's seal which shall be attested by the Secretary or an Assistant
Secretary of the Company by facsimile signature. The Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before countersignature by the Warrant Agent and issuance and
delivery by the Company, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent and issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign each Warrant Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such an officer.
The Warrant Agent will keep or cause to be kept, at its principal
place of business, books for registration and transfer of the
Warrant Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Warrant
Certificates, the number of Warrants evidenced on its face by each of
the Warrant Certificates and the date of each of the Warrant Certificates.
SECTION 4. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES. Subject
to the provisions of Section 13 hereof, any Warrant Certificate, with or without
other Warrant Certificates, may be transferred, split up, combined or exchanged
for another Warrant Certificate or Warrant Certificates, entitling the
registered holder to purchase a like number of shares of Common Stock as the
Warrant Certificate or Warrant Certificates surrendered then entitled such
holder to purchase. Subject to any restriction on transferability that may
appear on a Warrant Certificate in accordance with the terms hereof or any
"stop-transfer" instructions issued by the Company, any registered holder
desiring to register the transfer of, or to split up, combine or exchange any
Warrant Certificate shall make such request in writing delivered to the Warrant
Agent, and shall surrender such Warrant Certificate or Warrant Certificates at
the stock transfer office of the Warrant Agent. Thereupon the Warrant Agent
shall deliver to the person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Warrant Certificates.
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Warrant Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Warrant Agent of all reasonable
2
<PAGE>
expenses incidental thereto, and upon surrender and cancellation of the Warrant
Certificate if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor to the Warrant Agent for delivery to the registered
owner in lieu of the Warrant Certificate so lost, stolen, destroyed or
mutilated.
SECTION 5. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES. Subsequent to
their original issuance, no Warrant Certificates shall be issued except (a)
Warrant Certificates issued upon any transfer, combination, split up or exchange
of Warrants pursuant to Section 4 hereof, (b) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates
pursuant to Section 4 hereof, (c) Warrant Certificates issued pursuant to
Section 6 hereof upon the partial exercise of any Warrant Certificate to
evidence the unexercised portion of such Warrant Certificate and (d) Warrant
Certificates issued pursuant to Section 19 hereof. Nothing contained in this
Agreement shall prohibit the Company from issuing from time to time additional
Warrants, each representing the right to purchase Common Stock upon the terms
and subject to the conditions set forth herein, or other warrants, options or
rights to purchase securities issued by the Company.
SECTION 6. EXERCISE OF WARRANTS; EXERCISE PRICE; EXPIRATION DATE. (a)
The registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby in whole or in part at any time upon surrender of the Warrant
Certificates with the form of election to purchase on the reverse side thereof
duly executed, to the Warrant Agent at the stock transfer office of the Warrant
Agent in New York, New York, together with payment of the Exercise Price for
each share of Common Stock as to which the Warrants are exercised, at or
prior to 5:00 p.m. (Eastern Time) on , 2002 (the "Expiration Date"), which
is the date on which the right to exercise the warrants will expire.
(b) The Exercise Price for each Warrant Share purchased pursuant to the
exercise of a Warrant shall initially be $21.19 and shall be subject to
adjustment as provided in Section 10 hereof and shall be payable (i) in the form
of cash or by certified or official bank check payable to the order of the
Company, (ii) by tendering additional Warrants having a fair market value (equal
to the closing sales price on the day prior to the date of such tender on the
principal trading market therefor, if any, and otherwise as determined in good
faith by the Board of Directors of the Company) equal to the Exercise Price or
(iii) any combination of cash or warrants.
(c) Upon receipt of a Warrant Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Exercise Price for the
shares to be purchased and an amount equal to any applicable transfer tax, the
Warrant Agent shall thereupon promptly (i) requisition from any transfer agent
of the Common Stock of the Company certificates for the number of whole shares
of Common Stock to be purchased and, when appropriate, for the number of
fractional shares to be sold by the Warrant Agent, and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, (ii)
when appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional shares, and (iii) promptly after receipt of such
certificates cause the same to be delivered to or upon the order of the
registered holder of such Warrant Certificate, registered in such name or names
as may be designated by
3
<PAGE>
such holder, and, when appropriate, after receipt promptly deliver such cash to
or upon the order of the registered holder of such Warrant Certificate.
(d) In case the registered holder of any Warrant Certificate shall
exercise less than all the Warrants evidenced thereby, a new Warrant Certificate
evidencing Warrants equivalent to the Warrants remaining unexercised shall be
issued by the Warrant Agent to the registered holder of such Warrant Certificate
or to his duly authorized assigns, subject to the provisions of Section 13
hereof.
(e) The Warrant Agent shall account promptly to the Company with
respect to Warrant exercise and concurrently pay to the Company all monies
received for the purchase of the Common Stock through the exercise of Warrants.
SECTION 7. CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All
Warrant Certificates surrendered for the purpose of exercise, exchange,
substitution or registration of transfer shall, if surrendered to the Company or
to any of its agents, be delivered to the Warrant Agent for cancellation, or if
surrendered to the Warrant Agent shall be cancelled by it, and no Warrant
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Warrant Agreement. The Company shall deliver to
the Warrant Agent for cancellation and retirement, and the Warrant Agent shall
so cancel and retire, any other Warrant Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Warrant Agent shall
deliver all cancelled Warrant Certificates to the Company or shall, at the
written request of the Company, destroy such cancelled Warrant Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
SECTION 8. RESERVATION AND AVAILABILITY OF COMMON STOCK. The Company
covenants and agrees that it will cause to be reserved and kept available, out
of its authorized and unissued Common Stock or its authorized and issued Common
Stock held in its treasury, the number of shares of Common Stock that will be
sufficient to permit the exercise in full of all outstanding Warrants.
For so long as the Common Stock issuable upon the exercise of Warrants
may be listed on any national securities exchange or on the NASDAQ National
Market, the Company shall use its best efforts to cause all shares reserved for
such issuance to be listed upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such action as
may be necessary to insure that all Common Stock delivered upon exercise of
Warrants shall, at the time of delivery of the certificates for such shares
(subject to payment of the Exercise Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
4
<PAGE>
The Company further covenants and agrees that it will pay when due and
payable, any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Warrant Certificates or of
any certificates of Common Stock shares upon the exercise of Warrants. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer involved in the transfer or delivery of
Warrant Certificates or the issuance or delivery of certificates for Common
Stock in a name other than that of the registered holder of the Warrant
Certificate evidencing Warrants surrendered for exercise or to issue or deliver
any certificates for Common Stock upon the exercise of any Warrants until any
such tax shall have been paid (any such tax being payable by the holder of such
Warrant Certificate at the time of surrender) or until it has been established
to the Company's satisfaction that no such tax is due.
SECTION 9. COMMON STOCK RECORD DATE. Each person in whose name any
certificate for Common Stock is issued upon the exercise of Warrants shall for
all purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, the date upon which
the Warrant Certificate evidencing such Warrants was duly surrendered and
payment of the Exercise Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Common Stock transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding business day on which the Common
Stock transfer books of the Company are open.
PRIOR TO THE EXERCISE OF THE WARRANTS EVIDENCED THEREBY, THE HOLDER OF
A WARRANT CERTIFICATE SHALL NOT BE ENTITLED TO ANY RIGHTS OF A SHAREHOLDER OF
THE COMPANY WITH RESPECT TO SHARES FOR WHICH THE WARRANTS SHALL BE EXERCISABLE,
INCLUDING, WITHOUT LIMITATION, THE RIGHT TO VOTE, TO RECEIVE DIVIDENDS OR OTHER
DISTRIBUTIONS OR TO EXERCISE ANY PREEMPTIVE RIGHTS, AND
5
<PAGE>
SHALL NOT BE ENTITLED TO RECEIVE ANY NOTICE OF ANY PROCEEDINGS OF THE COMPANY,
EXCEPT AS PROVIDED HEREIN.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES OR NUMBER OF
WARRANTS. The Exercise Price, the number of Warrant Shares covered by each
Warrant and the number of Warrants outstanding are subject to adjustments from
time to time upon the occurrence of the events enumerated in this Section 10.
(a) In case the Company shall at any time after the date of this
Agreement (i) declare a dividend on the Common Stock payable in Common Stock,
(ii) subdivide the outstanding Common Stock into a greater number of shares,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), the Exercise Price in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination, or reclassification, shall be proportionately
adjusted so that the holder of any Warrant thereafter exercised may receive the
aggregate number and kind of shares of capital stock of the Company which such
holder would have owned immediately following such action if such Warrant had
been exercised immediately prior to such action. If after an adjustment a holder
of a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Common Stock entitling them (for a
period expiring within 60 days after such record date) to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable or
exercisable for Common Stock (or having an initial conversion, exchange or
exercise price per share of Common Stock, if a security convertible into or
exchangeable or exercisable for, respectively, Common Stock) less than the
current market price per share of Common Stock (as defined in Section 10(d)) on
such record date, the Exercise Price shall be adjusted in accordance with the
following formula:
O + N x P
E' = E x M
O + N
where:
E'= the adjusted Exercise Price.
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<PAGE>
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
surviving corporation) of the Company's assets (including cash), debt
securities, preferred stock or rights or warrants (excluding those referred to
in Section 10(b)), the Exercise Price shall be adjusted in accordance with the
following formula:
E' = E x M - F
M
where:
E'= the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the assets,
securities, preferred stock, rights or warrants applicable to
one share of Common Stock and distributed to all holders of
Common Stock. The fair market value shall be determined in
good faith by the members of the Board of Directors of the
Company (the "Board of Directors" or the "Board").
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of
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<PAGE>
stockholders entitled to receive the distribution. This subsection (c) does not
apply to rights, options or warrants referred to in subsection (b) of this
Section 10 or to the payment of dividends or distributions payable out of
consolidated earnings or earned surplus of the Company.
(d) If the Company issues shares of Common Stock for a consideration
per share less than the current market price per share on the date the Company
fixes the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the following formula:
P
E' = E x O + M
A
where:
E'= the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
The subsection (d) does not apply to:
(1) any of the transactions described in subsections (a), (b)
and (c) of this Section 10;
(2) the exercise of Warrants, or the conversion or exchange of
other securities convertible or exchangeable for Common Stock;
(3) Common Stock issued to the Company's employees under bona
fide employee benefit plans adopted by the Board of Directors and approved by
the holders of
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<PAGE>
Common Stock when required by law, if such Common Stock would otherwise be
covered by this subsection (d) (but only to the extent that the aggregate number
of shares excluded hereby and issued after the date of this Warrant Agreement,
together with the number then issuable pursuant to options contemplated
by Section 10(e)(4) hereof, shall not exceed ___% of the Common
Stock outstanding on a fully diluted basis at the time of the adoption of each
such plan, exclusive of antidilution adjustments thereunder);
(4) Common Stock issued upon the exercise of rights, options
or warrants;
(5) Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting;
(6) Common Stock issued in a bona fide private placement
through a placement agent which is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from the
current market price attributable to restrictions on transferability of the
Common Stock, as determined in good faith by the Board of Directors, shall
exceed 20%); or
(7) Common Stock issued to acquire, or in the acquisition of,
all or any portion of a business as a going concern, whether such acquisition
shall be effected by purchase of assets, exchange of securities, merger,
consolidation or otherwise.
(e) If the Company issues any securities convertible into or
exchangeable or exercisable for Common Stock (other than securities issued in
transactions described in subsections (a), (b) and (c) of this Section 10) for
an aggregate consideration per share of Common Stock (which consideration
shall equal the sum of (i) the amount per share of Common Stock paid
for such security plus (ii) the amount per share of Common Stock
payable upon exercise thereof) less than the current market price per
share on the date of issuance of such securities, the Exercise Price
shall be adjusted in accordance with the following formula:
P
E'= E x O + M
O + D
where:
E'= the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance of
such securities.
P = the aggregate consideration received (which consideration shall equal the
sum of (i) the amount per share of Common Stock paid for such security plus
(ii) the amount per share of Common Stock payable upon exercise thereof).
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<PAGE>
M = the current market price per share on the date of issuance of such
securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for such securities at the initial conversion or exchange
rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange or
exercise of such securities has not been issued when such securities are no
longer outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange or exercise of such
securities.
This subsection (e) does not apply to:
(1) convertible securities issued in a bona fide public
offering pursuant to a firm commitment underwriting;
(2) convertible securities issued in a bona fide private
placement through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any discount
from the current market price attributable to restrictions on transferability of
Common Stock issuable upon conversion, as determined in good faith by the Board
of Directors, shall exceed 20%);
(3) convertible securities issued to acquire, or in the
acquisition of, all or any portion of a business as a going concern, whether
such acquisition shall be effected by purchase of assets, exchange of
securities, merger consolidation or otherwise;
(4) options to purchase Common Stock issued to the Company's
employees under stock option plans adopted by the Board of Directors and
approved by the holders of Common Stock when required by law, if such employee
stock options would otherwise be covered by this subsection (e) (but only to the
extent that the aggregate number of shares of Common Stock into which options
excluded hereby and issued after the date of this Warrant Agreement
are exercisable, together with the aggregate number of shares of Common Stock
excluded pursuant to Section 10(d)(3), shall not exceed 10% of the
Common Stock outstanding on a fully diluted basis at the time of the
adoption of each such plan, exclusive of antidilution adjustments thereunder.
(f) For the purpose of any computation under Section 10(b), (c), (d) or
(e), the current market price per share of Common Stock on any date shall be
deemed to be the average of Quoted Prices of the Common Stock for 20 consecutive
trading days commencing 30 trading days before the date in question. The "Quoted
Price" of the Common Stock is the last reported sales price of the Common Stock
as reported by NASDAQ National Market, or if the Common Stock is listed on a
securities exchange,
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<PAGE>
the last reported sales price of the Common Stock on such exchange which shall
be for consolidated trading if applicable to such Exchange, or if neither is so
reported or listed, the last reported bid price of the Common Stock. In the
absence of such quotations on one or more such trading days, the Board of
Directors shall determine the Quoted Price for such trading days on the basis of
such quotations as it in good faith considers appropriate.
(g) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 10(g)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 10 shall be made
to the nearest cent or to the nearest hundredth of a share as the case may be.
Notwithstanding the first sentence of this Section 10(g), any adjustment
required by this Section 10 shall be made no later than the earlier of two years
from the date of the transaction which mandates such adjustment or the
Expiration Date.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Section 10(a), the holder of any Warrant thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other than
Common Stock, the number of such other shares so receivable upon exercise of any
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
shares contained in Section 10(a) through (e), inclusive, and the provisions of
Sections 6, 8, 9 and 13 with respect to the Common Stock shall apply on like
terms to any such other shares.
(i) All Warrants originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of Warrant Shares into
which such Warrants are exercisable (after giving effect to any adjustment
thereto pursuant to Section 10(j) in connection with such adjustment
to the Exercise Price), all subject to further adjustment as
provided herein.
(j) Unless the Company shall have exercised its election as provided in
Section 10(k), upon each adjustment of the Exercise Price as a result of the
calculations made in Section 10(a), (b), (c), (d) or (e) each Warrant
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest hundredth) obtained by (i) multiplying the
number of Warrant Shares covered by a Warrant immediately prior to this
adjustment of the number of shares by the Exercise Price in effect immediately
prior to such adjustment of the Exercise Price and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.
(k) The Company may elect on or after the date of any adjustment of
the Exercise Price to adjust the number of Warrants in lieu of (but not in
addition to) any adjustment in the number of Warrant Shares as provided
in Section 10(j). Each of the Warrants outstanding after such adjustment
of the number of Warrants shall be exercisable for one Warrant
Share. Each Warrant held of record prior to such adjustment of the
number of Warrants
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<PAGE>
shall become that number of Warrants (calculated to the nearest hundredth)
obtained by dividing the Exercise Price in effect prior to adjustment of the
Exercise Price by the Exercise Price in effect after adjustment of the Exercise
Price. The Company shall make a public announcement of its election to adjust
the number of Warrants, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Exercise Price is adjusted or any day thereafter, but
shall be at least 10 days later than the date of the public announcement. Upon
each adjustment of the number of Warrants pursuant to this subsection (k) the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Warrant Certificates on such record date Warrant Certificates
evidencing, subject to Section 13, the additional Warrants to which such holders
shall be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in substitution
and replacement for the Warrant Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company, new
Warrant Certificates evidencing all the Warrants to which such holders shall be
entitled after such adjustment. Warrant Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Exercise Price) and shall be
registered in the names of the holders of record of Warrant Certificates on the
record date specified in the public announcement.
(l) Irrespective of any adjustment or change in the Exercise Price or
the number of Warrant Shares, the Warrant Certificates theretofore and
thereafter issued may continue to express the Exercise Price per share and the
number of shares which were expressed upon the initial Warrant Certificates
issued hereunder.
(m) The Company may at any time reduce the Exercise Price to any amount
(but not less than the par value of the Common Stock) for any period of time
(but not less than 20 business days) deemed appropriate by the Board of
Directors of the Company.
(n) In any case in which this Section 10 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Warrant exercised after such record date
the Common Stock and other capital stock of the Company, if any, issuable upon
such exercise over and above the Common Stock and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
in effect prior to such adjustment, provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
SECTION 11. CERTIFICATION OF ADJUSTED EXERCISE PRICE AND NUMBER OF
SHARES ISSUABLE. Whenever the Exercise Price and the number of Warrant Shares
are adjusted as provided in Section 10 above, the Company shall (a) promptly
obtain a certificate of a firm of independent public accountants of recognized
standing selected by the Board of
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<PAGE>
Directors (who may be the regular auditors of the Company) setting forth the
Exercise Price as so adjusted, the number of shares of Common Stock issuable
upon the exercise of each Warrant as so adjusted and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Warrant Agent
and with each transfer agent for the Common Stock a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Warrant Certificate in
accordance with Section 22.
SECTION 12. CONSOLIDATION, MERGER OR SALE OF ASSETS. If the Company
shall at any time consolidate or merge with one or more other corporations or
transfer or lease all or substantially all of its assets to another person
(other than a merger or consolidation of the Company in which the Company is the
surviving corporation and which does not result in any reclassification or
change of outstanding Common Stock), upon confirmation of such transaction the
Warrants shall automatically become exercisable for the kind and amount of
securities, cash or other assets which the holder of the Warrants would have
owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrants before the effective date of the transaction.
Concurrently with the consummation of such transaction, the corporation formed
by or surviving any such consolidation or merger, or the person to which such
sale conveyance shall have been made, shall enter into a supplemental Warrant
Agreement so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for in Section
10. The successor Company shall mail to you holders of Warrants a notice
describing the supplement Warrant Agreement. If this Section 12 applies, Section
10 of this Agreement will not apply to the specific transaction, but shall apply
thereafter.
SECTION 13. FRACTIONAL SHARES. (a) The Company shall not be required to
issue fractions of shares upon an exercise of the Warrants or to distribute
share certificates which evidence fractional shares nor shall the Company be
required to make any cash adjustment in respect of a fractional interest in a
share, but the fractional interest to which any person is entitled shall be sold
in the manner set forth in subsection (b) of this Section 13 by the Warrant
Agent, acting as agent for the person entitled to such fractional interest,
except as otherwise provided in such subsection.
(b) The Warrant Agent shall remit to such person the proceeds of the
sale of any such fractional interest sold by it as such agent. Fractional
interests shall be non-transferable except by or to the Company acting as herein
authorized. The Warrant Agent may sell fractional interests on the basis of
market prices of the Common Stock as determined by the Company in its sole
discretion. In lieu of making an actual sale of a fractional interest, the
Company may value fractional interests without actual sale on the basis of the
current market price of the Common Stock as determined by the Company in its
sole discretion.
(c) The holder of a Warrant, by the acceptance of the Warrant,
expressly waives his right to receive any fractional share upon exercise of a
Warrant.
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<PAGE>
SECTION 14. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Warrant
Certificates; and any registered holder of any Warrant Certificate, without the
consent of the holder of any other Warrant Certificate, may, in his own behalf
and for his own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, his right to exercise the Warrants evidenced by such Warrant Certificate in
the manner provided in such Warrant Certificate and in this Agreement.
SECTION 15. AGREEMENTS, REPRESENTATIONS AND WARRANTIES AND INDEMNITY
OBLIGATIONS OF WARRANT RECIPIENT AND WARRANT CERTIFICATE HOLDERS. The Warrant
Recipient and every holder of a Warrant Certificate by accepting the same
acknowledges, consents and agrees with, and represents and warrants to the
Company and with every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be registered on the
registry books of the Warrant Agent only if surrendered at the stock transfer
office of the Warrant Agreement, duly endorsed or accompanied by a proper
instrument of transfer; and
(b) prior to due presentment for registration of transfer, the Company
and the Warrant Agreement may deem and treat the person in whose name the
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificate made by anyone other than the Company or the
Warrant Agent) for all purposes whatsoever, and the Company shall not be
affected by any notice to the contrary;
SECTION 16. WARRANT AGENT. The Warrant Agent undertakes the duties and
obligations of registrar for the Warrants imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Warrants by their acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as described
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided;
(b) The Warrant Agent shall not be responsible for the failure of the
Company to comply with any of the covenants contained in this Agreement or on
the Warrant Certificates to be complied with by the Company;
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it and shall incur no liability or responsibility to any holder of any
Warrant Certificate in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel, provided the Warrant Agent
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<PAGE>
shall have exercised reasonable care in the selection and continued employment
of such counsel;
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties;
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for the services rendered by the Warrant Agent in the execution of
this Agreement. The Company also agrees to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the execution of this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, expenses and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of this Agreement except as a
result of the Warrant Agent's negligence or bad faith;
(f) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity;
(g) Except as set forth in Section 13, the Warrant Agent shall act
hereunder solely as agent for the Company, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this Agreement
except for its own negligence or bad faith; and
(h) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chief Executive Officer of the Company, or any Senior Vice President or the
Treasurer of the Company, and to apply to such officers for advise or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
SECTION 17. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and by giving notice in writing by first class mail, postage
prepaid, to each registered holder of a Warrant Certificate at his address
appearing in the Warrant register, specifying a date when such resignation shall
take effect, which notice shall be sent at least 30 days prior to the date so
specified. The Company may remove the Warrant Agent
15
<PAGE>
or any successor Warrant Agent upon 30 days' notice in writing, mailed to the
Warrant Agent and any successor Warrant Agent and to each transfer agent of the
Common shares by registered or certified mail, and to the holders of Warrant
Certificates at their addresses appearing in the Warrant register. If the
Warrant Agent shall resign or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the registered holder of a Warrant
Certificate, then the registered holder of any Warrant Certificate may apply to
any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such a court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company in good
standing, incorporated under the laws of any State of the United States of
America, and having its stock transfer office in New York, NY, and having at the
time of its appointment as warrant agent a combined capital and surplus of at
least $100,000,000. After appointment the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
give any notice provided for in this Section, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be.
SECTION 18. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Warrants to the contrary, the
Company may, at its
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<PAGE>
option, issue new Warrant Certificates evidencing Warrants in such form as may
be approved by its Board of Directors to reflect any adjustment or change in the
Exercise Price per share and the number or kind or class of shares of stock or
other securities or property purchasable under the several Warrant Certificates
made in accordance with the provisions of this Agreement.
SECTION 19. NOTICE OF PROPOSED ACTIONS. In case the Company shall
propose (a) to pay any dividend payable in stock of any class to the holders of
its Common Stock or to make any other distribution to the holders its Common
Stock (other than a cash dividend) or (b) to offer to the holders of its Common
Stock rights or warrants to subscribe for or to purchase any additional Common
Stock or shares of stock of any class or any other securities, rights or options
or (c) to effect any reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of outstanding
Common Stock) or (d) to effect any consolidation, merger or sale, transfer or
other disposition of all or substantially all of the property, assets or
business of the Company or (e) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each
holder of a Warrant, in accordance with Section 21, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Common Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action , and in
the case of any such action covered by clause (a) or (b) above at least ten days
prior to the record date for determining holders of the Common Stock for
purposes of such action, and in the case of any such action, at least ten days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Common Stock, whichever shall be the
earlier. The failure to give notice required by this Section 20 or any defect
therein shall not affect the legality or validity of the action taken by the
Company or the vote upon any such action.
SECTION 20. REPORTS. The Company shall cause copies of all annual
and other periodic reports, whether or not filed with the Securities
and Exchange Commission, and whether or not the Company is subject to
the reporting requirements of the Securities Exchange Act of 1934,
as amended, to be mailed to the Warrant Agent and to the holders
of Warrants at their addresses appearing in the register maintained by the
Warrant Agent to the same extent as such reports are furnished to the
holders of Common Stock.
SECTION 21. NOTICES TO COMPANY, WARRANT AGENT AND WARRANT HOLDERS.
Notices or demands authorized by this Agreement to be given or made by
the holder of any Warrant Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until notice of another address is given) as follows:
[Flagstar Companies, Inc.]
203 East Main Street
Spartanburg, South Carolina 29319-9966
Attention: General Counsel
The principal office of the Warrant Agent where the Warrant Certificates
may be presented for registration, transfer, exchange or exercise pursuant
to the terms of this Agreement, and where notices and demands to or upon
the Company in respect of the Warrants, Warrant Certificates, or this
Agreement may be served shall be the office or agency for such purposes,
which at the date hereof is:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Compliance Department
Any such notice or demand shall be sufficiently given if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing by the Warrant Agent) to the Company or the Warrant
Agent at said address.
Notices or demands authorized by this Agreement to be given or made by
the Company to the holder of any Warrant Certificate shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed to such holder
at the address of such holder as shown on the registry books of the Company.
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<PAGE>
SECTION 22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrant Certificates in order to cure any ambiguity,
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Warrant Agent may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates. In
addition, the Company and the Warrant Agent may from time to time supplement or
amend this Agreement with the consent of the holders of not less the majority of
the Warrants (excluding Warrants held by the Company or any of its affiliates);
provided, however, that no such amendment or supplement shall increase the
Exercise Price, shorten the time within which holders may exercise their
Warrants or decrease the number of Warrant Shares purchasable upon exercise of
each Warrant (other than in accordance with Section 10) without the consent of
each holder of Warrants adversely affected thereby.
SECTION 23. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 24. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy, or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.
SECTION 25. NEW YORK CONTRACT. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and performed entirely within such state.
SECTION 26. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
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SECTION 27. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and their respective corporate seals to be hereon affixed and attested,
all as of the day and year first above written.
[FLAGSTAR COMPANIES, INC.]
By:
James B. Adamson
President and Chief Executive Officer
ATTEST
By:
Rhonda J. Parish
Secretary
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:
19
<PAGE>
[Form of Face of Warrant Certificate] EXHIBIT A
NOT EXERCISABLE AFTER _____________, 2002
No. Warrants
WARRANT CERTIFICATE
[FLAGSTAR COMPANIES, INC.]
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants"),
each of which entitles the holder to purchase (subject to adjustment)
one share of Common Stock, par value $.01 per
share (the "Common Stock"), of [Flagstar Companies, Inc.], a Delaware
corporation (the "Company"). Each Warrant expires on __________, 2002 and
entitles the holder upon exercise to receive from the Company one fully paid and
nonassessable share of Common Stock (a "Warrant Share") at the exercise price
(the "Exercise Price") of $21.19 payable in lawful money of the United States of
America (or, upon exercise and at the election of the holder of the Warrant, by
delivery of Warrants as set forth in the Warrant Agreement referred to on the
reverse hereof or, any combination of cash and Warrants) upon presentation and
surrender of this Warrant Certificate with the Form of Election to Purchase duly
executed and payment of the Exercise Price to the order of the
Company at the stock transfer office of
Continental Stock Transfer & Trust Company (the "Warrant Agent"), but subject to
the conditions set forth herein and in the Warrant Agreement.
As provided in the Warrant Agreement, the Exercise Price and number of
Warrant Shares issuable upon exercise of the Warrants evidenced by this Warrant
Certificate are, upon the occurrence of certain events, subject to modification
and adjustment.
No Warrant may be exercised after 5:00 p.m., Eastern Time, on , 2002
(the "Expiration Date"), and to the extent not exercised by such time, such
Warrants shall become void.
Neither the Warrants nor this Warrant Certificate entitles any
holder or transferee hereof to the right to vote for or to consent to, or to
receive notice as stockholder in respect of the meetings of stockholders
for, the election of directors of the Company or any other matter, or any rights
whatsoever of a stockholder of the Company.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS THEREOF, [Flagstar Companies, Inc.] has caused this Warrant
Certificate to be signed by its President and by its Secretary and has caused
its corporate seal to be affixed hereunto or imprinted hereon.
Dated: ___________, ___
[FLAGSTAR COMPANIES, INC.]
By:
Chief Executive Officer
ATTEST:
By:
Secretary
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:
Authorized Officer
A-1
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring , 2002 entitling the holder on
exercise to receive shares of Common Stock, and are issued pursuant to a Warrant
Agreement dated as of , 1997 (the "Warrant Agreement"), between the Company and
the Warrant Agent, which Warrant Agreement is hereby incorporated by referenced
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holder or registered holder)
of the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Warrant Agent.
Warrants may be exercised at any time prior to 5:00 p.m. on
the Expiration Date. The holder of Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with the
Form of Election to Purchase set forth hereon properly completed and executed,
together with payment of the Exercise Price in cash or by certified or official
bank check payable to the order of the Company or, upon exercise and
at the election of the Warrant holder, by
delivery of Warrants as set forth in the Warrant Agreement or, any combination
of cash and Warrants, at the stock transfer office of the Warrant Agent. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any cash dividends which may have accrued on any shares of Common
Stock issuable upon exercise
of this Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that either the number of shares of Common Stock issuable
upon the exercise of each Warrant or the number of Warrants held by each
holder also shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the amount, if any, received upon sale by the Warrant Agent of such fractional
share.
Warrant Certificates, when surrendered at the stock transfer
office of the Warrant Agent by the registered holder thereof in person or by
legal representative or attorney duly authorized in writing, may be exchanged,
in the manner and subject to the limitations provided in the Warrant Agreement,
but without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the stock transfer office of the Warrant Agent a new
Warrant Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided in
the Warrant Agreement, without charge except for any tax or other governmental
charge imposed in connection therewith.
The Warrant Agent and the Company may deem and treat the
registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder)s) hereof, and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
A-2
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate)
TO [FLAGSTAR COMPANIES, INC.]
The undersigned hereby irrevocably elects to exercise _______
Warrants represented by this Warrant Certificate, to purchase the Common Stock
issuable upon the exercise of such Warrants and requests that certificates for
such shares be issued in the name of:
Please insert social security or other identifying number:
................................................................................
......................
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the remainder of such
Warrants shall be registered in the name of and delivered to:
Please insert social security or other identifying number:
................................................................................
......................
(Please print name and address)
Dated: ,
..........................................
Signature
(Signature must conform in all respects to
name of holder as specified on the face
of this Warrant Certificate)
Signature Guaranteed:
A-3
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Warrant Certificate)
FOR VALUE RECEIVED ___________________________________________
hereby sells, assigns and transfers unto _____________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: , __
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of this Warrant Certificate in every
particular, without alteration or enlargement or any change whatsoever.
A-4
<PAGE>
------------------------------------------------------------------------------
FLAGSTAR CORPORATION
ISSUER
-------------------------
SUPPLEMENTAL INDENTURE
DATED AS OF , 1997
TO INDENTURE
DATED AS OF NOVEMBER 16, 1992
-----------------------
11.25% SENIOR SUBORDINATED DEBENTURES DUE 2004
-------------------------
THE BANK OF NEW YORK
TRUSTEE
------------------------------------------------------------------------------
<PAGE>
THIS SUPPLEMENTAL INDENTURE, dated as of , 1997, between FLAGSTAR
CORPORATION, a Delaware corporation (the "Company"), and the BANK OF NEW YORK, a
national banking association, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Trustee are parties to an Indenture, dated
as of November 16, 1992 (the "Indenture"), pursuant to which the Company issued
$722,400,000 in aggregate principal amount of 11.25% Senior Subordinated
Debentures due 2004 (the "Securities"); and
WHEREAS, Section 7.2 of the Indenture provides, among other things,
that with the consent of the Holders of not less than a majority in aggregate
principal amount of the Securities outstanding, the Company, when authorized by
a resolution of its Board of Directors, and the Trustee, may amend the Indenture
in certain respects; and
WHEREAS, pursuant to a Prospectus, dated , 1997, (the "Prospectus"), the
Company, among other things, solicited consents ("Consents") to a proposed
amendment to the Indenture, IN CONJUNCTION WITH AN IDENTICAL AMENDMENT (AND THE
SOLICITATION OF CONSENTS THEREFOR) TO THE INDENTURE DATED AS OF SEPTEMBER 23,
1993 (THE "OTHER INDENTURE") PURSUANT TO WHICH THE COMPANY ISSUED $125,000,000
IN AGGREGATE PRINCIPAL AMOUNT OF 11 3/8% SENIOR SUBORDINATED DEBENTURES DUE
2003, as set forth herein (SUCH CONSENTS TO AMEND THE OTHER
INDENTURE REFERRED TO HEREIN AS THE "OTHER CONSENTS"); and
WHEREAS, the Company has obtained the requisite Consents to amend the
Indenture as provided herein and has delivered such Consents to the Trustee, all
as required by Section 7.2 of the Indenture; and
WHEREAS, THE COMPANY HAS OBTAINED AND DELIVERED THE REQUISITE OTHER
CONSENTS TO AMEND THE OTHER INDENTURE IN ACCORDANCE WITH THE PROVISIONS
THEREOF; AND
WHEREAS, the Company has duly authorized the execution and delivery of
this Supplemental Indenture, and all conditions and requirements necessary to
make this instrument a valid and binding agreement, INCLUDING, WITHOUT
LIMITATION, THE CONDITION SET FORTH IN SECTION 1.2 HEREOF, have been duly
performed and complied with;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed as follows:
1
<PAGE>
ARTICLE 1.
AMENDMENT TO INDENTURE
Section 1.1. SUBJECT TO SECTION 1.2 HEREOF, THE Indenture is hereby
amended by adding a new Section 4.12 as follows:
Section 4.12 Certain Distributions Upon Events
of Bankruptcy. Notwithstanding any provision to the contrary set forth in this
Indenture, upon (i) the occurrence of an event described in clause (6) or (7)
of Section 4.1 hereof as a result of which the Issuer becomes subject to the
jurisdiction of the United States Bankruptcy Court, and (ii) pursuant to such
event, the Issuer seeks approvals for, and the Bankruptcy Court confirms, a
plan of reorganization substantially as described on Annex 1 attached hereto
(the "Plan"), then, to the extent necessary to implement the purposes and
intent of such Plan and as set forth below, Holders of the Securities together
with the holders of securities ranking pari passu in right of payment with the
Securities, shall make distributions to holders of securities ranking junior
in right of payment to the Securities as follows:
Holders of the Securities, together with the holders
of securities ranking pari passu in right of payment with the
Securities, will make distributions to the holders of $2.25 Series A
Cumulative Convertible Exchangeable Preferred Stock (the "FCI Preferred
Stock") of Flagstar Companies, Inc. ("FCI") and holders of the $.50 par
value Common Stock (the "FCI Common Stock") of FCI, as intended to be
made to them pursuant to the Plan, if such classes of holders vote in
favor of the Plan, even if such classes would not otherwise be entitled
to a distribution under the terms of the Plan and the Bankruptcy Laws
because the Plan has not been accepted by one or more senior classes.
In accordance with the foregoing:
(i) if the holders of the 10% Debentures do not accept the Plan, but
the holders of the FCI Preferred Stock accept the Plan, holders of the
FCI Preferred Stock will receive the distributions of securities
otherwise allocated to them on Annex I hereto (and pursuant thereto,
the Trustee shall deliver, or instruct the Disbursing Agent under the
Plan to deliver, to the Transfer Agent for the FCI Preferred Stock for
distribution to the holders of the FCI Preferred Stock on the Effective
Date (as defined in the Plan), 500,000 shares of New Common Stock (as
defined in the Plan) of Reorganized Flagstar (as defined in the Plan)
which is the distribution which the holders of FCI Preferred Stock
would have received if all classes of holders securities of FCI and the
Company had approved the Plan); and
(ii) if the holders of the 10% Debentures or the holders of the FCI
Preferred Stock do not accept the Plan, but holders of the FCI Common
Stock accept the Plan, holders of the FCI Common Stock will receive the
distribution of securities otherwise allocated to them as set forth on
Annex I hereto (and pursuant thereto, the Trustee shall deliver or
instruct the
2
<PAGE>
Disbursing Agent under the Plan to deliver to the Transfer
Agent for the FCI Common Stock for distribution to the holder of the
FCI Common Stock on the Effective Date, the New Warrants (as defined
in the Plan) which is the distribution which the holders of FCI Common
Stock would have received if all classes of holders of securities of
FCI and the Company had approved the Plan).
SECTION 1.2. IT SHALL BE A CONDITION TO THE EFFECTIVENESS OF
THE AMENDMENT TO THE INDENTURE SET FORTH IN SECTION 1.1 HEREOF THAT THE OTHER
INDENTURE SHALL HAVE BEEN AMENDED TO THE SAME EFFECT AND THAT SUCH AMENDMENT OF
THE OTHER INDENTURE SHALL BE IN FULL FORCE AND EFFECT.
ARTICLE 2.
MISCELLANEOUS
Section 2.1. The Trustee accepts the trusts created by the Indenture,
as supplemented by this Supplemental Indenture, and agrees to perform the same
upon the terms and conditions of the Indenture, as supplemented by this
Supplemental Indenture.
Section 2.2. The recitals contained herein shall be taken as statements
of the Company and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Supplemental Indenture.
Section 2.3. All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Indenture.
Section 2.4. Each of the Company and the Trustee hereby confirms and
reaffirms the Indenture in every particular except as amended by this
Supplemental Indenture.
Section 2.5. All covenants and agreements in this Supplemental
Indenture by the Company or the Trustee shall bind each of their respective
successors and assigns, whether so expressed or not.
Section 2.6. In case any provisions in this Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 2.7. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 2.8. All provisions of this Supplemental Indenture shall be
deemed to be incorporated in, and made a part of, the Indenture; and the
Indenture, as supplemented by this Supplemental Indenture, shall be read, taken
and construed as one and the same instrument.
----------------------
3
<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
FLAGSTAR CORPORATION
By: __________________________________
Rhonda J. Parish, Senior Vice President
Attest:
_______________________________
Name: _____________________
Title: ______________________
BANK OF NEW YORK,
Trustee
By: ____________________________________
Name: ____________________________
Title: _____________________________
Attest:
_______________________________
Name: _____________________
Title: ______________________
4
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this day of , 1997, before me personally came Rhonda J.
Parish, to me known, who, being by me personally sworn, did depose and say that
she is a Senior Vice President of Flagstar Corporation, the corporation
described in and on behalf of which she has executed the above instrument and
that she is authorized by said corporation to execute the same.
____________________________________
Notary Public
5
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this day of , 1997, before me personally came ,
to me known, who, being by me personally sworn, did depose and say that he is
the Vice President of the Bank of New York, the corporation described in and on
behalf of which he has executed the above instrument and that he is authorized
by said corporation to execute the same.
___________________________________
Notary Public
6
<PAGE>
------------------------------------------------------------------------------
FLAGSTAR CORPORATION
ISSUER
-------------------------
SUPPLEMENTAL INDENTURE
DATED AS OF , 1997
TO INDENTURE
DATED AS OF SEPTEMBER 23, 1993
-----------------------
11-3/8% SENIOR SUBORDINATED DEBENTURES DUE 2003
-------------------------
THE BANK OF NEW YORK
TRUSTEE
------------------------------------------------------------------------------
<PAGE>
THIS SUPPLEMENTAL INDENTURE, dated as of , 1997, between FLAGSTAR
CORPORATION, a Delaware corporation (the "Company"), and the BANK OF NEW YORK, a
national banking association, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Trustee are parties to an Indenture, dated
as of September 23, 1993 (the "Indenture"), pursuant to which the Company issued
$125,000,000 in aggregate principal amount of 11-3/8% Senior Subordinated
Debentures due 2003 (the "Securities"); and
WHEREAS, Section 7.2 of the Indenture provides, among other things,
that with the consent of the Holders of not less than a majority in aggregate
principal amount of the Securities outstanding, the Company, when authorized by
a resolution of its Board of Directors, and the Trustee, may amend the Indenture
in certain respects; and
WHEREAS, pursuant to a Prospectus, dated , 1997, (the "Prospectus"),
the Company, among other things, solicited consents ("Consents") to a proposed
amendment to the Indenture, IN CONJUNCTION WITH AN IDENTICAL AMENDMENT (AND THE
SOLICITATION OF CONSENTS THEREFOR) TO THE INDENTURE DATED AS OF NOVEMBER 16,
1992 (THE "OTHER INDENTURE") PURSUANT TO WHICH THE COMPANY ISSUED $722,400,000
IN AGGREGATE PRINCIPAL AMOUNT OF 11.25% SENIOR SUBORDINATED DEBENTURES DUE 2004,
as set forth herein (SUCH CONSENTS TO AMEND THE OTHER INDENTURE REFERRED TO
HEREIN AS THE "OTHER CONSENTS"); and
WHEREAS, the Company has obtained the requisite Consents to amend the
Indenture as provided herein and has delivered such Consents to the Trustee, all
as required by Section 7.2 of the Indenture; and
WHEREAS, THE COMPANY HAS OBTAINED AND DELIVERED THE REQUISITE OTHER
CONSENTS TO AMEND THE OTHER INDENTURE IN ACCORDANCE WITH THE PROVISIONS
THEREOF; AND
WHEREAS, the Company has duly authorized the execution and delivery of
this Supplemental Indenture, and all conditions and requirements necessary to
make this instrument a valid and binding agreement, INCLUDING, WITHOUT
LIMITATION, THE CONDITION SET FORTH IN SECTION 1.2 HEREOF, have been duly
performed and complied with;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed as follows:
1
<PAGE>
ARTICLE 1.
AMENDMENT TO INDENTURE
Section 1.1. SUBJECT TO SECTION 1.2 HEREOF, THE Indenture is hereby
amended by adding a new Section 4.12 as follows:
Section 4.12 Certain Distributions Upon Events of
Bankruptcy. Notwithstanding any provision to the contrary set forth in this
Indenture, upon (i) the occurrence of an event described in clause (6) or (7)
of Section 4.1 hereof as a result of which the Issuer becomes subject to the
jurisdiction of the United States Bankruptcy Court, and (ii) pursuant to such
event, the Issuer seeks approvals for, and the Bankruptcy Court confirms, a plan
of reorganization substantially as described on Annex 1 attached hereto (the
"Plan"), then, to the extent necessary to implement the purposes and intent of
such Plan and as set forth below, Holders of the Securities together with the
holders of securities ranking pari passu in right of payment with the
Securities, shall make distributions to holders of securities ranking junior in
right of payment to the Securities as follows:
Holders of the Securities, together with the holders
of securities ranking pari passu in right of payment with the
Securities, will make distributions to the holders of $2.25 Series A
Cumulative Convertible Exchangeable Preferred Stock (the "FCI Preferred
Stock") of Flagstar Companies, Inc. ("FCI") and holders of the $.50 par
value Common Stock (the "FCI Common Stock") of FCI, as intended to be
made to them pursuant to the Plan, if such classes of holders vote in
favor of the Plan, even if such classes would not otherwise be entitled
to a distribution under the terms of the Plan and the Bankruptcy Laws
because the Plan has not been accepted by one or more senior classes.
In accordance with the foregoing:
(i) if the holders of the 10% Debentures do not accept the Plan, but
the holders of the FCI Preferred Stock accept the Plan, holders of the
FCI Preferred Stock will receive the distributions of securities
otherwise allocated to them on Annex I hereto (and pursuant thereto,
the Trustee shall deliver, or instruct the Disbursing Agent under the
Plan to deliver, to the Transfer Agent for the FCI Preferred Stock for
distribution to the holders of the FCI Preferred Stock on the Effective
Date (as defined in the Plan), 500,000 shares of New Common Stock (as
defined in the Plan) of Reorganized Flagstar (as defined in the Plan)
which is the distribution which the holders of FCI Preferred Stock
would have received if all classes of holders securities of FCI and the
Company had approved the Plan); and
(ii) if the holders of the 10% Debentures or the holders of the FCI
Preferred Stock do not accept the Plan, but holders of the FCI Common
Stock accept the Plan, holders of the FCI Common Stock will receive the
distribution of securities otherwise allocated to them as set forth on
Annex I hereto (and pursuant thereto, the Trustee shall deliver or
instruct the
2
<PAGE>
Disbursing Agent under the Plan to deliver to the Transfer Agent for
the FCI Common Stock for distribution to the holder of the FCI Common
Stock on the Effective Date, the New Warrants (as defined in the Plan)
which is the distribution which the holders of FCI Common Stock would
have received if all classes of holders of securities of FCI and the
Company had approved the Plan).
SECTION 1.2. IT SHALL BE A CONDITION TO THE EFFECTIVENESS OF THE
AMENDMENT TO THE INDENTURE SET FORTH IN SECTION 1.1 HEREOF THAT THE OTHER
INDENTURE SHALL HAVE BEEN AMENDED TO THE SAME EFFECT AND THAT SUCH AMENDMENT OF
THE OTHER INDENTURE SHALL BE IN FULL FORCE AND EFFECT.
ARTICLE 2.
MISCELLANEOUS
Section 2.1. The Trustee accepts the trusts created by the Indenture,
as supplemented by this Supplemental Indenture, and agrees to perform the same
upon the terms and conditions of the Indenture, as supplemented by this
Supplemental Indenture.
Section 2.2. The recitals contained herein shall be taken as statements
of the Company and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Supplemental Indenture.
Section 2.3. All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Indenture.
Section 2.4. Each of the Company and the Trustee hereby confirms and
reaffirms the Indenture in every particular except as amended by this
Supplemental Indenture.
Section 2.5. All covenants and agreements in this Supplemental
Indenture by the Company or the Trustee shall bind each of their respective
successors and assigns, whether so expressed or not.
Section 2.6. In case any provisions in this Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 2.7. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 2.8. All provisions of this Supplemental Indenture shall be
deemed to be incorporated in, and made a part of, the Indenture; and the
Indenture, as supplemented by this Supplemental Indenture, shall be read, taken
and construed as one and the same instrument.
----------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
FLAGSTAR CORPORATION
By: __________________________________
Rhonda J. Parish, Senior Vice President
Attest:
_______________________________
Name: _____________________
Title: ______________________
BANK OF NEW YORK,
Trustee
By: ____________________________________
Name: ____________________________
Title: _____________________________
Attest:
_______________________________
Name: _____________________
Title: ______________________
4
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this day of , 1997, before me personally came Rhonda J. Parish, to
me known, who, being by me personally sworn, did depose and say that she is a
Senior Vice President of Flagstar Corporation, the corporation described in and
on behalf of which she has executed the above instrument and that she is
authorized by said corporation to execute the same.
___________________________________
Notary Public
5
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this day of , 1997, before me personally came , to me known, who, being by me
personally sworn, did depose and say that he is the Vice President of the Bank
of New York, the corporation described in and on behalf of which he has executed
the above instrument and that he is authorized by said corporation to execute
the same.
____________________________________
Notary Public
6
<PAGE>
<PAGE>
FLAGSTAR COMPANIES, INC.
---------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------
DATED AS OF {AGREEMENT DATE}
<PAGE>
TABLE OF CONTENTS
1. REGISTRATION RIGHTS..................................................... 1
1.1 Shelf Registration............................................. 1
1.2 Required Registration.......................................... 3
1.3 Incidental Registration........................................ 5
1.4 Company Registration........................................... 6
1.5 Registration Procedures........................................ 6
1.6 Reasonable Investigation....................................... 9
1.7 Registration Expenses.......................................... 10
1.8 Holdback Agreements; Registration Rights to Others............. 10
1.9 Other Registration of Common Stock............................. 11
1.10 Availability of Information.................................... 11
2. INDEMNIFICATION; CONTRIBUTION; EXPENSES................................. 11
2.1 Indemnification; Contribution.................................. 11
2.2 Indemnification for Controlling Person Liability............... 12
2.3 Control of Defense............................................. 13
2.4 Contribution................................................... 14
2.5 Advancement of Expenses........................................ 14
3. TERMINATION............................................................. 15
3.1 Termination With Respect to Shares Sold in a Public Offering... 15
3.2 Termination Upon Ability to Freely Resell...................... 15
4. DEFINED TERMS........................................................... 16
5. MISCELLANEOUS........................................................... 20
5.1 Notices........................................................ 20
5.2 Amendments and Waivers......................................... 20
5.3 Governing Law.................................................. 20
5.4 Jurisdiction; Jury Trial....................................... 21
5.5 Counterparts................................................... 21
5.6 Descriptive Headings; Sections................................. 21
5.7 Severability................................................... 21
Annex 1 -- Names and Addresses of Holders
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (as the same may hereafter be amended,
supplemented or modified, this "AGREEMENT"), dated as of {AGREEMENT DATE}, among
FLAGSTAR COMPANIES, INC. (together with its successors and assigns, the
"COMPANY"), a [Delaware] corporation, and each of the Holders (together with
their successors and assigns, the "HOLDERS") of Registrable Securities named on
Annex 1 hereto.
In consideration of the mutual promises herein contained, the Company
and the Holders mutually agree as follows:
1. REGISTRATION RIGHTS.
1.1 SHELF REGISTRATION.
(A) FILING AND EFFECTIVENESS. On or prior to the Shelf Filing
Date, the Company will file a "shelf" registration statement (the
"SHELF REGISTRATION") on an appropriate form pursuant to Rule 415 under
the Securities Act or any similar rule that may be adopted by the SEC
with respect to dispositions of all of the Registrable Securities in
such manner or manners specified by the Holders. The Company agrees to
use its best efforts to cause the Shelf Registration to be declared
effective as promptly as is practicable after such filing (and in any
event, prior to the Shelf Effective Date) and agrees to use its best
efforts to keep the Shelf Registration effective (and to take any and
all other actions necessary in order to permit public resale of the
Registrable Securities covered by the Shelf Registration) for a period
(the "SHELF EFFECTIVE PERIOD") beginning on the date such Shelf
Registration shall first be declared effective under the Securities Act
and ending upon the earliest to occur of:
(i) the fifth (5th) anniversary of the Effective
Date; PROVIDED, HOWEVER, that if a registration statement on
Form S-3 (or such successor form as is prescribed by the SEC)
is not available to the Company (other than as a result of
action taken in bad faith by the Company to cause such Form
S-3 to become unavailable) on the third (3rd) anniversary of
the Effective Date, the Shelf Effective Period shall terminate
(if not terminated earlier pursuant to Section or Section ) on
such third (3rd) anniversary of the Effective Date;
(ii) such date as no Registrable Securities shall
remain subject to the terms and conditions set forth in this
Agreement; and
(iii) the date on which the provisions of this
Section terminate in accordance with the provisions of Section
.
The Company further agrees, if necessary, to supplement or make
amendments to such Shelf Registration, if required by the registration
form utilized by the Company for the Shelf Registration or by the
instructions applicable to such registration form or by the Securities
Act, and the Company agrees to furnish to the Holders copies of any
such supplement or amendment prior to its being used or filed with the
SEC.
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To the extent that any warrants to purchase Common Stock issued to
any of TW Associates, L.P., CD Associates, L.P. and KKR Partners II, L.P.,
under the Plan would require registration under the Securities Act, the
Holders hereby agree that the Company may include in the Shelf Registration
such warrants.
(B) APPROVAL OF SHELF REGISTRATIONS. If the Requisite Holders
shall have approved the filing of any Shelf Registration as provided in
Section , but any Holder elects not to participate therein, then such
Holder shall have the right, in its sole discretion, to withdraw from
the Shelf Registration upon written notice to the Company. If the
Company receives notice of such withdrawal from any Holder wishing to
withdraw from the Shelf Registration, then the Company shall not name
such Holder in the registration statement or, in the case of withdrawal
in connection with any amendment or supplement to a registration
statement in which such Holder is already named, shall amend such
registration statement to delete references to such Holder, and to
withdraw the Registrable Securities of such Holder, from the
registration statement. The Shelf Registration shall not be considered
effective with respect to any such withdrawing Holder.
(C) SELECTION OF UNDERWRITERS. If any offering pursuant to a
Shelf Registration is in the form of an underwritten offering, the
underwriters of such offering shall be one or more underwriting firms
of recognized standing selected by the Holders making such offering and
reasonably acceptable to the Company. In the event of an underwritten
offering pursuant to the Shelf Registration, no Securities of the
Company (other than the Registrable Securities) shall be included in
any such offering without the prior written consent of all Holders of
Registrable Securities participating in such offering.
(D) NOTICE OF SALES UNDER SHELF REGISTRATION. Other than in
connection with an underwritten offering, each Holder intending to sell
any Registrable Securities under the Shelf Registration agrees to
provide the Company with written notice of such intent (a "NOTICE OF
INTENT"), which notice need state only the identity of the Holder and
that the Holder intends to sell Registrable Securities under the Shelf
Registration. No Holder shall deliver any Registrable Security for the
purpose of sale or delivery after sale, or otherwise consummate any
such sale, under such Shelf Registration until the fourth (4th)
Business Day following the date it delivers to the Company the Notice
of Intent. In the event that the Company notifies such Holder in
writing (a "MATERIAL EVENT NOTICE"), delivered to such Holder within
three (3) Business Days after the date the Notice of Intent is
delivered, that an event or events have occurred which, in the good
faith opinion of the Company, require the then-current prospectus to be
amended or supplemented in order that the prospectus not contain any
misstatement of a material fact or not omit to state a material fact
required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they were made) not
misleading, then the Holder shall not deliver any Registrable Security
for the purpose of sale or delivery after sale, or otherwise consummate
any such sale, under such Shelf Registration until the earlier to occur
of the fourteenth (14th) day after delivery of the Material Event
Notice and the date the Company delivers to such Holder a new
prospectus or prospectus supplement correcting all such material
misstatements or omissions. In the event that the Company delivers a
Material Event Notice, the Company shall prepare and deliver to such
Holder, as promptly as practicable but in any event within fourteen
(14) days after the date of the Material Event Notice, a new prospectus
or prospectus supplement correcting all such material misstatements or
omissions. Each Holder shall cooperate with the Company in connection
with any such sale by supplying the Company, promptly following any
request, with any information concerning the terms of such sale
necessary to prepare any
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such new prospectus or supplement to the prospectus to be used in
connection with such sale.
Any Holder intending to sell any Registrable Securities under
the Shelf Registration pursuant to an underwritten offering shall
deliver a Notice of Intent to the Company no later than fourteen (14)
days prior to the closing of such offering and otherwise in accordance
with the reasonable requirements of the underwriters therefor.
1.2 REQUIRED REGISTRATION.
(A) FILING OF REGISTRATION STATEMENT. Subject to Section
1.2(f), the Company will, upon the written request of the
Initiating Holders given at any time requesting that the Company
effect the registration under the Securities Act of all or
part of such Initiating Holders' Registrable Securities and
specifying the Registrable Securities to be
sold and the intended method of disposition thereof, promptly give
written notice of such requested registration to all Holders of
Registrable Securities, and thereupon will use its best efforts to
effect the registration (the "REQUIRED REGISTRATION") under the
Securities Act of:
(i) the Registrable Securities that the Company has
been so requested to register by the Initiating Holders; and
(ii) all other Registrable Securities that the
Company has been requested to register by the Holders thereof
by written request given to the Company within thirty (30)
days after the giving of such written notice by the Company
(which request shall specify the Registrable Securities to be
sold and the intended method of disposition of such
Registrable Securities);
all to the extent required to permit the disposition (in accordance
with the intended method thereof as aforesaid) of the Registrable
Securities so to be registered.
(B) TIME FOR FILING AND EFFECTIVENESS. On or before the date
which is ninety (90) days after the request for such registration, the
Company shall file with the SEC the Required Registration with respect
to all Registrable Securities to be so registered, and shall use its
best efforts to cause such Required Registration to become effective as
promptly as practicable after the filing thereof, but in no event later
than the day which is one hundred eighty (180) days after the request
for such registration.
(C) SELECTION OF UNDERWRITERS. If Registrable Securities that
the Company has been requested to register pursuant to a Required
Registration are to be disposed of in an underwritten public offering,
the underwriters of such offering shall be one or more underwriting
firms of recognized standing selected by the Requisite Holders and
reasonably acceptable to the Company.
(D) PRIORITY ON REQUIRED REGISTRATIONS. If the managing
underwriter shall advise the Company in writing (with a copy to each
Holder of Registrable Securities requesting sale) that, in such
underwriter's opinion, the number of shares of Securities requested to
be included in such Required Registration exceeds the number that can
be sold in such offering within a price range acceptable to the Company
(such writing to
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state the basis of such opinion and the approximate number of shares of
Securities that may be included in such offering without such effect),
the Company will include in such Required Registration, to the extent
of the number of shares of Securities that the Company is so advised
can be sold in such offering:
(i) FIRST, Registrable Securities requested to be
sold by the Holders pursuant to this Section , PRO RATA among
the Holders requesting sale on the basis of the number of
shares requested to be so registered by such Holders; and
(ii) SECOND, all other shares of Common Stock
proposed to be registered by the Company and any other
stockholders, in such proportions as the Company and such
other stockholders shall agree.
(E) WHEN REQUIRED REGISTRATION IS DEEMED EFFECTED. A Required
Registration pursuant to this Section shall not be deemed to have been
effected for purposes of Section if:
(i) the registration does not become effective and
remain effective for a period of at least one hundred eighty
(180) days (or such shorter period as is necessary for all
Registrable Securities offered thereunder to have been sold),
without interference by the issuance by the SEC of any stop
order with respect thereto;
(ii) the Requisite Holders withdraw their request for
registration in its entirety at any time because the Requisite
Holders reasonably believed that the registration statement or
any prospectus related thereto contained an untrue statement
of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements made therein (in the case of any prospectus, in
light of the circumstances under which they were made) not
misleading, notified the Company of such fact and requested
that the Company correct such alleged misstatement or
omission, and the Company has refused to correct such alleged
misstatement or omission; or
(iii) the conditions to closing specified in the
purchase agreement or underwriting agreement, if any, entered
into in connection with such Required Registration are not
satisfied, other than by reason of some act or omission by the
Holders of the Registrable Securities that were to have been
registered and sold.
(F) LIMITATION ON NUMBER OF REQUIRED REGISTRATIONS;
REGISTRATIONS ON FORM S-3. The Company shall be required to file and
effect only three (3) Required Registrations pursuant to this Section
that are deemed to have been effected under Section . Notwithstanding
the foregoing, the Company shall be required to file and effect
additional Required Registrations, which Required Registrations shall
not count toward the limitation set forth in the preceding sentence,
if:
(i) each such additional Required Registration is
filed and effected on a registration statement on Form S-3 (or
any similar successor form permitting
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<PAGE>
incorporation by reference of the reports filed by the Company
pursuant to section 13 of the Exchange Act); and
(ii) the Holders of Registrable Securities agree to
pay, and in fact pay, in addition to any underwriting fees,
discounts or commissions attributable to the sale of
Registrable Securities and other selling expenses, discounts
or commissions incurred in connection with the sale of
Registrable Securities, all Registration Expenses in
connection with such additional Required Registration (other
than Registration Expenses described in clauses (c), (e) and
(g) of the definition of Registration Expenses, which shall in
every event be borne by the Company).
1.3 INCIDENTAL REGISTRATION.
(A) FILING OF REGISTRATION STATEMENT. If the Company at any
time proposes to register any of its Common Stock (an "INCIDENTAL
REGISTRATION") under the Securities Act (other than pursuant to a
registration statement on Form S-4 or Form S-8 or any successor forms
thereto, in connection with an offer made solely to existing Security
holders or employees of the Company), for sale in a Public Offering, it
will each such time give prompt written notice to all Holders of its
intention to do so, which notice shall be given to all such Holders at
least thirty (30) days prior to the date that a registration statement
relating to such registration is proposed to be filed with the SEC.
Upon the written request of any Holder to include its shares under such
registration statement (which request shall be made within fifteen (15)
days after the receipt of any such notice and shall specify the
Registrable Securities intended to be disposed of by such Holder), the
Company will use its best efforts to effect the registration of all
Registrable Securities that the Company has been so requested to
register by such Holder; PROVIDED, HOWEVER, that if, at any time after
giving written notice of its intention to register any Securities and
prior to the effective date of the registration statement filed in
connection with such Incidental Registration, the Company shall
determine for any reason not to register such Securities, the Company
may, at its election, give written notice of such determination to each
Holder and, thereupon, shall be relieved of its obligation to register
any Registrable Securities of such Persons in connection with such
Incidental Registration.
(B) SELECTION OF UNDERWRITERS. Notice of the Company's
intention to register such Securities shall designate the proposed
underwriters of such offering (which shall be one or more underwriting
firms of recognized standing) and shall contain the Company's agreement
to use its best efforts, if requested to do so, to arrange for such
underwriters to include in such underwriting the Registrable Securities
that the Company has been so requested to register pursuant to this
Section , it being understood that the Holders shall have no right to
select different underwriters for the disposition of their Registrable
Securities.
(C) PRIORITY ON INCIDENTAL REGISTRATIONS. If the managing
underwriter shall advise the Company in writing (with a copy to each
Holder of Registrable Securities requesting sale) that, in such
underwriter's opinion, the number of shares of Securities requested to
be included in such Incidental Registration exceeds the number that can
be sold in such offering within a price range acceptable to the Company
(such writing to
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<PAGE>
state the basis of such opinion and the approximate number of shares of
Securities that may be included in such offering without such effect),
the Company will include in such Incidental Registration, to the extent
of the number of shares of Securities that the Company is so advised
can be sold in such offering:
(i) in the case of any Registration initiated by the
Company for the purpose of selling Securities for its own
account:
(A) FIRST, shares that the Company proposes
to issue and sell for its own account; and
(B) SECOND, Registrable Securities requested
to be sold by the Holders pursuant to this Section
and all Securities proposed to be registered by other
stockholders, PRO RATA among such Holders and other
stockholders on the basis of the number of shares
requested to be so registered by such Holders and
other stockholders; and
(ii) in the case of any Registration initiated by any
other stockholder pursuant to demand or required registration
rights in favor of such other stockholder:
(A) FIRST, Registrable Securities requested
to be sold by the other stockholders requesting such
Registration;
(B) SECOND, Registrable Securities requested
to be sold by the Holders pursuant to this Section
and all Securities proposed to be registered by
stockholders other than those referred to in Section
(c)(ii)(A), PRO RATA among such Holders and
stockholders on the basis of the number of shares
requested to be so registered by such Holders and
stockholders; and
(C) THIRD, shares that the Company proposes
to issue and sell for its own account.
1.4 COMPANY REGISTRATION. If the Securities Act (whether by statutory
amendment, amendment of the rules and regulations thereunder or both) is amended
after the date hereof to provide for a Companies Registration Scheme, and the
Company is or becomes eligible to participate in the Companies Registration
Scheme, then the Company, promptly following the request of the Required
Holders, shall use its reasonable best efforts to register promptly under the
Companies Registration Scheme so as to facilitate the resale under the
registration statement contemplated by such Companies Registration Scheme of the
Registrable Securities in accordance with the method or methods of distribution
contemplated by the Holders.
1.5 REGISTRATION PROCEDURES. The Company will use its best efforts to
effect each Registration, and to cooperate with the sale of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and the Company will as expeditiously as possible:
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<PAGE>
(a) subject, in the case of an Incidental Registration, to the
proviso to Section , prepare and file with the SEC the registration
statement and use its best efforts to cause the Registration to become
effective; PROVIDED, HOWEVER, that before filing any registration
statement or prospectus or any amendments or supplements thereto, the
Company will furnish to the Holders of the Registrable Securities
covered by such registration statement, their counsel, and the
underwriters, if any, and their counsel, copies of all such documents
proposed to be filed as promptly as practicable prior thereto, which
documents will be subject to the reasonable review of such Holders,
their counsel and the underwriters; and the Company will not file any
registration statement or amendment thereto or any prospectus or any
supplement thereto (including such documents incorporated by reference)
to which the Requisite Holders shall reasonably object after having had
a reasonable opportunity for review and comment;
(b) subject, in the case of an Incidental Registration, to the
proviso to Section , prepare and file with the SEC such amendments and
post-effective amendments to any registration statement and any
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement; and
cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act;
(c) furnish to each Holder of Registrable Securities included
in such Registration and the underwriter or underwriters, if any,
without charge, at least one signed copy of the registration statement
and any post-effective amendment thereto, upon request, and such number
of conformed copies thereof and such number of copies of the prospectus
(including each preliminary prospectus and each prospectus filed under
Rule 424 under the Securities Act), any amendments or supplements
thereto and any documents incorporated by reference therein, as such
Holder or underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities being sold by such Holder (it
being understood that the Company consents to the use of the prospectus
and any amendment or supplement thereto by each Holder of Registrable
Securities covered by such registration statement and the underwriter
or underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by the prospectus or any amendment
or supplement thereto);
(d) notify each Holder of any stop order or other order
suspending the effectiveness of any registration statement, issued or
threatened by the SEC in connection therewith, and take all reasonable
actions required to prevent the entry of such stop order or to remove
it or obtain withdrawal of it at the earliest possible moment if
entered;
(e) if requested by the managing underwriter or underwriters,
if any, or any Holder in connection with any sale pursuant to a
registration statement, promptly incorporate in a prospectus supplement
or post-effective amendment such information relating to such
underwriting as the managing underwriter or underwriters, if any, or
such Holder reasonably requests to be included therein; and make all
required filings of such prospectus supplement or post-effective
amendment as soon as practicable after being
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<PAGE>
notified of the matters incorporated in such prospectus supplement or
post-effective amendment;
(f) on or prior to the date on which a Registration is
declared effective, use its best efforts to register or qualify, and
cooperate with the Holders of Registrable Securities included in such
Registration, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the
Registrable Securities covered by such Registration for offer and sale
under the securities or "blue sky" laws of each state and other
jurisdiction of the United States as any such Holder or the managing
underwriter, if any, reasonably requests in writing; use its best
efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the
period such registration statement is required to be kept effective;
and do any and all other acts or things necessary or advisable to
enable the disposition in all such jurisdictions reasonably requested
of the Registrable Securities covered by such Registration; PROVIDED,
HOWEVER, that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process in
any such jurisdiction where it is not then so subject;
(g) in connection with any sale pursuant to a Registration,
cooperate with the Holders and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
Securities to be sold under such Registration, and enable such
Securities to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or such Holders may
request;
(h) use its best efforts to cause the Registrable Securities
to be registered with or approved by such other governmental agencies
or authorities within the United States and having jurisdiction over
the Company as may reasonably be necessary to enable the seller or
sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Securities;
(i) enter into such agreements (including underwriting
agreements in customary form) and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(j) use its best efforts to obtain:
(i) at the time of effectiveness of each
Registration, a comfort letter from the Company's independent
certified public accountants covering such matters of the type
customarily covered by cold comfort letters as the Requisite
Holders and, if applicable, the underwriters reasonably
request; and
(ii) at the time of any underwritten sale pursuant to
the registration statement, a bring-down comfort letter, dated
as of the date of such sale, from the Company's independent
certified public accountants covering such matters of the type
customarily covered by comfort letters as the Requisite
Holders and, if applicable, the underwriters reasonably
request;
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(k) use its best efforts to obtain, at the time of
effectiveness of each Incidental Registration and at the time of any
sale pursuant to each Registration, an opinion or opinions, reasonably
acceptable to the Requisite Holders in form and scope, from counsel for
the Company in customary form;
(l) notify each Holder upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in
such Registration, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
promptly prepare, file with the SEC and furnish to each Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers or prospective purchasers of such Securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they are made;
(m) otherwise comply with all applicable rules and regulations
of the SEC, and make generally available to its Security holders (as
contemplated by section 11(a) under the Securities Act) an earnings
statement satisfying the provisions of Rule 158 under the Securities
Act, as applicable;
(n) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by each Registration
from and after a date not later than the effective date of such
Registration; and
(o) obtain and maintain the registration of the Common Stock
under either section 12(b) or section 12(g) of the Exchange Act; and
use its best efforts to cause all Registrable Securities covered by
each Registration to be listed subject to notice of issuance, prior to
the date of first sale of such Registrable Securities pursuant to such
Registration, on:
(i) either the New York Stock Exchange, Inc., or the
NASDAQ National Market; and
(ii) each other securities exchange, if any, on which
the Common Stock is then listed.
The Company may require each Holder of Registrable Securities that will be
included in such Registration to furnish the Company with such information in
respect of such Holder of its Registrable Securities that will be included in
such Registration as the Company may reasonably request in writing and as is
required by applicable laws or regulations.
1.6 REASONABLE INVESTIGATION. The Company shall:
(a) give the Holders of Registrable Securities, their
underwriters, if any, and their respective counsel and
accountants the opportunity to participate in the preparation
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of the registration statement, each prospectus included therein or
filed with the SEC and each amendment thereof or supplement thereto;
(b) give each such Holder and underwriter reasonable
opportunities to discuss the business of the Company with its officers,
counsel and the independent public accountants who have certified its
financial statements;
(c) make available for inspection by any Holder of Registrable
Securities included in any Registration, any underwriter participating
in any disposition pursuant to any Registration, and any attorney,
accountant or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company; and
(d) cause the Company's officers, directors and
employees to supply all information reasonably requested by
any such Person in connection with such Registration;
in each such case, as shall be reasonably necessary, in the opinion of such
Holder or such underwriter, to enable it to conduct a "reasonable investigation"
within the meaning of section 11(b)(3) of the Securities Act and to satisfy the
requirement of reasonable care imposed by section 12(a)(2) of the Securities
Act.
1.7 REGISTRATION EXPENSES. Other than as provided in Section (ii), the
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities, including, without limitation, any such registration
not effected by the Company.
1.8 HOLDBACK AGREEMENTS; REGISTRATION RIGHTS TO OTHERS.
(a) In connection with each underwritten sale of Registrable
Securities, the Company agrees, and each Holder by acquisition of such
Registrable Securities agrees, to enter into customary holdback
agreements concerning sale or distribution of Registrable Securities
and other equity Securities of the Company, except, in the case of any
Holder, to the extent that such Holder is prohibited by applicable law
or exercise of fiduciary duties from agreeing to withhold Registrable
Securities from sale. Without limiting the scope of the term
"fiduciary," a Holder shall be deemed to be acting as a fiduciary if
its actions or the Registrable Securities proposed to be sold are
subject to the Employee Retirement Income Security Act of 1974, as
amended, or the Investment Company Act of 1940, as amended, or if such
Registrable Securities are held in a separate account under applicable
insurance law or regulation. Notwithstanding the foregoing, no Holder
who has been engaged on behalf of an Account shall be required to hold
back Registrable Securities attributable to such Account if either:
(i) such Account directs such Holder to dispose of
some or all of such Registrable Securities attributable to
such Account; PROVIDED, HOWEVER, that any holdback agreement
relating to such underwritten sale shall continue to apply to
Registrable Securities attributable to such Account which such
Account has not directed such Holder to sell, and PROVIDED,
FURTHER, that such Holder shall not have directly or
indirectly induced such Account to make such sale; or
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(ii) such Securities have ceased to be Registrable
Securities pursuant to clause (v) of the definition of
Registrable Securities.
(b) If the Company shall at any time after the date hereof
provide to any holder of any Securities of the Company rights with
respect to the registration of such Securities under the Securities
Act, such rights shall not be in conflict with or adversely affect any
of the rights provided in this Section to the Holders of Registrable
Securities.
1.9 OTHER REGISTRATION OF COMMON STOCK. If any shares of Common Stock
require registration with or approval of any governmental authority under any
federal or state law (other than the Securities Act) before such shares may be
issued upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered or
approved, as the case may be.
1.10 AVAILABILITY OF INFORMATION. The Company will comply with the
reporting requirements of sections 13 and 15(d) of the Exchange Act and will
comply with all other public information reporting requirements of the SEC from
time to time in effect. In addition, the Company shall file such reports and
information, and shall make available to the public and to each Holder such
information, as shall be necessary to permit such Holder to offer and sell
shares of Common Stock held by such Holder pursuant to the provisions of Rule
144 promulgated under the Securities Act. The Company will also cooperate with
each Holder in supplying such information as may be necessary for such Holder to
complete and file any information reporting forms presently or hereafter
required by the SEC as a condition to the availability of an exemption from the
registration provisions of the Securities Act in connection with the sale of any
shares held by such Holder. The Company will furnish to each Holder, promptly
upon their becoming available, copies of all financial statements, reports,
notices and proxy statements sent or made available generally by the Company to
its stockholders, and copies of all regular and periodic reports filed by the
Company with any securities exchange or with the SEC.
2. INDEMNIFICATION; CONTRIBUTION; EXPENSES.
2.1 INDEMNIFICATION; CONTRIBUTION.
(A) INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify, to the fullest extent permitted by law, each Holder, its
officers, directors, partners and agents, if any, and each Person, if
any, who controls such Holder within the meaning of section 15 of the
Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses, joint or several, in each
case, under the Securities Act or common law or otherwise, resulting
from any violation by the Company of the provisions of the Securities
Act or any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or amendment thereto or
prospectus (and as amended or supplemented if amended or supplemented)
or any preliminary prospectus provided for under Section 1 or caused by
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein (in the case of any prospectus, in light of the circumstances
under which they were made) not misleading, except to the extent that
such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue
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statement or alleged untrue statement contained in or by any omission
or alleged omission from information concerning any Holder, or
concerning such Holder's intended method of distribution, furnished in
writing to the Company by such Holder expressly for use therein, or
from any information provided by an underwriter selected by the Holders
or any of them. If the offering pursuant to any registration statement
provided for under Section is made through underwriters, no action or
failure to act on the part of such underwriters shall affect the
obligations of the Company to indemnify any Holder or any other Person
pursuant to the preceding sentence. If the offering pursuant to any
registration statement provided for under Section is made through
underwriters, the Company agrees, to the extent required by such
underwriters, to enter into an underwriting or other agreement
providing for indemnity of such underwriters, their officers,
directors, partners and agents, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the
Securities Act to the same extent as hereinbefore provided with respect
to the indemnification of the Holders; PROVIDED that the Company shall
not be required to indemnify any such underwriter, or any officer or
director of such underwriter or any Person who controls such
underwriter within the meaning of section 15 of the Securities Act, to
the extent that the loss, claim, damage, liability (or proceedings in
respect thereof) or expense for which indemnification is claimed
results from such underwriter's failure to send or give a copy of an
amended or supplemented final prospectus to the Person asserting an
untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such amended or supplemented final prospectus prior to
such written confirmation and the underwriter was provided with such
amended or supplemented final prospectus.
(B) INDEMNIFICATION BY THE HOLDERS. In connection with any
registration statement in which a Holder is participating, each such
Holder, severally and not jointly, shall indemnify, to the fullest
extent permitted by law, the Company, each underwriter (if the
underwriter so requires) and their respective officers, directors,
partners and agents, if any, and each Person, if any, who controls the
Company or such underwriter within the meaning of section 15 of the
Securities Act, against any losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses resulting from any untrue
statement or alleged untrue statement of a material fact or any
omission or alleged omission of a material fact required to be stated
in the registration statement or prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of any prospectus, in light of the
circumstances under which they were made) not misleading, but only to
the extent that such untrue statement is contained in or such omission
is from information so concerning a Holder, or such Holder's intended
method of distribution, furnished in writing by such Holder expressly
for use therein; PROVIDED, HOWEVER, that such Holder's obligations
hereunder shall be limited to an amount equal to the proceeds to such
Holder of the Registrable Securities sold pursuant to such registration
statement.
2.2 INDEMNIFICATION FOR CONTROLLING PERSON LIABILITY. In addition to
the indemnification provided for in Section 2.1, the Company shall indemnify, to
the fullest extent permitted by law, each Holder, its officers, directors,
partners and agents, if any, and each Person, if any, who controls such Holder
within the meaning of section 15 of the Securities Act,
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<PAGE>
against all losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses, joint or several, in each case, under the Securities Act
or common law or otherwise, resulting from:
(a) any violation by the Company of the provisions of
the Securities Act;
(b) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or amendment
thereto or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case
of any prospectus, in light of the circumstances under which they were
made) not misleading, whether or not, in each such case, the
registration statement or amendment thereto or prospectus (or amendment
or supplement thereto) or preliminary prospectus related or relates to
any offering or sale of Registrable Securities by an Holder; and
(c) any other untrue statement or alleged untrue statement of
a material fact or omission or alleged omission to state a material
fact necessary to make the statements in any document issued or
delivered to any purchaser or potential purchaser or filed with the SEC
pursuant to Section 13 or Section 15(d) of the Exchange Act (in light
of the circumstances under which they were made) not misleading, in
each case, in connection with any offering or sale of Securities of the
Company by any Person, whether or not such Securities offered or
sold are or were registered or required to be registered under the
Securities Act;
in each such case, to the extent that such losses, claims, damages, liabilities
(or proceedings in respect thereof) and expenses, joint or several, are alleged
to result from or exist by virtue of the fact that any Holder controls or is
alleged to control (within the meaning of section 15 of the Securities Act or
section 20 of the Exchange Act) the Company or any Subsidiary or Affiliate,
whether such claim or allegation arises under section 15 of the Securities Act
or section 20 of the Exchange Act or otherwise; PROVIDED, HOWEVER, that such
indemnification shall not extend to losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses caused by any untrue statement or
alleged untrue statement contained in or by any omission or alleged omission
from information furnished in writing to the Company by such Holder expressly
for use therein, or from any such information provided by an underwriter
selected by the Holders or any of them.
2.3 CONTROL OF DEFENSE. Any Person entitled to indemnification under
the provisions of this Section shall give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties exists in respect of such claim, permit
such indemnifying party to assume the defense of such claim, with counsel
reasonably satisfactory to the indemnified party; and if such defense is so
assumed, such indemnifying party shall not enter into any settlement without the
consent of the indemnified party (which consent shall not be unreasonably
withheld) if such settlement attributes liability to the indemnified party and
such indemnifying party shall not be subject to any liability for any settlement
made without its consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any registration statement
provided for under
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Section shall so provide if the underwriter or underwriters so require. In the
event an indemnifying party shall not be entitled, or elects not, to assume the
defense of a claim, such indemnifying party shall not be obligated to pay the
fees and expenses of more than one counsel or firm of counsel for all parties
indemnified by such indemnifying party in respect of such claim, unless in the
reasonable judgment of any such indemnified party a conflict of interest exists
between such indemnified party and any other of such indemnified parties in
respect to such claim.
2.4 CONTRIBUTION. If for any reason any indemnity contemplated by this
Section is unavailable, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses:
(a) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other; or
(b) if the allocation provided by clause (a) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations.
Notwithstanding the foregoing, no Holder shall be required to contribute any
amount in excess of the amount such Holder would have been required to pay to an
indemnified party if the indemnity under Section (b) was available. No Person
guilty of fraudulent misrepresentation (within the meaning of section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. The obligation of any Person to
make such contribution shall be several and not joint.
2.5 ADVANCEMENT OF EXPENSES. An indemnifying party shall make payments
of all amounts required to be made pursuant to the foregoing provisions of this
Section 2 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwise
due or payable. Without limiting the generality of the foregoing, each
indemnifying party, as an interim measure during the pendency of any claim,
action, investigation, inquiry or proceeding arising out of or based upon any
matter or subject for which indemnity (or contribution in lieu thereof) would be
available to any indemnified party under any provision of this Section , it will
promptly reimburse each indemnified party, as often as invoiced therefor (but in
no event more often than monthly), for all reasonable legal or other expenses
incurred in connection with the investigation or defense of any such claim,
action, investigation, inquiry or proceeding, notwithstanding the absence of any
judicial determination as to the propriety or enforceability of the indemnifying
party's obligation to reimburse the indemnified party for such expenses and
notwithstanding the possibility that the obligations to pay such expenses might
later have been held to be improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement is held to be improper, the
indemnified party agrees to promptly return the amount so advanced to the
indemnifying party, together with interest, compounded monthly, at the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
14
<PAGE>
nation's thirty (30) largest banks. Any such interim reimbursement payments
which are not made to the indemnified party within thirty (30) days of a request
therefor shall bear interest at such prime rate from the date of such request to
the extent such reimbursement payments are ultimately determined to be proper
obligations of the indemnifying party. To the extent required by any underwriter
in connection with the execution of any underwriting agreement pursuant to which
the Holders shall be selling any shares of Common Stock, the Company shall agree
to advancement of the expenses of such underwriter to at least the same extent
as provided in this Section .
2.6 SURVIVAL. The indemnity and contribution agreements contained in
this Section shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating Holder of Registrable
Securities, its officers, directors, agents or any Person, if any, who controls
such Holder as aforesaid, and shall survive the transfer of such Securities by
such Holder.
3. TERMINATION.
3.1 TERMINATION WITH RESPECT TO SHARES SOLD IN A PUBLIC OFFERING. The
provisions of Section shall terminate immediately as to any Securities when they
shall cease to be Registrable Securities (but shall remain in force with respect
to any remaining Registrable Securities).
3.2 TERMINATION UPON ABILITY TO FREELY RESELL. The provisions of
Section shall terminate immediately in their entirety with respect to any Holder
(and, with respect to any effective Shelf Registration, the registration
statement may be terminated and all shares of Common Stock held by such Holder
registered thereunder and remaining unsold may be deregistered) if either:
(a) such Holder has notified the Company in writing that all
remaining Registrable Securities may be freely resold by such Holder
without registration and without restriction or limitation (such as the
volume limitations, manner of sale requirements or current public
information requirements applicable under Rule 144 under the Securities
Act) under the Securities Act; or
(b) both:
(i) the aggregate number of shares of Common Stock
owned or held by such Holder, together with the aggregate
number of shares of Common Stock issuable to such Holder upon
the exercise of any rights, warrants or options held by such
Holder, shall equal less than ten percent (10%) of the number
of shares of Common Stock then outstanding, together with the
aggregate number of shares of Common Stock issuable to such
Holder upon the exercise of any rights, warrants or options
held by such Holder (but not any other Holder); and
(ii) the Company has delivered to such Holder an
opinion of Latham & Watkins, Parker, Poe, Adams & Bernstein
L.L.P. or other nationally recognized securities counsel
reasonably acceptable to such Holder that all remaining
Registrable Securities may be freely resold by such Holder
without registration and
15
<PAGE>
without restriction or limitation (such as the volume
limitations, manner of sale requirements or current public
information requirements applicable under Rule 144 under the
Securities Act) under the Securities Act.
4. DEFINED TERMS.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCOUNT -- means, with respect to a Holder who has been engaged to
provide investment management services, each Person on behalf of whom such
Holder provides such services.
AFFILIATE -- means, at any time, a Person (other than a Subsidiary or a
Holder):
(a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Company;
(b) that beneficially owns or holds ten percent (10%) or more
of any class of the Voting Stock of the Company; or
(c) ten percent (10%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, ten percent (10%) or more
of the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary;
at such time.
As used in this definition,
CONTROL -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
AGREEMENT -- the introductory paragraph.
BUSINESS DAY -- means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
COMMON STOCK -- means the Common Stock, par value $0.01 per share, of
the Company.
COMPANIES REGISTRATION SCHEME -- means an amendment or amendment to the
Securities Act (whether by statutory amendment, amendment of the rules and
regulations thereunder or both), such as, without limitation, as proposed in the
Report of the Advisory Committee on the Capital Formation and Regulatory
Processes of the Securities and Exchange Commission, dated July 24, 1996,
pursuant to which:
(a) issuers of Securities are permitted to register all
issuances of Securities on an integrated company registration
statement; and
16
<PAGE>
(b) under the provisions of such amendment, such registration,
under certain circumstances, would permit sales of the Registrable
Securities by the Holders to be covered by the Companies Registration
Scheme under circumstances in which the Registrable Securities could
not, under existing law, be freely resold without registration.
COMPANY -- the introductory paragraph.
EFFECTIVE DATE -- means the Effective Date of the Plan, as set forth
therein.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
HOLDERS -- the introductory paragraph.
INCIDENTAL REGISTRATION -- Section (a).
INITIATING HOLDERS -- means, at any time, any Holder or Holders (other
than the Company or any Subsidiary or Affiliate thereof) of at least fifteen
percent (15%) or more (by number of shares) of the Registrable Securities at
such time (excluding any Registrable Securities held directly or indirectly by
the Company or any Subsidiary or Affiliate thereof).
MATERIAL EVENT NOTICE -- Section .
NOTICE OF INTENT -- Section .
NASD -- means the National Association of Securities Dealers, Inc.
NASDAQ -- means the NASDAQ Stock Market, Inc., a subsidiary of the
NASD.
NASDAQ NATIONAL MARKET -- has the meaning ascribed thereto in Rule
4200(r) of the NASDAQ.
PERSON -- means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, or a government or agency
or political subdivision thereof.
PLAN -- means the Debtors' Joint Plan of Reorganization, dated as of
_________ ___, 1997, of Flagstar Companies, Inc. and Flagstar Corporation (as
predecessors to the Company).
PROPERTY -- means any and all interests in any kind of property or
asset whatsoever, whether real, personal or mixed and whether tangible or
intangible.
PUBLIC OFFERING -- shall mean any sale of shares of Common Stock in a
transaction either registered under, or requiring registration under, section 5
of the Securities Act.
REGISTRABLE SECURITIES -- means, at any time, all shares of Common
Stock issued to any Holder under the Plan.
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<PAGE>
As to any particular Registrable Securities once issued, such
Securities shall cease to be Registrable Securities:
(i) when a registration statement with respect to the sale of
such Securities shall have become effective under the Securities Act
and such Securities shall have been disposed of in accordance with such
registration statement;
(ii) when they shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the Securities
Act;
(iii) when they shall have been otherwise transferred and
subsequent disposition of them shall not require registration or
qualification under the Securities Act or any similar state law then in
force;
(iv) when they shall have ceased to be outstanding; or
(v) with respect to Registrable Securities attributable to an
Account, when the investment advisory services provided by the Holder
of such Registrable Securities are terminated by such Account, or by
any statutory, regulatory or bona fide business requirement or
condition.
REGISTRATION -- means the Shelf Registration, each Required
Registration and each Incidental Registration.
REGISTRATION EXPENSES -- means all expenses incident to the Company's
performance of or compliance with Section 1.1 through Section , inclusive,
including, without limitation:
(a) all registration and filing fees;
(b) fees and expenses of compliance with securities or blue
sky laws, to the extent required;
(c) expenses of printing certificates for the Registrable
Securities in a form eligible for deposit with Depositary Trust
Company;
(d) messenger and delivery expenses;
(e) internal Company expenses (including, without limitation,
all salaries and expenses of its officers and employees performing
legal or accounting duties);
(f) fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses of any
management review, cold comfort letters or any special audits required
by or incident to such performance and compliance);
(g) securities acts liability insurance (if the Company elects
to obtain such insurance);
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<PAGE>
(h) the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration;
(i) fees and expenses of other Persons retained by the
Company; and
(j) fees and expenses of counsel (including local counsel) for
Holders of Registrable Securities, selected by the Requisite Holders;
but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities or fees and expenses of more than one
counsel representing the Holders or any other selling expenses, discounts or
commissions incurred in connection with the sale of Registrable Securities.
REQUIRED HOLDERS -- means, at any time, any Holder or Holders (other
than the Company or any Affiliate or Subsidiary) holding more than fifty percent
(50%) of the shares of Common Stock held by the Holders at such time (excluding
any shares held directly or indirectly by the Company or any Subsidiary or
Affiliate).
REQUIRED REGISTRATION -- Section (a).
REQUISITE HOLDERS -- means, with respect to any registration or
proposed registration (or, in the case of the Shelf Registration, any offering
under the Shelf Registration) of Registrable Securities pursuant to Section ,
any Holder or Holders (other than the Company or any Affiliate or Subsidiary)
holding more than fifty percent (50%) of the shares of Registrable Securities
(excluding any shares of Registrable Securities directly or indirectly held by
the Company or any Affiliate or Subsidiary) to be so registered.
SEC -- means, at any time, the Securities and Exchange Commission or
any other federal agency at such time administering the Securities Act.
SECURITIES ACT -- means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SECURITY -- means "security" as defined by section 2(1) of the
Securities Act.
SHELF EFFECTIVE DATE-- means the date which is seventy-five (75) days
after the Shelf Filing Date.
SHELF EFFECTIVE PERIOD -- Section .
SHELF FILING DATE -- means the date which is thirty (30) days after the
Effective Date.
SHELF REGISTRATION -- Section .
SUBSIDIARY -- means any corporation in which the Company or one or more
Subsidiaries owns sufficient voting securities to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such corporation.
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<PAGE>
VOTING STOCK -- means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
5. MISCELLANEOUS.
5.1 NOTICES. Notices or demands authorized by this Agreement to be
given or made to the parties hereto shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed as follows, or telexed,
telecopied, or delivered by overnight or other courier to the following
addresses:
(a) if to the Company, at:
Flagstar Companies, Inc.
203 East Main Street
Spartanburg, SC 29319
Attention: Rhonda J. Parish, General Counsel
Fax: 864-597-8327
with a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, NC 28244
Attention: Gary C. Ivey
Fax: 704-334-4706
or such other addresses as the Company shall designate to each Holder in
writing;
(b) if to any Holder named on Annex 1, at the address or
addresses set forth in Annex 1 hereto for such Holder or, if a
successor or assign of such Holder, then at the address provided to the
Company by such successor or assign or such other address or addresses
as such successor or assign shall designate to the Company in writing.
The Company, upon the written request of any Holder, will promptly supply such
Holder with a list of the names and addresses of each party hereto at such time.
5.2 AMENDMENTS AND WAIVERS. The provisions hereof may be amended,
modified or supplemented only by a writing duly executed by or on behalf of the
Required Holders and the Company; PROVIDED, HOWEVER, that compliance by the
Company with the provisions of Section with respect to any particular
registration, may be waived by the Requisite Holders.
5.3 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAW OF THE STATE OF NEW YORK.
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<PAGE>
5.4 JURISDICTION; JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW
YORK STATE COURT SITTING IN NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. NONE OF THE PARTIES HERETO SHALL SEEK A JURY TRIAL
IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION PROCEDURE BASED
UPON OR ARISING OUT OF OR OTHERWISE RELATED TO THIS AGREEMENT AND EACH OF THE
PARTIES HERETO HEREBY WAIVES ANY AND ALL RIGHT TO ANY SUCH JURY TRIAL AND ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY SUCH PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION .
5.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.6 DESCRIPTIVE HEADINGS; SECTIONS. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
References to a "Section" in this Agreement are references to the indicated
section of this Agreement.
5.7 SEVERABILITY. The fact that any given provision of this Agreement
is found to be unenforceable, void or voidable under the laws of any
jurisdiction shall not effect the validity of the remaining provisions of this
Agreement in such jurisdiction, and shall not effect the enforceability of the
entire Agreement under the laws of any other jurisdiction.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY; NEXT PAGE IS SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered, all as of the date and year first above written.
FLAGSTAR COMPANIES, INC.
By:
---------------------------------------
Name:
Title:
LOOMIS SAYLES & COMPANY, INC.
By:
---------------------------------------
Name:
Title:
[OTHER HOLDERS OF >10%?]
By:
----------------------------------------
Name:
Title:
<PAGE>
ANNEX 1
NAMES AND ADDRESSES OF HOLDERS
Loomis Sayles & Company, Inc.
One Financial Center
Boston, MA 02111
Attn: Frederick A. Vyn
Fax: 617-261-1493
with a copy to:
Hebb & Gitlin
One State Street
Hartford, Connecticut 06103
Attn: Gary S. Hammersmith
Fax: 860-278-8968
Annex 1-1
<PAGE>
EXHIBIT 5.1
May 30, 1997
Board of Directors
Flagstar Companies, Inc.
203 East Main Street
Spartanburg, South Carolina 29319-9966
Ladies and Gentlemen:
We are acting as counsel to Flagstar Companies, Inc., a Delaware
corporation (the "Company"), in connection with the preparation, execution,
filing and processing with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"),
of a Registration Statement (No. 333-23875) on Form S-4 (as amended through the
date hereof, the "Registration Statement"). This opinion is furnished to you for
filing with the Commission pursuant to Item 601(b)(5) of Regulation S-K
promulgated under the Act.
The Registration Statement covers the offer of (a) an estimated
$575,900,000 aggregate principal amount of 9 3/4% Senior Notes due 2007 (the
"New Senior Notes"), (b) 3,010,753 warrants (the "New Warrants") to purchase
shares of the Company's common stock, par value $.01 per share (the "New Common
Stock"), and (c) 43,010,753 shares of New Common Stock, 3,010,753 shares of
which are issuable upon exercise of the New Warrants (the "Warrant Shares") (the
New Senior Notes, the New Warrants, the Warrant Shares and the New Common Stock
are referred to herein collectively as the "New Securities"). The New Securities
will be issued pursuant to a prepackaged plan of reorganization under Chapter 11
of the Bankruptcy Code (the "Plan"). As used herein, the "Plan" shall refer to
the Plan as confirmed by the Bankruptcy Court pursuant to a "final order" of
such court, not subject to appeal or application of special writ.
In our representation of the Company, we have examined the Registration
Statement, the Company's Restated Certificate of Incorporation and Bylaws, as
amended to date, all actions of the Company's Board of Directors recorded in the
Company's minute book, the Indenture between the Company and First Trust
National Association governing the New Senior Notes, a form of which is
filed as Exhibit 4.32 to the Registration Statement (the "Indenture"), the
Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company governing the New Warrants, a form of which is filed as Exhibit 4.35
to the Registration Statement (the "Warrant Agreement"), the forms of New
Senior Note, New Warrant and New Common Stock, a certificate of good standing
from the State of Delaware, and such other documents as we have considered
necessary for purposes of rendering the opinions expressed below.
Based upon the foregoing, we are of the following opinion:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. The New Senior Notes, when issued pursuant to the Plan and in accordance
with the terms of the Indenture as contemplated by the Registration
Statement, will be validly issued and binding obligations of the
Company.
3. Upon due execution by the Company and registration by its Warrant Agent
of the New Warrants, and the issuance of the New Warrants pursuant to
the Plan and in accordance with the Warrant Agreement and as
contemplated by the Registration Statement, the New Warrants will be
validly issued.
4. The Warrant Shares to be issued by the Company upon exercise of the New
Warrants have been duly authorized and, when issued following
consummation of the Plan in accordance with the terms of the Warrant
Agreement as contemplated by the Registration Statement, will be validly
issued, fully paid and non-assessable.
5. The New Common Stock to be issued pursuant to the Plan has been duly
authorized and, when issued pursuant to the Plan and as contemplated by
the Registration Statement, will be validly issued, fully paid and
non-assessable.
The opinions expressed herein are limited to the laws of the State of New
York, the General Corporation Law of the State of Delaware and the Act.
We hereby consent to the use of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in related prospectuses. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
PARKER, POE, ADAMS & BERNSTEIN L.L.P.
EXHIBIT 8
[LATHAM & WATKINS LETTERHEAD]
May 29, 1997
Flagstar Companies, Inc.
203 East Main Street
Spartanburg, South Carolina 29319-9966
Re: Flagstar Companies, Inc. Registration
Statement on Form S-4 (File Number 333-23875)
Ladies/Gentlemen:
You have requested our opinion concerning the material federal
income tax consequences expected to result to holders of various debt and equity
securities of Flagstar Companies, Inc. ("FCI") pursuant to a plan of
reorganization (the "Plan") and in connection with the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission (the "Commission") on
March 24, 1997 (File No. 333-23875), as amended by Amendment No. 1 filed with
the Commission on May 8, 1997 and Amendment No. 2 filed with the Commission on
May 21, 1997 (collectively, the "Registration Statement").
The facts, as we understand them, and upon which with your
permission we rely in rendering the opinion expressed herein, are set forth in
the Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences of the Plan are accurately set forth
under the heading "Certain Federal Income Tax Considerations" in the
Registration Statement. No opinion is expressed as to any matter not discussed
therein.
This opinion is based on various statutory provisions,
regulations promulgated thereunder and interpretations thereof by the Internal
Revenue Service and the courts having jurisdiction over such matters, all of
which are subject to change either prospectively or retroactively. Also, any
variation or difference in the facts from those set forth in the Registration
Statement may affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection
with the Registration Statement. We consent to your filing this opinion as an
exhibit to the Registration Statement and to the reference of our firm under the
heading "Certain Federal Income Tax Considerations."
Very truly yours,
Latham & Watkins
<PAGE>
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-23875 of Flagstar Companies, Inc. on Form S-4 of our report dated February
13, 1997, appearing in the Prospectus, which is part of this Registration
Statement and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
June 2, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FRD Acquisition Co.:
We consent to the use of our report dated February 9, 1996 except as to the
fifth paragraph of note 7 and note 14 which are as of May 23, 1996 with respect
to the combined balance sheets of FRI-M which includes FRI-M Corporation, a
wholly owned subsidiary of Family Restaurants Inc., and certain subsidiaries
including those restaurants that make up the Family Restaurant Division and
including the FRD Commissary as of December 25, 1994 and December 31, 1995, and
the related combined statements of operations and net combined equity and cash
flows for the year ended December 26, 1993 and the one month ended January 26,
1994 (Predecessor Company), and the eleven months ended December 25, 1994 and
the year ended December 31, 1995 (Successor Company) in the registration
statement on Form S-4 of Flagstar Companies, Inc. dated June 2, 1997 and to the
reference to our firm under the heading "Experts" in the Form S-4.
KPMG PEAT MARWICK LLP
Orange County, California
June 2, 1997
<PAGE>
MASTER BALLOT FOR HOLDERS OF OLD SENIOR NOTES OF FLAGSTAR CORPORATION
CLASS 4 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION, ) MASTER BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 4)
</TABLE>
THIS MASTER BALLOT IS TO BE USED BY BROKERS, PROXY INTERMEDIARIES OR OTHER
NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS OF THE 10 3/4% SENIOR NOTES
DUE 2001 AND BENEFICIAL OWNERS OF THE 10 7/8% SENIOR NOTES DUE 2002 OF FLAGSTAR
CORPORATION (COLLECTIVELY, THE "OLD SENIOR NOTES"). PLEASE READ AND FOLLOW THE
ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS MASTER
BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF THIS MASTER BALLOT
HAS NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00
P.M., EASTERN TIME, ON , 1997, UNLESS EXTENDED (THE
"DEADLINE"), IT WILL NOT BE COUNTED. PLEASE MAIL YOUR MASTER BALLOT PROMPTLY.
FACSIMILE BALLOTS WILL NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). Please review the Solicitation Statement and the appendices thereto
carefully before completing this Master Ballot. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
<PAGE>
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan. This Master Ballot is to be used by brokers, proxy
intermediaries or other nominees for voting on behalf of beneficial owners
holding the Old Senior Notes. The Old Senior Notes are classified in Class 4 in
the Plan.
FCI and Flagstar have not yet commenced a bankruptcy case. If the Plan
receives sufficient acceptances, FCI and Flagstar intend to commence their
bankruptcy case and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the bankruptcy court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old Senior Notes and all
other Holders of Claims against and Interests in the Company (including those
who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
The record date (the "Record Date") for purposes of determining which
holders of Old Senior Notes are eligible to vote on the Plan is May 23, 1997.
Only holders of Old Senior Notes in whose name such securities are registered on
the books of the Company on the Record Date or any person who has obtained a
properly completed proxy from such person are eligible to vote on the Plan.
Holders of Old Senior Notes who purchased such securities or whose purchase of
such securities is registered after the Record Date who wish to vote on the Plan
must arrange with their respective seller(s) to receive a proxy from the holder
of record on such date, a form of which is included on the last page of this
Master Ballot.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT BEFORE
COMPLETING THE MASTER BALLOT:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF OLD SENIOR NOTES AS TO WHICH VOTES ARE
CAST.
The undersigned is a registered or record owner of, or has been granted a
proxy or power of attorney for, $ principal amount of Old
Senior Notes, for which voting instructions have been received from beneficial
owners (the "Beneficial Owners") of such Old Senior Notes as listed in Item 3
below.
ITEM 2. CLASS 4 UNDER THE PLAN (OLD SENIOR NOTES) VOTE -- AGGREGATE AMOUNT.
The Beneficial Owners of Old Senior Notes vote as follows:
[ ] To Accept the Plan $
Aggregate principal amount of Old
[ ] To Reject the Plan $ Senior Notes
Aggregate principal amount of Old
Senior Notes
ITEM 3. CLASS 4 UNDER THE PLAN (OLD SENIOR NOTES) VOTE -- NUMBER OF BENEFICIAL
OWNERS.
The undersigned certifies that the following Beneficial Owners of Old
Senior Notes or those on the attached list, as identified by their respective
customer account numbers or the respective sequence numbers set forth below,
have delivered to the undersigned Ballots casting the following votes (Indicate
the aggregate principal amount voted by each respective Beneficial Owner under
the appropriate column. Please use additional sheets of paper if necessary):
2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF OLD SENIOR NOTES VOTED
CUSTOMER ACCOUNT NUMBER FOR EACH TO ACCEPT THE TO REJECT THE
BENEFICIAL OWNER OF OLD SENIOR NOTES PLAN PLAN
<C> <S> <C> <C>
1. $ $
2. $ $
3. $ $
4. $ $
5. $ $
6. $ $
7. $ $
8. $ $
9. $ $
10. $ $
</TABLE>
ITEM 4. CERTIFICATION AS TO OLD SENIOR NOTES HELD IN ADDITIONAL ACCOUNTS.
The undersigned certifies that it has transcribed below the information, if
any, as to the Old Senior Notes held in additional accounts as provided in Item
3 of each Ballot received by the undersigned from a Beneficial Owner:
<TABLE>
<CAPTION>
YOUR CUSTOMER ACCOUNT PROPOSED AMOUNT OF
NUMBER FOR EACH REGISTERED HOLDER OR OLD SENIOR NOTES HELD IN
BENEFICIAL OWNER NOMINEE OF OTHER ACCOUNT OTHER ACCOUNT NUMBERS OTHER ACCOUNTS AND VOTED
<S> <C> <C> <C> <C>
1. $
2. $
3. $
4. $
5. $
</TABLE>
ITEM 5. By signing and returning this Master Ballot, the undersigned certifies
that each Beneficial Owner of Old Senior Notes whose votes are being transmitted
by this Master Ballot has been provided with a copy of the Ballot and the
Solicitation Statement and the appendices thereto.
3
<PAGE>
ITEM 6. By signing and returning this Master Ballot, the undersigned certifies
that: (i) it received a separate, complete and fully executed Ballot with
respect to each Beneficial Owner referenced in Item 3 of this Master Ballot and
(ii) it is the registered or record owner of, or has been granted a proxy or
power of attorney for, the aggregate principal amount of Old Senior Notes set
forth in Item 1. The undersigned also acknowledges that this solicitation of
acceptances of the Plan is subject to all the terms and conditions set forth in
the Solicitation Statement.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
4
<PAGE>
THIS MASTER BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR
ANY PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly,
holders should NOT surrender certificates representing their securities in
connection with voting on the Plan, and neither the Company nor the Solicitation
Agent will accept delivery of any such certificates tendered together with this
Master Ballot. Surrender of Old Senior Notes for exchange may only be made
pursuant to a letter of transmittal which will be furnished subsequently by the
Company.
To have the Beneficial Owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Solicitation Agent not
later than 5:00 p.m., Eastern Time, on , 1997, unless extended
at the sole discretion of the Company as provided in the Solicitation Statement.
If you receive Ballots from Beneficial Owners after , 1997,
please retain all such Ballots and notify the Solicitation Agent of your
receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as you customarily use to indicate votes that are not meant
to revoke earlier votes.
To properly complete the Master Ballot, take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot. Please note that Items 3 and 4 request information which
should be set forth in the Ballots received by you from each individual
Beneficial Owner for whom you hold Old Senior Notes. To identify such
Beneficial Owners without disclosing their names, please use the customer
account number assigned by you to each such Beneficial Owner or, if no such
customer account number exists, please use the sequential numbers provided
(making sure to retain a separate list of each Beneficial Owner and his or
her assigned sequential number);
(b) indicate in Item 2 the aggregate principal amount of Old Senior
Notes held by you as the registered or record holder on behalf of the
Beneficial Owners, or for which you have been granted a power of attorney,
that has voted to accept or to reject the Plan;
(c) indicate in Item 3 each Beneficial Owner's vote to accept or to
reject the Plan;
(d) provide in Item 4 the information provided by each Beneficial
Owner with respect to Old Senior Notes held by such Beneficial Owners in
other accounts;
(e) sign and date the Master Ballot;
(f) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity and the capacity in which you are
signing;
(g) provide your name and mailing address if different from the
preprinted address on the Master Ballot, or if no preprinted address
appears on the Master Ballot; and
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Master Ballot (clearly marked to
indicate the applicable item of the Master Ballot).
Please contact the Solicitation Agent in order to arrange for delivery of
the completed Master Ballot to its offices.
(Bullet) You should deliver a Ballot and Solicitation Statement to each
Beneficial Owner of the Old Senior Notes and take any action required to enable
each such Beneficial Owner to vote his or her respective Old Senior Notes to
accept or reject the Plan. With regard to any Ballots returned to you, you must
either (i) execute and forward such Ballots to the Solicitation Agent or (ii)(a)
retain such Ballots in your files and transfer the requested information from
each such Ballot onto the attached Master Ballot, (b) execute the Master Ballot
and (c) arrange for delivery of
6
<PAGE>
such Master Ballot to the Solicitation Agent. THE COMPANY REQUESTS THAT YOU
RETAIN IN YOUR FILES THE BALLOTS RECEIVED FROM THE BENEFICIAL OWNERS (INCLUDING
LATE OR INCOMPLETE BALLOTS, IF ANY) UNTIL THE COMPANY NOTIFIES YOU THAT THE PLAN
HAS BEEN CONFIRMED BY THE BANKRUPTCY COURT.
(Bullet) If you are both the registered or record owner and Beneficial Owner
of any principal amount of Old Senior Notes or if you have a proxy from a
Beneficial Owner to vote for such Beneficial Owner and you wish to vote such Old
Senior Notes, you must return a Ballot.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots accepting the Plan. The Company
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the Ballots and other enclosed materials
to your clients. We will also pay all transfer taxes, if any, applicable to the
transfer and exchange of your securities pursuant to and following confirmation
of the Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CALL THE SOLICITATION AGENT AT (212) 344-6733.
7
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
JOINT PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
10 3/4% SENIOR NOTES DUE 2001
AND
10 7/8% SENIOR NOTES DUE 2002
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the 10 3/4%
Senior Notes due 2001 and 10 7/8% Senior Notes due 2002 of Flagstar Corporation
(the "Old Senior Notes"), pursuant to the Solicitation Statement dated
, 1997, in which Flagstar Companies, Inc. and its wholly-owned
subsidiary, Flagstar Corporation (collectively, the "Company") are soliciting
acceptances from record holders of the Old Senior Notes as of the close of
business on May 23, 1997 (the "Record Date") for their plan of reorganization
under Chapter 11 of the United States Bankruptcy Code (the "Plan"), with all the
power the undersigned would possess if voting personally. THIS PROXY IS
IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON THE DEADLINE
, 1997 UNLESS EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Old Senior Notes Owned: $
8
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old Senior Notes to which this proxy
relates. If the Old Senior Notes to which this proxy relates are held of record
by two or more joint holders on the Record Date, all such holders must sign this
proxy. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing and must
submit proper evidence satisfactory to the Company and the Solicitation Agent of
such person's authority so to act. If Old Senior Notes owned by the record
holder on the Record Date are registered in different names, separate proxies
must be executed covering each form of registration. Unless the record holder on
the Record Date is a member of an authorized signature guarantee program
recognized by the Company (an "Eligible Institution"), this proxy must be
guaranteed by an Eligible Institution confirming the right of the signatory to
the Ballot to execute such Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old Senior Notes held for
the account of an Eligible Guarantor Institution. IN ALL OTHER CASES ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
9
<PAGE>
MASTER BALLOT FOR HOLDERS OF SENIOR SUBORDINATED DEBENTURES OF FLAGSTAR
CORPORATION
CLASS 5 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION, ) MASTER BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 5)
</TABLE>
THIS MASTER BALLOT IS TO BE USED BY BROKERS, PROXY INTERMEDIARIES OR OTHER
NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS OF THE 11.25% SENIOR
SUBORDINATED DEBENTURES DUE 2004 AND BENEFICIAL OWNERS OF 11 3/8% SENIOR
SUBORDINATED DEBENTURES DUE 2003 OF FLAGSTAR CORPORATION (COLLECTIVELY, THE
"SENIOR SUBORDINATED DEBENTURES"). PLEASE READ AND FOLLOW THE ATTACHED
INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS MASTER BALLOT AND
RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF THIS MASTER BALLOT HAS NOT BEEN
RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00 P.M., EASTERN
TIME, ON , 1997, UNLESS EXTENDED (THE "DEADLINE"), IT WILL NOT
BE COUNTED. PLEASE MAIL YOUR MASTER BALLOT PROMPTLY. FACSIMILE BALLOTS WILL NOT
BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). Please review the Solicitation Statement and the appendices thereto
carefully before completing this Master Ballot. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
<PAGE>
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan and in favor of or against the indenture amendment
described below. This Master Ballot is to be used by brokers, proxy
intermediaries or other nominees for voting on behalf of beneficial owners
holding the Senior Subordinated Debentures. The Senior Subordinated Debentures
are classified in Class 5 in the Plan.
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such Class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Senior Subordinated
Debentures and all other Holders of Claims against and Interests in the Company
(including those who abstain or vote to reject the Plan) will be bound by the
Plan and the transactions contemplated thereby.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked herein to consent to an amendment to the
indentures for the Senior Subordinated Debentures (collectively, the
"Amendment") which will effect the redistribution of the Plan consideration to
which such Holders are entitled if either or both of the Classes of Holders of
Junior Subordinated Debentures and Holders of Old FCI Preferred Stock do not
accept the Plan and either or both of the Classes of Holders of Old FCI
Preferred Stock and Holders of Old FCI Common Stock do accept the Plan.
Accordingly, assuming adoption of the Amendment, (i) if the Holders of the
Junior Subordinated Debentures do not accept the Plan but the Holders of the Old
FCI Preferred Stock accept the Plan, Holders of the Old FCI Preferred Stock will
receive New Common Stock representing 1.25% of the New Common Stock of
Reorganized Flagstar, and (ii) if the Holders of Junior Subordinated Debentures
or the Holders of the Old FCI Preferred Stock do not accept the Plan but Holders
of the Old FCI Common Stock accept the Plan, Holders of the Old FCI Common Stock
will receive the New Warrants. (It is a condition to the effectiveness of the
Amendment with respect to either one of the indentures governing a portion of
the Senior Subordinated Debentures that such Amendment also be approved and
effective with respect to the other such indenture.)
The record date (the "Record Date") for purposes of determining which
holders of Senior Subordinated Debentures are eligible to vote on the Plan and
consent to the Amendment is May 23, 1997. Only holders of Senior Subordinated
Debentures in whose name such securities are registered on the books of the
Company on the Record Date or any person who has obtained a properly completed
proxy from such person are eligible to vote on the Plan
2
<PAGE>
and consent to the Amendment. Holders of Senior Subordinated Debentures who
purchased such securities or whose purchase of such securities is registered
after the Record Date who wish to vote must arrange with their respective
seller(s) to receive a proxy from the holder of record on such date, a form of
which is included on the last page of this Master Ballot.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT BEFORE
COMPLETING THE MASTER BALLOT:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF SENIOR SUBORDINATED DEBENTURES AS TO WHICH
VOTES ARE CAST.
The undersigned is a registered or record owner of, or has been granted a
proxy or power of attorney for, $ principal amount of Senior
Subordinated Debentures, for which voting instructions have been received from
beneficial owners (the "Beneficial Owners") of such Senior Subordinated
Debentures as listed in Item 3 below.
ITEM 2. CLASS 5 UNDER THE PLAN (SENIOR SUBORDINATED DEBENTURES) VOTE
-- AGGREGATE AMOUNT.
The Beneficial Owners of Senior Subordinated Debentures vote as follows:
[ ] To Accept the Plan $
Aggregate principal amount of
[ ] To Reject the Plan $ Senior Subordinated Debentures
Aggregate principal amount of
Senior Subordinated Debentures
Consent to the Amendment to the Indenture (Check One)
Yes [ ] $ *(aggregate principal amount of Senior
Subordinated Debentures)
No [ ] $ *(aggregate principal amount of Senior
Subordinated Debentures)
* If no amount is filled in, the Beneficial Owners will be deemed to be
voting all of the Senior Subordinated Debentures in favor of or against the
Amendment depending on the box checked.
ITEM 3. CLASS 5 UNDER THE PLAN (SENIOR SUBORDINATED DEBENTURES) VOTE -- NUMBER
OF BENEFICIAL OWNERS.
The undersigned certifies that the following Beneficial Owners of Senior
Subordinated Debentures or those on the attached list, as identified by their
respective customer account numbers or the respective sequence numbers set forth
below, have delivered to the undersigned Ballots casting the following votes
(Indicate the aggregate principal amount voted by each respective Beneficial
Owner under the appropriate column. Please use additional sheets of paper if
necessary):
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SENIOR SUBORDINATED
CUSTOMER ACCOUNT NUMBER FOR EACH DEBENTURES VOTED
BENEFICIAL OWNER OF SENIOR TO ACCEPT THE TO REJECT THE
SUBORDINATED DEBENTURES PLAN PLAN
<C> <S> <C> <C>
1. $ $
2. $ $
3. $ $
4. $ $
5. $ $
6. $ $
7. $ $
8. $ $
9. $ $
10. $ $
</TABLE>
ITEM 4. CERTIFICATION AS TO SENIOR SUBORDINATED DEBENTURES HELD IN ADDITIONAL
ACCOUNTS.
The undersigned certifies that it has transcribed below the information, if
any, as to the Senior Subordinated Debentures held in additional accounts as
provided in Item 3 of each Ballot received by the undersigned from a Beneficial
Owner:
<TABLE>
<CAPTION>
PROPOSED AMOUNT OF
YOUR CUSTOMER ACCOUNT SENIOR SUBORDINATED
NUMBER FOR EACH REGISTERED HOLDER OR DEBENTURES HELD IN
BENEFICIAL OWNER NOMINEE OF OTHER ACCOUNT OTHER ACCOUNT NUMBERS OTHER ACCOUNTS AND VOTED
<S> <C> <C> <C> <C>
1. $
2. $
3. $
4. $
5. $
</TABLE>
ITEM 5. By signing and returning this Master Ballot, the undersigned certifies
that each Beneficial Owner of Senior Subordinated Debentures whose votes are
being transmitted by this Master Ballot has been provided with a copy of the
Ballot and the Solicitation Statement and the appendices thereto.
4
<PAGE>
ITEM 6. By signing and returning this Master Ballot, the undersigned certifies
that: (i) it received a separate, complete and fully executed Ballot with
respect to each Beneficial Owner referenced in Item 3 of this Master Ballot and
(ii) it is the registered or record owner of, or has been granted a proxy or
power of attorney for, the aggregate principal amount of Senior Subordinated
Debentures set forth in Item 1. The undersigned also acknowledges that this
solicitation of acceptances of the Plan and consents to the Amendment is subject
to all the terms and conditions set forth in the Solicitation Statement.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
5
<PAGE>
THIS MASTER BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733
6
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR
ANY PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN AND IN FAVOR OF OR
AGAINST THE AMENDMENT. Accordingly, holders should NOT surrender certificates
representing their securities in connection with voting on the Plan and the
Amendment, and neither the Company nor the Solicitation Agent will accept
delivery of any such certificates tendered together with this Master Ballot.
Surrender of Senior Subordinated Debentures for exchange may only be made
pursuant to a letter of transmittal which will be furnished subsequently by the
Company.
To have the Beneficial Owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Solicitation Agent not
later than 5:00 p.m., Eastern Time, on , 1997, unless extended
at the sole discretion of the Company as provided in the Solicitation Statement.
If you receive Ballots from Beneficial Owners after , 1997,
please retain all such Ballots and notify the Solicitation Agent of
your receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as you customarily use to indicate votes that are not meant
to revoke earlier votes.
To properly complete the Master Ballot, take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot. Please note that Items 3 and 4 request information which
should be set forth in the Ballots received by you from each individual
Beneficial Owner for whom you hold Senior Subordinated Debentures. To
identify such Beneficial Owners without disclosing their names, please use
the customer account number assigned by you to each such Beneficial Owner
or, if no such customer account number exists, please use the sequential
numbers provided (making sure to retain a separate list of each Beneficial
Owner and his or her assigned sequential number);
(b) indicate in Item 2 the aggregate principal amount of Senior
Subordinated Debentures held by you as the registered or record holder on
behalf of the Beneficial Owners, or for which you have been granted a power
of attorney, that has voted to accept or to reject the Plan and that is
voting in favor of or against the Amendment;
(c) indicate in Item 3 each Beneficial Owner's vote to accept or to
reject the Plan and for or against the Amendment;
(d) provide in Item 4 the information provided by each Beneficial
Owner with respect to Senior Subordinated Debentures held by such
Beneficial Owners in other accounts;
(e) sign and date the Master Ballot;
(f) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity and the capacity in which you are
signing;
(g) provide your name and mailing address if different from the
preprinted address on the Master Ballot, or if no preprinted address
appears on the Master Ballot; and
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Master Ballot (clearly marked to
indicate the applicable item of the Master Ballot).
Please contact the Solicitation Agent in order to arrange for delivery of
the completed Master Ballot to its offices.
(Bullet) You should deliver a Ballot and Solicitation Statement to each
Beneficial Owner of the Senior Subordinated Debentures and take any action
required to enable each such Beneficial Owner to vote his or her respective
Senior
7
<PAGE>
Subordinated Debentures to accept or reject the Plan and in favor of or against
the Amendment. With regard to any Ballots returned to you, you must either (i)
execute and forward such Ballots to the Solicitation Agent or (ii)(a) retain
such Ballots in your files and transfer the requested information from each such
Ballot onto the attached Master Ballot, (b) execute the Master Ballot and (c)
arrange for delivery of such Master Ballot to the Solicitation Agent. THE
COMPANY REQUESTS THAT YOU RETAIN IN YOUR FILES THE BALLOTS RECEIVED FROM THE
BENEFICIAL OWNERS (INCLUDING LATE OR INCOMPLETE BALLOTS, IF ANY) UNTIL THE
COMPANY NOTIFIES YOU THAT THE PLAN HAS BEEN CONFIRMED BY THE BANKRUPTCY COURT.
(Bullet) If you are both the registered or record owner and Beneficial Owner
of any principal amount of Senior Subordinated Debentures or if you have a proxy
from a Beneficial Owner to vote for such Beneficial Owner and you wish to vote
such Senior Subordinated Debentures, you must return a Ballot.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots accepting the Plan or consenting
to the Amendment. The Company will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding the
Ballots and other enclosed materials to your clients. We will also pay all
transfer taxes, if any, applicable to the transfer and exchange of your
securities pursuant to and following confirmation of the Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CALL THE SOLICITATION AGENT AT (212) 344-6733.
8
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
AND OTHER MATTERS PERTAINING TO
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
11.25% SENIOR SUBORDINATED DEBENTURES DUE 2004
AND
11 3/8% SENIOR SUBORDINATED DEBENTURES DUE 2003
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote (i) to accept or reject the Plan (as defined below) with respect to the
11.25% Senior Subordinated Debentures due 2004 and 11 3/8% Senior Subordinated
Debentures due 2003 of Flagstar Corporation (collectively, the "Senior
Subordinated Debentures"), pursuant to the Solicitation Statement dated
, 1997, in which Flagstar Companies, Inc. and its wholly-owned
subsidiary, Flagstar Corporation (collectively, the "Company") are soliciting
acceptances from record holders of the Senior Subordinated Debentures of the
close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), and (ii) in favor of or against an amendment to the indentures for the
Senior Subordinated Debentures as described in the Solicitation Statement, with
all the power the undersigned would possess if voting personally. THIS PROXY IS
IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
, 1997 UNLESS EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Senior Subordinated Debentures Owned: $
9
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holders as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Senior Subordinated Debentures to which
this proxy relates. If the Senior Subordinated Debentures to which this proxy
relates are held of record by two or more joint holders on the Record Date, all
such holders must sign this proxy. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and must submit proper evidence satisfactory to the
Company and the Solicitation Agent of such person's authority so to act. If
Senior Subordinated Debentures owned by the record holder on the Record Date are
registered in different names, separate proxies must be executed covering each
form of registration. Unless the record holder on the Record Date is a member of
an authorized signature guarantee program recognized by the Company (an
"Eligible Institution"), this proxy must be guaranteed by an Eligible
Institution confirming the right of the signatory to the Ballot to execute such
Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Senior Subordinated
Debentures held for the account of an Eligible Guarantor Institution. IN ALL
OTHER CASES ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION.
10
<PAGE>
MASTER BALLOT FOR HOLDERS OF JUNIOR SUBORDINATED DEBENTURES
OF FLAGSTAR CORPORATION
CLASS 6 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION, ) MASTER BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 6)
</TABLE>
THIS MASTER BALLOT IS TO BE USED BY BROKERS, PROXY INTERMEDIARIES OR OTHER
NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS OF 10% CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES DUE 2014 OF FLAGSTAR CORPORATION (THE "JUNIOR
SUBORDINATED DEBENTURES"). PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS
CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS MASTER BALLOT AND RETURN IT IN
THE ENCLOSED ENVELOPE PROMPTLY. IF THIS MASTER BALLOT HAS NOT BEEN RECEIVED BY
KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED (THE "DEADLINE"), IT WILL NOT BE
COUNTED. PLEASE MAIL YOUR MASTER BALLOT PROMPTLY. FACSIMILE BALLOTS WILL NOT BE
ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). Please review the Solicitation Statement and the appendices thereto
carefully before completing this Master Ballot. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
<PAGE>
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan. This Master Ballot is to be used by brokers, proxy
intermediaries or other nominees for voting on behalf of beneficial owners
holding the Junior Subordinated Debentures. The Junior Subordinated Debentures
are classified in Class 6 in the Plan.
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganized Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the bankruptcy court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Junior Subordinated
Debentures and all other Holders of Claims against and Interests in the Company
(including those who abstain or vote to reject the Plan) will be bound by the
Plan and the transactions contemplated thereby.
In the event Class 6 does not accept the Plan, then (x) no Holder of any
Claim or Interest junior to the Allowed Class 6 Interests shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 6 Interests shall not receive any interest or property under the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment by Holders of the
Senior Subordinated Debentures, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
2
<PAGE>
The record date (the "Record Date") for purposes of determining which
holders of Junior Subordinated Debentures are eligible to vote on the Plan is
May 23, 1997. Only holders of Junior Subordinated Debentures in whose name such
securities are registered on the books of the Company on the Record Date or any
person who has obtained a properly completed proxy from such person are eligible
to vote on the Plan. Holders of Junior Subordinated Debentures who purchased
such securities or whose purchase of such securities is registered after the
Record Date who wish to vote on the Plan must arrange with their respective
seller(s) to receive a proxy from the holder of record on such date, a form of
which is included on the last page of this Master Ballot.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT BEFORE
COMPLETING THE MASTER BALLOT:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF JUNIOR SUBORDINATED DEBENTURES AS TO WHICH
VOTES ARE CAST.
The undersigned is a registered or record owner of, or has been granted a
proxy or power of attorney for, $ principal amount of Junior
Subordinated Debentures, for which voting instructions have been received from
beneficial owners (the "Beneficial Owners") of such Junior Subordinated
Debentures as listed in Item 3 below.
ITEM 2. CLASS 6 UNDER THE PLAN (JUNIOR SUBORDINATED DEBENTURES)
VOTE -- AGGREGATE AMOUNT.
The Beneficial Owners of Junior Subordinated Debentures vote as follows:
[ ] To Accept the Plan $
Aggregate principal amount of
[ ] To Reject the Plan $ Junior Subordinated Debentures
Aggregate principal amount of
Junior Subordinated Debentures
ITEM 3. CLASS 6 UNDER THE PLAN (JUNIOR SUBORDINATED DEBENTURES) VOTE -- NUMBER
OF BENEFICIAL OWNERS.
The undersigned certifies that the following Beneficial Owners of Junior
Subordinated Debentures or those on the attached list, as identified by their
respective customer account numbers or the respective sequence numbers set forth
below, have delivered to the undersigned Ballots casting the following votes
(Indicate the aggregate principal amount voted by each respective Beneficial
Owner under the appropriate column. Please use additional sheets of paper if
necessary):
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF JUNIOR SUBORDINATED
CUSTOMER ACCOUNT NUMBER FOR EACH DEBENTURES VOTED
BENEFICIAL OWNER OF JUNIOR TO ACCEPT THE TO REJECT THE
SUBORDINATED DEBENTURES PLAN PLAN
<C> <S> <C> <C>
1. $ $
2. $ $
3. $ $
4. $ $
5. $ $
6. $ $
7. $ $
8. $ $
9. $ $
10. $ $
</TABLE>
ITEM 4. CERTIFICATION AS TO JUNIOR SUBORDINATED DEBENTURES HELD IN ADDITIONAL
ACCOUNTS.
The undersigned certifies that it has transcribed below the information, if
any, as to the Junior Subordinated Debentures held in additional accounts as
provided in Item 3 of each Ballot received by the undersigned from a Beneficial
Owner:
<TABLE>
<CAPTION>
PROPOSED AMOUNT OF
YOUR CUSTOMER ACCOUNT JUNIOR SUBORDINATED
NUMBER FOR EACH REGISTERED HOLDER OR DEBENTURES HELD IN
BENEFICIAL OWNER NOMINEE OF OTHER ACCOUNT OTHER ACCOUNT NUMBERS OTHER ACCOUNTS AND VOTED
<S> <C> <C> <C> <C>
1. $
2. $
3. $
4. $
5. $
</TABLE>
ITEM 5. By signing and returning this Master Ballot, the undersigned certifies
that each Beneficial Owner of Junior Subordinated Debentures whose votes are
being transmitted by this Master Ballot has been provided with a copy of the
Ballot and the Solicitation Statement and the appendices thereto.
4
<PAGE>
ITEM 6. By signing and returning this Master Ballot, the undersigned certifies
that: (i) it received a separate, complete and fully executed Ballot with
respect to each Beneficial Owner referenced in Item 3 of this Master Ballot and
(ii) it is the registered or record owner of, or has been granted a proxy or
power of attorney for, the aggregate principal amount of Junior Subordinated
Debentures set forth in Item 1. The undersigned also acknowledges that this
solicitation of acceptances of the Plan is subject to all the terms and
conditions set forth in the Solicitation Statement.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
5
<PAGE>
THIS MASTER BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733
6
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR
ANY PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly,
holders should NOT surrender certificates representing their securities in
connection with voting on the Plan, and neither the Company nor the Solicitation
Agent will accept delivery of any such certificates tendered together with this
Master Ballot. Surrender of Junior Subordinated Debentures for exchange may only
be made pursuant to a letter of transmittal which will be furnished subsequently
by the Company.
To have the Beneficial Owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Solicitation Agent not
later than 5:00 p.m., Eastern Time, on , 1997, unless extended
at the sole discretion of the Company as provided in the Solicitation
Statement. If you receive Ballots from Beneficial
Owners after , 1997, please retain all such Ballots and notify
the Solicitation Agent of your receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as you customarily use to indicate votes that are not meant
to revoke earlier votes.
To properly complete the Master Ballot, take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot. Please note that Items 3 and 4 request information which
should be set forth in the Ballots received by you from each individual
Beneficial Owner for whom you hold Junior Subordinated Debentures. To
identify such Beneficial Owners without disclosing their names, please use
the customer account number assigned by you to each such Beneficial Owner
or, if no such customer account number exists, please use the sequential
numbers provided (making sure to retain a separate list of each Beneficial
Owner and his or her assigned sequential number);
(b) indicate in Item 2 the aggregate principal amount of Junior
Subordinated Debentures held by you as the registered or record holder on
behalf of the Beneficial Owners, or for which you have been granted a power
of attorney, that has voted to accept or to reject the Plan;
(c) indicate in Item 3 each Beneficial Owner's vote to accept or to
reject the Plan;
(d) provide in Item 4 the information provided by each Beneficial
Owner with respect to Junior Subordinated Debentures held by such
Beneficial Owners in other accounts;
(e) sign and date the Master Ballot;
(f) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity and the capacity in which you are
signing;
(g) provide your name and mailing address if different from the
preprinted address on the Master Ballot, or if no preprinted address
appears on the Master Ballot; and
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Master Ballot (clearly marked to
indicate the applicable item of the Master Ballot).
Please contact the Solicitation Agent in order to arrange for delivery of
the completed Master Ballot to its offices.
(Bullet) You should deliver a Ballot and Solicitation Statement to each
Beneficial Owner of the Junior Subordinated Debentures and take any action
required to enable each such Beneficial Owner to vote his or her respective
Junior Subordinated Debentures to accept or reject the Plan. With regard to any
Ballots returned to you, you must either (i) execute and forward such Ballots to
the Solicitation Agent or (ii)(a) retain such Ballots in your files and transfer
7
<PAGE>
the requested information from each such Ballot onto the attached Master Ballot,
(b) execute the Master Ballot and (c) arrange for delivery of such Master Ballot
to the Solicitation Agent. THE COMPANY REQUESTS THAT YOU RETAIN IN YOUR FILES
THE BALLOTS RECEIVED FROM THE BENEFICIAL OWNERS (INCLUDING LATE OR INCOMPLETE
BALLOTS, IF ANY) UNTIL THE COMPANY NOTIFIES YOU THAT THE PLAN HAS BEEN CONFIRMED
BY THE BANKRUPTCY COURT.
(Bullet) If you are both the registered or record owner and Beneficial Owner
of any principal amount of Junior Subordinated Debentures or if you have a proxy
from a Beneficial Owner to vote for such Beneficial Owner and you wish to vote
such Junior Subordinated Debentures, you must return a Ballot.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots accepting the Plan. The Company
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the Ballots and other enclosed materials
to your clients. We will also pay all transfer taxes, if any, applicable to the
transfer and exchange of your securities pursuant to and following confirmation
of the Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CALL THE SOLICITATION AGENT AT (212) 344-6733.
8
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
10% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2014
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the 10%
Convertible Junior Subordinated Debentures due 2014 of Flagstar Corporation (the
"Junior Subordinated Debentures"), pursuant to the Solicitation Statement dated
, 1997, in which Flagstar Companies, Inc. and its wholly-owned
subsidiary, Flagstar Corporation (collectively, the "Company") are soliciting
acceptances from record holders of the Junior Subordinated Debentures as of the
close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), with all the power the undersigned would possess if voting personally.
THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
, 1997 UNLESS EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Junior Subordinated Debentures Owned: $
9
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Junior Subordinated Debentures to which
this proxy relates. If the Junior Subordinated Debentures to which this proxy
relates are held of record by two or more joint holders on the Record Date, all
such holders must sign this proxy. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and must submit proper evidence satisfactory to the
Company and the Solicitation Agent of such person's authority so to act. If
Junior Subordinated Debentures owned by the record holder on the Record Date are
registered in different names, separate proxies must be executed covering each
form of registration. Unless the record holder on the Record Date is a member of
an authorized signature guarantee program recognized by the Company (an
"Eligible Institution"), this proxy must be guaranteed by an Eligible
Institution confirming the right of the signatory to the Ballot to execute such
Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Junior Subordinated
Debentures held for the account of an Eligible Guarantor Institution. IN ALL
OTHER CASES ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION.
10
<PAGE>
MASTER BALLOT FOR HOLDERS OF OLD FCI PREFERRED STOCK OF FLAGSTAR COMPANIES, INC.
CLASS 8 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION, ) MASTER BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 8)
</TABLE>
THIS MASTER BALLOT IS TO BE USED BY BROKERS, PROXY INTERMEDIARIES OR OTHER
NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS HOLDING THE $2.25 SERIES A
CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF FLAGSTAR COMPANIES, INC.
(THE "OLD FCI PREFERRED STOCK"). PLEASE READ AND FOLLOW THE ATTACHED
INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS MASTER BALLOT AND
RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF THIS MASTER BALLOT HAS NOT BEEN
RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00 P.M., EASTERN
TIME, ON , 1997, UNLESS EXTENDED (THE "DEADLINE"), IT WILL NOT
BE COUNTED. PLEASE MAIL YOUR MASTER BALLOT PROMPTLY. FACSIMILE BALLOTS WILL NOT
BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated ____________, 1997 (the "Solicitation Statement").
Please review the Solicitation Statement and the appendices thereto carefully
before completing this Master Ballot. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Plan.
<PAGE>
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan. This Master Ballot is to be used by brokers, proxy
intermediaries or other nominees for voting on behalf of beneficial owners
holding the Old FCI Preferred Stock. The Old FCI Preferred Stock is classified
in Class 8 in the Plan.
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such Class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old FCI Preferred Stock
and all other Holders of Claims against and Interests in the Company (including
those who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
In the event Class 8 does not accept the Plan, then (x) no Holder of any
Claim or Interest junior to the Allowed Class 8 Interests shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 8 Interests shall not receive any interest or property under the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and will be entitled to receive its pro rata share of the New Warrants
that would otherwise have been distributed to Holders of the Old FCI Common
Stock, and (iii) in the event that Holders of the Old FCI Common Stock do not
accept the Plan but Holders of Junior Subordinated Debentures and Old FCI
Preferred Stock accept the Plan, then each Holder of Senior Subordinated
Debentures will also be entitled to receive its pro rata share of the New
Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment by Holders of the
Senior Subordinated Debentures, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
2
<PAGE>
The record date (the "Record Date") for purposes of determining which
holders of Old FCI Preferred Stock are eligible to vote on the Plan is May 23,
1997. Only holders of Old FCI Preferred Stock in whose name such securities are
registered on the books of the Company on the Record Date or any person who has
obtained a properly completed proxy from such person are eligible to vote on the
Plan. Holders of Old FCI Preferred Stock who purchased such securities or whose
purchase of such securities is registered after the Record Date who wish to vote
on the Plan must arrange with their respective seller(s) to receive a proxy from
the holder of record on such date, a form of which is included on the last page
of this Master Ballot.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT BEFORE
COMPLETING THE MASTER BALLOT:
ITEM 1. NUMBER OF SHARES OF OLD FCI PREFERRED STOCK AS TO WHICH VOTES ARE CAST.
The undersigned is a registered or record owner of, or has been granted a
proxy or power of attorney for, shares of Old FCI Preferred
Stock, for which voting instructions have been received from beneficial owners
(the "Beneficial Owners") of such Old FCI Preferred Stock as listed in Item 3
below.
ITEM 2. CLASS 8 UNDER THE PLAN (OLD FCI PREFERRED STOCK) VOTE -- AGGREGATE
NUMBER OF SHARES.
The Beneficial Owners of Old FCI Preferred Stock vote as follows:
[ ] To Accept the Plan
$
Aggregate Number of Shares of Old FCI
[ ] To Reject the Plan Preferred Stock
$
Aggregate Number of Shares of Old FCI
Preferred Stock
ITEM 3. CLASS 8 UNDER THE PLAN (OLD FCI PREFERRED STOCK) VOTE -- NUMBER OF
BENEFICIAL OWNERS.
The undersigned certifies that the following Beneficial Owners of Old FCI
Preferred Stock or those on the attached list, as identified by their respective
customer account numbers or the respective sequence numbers set forth below,
have delivered to the undersigned Ballots casting the following votes (Indicate
the number of shares voted by each respective Beneficial Owner under the
appropriate column. Please use additional sheets of paper if necessary):
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF OLD FCI PREFERRED STOCK VOTED
CUSTOMER ACCOUNT NUMBER FOR EACH TO ACCEPT THE TO REJECT THE
BENEFICIAL OWNER OF OLD FCI PREFERRED STOCK PLAN PLAN
<C> <S> <C> <C>
1. $ $
2. $ $
3. $ $
4. $ $
5. $ $
6. $ $
7. $ $
8. $ $
9. $ $
10. $ $
</TABLE>
ITEM 4. CERTIFICATION AS TO OLD FCI PREFERRED STOCK HELD IN ADDITIONAL ACCOUNTS.
The undersigned certifies that it has transcribed below the information, if
any, as to the Old FCI Preferred Stock held in additional accounts as provided
in Item 3 of each Ballot received by the undersigned from a Beneficial Owner:
<TABLE>
<CAPTION>
NUMBER OF SHARES OLD
YOUR CUSTOMER ACCOUNT FCI PREFERRED STOCK HELD
NUMBER FOR EACH REGISTERED HOLDER OR IN
BENEFICIAL OWNER NOMINEE OF OTHER ACCOUNT OTHER ACCOUNT NUMBERS OTHER ACCOUNTS AND VOTED
<S> <C> <C> <C> <C>
1. $
2. $
3. $
4. $
5. $
</TABLE>
ITEM 5. By signing and returning this Master Ballot, the undersigned certifies
that each Beneficial Owner of Old FCI Preferred Stock whose votes are being
transmitted by this Master Ballot has been provided with a copy of the Ballot
and the Solicitation Statement and the appendices thereto.
4
<PAGE>
ITEM 6. By signing and returning this Master Ballot, the undersigned certifies
that: (i) it received a separate, complete and fully executed Ballot with
respect to each Beneficial Owner referenced in Item 3 of this Master Ballot and
(ii) it is the registered or record owner of, or has been granted a proxy or
power of attorney for, the aggregate number of shares of Old FCI Preferred Stock
set forth in Item 1. The undersigned also acknowledges that this solicitation of
acceptances of the Plan is subject to all the terms and conditions set forth in
the Solicitation Statement.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
5
<PAGE>
THIS MASTER BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733
6
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR
ANY PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly,
holders should NOT surrender certificates representing their securities in
connection with voting on the Plan, and neither the Company nor the Solicitation
Agent will accept delivery of any such certificates tendered together with this
Master Ballot. Surrender of Old FCI Preferred Stock for exchange may only be
made pursuant to a letter of transmittal which will be furnished subsequently by
the Company.
To have the Beneficial Owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Solicitation Agent not
later than 5:00 p.m., Eastern Time, on , 1997, unless extended
at the sole discretion of the Company as provided in the Solicitation
Statement. If you receive Ballots from Beneficial
Owners after , 1997, please retain all such Ballots and notify
the Solicitation Agent of your receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as you customarily use to indicate votes that are not meant
to revoke earlier votes.
To properly complete the Master Ballot, take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot. Please note that Items 3 and 4 request information which
should be set forth in the Ballots received by you from each individual
Beneficial Owner for whom you hold Old FCI Preferred Stock. To identify
such Beneficial Owners without disclosing their names, please use the
customer account number assigned by you to each such Beneficial Owner or,
if no such customer account number exists, please use the sequential
numbers provided (making sure to retain a separate list of each Beneficial
Owner and his or her assigned sequential number);
(b) indicate in Item 2 the aggregate number of shares of Old FCI
Preferred Stock held by you as the registered or record holder on behalf of
the Beneficial Owners, or for which you have been granted a power of
attorney, that has voted to accept or to reject the Plan;
(c) indicate in Item 3 each Beneficial Owner's vote to accept or to
reject the Plan;
(d) provide in Item 4 the information provided by each Beneficial
Owner with respect to Old FCI Preferred Stock held by such Beneficial
Owners in other accounts;
(e) sign and date the Master Ballot;
(f) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity and the capacity in which you are
signing;
(g) provide your name and mailing address if different from the
preprinted address on the Master Ballot, or if no preprinted address
appears on the Master Ballot; and
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Master Ballot (clearly marked to
indicate the applicable item of the Master Ballot).
Please contact the Solicitation Agent in order to arrange for delivery
of the completed Master Ballot to its offices.
(Bullet) You should deliver a Ballot and Solicitation Statement to each
Beneficial Owner of the Old FCI Preferred Stock and take any action required to
enable each such beneficial owner to vote his or her respective Old FCI
Preferred Stock to accept or reject the Plan. With regard to any Ballots
returned to you, you must either (i) execute and forward such Ballots to the
Solicitation Agent or (ii)(a) retain such Ballots in your files and transfer the
requested information from each such Ballot onto the attached Master Ballot, (b)
execute the Master Ballot and (c)
7
<PAGE>
arrange for delivery of such Master Ballot to the Solicitation Agent. THE
COMPANY REQUESTS THAT YOU RETAIN IN YOUR FILES THE BALLOTS RECEIVED FROM THE
BENEFICIAL OWNERS (INCLUDING LATE OR INCOMPLETE BALLOTS, IF ANY) UNTIL THE
COMPANY NOTIFIES YOU THAT THE PLAN HAS BEEN CONFIRMED BY THE BANKRUPTCY COURT.
(Bullet) If you are both the registered or record owner and Beneficial Owner
of any shares of Old FCI Preferred Stock or if you have a proxy from a
Beneficial Owner to vote for such Beneficial Owner and you wish to vote such Old
FCI Preferred Stock, you must return a Ballot.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots accepting the Plan. The Company
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the Ballots and other enclosed materials
to your clients. We will also pay all transfer taxes, if any, applicable to the
transfer and exchange of your securities pursuant to and following confirmation
of the Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING PROCEDURES,
PLEASE CALL THE SOLICITATION AGENT AT (212) 344-6733.
8
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
$2.25 SERIES A CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OF
FLAGSTAR COMPANIES, INC.
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the $2.25
Series A Cumulative Convertible Exchangeable Preferred Stock of Flagstar
Companies, Inc., (the "Old FCI Preferred Stock"), pursuant to the Solicitation
Statement dated ____________, 1997, in which Flagstar Companies, Inc. and its
wholly-owned subsidiary, Flagstar Corporation (collectively, the "Company") are
soliciting acceptances from record holders of the Old FCI Preferred Stock as of
the close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), with all the power the undersigned would possess if voting personally.
THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
, 1997 UNLESS EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Number of Shares of
Old FCI Preferred Stock Owned: $
9
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old FCI Preferred Stock to which this
proxy relates. If the Old FCI Preferred Stock to which this proxy relates are
held of record by two or more joint holders on the Record Date, all such holders
must sign this proxy. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to the Company and the
Solicitation Agent of such person's authority so to act. If Old FCI Preferred
Stock owned by the record holder on the Record Date are registered in different
names, separate proxies must be executed covering each form of registration.
Unless the record holder on the Record Date is a member of an authorized
signature guarantee program recognized by the Company (an "Eligible
Institution"), this proxy must be guaranteed by an Eligible Institution
confirming the right of the signatory to the Ballot to execute such Ballot on
behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old FCI Preferred Stock
held for the account of an Eligible Guarantor Institution. IN ALL OTHER CASES
ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
10
<PAGE>
MASTER BALLOT FOR HOLDERS OF OLD FCI COMMON STOCK OF FLAGSTAR COMPANIES, INC.
CLASS 9 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION, ) MASTER BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 9)
</TABLE>
THIS MASTER BALLOT IS TO BE USED BY BROKERS, PROXY INTERMEDIARIES OR OTHER
NOMINEES FOR VOTING ON BEHALF OF BENEFICIAL OWNERS HOLDING THE COMMON STOCK, PAR
VALUE $.50 PER SHARE, OF FLAGSTAR COMPANIES, INC. (THE "OLD FCI COMMON STOCK").
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE,
SIGN AND DATE THIS MASTER BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE
PROMPTLY. IF THIS MASTER BALLOT HAS NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE
"SOLICITATION AGENT") BY 5:00 P.M., EASTERN TIME, ON , 1997,
UNLESS EXTENDED (THE "DEADLINE"), IT WILL NOT BE COUNTED. PLEASE MAIL YOUR
MASTER BALLOT PROMPTLY. FACSIMILE BALLOTS WILL NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). Please review the Solicitation Statement and the appendices thereto
carefully before completing this Master Ballot. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
<PAGE>
This Master Ballot may not be used for any purpose other than for voting to
accept or reject the Plan. This Master Ballot is to be used by brokers, proxy
intermediaries or other nominees for voting on behalf of beneficial owners
holding the Old FCI Common Stock. The Old FCI Common Stock is classified in
Class 9 in the Plan.
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such Class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old FCI Common Stock and
all other Holders of Claims against and Interests in the Company (including
those who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
In the event Class 6, 8 or 9 votes to reject the Plan, Holders of Allowed
Class 9 Interests shall not receive or retain any interests or property under
the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment by Holders of the
Senior Subordinated Debentures (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
2
<PAGE>
The record date (the "Record Date") for purposes of determining which
holders of Old FCI Common Stock are eligible to vote on the Plan is May 23,
1997. Only holders of Old FCI Common Stock in whose name such securities are
registered on the books of the Company on the Record Date or any person who has
obtained a properly completed proxy from such person are eligible to vote on the
Plan. Holders of Old FCI Common Stock who purchased such securities or whose
purchase of such securities is registered after the Record Date who wish to vote
on the Plan must arrange with their respective seller(s) to receive a proxy from
the holder of record on such date, a form of which is included on the last page
of this Master Ballot.
PLEASE READ THE ATTACHED INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT BEFORE
COMPLETING THE MASTER BALLOT:
ITEM 1. NUMBER OF SHARES OF OLD FCI COMMON STOCK AS TO WHICH VOTES ARE CAST.
The undersigned is a registered or record owner of, or has been granted a
proxy or power of attorney for, shares of Old FCI Common
Stock, for which voting instructions have been received from beneficial owners
(the "Beneficial Owners") of such Old FCI Common Stock as listed in Item 3
below.
ITEM 2. CLASS 9 UNDER THE PLAN (OLD FCI COMMON STOCK) VOTE -- AGGREGATE NUMBER
OF SHARES.
The Beneficial Owners of Old FCI Common Stock vote as follows:
[ ] To Accept the Plan
$
Aggregate Number of Shares of
[ ] To Reject the Plan Old FCI Common Stock
$
Aggregate Number of Shares of
Old FCI Common Stock
ITEM 3. CLASS 9 UNDER THE PLAN (OLD FCI COMMON STOCK) VOTE -- NUMBER OF
BENEFICIAL OWNERS.
The undersigned certifies that the following Beneficial Owners of Old FCI
Common Stock or those on the attached list, as identified by their respective
customer account numbers or the respective sequence numbers set forth below,
have delivered to the undersigned Ballots casting the following votes (Indicate
the aggregate number of shares voted by each respective Beneficial Owner under
the appropriate column. Please use additional sheets of paper if necessary):
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF OLD FCI COMMON STOCK VOTED
CUSTOMER ACCOUNT NUMBER FOR EACH TO ACCEPT THE TO REJECT THE
BENEFICIAL OWNER OF OLD FCI COMMON STOCK PLAN PLAN
<C> <S> <C> <C>
1. $ $
2. $ $
3. $ $
4. $ $
5. $ $
6. $ $
7. $ $
8. $ $
9. $ $
10. $ $
</TABLE>
ITEM 4. CERTIFICATION AS TO OLD FCI COMMON STOCK HELD IN ADDITIONAL ACCOUNTS.
The undersigned certifies that it has transcribed below the information, if
any, as to the Old FCI Common Stock held in additional accounts as provided in
Item 3 of each Ballot received by the undersigned from a Beneficial Owner:
<TABLE>
<CAPTION>
PROPOSED AMOUNT OF
YOUR CUSTOMER ACCOUNT OLD FCI COMMON STOCK
NUMBER FOR EACH REGISTERED HOLDER OR HELD IN OTHER ACCOUNTS
BENEFICIAL OWNER NOMINEE OF OTHER ACCOUNT OTHER ACCOUNT NUMBERS AND VOTED
<S> <C> <C> <C> <C>
1. $
2. $
3. $
4. $
5. $
</TABLE>
ITEM 5. By signing and returning this Master Ballot, the undersigned certifies
that each Beneficial Owner of Old FCI Common Stock whose votes are being
transmitted by this Master Ballot has been provided with a copy of the Ballot
and the Solicitation Statement and the appendices thereto.
4
<PAGE>
ITEM 6. By signing and returning this Master Ballot, the undersigned certifies
that: (i) it received a separate, complete and fully executed Ballot with
respect to each Beneficial Owner referenced in Item 3 of this Master Ballot and
(ii) it is the registered or record owner of, or has been granted a proxy or
power of attorney for, the aggregate number of shares of Old FCI Common Stock
set forth in Item 1. The undersigned also acknowledges that this solicitation of
acceptances of the Plan is subject to all the terms and conditions set forth in
the Solicitation Statement.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
5
<PAGE>
THIS MASTER BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON ____________, 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK, NEW YORK 10005
(212) 344-6733
6
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
THE MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR
ANY PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly,
holders should NOT surrender certificates representing their securities in
connection with voting on the Plan, and neither the Company nor the Solicitation
Agent will accept delivery of any such certificates tendered together with this
Master Ballot. Surrender of Old FCI Common Stock for exchange may only be made
pursuant to a letter of transmittal which will be furnished subsequently by the
Company.
To have the Beneficial Owners' votes count, you must complete, sign and
return this Master Ballot so that it is received by the Solicitation Agent not
later than 5:00 p.m., Eastern Time, on , 1997, unless extended
at the sole discretion of the Company as provided in the Solicitation
Statement. If you receive Ballots from Beneficial
Owners after , 1997, please retain all such Ballots and notify
the Solicitation Agent of your receipt of such late Ballots.
If you complete and return more than one Master Ballot and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as you customarily use to indicate votes that are not meant
to revoke earlier votes.
To properly complete the Master Ballot, take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot. Please note that Items 3 and 4 request information which
should be set forth in the Ballots received by you from each individual
Beneficial Owner for whom you hold Old FCI Common Stock. To identify such
Beneficial Owners without disclosing their names, please use the customer
account number assigned by you to each such Beneficial Owner or, if no such
customer account number exists, please use the sequential numbers provided
(making sure to retain a separate list of each Beneficial Owner and his or
her assigned sequential number);
(b) indicate in Item 2 the aggregate number of shares of Old FCI
Common Stock held by you as the registered or record holder on behalf of
the Beneficial Owners, or for which you have been granted a power of
attorney, that has voted to accept or to reject the Plan;
(c) indicate in Item 3 each Beneficial Owner's vote to accept or to
reject the Plan;
(d) provide in Item 4 the information provided by each Beneficial
Owner with respect to Old FCI Common Stock held by such Beneficial Owners
in other accounts;
(e) sign and date the Master Ballot;
(f) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity and the capacity in which you are
signing;
(g) provide your name and mailing address if different from the
preprinted address on the Master Ballot, or if no preprinted address
appears on the Master Ballot; and
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Master Ballot (clearly marked to
indicate the applicable item of the Master Ballot).
Please contact the Solicitation Agent in order to arrange for delivery of
the completed Master Ballot to its offices.
7
<PAGE>
(Bullet) You should deliver a Ballot and Solicitation Statement to each
beneficial owner of the Old FCI Common Stock and take any action required to
enable each such Beneficial Owner to vote his or her respective Old FCI Common
Stock to accept or reject the Plan. With regard to any Ballots returned to you,
you must either (i) execute and forward such Ballots to the Solicitation Agent
or (ii)(a) retain such Ballots in your files and transfer the requested
information from each such Ballot onto the attached Master Ballot, (b) execute
the Master Ballot and (c) arrange for delivery of such Master Ballot to the
Solicitation Agent. THE COMPANY REQUESTS THAT YOU RETAIN IN YOUR FILES THE
BALLOTS RECEIVED FROM THE BENEFICIAL OWNERS (INCLUDING LATE OR INCOMPLETE
BALLOTS, IF ANY) UNTIL THE COMPANY NOTIFIES YOU THAT THE PLAN HAS BEEN CONFIRMED
BY THE BANKRUPTCY COURT.
(Bullet) If you are both the registered or record owner and Beneficial Owner
of any shares of Old FCI Common Stock or if you have a proxy from a Beneficial
Owner to vote for such Beneficial Owner and you wish to vote such Old FCI Common
Stock, you must return a Ballot.
No fees or commissions or other remuneration will be payable to any broker,
dealer or other person for soliciting Ballots accepting the Plan. The Company
will, however, upon request, reimburse you for customary mailing and handling
expenses incurred by you in forwarding the Ballots and other enclosed materials
to your clients. We will also pay all transfer taxes, if any, applicable to the
transfer and exchange of your securities pursuant to and following confirmation
of the Plan.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CALL THE SOLICITATION AGENT AT (212) 344-6733.
8
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
COMMON STOCK, PAR VALUE $.50 PER SHARE
OF
FLAGSTAR COMPANIES, INC.
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the Common
Stock, par value $.50 per share, of Flagstar Companies, Inc. (the "Old FCI
Common Stock"), pursuant to the Solicitation Statement dated ,
1997, in which Flagstar Companies, Inc. and its wholly-owned subsidiary,
Flagstar Corporation (collectively the "Company") are soliciting acceptances
from record holders of the Old FCI Common Stock of the close of business on May
23, 1997 (the "Record Date") for their plan of reorganization under Chapter 11
of the United States Bankruptcy Code (the "Plan"), with all the power the
undersigned would possess if voting personally. THIS PROXY IS IRREVOCABLE AND IS
COUPLED WITH AN INTEREST AND SHALL EXPIRE ON , 1997 UNLESS
EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Number of Shares of
Old FCI Common Stock Owned: $
9
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of at the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old FCI Common Stock to which this proxy
relates. If the Old FCI Common Stock to which this proxy relates are held of
record by two or more joint holders on the Record Date, all such holders must
sign this proxy. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to the Company and the
Solicitation Agent of such person's authority so to act. If Old FCI Common Stock
owned by the record holder on the Record Date are registered in different names,
separate proxies must be executed covering each form of registration. Unless the
record holder on the Record Date is a member of an authorized signature
guarantee program recognized by the Company (an "Eligible Institution"), this
proxy must be guaranteed by an Eligible Institution confirming the right of the
signatory to the Ballot to execute such Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old FCI Common Stock held
for the account of an Eligible Guarantor Institution. IN ALL OTHER CASES ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
10
<PAGE>
BALLOT FOR OWNERS OF OLD SENIOR NOTES OF FLAGSTAR CORPORATION
CLASS 4 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION ) BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN OF
Debtors. ) REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
) (CLASS 4)
</TABLE>
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF 10 3/4% SENIOR NOTES DUE 2001
AND BY BENEFICIAL OWNERS OF 10 7/8% SENIOR NOTES DUE 2002 (COLLECTIVELY, THE
"OLD SENIOR NOTES") OR REGISTERED HOLDERS WHO ARE BENEFICIAL OWNERS. PLEASE READ
AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE
THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOUR VOTE HAS
NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00 P.M.,
EASTERN TIME, ON , 1997, UNLESS EXTENDED (THE "DEADLINE"), IT
WILL NOT BE COUNTED. IF THE ENCLOSED RETURN ENVELOPE IS ADDRESSED TO YOUR
NOMINEE OR YOUR NOMINEE'S PROXY INTERMEDIARY, PLEASE MAIL YOUR BALLOT
SUFFICIENTLY IN ADVANCE OF THE DEADLINE SO THAT IT MAY BE PROCESSED AND
FORWARDED TO THE SOLICITATION AGENT BEFORE THE DEADLINE. FACSIMILE BALLOTS WILL
NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar" and collectively with FCI, the "Company") are soliciting
your vote with respect to their joint plan of reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Plan") referred to and described in the
accompanying Prospectus dated ____________, 1997 (the "Solicitation Statement").
This Ballot is to be used by beneficial owners, or registered holders who are
beneficial owners, of the Old Senior Notes. The Old Senior Notes are classified
as Class 4 in the Plan. Please review the Solicitation Statement and the
appendices thereto carefully before you vote. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
<PAGE>
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old Senior Notes and all
other Holders of Claims against and Interests in the Company (including those
who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
The record date (the "Record Date") for purposes of determining which
holders of Old Senior Notes are eligible to vote on the Plan is May 23, 1997.
Only holders of Old Senior Notes in whose name such securities are registered on
the books of the Company on the Record Date or any person who has obtained a
properly completed proxy from such person are eligible to vote on the Plan.
Holders of Old Senior Notes who purchased such securities or whose purchase of
such securities is registered after the Record Date who wish to vote on the Plan
must arrange with their respective seller(s) to receive a proxy from the holder
of record on such date, a form of which is included on the last page of this
Ballot for your convenience.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE YOUR ACCEPTANCE OR REJECTION
OF THE PLAN:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF OLD SENIOR NOTES CLAIMS.
This Ballot is cast by or on behalf of the beneficial owner of the
aggregate principal amount of the Old Senior Notes indicated immediately below.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OR
CUSTOMER ACCOUNT NUMBERS AGGREGATE PRINCIPAL AMOUNT OF OLD SENIOR NOTES
<S> <C>
$
</TABLE>
2
<PAGE>
ITEM 2. CLASS 4 UNDER THE PLAN (OLD SENIOR NOTES) VOTE.
The beneficial owner of the aggregate principal amount of Old Senior Notes
set forth in Item 1 votes to (please check one):
<TABLE>
<S> <C>
Accept the Plan [ ]
Reject the Plan [ ]
</TABLE>
ITEM 3. CERTIFICATION AS TO OLD SENIOR NOTES HELD IN ADDITIONAL ACCOUNTS.
By signing and returning this Ballot, the undersigned certifies that the
beneficial owner either (i) has not submitted any other Ballots for Old Senior
Notes held in other accounts or other record names, OR (ii) has provided the
information specified in the following table for all other Old Senior Notes for
which the beneficial owner has submitted additional Ballots (please use
additional sheets of paper if necessary):
[CAPTION]
<TABLE>
<S> <C> <C>
$
Other Account number Name of registered holder or nominee Face amount of Old Senior Notes
<S> <C> <C>
$
Other Account number Name of registered holder or nominee Face amount of Old Senior Notes
</TABLE>
ITEM 4. By signing and returning this Ballot, the undersigned certifies that:
(a) the beneficial owner has been provided with a copy of the Solicitation
Statement and the appendices thereto; (b) the beneficial owner of the face
amount of Old Senior Notes set forth in Item 1 has full power and authority to
vote to accept or reject the Plan; (c) such beneficial owner has voted to accept
or reject the Plan as set forth in Item 2 above; and (d) this Ballot has been
executed on behalf of a single beneficial owner. The undersigned also
acknowledges that this solicitation of acceptances of the Plan is subject to all
the terms and conditions set forth in the Solicitation Statement.
ITEM 5. By signing and returning this Ballot, the undersigned certifies that it
either (a) is the registered or record holder of the Old Senior Notes to which
this Ballot pertains and is sending this Ballot directly to the Solicitation
Agent, or (b) the beneficial owner of the Old Senior Notes to which this Ballot
pertains and is sending this Ballot to the registered or record holder of, or
other nominee of the undersigned, with respect to the Old Senior Notes to which
this Ballot pertains, whom the undersigned hereby authorizes and instructs to
(x) execute a Master Ballot reflecting this Ballot, and (y) deliver such Master
Ballot to the Solicitation Agent.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
3
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY)
MUST BE RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733 (BANKS AND BROKERS)
(800) 554-7733 (ALL OTHERS)
4
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly, holders
should NOT surrender certificates representing their securities in connection
with voting on the Plan, and neither the Company nor the Solicitation Agent will
accept delivery of any such certificates tendered together with this Ballot.
Surrender of Old Senior Notes for exchange may only be made pursuant to a
letter of transmittal which will be furnished subsequently by the Company.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Solicitation Agent not later than 5:00 p.m., Eastern
Time, on , 1997, unless extended at the sole discretion of the
Company as provided in the Solicitation Statement. Incomplete Ballots
will not be counted.
If you are the registered holder and not the beneficial owner, please
forward the Ballot together with the Solicitation Statement to the beneficial
owner.
To properly complete the Ballot, you must follow the procedures described
below:
(a) make sure that the information required by Item 1 has been
inserted; if you do not know the principal amount of Old Senior Notes held
by you, please contact either the Solicitation Agent, your broker or your
nominee;
(b) cast one vote to accept or reject the Plan by checking the proper
box in Item 2 for the Old Senior Notes held by you;
(c) provide the information required by Item 3 if the beneficial owner
has submitted any other Ballots for Old Senior Notes held in other accounts
or other record names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact either the Company or your broker or your nominee immediately;
(f) if you believe you are completing this Ballot on behalf of another
entity, indicate your relationship with such entity and the capacity in
which you are signing;
(g) provide your name and mailing address if different from the
printed address which appears on the Ballot, or if no preprinted address
appears on the Ballot;
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Ballot (clearly marked to indicate
the applicable item of the Ballot); and
(i) return your Ballot using the enclosed return envelope. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE SOLICITATION AGENT,
PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE DEADLINE. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE OR PROXY
INTERMEDIARY, YOU MUST RETURN YOUR BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED AND THEN FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE.
PLEASE ALLOW ADDITIONAL TIME.
5
<PAGE>
YOUR BALLOT SHOULD BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED
BY THE SOLICITATION AGENT BY THE DEADLINE, 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED, OR YOUR VOTE WILL NOT BE COUNTED.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
SOLICITATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE
RECEIVED BY THE DEADLINE.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT
EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED
TO THE SOLICITATION AGENT BY THE DEADLINE. PLEASE ALLOW
ADDITIONAL TIME.
(Bullet) IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT
PLEASE CONTACT THE SOLICITATION AGENT OR YOUR BROKER OR
NOMINEE.
6
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
10 3/4% SENIOR NOTES DUE 2001
AND
10 7/8% SENIOR NOTES DUE 2002
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the 10 3/4%
Senior Notes due 2001 and 10 7/8% Senior Notes due 2002 of Flagstar Corporation
(collectively, the "Old Senior Notes"), pursuant to the Solicitation Statement
dated , 1997, in which Flagstar Companies, Inc. and its
wholly-owned subsidiary, Flagstar Corporation (collectively, the "Company") are
soliciting acceptances from record holders of the Old Senior Notes as of the
close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), with all the power the undersigned would possess if voting personally.
THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
THE DEADLINE ( , 1997 UNLESS EXTENDED BY THE COMPANY).
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Old Senior Notes Owned: $
7
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old Senior Notes to which this proxy
relates. If the Old Senior Notes to which this proxy relates are held of record
by two or more joint holders on the Record Date, all such holders must sign this
proxy. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing and must
submit proper evidence satisfactory to the Company and the Solicitation Agent of
such person's authority so to act. If Old Senior Notes owned by the record
holder on the Record Date are registered in different names, separate proxies
must be executed covering each form of registration. Unless the record holder on
the Record Date is a member of an authorized signature guarantee program
recognized by the Company (an "Eligible Institution"), this proxy must be
guaranteed by an Eligible Institution confirming the right of the signatory to
the Ballot to execute such Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old Senior Notes held for
the account of an Eligible Guarantor Institution. IN ALL OTHER CASES ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
8
<PAGE>
BALLOT FOR OWNERS OF SENIOR SUBORDINATED DEBENTURES OF
FLAGSTAR CORPORATION
CLASS 5 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION ) BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN OF
Debtors. ) REORGANIZATION" TO BE FILED BY
) FLAGSTAR COMPANIES, INC. AND
) FLAGSTAR CORPORATION
) (CLASS 5)
</TABLE>
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF 11.25% SENIOR SUBORDINATED
DEBENTURES DUE 2004 AND BY BENEFICIAL OWNERS OF 11 3/8% SENIOR SUBORDINATED
DEBENTURES DUE 2003 OF FLAGSTAR CORPORATION (COLLECTIVELY, THE "SENIOR
SUBORDINATED DEBENTURES") OR REGISTERED HOLDERS WHO ARE BENEFICIAL OWNERS.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE,
SIGN AND DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF
YOUR VOTE HAS NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT")
BY 5:00 P.M., EASTERN TIME, ON , 1997, UNLESS EXTENDED (THE
"DEADLINE"), IT WILL NOT BE COUNTED. IF THE ENCLOSED RETURN ENVELOPE IS
ADDRESSED TO YOUR NOMINEE OR YOUR NOMINEE'S PROXY INTERMEDIARY, PLEASE MAIL YOUR
BALLOT SUFFICIENTLY IN ADVANCE OF THE DEADLINE SO THAT IT MAY BE PROCESSED AND
FORWARDED TO THE SOLICITATION AGENT BEFORE THE DEADLINE. FACSIMILE BALLOTS WILL
NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar," and collectively with FCI, the "Company") are
soliciting votes with respect to their joint plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to in the
accompanying Prospectus dated ____________, 1997 (the "Solicitation Statement").
This Ballot is to be used by beneficial owners, or registered holders who are
beneficial owners, of the Senior Subordinated Debentures. The Senior
Subordinated Debentures are classified as Class 5 in the Plan. Please review the
Solicitation Statement and the appendices thereto carefully before completing
this Ballot. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Plan.
<PAGE>
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Senior Subordinated
Debentures and all other Holders of Claims against and Interests in the Company
(including those who abstain or vote to reject the Plan) will be bound by the
Plan and the transactions contemplated thereby.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked herein to consent to an amendment to the
indentures for the Senior Subordinated Debentures (collectively, the
"Amendment") which will effect the redistribution of the Plan consideration to
which such Holders are entitled if either or both of the Classes of Holders of
Junior Subordinated Debentures and Holders of Old FCI Preferred Stock do not
accept the Plan and either or both of the Classes of Holders of Old FCI
Preferred Stock and Holders of Old FCI Common Stock do accept the Plan.
Accordingly, assuming adoption of the Amendment, (i) if the Holders of the
Junior Subordinated Debentures do not accept the Plan but the Holders of the Old
FCI Preferred Stock accept the Plan, Holders of the Old FCI Preferred Stock will
receive New Common Stock representing 1.25% of the New Common Stock of
Reorganized Flagstar, and (ii) if the Holders of Junior Subordinated Debentures
or the Holders of the Old FCI Preferred Stock do not accept the Plan but Holders
of the Old FCI Common Stock accept the Plan, Holders of the Old FCI Common Stock
will receive the New Warrants. (It is a condition to the effectiveness of the
Amendment with respect to either one of the indentures governing a portion of
the Senior Subordinated Debentures that such Amendment also be approved and
effective with respect to the other such indenture.)
The record date (the "Record Date") for purposes of determining which
holders of Senior Subordinated Debentures are eligible to vote on the Plan and
consent to the Amendment is May 23, 1997. Only holders of Senior Subordinated
Debentures in whose name such securities are registered on the books of the
Company on the Record Date or any person who has obtained a properly completed
proxy from such person are eligible to vote on the Plan and consent to the
Amendment. Holders of Senior Subordinated Debentures who purchased such
securities or whose purchase of such securities is registered after the Record
Date who wish to vote must arrange with their respective seller(s) to receive a
proxy from the holder of record on such date, a form of which is included on the
last page of this Ballot for your convenience.
2
<PAGE>
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE YOUR ACCEPTANCE OR
REJECTION OF THE PLAN:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF SENIOR SUBORDINATED DEBENTURES CLAIMS.
This Ballot is cast by or on behalf of the beneficial owner of the
aggregate principal amount of the Senior Subordinated Debentures indicated
immediately below.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OR AGGREGATE PRINCIPAL AMOUNT OF SENIOR SUBORDINATED
CUSTOMER ACCOUNT NUMBERS DEBENTURES
<S> <C>
$
</TABLE>
ITEM 2. CLASS 5 UNDER THE PLAN (SENIOR SUBORDINATED DEBENTURES) VOTE.
The beneficial owner of the aggregate principal amount of Senior
Subordinated Debentures set forth in Item 1 votes to (please check one):
<TABLE>
<S> <C>
Accept the Plan [ ]
Reject the Plan [ ]
</TABLE>
Consent to the Amendment to the Indenture (Check One): Yes [ ] No [ ]
ITEM 3. CERTIFICATION AS TO SENIOR SUBORDINATED DEBENTURES HELD IN ADDITIONAL
ACCOUNTS.
By signing and returning this Ballot, the undersigned certifies that the
beneficial owner either (i) has not submitted any other Ballots for Senior
Subordinated Debentures held in other accounts or other record names, OR (ii)
has provided the information specified in the following table for all other
Senior Subordinated Debentures for which the beneficial owner has submitted
additional Ballots (please use additional sheets of paper if necessary):
[CAPTION]
<TABLE>
<S> <C> <C>
$
Face amount of
Other Account number Name of registered holder or nominee Senior Subordinated Debentures
<S> <C> <C>
$
Face amount of
Other Account number Name of registered holder or nominee Senior Subordinated Debentures
</TABLE>
ITEM 4. By signing and returning this Ballot, the undersigned certifies that:
(a) the beneficial owner has been provided with a copy of the Solicitation
Statement and the appendices thereto; (b) the beneficial owner of the face
amount of Senior Subordinated Debentures set forth in Item 1 has full power and
authority to vote to accept or reject the Plan and in favor of or against the
Amendment; (c) such beneficial owner has voted to accept or reject the Plan and
in favor of or against the Amendment as set forth in Item 2 above; and (d) this
Ballot has been executed on behalf of a single beneficial owner. The undersigned
also acknowledges that this solicitation of acceptances of the Plan and consents
to the Amendment is subject to all the terms and conditions set forth in the
Solicitation Statement.
3
<PAGE>
ITEM 5. By signing and returning this Ballot, the undersigned certifies that it
either (a) is the registered or record holder of the Senior Subordinated
Debentures to which this Ballot pertains and is sending this Ballot directly to
the Solicitation Agent, or (b) the beneficial owner of the Senior Subordinated
Debentures to which this Ballot pertains and is sending this Ballot to the
registered or record holder of, or other nominee of the undersigned, with
respect to the Senior Subordinated Debentures to which this Ballot pertains,
whom the undersigned hereby authorizes and instructs to (x) execute a Master
Ballot reflecting this Ballot, and (y) deliver such Master Ballot to the
Solicitation Agent.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
4
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY) MUST BE
RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733 (BANKS AND BROKERS)
(800) 554-7733 (ALL OTHERS)
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
The Ballot is NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN AND IN FAVOR OF OR
AGAINST THE AMENDMENT. Accordingly, holders should NOT surrender certificates
representing their securities in connection with voting on the Plan and the
Amendment, and neither the Company nor the Solicitation Agent will accept
delivery of any such certificates tendered together with this Ballot.
Surrender of Senior Subordinated Debentures for exchange may only be made
pursuant to a letter of transmittal which will be furnished subsequently by the
Company.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Solicitation Agent not later than 5:00 p.m., Eastern
Time, on , 1997, unless extended at the sole discretion of the
Company as provided in the Solicitation Statement. Incomplete Ballots will
not be counted.
IF YOU ARE THE REGISTERED HOLDER AND NOT THE BENEFICIAL OWNER, PLEASE
FORWARD THE BALLOT TOGETHER WITH THE SOLICITATION STATEMENT TO THE BENEFICIAL
OWNER.
To properly complete the Ballot, you must follow the procedures described
below:
(a) make sure that the information required by Item 1 has been
inserted; if you do not know the principal amount of Senior Subordinated
Debentures held by you, please contact either the Solicitation Agent, your
broker or your nominee;
(b) cast one vote to accept or reject the Plan by checking the proper
box in Item 2 for the Senior Subordinated Debentures held by you; also cast
one vote (Yes or No) with respect to the consent to the Amendment by
checking the appropriate box in Item 2;
(c) provide the information required by Item 3 if the beneficial owner
has submitted any other Ballots for Senior Subordinated Debentures held in
other accounts or other record names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact either the Solicitation Statement or your broker or your nominee
immediately;
(f) if you believe you are completing this Ballot on behalf of another
entity, indicate your relationship with such entity and the capacity in
which you are signing;
(g) provide your name and mailing address if different from the
printed address which appears on the Ballot, or if no preprinted address
appears on the Ballot;
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Ballot (clearly marked to indicate
the applicable item of the Ballot); and
(i) return your Ballot using the enclosed return envelope. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE SOLICITATION AGENT,
PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE DEADLINE. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE OR PROXY
INTERMEDIARY, YOU MUST RETURN YOUR BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED AND THEN FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE.
PLEASE ALLOW ADDITIONAL TIME.
YOUR BALLOT SHOULD BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED
BY THE SOLICITATION AGENT BY THE DEADLINE, 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED, OR YOUR VOTE WILL NOT BE COUNTED.
6
<PAGE>
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
SOLICITATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE
RECEIVED BY THE DEADLINE.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT
EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED
TO THE SOLICITATION AGENT BY THE DEADLINE. PLEASE ALLOW
ADDITIONAL TIME.
(Bullet) IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT
PLEASE CONTACT THE SOLICITATION AGENT OR YOUR BROKER OR
NOMINEE.
7
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF AND OTHER MATTERS PERTAINING TO ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
11.25% SENIOR SUBORDINATED DEBENTURES DUE 2004
AND
11 3/8% SENIOR SUBORDINATED DEBENTURES DUE 2003
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote (i) to accept or reject the Plan (as defined below) with respect to the
11.25% Senior Subordinated Debentures due 2004 and 11 3/8% Senior Subordinated
Debentures due 2003 of Flagstar Corporation (collectively, the "Senior
Subordinated Debentures"), pursuant to the Solicitation Statement dated
, 1997, in which Flagstar Companies, Inc. and its wholly-owned
subsidiary, Flagstar Corporation (collectively, the "Company") are soliciting
acceptances from record holders of the Senior Subordinated Debentures of the
close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), and (ii) in favor of or against an amendment to the indentures for the
Senior Subordinated Debentures as described in the Solicitation Statement, with
all the power the undersigned would possess if voting personally. THIS PROXY IS
IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
, 1997 UNLESS EXTENDED BY THE COMPANY.
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Senior Subordinated Debentures Owned: $
8
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Senior Subordinated Debentures to which
this proxy relates. If the Senior Subordinated Debentures to which this proxy
relates are held of record by two or more joint holders on the Record Date, all
such holders must sign this proxy. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and must submit proper evidence satisfactory to the
Company and the Solicitation Agent of such person's authority so to act. If
Senior Subordinated Debentures owned by the record holder on the Record Date are
registered in different names, separate proxies must be executed covering each
form of registration. Unless the record holder on the Record Date is a member of
an authorized signature guarantee program recognized by the Company (an
"Eligible Institution"), this proxy must be guaranteed by an Eligible
Institution confirming the right of the signatory to the Ballot to execute such
Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Senior Subordinated
Debentures held for the account of an Eligible Guarantor Institution. IN ALL
OTHER CASES ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION.
9
<PAGE>
BALLOT FOR OWNERS OF JUNIOR SUBORDINATED DEBENTURES OF
FLAGSTAR CORPORATION
CLASS 6 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION ) BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN OF
Debtors. ) REORGANIZATION" TO BE FILED BY
) FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
) (CLASS 6)
</TABLE>
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF 10% CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES DUE 2014 OF FLAGSTAR CORPORATION (THE "JUNIOR
SUBORDINATED DEBENTURES") OR REGISTERED HOLDERS WHO ARE BENEFICIAL OWNERS.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE,
SIGN AND DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF
YOUR VOTE HAS NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT")
BY 5:00 P.M., EASTERN TIME, ON , 1997, UNLESS EXTENDED (THE
"DEADLINE"), IT WILL NOT BE COUNTED. IF THE ENCLOSED RETURN ENVELOPE IS
ADDRESSED TO YOUR NOMINEE OR YOUR NOMINEE'S PROXY INTERMEDIARY, PLEASE MAIL YOUR
BALLOT SUFFICIENTLY IN ADVANCE OF THE DEADLINE SO THAT IT MAY BE PROCESSED AND
FORWARDED TO THE SOLICITATION AGENT BEFORE THE DEADLINE. FACSIMILE BALLOTS WILL
NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar" and collectively with FCI, the "Company") are soliciting
your vote with respect to their joint plan of reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Plan") referred to and described in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). This Ballot is to be used by beneficial owners, or registered
holders who are beneficial owners, of the Junior Subordinated Debentures. The
Junior Subordinated Debentures are classified as Class 6 in the Plan. Please
review the Solicitation Statement and the appendices thereto carefully before
you vote. Capitalized terms not defined herein shall have the meanings ascribed
to them in the Plan.
<PAGE>
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Junior Subordinated
Debentures and all other Holders of Claims against and Interests in the Company
(including those who abstain or vote to reject the Plan) will be bound by the
Plan and the transactions contemplated thereby.
In the event Class 6 does not accept the Plan, then (x) no Holder of any
Claim or Interest junior to the Allowed Class 6 Interests shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 6 Interests shall not receive any interest or property under the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment by Holders of the
Senior Subordinated Debentures, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
The record date (the "Record Date") for purposes of determining which
holders of Junior Subordinated Debentures are eligible to vote on the Plan is
May 23, 1997. Only holders of Junior Subordinated Debentures in whose name such
securities are registered on the books of the Company on the Record Date or any
person who has obtained a properly completed proxy from such person are eligible
to vote on the Plan. Holders of Junior Subordinated Debentures who purchased
such securities or whose purchase of such securities is registered after the
Record
2
<PAGE>
Date who wish to vote on the Plan must arrange with their respective seller(s)
to receive a proxy from the holder of record on such date, a form of which is
included on the last page of this Ballot for your convenience.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE YOUR ACCEPTANCE OR REJECTION
OF THE PLAN:
ITEM 1. AGGREGATE PRINCIPAL AMOUNT OF JUNIOR SUBORDINATED DEBENTURES CLAIMS.
This Ballot is cast by or on behalf of the beneficial owner of the
aggregate principal amount of the Junior Subordinated Debentures indicated
immediately below.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OR AGGREGATE PRINCIPAL AMOUNT OF JUNIOR SUBORDINATED
CUSTOMER ACCOUNT NUMBERS DEBENTURES
<S> <C>
$
</TABLE>
ITEM 2. CLASS 6 UNDER THE PLAN (JUNIOR SUBORDINATED DEBENTURES) VOTE.
The beneficial owner of the aggregate principal amount of Junior
Subordinated Debentures set forth in Item 1 votes to (please check one):
<TABLE>
<S> <C>
Accept the Plan [ ]
Reject the Plan [ ]
</TABLE>
ITEM 3. CERTIFICATION AS TO JUNIOR SUBORDINATED DEBENTURES HELD IN ADDITIONAL
ACCOUNTS.
By returning this Ballot, the undersigned certifies that the beneficial
owner either (i) has not submitted any other Ballots for Junior Subordinated
Debentures held in other accounts or other record names, OR (ii) has provided
the information specified in the following table for all other Junior
Subordinated Debentures for which the beneficial owner has submitted additional
Ballots (please use additional sheets of paper if necessary):
[CAPTION]
<TABLE>
<S> <C> <C>
$
Face amount of Junior Subordinated
Other Account number Name of registered holder or nominee Debentures
<S> <C> <C>
$
Face amount of Junior Subordinated
Other Account number Name of registered holder or nominee Debentures
</TABLE>
ITEM 4. By signing and returning this Ballot, the undersigned certifies that:
(a) the beneficial owner has been provided with a copy of the Solicitation
Statement and the appendices thereto; (b) the beneficial owner of the face
amount of Junior Subordinated Debentures set forth in Item 1 has full power and
authority to vote to accept or reject the Plan; (c) such beneficial owner has
voted to accept or reject the Plan as set forth in Item 2 above; and (d) this
Ballot has been executed on behalf of a single beneficial owner. The undersigned
also acknowledges that this solicitation of acceptances of the Plan is subject
to all the terms and conditions set forth in the Solicitation Statement.
3
<PAGE>
ITEM 5. By signing this Ballot, the undersigned certifies that it either (a) is
the registered or record holder of the Junior Subordinated Debentures to which
this Ballot pertains and is sending this Ballot directly to the Solicitation
Agent, or (b) the beneficial owner of the Junior Subordinated Debentures to
which this Ballot pertains and is sending this Ballot to the registered or
record holder of, or other nominee of the undersigned, with respect to the
Junior Subordinated Debentures to which this Ballot pertains, whom the
undersigned hereby authorizes and instructs to (x) execute a Master Ballot
reflecting this Ballot, and (y) deliver such Master Ballot to the Solicitation
Agent.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
4
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY) MUST BE
RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733 (BANKS AND BROKERS)
(800) 554-7733 (ALL OTHERS)
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly, holders
should NOT surrender certificates representing their securities in connection
with voting on the Plan, and neither the Company nor the Solicitation Agent will
accept delivery of any such certificates tendered together with this Ballot.
Surrender of Junior Subordinated Debentures for exchange may only be made
pursuant to a letter of transmittal which will be furnished subsequently by the
Company.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Solicitation Agent not later than 5:00 p.m., Eastern
Time, on , 1997, unless extended at the sole discretion of the
Company as provided in the Solicitation Statement. Incomplete Ballots will not
be counted.
IF YOU ARE THE REGISTERED HOLDER AND NOT THE BENEFICIAL OWNER, PLEASE
FORWARD THE BALLOT TOGETHER WITH THE SOLICITATION STATEMENT TO THE BENEFICIAL
OWNER.
To properly complete the Ballot, you must follow the procedures described
below:
(a) make sure that the information required by Item 1 has been
inserted; if you do not know the principal amount of Junior Subordinated
Debentures held by you, please contact either the Solicitation Agent, your
broker or your nominee;
(b) cast one vote to accept or reject the Plan by checking the proper
box in Item 2 for the Junior Subordinated Debentures held by you;
(c) provide the information required by Item 3 if the beneficial owner
has submitted any other Ballots for Junior Subordinated Debentures held in
other accounts or other record names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact either the Company or your broker or your nominee immediately;
(f) if you believe you are completing this Ballot on behalf of another
entity, indicate your relationship with such entity and the capacity in
which you are signing;
(g) provide your name and mailing address if different from the
printed address which appears on the Ballot, or if no preprinted address
appears on the Ballot;
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Ballot (clearly marked to indicate
the applicable item of the Ballot); and
(i) return your Ballot using the enclosed return envelope. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE SOLICITATION AGENT,
PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE DEADLINE. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE OR PROXY
INTERMEDIARY, YOU MUST RETURN YOUR BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED AND THEN FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE.
PLEASE ALLOW ADDITIONAL TIME.
6
<PAGE>
YOUR BALLOT SHOULD BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED
BY THE SOLICITATION AGENT BY THE DEADLINE, 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED OR YOUR VOTE WILL NOT BE COUNTED.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
SOLICITATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE
RECEIVED BY THE DEADLINE.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT
EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED
TO THE SOLICITATION AGENT BY THE DEADLINE. PLEASE ALLOW
ADDITIONAL TIME.
(Bullet) IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT
PLEASE CONTACT THE SOLICITATION AGENT OR YOUR BROKER OR
NOMINEE.
7
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
10% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2014
OF
FLAGSTAR CORPORATION
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the 10%
Convertible Junior Subordinated Debentures due 2014 of Flagstar Corporation (the
"Junior Subordinated Debentures"), pursuant to the Solicitation Statement dated
, 1997, in which Flagstar Companies, Inc. and its wholly-owned
subsidiary, Flagstar Corporation (collectively, the "Company") are soliciting
acceptances from record holders of the Junior Subordinated Debentures as of the
close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), with all the power the undersigned would possess if voting personally.
THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
THE DEADLINE (____________, 1997 UNLESS EXTENDED BY THE COMPANY).
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Principal Amount of
Junior Subordinated Debentures Owned: $
8
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Junior Subordinated Debentures to which
this proxy relates. If the Junior Subordinated Debentures to which this proxy
relates are held of record by two or more joint holders on the Record Date, all
such holders must sign this proxy. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and must submit proper evidence satisfactory to the
Company and the Solicitation Agent of such person's authority so to act. If
Junior Subordinated Debentures owned by the record holder on the Record Date are
registered in different names, separate proxies must be executed covering each
form of registration. Unless the record holder on the Record Date is a member of
an authorized signature guarantee program recognized by the Company (an
"Eligible Institution"), this proxy must be guaranteed by an Eligible
Institution confirming the right of the signatory to the Ballot to execute such
Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Junior Subordinated
Debentures held for the account of an Eligible Guarantor Institution. IN ALL
OTHER CASES ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION.
9
<PAGE>
BALLOT FOR OWNERS OF OLD FCI PREFERRED STOCK OF FLAGSTAR COMPANIES, INC.
CLASS 8 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION ) BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN
Debtors. ) OF REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
(CLASS 8)
</TABLE>
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF $2.25 SERIES A CUMULATIVE
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF FLAGSTAR COMPANIES, INC. (THE "OLD
FCI PREFERRED STOCK") OR REGISTERED HOLDERS WHO ARE BENEFICIAL OWNERS. PLEASE
READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND
DATE THIS BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOUR VOTE
HAS NOT BEEN RECEIVED BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00
P.M., EASTERN TIME, ON , 1997, UNLESS EXTENDED (THE
"DEADLINE"), IT WILL NOT BE COUNTED. IF THE ENCLOSED RETURN ENVELOPE IS
ADDRESSED TO YOUR NOMINEE OR YOUR NOMINEE'S PROXY INTERMEDIARY, PLEASE MAIL YOUR
BALLOT SUFFICIENTLY IN ADVANCE OF THE DEADLINE SO THAT IT MAY BE PROCESSED AND
FORWARDED TO THE SOLICITATION AGENT BEFORE THE DEADLINE. FACSIMILE BALLOTS WILL
NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar" and collectively with FCI, the "Company") are soliciting
your vote with respect to their joint prepackaged plan of reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan") referred to and
described in the accompanying Prospectus dated , 1997 (the
"Solicitation Statement"). This Ballot is to be used by beneficial owners, or
registered holders who are beneficial owners, of the Old FCI Preferred Stock.
The Old FCI Preferred Stock is classified as Class 8 in the Plan. Please review
the Solicitation Statement and the appendices thereto carefully before you vote.
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Plan.
<PAGE>
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old FCI Preferred Stock
and all other Holders of Claims against and Interests in the Company (including
those who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
In the event Class 8 does not accept the Plan, then (x) no Holder of any
Claim or Interest junior to the Allowed Class 8 Interests shall receive or
retain any interest or property under the Plan, and (y) the Holders of Allowed
Class 8 Interests shall not receive any interest or property under the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old Common
Stock, and (ii) in the event that the Holders of the Old FCI Preferred Stock do
not accept the Plan but the Holders of Junior Subordinated Debentures accept the
Plan, then each Holder of Senior Subordinated Debentures will also be entitled
to receive its pro rata share of the 1.25% of the New Common Stock that would
otherwise have been distributed to the Holders of the Old FCI Preferred Stock
and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment by Holders of the
Senior Subordinated Debentures, (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
The record date (the "Record Date") for purposes of determining which
holders of Old FCI Preferred Stock are eligible to vote on the Plan is May 23,
1997. Only holders of Old FCI Preferred Stock in whose name such securities are
registered on the books of the Company on the Record Date or any person who has
obtained a properly completed proxy from such person are eligible to vote on the
Plan. Holders of Old FCI Preferred Stock who purchased such securities or whose
purchase of such securities is registered after the Record Date who wish to vote
on the Plan
2
<PAGE>
must arrange with their respective seller(s) to receive a proxy from the holder
of record on such date, a form of which is included on the last page of this
Ballot for your convenience.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE YOUR ACCEPTANCE OR REJECTION
OF THE PLAN:
ITEM 1. AGGREGATE AMOUNT OF OLD FCI PREFERRED STOCK.
This Ballot is cast by or on behalf of the beneficial owner of the
aggregate amount of the Old FCI Preferred Stock indicated immediately below.
[CAPTION]
<TABLE>
<S> <C>
CERTIFICATE NUMBER(S) (IF KNOWN) OR
CUSTOMER ACCOUNT NUMBER(S) NUMBER OF SHARES
<S> <C>
</TABLE>
ITEM 2. CLASS 8 UNDER THE PLAN (OLD FCI PREFERRED STOCK) VOTE.
The beneficial owner of the aggregate principal amount of Old FCI Preferred
Stock set forth in Item 1 votes to (please check one):
<TABLE>
<S> <C>
Accept the Plan [ ]
Reject the Plan [ ]
</TABLE>
ITEM 3. CERTIFICATION AS TO OLD FCI PREFERRED STOCK HELD IN ADDITIONAL ACCOUNTS.
By returning this Ballot, the undersigned certifies that the beneficial
owner either (i) has not submitted any other Ballots for Old FCI Preferred Stock
held in other accounts or other record names, OR (ii) has provided the
information specified in the following table for all other Old FCI Preferred
Stock for which the beneficial owner has submitted additional Ballots (please
use additional sheets of paper if necessary):
<TABLE>
<S> <C> <C>
Other Account number Name of registered holder or nominee Number of Shares of
Old FCI Preferred Stock
Other Account number Name of registered holder or nominee Number of Shares of
Old FCI Preferred Stock
</TABLE>
ITEM 4. By signing and returning this Ballot, the undersigned certifies
that: (a) the beneficial owner has been provided with a copy of the Solicitation
Statement and the appendices thereto; (b) the beneficial owner of the shares of
Old FCI Preferred Stock set forth in Item 1 has full power and authority to vote
to accept or reject the Plan; (c) such beneficial owner has voted to accept or
reject the Plan as set forth in Item 2 above; and (d) this Ballot has been
executed on behalf of a single beneficial owner. The undersigned also
acknowledges that this solicitation of acceptances of the Plan is subject to all
the terms and conditions set forth in the Solicitation Statement.
3
<PAGE>
ITEM 5. By signing and returning this Ballot, the undersigned certifies
that it either (a) is the registered or record holder of the Old FCI Preferred
Stock to which this Ballot pertains and is sending this Ballot directly to the
Solicitation Agent, or (b) the beneficial owner of the Old FCI Preferred Stock
to which this Ballot pertains and is sending this Ballot to the registered or
record holder of, or other nominee of the undersigned, with respect to the Old
FCI Preferred Stock to which this Ballot pertains, whom the undersigned hereby
authorizes and instructs to (x) execute a Master Ballot reflecting this Ballot,
and (y) deliver such Master Ballot to the Solicitation Agent.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
4
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY) MUST BE
RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733 (BANKS AND BROKERS)
(800) 554-7733 (ALL OTHERS)
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly, holders
should NOT surrender certificates representing their securities in connection
with voting on the Plan, and neither the Company nor the Solicitation Agent will
accept delivery of any such certificates tendered together with this Ballot.
Surrender of Old FCI Preferred Stock for exchange may only be made pursuant
to a letter of transmittal which will be furnished subsequently by the Company.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Solicitation Agent not later than 5:00 p.m., Eastern
Time, on , 1997, unless extended at the sole discretion of the
Company as provided in the Solicitation Statement. Incomplete Ballots will not
be counted.
IF YOU ARE THE REGISTERED HOLDER AND NOT THE BENEFICIAL OWNER, PLEASE
FORWARD THE BALLOT TOGETHER WITH THE SOLICITATION STATEMENT TO THE BENEFICIAL
OWNER.
To properly complete the Ballot, you must follow the procedures
described below:
(a) make sure that the information required by Item 1 has been
inserted; if you do not know the number of shares of Old FCI Preferred
Stock held by you, please contact either the Solicitation Agent, your
broker or your nominee;
(b) cast one vote to accept or reject the Plan by checking the proper
box in Item 2 for the Old FCI Preferred Stock held by you;
(c) provide the information required by Item 3 if the beneficial owner
has submitted any other Ballots for Old FCI Preferred Stock held in other
accounts or other record names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact either the Company or your broker or your nominee immediately;
(f) if you believe you are completing this Ballot on behalf of another
entity, indicate your relationship with such entity and the capacity in
which you are signing;
(g) provide your name and mailing address if different from the
printed address which appears on the Ballot, or if no preprinted address
appears on the Ballot;
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Ballot (clearly marked to indicate
the applicable item of the Ballot); and
(i) return your Ballot using the enclosed return envelope. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE SOLICITATION AGENT,
PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE DEADLINE. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE OR PROXY
INTERMEDIARY, YOU MUST RETURN YOUR BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED AND THEN FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE.
PLEASE ALLOW ADDITIONAL TIME.
YOUR BALLOT SHOULD BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED
BY THE SOLICITATION AGENT BY THE DEADLINE, 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED, OR YOUR VOTE WILL NOT BE COUNTED.
6
<PAGE>
(BULLET) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
SOLICITATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL
BE RECEIVED BY THE DEADLINE.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER,
BANK, NOMINEE OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR
BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND THEN
FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE. PLEASE
ALLOW ADDITIONAL TIME.
(Bullet) IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT
PLEASE CONTACT THE SOLICITATION AGENT OR YOUR BROKER OR
NOMINEE.
7
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
$2.25 SERIES A CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OF
FLAGSTAR COMPANIES, INC.
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the $2.25
Series A Cumulative Convertible Exchangeable FCI Preferred Stock of Flagstar
Companies, Inc. (the "Old FCI Preferred Stock"), pursuant to the Solicitation
Statement dated , 1997, in which Flagstar Companies, Inc. and
its wholly-owned subsidiary, Flagstar Corporation (collectively, the "Company")
are soliciting acceptances from record holders of the Old FCI Preferred Stock as
of the close of business on May 23, 1997 (the "Record Date") for their plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Plan"), with all the power the undersigned would possess if voting personally.
THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON
THE DEADLINE (____________, 1997 UNLESS EXTENDED BY THE COMPANY).
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
<TABLE>
<S> <C>
Number of Shares of Old FCI Preferred Stock Owned:
</TABLE>
8
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old FCI Preferred Stock to which this
proxy relates. If the Old FCI Preferred Stock to which this proxy relates are
held of record by two or more joint holders on the Record Date, all such holders
must sign this proxy. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to the Company and the
Solicitation Agent of such person's authority so to act. If Old FCI Preferred
Stock owned by the record holder on the Record Date are registered in different
names, separate proxies must be executed covering each form of registration.
Unless the record holder on the Record Date is a member of an authorized
signature guarantee program recognized by the Company (an "Eligible
Institution"), this proxy must be guaranteed by an Eligible Institution
confirming the right of the signatory to the Ballot to execute such Ballot on
behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old FCI Preferred Stock
held for the account of an Eligible Guarantor Institution. IN ALL OTHER CASES
ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
9
<PAGE>
BALLOT FOR OWNERS OF OLD FCI COMMON STOCK OF FLAGSTAR COMPANIES, INC.
CLASS 9 UNDER THE PLAN
TO BE RECEIVED BY THE SOLICITATION AGENT
BEFORE 5:00 P.M., EASTERN TIME, , 1997
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C>
In re ) Case No. 97-
) Chapter 11
FLAGSTAR COMPANIES, INC., )
FLAGSTAR CORPORATION ) BALLOT FOR ACCEPTING OR
) REJECTING "DEBTORS' JOINT PLAN OF
Debtors. ) REORGANIZATION" TO BE FILED
) BY FLAGSTAR COMPANIES, INC.
) AND FLAGSTAR CORPORATION
) (CLASS 9)
</TABLE>
THIS BALLOT IS TO BE USED BY BENEFICIAL OWNERS OF COMMON STOCK, PAR VALUE $.50
PER SHARE, OF FLAGSTAR COMPANIES, INC. (THE "OLD FCI COMMON STOCK") OR
REGISTERED HOLDERS WHO ARE BENEFICIAL OWNERS. PLEASE READ AND FOLLOW THE
ATTACHED INSTRUCTIONS CAREFULLY. PLEASE COMPLETE, SIGN AND DATE THIS BALLOT AND
RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOUR VOTE HAS NOT BEEN RECEIVED
BY KISSEL-BLAKE INC. (THE "SOLICITATION AGENT") BY 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED (THE "DEADLINE"), IT WILL NOT BE
COUNTED. IF THE ENCLOSED RETURN ENVELOPE IS ADDRESSED TO YOUR NOMINEE OR YOUR
NOMINEE'S PROXY INTERMEDIARY, PLEASE MAIL YOUR BALLOT SUFFICIENTLY IN ADVANCE OF
THE DEADLINE SO THAT IT MAY BE PROCESSED AND FORWARDED TO THE SOLICITATION AGENT
BEFORE THE DEADLINE. FACSIMILE BALLOTS WILL NOT BE ACCEPTED.
Flagstar Companies, Inc. ("FCI") and its wholly-owned subsidiary Flagstar
Corporation ("Flagstar" and collectively with FCI, the "Company") are soliciting
your vote with respect to their joint plan of reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Plan") referred to and described in the
accompanying Prospectus dated , 1997 (the "Solicitation
Statement"). This Ballot is to be used by beneficial owners, or registered
holders who are beneficial owners, of the Old FCI Common Stock. The Old FCI
Common Stock is classified as Class 9 in the Plan. Please review the
Solicitation Statement and the appendices thereto carefully before you vote.
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Plan.
<PAGE>
FCI and Flagstar have not yet commenced their Reorganization Cases. If the
Plan receives sufficient acceptances, FCI and Flagstar intend to commence their
Reorganization Cases and promptly seek Confirmation of the Plan.
The Plan can be confirmed by the Bankruptcy Court if (i) it is accepted by
at least one Impaired Class of Claims or Interests (without counting the vote of
any insider), (ii) the Bankruptcy Court finds that the Plan accords fair and
equitable treatment to any Class that rejects or is deemed to have rejected the
Plan, and (iii) the Bankruptcy Court determines the Plan otherwise satisfies the
requirements of section 1129(b) of the United States Bankruptcy Code. A Class of
Claims will be deemed to have accepted the Plan if Holders of at least
two-thirds in dollar amount and more than one-half in number of the Claims in
such class who cast timely Ballots vote to accept the Plan. If the Plan is
confirmed by the Bankruptcy Court, all Holders of the Old FCI Common Stock and
all other Holders of Claims against and Interests in the Company (including
those who abstain or vote to reject the Plan) will be bound by the Plan and the
transactions contemplated thereby.
In the event Class 6, 8 or 9 votes to reject the Plan, Holders of Allowed
Class 9 interests shall not receive or retain any interests or property under
the Plan.
Under the terms of the Plan (but subject to the agreements to be made by
Holders of Senior Subordinated Debentures described in the following paragraph),
(i) in the event that the Holders of Junior Subordinated Debentures do not
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 4.50% of the New Common Stock that
would otherwise have been distributed to Holders of Junior Subordinated
Debentures and Old FCI Preferred Stock and its pro rata share of the New
Warrants that would otherwise have been distributed to Holders of the Old FCI
Common Stock, and (ii) in the event that the Holders of the Old FCI Preferred
Stock do not accept the Plan but the Holders of Junior Subordinated Debentures
accept the Plan, then each Holder of Senior Subordinated Debentures will also be
entitled to receive its pro rata share of the 1.25% of the New Common Stock that
would otherwise have been distributed to the Holders of the Old FCI Preferred
Stock and its pro rata share of the New Warrants that would otherwise have been
distributed to Holders of the Old FCI Common Stock, and (iii) in the event that
Holders of the Old FCI Common Stock do not accept the Plan but Holders of Junior
Subordinated Debentures and Old FCI Preferred Stock accept the Plan, then each
Holder of Senior Subordinated Debentures will also be entitled to receive its
pro rata share of the New Warrants.
Notwithstanding the terms of the Plan, it is contemplated that Holders of
Senior Subordinated Debentures will agree to make distributions to the Holders
of the Old FCI Preferred Stock and Holders of the Old FCI Common Stock if such
Classes vote in favor of the Plan even if such Classes would not be entitled to
a distribution under the terms of the Plan because the Plan has not been
accepted by one or more senior classes. In that regard, Holders of Senior
Subordinated Debentures are being asked, in connection with the Plan, to consent
to an amendment to the indentures for the Senior Subordinated Debentures
(collectively, the "Amendment") which will effect the redistribution of the Plan
consideration to which such Holders are entitled if either or both of the
Classes of Holders of Junior Subordinated Debentures and Holders of Old FCI
Preferred Stock do not accept the Plan and either or both of the Classes of
Holders of Old FCI Preferred Stock and Holders of Old FCI Common Stock do accept
the Plan. Accordingly, assuming adoption of the Amendment By Holders of the
Senior Subordinated Debentures (i) if the Holders of the Junior Subordinated
Debentures do not accept the Plan but the Holders of the Old FCI Preferred Stock
accept the Plan, Holders of the Old FCI Preferred Stock will receive New Common
Stock representing 1.25% of the New Common 2 Stock of Reorganized Flagstar, and
(ii) if the Holders of Junior Subordinated Debentures or the Holders of the Old
FCI Preferred Stock do not accept the Plan but Holders of the Old FCI Common
Stock accept the Plan, Holders of the Old FCI Common Stock will receive the New
Warrants. (It is a condition to the effectiveness of the Amendment with respect
to either one of the indentures governing a portion of the Senior Subordinated
Debentures that such Amendment also be approved and effective with respect to
the other such indenture.)
The record date (the "Record Date") for purposes of determining which
holders of Old FCI Common Stock are eligible to vote on the Plan is May 23,
1997. Only holders of Old FCI Common Stock in whose name such securities are
registered on the books of the Company on the Record Date or any person who has
obtained a properly completed proxy from such person are eligible to vote on the
Plan. Holders of Old FCI Common Stock who purchased such securities or whose
purchase of such securities is registered after the Record Date who wish to vote
on the Plan
2
<PAGE>
must arrange with their respective seller(s) to receive a proxy from the holder
of record on such date, a form of which is included on the last page of this
Ballot for your convenience.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE YOUR ACCEPTANCE OR REJECTION
OF THE PLAN:
ITEM 1. AGGREGATE AMOUNT OF OLD FCI COMMON STOCK.
This Ballot is cast by or on behalf of the beneficial owner of the
aggregate amount of the Old FCI Common Stock indicated immediately below.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OR
CUSTOMER ACCOUNT NUMBERS NUMBER OF SHARES
<S> <C>
</TABLE>
ITEM 2. CLASS 9 UNDER THE PLAN (OLD FCI COMMON STOCK) VOTE.
The beneficial owner of the number of shares of Old FCI Common Stock set
forth in Item 1 votes to (please check one):
<TABLE>
<S> <C>
Accept the Plan [ ]
Reject the Plan [ ]
</TABLE>
ITEM 3. CERTIFICATION AS TO OLD FCI COMMON STOCK HELD IN ADDITIONAL ACCOUNTS.
By returning this Ballot, the undersigned certifies that the beneficial
owner either (i) has not submitted any other Ballots for Old FCI Common Stock
held in other accounts or other record names, OR (ii) has provided the
information specified in the following table for all other Old FCI Common Stock
for which the beneficial owner has submitted additional Ballots (please use
additional sheets of paper if necessary):
[CAPTION]
<TABLE>
<S> <C> <C>
$
Number of Shares of
Other Account number Name of registered holder or nominee Old FCI Common Stock
<S> <C> <C>
$
<CAPTION>
Number of Shares of
Other Account number Name of registered holder or nominee Old FCI Common Stock
</TABLE>
ITEM 4. By signing and returning this Ballot, the undersigned certifies that:
(a) the beneficial owner has been provided with a copy of the Solicitation
Statement and the appendices thereto; (b) the beneficial owner of the shares of
Old FCI Common Stock set forth in Item 1 has full power and authority to vote to
accept or reject the Plan; (c) such beneficial owner has voted to accept or
reject the Plan as set forth in Item 2 above; and (d) this Ballot has been
executed on behalf of a single beneficial owner. The undersigned also
acknowledges that this solicitation of acceptances of the Plan is subject to all
the terms and conditions set forth in the Solicitation Statement.
3
<PAGE>
ITEM 5. By signing and returning this Ballot, the undersigned certifies that it
either (a) is the registered or record holder of the Old FCI Common Stock to
which this Ballot pertains and is sending this Ballot directly to the
Solicitation Agent, or (b) the beneficial owner of the Old FCI Common Stock to
which this Ballot pertains and is sending this Ballot to the registered or
record holder of, or other nominee of the undersigned, with respect to the Old
FCI Common Stock to which this Ballot pertains, whom the undersigned hereby
authorizes and instructs to (x) execute a Master Ballot reflecting this Ballot,
and (y) deliver such Master Ballot to the Solicitation Agent.
Name:
(PRINT OR TYPE)
SOCIAL SECURITY OR FEDERAL TAX I.D. NO.
Signature:
By:
(IF APPROPRIATE)
Title:
(IF APPROPRIATE)
Address:
STREET
CITY, STATE AND ZIP CODE
Telephone Number: ( )
4
<PAGE>
THIS BALLOT (OR A MASTER BALLOT INCLUDING THE VOTES TRANSMITTED HEREBY) MUST BE
RECEIVED BY THE SOLICITATION AGENT,
KISSEL-BLAKE INC., AT THE ADDRESS
LISTED BELOW, BY 5:00 P.M., EASTERN TIME,
ON , 1997 (UNLESS EXTENDED), OR THE VOTES TRANSMITTED
HEREBY WILL NOT BE COUNTED.
KISSEL-BLAKE INC.
BY MAIL/HAND/OVERNIGHT DELIVERY:
KISSEL-BLAKE INC.
110 WALL STREET
NEW YORK, NEW YORK 10005
(212) 344-6733 (BANKS AND BROKERS)
(800) 554-7733 (ALL OTHERS)
5
<PAGE>
INSTRUCTIONS FOR COMPLETING THE BALLOT
THE BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY NOT BE USED FOR ANY
PURPOSE OTHER THAN TO VOTE TO ACCEPT OR REJECT THE PLAN. Accordingly, holders
should NOT surrender certificates representing their securities in connection
with voting on the Plan, and neither the Company nor the Solicitation Agent will
accept delivery of any such certificates tendered together with this Ballot.
Surrender of Old FCI Common Stock for exchange may only be made pursuant to
a letter of transmittal which will be furnished subsequently by the Company.
To have your vote count, you must complete, sign and return this Ballot so
that it is received by the Solicitation Agent not later than 5:00 p.m., Eastern
Time, on , 1997, unless extended at the sole discretion of the
Company as provided in the Solicitation Statement. Incomplete Ballots will not
be counted.
IF YOU ARE THE REGISTERED HOLDER AND NOT THE BENEFICIAL OWNER, PLEASE
FORWARD THE BALLOT TOGETHER WITH THE SOLICITATION STATEMENT TO THE BENEFICIAL
OWNER.
To properly complete the Ballot, you must follow the procedures described
below:
(a) make sure that the information required by Item 1 has been
inserted; if you do not know the number of shares of Old FCI Common Stock
held by you, please contact either the Solicitation Agent, your broker or
your nominee;
(b) cast one vote to accept or reject the Plan by checking the proper
box in Item 2 for the Old FCI Common Stock held by you;
(c) provide the information required by Item 3 if the beneficial owner
has submitted any other Ballots for Old FCI Common Stock held in other
accounts or other record names;
(d) sign and date your Ballot;
(e) if you believe that you have received the wrong Ballot, please
contact either the Company or your broker or your nominee immediately;
(f) if you believe you are completing this Ballot on behalf of another
entity, indicate your relationship with such entity and the capacity in
which you are signing;
(g) provide your name and mailing address if different from the
printed address which appears on the Ballot, or if no preprinted address
appears on the Ballot;
(h) please use additional sheets of paper if additional space is
required to respond to any item on the Ballot (clearly marked to indicate
the applicable item of the Ballot); and
(i) return your Ballot using the enclosed return envelope. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE SOLICITATION AGENT,
PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE RECEIVED BY THE DEADLINE. IF YOU
RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE OR PROXY
INTERMEDIARY, YOU MUST RETURN YOUR BALLOT EARLY ENOUGH FOR YOUR VOTE TO BE
PROCESSED AND THEN FORWARDED TO THE SOLICITATION AGENT BY THE DEADLINE.
PLEASE ALLOW ADDITIONAL TIME.
YOUR BALLOT SHOULD BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED
BY THE SOLICITATION AGENT BY THE DEADLINE, 5:00 P.M., EASTERN TIME, ON
, 1997, UNLESS EXTENDED, OR YOUR VOTE WILL NOT BE COUNTED.
6
<PAGE>
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED DIRECTLY TO THE
SOLICITATION AGENT, PLEASE MAIL YOUR BALLOT SO THAT IT WILL BE
RECEIVED BY THE DEADLINE.
(Bullet) IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT
EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND THEN FORWARDED
TO THE SOLICITATION AGENT BY THE DEADLINE. PLEASE ALLOW
ADDITIONAL TIME.
(Bullet) IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT
PLEASE CONTACT THE SOLICITATION AGENT OR YOUR BROKER OR
NOMINEE.
7
<PAGE>
(THIS PAGE IS FOR USE AS A PROXY ONLY. IT NEED NOT BE COMPLETED AS PART OF THE
BALLOT)
PROXY WITH RESPECT TO
SOLICITATION OF ACCEPTANCES FOR
THE
PLAN OF REORGANIZATION OF
FLAGSTAR COMPANIES, INC. AND FLAGSTAR CORPORATION
FROM THE HOLDERS OF OUTSTANDING
OLD FCI COMMON STOCK, PAR VALUE $.50 PER SHARE
OF
FLAGSTAR COMPANIES, INC.
The undersigned hereby irrevocably appoints
as attorney and proxy of the undersigned, with full power of substitution, to
vote to accept or reject the Plan (as defined below) with respect to the Common
Stock, par value $.50 per share, of Flagstar Companies, Inc. (the "Old FCI
Common Stock"), pursuant to the Solicitation Statement dated ,
1997, in which Flagstar Companies, Inc. and its wholly-owned subsidiary,
Flagstar Corporation (collectively, the "Company") are soliciting acceptances
from record holders of the Old FCI Common Stock as of the close of business on
May 23, 1997 (the "Record Date") for their plan of reorganization under Chapter
11 of the United States Bankruptcy Code (the "Plan"), with all the power the
undersigned would possess if voting personally. THIS PROXY IS IRREVOCABLE AND IS
COUPLED WITH AN INTEREST AND SHALL EXPIRE ON THE DEADLINE ( ,
1997 UNLESS EXTENDED BY THE COMPANY).
<TABLE>
<S> <C> <C> <C>
Name(s): Signature(s):
By:
Title:
Dated:
Signatures Guaranteed By:
(Name of Institution)
Authorized Signature
Title
</TABLE>
Number of Shares of
Old FCI Common Stock Owned:
8
<PAGE>
This proxy must be executed by the record holder(s) (i.e., the record
holder(s) as of the close of business on the Record Date) in exactly the same
manner as the name(s) appear(s) on the Old FCI Common Stock to which this proxy
relates. If the Old FCI Common Stock to which this proxy relates are held of
record by two or more joint holders on the Record Date, all such holders must
sign this proxy. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to the Company and the
Solicitation Agent of such person's authority so to act. If Old FCI Common Stock
owned by the record holder on the Record Date are registered in different names,
separate proxies must be executed covering each form of registration. Unless the
record holder on the Record Date is a member of an authorized signature
guarantee program recognized by the Company (an "Eligible Institution"), this
proxy must be guaranteed by an Eligible Institution confirming the right of the
signatory to the Ballot to execute such Ballot on behalf of the record holder.
Except as otherwise provided in this Proxy, all signatures on this Proxy
must be guaranteed by an institution that is a member of a Signature Guarantee
Program (an "Eligible Guarantor Institution") recognized by the Solicitation
Agent (i.e., the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchanges Medallion Program (SEMP), and the New York Stock Exchanges Medallion
Signature Program (MSP)), unless expressly waived by the Company. Signatures on
this Proxy need not be guaranteed if this Proxy is for Old FCI Common Stock held
for the account of an Eligible Guarantor Institution. IN ALL OTHER CASES ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
9
