SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
Commission file number 0-18051
ADVANTICA RESTAURANT GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
---------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 East Main Street
Spartanburg, South Carolina 29319-9966
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 597-8000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
As of October 30, 1998, 40,009,889 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
Quarter Ended Quarter Ended
September 30, 1998 October 1, 1997
-------------------- ---------------
<S> <C> <C>
(In thousands, except per share amounts)
Net company sales $ 438,448 $ 441,704
Franchise and licensing revenue 23,225 21,255
------ -------
Operating revenue 461,673 462,959
------- -------
Operating expenses:
Product costs 124,161 124,395
Payroll and benefits 167,600 171,847
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 34,475 ---
Depreciation and amortization of property 30,506 23,104
Amortization of other intangibles 4,587 3,703
Utilities expense 19,487 19,557
Other 88,403 86,073
------ -------
469,219 428,679
------- -------
Operating (loss) income (7,546) 34,280
Other charges:
Interest and debt expense, net
(contractual interest, net, for the
quarter ended October 1, 1997 is $58,703) 28,485 34,984
Other, net 9 836
------- ------
Loss before reorganization items and taxes (36,040) (1,540)
Reorganization items --- 11,613
------- --------
Loss before taxes (36,040) (13,153)
Provision for income taxes 500 320
----- -----
Loss from continuing operations (36,540) (13,473)
Discontinued operations:
Loss from operations of discontinued
operations, net of applicable
income tax benefit of: 1997 -- $162 --- (4,286)
------- ------
Net loss (36,540) (17,759)
Dividends on preferred stock --- (3,543)
------ ------
Net loss applicable to common shareholders $ (36,540) $ (21,302)
========= ==========
Basic and diluted per share amounts
applicable to
common shareholders:
Loss from continuing operations $ (0.91) $ (0.40)
Loss from discontinued operations --- (0.10)
------- ---------
Net loss $ (0.91) $ (0.50)
========= =========
Average outstanding and equivalent common
shares 40,010 42,434
====== ========
</TABLE>
2
See accompanying notes
<PAGE>
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
--------------------------
Thirty-Eight One Week Three Quarters
Weeks Ended Ended Ended
September January 7, October 1,
30, 1998 1998 1997
-------------- ------------- --------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Net company sales $ 1,233,482 $ 31,986 $ 1,328,535
Franchise and licensing revenue 64,348 1,602 60,720
-------- ----- ---------
Operating revenue 1,297,830 33,588 1,389,255
--------- ------ ---------
Operating expenses:
Product costs 340,424 8,638 371,832
Payroll and benefits 491,054 13,803 532,198
Amortization of reorganization value
in excess of amounts
allocable to identifiable assets 106,777 --- ---
Depreciation and amortization of
property 89,014 1,660 62,439
Amortization of other intangibles 10,648 24 8,035
Utilities expense 53,645 1,039 56,084
Other 248,917 (236) 269,939
-------- ---- ---------
1,340,479 24,928 1,300,527
--------- ------ ---------
Operating (loss) income (42,649) 8,660 88,728
Other charges (credits):
Interest and debt expense, net
(contractual interest, net, for the
one week ended January 7, 1998 --
$4,795; for the three
quarters ended October 1,
1997 -- $156,956) 86,109 2,669 133,237
Other, net 1,145 (313) 746
-------- ---- ---
(Loss) income before reorganization items
and taxes (129,903) 6,304 (45,255)
Reorganization items --- (714,207) 23,549
-------- -------- ------
(Loss) income before taxes (129,903) 720,511 (68,804)
Provision for (benefit from) income
taxes 1,500 (13,829) 1,674
-------- -------- ------
(Loss) income from continuing operations (131,403) 734,340 (70,478)
Discontinued operations:
Reorganization items of discontinued
operations, net of income tax
provision of $7,509 --- 48,887 ---
Loss from operations of discontinued
operations, net of applicable
income tax benefit of : 1998 -- $0; 1997
-- $190 (1,507) (1,154) (31,280)
-------- ------ --------
(Loss) income before extraordinary item (132,910) 782,073 (101,758)
Extraordinary item --- (612,845) ---
------ -------- ------
Net (loss) income (132,910) 1,394,918 (101,758)
Dividends on preferred stock --- (273) (10,631)
------ ---- ---------
Net (loss) income applicable to common
shareholders $ (132,910) $ 1,394,645 $ (112,389)
========== =========== ==========
Per share amounts applicable to common shareholders:
Basic (loss) income per share:
(Loss) income from continuing
operations $ (3.28) $ 17.30 $ (1.91)
(Loss) income from discontinued
operations (0.04) 1.13 (0.74)
Extraordinary item --- 14.44 ---
---------- ----------- ----------
Net (loss) income $ (3.32) $ 32.87 $ (2.65)
========== =========== ==========
Average outstanding and equivalent common
shares 40,005 42,434 42,434
======== ====== ======
Diluted (loss) income per share:
(Loss) income from continuing
operations $ (3.28) $ 13.32 $ (1.91)
(Loss) income from discontinued
operations (0.04) 0.87 (0.74)
Extraordinary item --- 11.11 ---
------------ ---------- ----------
Net (loss) income $ (3.32) $ 25.30 $ (2.65)
============ ========== ==========
Average outstanding and equivalent common
shares 40,005 55,132 42,434
======= ====== ======
</TABLE>
See accompanying notes
3
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Successor Company
September 30, Predecessor Company
1998 December 31, 1997
----- -----------------
<S> <C> <C>
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 259,786 $ 54,079
Receivables, less allowance for doubtful
accounts of:
1998 -- $4,299; 1997 -- $4,177 19,246 12,816
Inventories 18,532 18,161
Net assets held for sale --- 350,712
Other 18,836 44,568
Restricted investments securing
in-substance defeased debt 19,680 ---
------ -------
336,080 480,336
------- --------
Property and equipment 791,231 1,144,617
Less accumulated depreciation (90,259) (518,780)
---------- --------
700,972 625,837
---------- --------
Other Assets:
Reorganization value in excess of amounts
allocable to identifiable assets,
net of accumulated amortization of:
1998 -- $106,777 610,907 ---
Goodwill, net of accumulated amortization of:
1997 -- $8,061 --- 207,918
Other intangible assets, net of accumulated
amortization of: 1998 -- $10,648; 1997
-- $1,376 221,463 14,897
Deferred financing costs, net 27,714 56,716
Other 31,562 25,365
Restricted investments securing in-substance
defeased debt 168,103 ---
------- ---------
1,059,749 304,896
--------- ---------
Total Assets $2,096,801 $ 1,411,069
========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
September 30, 1998 December 31, 1997
------------------ -------------------
<S> <C> <C>
(In thousands)
Liabilities
Current Liabilities:
Current maturities of notes and
debentures $ 32,730 $ 37,572
Current maturities of capital lease
obligations 18,020 19,398
Current maturities of in-substance
defeased debt 12,165 ---
Accounts payable 82,467 103,262
Accrued salaries and vacations 50,151 55,367
Accrued insurance 33,664 34,277
Accrued taxes 35,401 25,078
Accrued interest 30,663 15,473
Other 99,842 69,405
------ ------
395,103 359,832
------- -------
Long-Term Liabilities:
Notes and debentures, less current
maturities 958,734 510,533
Capital lease obligations, less
current maturities 73,040 83,642
In-substance defeased debt, less
current maturities 174,603 ---
Deferred income taxes 5,133 10,015
Liability for self-insured claims 45,172 52,764
Other noncurrent liabilities and
deferred credits 160,510 144,333
------- -------
1,417,192 801,287
--------- -------
Total liabilities not subject to
compromise 1,812,295 1,161,119
Liabilities subject to compromise --- 1,612,400
--------- ---------
Total liabilities 1,812,295 2,773,519
--------- ---------
Shareholders' Equity (Deficit) 284,506 (1,362,450)
------- ----------
Total Liabilities and Shareholders'
Equity (Deficit) $ 2,096,801 $ 1,411,069
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
Thirty-Eight ----------------------------
Weeks One Week Three Quarters
Ended Ended Ended
September 30, January 7, October 1,
(In thousands) 1998 1998 1997
----- ----- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (132,910) $1,394,918 $ (101,758)
Adjustments to reconcile net loss to cash
flows from operating activities:
Amortization of reorganization value in
excess of amounts
allocable to identifiable assets 106,777 --- ---
Depreciation and amortization of
property 89,014 1,660 62,439
Amortization of other intangible assets 10,648 24 8,035
Amortization of deferred financing
costs 4,981 111 5,034
Amortization of deferred gains (8,315) (218) (8,150)
Deferred income tax provision (benefit) --- (13,856) 2,092
Gain on sale of restaurants (630) (7,653) (956)
Extraordinary gain --- (612,845) ---
Noncash reorganization items --- (714,550) ---
Equity in (income) loss from
discontinued operation, net 1,507 (47,733) 31,280
Amortization of debt premium (10,714) --- ---
Write-off deferred financing costs --- --- 2,533
Other 473 (333) (2,270)
Decrease (increase) in assets:
Receivables (10,615) (2,054) 1,937
Inventories (819) 237 3,234
Other current assets (4,188) 2,457 12,430
Assets held for sale (2,869) 1,488 ---
Other assets 19,573 (1,049) (8,390)
Increase (decrease) in liabilities:
Accounts payable (15,566) (5,534) (34,518)
Accrued payroll and related (13,501) 6,199 163
Accrued taxes (15,263) (894) 2,142
Other accrued liabilities (32,113) 9,562 20,520
Other noncurrent liabilities and
deferred credits 1,848 (1,302) (4,222)
----- ------ ------
Net cash flows from operating activities
before reorganization activities (12,682) 8,635 (8,425)
------- ----- -----
Increase in liabilities from reorganization
activities:
Accrued payroll and related --- --- 627
Other accrued liabilities --- --- 2,417
------ --- -----
Net cash flows from operating activities (12,682) 8,635 (5,381)
------- ----- -----
Cash Flows from Investing Activities:
Purchase of property (33,466) (1) (26,735)
Proceeds from disposition of property 1,410 7,255 10,403
(Advances to) receipts from
discontinued operations 1,504 647 (30,574)
Proceeds from sale of discontinued
operations, net 460,424 --- ---
Purchase of investments securing
in-substance
defeased debt (201,713) ------
Proceeds from maturity of investments
securing in-substance defeased debt 14,213 --- ---
Other, net (1,695) --- 71
------ ------ ------
Net cash flows provided by (used in)
investing activities 240,677 7,901 (46,835)
------- -------- ---------
</TABLE>
See accompanying notes
6
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
Thirty-Eight --------------------------------
Weeks Ended One Week Three Quarters
September 30, Ended Ended
1998 January 7, 1998 October 1, 1997
----- --------------- ---------------
<S> <C> <C> <C>
(In thousands)
Cash Flows from Financing Activities:
Long-term debt payments $ (26,962) $ (6,891) $ (8,942)
Deferred financing costs --- (4,971) (1,533)
------ ------ ------
Net cash flows used in financing
activities (26,962) (11,862) (10,475)
------- ------- -------
Increase (decrease) in cash and cash
equivalents 201,033 4,674 (62,691)
Cash and Cash Equivalents at:
Beginning of period 58,753 54,079 92,369
------ ------ -------
End of period $ 259,786 $58,753 $ 29,678
=========== ====== =========
</TABLE>
See accompanying notes
7
<PAGE>
ADVANTICA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1. General
-------
Advantica Restaurant Group, Inc. (formerly Flagstar Companies, Inc.)
("Advantica" or, together with its subsidiaries including precedessors, the
"Company"), through its wholly-owned subsidiaries, Denny's Holdings, Inc. and
FRD Acquisition Co. (and their respective subsidiaries), owns and operates the
Denny's, Coco's, Carrows and El Pollo Loco restaurant brands. On April 1, 1998
the Company consummated the sale of Flagstar Enterprises, Inc. ("FEI"), the
wholly-owned subsidiary which had operated the Company's Hardee's restaurants
under licenses from Hardee's Food Systems ("HFS") (See Note 5). In addition, on
June 10, 1998, the Company consummated the sale of Quincy's Restaurants, Inc.
("Quincy's"), the wholly-owned subsidiary which had operated the Company's
Quincy's Family Steakhouse restaurants (See Note 5).
The consolidated financial statements of Advantica and its subsidiaries included
herein are unaudited and include all adjustments management believes are
necessary for a fair presentation of the results of operations for such interim
periods. All such adjustments are of a normal and recurring nature. The interim
consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto for the year ended December
31, 1997 and the related Management's Discussion and Analysis of Financial
Condition and Results of Operations, both of which are contained in the
Advantica Restaurant Group, Inc. 1997 Annual Report on Form 10-K (the "Advantica
10-K"). The results of operations for the 38 weeks ended September 30, 1998 and
the one week ended January 7, 1998 are not necessarily indicative of the results
for the entire fiscal year ending December 30, 1998.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 2. Reorganization
--------------
On January 7, 1998 (the "Effective Date"), Flagstar Companies, Inc. ("FCI") and
Flagstar Corporation ("Flagstar," and collectively with FCI, the "Debtors")
emerged from proceedings under Chapter 11 of Title 11 of the United States Code
(the "Bankruptcy Code") pursuant to FCI and Flagstar's Amended Joint Plan of
Reorganization dated as of November 7, 1997 (the "Plan"). On the Effective Date,
Flagstar, a wholly-owned subsidiary of FCI, merged with and into FCI, the
surviving corporation, and FCI changed its name to Advantica Restaurant Group,
Inc. The bankruptcy proceedings began when FCI, Flagstar and Flagstar Holdings,
Inc. ("Holdings") filed voluntary petitions for relief under the Bankruptcy Code
in the Bankruptcy Court for the District of South Carolina. Holdings filed its
petition on June 27, 1997, and Flagstar and FCI both filed their petitions on
July 11, 1997 (the "Petition Date"). FCI's operating subsidiaries, including
Denny's Holdings, Inc. and FRD Acquisition Co. (and their respective
subsidiaries), did not file bankruptcy petitions and were not parties to the
above mentioned Chapter 11 proceedings.
Material features of the Plan as it became effective as of January 7, 1998, are
as follows:
(a) On the Effective Date, Flagstar merged with and into FCI, the surviving
corporation, and FCI changed its name to Advantica Restaurant Group, Inc.;
(b) The following securities of FCI and Flagstar were canceled, extinguished and
retired as of the Effective Date: (i) Flagstar's 10 7/8% Senior Notes due 2002
(the "10 7/8% Senior Notes") and 10 3/4% Senior Notes due 2001 (the "10 3/4%
Senior Notes" and, collectively with the 10 7/8% Senior Notes due 2002, the "Old
Senior Notes"), (ii) Flagstar's 11.25% Senior Subordinated Debentures due 2004
(the "11.25% Debentures") and 11 3/8% Senior Subordinated Debentures due 2003
(the "11 3/8% Debentures" and, collectively with the 11.25% Senior Subordinated
Debentures due 2004, the "Senior Subordinated Debentures"), (iii) Flagstar's 10%
Convertible Junior Subordinated Debentures due 2014 (the "10% Convertible
Debentures"), (iv) FCI's $2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock (the "Old Preferred Stock") and (v) FCI's $.50 par value common
stock (the "Old Common Stock");
8
<PAGE>
(c) Advantica had 100 million authorized shares of Common Stock (of which 40
million were issued and outstanding on the Effective Date) and 25 million
authorized shares of preferred stock (none of which are currently outstanding).
Pursuant to the Plan, 10% of the number of shares of Common Stock issued and
outstanding on the Effective Date, on a fully diluted basis, was reserved for
issuance under a new management stock option program. Additionally, 4 million
shares of Common Stock were reserved for issuance upon the exercise of new
warrants expiring January 7, 2005 that were issued and outstanding on the
Effective Date and that entitle the holders thereof to purchase in the aggregate
4 million shares of Common Stock at an exercise price of $14.60 per share (the
"Warrants");
(d) Each holder of the Old Senior Notes received such holder's pro rata portion
of 100% of Advantica's 11 1/4% Senior Notes due 2008 (the "New Senior Notes") in
exchange for 100% of the principal amount of such holders' Old Senior Notes and
accrued interest through the Effective Date;
(e) Each holder of the Senior Subordinated Debentures received each holder's pro
rata portion of shares of Common Stock equivalent to 95.5% of the Common Stock
issued on the Effective Date;
(f) Each holder of the 10% Convertible Debentures received such holder's pro
rata portion of (i) shares of Common Stock equivalent to 4.5% of the Common
Stock issued on the Effective Date and (ii) 100% of the Warrants issued on the
Effective Date; and
(g) Advantica refinanced its prior credit facilities by entering into the Credit
Facility (as defined below).
On the Effective Date, the automatic stay imposed by the Bankruptcy Code was
terminated.
In connection with the reorganization, the Company realized a gain from the
extinguishment of certain indebtedness (See Note 4). This gain will not be
taxable since the gain results from a reorganization under the Bankruptcy Code.
However, the Company will be required, as of the beginning of its 1999 taxable
year, to reduce certain tax attributes related to Advantica, exclusive of its
operating subsidiaries, including (i) net operating loss carry forwards
("NOLS"), (ii) certain tax credits and (iii) tax bases in assets in an amount
equal to such gain on extinguishment.
The reorganization of the Company on January 7, 1998 constituted an ownership
change under Section 382 of the Internal Revenue Code and therefore the use of
any of the Company's NOLS and tax credits generated prior to the ownership
change, that are not reduced pursuant to the provisions discussed above, will be
subject to an overall annual limitation of approximately $21 million for NOLS
and $7 million for tax credits.
The Company's financial statements as of December 31, 1997 have been presented
in conformity with the American Institute of Certified Public Accountants' (the
"AICPA") Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly, all
prepetition liabilities of the Debtors that are subject to compromise under the
Plan (as defined in Note 7) are segregated in the Company's Consolidated Balance
Sheet as liabilities subject to compromise. These liabilities are recorded at
the amounts allowed as claims by the Bankruptcy Court in accordance with the
Plan. In addition, SOP 90-7 requires the Company to report interest expense
during the bankruptcy proceeding only to the extent that it will be paid during
the proceedings or that it is probable to be an allowed priority, secured or
unsecured claim. Accordingly, and in view of the terms of the Plan, as of July
11, 1997, the Company ceased recording interest on its 11.25% Debentures, 11
3/8% Debentures and 10% Convertible Debentures. The contractual interest expense
for the three quarters ended October 1, 1997 and the week ended January 7, 1998
is disclosed in the accompanying Statements of Consolidated Operations.
Note 3. Fresh Start Reporting
---------------------
As of the Effective Date, Advantica adopted fresh start reporting pursuant to
the guidance provided by SOP 90-7. Fresh start reporting assumes that a new
reporting entity has been created and requires the adjustment of assets and
liabilities to their fair values as of the Effective Date in conformity with the
procedures specified by Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). In conjunction with the revaluation of assets and
liabilities, a reorganization value for the
9
<PAGE>
entity is determined which generally approximates the fair value of the entity
before considering debt and approximates the amount a buyer would pay for the
assets of the entity after reorganization. Under fresh start reporting, the
reorganization value of the entity is allocated to the entity's assets. If any
portion of the reorganization value cannot be attributed to specific tangible or
identified intangible assets of the emerging entity, such amount is reported as
"reorganization value in excess of amount allocable to identifiable assets."
Advantica is amortizing such amount over a five-year period. All financial
statements for any period subsequent to the Effective Date are referred to as
"Successor Company" statements, as they reflect the periods subsequent to the
implementation of fresh start reporting and are not comparable to the financial
statements for periods prior to the Effective Date.
The Company has estimated a range of reorganization value between approximately
$1,631 million and $1,776 million. Such reorganization value is based upon a
review of the operating performance of 17 companies in the restaurant industry
that offer products and services that are comparable to or competitive with the
Company's various operating concepts. Multiples were established for these
companies with respect to the following: (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
for each of its six restaurant chains or concepts. Valuations achieved in
selected merger and acquisition transactions involving comparable businesses
were used as further validation of the valuation range. The valuation also takes
into account the following factors, not listed in order of importance:
(A) The Company's emergence from Chapter 11 proceedings, pursuant to the Plan
as described herein, during the first quarter of 1998.
(B) The assumed continuity of the present senior management team.
(C) The tax position of Advantica.
(D) The general financial and market conditions as of the date of consummation
of the Plan.
The total reorganization value of $1,729 million, the midpoint of the range of
$1,631 million and the $1,776 million adjusted to reflect an enterprise value of
FEI based on the terms of the stock purchase agreement related to the
disposition thereof, includes a value attributed to shareholders' equity of $417
million and long-term indebtedness contemplated by the Plan of $1,312 million.
The results of operations in the accompanying Statement of Operations for the
week ended January 7, 1998 reflect the results of operations prior to
Advantica's emergence from bankruptcy and the effects of fresh start reporting
adjustments. In this regard, the Statement of Operations reflects an
extraordinary gain on the discharge of certain debt as well as reorganization
items consisting primarily of gains and losses related to the adjustments of
assets and liabilities to fair value. During the second quarter of 1998 the
Company substantially completed valuation studies performed in connection with
the revaluation of its assets and liabilities in accordance with fresh start
reporting.
10
<PAGE>
The effect of the Plan and the adoption of fresh start reporting on the
Company's January 7, 1998 balance sheet are as follows:
<TABLE>
<CAPTION>
Predecessor Adjustments Adjustments Successor
Company for for Fresh Company
January 7, 1998 Reorganization Start Reporting January 7, 1998
--------------- -------------- --------------- ---------------
(In thousands) (a) (b)
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 58,753 $ 58,753
Receivables, net 15,247 $ (689) 14,558
Inventories 20,424 (425) 19,999
Net assets held for sale 288,039 110,027 398,066
Other 43,670 (496) 43,174
Property and equipment, net 719,152 64,501 783,653
Other Assets:
Goodwill, net 207,820 (207,820) ---
Other intangible assets, net 12,954 216,995 229,949
Deferred financing costs, net 58,590 $ (25,218) (61) 33,311
Other 22,416 (6,684) 15,732
Reorganization value in excess of
amounts allocable to
identifiable assets --- 761,736 761,736
--------- ---------- -------- -------
$ 1,447,065 $ (25,218) $ 937,084 $2,358,931
========= ========== =========== ==========
Liabilities and Shareholders' Equity
Liabilities
Current Liabilities:
Current maturities of notes and
debentures $ 30,913 $ 30,913
Current maturities of capital
lease obligations 17,863 17,863
Accounts payable 106,678 106,678
Accrued salaries and vacations 62,648 $ 4,355 67,003
Accrued insurance 36,104 292 36,396
Accrued taxes 40,142 2,662 42,804
Accrued interest and dividends 16,652 16,652
Other 95,152 8,008 103,160
Long-Term Liabilities:
Notes and debentures, less current
maturities 510,523 $ 592,005 72,388 1,174,916
Capital lease obligations, less
current maturities 87,667 216 87,883
Deferred income taxes 5,097 5,097
Liability for self-insured claims 55,444 4,700 60,144
Other noncurrent liabilities and
deferred credits 134,187 57,908 192,095
Liabilities subject to compromise 1,613,532 (1,613,532) ---
Shareholders' Equity (1,365,537) 996,309 786,555 417,327
---------- ---------- --------- ----------
$1,447,065 $ (25,218) $ 937,084 $2,358,931
========== ========== ========= ==========
</TABLE>
(a) To record the transactions relative to the consummation of the Plan as
described in Note 2.
(b) To record (i) the increase in the value of net assets held for sale to their
fair value based on the terms of the stock purchase agreement, (ii) the
adjustment of property, net to estimated fair value, (iii) the write-off of
unamortized goodwill and establishment of estimated fair value of other
intangible assets (primarily franchise rights and tradenames), (iv) the
establishment of reorganization value in excess of amounts allocable to
identifiable assets, (v) the increase in value of debt to reflect estimated
fair value, (vi) the recognition of liabilities associated with severance
and other exit costs, and the adjustments to self-insured claims and
contingent liabilities reflecting a change in methodology, and (vii) the
adjustment
11
<PAGE>
to reflect the new value of common shareholders' equity based on reorganization
value, which was determined by estimating the fair value of the Company.
Note 4. Extraordinary Gain
------------------
The implementation of the Plan resulted in the exchange of the Senior
Subordinated Debentures and the 10% Convertible Debentures for 40 million shares
of Common Stock and Warrants to purchase 4 million shares of Common Stock. The
difference between the carrying value of such debt (including principal, accrued
interest and deferred financing costs of $946.7 million, $74.9 million and $25.6
million, respectively) and the fair value of the Common Stock and Warrants
resulted in a gain on debt extinguishment of $612.8 million which was recorded
as an extraordinary item.
Note 5.Dispositions of Flagstar Enterprises, Inc. and Quincy's Restaurants, Inc.
------------------------------------------------------------------------
On April 1, 1998 (the "Disposition Date"), the Company completed the sale to CKE
Restaurants, Inc. ("CKE") of all of the capital stock of FEI, which had operated
the Company's Hardee's restaurants under licenses from HFS, a wholly-owned
subsidiary of CKE, for $427 million. This amount includes the assumption by CKE
of $46 million of capital leases. Approximately $173.1 million of the proceeds
(together with $28.6 million already on deposit with respect to certain mortgage
financings as defined below) was applied to in-substance defease the 10.25%
Guaranteed Secured Bonds due 2000 (the "Spartan Mortgage Financings") of
Spardee's Realty, Inc., a wholly-owned subsidiary of FEI, and Quincy's Realty,
Inc., a wholly-owned subsidiary of Quincy's with a book value of $198.9 million
plus accrued interest of $6.9 million at April 1, 1998. The Spartan Mortgage
Financings were collateralized by certain assets of Spardee's Realty, Inc. and
Quincy's Realty, Inc. The Company replaced such collateral through the purchase
of a portfolio of United States Government and AAA rated investment securities
which were deposited with the collateral agent with respect to the Spartan
Mortgage Financings to satisfy principal and interest payments under such
Spartan Mortgage Financings through the stated maturity date in the year 2000.
Such investments are reflected in the Consolidated Balance Sheet under the
caption "Restricted investments securing in-substance defeased debt." The
Spartan Mortgage Financings are reflected in the Consolidated Balance Sheet
under the caption "In-substance defeased debt."
As a result of the adoption of fresh start reporting, as of the Effective Date
the net assets of FEI were adjusted to fair value less estimated costs of
disposal based on the terms of the stock purchase agreement. The net gain
resulting from this adjustment is reflected as "Reorganization items of
discontinued operation" in the Statements of Consolidated Operations. As a
result of this adjustment, no gain or loss on disposition is reflected in the
twelve weeks ended April 1, 1998. Additionally, the operating results of FEI
subsequent to January 7, 1998 and through the Disposition Date were reflected as
an adjustment to "Net assets held for sale" prior to the disposition. The
adjustment to "Net assets held for sale" as a result of the net loss of FEI for
the twelve weeks ended April 1, 1998 was ($2.0) million. Revenue and operating
income of FEI for the twelve weeks ended April 1, 1998 were $116.2 million and
$5.7 million, respectively.
On June 10, 1998, the Company completed the sale of all of the capital stock of
Quincy's, the wholly-owned subsidiary which had operated the Company's Quincy's
Family Steakhouse Division, to Buckley Acquisition Corporation ("BAC") for $84.7
million (subject to adjustment). This amount includes the assumption by BAC of
$4.2 million of capital leases. The resulting gain of approximately $11.9
million from such disposition is reflected as an adjustment to reorganization
value in excess of amounts allocable to identifiable assets.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the 1997 period, the one week ended January 7, 1998 and
the 38 weeks ended September 30, 1998 to reflect FEI and Quincy's as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Revenue and operating income of the
discontinued operations for the 38 weeks ended September 30, 1998, the one week
ended January 7, 1998 and the three quarters ended October 1, 1997 were $194.9
million and $5.7 million, $12.7 million and $0.1 million, and $600.1 million and
$24.7 million, respectively. Revenue and operating income of the discontinued
operations for the quarter ended October 1, 1997 were $191.2 million and $10.0
million. There was no revenue or operating income related to discontinued
operations for the third quarter of 1998 due to the FEI disposition on April 1,
1998 and the Quincy's disposition on June 10, 1998.
12
<PAGE>
The Company has allocated to the discontinued operations a pro-rata portion of
interest and debt expense based on a ratio of the net assets of the discontinued
operations to the Company's consolidated net assets as of the 1989 acquisition
date of Flagstar by FCI for periods prior to January 7, 1998 and based on a
ratio of the net assets of the discontinued operations to the Company's net
assets after the adoption of fresh start reporting for periods subsequent to
January 7, 1998. Such allocated interest expense (which is in addition to other
interest expense incurred by FEI and Quincy's) included in discontinued
operations for the 38 weeks ended September 30, 1998, the week ended January 7,
1998 and the three quarters ended October 1, 1997 was $3.1 million, $0.4 million
and $28.1 million, respectively. Such allocated interest expense for the quarter
ended October 1, 1997 was $5.1 million. There was no allocated interest expense
for the third quarter due to the FEI disposition on April 1, 1998 and the
Quincy's disposition on June 10, 1998.
The Consolidated Balance Sheet at December 31, 1997 presented herein has been
reclassified to include the net assets of Quincy's in Net Assets Held for Sale.
Note 6. Reorganization Items
--------------------
Reorganization items included in the accompanying Statements of Consolidated
Operations for the week ended January 7, 1998 consist of the following items:
Week Ended
January 7, 1998
--------------
(In thousands)
Net gain related to adjustments of assets and
liabilities to fair value $ (734,216)
Professional fees and other 8,809
Severance and other exit costs 11,200
--------
$ (714,207)
==========
Note 7. Liabilities Subject To Compromise
---------------------------------
Liabilities subject to compromise are obligations which were outstanding on
the Petition Date and were subject to compromise under the terms of the Plan.
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
(In thousands)
10 3/4% Senior Notes due September 15, 2001, interest payable
semi-annually $ 270,000
10 7/8% Senior Notes due December 1, 2002, interest payable
semi-annually 280,025
11.25% Senior Subordinated Debentures due November 1, 2004, interest
payable semi-annually 722,411
11 3/8% Senior Subordinated Debentures due September 15, 2003, interest
payable semi-annually 125,000
10% Convertible Junior Subordinated Debentures due 2014, interest
payable semi-annually; convertible into Old Common Stock
any time prior to maturity at $24.00 per share 99,259
Accrued interest 115,705
-----------
Total liabilities subject to compromise $ 1,612,400
===========
</TABLE>
Note 8. The Advantica Credit Facility
-----------------------------
On the Effective Date the Company entered into a credit agreement with The Chase
Manhattan Bank ("Chase") and other lenders named therein providing the Company
(excluding FRD Acquisition Co.) with a $200 million senior secured revolving
credit facility (the "Credit Facility"). In connection with the closing of the
sales of FEI and Quincy's, the Credit Facility was amended to accommodate the
sale transactions and in-substance defeasance of the Spartan Mortgage Financings
consummated in conjunction with the sale of FEI. In addition, the Credit
Facility was amended to provide the Company flexibility to reinvest the residual
sales proceeds through additional capital expenditures and/or strategic
acquisitions, as well as to modify certain other covenants and
13
<PAGE>
financial tests affected by the sales transactions. The commitments under the
Credit Facility were not reduced as a result of the sales.
Note 9. Earnings Per Share Applicable to Common Shareholders
----------------------------------------------------
The following table sets forth the computation of basic and diluted income per
share for the week ended January 7, 1998. For all other periods the effect of
dilutive securities would decrease the loss per share and therefore basic per
share amounts are not adjusted for dilutive securities.
<TABLE>
<CAPTION>
For the Week ended January 7, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -------
<S> <C> <C> <C>
Income before discontinued operations and
extraordinary item $ 734,340
Less: Preferred stock dividends (273)
----------
Basic EPS
Income available to common shareholders 734,067 42,434 $ 17.30
========
Effect of Dilutive Securities
$2.25 Series A Cumulative Convertible Exchangeable
Preferred Stock 273 8,562
10 % Convertible Junior Subordinated Debentures due
2014 --- 4,136
------- -----
Diluted EPS
Income available to common shareholders plus assumed
conversions $ 734,340 55,132 $ 13.32
========= ====== ========
</TABLE>
Options and warrants to purchase shares of Old Common Stock were outstanding
during the week ended January 7, 1998 but were not included in the computation
of diluted earnings per share because the related exercise prices were greater
than the average market price of the common shares. The Predecessor Company
options and warrants were effectively terminated as a result of the
reorganization of the Company (See Note 2).
Note 10. New Accounting Standards
------------------------
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"),
which provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 requires capitalization of
external and internal direct costs of developing or obtaining internal-use
software as a long-lived asset and also requires training costs included in the
purchase price of computer software and costs associated with research and
development to be expensed as incurred. In April 1998, the AICPA issued
Statement of Position 98-5, " Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which provides additional guidance on the financial reporting of
start-up costs, requiring costs of start-up activities to be expensed as
incurred.
In conjunction with the adoption of fresh start reporting upon emergence from
bankruptcy (See Note 3), the Company adopted both statements of position as of
January 7, 1998. The adoption of SOP 98-1 at January 7, 1998 resulted in the
write-off of previously capitalized direct costs of obtaining computer software
associated with research and development totaling $3.4 million. Subsequent to
the Effective Date, similar costs are being expensed as incurred. The adoption
of SOP 98-5 at January 7, 1998 resulted in the write-off of previously
capitalized pre-opening costs totaling $0.6 million. Subsequent to the Effective
Date, pre-opening costs are being expensed as incurred.
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.
Comprehensive income is comprised of net income and other comprehensive income
items, such as revenues, expenses, gains and losses that under generally
accepted accounting principles
14
<PAGE>
are excluded from net income and reflected as a component of equity. For the 38
weeks ended September 30, 1998, the one week ended January 7, 1998 and the three
quarters ended October 1, 1997, there were no differences between net income and
comprehensive income.
Note 11. 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 13-week quarters
during the year with each quarter ending on a Wednesday. As a result of the
timing of this change, the first three quarters of 1997 include more than 39
weeks of operations. Carrows and Coco's include an additional six days; Denny's
includes an additional five days; and El Pollo Loco includes an additional week.
The 1998 comparable period consisted of 39 weeks.
Note 12. Subsequent Event
----------------
On July 31, 1998 the Company extended to the holders of the New Senior Notes an
offer to purchase, on a pro rata basis, up to $100.0 million of the outstanding
New Senior Notes at a price of 100% of the principal amount thereof plus accrued
and unpaid interest (the "Net Proceeds Offer"). Such offer was extended pursuant
to the terms of the indenture governing the New Senior Notes (the "Indenture"),
which requires the Company to apply the Net Proceeds (as defined therein) from
the sale of the Hardee's and Quincy's Business Segments (as defined in the
Indenture) within 366 days of such sales to (i) an investment in another asset
or business in the same line or similar line of business, (ii) a net proceeds
offer, as defined in the Indenture, or (iii) the prepayment or repurchase of
Senior Indebtedness (as defined), or any combination thereof as the Company may
choose. The Net Proceeds Offer expired on August 31, 1998. Tendering holders had
the option to withdraw their tenders during a 30-day period ending on September
30, 1998. At the close of the withdrawal period, $42.4 million of such
securities were tendered and not withdrawn. Such securities, plus accrued and
unpaid interest of $1.1 million, were retired on October 5, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to highlight significant changes in
financial position as of September 30, 1998 and the results of operations for
the quarter ended September 30, 1998, the 38 weeks ended September 30, 1998 and
one week ended January 7, 1998, as compared to the quarter and three quarters
ended October 1, 1997. For purposes of providing a meaningful comparison of the
Company's year-to-date operating performance, the following discussion and
presentation of the results of operations for the 38 weeks ended September 30,
1998 and the one week ended January 7, 1998 will be combined and referred to as
the three quarters ended September 30, 1998. Where appropriate, the impact of
the adoption of fresh start reporting on the results of operations during this
period will be separately disclosed.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks, uncertainties,
and other factors which may cause the actual performance of Advantica and its
subsidiaries, and underlying concepts to be materially different from the
performance indicated or implied by such statements. Such factors include, among
others: competitive pressures from within the restaurant industry; the level of
success of the Company's operating initiatives and advertising and promotional
efforts, including the initiatives and efforts specifically mentioned herein;
the ability of the Company to mitigate the impact of the Year 2000 issue
successfully; adverse publicity; changes in business strategy or development
plans; terms and availability of capital; regional weather conditions; overall
changes in the general economy, particularly at the retail level; and other
factors included in the discussion below, or in Management's Discussion and
Analysis and in Exhibit 99 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1997.
15
<PAGE>
Results of Operations
- ---------------------
Quarter Ended September 30, 1998 Compared to the Quarter ended October 1, 1997
- ------------------------------------------------------------------------------
The Company's consolidated revenue for the third quarter was nearly flat (down
0.3%) in relation to the 1997 comparable quarter. Revenue grew at the Denny's
brand, reflecting positive same-store sales growth in the quarter combined with
increased franchise revenue. El Pollo Loco ("EPL") also reported growth due to
the addition of Company-owned units and franchise revenue growth. The revenue
growth at Denny's and EPL was offset by lower revenue at Coco's and Carrows,
where fewer Company-owned units and lower same-store sales resulted in 6.3% and
10.5% declines in company sales, respectively. Overall, Advantica ended the
quarter with 40 fewer Company-owned units than at the end of the third quarter
of 1997, while franchised and licensed restaurants increased by 98 units.
The comparability of 1998 and 1997 consolidated operating expenses is
significantly affected by the impact of the adoption of fresh start reporting as
of January 7, 1998. Specifically, the amortization of reorganization value in
excess of amounts allocable to identifiable assets, which is over a five-year
period, totaled $34.5 million for the quarter ended September 30, 1998. In
addition, the adjustment of property and equipment and other intangible assets
to fair value as a result of the adoption of fresh start reporting resulted in
an estimated net increase in amortization and depreciation of approximately
$11.1 million. Excluding the effect of the estimated impact of fresh start
reporting, operating expenses decreased $5.1 million (1.2%), primarily
reflecting lower payroll and benefits costs related to improvement in actuarial
trends on workers' compensation and health benefits costs.
Excluding the impact of the adoption of fresh start reporting as discussed
above, consolidated operating income for the third quarter of 1998 increased by
$3.8 million compared to the 1997 comparable quarter as a result of the factors
noted above.
Consolidated interest and debt expense, net, totaled $28.5 million during the
third quarter of 1998 as compared with $35.0 million during the comparable 1997
period. The decrease is primarily due to a $6.6 million increase in interest
income in 1998 due to increased cash and cash equivalents available for
investment as a result of the FEI and Quincy's sales. Also contributing to the
decrease in interest expense in the 1998 period is the lower effective yield on
Company debt resulting from the revaluation of such debt to fair value at the
Effective Date in accordance with fresh start reporting.
The provision 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 1.4% for the quarter
ended September 30, 1998 compared to a provision for the quarter ended October
1, 1997 reflecting an approximate rate of 2.4%.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the 1997 period to reflect FEI and Quincy's as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Revenue and operating income of the
discontinued operations for the quarter ended October 1, 1997 were $191.2
million and $10.0 million. There was no revenue or operating income related to
discontinued operations for the third quarter of 1998 due to the FEI disposition
on April 1, 1998 and the Quincy's disposition on June 10, 1998.
Net loss was $36.5 million in the third quarter of 1998 as compared to a net
loss of $17.8 million for the prior year quarter primarily as a result of the
factors noted above.
16
<PAGE>
EBITDA, as set forth below, is defined by the Company as operating income before
depreciation, amortization and charges for restructuring and impairment and is a
key internal measure used to evaluate the amount of cash flow available for debt
repayment and funding of additional investments. EBITDA is not a measure defined
by generally accepted accounting principles and should not be considered as an
alternative to net income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. The Company's measure of EBITDA may not be
comparable to similarly titled measures reported by other companies.
Quarter Ended
September 30, 1998 October 1, 1997 (a)
------------------- --------------------
(In millions)
Denny's $ 52.9 $ 48.7
Coco's 7.6 7.9
Carrows 4.9 6.1
El Pollo Loco 5.1 4.8
Corporate and other (8.5) (6.4)
-------- --------
$ 62.0 $ 61.1
======== ========
(a) Excludes the EBITDA of Hardee's and Quincy's of $17.7 million
and $4.2 million, respectively, for comparability purposes.
Restaurant Operations:
The table below summarizes restaurant unit activity for the quarter ended
September 30, 1998.
<TABLE>
<CAPTION>
Ending Units Ending Ending
Units Units Sold/ Units Units Units
7/1/98 Opened Closed Refranchised 9/30/98 10/1/97
------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Denny's
Company-owned units 874 15 (1) (1) 887 887
Franchised units 780 14 (1) 1 794 737(a)
Licensed units 18 -- -- -- 18 22(a)
------- ---- ---- ---- ------ ------
1,672 29 (2) -- 1,699 1,646
Coco's
Company-owned units 175 -- (15) -- 160 186
Franchised units 17 2 -- -- 19 8
Licensed units 296 3 -- -- 299 292
------- ---- ---- ---- ------ -------
488 5 (15) -- 478 486
Carrows
Company-owned units 137 -- (1) -- 136 153
Franchised units 18 -- (2) -- 16 3
------- ---- ------- ---- ----- ---
155 -- (3) -- 152 156
El Pollo Loco
Company-owned units 100 -- -- -- 100 97
Franchised units 154 3 -- -- 157 143
Licensed units 4 -- -- -- 4 4
------ ---- ------ ----- ------ ------
258 3 -- -- 261 244
------ ---- ------ ----- ------ ------
2,573 37 (20) -- 2,590 2,532
====== ==== ====== ===== ====== ======
</TABLE>
(a) Certain units have been reclassified to conform to the 1998 presentation.
17
<PAGE>
Denny's
- -------
<TABLE>
<CAPTION>
Quarter Ended
September 30, October 1, %
1998 1997 Increase/(Decrease)
---- ----- ----------------
<S> <C> <C> <C>
($ in millions, except average unit and
same-store data)
U.S. systemwide sales $ 523.1 $ 493.9 5.9
======= ========
Net Company sales $ 297.0 $ 292.0 1.7
Franchise and licensing revenue 18.0 16.1 11.8
----- ----
Total revenue 315.0 308.1 2.2
----- -----
Operating expenses:
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 19.8 --- NM
Other 284.4 275.7 3.2
------ ------
Total operating expenses 304.2 275.7 10.3
----- ------
Operating income $ 10.8 $ 32.4 (66.7)
======= ========
Average unit sales
Company-owned $ 338,500 $ 326,200 3.8
Franchised $ 294,400 $ 284,500 3.5
Same-store data (Company-owned)
Same-store sales increase (decrease) 2.6% (5.8%)
Average guest check $5.84 $5.60 4.3
NM = Not Meaningful
</TABLE>
Denny's net company sales for the quarter increased $5.0 million over the prior
year comparable quarter. This included an $8.6 million increase resulting from a
2.6% increase in same-store sales compared to last year. Sales benefited from
positive customer response to Denny's highly successful "All Star Slams" and
"Major League Burgers" promotions. Partially offsetting the sales increase was a
$2.9 million decrease in revenue due to fewer Company-owned units than last
year. As the quarter ended, however, Denny's acquired 13 units in Texas and
began the fourth quarter with the same number of Company-owned units as last
year. Franchise and licensing revenue increased $1.9 million, up 11.8% over last
year. Denny's continues to grow the brand, adding 14 franchised units in the
third quarter and 57 franchised units since the same period last year. The
increased franchising revenue reflects the Company's strategy to grow its
franchise store base.
The comparability of 1998 and 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled
$19.8 million for the current year period. In addition, the adjustment of
property and equipment and other intangible assets to fair value resulted in an
estimated increase in amortization and depreciation of approximately $9.1
million. Excluding the estimated effect of fresh start reporting, operating
expenses decreased $0.4 million (0.1%), reflecting an increase in product costs
associated with increased revenues and an increase in labor costs driven by the
minimum wage increases, offset by improvements in actuarial trends on workers'
compensation and health benefits costs.
Excluding the estimated impact of fresh start reporting, Denny's operating
income for the 1998 quarter increased by $7.3 million compared to the prior year
quarter as a result of the factors noted above.
18
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
----------------- --------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit and
same-store data)
U.S. systemwide sales $ 70.0 $ 71.5 (2.1)
======= =======
Net Company sales $ 63.9 $ 68.2 (6.3)
Franchise and licensing revenue 1.0 1.1 (9.1)
----- ------
Total revenue 64.9 69.3 (6.3)
----- ------
Operating expenses:
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 5.5 --- NM
Other 62.2 65.6 (5.2)
------ ------
Total operating expenses 67.7 65.6 3.2
------ ------
Operating (loss) income $ (2.8) $ 3.7 NM
======== =======
Average unit sales
Company-owned $ 369,900 $366,500 0.9
Franchised $ 340,500 $441,700 (22.9)
Same-store data (Company-owned)
Same-store sales (decrease) increase (1.6%) 2.7%
Average guest check $6.73 $6.79 (0.9)
NM = Not Meaningful
</TABLE>
Coco's net company sales for the quarter decreased $4.3 million (6.3%) compared
to the prior year comparable quarter. This decrease reflects a 13-unit decrease
in the number of Company-owned restaurants (excluding 13 units disposed of on
September 30, 1998) and a 1.6% decrease in same-store sales. The decrease in
same-store sales is due to a decrease in average guest check, reflecting the
impact of promotions of certain popular menu items at value prices during the
period, somewhat offset by menu price increases instituted in February 1998 in
response to minimum wage increases. Franchise and foreign licensing revenue
decreased $0.1 million for the third quarter of 1998 as compared to the third
quarter of 1997, reflecting a stronger dollar versus the yen. This decline was
partially offset by the net increase of eleven domestic franchised units and
seven foreign licensed units over the prior year quarter. The stronger dollar
versus the yen and the increase in the number of franchised units (the
calculation for the prior year reflected only eight franchised units) also
explain the large variance in franchise average unit sales.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled $5.5
million for the quarter ended September 30, 1998. In addition, the adjustment of
property and equipment and other intangible assets to fair value resulted in an
estimated increase in amortization and depreciation of $0.8 million. Excluding
the estimated impact of fresh start reporting, operating expenses decreased $4.2
million (6.4%), reflecting the effect of the 13-unit decrease in Company-owned
restaurants.
Excluding the estimated impact of the adoption of fresh start reporting, Coco's
operating income for the third quarter of 1998 decreased $0.2 million from the
prior year comparable quarter as a result of the factors noted above.
19
<PAGE>
Carrows
- -------
<TABLE>
<CAPTION>
Quarter Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
------------------ --------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit and
same-store data)
U.S. systemwide sales $ 51.7 $ 53.7 (3.7)
======= =======
Net Company sales $ 46.9 $ 52.4 (10.5)
Franchise and licensing revenue 0.2 0.1 100.0
-------- -------
Total revenue 47.1 52.5 (10.3)
-------- -------
Operating expenses:
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 4.3 --- NM
Other 46.3 49.5 (6.5)
------- -------
Total operating expenses 50.6 49.5 2.2
------- -------
Operating (loss) income $ (3.5) $ 3.0 NM
======= =======
Average unit sales
Company-owned $343,000 $ 339,500 1.0
Franchised $274,400 NM
Same-store data (Company-owned)
Same-store sales increase (decrease) (2.1%) (0.3%)
Average guest check $6.38 $6.52 (2.1)
NM = Not Meaningful
</TABLE>
Carrows' net company sales for the quarter decreased $5.5 million (10.5%) as
compared to the prior year comparable quarter. This decrease reflects a 17-unit
decrease in the number of Company-owned restaurants, 13 of which were converted
to franchise units, and a 2.1% decrease in same-store sales. The decrease in
same-store sales is largely due to a decrease in average guest check partially
offset by an increase in customer traffic. The increase in customer traffic
reflects the positive impact of promotions of certain popular menu items at
value prices during the period. Such promotions also resulted in a lower average
guest check, which was somewhat offset by the effect of menu price increases
instituted in February 1998 in response to minimum wage increases. Franchise
revenue increased $0.1 million for the third quarter of 1998 as compared to the
third quarter of 1997, reflecting the addition of 13 franchised units over the
prior year quarter.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled $4.3
million for the quarter ended September 30, 1998. In addition, the adjustment of
property and equipment and other intangible assets to fair value resulted in an
estimated increase in amortization and depreciation of $0.5 million. Excluding
the estimated impact of fresh start reporting, operating expenses decreased $3.7
million (7.5%), reflecting the effect of the 17-unit decrease in Company-owned
restaurants.
Excluding the estimated impact of the adoption of fresh start reporting,
Carrows' operating income for the third quarter of 1998 decreased $1.7 million
as compared to the prior year comparable quarter as a result of the factors
noted above.
20
<PAGE>
El Pollo Loco
-------------
<TABLE>
<CAPTION>
Quarter Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
--------------------- --------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit and
same-store data)
U.S. systemwide sales $ 64.8 $ 61.2 5.9
======= ========
Net Company sales $ 30.5 $ 29.2 4.5
Franchise and licensing revenue 4.1 3.9 5.1
-------- ---------
Total revenue 34.6 33.1 4.5
-------- ---------
Operating expenses:
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 2.9 --- NM
Other 31.1 29.6 5.1
------- ----------
Total operating expenses 34.0 29.6 14.9
------- ----------
Operating income $ 0.6 $ 3.5 (82.9)
======= =======
Average unit sales
Company-owned $ 305,200 $309,200 (1.3)
Franchised $ 220,200 $224,500 (1.9)
Same-store data (Company-owned)
Same-store sales increase (decrease) (1.2%) 1.9%
Average guest check $6.95 $6.69 3.9
NM = Not Meaningful
</TABLE>
El Pollo Loco's net company sales increased $1.3 million (4.5%) during the 1998
quarter as compared with the prior year quarter, primarily due to the addition
of three Company-owned units over the prior year quarter. The increase in
revenue related to the additional units was somewhat offset by lower same-store
sales. The decline in same-store sales reflects lower guest counts, which were
offset by an increase in average guest check resulting from menu pricing
increases implemented in response to minimum wage increases. Franchise and
licensing revenue increased by $0.2 million (5.1%) to $4.1 million, reflecting
14 additional franchised units in the 1998 quarter compared to the 1997 quarter
end. El Pollo Loco added three franchise units during the 1998 quarter, which is
consistent with the Company's strategy to grow through franchising.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled $2.9
million for the 1998 quarter. In addition, the adjustment of property and
equipment and other intangible assets to fair value resulted in an estimated
increase in amortization and depreciation of approximately $0.6 million.
Excluding the estimated impact of fresh start accounting, operating expenses
increased approximately $0.9 million (3.0%) compared to the 1997 quarter. Such
increase reflects the addition of three Company-owned units.
Excluding the estimated impact of the adoption of fresh start reporting, El
Pollo Loco's operating income for the 1998 quarter increased by $0.6 million
compared to the prior year quarter as a result of the factors noted above.
21
<PAGE>
Results of Operations
Three Quarters Ended September 30, 1998 Compared to Three Quarters Ended
October 1, 1997
The Company's consolidated revenue for the three quarters ended September 30,
1998 decreased by $57.8 million (4.2%) as compared with the 1997 comparable
period. The revenue decrease is partially attributable to an estimated $32.6
million impact due to fewer reporting days in the 1998 period versus the 1997
comparable period because of the change in the Company's fiscal year end in
1997. Excluding the impact of fewer days in the 1998 reporting period, revenue
for the 1998 quarter decreased $25.2 million compared to the prior year quarter.
This decrease is principally due to a 40-unit decrease in Company-owned units
(excluding the impact of the FEI and Quincy's dispositions) resulting primarily
from refranchising activity, whereby the Company has sold Company units to
franchisees as part of its strategy to optimize its portfolio of Company-owned
and franchised restaurants. Denny's posted positive same-store sales for the
period, although the Company's other concepts experienced declines. The decrease
in Company sales is partially offset by a $5.2 million (8.6%) increase in
franchise and licensing revenue attributed to a 98-unit increase in franchised
and licensed units reflecting the Company's strategy to grow through
franchising. The 98-unit increase results primarily from an increase in the
number of franchised units and includes 57 additional franchised units in
Denny's, 11 in Coco's, 13 in Carrows and 14 in El Pollo Loco.
The comparability of 1998 and 1997 consolidated operating expenses is
significantly affected by the impact of the adoption of fresh start reporting as
of January 7, 1998. Specifically, the amortization of reorganization value in
excess of amounts allocable to identifiable assets, which is over a five-year
period, totaled $106.8 million for the 38 weeks ended September 30, 1998. In
addition, the adjustment of property and equipment and other intangible assets
to fair value as a result of the adoption of fresh start reporting resulted in
an estimated increase in amortization and depreciation of approximately $32.6
million. Excluding the effect of the estimated impact of fresh start reporting,
operating expenses decreased $74.5 million (5.7%), primarily reflecting the
effect of fewer reporting days than in the prior year comparable period, food
cost controls, the 40-unit decrease in Company-owned restaurants, improvement in
actuarial trends for workers' compensation and health benefits costs and an
increase of $7.6 million in gains on sales of units which are reflected as a
reduction of operating expenses.
Excluding the estimated impact of the adoption of fresh start reporting as
discussed above, consolidated operating income for the three quarters ended
September 30, 1998 increased by $16.7 million compared to the 1997 comparable
period as a result of the factors noted above.
Consolidated interest and debt expense, net, totaled $88.8 million during the
three quarters ended September 30, 1998 as compared with $133.2 million during
the comparable 1997 period. The decrease is primarily due to the significant
reduction in debt resulting from the implementation of the Plan which became
effective on January 7, 1998 and a $12.0 million increase in interest income in
1998 due to increased cash and cash equivalents available for investment as a
result of the FEI and Quincy's sales. Also contributing to the decrease in
interest expense in the 1998 period is the lower effective yield on Company
debt resulting from the revaluation of such debt to fair value at the Effective
Date in accordance with fresh start reporting, largely offset by the effect of
the allocation of $28.1 million of interest expense to discontinued operations
in the prior year period in comparison to $3.5 million in the current year
period.
Reorganization items include professional fees and other expenditures incurred
by the Company in conjunction with the reorganization as well as the impact of
adjusting assets and liabilities to fair value in accordance with SOP 90-7 as
discussed in Note 3 to the consolidated financial statements included herein.
The provision for (benefit from) income taxes from continuing operations for the
38-week period 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 38 weeks ended September 30, 1998 compared to a provision for the
1997 39-week period reflecting an approximate rate of 2.4%. The benefit from
income taxes from continuing operations for the one-week period ended January 7,
1998 of approximately $13.8 million includes adjustments of approximately $12.5
million of various tax accruals. The remaining benefit of approximately $1.3
million relates to the tax effect of the revaluation of certain Company assets
and liabilities in accordance with fresh start accounting.
22
<PAGE>
The extraordinary gain is due to the implementation of the Plan which resulted
in the exchange of the Senior Subordinated Debentures and the 10% Convertible
Debentures for 40 million shares of Common Stock and Warrants to purchase 4
million shares of Common Stock. The difference between the carrying value of
such debt (including principal, accrued interest and deferred financing costs)
and the fair value of the Common Stock and Warrants resulted in a gain on debt
extinguishment of $612.8 million which was recorded as an extraordinary item.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the 1997 period to reflect FEI and Quincy's as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Revenue and operating income of the
discontinued operations for the three quarters ended September 30, 1998 and the
three quarters ended October 1, 1997 were $207.6 million and $5.8 million and
$600.1 million and $24.7 million, respectively. The operating results of FEI
subsequent to January 7, 1998 and through the disposition date were reflected as
an adjustment to "Net assets held for sale" prior to the disposition. The
adjustment to "Net assets held for sale" as a result of the net loss of FEI for
the twelve weeks ended April 1, 1998 was ($2.0) million. Revenue and operating
income of FEI for the twelve weeks ended April 1, 1998 were $116.2 million and
$5.7 million, respectively.
Net income was $1,262.0 million for the three quarters ended September 30, 1998
as compared to a net loss of ($101.8) million for the prior year comparable
period primarily as a result of the adoption of fresh start reporting and the
extraordinary gain discussed above.
EBITDA, as set forth below, is defined by the Company as operating income before
depreciation, amortization and charges for restructuring and impairment and is a
key internal measure used to evaluate the amount of cash flow available for debt
repayment and funding of additional investments. EBITDA is not a measure defined
by generally accepted accounting principles and should not be considered as an
alternative to net income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. The Company's measure of EBITDA may not be
comparable to similarly titled measures reported by other companies.
<TABLE>
<CAPTION>
(In millions) Three Quarters Ended
September 30, 1998 October 1, 1997 (a)
------------------ --------------------
<S> <C> <C>
Denny's $ 138.3 $ 125.8
Coco's 26.0 25.8
Carrows 15.7 18.8
El Pollo Loco 16.6 14.5
Corporate and other (22.5) (25.7)
-------- ---------
$ 174.1 $ 159.2
========= =========
</TABLE>
(a) Excludes the EBITDA of Hardee's and Quincy's of $48.2 million and $13.0
million, respectively, for comparability purposes.
23
<PAGE>
<TABLE>
<CAPTION>
Restaurant Operations:
Denny's
- -------
Three Quarters Ended
September 30, October 1, %
1998 1997 Increase/(Decrease)
------------- ---------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit and
same-store data)
U.S. systemwide sales $ 1,463.6 $ 1,445.1 1.3
========= =========
Net Company sales $ 843.7 $ 873.4 (3.4)
Franchise and licensing revenue 50.8 46.2 10.0
---- -----
Total revenue 894.5 919.6 (2.7)
----- ------
Operating expenses:
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 57.8 -- NM
Other 821.2 833.1 (1.4)
----- ------
Total operating expenses 879.0 833.1 5.5
----- ------
Operating income $ 15.5 $ 86.5 (82.1)
======= =======
Average unit sales
Company-owned $ 962,200 $ 978,100 (1.6)
Franchised $ 822,200 $ 827,000 (0.6)
Same-store data (Company-owned)
Same-store sales increase (decrease) 0.3% (4.6%)
Average guest check $5.81 $5.51 5.4
NM = Not Meaningful
</TABLE>
Denny's net company sales decreased by $29.7 million (3.4%) during the three
quarters ended September 30, 1998 compared to the prior year comparable period.
The decrease primarily reflects a $21.7 million impact resulting from five fewer
reporting days in the first quarter of 1998 in comparison to the prior year
comparable period and a $9.6 million decrease associated with 13 fewer
Company-owned units (excluding the impact of 13 units acquired on September 30,
1998). This was partially offset by $3.4 million additional sales at
Company-owned units as year-to-date same-store sales turned positive due to
strong third-quarter sales increases. The increase in same-store sales has
resulted from an increase in Denny's average guest check due to successful
promotions of higher-priced menu items as well as price increases initiated to
keep pace with minimum wage and other costs increases. Franchise and licensing
revenue increased $4.6 million, up 10% over last year. The increased franchising
revenue reflects the Company's strategy to grow its franchise store base,
including the sale of Company-owned units to franchisees to stimulate such
growth. Denny's has added 54 franchised stores so far this year, a growth pace
similar to 1997 when Denny's opened a record 77 franchise units.
The comparability of 1998 and 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled
$57.8 million for the 38 weeks ended September 30, 1998. In addition, the
adjustment of property and equipment and other intangible assets to fair value
resulted in an estimated increase in amortization and depreciation of
approximately $26.5 million. Excluding the estimated effect of fresh start
reporting, operating expenses decreased $38.4 million (4.6%), primarily
reflecting the effect of five fewer reporting days, fewer Company-owned units,
improvements in actuarial trends for workers' compensation and health benefits
costs and an increase of $7.4 million in gains on sales of units which are
reflected as a reduction of operating expenses.
Excluding the estimated impact of fresh start reporting, Denny's operating
income for the three quarters ended September 30, 1998 increased by $13.3
million over the prior year comparable period as a result of the factors noted
above.
24
<PAGE>
<TABLE>
<CAPTION>
Coco's
- ------
Three Quarters Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
---------------- --------------- ------------------
<S> <C> <C> <C>
($ in millions, except average unit and same-store data)
U.S. systemwide sales $ 210.4 $ 214.8 (2.0)
===== =========
Net Company sales $ 193.2 $ 206.7 (6.5)
Franchise and licensing revenue 2.7 3.1 (12.9)
--------- ---------
Total revenue 195.9 209.8 (6.6)
--------- ---------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 16.2 --- NM
Other 184.7 196.4 (6.0)
--------- ---------
Total operating expenses 200.9 196.4 2.3
--------- ---------
Operating (loss) income $ (5.0) $ 13.4 NM
======== ========
Average unit sales
Company-owned $1,115,600 $1,119,400 (0.3)
Franchised $1,005,000 $1,323,900 (24.1)
Same-store data (Company-owned)
Same-store sales decrease (0.8%) 0.1%
Average guest check $6.96 $6.70 3.9
NM = Not Meaningful
</TABLE>
Coco's net company sales for the three quarters ended September 30, 1998
decreased $13.5 million (6.5%) as compared to the prior year comparable period.
The decrease includes a $4.8 million impact due to six fewer reporting days
compared to the prior year comparable period. The remaining decrease reflects a
13-unit decrease in the number of Company-owned restaurants (excluding the 13
units disposed of on September 30, 1998) and a slight decrease in same-store
sales. The decrease in same-store sales is due to a decrease in customer traffic
offset by an increase in average guest check. The increase in average guest
check resulted from menu price increases instituted in August 1997 and February
1998 in response to minimum wage increases. Franchise and foreign licensing
revenue decreased $0.4 million (12.9%) for the three quarters ended September
30, 1998 as compared to the prior year comparable period, resulting primarily
from a stronger dollar versus the yen. This decline was partially offset by the
net increase of eleven domestic franchised units and seven foreign licensed
units over the prior year. The stronger dollar versus the yen and the increase
in the number of franchised units (the calculation for the prior year reflected
only eight franchised units) also explain the large variance in franchise
average unit sales.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled
$16.2 million for the three quarters ended September 30, 1998. In addition, the
adjustment of property and equipment and other intangible assets to fair value
resulted in an estimated increase in amortization and depreciation of $2.4
million. Excluding the estimated impact of fresh start reporting, operating
expenses decreased $14.1 million (7.2%), reflecting the effect of six fewer
reporting days than in the prior year comparable period, the 13-unit decrease in
Company-owned restaurants and the impact of cost reduction programs implemented
to increase operating margins.
Excluding the estimated impact of the adoption of fresh start reporting, Coco's
operating income for the three quarters ended September 30, 1998 increased $0.2
million compared to the prior year comparable period as a result of the factors
noted above.
25
<PAGE>
<TABLE>
<CAPTION>
Carrows
Three Quarters Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
------------------ --------------- ------------------
<S> <C> <C> <C>
($ in millions, except average unit and same-store data)
U.S. Systemwide sales $ 154.5 $ 163.4 (5.4)
======= ========
Net Company sales $ 140.7 $ 161.2 (12.7)
Franchise and licensing revenue 0.7 0.2 NM
------- -------
Total revenue 141.4 161.4 (12.4)
------- -------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 12.9 --- NM
Other 137.2 152.5 (10.0)
------- -------
Total operating expenses 150.1 152.5 (1.6)
------- -------
Operating (loss) income $ (8.7) $ 8.9 NM
======= =======
Average unit sales
Company-owned $1,024,000 $ 1,028,400 (0.4)
Franchised $ 850,200 NM
Same-store data (Company-owned)
Same-store sales increase (decrease) (1.6%) (1.5%)
Average guest check $6.69 $6.46 3.6
NM = Not Meaningful
</TABLE>
Carrows' net company sales decreased $20.5 million (12.7%) for the three
quarters ended September 30, 1998 as compared to the prior year comparable
period. The decrease reflects a $3.8 million impact due to six fewer reporting
days compared to the prior year. The remaining decrease reflects a 17-unit
decrease in the number of Company-owned restaurants, 13 of which were converted
to franchise units, and a decrease in same-store sales. The decrease in
same-store sales is largely due to a decrease in customer traffic partially
offset by an increase in average guest check. The increase in average guest
check resulted from menu price increases instituted in July 1997 and February
1998 in response to minimum wage increases. Franchise revenue increased $0.5
million for the three quarters ended September 30, 1998 as compared to the prior
year comparable period. This increase resulted from the addition of 13
franchised units over the prior year quarter.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled
$12.9 million for the three quarters ended September 30, 1998. In addition, the
adjustment of property and equipment and other intangible assets to fair value
resulted in an estimated increase in amortization and depreciation of $1.7
million. Excluding the estimated impact of fresh start reporting, operating
expenses decreased $17.0 million (11.1%), reflecting the effect of six fewer
reporting days than in the prior year comparable
period and the 17-unit decrease in Company-owned restaurants.
Excluding the estimated impact of the adoption of fresh start reporting,
Carrows' operating income for the three quarters ended September 30, 1998
decreased $3.0 million from the prior year comparable quarter as a result of the
factors noted above.
26
<PAGE>
<TABLE>
<CAPTION>
El Pollo Loco
Three Quarters Ended %
September 30, 1998 October 1, 1997 Increase/(Decrease)
------------------ --------------- ------------------
<S> <C> <C> <C>
($ in millions, except average unit and same-store data)
U.S. Systemwide sales $ 183.3 $ 177.8 3.1
========= ========
Net Company sales $ 87.7 $ 87.3 0.5
Franchise and licensing revenue 11.8 11.2 5.4
--------- ---------
Total revenue 99.5 98.5 1.0
--------- ---------
Operating expenses:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 8.2 --- NM
Other 88.3 87.9 0.5
--------- ---------
Total operating expenses 96.5 87.9 9.8
--------- ---------
Operating income $ 3.0 $ 10.6 NM
======== =======
Average unit sales
Company-owned $883,200 $921,000 (4.1)
Franchised $636,600 $667,700 (4.7)
Same-store data (Company-owned)
Same-store sales increase (decrease) (2.0%) 0.0%
Average guest check $6.90 $6.69 3.1
NM = Not Meaningful
</TABLE>
El Pollo Loco's net company sales increased $0.4 million (0.5%) during the three
quarters ended September 30, 1998 compared with the prior year comparable
period. The increase is primarily driven by the addition of three units in the
current year, somewhat offset by a $2.3 million impact due to seven fewer
reporting days in the current period compared to the prior year and a decline in
same-store sales. The decline in same-store sales reflects lower customer
counts, partially offset by an increase in the average guest check resulting
from menu price increases implemented in response to minimum wage increases.
Franchise and licensing revenue increased $0.6 million (5.4%), reflecting 14
additional franchise units in 1998 compared to 1997.
The comparability of 1998 to 1997 operating expenses is significantly affected
by the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled $8.2
million for the 38 weeks ended September 30, 1998. In addition, the adjustment
of property and equipment and other intangible assets to fair value resulted in
an estimated increase in amortization and depreciation of approximately $1.9
million. Excluding the estimated impact of fresh start accounting, operating
expenses decreased $1.5 million (1.7%) compared to 1997, reflecting fewer
reporting days in the current period and aggressive food cost controls. This
decrease also reflects a $0.7 million nonrecurring insurance recovery recorded
in the current year period as a reduction to operating expenses.
Excluding the estimated impact of the adoption of fresh start reporting, El
Pollo Loco's operating income for the three quarters ended September 30, 1998
increased by $2.5 million compared to the prior year period as a result of the
factors noted above.
Liquidity and Capital Resources
- --------------------------------
On the Effective Date the Company entered into a credit agreement with The Chase
Manhattan Bank ("Chase") and other lenders named therein providing the Company
(excluding FRD Acquisition Co. ("FRD")) with a $200 million senior secured
revolving credit facility (the "Credit Facility"). In connection with the
closing of the sales of FEI and Quincy's, the Credit Facility was amended to
accommodate the sale transactions and in-substance defeasance of the Spartan
Mortgage Financings associated with the FEI disposition. In addition, the Credit
Facility was amended to provide the Company flexibility to reinvest the residual
sales proceeds through additional capital expenditures and/or strategic
acquisitions, as well as to modify certain other covenants and financial tests
affected by the sale transactions. The commitments under the Credit Facility
were not reduced as a result of the FEI
27
<PAGE>
and Quincy's sales. At September 30, 1998, Advantica had no outstanding working
capital advances against the Credit Facility; however, letters of credit
outstanding were $49.4 million.
In connection with the acquisition of FRI-M Corporation ("FRI-M"), the parent
company of Coco's and Carrows, FRI-M and FRD entered into a credit agreement on
May 23, 1996, which provided a $35.0 million revolving credit facility, which is
also available for letters of credit. At September 30, 1998, FRD had no
outstanding working capital borrowings; however, letters of credit outstanding
were $18.0 million.
As of September 30, 1998 and December 31, 1997, the Company had working capital
deficits, exclusive of net assets held for sale, of $59.0 million and $230.2
million, respectively. The decrease in the deficit is attributable primarily to
an increase in cash and cash equivalents from the sales of FEI and Quincy's. As
discussed in further detail in Note 5 to the consolidated financial statements
included herein, on April 1, 1998 the Company sold FEI, receiving cash proceeds
of $380.8 million. Approximately $173.1 million of the proceeds (together with
$28.6 million already on deposit with respect to the Spartan Mortgage
Financings) was used to effect an in-substance defeasance of the Spartan
Mortgage Financings. Together with capital lease obligations assumed by the
buyer, this transaction resulted in a reduced debt load for the Company. On June
10, 1998 the Company sold Quincy's, receiving cash proceeds of approximately
$80.5 million. The Company is able to operate with a substantial working
capital deficiency because: (i) restaurant operations are conducted primarily
on a cash (and cash equivalent) basis with a low level of accounts receivable,
(ii) rapid turnover allows a limited investment in inventories and (iii)
accounts payable for food, beverages, and supplies usually become due after
the receipt of cash from related sales.
Impact of the Year 2000 Issue
- ------------------------------
The Year 2000 issue is the result of computer programs which were written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or operating equipment that have date-sensitive software using
two digits to define the applicable year may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions or engage in normal business
activities.
The Company has a comprehensive enterprise-wide program in place to address the
impact and issues associated with processing dates up to, through and beyond the
Year 2000. This program consists of three main areas: (a) information systems,
(b) supply chain and critical third party readiness and (c) business equipment.
The Company is utilizing both internal and external resources to inventory,
assess, remediate, replace and test its systems for Year 2000 compliance. To
oversee the process, the Company has established a Steering Committee which is
comprised of senior executives from all functional areas within the company and
which reports regularly to the Board of Directors and the Audit Committee.
The Company has performed an assessment of the impact of the Year 2000 issue and
determined that a significant portion of its software applications will need to
be modified or replaced so that its systems will properly utilize dates beyond
December 31, 1999. For the most part, the Company intends to replace existing
systems and based on current estimates expects to spend approximately $19
million in both 1998 and 1999 to address its information systems issues.
Relative to these amounts, the Company estimates that approximately $16 million
and $14 million will be used in 1998 and 1999, respectively, to develop or
purchase new software and will be capitalized. The remaining amounts will be
expensed as incurred. Total Year 2000 expenditures through September 30, 1998
are approximately $7.2 million. All estimated costs have been budgeted and are
expected to be funded by cash flows from operations. Currently, all information
systems projects are on schedule and are fully staffed. Systems that are
critical to the Company's operations are targeted to be Year 2000 compliant by
June of 1999.
The nature of its business makes the Company very dependent on critical
suppliers and service providers, and the failure of such third parties to
address the Year 2000 issue adequately could have a material impact on the
Company's ability to conduct its business. Accordingly, the Company has a team
in place to access the Year 2000 readiness of all third parties on which it
depends. Surveys have been sent to critical suppliers and service providers, and
each survey response is being scored and assessed based on the third party's
Year 2000 project plans in place and progress to date. On-site visits or
follow-up telephone interviews will be performed for critical suppliers and
service providers. For any critical supplier or service provider which does not
provide the Company with satisfactory evidence of their Year 2000 readiness,
contingency plans will be developed which will include
28
<PAGE>
establishing alternative sources for the product or service provided. The
Company is also communicating with its franchise business partners regarding
Year 2000 business risks. The Company's current estimate of costs associated
with the Year 2000 issue excludes the potential impact of the Year 2000 issue
on third parties. There can be no guarantee that the systems of other companies
on which the Company relies will be timely converted, or that a failure to
convert by another company would not have a material adverse effect on the
Company.
The Company has inventoried and determined the business criticality of all
restaurant equipment. Based on preliminary findings the Company believes that
the date-related issues associated with the proper functioning of such assets
are insignificant and are not expected to represent a material risk to the
Company or its operations. The Company has conducted an inventory of its
facilities at the corporate office and has begun the correction of certain
date-deficient systems.
The Company believes, based on available information, that it will be able to
manage its Year 2000 transition without any material adverse effect on its
business operations. However, the costs of the project and the ability of the
Company to complete it on a timely basis are based on management's best
estimates, which were derived based on numerous assumptions of future events
including the availability of certain resources, third party modification plans
and other factors. Specific factors that could have a material adverse effect on
the cost of the project and its completion date include, but are not limited to,
the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, unanticipated failures by
critical vendors and franchisees as well as a failure by the Company to execute
its own remediation efforts. As a result, there can be no assurance that these
forward looking estimates will be achieved and actual results may differ
materially from those plans, resulting in material financial risk to the
Company. As the Year 2000 project progresses, the Company will establish
contingency plans if necessary.
29
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
The information required by this item is furnished by incorporation by reference
to the information regarding the material features of the Plan contained in Note
2 -- Reorganization, of the Notes to Consolidated Financial Statements in Item 1
of Part I of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
a. The following are included as exhibits to this report:
Exhibit
No. Description
- ---- ------------
10.1 Amendment No. 3 and Waiver, dated as of July 16, 1998, to the Credit
Agreement dated as of January 7, 1998, among certain Advantica
subsidiaries, as borrowers, Advantica, as a guarantor, the lenders named
therein, and The Chase Manhattan Bank, as administrative agent.
10.2 Advantica Restaurant Group Stock Option Plan as adopted January 28, 1998
and amended through September 28, 1998.
10.3 Advantica Restaurant Group Officer Stock Option Plan as adopted January
28, 1998 and amended through September 28, 1998.
10.4 Advantica Restaurant Group Director Stock Option Plan as adopted January
28, 1998 and amended through September 28, 1998.
10.5 Assignment and Assumption Agreement, dated as of May 1, 1998, by and
between Quincy's Realty, Inc. and I.M. Special, Inc.
10.6 Quincy's Realty, Inc. Release and Agreement dated as of May 1, 1998.
10.7 Stock Pledge Agreement, dated as of April 1, 1998, among Spartan
Holdings, Inc., Financial Security Assurance Inc. and The Bank of New
York.
10.8 Consent and Agreement Regarding Substitution, dated as of May 1, 1998,
by and among SFS Secured Restaurants, Inc., Spartan Secured Restaurants,
Inc., Secured Restaurants Trust, The Bank of New York, I.M. Special,
Inc., Financial Security Assurance Inc. and Advantica Restaurant Group,
Inc.
27.1 Financial Data Schedule for 38 weeks ended September 30, 1998.
27.2 Restated Financial Data Schedule for 12 weeks ended April 1, 1998.
27.3 Restated Financial Data Schedule for 1 week ended January 7, 1998.
27.4 Restated Financial Data Schedule for year ended December 31, 1997.
27.5 Restated Financial Data Schedule for nine months ended October 1, 1997.
27.6 Restated Financial Data Schedule for six months ended July 2, 1997.
27.7 Restated Financial Data Schedule for three months ended April 2, 1997.
27.8 Restated Financial Data Schedule for year ended December 31, 1996.
- ---------------------------------------
b. No reports on Form 8-K were filed during the quarter ended September 30,
1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANTICA RESTAURANT GROUP, INC.
Date: November 2, 1998 By: /s/ Rhonda J. Parish
-----------------------------
Rhonda J. Parish
Executive Vice President,
General Counsel and Secretary
Date: November 2, 1998 By: /s/ Ronald B. Hutchison
----------------------------
Ronald B. Hutchison
Executive Vice President and
Chief Financial Officer
EXECUTION COPY
AMENDMENT NO. 3 and WAIVER, dated as of July 16, 1998
(this "Amendment"), to the Credit Agreement dated as of
January 7, 1998, as amended by Amendment No. 1 and Waiver
dated as of March 16, 1998, and as further amended by
Amendment No. 2 and Waiver dated as of May 21, 1998 (the
"Credit Agreement"), among DENNY'S, INC., a California
corporation, EL POLLO LOCO, INC., a Delaware corporation,
FLAGSTAR ENTERPRISES, INC., an Alabama corporation, FLAGSTAR
SYSTEMS, INC., a Delaware corporation, QUINCY'S RESTAURANTS,
INC., an Alabama corporation (each of the foregoing, except
for FLAGSTAR ENTERPRISES, INC. and QUINCY'S RESTAURANTS, INC.,
individually, a "Borrower" and, collectively, the
"Borrowers"), ADVANTICA RESTAURANT GROUP, INC., a Delaware
corporation ("Parent"), the Lenders (as defined in Article I
of the Credit Agreement) and THE CHASE MANHATTAN BANK, a New
York banking corporation, as swingline lender (in such
capacity, the "Swingline Lender"), as issuing bank, as
administrative agent (in such capacity, the "Administrative
Agent") and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders.
A. The Lenders have extended credit to the Borrowers, and have
agreed to extend credit to the Borrowers, in each case pursuant to the terms and
subject to the conditions set forth in the Credit Agreement.
B. Parent and the Borrowers have requested that the Required Lenders
agree to amend certain provisions of the Credit Agreement and waive compliance
by Parent and the Borrowers with certain other provisions of the Credit
Agreement as provided herein.
C. The Required Lenders are willing to agree to such amendments and
grant such waiver, on the terms and subject to the conditions set forth herein.
D. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Waiver. The Lenders hereby waive compliance by Parent and
the Borrowers with the provisions of Section 6.08 of the Credit Agreement to the
extent, but only to the extent, necessary to permit the Borrowers and Parent (a)
to make a Net Proceeds Offer (as defined in the New Senior Notes Indenture) with
respect to an aggregate principal amount of New Senior Notes not to exceed the
lesser of (i) $100,000,000 and (ii) the aggregate amount of the Net Cash
Proceeds of the Enterprises Sale that occurred on April 1, 1998, and of the
Quincy's Sale that occurred on June 10, 1998, that have not previously been
applied to incur Consolidated Capital Expenditures (or investments in lieu
thereof permitted under Section 6.04(k) of the Credit Agreement), pay
Indebtedness, effect the SRT Defeasance or make investments or for any other
purpose (such lesser amount, the "Maximum Purchase Amount") and (b) to
<PAGE>
purchase New Senior Notes in an aggregate principal amount not to exceed the
Maximum Purchase Amount pursuant to such Net Proceeds Offer at a purchase price
of 100% of the principal amount thereof plus accrued but unpaid interest
thereon, all in accordance with Section 3.13 of the New Senior Notes Indenture
and otherwise on terms reasonably satisfactory to the Administrative Agent.
SECTION 2. Amendment. Section 1.01 is hereby amended by amending
the definition of the term "Permitted Investments" as follows:
(a) by deleting the phrase in clause (a) thereof "to the extent such
obligations are backed by the full faith and credit of the United States
of America" in the parenthetical and
(b) by inserting the following text after the words "Moody's Investors
Service, Inc." at the end of clause (b) thereof :
"or investments in other corporate debt securities maturing within one
year from the date of the acquisition thereof and having, at such date of
acquisition, a rating of at least 'A' or the equivalent thereof from
Standard & Poor's Rating Service or of at least 'A2' or the equivalent
thereof from Moody's Investors Service, Inc".
SECTION 3. Representations and Warranties. Parent and the Borrowers
represent and warrant to the Administrative Agent and to each of the Lenders
that:
(a) This Amendment has been duly authorized, executed and delivered
by Parent and each of the Borrowers and constitutes their legal, valid and
binding obligations, enforceable in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in
equity).
(b) Before and after giving effect to this Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) Before and after giving effect to this Amendment, no Event of
Default or Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective as of the date first above written when the Administrative Agent shall
have received counterparts of this Amendment that, when taken together, bear the
signatures of Parent, each of the Borrowers and the Required Lenders.
SECTION 5. Credit Agreement. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement as
amended hereby.
<PAGE>
SECTION 6. Loan Document. This Amendment shall be a Loan Document
for all purposes.
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one agreement. Delivery of an executed
counterpart of a signature page of this Amendment by telecopy shall be effective
as delivery of a manually executed counterpart of this Amendment.
SECTION 9. Expenses. Parent and the Borrowers agree to reimburse the
Administrative Agent for its out-of-pocket expenses in connection with this
Amendment, including the reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
ADVANTICA RESTAURANT GROUP, INC.,
by /s/ KENNETH E. JONES
-------------------------
Name: Kenneth E. Jones
Title: Vice President
and Treasurer
DENNY'S, INC.,
by /s/ KENNETH E. JONES
-------------------------
Name: Kenneth E. Jones
Title: Vice President
and Treasurer
EL POLLO LOCO, INC.,
by /s/ KENNETH E. JONES
-------------------------
Name: Kenneth E. Jones
Title: Vice President
and Treasurer
<PAGE>
FLAGSTAR SYSTEMS, INC.,
by /s/ KENNETH E. JONES
-------------------------
Name: Kenneth E. Jones
Title: Vice President
and Treasurer
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent, Swingline
Lender and Issuing Bank,
by
-------------------------
Name:
Title:
<PAGE>
FLAGSTAR SYSTEMS, INC.,
by
-------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent, Swingline
Lender and Issuing Bank,
by /s/ WILLIAM P. RINDFUSS
--------------------------
Name: William P. Rindfuss
Title: Vice President
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution AT&T Commercial Finance Corporation
------------------------------------------
by /s/ PAUL SEIDENUAL
--------------------------------
Name: Paul Seidenual
Title: AVP
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution BHF-BANK Aktiengenellschafe
------------------------------------------
by /s/ THOMAS J. SCIPO JOHN SYKES
----------------------------------
Name: Thomas J. Scipo John Sykes
Title: AVP VP
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution Green Tree Financial Servicing Corp.
------------------------------------------
by /s/ CHRISTOPHER A. GOUSKOS
--------------------------------
Name: Christopher A. Gouskos
Title: Senior Vice President
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution KZH CRESCENT CORPORATION
------------------------------------------
by /s/ DENNIS KILDEA
--------------------------------
Name: Dennis Kildea
Title: Authorized Agent
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution KZH HOLDING CORPORATION III
------------------------------------------
by /s/ DENNIS KILDEA
--------------------------------
Name: Dennis Kildea
Title: Authorized Agent
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution The Long-Term Credit Bank of Japan, Limited, New York Branch
------------------------------------------------------------
by /s/ KOJI SASAYAMA
--------------------------------
Name: Koji Sasayama
Title: Deputy General Manager
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution PAM CAPITAL FUNDING L.P.
By: Highland Capital Management, L.P.
as Collateral Management
------------------------------------------
by /s/ JAMES DONDERO, CFA, CPA
--------------------------------
Name: James Dondero, CFA, CPA
Title: President
Highland Capital Management L.P.
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 3,
DATED AS OF
July 16, 1998
To approve the Amendment:
Name of Institution SANWA BUSINESS CREDIT CORPORATION
------------------------------------------
by /s/ MARK FLAMM
--------------------------------
Name: Mark Flamm
Title: Vice President
ADVANTICA RESTAURANT GROUP
OFFICER STOCK OPTION PLAN
(As adopted on January 28, 1998 and amended on September 28, 1998)
1. Purpose of the Plan
-------------------
This Advantica Restaurant Group Officer Stock Option Plan (the "Plan") is
intended to promote the interest of Advantica Restaurant Group, Inc.
("Advantica" or the "Company") by providing the Officers of Advantica, who are
largely responsible for the management, growth and protection of the business of
the Company, with incentives and rewards to encourage them to continue in their
employment with the Company.
2. Definitions
-----------
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Agreement" shall mean the agreement, in the form the Committee may approve
from time to time, which evidences an Option granted pursuant to the Plan and
entered into, at the direction of the Committee, with an Optionee.
(b) "Board of Directors" shall mean the Board of Directors of Advantica.
(c) "Cause" when used in connection with the termination of service of an
officer of the Company, shall mean the termination of the Participant as an
Officer of the Company because of (A) an act or acts by him, or any omission by
him, constituting a felony, if the Participant has entered a guilty plea or
confession to, or has been convicted of, such felony, (B) any act of fraud or
dishonesty by the Participant which results in or is intended to result in any
material financial or economic harm to the Company as determined by the
Committee in its sole discretion or (C) a breach of a material provision of any
employment agreement between the Participant and the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
(e) "Committee" shall mean the Committee designated by the Board of Directors
pursuant to Section 4 hereof from time to time.
(f) "Common Stock" shall mean Advantica's common stock, $.01 par value per
share.
(g) "Company" shall mean Advantica, a Delaware corporation, and each of its
Subsidiaries.
(h) "Disability" shall mean any physical or mental condition which would qualify
a Participant for a disability benefit under the long-term disability plan
maintained by the Company and applicable to that particular Participant.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" of a share of Common stock on any day shall be the fair
market value of the Common Stock on such day as determined by utilizing a
reasonable valuation method established by the Committee in its sole discretion
to be applied on a consistent basis to all optionees.
(k) "Incentive Stock Option" shall mean an Option that is intended to satisfy
the requirements applicable to an "incentive stock option" as that term is
described in Section 422(b) of the Code.
(l) "Nonqualified Stock Option" shall mean an Option that is not intended to be
treated as an "incentive stock option" as that term is described in Section
422(b) of the Code.
(m) "Officer" shall mean any vice president or higher ranking officer of the
Company.
(n) "Option" shall mean an option to purchase shares of Common Stock granted
pursuant to Section 6 hereof. Each Option shall be identified by the Committee
in the Agreement as either a Nonqualified Stock Option or an Incentive Stock
Option.
(o) "Participant" shall mean an individual who is eligible to participate in the
Plan pursuant to Section 5 hereof and to whom an Option is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors, and
administrators, as the case may be.
(p) "Plan" shall mean this Advantica Restaurant Group Officer Stock Option Plan,
as it may be amended from time to time.
(q) "Securities Act" shall mean the Securities Act of 1933, as amended.
(r) "Subsidiary" shall mean any corporation in which, at the time of reference,
Advantica owns, directly or indirectly, stock comprising more than fifty percent
of the total combined voting power of all classes of stock of such corporation.
(s) "Voluntary Termination" shall mean any voluntary termination by the
Participant as an Officer of the Company.
3. Stock Subject to the Plan
-------------------------
Subject to the adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that, in the aggregate when combined with the total number of shares authorized
under the Advantica Restaurant Group Stock Option Plan, does not exceed
4,888,888 shares and, with respect to any individual Participant, does not
exceed 3,000,000 shares during any calendar year. In the event that any
outstanding Option expires, terminates or is canceled for any reason, the shares
of Common Stock subject to the unexercised portion of such Option shall again be
available for grants under the Plan for purposes of the 4,888,888 share limit
stated above. Shares of Common Stock issued under the Plan may be either newly
issued shares or treasury shares, at the discretion of the Committee.
4. Administration of the Plan
--------------------------
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons as designated by the Board of Directors. The
Committee shall have full authority to designate, from time to time, those
individuals who shall be granted Options and the number of shares of Common
Stock covered by such Options.
<PAGE>
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion, accelerate the date on which any
Option becomes exercisable or upon termination of the Participant's service as
an Officer, permit the term of a terminated Officer's options to continue for
the remainder of the term of such options or any portion thereof. In addition,
the Committee may, in its absolute discretion, grant Options to Participants on
the condition that such Participants surrender to the Committee for cancellation
such other Options (including, without limitation, Options with higher exercise
prices) as the Committee specifies. In such case, both the option that is deemed
to be canceled and the option that is deemed to be granted shall reduce the
maximum number of shares for which options may be granted to any individual
participant as set forth in Section 3.
The Committee shall have full authority to delegate to a subcommittee of
directors (the "Subcommittee") any and all authority granted to the Committee
with respect to the Plan, such Subcommittee to be constituted and to have such
authority as may be necessary to satisfy any and all requirements of Rule 16b-3
promulgated under Section 16 of the Exchange Act and/or Section 162(m) of the
Code and the regulations thereunder with respect to any Option granted or
exercised pursuant to the terms of the Plan.
No member of the Committee or Subcommittee shall be liable for any action,
omission, or determination relating to the Plan, and Advantica shall indemnify
and hold harmless each member of the Committee or Subcommittee and each other
director or employee of the Company to whom any duty or power relating to the
administration or interpretation of the Plan has been delegated against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of Advantica) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. Eligibility
-----------
The persons who shall be eligible to receive Options pursuant to the Plan shall
be such Officers of the Company who are responsible for the management, growth
and protection of the business of the Company (whether or not they are directors
of Advantica) as the Committee in its sole discretion shall select from time to
time.
6. Options
-------
Options granted pursuant to the Plan shall be evidenced by an Agreement. Options
shall comply with and be subject to the following terms and conditions:
(a) Identification of Options
-------------------------
All Options granted under the Plan shall be identified in the Agreement
as either a Nonqualified Stock Option or an Incentive Stock Option; however,
unless specifically designated and identified by the Committee as an Incentive
Stock Option, each Option granted shall be deemed to be a Nonqualified Stock
Option.
(b) Exercise Price
--------------
The exercise price in respect of each share of Common Stock covered by any
Option granted under the Plan shall be such price as the Committee shall
determine on the date on which such Option is granted.
(c) Term and Exercise of Options
----------------------------
(1) Each Option shall be exercisable on such date or dates, during such period
and for such number of shares of Common Stock as shall be determined by the
Committee on the day on which such Option is granted and set forth in the Option
Agreement with respect to such Option; provided, however, that each Option shall
be subject to earlier termination, expiration or cancellation as provided in
this Plan. (2) Each Option shall be exercisable in whole or in part. Any partial
exercise of an Option shall not cause the expiration, termination or
cancellation of the remaining portion thereof. (3) Subject to the provisions of
Section 11 hereof, an Option shall be exercised by delivering notice to
Advantica's principal office, to the attention of its Secretary or his or her
designee, in such form and in accordance with such procedures as may be provided
from time to time by the office of the Secretary of Advantica which may include
the requirement that such notice: (i) specify the number of shares of Common
Stock with respect to which the Option is being exercised and (ii) specify the
effective date of the proposed exercise. The Participant may withdraw such
notice at any time prior to the opening of business on the business day of the
proposed exercise. Payment for shares of Common Stock purchased upon the
exercise of an Option shall be made on the effective date of such exercise
either (i) in cash, by certified check, bank cashier's check or wire transfer;
(ii) subject to the disallowance by the Committee (such disallowance may be
made, in the Committee's sole discretion, for any reason whatsoever or for no
reason), in shares of Common Stock owned by the Participant and valued at their
Fair Market Value on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank cashier's check
or wire transfer, or (iii) subject to the disallowance by the Committee (such
disallowance may be made in the Committee's sole discretion, for any reason
whatsoever or for no reason) and at the election of the Participant, the Company
shall withhold a number of such shares determined by such Participant, the Fair
Market Value of which at the exercise date the Committee determines to be
sufficient to pay the exercise price. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of Advantica,
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
together with any other documents and evidences as the Secretary of Advantica
shall require from time to time. (4) Certificates for shares of Common Stock
purchased upon the exercise of an Option shall be issued in the name of the
Participant or, at the election of the Participant, in the
Page 2
<PAGE>
name of a broker designated by the Committee, in its sole discretion, to hold
such shares on behalf of and for the benefit of the Participant. Such shares
shall be delivered accordingly as soon as practicable following the effective
date on which the Option is exercised. (5) During the lifetime of a Participant,
unless otherwise so provided in the Agreement, each Option granted to him shall
be exercisable only by him. No option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
Notwithstanding the foregoing, an Agreement may provide, at the sole discretion
of the Committee, that certain identified Options are transferable by gift to
such persons or entities and under such terms and conditions as specified in the
Agreement.
(d) Effect of Termination as an Officer
-----------------------------------
Except as otherwise provided in the Agreement or in an employment agreement
executed by the Company's President and subject to the provisions of Section 4
hereof: (1) In the event that the Participant terminates as an Officer of the
Company due to death, Disability or retirement of the Participant (i) Options
granted to such Participant, to the extent that they were exercisable at the
time of such termination, shall remain exercisable until the expiration of one
year after such termination, on which date they shall expire and terminate; and
(ii) Options granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire and terminate at the
close of business on the date of such termination; provided, however, that no
Option shall be exercisable after the expiration of its term. (2) In the event
of a Voluntary Termination or other termination as an Officer for any reason
other than for Cause, all outstanding Options, to the extent that they were
exercisable on the date of termination, shall continue to be exercisable for a
period of 60 days from the date of termination. After the lapse of such 60 days,
all Options, exercisable or not exercisable on the date of termination, shall
expire and be terminated; provided, however, that no Option shall be exercisable
after the expiration of its term. (3) In the event the termination of a
Participant as an Officer is for Cause, all outstanding Options granted to such
Participant, exercisable or not exercisable, shall expire and terminate at the
commencement of business on the date of such termination.
7. Adjustment Upon Changes in Common Stock
---------------------------------------
(a) Shares Available for Grants
---------------------------
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or similar corporate change,
the maximum aggregate number of shares of Common Stock with respect to which the
Committee may grant Options shall be appropriately adjusted by the Committee. In
the event of any change in the number of shares of Common Stock outstanding by
reason of any other event or transaction, the Committee may, but need not, make
such adjustments in the number and class of shares of Common Stock with respect
to which Options may be granted as the Committee may deem appropriate.
(b) Outstanding Options - Increase or Decrease in Issued Shares Without
-------------------------------------------------------------------
Consideration
-------------
Subject to any required action by the shareholders of Advantica, in the event of
any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by Advantica, the Committee shall proportionally adjust the
number of shares of Common Stock subject to each outstanding Option and the
exercise price per share of Common Stock in respect of each such Option.
(c) Outstanding Options - Certain Mergers
-------------------------------------
Subject to any required action by the shareholders of Advantica, in the event
that Advantica shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Option would have received in such merger or consolidation.
(d) Outstanding Options - Certain Other Transactions
------------------------------------------------
In the event of (i) a dissolution or liquidation of Advantica, (ii) a sale of
all or substantially all of Advantica's assets, (iii) a merger or consolidation
involving Advantica in which Advantica is not the surviving corporation or (iv)
a merger or consolidation involving Advantica in which Advantica is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to: (i) cancel,
effective immediately prior to the occurrence of such event, each Option
outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the Participant to whom
such Option was granted an amount in cash for each share of Common Stock subject
to such Option, equal to the excess of (a) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
or to be received by the holder of a share of Common Stock as a result of such
event over (b) the exercise price in respect of each share of Common Stock
covered by such Option; or (ii) provide for the exchange of each Option
outstanding immediately prior to such event (whether or not then exercisable)
for an option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute discretion
in the exercise price of the Option, or the number of shares or amount of
property subject to the Option or, if appropriate, provide for a cash payment to
the Participant to whom such Option was granted in partial consideration for the
exchange of the Option.
(e) Outstanding Options - Other Changes
-----------------------------------
In the event of any change in the capitalization of Advantica or corporate
change other than those specifically referred to in Section 7(a),(b),
or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject
Page 3
<PAGE>
to Options outstanding on the date on which such change occurs and in the per
share exercise price of each such Option as the Committee may consider
appropriate to prevent dilution or enlargement of rights.
(f) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have any rights
by reason of any subdivision or consolidation of shares of stock of any class,
the payment of any dividend, any increase or decrease in the number of shares of
stock of any class or any dissolution, liquidation, merger or consolidation of
Advantica or any other corporation. Except as expressly provided in the Plan, no
issuance by Advantica of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to an Option or the exercise price of any Option.
8. Rights as a Stockholder
-----------------------
No person shall have any rights as a stockholder with respect to any shares of
Common Stock covered by or relating to any Option granted pursuant to this Plan
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date on which such stock certificate is
issued.
9. No Special Employment Rights; No Right to Option
------------------------------------------------
Nothing contained in the Plan or any Option shall confer upon any Participant
any right with respect to the continuation of his employment or Officer status
with the Company or interfere in any way with the right of the Company, subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such relationship or to increase or decrease the compensation of
the Participant from the rate in existence at the time of the grant of an
Option. No person shall have any claims or right to receive an Option hereunder.
The Committee's granting of an Option to a Participant at any time shall neither
require the Committee to grant an Option to such Participant or any other
Participant or other person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other person.
10. Securities Law Matters
----------------------
(a) Advantica shall be under no obligation to effect the registration pursuant
to the Securities Act of any shares of Common Stock to be issued hereunder or to
effect similar compliance under any state laws. Notwithstanding anything herein
to the contrary, Advantica shall not be obligated to cause to be issued or
delivered any certificates evidencing shares of Common Stock pursuant to the
Plan unless and until Advantica is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any securities
exchange on which shares of Common Stock are traded. The Committee may require,
as a condition of the issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient of such shares
make such covenants, agreements and representations, and that such certificates
bear such legends, as the Committee, in its sole discretion, deems necessary or
desirable. (b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to Advantica shall have determined that the
issuance and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any securities exchange or market on which shares of Common
Stock are traded. Advantica may, in its sole discretion, defer the effectiveness
of any exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other methods
for compliance available under federal or state securities laws. Advantica shall
inform the Participant in writing of its decision to defer the effectiveness of
the exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain the refund of any
amount paid or delivered with respect thereto.
11. Withholding Taxes
-----------------
(a) Cash Remittance
---------------
Whenever shares of Common Stock are to be issued upon the exercise of an Option,
the Participant shall be required, as a condition to the exercise of the related
Option, to remit to the Company in cash an amount sufficient to satisfy federal,
state and local withholding tax requirements, if any, attributable to such
exercise prior to the delivery of any certificate or certificates for such
shares.
(b) Stock Remittance
----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of any Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Participant may tender to the Company a number of
shares of Common Stock determined by such Participant, the Fair Market Value of
which at the tender date the Committee determines, in its sole discretion, to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Participant's
calculated total federal, state and local tax obligations associated with such
exercise.
(c) Stock Withholding
-----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of an Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Company shall withhold a number of such shares
determined by such Participant, the Fair Market Value of which at the exercise
date the Committee determines (in its sole discretion) to
Page 4
<PAGE>
be sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise and not greater than the
Participant's calculated total federal, state and local tax obligations
associated with such exercise.
12. Amendment of the Plan; Term of the Plan
---------------------------------------
The Board of Directors or the Committee may at any time suspend, discontinue or
terminate the Plan. Additionally, the Board of Directors or the Committee may
revise or amend the Plan in any respect whatsoever subject only to any
applicable law, regulation or exchange/market requirement, provided that no
amendment or discontinuance may, in the absence of written consent to the change
by the affected Participant, adversely affect the rights of any Participant
under any Option granted under the Plan prior to the date such amendment is
adopted by the Board or the Committee. The Plan shall continue in existence
until terminated by the Board of Directors pursuant to the terms set forth
herein.
13. No Obligation to Exercise
-------------------------
The grant to a Participant of an Option shall impose no obligation upon such
Participant to exercise such Option.
14. Transfers Upon Death
--------------------
Unless otherwise provided in the Agreement, upon the death of a Participant,
outstanding Options granted to such Participant may be exercised only by the
executors or administrators of the Participant's estate or by any person or
persons who shall have acquired such right to exercise by will or by the laws of
descent and distribution. No transfer by will or the laws of descent and
distribution of any Option, or the right to exercise any Option, shall be
effective to bind the Company unless the Committee shall have been furnished
with (a) written notice thereof and with a copy of the will and/or such evidence
as the Committee may deem necessary to establish the validity of the transfer
and (b) an agreement by the transferee to comply with all the terms and
conditions of the Option that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Option.
15. Expenses
--------
The expenses of the Plan shall be paid by the Company.
16. Failure to Comply
-----------------
In addition to the remedies of the Company elsewhere provided for herein, if a
Participant shall fail to comply with any of the terms or conditions of the Plan
or the Agreement, the Committee may cancel such Option and cause such Option to
be forfeited, in whole or in part, as the Committee, in its absolute discretion,
may determine, unless such failure is remedied by such Participant within ten
days after such Participant's receipt of written notice of such failure from the
Committee or the Company.
17. Effective Date
--------------
The Plan shall be effective on the date that the Plan is approved by the Board
of Directors, contingent upon approval of the Plan by the shareholders of the
Company at the next annual meeting of shareholders following such Board of
Director approval.
ADVANTICA RESTAURANT GROUP
STOCK OPTION PLAN
(As adopted on January 28, 1998 and amended on September 28, 1998)
1. Purpose of the Plan
-------------------
This Advantica Restaurant Group Stock Option Plan (the "Plan") is intended to
promote the interest of Advantica Restaurant Group, Inc. ("Advantica" or the
"Company") by providing the employees of and certain consultants to Advantica,
who are largely responsible for the management, growth and protection of the
business of the Company, with incentives and rewards to encourage them to
continue in their employment or consulting relationship with the Company.
2. Definitions
-----------
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Agreement" shall mean the agreement, in the form the Committee
may approve from time to time, which evidences an Option granted pursuant
to the Plan and entered into, at the direction of the Committee, with an
Optionee.
(b) "Board of Directors" shall mean the Board of Directors of
Advantica.
(c) "Cause" when used in connection with the termination of a
Participant's employment or consulting relationship with the Company, shall mean
the termination of the Participant's employment by or consulting relationship
with the Company because of (A) an act or acts by him, or any omission by him,
constituting a felony, if the Participant has entered a guilty plea or
confession to, or has been convicted of, such felony, (B) any act of fraud or
dishonesty by the Participant which results in or is intended to result in any
material financial or economic harm to the Company as determined by the
Committee in its sole discretion or (C) a breach of a material provision of any
employment or consulting agreement between the Participant and the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
(e) "Committee" shall mean the Committee designated by the Board of
Directors pursuant to Section 4 hereof from time to time.
(f) "Common Stock" shall mean Advantica's common stock, $.01 par value per
share.
(g) "Company" shall mean Advantica, a Delaware corporation, and each of its
Subsidiaries.
(h) "Disability" shall mean any physical or mental condition which would qualify
a Participant for a disability benefit under the long-term disability plan
maintained by the Company and applicable to that particular Participant.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" of a share of Common stock on any day shall be the fair
market value of the Common Stock on such day as determined by utilizing a
reasonable valuation method established by the Committee in its sole discretion
to be applied on a consistent basis to all optionees.
(k) "Officer" shall mean any vice president or higher ranking officer of the
Company.
(l) "Option" shall mean an option to purchase shares of Common Stock granted
pursuant to Section 6 hereof. Each Option shall be identified by the Committee
in the Agreement as a nonqualified stock option that is not intended to be an
incentive stock option within the meaning of Section 422 of the Code.
(m) Participant" shall mean an individual who is eligible to participate in the
Plan pursuant to Section 5 hereof and to whom an Option is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors, and
administrators, as the case may be.
(n) "Plan" shall mean this Advantica Restaurant Group Stock Option Plan, as it
may be amended from time to time.
(o) "Securities Act" shall mean the Securities Act of 1933, as amended.
(p) "Subsidiary" shall mean any corporation in which, at the time of reference,
Advantica owns, directly or indirectly, stock comprising more than fifty percent
of the total combined voting power of all classes of stock of such corporation.
(q) "Voluntary Termination" shall mean any voluntary termination by the
Participant of his employment or consulting relationship with the Company.
3. Stock Subject to the Plan
-------------------------
Subject to the adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that, in the aggregate when combined with the total number of shares authorized
under the Advantica Restaurant Group Officer Stock Option Plan, does not exceed
4,888,888 shares and, with respect to any individual Participant, does not
exceed 3,000,000 shares during any calendar year. In the event that any
outstanding Option expires, terminates or is canceled for any reason, the shares
of Common Stock subject to the unexercised portion of such Option shall again be
available for grants under the Plan for purposes of the 4,888,888 share limit
stated above. Shares of Common Stock issued under the Plan may be either newly
issued shares or treasury shares, at the discretion of the Committee.
4. Administration of the Plan
--------------------------
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons as designated by the Board of Directors.
The Committee shall have full authority to designate, from time to time, those
individuals who shall be granted Options and the number of shares of Common
Stock covered by such Options. The Committee shall have full authority to
administer the Plan, including authority to interpret and construe any provision
of the Plan and the terms of any Option issued under it and to adopt such rules
and regulations for administering the Plan as it may deem necessary. Decisions
of the Committee shall be final and binding on all parties.
<PAGE>
The Committee may, in its absolute discretion, accelerate the date on which any
Option becomes exercisable or upon termination of employment, permit the term of
a terminated employee's options to continue for the remainder of the term of
such options or any portion thereof. In addition, the Committee may, in its
absolute discretion, grant Options to Participants on the condition that such
Participants surrender to the Committee for cancellation such other Options
(including, without limitation, Options with higher exercise prices) as the
Committee specifies. In such case, both the option that is deemed to be canceled
and the option that is deemed to be granted shall reduce the maximum number of
shares for which options may be granted to any individual participant as set
forth in Section 3.
The Committee shall determine whether an authorized leave of absence or absence
in military or government service shall constitute termination of employment.
The Committee shall have full authority to delegate to a subcommittee of
directors (the "Subcommittee") any and all authority granted to the Committee
with respect to the Plan, such Subcommittee to be constituted and to have such
authority as may be necessary to satisfy any and all requirements of Rule 16b-3
promulgated under Section 16 of the Exchange Act and/or Section 162(m) of the
Code and the regulations thereunder with respect to any Option granted or
exercised pursuant to the terms of the Plan. No member of the Committee or
Subcommittee shall be liable for any action, omission, or determination
relating to the Plan, and Advantica shall indemnify and hold harmless each
member of the Committee or Subcommittee and each other director or employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of Advantica) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
5. Eligibility
-----------
The persons who shall be eligible to receive Options pursuant to the Plan shall
be (1) such employees of the Company who are responsible for the management,
growth and protection of the business of the Company (excluding Officers and
directors of Advantica) as the Committee in its sole discretion shall select
from time to time, and (2) those persons who provide consulting services to the
Company as the Committee in its sole discretion shall select from time to time.
6. Options
-------
Options granted pursuant to the Plan shall be evidenced by an Agreement. Options
shall comply with and be subject to the following terms and conditions:
(a) Identification of Options
-------------------------
All Options granted under the Plan shall be identified in the Agreement as a
nonqualified stock option that is not intended to be an incentive stock option
within the meaning of Section 422 of the Code.
(b) Exercise Price
--------------
The exercise price in respect of each share of Common Stock
covered by any Option granted under the Plan shall be such price as the
Committee shall determine on the date on which such Option is granted.
(c) Term and Exercise of Options
----------------------------
(1) Each Option shall be exercisable on such date or
dates, during such period and for such number of shares of Common Stock as shall
be determined by the Committee on the day on which such Option is granted and
set forth in the Option Agreement with respect to such Option; provided,
however, that each Option shall be subject to earlier termination, expiration or
cancellation as provided in this Plan. (2) Each Option shall be exercisable in
whole or in part. Any partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. (3)
Subject to the provisions of Section 11 hereof, an Option shall be exercised by
delivering notice to Advantica's principal office, to the attention of its
Secretary or his or her designee, in such form and in accordance with such
procedures as may be provided from time to time by the office of the Secretary
of Advantica which may include the requirement that such notice: (i) specify the
number of shares of Common Stock with respect to which the Option is being
exercised and (ii) specify the effective date of the proposed exercise. The
Participant may withdraw such notice at any time prior to the opening of
business on the business day of the proposed exercise. Payment for shares of
Common Stock purchased upon the exercise of an Option shall be made on the
effective date of such exercise either (i) in cash, by certified check, bank
cashier's check or wire transfer; (ii) subject to the disallowance by the
Committee (such disallowance may be made, in the Committee's sole discretion,
for any reason whatsoever or for no reason), in shares of Common Stock owned by
the Participant and valued at their Fair Market Value on the effective date of
such exercise, or partly in shares of Common Stock with the balance in cash, by
certified check, bank cashier's check or wire transfer, or (iii) subject to the
disallowance by the Committee (such disallowance may be made in the Committee's
sole discretion, for any reason whatsoever or for no reason) and at the election
of the Participant, the Company shall withhold a number of such shares
determined by such Participant, the Fair Market Value of which at the exercise
date the Committee determines to be sufficient to pay the exercise price. Any
payment in shares of Common Stock shall be effected by the delivery of such
shares to the Secretary of Advantica, duly endorsed in blank or accompanied by
stock powers duly endorsed in blank, together with any other documents and
evidences as the Secretary of Advantica shall require from time to time. (4)
Certificates for shares of Common Stock purchased upon the exercise of an Option
shall be issued in the name of the Participant or, at the election of the
Participant, in the name of a broker designated by the Committee, in its sole
discretion, to hold such shares on behalf of and for the benefit of the
Participant. Such shares shall be delivered accordingly as soon as practicable
following the effective date on which the Option is exercised. (5) During the
lifetime of a Participant, unless otherwise so provided in the
Page 2
<PAGE>
Agreement, each Option granted to him shall be exercisable only by him. No
option shall be assignable or transferable otherwise than by will or by the laws
of descent and distribution. Notwithstanding the foregoing, an Agreement may
provide, at the sole discretion of the Committee, that certain identified
Options are transferable by gift to such persons or entities and under such
terms and conditions as specified in the Agreement.
(d) Effect of Termination of Employment
-----------------------------------
Except as otherwise provided in the Agreement and subject to the provisions of
Section 4 hereof: (1) In the event that the employment or consulting
relationship of a Participant with the Company shall terminate due to death,
Disability or retirement of the Participant (i) Options granted to such
Participant, to the extent that they were exercisable at the time of such
termination of the employment or consulting relationship, shall remain
exercisable until the expiration of one year after such termination, on which
date they shall expire and terminate; and (ii) Options granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire and terminate at the close of business on the date of
such termination; provided, however, that no Option shall be exercisable after
the expiration of its term. (2) In the event of a Participant's Voluntary
Termination of employment or consulting relationship or other termination of a
Participant's employment or consulting relationship for any reason other than
for Cause, all outstanding Options, to the extent that they were exercisable on
the date of termination, shall continue to be exercisable for a period of 60
days from the date of termination. After the lapse of such 60 days, all Options,
exercisable or not exercisable on the date of termination, shall expire and be
terminated; provided, however, that no Option shall be exercisable after the
expiration of its term. (3) In the event of the termination of a Participant's
employment or consulting relationship for Cause, all outstanding Options granted
to such Participant, exercisable or not exercisable, shall expire and terminate
at the commencement of business on the date of such termination.
7. Adjustment Upon Changes in Common Stock
---------------------------------------
(a) Shares Available for Grants
---------------------------
In the event of any change in the number of shares of Common Stock outstanding
by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or similar corporate change,
the maximum aggregate number of shares of Common Stock with respect to which the
Committee may grant Options shall be appropriately adjusted by the Committee.
In the event of any change in the number of shares of Common Stock outstanding
by reason of any other event or transaction, the Committee may, but need not,
make such adjustments in the number and class of shares of Common Stock with
respect to which Options may be granted as the Committee may deem appropriate.
(b) Outstanding Options - Increase or Decrease in Issued Shares Without
-------------------------------------------------------------------
Consideration
-------------
Subject to any required action by the shareholders of Advantica, in the event of
any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by Advantica, the Committee shall proportionally adjust the
number of shares of Common Stock subject to each outstanding Option and the
exercise price per share of Common Stock in respect of each such Option.
(c) Outstanding Options - Certain Mergers
-------------------------------------
Subject to any required action by the shareholders of Advantica, in the event
that Advantica shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Option would have received in such merger or consolidation.
(d) Outstanding Options - Certain Other Transactions
------------------------------------------------
In the event of (i) a dissolution or liquidation of Advantica, (ii) a sale of
all or substantially all of Advantica's assets, (iii) a merger or consolidation
involving Advantica in which Advantica is not the surviving corporation or (iv)
a merger or consolidation involving Advantica in which Advantica is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to: (i) cancel,
effective immediately prior to the occurrence of such event, each Option
outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the Participant to whom
such Option was granted an amount in cash for each share of Common Stock subject
to such Option, equal to the excess of (a) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
or to be received by the holder of a share of Common Stock as a result of such
event over (b) the exercise price in respect of each share of Common Stock
covered by such Option; or (ii) provide for the exchange of each Option
outstanding immediately prior to such event (whether or not then exercisable)
for an option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute discretion
in the exercise price of the Option, or the number of shares or amount of
property subject to the Option or, if appropriate, provide for a cash payment to
the Participant to whom such Option was granted in partial consideration for the
exchange of the Option.
(e) Outstanding Options - Other Changes
-----------------------------------
In the event of any change in the capitalization of Advantica or corporate
change other than those specifically referred to in Section 7(a),(b), or (d)
hereof, the Committee may, in its absolute discretion, make such adjustments in
the number and class of shares subject
Page 3
<PAGE>
to Options outstanding on the date on which such change occurs and in the per
share exercise price of each such Option as the Committee may consider
appropriate to prevent dilution or enlargement of rights.
(f) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of Advantica or any other corporation. Except as expressly
provided in the Plan, no issuance by Advantica of shares of stock of any class,
or securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to an Option or the exercise price of any Option.
8. Rights as a Stockholder
-----------------------
No person shall have any rights as a stockholder with respect to any shares of
Common Stock covered by or relating to any Option granted pursuant to this Plan
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date on which such stock certificate is
issued.
9. No Special Employment Rights; No Right to Option
------------------------------------------------
Nothing contained in the Plan or any Option shall confer upon any Participant
any right with respect to the continuation of his employment or consulting
relationship with the Company or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such relationship or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Option. No person shall have any claims or right to receive an
Option hereunder. The Committee's granting of an Option to a Participant at any
time shall neither require the Committee to grant an Option to such Participant
or any other Participant or other person at any time nor preclude the Committee
from making subsequent grants to such Participant or any other Participant or
other person.
10. Securities Law Matters
----------------------
(a) Advantica shall be under no obligation to effect the registration pursuant
to the Securities Act of any shares of Common Stock to be issued hereunder or to
effect similar compliance under any state laws. Notwithstanding anything herein
to the contrary, Advantica shall not be obligated to cause to be issued or
delivered any certificates evidencing shares of Common Stock pursuant to the
Plan unless and until Advantica is advised by its counsel that the issuance and
delivery of such certificates is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any securities
exchange on which shares of Common Stock are traded. The Committee may require,
as a condition of the issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient of such shares
make such covenants, agreements and representations, and that such certificates
bear such legends, as the Committee, in its sole discretion, deems necessary or
desirable. (b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to Advantica shall have determined that the
issuance and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any securities exchange or market on which shares of Common
Stock are traded. Advantica may, in its sole discretion, defer the effectiveness
of any exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other methods
for compliance available under federal or state securities laws. Advantica shall
inform the Participant in writing of its decision to defer the effectiveness of
the exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain the refund of any
amount paid or delivered with respect thereto.
11. Withholding Taxes
-----------------
(a) Cash Remittance
---------------
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the Participant shall be required, as a condition to the exercise of the
related Option, to remit to the Company in cash an amount sufficient to satisfy
federal, state and local withholding tax requirements, if any, attributable to
such exercise prior to the delivery of any certificate or certificates for such
shares.
(b) Stock Remittance
----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of any Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Participant may tender to the Company a number of
shares of Common Stock determined by such Participant, the Fair Market Value of
which at the tender date the Committee determines, in its sole discretion, to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Participant's
calculated total federal, state and local tax obligations associated with such
exercise.
(c) Stock Withholding
-----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of an Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Company shall withhold a number of such shares
determined by such Participant, the Fair Market Value of which at the exercise
date the Committee determines (in its sole discretion) to
Page 4
<PAGE>
be sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise and not greater than the
Participant's calculated total federal, state and local tax obligations
associated with such exercise.
12. Amendment of the Plan
---------------------
The Board of Directors or the Committee may at any time suspend, discontinue, or
terminate the Plan. Additionally, the Board of Directors or the Committee may
revise or amend the Plan in any respect whatsoever subject only to any
applicable law, regulation or exchange/market requirement, provided that no
amendment or discontinuance may, in the absence of written consent to the
change by the affected Participant, adversely affect the rights of any
Participant under any Option granted under the Plan prior to the date such
amendment is adopted by the Board or the Committee. The Plan shall continue in
existence until terminated by the Board pursuant to the terms set forth herein.
13. No Obligation to Exercise
-------------------------
The grant to a Participant of an Option shall impose no obligation upon such
Participant to exercise such Option.
14. Transfers Upon Death
--------------------
Unless otherwise provided in the Agreement, upon the death of a Participant,
outstanding Options granted to such Participant may be exercised only by the
executors or administrators of the Participant's estate or by any person or
persons who shall have acquired such right to exercise by will or by the laws
of descent and distribution. No transfer by will or the laws of descent and
distribution of any Option, or the right to exercise any Option, shall be
effective to bind the Company unless the Committee shall have been furnished
with (a) written notice thereof and with a copy of the will and/or such
evidence as the Committee may deem necessary to establish the validity of the
transfer and (b) an agreement by the transferee to comply with all the terms
and conditions of the Option that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Option.
15. Expenses
--------
The expenses of the Plan shall be paid by the Company.
16. Failure to Comply
-----------------
In addition to the remedies of the Company elsewhere provided for herein, if a
Participant shall fail to comply with any of the terms or conditions of the Plan
or Agreement, the Committee may cancel such Option and cause such Option to be
forfeited, in whole or in part, as the Committee, in its absolute discretion,
may determine, unless such failure is remedied by such participant within ten
days after such Participant's receipt of written notice of such failure from the
Committee or the Company.
17. Effective Date
--------------
The Plan shall be effective on the date that the Plan is approved by the Board
of Directors.
Page 5
ADVANTICA RESTAURANT GROUP
DIRECTOR STOCK OPTION PLAN
(As adopted on January 28, 1998 and amended on September 28, 1998)
1. Purpose of the Plan
-------------------
This Advantica Restaurant Group Director Stock Option Plan (the "Plan") is
intended to promote the interest of Advantica Restaurant Group, Inc.
("Advantica" or the "Company") by providing members of the Board of Directors of
Advantica options to purchase common stock of the Company.
2. Definitions
-----------
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Agreement" shall mean the agreement, in the form the Committee may approve
from time to time, which evidences an Option granted pursuant to the Plan and
entered into, at the direction of the Committee, with an Optionee.
(b) "Board of Directors" shall mean the Board of Directors of Advantica.
(c) "Cause" when used in connection with the termination as a director of the
Company, shall mean the termination of the Participant as a director of the
Company because of (A) an act or acts by him, or any omission by him,
constituting a felony, if the Participant has entered a guilty plea or
confession to, or has been convicted of, such felony, (B) any act of fraud or
dishonesty by the Participant which results in or is intended to result in any
material financial or economic harm to the Company as determined by the
Committee in its sole discretion or (C) a breach of a material provision of any
agreement between the Participant and the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
(e) "Committee" shall mean the Committee designated by the Board of Directors
pursuant to Section 4 hereof from time to time.
(f) "Common Stock" shall mean Advantica's common stock, $.01 par value per
share.
(g) "Company" shall mean Advantica, a Delaware corporation, and each of its
Subsidiaries.
(h) "Disability" shall mean any physical or mental condition which would qualify
a Participant for a disability benefit under the long-term disability plan
maintained by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" of a share of Common stock on any day shall be the fair
market value of the Common Stock on such day as determined by utilizing a
reasonable valuation method established by the Committee in its sole discretion
to be applied on a consistent basis to all optionees.
(k) "Outside Director" shall mean a member of the Board of Directors who is not
an employee of the Company.
(l) "Option" shall mean an option to purchase shares of Common Stock granted
pursuant to Section 6 hereof. Each Option shall be identified by the Committee
in the Agreement as a nonqualified stock option that is not intended to be an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Participant" shall mean an individual who is eligible to participate in the
Plan pursuant to Section 5 hereof and to whom an Option is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors, and
administrators, as the case may be.
(n) "Plan" shall mean this Advantica Restaurant Group Director Stock Option
Plan, as it may be amended from time to time.
(o) "Securities Act" shall mean the Securities Act of 1933, as amended.
(p) "Subsidiary" shall mean any corporation in which, at the time of reference,
Advantica owns, directly or indirectly, stock comprising more than fifty percent
of the total combined voting power of all classes of stock of such corporation.
(q) "Voluntary Termination" shall mean any voluntary termination by the
Participant as a member of the Board of Directors.
3. Stock Subject to the Plan
-------------------------
Subject to the adjustment as provided in Section 7 hereof, the Committee may
grant Options under the Plan with respect to a number of shares of Common Stock
that, does not exceed 200,000 shares. In the event that any outstanding Option
expires, terminates or is canceled for any reason, the shares of Common Stock
subject to the unexercised portion of such Option shall again be available for
grants under the Plan for purposes of the 200,000 share limit stated above.
Shares of Common Stock issued under the Plan may be either newly issued shares
or treasury shares, at the discretion of the Committee.
4. Administration of the Plan
--------------------------
The Plan shall be administered by a Committee of the Board of Directors
consisting of three or more persons as designated by the Board of Directors.
The Committee shall have full authority to designate, from time to time, those
individuals who shall be granted Options and the number of shares of Common
Stock covered by such Options.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion, accelerate the date on which any
Option becomes exercisable or upon termination as a member of the Board of
Directors, permit the term of such terminated director's options to continue for
the remainder of the term of such options or any portion thereof. In addition,
the Committee may, in its absolute discretion, grant Options to Participants on
the condition that such Participants surrender to the Committee for cancellation
such other Options (including, without limitation, Options with higher exercise
prices) as the Committee specifies. In such case, both the option that is deemed
to be canceled and the option that
<PAGE>
is deemed to be granted shall reduce the maximum number of shares for which
options may be granted to any individual participant as set forth in Section 3.
The Committee shall have full authority to delegate to a subcommittee of
directors (the "Subcommittee") any and all authority granted to the Committee
with respect to the Plan, such Subcommittee to be constituted and to have such
authority as may be necessary to satisfy any and all requirements of Rule 16b-3
promulgated under Section 16 of the Exchange Act and/or Section 162(m) of the
Code and the regulations thereunder with respect to any Option granted or
exercised pursuant to the terms of the Plan.
No member of the Committee or Subcommittee shall be liable for any action,
omission, or determination relating to the Plan, and Advantica shall indemnify
and hold harmless each member of the Committee or Subcommittee and each other
director or employee of the Company to whom any duty or power relating to the
administration or interpretation of the Plan has been delegated against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of Advantica) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director or
employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. Eligibility
-----------
The persons who shall be eligible to receive Options pursuant to the Plan shall
be Outside Directors.
6. Options
-------
Options granted pursuant to the Plan shall be evidenced by an Agreement. Options
shall comply with and be subject to the following terms and conditions:
(a) Identification of Options
-------------------------
All Options granted under the Plan shall be identified in the Agreement as a
nonqualified stock option that is not intended to be an incentive stock option
within the meaning of Section 422 of the Code.
(b) Exercise Price
--------------
The exercise price in respect of each share of Common Stock covered by any
Option granted under the Plan shall be such price as the Committee shall
determine on the date on which such Option is granted.
(c) Term and Exercise of Options
----------------------------
(1) Each Option shall be exercisable on such date or dates, during such period
and for such number of shares of Common Stock as shall be determined by the
Committee on the day on which such Option is granted and set forth in the Option
Agreement with respect to such Option; provided, however, that each Option shall
be subject to earlier termination, expiration or cancellation as provided in
this Plan. (2) Each Option shall be exercisable in whole or in part. Any partial
exercise of an Option shall not cause the expiration, termination or
cancellation of the remaining portion thereof. (3) Subject to the provisions of
Section 11 hereof, an Option shall be exercised by delivering notice to
Advantica's principal office, to the attention of its Secretary or his or her
designee, in such form and in accordance with such procedures as may be provided
from time to time by the office of the Secretary of Advantica which may include
the requirement that such notice: (i) specify the number of shares of Common
Stock with respect to which the Option is being exercised and (ii) specify the
effective date of the proposed exercise. The Participant may withdraw such
notice at any time prior to the opening of business on the business day of the
proposed exercise. Payment for shares of Common Stock purchased upon the
exercise of an Option shall be made on the effective date of such exercise
either (i) in cash, by certified check, bank cashier's check or wire transfer;
(ii) subject to the disallowance by the Committee (such disallowance may be
made, in the Committee's sole discretion, for any reason whatsoever or for no
reason), in shares of Common Stock owned by the Participant and valued at their
Fair Market Value on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank cashier's check
or wire transfer, or (iii) subject to the disallowance by the Committee (such
disallowance may be made in the Committee's sole discretion, for any reason
whatsoever or for no reason) and at the election of the Participant, the Company
shall withhold a number of such shares determined by such Participant, the Fair
Market Value of which at the exercise date the Committee determines to be
sufficient to pay the exercise price. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of Advantica,
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
together with any other documents and evidences as the Secretary of Advantica
shall require from time to time. (4) Certificates for shares of Common Stock
purchased upon the exercise of an Option shall be issued in the name of the
Participant or, at the election of the Participant, in the name of a broker
designated by the Committee, in its sole discretion, to hold such shares on
behalf of and for the benefit of the Participant. Such shares shall be delivered
accordingly as soon as practicable following the effective date on which the
Option is exercised. (5) During the lifetime of a Participant, unless otherwise
so provided in the Agreement, each Option granted to him shall be exercisable
only by him. No option shall be assignable or transferable otherwise than by
will or by the laws of descent and distribution. Notwithstanding the foregoing,
an Agreement may provide, at the sole discretion of the Committee, that certain
identified Options are transferable by gift to such persons or entities and
under such terms and conditions as specified in the Agreement.
(d) Effect of Termination as a Member of the Board of Directors
-----------------------------------------------------------
Except as otherwise provided in the Agreement and subject to the provisions of
Section 4 hereof:
(1) In the event a Participant terminates as a member of the Board of Directors
due to death or Disability (i) Options granted to such Participant, to the
extent that they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one year after such termination, on which
date they shall expire and terminate; and (ii) Options granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire and terminate at the close of business on the date of
such
Page 2
<PAGE>
termination; provided, however, that no Option shall be exercisable after the
expiration of its term. (2) In the event of a Voluntary Termination or other
termination as a member of the Board of Directors for any reason other than for
Cause, all outstanding Options, to the extent that they were exercisable on the
date of termination, shall continue to be exercisable for a period of 60 days
from the date of termination. After the lapse of such 60 days, all Options,
exercisable or not exercisable on the date of termination, shall expire and be
terminated; provided, however, that no Option shall be exercisable after the
expiration of its term. (3) In the event the termination of a Participant as a
member of the Board of Directors is for Cause, all outstanding Options granted
to such Participant, exercisable or not exercisable, shall expire and terminate
at the commencement of business on the date of such termination.
7. Adjustment Upon Changes in Common Stock
---------------------------------------
(a) Shares Available for Grants
---------------------------
In the event of any change in the number of shares of Common Stock outstanding
by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or similar corporate change,
the maximum aggregate number of shares of Common Stock with respect to which the
Committee may grant Options shall be appropriately adjusted by the Committee. In
the event of any change in the number of shares of Common Stock outstanding by
reason of any other event or transaction, the Committee may, but need not, make
such adjustments in the number and class of shares of Common Stock with respect
to which Options may be granted as the Committee may deem appropriate.
(b) Outstanding Options - Increase or Decrease in Issued Shares Without
-------------------------------------------------------------------
Consideration
-------------
Subject to any required action by the shareholders of Advantica, in the event of
any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by Advantica, the Committee shall proportionally adjust the
number of shares of Common Stock subject to each outstanding Option and the
exercise price per share of Common Stock in respect of each such Option.
(c) Outstanding Options - Certain Mergers
-------------------------------------
Subject to any required action by the shareholders of Advantica, in the event
that Advantica shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall pertain to and apply to the
securities which a holder of the number of shares of Common Stock subject to
such Option would have received in such merger or consolidation.
(d) Outstanding Options - Certain Other Transactions
------------------------------------------------
In the event of (i) a dissolution or liquidation of Advantica, (ii) a sale of
all or substantially all of Advantica's assets, (iii) a merger or consolidation
involving Advantica in which Advantica is not the surviving corporation or (iv)
a merger or consolidation involving Advantica in which Advantica is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to: (i) cancel,
effective immediately prior to the occurrence of such event, each Option
outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the Participant to whom
such Option was granted an amount in cash for each share of Common Stock subject
to such Option, equal to the excess of (a) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
or to be received by the holder of a share of Common Stock as a result of such
event over (b) the exercise price in respect of each share of Common Stock
covered by such Option; or (ii) provide for the exchange of each Option
outstanding immediately prior to such event (whether or not then exercisable)
for an option on some or all of the property for which each share of Common
Stock subject to such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute discretion
in the exercise price of the Option, or the number of shares or amount of
property subject to the Option or, if appropriate, provide for a cash payment to
the Participant to whom such Option was granted in partial consideration for the
exchange of the Option.
(e) Outstanding Options - Other Changes
-----------------------------------
In the event of any change in the capitalization of Advantica or corporate
change other than those specifically referred to in Section 7(a),(b), or (d)
hereof, the Committee may, in its absolute discretion, make such adjustments in
the number and class of shares subject to Options outstanding on the date on
which such change occurs and in the per share exercise price of each such Option
as the Committee may consider appropriate to prevent dilution or enlargement of
rights.
(f) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have any rights
by reason of any subdivision or consolidation of shares of stock of any class,
the payment of any dividend, any increase or decrease in the number of shares of
stock of any class or any dissolution, liquidation, merger or consolidation of
Advantica or any other corporation. Except as expressly provided in the Plan, no
issuance by Advantica of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to an Option or the exercise price of any Option.
8. Rights as a Stockholder
-----------------------
No person shall have any rights as a stockholder with respect to any shares of
Common Stock covered by or relating to any Option granted pursuant to this Plan
until the date of the issuance of a stock certificate with respect to such
shares. Except as otherwise
Page 3
<PAGE>
expressly provided in Section 7 hereof, no adjustment to any Option shall be
made for dividends or other rights for which the record date occurs prior to the
date on which such stock certificate is issued.
9. No Special Employment Rights; No Right to Option
------------------------------------------------
Nothing contained in the Plan or any Option shall confer upon any Participant
any right with respect to the continuation of his position as a member of the
Board of Directors or interfere in any way with the right of the Board of
Directors, subject to the terms of any separate agreement to the contrary, at
any time to terminate such relationship. No person shall have any claims or
right to receive an Option hereunder. The Committee's granting of an Option to a
Participant at any time shall neither require the Committee to grant an Option
to such Participant or any other Participant or other person at any time nor
preclude the Committee from making subsequent grants to such Participant or any
other Participant or other person.
10. Securities Law Matters
----------------------
(a) Advantica shall be under no obligation to effect
the registration pursuant to the Securities Act of any shares of Common Stock to
be issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, Advantica shall not be
obligated to cause to be issued or delivered any certificates evidencing shares
of Common Stock pursuant to the Plan unless and until Advantica is advised by
its counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which shares of Common Stock are
traded. The Committee may require, as a condition of the issuance and delivery
of certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective at such
time as counsel to Advantica shall have determined that the issuance and
delivery of shares of Common Stock pursuant to such exercise is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of any securities exchange or market on which shares of Common
Stock are traded. Advantica may, in its sole discretion, defer the effectiveness
of any exercise of an Option granted hereunder in order to allow the issuance of
shares of Common Stock pursuant thereto to be made pursuant to an effective
registration statement or an exemption from such registration or other methods
for compliance available under federal or state securities laws. Advantica shall
inform the Participant in writing of its decision to defer the effectiveness of
the exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain the refund of any
amount paid or delivered with respect thereto.
11. Withholding Taxes
-----------------
(a) Cash Remittance
---------------
Whenever shares of Common Stock are to be issued upon the exercise of an Option,
the Participant shall be required, as a condition to the exercise of the related
Option, to remit to the Company in cash an amount sufficient to satisfy federal,
state and local withholding tax requirements, if any, attributable to such
exercise prior to the delivery of any certificate or certificates for such
shares.
(b) Stock Remittance
----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of any Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Participant may tender to the Company a number of
shares of Common Stock determined by such Participant, the Fair Market Value of
which at the tender date the Committee determines, in its sole discretion, to be
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise and not greater than the Participant's
calculated total federal, state and local tax obligations associated with such
exercise.
(c) Stock Withholding
-----------------
At the election of the Participant, subject to the disallowance of the Committee
(such disallowance may be made by the Committee in its sole discretion for any
reason whatsoever or for no reason), when shares of Common Stock are to be
issued upon the exercise of an Option, in lieu of the cash remittance required
by Section 11(a) hereof, the Company shall withhold a number of such shares
determined by such Participant, the Fair Market Value of which at the exercise
date the Committee determines (in its sole discretion) to be sufficient to
satisfy the federal, state and local withholding tax requirements, if any,
attributable to such exercise and not greater than the Participant's calculated
total federal, state and local tax obligations associated with such exercise.
12. Amendment of the Plan; Term of the Plan
---------------------------------------
The Board of Directors or the Committee may at any time suspend, discontinue or
terminate the Plan. Additionally, the Board of Directors or the Committee may
revise or amend the Plan in any respect whatsoever subject only to any
applicable law, regulation or exchange/market requirement, provided that no
amendment or discontinuance may, in the absence of written consent to the change
by the affected Participant, adversely affect the rights of any Participant
under any Option granted under the Plan prior to the date such amendment is
adopted by the Board or the Committee. The Plan shall continue in existence
until terminated by the Board of Directors pursuant to the terms set forth
herein.
13. No Obligation to Exercise
-------------------------
The grant to a Participant of an Option shall impose no obligation upon such
Participant to exercise such Option.
14. Transfers Upon Death
--------------------
Unless otherwise provided in the Agreement, upon the death of a Participant,
outstanding Options granted to such Participant may be exercised only by the
executors or administrators of the Participant's estate or by any person or
persons who shall have acquired such
Page 4
<PAGE>
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Option, or the
right to exercise any Option, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof and with a
copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Option that are or would have
been applicable to the Participant and to be bound by the acknowledgments made
by the Participant in connection with the grant of the Option.
15. Expenses
--------
The expenses of the Plan shall be paid by the Company.
16. Failure to Comply
-----------------
In addition to the remedies of the Company elsewhere provided for herein, if a
Participant shall fail to comply with any of the terms or conditions of the Plan
or the Agreement, the Committee may cancel such Option and cause such Option to
be forfeited, in whole or in part, as the Committee, in its absolute discretion,
may determine, unless such failure is remedied by such Participant within ten
days after such Participant's receipt of written notice of such failure from the
Committee or the Company.
17. Effective Date
--------------
The Plan shall be effective on the date that the Plan is approved by the Board
of Directors, contingent upon approval of the Plan by the shareholders of the
Company at the next annual meeting of shareholders following such Board of
Director approval.
Page 5
EXECUTION COPY
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Agreement") is made and
entered into as of the 1st day of May, 1998, by and between Quincy's Realty,
Inc., an Alabama corporation (the "Assignor"), and I.M. Special, Inc., a
Delaware corporation (the "Assignee").
Reference is made to (i) that certain Loan Agreement, dated as of November
1, 1990, as amended by a First Amendment to Loan Agreement, dated as of November
15, 1991, and as further amended by a Second Amendment to Loan Agreement, dated
as of April 1, 1998, between Spardee's Realty, Inc. ("Spardee's") as borrower,
and Secured Restaurants Trust (the "Issuer") with respect to a loan in the
original principal amount of One Hundred Thirty Million Dollars ($130,000,000)
(the "Spardee's Loan Agreement"), and (ii) that certain Loan Agreement, dated as
November 1, 1990, as amended by a First Amendment to Loan Agreement, dated as of
November 15, 1991, and as further amended by a Second Amendment to Loan
Agreement, dated as of April 1, 1998, between Assignor, as borrower, and the
Issuer, in the original principal amount of Ninety-Five Million Dollars
($95,000,000) (the "Quincy's Loan Agreement", and collectively with the
Spardee's Loan Agreement, the "Loan Agreements"), and certain other agreements
and instruments relating to the Loan Agreements (the "SRT Financing Documents")
and certain other agreements and instruments executed as of the date hereof
pursuant to the Letter Agreement (as defined herein) (collectively with the SRT
Financing Documents, the "Documents"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Loan
Agreements.
Reference is also made to the Stock Purchase Agreement dated February 18,
1998 among Advantica Restaurant Group, Inc. ("Advantica"), Spartan Holdings,
Inc. ("Spartan"), Flagstar Enterprises, Inc. ("FEI"), and CKE Restaurants, Inc.
("Purchase Agreement") pursuant to which Spartan, as of April 1, 1998, sold to
CKE Restaurants, Inc. (the "Buyer") the stock of FEI (the "FEI Stock Sale").
Under the provisions of the Purchase Agreement, Advantica and Spartan were
required, among other things, as applicable, to deliver to Buyer evidence of the
release of FEI and Spardee's and their assets from any obligations and liens
relating to the SRT Financing Documents.
Concurrently with the closing of the FEI Stock Sale (the "Closing") and in
order to effect the release of certain obligations and liens relating to the SRT
Financing Documents in connection therewith, Advantica, Spartan, Spardee's and
the Assignor, together with the other requisite parties to the SRT Financing
Documents, effected a defeasance of the Mortgage Notes underlying the Loan
Agreements in accordance with the terms of such Loan Agreements (and certain
waivers, consents, and directions from the Controlling Party provided pursuant
to the terms and provisions of the SRT Financing Documents) (the "Defeasance
Transaction") and, pursuant to an Assignment and Assumption Agreement, dated as
of April 1, 1998, by and between Spardee's and the Assignor (the "Spardee's
Assignment Agreement"), the Assignor assumed all liabilities and obligations of
Spardee's and agreed to
<PAGE>
perform and discharge all obligations of Spardee's under the Spardee's Loan
Agreement and the Mortgage Notes thereunder and any related Loan Documents. As a
result of (and after giving effect to) the Defeasance Transaction, among other
things, FEI and Spardee's and their assets were released from any obligations
and liens relating to the SRT Financing Documents, and the other Collateral
under the Collateral Assignment Agreement, as amended (other than the Borrower
Collateral (as defined in the Second Amendments to Loan Agreement)) was released
from any lien, security interest or encumbrance, charge or other claim of any
kind, character or nature whatsoever securing, arising out of or in any way
connected with or relating to the SRT Financing Documents.
In order to effect the releases and terminations contemplated by that
certain letter agreement dated April 1, 1998 among Advantica, Quincy's
Restaurants, Inc., Assignor and Financial Security Assurance Inc. ("FSA") (the
"Letter Agreement"), Assignee is required to assume all of the obligations and
take an assignment of the rights of Assignor under the Assignor's interest in
Loan Agreements and the respective Mortgage Notes thereunder and take an
assignment of the Assignor's interest in the Borrower Collateral. Concurrently
with the execution and delivery of this Agreement, Assignee shall receive title
to the Assignor's interest in the Borrower Collateral held by the Collateral
Agent subject to the first priority security interest of the Collateral Agent.
I. Assignment.
In consideration of the foregoing, the Assignor hereby transfers, conveys
and assigns to Assignee all of Assignor's right, title and interest in, to and
under the Documents, including without limitation, the Loan Agreements and the
respective Mortgage Notes thereunder and any related Loan Documents, as
applicable, and all of Assignor's right, title and interest in, to and under the
Borrower Collateral, including without limitation, each Defeasance Eligible
Investment and proceeds thereof. Assignee hereby accepts such transfer,
conveyance and assignment and assumes, in full, all liabilities, duties,
covenants, agreements and obligations and agrees to perform and discharge each
and every agreement, liability, duty, covenant and obligation of Assignor under
the Documents, including without limitation, the Loan Agreements and the
respective Mortgage Notes thereunder and any related Loan Documents, as
applicable. The transfer, conveyance and assignment of the Assignor's right,
title and interest in, to and under the Borrower Collateral made hereby is
intended to be an absolute transfer, conveyance and assignment.
This Assignment and Assumption Agreement shall automatically become
effective, without any further action of the undersigned required, upon its full
execution with the prior written consent of FSA.
II. Representations and Warranties.
Assignee represents and warrants as follows:
(a) Due Organization and Qualification. Assignor and Assignee are
corporations, duly organized, validly existing and in good standing under
the laws of
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the States of Alabama and Delaware, respectively and each is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charter, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as proposed to be conducted and the performance of
its obligations under this Agreement or any Loan Document, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render this Agreement or any Loan Document unenforceable
in any respect or would have a material adverse effect upon the
transaction.
(b) Power and Authority. Assignor and Assignee have all necessary
corporate power and authority to conduct their business as currently
conducted and as proposed to be conducted, to execute, deliver and perform
its obligations under this Agreement or any Loan Document and to
consummate the transaction.
(c) Due Authorization. The execution, delivery and performance of
this Agreement and, as applicable, the Loan Documents by Assignor and
Assignee have been duly authorized by all necessary corporate action and
do not require any additional approvals or consents or other action by or
any notice to or filing with any person, including, without limitation,
any governmental entity or the Assignor's and Assignee's respective
stockholders.
(d) Noncontravention. Neither the execution and delivery of this
Agreement or any Loan Document by the Assignor or Assignee, the
consummation of the transactions contemplated thereby nor the satisfaction
of the terms and conditions of this Agreement or any Loan Document,
(i) conflicts with or results in any breach or violation of any
provision of the certificate of incorporation or bylaws of either
the Assignor or Assignee or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award currently in
effect having applicability to the Assignor or Assignee or any of
its properties, including regulations issued by an administrative
agency or other governmental authority having supervisory powers
over the Assignor or Assignee,
(ii) constitutes a default by the Assignor or Assignee under or a
breach of any provision of any loan agreement, mortgage, indenture
or other agreement or instrument to which the Assignor or Assignee
is a party or by which it or any of their properties is or may be
bound or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Assignor or Assignee except as
otherwise expressly contemplated by this Agreement or any Loan
Document.
(e) Legal Proceedings. There is no action, proceeding or
investigation by or before any court, governmental or administrative
agency or arbitrator against or affecting the Assignor or Assignee or the
Borrower Collateral, or any of Assignor's or
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Assignee's properties or rights pending or, to their knowledge after
reasonable inquiry, threatened, which, in any case, if decided adversely
to either, would result in a material adverse change with respect to
either of them.
(f) Valid and Binding Obligations. This Agreement has been duly
executed and delivered by Assignor and Assignee and it constitutes their
legal, valid and binding obligations enforceable in accordance with their
respective terms, except as such enforceability may be limited by
bankruptcy; insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles.
(g) Good Title; Absence of Liens; Security Interest. Assignor is the
owner of, and has good and marketable title to, all Borrower Collateral
free and clear of all Liens (other than the Liens created by the Loan
Agreements) and has full right, corporate power and lawful authority to
assign, convey, transfer and pledge its interests in, to and under the
Borrower Collateral (and any documents which are a part thereof) and all
such substitutions therefor and additions thereto delivered under the Loan
Agreements. The Collateral Agent has a valid and perfected first priority
security interest in the Borrower Collateral free and clear of all Liens.
Upon transfer to Assignee, Assignee will have good and marketable title
free and clear of all Liens (other that the Liens created by the Loan
Agreements).
(h) Solvent Entity. After giving effect to the transactions
contemplated by this Agreement, each of Assignee and Assignor will have
sufficient capital to pay its debts as they become due. Neither Assignee
nor Assignor is engaged in any business, or about to engage in any
business or any transaction, for which it has, or will have after engaging
in such business or transaction, unreasonably small capital in relation to
such business or transaction. Neither Assignee nor Assignor intends to
incur, or believes that it will incur, additional debts that would be
beyond its ability to pay as such debts become due.
(i) No Intent To Defraud. Each of Assignor and Assignee has valid
business reasons for entering into the transactions contemplated by this
Agreement and has not entered into the transactions contemplated by this
Agreement or the Loan Agreements with any intent to hinder, delay or
defraud any entity to which Assignor or Assignee is or may become
indebted.
(j) Loan Agreement. The representations and warranties contained in
Sections 6.01, 6.02, 6.03, 6.04, 6.05 and 6.06 of the Loan Agreements are
true and correct on and as of the date hereof, as though made on and as of
the date hereof.
III. Covenants.
Assignee covenants and agrees that:
(i) Its capital is adequate for its business and undertakings.
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(ii) Other than with respect to this Agreement, it is not engaged
in any business transactions with Assignor or any affiliate.
(iii) At least one director of Assignee is not, and will not be, a
director, officer, employee or holder of any of the equity securities of
Assignor or any affiliate thereof.
(iv) Its funds and assets are not, and will not be, commingled with
those of Assignor or any other person.
(v) Its bylaws require it to maintain (a) correct and complete books
and records of account, and (b) minutes of the meetings and other
proceedings of its stockholders and board of directors.
(vi) It is solvent and will not be rendered insolvent by the
transactions contemplated by the Loan Agreements and Mortgage Notes
thereunder and any related Loan Documents and, after giving effect to such
transactions, it will not be left with an unreasonably small amount of
capital with which to engage in its business nor will it have intended to
incur, or believe that it has incurred, debts beyond its ability to pay
such debts as they mature. Assignee does not contemplate the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of itself or any of its assets.
(vii) All the outstanding shares of capital stock of Assignee are
owned by Spartan Holdings, Inc.
(viii) It will comply and perform all covenants set forth in the
Loan Documents, including, in particular, but without limitations, those
set forth in Article VI of the Loan Agreements.
(ix) It will not take any actions, or permit any actions to be
taken, with respect to the Borrower Collateral or otherwise, that would
cause a default under the Collateral Assignment Agreement.
(x) It will comply with its organizational documents.
IV. Security Interest.
As security for Assignee's obligations under the Loan Agreements,
including, without limitation, its obligations to pay to the Issuer the amounts
payable under the Mortgage Notes and under this Agreement, and the performance
of all of its representations, warranties, covenants, agreements and obligations
under this Agreement and under the Mortgage Notes, Assignee hereby expressly
grants to Issuer for the benefit of Financial Security and the Trustee, as
secured parties, a first priority security interest in and to all of Assignee's
right, title and interest in, to and under the Borrower Collateral and any
proceeds thereof.
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Assignee intends such grant to be prior to all others to the full extent
of applicable law and shall take all actions reasonably necessary to confer a
first priority perfected security interest in, to and under the Borrower
Collateral granted hereunder. It is the intention of Assignee that, with respect
to the Borrower Collateral, this Agreement shall constitute a security agreement
under applicable law, and the Issuer shall have all of the rights and remedies
of a secured party and creditor under the UCC and other applicable law as in
force in the relevant jurisdictions.
Assignee hereby agrees that the Collateral Agent has accepted delivery of
the Borrower Collateral on behalf of the Issuer and that the Issuer has pledged
and assigned all of its right, title and interest in the Borrower Collateral to
the Collateral Agent, for the benefit of Financial Security and the Trustee,
pursuant to the Collateral Assignment Agreement.
V. Miscellaneous.
The representations, warranties, covenants and agreements set forth in
this Agreement are made for the benefit of the Issuer, the Collateral Agent, the
Trustee and Financial Security and each of the Issuer, the Collateral Agent, the
Trustee and Financial Security shall be third party beneficiaries of this
Agreement.
This Agreement shall be construed in accordance with the laws of the State
of New York.
IN WITNESS WHEREOF, each party has caused this Assignment and Assumption
Agreement to be executed in its corporate name as of the day and year first
above written.
I.M. SPECIAL, INC.
By:_______________________________
Name:___________________________
Title: President and Treasurer
QUINCY'S REALTY, INC.
By:________________________________
Name:__________________________
Title: Vice President and Treasurer
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EXECUTION COPY
QUINCY'S REALTY, INC. RELEASE AND AGREEMENT
MAY 1, 1998
Quincy's Realty, Inc.
Reference is made to the following agreements for purposes of the releases
and agreements set forth in the succeeding paragraphs hereof:
a. Loan Agreement, dated as of November 1, 1990, between Spardee's Realty,
Inc. ("Spardee's"), as borrower, and Secured Restaurants Trust (the "Issuer"),
in the original principal amount of One Hundred Thirty Million Dollars
($130,000,000) (as amended to date, and assigned to and assumed by Quincy's (as
defined herein) pursuant to an Assignment and Assumption Agreement dated as of
April 1, 1998, the "Spardee's Loan Agreement"); and
b. Loan Agreement, dated as of November 1, 1990, between Quincy's Realty,
Inc. ("Quincy's"), as borrower and Issuer, in the original principal amount of
Ninety-Five Million Dollars ($95,000,000) (as amended to date, the "Quincy's
Loan Agreement") (collectively, the Spardee's Loan Agreement and the Quincy's
Loan Agreement, hereinafter the "Loan Agreements,") and collectively, the Loan
Agreements, certain other agreements and instruments relating to the Loan
Agreements and the other agreements, instruments and certificates executed as of
the date hereof pursuant to the Letter Agreement (as defined below) (the
"Documents"). Unless otherwise defined herein, the terms defined in each of the
Documents shall be used herein as therein defined.
Pursuant to the Stock Purchase Agreement dated as of February 18, 1998
among Advantica Restaurant Group, Inc. ("Advantica"), Spartan Holdings, Inc.
("Spartan"), Flagstar Enterprises, Inc. ("FEI") and CKE Restaurants, Inc. (the
"Purchase Agreement"), Spartan has, as of April 1, 1998, sold to CKE
Restaurants, Inc. ("Buyer") the following direct and indirect subsidiaries of
Spartan: FEI and Spardee's (collectively, the "FEI Subsidiaries"), by means of a
sale of the stock of FEI (the "FEI Stock Sale"). Under the provisions of the
Purchase Agreement, Advantica and Spartan were required, as applicable, to
deliver to Buyer evidence of the release of the FEI Subsidiaries and their
assets and the outstanding stock of Spardee's (the "Spardee's Stock") from any
obligations and liens relating to the Documents.
Concurrently with the closing of the FEI Stock Sale (the "Closing") and in
order to effect the release of certain obligations and liens relating to the
Documents in connection therewith, Advantica, Spartan, Spardee's and Quincy's,
together with the other requisite parties to the Documents, effected a
defeasance of the Mortgage Notes underlying the Loan Agreements in accordance
with the terms of such Loan Agreements (and certain waivers, consents, and
directions from the Controlling Party provided pursuant to the terms and
provisions of the Documents) (the "Defeasance Transaction"). As a result of the
Defeasance Transaction, among other things, FEI and Spardee's and their assets
and the Spardee's Stock
<PAGE>
were released from any obligations and liens relating to the Documents, and the
other Collateral under the Collateral Assignment Agreement (other than the
Borrower Collateral (as defined in the Second Amendments to Loan Agreement)) was
released from any lien, security interest or encumbrance, charge or other claim
of any kind, character or nature whatsoever securing, arising out of or in any
way connected with or relating to the Documents. In connection with the FEI
Stock Sale, Spardee's assigned all of its rights and obligations under the
Spardee's Loan Agreement and the Mortgage Notes thereunder, along with other
rights, obligations and interests under any related loan documents, including
all cash and Defeasance Eligible Investments already on deposit with the
Collateral Agent to Quincy's.
In order to effect the releases and terminations contemplated by that
certain letter agreement dated April 1, 1998 among Advantica, Quincy's
Restaurants, Inc., Quincy's and Financial Security Assurance Inc. ("FSA") (the
"Letter Agreement"), Quincy's has assigned all of its rights and obligations
under each of the Loan Agreements and the Mortgage Notes thereunder, along with
other rights, obligations and interests under any related loan documents, and
all right, title and interest in, to and under all cash and Defeasance Eligible
Investments and proceeds thereof to I.M. Special, Inc. ("Special") (the
"Assignment").
In connection and compliance with the Letter Agreement, the undersigned
hereby after giving effect to the Assignment:
(a) release, acquit and discharge the outstanding stock of Quincy's (the
"Quincy's Stock"), and all property or assets of Quincy's from any lien,
security interest, encumbrance, charge or other claim of any kind,
character or nature whatsoever which the undersigned may now or hereafter
have on, or relating to the Quincy's Stock, or any such property or
assets, securing, arising out of or in any way connected with or relating
to the Documents or any obligation, indebtedness or liability (including
under the Mortgage Notes and any guaranty and contingent liabilities)
created thereunder or related thereto, and
(b) release, acquit and discharge Quincy's from any and all claims,
actions, causes of action, indebtedness, liabilities, contracts,
obligations, agreements, promises, representations, demands, losses, costs
and expenses of any kind, character or nature whatsoever, which the
undersigned may now have or claim to have, or may hereafter have or claim
to have, against Quincy's arising in any way out of, incurred in
connection with, or in any way related to, the Documents or any
obligations, indebtedness or liabilities (including under the Mortgage
Notes and any guaranty and contingent liabilities) created thereunder or
related thereto. By their execution of this Release and Agreement, Secured
Restaurants Trust, The Bank of New York, as Trustee and Collateral Agent,
and FSA hereby further acknowledge the release hereby of all obligations
and liens against Quincy's and the properties and assets of Quincy's for
purposes of the Collateral Assignment Agreement.
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Accompanying this Release and Agreement are releases of all Uniform
Commercial Code financing statements and other release documents filed against
Quincy's relating to the Documents. Upon request, the undersigned will, execute
and deliver to you any additional UCC-3 releases and other documents as may be
reasonably necessary to evidence the releases and other transactions referenced
or contemplated in connection herewith.
This document may be executed in one or more counterparts.
Sincerely yours,
SECURED RESTAURANTS TRUST
By: WILMINGTON TRUST COMPANY,
as Issuer Trustee
By:___________________________
Title:_________________________
FINANCIAL SECURITY ASSURANCE INC.
By:______________________________
Title: Managing Director
---------------------------
THE BANK OF NEW YORK, as Trustee and
Collateral Agent
By:____________________________
Title:_________________________
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EXECUTION COPY
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") dated as of April 1,
1998 among SPARTAN HOLDINGS, INC., a New York corporation (the "Pledgor"), who
owns all of the outstanding capital stock in I. M. Special, Inc., a Delaware
corporation (the "Pledged Entity"), FINANCIAL SECURITY ASSURANCE INC., a New
York stock insurance company ("Financial Security"), and THE BANK OF NEW YORK,
as collateral agent (the "Collateral Agent"), on behalf of Financial Security.
Capitalized terms used herein and not otherwise defined have the meanings
assigned to them in the Insurance Agreement (as defined below).
INTRODUCTORY STATEMENTS
The Pledgor is the sole shareholder of the Pledged Entity. Pursuant to an
Assignment and Assumption Agreement, dated May l, 1998, the Pledged Entity has
assumed all obligations and responsibilities of Quincy's Realty, Inc.
("Quincy's") and has been substituted as the "Borrower" under:
(i) the Loan Agreement, dated as of November 1, 1990, between
Quincy's Realty, Inc. and Secured Restaurants Trust (the "Issuer"),
as amended by a First Amendment to Loan Agreement, dated as of
November l, 1991, and as further amended by a Second Amendment to
Loan Agreement, dated as of April 1, 1998, and the related Mortgage
Notes (collectively, the "Quincy's Loan Agreement"); and
(ii) the Loan Agreement, dated as of November 1, 1990, between
Spardee's Realty, Inc. ("Spardee's") and the Issuer, as amended by a
First Amendment to Loan Agreement, dated as of November 1, 1991, and
as further amended by a Second Amendment to Loan Agreement, dated as
of April 1, 1998 and the related Mortgage Notes, each, as assumed by
Quincy's pursuant to an Assignment and Assumption Agreement, made as
of April 1, 1998, by and between Quincy's and Spardee's
(collectively, the "Spardee's Loan Agreement").
(Each of the Quincy's Loan Agreement and the Spardee's Loan Agreement are
referred to as a "Loan Agreement" and together, as the "Loan Agreements").
Pursuant to the Insurance and Indemnity Agreement, dated as of November 1,
1990, between Financial Security and the Issuer (the "Insurance Agreement"),
Financial Security has issued its Financial Guaranty Insurance Policy #50137A-N
with respect to the Issuer's $225,000,000 initial aggregate principal amount of
10 1/4% Guaranteed Secured Bonds Due 2000. The Collateral Agent has succeeded
The Citizens and Southern National Bank of South Carolina (the "Previous
Collateral Agent") as collateral agent under the Collateral Assignment
Agreement, dated as of November 1, 1990, among the Issuer, Financial Security
and the Previous Collateral Agent, as amended by the First Amendment to
Collateral Assignment Agreement, dated as of April 1, 1998 (as amended, the
"Collateral Assignment Agreement").
<PAGE>
In consideration of the premises and of the agreements herein contained,
the Pledgor, Financial Security and the Collateral Agent agree as follows:
SECTION 1. SECURITY INTEREST. As security for the full and complete
performance of all of the obligations of the Pledged Entity under the Loan
Agreements (the "Obligations"), Pledgor hereby delivers, pledges and assigns to
the Collateral Agent on behalf of Financial Security, and creates in the
Collateral Agent on behalf of Financial Security, a first priority security
interest in all of the Pledgor's right, title and interest in, to and under its
shares of the Pledged Entity (collectively, the "Pledged Shares"), together with
all of Pledgor's rights and privileges with respect thereto, including without
limitation all dividends thereon, all proceeds, income and profits thereof and
all property received in exchange thereof or in substitution therefor (the
"Collateral").
SECTION 2. STOCK DIVIDENDS, OPTIONS OR OTHER ADJUSTMENTS. Until the
Termination Date (as defined in Section 17), the Pledgor shall deliver, as
Collateral, to the Collateral Agent, any and all additional shares of stock or
any other property of any kind distributable on or by reason of the Collateral,
whether in the form of or by way of stock dividends, warrants, total or partial
liquidation, conversion, prepayments, redemptions or otherwise. If any
additional shares of capital stock, instruments or other property a security
interest in which can be perfected only by possession by the Collateral Agent,
which are distributable on or by reason of the Collateral pledged hereunder,
shall come into the possession or control of the Pledgor, Pledgor shall
forthwith transfer and deliver such property to the Collateral Agent, as
Collateral hereunder.
SECTION 3. DELIVERY OF SHARE CERTIFICATES; STOCK POWERS. Simultaneously
with the delivery of this Pledge Agreement, the Pledgor is delivering to the
Collateral Agent all instruments and stock certificates representing the
Collateral, together with stock powers duly executed in blank by Pledgor.
Pledgor shall promptly deliver to the Collateral Agent, or cause the Pledged
Entity or any other entity issuing any Collateral to deliver directly to the
Collateral Agent, share certificates or other instruments representing any
Collateral acquired or received after the date of this Pledge Agreement with a
stock or bond power duly executed by Pledgor. If at any time either the
Collateral Agent or Financial Security notifies Pledgor that it requires
additional stock powers endorsed in blank, Pledgor shall, at its expense,
promptly execute in blank and deliver the requested power to the requesting
party.
SECTION 4. POWER OF ATTORNEY. Pledgor hereby constitutes and irrevocably
appoints the Collateral Agent and Financial Security, or either one acting
alone, with full power of substitution and revocation, as Pledgor's true and
lawful attorney-in-fact, with the power, after the occurrence of a Stock Pledge
Event (as defined in Section 10), to the full extent permitted by law, to affix
to any certificates and documents representing the Collateral the stock or bond
powers delivered with respect thereto, and to transfer or cause the transfer of
the Collateral, or any part thereof, on the books of the Pledged Entity or other
entity issuing any Collateral, to the name of the Collateral Agent or Financial
Security or any nominee, and thereafter to exercise, with respect to such
Collateral, all the rights, powers and remedies of an owner. The power of
attorney granted pursuant to this Pledge Agreement and all authority hereby
conferred are granted and conferred solely to protect Financial Security's
interest in the Collateral and shall not impose any duty upon the Collateral
Agent or Financial Security to exercise any power. This power of attorney shall
be irrevocable as one coupled with an interest until the occurrence of the
Termination Date.
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SECTION 5. INDUCING REPRESENTATIONS OF PLEDGOR.
(a) Pledgor represents and warrants to Financial Security that:
(i) The Pledged Shares are validly issued, fully paid and
nonassessable.
(ii) The Pledged Shares represent all of the issued and
outstanding capital stock of the Pledged Entity.
(iii) The Pledgor is the sole legal and beneficial owner of
the Pledged Shares, free and clear of all Liens (other than the Lien
created by this Pledge Agreement) and the Pledgor has the
unqualified power, right and authority to execute and perform this
Pledge Agreement.
(iv) No options, warrants or other agreements with respect to
the Collateral are outstanding.
(v) Any consent, approval or authorization of, or designation
or filing with, any authority on the part of the Pledgor which is
required in connection with the pledge and security interest granted
under this Pledge Agreement has been obtained or effected.
(vi) Neither the execution and delivery of this Pledge
Agreement by the Pledgor, the consummation of the transaction
contemplated hereby nor the satisfaction of the terms and conditions
of this Pledge Agreement:
(A) conflicts with or results in any breach or violation
of any provision of the articles of incorporation or bylaws of
the Pledgor or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award currently
in effect having applicability to the Pledgor or any of its
properties, including regulations issued by an administrative
agency or other governmental authority having supervisory
powers over the Pledgor;
(B) conflicts or will conflict with, constitutes or will
constitute a default (or an event which with the giving of
notice or the passage of time, or both, would constitute a
default) by the Pledgor under, or a breach of, or contravenes
or will contravene any provision of its organizational
documents, either Loan Agreement, or any Mortgage Note
(collectively, the "Borrower Documents") or any loan
agreement, mortgage, indenture or other agreement or
instrument to which the Pledgor is a party or by which it or
any of its properties is or may be bound or affected; or
(C) results in or requires the creation of any Lien upon
or in respect of any of the Pledgor's assets (other than the
Lien created by this Pledge Agreement).
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(vii) Upon the Pledgor's delivery of the Pledged Shares to the
Collateral Agent, the Collateral Agent, on behalf of Financial
Security, will have a valid, perfected first priority Lien on the
Collateral, enforceable as such against all creditors of the Pledgor
and against all Persons purporting to purchase any of the Collateral
from the Pledgor.
(b) Any damages payable due to a breach of this Section 5 are
limited to amounts payable (i) pursuant to a drawing under Irrevocable
Letter of Credit No. P-360919 issued by The Chase Manhattan Bank and dated
April 1, 1998 and (ii) from the Collateral, including pursuant to any
action taken with respect to the Collateral pursuant to Section 10 hereof.
SECTION 6. OBLIGATIONS OF PLEDGOR.
(a) Pledgor hereby covenants and agrees as follows:
(i) Pledgor shall not incur, assume or guarantee any
indebtedness for money borrowed by the Pledged Entity.
(ii) Pledgor does not, and will not, assume liability for any
debts of the Pledged Entity and does not, and will not, guarantee
any of the debts or obligations of the Pledged Entity. Pledgor will
not hold itself out as being liable for the debts of the Pledged
Entity.
(iii) Pledged Entity is not referred to as a "department" or
"division" in the incorporation or other internal materials, records
or documents of Pledgor.
(iv) Pledgor shall conduct its business solely in its own name
so as not to mislead others as to the identity of the Pledged Entity
with which those others are concerned and particularly will use its
best efforts to avoid the appearance of conducting business on
behalf of the Pledged Entity. Without limiting the generality of the
foregoing, all oral and written communications, including, without
limitation, letters, invoices, purchase orders, contracts,
statements and loan applications, will be made solely in the name of
the Pledgor.
(v) Pledgor will act solely in its corporate name and through
its duly authorized officers or agents in the conduct of its
business.
(vi) Where necessary and appropriate, Pledgor shall disclose
the nature of the transaction referred to above and the independent
corporate status of the Pledged Entity to creditors of Pledgor, if
any.
(vii) The annual financial statements of Pledgor, including
consolidated financial statements, if any, will disclose the effects
of Pledgor's transactions in accordance with generally accepted
accounting principles and will disclose that the assets of the
Pledged Entity are not available to pay any creditors of Pledgor.
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(viii)The resolutions, agreements and other instruments of
Pledgor, if any, underlying the transactions described in this
Pledge Agreement will be continuously maintained by Pledgor as the
official records.
(ix) Pledgor will use its best efforts to maintain an
arm's-length relationship with the Pledged Entity.
(x) Pledgor will use its best efforts to keep its assets and
its liabilities wholly separate from those of the Pledged Entity.
(xi) Except for actions taken by it as the sole shareholder of
the Pledged Entity, Pledgor will not direct, or otherwise control,
the ongoing business decisions of the Pledged Entity.
(b) Any damages payable due to a breach of this Section 6 are
limited to amounts payable (i) pursuant to a drawing under Irrevocable
Letter of Credit No. P-360919 issued by The Chase Manhattan Bank and dated
April 1, 1998 and (ii) from the Collateral, including pursuant to any
action taken with respect to the Collateral pursuant to Section 10 hereof.
SECTION 7. FURTHER COVENANTS; CERTAIN VOTING RIGHTS.
(a) Pledgor hereby further covenants and agrees as follows:
(i) The Pledgor will not sell, transfer or convey any interest
in, or suffer or permit any Lien or encumbrance to be created upon
or with respect to, any of the Collateral (other than as created
under this Pledge Agreement) during the term of this Pledge
Agreement.
(ii) The Pledgor will, at its own expense, at any time and
from time to time at the request of the Collateral Agent or
Financial Security, do, make, procure, execute and deliver all acts,
things, writings, assurances and other documents as may be
reasonably requested by the Collateral Agent or Financial Security
to preserve or establish Financial Security's Lien on the
Collateral.
(iii) The Pledgor has not and will not take any action which
would cause the Pledged Entity to issue any other capital stock,
without the prior written consent of Financial Security. Any such
issuance shall be subject to this Pledge Agreement.
(iv) The Pledgor will not consent to any amendment of the
Pledged Entity's Certificate of Incorporation or Bylaws without the
prior written consent of Financial Security.
(v) The Pledgor will not voluntarily permit the Pledged Entity
to engage in any dissolution, insolvency proceeding, liquidation,
consolidation, merger, asset sale, transfer of ownership or
amendment of organic documents without the prior written consent of
Financial Security.
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(vi) Pledgor will not file or cause to be filed a voluntary
petition in bankruptcy against the Pledged Entity, nor seek
substantive consolidation of the assets and liabilities of the
Pledged Entity and Pledgor in any bankruptcy or insolvency
proceeding, for one year and one day after maturity of all debt of
the Pledged Entity under the Loan Agreements.
(b) (i) Subject to Section 8, so long as no Stock Pledge Event (as
defined in Section 10) exists, Pledgor shall be entitled to vote its
Pledged Stock and to give consents, waivers or ratifications in respect of
its Pledged Stock;
(ii) provided, however, that until the date described in
7(a)(vi), no vote shall be cast, or consent, waiver or ratification
given, by Pledgor with respect to any matter described in Section
7(a) hereof, any matter prohibited by the organizational documents
of the Pledged Entity in effect as of the date hereof or as amended
with the prior written consent of Financial Security, any matter
relating to the Loan Agreements, or any matter relating to the
Borrower Collateral (as defined in the Loan Agreements) without the
prior written consent of Financial Security.
All rights of Pledgor to vote and give consents, waivers and
ratifications pursuant to (b)(i) above shall cease if a Stock Pledge Event
exists, except to the extent that Financial Security in writing otherwise
agrees.
SECTION 8. VOTING PROXY. Pledgor hereby grants to the Collateral Agent on
behalf of Financial Security an irrevocable proxy to vote the Pledged Shares
with respect to any matter described in Section 7(b)(ii) above, which proxy is
coupled with an interest and shall continue until the Termination Date. Pledgor
represents and warrants that it has directed the Pledged Entity to reflect the
Collateral Agent's right to vote the Collateral, on behalf of Financial
Security, on the Pledged Entity's books. Upon the request of the Collateral
Agent or Financial Security, Pledgor shall deliver to the Collateral Agent such
further evidence of such irrevocable proxy or such further irrevocable proxy to
vote the Collateral as the Collateral Agent or Financial Security may reasonably
request. The Collateral Agent shall exercise all such rights to vote the
Collateral granted hereunder in accordance with the written directions given by
Financial Security.
SECTION 9. RIGHTS OF FINANCIAL SECURITY. At any time and without notice,
Financial Security may, upon providing the Collateral Agent with the full amount
necessary to carry out such direction, direct the Collateral Agent to discharge
any taxes, liens, security interests or other encumbrances levied or placed on
the Collateral, or pay for the maintenance and preservation of the Collateral.
The Collateral Agent shall have no duty or obligation to follow any direction
provided in this Section 9 unless Financial Security has provided the Collateral
Agent with the full amount necessary to carry out such direction.
SECTION 10. REMEDIES UPON EVENT OF DEFAULT.
(a) If a material default exists under this Pledge Agreement or an
"Event of Default" exists under either Loan Agreement, any Mortgage Note
or the Insurance Agreement (any such event, a "Stock Pledge Event"),
Financial Security may, directly or through the Collateral Agent, without
notice to Pledgor:
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(i) cause the Collateral to be transferred to the Collateral
Agent's name or Financial Security's name or in the name of nominees
of either and thereafter exercise as to such Collateral all of the
rights, powers and remedies of an owner;
(ii) collect by legal proceedings or otherwise all amounts now
or hereafter payable on account of the Collateral, and hold all such
sums as part of the Collateral, or apply such sums to the payment of
the Obligations in such manner and order as Financial Security may
decide, in its sole discretion; and
(iii) enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement
relating to or affecting the Collateral, and in connection therewith
deposit or surrender control of the Collateral thereunder, and
accept other property in exchange therefor and hold and apply such
property or money so received in accordance with the provisions
hereof.
(b) In addition to all the rights and remedies of a secured party
under the Uniform Commercial Code, Financial Security shall have the
right, and without demand of performance or other demand, advertisement or
notice of any kind, except as specified below, to or upon Pledgor or any
other person (all and each of which demands, advertisements and/or notices
are hereby expressly waived to the extent permitted by law), to proceed
forthwith, or direct the Collateral Agent to proceed forthwith, to
collect, receive, appropriate and realize upon the Collateral, or any part
thereof and to proceed forthwith to sell, assign, give an option or
options to purchase, contract to sell, or otherwise dispose of and deliver
the Collateral or any part thereof in one or more parcels in accordance
with applicable securities laws and in a manner designed to ensure that
such sale will not result in a distribution of the Pledged Shares in
violation of the Securities Act and on such terms (including, without
limitation, a requirement that any purchaser of all or any part of the
Collateral shall be required to purchase any securities constituting the
Collateral solely for investment and without any intention to make a
distribution thereof) as Financial Security, in its sole and absolute
discretion deems appropriate without any liability for any loss due to
decrease in the market value of the Collateral during the period held. If
any notification of intended disposition of the Collateral is required by
law, such notification shall be deemed reasonable and properly given if
mailed to Pledgor, postage prepaid, at least 10 days before any such
disposition at the address indicated in Section 20. Any disposition of the
Collateral or any part thereof may be for cash or on credit or for future
delivery without assumption of any credit risk, with the right of
Financial Security to purchase all or any part of the Collateral so sold
at any such sale or sales, public or private, free of any equity or right
of redemption in Pledgor, which right of equity is, to the extent
permitted by applicable law, hereby expressly waived or released by
Pledgor.
(c) Financial Security, in its sole discretion, may elect to obtain
or cause the Collateral Agent to obtain the advice of any independent
nationally known investment banking firm which is a member firm of the New
York Stock Exchange, with respect to the method and manner of sale or
other disposition of any of the Collateral, the best price reasonably
obtainable therefor, the consideration of cash and/or credit terms, or any
other details concerning such sale or disposition; costs and expenses of
obtaining such advice shall
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be for the account of the Pledged Entity. Financial Security, in its sole
discretion, may elect to sell, or cause the Collateral Agent to sell, the
Collateral on any credit terms which it deems reasonable; the
out-of-pocket costs and expenses of such sale shall be for the account of
the Pledged Entity. The sale of any of the Collateral on credit terms
shall not relieve the Pledged Entity of its liabilities with respect to
the Obligations. All payments received by the Collateral Agent, if any,
and Financial Security in respect of any sale of the Collateral shall be
applied to the Obligations as and when such payments are received. Pledgor
shall not have an obligation to register the Pledged Shares under the
Securities Act or any state securities laws.
(d) Pledgor recognizes that it may not be feasible to effect a
public sale of all or a part of the Collateral by reason of certain
prohibitions contained in the Securities Act and that it may be necessary
to sell privately to a restricted group of purchasers who will be obliged
to agree, among other things, to acquire the Collateral for their own
account, for investment and not with a view for the distribution or resale
thereof. Pledgor agrees that private sales may be at prices and other
terms less favorable to the seller than if the Collateral were sold at
public sale and that neither the Collateral Agent nor Financial Security
has any obligation to delay the sale of any Collateral for the period of
time necessary to permit the registration of the Collateral for public
sale under the Securities Act. Pledgor agrees that a private sale or sales
made under the foregoing circumstances shall be deemed to have been made
in a commercially reasonable manner.
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority shall be
necessary to effectuate any sale or other disposition of the Collateral,
or any partial disposition of the Collateral, Pledgor will execute all
such applications and other instruments as may be required in connection
with securing any such consent, approval or authorization and will
otherwise use its best efforts to secure the same.
(f) Upon any sale or other disposition, the Collateral Agent, acting
at the direction of Financial Security, or Financial Security, shall have
the right to deliver, assign and transfer to the purchaser thereof the
Collateral so sold or disposed of. Each purchaser at any such sale or
other disposition (including Financial Security) shall hold the Collateral
free from any claim or right of whatever kind, including any equity or
right of redemption of Pledgor. Pledgor specifically waives, to the extent
permitted by applicable law, all rights of redemption, stay or appraisal
which it may have under any rule of law or statute now existing or
hereafter adopted.
(g) Neither the Collateral Agent nor Financial Security shall be
obligated to make any sale or other disposition of the Collateral, unless
the terms thereof shall be satisfactory to Financial Security. The
Collateral Agent or Financial Security may, without notice or publication,
adjourn any private or public sale and, upon 10 days' prior notice to
Pledgor, hold such sale at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral, on
credit or future delivery, the Collateral so sold may be retained by the
Collateral Agent or Financial Security until the selling price is paid by
the purchaser thereof, but neither the Collateral Agent nor Financial
Security shall incur
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any liability in case of the failure of such purchaser to take up and pay
for the property so sold and, in case of any such failure, such property
may again be sold as herein provided.
(h) Except as otherwise expressly provided herein, all of the rights
and remedies herein provided, including, but not limited to the foregoing,
shall be cumulative and not exclusive of any other remedies provided by
law or any other agreement, and shall be enforceable alternatively,
successively or concurrently as Financial Security may deem expedient.
SECTION 11. LIMITATION ON LIABILITY.
(a) Neither the Collateral Agent nor Financial Security, nor any of
their respective directors, officers or employees, shall be liable to
Pledgor or to the Pledged Entity for any action taken or omitted to be
taken by it or them hereunder, or in connection herewith, except that the
Collateral Agent and Financial Security shall each be liable for its own
negligence, bad faith or willful misconduct.
(b) The Collateral Agent shall incur no liability to Financial
Security except for the Collateral Agent's negligence or willful
misconduct in carrying out its duties hereunder.
(c) The Collateral Agent shall be protected and shall incur no
liability to any party in relying upon the accuracy, acting in reliance
upon the contents, and assuming the genuineness of any notice, demand,
certificate, signature, instrument or other document the Collateral Agent
reasonably believes to be genuine and to have been duly executed by the
appropriate signatory, and (absent actual knowledge to the contrary) the
Collateral Agent shall not be required to make any independent
investigation with respect thereto. The Collateral Agent shall at all
times be free independently to establish to its reasonable satisfaction,
but shall have no duty to independently verify, the existence or
nonexistence of facts that are a condition to the exercise or enforcement
of any right or remedy hereunder.
(d) The Collateral Agent may consult with qualified counsel,
financial advisors or accountants and shall not be liable for any action
taken or omitted to be taken by it hereunder in good faith and in
accordance with the written advice of such counsel, financial advisors or
accountants.
(e) The Collateral Agent shall not be under any obligation to
exercise any of the remedial rights or powers vested in it by this Pledge
Agreement unless it shall have received reasonable security or indemnity
satisfactory to the Collateral Agent against the reasonable costs,
expenses and liabilities which it might incur.
SECTION 12. PERFORMANCE OF DUTIES. The Collateral Agent shall have no
duties or responsibilities except those expressly set forth in this Pledge
Agreement, subject to the provisions of this Pledge Agreement or as directed by
Financial Security in accordance with this Pledge Agreement. The Collateral
Agent on behalf of Financial Security and its successors and assigns shall have
no obligation in respect of the Collateral, except to use reasonable care in
holding the Collateral and to hold and dispose of the same in accordance with
the terms of this Pledge Agreement.
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SECTION 13. APPOINTMENT AND POWERS. Subject to the terms and conditions
hereof, Financial Security appoints The Bank of New York as its Collateral Agent
and The Bank of New York accepts such appointment and agrees to act as
Collateral Agent on behalf of Financial Security to maintain custody and
possession of the Collateral and to perform the other duties of the Collateral
Agent in accordance with the provisions of this Pledge Agreement. The Collateral
Agent shall, subject to the other terms and provisions of this Pledge Agreement,
act upon and in compliance with Financial Security's written instructions
delivered pursuant to this Pledge Agreement as promptly as possible following
receipt of such written instructions. Receipt of written instructions shall not
be a condition to the exercise by the Collateral Agent of its express duties
hereunder, unless this Pledge Agreement provides that the Collateral Agent is
permitted to act only following receipt of such instructions.
SECTION 14. SUCCESSOR COLLATERAL AGENT.
(a) MERGER. Any Person into which the Collateral Agent may be
converted or merged, or with which it may be consolidated, or to which it
may sell or transfer its corporate trust business and assets as a whole or
substantially as a whole, or any Person resulting from any such
conversion, merger, consolidation, sale or transfer to which the
Collateral Agent is a party, shall (provided it is otherwise qualified to
serve as the Collateral Agent hereunder) be and become a successor
Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, immunities,
privileges and other matters as was its predecessor without the execution
or filing of any instrument or any further act, deed or conveyance on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
(b) RESIGNATION. The Collateral Agent and any successor Collateral
Agent may resign only (i) with the 45 days' prior written notice to
Financial Security or (ii) if the Collateral Agent is unable to perform
its duties hereunder as a matter of law as evidenced by an opinion of
counsel acceptable to Financial Security. Upon the occurrence of (i) or
(ii) above, the Collateral Agent shall give notice of its resignation by
registered or certified mail to Pledgor (with a copy to Financial
Security). Any resignation by the Collateral Agent shall take effect only
upon the date which is the later of (x) the effective date of the
appointment by Financial Security of a successor Collateral Agent and the
acceptance in writing by such successor Collateral Agent of such
appointment and (y) the date on which the Collateral is delivered to the
successor Collateral Agent. Notwithstanding the preceding sentence, if by
the contemplated date of resignation specified in the written notice of
resignation delivered (as described above) no successor Collateral Agent
has been appointed Collateral Agent or becomes the Collateral Agent
pursuant to subsection (d) below, the resigning Collateral Agent may
petition a court of competent jurisdiction for the appointment of a
successor.
(c) REMOVAL. The Collateral Agent may be removed by Financial
Security at any time, with or without cause, by an instrument or
concurrent instruments in writing delivered to the Collateral Agent. Any
removal pursuant to the provisions of this subsection (c) shall take
effect only upon the later to occur of (i) the effective date of the
appointment of a successor Collateral Agent and the acceptance in writing
by such successor Collateral Agent of such appointment and of its
obligation to perform its duties hereunder in accordance with
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the provisions hereof and (ii) the date on which the Collateral is
delivered to the successor Collateral Agent.
(d) APPOINTMENT OF AND ACCEPTANCE BY SUCCESSOR.
(i) Financial Security shall have the sole right to appoint
each successor Collateral Agent. Every successor Collateral Agent
appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to Financial Security and Pledgor an instrument in
writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other
documents and instruments as will effectuate the delivery of all
Collateral to the successor Collateral Agent, whereupon such
successor, without any further act, deed or conveyance, shall become
fully vested with all the estates, properties, rights, powers,
duties and obligations of its predecessor. Such predecessor shall,
nevertheless, on the written request of Financial Security, execute
and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor
hereunder.
(ii) Every predecessor Collateral Agent shall assign, transfer
and deliver all Collateral held by it as Collateral Agent hereunder
to its successor as Collateral Agent.
(iii) Should any instrument in writing from Pledgor or the
Pledged Entity be reasonably required by a successor Collateral
Agent for more fully and certainly vesting in such successor the
estates, properties, rights, powers, duties and obligations vested
or intended to be vested hereunder in the Collateral Agent, any and
all such written instruments shall, at the request of the successor
Collateral Agent, be forthwith executed, acknowledged and delivered
by Pledgor.
(iv) The designation of any successor Collateral Agent and the
instrument or instruments removing any Collateral Agent and
appointing a successor hereunder, together with all other
instruments provided for herein, shall be maintained with the
records relating to the Collateral and, to the extent required by
applicable law, filed or recorded by the successor Collateral Agent
in each place where such filing or recording is necessary to effect
the transfer of the Collateral to the successor Collateral Agent or
to protect and preserve the security interests granted hereunder.
SECTION 15. REIMBURSEMENT AND INDEMNIFICATION.
(a) The Pledgor hereby agrees to pay, and to protect, indemnify and
save harmless Financial Security and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act from and
against, any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including,
without limitation, the costs and expenses of defending against any claim
of liability) of any nature arising out of or in connection with this
Pledge Agreement, except such loss, liabilities, actions, suits,
judgments, demands,
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damages, costs or expenses as shall result from the negligence, bad faith
or willful misconduct of Financial Security or its officers, directors,
shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act; PROVIDED, however, that,
any provision herein to the contrary notwithstanding:
(i) Pledgor's obligations pursuant to this Section 15 arising
in connection with any breach of Section 5 or Section 6 hereof shall
be limited to amounts payable (A) pursuant to a drawing under
Irrevocable Letter of Credit No. P-360919 issued by The Chase
Manhattan Bank and dated April 1, 1998 and (B) from the Collateral,
including pursuant to any action taken with respect to the
Collateral pursuant to Section 10 hereof; and
(ii) The only damages indemnifiable or payable with respect to
a breach of Section 7 hereof shall be any loss or damages which (A)
are not recovered by a drawing under Irrevocable Letter of Credit
No. P-360919 issued by The Chase Manhattan Bank and dated April 1,
1998, and (B) result from the loss of the ability or right, or any
delay in the exercise of ability or right, of either the "Collateral
Agent" under the Collateral Assignment Agreement or Financial
Security to realize the full and timely benefits of the Defeasance
Eligible Investments or other Borrower Collateral, or any loss
resulting from a delay in such realization, including any and all
charges, fees, costs and expenses which Financial Security may
reasonably pay or incur, including, but not limited to, attorneys'
and accountants' fees and expenses, in connection with (1)
reimbursement of the Collateral Agent, or (2) the administration,
enforcement, defense or preservation of any rights in respect of any
of the Related Documents (as defined in the Insurance Agreement),
including defending, monitoring or participating in any litigation
or proceeding (including any bankruptcy proceeding in respect of the
Pledged Entity or any affiliate of the Pledged Entity) relating to
any of the Related Documents, any party to any of the Related
Documents or the Transaction.
(b) The obligations of Pledgor under this Section 15 shall survive
the termination of this Pledge Agreement and the resignation or removal of
the Collateral Agent.
SECTION 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COLLATERAL
AGENT. The Collateral Agent represents and warrants to Pledgor and to Financial
Security as follows:
(a) The Collateral Agent is a state banking corporation, duly
organized, validly existing and in good standing under the laws of the
State of New York and is duly authorized and licensed under applicable law
to conduct its business as presently conducted.
(b) The Collateral Agent has all requisite right, power and
authority to execute and deliver this Pledge Agreement and the other
Transaction Documents to which it is or becomes a party and to perform all
of its duties as Collateral Agent hereunder and thereunder.
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(c) The execution and delivery by the Collateral Agent of this
Pledge Agreement, and the performance by the Collateral Agent of its
duties hereunder, have been duly authorized by all necessary corporate
proceedings and no further approvals or filings, including any
governmental approvals, are required or will be required, as the case may
be, for the valid execution and delivery by the Collateral Agent, or the
performance by the Collateral Agent, of this Pledge Agreement.
(d) The Collateral Agent has duly executed and delivered this Pledge
Agreement, and, assuming the due authorization, execution and delivery
hereof by the other parties hereto, this Pledge Agreement constitutes the
legal, valid and binding obligation of the Collateral Agent, enforceable
against the Collateral Agent in accordance with its terms, except as (i)
such enforceability may be limited by bankruptcy, insolvency,
reorganization and similar laws relating to or affecting the enforcement
of creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles
of general applicability.
(e) The Collateral Agent has been paid in full its ordinary
administrative fee for acting as Collateral Agent under this Pledge
Agreement.
SECTION 17. TERMINATION. This Pledge Agreement shall continue in full
force and effect until the date (the "Termination Date") on which the Insurance
Agreement terminates in accordance with its terms.
SECTION 18. RESERVED.
SECTION 19. RESERVED.
SECTION 20. NOTICES. Any notice or other communication given hereunder
shall be in writing and shall be sent by registered mail, postage prepaid, or
personally delivered or telecopied to the recipient as follows:
(a) To the Collateral Agent:
The Bank of New York
Towermarc Plaza
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Department
Telephone: (904) 998-4700
Facsimile: (904) 645-1932
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(b) To Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Telephone: (212) 826-0100
Facsimile: (212) 339-3518
(212) 339-3529
(c) To Pledgor:
Spartan Holdings, Inc.
203 East Main Street
Spartanburg, SC 29301
Attention: General Counsel
Facsimile: (864) 597-8216
With a copy to:
Advantica Restaurant Group, Inc.
203 East Main Street
Spartanburg, SC 29301
Attention: General Counsel
Facsimile: (864) 596-8327
SECTION 21. GENERAL PROVISIONS.
(a) The failure of the Collateral Agent or Financial Security to
exercise, or delay in exercising, any right, power or remedy hereunder
shall not operate as a waiver thereof, nor shall any single or partial
exercise by the Collateral Agent or Financial Security of any right, power
or remedy hereunder preclude any other or future exercise thereof, or the
exercise of any other right, power or remedy.
(b) The representations of Pledgor herein contained shall survive
the date hereof.
(c) Neither this Pledge Agreement nor the provisions hereof can be
changed, waived or terminated orally. This Pledge Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, legal representatives and assigns. If any provision
of this Pledge Agreement shall be invalid or unenforceable in any respect
or in any jurisdiction, the remaining provisions shall remain in full
force and effect and shall be enforceable to the maximum extent permitted
by law.
(d) Unless otherwise indicated, all references to particular
Sections are references to Sections of this Pledge Agreement.
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(e) This Pledge Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same document.
(f) Each of the parties hereto waives, to the fullest extent
permitted by law, any right it may have to a trial by jury in respect of
any litigation arising directly or indirectly out of, under or in
connection with this Pledge Agreement or any of the transactions
contemplated hereunder. Each of the parties hereto (i) certifies that no
representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (ii) acknowledges
that it has not been induced to enter into this Pledge Agreement and the
other Borrower Documents (as defined in Section 5) to which it is a party
nor will have been induced to enter into any other Borrower Documents to
which it becomes a party by, among other things, this waiver.
(g) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) PLEDGOR IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, ANY COURT IN
THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY
APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS PLEDGE
AGREEMENT, THE OTHER BORROWER DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREUNDER OR THEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH SUIT OR ACTION OR PROCEEDING MAY BE
HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE PARTIES HEREBY WAIVES AND AGREES NOT TO
ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER OR THAT THIS PLEDGE AGREEMENT OR ANY OF THE OTHER
BORROWER DOCUMENTS OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE
LITIGATED IN OR BY SUCH COURTS. PLEDGOR IRREVOCABLY APPOINTS AND
DESIGNATES CT CORPORATION SYSTEM AS ITS TRUE AND LAWFUL ATTORNEY AND DULY
AUTHORIZED AGENT FOR ACCEPTANCE OF
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SERVICE OF LEGAL PROCESS. PLEDGOR AGREES THAT SERVICE OF SUCH PROCESS UPON
SUCH PERSON SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON IT. NOTHING
CONTAINED IN THIS PLEDGE AGREEMENT SHALL LIMIT OR AFFECT THE RIGHTS OF ANY
PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
START LEGAL PROCEEDINGS RELATED TO ANY OF THE BORROWER DOCUMENTS AGAINST
PLEDGOR OR ITS RESPECTIVE PROPERTY IN THE COURTS OF ANY JURISDICTION.
(i) The Collateral Agent, by the execution hereof, acknowledges
receipt of the Pledged Shares on behalf of Financial Security.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Stock Pledge Agreement on the date first above written.
SPARTAN HOLDINGS, INC.
By:________________________
Name:______________________
Title:_____________________
FINANCIAL SECURITY ASSURANCE, INC.
By:________________________
Alex G. Makowski
Managing Director
THE BANK OF NEW YORK
By:_____________________________
Name:___________________________
Agent
16
EXECUTION COPY
CONSENT AND AGREEMENT REGARDING SUBSTITUTION
This Consent And Agreement Regarding Substitution (this "Agreement"),
dated as of May 1, 1998, is by and among SFS SECURED RESTAURANTS, INC., SPARTAN
SECURED RESTAURANTS, INC. (each of SFS Secured Restaurants, Inc. and Spartan
Secured Restaurants, Inc. are referred to herein as an "Owner" and together as
the "Owners"), SECURED RESTAURANTS TRUST (the "Issuer"), THE BANK OF NEW YORK,
I. M. SPECIAL, INC., and FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"
and ADVANTICA RESTAURANT GROUP, INC. ("Advantica")).
Reference is made to:
(i) the Loan Agreement, dated as of November 1, 1990, as amended by
a First Amendment to Loan Agreement, dated as of November 1, 1991, and as
further amended by a Second Amendment to Loan Agreement, dated as of April
1, 1998, (collectively, the "Quincy's Loan Agreement") between the Issuer
and Quincy's Realty, Inc. ("Quincy's Realty"),
(ii) the Loan Agreement, dated as of November 1, 1990, as amended
by a First Amendment to Loan Agreement, dated as of November 1, 1991, and
as further amended by a Second Amendment to Loan Agreement, dated as of
April 1, 1998 (collectively, the "Spardee's Loan Agreement"), between the
Issuer and Spardee's Realty, Inc. ("Spardee's Realty"),
(iii) the Collateral Assignment Agreement, dated as of November 1,
1990, as amended by a First Amendment to Collateral Assignment Agreement,
dated as of April 1, 1998 (collectively, the "Collateral Assignment
Agreement") among the Issuer, Financial Security and The Bank of New York,
as successor to The Citizens and Southern Bank of South Carolina, as
indenture trustee (the "Trustee") and as collateral agent (the "Collateral
Agent"), and
(iv) the Intercreditor Agreement, dated as of November 1, 1990 (the
"Intercreditor Agreement"), among Financial Security, the Trustee and the
Collateral Agent.
All obligations and liabilities of Spardee's under the Spardee's Loan
Agreement were assigned to, and assumed by, Quincy's Realty pursuant to an
Assignment and Assumption Agreement, dated April 1, 1998 between Quincy's Realty
and Spardee's Realty. The Quincy's Loan Agreement, the Spardee's Loan Agreement,
the Collateral Assignment Agreement and the Intercreditor Agreement all relate
to the Issuer's 10 1/4% Guaranteed Secured Bonds Due 2000 (the "Bonds") issued
pursuant to an indenture dated as of November 1, 1990 (the "Indenture") between
the Issuer and the Trustee. The Quincy's Loan Agreement and the Spardee's Loan
Agreement, and the Mortgage Notes thereunder (as defined in such agreements),
are referred to collectively herein as the "Loan Agreements."
<PAGE>
Financial Security is the Controlling Party (as defined in the
Intercreditor Agreement). On April 1, 1998, Quincy's Realty effected a
defeasance of the Mortgage Notes pursuant to Section 2.04(c) of each of the
Quincy's Loan Agreement and the Spardee's Loan Agreement (such transaction, the
"Defeasance").
Quincy's Realty has requested that Financial Security and the other
parties hereto consent to the substitution of I. M. Special, Inc. as "Borrower"
for Quincy's under (a) the Quincy's Loan Agreement, (b) the Spardee's Loan
Agreement and (c) in connection with the related Mortgage Notes. Such
substitution (the "Substitution") will occur pursuant to an Assignment and
Assumption Agreement dated May 1, 1998 (the "Assignment Agreement") by and
between Quincy's Realty and I. M. Special, Inc.
In consideration of the premises the parties hereto agree as follows:
I. FINANCIAL SECURITY CONSENT TO SUBSTITUTION.
Financial Security hereby consents to the Substitution subject to the
following:
(a) Receipt by Financial Security of executed originals (or copies of
executed originals, provided that Advantica shall deliver executed originals to
Financial Security by May 30, 1998) of:
(i) The Assignment Agreement;
(ii) Certified copies of the certificate of incorporation and bylaws
of I. M. Special, Inc.;
(iii) Evidence that the Board of Directors of I. M. Special, Inc. has
authorized I. M. Special, Inc. to enter into the Substitution;
(iv) Stock Pledge Agreement, dated as of May 1, 1998, among Spartan
Holdings Inc., Financial Security and the Collateral Agent;
(v) One or more legal opinions from Parker Poe Adams and Bernstein
L.L.P. addressed to, and in form and substance acceptable to, Financial
Security relating to the Substitution and such other matters as may be
contemplated thereby or by this Agreement; and
(vi) Certificates from Advantica, Quincy's Realty, I. M. Special, Inc.
and/or their affiliates and such other documents as Financial Security may
reasonably request.
(b) Payment to Kutak Rock, as set forth in a statement from Kutak Rock, of
fees and disbursements for legal services provided to Financial Security in
connection with the Substitution.
(c) Execution of this Agreement by Advantica.
2
<PAGE>
II. CONSENTS AND DIRECTIONS REGARDING DOCUMENTS.
(a) Financial Security hereby directs The Bank of New York, as Trustee and
as Collateral Agent, to execute, and directs the Owners to cause Wilmington
Trust Company (the "Issuer Trustee"), on behalf of the Issuer, to execute, as
applicable:
(i) the Quincy's Realty, Inc. Release and Agreement, dated May 1, 1998
(the "Quincy's Release"), by the Issuer, Financial Security, the Trustee
and the Collateral Agent;
(ii) the Termination of Reimbursement Agreement, dated May 1, 1998, by
Financial Security and Advantica; and
(iii) the Termination of Stock Pledge Agreement, dated May 1, 1998
(the "Termination of Stock Pledge"), by Quincy's Restaurants, Inc. and the
Issuer.
(b) Financial Security hereby consents to the Issuer Trustee's execution,
on its own behalf, of this Agreement;
(c) Financial Security hereby directs the Owners to direct the Issuer
Trustee to execute this Agreement, the Quincy's Release and the Termination of
Stock Pledge and any other certificates or instruments required to be executed
by the Owners in connection with the matters contemplated hereby;
(d) The Owners hereby direct the Issuer Trustee to execute this Agreement,
the Quincy's Release and the Termination of Stock Pledge.
(e) Upon satisfaction of all conditions set forth in this Agreement,
Financial Security will cancel Irrevocable Letter of Credit No. 360920 issued by
The Chase Manhattan Bank dated April 1, 1998.
III. DEFINED TERMS.
The parties hereby agree that for purposes of the Collateral Assignment
Agreement, the Loan Agreements, the Mortgage Notes and the Insurance Agreement
(as defined in the Collateral Assignment Agreement), the following terms shall
have the meanings set forth below:
"Borrower" means I. M. Special, Inc., a Delaware corporation.
"Stock Pledge Agreement," "Stock Pledge" or "Quincy's Stock Pledge" means
the Stock Pledge Agreement, dated as of May 1, 1998, among Spartan Holdings,
Inc., Financial Security and the Collateral Agent.
IV. ADVANTICA AGREEMENTS.
Advantica hereby covenants and agrees as follows:
3
<PAGE>
(a) Advantica and its affiliates have received adequate consideration and
fair value in connection with the Defeasance and the Substitution and neither
such action has been taken with the intent of defrauding any creditors of
Advantica or of any of its affiliates;
(b) (i) Following the substitution, neither Advantica nor any of its
affiliates, other than I. M. Special, Inc., has any right, title or interest in,
to or under the Defeasance Eligible Investments (as defined in the Collateral
Assignment Agreement) or any other part of the Borrower Collateral (as defined
in the Loan Agreements) or has made any representation to the Banks (as defined
in (v) below) that it has any such right, title or interest;
(ii) Prior to transfer of ownership of either Quincy's Restaurants,
Inc. or Quincy's Realty to any entity which is not an affiliate of
Advantica (a "Transferee"), Advantica will provide to Financial Security a
written confirmation, in form and substance satisfactory to Financial
Security, from the Transferee that neither such Transferee nor Quincy's
Realty, Inc. has any right, title or interest in, to or under the
Defeasance Eligible Investments or any other part of the Borrower
Collateral;
(iii) Neither Advantica nor any of its affiliates will take any action
to obtain or recover any interest in the Defeasance Eligible Investments
or any other part of the Borrower Collateral until the Term of the
Agreement (as defined in the Insurance Agreement) has expired; and
(iv) Advantica confirms that the Banks have approved the Substitution
and the transfer of all right, title and interest of Quincy's Realty in,
to and under the Borrower Collateral to I. M. Special, Inc. in connection
therewith.
(v) Advantica will enforce the agreement pursuant to the Credit
Agreement, dated as of January 7, 1998, as amended or waived by Amendment
No. 1 and Waiver (the "Amendment"), dated as of March 16, 1998, each among
Quincy's Restaurants, Inc., Flagstar Enterprises Inc., Advantica
Restaurant Group, Inc., the Lenders (as defined in the Credit Agreement),
The Chase Manhattan Bank and the other parties thereto, set forth in
Section l(a) of the Amendment, which provides that I. M. Special, Inc., as
the SPC referred to in such Amendment, shall not be required to execute a
Subsidiary Guarantee Agreement, an Indemnity and Contribution Agreement or
any Security Document until such time when I. M. Special, Inc. is no
longer subject to a contractual prohibition on doing so. The Lenders and
The Chase Manhattan Bank are collectively referred to herein as the
"Banks".
V. MISCELLANEOUS.
(a) NOTICES. All demands, notices and other communications to be given
hereunder shall be in writing (except as otherwise specifically provided herein)
and shall be mailed by overnight delivery or personally delivered or facsimile
to the recipient as follows:
4
<PAGE>
(i) To Financial Security: Financial Security Assurance
Inc. 350 Park Avenue New
York, NY 10022 Attention:
Surveillance Department
Telephone: (212) 826-0100
Facsimile Nos.: (212)
339-3518 (212) 339-3527
(in each case in which notice or other communication to Financial
Security refers to a Security Event, Event of Default, a claim on
the Policy or with respect to which failure on the part of Financial
Security to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should
also be sent to the attention of each of the General Counsel and the
Head Financial Guaranty Group and shall be marked to indicate
"URGENT MATERIAL ENCLOSED.")
(ii) To the Issuer: Secured Restaurants Trust
c/o Wilmington Trust Company
Rodney Square North
Wilmington, DE 19890
Attention: Corporate Trust
Administration Telephone
No.: (302) 651-1428 Telex
No.: 835437 Answer Back:
WILM-TR Facsimile No.: (302)
651-1576
with a copy to Advantica Restaurant Group,
the Manager: Inc. 203 East Main Street
Spartanburg, SC 29301
Attention: Legal Department
Telephone No.: (803)
596-8000 Facsimile No.:
(803) 596-8327
(iii) To the Trustee: The Bank of New York
Towermarc Plaza 10161
Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust
Department Telephone No.:
(904) 998-4700 Facsimile
No.: (904) 645-1932
5
<PAGE>
(iv) To the Collateral Agent: The Bank of New York
Towermarc Plaza 10161
Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust
Department Telephone No.:
(904) 998-4700 Facsimile
No.: (904) 645-1932
(v) To the Borrower: I. M. Special, Inc. 201 East
Main Street Spartanburg, SC
29301 Attention: Legal
Department Telephone No.:
(864) 596-8000 Facsimile
No.: (864) 596-8327
(vi) To Advantica: Advantica Restaurant Group,
Inc. 201 East Main Street
Spartanburg, SC 29301
Attention: Legal Department
Telephone No.: (864)
596-8000 Facsimile No.:
(864) 596-8327
A party may specify an additional or different address or
addresses by writing mailed or delivered to the other parties as
aforesaid. Except as may be otherwise specified herein, all such
notices and other communications shall be effective two Business
Days after being sent. Any notice required to be given to any
Non-Controlling Party shall also be given to the Controlling Party.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(d) BINDING AGREEMENT. This Agreement shall be binding upon, shall inure
to the benefit of, and shall be enforceable by, the parties hereto and their
respective successors and permitted assigns.
6
<PAGE>
IN WITNESS WHEREOF, each party has hereby executed this Consent and
Agreement Regarding Substitution as of the date first above written.
SFS SECURED RESTAURANTS, INC.
By:_______________________
Name:_____________________
Title:____________________
SPARTAN SECURED RESTAURANTS, INC.
By:________________________
Name:______________________
Title:_____________________
SECURED RESTAURANTS TRUST
By: Wilmington Trust Company, not in its
individual capacity but solely as
Issuer Trustee
By:___________________________
Mary St. Armand
Assistant Vice President
THE BANK OF NEW YORK, as Collateral Agent
and as Trustee
By:__________________________
Name:________________________
Title:_______________________
FINANCIAL SECURITY ASSURANCE INC.
By:____________________________________
Alex G. Makowski, Managing Director
7
<PAGE>
I. M. SPECIAL, INC.
By:__________________________
Name:________________________
Title:_______________________
ADVANTICA RESTAURANT GROUP, INC.
By:___________________________
Name:_________________________
Title:________________________
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADVANTICA RESTAURANT GROUP, INC. AS CONTAINED IN ITS
FORM 10-Q FOR THE 38 WEEKS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-08-1998
<PERIOD-END> SEP-30-1998
<CASH> 259,786
<SECURITIES> 0
<RECEIVABLES> 23,545
<ALLOWANCES> 4,299
<INVENTORY> 18,532
<CURRENT-ASSETS> 336,080
<PP&E> 791,231
<DEPRECIATION> 90,259
<TOTAL-ASSETS> 2,096,801
<CURRENT-LIABILITIES> 395,103
<BONDS> 1,133,337
0
0
<COMMON> 489
<OTHER-SE> 284,017
<TOTAL-LIABILITY-AND-EQUITY> 2,096,801
<SALES> 0
<TOTAL-REVENUES> 1,297,830
<CGS> 0
<TOTAL-COSTS> 1,340,479
<OTHER-EXPENSES> 1,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,109
<INCOME-PRETAX> (129,903)
<INCOME-TAX> 1,500
<INCOME-CONTINUING> (131,403)
<DISCONTINUED> (1,507)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,910)
<EPS-PRIMARY> (3.32)
<EPS-DILUTED> (3.32)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR 12 WEEKS ENDED APRIL 1, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-08-1998
<PERIOD-END> APR-01-1998
<CASH> 228,262
<SECURITIES> 0
<RECEIVABLES> 16,271
<ALLOWANCES> 4,044
<INVENTORY> 18,113
<CURRENT-ASSETS> 356,238
<PP&E> 764,059
<DEPRECIATION> 19,592
<TOTAL-ASSETS> 2,273,242
<CURRENT-LIABILITIES> 415,702
<BONDS> 1,168,606
0
0
<COMMON> 400
<OTHER-SE> 373,847
<TOTAL-LIABILITY-AND-EQUITY> 2,273,242
<SALES> 0
<TOTAL-REVENUES> 390,540
<CGS> 0
<TOTAL-COSTS> 405,107
<OTHER-EXPENSES> 974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,379
<INCOME-PRETAX> (42,920)
<INCOME-TAX> 619
<INCOME-CONTINUING> (43,539)
<DISCONTINUED> (255)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,794)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR ONE WEEK ENDING JANUARY 7, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JAN-07-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 33,588
<CGS> 0
<TOTAL-COSTS> 24,928
<OTHER-EXPENSES> (714,520)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,669
<INCOME-PRETAX> 720,511
<INCOME-TAX> (13,829)
<INCOME-CONTINUING> 734,340
<DISCONTINUED> 47,733
<EXTRAORDINARY> 612,845
<CHANGES> 0
<NET-INCOME> 1,394,918
<EPS-PRIMARY> 32.87
<EPS-DILUTED> 25.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 54,079
<SECURITIES> 0
<RECEIVABLES> 16,993
<ALLOWANCES> 4,177
<INVENTORY> 18,161
<CURRENT-ASSETS> 480,336
<PP&E> 1,144,617
<DEPRECIATION> 518,780
<TOTAL-ASSETS> 1,411,069
<CURRENT-LIABILITIES> 359,832
<BONDS> 510,533
0
630
<COMMON> 21,218
<OTHER-SE> (1,384,298)
<TOTAL-LIABILITY-AND-EQUITY> 1,411,069
<SALES> 0
<TOTAL-REVENUES> 1,829,585
<CGS> 0
<TOTAL-COSTS> 1,704,586
<OTHER-EXPENSES> 34,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,924
<INCOME-PRETAX> (74,637)
<INCOME-TAX> 1,688
<INCOME-CONTINUING> (76,325)
<DISCONTINUED> (58,125)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (134,450)
<EPS-PRIMARY> (3.50)
<EPS-DILUTED> (3.50)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ADVANTICA RESTAURANT GROUP, INC. (FORMERLY
FLAGSTAR COMPANIES, INC.) FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> OCT-01-1997
<CASH> 29,678
<SECURITIES> 0
<RECEIVABLES> 17,533
<ALLOWANCES> 3,190
<INVENTORY> 27,809
<CURRENT-ASSETS> 116,326
<PP&E> 1,917,676
<DEPRECIATION> 806,282
<TOTAL-ASSETS> 1,552,066
<CURRENT-LIABILITIES> 402,851
<BONDS> 655,703
0
630
<COMMON> 21,218
<OTHER-SE> (1,351,133)
<TOTAL-LIABILITY-AND-EQUITY> 1,552,066
<SALES> 0
<TOTAL-REVENUES> 1,389,255
<CGS> 0
<TOTAL-COSTS> 1,300,527
<OTHER-EXPENSES> 24,295
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,237
<INCOME-PRETAX> (68,804)
<INCOME-TAX> 1,674
<INCOME-CONTINUING> (70,478)
<DISCONTINUED> (31,280)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,758)
<EPS-PRIMARY> (2.65)
<EPS-DILUTED> (2.65)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ADVANTICA RESTAURANT GROUP, INC. (FORMERLY
FLAGSTAR COMPANIES, INC.) FOR THE QUARTERLY PERIOD ENDED JULY 2, 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUL-02-1997
<CASH> 57,333
<SECURITIES> 0
<RECEIVABLES> 14,299
<ALLOWANCES> 3,356
<INVENTORY> 31,127
<CURRENT-ASSETS> 132,242
<PP&E> 1,910,252
<DEPRECIATION> 778,103
<TOTAL-ASSETS> 1,597,845
<CURRENT-LIABILITIES> 427,323
<BONDS> 664,696
0
630
<COMMON> 21,218
<OTHER-SE> (1,333,373)
<TOTAL-LIABILITY-AND-EQUITY> 1,597,845
<SALES> 0
<TOTAL-REVENUES> 926,298
<CGS> 0
<TOTAL-COSTS> 871,847
<OTHER-EXPENSES> 11,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,250
<INCOME-PRETAX> (55,647)
<INCOME-TAX> 1,354
<INCOME-CONTINUING> (57,001)
<DISCONTINUED> (26,997)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,998)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> (2.15)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ADVANTICA RESTAURANT GROUP, INC. (FORMERLY
FLAGSTAR COMPANIES, INC.) FOR THE QUARTERLY PERIOD ENDED APRIL 2, 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> APR-02-1997
<CASH> 31,775
<SECURITIES> 0
<RECEIVABLES> 13,045
<ALLOWANCES> 2,563
<INVENTORY> 30,579
<CURRENT-ASSETS> 114,797
<PP&E> 1,908,018
<DEPRECIATION> 754,647
<TOTAL-ASSETS> 1,591,820
<CURRENT-LIABILITIES> 1,403,648
<BONDS> 1,226,707
0
630
<COMMON> 21,218
<OTHER-SE> (1,301,103)
<TOTAL-LIABILITY-AND-EQUITY> 1,591,280
<SALES> 0
<TOTAL-REVENUES> 474,064
<CGS> 0
<TOTAL-COSTS> 454,196
<OTHER-EXPENSES> 4,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,477
<INCOME-PRETAX> (33,777)
<INCOME-TAX> 816
<INCOME-CONTINUING> (34,593)
<DISCONTINUED> (17,135)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,728)
<EPS-PRIMARY> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 92,369
<SECURITIES> 0
<RECEIVABLES> 20,217
<ALLOWANCES> 2,405
<INVENTORY> 31,543
<CURRENT-ASSETS> 190,655
<PP&E> 1,891,998
<DEPRECIATION> 723,416
<TOTAL-ASSETS> 1,687,370
<CURRENT-LIABILITIES> 483,275
<BONDS> 2,179,393
0
630
<COMMON> 21,218
<OTHER-SE> (1,249,375)
<TOTAL-LIABILITY-AND-EQUITY> 1,687,370
<SALES> 0
<TOTAL-REVENUES> 1,680,182
<CGS> 0
<TOTAL-COSTS> 1,571,173
<OTHER-EXPENSES> 1,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,151
<INCOME-PRETAX> (69,313)
<INCOME-TAX> (16,302)
<INCOME-CONTINUING> (53,011)
<DISCONTINUED> (32,449)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,460)
<EPS-PRIMARY> (2.35)
<EPS-DILUTED> (2.35)
</TABLE>
