UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999 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 May 14, 1999, 40,025,207 shares of the registrant's Common Stock, par
value $0.01 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 Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 398,831 $ 371,747 $ 31,986
Franchise and licensing revenue 17,804 13,996 1,629
----------- ----------- -----------
Total operating revenue 416,635 385,743 33,615
----------- ----------- -----------
Cost of company restaurant sales:
Product costs 109,632 98,700 8,638
Payroll and benefits 148,501 136,422 12,577
Occupancy 21,831 22,137 1,155
Other operating expenses 68,867 63,697 5,248
----------- ----------- -----------
Total costs of company restaurant sales 348,831 320,956 27,618
Franchise restaurant costs 10,025 6,660 983
General and administrative expenses 23,025 17,139 2,323
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 34,734 34,272 --
Depreciation and other amortization 34,783 24,397 1,684
Gains on refranchising and other, net (3,174) (3,118) (7,653)
----------- ----------- -----------
Total operating costs and expenses 448,224 400,306 24,955
----------- ----------- -----------
Operating (loss) income (31,589) (14,563) 8,660
----------- ----------- -----------
Other expenses:
Interest expense, net (contractual interest for the
one week ended January 7, 1998 is $4,795) 29,276 26,668 2,669
Other nonoperating expenses (income), net 1,155 975 (313)
----------- ----------- -----------
Total other expenses, net 30,431 27,643 2,356
----------- ----------- -----------
(Loss) income before reorganization items and taxes (62,020) (42,206) 6,304
Reorganization items -- -- (714,207)
----------- ----------- -----------
(Loss) income before taxes (62,020) (42,206) 720,511
(Benefit from) provision for income taxes (340) 619 (13,829)
----------- ----------- -----------
(Loss) income from continuing operations (61,680) (42,825) 734,340
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 -- (255) (1,154)
----------- ----------- -----------
(Loss) income before extraordinary items (61,680) (43,080) 782,073
Extraordinary items -- -- (612,845)
----------- ----------- -----------
Net (loss) income (61,680) (43,080) 1,394,918
Dividends on preferred stock -- -- (273)
----------- ----------- -----------
Net (loss) income applicable to common shareholders $ (61,680) $ (43,080) $ 1,394,645
=========== =========== ===========
</TABLE>
See accompanying notes
2
<PAGE>
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Per share amounts applicable to common shareholders:
Basic earnings per share:
(Loss) income from continuing operations $ (1.54) $ (1.07) $ 17.30
(Loss) income from discontinued operations, net -- (.01) 1.13
--------- ---------- ----------
(Loss) income before extraordinary items (1.54) (1.08) 18.43
Extraordinary items -- -- 14.44
--------- ---------- ----------
Net (loss) income $ (1.54) $ (1.08) $ 32.87
========= ========== ==========
Average outstanding shares 40,020 40,000 42,434
========= ========== ==========
Diluted earnings per share:
(Loss) income from continuing operations $ (1.54) $ (1.07) $ 13.32
(Loss) income from discontinued operations, net -- (.01) 0.87
--------- ---------- ----------
(Loss) income before extraordinary items (1.54) (1.08) 14.19
Extraordinary items -- -- 11.11
--------- ---------- ----------
Net (loss) income $ (1.54) $ (1.08) $ 25.30
========= ========== ==========
Average outstanding shares and equivalent common shares,
unless antidilutive 40,020 40,000 55,132
========= ========== ==========
</TABLE>
See accompanying notes
3
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1999 December 30, 1998
-------------- -----------------
<S> <C> <C>
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 146,914 $ 224,768
Receivables, less allowance for doubtful accounts of:
1999 --$4,220; 1998 -- $4,316 19,749 18,461
Inventories 16,685 17,239
Other 16,309 15,860
Restricted investments securing in-substance defeased debt 19,025 19,025
---------- ----------
218,682 295,353
---------- ----------
Property 841,988 817,234
Less accumulated depreciation 152,675 123,921
---------- ----------
689,313 693,313
---------- ----------
Other Assets:
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization of:
1999 -- $174,533; 1998 -- $139,799 523,879 558,961
Other intangible assets, net of accumulated amortization of:
1999 -- $17,287; 1998 -- $14,202 225,220 217,587
Deferred financing costs, net 22,612 24,913
Other 36,561 39,360
Restricted investments securing in-substance defeased debt 158,802 156,721
---------- ----------
$1,875,069 $1,986,208
========== ==========
Liabilities
Current Liabilities:
Current maturities of notes and debentures $ 24,801 $ 17,835
Current maturities of capital lease obligations 17,455 17,654
Current maturities of in-substance defeased debt 12,183 12,183
Accounts payable 100,206 102,405
Accrued salaries and vacations 44,369 51,234
Accrued insurance 29,132 32,698
Accrued taxes 18,140 20,235
Accrued interest 28,264 44,837
Other 91,330 92,384
---------- ----------
365,880 391,465
---------- ----------
Long-Term Liabilities:
Notes and debentures, less current maturities 889,007 912,699
Capital lease obligations, less current maturities 82,305 76,740
In-substance defeased debt, less current maturities 164,576 166,579
Deferred income taxes 4,694 5,400
Liability for self-insured claims 43,215 44,442
Other noncurrent liabilities and deferred credits 151,028 152,839
---------- ----------
1,334,825 1,358,699
---------- ----------
Total liabilities 1,700,705 1,750,164
---------- ----------
Shareholders' Equity 174,364 236,044
---------- ----------
$1,875,069 $1,986,208
========== ==========
</TABLE>
See accompanying notes
4
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In thousands)
Cash Flows from Operating Activities:
Net (loss) income $ (61,680) $ (43,080) $ 1,394,918
Adjustments to reconcile net loss to cash flows from
operating activities:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 34,734 34,272 --
Depreciation and other amortization 34,783 24,397 1,684
Amortization of deferred gains (2,844) (3,146) (218)
Amortization of deferred financing costs 1,913 1,336 111
Deferred income tax benefit (750) (278) (13,856)
Gains on refranchising and other, net (3,174) (3,118) (7,653)
Equity in (income) loss from discontinued operations, net -- 255 (47,733)
Amortization of debt premium (3,739) -- --
Noncash reorganization items -- -- (714,550)
Extraordinary items -- -- (612,845)
Other (48) (1,965) (333)
Changes in Assets and Liabilities Net of Effects of
Acquisition and Dispositions:
Decrease (increase) in assets:
Receivables (38) 12,055 (2,054)
Inventories 417 (401) 237
Other current assets (1,135) (3,853) 2,457
Assets held for sale -- (9,656) 1,488
Other assets (774) 23,065 (1,049)
Increase (decrease) in liabilities:
Accounts payable (2,199) (12,311) (5,534)
Accrued salaries and vacations (6,864) (14,732) 6,199
Accrued taxes (2,103) (4,250) (894)
Other accrued liabilities (23,779) 3,904 9,562
Other noncurrent liabilities and deferred credits (124) 2,295 (1,302)
----------- ---------- ----------
Net cash flows (used in) from operating activities (37,749) 4,789 8,635
----------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of property (12,698) (8,085) (1)
Acquisition of restaurant units (10,853) -- --
Proceeds from disposition of property 3,016 -- 7,255
(Advances to) receipts from discontinued operations, net -- (1,107) 647
Proceeds from sale of discontinued operation, net -- 379,457 --
Purchase of investments securing in-substance defeased
debt -- (201,713) --
Other long-term assets, net -- (1,611) --
----------- ---------- ----------
Net cash flows (used in) provided by investing activities (20,535) 166,941 7,901
----------- ---------- ----------
</TABLE>
See accompanying notes
5
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ----------------
<S> <C> <C> <C>
(In thousands)
Cash Flows from Financing Activities:
Net borrowings under credit agreements $ 7,200 $ -- $ --
Long-term debt payments (26,420) (2,221) (6,891)
Deferred financing costs -- -- (4,971)
Debt transaction costs (350) -- --
----------- ----------- ----------
Net cash flows used in financing activities (19,570) (2,221) (11,862)
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents (77,854) 169,509 4,674
Cash and Cash Equivalents at:
Beginning of period 224,768 58,753 54,079
----------- ----------- ----------
End of period $ 146,914 $ 228,262 $ 58,753
=========== =========== ==========
</TABLE>
See accompanying notes
6
<PAGE>
ADVANTICA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Note 1. GENERAL
Advantica Restaurant Group, Inc. ("Advantica" or, together with its subsidiaries
including precedessors, the "Company"), through its wholly-owned subsidiaries,
Denny's Holdings, Inc. and FRD Acquisition Co. ("FRD") (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 Hardee's restaurants under licenses from Hardee's Food Systems. 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.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the twelve weeks ended April 1, 1998 and the one week
ended January 7, 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."
On January 7, 1998 (the "Effective Date"), Flagstar Companies, Inc. ("FCI") and
Flagstar Corporation ("Flagstar") emerged from proceedings under Chapter 11 of
Title 11 of the United States Code pursuant to FCI's 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. FCI's operating subsidiaries, Denny's Holdings, Inc. and FRD (and
their respective subsidiaries), did not file bankruptcy petitions and were not
parties to the above mentioned Chapter 11 proceedings.
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
30, 1998 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. 1998 Annual Report on Form 10-K. The results of
operations for the quarter ended March 31, 1999 are not necessarily indicative
of the results for the entire fiscal year ending December 29, 1999.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 2. FRESH START REPORTING
As of the Effective Date of the Plan, Advantica adopted fresh start reporting
pursuant to the guidance provided by the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Fresh start reporting
assumes that a new reporting entity has been created and requires assets and
liabilities to be adjusted to their fair values as of the Effective Date in
conformity with the procedures specified by Accounting Principles Board Opinion
No. 16, "Business Combinations." In conjunction with the revaluation of assets
and liabilities, a reorganization value for the Company was determined which
generally approximated the fair value of the Company before considering debt and
approximated the amount a buyer would pay for the assets of the Company after
reorganization. Under fresh start reporting, the reorganization value of the
Company was allocated to the Company's assets and the portion of the
reorganization value which was not attributable to specific tangible or
identified intangible assets of the Company has been reported as "reorganization
value in excess of amounts allocable to identifiable assets, net of accumulated
amortization" in the accompanying Consolidated Balance Sheets. 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
7
<PAGE>
"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 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.
Subsequent to the first 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.
Note 3. ACQUISITION
In March 1999, Denny's, Inc. ("Denny's"), a wholly-owned subsidiary of the
Company, purchased 30 operating restaurants in western New York from Perk
Development Corp., a former franchisee of Perkins Family Restaurants, L.P. The
acquisition of the units has been accounted for under the purchase method of
accounting. The purchase price of approximately $24.7 million, consisting of
cash of approximately $10.9 million and capital leases and other liabilities
assumed of approximately $13.8 million, exceeded the estimated fair value of the
restaurants' identifiable assets by approximately $9.5 million. Denny's took
possession of the restaurants on March 1, 1999. By March 8, 1999, 26 units were
opened as Company-owned restaurants and one unit was reopened as a refranchised
restaurant. The remaining units remained closed and are being evaluated for
ultimate reopening or disposition.
Note 4. REPURCHASE OF SENIOR NOTES
In March 1999, the Company repurchased $20 million aggregate principal amount of
its 11 1/4% Senior Notes due 2008 (the "Senior Notes") for approximately $20.8
million, including approximately $469,000 of accrued interest. The repurchase of
the notes resulted in an immaterial gain.
Note 5. NEW FRI-M CREDIT FACILITY
On May 14, 1999, FRI-M Corporation ("FRI-M"), a wholly-owned subsidiary of FRD,
and certain of its operating subsidiaries entered into a new credit agreement
with The Chase Manhattan Bank ("Chase") and Credit Lyonnais New York Branch
("Credit Lyonnais") and other lenders named therein and thereby established a
$70 million Senior Secured Credit Facility (the "New FRI-M Credit Facility") to
replace the bank facility previously in effect for the Company's Coco's and
Carrows operations (the "FRI-M Credit Facility") which was scheduled to mature
in August 1999. The New FRI-M Credit Facility, which is guaranteed by Advantica,
consists of a $30 million term loan and a $40 million revolving credit facility
and matures in May 2003.
Note 6. COMPREHENSIVE INCOME
The Company's comprehensive income for the quarter ended March 31, 1999, the
twelve weeks ended April 1, 1998, and the one week ended January 7, 1998 is as
follows:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In thousands)
Net (loss) income, excluding adjustments for
reorganization and fresh start reporting $ (61,680) $ (43,080) $ (3,087)
Other comprehensive income:
Foreign currency translation adjustment (9) -- --
---------- ----------- ----------
Comprehensive income $ (61,689) $ (43,080) $ (3,087)
========== =========== ==========
</TABLE>
8
<PAGE>
Note 7. EARNINGS PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Numerator:
(Loss) income from continuing operations $ (61,680) $ (42,825) $ 734,340
Preferred stock dividends -- -- (273)
----------- ------------ ----------
Numerator for basic (loss) earnings per share --
(loss) income from continuing operations
available to common shareholders (61,680) (42,825) 734,067
----------- ------------ ----------
Effect of dilutive securities:
$2.25 Series A Cumulative Convertible
Exchangeable Preferred Stock -- -- 273
10% Convertible Junior Subordinated Debentures -- -- --
----------- ------------ ----------
-- -- 273
----------- ------------ ----------
Numerator for diluted (loss) earnings per share --
(loss) income from
continuing operations available to common shareholders
after assumed conversions $ (61,680) $ (42,825) $ 734,340
=========== ============ ==========
Denominator:
Denominator for basic earnings per share --
weighted average shares 40,020 40,000 42,434
----------- ------------ ----------
Effect of dilutive securities:
$2.25 Series A Cumulative Convertible
Exchangeable Preferred Stock -- -- 8,562
10% Convertible Junior Subordinated Debentures -- -- 4,136
----------- ------------ ----------
Dilutive potential common shares -- -- 12,698
----------- ------------ ----------
Denominator for diluted (loss) earnings per
share -- adjusted weighted average shares and
assumed conversions 40,020 40,000 55,132
=========== ============ ==========
Basic (loss) earnings per share from
continuing operations $ (1.54) $ (1.07) $ 17.30
=========== ============ ==========
Diluted (loss) earnings per share from
continuing operations $ (1.54) $ (1.07) $ 13.32
=========== ============ ==========
</TABLE>
The calculations of basic and diluted loss per share have been based on the
weighted average number of Company shares outstanding. Because of the loss from
continuing operations for the twelve weeks ended April 1, 1998 and the quarter
ended March 31, 1999, warrants and options of the Successor Company have been
omitted from the calculation of weighted average dilutive shares for those
periods.
9
<PAGE>
Note 8. SEGMENT INFORMATION
The Company operates four restaurant concepts -- Denny's, Coco's, Carrows and El
Pollo Loco -- and each concept is considered a reportable segment. The
"Corporate and other" segment consists primarily of corporate operations.
Advantica evaluates performance based on several factors, of which the primary
financial measure is business segment operating income before interest, taxes,
depreciation, amortization and charges for (recoveries of) restructuring and
impairment ("EBITDA as defined").
<TABLE>
<CAPTION>
Quarter Twelve Weeks One Week
Ended Ended Ended
March 31, 1999 April 1, 1998 January 7, 1998
-------------- ------------- ---------------
<S> <C> <C> <C>
(In millions)
REVENUE
Denny's $ 288.5 $ 254.2 $ 23.2
Coco's 54.8 60.5 4.9
Carrows 40.2 42.9 3.5
El Pollo Loco 32.4 28.1 2.0
Corporate and other 0.7 -- --
-------- -------- --------
Total consolidated revenue $ 416.6 $ 385.7 $ 33.6
======== ======== ========
EBITDA AS DEFINED
Denny's $ 35.6 $ 33.2 $ 11.1
Coco's 5.5 7.4 0.8
Carrows 2.5 4.4 --
El Pollo Loco 4.2 5.1 (0.1)
Corporate and other (9.9) (6.0) (1.5)
-------- -------- --------
Total consolidated EBITDA as defined 37.9 44.1 10.3
Depreciation and amortization expense (69.5) (58.7) (1.7)
Other charges:
Interest expense, net (29.3) (26.6) (2.6)
Other - net (1.1) (1.0) 0.3
Reorganization items -- -- 714.2
-------- ------- --------
Consolidated (loss) income from
continuing operations before income
taxes and extraordinary items $ (62.0) $ (42.2) $ 720.5
======== ======== ========
</TABLE>
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 March 31, 1999 and the results of operations for the
quarter ended March 31, 1999 as compared to the twelve weeks ended April 1, 1998
and one week ended January 7, 1998. For purposes of providing a meaningful
comparison of the Company's quarterly operating performance, the following
discussion and presentation of the results of operations for the twelve weeks
ended April 1, 1998 and the one week ended January 7, 1998 will be combined and
referred to as the quarter ended April 1, 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
10
<PAGE>
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 the Management's Discussion and Analysis of Financial Condition and
Result of Operations and in Exhibit 99 to the Company's Annual Report on Form
10-K for the period ended December 30, 1998.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED APRIL 1, 1998
The Company's CONSOLIDATED REVENUE for the first quarter of 1999 decreased $2.7
million (0.6%) compared with the 1998 comparable quarter. Company restaurant
sales decreased $4.9 million primarily due to a net decrease in Company-owned
restaurants, partially offset by higher sales in Denny's and El Pollo Loco
("EPL"). Franchisee and licensing revenue increased $2.2 million, primarily
attributable to a 118-unit increase in franchised and licensed units. Denny's
reported revenue increases, reflecting positive same-store sales growth and
increased franchise revenue in the quarter. EPL also reported growth in revenue
due to the addition of both Company-owned and franchised units and same-store
sales growth. The revenue growth at Denny's and EPL was offset, however, by
lower revenue at Coco's and Carrows, where fewer Company-owned units and lower
same-store sales resulted in 16.2% and 13.4% declines in revenue, respectively.
CONSOLIDATED OPERATING EXPENSES for the first quarter of 1999 increased $23.0
million (5.4%) compared to the 1998 comparable quarter. Excluding the impact of
a $7.6 million decrease in refranchising and real estate transaction gains,
operating expenses increased $15.4 million. This increase includes an $8.7
million increase in depreciation and other amortization over the prior year
quarter relating to the revaluation of assets and liabilities in accordance with
fresh start reporting. The revaluation was completed subsequent to the first
quarter of 1998 and resulted in an increase in depreciation and other
amortization expense being recorded in subsequent quarters. Product costs
increased $2.3 million primarily due to increased sales volumes at Denny's and
EPL coupled with slightly higher food costs related to promotions implemented
during the quarter. The increase in product costs is offset by the effect of a
net decrease of 49 Company-owned restaurants. General and administrative
expenses increased $3.6 million, primarily reflecting increased costs related to
the Company's Year 2000 remediation efforts and increased transition costs
related to the reopening of the acquired Perkins units in the current year
quarter. The comparability of general and administrative expenses is also
affected by the recognition of a $1.4 million insurance recovery in the prior
year quarter.
EBITDA AS DEFINED, which is defined by the Company as operating income before
depreciation, amortization and charges for restructuring and impairment, is a
key internal measure used to evaluate the amount of cash flow available for debt
repayment and funding of additional investments. EBITDA as defined 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 as defined
may not be comparable to similarly titled measures reported by other companies.
The Company's consolidated EBITDA as defined decreased $16.5 million (30.3%) in
the first quarter of 1999 as compared to the 1998 comparable quarter. This
decrease is a result of the factors noted in the preceding paragraphs, excluding
the increase in depreciation and other amortization.
CONSOLIDATED OPERATING INCOME for the first quarter of 1999 decreased $25.7
million compared to the 1998 comparable quarter as a result of the factors noted
above.
CONSOLIDATED INTEREST EXPENSE, NET, totaled $29.3 million during the first
quarter of 1999, remaining flat compared to the first quarter of 1998. Excluding
the impact of $3.5 million of interest expense allocated to discontinued
operations for the
11
<PAGE>
prior year quarter, interest expense, net, decreased $3.4 million. This decrease
in interest expense, net, resulted from a $2.0 million increase in interest
income over the prior year quarter from interest earned on the remaining cash
proceeds from the sale of FEI and Quincy's and from the lower debt balances in
the current year quarter.
REORGANIZATION ITEMS recorded in the one week ended January 7, 1998 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 2 to
the consolidated financial statements included herein.
The PROVISION FOR (BENEFIT FROM) INCOME TAXES from continuing operations for the
quarter ended March 31,1999 has been computed based on management's estimate of
the annual effective income tax rate applied to loss before taxes. The Company
recorded an income tax benefit reflecting an effective income tax rate of
approximately 0.5% for the quarter ended March 31, 1999 compared to an income
tax provision of approximately 1.5% for the twelve weeks ended April 1, 1998.
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.
The EXTRAORDINARY ITEM recorded in the one week ended January 7, 1998 relates to
the implementation of the Plan which resulted in the exchange of the Company's
Senior Subordinated Debentures and 10% Convertible Debentures previously
outstanding for 40 million shares of common stock of Advantica and warrants to
purchase an additional 4 million shares of Advantica 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 twelve weeks ended April 1, 1998 and the one week
ended January 7, 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 twelve weeks ended April 1, 1998 and the one week ended January 7, 1998 were
$162.4 million and $6.6 million and $12.7 million and $0.1 million,
respectively.
NET LOSS was $61.7 million for the quarter ended March 31, 1999 compared to net
income of $1.4 billion for the quarter ended April 1, 1998, primarily as a
result of the adoption of fresh start reporting and the extraordinary gain
recorded in the prior year quarter.
12
<PAGE>
Restaurant Operations:
The table below summarizes restaurant unit activity for the quarter ended March
31, 1999.
<TABLE>
<CAPTION>
Ending Units Units Net Ending Ending
Units Opened/ Sold/ Units Units Units
12/30/98 Acquired Closed Refranchised 3/31/99 4/1/98
-------- -------- ------ ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Denny's
Company-owned units 878 26 (4) (6) 894 877
Franchised units 825 16 (7) 6 840 763
Licensed units 18 -- -- -- 18 18
------ ------ ------ ------ ------ ------
1,721 42 (11) -- 1,752 1,658
Coco's
Company-owned units 150 -- -- -- 150 176
Franchised units 31 2 -- -- 33 18
Licensed units 300 -- (2) -- 298 295
------ ------ ------ ------ ------ ------
481 2 (2) -- 481 489
Carrows
Company-owned units 123 -- (1) -- 122 139
Franchised units 26 -- -- -- 26 16
------ ------ ------ ------ ------ ------
149 -- (1) -- 148 155
El Pollo Loco
Company-owned units 100 1 -- 1 102 99
Franchised units 161 2 (1) (1) 161 148
Licensed units 4 -- -- -- 4 4
------ ------ ------ ------ ------ ------
265 3 (1) -- 267 251
------ ------ ------ ------ ------ ------
2,616 50 (18) -- 2,648 2,553
====== ====== ====== ====== ====== ======
</TABLE>
13
<PAGE>
DENNY'S
<TABLE>
<CAPTION>
Quarter Ended %
March 31, 1999 April 1, 1998 Increase/(Decrease)
-------------- ------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit data)
U.S. systemwide sales $ 491.2 $ 456.0 7.7
========= ===========
Net company sales $ 275.3 $ 265.7 3.6
Franchise and licensing revenue 13.2 11.7 12.8
--------- -----------
Total revenue 288.5 277.4 4.0
--------- -----------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 20.2 18.2 11.0
Other 275.1 249.6 10.2
--------- -----------
Total operating expenses 295.3 267.8 10.3
--------- -----------
Operating (loss) income $ (6.8) $ 9.6 NM
========= ===========
EBITDA as defined $ 35.6 $ 44.3 (19.6)
Average unit sales:
Company-owned 313,800 302,900 3.6
Franchise 264,241 253,500 4.2
Same-store sales increase/(decrease) (Company-owned) 3.6% (2.9%)
NM = Not Meaningful
</TABLE>
Denny's NET COMPANY SALES for the first quarter of 1999 increased $9.6 million
(3.6%) compared to the prior year quarter. The increase reflects an increase in
same-store sales which was driven primarily by a higher guest check average. The
average guest check increased as a result of the menu mix gains from the
successful promotion of higher-priced menu items. The increase in net company
sales also reflects the additional sales from 26 of the Perkins restaurants
acquired in March 1999. FRANCHISE AND LICENSING REVENUE increased $1.5 million
(12.8%), primarily attributable to a net increase of 77 franchised units over
the prior year quarter.
Denny's OPERATING EXPENSES increased $27.5 million (10.3%) compared to the prior
year quarter. Excluding the impact of a $7.5 million decrease in refranchising
and real estate gains, operating expenses increased $20.0 million. This increase
is primarily the result of increased sales volume, increased food costs and an
increase in depreciation and other amortization. Higher food costs for the
current year quarter resulted from a shift in the menu mix to higher cost items
such as skillet dinners and from increased produce costs. Additionally,
increased labor costs and general administrative expenses resulted from
additional transition costs related to the reopening of the acquired Perkins
restaurants. The increase in depreciation and other amortization relates to the
revaluation of assets and liabilities in accordance with fresh start reporting.
The revaluation was completed subsequent to the first quarter of 1998 and
resulted in increased depreciation and other amortization being recorded in
subsequent quarters.
EBITDA AS DEFINED decreased $8.7 million (19.6%) in the first quarter of 1999
compared to the first quarter of 1998 as a result of the factors noted in the
preceding paragraphs, excluding the increase in depreciation and other
amortization.
Denny's OPERATING INCOME for the 1999 quarter decreased $16.4 million compared
to the prior year quarter as a result of the factors noted above.
14
<PAGE>
COCO'S
<TABLE>
<CAPTION>
Quarter Ended %
March 31, 1999 April 1, 1998 Increase/(Decrease)
-------------- ------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit data)
U.S. systemwide sales $ 63.5 $ 69.9 (9.2)
============ ============
Net company sales $ 53.4 $ 64.3 (17.0)
Franchise and licensing revenue 1.4 1.1 27.3
------------ ------------
Total revenue 54.8 65.4 (16.2)
------------- ------------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 5.3 5.2 1.9
Other 54.0 61.0 (11.5)
------------ -----------
Total operating expenses 59.3 66.2 (10.4)
------------ -----------
Operating loss $ (4.5) $ (0.8) NM
============ ===========
EBITDA as defined $ 5.5 $ 8.2 (32.9)
Average unit sales:
Company-owned 358,000 364,900 (1.9)
Franchised 311,400 327,100 (4.8)
Same-store sales decrease (Company-owned) (7.8%) (0.2%)
NM = Not Meaningful
</TABLE>
Coco's NET COMPANY SALES for the first quarter of 1999 decreased $10.9 million
(17.0%) compared to the prior year quarter. The decrease reflects a 26-unit
decrease in Company-owned restaurants and a decrease in same-store sales. The
decrease in same-store sales resulted primarily from a decline in customer
traffic. FRANCHISE AND LICENSING REVENUE increased $0.3 million (27.3%)
primarily attributable to a net increase of 15 franchised units over the prior
year quarter.
Coco's OPERATING EXPENSES decreased $6.9 million (10.4%) compared to the prior
year quarter, primarily reflecting a 26-unit decrease in Company-owned
restaurants. The decrease in operating expenses related to fewer units is
partially offset by higher food costs resulting from value-priced promotions and
changes in menu mix and by an increase in depreciation and other amortization
relating to the revaluation of assets and liabilities in accordance with fresh
start reporting. The revaluation was completed subsequent to the first quarter
of 1998 and resulted in increased depreciation and other amortization being
recorded in subsequent quarters.
EBITDA AS DEFINED decreased $2.7 million (32.9%) in the first quarter of 1999
compared to the first quarter of 1998 as a result of the factors noted in the
preceding paragraphs, excluding the increase in depreciation and other
amortization.
Coco'S OPERATING INCOME for the 1999 quarter decreased $3.7 million compared to
the prior year quarter as a result of the factors noted above.
15
<PAGE>
CARROWS
<TABLE>
<CAPTION>
Quarter Ended %
March 31, 1999 April 1, 1998 Increase/(Decrease)
-------------- ------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit data)
U.S. systemwide sales $ 46.4 $ 50.2 (7.6)
========== ============
Net company sales $ 39.6 $ 46.0 (13.9)
Franchise and licensing revenue 0.6 0.4 50.0
---------- ------------
Total revenue 40.2 46.4 (13.4)
---------- ------------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 4.5 4.1 9.8
Other 41.1 44.9 (8.5)
---------- ------------
Total operating expenses 45.6 49.0 (6.9)
---------- ------------
Operating loss $ (5.4) $ (2.6) NM
========== ============
EBITDA as defined $ 2.5 $ 4.4 (43.2)
Average unit sales:
Company-owned 327,200 327,900 (0.2)
Franchise 263,400 284,200 (7.3)
Same-store sales decrease (Company-owned) (3.6%) (1.4%)
NM = Not Meaningful
</TABLE>
Carrows' NET COMPANY SALES for the first quarter of 1999 decreased $6.4 million
(13.9%) compared to the prior year quarter. The decrease reflects a 17-unit
decrease in Company-owned restaurants and a decrease in same-store sales. The
decrease in same-store sales is primarily due to a decrease in average guest
check, somewhat offset by increased customer traffic. FRANCHISE AND LICENSING
REVENUE increased $0.2 million, primarily attributable to a net increase of 10
franchised units over the prior year quarter.
Carrows' OPERATING EXPENSES decreased $3.4 million (6.9%) compared to the prior
year quarter, primarily reflecting a 17-unit decrease in Company-owned
restaurants. The decrease in operating expenses related to fewer units is
partially offset by higher food and labor costs as a result of value-priced
promotions implemented during the quarter. The increase in food costs is
balanced by an improvement in underlying operating expenses resulting from
product re-engineering. The decrease in expenses is also offset by an increase
in depreciation and other amortization relating to the revaluation of assets and
liabilities in accordance with fresh start reporting. The revaluation was
completed subsequent to the first quarter of 1998 and resulted in increased
depreciation and other amortization being recorded in subsequent quarters.
EBITDA AS DEFINED decreased $1.9 million (43.2%) in the first quarter of 1999
compared to the first quarter of 1998 as a result of the factors noted in the
preceding paragraphs, excluding the increase in depreciation and other
amortization.
Carrows' OPERATING INCOME for the 1999 quarter decreased $2.8 million compared
to the prior year quarter as a result of the factors noted above.
16
<PAGE>
EL POLLO LOCO
<TABLE>
<CAPTION>
Quarter Ended %
March 31, 1999 April 1, 1998 Increase/(Decrease)
-------------- ------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit data)
U.S. systemwide sales $ 62.8 $ 56.7 10.8
========== ==========
Net company sales $ 29.8 $ 27.6 8.0
Franchise and licensing revenue 2.6 2.5 4.0
---------- ----------
Total revenue 32.4 30.1 7.6
---------- ----------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 2.8 2.8 --
Other 30.4 26.8 13.4
---------- ----------
Total operating expenses 33.2 29.6 12.2
---------- ----------
Operating income $ (0.8) $ 0.5 NM
========== ==========
EBITDA as defined $ 4.2 $ 5.0 (16.0)
Average unit sales:
Company-owned 296,300 281,200 5.4
Franchise 216,900 202,700 7.0
Same-store sales increase/(decrease) (Company-owned) 5.9% (1.6%)
NM = Not Meaningful
</TABLE>
El Pollo Loco's NET COMPANY SALES for the first quarter of 1999 increased $2.2
million (8.0%) compared to the prior year quarter. The increase reflects strong
same-store sales generated by successful promotions which increased both
customer traffic and average guest check. FRANCHISE AND LICENSING REVENUE
increased $0.1 million (4.0%), primarily attributable to a net increase of 13
franchised units over the prior year quarter.
El Pollo Loco's OPERATING EXPENSES increased $3.6 million (12.2%) compared to
the prior year quarter, resulting primarily from increased sales volume,
increased food costs and an increase in depreciation and other amortization. The
increased food costs reflect an increase in the price of chicken over the prior
year quarter, increased costs associated with the current quarter promotions and
a one-time food distribution rebate received during the prior year quarter. The
increase in depreciation and other amortization relates to the revaluation of
assets and liabilities in accordance with fresh start reporting. The revaluation
was completed subsequent to the first quarter of 1998 and resulted in increased
depreciation and other amortization being recorded in subsequent quarters.
EBITDA AS DEFINED decreased $0.8 million (16.0%) in the first quarter of 1999
compared to the first quarter of 1998 as a result of the factors noted in the
preceding paragraphs, excluding the increase in depreciation and other
amortization.
El Pollo Loco's OPERATING INCOME for the 1999 quarter decreased $1.3 million
compared to the prior year quarter as a result of the factors noted above.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On the Effective Date, the Company entered into a credit agreement with Chase
and other lenders named therein providing the Company (excluding FRD) with a
$200 million senior secured revolving credit facility (the "Credit Facility").
At March 31, 1999, 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 Coco's and Carrows, FRI-M, which thereby
became a wholly-owned subsidiary of the Company, entered into the FRI-M Credit
Facility on May 23, 1996, which provides for a $35 million revolving credit
facility that is also available for letters of credit. At March 31, 1999, the
Company had outstanding working capital borrowings and letters of credit of $7.2
million and $13.2 million, respectively.
Because of covenant limitations under the indenture under which the Advantica
11 1/4% Senior Notes due 2008 were issued (the "Senior Notes Indenture") and the
Credit Facility, and under FRI-M Credit Facility and the indenture under which
the FRD 12 1/2% Senior Notes due 2004 were issued, the Company's ability to make
further investments in FRD to upgrade its Coco's and Carrows concepts has been
severely limited. In an effort to address this issue and otherwise improve FRD's
financial flexibility, during the first quarter of 1999, the Company (1)
designated FRD and its subsidiaries as restricted subsidiaries in accordance
with the terms of the Senior Notes Indenture, generally increasing Advantica's
investment flexibility thereunder in its relationship with FRD and its
subsidiaries, (2) obtained certain amendments to the Credit Facility to increase
Advantica's investment flexibility under that facility with respect to the
Coco's and Carrows operations, and (3) obtained written commitments from Chase
and Credit Lyonnais for the New FRI-M Credit Facility. The New FRI-M Credit
Facility, which closed on May 14, 1999, is guaranteed by Advantica and consists
of a $30 million term loan and a $40 million revolving credit facility and
matures in May 2003 (see Note 5 to the consolidated financial statements). The
New FRI-M Credit Facility, which refinanced the existing FRI-M Credit Facility,
is available to fund Coco's and Carrows' capital expenditures and for general
corporate purposes. Such facility is unavailable to Advantica and its other
subsidiaries.
In March 1999, the Company repurchased $20 million aggregate principal amount of
its Senior Notes, as also permitted by the Credit Facility amendment referenced
above, for approximately $20.8 million, including approximately $469,000 of
accrued interest. The repurchase of the notes resulted in an immaterial gain.
As of March 31, 1999 and December 30, 1998, the Company had working capital
deficits of $147.2 million and $96.1 million, respectively. The increase in
the deficit is attributable primarily to debt-related interest payments, the
repurchase of Senior Notes for approximately $20.8 million and the acquisition
of certain Perkins restaurants by Denny's for approximately $10.9 million cash
and the assumption of capital leases and other liabilities (see Note 4 to the
consolidated financial statements). The Company is able to operate with a
substantial working capital deficit because: (1) restaurant operations are
conducted primarily on a cash (and cash equivalent) basis with a low level of
accounts receivable, (2) rapid turnover allows a limited investment in
inventories and (3) 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
18
<PAGE>
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 $20
million in 1999 to address its information systems issues. Relative to this
amount, the Company estimates that approximately $16 million will be used to
develop or purchase new software and will be capitalized. The remaining amounts
will be expensed as incurred. Total Year 2000 expenditures through March 31,
1999 are approximately $3.5 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. Financial
systems that are critical to the Company's operations are targeted to be Year
2000 compliant by the end of June 1999. Restaurant systems are targeted to be
compliant by August 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
dedicated team in place to assess 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 phone interviews are being 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 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's operations.
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 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. As the Year 2000 project progresses, the Company will
establish contingency plans addressing business critical processes for
operations and other critical corporate functions. However, the costs of the
project and the ability of the Company to complete the Year 2000 transition 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.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following are included as exhibits to this report:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 By-Laws of Advantica as amended through March 19, 1999.
10.1 Employment Agreement between Advantica and James B. Adamson, amended
and restated as of January 7, 1998.
10.2 Form of Agreement and Subsidiary Guarantee dated December 3, 1997
providing certain retention incentives and severance benefits for
Company management.
10.3 Amendment No. 5, dated March 12, 1999, as amended and restated as of
April 12, 1999, to the Credit Agreement, dated January 7, 1998, among
Advantica's principal operating subsidiaries (other than FRD and its
subsidiaries) as borrowers, Advantica as guarantor, The Chase Manhattan
Bank and other lenders named therein.
10.4 Merger Amendment, dated March 15, 1999, to the Advantica Restaurant
Group Stock Option Plan and the Advantica Restaurant Group Officer
Stock Option Plan.
10.5 Advantica Stock Option Plan as amended through March 15, 1999.
27 Financial Data Schedule.
- --------------------------
b. No reports on Form 8-K were filed during the first quarter ended
March 31, 1999.
20
<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: May 14, 1999 By: /s/ Rhonda J. Parish
---------------------------------
Rhonda J. Parish
Executive Vice President,
General Counsel and Secretary
Date: May 14, 1999 By: /s/ Ronald B. Hutchison
---------------------------------
Ronald B. Hutchison
Executive Vice President and
Chief Financial Officer
21
<PAGE>
<PAGE>
BY-LAWS
OF
ADVANTICA RESTAURANT GROUP, INC.(1)
(the "Corporation")
A Delaware Corporation
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington.
SECTION 2. OTHER OFFICES. The Corporation may have other offices,
either within or without the state of Delaware, at such place or places as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting shall be held at such place, either within or without the state
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. If the date of
the annual meeting shall fall upon a legal holiday, the meeting shall be held on
the next business day.
At each annual meeting, the stockholders entitled to vote
shall elect a Board of Directors and they may transact such other corporate
business as shall be stated in the notice of the meeting. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
(1) As of March 19, 1999
<PAGE>
Corporation, not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section. The Chairman of the
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section, and if he should so determine, he shall so declare
to the meeting, and any such business not properly brought before the meeting
shall not be transacted.
SECTION 2. OTHER MEETINGS. Special meetings of stockholders for any
purpose or purposes may be held at such time and place, within or without the
state of Delaware, as may be fixed by the Board of Directors and shall be stated
in the notice of meeting.
SECTION 3. INSPECTOR OF ELECTION. At each meeting of stockholders at
which an election of directors is to be held, the chairman of the meeting may,
but shall not be required to, appoint one person, who need not be a stockholder,
to act as inspector of election at such meeting. The inspector so appointed,
before entering on the discharge of his duties, shall take and subscribe to an
oath or affirmation to faithfully execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability, and
thereupon the inspector shall take charge of the polls and after the balloting
shall canvas the votes and make a certificate of the results of the vote taken.
No director or candidate for the office of director shall be appointed
inspector.
SECTION 4. VOTING. At each meeting of the stockholders, each
stockholder entitled to vote at such meeting in accordance with the terms of the
Certificate of Incorporation and in accordance with the provisions of these
By-laws shall be entitled to one vote, in person or by proxy, for each share of
stock entitled to vote held by such stockholder, but no proxy shall be voted
after three years from its date unless such proxy provides for a longer period.
A stockholder may authorize another person to act for such stockholder as proxy
by either written authorization, or by the transmission of telegram, cablegram
or other means of electronic transmission or by other means permitted under the
Delaware General Corporation Law as in effect from time to time provided such
transmission is set forth or submitted in a way that it may be determined that
such transmission was authorized by the stockholder. Upon the demand of any
stockholder, the vote for directors and the vote upon any question before the
meeting, shall be by ballot. All elections for directors and all other
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questions shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the state of Delaware.
A complete list of the stockholders entitled to vote
at the ensuing election, arranged in alphabetical order, with the address of
each, and the number of shares held by each, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, the place where
the meeting is to be held. The list shall also be produced and kept at the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 5. QUORUM. At all meetings of the stockholders, except as
otherwise required by law, by the Certificate of Incorporation or by these
By-laws, the presence, in person or by proxy, of stockholders of record holding
a majority of the shares of stock of the Corporation issued, outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of
business. In case a quorum shall not be present at any meeting, the holders of
record of a majority of the shares of stock entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the requisite
amount of stock entitled to vote shall be present. At any such adjourned meeting
at which the requisite amount of stock entitled to vote shall be represented,
any business may be transacted which might have been transacted at the meeting
as originally called; but only those stockholders entitled to vote at the
meeting as originally called shall be entitled to vote at any adjournment or
adjournments thereof.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman of the Board of Directors,
the President or the Secretary, or by resolution of the Board of Directors.
SECTION 7. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the Corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Such written consent shall be filed in the minute
book of the Corporation.
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ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors of the Corporation
shall be not less than one nor more than fifteen. Within the limits above
specified, the number of directors shall be determined from time to time by the
stockholders or by the Board of Directors at any meeting thereof. The directors
shall be elected at the annual meeting of the stockholders. Each director shall
be elected to serve until his successor shall be elected and shall qualify or
until his earlier death, resignation or removal as provided in these By-laws.
Directors need not be stockholders. No person who has attained the age of 70
shall be eligible to stand for election or re-election by the stockholders or
otherwise to be appointed to serve as a director of the Corporation unless
pursuant to a special finding of the Board of Directors of the necessity for
such an individual to serve as a director.
SECTION 2. RESIGNATION. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing to
the Board of Directors, the Chairman of the Board of Directors, the President
or the Secretary. Unless otherwise specified therein, such resignation shall
take effect on receipt thereof. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum, by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen or until his earlier death, resignation or
removal. In the event that the resignation of any director shall specify that it
shall take effect at a future date, the vacancy resulting from such resignation
may be filled prospectively in the same manner as provided in this paragraph.
SECTION 4. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose, and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Any director may be removed at any time for cause by the
action of the directors, at a special meeting called for that purpose, by the
vote in favor of removal of a majority of the total number of directors.
SECTION 5. INCREASE OF NUMBER. The maximum number of directors may be
increased by amendment of these By-laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next
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annual election and until their successors are elected and qualify or until
their earlier death, resignation or removal.
SECTION 6. POWERS. The Board of Directors shall exercise all of the
powers of the Corporation except such as are by law, by the Certificate of
Incorporation of the Corporation or by these By-laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the resolution, these
By-laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 8. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without
notice at such places and times as shall be determined from time to time by
resolution of the directors.
Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the President or the Secretary upon the
request of any director on at least one day's advance notice to each director
and shall be held at such place or places as may be determined by the directors,
or shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of
Incorporation or by these By-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by
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means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
SECTION 9. QUORUM. A majority of the total number of directors shall
constitute a quorum for the transaction of business. If a quorum shall be
present, the act of a majority of the directors present shall be the act of the
Board of Directors, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. If at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the Board of Directors, or of such committee
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
SECTION 12. RULES AND REGULATIONS. The Board of Directors may adopt
such rules and regulations for the conduct of its meetings and for the manage-
ment of the property, affairs and business of the Corporation as it may deem
proper, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board of Directors, if any shall have been elected, a President,
a Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified or until their earlier death, resignation or removal. In addition, the
Board of Directors may elect one or more Vice Presidents and such Assistant
Secretaries and Assistant Treasurers as they may deem proper. None of the
officers of the Corporation need be directors (except for the Chairman of the
Board of Directors, if any) or stockholders. The officers shall be elected
annually by the Board of Directors. Any person may hold one or more offices. The
compensation of all officers of the Corporation shall be fixed by the Board of
Directors.
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SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors. The
Board of Directors may delegate to any officer or officers the power to appoint
any such officer, to fix their respective terms of office, to prescribe their
respective powers and duties, to remove them and to fill vacancies in any such
offices.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders, and absent instructions to the contrary by the Board of Directors,
shall exercise general supervision over the property, affairs and business of
the Corporation, shall authorize the other officers of the Corporation to
exercise such powers as he may deem to be in the best interests of the
Corporation and shall have and perform such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall have such duties as may from
time to time be delegated to him by the Board of Directors. In the event there
shall be no Chairman, the President shall exercise all powers conferred on the
Chairman by Section 3 of this Article. In the event a Chairman is elected, the
President shall be the Chief Executive Officer of the Corporation and, in the
absence or disability of the Chairman, shall have the powers of the Chairman.
SECTION 5. VICE PRESIDENTS. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the directors. The
Board of Directors may further designate the area or areas of responsibility
assigned to a Vice President by appropriate words, such as Senior Vice President
or Group Vice President added to the title of the office or offices held by such
Vice President.
SECTION 6. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation in
such manner as may be ordered by the Board of Directors, the Chairman or the
President, taking proper vouchers for such disbursements. He shall render to
the Chairman, the President and the Board of Directors at the regular meetings
of the Board of Directors, or whenever they may request it, an account of all
his transactions as Treasurer and of the financial condition of the Corporation.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-laws, and in case of his absence or refusal or
neglect so to do, any such notice may be
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given by any person thereunto directed by the Chairman, the President, or the
directors, or stockholders, upon whose requisition the meeting is called as
provided in these By-laws. He shall record all the proceedings of the meetings
of the Corporation and of the directors, in a book to be kept for that purpose,
and shall perform such other duties as may be assigned to him by the directors,
the Chairman or the President. He shall have the custody of the seal of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
SECTION 9. RESIGNATION. Any officer may resign at any time, unless
otherwise provided in any contract with the Corporation, by giving written
notice to the Chairman, if any, or the President or the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
SECTION 10. REMOVAL. Any officer may be removed at any time by an
affirmative vote of a majority of the Board of Directors, with or without cause.
Any officer not elected by the Board of Directors may be removed in such manner
as may be determined by, or pursuant to delegation from the Board of Directors.
SECTION 11. VACANCIES. If a vacancy shall occur in any office, such
vacancy may be filled for the unexpired portion of the term by the Board of
Directors.
SECTION 12. SURETY BONDS. In the event the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned on the faithful performance of the officer's
duties to the Corporation.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate or certificates of
stock, signed by the Chairman of the Board of Directors, if one be elected, the
President or a Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, and sealed with the seal of the
Corporation, shall be issued to each stockholder certifying the number of shares
owned by him in the Corporation. Any of or all of the signatures may be
facsimiles. The certificate or certificates of stock shall be in such form as
the Board of Directors may from time to time adopt and shall be countersigned
and registered in such manner, if any, as the Board of Directors may prescribe.
In case any officer who shall have signed, or whose facsimile signature shall
have been used on any such certificate, shall cease to be such officer of the
Corporation before such certificate shall have been issued by the
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Corporation, such certificate may nevertheless be adopted by the Corporation
and be issued and delivered as though the person who signed such certificate,
or whose facsimile signature shall have been used thereon, had not ceased to be
such officer; and such issuance and delivery shall constitute adoption of such
certificate by the Corporation.
There shall be entered on the books of the Corporation the
number of each certificate issued, the number (and class or series, if any) of
shares represented thereby, the name and address of the person to whom such
certificate was issued and the date of issuance thereof.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate of
stock may be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, and the directors
may, in their discretion, require the owner of the lost, stolen or destroyed
certificate, or his legal representatives, to give the Corporation a bond, in
such sum as they may direct, not exceeding double the value of the stock, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate and to provide such evidence of loss, theft or destruction as
the Board of Directors may require.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only upon its books by the holders of record thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered, along with such
evidence of the authenticity of such transfer, authorization and other matters
as the Corporation or its agents may reasonably require, to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books, or
to such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. REGULATIONS, TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issuance and transfer of certificates for shares of the stock of
the Corporation, may appoint transfer agents or registrars, or both, and may
require all certificates of stock to bear the signature of either or both.
Nothing herein shall be construed to prohibit the Corporation from acting as its
own transfer agent at any of its offices.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination
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of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. SHAREHOLDERS RECORD OWNERSHIP. The Corporation shall be
entitled to recognize the exclusive right of a person registered as such on the
books of the Corporation as the owner of shares of the Corporation's stock to
receive dividends and to vote as such owner. The Corporation shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, regardless of whether the Corporation shall have
express or other notice thereof, except as otherwise provided by law.
SECTION 7. DIVIDENDS AND RESERVES. Subject to the applicable provisions
of law or of the Certificate of Incorporation, the Board of Directors may, out
of funds legally available therefor, at any regular or special meeting, declare
dividends upon the capital stock of the Corporation as and when they deem
expedient. Before declaring any dividend there may be set apart out of any funds
of the Corporation available for dividends, such sum or sums as the directors
from time to time in their discretion deem proper for working capital, or as a
reserve fund to meet contingencies, or for equalizing dividends, or for the
purpose of repairing, maintaining or increasing the property or business of the
Corporation or for such other purposes as the directors shall deem conducive to
the interests of the Corporation. The Board of Directors may, in its discretion,
modify or abolish any such reserve at any time.
SECTION 8. SEAL. The corporate seal shall be circular in form and
shall contain the name of the Corporation, the year of its creation and the
words "CORPORATE SEAL, DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced, engraved, printed or
otherwise represented.
SECTION 9. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 10. EXECUTION OF INSTRUMENTS. All agreements, deeds, contracts,
proxies, covenants, bonds, checks, drafts or other orders for the payment of
money, bills of exchange, notes, acceptances and endorsements, and all evidences
of indebtedness and other documents, instruments or writings of any nature
whatsoever, issued in the name of the Corporation, shall be signed by such
officers, agents or employees of the Corporation, or by any one of them, and in
such manner, as from time to time may be determined, either generally or in
specific instances, by the Board of Directors or by such officer or officers to
whom the Board of Directors may delegate the power to so determine.
SECTION 11. STOCK OF OTHER CORPORATIONS. Subject to such limitations as
the Board of Directors may from time to time prescribe, any officer of the
Corporation shall have full power and authority on behalf of the Corporation to
attend, to act and vote at, and to waive notice of, any meeting of stockholders
of any corporations, shares of stock of which are owned by or stand in the name
of the Corporation, and to execute and deliver proxies and actions in writing
for the voting of any such shares, and at any such
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meeting or by action in writing may exercise on behalf of the Corporation any
and all rights and powers incident to the ownership of such shares.
SECTION 12. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these By-laws to be given, personal notice is not meant unless
expressly so stated, and any notice requirement shall be deemed satisfied when
given either by personal notice, by depositing the same in the United States
mail, postage prepaid, addressed to the person entitled thereto at his address
as it appears on the records of the Corporation (such notice shall be deemed to
have been given on the day of such mailing) or by telecopier transmission.
Stockholders not entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under
the provisions of any law, or under the provisions of the Certificate of
Incorporation of the Corporation or these By-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, whether of
stockholders (in person or by proxy) or of directors or of any committee of the
Board of Directors, shall constitute a waiver of notice of such meeting, except
when such person attends such meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting is not legally called or convened.
SECTION 13. BOOKS, ACCOUNTS AND OTHER RECORDS. Except as otherwise
provided by law, the books, accounts and other records of the Corporation shall
be kept at such place or places (within or without the state of Delaware) as the
Board of Directors, the Chairman or the President may from time to time
designate.
SECTION 14. INDEMNIFICATION. The Corporation shall, to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law, as the
same exists or may hereafter be amended, indemnify all persons whom it may
indemnify pursuant thereto.
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ARTICLE VI
AMENDMENTS
These By-laws may be altered, amended or repealed and By-laws may be
made at any annual meeting of the stockholders or at any special meeting thereof
if notice of the proposed alteration or repeal or By-law or By-laws to be made
be contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-law or By-laws
to be made, be contained in the notice of such special meeting; provided,
however, that no By-law provision validly adopted or amended by action of the
stockholders may be repealed or amended by the Board of Directors, and no By-law
provision repealed by action of the stockholders may be added subsequent to the
date of such repeal by the Board of Directors, such actions with respect to such
By-law provisions being reserved to the stockholders.
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EMPLOYMENT AGREEMENT
Between Advantica Restaurant Group, Inc. and James B. Adamson
AS AMENDED AND RESTATED AS OF January 7, 1998
This Employment Agreement ("Agreement") is amended and restated as of
January 7, 1998 (the "Effective Date") between Advantica Restaurant Group, Inc.,
a Delaware corporation (the "Company") and James B. Adamson (the "Executive")
residing at 2110 Cleveland Street Extension, Greenville, SC 29607.
WITNESSETH:
WHEREAS, Flagstar Corporation, a Delaware corporation ("Flagstar") and
the Executive originally entered into this Agreement January 10, 1995 providing
for the Executive's employment as President and Chief Executive Officer of
Flagstar, as well as for the Executive's service as a Director of Flagstar on
the terms, and subject to the conditions set forth therein;
WHEREAS, Flagstar and the Executive have amended the Agreement as of
February 27, 1995 and December 31, 1996;
WHEREAS, the Company (formerly known as Flagstar Companies, Inc.
("FCI")) is the successor to Flagstar as a result of the merger of Flagstar into
FCI pursuant to the reorganization of FCI and Flagstar under Title 11 of Chapter
11 of the U.S. Code (the "Bankruptcy Code") which was effective as of January 7,
1998 (the "Effective Time"); and
WHEREAS, the Company and the Executive desire to further amend this
Agreement and restate it to incorporate all prior amendments;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the parties agree as follows:
1. Employment
The Executive's employment under the terms of this Agreement shall
commence on the Effective Date and shall continue until terminated pursuant to
section 5. (Such period of employment under this Agreement is hereinafter
referred to as the "Employment Term.") The Executive shall provide services to
the Company hereunder as President and Chief Executive Officer of the Company.
During the Employment Term, the Executive, if elected or appointed thereto,
shall also serve as a Director of the Company and as Chairman of the Board of
Directors of the Company (the "Board"). During the Employment Term and for so
long as the Executive is an active employee of the Company in good standing, the
Board shall nominate the Executive for election as a Director of the Company
whenever his term as a Director of the Company expires. The Executive will serve
the Company subject to the general supervision, advice and direction of the
members of the Board other than the Executive (the "Disinterested Directors")
and upon the terms and conditions set forth in this Agreement.
2. Duties
(a) During the Employment Term, and while serving as President and
Chief Executive Officer of the Company the Executive shall have such authority
and duties as are customary in such positions, and shall perform such other
services and duties as the Disinterested Directors may from time to time
designate consistent with such positions. During the Employment Term, the
Executive agrees to live in the environs of the Company's headquarters.
(b) The Executive shall report solely to the Board. All senior officers
of the Company shall report, directly or indirectly through other senior
officers, to the Executive, and the Executive shall be responsible for reviewing
the performance of the other senior officers of the Company, and shall from time
to time present to the Board his recommendations for any
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adjustments to the salaries of and bonus payments to such officers. The
Executive shall be responsible for, and, subject to discussion with and
ratification by the Board, have the authority to enter into, employment
contracts on behalf of the Company with other executives of the Company.
(c) The Executive shall devote his full business time and best efforts
to the business affairs of the Company; however, the Executive may devote
reasonable time and attention to:
(i) serving as a director or member of a committee of any
not-for-profit organization or engaging in other charitable or
community activities;
(ii) serving as a director or as a board committee member of
Kmart Corporation and Oxford Health Plans, Inc. (corporations that
the Executive presently serves) or such other corporations and
organizations that the Board approves; and
(iii) serving as an employee, officer, trustee, agent or
representative of another business or service, but only with the
advance approval of the Board.
3. Compensation and Benefits
(a) Base Compensation. For the calendar year ending December 31, 1998,
the Company shall pay the Executive a base salary (the "Base Salary"), as
compensation for his employment under this Agreement, in the amount of
$1,100,000. For each calendar year thereafter within the Employment Term, the
Base Salary shall be as determined by the Board but shall not be less than
$1,100,000, unless the Company implements a broad scale salary reduction
initiative. During the Employment Term such Base Salary shall be paid in equal
installments and at least once in each calendar month.
(b) Annual Bonus. For each calendar year ending during the Employment
Term, the Executive's bonus compensation ("Annual Bonus") shall be at an annual
rate equal to a
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percentage between 0% and 200% of his Base Salary in effect on December 31 of
such calendar year, with a target of 75% of Base Salary (the "Targeted Bonus")
if the Company and the Executive achieve budgeted financial and other
performance targets which shall be established by the Compensation and
Incentives Committee of the Board (the "Compensation Committee") and
communicated to the Executive. The Executive's Annual Bonus earned with respect
to each year shall be paid at the same time as annual incentive bonuses with
respect to that year are paid to other senior executives of the Company
generally.
(c) Stock Options. On January 28, 1998, (the "Grant Date"), the Company
shall grant to the Executive an option (the "Option") to purchase 500,000 shares
of common stock of the Company, $.01 par value per share (the "Stock"). The
Option shall be granted subject to the following terms: (i) the exercise price
with respect to shares under the Option shall be $10.00 per share, the fair
market value of the Stock which for purposes of this Agreement was calculated by
taking the closing price of the Stock on the day immediately preceding the Grant
Date; (ii) the Option shall be exercisable as follows: 30% of the Option shall
be immediately exercisable upon shareholder approval of the underlying Company
stock option plan, an additional 20% shall be exercisable on each of the first
and second anniversaries of the Grant Date, and an additional 15% shall be
exercisable on each of the third and fourth anniversaries of the Grant Date, and
(iii) the Option shall be exercisable for a period of ten years. The Executive
shall immediately become 100% vested in, and eligible to exercise, the Option,
and others that may be granted to him in the future, in the event of (a) his
termination without Cause (as defined in section 5(c)(ii)) under Section
5(a)(iii), (b) a dissolution or liquidation of the Company, (c) a sale of all or
substantially all of the Company's assets, (d) a merger or consolidation
involving the Company in which the Company is not the surviving corporation, (e)
a merger or consolidation involving the
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Company in which the Company is the surviving corporation but the holders of
shares of common stock receive securities of another corporation and/or other
property, including cash, or (f) a tender offer for at least a majority of the
outstanding stock of the Company. If immediate vesting occurs because of a
termination without Cause, the Option shall be exercisable for 60 days following
the effective date of such termination; in all other events the option will
remain exercisable under the terms of the grant.
(d) Stock Grant. (i) Grant of Stock. As soon as is administratively
feasible following the Grant Date, the Company shall issue to the Executive a
number of whole shares of Stock with an aggregate value (based upon a fair
market value of $10.00 per share of the Stock on the Grant Date as described in
Section 3(c)(i)) most nearly equal to $2,000,000 (the "Stock Value"). The
difference, if any, between the Stock Value and $2,000,000, positive or negative
(the "Adjustment Amount"), shall be an adjustment to the Balance Payment
described in section 3(d)(ii), below. The Stock shall be fully vested and
non-forfeitable on the Grant Date.
(ii) Tax Payment. On the Grant Date, the Company shall award
Executive with a payment equal to $1,750,000 which payment is intended to assist
Executive in the payment of federal, state and local income taxes associated
with the receipt of the Stock. A portion of the payment shall be treated as an
amount withheld from wages and remitted to the proper taxing authorities as
follows: $1,050,000 shall be deposited with respect to federal income taxes,
$54,375 shall be deposited with respect to federal medicare taxes, and $262,500
shall be deposited with respect to South Carolina income taxes. The balance of
the tax payment (the "Balance Payment") of $383,125 (as adjusted if necessary by
the Adjustment Amount) shall be paid to Executive within five days after the
Grant Date.
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(e) Vacation. During each calendar year of the Employment Term, the
Executive shall be entitled to no fewer than four weeks of paid vacation,
unless, based on his length of service with the Company and his position with
the Company, the Executive is entitled to a greater number of weeks paid
vacation under the Company's generally applicable vacation policy.
(f) Benefits. During the Employment Term, the Executive shall be
entitled to participate in all pension, profit sharing and other retirement
plans, all incentive compensation plans and all group health, hospitalization
and disability insurance plans and other employee welfare benefit plans in which
other senior executives of the Company may participate on terms and conditions
no less favorable than those which apply to such other senior executives of the
Company.
(g) Insurance Policy. Notwithstanding the provisions of section 3(f),
during the Employment Term the Company shall maintain in effect term life
insurance coverage for the Executive with death benefits of at least $3,250,000
in the aggregate, subject to the Executive's insurability and with the
beneficiary or beneficiaries thereof designated by the Executive.
Notwithstanding section 8 of this Agreement, such life insurance policy or
policies may be assigned to a trust for the benefit of any beneficiary
designated by the Executive.
4. Reimbursement of Expenses
(a) Expenses Incurred in Performance of Employment. In addition to the
compensation provided for under section 3 hereof, upon submission of proper
vouchers, the Company will pay or reimburse the Executive for all normal and
reasonable expenses incurred by the Executive during the Employment Term in
connection with the Executive's responsibilities to the Company, including the
Executive's first class travel expenses and, for a reasonable number of trips
chosen by the Executive each calendar year, first class travel expenses (or
travel on board
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the Company's aircraft) for the Executive's spouse to accompany him on such
business travel. Any income required to be imputed to Executive by reason of his
spouse's travel with him under this provision shall be grossed up for taxes.
(b) Legal Fees and Expenses in Relation Hereto. The Company agrees to
reimburse the Executive for the reasonable legal fees and expenses incurred in
relation to this Agreement and its subject matter.
(c) Personal Tax and Financial Planning Expenses. The Company agrees
to reimburse the Executive for reasonable legal, accounting and financial
advisor fees and expenses incurred by the Executive for personal tax, financial
and estate planning services in an amount not to exceed $15,000 for each
calendar year, such amount to be grossed up for taxes if the reimbursement is
included in Executive's income.
5. Termination
(a) Events of Termination. The Employment Term shall terminate upon
the first to occur of the following events:
(i) the death of the Executive;
(ii) the close of business on the 180th day following the
date on which the Company gives the Executive written notice of the
termination of his employment as a result of his "Permanent
Disability" (as defined in subsection (c));
(iii) the close of business on the date on which the Company
gives the Executive written notice of the Company's termination of
his employment as a "Termination without Cause" (as defined in
subsection (c)) or the close of business on the effective date of a
termination of the Executive's employment with the Company pursuant
to subsection (c)(iii);
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(iv) the close of business on the date on which the Company
gives the Executive written notice of the Company's termination of
his employment for "Cause" (as defined in subsection (c)); and
(v) the close of business on the effective date of a
"Voluntary Termination" (as defined in subsection (c)) by the
Executive of his employment with the Company.
(b) Termination Benefits. Upon the termination of the Executive's
employment with the Company for any reason set forth in subsection (a), the
Company shall provide the Executive (or, in the case of his death, his estate or
other legal representative) benefits due him under the Company's benefits plans
and policies for his services rendered to the Company prior to the date of such
termination (according to the terms of such plans and policies), and the Company
shall pay the Executive not later than 90 days after such termination, in a lump
sum, all Base Salary earned through the date of such termination. The Executive
shall be entitled to the payments and benefits described below only as each is
applicable to such termination of employment.
(i) In the event of a termination as a result of the
Executive's death, and in addition to any other death benefits
payable under the Company's benefit plans or policies, (A) for so
long as the Executive's surviving spouse is receiving any Base
Salary payment under clause (B) below, the Executive's eligible
family dependents (collectively, "Family") shall be entitled to
receive and participate in the disability, health, medical and
other welfare benefit plans which the Executive and/or his Family
would otherwise have been entitled to hereunder if the Executive
had not terminated employment (the "Welfare Benefits") in addition
to any continuation coverage which the Executive's Family is
entitled to elect under Section 4980B of the Code; and (B) for a
period of one year following the date of the Executive's death, the
Executive's surviving spouse shall be paid
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(x) the Base Salary in effect at the date of the Executive's death,
payable in monthly installments, and (y) the Annual Bonus that
would have been paid under section 3(b) to the Executive during
such period, payable as and when annual incentive bonuses with
respect to such period are paid by the Company to other senior
executives of the Company generally.
(ii) In the event of a termination as a result of the
Executive's Permanent Disability, for a period of two years after
the date of such termination of the Executive's employment, (A) the
Executive and/or his Family shall be entitled to receive and
participate in the Welfare Benefits in addition to any continuation
coverage which the Executive and/or his Family is entitled to elect
under Section 4980B of the Code; and (B) the Executive shall be
paid (x) one-half of the Base Salary in effect at such date of
termination, payable in monthly installments, and (y) one-half of
the Annual Bonus that would be payable under section 3(b) for such
period, payable as and when annual incentive bonuses with respect
to such period are paid by the Company to other senior executives
of the Company generally.
(iii) In the event of a "Termination without Cause" under
subsection (a)(iii), (A) the Executive and/or his Family shall be
entitled until the earlier of (x) the second anniversary of the
date of such termination of employment or (y) the commencement of
coverage of the Executive and/or his Family by another group
medical benefits plan providing substantially comparable benefits
to the Welfare Benefits and which does not contain any pre-existing
condition exclusions or limitations, to receive and participate in
the Welfare Benefits in addition to any continuation coverage which
the Executive and/or his Family is entitled to elect under Section
4980B of the Code; (B) not later than
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90 days after such termination, the Company shall pay to the
Executive in a lump sum an amount equal to two hundred percent
(200%) of the Executive's Base Salary plus two hundred percent
(200%) of his Target Bonus; and (C) the Option shall be one hundred
percent (100%) vested and exercisable as of the date of such
termination for a period of sixty (60) days following the effective
date of such termination.
(iv) In the event of a termination for Cause under
subsection (a)(iv) and in the event of a Voluntary Termination
under subsection (a)(v), the Executive shall not be entitled to any
benefits or payments from the Company except as provided in the
first sentence of subsection (b) above.
(c) For purposes of this Agreement:
(i) "Permanent Disability" shall mean the Executive's
inability to perform the material duties contemplated by this
Agreement by reason of a physical or mental disability or infirmity
which has continued for more than 180 consecutive days. The
Executive agrees to submit such medical evidence regarding such
disability or infirmity as is reasonably requested by the Company,
including, but not limited to, an examination by a physician
selected by the Company in its sole discretion.
(ii) "Cause" shall mean (A) the Executive's habitual neglect
of his material duties, (B) an act or acts by the Executive, or any
omission by him, constituting a felony, and the Executive has
entered a guilty plea or confession to, or has been convicted of,
such felony, (C) the Executive's failure to follow any lawful
directive of the Board consistent with the Executive's position and
duties, (D) an act or acts of fraud or dishonesty by the Executive
which results or is intended to result in financial or economic
harm to the Company, or (E) breach of a material provision of this
Agreement by the
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Executive; provided, that the Company shall provide the Executive
(x) written notice specifying the nature of the alleged Cause, and,
with respect to clauses (A), (C) and (E), (y) a reasonable
opportunity to appear before the Board to discuss the matter, and
(z) a reasonable opportunity to cure any such alleged Cause.
(iii) (A) "Voluntary Termination" shall mean any voluntary
termination by the Executive of his employment with the Company
provided that the Executive shall give the Company at least 120
days' prior written notice of the effective date of such
termination. (B) For purposes of this Agreement, the Executive
shall not be deemed to have incurred a "Voluntary Termination" if
upon 10 days' prior written notice from the Executive, the
Executive notifies the Company that his termination of employment
with the Company is a result of (x) a breach by the Company of a
material provision of this Agreement or (y) a change by the Company
of the Executive's title, duties or responsibilities as Chairman of
the Board and Chief Executive Officer of the Company without his
consent, and such breach or change is not corrected by the Company
within 30 days or such longer reasonable amount of time required to
correct such breach or change, not to exceed 90 days, after the
Executive notifies the Board in writing of the action or omission
which the Executive believes constitutes such a breach or change.
In such event, the Executive shall be deemed to have been
terminated without Cause, and the benefits described under section
(b)(iii) shall apply.
(iv) "Termination without Cause" shall mean a termination by
the Company of the Executive's employment without Cause (as
defined above), and shall be deemed to include any termination
under the circumstances described in subsection (c)(iii)(B).
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(d) Notwithstanding any other provision of this Agreement, if any
payment or benefit from the Company would be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Executive shall designate which payments or benefits or
portion thereof shall be reduced to the extent necessary so that no portion
thereof shall be subject to Section 4999 of the Code; but only if, by reason of
such reduction, the benefit to the Executive of all amounts payable under
section 5 plus all other payments and benefits that the Executive receives or is
then entitled to receive from the Company that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, net of income and
excise taxes with respect thereto (the "Net After Tax Benefit") is greater than
the Net After Tax Benefit if the reduction were not made.
(e) In the event of any termination of the Executive's employment by
the Company or by the Executive under circumstances described in subsection
(c)(iii)(B), the Executive shall not be required to seek other employment to
mitigate damages, and any income earned by the Executive from other employment
or self-employment shall not be offset against any obligations of the Company to
the Executive under this Agreement.
6. Protected Information; Prohibited Solicitation and Competition
(a) The Executive hereby recognizes and acknowledges that during the
course of his employment by the Company, the Company will furnish, disclose or
make available to the Executive confidential or proprietary information related
to the Company's business, including, without limitation, customer lists, ideas,
processes, inventions and devices, that such confidential or proprietary
information has been developed and will be developed through the Company's
expenditure of substantial time and money, and that all such confidential
information could be used by the Executive and others to compete with the
Company. The Executive hereby agrees that all such confidential or proprietary
information shall constitute trade secrets, and further agrees to use such
confidential or proprietary information only for the purpose of carrying out his
duties with the Company and not otherwise to disclose such information unless
otherwise required to do so by subpoena or other legal process. No information
otherwise in the public domain (i.e., information that has been disclosed to the
general public, the marketplace or to governmental regulatory agencies) shall be
considered confidential.
(b) The Executive hereby agrees, in consideration of his employment
hereunder and in view of the confidential position to be held by the Executive
hereunder, that during the Employment Term and for the period ending on the date
which is two years after the later of (1) the termination of the Employment Term
and (2) the date on which the Company is no longer required to provide the
payments and benefits described in section 5(b) (other than any continuation
coverage which the Executive and/or his Family is entitled to elect under
Section 4980B of the Code), the Executive shall not, without the written consent
of the Company, knowingly solicit, entice or persuade any other employees of the
Company or any affiliate of the Company to leave the services of the Company or
such affiliate for any reason.
(c) The Executive further agrees that, he shall not (except as to the
activities described in section 2(c)) for so long as he is receiving any
benefits under section 5(b) enter into any relationship whatsoever, either
directly or indirectly, alone or in partnership, or as an officer, director,
employee or stockholder (beneficially owning stock or options to acquire stock
totaling more than five percent of the outstanding shares) of any corporation
(other than the Company), or otherwise acquire or agree to acquire a significant
present or future equity or other proprietorship interest, whether as a
stockholder, partner, proprietor or otherwise, with any enterprise, business or
division thereof (other than the Company), which is engaged in the restaurant or
food services
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business in those states within the United States in which the Company or any of
its subsidiaries is at the time of such termination of employment conducting its
business and which has annual sales of at least $50,000,000.
(d) The restrictions in this section 6 shall survive the termination of
this Agreement and shall be in addition to any restrictions imposed upon the
Executive by statute or at common law.
(e) The parties hereby acknowledge that the restrictions in this
section 6 have been specifically negotiated and agreed to by the parties hereto
and are limited to only those restrictions necessary to protect the Company from
unfair competition. The parties hereby agree that if the scope or enforceability
of any provision, paragraph or subparagraph of this section 6 is in any way
disputed at any time, and should a court find that such restrictions are overly
broad, the court may modify and enforce the covenant to the extent that it
believes to be reasonable under the circumstances.
Each provision, paragraph and subparagraph of this section 6 is separable from
every other provision, paragraph, and subparagraph and constitutes a separate
and distinct covenant.
7. Injunctive Relief
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in section 6 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this section
shall survive the Employment Term.
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8. Parties Benefited; Assignments
This Agreement shall be binding upon the Executive, his heirs and his
personal representative or representatives, and upon the Company and its
successors and assigns. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Executive, other than by will or by the laws of
descent and distribution.
9. Notices
Any notice required or permitted by this Agreement shall be in writing,
sent by registered or certified mail, return receipt requested, addressed to the
Board and the Company at its then principal office, or to the Executive at the
address set forth in the preamble, as the case may be, or to such other address
or addresses as any party hereto may from time to time specify in writing for
the purpose in a notice given to the other parties in compliance with this
section. Notices shall be deemed given when received.
10. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of South Carolina, without regard to
conflict of law principles.
11. Indemnification and Insurance; Legal Expenses
The Company shall indemnify the Executive to the fullest extent
permitted by the laws of the State of Delaware, as in effect at the time of the
subject act or omission, and shall advance to the Executive reasonable
attorney's fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined that by a judicial decision which is not subject to appeal that the
Executive was not entitled to the reimbursement of such fees and expenses) and
he will be entitled to the protection of any insurance policies the Company may
elect to maintain generally for the benefit of its directors and officers
against all costs, charges and expenses incurred or sustained by him in
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connection with any action, suit or proceeding to which he may be made a party
by reason of his being or having been a director, officer or employee of the
Company or any of its subsidiaries or his serving or having served any other
enterprise as a director, officer or employee at the request of the Company
(other than any dispute, claim or controversy arising under or relating to this
Agreement).
12. Disputes
Any dispute or controversy arising under, out of, in connection with
or in relation to this Agreement shall, at the election and upon written demand
of either the Executive or the Company, be finally determined and settled by
arbitration in the city of the Company's headquarters in accordance with the
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof.
13. Miscellaneous
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof. This Agreement supersedes any prior written or oral
agreements or understandings between the parties relating to the subject matter
hereof. No modification or amendment of this Agreement shall be valid unless in
writing and signed by or on behalf of the parties hereto. A waiver of the breach
of any term or condition of this Agreement shall not be deemed to constitute a
waiver of any subsequent breach of the same or any other term or condition. This
Agreement is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules and regulations. If any
provision of this Agreement, or the application thereof to any person or
circumstance, shall, for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall
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be enforced to the greatest extent permitted by law. The compensation provided
to the Executive pursuant to this Agreement shall be subject to any withholdings
and deductions required by any applicable tax laws. Any amounts payable under
this Agreement to the Executive after the death of the Executive shall be paid
to the Executive's estate or legal representative. The headings in this
Agreement are inserted for convenience of reference only and shall not be a part
of or control or affect the meaning of any provision hereof.
[signature page follows]
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
Advantica Restaurant Group, Inc.
By: /s/ Donald R. Shepherd
-----------------------------------
Name: Donald R. Shepherd
Title: Chairman, Compensation and
Incentives Committee of the Board
of Directors
By: /s/ Stephen W. Wood
-----------------------------------
Name: Stephen W. Wood
Title: Senior Vice President
Advantica Restaurant Group, Inc.
By: /s/ James B. Adamson
-----------------------------------
Name: James B. Adamson
ADDENDUM TO AGREEMENT
This Addendum To Agreement ("Addendum") is attached to and made a part
of that certain employment agreement, amended and restated as of January 7,
1998, between Advantica Restaurant Group, Inc., a Delaware corporation and James
B. Adamson (the "Agreement"). Unless otherwise defined herein, all capitalized
terms used herein shall have the same meaning as used in the Agreement. In the
event of any inconsistency between the terms and provisions of this Addendum and
the terms and provisions of the Agreement, the terms and provisions of this
Addendum shall prevail.
Notwithstanding, anything to the contrary in the attached Agreement and
specifically in lieu of subsection 5(b)(iii) of such Agreement, it is
specifically agreed that in the event of a
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"Termination without Cause", (A) the Executive and/or his Family shall be
entitled until the earlier of (x) the second anniversary of the date of such
termination of employment or (y) the commencement of coverage of the Executive
and/or his Family by another group medical benefits plan providing substantially
comparable benefits to the Welfare Benefits and which does not contain any
pre-existing condition exclusions or limitations, to receive and participate in
the Welfare Benefits in addition to any continuation coverage which the
Executive and/or his Family is entitled to elect under Section 4980B of the
Code; (B) not later than 90 days after such termination, the Company shall pay
to the Executive in a lump sum an amount equal to 299% of the Executive's Base
Salary and his Target Bonus; and (C) the Option shall be one hundred percent
(100%) vested and exercisable as of the date of such termination for a period of
sixty (60) days following the effective date of such termination.
James B. Adamson Advantica Restaurant Group, Inc.
/s/ James B.Adamson By: /s/ Donald R. Shepherd
- ------------------------ ----------------------------------
Name: Donald R. Shepherd
Title: Chairman, Compensation and
Incentives Committee of the Board
of Directors
By: /s/ Stephen W. Wood
----------------------------------
Name: Stephen W. Wood
Title: Executive Vice President
Advantica Restaurant Group, Inc.
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<PAGE>
Page 1
December 3, 1997
PERSONAL AND CONFIDENTIAL
- -------------------
Flagstar Corporation
203 East Main Street
Spartanburg, SC 29319
Dear ______________:
This letter agreement between _________________ (the "Executive") and
Flagstar Corporation (the "Company") replaces in its entirety the letter
agreement between the Company and the Executive dated January 15, 1997 (the
"Employment Agreement"); provided, however, the Change of Control and Severance
provisions contained in said prior agreement shall not be revoked, rescinded or
cancelled unless and until a stock option agreement containing terms as
described on Attachment A is signed and returned to the Company by the
Executive. This agreement is entered into as an inducement to the Executive to
continue in the employ of the Company. With respect to the period from and after
Flagstar Corporation's emergence from bankruptcy protection, the "Company" shall
also refer herein to Reorganized Flagstar as such term is used in the Plan of
Reorganization confirmed by the U. S. Bankruptcy Court as of November 7, 1997.
1. Leadership Bonus. In addition to other salary or bonus payments and
benefits to which the Executive is otherwise entitled, the Executive shall be
entitled to receive the following payments (the "Leadership Bonus") provided the
Executive continues to be employed by the Company (or a subsidiary thereof) as
of the accrual date indicated:
Accrual Date Payment Amount
December 31, 1997 $100,000
June 30, 1998 $ 50,000
December 31, 1998 $125,000
June 30, 1999 $ 50,000
December 31, 1999 $175,000
<PAGE>
December 3, 1997 Page 2
Each such payment shall be due and payable to the Executive on or before fifteen
(15) days following the corresponding accrual date. Any unaccrued portion of
such Leadership Bonus shall be forfeited upon termination of the Executive's
employment for Cause, as defined herein, or upon the voluntary termination of
employment by the Executive. If the Executive's employment is terminated by the
Company for any reason other than for Cause, the Executive shall be entitled to
receive any unaccrued portion of such Leadership Bonus at the time of payment of
any other Severance Payments set forth in Section 3 hereof and any other
payments payable upon such termination of employment under the Employment
Agreement. For purposes of this letter agreement, "Cause" shall mean (A) the
Executive's habitual neglect of his material duties, (B) an act or acts by the
Executive, or any omission by him, constituting a felony, and the Executive has
entered a guilty plea or confession to, or has been convicted of, such felony,
(C) the Executive's failure to follow any lawful directive of the Board or Chief
Executive Officer ("CEO") consistent with the Executive's position and duties,
(D) an act or acts of fraud or dishonesty by the Executive which results or is
intended to result in financial or economic harm to the Company, or (E) breach
of a material provision of this Agreement by the Executive; provided that the
Company shall provide the Executive (x) written notice specifying the nature of
the alleged Cause, and, with respect to Clauses (A), (C) and (E), (y) a
reasonable opportunity to appear before the Board or CEO to discuss the matter,
and (z) a reasonable opportunity to cure any such alleged Cause.
2. Stock Options. Upon the emergence of the Company from bankruptcy
protection and the issuance of new common stock of the Company, the Executive
will be granted stock options in the new common stock in the amounts and on the
vesting schedule set forth on Attachment A. The Executive shall immediately
become one hundred percent vested in, and eligible to exercise, all stock
options that have been granted to him/her by the Company in the event of (a)
his/her actual or constructive termination as described in Section 3 (a) or (b)
below, (b) a dissolution or liquidation of the Company, (c) a sale of all or
substantially all of the Company's assets, (d) a merger or consolidation
involving the Company in which the company is not the surviving corporation, (e)
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of common stock receive
securities of another corporation and/or other property, including cash, or (f)
a tender offer for at least a majority of the outstanding common stock of the
Company.
3. Severance Payment. The Executive shall receive a severance payment
(as described below) if either (a) the Company elects to terminate the
Executive's employment for any reason other than Cause as defined in Section 1
above, or (b) the Company takes an action that reduces the Executive's base
salary, or the Executive no longer has the position or responsibility of the
Company's ______________. If either event described in subsection (a) or (b)
above occurs then
<PAGE>
December 3, 1997 Page 3
the Executive shall receive a single lump sum payment equal to
(i) two times the Executive's then current base pay (in no event less than
$__________ in total); plus (ii) an amount (grossed up at a total of forty-five
[45%] percent for federal, state and local income taxes) equal to the Company's
then actual benefit credits for an eighteen (18) month period (the "Severance
Payment"); plus (iii) accrued but unused vacation time. Such Severance Payment
shall be made to Executive within five (5) business days following any such
termination. The Executive will also be entitled to receive career placement
advice and counseling at the Company's expense for a period of eighteen (18)
months. In the event the Executive is terminated during a calendar year for
which an annual bonus is paid by the Company, the annual bonus to which the
Executive would have otherwise been entitled shall be prorated and included as a
part of the Severance Payment, provided the Executive was employed for at least
six (6) months during that year. This prorated bonus payment shall be paid to
the Executive at the same time as payments are made to actively employed bonus
recipients. Further, should such an event of termination of the Executive's
employment occur, the Executive shall not be required to seek other employment
to mitigate damages, and any income earned by the Executive from other
employment or self-employment shall not be offset against any obligations of the
Company to the Executive under this Agreement.
4. Subsidiary Guaranties. The Company's payment obligations herein in
respect to the Leadership Bonus and the Severance Payment shall be
unconditionally guaranteed by the Company's subsidiaries, Denny's, Inc., DFO,
Inc., El Pollo Loco, Inc., Quincy's Restaurants, Inc., and Flagstar Enterprises,
Inc., such subsidiaries being among the principal operating subsidiaries
receiving the benefits of the Executive's continuing employment with the
Company. Such subsidiary guaranties shall be "guaranties of payment" and not
"guaranties of collection."
Except as supplemented and modified hereby, the Employment Agreement
and the severance benefits therein contained shall remain in effect and binding
on the Executive and the Company. Nothing herein shall be deemed to modify in
any respect the right of the Company to terminate the services of the Executive
in accordance with the terms of the Employment Agreement and Company policies
now or hereafter in effect.
<PAGE>
December 3, 1997 Page 4
If you are in agreement with these terms, please sign one copy of this
letter and return it to ________________.
Sincerely,
James B. Adamson
Chairman, Chief Executive Officer
and President
cc:
Agreed and accepted:
________________________________ _________________ ___, 199__
<PAGE>
December 3, 1997 Page 5
By authority duly obtained as of the date first above written, the
undersigned, Denny's, Inc., DFO, Inc., El Pollo Loco, Inc., Quincy's
Restaurants, Inc., and Flagstar Enterprises, Inc., indirect subsidiaries of the
Company, hereby jointly and severally guarantee the payment by the Company to
the Executive of the Leadership Bonus, the Change of Control Benefit, and the
Severance Payment as provided above. In providing such guaranty, each such
guarantor acknowledges that it is receiving and will receive substantial and
meaningful benefits and services from the Executive's continued employment with
the Company. Each such guaranty shall be a guaranty of payment and not of
collection.
Denny's, Inc. Quincy's Restaurants, Inc.
By: By:
DFO, Inc. Flagstar Enterprises, Inc.
By: By:
El Pollo Loco, Inc.
By:
ADDENDUM TO LETTER AGREEMENT
This Addendum To Letter Agreement ("Addendum") is attached to and made
a part of that certain letter agreement dated December 3, 1997 (the "Letter
Agreement") between Flagstar Corporation, a predecessor corporation to Advantica
Restaurant Group, Inc. ("Company") and __________________ (the "Executive").
Unless otherwise defined herein, all capitalized terms used herein shall have
the same meaning as used in the Letter Agreement. In the event of any
<PAGE>
December 3, 1997 Page 6
inconsistency between the terms and provisions of this Addendum and the terms
and provisions of the Letter Agreement, the terms and provisions of this
Addendum shall prevail.
Notwithstanding anything to the contrary in the attached Letter
Agreement, and in the event the Company terminates the Executive's employment
for any reason other than for Cause or takes an action that reduces the
Executive's base salary or the Executive no longer has the responsibilities
referenced in the Letter Agreement, the Executive shall receive, in addition to
the severance payments referenced in Section 3 of the Letter Agreement, a single
lump sum severance payment, within five (5) business days of such termination,
in an amount equal to 200% of the Executive's target bonus for the year in which
the termination occurs (provided that the amount of such target bonus shall not
be less than 65% of the Executive's then current base salary).
It is specifically the intent of all parties to the Letter Agreement,
the Addendum and the subsidiary guaranties (the "Subsidiary Guaranties")
referenced in Section 4 of the Letter
<PAGE>
December 3, 1997 Page 7
Agreement, that such Subsidiary Guaranties shall also guarantee the additional
severance payment set forth herein.
Advantica Restaurant Group, Inc.
___________________________ By:___________________________
(Executive's Name) James B. Adamson
Its: Chairman, Chief Executive Officer
and President
Denny's, Inc.
By:___________________________
Rhonda J. Parish
Its: Executive Vice President, General
Counsel and Secretary
DFO, Inc.
By:___________________________
Rhonda J. Parish
Its: Executive Vice President, General
Counsel and Secretary
El Pollo Loco, Inc.
By:___________________________
Rhonda J. Parish
Its: Executive Vice President, General
Counsel and Secretary
1
CONFORMED COPY
AMENDED AND RESTATED AMENDMENT NO. 5 dated
as of March 12, 1999, as amended and restated as of
April 12, 1999 (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, Amendment No. 2 and Waiver dated as of May 21,
1998, Amendment No. 3 and Waiver dated as of July 16,
1998, and Amendment No. 4 dated as of November 12,
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., for purposes of this Amendment and
the Credit Agreement, 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
(in such capacity, the "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.
C. The Required Lenders are willing to agree to such amend-
ments, 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 after giving effect to
this Amendment.
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. Amendment and Acknowledgment. (a) Section 1.01 of
the Credit Agreement is hereby amended as follows:
(i) by inserting the following definitions in the appropriate
alphabetical order:
"'ADVANTICA GUARANTEE' shall mean the guarantee of
Parent, in form and substance reasonably satisfactory to the
Required Lenders and the Administrative Agent, of all
liabilities (i) under the New FRI-M Credit Agreement of each
permitted borrower and each other guarantor thereunder, (ii)
under any Interest Rate Protection Agreement (as defined in
this Agreement except, for purposes of this definition, that
the term "Loan Party" as used in the definition of the term
"Interest Rate Protection Agreement" shall mean any borrower
or guarantor under the New FRI-M Credit Agreement) of FRI-M or
any of its subsidiaries entered into with a counterparty that
is a lender under the New FRI-M Credit Agreement (or an
Affiliate thereof) at the time such Interest Rate Protection
Agreement is entered into and (iii) with respect to overdrafts
and related liabilities of each permitted borrower and each
other guarantor under the New FRI-M Credit Agreement owed to
Chase or its Affiliates or to the
<PAGE>
2
administrative agent under the New FRI-M Credit Agreement or
its Affiliates and arising from treasury, depository and cash
management services or in connection with any automated
clearing house transfers of funds."
"'FRD SENIOR NOTES' shall mean FRD's 12-1/2% Senior
Notes due 2004."
"'FRD SENIOR NOTES INDENTURE' shall mean the
Indenture with respect to the FRD Senior Notes between FRD and
The Bank of New York, as trustee, as amended, supplemented or
otherwise modified from time to time in accordance with the
terms thereof."
"'FRI-M' shall mean FRI-M Corporation, a Delaware
corporation and a direct, wholly owned subsidiary of FRD."
"'FRI-M CREDIT AGREEMENT' shall mean the Credit
Agreement dated as of May 23, 1996, as heretofore amended,
among FRD, FRI-M, certain financial institutions and Credit
Lyonnais New York Branch, as administrative agent."
"'FRI-M TRANSACTIONS' shall mean (a) any repurchases
of the New Senior Notes effected in accordance with Section
6.08(a)(iii), (b) the designation of FRD and its subsidiaries
as "Subsidiaries" for purposes of the New Senior Notes
Indenture in accordance with the terms thereof", (c) the
execution and delivery of the Advantica Guarantee and the New
FRI-M Credit Agreement and (d) the repayment of all amounts
owed under the FRI-M Credit Agreement, the termination of all
commitments and guarantees thereunder and the release of all
mortgages, pledges and liens associated therewith."
"'NEW FRI-M CREDIT AGREEMENT' shall mean collectively
(a) a credit agreement among FRD, FRI-M and certain financial
institutions (i) under which up to $70,000,000 is available
for borrowings by (or the issuance of letters of credit for
the benefit of) FRI-M or any wholly owned subsidiary of FRI-M
that is a permitted borrower thereunder and (ii) that is
reasonably satisfactory in form and substance to the Required
Lenders and the Administrative Agent and (b) all related
guarantees (other than the Advantica Guarantee), security
documents, pledge agreements and mortgages entered into in
connection with such credit agreement."
"'REMAINING H&Q NET CASH PROCEEDS' shall mean, at any
time, (a) $245,000,000 LESS (b) the aggregate amount of the
Net Cash Proceeds of the Enterprise Sale and the Quincy's Sale
that prior to such time has been applied (i) to pay
Indebtedness, (ii) to purchase New Senior Notes (including
pursuant to any Net Proceeds Offer (as defined in the New
Senior Notes Indenture) and pursuant to Section 6.08(a)(iii)
or 6.08(a)(iv)), (iii) to incur Capital Expenditures (or
investments in lieu thereof permitted under Section 6.04(k)),
(iv) to make investments or (v) for any other purpose other
than to effect the SRT Defeasance.";
(ii) by substituting the words "U.S. Bank Trust" for the words
"First Trust" in the definition of the term "New Senior Notes Trustee".
(iii) by deleting after the words "the lesser of" in the
definition of the term "Consolidated Total Debt" the remaining text of
such definition and substituting in its place the following:
"(x) the Remaining H&Q Net Cash Proceeds as of such date and
(y) the aggregate amount of all cash and cash equivalents of
Parent, the Borrowers and the Specified Subsidiaries
(excluding the Defeasance Eligible Investments (as
<PAGE>
3
defined in the Real Estate Financing Documents) acquired in
connection with the SRT Defeasance) that would be set forth on
a consolidated balance sheet of Parent, the Borrowers and the
Specified Subsidiaries prepared as of such date in accordance
with GAAP.";
(iv) by adding (x) after the phrase "(a) any amendment or
supplement to the Real Estate Financing Documents, the New Senior Notes
Documents " in the definition of the term "Permitted Amendments" the
words ", the New FRI-M Credit Agreement, the Advantica Guarantee" and
(y) after the phrase "(b) any amendment or supplement (i) to the Real
Estate Financing Documents, the New Senior Notes Documents " in the
same definition the words ", the New FRI-M Credit Agreement, the
Advantica Guarantee ".
(b) Section 6.01 of the Credit Agreement is hereby amended by
deleting the word "and" after the semicolon at the end of clause (i)(D),
deleting the period at the end of clause (j) and substituting therefor "; and"
and adding the following new clause (k):
"(k) the Advantica Guarantee."
(c) Section 6.04 of the Credit Agreement is hereby amended as
follows:
(i) by deleting the word "FRD" in clause (l) and substituting
therefor the words "FRI-M and its subsidiaries (including for such
purpose all investments made by Parent in FRD prior to the
effectiveness of the amendments to this Section 6.04(l) set forth in
Amendment No. 5 to this Agreement dated March 12, 1999)", deleting the
figure "$75,000,000" in clause (l) and substituting therefor
"$85,000,000"; and
(ii) by deleting the word "and" after the semicolon in clause
(l), deleting the period at the end of clause (m) and substituting
therefor "; and" and adding the following new clause (n):
"(n) the Advantica Guarantee and payments and the performance
of other obligations thereunder."
(d) Section 6.07 of the Credit Agreement is hereby amended by
substituting the following new Section 6.07 for the existing Section 6.07:
"Sell or transfer any property or assets to, or purchase or
acquire any property or assets from, or otherwise engage in
any other transactions with, any of its Affiliates except (i)
for the Advantica Guarantee and payments and the performance
of other obligations thereunder and (ii) that Parent, any
Borrower or any Specified Subsidiary may engage in any of the
foregoing transactions in the ordinary course of business at
prices and on terms and conditions not less favorable to
Parent, such Borrower or such Specified Subsidiary than could
be obtained on an arm's-length basis from unrelated third
parties; PROVIDED that Parent may issue and distribute to its
stockholders that are Affiliates rights to purchase preferred
stock and/or common stock of Parent to the extent that such
rights are permitted to be issued and distributed to Parent's
stockholders pursuant to Section 6.06(a)(iii)."
(e) Section 6.08 of the Credit Agreement is hereby amended as
follows:
(i) by substituting the following new Section 6.08(a) for the
existing Section 6.08(a):
"(a) Make any voluntary or optional payments, prepayments or
redemptions of principal or premium or voluntarily repurchase,
acquire or retire for value prior to the stated maturity with
respect to Indebtedness (other than Indebtedness arising under
the Loan Documents); PROVIDED that:
<PAGE>
4
(i) the Mortgage Notes may be repaid with the
proceeds of the Real Estate Refinancing,
(ii) Parent or the Subsidiaries may make up to an
aggregate of $2,000,000 in prepayments of
Indebtedness of Enterprises retained by Parent or any
Subsidiary in connection with the Enterprises Sale,
and
(iii) Parent shall be permitted to purchase
voluntarily New Senior Notes from time to time,
PROVIDED that (A) the purchase price of any such New
Senior Note, not to exceed such New Senior Note's
then current Fair Market Value, shall be funded from
and shall reduce the Remaining H&Q Net Cash Proceeds,
(B) immediately after giving effect to such a
purchase, (x) the aggregate consideration paid by
Parent with respect to all purchases of New Senior
Notes pursuant to this clause (iii) shall not exceed
$23,000,000, (y) the aggregate principal amount of
all New Senior Notes purchased pursuant to this
clause (iii) shall not exceed $20,000,000 and (z) no
Default or Event of Default shall have occurred or be
continuing or would result therefrom and (C) Parent
promptly cancels such New Senior Notes;
PROVIDED FURTHER that such payments shall be permitted to
retire Indebtedness to the extent required under a "due on
sale" clause applicable to any disposition of assets permitted
under Section 6.05.";
(ii) by substituting the following new Section 6.08(b) for
the existing Section 6.08(b):
"(b) Except for Permitted Amendments, permit, or permit any
Subsidiary to permit, any waiver, supplement, modification,
amendment, termination or release of the New Senior Notes
Documents, the Real Estate Financing Documents, the
documentation in respect of the Real Estate Refinancing, the
New FRI-M Credit Agreement, the Advantica Guarantee or any
indenture, instrument or agreement pursuant to which any
Indebtedness or preferred stock is outstanding."; and
(iii) by inserting at the end of Section 6.08 the following
new section:
"(c) If, as a result of the receipt of any cash
proceeds by Parent or any Subsidiary in connection with an
Asset Sale, FRD or Parent would be required by the terms of
the FRD Senior Notes Indenture or the New Senior Notes
Indenture to make an offer to repurchase FRD Senior Notes or
New Senior Notes, respectively, prior to the respective
maturity dates of such Notes, then Parent shall or shall cause
one or more of the Subsidiaries to invest such cash proceeds
in assets or businesses of Parent or the Subsidiaries in a
manner that is permitted by the other provisions of this
Agreement and that will eliminate any requirement under the
FRD Senior Notes Indenture or the New Senior Notes Indenture
to offer to repurchase FRD Senior Notes or New Senior Notes,
respectively. Any such investment shall be made prior to the
first day on which FRD or Parent would be required to commence
a tender offer to repurchase with such cash proceeds FRD
Senior Notes or New Senior Notes, respectively, under the FRD
Senior Notes Indenture or New Senior Notes Indenture,
respectively.".
(f) Section 6.10 of the Credit Agreement is hereby amended by
deleting after the words " from time to time incur Consolidated Capital
Expenditures (or investments in lieu thereof permitted under Section 6.04(k))"
in the second proviso thereto the remaining text of Section 6.10 and
substituting in its place the following:
<PAGE>
5
"to the extent that such additional Consolidated Capital
Expenditures or investments are funded solely from (and shall
reduce) the Remaining H&Q Net Cash Proceeds at such time
(PROVIDED that immediately after giving effect to any such
additional Consolidated Capital Expenditure or investment, the
Remaining H&Q Net Cash Proceeds shall not be less than the
aggregate principal amount of the Loans outstanding at such
time)".
(g) Section 6.15 of the Credit Agreement is hereby amended by
inserting at the end of Section 6.15 the following:
"Parent shall not permit FRD to (i) own or acquire any assets (other
than shares of capital stock of FRD's subsidiaries, cash and Permitted
Investments, PROVIDED that the amount of such cash, together with the
Fair Market Value of such Permitted Investments, shall not at any time
exceed $500,000 other than on any day on which a payment is due in
respect of the FRD Senior Notes, in which event FRD may during such day
hold additional cash in an amount up to the aggregate amount of such
payment) or (ii) incur any liabilities (other than (A) liabilities
under the FRD Senior Notes Indenture, the FRI-M Credit Agreement and
the New FRI-M Credit Agreement, (B) liabilities imposed by law,
including tax liabilities, and (C) other liabilities incidental to its
existence and permitted business and activities).".
SECTION 2. Effectiveness Date. Section 1(a)(i) as it relates
to the definition of the term "Remaining H&Q Net Cash Proceeds", 1(a)(ii),
1(a)(iii), 1(c)(i), 1(e)(i) and 1(f) shall become effective immediately
following the satisfaction of the conditions set forth in Section 4(a) hereof.
Sections 1(a) (i) (other than as it relates to the definition of the term
"Remaining H&Q Net Cash Proceeds"), 1(a)(iv), 1(b), 1(c)(ii), 1(d), 1(e)(ii),
1(e)(iii) and 1(g) of this Amendment shall only become effective on the
Effectiveness Date. The "Effectiveness Date" shall be specified by Parent and
the Borrowers and shall be a date not later than May 31, 1999, as of which all
the conditions set forth or referred to in Sections 4(a) and (b) hereof shall be
satisfied. Parent and the Borrowers shall give the Administrative Agent not less
than two Business Days' written notice proposing a date as the Effectiveness
Date to the Administrative Agent. Sections 1(a) (i) (other than as it relates to
the definition of the term "Remaining H&Q Net Cash Proceeds"), 1(a)(iv), 1(b),
1(c)(ii), 1(d), 1(e)(ii), 1(e)(iii) and 1(g) of this Amendment shall terminate
at 5:00 p.m., New York City time, on May 31, 1999, if the Effectiveness Date
shall not have occurred at or prior to such time.
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.
(d) Immediately after the consummation of the FRI-M
Transactions on the Effectiveness Date, (i) the fair value of the
assets of each Loan Party and each borrower or guarantor under the New
FRI-M Credit Agreement (each, a "FRI-M Loan Party"), at a fair
valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise;
<PAGE>
6
(ii) the present fair saleable value of the property of each Loan Party
and each FRI-M Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (iii) each Loan Party
and each FRI-M Loan Party will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) each Loan Party and
each FRI-M Loan Party will not have unreasonably small capital with
which to conduct the business in which it is engaged as such business
is now conducted and is proposed to be conducted following the
Effectiveness Date.
SECTION 4. Conditions to Effectiveness. (a) Effectiveness
of Sections 1(a) through 1(g) of this Amendment shall be subject to satisfaction
of all of the following conditions:
(i) All legal matters incident to this Amendment shall be
satisfactory to the Required Lenders, to the Issuing Bank and to
Cravath, Swaine & Moore, counsel for the Administrative Agent.
(ii) There shall be no litigation, arbitration or
administrative proceeding or consent decree that would reasonably be
expected to have a material adverse effect on the business, assets,
operations, properties, condition (financial or otherwise), prospects
or material agreements of Parent and the Subsidiaries, taken as a
whole, or on the ability of Parent and the Subsidiaries to consummate
the FRI-M Transactions.
(iii) The Administrative Agent shall be reasonably satisfied
with the liquidity, and sufficiency of amounts available under the
Credit Agreement to meet the ongoing working capital and other cash
requirements, of Parent and the Subsidiaries following the consummation
of the FRI-M Transactions.
(iv) 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.
(b) Effectiveness of Sections 1(a) (i) (other than as it
relates to the definition of the term "Remaining H&Q Net Cash Proceeds"),
1(a)(iv), 1(b), 1(c)(ii), 1(d), 1(e)(ii), 1(e)(iii) and 1(g) shall be subject to
the satisfaction of all of the following further conditions:
(i) On or prior to the Effectiveness Date, the FRI-M
Transactions shall have been consummated on terms and conditions
reasonably satisfactory to the Required Lenders and the Administrative
Agent and in accordance with all applicable laws, statutes, consents,
decrees, rules and regulations and after giving effect thereto, no
default or event of default would exist under, nor would the
consummation of the FRI-M Transactions conflict with, or result in any
termination or suspension of, the FRD Senior Notes Indenture, the New
Senior Notes Indenture, the Credit Agreement, as amended hereby, the
New FRI-M Credit Agreement, the Advantica Guarantee or any other
material agreement of Parent or any Subsidiary.
(ii) The Administrative Agent shall have received, on behalf
of itself, the Lenders and the Issuing Bank, a favorable written
opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for Parent
and the Borrowers, substantially to the effect set forth in Exhibit A
hereto, (A) dated the Effectiveness Date, (B) addressed to the Issuing
Bank, the Administrative Agent, the Collateral Agent and the Lenders
and (C) covering such other matters relating to the Loan Documents and
the FRI-M Transactions as the Administrative Agent shall reasonably
request, and Parent and the Borrowers hereby request such counsel to
deliver such opinions.
<PAGE>
7
(iii) All legal matters incident to the New FRI-M Credit
Agreement and the Advantica Guarantee shall be satisfactory to the
Administrative Agent and to Cravath, Swaine & Moore, counsel for the
Administrative Agent.
(iv) There shall be no litigation, arbitration or
administrative proceeding or consent decree that would reasonably be
expected to have a material adverse effect on the business, assets,
operations, properties, condition (financial or otherwise), prospects
or material agreements of FRD and its subsidiaries, taken as a whole.
(v) The representations and warranties set forth in Section 3
hereof and the representations and warranties set forth in the New
FRI-M Credit Agreement shall be true and correct with the same effect
as if made on the Effectiveness Date, except to the extent such
representations and warranties expressly relate to an earlier date, and
the Administrative Agent shall have received a certificate, dated the
Effectiveness Date and signed by a Financial Officer of Parent,
confirming compliance with such condition.
(vi) The Board of Directors of Parent shall have designated
FRD and its subsidiaries as "Subsidiaries" for purposes of the New
Senior Notes Indenture in accordance with the terms thereof, and the
Administrative Agent shall have received a copy of the resolutions of
the Board of Directors of Parent authorizing such designation together
with (A) a reasonably detailed calculation of the Fixed Charge Coverage
Ratio (as defined in the New Senior Notes Indenture) for the four
fiscal quarters last preceding the date of consummation of the FRI-M
Transactions, determined on a pro forma basis to give effect to the
FRI-M Transactions in accordance with Section 3.11 of the New Senior
Notes Indenture and showing a Fixed Charge Coverage Ratio (as defined
in the New Senior Notes Indenture) for such period on such a pro forma
basis of at least 2:1, and (B) a certificate of the Chief Financial
Officer of Parent as to the accuracy and basis of such calculations, in
form and substance reasonably satisfactory to the Administrative Agent.
(vii) A majority of the disinterested members of the Board of
Directors of FRD shall have made a determination that the Advantica
Guarantee is on "Fair Terms" (as defined in the FRD Senior Notes
Indenture) and the Administrative Agent shall have received a copy of
the resolutions of the Board of Directors of FRD reflecting such
determination.
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. On
and after the Effectiveness Date, any reference to the Credit Agreement shall
mean the Credit Agreement as amended hereby.
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.
<PAGE>
8
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
FLAGSTAR SYSTEMS, INC.,
by /s/ Kenneth E. Jones
-----------------------------
Name: Kenneth E. Jones
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK, by
Chase Securities Inc., as agent,
by /s/ Amanda Tepper
-----------------------------
Name: Amanda Tepper
Title: Vice President
<PAGE>
9
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent,
Swingline Lender and Issuing Bank,
by /s/ Lawrence Palumbo, Jr.
-----------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT
by
-----------------------------
Name:
Title:
GREEN TREE FINANCIAL SERVICING CORPORATION,
by /s/ C. A. Gouskos
------------------------------
Name: C. A. Gouskos
Title: Senior Vice President
JACKSON NATIONAL LIFE INSURANCE COMPANY, as
Assignee, by PPM Finance, Inc., its attorney
in fact,
by
-----------------------------
Name:
Title:
KZH CRESCENT LLC,
by
-----------------------------
Name:
Title:
<PAGE>
10
KZH SHOSHONE LLC
by /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH CNC LLC,
by /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH,
by
-----------------------------
Name:
Title:
PAM CAPITAL FUNDING LP
by
-----------------------------
Name:
Title:
FLEET BUSINESS CREDIT CORPORATION,
by /s/ Mark Flamm
-----------------------------
Name: Mark Flamm
Title: Vice President
TORONTO DOMINION (TEXAS), INC.
by /s/ Azar S. Azarpour
-----------------------------
Name: Azar S. Azarpour
Title: Vice President
<PAGE>
MERGER AMENDMENT
TO THE
ADVANTICA RESTAURANT GROUP STOCK OPTION PLAN
AND THE
ADVANTICA RESTAURANT GROUP OFFICER STOCK OPTION PLAN
THIS AMENDMENT, made and executed as of the 15th day of March, by
Advantica Restaurant Group, Inc. ("Advantica");
WHEREAS, Advantica previously entered, respectively, into the Advantica
Restaurant Group Stock Option Plan (the "Non-officer Plan") and the Advantica
Restaurant Group Officer Stock Option Plan (the "Officer Plan") to provide
incentives and rewards to employees, consultants and officers of Advantica and
its subsidiaries; and as sponsoring employer, reserved the right to amend the
same from time to time; and
WHEREAS, NOW Advantica desires to merge the Non-officer Plan and the
Officer Plan in the manner hereinafter set forth;
THEREFORE, the Non-officer Plan and Officer Plan are merged as follows:
1. Effective as of March 15, 1999 (the "Plan Merger Effective Date"),
the Non-officer Plan shall be merged with and into the Officer Plan. The
Non-officer Plan shall cease to exist as a separate plan upon its merger with
the Officer Plan. The Officer Plan shall be the surviving plan. The name of the
surviving plan, as of the Plan Merger Effective Date, shall be changed from the
"Advantica Restaurant Group Officer Stock Option Plan" to the "Advantica Stock
Option Plan". All participants in the Non-officer Plan on the Plan Merger
Effective Date shall be participants in the merged plan. All options previously
issued to participants under the Officer Plan and Non-officer Plan shall remain
valid and shall continue in effect under the surviving plan under the same terms
and conditions which were applicable to such option grants immediately prior to
the Plan Merger Effective Date.
2. Following the merger of the Non-officer Plan with and into the
Officer Plan, the surviving plan will be amended and restated to reflect the
terms to be followed under the on-going merged plan. This merger amendment and
the above referenced amendment shall not adversely affect the rights of any
participant under any stock option granted under the Officer Plan and the
Non-officer Plan prior to the date these amendments are adopted.
IN WITNESS WHEREOF, Advantica Restaurant Group, Inc. (for itself and
for each of its subsidiaries) has caused this Amendment to be properly executed
as of the 15th day of March, 1999.
(Corporate Seal) Advantica Restaurant Group, Inc.
By: /s/ Stephen W. Wood
---------------------------------
Attest: Its: Executive Vice President
/s/ J. Scott Melton ---------------------------------
- --------------------------
Assistant Secretary
<PAGE>
ADVANTICA STOCK OPTION PLAN *
1. PURPOSE OF THE PLAN
This Advantica Stock Option Plan (the "Plan") is intended to promote
the interest of Advantica Restaurant Group, Inc. ("Advantica") and its
Subsidiaries by providing the employees of and certain consultants to the
Company, who are largely responsible for the management, growth and protection
of the business of the Company, with incentives and rewards to encourage them to
continue in their employment or consulting relationships 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 a Participant.
(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
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.
*(AS ADOPTED ON JANUARY 28, 1998, AMENDED ON SEPTEMBER 28, 1998 AND AMENDED AND
RESTATED ON MARCH 15, 1999)
<PAGE>
(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 Participants.
(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 Stock Option Plan (formerly known
as the Advantica Restaurant Group Officer Stock Option Plan), as it may be
amended from time to time. Effective March 15, 1999, the Advantica Restaurant
Group Stock Option Plan merged with and into this Plan.
(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 of his employment or consulting relationship with the Company.
Page 2
<PAGE>
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 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.
The Committee may, in its absolute discretion, accelerate the date on
which any Option becomes exercisable or upon termination of the Participant's
employment or consulting relationship with the Company, permit a terminated
individual's Options to continue to be exercisable 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
Page 3
<PAGE>
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 those employees and consultants of the Company who have
responsibility for the management, growth and protection of the business of the
Company, whom 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/INCENTIVE STOCK OPTION ELIGIBILITY
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. Only Officers of the Company shall be eligible for grants of Incentive
Stock Options. Incentive Stock Options may not be granted after the expiration
of ten years from the date of this Plan's adoption by the Board of Directors.
(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.
Page 4
<PAGE>
(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, in a number of shares of Common Stock to be withheld by the
Company from the total number of such shares purchased, the Fair Market Value of
which at the exercise date the Committee shall determine 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
Nonqualified Stock 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 or in an employment or
consulting agreement executed by the Company's President 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
Page 5
<PAGE>
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 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 the termination of a Participant's employment or
consulting relationship 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
Page 6
<PAGE>
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),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(f) NO OTHER RIGHTS
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation,
Page 7
<PAGE>
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 or her 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 or
consulting 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.
Page 8
<PAGE>
(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, 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
Page 9
<PAGE>
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 or the Committee 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
Page 10
<PAGE>
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 initially was adopted by the Board of Directors and effective on
January 28, 1998, subject to the approval of shareholders of Advantica in
accordance with applicable laws and regulations. Such shareholder approval was
received on June 18, 1998. The Plan, as amended and restated herein, is
effective on March 15, 1999.
Page 11
<PAGE>
<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 QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 146,914
<SECURITIES> 0
<RECEIVABLES> 23,969
<ALLOWANCES> 4,220
<INVENTORY> 16,685
<CURRENT-ASSETS> 218,682
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<DEPRECIATION> 152,675
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0
0
<COMMON> 489
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<INCOME-PRETAX> (62,020)
<INCOME-TAX> (340)
<INCOME-CONTINUING> (61,680)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,680)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
