<PAGE> 1
As filed with the Securities and Exchange Commission on July 28, 1998
Registration Statement No. 333-55861
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------------
AMERICAN RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5812 33-0193602
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
450 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(949) 721-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------------
KEN A. DI LILLO
VICE PRESIDENT -- FINANCE, TREASURER AND ASSISTANT SECRETARY
AMERICAN RESTAURANT GROUP, INC.
(949) 721-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy To:
Philip T. Ruegger III, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
---------------------------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
---------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==========================================================================================================================
PROPOSED
TITLE OF EACH PROPOSED AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY (1) PRICE (1) FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Series B Senior Secured Notes due 2003 $ 158,600,000 100% $158,600,000 $ 46,787
- --------------------------------------------------------------------------------------------------------------------------
12% Series B Senior Pay-in-Kind Exchangeable
Preferred Stock ............................... 36,995 Shares $ 1,000 $ 36,995,000 $10,914(2)
- --------------------------------------------------------------------------------------------------------------------------
12% Senior Subordinated Debentures Due 2003 .. $ 36,995,000 None(3) None(3) None(3)
==========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) $10,325 of which has been previously paid.
(3) No separate consideration will be received for the 12% Senior Subordinated
Debentures due 2003 issuable upon exchange of the 12% Series B Senior
Pay-in-Kind Exchangeable Preferred Stock.
<PAGE> 2
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
2
<PAGE> 3
PROSPECTUS
AMERICAN RESTAURANT GROUP, INC.
OFFER TO EXCHANGE ITS 11 1/2% SERIES B SENIOR SECURED NOTES
DUE 2003, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SERIES A SENIOR SECURED NOTES DUE 2003.
AND
OFFER TO EXCHANGE ITS 12% SERIES B SENIOR PAY-IN-KIND
EXCHANGEABLE PREFERRED STOCK, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 12% SERIES A
SENIOR PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 A.M.,
NEW YORK CITY TIME, ON _______ __, 1998, UNLESS EXTENDED.
__________________________
American Restaurant Group, Inc. (the "Company") hereby offers upon the
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal to exchange (the "Exchange Offer") up to (i)
$158,600,000 in aggregate principal amount of its 11 1/2% Series B Senior
Secured Notes due 2003 (the "Exchange Notes"), for up to $158,600,000 in
aggregate principal amount of its outstanding 11 1/2% Series A Senior Secured
Notes due 2003 (the "Notes"), issued pursuant to the Indenture, dated as of
February 25, 1998 (the "Indenture") between the Company and United States Trust
Company of California, N.A., as trustee; and (ii) 36,995 shares of its 12%
Series B Senior Pay-in-Kind Exchangeable Preferred Stock, par value $0.01 per
share (the "Exchange Preferred Stock" and, together with the Exchange Notes, the
"Exchange Securities"), for up to (x) 35,000 shares of its issued and
outstanding 12% Senior Pay-in-Kind Exchangeable Preferred Stock, par value $0.01
per share (the "Preferred Stock"), originally issued on February 25, 1998 and
(y) 1,995 shares of its Preferred Stock issued as dividends on the 35,000 shares
of Preferred Stock (the Preferred Stock and the Notes are collectively referred
to herein as the "Securities"), issued pursuant to the Certificate of
Designation filed with the Secretary of State of Delaware on February 24, 1998,
(as amended on February 25, 1998 and on March 6, 1998, the "Certificate of
Designation"). The Notes constitute Series A Notes under and as defined in the
Indenture and the Exchange Notes constitute Series B Notes under and as defined
in the Indenture. The Preferred Stock constitutes Series A Senior Preferred
Stock under and as defined in the Certificate of Designation and the Exchange
Preferred Stock constitutes Series B Senior Preferred Stock under and as defined
in the Certificate of Designation.
The terms of the Exchange Notes and the Exchange Preferred Stock are
substantially identical in all respects to the terms of the Notes and Preferred
Stock, respectively, except that the Exchange Securities are freely transferable
by holders thereof, except as provided below. For a complete description of the
terms of the Exchange Notes, see "Description of the Exchange Notes." For a
complete description of the terms of the Exchange Preferred Stock, see
"Description of the Exchange Preferred Stock." The Company will not receive any
proceeds from the Exchange Offer.
The Notes and the Preferred Stock were originally issued and sold on
February 25, 1998 in transactions not registered under the Securities Act of
1933, as amended (the "Act"), in reliance upon the exemption provided in Section
4(2) of the Act. Accordingly, the Notes and the Preferred Stock may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Act is available. The Exchange Securities are
being offered hereunder in order to satisfy the obligations of the Company under
a registration rights agreement relating to the Notes and the Preferred Stock.
See "The Exchange Offer--Purpose of the Exchange Offer." The Exchange Securities
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof without compliance with the
registration and prospectus delivery provisions of the Act, provided that (i)
such Exchange Notes or such Exchange Preferred Stock is acquired in the ordinary
course of business of such holders or any beneficial owner, (ii) such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes or such Exchange Preferred Shares, and (iii)
neither the holder nor any such beneficial owner is an "affiliate" of the
Company within the meaning of Rule 405 under the Act. Each holder of the
Securities
<PAGE> 4
who wishes to exchange Notes or Preferred Stock for Exchange Notes or Exchange
Preferred Stock, respectively, in the Exchange Offer will be required to
represent that (i) neither it nor any beneficial owner is an "affiliate" of the
Company (within the meaning of Rule 405 under the Act), (ii) any Exchange Notes
or any Exchange Preferred Stock to be received by such holder or any beneficial
owner is being acquired in the ordinary course of business of such holder or
such beneficial owner, (iii) it has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Act) of such
Exchange Notes or such Exchange Preferred Stock, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Act) of such Exchange Notes or
Exchange Preferred Stock. Each broker-dealer that receives Exchange Notes or
Exchange Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes or such Exchange Preferred Stock. The Letter of Transmittal
relating to the Exchange Offer states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes or Exchange Preferred Stock received
in exchange for Notes or Preferred Stock, respectively, where such Notes or such
Preferred Stock were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company will, for a period of 180
days after the Exchange Date (as defined herein), make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Interest on the Exchange Notes will be payable semi-annually on February
15 and August 15, commencing on February 15, 1999, to holders of record on the
immediately preceding February 1 and August 1. Interest on the Exchange Notes
will accrue from August 15, 1998. The Exchange Notes will be redeemable at the
option of the Company in whole or in part, on or after February 15, 2001, at the
redemption prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. Notwithstanding the foregoing, at any time or from time
to time on or prior to February 15, 2000, the Company may redeem up to one-third
of the aggregate principal amount of the Exchange Notes at the redemption price
of 111.5% of the principal amount thereof, plus accrued and unpaid interest, if
any, through the date of redemption, with the net cash proceeds of one or more
Qualified Equity Offerings (as defined); provided, that at least two-thirds of
the aggregate original principal amount of the Exchange Notes remains
outstanding immediately thereafter. Upon a Change of Control (as defined), the
Company will be required to offer to repurchase all of the outstanding Exchange
Notes at 101% of the principal amount thereof together with accrued and unpaid
interest, if any, to the date of repurchase.
The Exchange Notes will be senior secured obligations of the Company and
will rank senior in right of payment to all subordinated indebtedness of the
Company, and pari passu in right of payment with all senior indebtedness of the
Company. The Exchange Notes will be unconditionally guaranteed (the
"Guarantees") by each Restricted Subsidiary (as defined) of the Company. The
Exchange Notes and the Guarantees, together with the New Credit Facility (as
defined) will be secured, subject to the terms of an Intercreditor Agreement (as
defined), by a first-priority security interest in a portion of the owned or
leased real property, a substantial portion of the owned personal property and
substantially all of the accounts receivable of the Company and its Restricted
Subsidiaries, and a pledge of all of the capital stock of the Company's
Restricted Subsidiaries, and proceeds of the foregoing (collectively, the
"Collateral"). Pursuant to the Intercreditor Agreement, proceeds from the sale
of Collateral will be used first to satisfy the obligations under the New Credit
Facility, and thereafter the Exchange Notes. In addition, the Exchange Notes
will be effectively subordinated to all other secured indebtedness of the
Company to the extent of the assets that secure such indebtedness. As of March
30, 1998, the Company and its Subsidiaries had $10.0 million of secured
indebtedness other than the Exchange Notes and the New Credit Facility,
consisting of capital leases and other debt.
Dividends on the Exchange Preferred Stock will accrue at a rate of 12% per
annum of the liquidation preference. Dividends will be payable semi-annually on
February 15 and August 15 of each year, commencing on February 15, 1999.
Dividends on the Exchange Preferred Stock will accrue from August 15, 1998. The
Company may, at its option, pay dividends in cash or in additional fully paid
and non-assessable shares of Exchange Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. The Company
intends to pay dividends by issuing additional shares of Exchange Preferred
Stock.
The Exchange Preferred Stock will be redeemable at the option of the
Company, in whole or in part, at any time, at an amount in cash equal to 110% of
the liquidation preference (the "Liquidation Preference") of the Exchange
Preferred Stock, plus an amount equal to all accrued and unpaid dividends to the
date of redemption. The Exchange Preferred Stock will be mandatorily redeemable
(subject to the legal availability of funds therefor) on August 15, 2003 for
cash at a price per share equal to 110% of the then applicable Liquidation
Preference plus accrued and unpaid dividends.
ii
<PAGE> 5
Subject to certain limitations, the Company may on any February 15 or
August 15, commencing on February 15, 1999, exchange the Exchange Preferred
Stock, in whole but not in part, for its 12% Subordinated Debentures due 2003
(the "Exchange Debentures") in an aggregate principal amount equal to the then
applicable Liquidation Preference, plus accrued and unpaid dividends. In such
event, shares of Exchange Preferred Stock will be exchanged for Exchange
Debentures with an aggregate principal amount equal to the then aggregate
Liquidation Preference plus accrued and unpaid dividends of the Exchange
Preferred Stock. Exchange Debentures may be issued in denominations of $1,000
and integral multiples of $1,000 (or at the option of the Company, in
denominations of $100 and integral multiples of $100). The Exchange Debentures
will be due on August 15, 2003. At maturity, the Company shall pay a premium of
10% of the principal amount. The Exchange Debentures will bear interest from the
Exchange Debenture Date (as defined) at a rate per annum equal to 12%. Interest
on the Exchange Debentures will be payable semi-annually on February 15 and
August 15 in each year to holders of record at the close of business on the
first day of the calendar month in which such interest payment date occurs,
commencing on the first interest payment date after issuance. Alternatively, the
Company may, at its option, issue new Exchange Debentures having an aggregate
principal amount equal to the amount of such interest payments.
Holders of Securities whose Securities are not tendered and accepted in
the Exchange Offer will continue to hold such Securities and will be entitled to
all the rights and preferences and will be subject to the limitations applicable
thereto under the Indenture governing the Notes and the Exchange Notes or the
Certificate of Designation governing the Preferred Stock and the Exchange
Preferred Stock, as the case may be. Following consummation of the Exchange
Offer, the holders of Notes or Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for the registration under the Act
of the Notes or the Preferred Stock held by them.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Notes or any minimum number of shares of Preferred Stock being
tendered for exchange. The Exchange Offer will expire at 12:00 a.m., New York
City time, on _______ __, 1998, unless extended (the "Expiration Date"). The
Company's obligation to consummate the Exchange Offer is subject to certain
conditions. See "The Exchange Offer" and "Registration Rights Agreement." The
Company reserves the right to terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of any such condition. The date
of acceptance for exchange of the Exchange Securities (the "Exchange Date") will
be the first business day following the Expiration Date. Exchange Securities
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders will be irrevocable. The Company
will pay all expenses incident to the Exchange Offer.
No assurance can be given that an active public or private market for the
Exchange Securities will develop. The Company does not intend to list the
Exchange Notes or the Exchange Preferred Stock on any securities exchange. To
the extent that Securities are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Securities could be
adversely affected.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
THE DATE OF THIS PROSPECTUS IS ____ __, 1998.
iii
<PAGE> 6
INCORPORATION OF DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to
the Company that are not presented herein or delivered herewith. These documents
(other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge, on request by any person to whom this Prospectus is delivered,
from American Restaurant Group, Inc., 450 Newport Center Drive, Newport Beach,
California 92660, Attention: Vice President -- Finance.
The following documents are incorporated by reference herein:
1. Annual Report of the Company on Form 10-K for the fiscal year
ended December 29, 1997;
2. Quarterly Report of the Company on Form 10-Q for the fiscal
quarter ended March 30, 1998; and
3. Current Reports of the Company on Form 8-K dated January 30,
1998 and March 3, 1998.
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the date hereof shall be deemed to be
incorporated by reference herein and shall be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein, or contained in this Prospectus,
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document that also is deemed to be incorporated herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
iv
<PAGE> 7
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Exchange Notes and the
Exchange Preferred Stock offered hereby (together with all amendments and
exhibits, referred to as the "Registration Statement") under the Act. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed or incorporated by reference as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
thereof, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Commission. The Registration Statement and the exhibits and schedules thereto,
as well as such reports and other information filed by the Company with the
Commission, may be inspected without charge and copied at prescribed rates at
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Such reports
and other documents may also be obtained from the web site that the Commission
maintains at http://www.sec.gov. In addition, so long as any Securities or any
Exchange Securities are outstanding, the Company will furnish to the holders
thereof the quarterly and annual financial reports that the Company is required
to file with the Commission under the Exchange Act (or similar reports in the
event the Company is not at the time required to file such reports with the
Commission).
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE SECURITIES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
v
<PAGE> 8
TABLE OF CONTENTS
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PROSPECTUS SUMMARY.......................................................... 1
RISK FACTORS................................................................ 11
USE OF PROCEEDS............................................................. 19
CAPITALIZATION.............................................................. 19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................ 22
BUSINESS.................................................................... 30
MANAGEMENT.................................................................. 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 41
AMERICAN RESTAURANT GROUP HOLDINGS, INC..................................... 43
DESCRIPTION OF CERTAIN INDEBTEDNESS......................................... 45
THE EXCHANGE OFFER.......................................................... 46
REGISTRATION RIGHTS AGREEMENT............................................... 52
DESCRIPTION OF THE EXCHANGE NOTES........................................... 54
DESCRIPTION OF THE EXCHANGE PREFERRED STOCK................................. 72
DESCRIPTION OF THE EXCHANGE DEBENTURES...................................... 81
DESCRIPTION OF THE NOTES.................................................... 89
DESCRIPTION OF THE PREFERRED STOCK.......................................... 89
DESCRIPTION OF CAPITAL STOCK................................................ 89
DESCRIPTION OF THE WARRANTS................................................. 89
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS .................... 92
PLAN OF DISTRIBUTION........................................................ 97
LEGAL MATTERS............................................................... 97
EXPERTS..................................................................... 97
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-1
UNAUDITED SELECTED CONSOLIDATED PRO FORMA CONDENSED FINANCIAL DATA.......... F-1
</TABLE>
vi
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Holders of Notes and Preferred Stock are urged to read this Prospectus in its
entirety. References herein to the Company's business and pro forma information
give effect to the Recapitalization Plan (as defined), unless the context
indicates otherwise. The unaudited condensed pro forma information appearing
herein does not purport to represent what the Company's results of operations or
financial position would have been had such transactions in fact occurred at the
beginning of the period or on the date indicated or to project the financial
position or results of operations of the Company for the present year or any
future period. See "Unaudited Selected Consolidated Pro Forma Condensed
Financial Data." The Company is a majority-owned operating subsidiary of
American Restaurant Group Holdings, Inc. ("Holdings"). Unless otherwise
indicated or the context otherwise requires, references in this Prospectus to
the "Company" are to American Restaurant Group, Inc. and its subsidiaries,
including their respective predecessors. The Company's financial information is
reported on a fiscal year basis which for each of the years had 52 weeks, except
for the fiscal year ended December 30, 1996 which had 53 weeks. EBITDA is
defined as operating profit before impairment charges plus depreciation and
amortization and net losses on sale of properties. EBITDAR is defined as EBITDA
plus rent expense. EBITDA and EBITDAR should not be considered as an alternative
to, or more meaningful than, earnings from operations or other traditional
indicators of operating performance and cash flow from operating activities. See
the notes to the Summary Historical and Pro Forma Consolidated Financial Data.
THE COMPANY
OVERVIEW
The Company operates five restaurant concepts, consisting of Stuart
Anderson's Black Angus ("Black Angus") (101 restaurants), Grandy's (89
restaurants), Spoons (18 restaurants), Spectrum (15 restaurants) and National
Sports Grill (6 restaurants). Each of the Company's restaurant concepts, except
Grandy's, has had an increase in EBITDAR from 1993 to 1997. The Company's
largest division, Black Angus, is the largest steakhouse chain west of the
Mississippi River and has been ranked the first or second best steakhouse chain
in the United States by Restaurants & Institutions magazine's "Choice in Chains"
annual survey in each of the last ten years. Black Angus restaurants are
full-service restaurants featuring steak and prime rib, and also serve chicken
and seafood entrees. Through its high-quality food offerings, friendly service
and familiar, rustic Western decor, Black Angus has developed a loyal customer
base since its inception in 1964. Black Angus generated 60% of the Company's
revenues and increased its EBITDAR (excluding late-night entertainment, which
has been phased out at most of its restaurants) from $27.3 million in 1993 to
$44.5 million in 1997.
The Company's other three restaurant concepts that had EBITDAR increases
are: (i) Spoons, a casual-style restaurant concept featuring fajitas, salads and
hamburgers; (ii) Spectrum, consisting of upscale Northern Italian, American and
Mexican restaurants; and (iii) National Sports Grill, consisting of sports-theme
restaurants featuring generous portions and microbrewery beers. These concepts
generated in the aggregate 22% of the Company's revenues and increased their
aggregate EBITDAR from $10.2 million in 1993 to $14.6 million in 1997.
Grandy's, the Company's second largest division, is a family-oriented,
quick-service, country-kitchen style restaurant, which provides its customers
with quality, "home-cooked" food at value prices with conveniences such as
drive-thru service. Grandy's experienced a decline in its performance during the
last several years. In the fourth quarter of 1996, the Company restructured the
management team at Grandy's in an effort to return the division to its
historical image. Grandy's, which generated 18% of the Company's revenues,
experienced a decline in its EBITDAR from $19.5 million in 1993 to $8.1 million
in 1996 and had EBITDAR of $11.0 million in 1997. To position Grandy's for
improved performance, the Company has (i) closed 21 unprofitable restaurants,
(ii) reduced its advertising expenses, (iii) reduced division overhead, (iv)
modified its pricing strategy and (v) developed a new advertising campaign.
The Company operates a total of 229 restaurants, including 101 Black Angus
restaurants, located primarily in the Western and Southwestern regions of the
United States. The Company's revenues, EBITDA and EBITDAR for the period ending
December 29, 1997 are $440.0 million, $30.7 million and $61.4 million,
respectively.
<PAGE> 10
BACKGROUND
Since its formation in 1987, the Company has been highly leveraged, which
has resulted in dedication of significant cash flow to service its debt, and has
operated under restrictive covenants and significant liquidity constraints, all
of which have limited the Company's operating flexibility and its ability to
significantly expand its core Black Angus division. In addition, the Company's
growth and profitability have declined as a result of: (i) the strategic
decision in 1992 to gradually limit and phase out the Black Angus late-night
entertainment operations, (ii) the decline of the Grandy's operations due, in
part, to the failure of Grandy's prior management to properly position Grandy's
in its markets and (iii) the economic conditions in 1995 in the Company's
principal markets. Notwithstanding these factors, the EBITDAR for each of the
Company's concepts, except Grandy's, increased from 1993 to 1997. However, the
Company's consolidated EBITDAR, which increased from $55.8 million in 1993 to
$66.0 million in 1994, declined to $61.4 million in 1997.
As of December 28, 1992, Black Angus operated 66 in-restaurant lounges
which offered disc jockeys, dancing and a focus on the sale of alcoholic
beverages during the after-dinner and late-night time periods. While the
late-night entertainment business in isolation generated favorable profit
margins, management was concerned that this business was negatively affecting
the positive, family image of the restaurants and negatively affecting visits by
its core customer base of middle-income families and that liability and other
expenses associated with the late-night entertainment business were increasing.
Black Angus began limiting its late-night entertainment business in 1992 and
subsequently, between 1994 and 1997, phased out its late-night entertainment
business in 9 to 19 restaurants per year. It currently operates 12 restaurants
with late-night entertainment. Management may discontinue the late-night
entertainment at some or all of the remaining 12 locations based on an
evaluation of their ongoing operations. Management estimates that the late-night
entertainment operations generated approximately $9.6 million in annual EBITDA
in 1992. The remaining late-night entertainment accounted for approximately $1.8
million of EBITDA in 1997.
In 1993, Grandy's generated $111.2 million of annual revenues and $19.5
million of annual EBITDAR in the highly competitive quick-service segment. In
1994, Grandy's management adopted a strategy to compete primarily on the basis
of price. This strategy positioned Grandy's as a bargain, quick-service
restaurant but resulted in significantly lower customer counts and
same-store-sales. In the fourth quarter of 1996, the Company restructured
Grandy's management team. In connection with the restructuring, Grandy's has
closed 21 restaurants, reduced overhead, and revised the pricing, menu and
marketing strategies. The Company intends to restore Grandy's to its image of a
quick-service, family-dining restaurant concept focused on quality,
"home-cooked" meals.
BUSINESS STRATEGY
The Company has implemented a business strategy designed to enhance the
growth of its core Black Angus division, reduce corporate overhead and improve
the performance of the Grandy's division. In addition, the Company plans to
selectively expand its other divisions.
Enhance Growth of Black Angus. Black Angus' restaurant operations
generated 60% of the Company's revenues in 1997 and realized an increase in
EBITDAR (excluding late-night entertainment), from $27.3 million in 1993 to
$44.5 million in 1997. This growth has been driven by an increase in average
same-store-sales, improving EBITDAR margins and strategically opening additional
restaurants. The Company's strategy is to continue same-store-sales growth
through its successful television advertising campaigns, suggestive sales
through on-table promotions, its reputation for high-quality food and service
and leveraging its 34-year-old Black Angus name. Black Angus (excluding
late-night entertainment) had a 1.4% same-store-sales increase from 1996 to
1997. The Company also intends to expand the Black Angus division through the
opening of new restaurants. The Company intends to open four additional Black
Angus restaurants in 1998 and ten new restaurants per year thereafter for the
next several years. The Company plans to open these restaurants where it can
leverage the well-known Black Angus name and its strong advertising base
(approximately 5% of Black Angus' revenues per year).
Reduce Overhead. The Company has implemented a strategy designed to reduce
overhead. In 1997, the Company reduced certain corporate salaries, eliminated
certain redundant corporate functions and relocated and consolidated certain
administrative and financial support functions from the corporate office to the
headquarters of Grandy's. In 1998, the Company transferred accounting activities
for certain of its restaurants from those restaurants to the Grandy's
headquarters,
2
<PAGE> 11
similar to the accounting transition from Black Angus restaurants to the Black
Angus headquarters that was completed in 1996. These efforts, most of which have
been completed, are expected to result in an aggregate of $3.4 million of
overhead cost savings per year.
Improve Grandy's Performance. The plan of Grandy's restructured management
team is to (i) identify and close unprofitable stores, (ii) reduce overhead,
(iii) restore Grandy's image from a price-point competitor to a quality
quick-service/family-dining restaurant and (iv) improve customer counts. Since
mid-1996, Grandy's has closed 21 unprofitable restaurants which in the aggregate
lost $1.7 million of annual EBITDAR. In addition, Grandy's reduced its division
overhead by $1.7 million for the year ended December 29, 1997 as compared to
1996. Most recently, the new management team reconfigured the menu to focus on
increasing its average check through the sale of whole meals and reduced
single-item discounting in its marketing strategy. Management believes that, as
a result of Grandy's new strategy, Grandy's has increased its revenue per
customer 5.0% from $3.79 for the year ended December 30, 1996 to $3.98 for the
year ended December 29, 1997. In furtherance of the plan, the Company has
successfully tested a new advertising campaign in Grandy's markets and intends
to introduce a full-scale campaign in all Grandy's markets in 1998.
Other. The Company's Spoons, Spectrum and National Sports Grill concepts
are smaller divisions representing 39 of the Company's 229 restaurants. The
Company may selectively expand each of these concepts by one or two restaurants
per year.
Although the Company has no current arrangements to sell any restaurants
or divisions, the Company will review opportunities to sell restaurants in its
smaller divisions from time to time. In addition, the Company may convert
certain Company-operated Grandy's restaurants to franchised operations through
the sale of these restaurants to franchisees. No assurances can be given as to
whether the Company will sell any restaurants or if it elects to sell
restaurants the amount of consideration it will receive in such sales.
RECAPITALIZATION PLAN
On February 25, 1998, the Company completed a recapitalization plan
intended to reduce the Company's aggregate cash interest expense, provide more
operational liquidity and permit the Company to expand the Company's restaurant
concepts in its core markets in the western United States (the "Recapitalization
Plan").
The principal elements of the Recapitalization Plan were the following:
(i) The issuance of the Notes;
(ii) The issuance of 35,000 units (the "Units"), each Unit consisting of
$1,000 initial liquidation preference of Preferred Stock and one Common
Stock Purchase Warrant (each a "Warrant," and collectively, the
"Warrants"), initially to purchase 2.66143 shares of the Common Stock, par
value $.01 per share, of the Company at an initial exercise price of $.01
per share (the "Common Stock");
(iii) The redemption of $126.4 million aggregate principal amount of the
Company's Senior Secured Notes due 1998 (the "Old Senior Secured Notes")
at par plus accrued and penalty interest thereon and the repayment of
certain other interest-bearing short-term liabilities;
(iv) The repurchase of $45.0 million aggregate principal amount of the
Company's 10.25% Subordinated Notes (the "Subordinated Notes") at a price
equal to 65% of the aggregate principal amount of the Subordinated Notes,
plus accrued and penalty interest thereon, and the cancellation of the
related warrants (the "Old Warrants") to purchase common stock of
Holdings.
(v) The extension of the accretion period on Holdings' Senior Discount
Debentures due 2005 (the "Holdings Debentures"), with an accreted value on
June 29, 1998 of approximately $87.9 million, from June 15, 1999 to
maturity on December 15, 2005 and the amendment of certain provisions of
the Holdings Debentures (as so amended, the "Amended Debentures"). Such
Amended Debentures accrete at a rate of 14.25%, compounded semi-annually
(as
3
<PAGE> 12
opposed to 14% for the Holdings Debentures). In addition, holders of
Holdings Debentures with an accreted value on February 24, 1998 of
approximately $10.8 million surrendered such Debentures for cancellation
and received $3.6 million principal amount of the Notes; and
(vi) The establishment of a $15.0 million credit facility (the "New
Credit Facility").
For a description of the Company's indebtedness, and the consolidated
capitalization of the Company after giving effect to the Exchange Offer and the
Recapitalization Plan, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," "Description of Certain Indebtedness" and
"Capitalization."
THE EXCHANGE OFFER
Securities Offered.................. $158,600,000 aggregate principal amount
of 11 1/2% Series B Senior Secured Notes
due 2003 (the "Exchange Notes") and
36,995 shares of 12% Series B Senior
Pay-in-Kind Exchangeable Preferred Stock
(the "Exchange Preferred Stock").
The Exchange Notes will be issued under
the Indenture between the Company and
United States Trust Company of
California, N.A., as trustee, pursuant to
which the Notes were issued. The terms of
the Exchange Notes will be substantially
identical in all respects (including
interest rate and maturity) to the terms
of the Notes that are to be exchanged
therefor, except that the Exchange Notes
will be freely transferable by holders
thereof (except as provided herein), and
will not be issued subject to any
covenant regarding registration under the
Act. See "Description of the Exchange
Notes."
The Exchange Preferred Stock will be
issued under the Certificate of
Designation. Upon consummation of the
Exchange Offer, the Exchange Preferred
Stock will be separately tradeable from
the Warrants with which the Preferred
Stock was originally issued as a Unit.
The form and terms of the Exchange
Preferred Stock will be substantially
identical in all respects to the form and
terms of the Preferred Stock that are to
be exchanged therefor, except that the
Exchange Preferred Stock will be freely
transferable by holders thereof (except
as provided herein), and will not be
issued subject to any covenant regarding
registration under the Act. See
"Description of the Exchange Preferred
Stock."
The Warrants are not the subject of this
Exchange Offer.
Exchange Offer...................... The Exchange Notes are being offered in
exchange for a like principal amount of
the Notes, and the shares of Exchange
Preferred Stock are being offered for a
like number of shares of Preferred Stock.
Notes may be exchanged only in integral
multiples of $1,000, and the Preferred
Stock may be exchanged in whole or in
partial share increments. Holders of
Preferred Stock who tender their shares
in exchange for Exchange Preferred Stock
shall be deemed to have tendered for
exchange any shares of Preferred Stock
received as dividends on such shares of
Preferred Stock. The Company has agreed
to make the Exchange Offer in order to
satisfy its obligations under a
registration rights agreement (the
"Registration Rights Agreement"), dated
as of February 25, 1998, relating to the
Notes and the Preferred Stock. For a
description of the procedures for
tendering, see "The Exchange
Offer--Tender Procedure."
Expiration Date; Withdrawal......... The Exchange Offer will expire at 12:00
a.m., New York City time, on , 1998 or
such later date and time to which it may
be extended in the sole discretion of the
Company (the "Expiration Date"). The date
of acceptance for exchange of the
Securities (the "Exchange Date") will be
the first business day following the
Expiration Date. Securities tendered
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any Securities not
accepted for exchange for any reason will
be returned without expense to the
tendering holders thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
4
<PAGE> 13
Conditions to the Exchange Offer ... The Exchange Offer is subject to certain
conditions. See "The Exchange
Offer--Conditions of the Exchange Offer."
The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Notes or any minimum number of
shares of Preferred Stock being tendered
for exchange.
Certain United States Federal Income
Tax Considerations................ Simpson Thacher & Bartlett, New York, New
York, special tax counsel to the Company
("Tax Counsel"), is of the opinion that
the exchange of the Notes or the
Preferred Stock for the Exchange Notes or
the Exchange Preferred Stock,
respectively, will not be a taxable event
to holders, and holders will not
recognize any taxable gain or loss or any
interest income as a result of such
exchange. Tax Counsel has also advised
the Company that the holding period of
the Exchange Securities will include the
holding period of the Securities and that
the basis of the Exchange Securities will
be the same as the basis of the
Securities immediately before the
exchange. See "Certain United States
Federal Income Tax Considerations."
Untendered Securities............... Upon consummation of the Exchange Offer,
the holders of Securities, if any, will
have no further registration or other
rights under the Registration Rights
Agreement. Holders of Notes or Preferred
Stock who do not tender their Notes or
Preferred Stock in the Exchange Offer or
whose Notes or Preferred Stock are not
accepted for exchange will continue to
hold such Notes or Preferred Stock, as
the case may be, and will be entitled to
all the rights and preferences and will
be subject to the limitations applicable
thereto under the Indenture and
Certificate of Designation, respectively,
except for any such rights or limitations
which, by their terms, terminate or cease
to be effective as a result of this
Exchange Offer. All untendered and
tendered but unaccepted Securities will
continue to be subject to the
restrictions on transfer provided
therein. To the extent that Securities
are tendered and accepted in the Exchange
Offer, the trading market for untendered
and tendered but unaccepted Securities
could be adversely affected. See "Risk
Factors--Exchange Offer Procedures;
Effects of Failure to Tender or Properly
Tender."
Resales............................. Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Securities
issued pursuant to the Exchange Offer in
exchange for Securities may be offered
for resale, resold and otherwise
transferred by holders thereof without
compliance with the registration and
prospectus delivery provisions of the
Act, provided that (i) such Exchange
Securities are acquired in the ordinary
course of business of such holder or any
beneficial owner, (ii) such holders have
no arrangement or understanding with any
person to participate in the distribution
of such Exchange Securities and (iii)
neither the holder nor any such
beneficial owner is an "affiliate" of the
Company within the meaning of Rule 405
under the Act. See "Morgan Stanley & Co.
Inc.," SEC No-Action Letter (available
June 5, 1991) and "Exxon Capital Holdings
Corporation," SEC No-Action Letter
(available May 13, 1988). Each holder of
Securities who wishes to exchange
Securities for Exchange Securities in the
Exchange Offer will be required to
represent that (i) it is not an
"affiliate" of the Company (within the
meaning of Rule 405 under the Act), (ii)
any Exchange Securities to be received by
it are being acquired in the ordinary
course of its business, (iii) it has no
arrangement or understanding with any
person to participate in a distribution
(within the meaning of the Act) of such
Exchange Securities, and (iv) if such
holder is not a broker-dealer, such
holder is not engaged in, and does not
intend to engage in, a distribution
(within the meaning of the Act) of such
Exchange Securities. Each broker or
dealer that receives Exchange Securities
for its own account in exchange for
Securities, where such Securities were
acquired by such broker or dealer as a
result of market-making or other
activities, must acknowledge that it will
deliver a Prospectus in connection with
any sale of such Exchange Securities. See
"Plan of Distribution."
DESCRIPTION OF THE EXCHANGE NOTES
Maturity Date....................... February 15, 2003.
Interest Rate and Payment Dates .... The Exchange Notes will bear interest at
a rate of 11 1/2% per annum. Interest on
the Exchange Notes will be payable
semi-annually in cash in arrears on
February 15 and August 15
5
<PAGE> 14
of each year, commencing February 15,
1999, to holders of record on the
immediately preceding February 1 and
August 1. Interest on the Exchange Notes
will accrue from August 15, 1998.
Guarantees.......................... The Exchange Notes will be fully and
unconditionally guaranteed by each of the
current and future Restricted
Subsidiaries (as defined) of the Company
(collectively, the "Guarantors"), jointly
and severally (subject to insolvency and
fraudulent conveyance limitations). See
"Description of the Exchange
Notes--Guarantors."
Security............................ The Exchange Notes and the Guarantees,
together with the New Credit Facility,
will be secured, subject to the
Intercreditor Agreement, by a
first-priority security interest in a
portion of the owned or leased real
property, a substantial portion of the
owned personal property and substantially
all of the accounts receivable of the
Company and its Restricted Subsidiaries,
a pledge of all of the capital stock of
the Company's Restricted Subsidiaries,
and proceeds of the foregoing (the
"Collateral"). See "Risk
Factors--Collateral; Other Secured
Indebtedness," "Description of the
Exchange Notes--Collateral" and
"Description of Certain
Indebtedness--Intercreditor Agreement and
Collateral Documents."
Ranking............................. The Exchange Notes will be senior secured
obligations of the Company and rank
senior in right of payment to all
subordinated indebtedness of the Company,
and pari passu in right of payment with
all senior indebtedness of the Company.
Pursuant to the Intercreditor Agreement,
proceeds from the sale of Collateral will
be used first to satisfy the obligations
under the New Credit Facility, and
thereafter, the Exchange Notes. In
addition, the Exchange Notes will be
effectively subordinated to all other
secured indebtedness of the Company to
the extent of the assets that secure such
indebtedness. The Indenture limits, among
other things, the incurrence of
indebtedness or the existence of liens on
the assets of the Company, subject to
certain exceptions. See "Description of
the Exchange Notes--Collateral" and
"Description of the Exchange
Notes--Certain Covenants" and
"Description of Certain
Indebtedness--Intercreditor Agreement and
Collateral Documents."
Optional Redemption................. The Exchange Notes will be redeemable at
the option of the Company, in whole or in
part, on or after February 15, 2001, at
the redemption prices set forth herein,
plus accrued interest, if any, to the
date of redemption. Notwithstanding the
foregoing, at any time or from time to
time prior to February 15, 2000, the
Company may redeem up to one-third of the
original aggregate principal amount of
the Exchange Notes at the redemption
price of 111.5% of the principal amount
thereof, plus accrued and unpaid
interest, if any, through the date of
redemption with the net cash proceeds of
one or more Qualified Equity Offerings,
provided that (a) such redemption shall
occur within 60 days of the date of the
closing of such offering and (b) at least
two-thirds of the original aggregate
principal amount of the Exchange Notes
remains outstanding immediately
thereafter. See "Description of the
Exchange Notes--Redemption."
Mandatory Redemption................ None.
Change of Control................... Upon a Change of Control, the Company
will be required to offer to repurchase
all of the outstanding Exchange Notes at
a price equal to 101% of the principal
amount thereof, together with accrued and
unpaid interest, if any, to the date of
repurchase. See "Description of the
Exchange Notes--Change of Control" and
"--Certain Covenants."
Certain Covenants................... The Indenture contains certain covenants
that limit the ability of the Company and
its Restricted Subsidiaries, if any, to,
among other things, (i) incur additional
indebtedness, (ii) make restricted
payments, (iii) issue and sell capital
stock of subsidiaries, (iv) enter into
certain transactions with affiliates, (v)
create certain liens, (vi) sell certain
assets and (vii) merge, consolidate or
sell substantially all of the Company's
assets. See "Description of the Exchange
Notes--Certain Covenants."
For a more detailed description of the
Exchange Notes see "Description of the
Exchange Notes."
6
<PAGE> 15
DESCRIPTION OF THE EXCHANGE PREFERRED STOCK
Dividends........................... Dividends on the Exchange Preferred Stock
will accrue at a rate of 12% per annum of
the liquidation preference. Dividends
will be payable semi-annually on February
15 and August 15 of each year, commencing
on February 15, 1999. Dividends on the
Exchange Preferred Stock will accrue from
August 15, 1998. The Company may, at its
option, pay dividends in cash or in
additional fully paid and non-assessable
shares of Exchange Preferred Stock having
an aggregate liquidation preference equal
to the amount of such dividends. The
Company currently intends to pay
dividends by issuing additional shares of
Exchange Preferred Stock.
Liquidation Preference.............. $1,000 per share.
Ranking............................. The Exchange Preferred Stock will rank
senior in right of payment with respect
to all Junior Securities (as defined
herein).
Optional Redemption................. The Exchange Preferred Stock will be
redeemable at the option of the Company,
in whole or in part, at any time, at 110%
of the Liquidation Preference plus
accrued and unpaid dividends to the date
of redemption.
Mandatory Redemption................ The Exchange Preferred Stock will be
mandatorily redeemable on August 15, 2003
for cash (subject to the legal
availability of funds therefor) at a
price per share equal to 110% of the then
applicable Liquidation Preference plus
accrued and unpaid dividends to the date
of redemption.
Voting Rights....................... The Exchange Preferred Stock will not
have any voting rights, except as set
forth herein or as otherwise required by
law.
Certain Covenants................... The Certificate of Designation contains
covenants that limit the ability of the
Company to redeem or repurchase Junior
Securities (as defined) and pay dividends
thereon, to merge or consolidate with any
other entity, to sell certain assets, to
sell all or substantially all of the
assets and to enter into transactions
with affiliates. The Certificate of
Designation also requires the Company to
deliver certain reports and information,
including reporting as to whether it
meets the Maintenance Test Ratio (as
defined) each quarter, to the holders of
the Exchange Preferred Stock.
Exchange............................ Subject to certain limitations, the
Company may, on any February 15 or August
15, commencing February 15, 1999,
exchange the Exchange Preferred Stock in
whole but not in part for Exchange
Debentures with an aggregate principal
amount equal to the then applicable
Liquidation Preference plus accrued and
unpaid dividends to the date of exchange.
For a more detailed description of the
Exchange Preferred Stock, see
"Description of the Exchange Preferred
Stock."
DESCRIPTION OF EXCHANGE DEBENTURES
Interest Rate and Payment Dates .... The Exchange Debentures will bear
interest at the rate of 12% per annum.
Interest on the Exchange Debentures will
be payable semi-annually in arrears on
February 15 and August 15 of each year,
commencing on the first interest payment
date after issuance. The Company may at
its option pay interest in cash or in
additional Exchange Debentures having an
aggregate principal amount equal to the
amount of such interest.
Maturity Date....................... August 15, 2003. At maturity, the Company
will pay a premium of 10% of the
principal amount.
Optional Redemption................. The Exchange Debentures will be
redeemable at the option of the Company,
in whole or in part, at a redemption
price equal to 110% of the principal
amount, plus accrued and unpaid interest,
if any, to and including the date of
redemption.
7
<PAGE> 16
Mandatory Redemption................ None.
Ranking............................. The Exchange Debentures will be
subordinated obligations of the Company
and will be subordinated in right of
payment to all existing and future Senior
Debt (as defined) of the Company. See
"Description of the Exchange
Debentures--Subordination."
Certain Covenants................... The Exchange Debenture Indenture (as
defined) will contain certain covenants,
including covenants relating to (i)
restricted payments, (ii) transactions
with affiliates, (iii) certain asset
sales, (iv) the Company's ability to
exceed the Maintenance Test Ratio and (v)
mergers, consolidations and sales of
substantially all assets. See
"Description of the Exchange
Debentures--Covenants."
For a more detailed description of the
Exchange Debentures, see "Description of
the Exchange Debentures."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
For a discussion of the United States federal income tax consequences
of the purchase, ownership, exercise (in the case of Warrants) and disposition
of the Preferred Stock, Exchange Debentures and Warrants, see "Certain United
States Federal Income Tax Considerations."
USE OF PROCEEDS
The Company will not receive any proceeds for the exchange pursuant to
the Exchange Offer.
RISK FACTORS
HOLDERS OF THE SECURITIES SHOULD CONSIDER CAREFULLY THE INFORMATION SET
FORTH UNDER "RISK FACTORS," AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS BEFORE TENDERING SECURITIES IN EXCHANGE FOR THE EXCHANGE SECURITIES.
-----------------------
American Restaurant Group, Inc. is a Delaware corporation. Its
principal office is located at 450 Newport Center Drive, 6th Floor, Newport
Beach, California 92660 and its telephone number is (949) 721-8000.
8
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for each
of the last three years ended December 25, 1995, December 30, 1996 and December
29, 1997 has been derived from the consolidated financial statements of the
Company which have been audited by Arthur Andersen LLP, independent accountants.
The financial data for the thirteen weeks ended March 31, 1997 and March 30,
1998 have been derived from the Company's unaudited financial statements, which
in the opinion of management include all adjustments necessary for a fair
presentation of the data for interim periods. The Company's pro forma financial
data for the thirteen-week period ended March 30, 1998 and for the fifty-two
week period ended December 29, 1997, respectively, are for informational
purposes only and give effect to the Recapitalization Plan as if the
Recapitalization Plan had been consummated on December 30, 1997 for the
thirteen-week period ended March 30, 1998 and on December 30, 1996 for the
fifty-two week period ended December 29, 1997. The unaudited condensed pro forma
information appearing herein does not purport to represent what the Company's
results of operations or financial position would have been had such
transactions in fact occurred at the beginning of the periods or on the date
indicated or to project the financial position or results of operations of the
Company for the present year or any future period. See "Unaudited Selected
Consolidated Pro Forma Condensed Financial Data." The results of operations for
the thirteen weeks ended March 30, 1998 are not necessarily indicative of the
results that may be expected for the full fiscal year. This Selected Historical
Financial Data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------
HISTORICAL THIRTEEN THIRTEEN
HISTORICAL YEAR ENDED WEEKS ENDED YEAR ENDED WEEKS ENDED
------------------------------------- ---------------------- ---------- -----------
DEC. 25, DEC. 30, DEC. 29, MAR. 31, MAR. 30, DEC. 29, MAR. 30,
1995 1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues ...................... $ 445,966 $ 445,424 $ 440,039 $ 114,110 $112,122 $ 428,513 $111,568
Gross Profit(2) ............... 62,765 52,699 55,790 14,760 16,081 56,538 16,131
Operating Profit before
Impairment Charges(3) ........ 8,586 4,227 6,803 3,800 7,023 12,478 7,156
Interest Expense, Net ......... 28,004 27,714 23,985 5,925 5,521 19,506 4,871
Net Income/(Loss) ............. (39,662) (38,461) (20,292) (2,128) 11,060(4) (10,139) 11,843(4)
Ratio of Earnings to Fixed
Charges(5) ................... -- -- -- -- 1.2x -- 1.3x
Deficiency in Earnings to
cover Fixed Charges(5) ....... (39,596) (36,692) (20,229) (2,125) -- (11,001) --
Ratio of Earnings to Fixed
Charges and Preferred Stock
Dividends(6) ................. -- -- -- -- 1.1x -- 1.1x
Deficiency in Earnings to
cover Fixed Charges and
Preferred Stock
Dividends(6) ................. (39,596) (36,692) (20,229) (2,125 -- (16,507) --
RESTAURANT DATA:
Restaurants (end of period) ... 248 247 231 244 230 229 229
Increase/(Decrease) in
Same-store-sales:
Consolidated(7)(8) ............ (5.8)% (2.9)% (2.3)% (4.8)% 0.5% (2.3)% 0.5%
Black Angus (excluding
late-night
entertainment)(7)(9) ......... (5.1)% 1.0% 1.4% (3.3)% 4.0% 1.4% 4.0%
OTHER DATA:
EBITDA(10) .................... $ 32,089 $ 26,100 $ 30,713 $ 8,513 $ 10,675 $ 33,161 $ 10,725
EBITDAR(11) ................... 54,952 50,913 61,389 16,271 17,951 61,423 17,600
Depreciation and Amortization . 22,819 20,386 19,627 4,823 3,749 16,400 3,666
Capital Expenditures .......... 16,277 13,279 4,650 2,272 2,256 4,650 2,256
</TABLE>
9
<PAGE> 18
<TABLE>
<CAPTION>
AS OF MAR. 30, 1998
----------------------
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
<S> <C>
Cash ........................................................ $ 6,209
Property, Plant & Equipment, Net ............................ 91,972
Total Assets ................................................ 155,715
Long-term Debt .............................................. 160,353
Cumulative Preferred Stock, Mandatorily Redeemable........... 33,239
Common Stockholders' Equity (Deficit) ....................... (104,697
</TABLE>
(1) Gives effect to the issuance of the Notes and the Units and the use of
proceeds therefrom and the Recapitalization Plan as if these activities
had occurred on December 30, 1997 for the thirteen-week period ended
March 30, 1998 and on December 30, 1996 for the fifty-two week period
ended December 29, 1997. Does not give effect to the reduction of $1.8
million in corporate salaries and expenses relating to actions taken in
the later half of 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Unaudited Selected Consolidated Pro Forma Condensed
Financial Statements, included elsewhere herein.
(2) Gross Profit is defined as revenues less food and beverage, payroll and
direct operating costs.
(3) Operating Profit is stated before non-cash charges for impairment of
long-lived assets of $20.2 million in 1995, $13.2 million in 1996 and
$3.0 million in 1997.
(4) Includes a $9.6 million extraordinary gain on extinguishment of debt.
(5) For the purpose of determining the ratio or deficiency of earnings to
cover fixed charges, earnings consist of earnings before extraordinary
gain or loss, income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, the amortization of debt issue costs and that
portion of operating rental expense representative of the interest
factor.
(6) The ratio or deficiency of earnings to fixed charges and preferred
stock dividends are the same as the ratio of earnings to fixed charges
except that preferred stock dividends are added to fixed charges even
though the Company intends to pay such dividends by issuing additional
shares of Preferred Stock or Exchange Preferred Stock, as the case may
be.
(7) Same stores are defined as restaurants which have been in operation for
the entire prior year.
(8) Excludes Velvet Turtle restaurants. As of February 1997, the Company
closed the last Velvet Turtle restaurant.
(9) This presentation excludes all late-night entertainment operations of
the Black Angus restaurants and, in 1997, the lunch business in 14
Black Angus restaurants where lunch was discontinued in 1997.
(10) EBITDA is defined as operating profit before impairment charges plus
depreciation and amortization and net losses on sale of properties. For
the years ended December 25, 1995, December 30, 1996 and December 29,
1997, the net losses on the sale of properties were $0.7 million, $1.5
million and $4.3 million, respectively. For the thirteen weeks ended
March 31, 1997 and March 30, 1998, the amortization of deferred gains,
which exceeded losses on the sale of properties, netted to $0.1 million
and $0.1 million respectively. EBITDA should not be considered an
alternative to, or more meaningful than, earnings from operations or
other traditional indicators of operating performance and cash flow
from operating activities. In connection with the closing of
restaurants in 1997, the Company established a closed-unit reserve to
which the Company charges ongoing expenses relating to closed
restaurants as incurred. Approximately $1.0 million in cash charges is
expected to be charged per year to this reserve on an ongoing basis for
the next several years.
(11) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has been
presented for the purposes of providing information on the Company's
operations before giving effect to financing activities such as the
sale/leaseback transactions and to facilitate comparisons to prior
periods. In the second half of 1996, the Company completed $63.4
million of sale/leaseback transactions with the proceeds used to repay
$50.5 million of indebtedness at par and for general corporate
purposes. As a result of these transactions, annual rent expense
increased by $8.0 million. EBITDAR should not be considered an
alternative to, or more meaningful than, earnings from operations or
other traditional indicators of operating performance and cash flow
from operating activities.
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RISK FACTORS
Each holder of Notes or Preferred Stock should consider carefully the
following specific risk factors, as well as the other information set forth in
this Prospectus before tendering Notes or Preferred Stock in exchange for
Exchange Notes or Exchange Preferred Stock, respectively, offered hereby. This
Prospectus contains certain forward-looking statements, including statements
containing the words "believes," "anticipates," "expects," "intends" and words
of similar import. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors (collectively, "Factors") which may cause
the actual results or performance of the Company to be materially different from
any future results or performance expressed or implied by such forward-looking
statements. Such Factors include, among others, the following: adverse changes
in national or local economic conditions; competition from other restaurant
companies; changes in the availability, cost and terms of financing; changes in
cost of sales, including food costs, and in other operating expenses; the
ability to execute business strategies; and other Factors referenced in this
Prospectus. Certain of these Factors are discussed in more detail elsewhere in
this Prospectus, including without limitation, in "Prospectus Summary",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, holders of Notes or
Preferred Stock are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such Factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments. The risk factors set forth below are generally applicable to the
Notes and Preferred Stock as well as the Exchange Notes and the Exchange
Preferred Stock.
HIGH LEVERAGE; RENT EXPENSE; ABILITY TO SERVICE DEBT
The Company is a highly leveraged company and continues to be highly
leveraged after completion of the Recapitalization Plan. At March 30, 1998, the
Company's total consolidated long-term indebtedness was approximately $168.6
million and the Company had a stockholders' deficit of $104.7 million. Further,
the Company has $35 million of aggregate liquidation preference of Preferred
Stock and following consummation of the Exchange Offer will have $35 million
aggregate liquidation preference of Exchange Preferred Stock, which aggregate
liquidation preference amount will increase as dividends are paid in kind on the
Preferred Stock or the Exchange Preferred Stock, as the case may be. In
addition, the Preferred Stock is and the Exchange Preferred Stock will be
mandatorily redeemable in cash on August 15, 2003 (following the maturity of the
Notes or the Exchange Notes, as the case may be) at 110% of the aggregate
liquidation preference of the Preferred Stock or the Exchange Preferred Stock,
as the case may be. In addition, in certain circumstances, including upon
failure to comply with the Maintenance Test Ratio, the dividend rate on the
Preferred Stock or the Exchange Preferred Stock, as the case may be, will
increase to 15% (or 13.5% for the first two quarters of default under the
Maintenance Test Ratio). See "Description of Exchange Preferred
Stock--Covenants" and "--Certain Definitions." Moreover, the Indenture permits,
subject to compliance with certain conditions, the incurrence by the Company and
its subsidiaries of additional indebtedness in the future. In addition, as is
common in the restaurant industry, the Company operates with a working capital
deficit, which as of March 30, 1998 was approximately $35.0 million. The Company
has also generally operated under significant liquidity constraints which have
limited its operational flexibility and ability to expand its core Black Angus
division. On February 25, 1998, pursuant to the Recapitalization Plan, the
Company entered into a $15.0 million revolving credit facility (the "New Credit
Facility").
In addition to its leverage, the Company has had significant rent
expenses, which increased substantially in 1996. In the second half of 1996, the
Company completed sale/leaseback transactions for an aggregate sales price of
$63.4 million and simultaneously executed long-term leases with respect to the
sold property. The leases call for aggregate annual rent payments of $8.0
million, subject to certain escalation clauses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company's aggregate rent expense for the year ended December 29,
1997 was $28.3 million on a pro forma basis.
The degree to which the Company is leveraged, its liquidity constraints
and its debt service, rent expense and dividend and redemption obligations have
significantly affected the Company and could have important adverse consequences
to the Company and the holders of the Exchange Securities, including the
following, any of which could affect the Company's ability to make payments with
respect to the Exchange Securities: (i) the Company could be vulnerable to
changes in general economic conditions; (ii) the Company's ability to obtain
additional financing or acceptable terms from vendors for working capital, or
additional financing for capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired; (iii) the Company is more highly
leveraged than certain of its competitors, which places the Company at a
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competitive disadvantage; and (iv) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service, rent expense, and
redemption payments and will not be available for other purposes.
For 1997, the Company's earnings before extraordinary loss, income taxes
and fixed charges (which consist of interest on indebtedness, the amortization
of debt issue costs and that portion of operating rental expense representative
of the interest factor) were insufficient to cover fixed charges by the amount
of $20.2 million. On a pro forma basis, after giving effect to the
Recapitalization Plan, for 1997, the Company's earnings before extraordinary
loss, income taxes and fixed charges were insufficient to cover (i) fixed
charges by the amount of $11.0 million and (ii) fixed charges and preferred
stock dividends by $16.0 million. In addition, on a pro forma basis, the
Company's ratio of EBITDA to net interest expense would have been 1.7x for 1997.
There can be no assurance that the Company's earnings before income taxes and
fixed charges will not continue to be insufficient to cover fixed charges and
preferred stock dividends.
The Company's ability to meet its debt service obligations, pay the
Exchange Preferred Stock mandatory redemption price, satisfy the Maintenance
Test Ratio and to grow will depend upon its future performance, which will be
subject to general economic conditions, its ability to achieve cost savings and
other financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. The Company does not expect that
it will be able to generate sufficient cash flow from future operations to pay
the Exchange Notes upon maturity or the mandatory redemption price of the
Exchange Preferred Stock and, accordingly, the Company will be required to
refinance all or a portion of such debt or Exchange Preferred Stock or obtain
additional financing or possibly sell assets. No assurance can be made that any
such refinancing or sale would be possible or would not contain terms and
conditions that could have a material adverse effect on the Company and its
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RECENT LOSSES
The Company experienced net losses after extraordinary items of $39.7
million in 1995, $38.5 million in 1996 and $20.3 million in 1997. If the Company
continues to have net losses there could be a material adverse effect on the
business of the Company which could affect the Company's ability to repay the
Exchange Notes. See "--High Leverage; Rent Expense; Ability to Service Debt" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COLLATERAL; OTHER SECURED INDEBTEDNESS
The Collateral securing the Notes and which will secure the Exchange Notes
also secures the obligations under the New Credit Facility. Pursuant to an
agreement with the lenders under the New Credit Facility, proceeds from the sale
of the Collateral will be paid first to satisfy obligations under the New Credit
Facility and thereafter, the Notes and the Exchange Notes. In addition, the
Notes are and Exchange Notes will be effectively subordinated to all other
secured indebtedness of the Company and its Subsidiaries (except the New Credit
Facility) to the extent of the assets that secure such other indebtedness. As of
March 30, 1998, the Company had $10.0 million of secured indebtedness other than
the Notes and the New Credit Facility. Moreover, if a bankruptcy proceeding were
to be commenced by or against the Company or a Guarantor, the Collateral Agent
(as defined) is authorized to subordinate its security interest in the
Collateral to other indebtedness which, when aggregated with the principal
amount then outstanding under the New Credit Facility, would not exceed $20
million. See "Description of Certain Indebtedness--Intercreditor Agreement and
Collateral Documents."
In the event of a default under the Notes or the Exchange Notes, the
proceeds from the sale of the Collateral may not be sufficient to satisfy in
full the Company's obligations under the New Credit Facility and the Notes and
the Exchange Notes. The amount to be received upon such a sale would depend upon
numerous factors, including the timing and manner of the sale. The book value of
the Collateral is less than the principal amount of the Notes and will be less
than the principal amount of the Exchange Notes offered hereby. By its nature,
the Collateral is illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the Collateral can be sold in a
short period of time or that the proceeds obtained therefrom will be sufficient
to pay all amounts owing to the lenders under the New Credit Facility and the
holders of the Notes and the Exchange Notes. To the extent that third parties
(including the lenders under the New Credit Facility) enjoy Permitted Liens,
such third parties may have rights and remedies with respect to the property
subject to such Liens that, if exercised, could adversely affect the value of
the Collateral.
A significant portion of the Collateral, including the real property
portion thereof, includes tangible and intangible assets which may only be
usable as part of the existing operating businesses. Accordingly, any such sale
of the Collateral, including
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the real property portion thereof, separate from the sale of certain of the
Company's divisions as a whole may not be feasible or of any value.
A significant portion of the Collateral (other than the stock of
Subsidiaries) consists of leased land and improvements made thereto which are
owned by the Company. The security interest (which may be unperfected in certain
states as a result of recording costs and other taxes) in such Collateral
consists of deeds of trusts and mortgages, as applicable to each state,
encumbering the Company's leasehold estate in the land and fee (ownership)
interest in the improvements. However, in most if not all cases, the ownership
of the improvements remains with the Company only so long as the Company's
leasehold interest (as a tenant) in the real property remains in effect. Upon
the expiration or early termination of a real property lease, the Company's
ownership interest in the leasehold improvements also may be terminated.
Accordingly, a landlord's exercise of its rights under a lease may terminate or
significantly impair any portion of the Collateral which is an improvement on
such real property. In addition, any exercise by the Collateral Agent of its
rights to foreclose or otherwise acquire possession of portions of the
Collateral which are leasehold estates or owned improvements may be impaired or
terminated by landlords' rights, by rights of landlords' lenders, or by the
particular provisions of state law governing the sale of encumbered property by
a creditor with a real property security interest. Additionally, the inclusion
of the Company's fixtures as a portion of the Collateral will be limited to the
extent such fixtures are deemed to be personal property.
The right of the Collateral Agent, as a secured party under the Collateral
Documents for the benefit of the holders of the Notes and the Exchange Notes, to
foreclose upon and sell the Collateral upon the occurrence of a payment default
is likely to be significantly impaired by applicable bankruptcy laws, including
the automatic stay pursuant to Section 362 of the Bankruptcy Code, if a
bankruptcy proceeding were to be commenced by or against the Company or a
Guarantor (as defined) before or possibly even after the Collateral Agent has
foreclosed upon and sold the Collateral. Under applicable federal bankruptcy
laws, secured creditors are prohibited from repossessing their security from a
debtor in a bankruptcy case, or from disposing of security repossessed from such
a debtor, without bankruptcy court approval. Moreover, applicable federal
bankruptcy laws generally permit the debtor to continue to retain collateral
even though the debtor is in default under the applicable debt instruments. In
view of the broad discretionary powers of a bankruptcy court, the Company cannot
predict whether payments under the Notes or Exchange Notes would be made
following commencement of and during a bankruptcy case, whether or when the
Collateral Agent could foreclose upon or sell the Collateral or whether or to
what extent holders of Notes or Exchange Notes would be compensated for any
delay in payment or loss of value of the Collateral. Furthermore, in the event
the bankruptcy court determines that the value of the Collateral is not
sufficient to repay all amounts due on the Notes or the Exchange Notes, holders
of Notes or Exchange Notes would hold "under-secured claims." Applicable federal
bankruptcy laws do not permit the payment and/or accrual of interest, costs and
attorney's fees for "under-secured claims" during a debtor's bankruptcy case.
Except upon and during the continuance of a Default or Event of Default,
the Collateral Agent is required under certain circumstances to release its
liens on Collateral proposed to be sold by the Company, further reducing the
sufficiency of the collateral securing the Notes and the Exchange Notes.
RANKING OF PREFERRED STOCK AND EXCHANGE PREFERRED STOCK; CONSEQUENCES OF HOLDING
COMPANY STRUCTURE
The Preferred Stock is and the Exchange Preferred Stock will be junior in
right of payment to all existing and future liabilities and obligations (whether
or not for borrowed money) of the Company (other than Common Stock and any
preferred stock which by its terms is on parity with or junior to the Preferred
Stock or the Exchange Preferred Stock). Accordingly, in the event of a
liquidation, dissolution or winding up of the Company, lenders to and other
creditors of the Company would be entitled to payment in full before the holders
of Preferred Stock or Exchange Preferred Stock. The Preferred Stock is and the
Exchange Preferred Stock will be also effectively subordinated to the
obligations of the Company's subsidiaries because the Company is a holding
company. In the event of an insolvency, liquidation or other reorganization of
any of the subsidiaries of the Company, the shareholders of the Company
(including the holders of Preferred Stock or Exchange Preferred Stock), will
have no right to proceed against the assets of such subsidiaries or to cause the
liquidation or bankruptcy of such subsidiaries under Federal bankruptcy laws.
Creditors of such subsidiaries would be entitled to payment in full from such
assets before the Company, as a shareholder, would be entitled to receive any
distribution therefrom.
In addition, the mandatory redemption obligation in respect of the
Exchange Preferred Stock is solely an obligation of the Company. Accordingly,
the ability of the Company to pay the mandatory redemption price will be
dependent upon the operating cash flow of its subsidiaries and the payment of
funds by such subsidiaries in the form of loans, dividends or
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otherwise. There can be no assurances that there will be sufficient cash flow or
payments from the Company's subsidiaries to pay the mandatory redemption price.
The Company intends to pay dividends on the Exchange Preferred Stock by
issuing additional shares of Exchange Preferred Stock. In addition, the
Indenture and the New Credit Facility limit the Company's ability to pay
dividends on the Preferred Stock or the Exchange Preferred Stock in cash. The
Company's ability to pay cash dividends on the Preferred Stock or the Exchange
Preferred Stock may also be restricted by future indebtedness or agreements.
SUCCESSFUL EXECUTION OF BUSINESS STRATEGY
The Company is currently in the process of implementing a new business
strategy, which consists of a number of cost-cutting and revenue-enhancing
initiatives. The Company's strategy includes opening new Black Angus restaurants
in markets where it can leverage the Black Angus name. There can be no assurance
that the Company will be able to open additional Black Angus restaurants as
currently planned or that the performance of the new restaurants will be
consistent with the performance of its existing restaurants. There can be no
assurance that the operating and other business strategies, including the
strategies with respect to Grandy's, implemented by the Company's management
team will be successful or that the Company will be able to increase revenue,
operate successfully with its reduced overhead, improve its operations and
improve its cash flow and results of operations. If the implementation of the
business strategy is not successful and the Company is unable to generate
sufficient operating funds to pay interest on, and principal of, the Notes or
the Exchange Notes and other indebtedness of the Company, including indebtedness
under the New Credit Facility, there can be no assurance that alternative
sources of financing would be available to the Company or, if available, that
such financing would be on commercially reasonable terms. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Business Strategy."
COVENANT COMPLIANCE
The Indenture relating to the Notes and the Exchange Notes and the New
Credit Facility contain certain financial and other covenants, including
covenants relating to limitations on the incurrence of debt; limitations on
dividends, investments and certain other payments; limitations on transactions
with affiliates; limitations on liens; limitations concerning the debt and
capital stock of the Company's Subsidiaries; and limitations on sales of assets
(including capital stock of Subsidiaries). See "Description of the Exchange
Notes."
The Company has on numerous occasions been in default or failed to comply
with certain covenants under certain agreements relating to its outstanding
indebtedness and the Company has accordingly been required to obtain amendments
and waivers from its lenders. Most recently, the Company was three weeks late,
but within the grace period, in paying the quarterly interest which was due
September 15, 1997 on its Old Senior Secured Notes and four weeks late, but
within the grace period, in paying the quarterly interest which was due December
15, 1997. In addition, prior to the consummation of the Recapitalization Plan,
the Company was in default under its Old Senior Secured Notes for the failure to
meet certain financial covenants and for the failure to make the $40.9 million
sinking fund payment that was due on September 15, 1997 under the sinking fund
provisions of its Old Senior Secured Notes. As a result, the Company was
restricted from paying the quarterly interest payments of $1.2 million each on
its Subordinated Notes which were due on September 15, 1997 and December 15,
1997. On February 24, 1998, the Company redeemed its Old Senior Secured Notes at
par plus accrued and penalty interest thereon.
The ability of the Company to comply with financial and other covenants
will be dependent on the future financial performance of the Company, which will
be subject to prevailing economic conditions and other factors, including
factors beyond the control of the Company. A failure to comply with any of these
covenants could result in a default or event of default under the Indenture or
the New Credit Facility and the acceleration of the indebtedness thereunder. In
addition, there can be no assurance that such restrictions will not adversely
affect the Company's ability to conduct its operations or finance its capital
needs or impair the Company's ability to pursue attractive business and
investment opportunities if such opportunities arise. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of the Exchange
Notes."
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HOLDINGS INDEBTEDNESS
Holdings owns approximately 73% of the Common Stock of the Company (40%
assuming exercise of all the Warrants). Holdings currently has outstanding the
Holdings Debentures, which, as of June 29, 1998 had an accreted value of
approximately $87.9 million and will accrete to approximately $245.7 million at
maturity on December 15, 2005. Neither the Company nor any of its Subsidiaries
is a guarantor of the Holdings Debentures. The indenture pursuant to which the
Holdings Debentures were issued contains certain covenants which restrict the
operations of the Company and its subsidiaries. These covenants were amended,
pursuant to the Recapitalization Plan, to be less restrictive.
INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
to offer to purchase all outstanding Notes and Exchange Notes, at a price equal
to 101% of the principal amount of the Notes or Exchange Notes, as the case may
be, together with accrued and unpaid interest, if any, to the date of
repurchase. The New Credit Facility provides that the occurrence of certain
change of control events with respect to the Company constitutes a default under
the New Credit Facility. Therefore, in the event of such a change of control,
the Company may be required to repay or refinance all borrowings under the New
Credit Facility. In addition, even if a Change of Control does not constitute a
default under the New Credit Facility, the offer to purchase the Notes or the
Exchange Notes would constitute a default thereunder. If a Change of Control
were to occur, it is unlikely that the Company will have the financial ability
or resources to purchase the Notes or the Exchange Notes or repay the New Credit
Facility. See "Description of the Exchange Notes--Repurchase Upon Change of
Control" and "Description of Certain Indebtedness--New Credit Facility."
The holders of Notes have and holders of the Exchange Notes will have
limited rights to require the Company to purchase or redeem the Notes or
Exchange Notes, as the case may be, in the event of a takeover, recapitalization
or similar restructuring, including an issuer recapitalization or similar
transaction with management. Consequently, the Change of Control provisions will
not afford holders of Notes or Exchange Notes any protection in a highly
leveraged or other type of transaction, including any such transaction initiated
by the Company, management of the Company or an affiliate of the Company, if
such transaction does not result in a Change of Control. Accordingly, the Change
of Control provisions are likely to be of limited usefulness in such situations.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent on the
abilities and experience of its senior management team. The loss of services of
one or more of these senior executives could adversely affect the Company's
ability to effectively manage the overall operations of the Company or
successfully execute current or future business strategies, either of which
could have a material adverse effect on the Company and its results of
operations. In addition, the Company believes that its success will depend upon
its ongoing ability to attract and retain qualified management and employees.
See "Management."
CONCENTRATION OF OWNERSHIP AND CONTROL OF THE COMPANY
Holdings owns approximately 73% (40% upon exercise of the Warrants) of the
Company's common stock and certain members of the Company's management own
approximately 27% (15% upon exercise of the Warrants). Anwar S. Soliman and
certain other members of the Company's management own approximately 82% of the
outstanding shares of Holdings' common stock. All of Holdings' management
stockholders have entered into a voting trust agreement (the "Voting Trust
Agreement") in accordance with which Anwar S. Soliman, Chairman and Chief
Executive Officer of the Company and Holdings, exercises, as voting trustee, all
voting and substantially all other rights to which such shareholders would
otherwise be entitled until the earlier of August 15, 2005 or the earlier
termination of the Voting Trust Agreement. As a result of Holdings' ownership of
the Company, Mr. Soliman's effective control of Holdings pursuant to the Voting
Trust Agreement, Mr. Soliman's designation as voting trustee under the New
Voting Trust Agreement (as defined herein), and Mr. Soliman's direct ownership
in the Company, Mr. Soliman effectively controls the Company, subject to the
terms of the Voting Trust Agreement, the New Voting Trust Agreement and the
Securityholders Agreement (as defined herein). In addition, all of the directors
of Holdings are management personnel and there are no independent directors.
Accordingly, the Company's management may have the ability to determine whether
a Change of Control would occur.
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The TCW Investors (as defined herein), which purchased more than 50% of
the Units, entered into a securityholders agreement (the "Securityholders
Agreement") with holders of the Common Stock relating to the election of
directors which, subject to the terms and conditions thereof, provides that the
Company's Board of Directors will consist of five members, two of whom will be
management nominees, two of whom will be nominees of the TCW Investors and one
of whom (the "Remaining Director") will be a nominee of Jefferies & Company,
Inc. (the "Initial Purchaser"), provided that after the Public Company Date (as
defined herein), such purchasers and the management will mutually choose the
Remaining Director and the Initial Purchaser will no longer have any right to
designate a director. As a result of the Securityholders Agreement and the TCW
Investors' ownership of the Preferred Stock or the Exchange Preferred Stock, as
the case may be, in certain circumstances the TCW Investors could have the
ability to elect a majority of the Board of Directors of the Company. The
Securityholders Agreement also provides the TCW Investors with certain tag-along
rights, rights of first refusal and the right to approve certain major corporate
transactions concerning the Company. The TCW Investors may also have the
ability, as a result of their ownership of the Preferred Stock or the Exchange
Preferred Stock, as the case may be, to approve (without the vote of any other
holder of Preferred Stock or the Exchange Preferred Stock, as the case may be)
waivers or amendments to the terms of the Preferred Stock or the Exchange
Preferred Stock, as the case may be. See "Description of the Exchange
Notes--Repurchase Upon Change of Control", "Security Ownership of Certain
Beneficial Owners and Management" and "Description of Exchange Preferred
Stock--Voting Rights."
REGIONAL CONCENTRATION OF OPERATIONS
A majority of Company restaurants are located in California and Texas.
Such restaurants account for a significant percentage of the Company's net
sales. Accordingly, the Company is susceptible to adverse developments in the
economy, weather conditions, competition, consumer preferences or demographics
in either of these areas. For example, severe weather conditions in any of the
Company's principal markets may have a material negative effect on customer
traffic and sales, especially if such weather occurs during one of the Company's
peak selling periods. Due to the Company's susceptibility to such adverse
developments, there can be no assurance that the current geographic
concentration of the Company's business will not have a material adverse effect
on the Company and its results of operations.
COMPETITION AND MARKETS
All aspects of the restaurant business are highly competitive. Price,
restaurant location, food quality, service and attractiveness of facilities are
important aspects of competition. The competitive environment is often affected
by factors beyond a particular restaurant management's control, including
changes in the public's taste and eating habits, population and traffic patterns
and economic conditions. The Company's restaurants compete with a wide variety
of restaurants, ranging from national and regional restaurant chains to locally
owned restaurants. Competition from other restaurant chains typically represents
the more important competitive influence, principally because of their
significant marketing and financial resources. Many of the Company's competitors
have substantially greater financial, marketing, personnel and other resources
than the Company. In addition, competition is not limited to a particular
segment of the restaurant industry because fast-food restaurants, steakhouses
and casual-dining restaurants are all competing for the same consumer's dining
dollars. Further, the Company is more highly leveraged than certain of its
competitors, which places the Company at a competitive disadvantage. See "--High
Leverage; Rent Expense; Ability to Service Debt." There can be no assurance that
the Company will be able to compete successfully against its competitors in the
future. In addition, there can be no assurance that competition will not have a
material adverse effect on the Company's results of operations.
GOVERNMENT REGULATIONS
Each of the restaurants operated by the Company is subject to licensing
and regulation by the health, sanitation, safety, building and fire agencies of
the respective states and municipalities in which such restaurants are located.
A failure to comply with one or more regulations could result in the imposition
of sanctions, including the closing of facilities for an indeterminate period of
time, or third-party litigation, any of which could have a material adverse
effect on the Company and its results of operations.
In addition, each restaurant (except for Grandy's restaurants) is subject
to licensing with respect to the sale of alcoholic beverages. The loss of
licenses or permits by the Company's restaurants to sell alcohol would interrupt
or terminate the Company's ability to serve alcoholic beverages at those
restaurants and, if a significant number of restaurants were affected,
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could have a material adverse effect on the Company. The Company believes it has
good relations with the various alcoholic beverage authorities.
The Company also is subject to laws and regulations governing its
relationships with employees, including minimum-wage requirements, overtime,
reporting of tip income, work and safety conditions and citizenship
requirements. Because a significant number of the Company's employees are paid
at rates related to the federal minimum wage, an increase in the minimum wage
would increase the Company's labor costs. An increase in the minimum-wage rate
or employee benefits costs could have a material adverse effect on the Company
and its results of operations.
Under various federal, state and local laws, an owner or operator of real
estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances on or in such property. Such liability may be
imposed without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Although
the Company is not aware of any environmental conditions that require
remediation by the Company under federal, state or local law at its properties,
the Company has not conducted a comprehensive environmental review of its
properties or operations and no assurance can be given that the Company has
identified all of the potential environmental liabilities at its properties or
that such liabilities would not have a material adverse effect on the financial
condition of the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
Under federal fraudulent transfer and similar laws, if a court were to
find, in a lawsuit by an unpaid creditor or representative of creditors of the
Company or any Guarantor of the Notes or the Exchange Notes (such as a trustee
in bankruptcy or any such person as debtor in possession), that the Company or
such Guarantor received less than fair consideration or reasonable equivalent
value for incurring the indebtedness represented by the Notes or Exchange Notes
or such Guarantor's guarantee, and, at the time of such incurrence, the Company
or such Guarantor, as the case may be, (i) was insolvent or was rendered
insolvent by reason of such incurrence, (ii) was engaged or about to engage in a
business or transaction for which its remaining property constituted
unreasonably small capital or (iii) intended to incur, or believed it would
incur, debts beyond its ability to pay as such debts mature, such court could,
among other things, (a) void all or a portion of the Company's or such
Guarantor's obligations to holders of the Notes or Exchange Notes and/or the
liens securing the Notes or Exchange Notes or such Guarantor's guarantee and/or
(b) subordinate the Company's obligations to holders of the Notes or Exchange
Notes or such Guarantor's guarantee to other existing and future indebtedness of
the Company or such Guarantor and/or subordinate the liens securing the Notes or
Exchange Notes or such Guarantor's guarantee to other existing or future liens,
the effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the Notes or the Exchange Notes. The
Guarantors' guarantees are subject to insolvency and fraudulent conveyance
limitations. See "Description of the Exchange Notes--Guarantors." The Company's
ability to make payment on its Notes or Exchange Notes will be dependent upon
the operating cash flow of its subsidiaries and the payment of funds by such
subsidiaries in the form of loans, dividends or otherwise. In addition, if a
court were to find at the time of the Company's payment of dividends on, or
redemption of, the Preferred Stock or the Exchange Preferred Stock that it (i)
was insolvent or was rendered insolvent by reason of such action, (ii) was
engaged or about to engage in a business or transaction for which its remaining
property constituted unreasonably small capital or (iii) intended to incur, or
believed it would incur, debts beyond its ability to pay as such debts mature,
then the relevant distribution to holders of the Preferred Stock or the Exchange
Preferred Stock could be voided in whole or in part as a fraudulent conveyance
and such holders could be required to return the same or equivalent amounts to
or for the benefit of existing or future creditors of the Company. The measure
of insolvency for purposes of determining whether a transfer is voidable as a
fraudulent transfer varies depending upon the law of the jurisdiction which is
being applied. Generally, however, a debtor would be considered insolvent if the
sum of all of its liabilities was greater than the value of all of its property
at a fair valuation, or if the present fair saleable value of the debtor's
assets was less than the amount required to repay its probable liability on its
debts as they become absolute and mature. There can be no assurance as to what
standard a court would apply in order to determine solvency.
POTENTIAL LIMITATION IMPOSED UPON NET OPERATING LOSSES
As of December 29, 1997, the Company had available net operating loss
carryforwards for federal income tax purposes of $135.0 million, expiring in
2003 to 2011. Generally, a cumulative change of greater than 50% in the stock
ownership of a corporation within a three-year period (an "ownership change")
will, for Federal income tax purposes, limit the amount of pre-ownership change
net operating losses that the corporation may use during the post-ownership
change period. Whether an ownership change has in fact occurred in any
particular case generally entails the resolution of both legal and factual
issues
17
<PAGE> 26
which may not be readily determinable. The Company has taken the position that
the consummation of the Recapitalization Plan did not result in an ownership
change. If such position were to be challenged by the Internal Revenue Service,
no assurance may be given as to whether the Internal Revenue Service would
ultimately prevail on an assertion that the Recapitalization Plan resulted in an
ownership change. In addition, future equity issuances by the Company or
Holdings and certain transfers by shareholders of the Company or Holdings, which
transfers would not be within the control of the Company, in each case that
occur within three years of the consummation of the Recapitalization Plan, could
trigger an ownership change when taken together with the change in the stock
ownership resulting from the Recapitalization Plan.
LACK OF MARKET
The Company does not intend to list the Exchange Securities on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Initial Purchaser has advised the Company that it currently intends to make a
market in the Exchange Securities. However, the Initial Purchaser is not
obligated to make a market in the Exchange Securities and any market making may
be discontinued at any time without notice. See "Exchange Offer."
YEAR 2000 COMPLIANCE
The Company utilizes certain programs and operating systems in its
organization, including applications used in sales, financial business systems
and various administrative functions. To the extent that the Company's software
applications or the software applications of its suppliers contain source code
that is unable to appropriately interpret the upcoming calendar year 2000 and
beyond, some level of modification or replacement of such applications will be
necessary. Management does not expect year 2000 compliance costs to have any
material adverse impact on the Company. No assurance can be given, however, that
all of the Company's systems or systems of its suppliers will be year 2000
compliant or that compliance costs or the impact of the Company's failure to
achieve substantial year 2000 compliance will not have a material adverse effect
on the Company.
EXCHANGE OFFER PROCEDURES; EFFECTS OF FAILURE TO TENDER OR PROPERLY TENDER
Issuance of the Exchange Securities in exchange for Securities pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Securities, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of Securities desiring to
tender such Securities in exchange for Exchange Securities should allow
sufficient time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of
Securities for Exchange Securities. Securities that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to provide for the registration
under the Act of such Securities. In addition, any holder of Securities who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Securities may be deemed to have received restricted securities
and, if so, will be required to comply with the registration and prospectus
delivery requirements of the Act in connection with any resale transaction. To
the extent that Securities are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Securities could be
adversely affected. See "The Exchange Offer." Each broker-dealer that receives
Exchange Securities for its own account in exchange for Securities, where such
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. See "Plan
of Distribution".
18
<PAGE> 27
USE OF PROCEEDS
The Company will not receive any proceeds for the exchange pursuant to the
Exchange Offer. The gross proceeds from the offering of the Notes and the Units
pursuant to the Recapitalization Plan (before deducting fees and expenses) was
approximately $190.0 million, and was used to redeem the Old Senior Secured
Notes, to repurchase the Subordinated Notes, to repay certain short-term
liabilities, to pay fees and expenses of the Recapitalization Plan and for
general corporate purposes.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 30, 1998. The table should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:
Working capital facility ........................ $ --
Current portion of capitalized lease obligations 929
Current portion of other debt ................... 1,109
---------
Total short-term debt ......................... 2,038
---------
Long-term debt:
Capitalized lease obligations ................... 7,280
Other debt ...................................... 644
Senior Secured Notes ............................ 158,600
---------
Total long-term debt .......................... 166,524
---------
Cumulative preferred stock, mandatorily redeemable 33,239
Common stockholders' equity:
Common stockholders' deficit .................. (104,697)
---------
Total capitalization .......................... $ 97,104
=========
</TABLE>
19
<PAGE> 28
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for each of
the last five years ended December 27, 1993, December 26, 1994, December 25,
1995, December 30, 1996 and December 29, 1997 has been derived from the
consolidated financial statements of the Company which have been audited by
Arthur Andersen LLP, independent accountants. The financial data for the
thirteen weeks ended March 31, 1997 and March 30, 1998 have been derived from
the Company's unaudited financial statements, which in the opinion of management
include all adjustments necessary for a fair presentation of the data for
interim periods. The results of operations for the thirteen weeks ended March
30, 1998 are not necessarily indicative of the results that may be expected for
the full fiscal year. This Selected Historical Consolidated Financial Data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------
DEC. 27, DEC. 26, DEC. 25, DEC. 30 DEC. 29,
1993 1994 1995 1996(1) 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Black Angus .................................... $ 235,345 $ 253,634 $ 243,624 $ 254,946 $ 264,175
Grandy's ....................................... 111,166 109,301 101,839 90,962 78,832
Other Concepts(2) .............................. 91,398 97,471 100,503 99,516 97,032
--------- --------- --------- --------- ---------
Total Revenues ............................... 437,909 460,406 445,966 445,424 440,039
RESTAURANT COSTS:
Food and Beverage .............................. 136,255 142,828 138,270 141,032 140,015
Payroll ........................................ 132,292 136,151 134,532 137,104 133,732
Direct Operating ............................... 109,462 108,382 110,399 114,589 110,502
Depreciation and Amortization .................. 25,682 26,400 22,819 20,386 19,627
--------- --------- --------- --------- ---------
Total Restaurant Costs ....................... 403,691 413,761 406,020 413,111 403,876
General and Administrative Expenses ............. 29,895 31,027 31,360 28,086 29,360(3)
Operating Profit before Impairment
Charges(4) ...................................... 4,323 15,618 8,586 4,227 6,803
Interest Expense, Net ......................... 23,741 27,691 28,004 27,714 23,985
Net Income (Loss) ............................... $ (30,006) $ (12,130) $ (39,662) $ (38,461) $ (20,292)
Ratio of Earnings to Fixed Charges(6) .......... -- -- -- -- --
Deficiency in Earnings to cover Fixed
Charges(6) ...................................... (19,418) (12,073) (39,596) (36,692) (20,229)
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends(7) ............................. -- -- -- -- --
Deficiency in Earnings to cover Fixed Charges and
Preferred Stock Dividends(7) ................... (19,418) (12,073) (39,596) (36,692) (20,229)
Other Data:
Restaurants (end of period) ..................... 242 246 248 247 231
Increase (Decrease) in Same-store-sales:
Consolidated (8)(9) ............................. 2.1% 3.2% (5.8)% (2.9)% (2.3)%
Black Angus (excluding late-night
entertainment)(8)(10) ........................ (5.1)% 1.0% 1.4% 2.3% 1.4%
EBITDA(11) ...................................... 35,161 44,201 32,089 26,100 30,713
EBITDAR(12) ..................................... 55,766 66,024 54,952 50,913 61,389
Capital Expenditures ............................ 11,666 22,178 16,277 13,279 4,650
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
---------------------
MARCH 31, MARCH 30,
1997 1998
--------- ---------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Black Angus .................................... $ 69,681 $ 70,828
Grandy's ....................................... 20,385 18,475
Other Concepts(2) .............................. 24,044 22,819
--------- ---------
Total Revenues ............................... 114,110 112,122
RESTAURANT COSTS:
Food and Beverage .............................. 36,350 35,605
Payroll ........................................ 34,694 33,202
Direct Operating ............................... 28,306 27,234
Depreciation and Amortization .................. 4,823 3,749
--------- ---------
Total Restaurant Costs ....................... 104,173 99,790
General and Administrative Expenses ............. 6,137 5,309
Operating Profit before Impairment
Charges(4) ...................................... 3,800 7,023
Interest Expense, Net ......................... 5,925 5,521
Net Income (Loss) ............................... (2,128) 11,060(5)
Ratio of Earnings to Fixed Charges(6) .......... -- 1.2x
Deficiency in Earnings to cover Fixed
Charges(6) ...................................... (2,125) --
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends(7) ............................. -- 1.1x
Deficiency in Earnings to cover Fixed Charges and
Preferred Stock Dividends(7) ................... (2,125) --
Other Data:
Restaurants (end of period) ..................... 244 230
Increase (Decrease) in Same-store-sales:
Consolidated (8)(9) ............................. (4.8)% 0.5%
Black Angus (excluding late-night
entertainment)(8)(10) ........................ (3.3)% 4.0%
EBITDA(11) ...................................... 8,513 10,675
EBITDAR(12) ..................................... 16,390 17,951
Capital Expenditures ............................ 2,272 2,256
</TABLE>
20
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ............................................ $ 20,992 $ 15,032 $ 10,385 $ 7,493 $ 5,737
Property and Equipment, Net ..................... 181,889 181,496 171,030 101,169 92,322
Total Assets .................................... 291,989 282,438 249,053 172,129 152,011
Long-term Debt, including current portion ....... 228,612 226,394 233,011 182,137 181,399
Cumulative Preferred Stock, Mandatorily
Redeemable ..................................... -- -- -- -- --
Common Stockholders' Equity (Deficit) .......... (8,307) (20,437) (60,099) (91,446) (111,738)
</TABLE>
<TABLE>
<S> <C> <C>
BALANCE SHEET DATA:
Cash ............................................ $ 3,377 $ 6,209
Property and Equipment, Net ..................... 100,610 91,972
Total Assets .................................... 165,869 155,715
Long-term Debt, including current portion ....... 183,045 168,562
Cumulative Preferred Stock, Mandatorily
Redeemable ..................................... -- 33,239
Common Stockholders' Equity (Deficit) .......... (93,574) (104,697)
</TABLE>
- ------------------
(1) The year ended December 30, 1996 includes 53 weeks.
(2) Includes revenues of the Company's Spoons, Spectrum, National Sports
Grill and Velvet Turtle divisions.
(3) Includes a $4.1 million non-cash charge for costs associated with
closed restaurants, a $0.5 million restructuring charge and a $0.3
million write-off of expenses associated with a sale/leaseback
transaction which was not completed, all of which are non-recurring
expenses.
(4) Operating profit is stated before non-cash charges for impairment of
long-lived assets of $20.2 million in 1995, $13.2 million in 1996 and
$3.0 million in 1997.
(5) Includes a $9.6 million extraordinary gain of extinguishment of debt.
(6) For the purpose of determining the ratio or deficiency of earnings to
cover fixed charges, earnings consist of earnings before extraordinary
gain or loss, income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, the amortization of debt issue costs and that
portion of operating rental expense representative of the interest
factor.
(7) The ratio or deficiency of earnings to fixed charges and preferred
stock dividends are the same as the ratio of earnings to fixed charges
except that preferred stock dividends are added to fixed charges even
though the Company intends to pay such dividends by issuing additional
shares of Preferred Stock or Exchange Preferred Stock, as the case may
be.
(8) Same store sales are defined as restaurants which have been in
operation for the entire prior year.
(9) Excludes Velvet Turtle restaurants. As of February 1997, the Company
closed the last Velvet Turtle restaurant.
(10) This presentation excludes results of operations of the Black Angus
in-restaurant late-night entertainment and, in 1997, the lunch business
in 14 Black Angus restaurants where lunch was discontinued in 1997.
(11) EBITDA is defined as operating profit plus depreciation and
amortization and net losses on sale of properties. For the years ended
December 27, 1993, December 26, 1994, December 25, 1995, December 30,
1996 and December 29,1997, the net losses on the sale of properties
were $5.2 million, $2.2 million, $0.7 million, $1.5 million and $4.3
million respectively. For the thirteen weeks ended March 31, 1997 and
March 30, 1998, the amortization of deferred gains, which exceeded
losses on the sale of properties, netted to $0.1 million and $0.1
million, respectively. EBITDA should not be considered an alternative
to, or more meaningful than, earnings from operations or other
traditional indicators of operating performance and cash flow from
operating activities. In connection with the closing of restaurants in
1997, the Company established a closed-unit reserve to which the
Company charges ongoing expenses relating to closed restaurants as
incurred. Approximately $1.0 million in cash charges is expected to be
charged per year to this reserve on an ongoing basis for the next
several years.
(12) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has been
presented for the purposes of providing information on the Company's
operations before giving effect to financing activities such as
sale/leaseback transactions and to facilitate comparisons to prior
periods. In the second half of 1996, the Company completed $63.4
million of sale/leaseback transactions with the proceeds used to repay
$50.5 million of indebtedness at par and for general corporate
purposes. As a result of these transactions, annual rent expense
increased by $8.0 million. EBITDAR should not be considered an
alternative to, or more meaningful than, earnings from operations or
other traditional indicators of operating performance and cash flow
from operating activities.
21
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and notes included elsewhere in this Prospectus. The
following discussion should also be read in conjunction with the "Selected
Historical Consolidated Financial Data" and "Business" discussions included
elsewhere in this Prospectus.
OVERVIEW
Since the Company's formation in 1987, the Company has been highly
leveraged, which has resulted in dedication of significant cash flow to service
its debt, and has operated under restrictive covenants and significant liquidity
constraints, all of which have limited the Company's operating flexibility and
its ability to significantly expand its core Black Angus division. In addition,
the Company's growth and profitability have declined as a result of: (i) the
strategic decision in 1992 to gradually limit and phase out the Black Angus
late-night entertainment operations, (ii) the decline of the Grandy's operations
due, in part, to the failure of Grandy's prior management to properly position
Grandy's in its markets and (iii) the economic conditions in 1995 in the
Company's principal markets. Notwithstanding these factors, the EBITDAR for each
of the Company's concepts, except Grandy's, increased from 1993 to 1997.
However, the Company's consolidated EBITDAR, which increased from $55.8 million
in 1993 to $66.0 million in 1994, declined to $61.4 million in 1997.
As of December 28, 1992, Black Angus operated 66 in-restaurant lounges
which offered disc jockeys, dancing and a focus on the sale of alcoholic
beverages during the after-dinner and late-night time periods. While the
late-night entertainment business in isolation generated favorable profit
margins, management was concerned that this business was negatively affecting
the positive, family image of the restaurants and negatively affecting visits by
its core customer base of middle-income families and that liability and other
expenses associated with the late-night entertainment business were increasing.
Black Angus began limiting its late-night entertainment business in 1992 and
subsequently, between 1994 and 1997, phased out its late-night entertainment
business in 9 to 19 restaurants per year. It currently operates 12 restaurants
with late-night entertainment. Management may discontinue the late-night
entertainment at some or all of the remaining 12 locations based on an
evaluation of their ongoing operations. Management estimates that the late-night
entertainment operations generated approximately $9.6 million in annual EBITDA
in 1992. The remaining late-night entertainment accounted for approximately $1.8
million of EBITDA in 1997.
In 1993, Grandy's generated $111.2 million of annual revenues and $19.5
million of annual EBITDAR in the highly competitive quick-service segment. In
1994, Grandy's management adopted a strategy to compete primarily on the basis
of price. This strategy positioned Grandy's as a bargain, quick-service
restaurant but resulted in significantly lower customer counts and
same-store-sales. In the fourth quarter of 1996, the Company restructured
Grandy's management team. In connection with the restructuring, Grandy's has
closed 21 restaurants, reduced overhead, and revised the pricing, menu and
marketing strategies. The Company intends to restore Grandy's to its image of a
quick-service, family-dining restaurant concept focused on quality,
"home-cooked" meals.
The Company generates revenues primarily through the sale of food and
beverage items at its restaurants. All of the restaurant concepts serve
alcoholic beverages except for Grandy's. In addition to food and beverage
revenues, Grandy's generates franchise income through the franchising of
approximately 60 restaurants. Franchise income has no significant direct costs
associated with it. In 1997, the Company generated $2.6 million of franchise
income, which is included in the revenues described above.
The Company's revenues from period to period are affected by the
increase or decrease in same-store-sales and the opening of new restaurants or
closing of existing restaurants. While the Company's same-store-sales have
declined annually by an average of 0.8% per annum for the past five years, the
same-store-sales have increased for Black Angus (excluding late-night
entertainment) by an average of 1.3% per annum for this period. The Company
currently intends to open four additional Black Angus restaurants in 1998 and
ten Black Angus restaurants per year thereafter for the next several years. In
1996 and 1997, the Company opened nine new Black Angus restaurants which have
generated averaged annualized revenues of $2.8 million per restaurant. There can
be no assurances that the Company will generate same-store-sales growth
22
<PAGE> 31
at Black Angus or that the Company will be able to open additional Black Angus
restaurants as currently planned or that the performance of new restaurants will
be consistent with the performance of the Company's existing restaurants.
The Company's restaurant costs consist of food and beverage costs,
payroll costs, direct operating costs and depreciation and amortization. Direct
operating costs include advertising and promotion costs, rent, utilities,
operating supplies, repair and maintenance expenses and other restaurant costs.
Depreciation and amortization consist of depreciation of fixed assets and
amortization of intangibles, including amortization of debt issuance costs, and
other assets. While approximately 35% of the Company's restaurant costs are
fixed, the Company's food and beverage costs generally remain stable as a
percentage of revenues. Payroll costs remain relatively stable as a percentage
of revenues but may increase as a result of minimum wage increases. Direct
operating costs increase as the Company opens additional restaurants and
decrease as equipment leases reach their maturities. As the Company completely
exits markets by closing restaurants, advertising expenses in such markets for
the departed concept cease, and as the Company opens additional restaurants of
the same concept in its existing markets, advertising expense as a percentage of
revenues generally declines.
General and administrative costs include overhead expenses associated
with Black Angus' business offices in Los Altos, California, Grandy's offices in
Lewisville, Texas and the Company's corporate headquarters in Newport Beach,
California. The Black Angus division is generally managed separately from the
other divisions and is organized functionally with separate operations,
marketing, finance, real estate and human resources departments. Grandy's and
the three smaller divisions are each operated independently but share among them
certain support functions such as finance, administration and human resources.
In addition, at its corporate headquarters, the Grandy's headquarters, and the
Company's law department in Los Altos, California, the Company generally
provides purchasing, cash management, insurance and other treasury functions,
and accounting and legal services, all on a centralized basis. The Company's
corporate headquarters provides strategic direction and approves major capital
expenditures, annual budgets and all salaries above a specified level.
In accordance with its business strategy, the Company has implemented a
series of cost reduction measures. Since mid-1996, Grandy's closed 21
unprofitable restaurants. In addition, in the fourth quarter of 1996, the
Grandy's management team significantly reduced its division overhead. In June
1997, the Company reduced certain corporate salaries and, in the fourth quarter
of 1997, relocated and consolidated certain administrative and financial support
functions from the corporate offices in Newport Beach, California to the
headquarters of Grandy's. This transition was largely completed by December
1997. In 1998, the Company transferred bookkeeping functions for certain of the
restaurants to Grandy's headquarters. There can be no assurances that the
Company will be able to operate successfully with its reduced overhead.
The Company's fiscal year ends on the last Monday of each year. As a
result, the fiscal years ended December 27, 1993, December 26, 1994, December
25, 1995 and December 29, 1997 had 52 weeks and the fiscal year ended December
30, 1996 had 53 weeks.
RESULTS OF OPERATIONS
The table below sets forth selected operations data expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
YEAR ENDED --------------------
DEC. 25, DEC. 30, DEC. 29, MAR. 31, MAR. 30,
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues .......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Food and Beverage Costs ........... 31.0 31.7 31.8 31.9 31.8
Payroll Costs ..................... 30.2 30.8 30.4 30.4 29.6
Direct Operating Costs ............ 24.8 25.7 25.1 24.8 24.3
Depreciation and Amortization ..... 5.1 4.6 4.5 4.2 3.3
General and Administrative Expenses 7.0 6.3 6.7 5.4 4.7
Operating Profit before Impairment
Charges (1) ...................... 1.9 0.9 1.5 3.3 6.3
</TABLE>
(1) Operating Profit is stated before non-cash charges for impairment of
long-lived assets.
23
<PAGE> 32
COMPARISON OF THIRTEEN WEEKS ENDED MARCH 31, 1997 AND MARCH 30, 1998:
Revenues. Total revenues decreased from $114.1 million in the first
quarter of 1997 to $112.1 million in the first quarter of 1998. Same-store-sales
increased 0.6%. During the thirteen weeks ended March 30, 1998, the Company
closed one restaurant. There were 244 restaurants operating as of March 31, 1997
and 230 operating as of March 30, 1998.
Black Angus revenues increased 1.6% to $70.8 million in the first
quarter of 1998 as compared to the same period in 1997. The increase was due to
a $2.6 million increase in same-store-sales (excluding late-night entertainment
and discontinued lunch) and a $1.0 million increase related to three new stores
opened in the first quarter of 1997 partially offset by a $1.6 million decrease
from two closed restaurants, a $0.8 million decrease due to the closure of
late-night entertainment at 13 restaurants, and a $0.1 million decrease due to
discontinued lunch at one restaurant. The Company closed one restaurant during
the thirteen weeks ended March 30, 1998. Same-store-sales increased 4.0% (2.5%
including late-night entertainment and discontinued lunch) in 1998.
Grandy's revenues decreased 9.4% to $18.5 million in the first quarter
of 1998 as compared to the same period in 1997. The decrease resulted from a
$1.2 million decline due to the closure of 14 poorly performing restaurants
during 1997 and a $0.7 million, or a 3.9%, decline in same-store-sales.
Franchise revenues were constant.
Revenues from other concepts (Spoons, Spectrum and National Sports
Grill) decreased 5.1% to $22.8 million in the first quarter of 1998 compared to
the same quarter in 1997. The decrease resulted from a $0.9 million decline due
to the closure of three restaurants during 1997 and $0.3 million, or 1.4%,
decline in same-store-sales.
Food and Beverage Costs. As a percentage of revenues, food and beverage
costs decreased slightly from 31.9% in the first quarter of 1997 to 31.8% in the
first quarter of 1998.
Payroll Costs. As a percentage of revenues, labor costs decreased from
30.4% in the first quarter of 1997 to 29.6% in the first quarter of 1998. The
decrease was primarily due to lower unit staff payroll costs at Grandy's as a
result of closing 14 poorly performing restaurants during 1997.
Direct Operating Costs. Direct operating costs consist of occupancy,
advertising and other expenses incurred by individual restaurants. As a
percentage of revenues, these costs decreased from 24.8% in the first quarter of
1997 to 24.3% in the first quarter of 1998. The decrease was primarily due to
lower general liability expense and occupancy costs partially offset by higher
advertising expenses.
Depreciation and Amortization. Depreciation and amortization consists
of depreciation of fixed assets used by individual restaurants, divisions and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased from 4.2% in the first
quarter of 1997 to 3.3% in the first quarter of 1998. The decrease was primarily
due to the reduction in amortization of deferred debt costs related to the
refinancing of the Company's debt in the first quarter of 1998.
General and Administrative Expenses. General and administrative
expenses decreased from $6.1 million in the first quarter of 1997 to $5.3
million in the first quarter of 1998. The decrease was primarily due to a
reduction in corporate overhead expenses. General and administrative expenses as
a percentage of revenues decreased from 5.4% to 4.7%.
Operating Profit. Due to the above items, operating profit increased
from $3.8 million in the first quarter of 1997 to $7.0 million in the first
quarter of 1998. As a percentage of revenues, operating profit increased from
3.3% to 6.3%.
Interest Expense - Net. Interest expense decreased from $5.9 million in
the first quarter of 1997 to $5.5 million in the first quarter of 1998. The
decrease was primarily due to the refinancing of the Company's debt in February
1998. The Company's average stated interest rate increased slightly from 12.3%
in the first quarter of 1997 to 12.5% in the first quarter of 1998. The weighted
average debt balance (excluding capitalized lease obligations) decreased from
$171.1 million in the first quarter of 1997 to $166.6 million in the first
quarter of 1998.
Extraordinary Gain. The company recognized an extraordinary gain of
$9.6 million on the extinguishment of debt in the first quarter of 1998. This
gain resulted from the refinancing of the Company's debt in February 1998.
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COMPARISON OF FISCAL YEARS ENDED DECEMBER 25, 1995, DECEMBER 30, 1996 AND
DECEMBER 29, 1997:
Revenues. Total revenues decreased slightly from $446.0 million in 1995
to $445.4 million in 1996 followed by a 1.2% decrease to $440.0 million in 1997.
The year ended December 30, 1996 included a 53rd week which added $6.9 million
to total revenues. Same-store-sales for 1997 decreased 2.3% from 1996, excluding
the 53rd week. Three new restaurants opened during 1997 were offset by the
closure of 19 restaurants. There were 248, 247 and 231 restaurants operating at
the end of 1995, 1996 and 1997, respectively.
Black Angus revenues increased 4.6% from $243.6 million in 1995 to
$254.9 million in 1996 and then increased 3.6% to $264.2 million in 1997. The
increase in 1996 was primarily due to $4.2 million resulting from the 53rd week
in 1996, $6.7 million from the addition of three new restaurants in 1995 and six
new restaurants in the second half of 1996 and $2.2 million resulting from a
1.0% increase in same-store-sales (excluding late-night entertainment) from
dining operations. These increases were offset in part by $1.8 million from the
closure of late-night entertainment operations at 11 restaurants in 1996. The
increase in 1997 was primarily due to $20.0 million resulting from the addition
of nine new restaurants in the second half of 1996 and the first quarter of 1997
and a $3.2 million increase in same-store-sales (excluding late-night
entertainment and discontinued lunch). This increase was partially offset by a
$5.4 million decrease due to the closure of late-night entertainment operations
at 11 restaurants, a $4.2 million decrease from the 53rd week in 1996, a $2.6
million decrease due to discontinued lunch at 14 restaurants and a $1.7 million
decrease from two closed restaurants. Same-store-sales increased 1.4% (decreased
2.0% including late-night entertainment and discontinued lunch) in 1997.
Grandy's revenues decreased 10.7% from $101.8 million in 1995 to $91.0
million in 1996 followed by a 13.3% decrease to $78.8 million in 1997. The
decrease in 1996 was due to a $10.3 million decline representing an 11.2%
decrease in same-store-sales, a $1.6 million decline from the closure of seven
unprofitable restaurants in the second half of 1996 and a $0.2 million decline
in franchise income. These decreases were offset in part by $1.3 million of
additional revenues in the 53rd week in 1996. The decrease in 1997 resulted from
a $6.1 million decline due to the closure of 21 restaurants in the second half
of 1996 and, in 1997, a $5.4 million, or a 7.1%, decline in same-store-sales
from de-emphasizing discounted sales and $1.3 million from the 53rd week in
1996. These decreases were partially offset by a $0.6 million increase in
franchise income. Franchise revenues were $2.2 million, $2.0 million and $2.6
million in 1995, 1996 and 1997, respectively.
Revenues from other concepts (Spoons, Spectrum and National Sports
Grill) decreased 1.0% from $100.5 million in 1995 to $99.5 million in 1996 and
then decreased 2.5% to $97.0 million in 1997. The decrease in 1996 was due to a
1.9% decrease in same-store-sales of $1.9 million and $0.6 million from the
closure of one Velvet Turtle restaurant in 1995. This decrease was offset in
part by $1.4 million in additional revenues from the 53rd week in 1996 and $0.1
million from the addition of two new restaurants in 1995. Revenues declined $2.3
million due to the closure of three restaurants in 1997 and $1.4 million due to
the 53rd week in 1996 partially offset by a $1.2 million increase in
same-store-sales.
Food and Beverage Costs. As a percentage of revenues, food and beverage
costs increased from 31.0% in 1995 to 31.7% in 1996 and then to 31.8% in 1997.
The increase in 1996 was primarily a result of higher grocery expenses.
Payroll Costs. As a percentage of revenues, labor costs increased from
30.2% in 1995 to 30.8% in 1996 and then decreased to 30.4% in 1997. The increase
in 1996 was primarily a result of higher restaurant management costs. The
decrease in 1997 was primarily due to lower beverage labor costs at Black Angus
as a result of de-emphasizing late-night entertainment operations.
Direct Operating Costs. Direct operating costs consist of occupancy,
advertising and other expenses incurred by individual restaurants. As a
percentage of revenues, these costs increased from 24.8% in 1995 to 25.7% in
1996 and then decreased to 25.1% in 1997. The increase in 1996 was due primarily
to $3.6 million from increased advertising expenses and $1.8 million from
increased occupancy expenses related to the sale/leaseback transactions in the
second half of 1996, partially offset by a $1.2 million decrease in general
liability insurance expense and other operating costs. The decrease in 1997 was
a result of decreased advertising and promotion expenses partially offset by
higher occupancy costs.
Depreciation and Amortization. Depreciation and amortization consists
of depreciation of fixed assets used by individual restaurants, division and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased from 5.1% in 1995 to 4.6%
in 1996 and then decreased to 4.5% in 1997. The decrease in 1996 was primarily
due to the non-cash reduction of the historical costs of certain long-lived
assets in December 1995 and the sale of certain properties pursuant to
sale/leaseback transactions, both of which reduced depreciation and
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amortization expenses for the assets in 1996. The decrease in 1997 was primarily
due to the non-cash reduction of the historical costs of certain long-lived
assets and sale/leaseback transactions in 1996.
General and Administrative Expenses. General and administrative
expenses as a percentage of revenues were 7.0% in 1995, 6.3% in 1996 and 6.7% in
1997. The decrease in 1996 was primarily due to decreased division overhead
payroll expenses resulting from centralizing the Black Angus bookkeeping
functions. The increase in 1997 was primarily due to a $2.8 million increase in
non-cash charges for costs associated with closed restaurants and a legal
settlement of $0.9 million. This increase was partially offset by reductions of
$2.6 million in division and corporate overhead.
Non-Cash Charge for Impairment of Long-Lived Assets. In 1995, the
Company adopted the provisions of Statement of Financial Accounting Standards
("SFAS") Number 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. A history of operating losses necessitated
that the Company evaluate the impairment of the Company's long-lived assets,
including tangible assets. A detailed analysis of each of the Company's 230
restaurants was completed because the economy and operations of specific
restaurants constantly change. In December 1997 certain assets, including fixed
assets and certain related intangible assets, were valued at less than their
historic costs and resulted in a non-cash charge of $3.0 million. This non-cash
charge was 0.7% of revenues. Similar non-cash charges of $13.2 million and $20.2
million were recorded in 1996 and 1995, respectively.
Operating Profit. As a result of the items discussed above, operating
profit improved from an operating loss of $11.6 million in 1995 to an operating
loss of $9.0 million in 1996 and then improved to an operating profit of $3.8
million in 1997 (an operating profit of $8.6 million, $4.2 million and $6.8
million in 1995, 1996 and 1997, respectively, before the non-cash charge for
impairment of long-lived assets). The Company's divisions are not uniform in
revenues, size or profitability. For example, for the fiscal year ended 1997,
Black Angus had an operating profit of $21.2 million while Grandy's had an
operating loss of $2.4 million. The other concepts had a net operating profit of
$4.4 million. These amounts exclude corporate general and administrative
expenses not allocated to the divisions.
Interest Expense - Net. Interest expense decreased from $28.0 million
in 1995 to $27.7 million in 1996 and then decreased to $24.0 million in 1997.
The average interest rate on Company borrowings was 11.5%, 11.7% and 12.3% for
1995, 1996 and 1997, respectively. Average borrowings (excluding capitalized
lease obligations) decreased from $217.7 million in 1995 to $208.2 million in
1996 and then decreased to $171.7 million in 1997. Average borrowings declined
in 1997 due to the payment of $44.1 million in principal on the Old Senior
Secured Notes in the second half of 1996.
Income Taxes. Income taxes increased from a provision of $66,000 in
1995 to $81,000 in 1996 and then decreased to $63,000 in 1997. The provisions
represent amounts provided for certain minimum state income taxes.
Extraordinary Loss. An extraordinary loss of $1.7 million occurred in
1996 with the extinguishment of a prior term loan. This extraordinary loss
resulted from a non-cash charge to expense for capitalized debt costs associated
with the debt repaid. There were no extraordinary losses in 1995 or 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from
operations and borrowings under its credit facilities. The Company requires
capital principally for the acquisition and construction of new restaurants, the
remodeling of existing restaurants and the purchase of new equipment and
leasehold improvements. As described above, the Company has operated under
significant liquidity constraints which have limited its operational flexibility
and ability to expand its core Black Angus division. As of March 30, 1998, the
Company had cash of approximately $6.2 million.
In general, restaurant businesses do not have significant accounts
receivable because sales are made for cash or by credit card vouchers which are
ordinarily paid within three to five days, and do not maintain substantial
inventory as a result of the relatively brief shelf life and frequent turnover
of food products. Additionally, restaurants generally are able to obtain trade
credit in purchasing food and restaurant supplies. As a result, restaurants are
frequently able to operate with working capital deficits, i.e., current
liabilities exceed current assets. At March 30, 1998, the Company had a working
capital deficit of $35.0 million.
In addition to its leverage, the Company has had significant rent
expenses, which increased substantially in 1996 due to the completion of the
sale/leaseback transactions described below. The Company's aggregate rent
expense for 1997 was $30.7 million.
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The Company estimates that capital expenditures of $6.0 million to
$10.0 million are required annually to maintain and refurbish its existing
restaurants. In addition, the Company spends approximately $10.0 million to
$13.0 million annually for repairs and maintenance which are expensed as
incurred. Other capital expenditures, which are generally discretionary, are
primarily for the construction of new restaurants and for expanding,
reformatting and increasing the capacity of existing restaurants and for general
corporate purposes. Total capital expenditures were $16.3 million in 1995, $13.3
million in 1996, and $4.6 million in 1997. New store capital expenditures
included in these amounts were $3.6 million, $4.8 million and $0.4 million for
1995, 1996 and 1997, respectively. The Company estimates that capital
expenditures in 1998 will be approximately $12.0 million. The Company intends to
open new restaurants with small capital outlays and to finance most of the
expenditures through operating leases.
On March 13, 1996, Holdings completed a private placement of its
Holdings Debentures with a face value of $17.0 million producing aggregate
proceeds of approximately $7.1 million. Substantially all of the net proceeds of
the offering were contributed by Holdings to the Company. The net proceeds were
used by the Company for general corporate purposes.
In the second half of 1996, the Company completed sale/leaseback
transactions, under which it sold certain land, buildings, and other
improvements relating to 24 Black Angus restaurants, 30 Grandy's restaurants and
two Spoons restaurants for an aggregate sale price of $63.4 million and
simultaneously executed long-term leases under which it will continue to operate
the restaurants. The leases call for initial aggregate annual rent payments of
$8.0 million with scheduled future increases. The proceeds of the transactions
were used to redeem at par a portion of its Old Senior Secured Notes in the
amount of $45.4 million, representing principal and interest thereon; to repay
bank debt and interest thereon and to partially cash collateralize outstanding
letters of credit in a combined amount of $7.4 million; and for fees and
expenses of such transactions as well as a consent solicitation relating to the
Old Senior Secured Notes, with the balance used by the Company to make capital
expenditures and to purchase other assets. The Company recorded an extraordinary
loss on extinguishment of debt relating to the write-off of capitalized debt
costs in the amount of $1.7 million and a $2.2 million loss on disposition of
assets underlying certain leases. In addition, a $5.9 million gain related to
the Black Angus sale/leasebacks was deferred and will be amortized over the
initial term of the underlying leases.
The Company has on numerous occasions been in default or failed to
comply with certain covenants under certain agreements relating to its
outstanding indebtedness and accordingly the Company has been required to obtain
amendments and waivers from its lenders.
In March 1997 holders of the Company's Old Senior Secured Notes
consented to an amendment which provided for an increase of $10 in the stated
principal amount for each $1,000 in stated principal amount of consenting
noteholders. This resulted in an increase of approximately $1.6 million in the
stated principal amount of the Old Senior Secured Notes and $1.2 million in the
actual outstanding principal amount of the Old Senior Secured Notes.
In September 1997, the Company failed to make the $40.5 million payment
that was due under the sinking fund provisions of its Old Senior Secured Notes.
The Company was late, but within the grace period, in paying the quarterly
interest of $4.1 million on its Old Senior Secured Notes which was due September
15, 1997. The Company was restricted from paying the quarterly interest of $1.2
million on its Subordinated Notes which was due September 15, 1997 and December
15, 1997. In December 1997, the Company was late, but within the grace period,
in paying the quarterly interest of $4.1 million on its Old Senior Secured Notes
which was due December 15, 1997.
On February 25, 1998 the Company completed the Recapitalization Plan
which included, among other things, the issuance by the Company of (a) $155.0
million of the Notes and (b) 35,000 Units, each Unit consisting of $1,000
initial liquidation preference of Preferred Stock and one common stock purchase
warrant initially to purchase 2.66143 shares of the Common Stock at an initial
exercise price of one cent per share. Also as part of the Recapitalization Plan,
the Company concurrently (a) redeemed at par Old Senior Secured Notes of $126.4
million together with accrued and penalty interest thereon and repaid certain
other interest-bearing short-term liabilities, (b) repurchased its Subordinated
Notes at 65% of the aggregate principal amount of $45.0 million together with
accrued and penalty interest thereon, and canceled the related warrants to
purchase common stock of Holdings, and (c) established a $15.0 million New
Credit Facility to include letters of credit. Letters of credit outstanding
after the Recapitalization Plan were $3.9 million. A quarterly fee of 0.5% per
annum is payable on the unused portion of the revolving credit facility and a
fee of 2.5% per annum is payable on outstanding letters of credit.
As an additional component of the Recapitalization Plan, Holdings
extended the accretion period on its Holdings Debentures, from June 15, 1999 to
maturity on December 15, 2005, and amended certain provisions of the Holdings
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Debentures. The Holdings Debentures now accrete at a rate of 14.25%, compounded
semi-annually. Certain holders of the Holdings Debentures with an accreted value
of approximately $10.8 million surrendered such debentures for cancellation and
received $3.6 million principal amount of the Notes, in addition to the $155.0
million of the Notes sold as mentioned above.
Substantially all assets of the Company are pledged to its senior
lenders. In addition, the subsidiaries have guaranteed the indebtedness owed by
the Company and such guarantee is secured by substantially all of the assets of
the subsidiaries. In connection with such indebtedness, contingent and mandatory
prepayments may be required under certain specified conditions and events. There
are no compensating balance requirements.
Although the Company is highly leveraged, based upon current levels of
operations and anticipated growth, the Company expects that cash flows generated
from operations together with its other available sources of liquidity will be
adequate to make required payments of principal and interest on its
indebtedness, to make anticipated capital expenditures and to finance working
capital requirements. The Company's ability to meet its debt service obligations
and to grow will depend upon its future performance, which will be subject to
general economic conditions, its ability to achieve cost savings and other
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. The Company does not expect to generate
sufficient cash flow from operations in the future to pay the Notes upon
maturity and, accordingly, it expects to refinance all or a portion of such
debt, obtain new financing or possibly sell assets. There can be no assurance
that any such refinancing or asset sales would be possible or would not contain
terms and conditions that could have a material adverse effect on the Company
and its results of operations. See "Risk Factors--High Leverage; Rent Expense;
Ability to Service Debt."
The Company's net operating loss carryforwards may be subject to
significant limitations on use or elimination under applicable provisions of the
Internal Revenue Code of 1986, as amended, as a result of changes in ownership
of the Company. See "Risk Factors--Potential Limitation Imposed Upon Net
Operating Losses."
YEAR 2000 COMPLIANCE
The Company utilizes certain programs and operating systems in its
organization, including applications used in sales, financial business systems
and various administrative functions. To the extent that the Company's software
applications or the software applications of its suppliers contain source code
that is unable to appropriately interpret the upcoming calendar year 2000 and
beyond, some level of modification or replacement of such applications will be
necessary. Management does not expect year 2000 compliance costs to have any
material adverse impact on the Company. See "Risk Factors--Year 2000
Compliance."
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130 Reporting Comprehensive Income and SFAS No. 131
Disclosures About Segments of an Enterprise and Related Information were issued
in 1997 and are effective for periods ending after December 15, 1997. In 1998,
the Company adopted SFAS No. 130 and there were no differences between the
Company's net income (loss), as reported, and comprehensive income. SFAS No. 131
was also adopted in 1998 and the Company anticipates providing segment
disclosures of its three restaurant segments: "Black Angus", "Grandy's" and
"Other Concepts", as of December 28, 1998. "Other Concepts" includes the
Company's Spoons, Spectrum and National Sports Grill divisions.
Statement of Position ("SOP") No. 98-5 Reporting on the Costs of
Start-Up Activities was issued in April 1998. SOP No. 98-5 requires costs of
start-up activities and organizational costs to be expensed as incurred. The
Company has historically accumulated costs incurred in connection with opening a
new restaurant and amortized these costs over the initial year of operations.
Any previously deferred preopening costs as of the beginning of fiscal year 1999
will be recognized as the cumulative effect of an accounting method change. New
restaurant openings are typically staggered throughout the year and, therefore,
the Company does not anticipate the adoption of SOP No. 98-5 to materially
affect the Company's financial statements. Deferred preopening costs were
immaterial as of March 30, 1998.
NET OPERATING LOSSES
As of December 29, 1997, the Company had available net operating loss
carryforwards for federal income tax purposes of $135.0 million, expiring in
2003 to 2012. Generally, a cumulative change of greater than 50% in the stock
ownership of a corporation within a three-year period (an "ownership change")
will, for Federal income tax purposes, limit the amount of pre-ownership change
net operating losses that the corporation may use during the post-ownership
change period. Whether an ownership change has in fact occurred in any
particular case generally entails the resolution of both legal
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and factual issues which may not be readily determinable. The Company presently
takes the position that the consummation of the Recapitalization Plan did not
result in an ownership change. If such position were to be challenged by the
Internal Revenue Service, no assurance may be given as to whether the Company
would ultimately prevail on its assertion that the Recapitalization Plan did not
result in an ownership change. In addition, future equity issuances by the
Company or Holdings and certain transfers by shareholders of the Company or
Holdings, which transfers would not be within the control of the Company, in
each case that occur within three years of the consummation of the
Recapitalization Plan, could trigger an ownership change when taken together
with the change in the stock ownership resulting from the Recapitalization Plan.
IMPACT OF INFLATION
Although inflationary increases in food, labor or operating costs could
adversely affect operations, the Company has generally been able to offset
increases in cost through price increases, labor scheduling and other management
actions.
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BUSINESS
OVERVIEW
The Company operates five restaurant concepts, consisting of Black
Angus (101 restaurants), Grandy's (89 restaurants), Spoons (18 restaurants),
Spectrum (15 restaurants) and National Sports Grill (6 restaurants). Each of the
Company's restaurant concepts, except Grandy's, has demonstrated an increase in
EBITDAR from 1993 to 1997. The Company's largest division, Black Angus, is the
largest steakhouse chain west of the Mississippi River and has been ranked the
first or second best steakhouse chain in the United States by Restaurants &
Institutions magazine's "Choice in Chains" annual survey in each of the last ten
years. Black Angus restaurants are full-service restaurants featuring steak and
prime rib, and also serve chicken and seafood entrees. Through its high-quality
food offerings, friendly service and familiar, rustic Western decor, Black Angus
has developed a loyal customer base since its inception in 1964. Black Angus
generated 60% of the Company's revenues in 1997 and increased its EBITDAR
(excluding late-night entertainment, which has been phased out at most of its
restaurants) from $27.3 million in 1993 to $44.5 million in 1997.
The Company's other three restaurant concepts that had EBITDAR
increases are: (i) Spoons, a casual-style restaurant concept featuring fajitas,
salads and hamburgers; (ii) Spectrum, consisting of upscale Northern Italian,
American and Mexican restaurants; and (iii) National Sports Grill, consisting of
sports-theme restaurants featuring generous portions and microbrewery beers.
These concepts generated in the aggregate 22% of the Company's revenues in 1997
and increased their aggregate EBITDAR from $10.2 million in 1993 to $14.4
million in 1997.
Grandy's, the Company's second largest division, is a family-oriented,
quick-service, country-kitchen style restaurant, which provides its customers
with quality, "home-cooked" food at value prices with conveniences such as
drive-thru service. Grandy's experienced a decline in its performance during the
last several years. In the fourth quarter of 1996, the Company restructured the
management team at Grandy's in an effort to return the division to its
historical image. Grandy's, which generated 18% of the Company's revenues,
experienced a decline in its EBITDAR from $19.5 million in 1993 to $8.1 million
in 1996 and had an EBITDAR of $11.0 million in 1997. To position itself for
improved performance, Grandy's has (i) closed 21 unprofitable restaurants, (ii)
reduced its advertising expenses, (iii) reduced division overhead, (iv) modified
its pricing strategy and (v) developed a new advertising campaign.
BUSINESS STRATEGY
The Company has implemented a business strategy designed to enhance the
growth of its core Black Angus division, reduce corporate overhead and improve
the performance of the Grandy's division. In addition, the Company plans to
selectively expand its other divisions.
Enhance Growth of Black Angus. Black Angus' restaurant operations
generated 60% of the Company's revenues in 1997 and realized an increase in
EBITDAR (excluding late-night entertainment, which has been phased out at most
of its restaurants), from $27.3 million in 1993 to $44.5 million in 1997. This
growth has been driven by an increase in average same-store-sales, improving
EBITDAR margins and strategically opening additional restaurants. The Company's
strategy is to continue its same-store-sales growth through its successful
television advertising campaigns, suggestive sales through on-table promotions,
its reputation for high-quality food and service and leveraging its 33-year old
Black Angus name. For the year ended December 29, 1997, Black Angus (excluding
late-night entertainment) had a 1.4% same-store-sales increase as compared to
the year ended December 30, 1996. The Company also intends to expand the Black
Angus division through the opening of new restaurants. The Company currently
intends to open four additional Black Angus restaurants in 1998 and ten new
restaurants per year thereafter for the next several years. The Company plans to
open these restaurants where it can leverage the well known Black Angus name and
the strong advertising base (approximately 5% of Black Angus' revenues per
year).
Reduce Overhead. The Company has implemented a strategy designed to
reduce overhead. In 1997, the Company reduced certain corporate salaries,
eliminated certain redundant corporate functions and relocated and consolidated
certain administrative and financial support functions from the corporate office
to the headquarters of Grandy's. In 1998, the Company plans to transfer
accounting activities for certain of its restaurants from the restaurants to the
Grandy's headquarters, similar to the accounting transition from the Black Angus
restaurants to the Black Angus headquarters that was completed in 1996. These
efforts, most of which have been completed, are expected to result in an
aggregate of $3.4 million of overhead cost savings per year.
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Improve Grandy's Performance. The plan of Grandy's restructured
management team is to (i) identify and close unprofitable stores, (ii) reduce
overhead, (iii) restore Grandy's image from a price-point competitor to a
quality quick-service/family-dining restaurant and (iv) improve customer counts.
Since mid-1996, Grandy's has closed 21 unprofitable restaurants which in the
aggregate lost $1.7 million of annual EBITDA. In addition, Grandy's reduced its
division overhead by $1.7 million for the year ended December 29, 1997 as
compared to 1996. Most recently, the new management team reconfigured the menu
to focus on increasing its average check through the sale of whole meals and
reduced single-item discounting in its marketing strategy. Management believes
that, as a result of Grandy's new strategy, Grandy's has increased its revenue
per customer 5.0% from $3.79 in 1996 to $3.98 in 1997. In furtherance of the
plan, the Company has successfully tested a new advertising campaign in Grandy's
markets and intends to introduce a full-scale campaign in all Grandy's markets
in 1998.
Other. The Company's Spoons, Spectrum and National Sports Grill
concepts are smaller divisions representing 39 of the Company's 229 restaurants.
Following the Offering, the Company may selectively expand each of these
divisions by one or two restaurants per year.
Although the Company has no current arrangements to sell any
restaurants or divisions, the Company will review opportunities to sell
restaurants in its smaller divisions from time to time. In addition, the Company
may convert certain Company-operated Grandy's restaurants to franchised
operations through the sale of these restaurants to franchisees. No assurances
can be given as to whether the Company will sell any restaurants or if it elects
to sell restaurants the amount of consideration it will receive in such sales.
Upon the sale of restaurants, the Company may be required by the terms of the
Indenture and the Preferred Stock to apply the proceeds in a specified manner.
See "Description of the Notes--Certain Covenants" and "Description of Preferred
Stock--Covenants."
BLACK ANGUS
General. The Company's largest division, Black Angus, is the largest
steakhouse chain west of the Mississippi River and has been ranked the first or
second best steakhouse chain in the United States by Restaurants & Institutions
magazine's "Choice in Chains" annual survey in each of the last ten years. As of
March 30, 1998, Black Angus operated 101 full-service restaurants which feature
steak and prime rib, and also serve chicken and seafood entrees. Through its
high-quality food offerings, friendly service and familiar, rustic Western
decor, Black Angus has developed a loyal customer base since its inception in
1964. Black Angus' restaurant operations generated 60% of the Company's revenues
in 1997 and increased its EBITDAR (excluding late-night entertainment, which has
been phased out at most of its restaurants), from $27.3 million in 1993 to $44.5
million in 1997.
Black Angus restaurants are typically located in highly visible and
heavily traveled areas in or near retail and commercial businesses. The
restaurants are generally freestanding and generally range in size from 6,600 to
12,000 square feet, seating approximately 350 customers. Black Angus restaurants
are distinctively Western in their design and feature booth seating for dining.
They are generally open for lunch from 11:30 a.m. to 4:00 p.m. and for dinner
from 4:00 p.m. to 10:00 p.m.
As of December 28, 1992, Black Angus operated 66 in-restaurant lounges
which offered disc jockeys, dancing and a focus on the sale of alcoholic
beverages during the after-dinner and late-night time periods. While the
late-night entertainment business in isolation generated favorable profit
margins, management was concerned that this business was negatively affecting
the positive, family image of the restaurants and negatively affecting visits by
its core customer base of middle-income families and that liability and other
expenses associated with the late-night entertainment business were increasing.
Black Angus began limiting its late-night entertainment business in 1992 and
subsequently, between 1994 and 1997, phased out its late-night entertainment
business in 9 to 19 restaurants per year. It currently operates 12 restaurants
with late-night entertainment. Management may discontinue the late-night
entertainment at some or all of the remaining 12 locations based on an
evaluation of their ongoing operations. Management estimates that the
discontinued late-night entertainment operations generated approximately $7.8
million in annual EBITDA in 1992.
Menu Strategy. Black Angus restaurants are targeted to appeal to
middle-income couples and families, emphasizing quality and value, by offering
moderately priced entrees. The menu emphasizes prime rib and steak and also
includes chicken, fish and lighter accompanying items. Currently, 28% of the
menu's entrees are non-beef. In order to capitalize on consumer desires for
lighter, quicker meals, Black Angus has introduced a lunch menu with most items
guaranteed to be served within ten minutes.
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<PAGE> 40
In 1997, the average check per person was $8.86 at lunch and $15.44 at
dinner. In 1997, dinner, excluding beverages, accounted for approximately 68% of
revenues while lunch accounted for approximately 11% of revenues. Beverage sales
accounted for approximately 21% of total revenues.
Advertising and Promotion. Black Angus concentrates on television as
the most effective medium for reaching its highly concentrated markets. The
television advertisements feature price points which convey Black Angus'
high-value image and emphasize the excellent food quality. Management believes
that the Black Angus advertising campaign is effective at attracting customers
to its restaurants without significant discounting. For 1997, Black Angus spent
$13.5 million on advertising and promotion expenses, representing 5.1% of Black
Angus' revenues. The Company intends to open restaurants in markets which will
enable the new restaurants to benefit from existing television advertising
campaigns and brand recognition.
GRANDY'S
General. Founded in 1973, Grandy's operates 89 restaurants located
principally in Texas, Oklahoma and Kansas. Grandy's is a family-oriented,
quick-service concept. Grandy's differentiates itself from other fast-food
restaurants by offering comparable prices and speed, but with the quality and
ambiance of a full-service restaurant. For example, Grandy's serves meals to its
customers on ceramic plates and provides stainless flatware. In addition to its
company-operated restaurants, as of March 30, 1998 the Company franchised 60
Grandy's restaurants primarily in the southern United States. Grandy's
restaurants are generally freestanding and are located near shopping malls or
other highly visible, heavily traveled areas. The restaurants range in size from
3,800 to 5,200 square feet and have dining areas which generally seat 130 to 220
customers. All restaurants offer self-service beverages with free refills, and
all but two restaurants have drive-thru service. Grandy's restaurants are
generally open from 6:00 a.m. to 10:00 p.m. and serve breakfast, lunch and
dinner. Grandy's differentiates itself from its competitors by offering complete
home-style meals with limited service. For 1997, Grandy's generated $78.8
million of revenues or 18% of consolidated revenues.
In 1993, Grandy's generated $111.2 million of annual revenues and $19.5
million of annual EBITDAR in the highly competitive quick-service segment. In
1994, Grandy's management adopted a strategy to compete primarily on the basis
of price. This strategy positioned Grandy's as a bargain, quick-service
restaurant but resulted in significantly lower customer counts and
same-store-sales. In the fourth quarter of 1996, the Company restructured
Grandy's management team. In connection with the restructuring, Grandy's has
closed 21 restaurants, reduced overhead, and revised the pricing, menu and
marketing strategies. The Company intends to restore Grandy's to its image of a
quick-service, family-dining restaurant concept focused on quality,
"home-cooked" meals. Grandy's EBITDAR has decreased from $19.5 million for 1993
to $8.1 million in 1996 and was $11.0 million in 1997.
Menu Strategy. The menu features fried and grilled chicken,
grilled-chicken sandwiches, chicken nuggets and country-fried steak, served with
a choice of vegetable plus mashed potatoes, gravy and rolls. Grandy's bakes
these rolls on its premises for freshness, which provides a higher standard to
Grandy's food offering. Grandy's has also introduced pre-packaged salads for
both drive-thru and in-store customers. Breakfast is an important part of the
Grandy's concept and includes scrambled eggs with cheese, bacon, sausage, hot
cakes, freshly baked cinnamon rolls and biscuits, coffee and juice. Many
restaurants have breakfast bars either daily or on weekends. Grandy's does not
serve alcoholic beverages. Unlike most other restaurant chains, Grandy's is
strong during each of the three dining periods that it serves daily. In 1997,
breakfast, lunch and dinner accounted for 22%, 42% and 36% of revenues,
respectively. Most recently, the new management team reconfigured the menu to
focus on the sale of whole meals and meal pricing and reduced single-item
discounting in its marketing strategy. As a result, Grandy's has increased its
average breakfast check 2.4%, from $2.52 to $2.58, and its average lunch/dinner
check 6.7%, from $4.34 to $4.63 in 1997 as compared to 1996. Approximately 50%
of Grandy's revenues were for consumption in the dining room as opposed to
takeout.
Advertising and Promotion. Grandy's concentrates on television as the
most effective medium for reaching its highly concentrated markets. Grandy's
also relies on print advertising in its smaller markets and, to a lesser extent,
in its principal markets. Grandy's has tested new television advertising in its
markets. Based on the results of these tests, Grandy's intends to roll out this
advertising program in each of its markets. In 1997, Grandy's spent $3.3 million
on advertising expenses, representing 4.3% of Grandy's revenues.
Franchising. As of March 30, 1998, the Company franchised 60 Grandy's
restaurants primarily in the southern United States and the Company intends to
continue its franchising activities.
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<PAGE> 41
The Company's franchise agreements generally require initial fees of
$15,000 to $25,000 per restaurant and ongoing royalties of approximately 4% of
sales (3% for some older franchises). The Company provides certain support
functions for franchisees, including initial training and ongoing monitoring and
consultations. The Company does not provide financing for franchisees. In 1997,
Grandy's generated $2.6 million of franchise income.
SPOONS
General. Spoons, founded in 1978, operates 18 casual-style restaurants
in California. Spoons restaurants are generally freestanding, located in heavily
traveled areas, range in size from 5,500 to 8,000 square feet and seat
approximately 200 customers. These full-service restaurants average a 40-minute
table turnover and offer booth and table seating in a casual, highly energetic
atmosphere. In addition, each restaurant has a lounge area which also serves
food. Spoons provides the customer with a fresh, value-oriented alternative to
traditional quick-service restaurants. Spoons restaurants are generally open
from 11:00 a.m. to 12:00 midnight and feature the same menu all day. Spoons
generated $34.5 million or 8% of the Company's revenues in 1997.
Menu Strategy. Spoons restaurants offer full service with a menu
featuring baby back ribs; hamburgers; french fries; fajitas (steak, chicken and
tuna); marinated tuna and steak sandwiches; soft tacos; pasta platters; salads;
and "Tex-Mex" appetizers such as nachos, "buffalo" wings and quesadillas.
Although the typical Spoons customer is in the 18-49 age group, the Company
believes that the Spoons California grill concept and menu have a wide appeal
encompassing couples, families and senior citizens. The average time from
placing to serving an order is under ten minutes. In 1997, the average food
check per person was $7.62. Lunch and dinner accounted for 36% and 48% of
revenues, respectively, in 1997, with beverages accounting for 16% of revenues.
Advertising and Promotion. The Company concentrates on freestanding
newspaper inserts as the most effective medium for reaching its highly
concentrated markets.
SPECTRUM
General. Spectrum, founded in 1970, operates 15 unique, upscale,
specialty restaurants in California. All restaurants focus on "authentic"
Northern Italian, contemporary American or Mexican cuisine. The division
includes four "Prego", three "Tutto Mare", two "MacArthur Park" and six other
restaurants which, although operated under different names, generally
concentrate on Northern Italian food. Spectrum restaurants vary in size and
physical type but are primarily located proximate to concentrations of young
professionals and other upper-income customers. The restaurants are generally
open from 11:00 a.m. to 12:00 midnight. Spectrum generated $46.8 million or 11%
of the Company's revenues in 1997.
Menu Strategy. Each Spectrum restaurant focuses on preparing
"authentic" cuisine of the featured country, with daily specials depending on
the restaurant. The restaurants are usually built with an open kitchen and all
food is prepared fresh with an emphasis on quality and service. In 1997,
excluding beverages, dinner accounted for approximately 49% of revenues with an
average food check of $18.56 per person, while lunch accounted for approximately
21% of revenues with an average food check of $14.59 per person. Beverages,
primarily wine by the bottle or the glass and served with meals, accounted for
approximately 30% of revenues in 1997. Beverage revenues as a percentage of
total revenues have remained stable over the past three years.
Advertising and Promotion. Due to the unique cuisine and atmosphere of
each of its restaurants, Spectrum does relatively little advertising, relying
instead on word-of-mouth. A modest amount of advertising for individual
restaurants is done in magazines and several of the restaurants conduct
promotional events. Spectrum has developed a successful "frequency building"
program called "Table One" with approximately 18,000 members who earn gift
certificates or other prizes based on expenditures in the restaurants.
NATIONAL SPORTS GRILL
National Sports Grill, founded in 1993, operates six sports-theme
restaurants. This concept offers a menu featuring generous portions and
microbrewery beers and provides multiple video telecasts of national and
regional sporting events as well as interactive video games and other
sporting-related games. National Sports Grill generated $15.6 million or 3% of
the Company's revenues in 1997.
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<PAGE> 42
National Sports Grill restaurants are freestanding and generally range
in size from 10,000 to 17,000 square feet, seating approximately 200 to 300
customers. The restaurants feature a bar, a dining area, a billiards area,
sports related video games and multiple video screens throughout. National
Sports Grill restaurants are typically open from 11:00 a.m. to 2:00 a.m.
RESTAURANT MANAGEMENT
The Company has five distinct divisions. The Black Angus division is
generally managed separately from the other divisions and is organized
functionally with separate operations, marketing, finance, real estate and human
resources departments. Grandy's and the three smaller divisions are each
operated independently but share among them certain support functions such as
finance, administration and human resources. In addition, at its corporate
headquarters, the Grandy's headquarters and the Company's law department
offices, the Company generally provides purchasing, cash management, insurance
and other treasury functions, and accounting and legal services, all on a
centralized basis. The Company's corporate headquarters provides strategic
direction and approves major capital expenditures, annual budgets and all
salaries above a specified level.
The Company's cash management system is highly sophisticated with
controls down to the server level. Restaurants are required to make daily
deposits of cash and the Company uses a centralized cash concentration system
which sweeps all of its cash accounts on a daily basis. There is a central
accounts payable and check writing system with roughly 7,200 vendors profiled on
the system.
The Company uses a combination of in-house and outside-contracted
services for its management information system needs. In-house systems include a
point-of-sale system for each restaurant and stand-alone computing at the
restaurant, division and corporate levels. The Company contracts for payroll
services and for mainframe-based data processing.
Each restaurant is staffed with a General Manager who is directly
responsible for the operation of the restaurant, including product quality,
cleanliness, service, inventory, cash control and the appearance and conduct of
store employees. Except for Grandy's, most restaurants also have one or two
Assistant Managers and a Chef. Managers and supervisory personnel train other
restaurant employees in accordance with detailed procedures and guidelines
prescribed by each division.
General Managers are supervised by District Managers, each of whom is
responsible for approximately seven restaurants. District Managers, General
Managers, Assistant Managers and Chefs are eligible for bonuses under each
division's extra compensation program, for which goals and objectives are
established based on the profitability, sales and other factors relating to the
restaurants.
PURCHASING AND DISTRIBUTION
To ensure standards of quality and to maximize pricing efficiencies, a
central Purchasing Department coordinates the supply of almost all restaurant
items. The Company purchases products throughout the United States and abroad
through agreements with various food-service vendors. None of the Company's
vendors supply the Company exclusively and no material agreements exist. The
Company routinely uses public, cold-storage facilities and makes forward
commitments in order to establish the availability and price of key food items
such as beef and seafood. In order to achieve more favorable terms, the Company
recently chose to concentrate its distribution among certain of its vendors but
believes that it could replace any of these distributors, if necessary, on a
timely basis.
COMPETITION AND MARKETS
All aspects of the restaurant business are highly competitive. Price,
restaurant location, food quality, service and attractiveness of facilities are
important aspects of competition. The competitive environment is often affected
by factors beyond a particular restaurant management's control, including
changes in the public's taste and eating habits, population and traffic patterns
and economic conditions. The Company's restaurants compete with a wide variety
of restaurants, ranging from national and regional restaurant chains to locally
owned restaurants. Competition from other restaurant chains typically represents
the more important competitive influence, principally because of their
significant marketing and financial resources. Many of the Company's competitors
have substantially greater financial, marketing, personnel and other resources
than the Company. In addition, competition is not limited to a particular
segment of the restaurant industry because fast-food restaurants, steakhouses
and casual-dining restaurants are all competing for the same consumer's dining
dollars. The Company believes that its principal competitive strengths lie in
the distinctive atmosphere and food presentation offered; the value, variety and
quality of food products served; the quality and training of its employees; the
experience and ability of its
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<PAGE> 43
management; and the economies of scale enjoyed by the Company because of its
size and geographic concentration. The Company continually monitors consumer
tastes and adjusts and updates its menus accordingly.
EMPLOYEES
At March 30, 1998, the Company employed approximately 11,800 persons,
of whom approximately 10,900 were hourly employees in restaurants, approximately
700 were salaried employees in restaurants (Managers and Chefs) and
approximately 200 were hourly and salaried employees in divisional and corporate
management and administration. Approximately 63% of the hourly restaurant
employees work on a part-time basis (25 hours or less per week). None of the
Company's facilities are unionized. The Company believes it provides competitive
compensation and benefits to its employees and that its employee relations are
good.
REGULATIONS
Each restaurant is subject to licensing and regulation by state and
local health, sanitation, safety, fire and other departments. In addition, each
restaurant (except for Grandy's) is subject to licensing with respect to the
sale of alcoholic beverages. The loss of licenses or permits by the Company's
restaurants to sell alcohol would interrupt or terminate the Company's ability
to serve alcoholic beverages at those restaurants and, if a significant number
of restaurants were affected, could have a material adverse effect on the
Company. The Company believes it has good relations with the various alcoholic
beverage authorities.
The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wages, overtime and other working
conditions. Substantially all of the Company's restaurant employees are paid at
rates related to the federal and state minimum wage, and, accordingly, increases
in the minimum wage increase the Company's labor costs.
In June 1996, the Company signed Tip Reporting Alternative Commitment
(TRAC) agreements with the Internal Revenue Service ("IRS") for all divisions
that have tipped employees. This program gives the Company partial immunity from
both past and future audits of employer-paid FICA taxes on tips reported by
employees. In exchange, the Company must encourage employees to comply with tip
reporting laws through quarterly educational materials. The Company is also
required to maintain detailed records for each tipped employee. The IRS has the
ability to terminate the TRAC agreements at any time, thereby eliminating the
Company's audit protection, if the Company's procedures are inadequate or tip
reporting by the Company's employees does not increase.
SERVICE MARKS
The Company regards its service marks and trademarks as important to
the identification of its restaurants and believes they have significant value
in the conduct of its business. The Company has registered various service marks
and trademarks with the United States Patent and Trademark Office. In addition,
certain marks have been registered in the State of California, in various other
states and in certain foreign countries.
SEASONALITY
The Company's restaurant revenues and profitability are not subject to
significant seasonal fluctuations.
LEGAL PROCEEDINGS
On January 28, 1998, a complaint was filed in Superior Court of the
State of California, County of Los Angeles by an affiliate of Trivest, Inc.
("Trivest") against the Company seeking monetary and equitable relief relating
to the previously terminated agreement between the Company and Trivest for the
sale of the Black Angus division. On January 30, 1998, the Company reached an
agreement with Trivest to settle the litigation.
The Company is involved in various litigation incidental to its
business, including claims arising out of personal injuries, employment
practices, worker's compensation cases and contract lawsuits, the claims for
which sometimes involve substantial damages. Based on information presently
available, management does not believe that the outcome of such litigation will
have a material adverse effect on the Company's financial position, business or
results of operations.
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<PAGE> 44
PROPERTIES
Of the 229 restaurants operated by the Company on March 30, 1998, the
Company owns the land and building for six, owns the building and leases the
land for 93, and leases both land and building for the remaining 130
restaurants. In addition, the Company currently leases the land for five, and
leases both the land and the building for 11 restaurants which are now closed
(of which six are sub-leased to others). Most of the Company's restaurants are
freestanding and range from approximately 4,000 square feet for a Grandy's
restaurant to as much as 17,000 square feet for the Company's other restaurants.
Most of the Company's leases provide for the payment of the greater of a set
base rental or a percentage rental of up to 6% of gross revenues, plus real
estate taxes, insurance and other expenses. When the Company has so desired, it
generally has been able to renew its restaurant leases as they expire. However,
there can be no assurance that the Company will be able to do so in the future.
In addition, the Company owns the land and building for the Grandy's
headquarters in Lewisville, Texas, and leases office space for its other
divisions and corporate headquarters in Los Altos and Newport Beach, California.
The following table sets forth, as of March 30, 1998, the number of
Company-operated restaurants by division and state of operation:
NUMBER OF COMPANY-OPERATED RESTAURANTS BY STATE AND DIVISION
<TABLE>
<CAPTION>
National Total
Black Sports Number of
State Angus Grandy's Spoons Spectrum Grill Restaurants
----- -------- ------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
California 56 0 18 15 6 95
Texas -- 64 -- -- -- 64
Oklahoma -- 16 -- -- -- 16
Washington 10 -- -- -- -- 10
Arizona 9 -- -- -- -- 9
Minnesota 6 -- -- -- -- 6
Colorado 5 -- -- -- -- 5
Kansas -- 5 -- -- -- 5
Oregon 5 -- -- -- -- 5
Indiana 3 -- -- -- -- 3
Florida -- 3 -- -- -- 3
Hawaii 2 -- -- -- -- 2
Nevada 2 -- -- -- -- 2
New Mexico 1 1 -- -- -- 2
Alaska 1 -- -- -- -- 1
Utah 1 -- -- -- -- 1
---- ---- ---- ---- ---- ----
Total 101 89 19 15 6 229
==== ==== ==== ==== ==== ====
</TABLE>
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information about the Company's directors
and each of its executive officers and key management personnel. Unless
otherwise specified, each person holds the same position with both the Company
and Holdings. The TCW Investors (as defined herein), which purchased more than
50% of the Units, entered into the Securityholders Agreement with holders of the
Common Stock relating to the election of directors which, subject to the terms
and conditions thereof, provides that the Company's Board of Directors will
consist of five members, two of whom will be management nominees, two of whom
will be nominees of the TCW Investors and one of whom, the Remaining Director,
will be an independent director designated by the Initial Purchaser, provided
that after the Public Company Date (as defined herein), the TCW Investors and
management will mutually choose the Remaining Director and the Initial Purchaser
will no longer have any right to designate a director. See "Securityholders
Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Anwar S. Soliman 60 Chairman, Chief Executive Officer, Director
Ralph S. Roberts 55 President and Chief Operating Officer, Director
William J. McCaffrey, Jr. 51 Vice President
Wilfred H. Partridge 68 Vice President-- Purchasing, the Company
Patrick J. Kelvie, Esq. 46 Vice President, Secretary and General Counsel
Ken A. Di Lillo 43 Vice President-- Finance, Treasurer and Assistant Secretary
Robert D. Beyer 38 Director, the Company
George G. Golleher 50 Director, the Company
Jeffry K. Weinhuff 43 Director, the Company
</TABLE>
Officers are elected by the Board of Directors and serve at the
discretion of the Board.
Anwar S. Soliman. Mr. Soliman has served as Chairman, Chief Executive
Officer and a Director of the Company since its organization in 1986. Prior to
joining the Company, Mr. Soliman was Executive Vice President of W. R. Grace &
Co. ("Grace") and Group Executive of the Grace Restaurant Group, which he
started in 1977. Mr. Soliman spent 22 years with Grace in various executive
positions. He is also a trustee of the Orange County Museum of Art and a member
of the Board Council of Boys Hope of California. Mr. Soliman received both a B.
Commerce and an M.B.A. from Alexandria University and a Ph.D. from New York
University.
Ralph S. Roberts. Mr. Roberts has served as a Director of the Company
since 1991 and has served as the President and Chief Operating Officer of the
Company since 1986. Mr. Roberts has over 30 years of experience in the
restaurant industry and before joining the Company was Deputy Group Executive of
Operations of the Grace Restaurant Group and Vice President of Grace. Prior to
joining Grace in 1980, he was Vice President of the Stouffer Restaurant Division
and President and co-founder of the Rusty Scupper restaurants. Mr. Roberts
received a B.A. from Princeton University.
William J. McCaffrey, Jr. Mr. McCaffrey has served as Vice President
since 1986 and as Chief Financial Officer of Black Angus since June 1998. Mr.
McCaffrey served as a Director of the Company from 1991 to 1998 and as the Chief
Financial Officer, Treasurer and Assistant Secretary of the Company from 1986 to
1998. Prior thereto he was Chief Financial Officer of the Grace Restaurant
Group, having spent 12 years with Grace. For eight years, Mr. McCaffrey was
assistant to the Chief Executive Officer of Grace. He received a B.S., M.E. from
the University of Notre Dame and an M.B.A. from Harvard University.
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<PAGE> 46
Wilfred H. Partridge. Mr. Partridge has served as Vice President
responsible for purchasing and distribution for the Company since 1986. Mr.
Partridge has extensive experience in the restaurant industry encompassing
purchasing, production and distribution, as well as restaurant operations, and
was President of Grace Restaurant Services before joining the Company. Mr.
Partridge served as Vice President of Purchasing, Production and Distribution
with Marriott Corporation (Bob's Big Boy Division) for 19 years. He served as
Director of Manufacturing and Distribution for Foodmaker Company
(Jack-in-the-Box) and also operated his own restaurants in the San Diego area.
He received a B.A. in Commercial Science from Benjamin Franklin University.
Patrick J. Kelvie. Mr. Kelvie has served as General Counsel of the
Company since 1987 and Secretary of the Company since 1989. Mr. Kelvie was
elected Vice President of the Company in 1998. From 1987 to 1989, Mr. Kelvie was
an Assistant Secretary of the Company. Between 1978 and 1987, Mr. Kelvie held
various legal counsel positions for Saga Corporation. Mr. Kelvie received a B.A.
from the University of California at Berkeley and a J.D. from Harvard Law
School.
Ken A. Di Lillo. Mr. Di Lillo was elected as the Treasurer and
Assistant Secretary of the Company in 1998. Mr. Di Lillo has served as the Vice
President -- Finance of the Company since June 1998 and as Corporate Controller
since 1989. Prior thereto, he was Corporate Manager -- Financial Reporting at
Nissan Motor Acceptance Corporation ("NMAC"), having spent six years with NMAC.
Mr. Di Lillo received a B.B.A. from Cleveland State University and is a
Certified Public Accountant registered by the Accountancy Board of Ohio.
Robert D. Beyer. Mr. Beyer was elected as a Director of the Company in
1998. Mr. Beyer has served as Group Managing Director of Trust Company of the
West ("TCW") since 1995. Mr. Beyer was Co-Chief Executive Officer of Cresent
Capital Corporation, a registered investment advisor, from 1991 until its
acquisition by TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the
Investment Banking Department of Drexel Burnham Lambert, Incorporated. From 1983
to 1986, Mr. Beyer was a member of the Investment Banking Department of Bear,
Stearns & Co., Inc. Mr. Beyer is also a Director of Fred Meyer, Inc.
George G. Golleher. Mr. Golleher was elected as a Director of the
Company in 1998. Mr. Golleher has served as Chief Executive Officer of Ralphs
Grocery Company ("Ralphs") since January 1996 and was Vice Chairman from June
1995 to January 1996. Mr. Golleher was a Director of F4L Supermarkets since its
inception in 1989 and was the President and Chief Operating Officer of F4L
Supermarkets from January 1990 until its merger with Ralphs. From 1986 through
1989, Mr. Golleher served as Senior Vice President- Finance and Administration
of the Boys Markets, Inc. Mr. Golleher served as a Director of Dominick's Finer
Foods, Inc. from March 1995 until October 1996 and currently serves as a
Director of Ralphs.
Jeffry K. Weinhuff. Mr. Weinhuff was elected as a Director of the
Company in 1998. Mr. Weinhuff has served as Executive Vice President and
Director of Corporation Finance of Jefferies & Company, Inc. since May 1990. Mr.
Weinhuff is also a Director of Jefferies & Company, Inc.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation for services
rendered in all capacities which the Company paid to or accrued for the Chief
Executive Officer and each of the other four most highly compensated executive
officers.
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<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------- ------------------- -------
NUMBER
OTHER RESTRICTED OF ALL
NAME AND ANNUAL STOCK OPTIONS/ LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(a) AWARD(S) SARS PAYOUTS COMPENSATION(b)
------------------ ---- ------ ----- --------------- -------- ---- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anwar S. Soliman 1997 $ 945,793 $ 0 $ 99,975 -- -- -- $24,300
(Chairman and CEO) 1996 1,233,640 0 96,125 -- -- -- 24,303
1995 1,233,640 0 62,660 -- -- -- 18,002
Ralph S. Roberts 1997 558,181 0 50,360 -- -- -- 13,050
(President and COO) 1996 704,935 0 48,295 -- -- -- 8,351
1995 704,935 0 28,230 -- -- -- 8,351
William J. McCaffrey, Jr. 1997 252,500 0 3,850 -- -- -- 17,525
(Chief Financial Officer) 1996 325,000 0 5,680 -- -- -- 14,846
1995 311,539 30,000 0 -- -- -- 9,571
Wilfred H. Partridge 1997 225,308 0 5,900 -- -- -- 7,038
(Vice President-- 1996 290,000 0 7,610 -- -- -- 5,754
Purchasing) 1995 279,231 30,000 0 -- -- -- 5,884
Patrick J. Kelvie 1997 188,077 0 0 -- -- -- 1,512
(Secretary and 1996 175,000 0 0 -- -- -- 1,312
General Counsel) 1995 175,000 0 0 -- -- -- 1,262
</TABLE>
- ------------------
(a) Amounts shown are for reimbursement during the fiscal year for the
payment of premiums and income taxes thereon relating to executive life
and disability plans. In addition, Holdings and the Company maintain
key man life insurance policies for the benefit of Holdings and the
Company on Messrs. Soliman and Roberts.
(b) Amounts shown in this column for the last fiscal year include the
following: group term life insurance premiums of $24,300, $13,050,
$15,286 and $5,040 for Messrs. Soliman, Roberts, McCaffrey and
Partridge, respectively; and Company matching contributions to a 401(k)
plan of $2,239, $1,998 and $1,512 for Messrs. McCaffrey, Partridge and
Kelvie, respectively.
EMPLOYMENT AGREEMENTS
The following table sets forth, with respect to each executive officer
who has entered into an employment agreement with the Company, the base salary
for such officer provided for therein together with the termination date of such
agreement:
<TABLE>
<CAPTION>
TERMINATION
NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED BASE SALARY DATE
- ------------------ ------------------------ ----------- -----------
<S> <C> <C> <C>
Anwar S. Soliman Chairman and Chief Executive Officer $740,184 12/31/98
Ralph S. Roberts President and Chief Operating Officer 422,961 12/31/98
Wilfred H. Partridge Vice President - Purchasing 174,000 12/31/98
</TABLE>
Each of the employment agreements entered into between the Company and
such executive officers provides, among other things, for adjustments to the
base salaries and automatic extensions of the termination date. The agreements
also provide for certain other benefits, including, in the case of Mr. Soliman,
one year's severance pay equal to his then salary in the event of disability or
death; in the case of Mr. Roberts, one year's severance pay in the event of
death and salary for the remainder of the calendar year in the event of
disability; in the case of Mr. Partridge, six months' severance pay in the event
of death and salary for the remainder of the calendar year in the event of
disability. The employment agreements of Mr. Soliman and Mr. Roberts each
provide six months' severance pay if either executive terminates his employment
for cause. None of the Company's employment agreements provides for any
continuing salary obligations in the event of termination by the Company for
cause.
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<PAGE> 48
STOCK OPTION PLANS
The Company expects to adopt a stock option plan (the "New Plan") for
the grant of options to the management of the Company and select employees of
the Company and its subsidiaries. The Company expects that the New Plan will
provide for options for up to 15% of the diluted number of shares of Common
Stock of the Company.
SAVINGS PLAN
The Company currently has the American Restaurant Group Savings and
Investment Plan (the "Savings Plan"), which is a 401(k) plan established for the
benefit of employees who have satisfied certain requirements. These requirements
include completion of one year of service with a minimum of 1,000 hours worked.
Subject to applicable limits imposed on tax qualified plans, eligible employees
may elect pre-tax contributions up to 18.5% of a participant's total earnings
for a calendar year (but not in excess of $9,500 for 1997). The Company makes
matching contributions to the Savings Plan equal to 25% of the participant's
contributions up to 6% of the participant's earnings. A participant is entitled
to a distribution from the Savings Plan upon termination of employment and any
such distribution will be in a lump sum form. Distributable benefits are based
on the value of the participant's individual account balance which is invested
at the direction of the participant in one or a combination of six investment
funds, none of which include investments in the Company. Under certain
circumstances, a participant may borrow amounts held in his account under the
Savings Plan. Based upon the Savings Plan vesting schedule, as of 1997, 100% of
the Company matching contributions were vested for Messrs. McCaffrey, Partridge
and Kelvie.
EXECUTIVE INSURANCE PLANS
The Company has made available an executive disability insurance plan
to Messrs. Soliman, Roberts, McCaffrey and Partridge which provides supplemental
disability income based on a percentage of their respective monthly salaries. In
1997, the cost to the Company of such disability insurance for these executives
was $52,500.
Messrs. Soliman, Roberts, McCaffrey and Partridge and their dependents
also participate in an executive medical plan which covers all of their medical
and dental expenditures. In 1997, the cost to the Company of this plan for these
executives as a group was $31,200.
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<PAGE> 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock (as if the Warrants and any
other outstanding warrants were exercised), as of May 4, 1998, by (i) each of
the Company's directors, (ii) the Chief Executive Officer and certain other
highly compensated executive officers of the Company, (iii) all executive
officers and directors as a group and (iv) each person believed by the Company
to own beneficially more than 5% of the Company's outstanding common stock.
Pursuant to the Voting Trust Agreement, Anwar S. Soliman controls Holdings and,
accordingly, together with his direct ownership of Common Stock and the New
Voting Trust Agreement (as described below), effectively controls the voting of
all (without giving effect to the exercise of Warrants and any other outstanding
warrants) the outstanding Common Stock, subject to the terms of the
Securityholders Agreement. See "American Restaurant Group Holdings, Inc.--Voting
Trust Agreement and Other Agreements", "--Securityholders Agreement" and "Risk
Factors--Concentration of Ownership and Control of the Company."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP OUTSTANDING CLASS DILUTED CLASS(1)
- ---------------- -------------------- ----------------- ----------------
<S> <C> <C> <C>
Anwar S. Soliman 19,990(2) 8.6% 15.6%
Roberts Family Limited Partnership 9,702 7.6 4.2
William J. McCaffrey, Jr 2,426 1.9 1.0
Wilfred H. Partridge 2,426 1.9 1.0
Patrick J. Kelvie 387 0.3 0.2
Robert D. Beyer (3) -- -- --
George G. Golleher (4) -- -- --
Jeffry K. Weinhuff -- -- --
American Restaurant Group 93,150 72.7 40.0
Holdings, Inc. (5)
All directors and officers of the 34,931 27.3 15.0
Company as a group (8 persons)
TCW Investors (6) 55,558(7) -- 23.9
</TABLE>
- ------------------
(1) Gives effect to the exercise of all outstanding warrants.
(2) Does not include shares of the Common Stock which Mr. Soliman is deemed
to be the owner of pursuant to the New Voting Trust Agreement.
(3) Does not include shares deemed to be beneficially owned by the TCW
Investors (as defined herein). Robert D. Beyer is a Group Managing
Director of TCW, of which TCW Group (see footnote 7) and the TCW
Investors are affiliates. Mr. Beyer shares investment power for the
following TCW Investors: TCW Shared Opportunity Fund II L.P., TCW
Leveraged Income Trust, L.P. and TCW Shared Opportunity Fund IIB, LLC.
See footnote 6.
(4) George G. Golleher was elected Director of the Company, as nominee of the
TCW Investors. See "--Securityholders Agreement."
(5) Anwar S. Soliman owns 228,577 shares of Holdings common stock,
representing 46.4% of the outstanding common stock of Holdings. In
addition, Mr. Soliman is deemed to be the owner, pursuant to the Voting
Trust Agreement, of an additional 175,963 shares of Holdings common
stock. See "Risk Factors--Concentration of Ownership and Control of the
Company."
(6) TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P.,
Brown University and TCW Shared Opportunity Fund IIB, LLC.
(7) Represents warrants which are immediately exercisable at a nominal price
per share. Includes warrants beneficially owned by the TCW Investors and
of which TCW Asset Management Company and certain affiliates which
control voting and investment power in their capacity as general partner,
investment manager or manager of the TCW Investors (the "TCW Group"),
disclaims beneficial ownership.
All of the Company's Management Stockholders have entered into a voting
trust agreement (the "New Voting Trust Agreement") dated February 25, 1998 in
accordance with which Anwar S. Soliman, Chairman and Chief Executive Officer of
the Company, exercises, as voting trustee, all voting and substantially all
other rights to which such shareholders would otherwise be entitled until the
earlier of August 15, 2005 or the earlier termination of the New Voting Trust
Agreement. As a result, Mr. Soliman is considered the beneficial owner of
approximately 86.9% of the outstanding shares of the Company's common stock
(approximately 47.8% on a diluted basis). In addition, the Management
Stockholders have entered into other agreements pursuant to which such holders
were granted registration rights substantially identical to the rights granted
to the
41
<PAGE> 50
holders of the Warrants pursuant to the Securityholders' Agreement. Each of the
Management Stockholders is also party to a subscription agreement with Holdings
which provides such stockholder certain rights with respect to shares of
Holdings common stock held by such stockholder. See "Description of the
Warrants".
As of May 4, 1998, holders of the Company's Preferred Stock held
warrants for 41% of the Common Stock on a diluted basis.
SECURITYHOLDERS AGREEMENT
In connection with the Recapitalization Plan, each of Holdings, the
Management Stockholders, Jefferies & Company, Inc. (the "Initial Purchaser" of
the Notes), and TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income
Trust, L.P., Brown University and TCW Shared Opportunity Fund IIB, LLC
(collectively, the "TCW Investors") and TCW Asset Management Company entered
into a securityholders agreement concerning the Company (the "Securityholders
Agreement"). The Securityholders Agreement provides that the parties will agree
to vote all of their shares of the Company's equity securities so that the
composition of the Company's Board of Directors consists of five members, two of
whom will be management nominees, two of whom will be nominees of the TCW
Investors and one of whom, the Remaining Director, will be an independent
director designated by the Initial Purchaser; provided that after the date that
is 45 days after the date upon which underwritten primary public offerings of
Common Stock of the Company pursuant to effective registration statements under
the Securities Act have resulted in 35% of the Company's Common Stock (measured
on a fully diluted basis after giving effect to such offerings) being sold to
the public and in the Company's Common Stock being listed for trading on any of
the New York Stock Exchange, the NASDAQ National Market or the American Stock
Exchange (the "Public Company Date"), the TCW Investors and management will
mutually choose the Remaining Director and the Initial Purchaser will no longer
have any right to designate a director. The Securityholders Agreement does not
limit the rights of the holders of the Preferred Stock under the Certificate of
Designation to elect additional directors to serve on the Company's Board of
Directors in certain circumstances.
The Securityholders Agreement also provides that (i) in the event that
Holdings sells or transfers any of its shares of Company equity securities,
directly or indirectly, the TCW Investors have the option to include its Company
equity securities in such sale or transfer on the same terms as Holdings' sale
or transfer, (ii) the TCW Investors have a right of first refusal with respect
to any sale of equity securities by the Company or a party to the
Securityholders Agreement (other than Management Stockholders) to purchase the
equity securities being sold; and (iii) the TCW Investors have the
nontransferable right to approve certain major corporate transactions concerning
the Company, including mergers and consolidations, sales of any capital stock of
the Company's Subsidiaries, a sale of a material amount of the assets and
properties of the Company, transactions with affiliates and amendments to the
Company's Certificate of Incorporation and Bylaws. In addition, the
Securityholders Agreement provides that certain of the TCW Investors' purchasers
will receive payments from the Company with respect to withholding obligations
as a result of their ownership of the Preferred Stock, which amount shall not
exceed $125,000 per year. None of the rights under the Securityholders Agreement
are transferable by the TCW Investors.
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<PAGE> 51
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
Holdings was incorporated in 1993. Currently, Holdings owns 72.7% of
the outstanding common stock of the Company and does not have any other assets.
HOLDINGS DEBENTURES
In December 1993, Holdings issued $88.6 million aggregate principal
amount of Holdings Debentures at a significant discount. In March, 1996,
Holdings issued an additional $17.0 million aggregate principal amount of
Holdings Debentures at a significant discount. Substantially all of the proceeds
from the sale of the Holdings Debentures were contributed to the Company. In
connection with the Recapitalization Plan, certain holders of the Holdings
Debentures received $3.6 million principal amount of Notes and surrendered for
cancellation approximately $10.8 million accreted value of Holdings Debentures.
At June 29, 1998, the accreted value of the remaining Holdings Debentures was
$87.9 million. In addition, the indenture relating to the Holdings Debentures
(the "Holdings Indenture") was amended (the "Amendment") pursuant to the Second
Supplemental Indenture dated February 24, 1998. The following summary of the
material terms of the Holdings Debentures does not purport to be complete and is
qualified by reference to the Holdings Indenture and the Amendment.
Ranking. The Holdings Debentures are senior unsecured obligations of
Holdings. None of the Company or any of its subsidiaries has guaranteed the
Holdings Debentures.
Interest and Maturity. Pursuant to the Amendment, the terms of the
Holdings Debentures were amended as of February 25, 1998 to provide that the
Debentures will accrete at a rate of 14.25% per annum through maturity on
December 15, 2005 to $245,679,000.
Redemption. Pursuant to the Amendment, at the option of Holdings, the
Holdings Debentures may be redeemed in whole or from time to time in part at any
time at a redemption price equal to 100% of their accreted value.
Restrictive Covenants. The Holdings Indenture imposes certain
limitations, among others, on the ability of (i) Holdings to make payments in
respect of Holdings' capital stock, (ii) Holdings and its subsidiaries to incur
additional indebtedness, (iii) Holdings and its subsidiaries to engage in
transactions with its affiliates, (iv) Holdings and its subsidiaries to allow to
become effective any payment restrictions with respect to any subsidiary, (v)
Holdings to incur any liens, (vi) Holdings and its subsidiaries to consummate
certain asset sales, (vii) subsidiaries of Holdings to issue preferred stock,
(viii) Holdings to permit the Company to issue any of its capital stock, and
(ix) Holdings to merge or sell all or substantially all of its assets or
property. Pursuant to the Amendment, these covenants will be amended to, among
other things, permit consummation of the Offering and to permit certain
additional exceptions to these covenants.
Events of Default and Remedies. The following are Events of Default
under the Holdings Indenture: (a) failure to pay principal of the Holdings
Debentures when due; (b) failure to pay any interest on the Holdings Debentures
when due, continued for 30 days; (c) failure to perform any covenant in the
indenture continued for 30 days after written notice; (d) failure by Holdings or
any Subsidiary to perform any term, covenant, condition or provision of other
indebtedness in an aggregate principal amount of $10 million or more, which
failure results in an acceleration of the maturity thereof; (e) certain events
of bankruptcy or insolvency; and (f) the entering of final judgments not covered
by insurance for the payment of money which in the aggregate at any one time
exceeds $10 million, which shall remain undischarged and unbonded for a period
(during which execution shall not be effectively stayed) of 60 days after such
judgment becomes final and nonappealable.
Net Proceeds Offering. Holdings is required, upon certain asset sales
or the receipt of cash, by dividend or otherwise, to offer to purchase with the
net proceeds thereof the Holdings Debentures at a price equal to 100% of their
accreted value to the date of purchase.
Change of Control Offer. Upon the occurrence of a change of control,
each holder of Holdings Debentures has the right to require the repurchase of
such holder's Holdings Debentures at a purchase price equal to 101% of the
accreted value thereof to the date of purchase.
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<PAGE> 52
VOTING TRUST AGREEMENT AND OTHER AGREEMENTS
All of Holdings' management stockholders have entered into the Voting
Trust Agreement in accordance with which Anwar S. Soliman, Chairman and Chief
Executive Officer of the Company and Holdings, exercises, as voting trustee, all
voting and substantially all other rights to which such stockholders would
otherwise be entitled with respect to shares of Holdings common stock until the
earlier of August 15, 2005 or the earlier termination of the Voting Trust
Agreement. See "Risk Factors--Concentration of Ownership and Control of the
Company." Each of the management stockholders is also party to a subscription
agreement with Holdings which provides such stockholder certain rights with
respect to shares of Holdings common stock held by such stockholder.
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<PAGE> 53
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries are qualified in their entirety by reference to
the definitive agreements and instruments described herein.
NEW CREDIT FACILITY
The Company and certain of its subsidiaries entered into the New Credit
Facility on February 25, 1998 with BankBoston, N.A., as agent, and a group of
banks in an aggregate principal amount of $15.0 million. The New Credit Facility
includes a letter of credit facility in the principal amount of availability of
up to $10.0 million, which may be used only by the subsidiaries of the Company
party to the New Credit Facility to support certain insurance, workers'
compensation and performance or payment obligations of such subsidiaries. At May
4, 1998, the Company had $5.1 million of letters of credit outstanding under the
New Credit Facility. The New Credit Facility matures on February 25, 2001.
The New Credit Facility provides for a quarterly commitment fee and
fees payable on outstanding letters of credit. Borrowings under the New Credit
Facility, at the Company's option, bear interest at BankBoston, N.A.'s prime
rate plus 1.0% or the applicable eurodollar rate plus 2.5%.
The New Credit Facility is secured, subject to the Intercreditor
Agreement, by a first-priority security interest in the Collateral. See
"--Intercreditor Agreement and Collateral Documents."
The New Credit Facility contains financial and other covenants,
including, without limitation, (i) restrictions on the incurrence of
indebtedness, leases, liens and contingent obligations, (ii) restrictions on
mergers, acquisitions, sales of assets, investments and transactions with
affiliates, (iii) restrictions on dividends and other payments with respect to
shares of the Company's capital stock, (iv) restrictions on redemptions,
prepayments and distributions with respect to certain debt, (v) restrictions on
amendments to the Indenture, agreements relating to capital stock and certain
other agreements, (vi) a prohibition on engaging in businesses unrelated to the
business currently conducted by the Company and (vii) minimum debt service
coverage, minimum interest coverage and maximum leverage.
Events of Default under the New Credit Facility include, among others,
(i) any failure of the Company to pay amounts owing under the New Credit
Facility, subject, except in the case of principal, to a two-day grace period,
(ii) the breach by the Company or any of its subsidiaries of any covenants,
representations or warranties contained in the New Credit Facility, (iii) any
failure to pay amounts due under other indebtedness or contingent obligations of
the Company or any of its subsidiaries or defaults that result in or permit the
acceleration of such indebtedness or contingent obligations, if the aggregate
amount of such indebtedness or contingent obligations exceeds a specified
amount, (iv) certain events of bankruptcy, insolvency or dissolution of the
Company or any of its subsidiaries and (v) certain changes of control of the
Company.
INTERCREDITOR AGREEMENT AND COLLATERAL DOCUMENTS
Pursuant to mortgages, deeds of trust, personal property security
agreements, pledge agreements, a trademark security agreement and a cash
collection account agreement, in each case executed and delivered by the Company
and/or the Subsidiary Guarantors (as amended or supplemented, collectively, the
"Collateral Documents"), the Company and the Subsidiary Guarantors granted to
the Trustee, as Collateral Agent (the "Collateral Agent"), a first-priority
security interest in a portion of the owned or leased real property, in a
substantial portion of the owned personal property, in substantially all of the
accounts receivable of the Company and its Restricted Subsidiaries and a pledge
of all of the capital stock of the Company's Restricted Subsidiaries and
proceeds of the foregoing (collectively, the "Collateral") for the benefit of
the holders of the Notes and the Exchange Notes and the lenders under the New
Credit Facility. Pursuant to an intercreditor agreement executed among the
Trustee and the agents for the lenders under the New Credit Facility (the
"Intercreditor Agreement"), proceeds from the sale of the Collateral are first
to be applied to repay Indebtedness outstanding under the New Credit Facility
(with the principal amount thereof not to exceed $20,000,000), if any, and
thereafter paid to the Trustee for the benefit of the holders of the Notes and
the Exchange Notes. The Collateral Agent will be directed by the agent under the
New Credit Facility, and not the Trustee under the Indenture, unless amounts due
under the New Credit Facility have been paid in full or 180 days have elapsed
from the occurrence of an Event of Default under the Indenture. See "Description
of the Exchange Notes--Collateral."
45
<PAGE> 54
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Preferred Stock and $155 million in aggregate principal amount of
the Notes were originally issued and sold on February 25, 1998 to the Initial
Purchaser pursuant to a Purchase Agreement between the Company and the Initial
Purchaser (the "Purchase Agreement"); $3.6 million in aggregate principal amount
of the Notes was originally issued to certain holders of the Holdings Debentures
in exchange for cancellation of approximately $10.8 million accreted value of
Holdings Debentures. The offer and sale of the Securities was not required to be
registered under the Act in reliance upon the exemption provided by Section 4(2)
of the Act. As a condition to the Purchase Agreement, the Company and the
Initial Purchaser entered into the Registration Rights Agreement on February 25,
1998. Pursuant to the Registration Rights Agreement, the Company agreed to file
with the Commission a registration statement under the Securities Act with
respect to the Exchange Offer following the Issue Date, (ii) to use its
reasonable best efforts to cause such registration statement to become effective
under the Securities Act at the earliest possible time thereafter, but in no
event later than 150 days after the Issue Date, and (iii) upon effectiveness of
the registration statement, to commence the Exchange Offer. The purpose of the
Exchange Offer is to fulfill the Company's obligations with respect to the
Registration Rights Agreement and the Purchase Agreement. See "Registration
Rights Agreement."
As a result of the effectiveness of the Registration Statement of which
this Prospectus is a part, payment of certain liquidated damages provided for in
the Registration Rights Agreement will not occur. Following the consummation of
the Exchange Offer, holders of Notes and shares of Preferred Stock will not have
any further registration rights and the Notes and Preferred Stock will continue
to be subject to certain restrictions on transfer. See "--Consequences of
Failure to Exchange." Accordingly, the liquidity of the market for the Notes and
Preferred Stock could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the applicable Letter of Transmittal, the Company will accept
(i) any Notes in principal amounts of $1,000 validly tendered and not withdrawn
prior to the Expiration Date and (ii) any and all shares of Preferred Stock
validly tendered and not withdrawn prior to the Expiration Date. The Company
will issue (i) Exchange Notes in principal amounts of $1,000 for each $1,000
principal amount outstanding of the Notes and (ii) one share or a partial share
of Exchange Preferred Stock in exchange for each share or partial share of
Preferred Stock, accepted in the Exchange Offer. Holders may tender some or all
of their Notes or shares of Preferred Stock pursuant to the Exchange Offer.
Holders of Preferred Stock who tender their shares in exchange for Exchange
Preferred Stock shall be deemed have tendered to exchange any shares of
Preferred Stock received as dividends in respect of the tendered Preferred
Stock.
The form and terms of the Exchange Notes and the Exchange Preferred
Stock are the same as the form and terms of the Notes and the Preferred Stock
except that the Exchange Notes and the shares of Exchange Preferred Stock will
have been registered under the Securities Act and hence will not bear legends
restricting their transfer pursuant to the Securities Act.
As of the date of this Prospectus, $158,600,000 principal amount of
Notes and 35,000 shares of Preferred Stock were outstanding. As of August 15,
1998, 1,995 shares of Preferred Stock will be issued as dividends on the 35,000
shares of Preferred Stock currently outstanding. Only a registered holder of the
Notes and the Preferred Stock (or such holder's legal representative or
attorney-in-fact) as reflected on the records of the transfer agent and
registrar for the Notes or the Preferred Stock may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
the Notes or the Preferred Stock entitled to participate in the Exchange Offer.
Holders of the Preferred Stock do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Certificate of
Designations for the Preferred Stock in connection with the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Notes or
shares of Preferred Stock when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders of the Notes or the Preferred Stock for the purposes of
receiving the Exchange Notes or the Exchange Preferred Stock from the Company.
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<PAGE> 55
If any tendered Notes or shares of Preferred Stock are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Notes or
shares of Preferred Stock will be returned, without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Notes or shares of Preferred Stock in the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the applicable Letter of Transmittal, transfer taxes with
respect to the exchange of Notes or shares of Preferred Stock pursuant to the
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer. See "--Fees and
Expenses."
Each broker-dealer that receives Exchange Notes or Exchange Preferred
Stock for its own account in exchange for Notes or Preferred Stock, where such
Exchange Notes or Exchange Preferred Stock were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes or Exchange Preferred Stock. See "Plan of Distribution."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 12:00 a.m., New York City time, on , 1998, unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date on which the Exchange Offer, as so extended by the Company, shall
expire. The Company reserves the right to extend the Exchange Offer at any time
and from time to time by giving oral or written notice to United States Trust
Company of New York (the "Exchange Agent") and, unless otherwise required by
applicable law or regulation, by making a press release prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. During any extension of the Exchange Offer, all Securities
previously tendered pursuant to the Exchange Offer will remain subject to the
Exchange Offer.
The Company reserves the right, (i) to delay accepting any Notes or
shares of Preferred Stock, (ii) to extend the Exchange Offer, (iii) if any of
the conditions set forth below under "--Conditions of the Exchange Offer" shall
not have been satisfied, to terminate the Exchange Offer, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent, or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the terms of the Exchange Offer
are amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendments by means of a
prospectus supplement that will be distributed to the registered holders of the
Notes and the Preferred Stock, and the Company will extend the Exchange Offer
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Company shall not have an obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely press release.
PROCEDURES FOR TENDERING
Only a registered holder (which term, for the purposes described
herein, shall include any participant in The Depository Trust Company (also
referred to as a book-entry transfer facility) whose name appears on a security
listing as the owner of the Notes or the Preferred Stock) of Notes or shares of
Preferred Stock may tender such Notes or shares of Preferred Stock in the
Exchange Offer. To tender in the Exchange Offer a holder must complete, sign and
date the applicable Letter of Transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the applicable Letter of
Transmittal and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with the Notes or the shares of Preferred Stock and any
other required documents, to the Exchange Agent at the address set forth below
under "Exchange Agent" for receipt prior to the Expiration Date (or comply with
the procedure for book-entry transfer described below).
The tender by a holder will constitute an agreement between such holder
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the applicable Letter of Transmittal.
THE METHOD OF DELIVERY OF THE NOTES OR THE SHARES OF PREFERRED STOCK
AND THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY
MAIL, IT IS
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<PAGE> 56
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL, NOTES OR SHARES OF
PREFERRED STOCK SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Notes and the Preferred
Stock at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Notes and/or shares of Preferred Stock by
causing such book-entry transfer facility to transfer such Notes and/or shares
of Preferred Stock into the Exchange Agent's account with respect to the Notes
and/or shares of Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of Notes and/or
shares of Preferred Stock may be effected through book-entry transfer into the
Exchange Agent's accounts at the book-entry transfer facility, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth on the back cover page of this
Prospectus on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures.
Any beneficial owner whose Notes or shares of Preferred Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. See "Instruction to Registered Holder from Beneficial Owner"
included with each Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes or shares of Preferred Stock tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad- 15 under the Exchange Act (each an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes or any shares of Preferred Stock listed therein,
such Notes or shares of Preferred Stock must be endorsed or accompanied by a
properly completed stock power, signed by such registered holder as such
registered holder's name appears on such Notes or shares of Preferred Stock.
If the Letter of Transmittal, Notes or any shares of Preferred Stock or
stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Notes or shares of Preferred
Stock will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Notes or shares of Preferred Stock not properly tendered
or any Notes or shares of Preferred Stock the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes or shares of Preferred Stock. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Notes or the shares of Preferred Stock must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Notes or the shares of
Preferred Stock, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Notes or the shares of Preferred Stock will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes or
shares of Preferred Stock received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
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<PAGE> 57
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the applicable Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each registered holder will represent to the Company
that, among other things, (i) the Exchange Securities to be acquired by such
holder in the Exchange Offer are being acquired by the holder and any Beneficial
Owner(s) in the ordinary course of business of the holder, (ii) such holder has
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Securities within the meaning of the Securities Act
or resale of the Exchange Securities in violation of the Securities Act, (iii)
if such holder is not a broker-dealer, that it is not engaged in and does not
intend to engage in, and the distribution of the Exchange Securities, (iv) if
such holder is a broker-dealer that will receive Exchange Securities for its own
account in exchange for Notes and/or Preferred Stock that were acquired as a
result of market-making or other trading activities and that it will deliver a
prospectus, as required by law, in connection with any resale of such Exchange
Securities, and (v) if such holder is an affiliate of the Company, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act applicable to it.
Each broker-dealer who holds Notes or Preferred Stock acquired for its
own account as a result of market-making activities or other trading activities
and who receives Exchange Notes or Exchange Preferred Stock in the Exchange
Offer may be a statutory underwriter and must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes or Exchange
Preferred Stock. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes or Exchange Preferred Stock received in exchange
for Notes or Preferred Stock where such Notes or Preferred Stock were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company will, for a period of 90 days after the Expiration Date,
make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes or shares of Preferred Stock and
(i) whose Notes or shares of Preferred Stock are not immediately available, or
(ii) who cannot deliver their Notes or shares of Preferred Stock, the applicable
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date or complete the procedure for book-entry transfer
on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes or shares of Preferred Stock and the principal amount of Notes
or the number of shares of Preferred Stock being tendered, stating that the
tender is being made thereby and guaranteeing that, within three business
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Notes or shares
of Preferred Stock (or a confirmation of book-entry transfer of such Notes
or shares of Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility) and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes or shares of Preferred Stock in proper form for transfer and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Notes or shares of Preferred
Stock according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of the Notes or shares of
Preferred Stock may be withdrawn at any time prior to the Expiration Date or, if
tendered Notes or shares of Preferred Stock have not yet been accepted for
exchange, after the expiration of forty business days from the commencement of
the Exchange Offer.
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<PAGE> 58
To withdraw a tender of Notes or shares of Preferred Stock in the
Exchange Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes or shares of Preferred Stock to be withdrawn
(the "Depositor"), (ii) identify the Notes or shares of Preferred Stock to be
withdrawn (including the certificate number or numbers and principal amount of
Notes or number of shares), and (iii) be signed by the holder in the same manner
as the original signature on the Letter of Transmittal by which such Notes or
shares of Preferred Stock were tendered (including any required signature
guarantees). If Notes or shares of Preferred Stock have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Notes or shares of Preferred Stock or otherwise
comply with the book-entry facility procedure. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company in its sole discretion, which determination shall be
final and binding on all parties. Any Notes or shares of Preferred Stock so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes or shares of Exchange Preferred Stock will
be issued with respect thereto unless the Notes or shares of Preferred Stock so
withdrawn are validly retendered. Properly withdrawn Notes or shares of
Preferred Stock may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
Any Notes or shares of Preferred Stock which have been tendered but
which are not accepted for exchange due to rejection of tender or termination of
the Exchange Offer, or which have been validly withdrawn, will be returned as
soon as practicable to the holder thereof without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange Exchange Notes or shares of
Exchange Preferred Stock for, any Notes or shares of Preferred Stock, and may
terminate the Exchange Offer as provided herein before the acceptance of such
Notes or shares of Preferred Stock, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries;
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company;
(d) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby; or
(e) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Securities to be issued
pursuant to the Exchange Offer in exchange for Securities to be offered for
resale, resold and otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of
Rule 405 under the Act) without compliance with the registration and
prospectus delivery provisions of the Act provided that such Exchange
Securities are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such Exchange Securities.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes or
shares of Preferred Stock and return all tendered Notes or shares of Preferred
Stock to the tendering holders, (ii) extend the Exchange Offer and retain all
Notes or shares of Preferred Stock tendered prior to the Expiration Date,
subject, however, to the rights of holders to withdraw such Notes or shares of
Preferred Stock (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all
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<PAGE> 59
validly tendered Notes or shares of Preferred Stock which have not been
withdrawn. If such determination or waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such determination or waiver
by means of a prospectus supplement that will be distributed to the registered
holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
EXCHANGE AGENT
United States Trust Company, National Association has been appointed as
the Exchange Agent for the Exchange Offer. Letters of Transmittal must be
addressed to the Exchange Agent at its address set forth on the back cover page
of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions
of instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company and are estimated in the aggregate to be
approximately $150,000. Such expenses include fees and expenses of the Exchange
Agent and transfer agent and registrar, accounting and legal fees and printing
costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Notes or the Preferred Stock pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the exchange of the
Notes or the Preferred Stock pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxpayers or exemption therefrom is not submitted with the
applicable Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes or the shares of Preferred Stock which are not exchanged for
Exchange Notes or shares of Exchange Preferred Stock pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Notes or the shares of Preferred Stock may be
resold only (i) to the Company, (ii) pursuant to a registration statement which
has been declared effective under the Securities Act, (iii) for so long as the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act, to a person the holder reasonably believes is a "qualified institutional
buyer" (as defined in Rule 144A) that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that the
transfer is being made in reliance on Rule 144A, (iv) pursuant to offers and
sales to non-U.S. persons that occur in offshore transactions and without
directed selling efforts within the meanings of such terms as defined in
Regulation S under the Securities Act, (v) to an institutional "Accredited
Investor" within the meaning of Rule 501(A)(1), (2), (3) or (7) under the
Securities Act that is purchasing the security for its own account, or for the
account of such an institutional "Accredited Investor," for investment purposes
and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or (vi) pursuant to another
available exemption from the registration requirements of the Securities Act,
subject to certain requirements of the Company and the transfer agent being met.
The liquidity of the Notes or the Preferred Stock could be adversely affected by
the Exchange Offer. Following the consummation of the Exchange Offer, holders of
the Notes or the Preferred Stock will have no further registration rights under
the Registration Rights Agreement.
ACCOUNTING TREATMENT
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<PAGE> 60
The carrying value of the Notes or the Preferred Stock is not expected
to be materially different from the fair value of the Exchange Notes or the
Exchange Preferred Stock at the time of the exchange. Accordingly, no gain or
loss for accounting purposes will be recognized. The expenses of the Exchange
Offer associated with the Exchange Notes will be reported as a non-current asset
and amortized over the term of the Exchange Notes. The expenses of the Exchange
Offer associated with the Exchange Preferred Stock will be reported as a
reduction in the carrying value of the Exchange Preferred Stock. Such carrying
value of the Exchange Preferred Stock will increase to the amount of the
redemption value of the Exchange Preferred Stock over the term of the Exchange
Preferred Stock.
RESALES OF THE EXCHANGE NOTES AND THE EXCHANGE PREFERRED STOCK
With respect to resales of the Exchange Notes or the Exchange Preferred
Stock, based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that a holder (other than
a person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Notes or shares of Preferred Stock for
Exchange Notes or shares of Exchange Preferred Stock in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes or the Exchange Preferred Stock, will be
allowed to resell the Exchange Notes or the Exchange Preferred Stock to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes or the Exchange Preferred
Stock a prospectus that satisfies the requirements of Section 10 thereof.
However, if any holder acquires Exchange Notes or shares of Exchange Preferred
Stock in the Exchange Offer for the purpose of distributing or participating in
a distribution of the Exchange Notes or the Exchange Preferred Stock, such
holder cannot rely on the position of the staff of the SEC in such no-action
letter and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives Exchange Notes or Exchange Preferred Stock for its
own account in exchange for Notes or Preferred Stock, where such Notes or
Preferred Stock were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes or Exchange
Preferred Stock. See "Plan of Distribution."
As contemplated by the above no-action letters and the Registration
Rights Agreement, each holder accepting the Exchange Offer is required to
represent to the Company in the applicable Letter of Transmittal as set forth in
"--Procedures for Tendering."
REGISTRATION RIGHTS AGREEMENT
The Company entered into the Registration Rights Agreement for the
benefit of the holders of the Securities. The following summary of certain
provisions of the Registration Rights Agreement does not purport to be complete
and is subject to, and is qualified by reference to, all the provisions of such
agreement which has been incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part.
Pursuant to the Registration Rights Agreement the Company agreed, for
the benefit of the holders of the Securities, that, at its cost, (i) the Company
will file the Exchange Offer Registration Statement with the Commission on or
prior to 90 days after the Issue Date, (ii) the Company will use its best
efforts to have such Exchange Offer Registration Statement declared effective by
the Commission on or prior to 150 days after the Issue Date (the "Effectiveness
Date"), (iii) the Company will keep the Exchange Offer Registration Statement
effective until the consummation of the Exchange Offer pursuant to its terms,
and (iv) unless the Exchange Offer would not be permitted by a policy of the
Commission, the Company will have commenced the Exchange Offer and will use its
best efforts to issue, on or prior to 180 business days after the Issue Date,
Exchange Securities in exchange for all Notes and Preferred Stock tendered prior
thereto in the Exchange Offer.
If (i) applicable interpretations of the staff of the Commission would
not permit the consummation of the Exchange Offer prior to the Effectiveness
Date, (ii) subsequent to the consummation of the Private Exchange (as defined in
the Registration Rights Agreement) but within 270 days of the Issue Date, the
Initial Purchaser so requests with respect to Securities held by the Initial
Purchaser and having the status as an unsold allotment, (iii) the Exchange Offer
is not consummated within 180 days of the Issue Date for any reason or (iv) in
the case of any holder not permitted to participate in the Exchange Offer or of
any holders participating in the Exchange Offer that receives Exchange
Securities that may not be sold without restriction under state and federal
securities laws (other than due solely to the status of such holder as an
affiliate of the Company within the meaning of the Securities Act) and, in
either case contemplated by this clause (iv), such holder notifies the Company
within six months of the consummation of the Exchange Offer, then the Company
shall promptly
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deliver to the holders (or in the case of any occurrence of the event described
in clause (iv) hereof, to any such holder) and the Trustee, Transfer Agent or
Exchange Debenture Trustee notice thereof and shall as promptly as possible
thereafter file an Initial Shelf Registration Statement (the "Initial Shelf
Registration Statement"). The Company shall use its best efforts to file the
Initial Shelf Registration Statement within 45 days after an obligation to file
such Initial Shelf Registration arises. The Company shall (i) not permit any
securities other than the Registrable Securities to be included in any Shelf
Registration (as defined in the Registration Rights Agreement), and (ii) use its
best efforts to cause the Initial Shelf Registration Statement to be declared
effective as promptly as practicable after the filing thereof and to keep the
Initial Shelf Registration Statement continuously effective until the date that
is 24 months after the Effectiveness Date, or such shorter period ending when
(i) all Registrable Securities covered by the Initial Shelf Registration
Statement have been sold or (ii) a Subsequent Shelf Registration Statement (as
defined in the Registration Rights Agreement) covering all of the Registrable
Securities has been declared effective under the Securities Act. The Company
will, in the event of the Initial Shelf Registration Statement, provide to each
holder of the Securities copies of the prospectus, which is a part of the
Initial Shelf Registration Statement, notify each such holder when the Initial
Shelf Registration Statement for the Securities has become effective and take
certain other actions as are required to permit unrestricted resales of the
Securities. A holder of Securities who sells such Securities pursuant to the
Initial Shelf Registration Statement generally would be required to be named as
a selling securityholder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Act in connection with such sales and will be bound by the provisions
of the Registration Rights Agreement which are applicable to such a holder
(including certain indemnification rights and obligations).
If (i) neither the applicable Registration Statement nor the Initial
Shelf Registration Statement has been declared effective by the Commission prior
to the Effectiveness Date, (ii) the Exchange Offer, if permitted, has not been
consummated within 180 days after the Issue Date or (iii) the Initial Shelf
Registration Statement is filed and declared effective but thereafter will cease
to be effective without being succeeded within 45 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iii), a "Registration Default"), the Company will pay
liquidated damages to each holder of Registrable Securities (as defined in the
Registration Rights Agreement), during the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to $.05
per week per $1,000 principal amount or liquidation preference, as the case may
be, of Registrable Securities held by such Holder. The amount of the liquidated
damages thereafter will increase to a maximum of $.10 per week per $1,000
principal amount or liquidation preference, as the case may be, of Registrable
Securities until the applicable Registration Statement is declared effective,
the Exchange Offer is consummated or the Shelf Registration Statement again
becomes effective, as the case may be. The Company will not be required to pay
liquidated damages in respect of more than one Registration Default in respect
of any given period of time. All accrued liquidated damages in respect of the
Notes will be paid in the same manner as interest payments on the Notes on
semi-annual damages payment dates that correspond to interest payment dates for
the Notes. All accrued liquidated damages in respect of the Preferred Stock will
be paid on February 15 and August 15 in the same manner (in cash or with the
issuance of additional shares of Preferred Stock) as dividends on the Preferred
Stock. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Company, the Guarantors and U.S. Trust Company of California, N.A. as trustee
(the "Trustee"). The terms of the Exchange Notes will be identical in all
respects to the terms of the Notes. In addition, the terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of certain provisions of the Indenture, the
Collateral Documents (as defined) and the Registration Rights Agreement between
the Company and the Initial Purchaser does not purport to be complete and is
qualified by reference to the Indenture, the Collateral Documents and the
Registration Rights Agreement including the definitions therein of certain terms
used below. Copies of the forms of the Indenture, the Collateral Documents and
the Registration Rights Agreement are available from the Company upon request.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions."
The Exchange Notes are senior secured obligations of the Company and
rank senior in right of payment to all subordinated Indebtedness of the Company
and pari passu in right of payment with all senior Indebtedness.
The Exchange Notes are issued in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to
$158,600,000 and will mature on February 15, 2003. Interest on the Exchange
Notes will be payable semi-annually on February 15 and August 15 of each year,
commencing on February 15, 1999, to holders of record on the immediately
preceding February 1 and August 1, respectively. The Exchange Notes will bear
interest at 11 1/2% per annum. Interest on the Exchange Notes will accrue from
August 15, 1998. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Exchange Notes will be payable both as to
principal and interest at the office or agency of the Company maintained for
such purpose within The City of New York or, at the option of the Company,
payment of interest may be made by check mailed to the holders of the Exchange
Notes at their respective addresses set forth in the register of holders of
Exchange Notes. Until otherwise designated by the Company, such office or agency
will be the office of the Trustee maintained for such purpose. If a payment date
is a Legal Holiday, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
REDEMPTION
The Exchange Notes will not be redeemable at the Company's option prior
to February 15, 2001. Thereafter, the Exchange Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable date of redemption, if redeemed
during the 12-month period beginning on February 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 105.75%
2002 and thereafter 100.00%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior
to February 15, 2000, the Company may, at its option, redeem up to one third of
the original aggregate principal amount of the Exchange Notes, at a redemption
price of 111.5% of the principal amount thereof, plus accrued and unpaid
interest, if any, through the date of redemption, with the net cash proceeds of
one or more Qualified Equity Offerings; provided, that (a) such redemption shall
occur within 60 days of the date of closing of such offering and (b) at least
two thirds of the aggregate original principal amount of Exchange Notes remains
outstanding immediately after giving effect to each such redemption.
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<PAGE> 63
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such other method as the
Trustee deems to be fair and appropriate, provided, that Exchange Notes of
$1,000 or less may not be redeemed in part. Notice of redemption will be mailed
by first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Exchange Notes to be redeemed at such holder's registered
address. If any Exchange Note is to be redeemed in part only, the notice of
redemption that relates to such Exchange Note will state the portion of the
principal amount thereof to be redeemed. A new Exchange Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Exchange Note. On and after the date
of redemption, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption.
The Exchange Notes will not be entitled to any mandatory redemption or
sinking fund.
GUARANTORS
The repayment of the Exchange Notes will be fully and unconditionally
and irrevocably guaranteed, on a senior secured basis, by all Restricted
Subsidiaries of the Company (the "Guarantors"), jointly and severally. The
Indenture provides that as long as any Exchange Notes remain outstanding, any
future Restricted Subsidiary shall enter into a similar Guarantee.
The obligations of each Guarantor will be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Guarantor and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee, result in the obligations of such Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law or render a Guarantor insolvent. See "Risk
Factors--Fraudulent Transfer Considerations."
COLLATERAL
Subject to certain exceptions, the Exchange Notes and the Guarantees
will be secured, subject to the terms of the Intercreditor Agreement, by a first
priority security interest in the Collateral. The Exchange Notes will not be
secured by any other property. See "Description of Certain
Indebtedness--Intercreditor Agreement and Collateral Documents" and "Risk
Factors--Collateral; Other Secured Indebtedness."
So long as no Event of Default has occurred and is continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Documents, the Company will be entitled to receive all cash dividends, interest
and other payments made upon or with respect to the Capital Stock of any
Subsidiary pledged by it, and to exercise any voting, other consensual rights
and other rights pertaining to such Collateral pledged by it. Upon the
occurrence and during the continuance of an Event of Default, (i) all rights of
the Company to exercise such voting, other consensual rights or other rights
will cease upon notice from the Collateral Agent pursuant to the Intercreditor
Agreement, and all such rights will become vested in the Collateral Agent, which
to the extent permitted by law, will have the sole right to exercise such
voting, other consensual rights or other rights; and (ii) all rights of the
Company to receive cash dividends, interest and other payments made upon or with
respect to the pledged Collateral will, upon notice from the Collateral Agent,
cease and such cash dividends, interest and other payments will be paid to the
Collateral Agent. All funds distributed under the Collateral Documents and
received by the Collateral Agent for the benefit of the holders of the Exchange
Notes will be retained and/or distributed by the Collateral Agent in accordance
with the provisions of the Indenture and the Intercreditor Agreement.
If the Exchange Notes become due and payable prior to the final stated
maturity thereof for any reason or are not paid in full at the final stated
maturity thereof, and after any applicable grace period has expired, the
Collateral Agent has the right to foreclose upon such Collateral, subject to the
Intercreditor Agreement. Under the terms of the Collateral Documents and the
Intercreditor Agreement, the Collateral Agent will determine the circumstances
and manner in which the Collateral will be disposed of, including, but not
limited to, the determination of whether to foreclose on the Collateral
following an Event of Default. The Collateral Agent will be directed by the
agent under the New Credit Facility, and not the Trustee under the Indenture,
unless amounts due under the New Credit Facility have been paid in full or 180
days have elapsed from the occurrence of an Event of Default under the
Indenture. Holders of the Exchange Notes may not enforce the Collateral
Documents. Proceeds from the sale of Collateral will first be applied to repay
Indebtedness outstanding under the New Credit Facility, if any, and thereafter
will be paid to the Trustee. The proceeds received by the Trustee will be
applied by the Trustee first to pay the expenses of any foreclosure and fees and
other amounts then payable to the Trustee under the
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Indenture and, thereafter, to pay all amounts owing to the holders under the
Indenture (with any remaining proceeds to be payable to the Company or as may
otherwise be required by law).
In the event of foreclosure on the Collateral, the proceeds from the
sale of the Collateral may not be sufficient to satisfy the Company's
Obligations under the Exchange Notes and the New Credit Facility in full. The
amount to be received upon such a sale would be dependent upon numerous factors
including the timing and the manner of the sale. In addition, the book value of
the Collateral should not be relied upon as a measure of realizable value. By
its nature, the Collateral will be illiquid and may have no readily
ascertainable market value. Accordingly, there can be no assurance that the
Collateral can be sold in a short period of time. A significant portion of the
Collateral, including the real property portion thereof, includes tangible and
intangible assets which may only be usable as part of the existing operating
businesses. Accordingly, any such sale of the Collateral, including the real
property portion thereof, separate from the sale of certain of the Company's
divisions as a whole, may not be feasible or of any value. To the extent that
third parties (including the lenders under the New Credit Facility) enjoy
Permitted Liens, such third parties may have rights and remedies with respect to
the property subject to such Lien that, if exercised, could adversely affect the
value of the Collateral. In addition, the ability of the Holders to realize upon
any of the Collateral may be subject to certain bankruptcy law limitations in
the event of a bankruptcy. See "Risk Factors--Collateral; Other Secured
Indebtedness."
Upon the full and final payment and performance of all Obligations of
the Company under the Indenture and the Exchange Notes (or defeasance of such
Obligations), and all obligations under the New Credit Facility, the Collateral
Documents will terminate and the pledged Collateral will be released. In
addition, subject to the Intercreditor Agreement, in the event that the pledged
Collateral is sold, the Collateral Agent will release simultaneously with such
sale the Liens in favor of the Collateral Agent in the assets sold.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be
required to offer to repurchase all the Exchange Notes then outstanding (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company must mail or cause to be mailed a notice to the
Trustee and each holder stating, among other things (i) that the Change of
Control Offer is being made pursuant to this provision and that all Exchange
Notes tendered will be accepted for payment; (ii) the purchase price and the
purchase date, which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"); (iii)
that any Note not tendered will continue to accrue interest; (iv) that, unless
the Company defaults in the payment of the Change of Control Payment, all
Exchange Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest on the Change of Control Payment Date; (v) that any
holder electing to have Exchange Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Exchange Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Exchange Notes
completed, to the paying agent with respect to the Exchange Notes (the "Paying
Agent") at the address specified in the notice prior to the close of business on
the third business day preceding the Change of Control Payment Date; (vi) that
any holder will be entitled to withdraw such election if the Paying Agent
receives, not later than the close of business on the second business day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Exchange Notes delivered for purchase, and a statement that such
holder is withdrawing his election to have such Exchange Notes purchased; and
(vii) that a holder whose Exchange Notes are being purchased only in part will
be issued new Exchange Notes equal in principal amount to the unpurchased
portion of the Exchange Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14E under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes in connection with a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Exchange Notes or portions thereof tendered
pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and not
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withdrawn; and (iii) deliver or cause to be delivered to the Trustee the
Exchange Notes so accepted together with an Officer's Certificate stating that
the Exchange Notes or portions thereof tendered to the Company are accepted for
payment. The Paying Agent will promptly mail to each holder of Exchange Notes so
accepted payment in an amount equal to the purchase price for such Exchange
Notes, and the Trustee will authenticate and mail to each holder a new Note
equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any, provided, that each such new Note will be in principal
amount of $1,000 or an integral multiple thereof. The Company will announce the
result of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Exchange
Notes to require that the Company repurchase or redeem the Exchange Notes in the
event of a takeover, recapitalization or similar restructuring.
There can be no assurance that sufficient funds will be available at
the time of any Change of Control Offer to make required repurchases.
"Change of Control" means (i) the transfer (in one transaction or a
series of transactions) of all or substantially all of the Company's assets to
any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) other than to one or more Existing Holders; (ii) the liquidation or
dissolution of the Company or the adoption of a plan by the stockholders of the
Company relating to the dissolution or liquidation of the Company; (iii) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act), except for one or more Existing Holders, of beneficial
ownership, directly or indirectly, of more than 50% of the aggregate ordinary
voting power of the total outstanding Voting Stock of the Company; or (iv)
during any period of two consecutive years, Continuing Directors cease for any
reason to constitute a majority of the Board of Directors of the Company, as the
case may be, then still in office.
"Continuing Directors" means (i) individuals who at the beginning of
such period were directors of the Company; (ii) any TCW Director and (iii) any
director whose election by the Board of Directors of the Company or whose
nomination for election by the stockholders of the Company was approved by a
majority of the Continuing Directors then still in office.
"Existing Holders" shall mean the holders of the common stock of the
Company on the Issue Date, TCW or any of their affiliates.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend or make any distribution on account of any Equity Interests
of the Company or any of its Restricted Subsidiaries (other than (A) dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary or (C) if the Subsidiary making such a dividend or
distribution is not a Wholly Owned Subsidiary, dividends to its shareholders on
a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interest of the Company, any Subsidiary or any other Affiliate
of the Company (other than any such Equity Interest owned by the Company or any
Wholly Owned Subsidiary); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is subordinated in right of payment to the
Exchange Notes or such Guarantor's Guarantee thereof, as the case may be; (iv)
make any Restricted Investment; or (v) make any payment or transfer any assets
to, or on behalf of, Holdings or any of its Affiliates (all such payments and
other actions set forth in clauses (i) through (v) above being collectively
referred to as "Restricted Payments") unless, at the time of such Restricted
Payment:
(a) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
(b) immediately after giving effect thereto on a pro forma
basis, the Company could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under "Limitation on Incurrence of Indebtedness";
and
(c) such Restricted Payment (the value of any such payment, if
other than cash, being determined in good faith by the Board of
Directors and evidenced by a resolution set forth in an Officers'
Certificate delivered to the Trustee), together with the aggregate of
all other Restricted Payments made after the date of the Indenture
(including Restricted Payments permitted by clauses (i), (v) (to the
extent made in cash) and (vi) of the next following paragraph and
excluding Restricted Payments permitted by the other clauses therein)
is less than the sum of (1) 50%
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of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first quarter
commencing immediately after the Issue Date to the end of the Company's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, 100% of such
deficit), plus (2) 100% of the aggregate net cash proceeds (or of the
net cash proceeds received upon the conversion of non-cash proceeds
into cash) received by the Company from the issuance or sale, other
than to a Subsidiary, of Equity Interests of the Company (other than
Disqualified Stock) after the Issue Date and on or prior to the time of
such Restricted Payment, plus (3) 100% of the aggregate net cash
proceeds (or of the net cash proceeds received upon the conversion of
non-cash proceeds into cash) received by the Company from the issuance
or sale, other than to a Subsidiary, of any convertible or exchangeable
debt security of the Company that has been converted or exchanged into
Equity Interests of the Company (other than Disqualified Stock)
pursuant to the terms thereof after the Issue Date and on or prior to
the time of such Restricted Payment (including any additional net cash
proceeds not included in clause (2) above received by the Company upon
such conversion or exchange). The aggregate amount of each Investment
constituting a Restricted Payment since the date of the Indenture shall
be reduced by the aggregate after-tax amount of all payments made to
the Company and its Restricted Subsidiaries with respect to such
Investments; provided, that (a) the maximum amount of such payments
shall not exceed the original amount of such Investment and (b) such
payments shall also be excluded from the calculations contemplated by
clauses (c)(1) through (3) above.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would not have been prohibited by the provisions of
the Indenture; (ii) the redemption, purchase, retirement or other acquisition of
any Equity Interests of the Company or Indebtedness of the Company or any
Restricted Subsidiary solely in exchange for Equity Interests of the Company
(other than Disqualified Stock); (iii) the redemption, repurchase or payoff of
any Indebtedness with proceeds of any Refinancing Indebtedness permitted to be
incurred pursuant to the provision described under "--Limitation on Incurrence
of Indebtedness"; (iv) payments by the Company to Holdings in respect of
Permitted Tax Payments to Holdings; (v) the redemption of the Exchange Preferred
Stock with the proceeds of a Qualified Equity Offering; (vi) Permitted Affiliate
Transactions; (vii) Exchange Preferred Stock Repurchases; (viii) the TCW Tax
Payments, (ix) payments of dividends on Disqualified Stock issued in accordance
with the Interest Coverage Ratio test or (x) other Restricted Payments in an
aggregate amount not to exceed $2.0 million.
Not later than the date of making any Restricted Payment, the Company
will deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
Limitation on Incurrence of Indebtedness. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(1) create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to, contingently or otherwise (collectively,
"incur"), any Indebtedness (including Acquired Debt) or (2) issue any
Disqualified Stock; provided, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock, any Guarantor may incur
Indebtedness (including Acquired Debt) or issue Disqualified Stock and any
Restricted Subsidiary may incur Acquired Debt, in each case if (x) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to such incurrence or issuance,
and (y) the Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least equal to 2:1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness (including Acquired Debt)
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The foregoing limitations will not prohibit the incurrence of:
(a) Indebtedness under the New Credit Facility, provided, that
the aggregate principal amount of Indebtedness so incurred on any date,
together with all other Indebtedness incurred pursuant to this clause
(a) and outstanding on such date, shall not exceed $20 million;
(b) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations incurred in
the ordinary course of business;
(c) obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the Indenture
(collectively, "Hedging Obligations");
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(d) Indebtedness owed by (i) a Restricted Subsidiary to the
Company or to a Wholly Owned Subsidiary; or (ii) the Company to a
Wholly Owned Subsidiary;
(e) Indebtedness outstanding on the Issue Date, including the
Exchange Notes and the Guarantees;
(f) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided that
such Indebtedness is extinguished within three business days of
incurrence;
(g) Indebtedness represented by Guarantees by the Company of
Indebtedness otherwise permitted to be Incurred pursuant to this
covenant and Indebtedness represented by Guarantees by a Restricted
Subsidiary of Indebtedness of the Company or of another Restricted
Subsidiary otherwise permitted to be Incurred pursuant to this
covenant;
(h) obligations with respect to customary provisions regarding
post-closing purchase price adjustments and indemnification in
agreements for the purchase or sale of a business or assets otherwise
permitted by the Indenture;
(i) other Indebtedness in an aggregate principal amount at any
one time outstanding not to exceed $5.0 million; and
(j) Indebtedness issued in exchange for, or the proceeds of
which are contemporaneously used to extend, refinance, renew, replace,
or refund (collectively, "Refinance") Indebtedness referred to in
clauses (a) or (e) above or this clause (j) or Indebtedness incurred
pursuant to the Interest Coverage Ratio test set forth in the
immediately preceding paragraph ("Refinancing Indebtedness"); provided,
that (1) the principal amount of such Refinancing Indebtedness does not
exceed the principal amount of Indebtedness so Refinanced (plus the
premiums required to be paid, and the out-of-pocket expenses (other
than those payable to an Affiliate of the Company) reasonably incurred,
in connection therewith), (2) the Refinancing Indebtedness has a final
scheduled maturity that exceeds the final stated maturity, and a
Weighted Average Life to Maturity that is equal to or greater than the
Weighted Average Life to Maturity, of the Indebtedness being Refinanced
and (3) the Refinancing Indebtedness ranks, in right of payment, no
more favorable to the Exchange Notes as the Indebtedness being
Refinanced.
Limitation on Asset Sales. The Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value (as determined in good faith by the Board
of Directors as evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets subject to such
Asset Sale; (ii) at least 75% of the consideration for such Asset Sale is in the
form of cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Exchange Notes or any Guarantee of the Exchange Notes) that are assumed by the
transferee of such assets (provided, that following such Asset Sale there is no
further recourse to the Company and its Restricted Subsidiaries with respect to
such liabilities); and (iii) within 12 months of such Asset Sale, the Net
Proceeds thereof, at the Company's election, are (a) invested in assets related
to the business of the Company or its Restricted Subsidiaries, or (b) used to
repay, purchase or otherwise acquire Indebtedness under the New Credit Facility
or (c) to the extent not used as provided in clause (a) or (b), applied to make
an offer to purchase Exchange Notes as described below (an "Excess Proceeds
Offer"); provided, that if the amount of Net Proceeds from any Asset Sale not
invested or used pursuant to clause (a) or clause (b) above is less than $5.0
million, the Company will not be required to make an offer pursuant to clause
(c) until the aggregate amount of Excess Proceeds from all Asset Sales exceeds
$5.0 million. Pending the final application of any such Net Proceeds, the
Company or any Restricted Subsidiary may temporarily reduce Indebtedness under
the New Credit Facility or temporarily invest such Net Proceeds in Cash
Equivalents.
For the purposes of this covenant, the following are deemed to be cash:
(y) securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash and (z) assets related to the business of the Company or
its Restricted Subsidiaries received in an exchange of assets transaction;
provided that (i) in the event such exchange of assets transaction or series of
related exchange of assets transactions (each an "Exchange Transaction")
involves an aggregate value in excess of $2.5 million, the terms of such
Exchange Transaction shall have been approved by a majority of the disinterested
members of the Board of Directors, (ii) in the event such Exchange Transaction
involves an aggregate value in excess of $5.0 million, the Company shall have
received a written opinion from a nationally recognized independent investment
banking firm that the Company has received
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consideration equal to the fair market value of the assets disposed of and (iii)
any assets to be received shall be comparable to those being exchanged as
determined in good faith by the Board of Directors.
The amount of Net Proceeds not invested, used or applied as set forth
in the preceding clauses (a) and (b) constitutes "Excess Proceeds." If the
Company elects, or becomes obligated to make an Excess Proceeds Offer, the
Company will offer to purchase Exchange Notes having an aggregate principal
amount equal to the Excess Proceeds (the "Purchase Amount"), at a purchase price
equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date. The Company must commence such Excess
Proceeds Offer not later than 30 days after the expiration of the 12-month
period following the Asset Sale that produced Excess Proceeds. If the aggregate
purchase price for the Exchange Notes tendered pursuant to the Excess Proceeds
Offer is less than the Excess Proceeds, the Company and its Restricted
Subsidiaries may use the portion of the Excess Proceeds remaining after payment
of such purchase price for general corporate purposes.
Each Excess Proceeds Offer will remain open for a period of 20 business
days and no longer, unless a longer period is required by law (the "Excess
Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds
Offer Period (the "Excess Proceeds Payment Date"), the Company will purchase and
mail or deliver payment for the Purchase Amount for the Exchange Notes or
portions thereof tendered, pro rata or by such other method as may be required
by law, or, if less than the Purchase Amount has been tendered, all Exchange
Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of
Exchange Notes to be purchased pursuant to an Excess Proceeds Offer may be
reduced by the principal amount of Exchange Notes acquired by the Company
through purchase or redemption (other than pursuant to a Change of Control
Offer) subsequent to the date of the Asset Sale and surrendered to the Trustee
for cancellation.
Each Excess Proceeds Offer will be conducted in compliance with
applicable regulations under the federal securities laws, including Exchange Act
Rule 14e-1. To the extent that the provisions of any securities laws or
regulations conflict with the "Asset Sale" provisions of the Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Asset Sale"
provisions of the Indenture by virtue thereof.
There can be no assurance that sufficient funds will be available at
the time of any Excess Proceeds Offer to make required repurchases.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset (including, without limitation, all real,
tangible or intangible property) of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom, securing any
obligation, except (i) Liens in favor of the Collateral Agent securing the
Exchange Notes and Indebtedness permitted to be incurred under the New Credit
Facility; (ii) Purchase Money Liens; and (iii) Permitted Liens.
Limitation on Restrictions on Subsidiary Dividends. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary (a) to (1) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B)
with respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company
or any of its Restricted Subsidiaries, or (b) make loans or advances to the
Company or any of its Restricted Subsidiaries, or (c) transfer any of its assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) agreements
existing on the Issue Date and the New Credit Facility, as in effect on the
Closing Date, or any refinancings, amendments, modifications or supplements
thereof containing dividend and other payment restrictions that are not
materially more restrictive than those contained in agreements existing on the
Issue Date and the New Credit Facility on the Closing Date; (ii) the Indenture,
the Security Documents and the Exchange Notes; (iii) applicable law; (iv)
restrictions with respect to a Subsidiary that was not a Subsidiary on the
Closing Date in existence at the time such Person becomes a Subsidiary (but not
created as a result of or in anticipation of such Person becoming a Subsidiary);
provided, that such restrictions are not applicable to any other Person or the
properties or assets of any other Person; (v) customary nonassignment and net
worth provisions of any contract or lease entered into in the ordinary course of
business; (vi) customary restrictions on the transfer of assets subject to a
Lien permitted under the Indenture imposed by the holder of such Lien; (vii)
restrictions imposed by any agreement to sell assets or Capital Stock to any
Person pending the closing of such sale; and (viii) permitted Refinancing
Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that
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such restrictions contained in any agreement governing such Refinancing
Indebtedness are not materially more restrictive than those contained in any
agreements governing the Indebtedness being Refinanced.
Merger, Consolidation or Sale of Assets. The Company may not
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries) in one or
more related transactions to, any other Person unless (i) the Company is the
surviving Person or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made is a corporation organized
and existing under the laws of the United States, any state thereof or the
District of Columbia, (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition has been made
assumes all the Obligations of the Company, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, under the Exchange Notes, the
Indenture, the Collateral Agreements and the Registration Rights Agreement;
(iii) immediately after such transaction, no Default or Event of Default exists;
and (iv) the Company, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made, (A) has a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) not less than 100% of the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will be permitted, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, to incur at least $1.00 of additional
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Indenture,
the Exchange Notes, the Collateral Agreements and the Registration Rights
Agreement.
Limitation on Transactions with Affiliates. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except
for (i) Affiliate Transactions, which together with all Affiliate Transactions
that are part of a common plan, have an aggregate value of not more than $1.0
million; provided, that such transactions are conducted in good faith and on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
at such time on an arms-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary; (ii) Affiliate Transactions, which
together with all Affiliate Transactions that are part of a common plan, have an
aggregate value of not more than $2.5 million; provided, that a majority of the
disinterested members of the Board of Directors of the Company determine that
such transactions are conducted in good faith and on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction at such time on an
arms-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary; (iii) Affiliate Transactions for which the Company
delivers to the Trustee an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view, issued by an investment
banking firm of national standing; and (iv) Permitted Affiliate Transactions and
other Restricted Payments permitted by the provisions described above under
"Limitations on Restricted Payments."
Line of Business. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any type of business other than the type of
business conducted or proposed to be conducted by the Company and the Restricted
Subsidiaries on the Closing Date and businesses reasonably related thereto.
Restrictions on Sale and Issuance of Subsidiary Stock. The Company
shall not sell, and shall not permit any of its Restricted Subsidiaries to issue
or sell, any shares of Capital Stock of any Restricted Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary, other than directors'
qualifying shares; provided, however, that this provision shall not prohibit the
sale of all of the Capital Stock of any Restricted Subsidiary owned by the
Company and its Restricted Subsidiaries if the Net Proceeds from such sale or
issuance are used in accordance with the terms of the covenant described under
"--Limitation on Asset Sales.
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Guarantors. The Indenture will provide that so long as any Exchange
Notes remain outstanding, any Restricted Subsidiary (other than a foreign
Restricted Subsidiary, if any) shall (a) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Exchange Notes and the Indenture on terms set
forth in the Indenture, (b) execute a Security Agreement and other Security
Documents necessary or reasonably requested by the Trustee to grant the Trustee
a valid, enforceable, perfected Lien on the Collateral described therein, and
(c) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture.
If all of the Capital Stock of any Guarantor is sold to a Person (other
than the Company or any of its Restricted Subsidiaries) and the Net Proceeds
from such Asset Sale are used in accordance with the terms of the covenants
described under "--Limitation on Asset Sales," then such Guarantor will be
released and discharged from all of its obligations under its Guarantee of the
Exchange Notes and the Indenture.
The obligations of each Guarantor will be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Guarantor and after giving effect to any collections or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
guarantor under its Guarantee of the Exchange Notes, result in the obligations
of such Guarantor under its Guarantee of the Exchange Notes not constituting a
fraudulent conveyance or fraudulent transfer under Federal or state law.
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Notes are outstanding, the Company will
furnish to the Trustee, and deliver or cause to be delivered to the holders of
Exchange Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants; and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. From and after the time a
registration statement with respect to the Exchange Notes is declared effective
by the Commission, the Company will file such information with the Commission,
provided that the Commission will accept such filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Indenture (i) default for 30 days in the payment when due of interest on the
Exchange Notes; (ii) default in payment of principal (or premium, if any) on the
Exchange Notes when due at maturity, redemption, by acceleration or otherwise;
(iii) default in the performance or breach of the provisions of "Repurchase Upon
Change of Control," "Limitation on Asset Sales," and "--Merger, Consolidation or
Sale of Assets"; (iv) default in the performance or breach of the provisions of
"Limitation on Restricted Payments" and "Limitation on Incurrence of
Indebtedness," and the continuance of such default for a period of 30 days; (v)
failure by the Company or any Guarantor for 30 days after notice to comply with
certain other agreements in the Indenture or the Exchange Notes; (vi) default
under (after giving effect to any waivers, amendments, applicable grace periods
or any extension of any maturity date) any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any Restricted Subsidiary
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the date of the Indenture, if (a) either (1) such default results from the
failure to pay principal on such Indebtedness or (2) as a result of such default
the maturity of such Indebtedness has been accelerated, and (b) the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness with respect to which such a payment default (after the
expiration of any applicable grace period or any extension of the maturity date)
has occurred, or the maturity of which has been so accelerated, exceeds $2.5
million in the aggregate; (vii) failure by the Company or any Restricted
Subsidiary to pay final non-appealable judgments (other than any judgment as to
which a reputable insurance company has accepted full liability) aggregating in
excess of $2.5 million which judgments are not discharged, bonded or stayed
within 60 days after their entry; (viii) breach by the Company or any Guarantor
of any provision of the Collateral Agreements to which it is a party after
giving effect to applicable cure periods and notice provisions; (ix) written
assertion by the Company or any of the Guarantors of the unenforceability of its
obligations under the Indenture, the Collateral Documents, the Exchange Notes or
the Guarantee to which it is a party; and (x) certain events of bankruptcy or
insolvency with respect to the Company or any Material Subsidiary.
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If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare by written notice to the Company and the Trustee all of the
Exchange Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Exchange Notes will become due and payable without
further action or notice. Holders of the Exchange Notes may not enforce the
Indenture or the Exchange Notes except as provided in the Indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Exchange Notes may direct the Trustee in its exercise of any trust
or power.
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding, by written notice to the Company and the Trustee, may on
behalf of the holders of all of the Exchange Notes (i) waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Exchange Notes or a Default or an Event of Default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the holder of each outstanding Note affected; and/or (ii) rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default (except nonpayment
of principal or interest that has become due solely because of the acceleration)
have been cured or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or
controlling person of the Company or any Guarantor, as such, will have any
liability for any obligations of the Company or any Guarantor under the Exchange
Notes, the Indenture or the Registration Rights Agreement or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder of the Exchange Notes by accepting a Note waives and releases all such
liability. The waiver and release will be part of the consideration for issuance
of the Exchange Notes and the Guarantees. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE EXCHANGE NOTES
The Indenture provides that the Company (i) will be discharged from any
and all obligations in respect of the Exchange Notes, other than the obligation
to duly and punctually pay the principal of, and premium, if any, and interest
on, the Exchange Notes in accordance with the terms of the Exchange Notes and
the Indenture or (ii) will be released from compliance with the restrictive
covenants and certain Events of Default, upon irrevocable deposit with the
Trustee, in trust, of money and/or U.S. government obligations that will provide
money in an amount sufficient in the opinion of a nationally recognized
accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the due dates thereof on the Exchange Notes.
Such trust may only be established if, among other things (i) the Company has
delivered to the Trustee an opinion of independent counsel to the effect that
the holders of the Exchange Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred; (ii) no Default or Event of Default shall have occurred or be
continuing; and (iii) certain customary conditions precedent are satisfied.
The Company may satisfy and discharge its Obligations under the
Indenture to holders of the Exchange Notes by delivering to the Trustee for
cancellation all outstanding Exchange Notes or by depositing with the Trustee or
the Paying Agent, if applicable, after the Exchange Notes have become due and
payable, cash sufficient to pay all amounts due under all of the outstanding
Exchange Notes and paying all other sums payable under the Indenture by the
Company. If the Company has so deposited such cash, the Guarantors will be
discharged from their Obligations under their Guarantees of the Exchange Notes
and the Indenture.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Note for a period of 15 days before a selection of
Exchange Notes to be redeemed. The registered holder of an Exchange Note will be
treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Indenture and
the Exchange Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Exchange Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Exchange Notes) and any existing Default or Event of Default
or compliance with any provision of the Indenture or the Exchange Notes may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding Exchange Notes (including consents obtained in connection with
a tender offer or exchange offer for Exchange Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Exchange Notes held by a non-consenting holder of
Exchange Notes) (i) reduce the principal amount of Exchange Notes whose holders
must consent to an amendment, supplement or waiver; (ii) reduce the principal
of, or the premium on, or change the fixed maturity of any Exchange Note, alter
the provisions with respect to the redemption of the Exchange Notes in a manner
adverse to the holders of the Exchange Notes, or alter the price at which
repurchases of the Exchange Notes may be made pursuant to an Excess Proceeds
Offer or Change of Control Offer; (iii) reduce the rate of or change the time
for payment of interest on any Exchange Note; (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Exchange Notes; (v) make any Exchange Note payable in money other than that
stated in the Exchange Notes; (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of
Exchange Notes to receive payments of principal of or interest on the Exchange
Notes; (vii) waive a redemption payment with respect to any Exchange Note;
(viii) adversely affect the contractual ranking of the Exchange Notes or
Guarantees of the Exchange Notes; or (ix) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of
Exchange Notes, the Company, the Guarantors and the Trustee may amend or
supplement the Indenture or the Exchange Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes, to provide for the assumption of the
Company's obligations to holders of the Exchange Notes or any Guarantor's
obligation under its Guarantee of the Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the Exchange Notes or that does not adversely affect
the legal rights under the Indenture of any such holder, to release any
Guarantee of the Exchange Notes permitted to be released under the terms of the
Indenture, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, that if the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default occurs (and is not cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any holder of Exchange Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Any person who receives this Prospectus may obtain a copy of the
Indenture without charge by writing to the Company at 450 Newport Center Drive,
6th Floor, Newport Beach, California 92660.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full definition of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means Indebtedness of a Person existing at the time
such Person is merged with or into the Company or a Restricted Subsidiary or
becomes a Restricted Subsidiary, other than Indebtedness incurred in connection
with, or in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that
Indebtedness of such other Person that is redeemed, defeased, retired or
otherwise repaid at the time, or immediately upon consummation, of the
transaction by which such other Person is merged with or into the Company or a
Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired
Debt.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(i) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; (ii) in the case of a
corporation, beneficial ownership of 10% or more of any class of Capital Stock
of such Person; and (iii) in the case of an individual (A) members of such
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act) and (B) trusts, any trustee or
beneficiaries of which are such Person or members of such Person's immediate
family. Notwithstanding the foregoing, neither the Initial Purchaser nor any of
its Affiliates will be deemed to be Affiliates of the Company.
"Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of Capital
Stock or a Restricted Subsidiary (other than directors' qualifying shares),
property or other assets, including by way of a sale/leaseback transaction (each
referred to for the purposes of this definition as a "disposition"), by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets in the ordinary course of business, (iii) dispositions of
inventory in the ordinary course of business, (iv) for purposes of the
"Limitation on Asset Sales" covenant only, a disposition that constitutes a
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, (v) the sale, lease, transfer or other disposition of all or
substantially all the assets of the Company as permitted under the covenant
"Merger, Consolidation or Sale of Assets", (vi) the grant of Liens permitted by
the covenant "Limitation on Liens" and (vii) sales of obsolete or worn-out
equipment.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; and (ii) with respect to
any other Person, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means (i) securities issued by the United States of
America or any agency or instrumentality thereof; (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250,000,000 and commercial paper issued by others rated at least
A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition; and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
"Closing Date" or "Issue Date" means February 25, 1998.
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"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated operating profit of such Person and its
subsidiaries for such period, determined in accordance with GAAP, plus (to the
extent such amounts are deducted in calculating such operating profit (loss) of
such Person for such period, and without duplication) amortization, depreciation
and other non-cash charges (including, without limitation, impairment charges,
amortization of goodwill, deferred financing fees and other intangibles but
excluding non-cash charges incurred after the date of the Indenture that require
an accrual of or a reserve for cash charges for any future period); provided,
that the operating profit (loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or distributions paid
during such period to the referent Person or a Wholly Owned Subsidiary of the
referent Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of (i) the consolidated interest expense (net of interest
income) of such Person and its subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
noncash interest payments, and the interest component of Capital Lease
Obligations but excluding amortization of deferred financing costs), to the
extent such expense was deducted in computing Consolidated Net Income of such
Person for such period, and (ii) dividend requirements of such Person and its
consolidated subsidiaries (whether in cash or otherwise (except dividends
payable solely in shares of Qualified Capital Stock)) with respect to preferred
stock paid, accrued, or scheduled to be paid or accrued during such period, in
each case to the extent attributable to such period and excluding items
eliminated in consolidation. For purposes of clause (ii) above, dividend
requirements shall be increased to an amount representing the pre-tax earnings
that would be required to cover such dividend requirements; accordingly, the
increased amount shall be equal to a fraction, the numerator or which is such
dividend requirements and the denominator of which is 1 minus the applicable
actual combined effective federal, state, local, and foreign income tax rate of
such Person and its subsidiaries (expressed as a decimal), on a consolidated
basis, for the fiscal year immediately preceding the date of the transaction
giving rise to the need to calculate Consolidated Interest Expense.
"Consolidated Net Income" means, with respect to any Person (the
referent Person) for any period, the aggregate of the Net Income of such Person
and its subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided, that (i) the Net Income of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting will be included in calculating the referent Person's Consolidated
Net Income only to the extent of the amount of dividends or distributions paid
during such period to the referent Person or a Wholly Owned Subsidiary of the
referent Person; (ii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition will
be excluded; and (iii) the Net Income of any Subsidiary will be excluded, to the
extent that declarations of dividends or similar distributions by that
Subsidiary of such Net Income are not at the time permitted, directly or
indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its owners.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity of such Person determined on a consolidated basis in
accordance with GAAP adjusted to exclude (to the extent included in calculating
such equity) (i) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock of such Person and its consolidated subsidiaries;
(ii) all upward revaluations and other write-ups in the book value of any asset
of such person or a consolidated subsidiary of such person subsequent to the
Closing Date; and (iii) all Investments in persons that are not consolidated
Restricted Subsidiaries.
"Default" means any event that is, or after notice or the passage of
time or both would be, an Event of Default.
"Disqualified Stock" means any Equity Interests that either by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable) is or upon the happening of an event would be required to be
redeemed or repurchased prior to the final stated maturity of the Exchange Notes
or is redeemable at the option of the holder thereof at any time prior to such
final stated maturity.
"Equity Interests" means Capital Stock or warrants. options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Preferred Stock Repurchases" means any purchase of Exchange
Preferred Stock with the portion of Excess Proceeds remaining after payment of
the purchase price of the Exchange Notes tendered pursuant to an Excess Proceeds
Offer if such purchase of Exchange Preferred Stock is within 485 days of the
date of the Asset Sale which gave rise to such Excess Proceeds Offer.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission, that are in effect on the
Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" of any Person means (without duplication) (1) all
liabilities and obligations, contingent or otherwise, of such Person (a) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (b) evidenced
by bonds, debentures, notes or other similar instruments, (c) representing the
deferred purchase price of property or services (other than trade payables and
other liabilities incurred in the ordinary course of business which are not more
than 90 days past due), (d) created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) as lessee under capitalized leases, (f) under bankers' acceptance
and letter of credit facilities, (g) to purchase, redeem, retire, defease or
otherwise acquire for value any Disqualified Stock, or (h) in respect of Hedging
Obligations, (2) all liabilities and obligations of others of the type described
in clause (1), above, that are Guaranteed by such Person, and (3) all
liabilities and obligations of others of the type described in clause (1),
above, that are secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by such
Person; provided, that the amount of such Indebtedness shall (to the extent such
Person has not assumed or become liable for the payment of such Indebtedness in
full) be the lesser of (x) the fair market value of such property at the time of
determination and (y) the amount of such Indebtedness. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Interest Coverage Ratio" means, for any period the ratio of (i)
Consolidated EBITDA of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating the Interest
Coverage Ratio for any period, pro forma effect shall be given to (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated but on or prior to the date on which the event for
which the calculation is being made, as if the same had occurred at the
beginning of the applicable period; and (b) the occurrence of any Asset Sale
during such period by reducing Consolidated EBITDA for such period by an amount
equal to the Consolidated EBITDA (if positive) directly attributable to the
assets sold and by reducing Consolidated Interest Expense by an amount equal to
the Consolidated Interest Expense directly attributable to any Indebtedness
assumed by third parties or repaid with the proceeds of such Asset Sale, in each
case as if the same had occurred at the beginning of the applicable period. For
purposes of making the computation referred to above, acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, subsequent to
the commencement of such period but on or prior to the date on which the event
for which the calculation is being made shall be given effect on a pro forma
basis, assuming that all such acquisitions had occurred on the first day of such
period in a manner consistent with the calculations described in "Unaudited
Selected Consolidated Pro Forma Condensed Financial Data" contained elsewhere in
this Prospectus. Without limiting the foregoing, the financial information of
the Company with respect to any portion of such four fiscal quarters that falls
before the Closing Date shall be adjusted to give pro forma effect to the
issuance of the Exchange Notes and the application of the proceeds therefrom as
if they had occurred at the beginning of such four fiscal quarters.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, advances or capital contributions (excluding (i) commission, travel
and similar advances to officers and employees of such Person made in the
ordinary course of business; and (ii) bona fide accounts receivable arising from
the sale of goods or services in the ordinary course of business consistent with
past practice), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any
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lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Material Subsidiary" means any Subsidiary (a) that is a "Significant
Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated
by the Commission or (b) is otherwise material to the business of the Company.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
excluding any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with any Asset Sales and
dispositions pursuant to sale and leaseback transactions, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such gain (but not loss).
"Net Proceeds" means the aggregate proceeds received in the form of
cash or Cash Equivalents in respect of any Asset Sale (including payments in
respect of deferred payment obligations when received), net of (a) the
reasonable and customary direct out-of-pocket costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), other than any such costs payable to an Affiliate of the
Company, (b) taxes actually payable directly as a result of such Asset Sale
(after taking into account any available net operating loss carryovers, tax
credits or deductions and any tax sharing arrangements), (c) amounts required to
be applied to the permanent repayment of Indebtedness in connection with such
Asset Sale, and (d) appropriate amounts provided as a reserve by the Company or
any Restricted Subsidiary, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or such Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations arising from such Asset Sale.
"New Credit Facility" means the New Credit Facility, entered into on
February 25, 1998 between the Company, certain of its subsidiaries and the agent
for the lender named therein as the same may be amended, modified, renewed,
refunded, replaced or refinanced from time to time, including (i) any related
notes, letters of credit, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time; and (ii)
any notes, guarantees, collateral documents, instruments and agreements executed
in connection with such amendment, modification, renewal, refunding, replacement
or refinancing.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and liabilities
of the Company or the Guarantors under the Indenture, the Collateral Agreements,
the Exchange Notes or the Guarantees of the Exchange Notes.
"Permitted Affiliate Transactions" means (i) employment agreements,
stockholder agreements, stock options or other incentive plans existing on the
Closing Date or thereafter entered into by the Company or any Restricted
Subsidiary in the ordinary course of business with the approval of a majority of
the disinterested members of the Company's Board of Directors; (ii) transactions
between, among or for the benefit of the Company and/or its Restricted
Subsidiaries; and (iii) reasonable and customary fees and compensation paid to
and indemnity, loans or advances provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary as
determined in good faith by a majority of the disinterested members of the
Company's Board of Directors.
"Permitted Investments" means (i) Investments in the Company, any
Guarantor or any Restricted Subsidiary (including without limitation, Guarantees
of Indebtedness of any such Person); (ii) Investments in Cash Equivalents; (iii)
Investments in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary, or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary; (iv)
Hedging Obligations; (v) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers; (vi)
Investments as a result of consideration received in connection with an Asset
Sale made in compliance with the covenant described under the caption
"Limitation on Asset Sales"; (vii) Investments existing on the Issue Date;
(viii) accounts receivable owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (ix) payroll, travel and
similar advances in the ordinary course of business; (x) loans or advances to
employees made in the ordinary course of business; and (xi) Guarantees permitted
to be made pursuant to "Limitation on Incurrence of Indebtedness.
"Permitted Liens" means (i) Liens in favor of the Company and/or its
Restricted Subsidiaries other than with respect to intercompany indebtedness;
(ii) Liens on property of a Person existing at the time such Person is acquired
by, merged into
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or consolidated with the Company or any Restricted Subsidiary, provided, that
such Liens were not created in contemplation of such acquisition and do not
extend to assets other than those subject to such Liens immediately prior to
such acquisition; (iii) Liens on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary; provided, that such Liens
were not created in contemplation of such acquisition and do not extend to
assets other than those subject to such Liens immediately prior to such
acquisition; (iv) Liens incurred in the ordinary course of business in respect
of Hedging Obligations; (v) Liens incurred in the ordinary course of business to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations (exclusive of obligations constituting
Indebtedness) of a like nature, including, without limitation, cash retainages;
(vi) Liens existing or created on the Issue Date; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested or remedied in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided, that any reserve or
other appropriate provision as may be required in conformity with GAAP has been
made therefor; (viii) Liens arising by reason of any judgment, decree or order
of any court with respect to which the Company or any of its Restricted
Subsidiaries is then in good faith prosecuting an appeal or other proceedings
for review, the existence of which judgment, order or decree is not an Event of
Default under the Indenture; (ix) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Restricted Subsidiaries, rights or restrictions of record on the use of real
property, minor defects in title, landlord's and lessor's liens under leases on
property located on the premises rented, mechanics' liens, warehouse-man's
liens, supplier's liens, repairman's liens, vendor's liens, construction liens,
and similar encumbrances, rights or restrictions on personal or real property,
in each case not interfering in any material respect with the ordinary conduct
of the business of the Company or any of its Restricted Subsidiaries; (x) Liens
incidental to the conduct of business or the ownership of properties incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, bids, and government contracts and leases and subleases;
(xi) Liens for any interest or title of a lessor under any Capitalized Lease
Obligation permitted to be incurred under the Indenture; provided, that such
Liens do not extend to any property or asset that is not leased property subject
to such Capitalized Lease Obligation; (xii) any extension, renewal, or
replacement (or successive extensions, renewals or replacements), in whole or in
part, of Liens described in clauses (i) through (xi) above; (xiii) Liens
securing the Exchange Notes; and (xiv) Liens in addition to the foregoing, which
in the aggregate, are secured by assets with a fair market value not in excess
of $100,000 at any time.
"Permitted Tax Payments to Holdings" means payments made to Holdings to
enable Holdings to pay foreign, Federal, state, and local tax liabilities
imposed directly upon Holdings ("Tax Payments"); provided, however, that (i)
notwithstanding the foregoing, in the case of any Tax Payment that is permitted
to be made to Holdings in respect of its Federal income tax liability for any
taxable period during which Holdings is the parent company of an affiliated
group that includes the Company and each of its United States subsidiaries as
members and files a consolidated Federal income tax return, such payment shall
be determined on the basis of assuming that the Company is the parent company of
an affiliated group (the "Company Affiliated Group") filing a consolidated
Federal income tax return and that Holdings and each such United States
subsidiary is a member of the Company Affiliated Group and (ii) any Tax Payment
made to Holdings shall either be used by Holdings to pay such tax liabilities to
the applicable taxing authority within 10 days of Holdings' receipt of such
payment or refunded to the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Purchase Money Liens" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"Purchase Money Obligations" means Indebtedness and Capital Lease
Obligations representing, or incurred to finance, the cost (i) of acquiring or
improving any assets; and (ii) of construction or build-out of manufacturing,
distribution or administrative facilities (including Purchase Money Obligations
of any other Person at the time such other Person is merged with or into or is
otherwise acquired by the Company), provided, that (a) the principal amount of
such Indebtedness does not exceed 100% of such cost, including construction
charges, (b) any Lien securing such Indebtedness does not extend to or cover any
other asset or property other than the asset or property being so acquired or
improved and (c) such Indebtedness is incurred, and any Liens with respect
thereto are granted within 180 days of the acquisition or improvement of such
property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person other than Disqualified Stock.
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"Qualified Equity Offering" means (i) an underwritten primary public
offering of Qualified Capital Stock of the Company pursuant to an effective
registration statement under the Securities Act or (ii) a private offering of
Qualified Capital Stock other than issuances of common stock pursuant to
employee benefit plans or as compensation to employees.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Security Agreement" means the Company Security Agreement and
Subsidiary Security Agreement.
"Security Documents" means, collectively, the Mortgages, the Security
Agreements, the Pledge Agreement, the Cash Collection Account Agreement, the
Intercreditor Agreement, the Trademark Security Agreement and any other
document, instrument or agreement executed or delivered by the Company or any of
its Subsidiaries from time to time pursuant to which the Company or any such
Subsidiary shall grant a Lien on any of their respective properties, assets or
revenues to secure payment of the Obligations hereunder and under the Notes or
relating to intercreditor matters.
"subsidiary" means, with respect to any Person (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person or a combination thereof; and (ii) any partnership in which such
Person or any of its subsidiaries is a general partner.
"Subsidiary" means any subsidiary of the Company.
"TCW Directors" means members of the Board of Directors nominated by
Trust Company of the West pursuant to the Securityholders Agreement (as defined
herein).
"TCW Tax Payments" means the payments made to the TCW entities in
connection with any tax liability for withholding, which payments shall not
exceed $125,000 per year.
"transfer" means any direct or indirect sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation).
"Unrestricted Subsidiary" means any Subsidiary that has been designated
by the Company (by written notice to the Trustee as provided below) as an
Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an
"Unrestricted Subsidiary" unless (i) such Subsidiary does not own any Capital
Stock of, or own or hold any Lien on any property of, the Company or any
Restricted Subsidiary (other than such Subsidiary), (ii) neither immediately
prior thereto nor after giving pro forma effect to such designation, would there
exist a Default or Event of Default, (iii) immediately after giving effect to
such designation on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness" and (iv)
the creditors of such Subsidiary have no direct or indirect recourse (including,
without limitation, recourse with respect to the payment of principal or
interest on Indebtedness of such Subsidiary) to the assets of the Company or of
a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (i) no Default or Event of Default is existing or will occur
as a consequence thereof; and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness." Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions. The Company shall be deemed to make an Investment in each Subsidiary
designated as an "Unrestricted Subsidiary" immediately following such
designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation; provided, that if such
Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount
of such Investment shall be deemed to be reduced (but not below zero) by the
fair market value of the net consolidated assets of such Subsidiary on the date
of such redesignation.
"Voting Stock" means, with respect to any Person (i) one or more
classes of the Capital Stock of such Person having general voting power to elect
at least a majority of the board of directors, managers or trustees of such
Person (irrespective of whether or not at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency); and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount of
such Indebtedness into (ii) the total of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest one
twelfth) that will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF THE EXCHANGE PREFERRED STOCK
GENERAL
On February 24, 1998, the Company amended its certificate of
incorporation (the "Certificate of Incorporation") to authorize the issuance of
up to 160,000 shares of preferred stock. The Certificate of Incorporation of the
Company provides that the preferred stock may be issued from time to time in one
or more series and gives the Board of Directors broad authority to fix the
dividend and distribution rights, conversion and voting rights, if any,
redemption provisions and liquidation preferences of each series of preferred
stock.
The issuance of preferred stock with special voting rights (or Common
Stock) could be used to deter attempts by a single stockholder or group of
stockholders to obtain control of the Company in transactions not approved by
the Board of Directors. The Company has no intention to issue preferred stock
(or Common Stock) for such purposes.
The following description of Exchange Preferred Stock sets forth
certain general terms and provisions of the Exchange Preferred Stock. The
statements below describing the Exchange Preferred Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Certificate of Incorporation, including the Certificate of
Designation and Bylaws of the Company.
RANKING
The Exchange Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company, rank senior to the Common Stock, any additional class of common stock
and any other series of preferred stock expressly made junior to the Exchange
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the affairs of the Company. See "Risk
Factors--Ranking of Exchange Preferred Stock; Consequences of Holding Company
Structure."
DIVIDENDS
Dividends on the Exchange Preferred Stock will accrue at a rate of 12%
per annum of the liquidation preference. Dividends will be paid semi-annually,
on February 15 and August 15 of each year commencing February 15, 1999.
Dividends on the Exchange Preferred Stock will accrue from August 15, 1998. The
Company may, at its option, pay dividends in cash or in additional fully paid
and non-assessable shares of Exchange Preferred Stock having an aggregate
liquidation preference at least equal to the amount of such dividends. The
Company intends to pay dividends by issuing additional shares of Exchange
Preferred Stock. Each such dividend shall be payable to holders of record as
they appear on the stock transfer books of the Company on such record dates as
shall be fixed by the Board of Directors.
The Certificate of Designation provides that the dividend rate on the
Exchange Preferred Stock shall be automatically increased if at the end of any
fiscal quarter of the Company, the Maintenance Test Ratio exceeds the Maximum
Test Ratio for that fiscal quarter, then for the period during the immediately
succeeding quarter, the dividend rate shall be 13.5% for the first two quarters
for which the Maximum Test Ratio is exceeded (whether or not such fiscal
quarters are consecutive) and 15% for any other quarter thereafter for which the
Maximum Test Ratio is exceeded or in certain other circumstances.
MANDATORY REDEMPTION
On or prior to August 15, 2003, the Company shall (subject to the legal
availability of funds therefor) redeem all of the shares of outstanding Exchange
Preferred Stock at a price per share in cash equal to 110% of the Liquidation
Preference thereof, plus an amount equal to all accrued and unpaid dividends
(whether or not declared).
OPTIONAL REDEMPTION
The Exchange Preferred Stock will be redeemable at the option of the
Company, in whole or in part, at any time, at an amount in cash equal to 110% of
the Liquidation Preference of the Exchange Preferred Stock, plus an amount equal
to all accrued and unpaid dividends to the date of redemption.
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If fewer than all of the outstanding shares of Exchange Preferred Stock
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company in accordance with the
Certificate of Incorporation.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Exchange
Preferred Stock of any series to be redeemed at the address shown on the stock
transfer books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of shares of the Exchange Preferred Stock to be redeemed; (iii)
the redemption price; (iv) the place or places where certificates for such
Exchange Preferred Stock are to be surrendered for payment of the redemption
price; and (v) that dividends on the shares to be redeemed will cease to accrue
on such redemption date. If fewer than all the shares of Exchange Preferred
Stock are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Exchange Preferred Stock to be redeemed
from each such holder and, upon redemption, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof. In order
to facilitate the redemption of shares of Exchange Preferred Stock, the Board of
Directors may fix a record date for the determination of shares of Exchange
Preferred Stock to be redeemed, such record date to be not less than 30 or more
than 60 days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless the Company defaults in
providing funds for the payment of the redemption price on such date, all
dividends on the Exchange Preferred Stock called for redemption will cease. From
and after the redemption date, unless the Company so defaults, all rights of the
holders of the Exchange Preferred Stock as stockholders of the Company, except
the right to receive the redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when
dividends on Exchange Preferred Stock are in arrears, the Company may, at any
time and from time to time, purchase any shares of Exchange Preferred Stock in
the open market, by tender or private agreement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to the Exchange Preferred Stock in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company (collectively, "Junior Securities"), the holders of Exchange
Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to stockholders liquidating distributions in
the amount of 110% of the Liquidation Preference, plus an amount equal to all
dividends accrued and unpaid thereon (whether or not declared). The liquidation
preference of each share of Exchange Preferred Stock shall initially be $1,000
per share (the "Liquidation Preference"). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Exchange Preferred Stock will have no right or claim to any of the remaining
assets of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Exchange Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the Company
ranking on a parity with the Exchange Preferred Stock in the distributions of
assets upon liquidation, dissolution or winding up, then the holders of such
Exchange Preferred Stock and all other such classes or series of capital stock
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all
holders of the Exchange Preferred Stock, the remaining assets of the Company
shall be distributed among the holders of any other classes or series of capital
stock ranking junior to such series of Exchange Preferred Stock upon
liquidating, dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares. For
such purposes, the consolidation or merger of the Company with or into any other
corporation, or the sale, lease, transfer or conveyance of all or substantially
all of the property or business of the Company, shall not be deemed to
constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
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Holders of the Exchange Preferred Stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly required
by law.
The affirmative vote or consent of the holders of at least a majority
of the outstanding shares of Exchange Preferred Stock will be required to issue
any additional shares of Exchange Preferred Stock or to amend or repeal any
provision of or add any provision to, the Certificate of Incorporation,
including the Certificate of Designation, if such action would materially and
adversely alter or change the rights, preferences or privileges of the Exchange
Preferred Stock. As a result of the TCW Investors' ownership of the Exchange
Preferred Stock, the TCW Investors may have the ability to approve (without the
vote of any other holder of Exchange Preferred Stock) waivers or amendments to
the terms of the Exchange Preferred Stock.
The Company's Board of Directors will automatically increase by two
members and the holders of a majority of the then outstanding Exchange Preferred
Stock, voting as one class, will be entitled to elect two directors to fill the
vacancies created by such increase upon the occurrence of a Voting Rights
Triggering Event.
No consent or approval of the holders of Exchange Preferred Stock
offered hereby will be required for the issuance from the Company's authorized
but unissued preferred stock or Junior Securities.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Exchange Preferred
Stock shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
COVENANTS
Limitation on Restricted Payments. The Company shall not, and, with
respect to clause (ii) below, shall not permit any Subsidiary to, directly or
indirectly, take any of the following actions: (i) declare, set aside for
payment or pay any dividend on, or make any distribution to the holders of any
Junior Securities (other than dividends or distributions payable solely in
shares of a class or series upon which such dividends are declared or paid, or
payable in shares of Common Stock with respect to Junior Securities other than
Common Stock, together with cash in lieu of fractional shares), or (ii)
purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any Junior Securities (such payments or other actions described in
(but not excluded from) clauses (i) and (ii) are collectively referred to as
"Restricted Payments"), unless at the time of, and immediately after giving
effect to, the proposed Restricted Payment (1) no Voting Rights Triggering Event
shall have occurred and be continuing, and (2) all accrued dividends on the
Exchange Preferred Stock shall have been paid in full, or funds sufficient for
payment thereof have been set apart for payment.
Limitation on Asset Sales. The Company shall not, and shall not permit
any Subsidiary to, make any Asset Sale unless (i) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors as evidenced
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the transfer agent) of the assets subject to such Asset Sale, (ii)
at least 75% of the consideration for such Asset Sale is in the form of cash,
Cash Equivalents or liabilities of the Company or any Subsidiary (other than
liabilities that are by their terms subordinated to the Exchange Preferred
Stock) that are assumed by the transferee of such assets (provided, that
following such Asset Sale there is no further recourse to the Company and its
Subsidiaries with respect to such liabilities), and (iii) within 12 months of
such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to
the business of the Company or its Subsidiaries, or (b) used to repay, purchase
or otherwise acquire Indebtedness under the New Credit Facility, or (c) used
during such 12 months, or withing 60 days after such 12 month period, to
purchase or otherwise acquire Preferred Stock or Exchange Preferred Stock, or
(d) to the extent not used as provided in clause (a) through (c), applied to
make an offer to purchase Preferred Stock or Exchange Preferred Stock as
described below (an "Excess Proceeds Offer"); provided, that if the amount of
Net Proceeds from any Asset Sale not invested or used pursuant to clause (a),
(b) or (c) above is less than $5.0 million, the Company shall not be required to
make an offer pursuant to clause (c) until the aggregate amount of Excess
Proceeds from all Asset Sales exceeds $5.0 million. Pending the final
application of any such
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Net Proceeds, the Company or any Subsidiary may temporarily reduce Indebtedness
under the New Credit Facility or temporarily invest such Net Proceeds in Cash
Equivalents.
For the purposes of this covenant, the following are deemed to be cash:
(y) securities received by the Company or any Subsidiary from the transferee
that are promptly converted by the Company or such Subsidiary into cash and (z)
assets related to the business of the Company or its Subsidiaries received in an
exchange of assets transaction; provided that (i) in the event such exchange of
assets transaction or series of related exchange of assets transactions (each an
"Exchange Transaction") involves an aggregate value in excess of $2.5 million,
the terms of such Exchange Transaction shall have been approved by a majority of
the disinterested members of the Board of Directors, (ii) in the event such
Exchange Transaction involves an aggregate value in excess of $5.0 million, the
Company shall have received a written opinion from a nationally recognized
independent investment banking firm that the Company has received consideration
equal to the fair market value of the assets disposed of and (iii) any assets to
be received shall be comparable to those being exchanged as determined in good
faith by the Board of Directors.
The amount of Net Proceeds not invested, used or applied as set forth
in the preceding clauses (a) through (c) constitutes "Excess Proceeds." If the
Company elects, or becomes obligated to make an Excess Proceeds Offer, the
Company shall offer to purchase Exchange Preferred Stock having an aggregate
principal amount equal to the Excess Proceeds (the "Purchase Amount"), at a
purchase price equal to 110% of the aggregate principal amount thereof, plus
accrued and unpaid dividends, if any, to the purchase date. The Company must
commence such Excess Proceeds Offer not later than 90 days after the expiration
of the 12-month period following the Asset Sale that produced Excess Proceeds.
If the aggregate purchase price for the Exchange Preferred Stock tendered
pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the
Company and its Subsidiaries may use the portion of the Excess Proceeds
remaining after payment of such purchase price for general corporate purposes.
Each Excess Proceeds Offer shall remain open for a period of 20
Business Days and no longer, unless a longer period is required by law (the
"Excess Proceeds Offer Period"). Promptly after the termination of the Excess
Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company shall
purchase and mail or deliver payment for the Purchase Amount for the Exchange
Preferred Stock or portions thereof tendered, pro rata or by such other method
as may be required by law, or, if less than the Purchase Amount has been
tendered, all Exchange Preferred Stock tendered pursuant to the Excess Proceeds
Offer. The principal amount of Exchange Preferred Stock to be purchased pursuant
to an Excess Proceeds Offer may be reduced by the principal amount of Exchange
Preferred Stock acquired by the Company through purchase or redemption
subsequent to the date of the Asset Sale and surrendered to the transfer agent
for cancellation.
Each Excess Proceeds Offer shall be conducted in compliance with all
applicable laws, including without limitation, Regulation 14E of the Exchange
Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
There can be no assurance that sufficient funds will be available at
the time of any Excess Proceeds Offer to make required repurchases. Merger,
Consolidation or Sale of Assets. The Company shall not, in a single transaction
or through a series of transactions, consolidate with or merge with or into any
other Person (whether or not the Company is the surviving corporation) or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets (determined on a consolidated basis for the Company
and its Subsidiaries) to any other Person or Persons, unless at the time and
immediately after giving effect thereto: (i) either (a) the Company shall be the
continuing corporation or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person that
acquires by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all the properties and assets of the Company and its Subsidiaries
on a consolidated basis (the "Surviving Entity") shall be a corporation duly
organized and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia; (ii) the Exchange Preferred Stock
shall be converted into or exchanged for and shall become debt of the Surviving
Entity having in respect of the Surviving Entity the same rights and privileges
that the Exchange Preferred Stock had immediately prior to such transaction with
respect to the Company; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, no Voting Rights
Triggering Event, and no event that after the giving of notice or lapse of time
or both would become a Voting Rights Triggering Event, shall have occurred and
be continuing; (iv) the Company (or the Surviving Entity as the case may be) has
(A) a Consolidated Net Worth (immediately after giving effect to such
transaction, but prior to any purchase
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accounting adjustments from such transaction) not less than 100% of the
Consolidated Net Worth of the Company immediately before such transaction and
(B) immediately before and immediately after giving effect to such transaction
or series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), could incur at least $1.00 of additional Indebtedness pursuant to
the "Interest Coverage Ratio" test set forth in the Indenture; and (v) the
Company or the Surviving Entity shall have delivered to the Holders an Officers'
Certificate, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition comply with the Certificate of
Designation.
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Certificate
of Designation and the Exchange Preferred Stock.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any of the Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all Affiliate Transactions that are
part of a common plan, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith and on terms that
are no less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Subsidiary, (ii) Affiliate Transactions, which together with all Affiliate
Transactions that are part of a common plan, have an aggregate value of not more
than $2.5 million; provided, that a majority of the disinterested members of the
Board of Directors of the Company determine that such transactions are conducted
in good faith and on terms that are no less favorable to the Company or the
relevant Subsidiary than those that would have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Subsidiary, (iii) Affiliate Transactions for
which the Company delivers to the holders an opinion as to the fairness to the
Company or such Subsidiary from a financial point of view, issued by an
investment banking firm of national standing and (iv) Permitted Affiliate
Transactions and other Restricted Payments permitted by the provisions described
under "Description of the Exchange Notes--Limitations on Restricted Payments"
Maintenance Test Ratio. The Company will calculate whether the
Maintenance Test Ratio exceeds any of the following respective amounts at the
end of the fiscal quarter (the "Maximum Test Ratio") set forth opposite such
Maximum Test Ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Maximum Test Ratio
-------------------- ------------------
<S> <C>
June, September, 1998 6.75
December 1998 6.50
March, June, September, December 1999 6.00
March, June, September, December 2000 5.50
March, June, September, December 2001 5.25
March, June, September, December 2002
and each quarter thereafter 5.00
</TABLE>
Reports. The Company will file on a timely basis with the Commission,
to the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also (i) file with the transfer agent, and provide to each Holder
of Exchange Preferred Stock, without cost to such holder, copies of such reports
and documents within fifteen days after the date on which the Company files such
reports and documents with the Commission or the date on which the Company would
be required to file such reports and documents if the Company were so required,
and (ii) if filing such reports and documents with the Commission
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<PAGE> 85
is not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Company's costs copies of such reports and documents to any
prospective holder of Exchange Preferred Stock promptly upon written request
together with an Officers' Certificate.
EXCHANGE
Subject to certain limitations, upon a resolution adopted by a majority
of the Board of Directors, the Company may, at its option, on not less than 30
nor more than 60 days notice to holders of record of the Exchange Preferred
Stock, exchange on any February 15 or August 15 beginning February 15, 1999, its
12% Subordinated Debentures due 2003 (the "Exchange Debentures") for all, but
not less than all, of the shares of Exchange Preferred Stock then outstanding.
See "Description of Exchange Debentures" for a description of the terms of the
Exchange Debentures. In such event, shares of Exchange Preferred Stock will be
exchanged for Exchange Debentures with an aggregate principal amount equal to
the then aggregate Liquidation Preference plus accrued and unpaid dividends of
the Exchange Preferred Stock. Exchange Debentures may be issued in denominations
of $1,000 and integral multiples of $1,000 (or at the option of the Company, in
denominations of $100 and integral multiples of $100). In the event such
exchange would result in issuance of an Exchange Debenture in a principal amount
which is not an integral multiple of $1,000 (or such lesser amount), the
difference between such amount and the higher of zero and the highest integral
multiple of $1,000 (or such lesser amount) less than such amount shall be paid
to such holder in cash. At the exchange date, the rights of holders of Exchange
Preferred Stock shall cease and the person or persons entitled to receive the
Exchange Debentures issuable upon such exchange shall be treated as the
registered holder or holders of Exchange Debentures. The Company may not
exchange Exchange Preferred Stock for Exchange Debentures unless such
Indebtedness is permitted to be incurred under its other agreements, including
the Indenture and the New Credit Facility.
CERTAIN DEFINITIONS
"Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of Capital
Stock or a Subsidiary (other than directors' qualifying shares), property or
other assets, including by way of a sale/leaseback transaction (each referred to
for the purposes of this definition as a "disposition"), by the Company or any
of its Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of property or assets in the ordinary course of
business, (iii) dispositions of inventory in the ordinary course of business,
(iv) for purposes of the covenant described under "--Limitation on Asset Sales"
only, a disposition that constitutes a Restricted Payment permitted by the
covenant described under "Description of the Exchange Notes--Limitations on
Restricted Payments", (v) the sale, lease, transfer or other disposition of all
or substantially all the assets of the Company as permitted under the covenant
described under "--Merger, Consolidation or Sale of Assets", (vi) the grant of
Liens permitted by the covenant described under "Description of the Exchange
Notes--Limitation on Liens" and (vii) sales of obsolete or worn-out equipment.
"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated operating profit of such Person and its
subsidiaries for such period, determined in accordance with GAAP, plus (to the
extent such amounts are deducted in calculating such operating profit (loss) of
such Person for such period, and without duplication) amortization, depreciation
and other non-cash charges (including, without limitation, impairment charges,
amortization of goodwill, deferred financing fees and other intangibles but
excluding non-cash charges incurred after the date of the Indenture that require
an accrual of or a reserve for cash charges for any future period); provided,
that the operating profit (loss) of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting will be included only to the
extent of the amount of dividends or distributions paid during such period to
the referent Person or a Wholly Owned Subsidiary of the referent Person.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity of such Person determined on a consolidated basis in
accordance with GAAP adjusted to exclude (to the extent included in calculating
such equity) (i) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock of such Person and its consolidated subsidiaries;
(ii) all upward revaluations and other write-ups in the book value of any asset
of such person or a consolidated subsidiary of such person subsequent to the
Closing Date; and (iii) all Investments in persons that are not consolidated
Subsidiaries.
"Disqualified Capital Stock" means any Equity Interests that either by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is or upon the happening of an event would be required
to be
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redeemed or repurchased prior to the final stated maturity of the Exchange Notes
or is redeemable at the option of the holder thereof at any time prior to such
final stated maturity.
"Maintenance Test Ratio" means, at any time, the ratio of (i) the
result of (x) the aggregate amount of Indebtedness of the Company and its
Subsidiaries (on a consolidated basis) as of the time of determination plus (y)
110% of the then applicable Liquidation Preference of the Exchange Preferred
Stock, and the liquidation preference of any other shares of preferred stock of
the Company or any Subsidiary of the Company (other than preferred stock owned
by the Company or a Wholly Owned Subsidiary), plus, in each case, accrued and
unpaid dividends as of the time of determination, to (ii) the result of (a) the
Consolidated EBITDA of the Company for the last four fiscal quarters from the
time of determination less (b) the aggregate amount of the cash charges in such
four-quarter period against the reserve established by the Company and its
Subsidiaries on a consolidated basis relating to the elimination of costs
associated with restaurants closed in 1997 and prior years as set forth in
"Unaudited Selected Consolidated Pro Forma Condensed Financial Data" contained
elsewhere in this Prospectus plus (c) $3.3 million for the four quarter period
ended March 1998, $2.2 million for the four-quarter period ended June 1998 and
$1.6 million for the four-quarter period ended September 1998.
"Mandatory Redemption Date" means August 15, 2003.
"Net Proceeds" means the aggregate proceeds received in the form of
cash or Cash Equivalents in respect of any Asset Sale (including payments in
respect of deferred payment obligations when received), net of (a) the
reasonable and customary direct out-of-pocket costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), other than any such costs payable to an Affiliate of the
Company, (b) taxes actually payable directly as a result of such Asset Sale
(after taking into account any available net operating loss carryovers, tax
credits or deductions and any tax sharing arrangements), (c) amounts required to
be applied to the permanent repayment of Indebtedness in connection with such
Asset Sale, and (d) appropriate amounts provided as a reserve by the Company or
any Subsidiary, in accordance with GAAP, against any liabilities associated with
such Asset Sale and retained by the Company or such Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations arising from such
Asset Sale.
"Permitted Affiliate Transactions" means (i) employment agreements,
stockholder agreements, stock options or other incentive plans existing on the
Closing Date or thereafter entered into by the Company or any Subsidiary in the
ordinary course of business with the approval of a majority of the disinterested
members of the Company's Board of Directors; (ii) transactions between, among or
for the benefit of the Company and/or its Subsidiaries; (iii) reasonable and
customary fees and compensation paid to and indemnity, loans or advances
provided on behalf of, officers, directors, employees or consultants of the
Company or any Subsidiary as determined in good faith by a majority of the
disinterested members of the Company's Board of Directors; and (iv) payments
made to affiliates of the TCW Shared Opportunies Fund or the TCW Leverage Income
Trust in connection with any tax liability for withholding, which payments shall
not exceed $125,000 per year.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned or controlled, directly or
indirectly, by the Company or by one or more other Subsidiaries or by the
Company and one or more other Subsidiaries.
"Voting Rights Triggering Event" means the occurrence of one of the
following events: (i) dividends on the Exchange Preferred Stock are in arrears
and unpaid for any quarterly period; (ii) the Company fails to discharge its
obligation to redeem the Exchange Preferred Stock on the Mandatory Redemption
Date or fails to otherwise discharge any redemption obligations with respect to
the Exchange Preferred Stock; (iii) the Maintenance Test Ratio exceeds the
applicable Maximum Test Ration for a period of eight (8) consecutive fiscal
quarters; (iv) the Company breaches any of the covenants contained in the
Certificate of Designation concerning Restricted Payments, sales of assets,
affiliate transactions, mergers and sales of assets; or (v) a breach or
violation of any other provision contained in the Certificate of Designation
which materially affects the Holders and such breach or violation continues for
a period of 30 days or more after receipts of notice from a majority of the
Holders of the Exchange Preferred Stock.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or one
or more Wholly Owned Subsidiaries.
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<PAGE> 87
DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures will be issued under an indenture (the
"Exchange Debenture Indenture"), to be dated as of the date of issuance (the
"Exchange Date") of the Exchange Debentures, between the Company and a bank or
trust company as trustee (the "Exchange Debenture Trustee") to be selected by
the Company prior to the Exchange Date. A copy of the proposed form of the
Exchange Debenture Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The summaries of certain
provisions of the Exchange Debenture Indenture hereunder do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Exchange Debenture Indenture including the
definitions therein of certain terms and those terms made part of the Exchange
Debenture Indenture by reference to the Trust Indenture Act of 1939 as in effect
on the date of the Exchange Debenture Indenture. The definitions of certain
terms used in the following summary are set forth under "Description of the
Exchange Preferred Stock--Certain Definitions" and "--Certain Definitions."
The Exchange Debentures may be issued in denominations of $1,000 and in
integral multiples of $1,000 (or, at the option of the Company, in denominations
of $100 and integral multiples of $100).
PRINCIPAL, MATURITY AND INTEREST
The Exchange Debenture Indenture authorizes a maximum aggregate
principal amount of $80,000,000 of the Exchange Debentures. The Exchange
Debentures will be due on August 15, 2003. At maturity, the Company shall pay a
premium of 10% of the principal amount. The Exchange Debentures will bear
interest from the Exchange Date at a rate per annum equal to 12%. Interest on
the Exchange Debentures will be payable semi-annually on February 15 and August
15 in each year to holders of record at the close of business on the first day
of the calendar month in which such interest payment date occurs, commencing on
the first interest payment date after issuance. Alternatively, the Company may,
at its option, issue new Exchange Debentures having an aggregate principal
amount equal to the amount of such interest payments.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Exchange Debentures will be payable both as to
principal and interest at the office or agency of the Company maintained for
such purpose within The City of New York or, at the option of the Company,
payment of interest may be made by check mailed to the holders of the Exchange
Debentures at their respective addresses set forth in the register of holders of
Exchange Debentures. Until otherwise designated by the Company, such office or
agency will be the office of the Exchange Debenture Trustee maintained for such
purpose. If a payment date is a legal holiday, payment may be made at that place
on the next succeeding day that is not a legal holiday, and no interest shall
accrue for the intervening period.
The Exchange Debentures provide that the rate of interest on the
Exchange Debentures shall be automatically increased if at the end of any fiscal
quarter of the Company, the Maintenance Test Ratio exceeds the Maximum Test
Ratio for that fiscal quarter, then for the period during the immediately
succeeding quarter, the rate of interest hereunder shall be 13.5% for the first
two quarters for which the Maximum Test Ratio is exceeded (whether or not such
fiscal quarters are consecutive) and 15% for any other quarter thereafter for
which the Maximum Test Ratio is exceeded or in certain other circumstances.
OPTIONAL REDEMPTION
The Exchange Debentures are redeemable as a whole or from time to time
in part, at the option of the Company, at a redemption price equal to 110% of
the principal amount, together with accrued interest to the Redemption Date, but
interest installments due on or prior to such Redemption Date will be payable to
the record holders of such Exchange Debentures on the relevant Record Dates
referred to on the face thereof.
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GUARANTORS
The Exchange Debentures will not be guaranteed by the Guarantors.
COLLATERAL
The Exchange Debentures will not be secured by the Collateral, or any
other property of the Company or its subsidiaries.
SUBORDINATION
The Exchange Debentures will be general, unsecured obligations of the
Company, subordinated in right of payment to all Senior Debt of the Company.
Such subordination will not prevent the occurrence of an Event of Default.
No payment (other than payments made with Junior Securities) may be
made by the Company or on behalf of the Company on account of principal of or
interest on the Exchange Debentures or to acquire or repurchase any of the
Exchange Debentures on account of the redemption provisions of the Exchange
Debentures (i) upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, unless and until all such Senior Debt is first paid
in full or (ii) upon the happening of any default in payment of any principal of
or interest on any Senior Debt when the same becomes due and payable (a "Payment
Default"), unless and until such Payment Default shall have been cured or waived
or shall have ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt to declare such Senior Debt to
be due and payable (or, in the case of letters of credit, require cash
collateralization thereof) and (ii) written notice of such event of default
given to the Company and the Exchange Debenture Trustee, by the lenders' agent
under the New Credit Facility or holders of an aggregate of at least $15 million
principal amount outstanding of any Senior Debt or their representative (a
"Payment Notice"), then, unless and until such event of default has been cured
or waived or otherwise has ceased to exist, no payment (by set-off or otherwise)
may be made by or on behalf of the Company on account of any Obligation in
respect of the Exchange Debentures, including the principal of, premium, if any,
or interest on the Exchange Debentures, or to repurchase any of the Exchange
Debentures, or on account of the redemption provisions of the Exchange
Debentures, in any such case, other than payments made with Junior Securities.
Notwithstanding the foregoing, unless the Senior Debt in respect of which such
event of default exists has been declared due and payable in its entirety within
179 days after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, the Company shall be required to pay all
sums not paid to the holders of the Exchange Debentures during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Exchange Debentures. Any number of Payment
Notices may be given; provided, however, that (i) not more than one Payment
Notice shall be given within a period of any 360 consecutive days, and (ii) no
default that existed upon the date of such Payment Notice or the commencement of
such Payment Blockage Period (whether or not such event of default is on the
same issue of Senior Debt) shall be made the basis for the commencement of any
other Payment Blockage Period unless such other Payment Blockage Period is
commenced by a Payment Notice and such event of default shall have been cured or
waived for a period of at least 90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Exchange Debenture Trustee or the holders at a time when such
payment or distribution is prohibited by the foregoing provisions, such payment
or distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Exchange Debenture Trustee or
such holders, as the case may be, to the holders of such Senior Debt remaining
unpaid or unprovided for or to their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Debt may have issued, ratably according to the
aggregate principal amounts remaining unpaid on account of such Senior Debt held
or represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts due by settlement in other than
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Upon any distribution of assets of the Company, upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities, (i) the holders of all
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Senior Debt of the Company will first be entitled to receive payment in full in
cash or Cash Equivalents or otherwise to the extent holders accept satisfaction
of amounts due by settlement in other than cash or Cash Equivalents (or have
such payment duly provided for) before the holders are entitled to receive any
payment on account of any Obligation in respect of the Exchange Debentures
including the principal of, premium, if any, and interest on the Exchange
Debentures (other than Junior Securities) and (ii) any payment or distribution
of assets of the Company of any kind or character from any source, whether in
cash, property or securities (other than Junior Securities) to which the holders
or the Exchange Debenture Trustee on behalf of the holders would be entitled (by
set-off or otherwise) but for the subordination provisions contained in the
Exchange Debenture Indenture, will be paid by the liquidating trustee or agent
or other person making such a payment or distribution directly to the holders of
such Senior Debt or their representative to the extent necessary to make payment
in full in Cash or Cash Equivalents (or have such payment duly provided for) on
all such Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Debt.
Because of these subordination provisions, creditors of the Company who
are holders of Senior Debt may recover more, ratably, than the holders of the
Exchange Debentures. The subordination provisions described above will cease to
be applicable to the Exchange Debentures upon any legal defeasance or covenant
defeasance of the Exchange Debentures as described under "--Defeasance and
Discharge of the Exchange Debenture Indenture and the Exchange Debentures."
COVENANTS
Limitation on Restricted Payments. The Company shall not, and, with
respect to clause (ii) below, shall not permit any Subsidiary to, directly or
indirectly, take any of the following actions: (i) declare, set aside for
payment or pay any dividend on, or make any distribution to the holders of any
Junior Securities (other than dividends or distributions payable solely in
shares of a class or series upon which such dividends are declared or paid, or
payable in shares of Common Stock with respect to Junior Securities other than
Common Stock, together with cash in lieu of fractional shares), or (ii)
purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any Junior Securities (such payments or other actions described in
(but not excluded from) clauses (i) and (ii) are collectively referred to as
"Restricted Payments"), unless at the time of, and immediately after giving
effect to, the proposed Restricted Payment (1) no Default shall have occurred
and be continuing, and (2) all accrued interest on the Exchange Debentures shall
have been paid in full, or funds sufficient for payment thereof have been set
apart for payment.
Limitation on Asset Sales. The Company shall not, and shall not permit
any Subsidiary to, make any Asset Sale unless (i) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors as evidenced
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Exchange Debenture Trustee) of the assets subject to such Asset
Sale, (ii) at least 75% of the consideration for such Asset Sale is in the form
of cash, Cash Equivalents or liabilities of the Company or any Subsidiary (other
than liabilities that are by their terms subordinated to the Exchange
Debentures) that are assumed by the transferee of such assets (provided, that
following such Asset Sale there is no further recourse to the Company and its
Subsidiaries with respect to such liabilities), and (iii) within 12 months of
such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to
the business of the Company or its Subsidiaries, or (b) used to repay, purchase
or otherwise acquire Indebtedness under the New Credit Facility, or (c) used
during such 12 months, or withing 60 days after such 12 month period, to
purchase or otherwise acquire Exchange Debentures, or (d) to the extent not used
as provided in clause (a) or (b), applied to make an offer to purchase Exchange
Debentures as described below (an "Excess Proceeds Offer"); provided, that if
the amount of Net Proceeds from any Asset Sale not invested or used pursuant to
clause (a), (b) or (c) above is less than $5.0 million, the Company shall not be
required to make an offer pursuant to clause (c) until the aggregate amount of
Excess Proceeds from all Asset Sales exceeds $5.0 million. Pending the final
application of any such Net Proceeds, the Company or any Subsidiary may
temporarily reduce Indebtedness under the New Credit Facility or temporarily
invest such Net Proceeds in Cash Equivalents.
For the purposes of this covenant, the following are deemed to be cash:
(y) securities received by the Company or any Subsidiary from the transferee
that are promptly converted by the Company or such Subsidiary into cash and (z)
assets related to the business of the Company or its Subsidiaries received in an
exchange of assets transaction; provided that (i) in the event such exchange of
assets transaction or series of related exchange of assets transactions (each an
"Exchange Transaction") involves an aggregate value in excess of $2.5 million,
the terms of such Exchange Transaction shall have been approved by a majority of
the disinterested members of the Board of Directors, (ii) in the event such
Exchange Transaction involves an aggregate value in excess of $5.0 million, the
Company shall have received a written opinion from
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a nationally recognized independent investment banking firm that the Company has
received consideration equal to the fair market value of the assets disposed of
and (iii) any assets to be received shall be comparable to those being exchanged
as determined in good faith by the Board of Directors.
The amount of Net Proceeds not invested, used or applied as set forth
in the preceding clauses (a) and (b) constitutes "Excess Proceeds." If the
Company elects, or becomes obligated to make an Excess Proceeds Offer, the
Company shall offer to purchase Exchange Debentures having an aggregate
principal amount equal to the Excess Proceeds (the "Purchase Amount"), at a
purchase price equal to 110% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the purchase date. The Company must
commence such Excess Proceeds Offer not later than 90 days after the expiration
of the 12-month period following the Asset Sale that produced Excess Proceeds.
If the aggregate purchase price for the Exchange Debentures tendered pursuant to
the Excess Proceeds Offer is less than the Excess Proceeds, the Company and its
Subsidiaries may use the portion of the Excess Proceeds remaining after payment
of such purchase price for general corporate purposes.
Each Excess Proceeds Offer shall remain open for a period of 20
Business Days and no longer, unless a longer period is required by law (the
"Excess Proceeds Offer Period"). Promptly after the termination of the Excess
Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company shall
purchase and mail or deliver payment for the Purchase Amount for the Exchange
Debentures or portions thereof tendered, pro rata or by such other method as may
be required by law, or, if less than the Purchase Amount has been tendered, all
Exchange Debentures tendered pursuant to the Excess Proceeds Offer. The
principal amount of Exchange Debentures to be purchased pursuant to an Excess
Proceeds Offer may be reduced by the principal amount of Exchange Debentures
acquired by the Company through purchase or redemption subsequent to the date of
the Asset Sale and surrendered to the Exchange Debenture Trustee for
cancellation.
Each Excess Proceeds Offer shall be conducted in compliance with all
applicable laws, including without limitation, Regulation 14e-1 of the Exchange
Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
There can be no assurance that sufficient funds will be available at
the time of any Excess Proceeds Offer to make required repurchases.
Merger, Consolidation or Sale of Assets. The Company shall not, in a
single transaction or through a series of transactions, consolidate with or
merge with or into any other Person (whether or not the Company is the surviving
corporation) or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets (determined on a
consolidated basis for the Company and its Subsidiaries) to any other Person or
Persons, unless at the time and immediately after giving effect thereto: (i)
either (a) the Company shall be the continuing corporation or (b) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person that acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all the properties and assets of the
Company and its Subsidiaries on a consolidated basis (the "Surviving Entity")
shall be a corporation duly organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia; (ii)
the Exchange Debentures shall be converted into or exchanged for and shall
become debt of the Surviving Entity having in respect of the Surviving Entity
the same rights and privileges that the Exchange Debentures had immediately
prior to such transaction with respect to the Company, and the Surviving Entity
(if other than the Company) or the Person to which such transfer has been made
shall assume all the Obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Exchange
Debentures and the Exchange Debenture Indenture; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis, no
Default, and no event that after the giving of notice or lapse of time or both
would become a Default, shall have occurred and be continuing; (iv) the Company
(or the Surviving Entity as the case may be) has (A) a Consolidated Net Worth
(immediately after giving effect to such transaction, but prior to any purchase
accounting adjustments from such transaction) not less than 100% of the
Consolidated Net Worth of the Company immediately before such transaction and
(B) immediately before and immediately after giving effect to such transaction
or series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), could incur at least $1.00 of additional Indebtedness pursuant to
the "Interest Coverage Ratio" test set forth in the Indenture; and (v) the
Company or the Surviving Entity shall have delivered to the Holders an Officers'
Certificate, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition comply with the Exchange
Debenture Indenture.
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In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Exchange
Debenture Indenture and the Exchange Debentures.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any of the Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all Affiliate Transactions that are
part of a common plan, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith and on terms that
are no less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Subsidiary, (ii) Affiliate Transactions, which together with all Affiliate
Transactions that are part of a common plan, have an aggregate value of not more
than $2.5 million; provided, that a majority of the disinterested members of the
Board of Directors of the Company determine that such transactions are conducted
in good faith and on terms that are no less favorable to the Company or the
relevant Subsidiary than those that would have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Subsidiary, (iii) Affiliate Transactions for
which the Company delivers to the Trustee an opinion as to the fairness to the
Company or such Subsidiary from a financial point of view, issued by an
investment banking firm of national standing and (iv) Permitted Affiliate
Transactions and other Restricted Payments permitted by the provisions described
under "Description of the Exchange Notes--Limitations on Restricted Payments"
Maintenance Test Ratio. The Company will calculate whether the
Maintenance Test Ratio exceeds any of the following respective amounts at the
end of the fiscal quarter (the "Maximum Test Ratio") set forth opposite such
Maximum Test Ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Maximum Test Ratio
-------------------------------------------------------
<S> <C>
June, September, 1998 6.75
December 1998 6.50
March, June, September, December 1999 6.00
March, June, September, December 2000 5.50
March, June, September, December 2001 5.25
March, June, September, December 2002
and each quarter thereafter 5.00
</TABLE>
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Debentures are outstanding, the Company will
furnish to the Exchange Debenture Trustee, and deliver or cause to be delivered
to the holders of Exchange Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's independent certified public
accountants; and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. From
and after the time a registration statement with respect to the Exchange
Debentures is declared effective by the Commission, the Company will file such
information with the Commission, provided that the Commission will accept such
filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Exchange Debenture Indenture (i) default for 30 days in the payment when due of
interest on the Exchange Debentures; (ii) default in payment of principal (or
premium, if any) on the Exchange Debentures when due at maturity, redemption, by
acceleration or otherwise; (iii) default in the performance or breach of the
provisions of "Limitation on Asset Sales," and "--Merger, Consolidation or Sale
of Assets"
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;(iv) default in the performance or breach of the provisions of "Limitation on
Restricted Payments" and the continuance of such default for a period of 30
days; (v) failure by the Company for 30 days after notice to comply with certain
other agreements in the Exchange Debenture Indenture or the Exchange Debentures;
(vi) default under (after giving effect to any waivers, amendments, applicable
grace periods or any extension of any maturity date) any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any Subsidiary
(or the payment of which is guaranteed by the Company or any Subsidiary),
whether such Indebtedness or guarantee now exists or is created after the date
of the Exchange Debenture Indenture, if (a) either (1) such default results from
the failure to pay principal on such Indebtedness or (2) as a result of such
default the maturity of such Indebtedness has been accelerated, and (b) the
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness with respect to which such a payment default (after the
expiration of any applicable grace period or any extension of the maturity date)
has occurred, or the maturity of which has been so accelerated, exceeds $2.5
million in the aggregate; (vii) failure by the Company or any Subsidiary to pay
final non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of $2.5
million which judgments are not discharged, bonded or stayed within 60 days
after their entry; (viii) written assertion by the Company of the
unenforceability of its obligations under the Exchange Debenture Indenture or
the Exchange Debentures to which it is a party; and (ix) certain events of
bankruptcy or insolvency with respect to the Company or any Material Subsidiary.
If any Event of Default occurs and is continuing, the Exchange
Debenture Trustee or the holders of at least 25% in principal amount of the then
outstanding Exchange Debentures may declare by written notice to the Company and
the Exchange Debenture Trustee all of the Exchange Debentures to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Exchange Debentures will become due and payable without further action or
notice. Holders of the Exchange Debentures may not enforce the Exchange
Debenture Indenture or the Exchange Debentures except as provided in the
Exchange Debenture Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Exchange Debentures may
direct the Exchange Debenture Trustee in its exercise of any trust or power.
The holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding, by written notice to the Company and the Exchange
Debenture Trustee, may on behalf of the holders of all of the Exchange
Debentures (i) waive any existing Default or Event of Default and its
consequences under the Exchange Debenture Indenture except a continuing Default
or Event of Default in the payment of interest on, or the principal of, the
Exchange Debentures or a Default or an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the holder of each outstanding Debenture affected; and/or (ii) rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Exchange Debenture Trustee a statement specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or
controlling person of the Company, as such, will have any liability for any
obligations of the Company under the Exchange Debentures or the Exchange
Debenture Indenture for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of the Exchange Debentures by
accepting an Exchange Debenture waives and releases all such liability. The
waiver and release will be part of the consideration for issuance of the
Exchange Debentures. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that a waiver
is against public policy.
DEFEASANCE AND DISCHARGE OF THE EXCHANGE DEBENTURE INDENTURE AND THE EXCHANGE
DEBENTURES
The Exchange Debenture Indenture provides that the Company (i) will be
discharged from any and all obligations in respect of the Exchange Debentures,
other than the obligation to duly and punctually pay the principal of, and
premium, if any, and interest on, the Exchange Debentures in accordance with the
terms of the Exchange Debentures and the Exchange Debenture Indenture or (ii)
will be released from compliance with the restrictive covenants and certain
Events of Default, upon
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irrevocable deposit with the Exchange Debenture Trustee, in trust, of money
and/or U.S. government obligations that will provide money in an amount
sufficient in the opinion of a nationally recognized accounting firm to pay the
principal of and premium, if any, and each installment of interest, if any, on
the due dates thereof on the Exchange Debentures. Such trust may only be
established if, among other things (i) the Company has delivered to the Exchange
Debenture Trustee an opinion of independent counsel to the effect that the
holders of the Exchange Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred; (ii) no Default or Event of Default shall have occurred or be
continuing; and (iii) certain customary conditions precedent are satisfied.
The Company may satisfy and discharge its Obligations under the
Exchange Debenture Indenture to holders of the Exchange Debentures by delivering
to the Exchange Debenture Trustee for cancellation all outstanding Exchange
Debentures or by depositing with the Exchange Debenture Trustee or the Paying
Agent, if applicable, after the Exchange Debentures have become due and payable,
cash sufficient to pay all amounts due under all of the outstanding Exchange
Debentures and paying all other sums payable under the Exchange Debenture
Indenture by the Company.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Debentures in accordance
with the Exchange Debenture Indenture. The Registrar and the Exchange Debenture
Trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a holder to pay
any taxes and fees required by law or permitted by the Exchange Debenture
Indenture. The Company is not required to transfer or exchange any Exchange
Debenture selected for redemption. Also, the Company is not required to transfer
or exchange any Exchange Debenture for a period of 15 days before a selection of
Exchange Debentures to be redeemed. The registered holder of a Exchange
Debenture will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Exchange
Debenture Indenture and the Exchange Debentures may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Exchange Debentures then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Exchange Debentures) and
any existing Default or Event of Default or compliance with any provision of the
Exchange Debenture Indenture or the Exchange Debentures may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
Exchange Debentures (including consents obtained in connection with a tender
offer or exchange offer for Exchange Debentures).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Exchange Debentures held by a non-consenting holder of
Exchange Debentures) (i) reduce the principal amount of Exchange Debentures
whose holders must consent to an amendment, supplement or waiver; (ii) reduce
the principal of, or the premium on, or change the fixed maturity of any
Exchange Debenture, alter the provisions with respect to the redemption of the
Exchange Debentures in a manner adverse to the holders of the Exchange
Debentures, or alter the price at which repurchases of the Exchange Debentures
may be made pursuant to an Excess Proceeds Offer; (iii) reduce the rate of or
change the time for payment of interest on any Exchange Debenture; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Exchange Debentures; (v) make any Exchange Debenture payable
in money other than that stated in the Exchange Debentures; (vi) make any change
in the provisions of the Exchange Debenture Indenture relating to waivers of
past Defaults or the rights of holders of Exchange Debentures to receive
payments of principal of or interest on the Exchange Debentures; (vii) waive a
redemption payment with respect to any Exchange Debenture; (viii) adversely
affect the contractual ranking of the Exchange Debentures; or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of
Exchange Debentures, the Company and the Exchange Debenture Trustee may amend or
supplement the Exchange Debenture Indenture or the Exchange Debentures to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Exchange
Debentures in addition to or in place of certificated Exchange Debentures, to
provide for the assumption of the Company's obligations to holders of the
Exchange Debentures in the case of a merger or consolidation, to make any change
that would provide any additional rights or
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<PAGE> 94
benefits to the holders of the Exchange Debentures or that does not adversely
affect the legal rights under the Exchange Debenture Indenture of any such
holder or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Exchange Debenture Indenture under the Trust
Exchange Debenture Indenture Act.
CONCERNING THE EXCHANGE DEBENTURE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the
rights of the Exchange Debenture Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Exchange Debenture Trustee will be permitted to engage in other transactions;
provided, that if the Exchange Debenture Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Exchange
Debenture Trustee, subject to certain exceptions. The Exchange Debenture
Indenture provides that in case an Event of Default occurs (and is not cured),
the Exchange Debenture Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Exchange Debenture Trustee will be under no
obligation to exercise any of its rights or powers under the Exchange Debenture
Indenture at the request of any holder of Exchange Debentures, unless such
holder shall have offered to the Exchange Debenture Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Any person who receives this Prospectus may obtain a copy of the form
of Exchange Debenture Indenture without charge by writing to the Company at 450
Newport Center Drive, 6th Floor, Newport Beach, California 92660.
CERTAIN DEFINITIONS
Set forth under "The Description of the Exchange Preferred Stock--
Certain Definitions" and set forth below are certain defined terms used in
the Exchange Debenture Indenture. Reference is made to the Exchange Debenture
Indenture for a full definition of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Senior Debt" means all Indebtedness of the Company, unless the
instrument governing such Indebtedness expressly provides that such Indebtedness
is not senior or superior in right of payment to the Exchange Debentures.
Notwithstanding the foregoing, Senior Debt of the Company shall not include: (i)
Indebtedness evidenced by the Exchange Debentures, (ii) Indebtedness of the
Company to any Subsidiary of the Company, or (iii) any amounts payable or other
Indebtedness to trade creditors created, incurred, assumed or guaranteed by the
Company or any Subsidiary of the Company in the ordinary course of business in
connection with obtaining goods or services.
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DESCRIPTION OF THE NOTES
The terms of the Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Exchange Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Notes are not freely transferable by holders thereof and were
issued subject to certain covenants regarding registration as provided therein
and in the Registration Rights Agreement (which covenants will terminate and be
of no further force or effect upon completion of this Exchange Offer).
DESCRIPTION OF THE PREFERRED STOCK
The form and terms of the Preferred Stock are substantially identical
in all respects to the terms of the Exchange Preferred Stock for which they may
be exchanged pursuant to this Exchange Offer, except that the Preferred Stock is
not freely transferable by holders thereof and was issued subject to certain
covenants regarding registration as provided therein and in the Registration
Rights Agreement (which covenants will terminate and be of no further force or
effect upon completion of this Exchange Offer).
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation was amended to authorize
1,000,000 shares of Common Stock, $.01 par value per share, and 160,000 shares
of preferred stock, $.01 par value per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on each
matter to be decided by the stockholders and do not have cumulative voting
rights. Accordingly, but subject to the Securityholders Agreement, the holders
of a majority of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. The holders of Common Stock
have no preemptive, redemption or conversion rights. The holders of the Common
Stock are entitled to receive ratably such dividends, if any, as the Board of
Directors may declare from time to time out of funds legally available for such
purpose. In the event of liquidation, dissolution or winding up of the affairs
of the Company, after payment or provision for payment of all of the Company's
debts and obligations and any preferential distributions to holders of Preferred
Stock, if any, the holders of the Common Stock are entitled to share ratably in
the Company's remaining assets. All outstanding shares of Common Stock are
validly issued, fully paid and nonassessable. Holders of Warrants and the Common
Stock have certain rights and limitations with respect to their securities. See
"Security Ownership of Certain Beneficial Owners and Management--Securityholders
Agreement."
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to provide for the issuance of shares of preferred stock as a
class without series or in one or more series, to establish the number of shares
in each class or series and to fix the designation, powers, preferences and
rights of each such class or series and the qualifications, limitations or
restrictions thereof. Because the Board of Directors has the power to establish
the preferences and rights of each class or series of preferred stock, the Board
of Directors may afford the holders of any class or series of preferred stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The issuance of preferred stock could have the effect
of delaying or preventing a change in control of the Company. The Company issued
the Preferred Stock and will issue the Exchange Preferred Stock offered hereby
pursuant to these provisions. See "Description of the Exchange Preferred Stock"
and "Description of the Preferred Stock."
DESCRIPTION OF THE WARRANTS
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") dated as of February 25, 1998 between the Company and U.S. Trust
Company of California, N.A., as the warrant agent (the "Warrant Agent"). The
following summary of certain provisions of the Warrant Agreement and the
Warrants does not purport to be complete and is qualified in its entirety by
reference to the Warrant Agreement and the Warrants, including the definitions
therein of certain terms. The Warrant Agent may resign at any time, in which
case a successor warrant agent is to be appointed pursuant to the terms of the
Warrant Agreement.
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The Warrants are not the the subject of this Exchange Offer.
GENERAL
The Company issued Warrants as part of the Units. Each Warrant, when
exercised, entitles the holder thereof to receive 2.66143 shares of Common Stock
of the Company (each, a "Warrant Share") at an initial exercise price of $.01
per share (the "Exercise Price"). The Exercise Price and the number of Warrant
Shares issuable upon exercise of a Warrant are both subject to adjustment in
certain cases. See "-Adjustments" below. The Warrants are immediately
exercisable. Unless exercised, the Warrants will automatically expire on the
earlier of the Public Company Date and August 15, 2008 (the "Expiration Date").
The Company will give notice of expiration not less than 90 nor more than 120
days prior to the Expiration Date to the registered holders of the then
outstanding Warrants. The Warrants entitle the holders thereof to purchase in
the aggregate 93,150 shares of Common Stock, or approximately 40% of the Common
Stock of the Company on a diluted basis (including the Common Stock issuable
upon exercise of the Warrants and any other warrants to purchase Common Stock)
as of the date of issuance of the Warrants.
The Warrants may be exercised at any time by surrendering to the
Company the Warrant certificates evidencing such Warrants, if any, with the
accompanying form of election to purchase, properly completed and executed,
together with payment of the Exercise Price. Holders of Warrants, however, are
not entitled to exercise such Warrants, unless (i) a registration statement
filed under the Securities Act in respect of the issuance of the Warrant Shares
is then effective or (ii) an exemption from the registration requirements is
available under the Securities Act for the issuance of the Warrant Shares at the
time of such exercise and, if requested by the Company, an opinion of counsel
addressed to the Warrant Agent (as defined) and the Company confirms such
exemption. Payment of the Exercise Price may be made in the form of cash or a
certified or official bank check payable to the order of the Company. Upon
surrender of the Warrant certificate and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered, to or upon the written
order of such holder, stock certificates representing the number of whole
Warrant Shares or other securities or property to which such holder is entitled
under the Warrants and Warrant Agreement, including, without limitation, any
cash payable to adjust for fractional interests in Warrant Shares issuable upon
such exercise. If fewer than all of the Warrants evidenced by a Warrant
certificate are to be exercised, a new Warrant certificate will be issued for
the remaining number of Warrants. In addition, a holder may exchange a Warrant
for that number of Warrant Shares with an aggregate Current Market Value equal
to the difference between (i) the Current Market Value of the Warrant Shares
issuable upon exercise of such Warrant minus (ii) the aggregate Exercise Price
for such Warrant Shares.
No fractional Warrant Shares will be issued upon exercise of the
Warrants. If any fraction of a Warrant Share would, except for the foregoing
provision, be issuable upon the exercise of the Warrants (or specified portion
thereof), the Company will, in lieu of issuing a fraction of a Warrant Share,
pay to the holder of the Warrant at the time of exercise an amount in cash equal
to the same fraction of the Current Market Value (as defined) of a share of
Common Stock less the portion of the Exercise Price attributable thereto.
After the Warrants are separately transferable, certificates for
Warrants will be issued in global form or registered form as definitive warrant
certificates and no service charge will be made for registration of transfer or
exchange upon surrender of any Warrant certificate at the office of the Warrant
Agent maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charges that may be imposed in
connection with any registration of transfer or exchange of Warrant
certificates.
The holders of the Warrants have no right to vote on matters submitted
to the stockholders of the Company and have no right to receive dividends. The
holders of the Warrants are not entitled to share in the assets of the Company
in the event of the liquidation, dissolution or winding up of the Company's
affairs.
ADJUSTMENTS
Each of the number of Warrant Shares purchasable upon the exercise of
the Warrants and the Exercise Price is subject to adjustment in certain events,
including: (i) the payment by the Company of dividends (or other distributions)
on the Common Stock of the Company payable in shares of such Common Stock or
other shares of the Company's capital stock, (ii) subdivisions, combinations and
reclassification of the Common Stock, (iii) the distribution to all holders of
the Common Stock of any of the Company's assets, debt securities or any rights
or warrants to purchase securities (excluding cash dividends or other cash
distributions from current or retained earnings); and (iv) if the Company issues
(x) shares of Common Stock for a consideration per share without deduction for
commissions and fees less than the Current Market Value per share
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<PAGE> 97
or (y) any securities convertible into or exchangeable for Common Stock for a
consideration per share without deduction for commissions and fees of Common
Stock initially deliverable upon conversion or exchange of such securities that
is less than the Current Market Value per share on the date of issuance of such
securities.
Notwithstanding the foregoing, no adjustment or action need be made for
(i) a change solely in the par value or no par value of the Common Stock,
provided that the Company shall not increase the par value to exceed the
Exercise Price, (ii) the conversion or exchange (other than pursuant to a
reclassification), in any case on a share-for-share basis, of Common Stock for
non-voting or light voting common stock that has rights (other than voting
rights) identical to the Common Stock, or of such non-voting or light voting
stock for Common Stock, (iii) the issuance to employees of the Company or any of
its Subsidiaries of stock or stock options in an amount which, upon purchase or
exercise, as the case may be, would represent in the aggregate, less than 15% of
the Company's common stock on a fully diluted basis, (iv) exercise of options,
warrants or convertible securities, (v) any exercise of the Warrants or (vi) any
bona fide firm commitment underwriting.
As used herein, the term "Current Market Value" per share of Common
Stock or any other security at any date means, on any date of determination (a)
the average of the daily closing sale prices for each of 15 trading days
immediately preceding such date (or such shorter number of days during which
such security has been listed or traded), if the security has been listed on the
New York Stock Exchange, the American Stock Exchange or other national
securities exchange or the NASDAQ National Market for at least 10 trading days
prior to such date, (b) if such security is not so listed or traded, the average
of the daily closing bid prices for each of the 15 trading days immediately
preceding such date (or such shorter number of days during which such security
had been quoted), if the security has been quoted on a national over-the-counter
market for at least 10 trading days, (c) in the case of an underwritten public
offering, the bona fide price and (d) otherwise, the value of the security most
recently determined as of a date within the six months preceding such day by the
Company's Board of Directors.
In case of certain reclassifications, redesignations, reorganizations
or changes in the number of outstanding shares of Common Stock or consolidations
or mergers of the Company or the sale of all or substantially all of the assets
of the Company, each Warrant shall thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such consolidation,
merger or sale had the Warrants been exercised immediately prior thereto.
The holders of unexercised Warrants are not entitled, as such, to
receive dividends or other distributions with respect to the Common Stock,
receive notice of any meeting of the stockholders of the Company, consent to any
action of the stockholders of the Company, receive notice of any other
stockholder proceedings, or to any other rights as stockholders of the Company.
REGISTRATION RIGHTS
Holders of the Warrant Shares have certain demand and piggy-back rights
to cause the Company to register such Warrant Shares.
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CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income
tax consequences of the ownership of Preferred Stock, Warrants and Exchange
Debentures by initial holders who acquired the Preferred Stock Units as of
February 17, 1998. Except where noted, this summary deals only with Preferred
Stock, Warrants and Exchange Debentures held as capital assets by United States
Holders (as defined below) and does not deal with special situations, such as
those of dealers in securities or currencies, financial institutions, tax-exempt
entities, life insurance companies, persons holding Preferred Stock, Warrants or
Exchange Debentures as a part of a hedging, short-sale or conversion transaction
or a straddle or holders of Preferred Stock, Warrants or Exchange Debentures
whose "functional currency" is not the U.S. dollar. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed, revoked or modified
so as to result in United States federal income tax consequences different from
those discussed below.
As used herein, a "United States Holder" of Preferred Stock, Warrants
or Exchange Debentures means a holder that is (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or any political subdivision thereof, (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source or (iv) a trust which is subject to the
supervision of a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) of the Code.
PREFERRED STOCK UNITS
Each share of Preferred Stock was issued with one Warrant to purchase
2.66143 shares of Common Stock as part of a Preferred Stock Unit. Consequently,
for United States federal income tax purposes the amount paid for a Preferred
Stock Unit was required to be allocated between the Preferred Stock and the
Warrant based on their respective fair market values. The amount so allocated
constituted the initial United States federal income tax basis and the issue
price for the Preferred Stock and Warrant. The Company determined and provided
to United States Holders its estimate of the fair market values of the Preferred
Stock and Warrant. There can be no assurance, however, that the Internal Revenue
Service (the "IRS") will respect the Company's determination.
The Company's allocation of the issue price of the Preferred Stock
Units is binding on United States Holders of the instruments, unless a United
States Holder discloses the use of a different allocation on its United States
federal income tax return for the year including the acquisition date of such
Preferred Stock Unit. United States Holders considering the use of an issue
price allocation different from that used by the Company should consult their
tax advisors as to the consequences thereof.
CLASSIFICATION OF PREFERRED STOCK
Although the characterization of an instrument as debt or equity is a
factual determination that cannot be predicted with certainty, the Company
intends to treat the Preferred Stock as stock for United States federal income
tax purposes. The remainder of this discussion assumes that such treatment will
be respected, but no opinion is either expressed or implied on this issue.
PREFERRED STOCK
Dividends
Assuming that the Preferred Stock is treated as stock for United States
federal income tax purposes, distributions on the Preferred Stock will
constitute dividends to the extent paid from current or accumulated earnings and
profits of the Company (as determined under United States federal income tax
principles). Dividends "paid in kind" through the issuance of additional
Preferred Stock will be treated as distributions in an amount equal to the fair
market value of such additional Preferred Stock as of the date of distribution.
Such amount will also be the initial issue price and tax basis of the newly
distributed Preferred Stock for United States federal income tax purposes. In
addition to the amount of cash and stock received, a United States Holder will
be treated as having received as a distribution, to the extent of current or
accumulated earnings and profits of the Company, an amount equal to the annual
accrual of the difference between the issue price of the
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Preferred Stock and the mandatory redemption price of the stock (the "Redemption
Premium"). Such accrual will be determined under a constant yield method that
will result in increasing amounts of accruals of income over the term of the
Preferred Stock.
Dividends Received Deduction
Under Section 243 of the Code, corporate United States Holders
generally will be able to deduct 70% of the amount of any distribution
qualifying as a dividend. There are, however, many exceptions and restrictions
relating to the availability of such dividends received deduction.
Section 246A of the Code reduces the dividends received deduction
allowed to a corporate United States Holder that has incurred indebtedness
"directly attributable" to its investment in portfolio stock. Section 246(c) of
the Code requires that, in order to be eligible for the dividends received
deduction, a corporate United States Holder must generally hold the shares of
the Preferred Stock for a minimum of 46 days (91 days in the case of certain
preferred stock dividends) during the 90-day period beginning on the date which
is 45 days before the date on which such share becomes ex-dividend with respect
to such dividend (during the 180-day period beginning 90 days before such date
in the case of certain preferred stock dividends). A United States Holder's
holding period for these purposes is suspended during any period in which it has
certain options or contractual obligations with respect to substantially
identical stock or holds one or more other positions with respect to
substantially identical stock that diminishes the risk of loss from holding the
Preferred Stock.
Under Section 1059 of the Code, a corporate United States Holder is
required to reduce its tax basis (but not below zero) in the Preferred Stock by
the nontaxed portion of any "extraordinary dividend" if such stock has not been
held for more than two years before the earliest of the date such dividend is
declared, announced, or agreed to. Generally, the nontaxed portion of an
extraordinary dividend is the amount excluded from income by operation of the
dividends received deduction provisions of Section 243 of the Code. An
extraordinary dividend on the Preferred Stock generally would be a dividend that
(i) equals or exceeds 5% of the corporate United States Holder's adjusted tax
basis in the Preferred Stock, treating all dividends having ex-dividend dates
within an 85-day period as one dividend or (ii) exceeds 20% of the corporate
United States Holder's adjusted tax basis in the Preferred Stock, treating all
dividends having ex-dividend dates within a 365-day period as one dividend. In
determining whether a dividend paid on the Preferred Stock is an extraordinary
dividend, a corporate United States Holder may elect to substitute the fair
market value of the stock for such United States Holder's tax basis for purposes
of applying these tests, provided such fair market value is established to the
satisfaction of the Secretary of the Treasury as of the day before the
ex-dividend date. An extraordinary dividend also currently includes any amount
treated as a dividend in the case of a redemption that is either non-pro rata as
to all stockholders or in partial liquidation of the Company, regardless of the
stockholder's holding period and regardless of the size of the dividend. If any
part of the nontaxed portion of an extraordinary dividend is not applied to
reduce the United States Holder's tax basis as a result of the limitation on
reducing such basis below zero, such part will be treated as capital gain and
will be recognized in the taxable year in which the extraordinary dividend is
received.
Special rules exist with respect to extraordinary dividends for
"qualified preferred dividends." A qualified preferred dividend is any fixed
dividend payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable not less frequently than annually and (ii) is not in
arrears as to dividends at the time the United States Holder acquired such
stock. A qualified preferred dividend does not include any dividend payable with
respect to any share of stock if the actual rate of return of such stock exceeds
15%. Section 1059 does not apply to qualified preferred dividends if the
corporate United States Holder holds such stock for more than five years. If the
United States Holder disposes of such stock before it has been held for more
than five years, the amount subject to extraordinary dividend treatment with
respect to qualified preferred dividends is limited to the excess of the actual
rate of return over the stated rate of return. Actual or stated rates of return
are the actual or stated dividends expressed as a percentage of the lesser of
(1) the United States Holder's tax basis in such stock or (2) the liquidation
preference of such stock. CORPORATE UNITED STATES HOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO
THEIR OWNERSHIP OR DISPOSITION OF THE PREFERRED STOCK.
Disposition of Preferred Stock
A United States Holder's adjusted tax basis in the Preferred Stock
will, in general, be the United States Holder's initial tax basis of such
Preferred Stock increased by the Redemption Premium previously included in
income by the United States Holder. A corporate United States Holder's tax basis
may be further adjusted by the extraordinary dividend provision discussed above.
Upon the sale or other disposition of Preferred Stock (other than by redemption)
a United States
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Holder will generally recognize capital gain or loss equal to the
difference between the amount realized upon the disposition and the adjusted tax
basis of the Preferred Stock. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange,
redemption or other disposition the Preferred Stock has been held for more than
one year. Under recently enacted legislation, net capital gain of individuals
derived in respect of capital assets held for more than one year are eligible
for reduced rates of taxation which may vary depending upon the holding period
of such capital assets. Prospective investors should consult their own tax
advisors with respect to the tax consequences of the new legislation. The
deductibility of capital losses is subject to limitations.
A redemption of the Preferred Stock by the Company would be treated,
under Section 302 of the Code, either as a sale or exchange giving rise to
capital gain or loss or as a dividend. In the case of a redemption of Preferred
Stock for Exchange Debentures, the amount realized on the exchange would be
equal to the "issue price" of the Exchange Debenture plus any cash received on
the exchange. The issue price of an Exchange Debenture would be equal to (i) its
fair market value as of the exchange date if the Exchange Debentures are traded
on an established securities market on or at any time during a specified period
or (ii) the fair market value at the exchange date of the Preferred Stock if
such Preferred Stock is traded on an established securities market during a
specified period but the Exchange Debentures are not. If neither the Preferred
Stock nor the Exchange Debentures are so traded, the issue price of the Exchange
Debentures would be determined under Section 1274 of the Code, in which case the
issue price would be the stated principal amount of the Exchange Debentures
provided that the yield on the Exchange Debentures is equal to or greater than
the "applicable federal rate" in effect at the time the Exchange Debentures are
issued. If the yield on the Exchange Debentures is less than such applicable
federal rate, its issue price under section 1274 of the Code would be equal to
the present value as of the issue date of all payments to be made on the
Exchange Debentures, discounted at the applicable federal rate. It can not be
determined at the present time whether the Preferred Stock or the Exchange
Debentures will be, at the relevant time, traded on an established securities
market within the meaning of the Treasury Regulations or whether the yield on
the Exchange Debentures will equal or exceed the applicable federal rate, as
discussed above.
If a redemption of shares of the Preferred Stock for cash or an
exchange of the Preferred Stock for Exchange Debentures is treated as a dividend
with respect to a particular exchanging United States Holder under Section 302
of the Code, such United States Holder (i) will not recognize any loss on the
exchange, (ii) will recognize dividend income (rather than capital gain) in an
amount equal to the fair market value of the Exchange Debentures received
without regard to the United States Holder's basis in the shares of Preferred
Stock surrendered in the exchange, to the extent of its proportionate share of
the Company's current or accumulated earnings and profits and (iii) the holding
period for the Exchange Debentures will begin on the day after the day on which
the Exchange Debentures are acquired by the exchanging United States Holder.
Pursuant to Section 302 of the Code, the redemption or exchange will not be
treated as a dividend, if after giving effect to the constructive ownership
rules of Section 318 of the Code, the redemption or exchange (i) represents a
"complete termination" of the exchanging United States Holder's stock interest
in the Company, (ii) is "substantially disproportionate" with respect to the
exchanging United States Holder or (iii) is "not essential equivalent to a
dividend" with respect to the exchanging United States Holder, all within the
meaning of Section 302(b) of the Code. Under the constructive ownership rules of
Section 318 of the Code, a United States Holder of a Warrant will be treated as
owning the Common Stock which would be received pursuant to the exercise of such
Warrant. Accordingly, a redemption or exchange could not, standing alone,
satisfy the "complete termination" test if the United States Holder owns the
same amount of Warrants before and after the redemption or exchange, but could
satisfy such test if the United States Holder does not own Warrants or any other
stock interest (including through constructive ownership) after the redemption
or exchange. An exchange will be "not essentially equivalent to a dividend" as
to a particular United States Holder if it results in a "meaningful reduction"
in such United States Holder's interest in the Company (after application of the
constructive ownership rules of Section 318 of the Code). In general, there are
no fixed rules for determining whether a "meaningful reduction" has occurred.
EACH UNITED STATES HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO ITS ABILITY
IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES TO SATISFY ANY OF THE FOREGOING
TESTS. ADDITIONALLY, CORPORATE UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE AVAILABILITY OF THE CORPORATE DIVIDENDS RECEIVED
DEDUCTION AND THE POSSIBLE APPLICATION OF THE EXTRAORDINARY DIVIDEND RULES OF
SECTION 1059 OF THE CODE TO AN EXCHANGE BY A CORPORATE HOLDER FOR WHOM THE
DISTRIBUTION IS TAXABLE AS A DIVIDEND.
Depending upon a United States Holder's particular circumstances, the
tax consequences of holding Exchange Debentures may be less advantageous than
the tax consequences of holding Preferred Stock because, for example, payments
of interest on the Exchange Debentures will not be eligible for any dividends
received deduction that may be available to
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corporate United States Holders and because, as discussed at "Exchange
Debentures -- Original Issue Discount," Exchange Debentures may be issued with
greater amounts of OID than the Redemption Premium with respect to the Preferred
Stock.
EXCHANGE DEBENTURES
Original Issue Discount
An Exchange Debenture will be issued with original issue discount
("OID") equal to the excess of its "stated redemption price at maturity" over
its "issue price." United States Holders of Exchange Debentures will be subject
to special tax accounting rules, as described in greater detail below. United
States Holders of Exchange Debentures should be aware that they generally must
include OID in gross income for United States federal income tax purposes on an
annual basis under a constant yield method. As a result, such United States
Holders will include OID in income in advance of the receipt of cash
attributable to that income. However, United States Holders of Exchange
Debentures generally will not be required to include separately in income cash
payments received on such Debentures, even if denominated as interest, to the
extent such payments do not constitute qualified stated interest (as defined
below). The Company will report to United States Holders of any OID Debentures
on a timely basis the reportable amount of OID and interest income based on its
understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the
sum of its principal amount plus all other payments required thereunder, other
than payments of "qualified stated interest." For this purpose, "qualified
stated interest" means stated interest that is unconditionally payable in cash
or in property (other than the debt instruments of the issuer), at least
annually at a single fixed rate during the entire term of the debt instrument
that appropriately takes into account the length of the intervals between
payments). Because the Company has the option to pay interest on the Exchange
Debentures by issuing additional Exchange Debentures, none of the stated
interest on such Exchange Debentures will be treated as qualified stated
interest. The "issue price" of an Exchange Debenture will be determined as
described under "--Disposition of Preferred Stock."
The amount of OID includible in income by the initial United States
Holder of an Exchange Debenture is the sum of the "daily portions" of OID with
respect to the Exchange Debenture for each day during the taxable year or
portion of the taxable year in which such United States Holder held such
Exchange Debenture ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for an Exchange Debenture
may be of any length and may vary in length over the term of the Exchange
Debenture, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of (a) the product of the Exchange
Debenture's adjusted issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of an Exchange Debenture at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period and reduced by any payments made on such Exchange Debenture
(other than qualified stated interest) on or before the first day of the accrual
period. Under these rules, a United States Holder will have to include in income
increasingly greater amounts of OID in successive accrual periods. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF
OWNING EXCHANGE DEBENTURES.
Redemption, Sale or Exchange of Exchange Debentures
The adjusted tax basis of a United States Holder who receives Exchange
Debentures in exchange for Exchangeable Preferred Stock will, in general, be
equal to the initial tax basis of such Exchange Debentures, increased by OID
previously included in income by the United States Holder and reduced by any
cash payments on the Exchange Debentures other than qualified stated interest.
Upon the redemption, sale, exchange or retirement of an Exchange Debenture, a
United States Holder will recognize capital gain or loss equal to the difference
between the amount realized upon the redemption, sale, exchange or retirement
(less any amount attributable to accrued qualified stated interest) and the
adjusted tax basis of the Exchange Debenture. Under recently enacted
legislation, net capital gain of individuals derived in respect of capital
assets held for more
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than one year are eligible for reduced rates of taxation which may vary
depending upon the holding period of such capital assets. Prospective investors
should consult their own tax advisors with respect to the tax consequences of
the new legislation. The deductibility of capital losses is subject to
limitations.
WARRANTS
As a general rule, no gain or loss will be recognized to a United
States Holder upon the exercise of a Warrant for cash (except to the extent of
cash, if any, received in lieu of the issuance of fractional shares of Common
Stock). The adjusted tax basis of a share of Common Stock so acquired will be
equal to the sum of the United States Holder's adjusted tax basis in the
exercised Warrant and the exercise price. If the Warrants are treated as
warrants for United States federal income tax purposes and not as stock, the
holding period of such share of Common Stock should commence upon the date of
exercise. If the Warrants constitute stock for United States federal income tax
purposes, the holding period of the Common Stock should include the holding
period of the Warrant. UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF COMMON STOCK RECEIVED PURSUANT TO THE EXERCISE OF
THE WARRANTS.
Upon the sale or exchange of a Warrant, a United States Holder will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale or exchange and the United States Holder's adjusted tax
basis in the Warrant. Such capital gain or loss will be long-term if, at the
time of sale or exchange, the Warrant was held for more than one year. If a
Warrant expires unexercised, a United States Holder will have a capital loss
equal to its adjusted tax basis in the Warrant. Such capital loss will be
long-term capital loss if, at the time of expiration, the Warrant was held for
more than one year.
Antidilution Adjustment. If at any time the Company makes a
distribution of property to shareholders that would be taxable to such
shareholders as a dividend for United States federal income tax purposes and, in
accordance with the antidilution provisions of the Warrants, the amount of
Common Stock receivable pursuant to the exercise of a Warrant is increased, the
amount of such increase may be deemed to be the payment of a taxable dividend to
holders for United States federal income tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to dividends
paid in respect of Preferred Stock including the accrual of the Redemption
Premium and to the proceeds received on the sale, exchange or redemption of
Preferred Stock or Warrants to United States Holders other than certain exempt
recipients (such as corporations). A 31 percent backup withholding tax will
apply to such payments if the United States Holder fails to provide a taxpayer
identification number or certification of exempt status or fails to report in
full dividend and interest income. United States Holders should consult their
tax advisors concerning the application of information reporting and backup
withholding to the Exchange Debentures and Common Stock.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such United States Holder's United States
federal income tax liability provided the required information is furnished to
the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus with any resale of such Exchange Securities. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for Notes
where such Exchange Securities were acquired as a result of market-making
activities or other trading activities. The Company will, for a period of 180
days after the Expiration Date, make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchaser of any such
Exchange Securities. Any broker-dealer that resells Exchange Securities that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Securities
may be deemed to be an "underwriter" within the meaning of the Act and any
profit on any such resale of Exchange Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed in the Registration Rights
Agreement to pay all expenses incident to the Exchange Offer, other than
commissions or concessions of any brokers or dealers, and will indemnify the
holders of the Notes or the Preferred Stock (including any broker-dealers)
against certain liabilities, including under the Securities Act.
Prior to the offering contemplated hereby, there has been no active
market for the Exchange Securities. The Initial Purchaser has advised the
Company that it currently intends to make a market in the Exchange Securities,
but it is not obligated to do so and may discontinue any such market making at
any time without notice. Accordingly, there can be no assurance that an active
market will develop for the Exchange Securities.
LEGAL MATTERS
The validity of the Exchange Securities under New York law and certain
tax matters will be passed upon for the Company by Simpson Thacher & Bartlett,
New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in
the Registration Statement to the extent and for the periods indicated in their
report have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants.....................................F-2
Consolidated Balance Sheets as of December 30, 1996,
December 29, 1997 and March 30, 1998................................F-3
Consolidated Statements of Operations for the Years Ended
December 25, 1995, December 30, 1996 and
December 29, 1997 and for the Thirteen
Weeks Ended March 31, 1997 and March 30, 1998.......................F-5
Consolidated Statements of Common Stockholders' Equity for the
Years Ended December 25, 1995, December 30, 1996
and December 29, 1997 and for the Thirteen Weeks
Ended March 30, 1998................................................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 25, 1995, December 30, 1996 and December 29, 1997
and for the Thirteen Weeks Ended March 31, 1997
and March 30, 1998..................................................F-7
Notes to Consolidated Financial Statements...................................F-8
F-1
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
American Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of AMERICAN
RESTAURANT GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December
30, 1996 and December 29, 1997, and the related consolidated statements of
operations, common stockholders' equity (deficit) and cash flows for the years
ended December 25, 1995, December 30, 1996 and December 29, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Restaurant Group, Inc.
and subsidiaries as of December 30, 1996 and December 29, 1997, and the results
of their operations and their cash flows for the years ended December 25, 1995,
December 30, 1996 and December 29, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
February 27, 1998
F-2
<PAGE> 106
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1996, DECEMBER 29, 1997 AND MARCH 30, 1998
<TABLE>
<CAPTION>
ASSETS
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 7,493,000 $ 5,737,000 $ 6,209,000
Accounts receivable, net of reserve of $1,041,000, $916,000
and $927,000 at December 30, 1996, December 29, 1997 and
March 30, 1998, respectively 7,465,000 5,606,000 $ 5,216,000
Notes receivable -- 1,000,000 650,000
Inventories 6,818,000 5,893,000 5,703,000
Prepaid expenses 4,485,000 3,142,000 2,708,000
------------ ------------ ------------
Total current assets 26,261,000 21,378,000 20,486,000
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 6,158,000 5,610,000 5,611,000
Buildings and leasehold improvements 110,071,000 110,800,000 111,147,000
Fixtures and equipment 84,162,000 85,603,000 86,168,000
Property held under capital leases 12,375,000 12,375,000 12,375,000
Construction in progress 6,487,000 1,827,000 3,077,000
------------ ------------ ------------
219,253,000 216,215,000 218,378,000
Less-Accumulated depreciation 118,084,000 123,893,000 126,406,000
------------ ------------ ------------
101,169,000 92,322,000 91,972,000
------------ ------------ ------------
OTHER ASSETS:
Intangible assets 13,039,000 12,375,000 12,376,000
Deferred debt costs 20,168,000 21,692,000 10,351,000
Leasehold interests 9,946,000 9,666,000 9,667,000
Franchise rights 6,876,000 6,024,000 6,024,000
Liquor licenses and other 6,259,000 6,857,000 6,942,000
Cost in excess of net assets acquired 13,305,000 12,332,000 12,332,000
------------ ------------ ------------
69,593,000 68,946,000 57,692,000
Less-Accumulated amortization 24,894,000 30,635,000 14,435,000
------------ ------------ ------------
44,699,000 38,311,000 43,257,000
------------ ------------ ------------
Total assets $172,129,000 $152,011,000 $155,715,000
============ ============ ============
</TABLE>
(consolidated balance sheets continued on following page)
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 107
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 33,394,000 $ 29,420,000 $ 24,494,000
Accrued liabilities 14,315,000 18,021,000 12,962,000
Accrued insurance 15,848,000 11,251,000 4,109,000
Accrued interest 1,016,000 7,514,000 1,843,000
Accrued payroll costs 11,059,000 10,861,000 10,017,000
Current portion of obligations under capital leases 902,000 926,000 929,000
Current portion of long-term debt 41,532,000 537,000 1,109,000
------------- ------------- -------------
Total current liabilities 118,066,000 78,530,000 55,463,000
------------- ------------- -------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 8,443,000 7,517,000 7,280,000
Long-term debt 131,260,000 172,419,000 159,244,000
------------- ------------- -------------
Total long-term liabilities 139,703,000 179,936,000 166,524,000
------------- ------------- -------------
DEFERRED GAIN 5,806,000 5,283,000 5,186,000
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE PREFERRED STOCK, MANDATORILY
REDEEMABLE -- -- 33,239,000
REDEEMABLE CUMULATIVE PREFERRED STOCK:
Redeemable cumulative senior preferred
stock, $0.01 par value; 1,400,000 shares authorized, no
shares issued or outstanding -- -- --
Redeemable cumulative junior preferred
stock, $0.01 par value; 100,000 shares authorized, no
shares issued or outstanding -- -- --
COMMON STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; 1,000,000 shares
authorized, 93,150 shares issued and outstanding
at December 30, 1996 and December 29, 1997, 128,081
shares issued and outstanding at March 30, 1998 1,000 1,000 1,000
Paid-in capital 63,246,000 63,246,000 59,646,000
Accumulated deficit (154,693,000) (174,985,000) (164,344,000)
------------- ------------- -------------
Total common stockholders' deficit (91,446,000) (111,738,000) (104,697,000)
------------- ------------- -------------
Total liabilities and common stockholders' equity $ 172,129,000 $ 152,011,000 $ 155,715,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 108
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 25, 1995,
DECEMBER 30, 1996 AND DECEMBER 29, 1997
AND FOR THE THIRTEEN WEEKS ENDED
MARCH 31, 1997 AND MARCH 30, 1998
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
----------------------------------------------- ------------------------------
DECEMBER 25, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES ....................................... $ 445,966,000 $ 445,424,000 $ 440,039,000 $ 114,110,000 $ 112,122,000
RESTAURANT COSTS:
Food and beverage ..................... 138,270,000 141,032,000 140,015,000 36,350,000 35,605,000
Payroll ............................... 134,532,000 137,104,000 133,732,000 34,694,000 33,202,000
Direct operating ...................... 110,399,000 114,589,000 110,502,000 28,306,000 27,234,000
Depreciation and amortization ......... 22,819,000 20,386,000 19,627,000 4,823,000 3,749,000
GENERAL AND ADMINISTRATIVE EXPENSES ............ 31,360,000 28,086,000 29,360,000 6,137,000 5,309,000
NON-CASH CHARGE FOR IMPAIRMENT OF
LONG-LIVED ASSETS .............................. 20,178,000 13,205,000 3,047,000 -- --
------------- ------------- ------------- ------------- -------------
Operating profit (loss) ........................ (11,592,000) (8,978,000) 3,756,000 3,800,000 7,023,000
INTEREST EXPENSE, net .......................... 28,004,000 27,714,000 23,985,000 5,925,000 5,521,000
------------- ------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes
and extraordinary loss ................ (39,596,000) (36,692,000) (20,229,000) (2,125,000) 1,502,000
PROVISION FOR INCOME TAXES ..................... 66,000 81,000 63,000 3,000 4,000
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary loss (39,662,000) (36,773,000) (20,292,000) (2,128,000) 1,498,000
EXTRAORDINARY GAIN(LOSS) ON
EXTINGUISHMENT OF DEBT ......................... -- (1,688,000) -- -- 9,562,000
------------- ------------- ------------- ------------- -------------
Net Income (loss) ..................... $ (39,662,000) $ (38,461,000) $ (20,292,000) $ (2,128,000) $ 11,060,000
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 109
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 25, 1995,
DECEMBER 30, 1996 AND DECEMBER 29, 1997
AND FOR THE THIRTEEN WEEKS ENDED MARCH 30, 1998
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 26, 1994 ...................... $ 1,000 $ 56,132,000 $ (76,570,000) $ (20,437,000)
Net loss ............................... -- -- (39,662,000) (39,662,000)
------------- ------------- ------------- -------------
BALANCE, December 25, 1995 ...................... 1,000 56,132,000 (116,232,000) (60,099,000)
Net loss ............................... -- -- (38,461,000) (38,461,000)
Cash contribution from parent .......... -- 7,114,000 -- 7,114,000
------------- ------------- ------------- -------------
-------------
BALANCE, December 30, 1996 ...................... 1,000 63,246,000 (154,693,000) (91,446,000)
Net loss ............................... -- -- (20,292,000) (20,292,000)
------------- ------------- ------------- -------------
BALANCE, December 29, 1997 ...................... 1,000 63,246,000 (174,985,000) (111,738,000)
Net income ............................. -- -- 11,060,000 11,060,000
Contribution to Parent ................. -- (3,600,000) -- (3,600,000)
Dividends on Cumulative Preferred Stock,
Mandatorily Redeemable ................. -- -- (419,000) (419,000)
------------- ------------- ------------- -------------
BALANCE, March 30, 1998
(unaudited) ............................ $ 1,000 $ 59,646,000 $(164,344,000) $(104,697,000)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 110
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1995,
DECEMBER 30, 1996 AND DECEMBER 29, 1997
AND FOR THE THIRTEEN WEEKS ENDED MARCH 31, 1997 AND MARCH 30, 1998
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
--------------------------------------------- -----------------------------
DECEMBER 25, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 446,355,000 $ 445,678,000 $ 440,695,000 $ 114,669,000 $ 112,862,000
Cash paid to suppliers and employees (413,206,000) (415,662,000) (417,714,000) (111,718,000) (111,532,000)
Interest paid, net (27,912,000) (32,524,000) (17,358,000) (4,660,000) (11,171,000)
Income taxes paid (86,000) (74,000) (30,000) (4,000) (4,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 5,151,000 (2,582,000) 5,593,000 (1,713,000) (9,845,000)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,277,000) (13,279,000) (4,650,000) (2,272,000) (2,256,000)
Net (increase) decrease in other assets 181,000 (2,455,000) (945,000) 342,000 (53,000)
Proceeds from disposition of assets 29,000 64,560,000 620,000 9,000 --
Sale/leaseback costs included in deferred gain -- (1,112,000) -- (61,000) --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (16,067,000) 47,714,000 (4,975,000) (1,982,000) (2,309,000)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness (3,949,000) (51,907,000) (1,334,000) (100,000) (155,689,000)
Borrowings on indebtedness 11,000,000 1,791,000 186,000 1,199,000 155,215,000
Net increase in deferred debt costs (5,000) (4,165,000) (324,000) (1,302,000) (10,351,000)
Cost included in extraordinary gain on
extinguishment of debt -- -- -- -- (1,686,000)
Issuance of cumulative preferred stock -- -- -- -- 35,000,000
Cost related to issuance of
cumulative preferred stock -- -- -- -- (2,179,000)
Payments on insurance related financing -- -- -- -- (7,450,000)
Payments on capital lease obligations (777,000) (857,000) (902,000) (218,000) (234,000)
Contribution from Parent -- 7,114,000 -- -- --
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 6,269,000 (48,024,000) (2,374,000) (421,000) 12,626,000
------------- ------------- ------------- ------------- -------------
NET DECREASE IN CASH (4,647,000) (2,892,000) (1,756,000) (4,116,000) 472,000
CASH, at beginning of period 15,032,000 10,385,000 7,493,000 7,493,000 5,737,000
------------- ------------- ------------- ------------- -------------
CASH, at end of period $ 10,385,000 $ 7,493,000 $ 5,737,000 $ 3,377,000 $ 6,209,000
============= ============= ============= ============= =============
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (39,662,000) $ (38,461,000) $ (20,292,000) $ (2,128,000) $ 11,060,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Extraordinary (gain) loss on
extinguishment of debt -- 1,688,000 -- -- (9,562,000)
Loss on impairment of long-lived assets 20,178,000 13,205,000 3,047,000 -- --
Depreciation and amortization 22,819,000 20,386,000 19,627,000 4,823,000 3,749,000
Loss on disposition of assets 684,000 1,610,000 4,806,000 13,000 --
Amortization of deferred gain -- (123,000) (523,000) (123,000) (97,000)
Accretion on indebtedness 87,000 99,000 110,000 27,000 21,000
(Gain) loss in value of interest rate swap 98,000 -- --
(Increase) decrease in current assets:
Accounts receivable, net 389,000 254,000 1,656,000 559,000 390,000
Notes receivable -- -- (1,000,000) -- 350,000
Inventories 1,483,000 (221,000) 925,000 (116,000) 190,000
Prepaid expenses (1,288,000) (467,000) (766,000) 90,000 246,000
</TABLE>
F-7
<PAGE> 111
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
--------------------------------------------- -----------------------------
DECEMBER 25, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in current liabilities:
Accounts payable (1,706,000) 4,155,000 (3,974,000) (282,000) (4,926,000)
Accrued liabilities 856,000 160,000 255,000 (4,324,000) (5,059,000)
Accrued insurance 2,167,000 (846,000) (4,597,000) (1,486,000) 308,000
Accrued interest (93,000) (4,909,000) 6,517,000 1,238,000 (5,671,000)
Accrued payroll costs (861,000) 888,000 (198,000) (4,000) (844,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities $ 5,151,000 $ (2,582,000) $ 5,593,000 $ (1,713,000) $ (9,845,000)
============= ============= ============= ============= =============
</TABLE>
F-8
<PAGE> 112
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1995, DECEMBER 30, 1996, DECEMBER 29, 1997 AND MARCH 30, 1998
(INFORMATION FOR THE THIRTEEN WEEKS ENDED MARCH 31, 1997 AND
MARCH 30, 1998 IS UNAUDITED)
1. Background and Summary of Significant Accounting Policies
a. Company
American Restaurant Group, Inc., (the "Company") a Delaware
corporation, through its subsidiaries, operates middle and
upper price full-service restaurants, casual-style restaurants
and quick-service restaurants primarily in California and
Texas. The Company is a subsidiary of American Restaurant
Group Holdings, Inc. ("Holdings"), also a Delaware
corporation. At year end 1995, 1996 and 1997, the Company and
its subsidiaries, collectively referred to herein as the
Company, operated 248, 247 and 231 restaurants, respectively.
b. Operations
The Company's operations are affected by local and regional
economic conditions, including competition in the restaurant
industry. The Company has had recurring operating losses in
recent years and was unable to meet a required debt principal
payment during 1997. A recapitalization plan was consummated
subsequent to year end 1997 (see Note 9, "Subsequent Events").
This plan substantially eliminated debt principal payments
until the year 2003.
Management believes the recapitalization will also allow it to
effect changes in its operations and has already implemented
measures to reduce overhead costs. However, the Company does
not expect to generate sufficient cash flow from operations in
the future to make principal payments on long-term debt upon
maturity in the year 2003 and, accordingly, it expects to
refinance all or a portion of such debt, obtain new financing
or possibly sell assets.
c. Interim Financial Statements
The Company's consolidated financial statements for the
interim period included herein have been prepared by the
Company, without audit, in accordance with Securities and
Exchange Commission Regulation S-X. In the opinion of
management of the Company, these consolidated financial
statements contain all adjustments (all of which are of a
normal recurring nature) necessary to present fairly the
Company's financial position as of March 30, 1998, and the
results of its operations and its cash flows for the thirteen
weeks ended March 31, 1997 and March 30, 1998. The Company's
results for an interim period are not necessarily indicative
of the results that may be expected for the year.
d. Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
e. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions which affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those
estimates.
f. Inventories and Prepaid Expenses
Inventories consist of food, beverages and supplies and are
valued at the lower of cost (first-in, first-out method) or
market value. When a restaurant is opened, the initial
purchase of expendable equipment, such as china, glassware and
silverware, is recorded as prepaid supplies and is not
depreciated; however, all replacements are expensed.
g. Advertising Costs
F-9
<PAGE> 113
Advertising costs are accrued as a percentage of sales and
expensed during the year. Production costs are allocated to
the related advertisements. At year end, production costs for
advertisements which have not been aired are included in
prepaid expenses. Prepaid advertising costs of $1,215,000 and
$912,000 were included in prepaid expenses at December 30,
1996 and December 29, 1997, respectively. Advertising expenses
included in net loss were $16,768,000, $20,870,000 and
$16,995,000 in fiscal years 1995, 1996 and 1997, respectively.
h. Preopening Costs
Costs incurred in connection with opening a new restaurant,
principally occupancy and staff training, are accumulated as
prepaid expenses and amortized over the initial year of
operations.
In April 1998, the AICPA issued Statement of Position Number
98-5 "Reporting on the Costs of Start-Up Activities" (SOP
98-5) which will require that all such preopening costs be
expensed as incurred effective for fiscal year 1999. The
impact to the Company of adopting SOP 98-5 will depend on the
number and timing of restaurant openings in the future.
i. Property and Equipment
Property and equipment is carried at the lower of cost or, if
impaired, at the estimated fair value of the asset (see Note
2, "Impairment of Long-Lived Assets"). The Company provides
for depreciation and amortization based upon the estimated
useful lives of depreciable assets using the straight-line
method. Estimated useful lives are as follows:
Land improvements 20 years
Buildings 30 to 35 years
Leasehold improvements Life of lease
Fixtures and equipment 3 to 10 years
Property held under capital
leases Life of lease
Substantially all of the Company's assets, including property
and equipment, are pledged as collateral on the senior debt of
the Company.
j. Interest Costs
Interest costs incurred during the construction period of
restaurants are capitalized. The Company capitalized
approximately $130,000, $168,000 and $90,000 for the years
ended 1995, 1996 and 1997, respectively.
k. Other Assets
Other assets include intangible assets, leasehold interests,
franchise rights, liquor licenses and cost in excess of net
assets acquired. These costs are amortized using the
straight-line method over the periods estimated to be
benefited, not greater than 40 years.
Deferred debt costs are amortized using the effective interest
method over the related debt term.
Estimated useful lives are as follows:
Intangible assets 3 to 40 years
Deferred debt costs Term of debt
Leasehold interests Life of lease
Franchise rights 35 years
Liquor licenses 40 years
Cost in excess of net
assets acquired 40 years
The following table details the components of intangible
assets included in the accompanying consolidated balance
sheets (in thousands):
F-10
<PAGE> 114
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Assembled workforce .................. $ 5,109 $ 4,862 $ 4,862
Goodwill ............................. 3,502 3,295 3,295
Trademark/service marks .............. 2,769 2,632 2,632
Acquisition costs .................... 1,209 1,143 1,143
Other ................................ 450 443 444
------- ------- -------
Total ................................ $13,039 $12,375 $12,376
======= ======= =======
</TABLE>
l. Insurance
The Company self-insures the first $100,000 of its annual
medical and dental benefits per family. The Company also
self-insures up to the first $350,000 per incident for
property and casualty risks inherent in its operations.
Reserves for losses are established currently based upon
estimated obligations.
m. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash,
accounts receivable and payable and debt instruments. The
carrying values of all financial instruments, other than debt
instruments, are representative of their fair value due to
their short-term maturity. The fair value of the Company's
long-term debt instruments is estimated based on the current
rates offered to the Company.
n. Franchise Income
The Company franchises Grandy's quick-service restaurants.
Franchise fees are recognized as income as services are
rendered. Franchise royalties based upon a percentage of the
franchisees' gross sales are accrued currently. Revenues
include franchise royalties and franchise fees of $2,176,000,
$1,995,000, and $2,586,000, respectively, for the years ended
1995, 1996 and 1997. There were 55, 56 and 61 franchised
restaurants at year end 1995, 1996 and 1997, respectively.
o. Accounting Period
The Company's fiscal year ends on the last Monday in December.
The years ended 1995 and 1997 included 52 weeks while 1996
included 53 weeks.
p. Reclassifications
Certain prior year accounts have been reclassified to conform
with the current year presentation.
2. Impairment of Long-Lived Assets
Effective December 25, 1995, the Company adopted the provisions of
Financial Accounting Standards Number 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (SFAS 121). This statement changed the method of
evaluating the impairment of the Company's long-lived assets, including
intangible assets. Various assumptions and estimates are used to
determine fair value. The calculation of the impairment loss is based
on estimated future cash flows. The estimates used to determine the
impairment adjustment can change in the near term as the economy and
operations of specific restaurants change. The adoption of SFAS 121,
together with the effects of continuing adverse operations of certain
restaurants, resulted in pre-tax non-cash charges of $20,178,000,
$13,205,000 and $3,047,000 for the years ended 1995, 1996 and 1997,
respectively.
3. Lease Obligations
The Company leases certain of its operating facilities under terms
ranging up to 40 years. These leases are classified as both operating
and capital leases. Certain of the leases contain provisions calling
for additional rentals based on sales or other provisions obligating
the Company to pay related property taxes and certain other expenses.
The following is a summary of property held under leases that have been
capitalized and included in the accompanying consolidated balance
sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Property ............................. $12,375 $12,375 $12,375
Less-- Accumulated depreciation ...... 7,066 7,687 7,835
------- ------- -------
$ 5,309 $ 4,688 $ 4,540
======= ======= =======
</TABLE>
F-11
<PAGE> 115
The following represents the minimum lease payments remaining under
noncancelable operating leases and capitalized leases as of December
29, 1997 (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITALIZED
FISCAL YEARS ENDING LEASES LEASES
<S> <C> <C>
1998 .......................................... $ 27,602 $ 1,881
1999 .......................................... 26,483 1,791
2000 .......................................... 25,220 1,694
2001 .......................................... 23,669 1,694
2002 .......................................... 21,691 1,612
Thereafter .................................... 236,239 5,026
-------- -------
Total minimum lease payments .................. $360,904 $13,698
======== =======
Less--Imputed interest
(8.75% to 15.5%) .............................. 5,255
Present value of minimum lease payments ....... 8,443
Less--Current portion ......................... 926
Long-term portion ............................. $ 7,517
=======
</TABLE>
Rental expense (including $1,019,000, $895,000 and $802,000,
respectively, for contingent rents under operating leases) was
$22,863,000, $24,814,000 and $30,676,000 during 1995, 1996 and 1997,
respectively.
4. Long-Term Debt
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Senior secured notes, interest
only due semi-annually beginning
September 15, 1992 at 12%, amended
beginning August 28, 1996 to 13% due
quarterly, principal due
September 15, 1998, paid
February 25, 1998 ........................ $ 84,270 $ 84,356 --
Senior secured notes, interest
only due semi-annually beginning
March 15, 1994 at 12%,
amended beginning August 28, 1996
to 13% due quarterly, principal due
September 15, 1998, paid February 25, 1998 41,584 41,906 --
Senior secured notes, interest only
due semi-annually beginning February 24,
1998 at 11.5%, principal
due February 15, 2003 .................... -- -- 158,600
</TABLE>
F-12
<PAGE> 116
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Subordinated notes payable, quarterly
principal payments of $5,625,000 due
beginning December 31, 1998,
interest only due quarterly at 10.25%,
redeemed February 25, 1998 ............... 45,000 45,000 --
Other ...................................... 1,938 1,694 1,753
-------- -------- --------
172,792 172,956 160,353
Less--Current portion ...................... 41,532 537 1,109
-------- -------- --------
Long-term portion .......................... $131,260 $172,419 $159,244
======== ======== ========
</TABLE>
Subsequent to year end 1997, the Company refinanced the senior secured
notes and subordinated notes payable with no principal payments due
until 2003 and, therefore, this debt is classified as long-term on the
balance sheet (see Note 9, "Subsequent Events"). Maturities of the
remaining long-term debt during each of the five fiscal years
subsequent to year end 1997 are $537,000, $250,000, $281,000, $315,000
and $311,000.
In March 1996, Holdings completed a private placement of its 14% senior
discount debentures due 2005 with a face value of $17,000,000 producing
aggregate proceeds of approximately $7,114,000. Substantially all of
the net proceeds of the offering were contributed by Holdings to the
Company. The net proceeds were used by the Company for general
corporate purposes.
In the second half of 1996, the Company completed sale/leaseback
transactions, under which it sold certain land, buildings, and other
improvements relating to 24 Black Angus restaurants, 30 Grandy's
restaurants and two Spoons restaurants for an aggregate sales price of
$63,358,000 and simultaneously executed long-term leases under which it
will continue to operate the restaurants. The proceeds of the
transactions were used to redeem at par a portion of its senior secured
notes in the amount of $45,403,000, representing principal and interest
thereon; to repay bank debt and interest thereon and to partially cash
collateralize outstanding letters of credit in a combined amount of
$7,408,000; and for fees and expenses of such transactions as well as a
consent solicitation relating to the senior secured notes, with the
balance used by the Company to make capital expenditures and to
purchase other assets. The Company recorded an extraordinary loss on
extinguishment of debt relating to the write-off of capitalized debt
costs in the amount of $1,646,000 and a loss of $2,230,000 on
disposition of assets underlying certain leases. In addition, a gain of
$5,929,000 related to the Black Angus sale/leasebacks was deferred and
will be amortized over the initial term of the underlying leases.
In March 1997, the Company's senior secured noteholders consented to an
amendment which provided for an increase of $10 in the stated principal
amount for each $1,000 in stated principal amount of consenting
noteholders. This resulted in an increase of approximately $1,617,000
in the stated principal amount of the senior secured notes and
$1,200,000 in the actual outstanding principal amount of the senior
secured notes.
In September 1997, the Company failed to make the $40,531,000 payment
that was due under the sinking fund provisions of its senior secured
notes. The Company was late, but within the grace period, in paying the
quarterly interest of $4,124,000 on its senior secured notes which was
due
September 15, 1997. The Company was restricted from paying the
quarterly interest of $1,153,000 on its subordinated debt which was due
September 15, 1997 and December 15, 1997.
In December 1997, the Company was late, but within the grace period, in
paying the quarterly interest of $4,107,000 on its senior secured notes
which was due December 15, 1997. Also in December 1997, the Company
initiated a recapitalization plan which was successfully completed in
February 1998. As part of the recapitalization plan, the
Company repaid the senior secured notes and redeemed the subordinated
notes payable (see Note 9, "Subsequent Events").
Substantially all assets of the Company are pledged to its senior
lenders. In addition, the subsidiaries have guaranteed the indebtedness
owed by the Company and such guarantee is secured by substantially all
of the assets of the subsidiaries. In connection with such
indebtedness, contingent and mandatory prepayments may be required
under certain specified conditions and events. There are no
compensating balance requirements.
F-13
<PAGE> 117
At year end 1996 and 1997, the Company had outstanding letters of
credit primarily related to its self-insurance programs of
approximately $12,356,000 and $11,005,000, respectively.
5. Income Taxes
The Company's state income tax provision, all of which was current, was
$66,000, $81,000 and $63,000 in 1995, 1996 and 1997, respectively. No
provision for Federal income tax was required in any year.
The income tax effects of temporary differences that give rise to
significant portions of the Company's deferred income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
DECEMBER 30, DECEMBER 29,
1996 1997
-------- --------
<S> <C> <C>
Deferred income tax asset:
Reserves and other accrued expenses not currently deductible for tax purposes $ 2,543 $ 2,833
Long-lived asset impairment not recognized on tax return .................... 5,426 6,675
Tax gain on sale/leaseback transactions, net ................................ 3,759 3,545
Net operating loss carryforward ............................................. 38,524 45,899
-------- --------
Deferred income tax asset ................................................ 50,252 58,952
-------- --------
Deferred income tax liability:
Tax depreciation greater than depreciation for financial reporting purposes . (7,000) (8,034)
Costs capitalized for financial reporting purposes and expensed on tax return (4,973) (4,338)
Other, net .................................................................. (985) (1,906)
-------- --------
Deferred income tax liability ............................................ (12,958) (14,278)
-------- --------
Deferred asset, net of deferred liability .......................................... 37,294 44,674
Valuation allowance ................................................................ (37,294) (44,674)
-------- --------
Net deferred income tax asset ...................................................... $ -- $ --
======== ========
</TABLE>
The effective tax rate differs from the Federal statutory rate of 34
percent as a result of the following items (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
DECEMBER 25, DECEMBER 30, DECEMBER 29,
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Federal income tax benefit at statutory rates .......... $(13,464) $(13,049) $(6,878)
State income tax provision for which no federal
benefit was recorded.................................. 44 53 42
Losses for which no federal benefit was recorded ....... 11,513 12,834 6,125
Nondeductible items, principally intangible amortization 1,973 243 774
-------- -------- -------
Provision for income taxes ............................. $ 66 $ 81 $ 63
======== ======== =======
</TABLE>
At December 29, 1997, the Company had available net operating loss
carryforwards for Federal income tax purposes of $134,996,000, expiring
in 2003 to 2012, and Federal general business credit carryforwards of
$9,192,000, expiring in 2003 to 2012.
6. Commitments and Contingencies
The Company is obligated under employment agreements with certain
officers and employees. Obligations under the agreements are
$1,337,000, provide for periodic increases and expire in 1998 unless
extended.
F-14
<PAGE> 118
The Company has been named as defendant in various lawsuits. It is the
opinion of management that the outcome of such litigation will not
materially affect the Company's financial position or results of
operations.
7. Cumulative Preferred Stock, Mandatorily Redeemable (Unaudited)
On February 25, 1998, as part of a recapitalization plan, the Company
issued 35,000 preferred stock units consisting of $1,000 initial
liquidation preference of 12% senior pay-in-kind mandatorily redeemable
cumulative preferred stock ("Cumulative Preferred Stock") and one
common stock purchase warrant ("Warrant") initially to purchase 2.66143
shares of the Company's common stock at an initial exercise price of
one cent per share.
Costs of approximately $2.2 million were incurred in connection with
the issuance of the Cumulative Preferred Stock. These costs were
recorded on the Company's balance sheet as a reduction to the $35.0
million Cumulative Preferred Stock and are being amortized as a direct
charge to retained earnings using the straight-line method over the
life of the stock.
Dividends on the Cumulative Preferred Stock accrue at a rate of 12% per
annum payable semiannually on February 15 and August 15 of each year.
The Company may, at its option, pay dividends in cash or in additional
shares of Cumulative Preferred Stock. The Cumulative Preferred Stock
may be redeemed in whole or in part, at the Company's option, at 110%
at the liquidation preference plus accrued and unpaid dividends but
must be redeemed at 110% of the liquidation preference plus accrued and
unpaid dividends on August 15, 2003. The Cumulative Preferred Stock
does not have any voting rights.
8. Redeemable Cumulative Senior and Junior Preferred Stock
At year end 1996 and 1997, there were 1,400,000 authorized shares of
senior preferred stock (one cent par value). There were no issued or
outstanding shares.
At year end 1996 and 1997, there were 100,000 authorized shares of
junior preferred stock (one cent par value). There were no issued or
outstanding shares.
9. Common Stock
Common stock (one cent par value) authorized, issued and outstanding is
as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 30,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Shares authorized ........ 1,000,000 1,000,000 1,000,000
Shares issued ............ 93,150 93,150 128,081
Shares outstanding ....... 93,150 93,150 128,081
</TABLE>
As of December 29, 1997, all of the Company's common stock was owned by
American Restaurant Group Holdings, Inc. The Chairman and certain other
members of the Company's management owned all outstanding shares of
Holdings common stock other than shares of Holdings common stock issued
to holders of the debenture units in connection with the refinancing
and rights to acquire shares of Holdings common stock issuable upon
exercise of options and warrants. All such shares owned by management
are subject to a common stock voting trust agreement, in accordance
with which the Chairman and Chief Executive Officer of the Company
exercises all voting and substantially all other rights to which
stockholders would otherwise be entitled until the earlier of August
15, 2005 or the termination of the common stock voting trust agreement.
Concurrent with the recapitalization plan, the Company issued 34,931
shares of common stock to six members of the Company's management at a
price of one cent per share and common stock Warrants as part of the
preferred stock units mentioned above. Each Warrant entitles the holder
to purchase 2.66143 shares of the Company's common stock at an initial
exercise price of one cent per share. The Warrants are exercisable at
any time and expire on the earlier of the date the Company consummates
a public offering of common stock or August 15, 2008. The initial
values of the shares of common stock and the Warrants were immaterial.
(See Note 9, "Subsequent Events").
10. Subsequent Events
In February 1998, the Company completed a recapitalization plan (the
"Recapitalization Plan") which included, among other things, (a) the
private placement by the Company of $155,000,000 of 11.5% senior
secured notes due 2003 (the "Notes") and (b) the issuance of 35,000
preferred stock units of the Company (the "Units"), each Unit
consisting of
F-15
<PAGE> 119
$1,000 initial liquidation preference of 12% senior pay-in-kind
exchangeable preferred stock and one common stock purchase warrant
initially to purchase 2.66143 shares of the common stock at an initial
exercise price of one cent per share.
Also as part of the Recapitalization Plan, the Company concurrently (a)
redeemed at par senior secured notes of $126,381,000 together with
interest thereon and repaid certain other interest-bearing short-term
liabilities, (b) repurchased its existing 10.25% subordinated notes at
65% of the par amount of $45,000,000 together with interest thereon,
and canceled the related warrants to purchase common stock of Holdings,
and (c) established a $15,000,000 revolving credit facility to include
letters of credit. Letters of credit outstanding after the
Recapitalization Plan were $3,395,000. A quarterly fee of 0.5% per
annum is payable on the unused portion of the letter of credit facility
and a quarterly fee of 2.5% per annum is payable on outstanding letters
of credit.
As an additional component of the Recapitalization Plan, Holdings
extended the accretion period on its senior discount debentures due
2005 (the "Holdings Debentures"), from June 15, 1999 to maturity on
December 15, 2005, and amended certain provisions of the Holdings
Debentures. The Holdings Debentures will accrete at a rate of 14.25%,
compounded semi-annually. In addition, holders of the Holdings
Debentures with an accreted value of approximately $10,757,000
surrendered such debentures for cancellation and received $3,600,000
principal amount of the Notes, in addition to the Notes sold as
mentioned above. The Company recorded this non-cash transaction as a
contribution to its parent company.
In conjunction with the Recapitalization Plan, the Company issued
shares of common stock to certain members of the Company's management
(the "Management Stockholders") in an aggregate amount equal to 15% of
the common stock on a fully diluted basis. Such Management Stockholders
have entered into a voting trust agreement in accordance with which the
Chairman and Chief Executive Officer of the Company will exercise all
voting and substantially all other rights to which such Management
Stockholders would otherwise be entitled until August 15, 2005, or the
earlier termination of the agreement. The Management Stockholders also
entered into a stockholders agreement with the remaining Company
stockholders, which provides that the parties will agree to vote all of
their shares of the Company's equity securities so that the Board of
Directors of the Company consists of five directors, with two directors
designated by TCW Asset Management Company, two by the Management
Stockholders, with the remaining director being an independent director
initially designated by the initial purchaser of the Notes.
11. Comprehensive Income (Unaudited)
Effective December 30, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 Reporting Comprehensive Income.
There were no differences between the Company's net income (loss), as
reported, and comprehensive income.
F-16
<PAGE> 120
UNAUDITED SELECTED CONSOLIDATED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited consolidated pro forma condensed financial
statements of the Company present the Company's unaudited consolidated pro forma
condensed income statement for the period ended December 29, 1997 and for the
thirteen weeks ended March 30, 1998. These pro forma financial statements give
effect to the Recapitalization Plan as if all transactions contemplated thereby
had occurred as of the beginning of the period. These pro forma financial
statements do not give effect to a reduction in corporate salaries and expenses
relating to actions taken in the later half of 1997. The unaudited consolidated
pro forma condensed income statement data and notes thereto are based, in part,
upon the Company's consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K, File No. 33-48183, for the period
ended December 29, 1997 and the Company's Quarterly Report on Form 10-Q for the
thirteen weeks ended March 30, 1998. The unaudited condensed pro forma
information appearing herein does not purport to represent what the Company's
results of operations or financial position would have been had such
transactions in fact occurred at the beginning of the period or to project the
financial position or results of operations of the Company for the present year
or any future period. The unaudited pro forma consolidated financial information
should be read in conjunction with the audited consolidated financial statements
and notes thereto of the Company included herein.
AMERICAN RESTAURANT GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED INCOME STATEMENT DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 29, 1997
---------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS COMPANY
HISTORICAL (UNAUDITED) (UNAUDITED)
--------- -------- ---------
<S> <C> <C> <C>
Income Statement Data:
Revenues ........................................................ $ 440,039 ($11,526)(1) $ 428,513
Restaurant Costs:
Food and Beverage Costs ................................... 140,015 (3,670)(2) 136,345
Payroll ................................................... 133,732 (4,680)(2) 129,052
Direct Operating .......................................... 110,502 (3,924)(2) 106,578
Depreciation and Amortization ............................. 19,627 (3,227)(3) 16,400
General and Administrative Expenses ............................. 29,360 (1,700)(4) 27,660
--------- -------- ---------
Operating Profit before Impairment .............................. 6,803 5,675 12,478
========= ======== =========
Interest Expense, Net ........................................... 23,984 (4,478)(5) 19,506
Loss Before Provision for Income Taxes .......................... (20,229) 10,153 (10,076)
Provision for Income Taxes ...................................... 63 63
--------- -------- ---------
Net Loss Before Extraordinary Items and Preferred Stock Dividends ($ 20,292) $ 10,153 ($ 10,139)
========= ======== =========
Other Data:
EBITDA(6) ................................................. $ 30,713 $ 33,161
EBITDAR(7) ................................................ 61,389 61,423
EBITDA/Net Interest Expense(8) ............................ 1.3 1.7
EBITDAR/Net Interest Expense plus Rent(8) ................. 1.1 1.3
Deficiency of Earnings to cover Fixed Charges(9) ................ (20,229) (11,001)
Deficiency of Earnings to cover Fixed Charges and Preferred
Stock Dividends(10) .................................... (20,229) (16,507)
</TABLE>
- ----------
(1) Represents the elimination of 10.9 million in revenues of closed
restaurants and the elimination of $0.6 million in non-recurring
deferred franchise income.
(2) Represents the elimination of costs associated with restaurants closed
in 1998 and prior years. In connection with the closing of restaurants,
in 1997 the Company established a closed unit reserve to which the
Company charges ongoing expenses relating to closed restaurants as
incurred. Approximately $1.0 per year million in cash charges will be
charged to this reserve on an on-going basis for the next several
years.
PF-1
<PAGE> 121
(3) Represents the elimination of $5.1 million in amortization expense
related to capitalized debt costs associated with indebtedness repaid,
the elimination of $0.2 million in depreciation expense for closed
restaurants and the addition of $2.1 million in amortization expense
related to capitalized debt costs associated with the new indebtedness.
(4) Represents the elimination of a $0.9 million legal settlement, a $0.5
million restructuring charge and the elimination of a $0.3 million
write-off of expenses associated with a sale/leaseback transaction
which was not completed. Does not include a reduction of $1.8 million
in corporate salaries and expenses relating to actions taken in the
later half of 1997.
(5) Represents the elimination of $21.8 million in interest expense
associated with indebtedness which was repaid, the elimination of $1.0
million in fees associated with existing letters of credit, the
addition of $18.2 million of interest associated with the Notes and
$0.2 million in fees on replacement letters of credit.
(6) EBITDA is defined as operating profit plus depreciation and
amortization and any gain/loss on sale of properties. EBITDA should not
be considered an alternative to, or more meaningful than, earnings from
operations or other traditional indicators of operating performance and
cash from operating activities. On a pro forma basis, approximately
$1.0 million per year in cash charges relating to closed restaurants
have not been reflected as an expense in determining EBITDA.
(7) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has been
presented for the purposes of analyzing the Company's operations before
giving effect to financing activities such as the sale/leaseback
transactions and for comparability purposes to prior periods. In the
second half of 1996, the Company completed $63.4 million of
sale/leaseback transactions with the proceeds used to repay $50.5
million of indebtedness at par. EBITDAR should not be considered an
alternative to, or more meaningful than, earnings from operations or
other traditional indicators of operating performance and cash from
operating activities.
(8) The ratio is not presented with respect to Preferred Stock dividends
because the Company intends to pay dividends by issuing additional
shares of Preferred Stock.
(9) For the purpose of determining the deficiency of earnings to cover
fixed charges, earnings consist of earnings before extraordinary loss,
income taxes and fixed charges. Fixed charges consist of interest on
indebtedness, the amortization of debt issue costs and that portion of
operating rental expense representative of the interest factor.
(10) The deficiency of earnings to cover fixed charges and preferred stock
dividends is the same as the deficiency of earnings to cover fixed
charges except that preferred stock dividends are added to fixed
charges for the pro forma fifty-two weeks ended December 29, 1997 even
though the Company intends to pay such dividends by issuing additional
shares of Preferred Stock or Exchange Preferred Stock, as the case may
be.
PF-2
<PAGE> 122
AMERICAN RESTAURANT GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED INCOME STATEMENT DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED MARCH 30, 1998
------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS COMPANY
HISTORICAL (UNAUDITED) (UNAUDITED)
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .......................................................... $112,122 ($ 554)(1) $111,568
Restaurant Costs:
Food and Beverage Costs ..................................... 35,605 (187)(1) 35,418
Payroll ..................................................... 33,202 (259)(1) 32,943
Direct Operating ............................................ 27,234 (158)(1) 27,076
Depreciation and Amortization ............................... 3,749 (83)(2) 3,666
General and Administrative Expenses ............................... 5,309 5,309
-------- -------- --------
Operating Profit before Impairment ................................ 7,023 133 7,156
======== ======== ========
Interest Expense, Net ............................................. 5,521 (650)(3) 4,871
Income Loss Before Provision for Income Taxes ..................... 1,502 783 2,285
Provision for Income Taxes ........................................ 4 4
-------- -------- --------
Net Income Before Extraordinary Items and Preferred Stock Dividends $ 1,498 $ 783 $ 2,281
======== ======== ========
OTHER DATA:
EBITDA(4) ................................................... $ 10,675 $ 10,725
EBITDAR(5) .................................................. 17,951 17,600
EBITDA/Net Interest Expense(6) .............................. 1.9 2.2
EBITDAR/Net Interest Expense plus Rent(6) ................... 1.4 1.5
Ratio of Earnings to Fixed Charges(7) ............................. 1.2 1.3
Ratio of Earnings to Fixed Charges and Preferred Stock ............ 1.1 1.1
Dividends(8)
</TABLE>
- ----------
(1) Represents the elimination of costs associated with restaurants closed
in 1998 and prior years. In connection with the closing of restaurants,
in 1997 the Company established a closed unit reserve to which the
Company charges ongoing expenses relating to closed restaurants as
incurred. Approximately $1.0 million per year in cash charges will be
charged to this reserve on an on-going basis for the next several
years.
(2) Represents the elimination of $0.4 million in amortization expense
related to capitalized debt costs associated with indebtedness repaid
and an additional $0.3 million in amortization expense related to
capitalized debt costs associated with the new indebtedness.
(3) Represents the elimination of $3.6 million in interest expense
associated with indebtedness which was repaid and an additional $2.9
million of interest associated with the Notes.
(4) EBITDA is defined as operating profit plus depreciation and
amortization and any gain/loss on sale of properties. EBITDA should not
be considered an alternative to, or more meaningful than, earnings from
operations or other traditional indicators of operating performance and
cash from operating activities. On a pro forma basis, approximately
$1.0 million per year in cash charges relating to closed restaurants
have not been reflected as an expense in determining EBITDA.
(5) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has been
presented for the purposes of analyzing the Company's operations before
giving effect to financing activities such as the sale/leaseback
transactions and for comparability purposes to prior periods. In the
second half of 1996, the Company completed $63.4 million of
sale/leaseback transactions with the proceeds used to repay $50.5
million of indebtedness at par. EBITDAR should not be considered an
alternative to, or more meaningful than, earnings from operations or
other traditional indicators of operating performance and cash from
operating activities.
(6) The ratio is not presented with respect to Preferred Stock dividends
because the Company intends to pay dividends by issuing additional
shares of Preferred Stock.
(7) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before extraordinary gain, income taxes
and fixed charges. Fixed charges consist of interest on indebtedness,
the amortization of debt issue costs and that portion of operating
rental expense representative of the interest factor.
(8) The ratio of earnings to fixed charges and preferred stock dividends is
the same as the ratio of earnings to fixed charges except that
preferred stock dividends are added to fixed charges even though the
Company intends to pay such dividends by issuing additional shares of
Preferred Stock or Exchange Preferred Stock, as the case may be.
PF-3
<PAGE> 123
UNITED STATES TRUST COMPANY, NATIONAL ASSOCIATION
Exchange Agent:
By Hand Delivery:
c/o United States Trust Company of New York
111 Broadway
Lower Level
New York, NY 10006
Attn: Corporate Trust and
Agency Services
By Registered or Certified Mail:
c/o United States Trust Company of New York
P.O. Box 841
Peter Cooper Station
New York, New York 10276-0841
Attention: Corporate Trust and
Agency Services
By Overnight Delivery:
(insured or registered recommended)
c/o United States Trust Company of New York
770 Broadway
13th Floor
New York, New York 10003
Attention: Corporate Trust and
Agency Services
By Facsimile:
(212) 420-6155
Confirm By Telephone:
800-255-2398
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
(the "GCL") provides in relevant part that a Delaware corporation may indemnify
any persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such officer or director acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, for criminal proceedings, had no reasonable cause to believe
that his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Article IV of the by-laws of American Restaurant Group, Inc. (the
"Company") provides for indemnification of its officers and directors to the
fullest extent permitted by Section 145 of the GCL.
Section 102(b)(7) of the GCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the GCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
Article 7 of the Certificate of Incorporation of the Company provides
for the elimination of personal liability of its directors for monetary damages
for breach of fiduciary duty as a director, except as otherwise provided by the
GCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG
Property Management Corporation and ARG Enterprises, Inc. and ARG
Properties I, LLC.***
2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as
Landlord and ARG Enterprises, Inc. as Tenant.***
2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.***
2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.***
II-1
<PAGE> 125
EXHIBIT NO. DESCRIPTION
2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.***
2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.***
2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG
Enterprises, Inc. as Tenant.***
2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as
Tenant to ARG Properties I, LLC as Landlord.***
2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc.
as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four
Minnesota restaurants.***
2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as
Tenant and Safeway Inc. as Landlord.***
3.1 Amended and Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on July 23, 1991.*
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company filed with the Secretary of State of
Delaware on March 21, 1992.*
3.3 Amended and Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on February 23, 1998.****
3.4 By-Laws of the Company.*
4.1 Indenture dated as of February 25, 1998 between the Company and U.S.
Trust Company of California, N.A., as Trustee (including specimen
certificate of 11.5% Senior Secured Note due 2003).****
4.2 Warrant Agreement dated as of February 25, 1998 between the Company and
U.S. Trust Company of California, N.A., as warrant agent (including
specimen certificate of Warrant).****
4.3 Registration Rights Agreement dated as of February 25, 1998 between the
Company and Jefferies & Company, Inc.****
4.4 Securityholders' and Registration Right Agreement dated as of February
25, 1998 between the Company and Jefferies & Company, Inc., as
purchaser.****
4.5 Management Registration Right Agreement dated as of February 28, 1998
between the Company and the Management Stockholders.****
4.6 Certificate of Designation filed with the Secretary of State of
Delaware on February 24, 1998.****
4.7 Certificate of Correction to the Certificate of Designation filed with
the Secretary of State of Delaware on February 25, 1998.****
4.8 Form of Indenture relating to the 12% Senior Subordinated Debentures to
be entered into between the Company and a trustee (including specimen
certificate of 12% Senior Subordinated Debenture due 2003).******
5 Opinion of Simpson Thacher & Bartlett.******
II-2
<PAGE> 126
EXHIBIT NO. DESCRIPTION
8 Opinion of Simpson Thacher & Bartlett regarding tax matters.******
9.1 Common Stock Voting Trust and Transfer Agreement dated as of February
24, 1998 among the Company and the stockholders parties thereto and
Anwar S. Soliman, as voting trustee.****
9.2 Common Stock Voting Trust and Transfer Agreement dated as of February
24, 1998 among the Company and the stockholders parties thereto and
Anwar S. Soliman, as voting trustee.****
10.1 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Anwar S. Soliman.**
10.2 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Ralph S. Roberts.**
10.3 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Wilfred H. Partridge.**
10.4 Indenture dated as of December 1, 1993 between American Restaurant
Group Holdings, Inc. and United States Trust Company of New York.*****
10.5 Second Supplemental Indenture dated as of February 24, 1998 between
American Restaurant Group Holdings, Inc. and United States Trust
Company of New York.******
12 Statement setting forth Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.******
21.1 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.******
23.2 Consent of Simpson Thacher & Bartlett (included in Exhibit 5
hereto).******
23.3 Consent of Simpson Thacher & Bartlett (included in Exhibit 8
hereto).******
25 Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of 1939 of United States Trust Company of New York.******
99.1 Form of Letter of Transmittal.******
99.2 Form of Notice of Guaranteed Delivery.******
99.3 Form of Exchange Agent Agreement to be entered into between the Company
and United States Trust Company of New York.******
* Incorporated by reference to the Registrant's Registration Statement
No. 33-48183 on Form S-4 filed with the Securities and Exchange
Commission on May 28, 1992 as amended with Amendment No. 1 filed on
September 11, 1992.
** Incorporated by reference to the Registrant's Registration Statement
No. 33-74010 on Form S-4 filed with the Securities and Exchange
Commission on January 12, 1994.
*** Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 13, 1996 filed with the Securities and Exchange
Commission on September 30, 1996.
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K dated December 29, 1997 filed with the Securities and Exchange
Commission on March 30, 1998.
II-3
<PAGE> 127
EXHIBIT NO. DESCRIPTION
***** Incorporated by reference to the American Restaurant Group Holdings,
Inc.'s Registration Statement No. 33-74012 on Form S-4 filed with the
Securities and Exchange Commission on January 12, 1994.
****** Filed herewith.
ITEM 22. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; or
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-4
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to the Form S-4 Registration Statement
to be signed on its behalf by the undersigned, hereunto duly authorized in the
City of Newport Beach, State of California on the 28th day of July, 1998.
AMERICAN RESTAURANT GROUP, INC.
By: /s/ Ken A. Di Lillo
---------------------------
Ken A. Di Lillo
Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Form S-4 Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
AMERICAN RESTAURANT GROUP, INC.
SIGNATURE Title DATE
--------- ----- ----
/s/ Anwar S. Soliman Chairman, Chief Executive July 28, 1998
- --------------------------
Anwar S. Soliman) Officer and Director
(Principal Executive Officer)
/s/ Ralph S. Roberts President, Chief Operating July 28, 1998
- -------------------------- Officer and Director
(Ralph S. Roberts)
/s/ Ken A. Di Lillo Vice President-- Finance July 28, 1998
- --------------------------
(Ken A. Di Lillo)
/s/ Robert D. Beyer Director July 28, 1998
- --------------------------
(Robert D. Beyer)
/s/ George G. Golleher Director July 28, 1998
- --------------------------
(George G. Golleher)
/s/ Jeffry K. Weinhuff Director July 28, 1998
- --------------------------
(Jeffry K. Weinhuff)
<PAGE> 129
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG
Property Management Corporation and ARG Enterprises, Inc. and ARG
Properties I, LLC.***
2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as
Landlord and ARG Enterprises, Inc. as Tenant.***
2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.***
2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.***
2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.***
2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty,
Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.***
2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG
Enterprises, Inc. as Tenant.***
2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as
Tenant to ARG Properties I, LLC as Landlord.***
2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc.
as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four
Minnesota restaurants.***
2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as
Tenant and Safeway Inc. as Landlord.***
3.1 Amended and Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on July 23, 1991.*
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company filed with the Secretary of State of
Delaware on March 21, 1992.*
3.3 Amended and Restated Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on February 23, 1998.****
3.4 By-Laws of the Company.*
4.1 Indenture dated as of February 25, 1998 between the Company and U.S.
Trust Company of California, N.A., as Trustee (including specimen
certificate of 11.5% Senior Secured Note due 2003).****
4.2 Warrant Agreement dated as of February 25, 1998 between the Company and
U.S. Trust Company of California, N.A., as warrant agent (including
specimen certificate of Warrant).****
4.3 Registration Rights Agreement dated as of February 25, 1998 between the
Company and Jefferies & Company, Inc.****
4.4 Securityholders' and Registration Right Agreement dated as of February
25, 1998 between the Company and Jefferies & Company, Inc., as
purchaser.****
4.5 Management Registration Right Agreement dated as of February 28, 1998
between the Company and the Management Stockholders.****
4.6 Certificate of Designation filed with the Secretary of State of
Delaware on February 24, 1998.****
4.7 Certificate of Correction to the Certificate of Designation filed with
the Secretary of State of Delaware on February 25, 1998.****
4.8 Form of Indenture relating to the 12% Senior Subordinated Debentures to
be entered into between the Company and a trustee (including specimen
certificate of 12% Senior Subordinated Debenture due 2003).******
5 Opinion of Simpson Thacher & Bartlett.******
<PAGE> 130
EXHIBIT NO. DESCRIPTION
8 Opinion of Simpson Thacher & Bartlett regarding tax matters.******
9.1 Common Stock Voting Trust and Transfer Agreement dated as of February
24, 1998 among the Company and the stockholders parties thereto and
Anwar S. Soliman, as voting trustee.****
9.2 Common Stock Voting Trust and Transfer Agreement dated as of February
24, 1998 among the Company and the stockholders parties thereto and
Anwar S. Soliman, as voting trustee.****
10.1 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Anwar S. Soliman.**
10.2 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Ralph S. Roberts.**
10.3 Amended and Restated Employment Agreement dated as of December 14, 1993
between the Company and Wilfred H. Partridge.**
10.4 Indenture dated as of December 1, 1993 between American Restaurant
Group Holdings, Inc. and United States Trust Company of New York.*****
10.5 Second Supplemental Indenture dated as of February 24, 1998 between
American Restaurant Group Holdings, Inc. and United States Trust
Company of New York.******
12 Statement setting forth Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.******
21.1 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.******
23.2 Consent of Simpson Thacher & Bartlett (included in Exhibit 5
hereto).******
23.3 Consent of Simpson Thacher & Bartlett (included in Exhibit 8
hereto).******
25 Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of 1939 of United States Trust Company of New York.******
99.1 Form of Letter of Transmittal.******
99.2 Form of Notice of Guaranteed Delivery.******
99.3 Form of Exchange Agent Agreement to be entered into between the Company
and United States Trust Company of New York.******
* Incorporated by reference to the Registrant's Registration Statement
No. 33-48183 on Form S-4 filed with the Securities and Exchange
Commission on May 28, 1992 as amended with Amendment No. 1 filed on
September 11, 1992.
** Incorporated by reference to the Registrant's Registration Statement
No. 33-74010 on Form S-4 filed with the Securities and Exchange
Commission on January 12, 1994.
*** Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 13, 1996 filed with the Securities and Exchange
Commission on September 30, 1996.
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K dated December 29, 1997 filed with the Securities and Exchange
Commission on March 30, 1998.
***** Incorporated by reference to the American Restaurant Group Holdings,
Inc.'s Registration Statement No. 33-74012 on Form S-4 filed with the
Securities and Exchange Commission on January 12, 1994.
****** Filed herewith.
<PAGE> 1
EXHIBIT 4.8
AMERICAN RESTAURANT GROUP, INC.
as obligor
$80,000,000
12% Senior Subordinated Debentures due 2003
-----------------------------------------------------
FORM OF
INDENTURE
Dated as of _______ __, _____
-----------------------------------------------------
[TRUSTEE]
Trustee
<PAGE> 2
INDENTURE, dated as of ______ __, ____, among American
Restaurant Group, Inc., a Delaware corporation (the "Company") and [TRUSTEE], as
trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the
Company's 12% Senior Subordinated Debentures due 2003 (the "Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean (i) the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
(ii) in the case of a corporation, beneficial ownership of 10% or more of any
class of Capital Stock of such Person; and (iii) in the case of an individual
(A) members of such Person's immediate family (as defined in Instruction 2 of
Item 404(a) of Regulation S-K under the Securities Act) and (B) trusts, any
trustee or beneficiaries of which are such Person or members of such Person's
immediate family. Notwithstanding the foregoing, neither the Initial Purchaser
nor any of its Affiliates will be deemed to be Affiliates of the Company.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock or a Subsidiary (other than directors' qualifying
shares), property or other assets, including by way of a sale/leaseback
transaction (each referred to for the purposes of this definition as a
"disposition"), by the Company or any of its Subsidiaries (including any
disposition by means of merger, consolidation or similar transaction) other than
(i) a disposition by a Subsidiary to the Company or by the company or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets in the ordinary course of business, (iii) dispositions of inventory in
the ordinary course of business, (iv) for purposes of the "Limitation on Asset
Sales" covenant only, a disposition that constitutes a Restricted Payment
permitted by Section 4.8 hereof, (v) the sale, lease, transfer or other
disposition of all or substantially all the assets of the Company as permitted
under Section 5.1 hereof, (vi) the grant of Liens permitted by Section 4.12 of
the indenture governing the Senior Secured Notes and (vii) sales of obsolete or
worn-out equipment.
<PAGE> 3
2
"Bankruptcy Law" means title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means the board of directors or any duly
constituted committee of any corporation or of a corporate general partner of a
partnership and any similar body empowered to direct the affairs of any other
entity.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP, and the amount of such
obligations at any date shall be the capitalized amount of such obligations at
such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, and (ii) with respect to
any other Person, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250,000,000 and commercial paper issued by others rated at least
A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
"Closing Date" means the date upon which the Debentures are
first issued.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
"Company" means the party named as such above, until a
successor replaces such Person in accordance with the terms of this Indenture,
and thereafter means such successor.
"Company Order" means a written request or order signed in the
name of the Company by its Chairman of the Board, President or Senior Vice
President, and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary and delivered to the Trustee.
<PAGE> 4
3
"Consolidated EBITDA" means, with respect to any Person (the
referent Person) for any period, consolidated operating profit of such Person
and its subsidiaries for such period, determined in accordance with GAAP, plus
(to the extent such amounts are deducted in calculating such operating profit
(loss) of such Person for such period, and without duplication) amortization,
depreciation and other non-cash charges (including, without limitation, non-cash
impairment charges, amortization of goodwill, deferred financing fees and other
intangibles but excluding non-cash charges incurred after the date of this
Indenture that require an accrual of or a reserve for cash charges for any
future period); provided, that the income from operations of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid during such period to the referent Person or a Wholly Owned Subsidiary of
the referent Person.
"Consolidated Net Worth" means, with respect to any Person,
the total stockholders' equity of such Person determined on a consolidated basis
in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (i) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock of such Person and its consolidated
subsidiaries, and (ii) all upward revaluations and other write-ups in the book
value of any asset of such person or a consolidated subsidiary of such person
subsequent to the Closing Date, and (iii) all Investments in persons that are
not consolidated Subsidiaries.
"Corporate Trust Office" shall be at the address of the
Trustee specified in Section 11.2 or such other address as the Trustee may
specify by notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"Default" means any event that is, or after notice or the
passage of time or both would be, an Event of Default.
"Definitive Debentures" means Debentures that are in the form
of the Debentures attached hereto as Exhibit A, that do not include the footnote
thereto.
"Depository" means the Person specified in Section 2.3 hereof
as the Depository with respect to the Debentures issuable in global form, until
a successor shall have been appointed and become such pursuant to the applicable
provision of this Indenture, and, thereafter, "Depository" shall mean or include
such successor.
"Disqualified Capital Stock" means any Equity Interest that
either by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) is or upon the happening of an
event would be required to be redeemed or repurchased prior to the final stated
maturity of the Senior Secured Notes or is redeemable at the option of the
holder thereof at any time prior to such final stated maturity.
"DTC" means The Depository Trust Company.
<PAGE> 5
4
"Equity Interests" means Capital Stock or warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and in the rules and regulations of the Commission, that
are in effect on the date of this Indenture.
"Global Debenture" means a Debenture that contains the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 2 in the form of the Debenture attached hereto as Exhibit A.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Holder" means a Person in whose name a Debenture is
registered.
"Holdings" means American Restaurant Group Holdings, Inc., a
Delaware corporation.
"Indebtedness" of any Person means (without duplication) (1)
all liabilities and obligations, contingent or otherwise, of such Person (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, debentures, notes or other similar instruments, (iii) representing the
deferred purchase price of property or services (other than liabilities incurred
in the ordinary course of business which are not more than 90 days past due),
(iv) created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (v) as lessee
under capitalized leases, (vi) under bankers' acceptance and letter of credit
facilities, (vii) to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Stock, or (viii) in respect of Hedging Obligations, (2)
all liabilities and obligations of others of the type described in clause (1),
above, that are Guaranteed by such Person, and (3) all liabilities and
obligations of others of the type described in clause (1), above, that are
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person;
provided, that the amount of such Indebtedness shall (to the extent such Person
has not assumed or become liable for the payment of such Indebtedness in full)
be the lesser of (x) the fair market value of such
<PAGE> 6
5
property at the time of determination and (y) the amount of such Indebtedness.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Intercreditor Agreement" means the intercreditor agreement
among BankBoston, N.A., as agent to the lenders under the New Credit Facility,
the Trustee, the Collateral Agent and certain other parties thereto, dated the
February 25, 1998.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of loans, Guarantees, advances or capital contributions (excluding (i)
commission, travel and similar advances to officers and employees of such Person
made in the ordinary course of business and (ii) bona fide accounts receivable
arising from the sale of goods or services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Junior Securities" means any Qualified Capital Stock and
Indebtedness of the Company that is subordinated in right of payment to the
Debentures, and has no scheduled installments of principal due, by redemption,
sinking fund payment or otherwise, on or prior to August 15, 2003.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in The City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed.
"Lien" means any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Maintenance Test Ratio" means, at any time, the ratio of (i)
the result of (x) the aggregate amount of Indebtedness of the Company as of the
time of determination plus (y) 110% of the aggregate principal amount of the
outstanding Debentures, to (ii) the result of (a) the Consolidated EBITDA of the
Company for the last four fiscal quarters from the time of determination less
(b) the aggregate amount of the cash charges in such four-quarter period against
the reserve established by the Company relating to the elimination of costs
associated with restaurants closed in 1997 and prior years as set forth in
"Unaudited Selected Consolidated Pro Forma Condensed Financial Data" contained
in the Offering
<PAGE> 7
6
Circular plus (c) $2.2 million for the four-quarter period ended June 1998 and
$1.6 million for the four-quarter period ended September 1998.
"Material Subsidiary" means any Subsidiary (a) that is a
"Significant Subsidiary" of the Company as defined in Rule 1-02 of Regulation
S-X promulgated by the Commission or (b) is otherwise material to the business
of the Company.
"Net Income" means, with respect to any Person for any period,
the net income (loss) of such Person for such period, determined in accordance
with GAAP, excluding any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with any
Asset Sales and dispositions pursuant to sale and leaseback transactions, and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such gain (but not loss).
"Net Proceeds" means the aggregate proceeds received in the
form of cash or Cash Equivalents in respect of any Asset Sale (including
payments in respect of deferred payment obligations when received), net of (i)
the reasonable and customary direct out-of-pocket costs relating to such Asset
Sale (including, without limitation, legal, accounting and investment banking
fees and sales commissions), other than any such costs payable to an Affiliate
of the Company, (ii) taxes actually payable directly as a result of such Asset
Sale (after taking into account any available tax credits or deductions and any
tax sharing arrangements), (iii) amounts required to be applied to the permanent
repayment of Indebtedness in connection with such Asset Sale, and (iv)
appropriate amounts provided as a reserve by the Company or any Subsidiary, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or such Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations arising from such Asset Sale.
"New Credit Facility means the New Credit Facility, entered
into on February 25, 1998 between the Company, certain of its Subsidiaries, the
lenders named therein and the agent for such Lenders as the same may be amended,
modified, renewed, refunded, replaced or refinanced from time to time, including
(i) any related notes, letters of credit, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time;
and (ii) any notes, guarantees, collateral documents, instruments and agreements
executed in connection with such amendment, modification, renewal, refunding,
replacement or refinancing in an aggregate amount not to exceed $20 million.
"Obligations" means any principal, interest, premium,
penalties, fees, indemnifications, reimbursements, damages and other obligations
and liabilities of the Company under this Indenture or the Debentures.
Offering Circular" means the Company's Offering Circular dated
February 17, 1998.
<PAGE> 8
7
"Officers" means the Chairman of the Board, the President, the
Chief Financial Officer, Chief Operating Officer, the Treasurer, any Assistant
Treasurer, Controller, Secretary, any Assistant Secretary or any Senior Vice
President of the Company.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the
President, Chief Financial Officer, Treasurer, Controller or a Senior Vice
President of the Company.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or the Trustee.
"Permitted Affiliate Transactions" means (i) employment
agreements, stockholder agreements, stock options or other incentive plans
existing on the Closing Date or thereafter entered into by the Company or any
Subsidiary in the ordinary course of business with the approval of a majority of
the disinterested members of the Company's Board of Directors; (ii) transactions
between or among the Company and/or its Subsidiaries; or (iii) reasonable and
customary fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary
as determined in good faith by a majority of the disinterested directors of the
Company's Board of Directors.
"Permitted Investments" means (i) Investments in the Company
or any Subsidiary (including without limitation, Guarantees of Indebtedness of
any such Person), (ii) Investments in Cash Equivalents, (iii) Investments in a
Person, if as a result of such Investment (a) such Person becomes a Subsidiary
or (b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Subsidiary, (iv) Hedging Obligations, (v) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers, (vi) Investments as a result of consideration
received in connection with an Asset Sale made in compliance with Section 4.10
of this Indenture, (vii) Investments existing on the Closing Date, (viii)
accounts receivable owing to the Company or any Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms, (ix) payroll, travel and similar advances
in the ordinary course of business; and (x) loans or advances to employees made
in the ordinary course of business.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other entity.
"QIB" shall mean "qualified institutional buyer" as defined in
Rule 144A.
"Qualified Capital Stock" means, with respect to any Person,
Capital Stock of such Person other than Disqualified Capital Stock.
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"Qualified Equity Offering" means (i) an underwritten primary
public offering of Qualified Capital Stock of the Company pursuant to an
effective registration statement under the Securities Act or (ii) a private
offering of Qualified Capital Stock other than issuances of common stock
pursuant to employee benefit plans or as compensation to employees.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the corporate trust department of the Trustee located
at the Corporate Trust Office (or any successor group of the Trustee) or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Securities" means Debentures that bear or are
required to bear the legends set forth in Exhibit A hereto.
"Rule 144A" means Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or under any similar rule or regulation
hereafter adopted by the Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means all Indebtedness of the Company, unless
the instrument governing such Indebtedness expressly provides that such
Indebtedness is not senior or superior in right of payment to the Debentures.
Notwithstanding the foregoing, Senior Debt of the Company shall not include: (i)
Indebtedness evidenced by the Debentures, (ii) Indebtedness of the Company to
any Subsidiary of the Company, or (iii) any amounts payable or other
Indebtedness to trade creditors created, incurred, assumed or guaranteed by the
Company or any Subsidiary of the Company in the ordinary course of business in
connection with obtaining goods or services.
"Senior Secured Notes" means the Company's 11 1/2% Senior
Secured Notes in the aggregate principal amount of $155 million together with
the related Indenture under which such 11 1/2% Senior Secured Notes were issued,
as the same exist on February 25, 1998 without regard to any subsequent
amendment, modification, supplement or waiver.
"Subsidiary" means any subsidiary of the Company.
"Surviving Entity" has the meaning set forth in Section 5.1
hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb), as amended, as in effect on the date hereof until such
time as this Indenture is qualified under the TIA, and thereafter as in effect
on the date on which this Indenture is qualified under the TIA.
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"transfer" means any direct or indirect sale, assignment,
transfer, lease, conveyance, or other disposition (or series of related sales,
leases, transfers or dispositions) (including, without limitation, by way of
merger or consolidation).
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"U.S. Government Obligations" means direct obligations of the
United States of America, or any agency or instrumentality thereof for the
payment of which the full faith and credit of the United States of America is
pledged.
Section 1.2. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction"........................................ 4.9
"Definitive Debentures"........................................ 2.1
"Event of Default"............................................. 6.1
"Excess Proceeds".............................................. 4.8
"Excess Proceeds Offer"........................................ 4.8
"Excess Proceeds Offer Period"................................. 4.8
"Excess Proceeds Payment Date"................................. 4.8
"Global Debenture"............................................. 2.1
"Maximum Test Ratio"........................................... 4.10
"Paying Agent"................................................. 2.3
"Purchase Amount".............................................. 4.8
"Registrar".................................................... 2.3
"Restricted Payments".......................................... 4.7
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Debentures;
"indenture security holder" means a Holder of a Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
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"obligor" on the Debentures means the Company and any successor obligor
upon the Debentures.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE DEBENTURES
Section 2.1. Form and Dating.
The Debentures and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A attached hereto, the terms of
which are incorporated in and made a part of this Indenture. The Debentures may
have notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each Debenture shall be
dated the date of its authentication. The Debentures shall be issued in
denominations of $1,000 and integral multiples thereof.
The Debentures will be issued (i) in global form (the "Global
Debenture"), substantially in the form of Exhibit A attached hereto (including
the text referred to in footnote 1 thereto) and (ii) in definitive form (the
"Definitive Debentures"), substantially in the form of Exhibit A attached hereto
(excluding the text referred to in footnote 1 thereto). The Global Debenture
shall represent the aggregate amount of outstanding Debentures from time to time
endorsed thereon; provided, that the aggregate amount of outstanding Debentures
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of the Global
Debenture to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall
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be made by the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.6 hereof.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Debentures for the Company by
manual or facsimile signature. If an Officer whose signature is on a Debenture
no longer holds that office at the time the Debenture is authenticated, the
Debenture shall nevertheless be valid.
A Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Debenture has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Debentures shall be substantially as set forth in Exhibit A attached hereto.
The Trustee shall, upon a Company Order, authenticate for
original issue up to $80,000,000 aggregate principal amount of each series of
the Debentures. The aggregate principal amount of Debentures outstanding at any
time may not exceed $80,000,000 except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Debentures. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to authenticating by the
Trustee includes authenticating by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name any Debenture is registered as the
owner of such Debenture for the purpose of receiving payment of principal of and
(subject to the provisions of this Indenture and the Debentures with respect to
record dates) interest on such Debenture and for all other purposes whatsoever,
whether or not such Debenture is overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Except as set forth in the next sentence, the Debentures will
initially be issued in the form of one or more registered global Debentures
which will be deposited on the Closing Date with, or on behalf of, the
Depository and registered in the name of the global Holder. Debentures that are
originally issued to or transferred to an institutional "accredited investor"
(within the meaning of Rule 501 under the Securities Act) who is not a
"qualified institutional buyer" (within the meaning of Rule 144A (a "QIB) or to
any other persons who are not QIBs shall be issued in the form of certificated
Debentures in registered form substantially in the form set forth in Exhibit A.
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Section 2.3. Registrar, Paying Agent and Depository.
The Company shall maintain (i) an office or agency where
Debentures may be presented for registration of transfer or for exchange
("Registrar") and (ii) an office or agency where Debentures may be presented for
payment ("Paying Agent"). The Company initially appoints the Trustee as
Registrar and Paying Agent. The Registrar shall keep a register of the
Debentures and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee of the name
and address of any Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act as Paying
Agent or Registrar, except that for purposes of Articles Three and Eight and
Sections 4.1, 4.10 and 4.14 neither the Company nor any of its Subsidiaries
shall act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent.
The Company initially appoints DTC to act as Depository with
respect to the Global Debentures. The Trustee shall act as custodian for the
Depository with respect to the Global Debentures.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium, if any, or interest on the Debentures and shall
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary of the
Company) shall have no further liability for the money delivered to the Trustee.
If the Company or a Subsidiary of the Company acts as Paying Agent (subject to
Section 2.3), it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the
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Trustee may reasonably require of the names and addresses of the Holders,
including the aggregate principal amount thereof, and the Company shall
otherwise comply with TIA Section 312(a).
Section 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Debentures. When
Definitive Debentures are presented by a Holder to the Registrar with a request
(1) to register the transfer of the Definitive Debentures or (2) to exchange
such Definitive Debentures for an equal principal amount of Definitive
Debentures of other authorized denominations, the Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transactions are met; provided, that the Definitive Debentures so presented have
been duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his attorney,
duly authorized in writing; and (B) in the case of a Restricted Security, such
request shall be accompanied by the following additional documents:
(i) if such Restricted Security is being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification to that effect (in substantially the
form of Exhibit B attached hereto); or
(ii) if such Restricted Security is being transferred to a QIB
in accordance with Rule 144A or pursuant to an effective registration
statement under the Securities Act, a certification to that effect (in
substantially the form of Exhibit B attached hereto); or
(iii) if such Restricted Security is being transferred in
reliance on another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B attached hereto) and an opinion of counsel reasonably
acceptable to the Company and the Registrar to the effect that such
transfer is in compliance with the Securities Act.
(b) Transfer of a Definitive Debenture for a Beneficial
Interest in a Global Debenture. A Definitive Debenture may be exchanged for a
beneficial interest in a Global Debenture only upon receipt by the Trustee of a
Definitive Debenture, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Trustee, together with:
(i) written instructions from the entity surrendering such
Definitive Debenture directing the Trustee to make an endorsement on
the Global Debenture to reflect an increase in the aggregate principal
amount of the Debentures represented by the Global Debenture, and
(ii) if such Definitive Debenture is a Restricted Security, a
certification (in substantially the form of Exhibit B attached hereto)
to the effect that such Definitive Debenture is being transferred to a
QIB in accordance with Rule 144A;
<PAGE> 15
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in which case the Trustee shall cancel such Definitive Debenture and cause the
aggregate principal amount of Debentures represented by the Global Debenture to
be increased accordingly. If no Global Debenture is then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Debenture in
the appropriate principal amount.
(c) Transfer and Exchange of Global Debentures. The transfer
and exchange of Global Debentures or beneficial interests therein shall be
effected through the Depository in accordance with this Indenture and the
procedures of the Depository therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act.
(d) Transfer of a Beneficial Interest in a Global Debenture
for a Definitive Debenture. Upon receipt by the Trustee of written transfer
instructions (or such other form of instructions as is customary for the
Depository) from the Depository (or its nominee) on behalf of any Person having
a beneficial interest in a Global Debenture, the Trustee shall, in accordance
with the standing instructions and procedures existing between the Depository
and the Trustee, cause the aggregate principal amount of Global Debentures to be
reduced accordingly and, following such reduction, the Company shall execute and
the Trustee shall authenticate and make available for delivery to the transferee
a Definitive Debenture in the appropriate principal amount; provided, that in
the case of a Restricted Security, such instructions shall be accompanied by the
following additional documents:
(i) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner, a
certification to that effect (in substantially the form of Exhibit B
attached hereto); or
(ii) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A or pursuant to an effective registration
statement under the Securities Act, a certification to that effect (in
substantially the form of Exhibit B attached hereto); or
(iii) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially the
form of Exhibit B attached hereto) and an opinion of counsel reasonably
acceptable to the Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act..
Definitive Debentures issued in exchange for a beneficial
interest in a Global Debenture shall be registered in such names and in such
authorized denominations as the Depository shall instruct the Trustee.
(e) Transfer and Exchange of Global Debentures.
Notwithstanding any other provision of this Indenture, the Global Debenture may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository; provided, that
if:
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(i) the Depository notifies the Company that the Depository is
unwilling or unable to continue as Depository and a successor
Depository is not appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive
Debentures under this Indenture,
then the Company shall execute and the Trustee shall authenticate and make
available for delivery, Definitive Debentures in an aggregate principal amount
equal to the aggregate principal amount of the Global Debenture in exchange for
such Global Debenture in the names and in such authorized dominations as the
Depository shall direct the Trustee and such Debentures shall be made available
for delivery to the Persons designated by the Depository.
(f) Cancellation and/or Adjustment of Global Debentures. At
such time as all beneficial interests in the Global Debenture have either been
exchanged for Definitive Debentures, redeemed, repurchased or cancelled, the
Global Debenture shall be returned to or retained and cancelled by the Trustee.
At any time prior to such cancellation, if any beneficial interest in the Global
Debenture is exchanged for Definitive Debentures, redeemed, repurchased or
cancelled, the aggregate principal amount of Debentures represented by such
Global Debenture shall be reduced accordingly and an endorsement shall be made
on such Global Debenture by the Trustee to reflect such reduction.
(g) General Provisions Relating to Transfers and Exchanges. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Definitive Debentures and Global Debentures at
the Registrar's request. All Definitive Debentures and Global Debentures issued
upon any registration of transfer or exchange of Definitive Debentures or Global
Debentures shall be legal, valid and binding obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Definitive Debentures or Global Debentures surrendered upon
such registration of transfer or exchange.
No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange (without transfer to another person)
pursuant to Sections 2.10, 3.7, 4.8 and 9.5 of this Indenture).
The Company shall not be required to (i) issue, register the
transfer of or exchange Debentures during a period beginning at the opening of
business 15 days before the day of any selection of Debentures for redemption
under Section 3.2 hereof and ending at the close of business on the day of
selection; or (ii) register the transfer of or exchange any Debenture so
selected for redemption in whole or in part, except the unredeemed portion of
any Debenture being redeemed in part; or (iii) register the transfer of or
exchange a Debenture between a record date and the next succeeding interest
payment date.
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Prior to due presentment for the registration of a transfer of
any Debenture, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Debenture is registered as the absolute owner of such
Debenture for all purposes, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary.
Section 2.7. Replacement Debentures.
If any mutilated Debenture is surrendered to the Trustee, or
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, the Company shall issue and the
Trustee shall authenticate a replacement Debenture if the Trustee's requirements
for replacements of Debentures are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent or any authenticating agent from any loss that any of them may suffer
if a Debenture is replaced. The Company or the Trustee may charge for its
expenses in replacing a Debenture.
Every replacement Debenture is an obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Debentures duly issued hereunder.
Section 2.8. Outstanding Debentures.
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Debenture
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding.
If a Debenture is replaced pursuant to Section 2.7 hereof, the
replaced Debenture ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Debenture is held by a bona fide purchaser.
If the principal amount of any Debenture is considered paid
under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases
to accrue.
Subject to Section 2.9 hereof, a Debenture does not cease to
be outstanding because the Company or an Affiliate of the Company holds the
Debenture.
Section 2.9. Treasury Debentures.
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, waiver or consent,
Debentures owned by the Company or any Affiliate of the Company shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Debentures that a Trustee knows to be so owned shall be
considered as not outstanding.
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Section 2.10. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Debentures that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the definitive Debentures in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Debentures may
determine, as conclusively evidenced by their execution of such Debentures.
If temporary Debentures are issued, the Company shall cause
definitive Debentures to be prepared without unreasonable delay. The definitive
Debentures shall be printed, lithographed or engraved, or provided by any
combination thereof, or in any other manner permitted by the rules and
regulations of any principal national securities exchange, if any, on which the
Debentures are listed, all as determined by the Officers executing such
definitive Debentures. After the preparation of definitive Debentures, the
temporary Debentures shall be exchangeable for definitive Debentures upon
surrender of the temporary Debentures at the office or agency maintained by the
Company for such purpose pursuant to Section 4.2 hereof, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Debentures,
the Company shall execute, and the Trustee shall authenticate and make available
for delivery, in exchange therefor the same aggregate principal amount of
definitive Debentures of authorized denominations. Until so exchanged, the
temporary Debentures shall in all respects be entitled to the same benefits
under this Indenture as definitive Debentures.
Section 2.11. Cancellation.
The Company at any time may deliver Debentures to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall retain or destroy cancelled Debentures in accordance with its normal
practices (subject to the record retention requirement of the Exchange Act)
unless the Company directs them to be returned to it. The Company may not issue
new Debentures to replace Debentures that have been redeemed or paid or that
have been delivered to the Trustee for cancellation. All cancelled Debentures
held by the Trustee shall be returned to the Company.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Debentures, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Debentures and in
Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each
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such special record date and payment date. At least 15 days before the special
record date, the Company (or the Trustee, in the name of and at the expense of
the Company) shall mail to the Holders a notice that states the special record
date, the related payment date and the amount of such interest to be paid.
Section 2.13. Legends.
(a) Except as permitted by subsections (b) or (c) hereof, each
Debenture shall bear legends relating to restrictions on transfer pursuant to
the securities laws in substantially the form set forth on Exhibit A attached
hereto.
(b) Upon any sale or transfer of a Restricted Security
(including any Restricted Security represented by a Global Debenture) pursuant
to Rule 144 under the Securities Act or pursuant to an effective registration
statement under the Securities Act:
(i) in the case of any Restricted Security that is a
Definitive Debenture, the Registrar shall permit the Holder thereof to
exchange such Restricted Security for a Definitive Debenture that does
not bear the legends required by subsection (a) above; and
(ii) in the case of any Restricted Security represented by a
Global Debenture, such Restricted Security shall not be required to
bear the legends required by subsection (a) above, but shall continue
to be subject to the provisions of Section 2.6(c) hereof; provided,
that with respect to any request for an exchange of a Restricted
Security that is represented by a Global Debenture for a Definitive
Debenture that does not bear the legends required by subsection (a)
above, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144.
(c) Debentures registered pursuant to an effective
registration statement under the Securities Act shall not bear the legends
required by subsection (a) above unless the Holder of such Debentures is either
(A) a broker-dealer who purchased such Debentures directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (B) a Person participating in the distribution of the Debentures
or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company.
ARTICLE 3
REDEMPTION
Section 3.1. Notices to Trustee.
If the Company elects to redeem Debentures pursuant to the
optional redemption provisions of Section 3.7 hereof, it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i)
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the clause of Section 3.7 pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Debentures to be redeemed and
(iv) the redemption price.
Section 3.2. Selection of Debentures to Be Redeemed.
If less than all the Debentures are to be redeemed, the
Trustee shall select the Debentures to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Debentures are listed, or, if the Debentures are not so listed, pro rata, by lot
or by such method as the Trustee deems to be fair and reasonable.
The Trustee shall promptly notify the Company in writing of
the Debentures selected for redemption and, in the case of any Debenture
selected for partial redemption, the principal amount thereof to be redeemed.
Debentures and portions of Debentures selected shall be in amounts of $1,000 or
whole multiples of $1,000. Provisions of this Indenture that apply to Debentures
called for redemption also apply to portions of Debentures called for
redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice of redemption by first class mail to each
Holder whose Debentures are to be redeemed at such Holder's registered address.
The notice shall identify the Debentures to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Debenture is being redeemed in part only, the
portion of the principal amount of such Debenture to be redeemed and
that, after the redemption date, upon cancellation of the original
Debenture, a new Debenture or Debentures in principal amount equal to
the unredeemed portion shall be issued;
(4) the name and address of the Paying Agent;
(5) that Debentures called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such
redemption payment, interest on Debentures or portions of Debentures
called for redemption ceases to accrue on and after the redemption
date;
(7) the paragraph of the Debentures and/or the section of this
Indenture pursuant to which the Debentures called for redemption are
being redeemed; and
<PAGE> 21
20
(8) the CUSIP number of the Debentures to be redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the name of the Company and at its expense; provided that the
Company shall deliver to the Trustee, at least 45 days (unless a shorter period
is acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption has been mailed to the Holders in
accordance with Section 3.3 herein, Debentures called for redemption become due
and payable on the redemption date at the redemption price. At any time prior to
the mailing of a notice of redemption to the Holders pursuant to Section 3.3,
the Company may withdraw, revoke or rescind any notice of redemption delivered
to the Trustee without any continuing obligation to redeem the Debentures as
contemplated by such notice of redemption.
Section 3.5. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit
with the Trustee (to the extent not already held by the Trustee) or with the
Paying Agent money in immediately available funds sufficient to pay the
redemption price of and accrued interest on all Debentures to be redeemed on
that date. The Trustee or the Paying Agent shall return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Debentures to be redeemed.
Interest on the Debentures to be redeemed shall cease to
accrue on the applicable redemption date, whether or not such Debentures are
presented for payment, if the Company makes or deposits the redemption payment
in accordance with this Section 3.5. If any Debenture called for redemption
shall not be paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid, and to
the extent lawful on any interest not paid on such unpaid principal, in each
case at the rate provided in the Debentures.
Section 3.6. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new Debenture equal in principal amount to the
unredeemed portion of the Debenture surrendered.
<PAGE> 22
21
Section 3.7. Optional Redemption.
The Debentures will be redeemable at the election of the
Company, as a whole or from time to time in part, at 110% of the aggregrate
principal amount of then outstanding Debentures, plus, without duplication, all
accrued and unpaid interest, if any, to the date of redemption.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Debentures.
The Company shall pay the principal and premium, if any, of,
and interest on, the Debentures on the dates and in the manner provided in the
Debentures. Principal, premium, if any, and interest shall be considered paid on
the date due if the Paying Agent, other than the Company or a Subsidiary of the
Company, holds on or before that date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due. Such Paying Agent shall
return to the Company, no later than three Business Days following the date of
payment, any money that exceeds such amount of principal, premium, if any, and
interest then due and payable on the Debentures.
The Company shall pay interest (including post-petition
interest) on overdue installments of interest (without regard to any applicable
grace period) at the same rate to the extent lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain an office or agency (which may be
an office of the Trustee, Registrar or co-registrar) in the Borough of
Manhattan, The City of New York where Debentures may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Debentures and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an office or agency for
such purposes. The Company shall give prompt written notice to the Trustee of
any such designation or rescission and of any change in the location of any such
other office or agency.
<PAGE> 23
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.3.
Section 4.3. Reports.
(a) The Company shall file with the Trustee, within 15 days
after the time of filing with the Commission, copies of the reports, information
and other documents (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission and the Trustee all
such reports, information and other documents as it would be required to file if
it were subject to the requirements of Section 13 or 15(d) of the Exchange Act;
provided, that the Company shall not be in default of the provisions of this
Section 4.3 for any failure to file reports with the Commission solely by
refusal by the Commission to accept the same for filing. The Company shall
deliver (or cause the Trustee to deliver) copies of all reports, information and
documents required to be filed with the Trustee pursuant to this Section 4.3 to
the Holders at their addresses appearing in the register of Debentures
maintained by the Registrar. The Company shall also comply with the provisions
of TIA Section 314(a).
(b) If the Company is required to furnish annual, quarterly or
current reports to its stockholders pursuant to the Exchange Act, the Company
shall cause any annual, quarterly, current or other financial report furnished
by it generally to its stockholders to be filed with the Trustee mailed to the
Holders at their addresses appearing in the register of Debentures maintained by
the Registrar. If the Company is not required to furnish annual, quarterly or
current reports to its stockholders pursuant to the Exchange Act, then, to the
extent not already filed with the Trustee or provided to the Holders pursuant to
paragraph (a) above, the Company shall cause the financial statements of the
Company and its consolidated Subsidiaries (and similar financial statements for
all unconsolidated Subsidiaries, if any), including any notes thereto (and, with
respect to annual reports, an auditors' report by an accounting firm of
established national reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," comparable to that which would
have been required to appear in annual or quarterly reports filed under Section
13 or 15(d) of the Exchange Act to be so filed with the Trustee and mailed to
the Holders promptly, but in any event, within 90 days after the end of each of
the fiscal years of the Company and within 45 days after the end of each of the
first three quarters of each such fiscal year.
(c) So long as is required for an offer or sale of the
Debentures to qualify for an exemption under Rule 144A, the Company shall, upon
request, provide the information required by clause (d)(4) thereunder to each
Holder and to each beneficial owner and prospective purchaser of Debentures
identified by any Holder of Restricted Securities.
<PAGE> 24
23
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate (provided, that one
of the signatories to such Officers' Certificate shall be the Company's
principal executive officer, principal financial officer or principal accounting
officer) stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determine whether each has
kept, observed, performed and fulfilled its obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that each
of the Company and its Subsidiaries has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
or thereof (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he may have knowledge and what
action each is taking or proposes to take with respect thereto).
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.3 above shall be
accompanied by a written statement of the independent public accountants of the
Company (which shall be a firm of established national reputation reasonably
satisfactory to the Trustee) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
which would lead them to believe that either the Company or any of its
Subsidiaries has violated any provisions of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) So long as any of the Debentures are outstanding, the
Company shall deliver to the Trustee forthwith upon any Officer becoming aware
of (i) any Default or Event of Default or (ii) any event of default under any
mortgage, indenture or instrument referred to in Section 6.1(5) hereof, an
Officers' Certificate specifying such Default, Event of Default or other event
of default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.5. Taxes.
The Company shall, and shall cause its Subsidiaries to, file
all tax returns required to be filed and to pay prior to delinquency all
material taxes, assessments and governmental levies except as contested in good
faith and by appropriate proceedings and for which reserves have been
established in accordance with GAAP.
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter
<PAGE> 25
24
in force, which may affect the covenants or the performance of this Indenture;
and the Company hereby expressly (to the extent that it may lawfully do so)
waives all benefit or advantage of any such law and covenants that it shall not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee but shall suffer and permit the execution of every
such power as though no such law has been enacted.
Section 4.7. Limitation on Restricted Payments.
The Company shall not, and, with respect to clause (ii) below,
shall not permit any Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare, set aside for payment or pay any dividend on, or
make any distribution to the holders of any Junior Securities (other
than dividends or distributions payable solely in shares of a class or
series upon which such dividends are declared or paid, or payable in
shares of Common Stock with respect to Junior Securities other than
Common Stock, together with cash in lieu of fractional shares); or
(ii) purchase, redeem or otherwise acquire or retire for
value, directly or indirectly, any Junior Securities
(such payments or other actions described in (but not excluded from) clauses (i)
and (ii) are collectively referred to as "Restricted Payments"), unless at the
time of, and immediately after giving effect to, the proposed Restricted Payment
(1) no Default shall have occurred and be continuing, and (2) all accrued
interest on the Debentures shall have been paid in full, or funds sufficient for
payment thereof have been set apart for payment.
Section 4.8. Limitation on Asset Sales.
The Company shall not, and shall not permit any Subsidiary to,
make any Asset Sale unless (i) the Company or such Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Board of Directors as evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets subject to such Asset Sale, (ii) at
least 75% of the consideration for such Asset Sale is in the form of cash, Cash
Equivalents or liabilities of the Company or any Subsidiary (other than
liabilities that are by their terms subordinated to the Debentures) that are
assumed by the transferee of such assets (provided, that following such Asset
Sale there is no further recourse to the Company and its Subsidiaries with
respect to such liabilities), and (iii) within 12 months of such Asset Sale, the
Net Proceeds thereof are (a) invested in assets related to the business of the
Company or its Subsidiaries, or (b) used to repay, purchase or otherwise acquire
Indebtedness under the New Credit Facility, or (c) used during such 12 months,
or withing 60 days after such 12 month period, to purchase or otherwise acquire
Debentures, or (d) to the extent not used as provided in clause (a) or (b),
applied to make an offer to purchase Debentures as described below (an "Excess
Proceeds Offer"); provided, that if the amount of Net Proceeds from any Asset
Sale not invested or used pursuant to clause (a), (b) or (c) above is less than
$5.0
<PAGE> 26
25
million, the Company shall not be required to make an offer pursuant to clause
(c) until the aggregate amount of Excess Proceeds from all Asset Sales exceeds
$5.0 million. Pending the final application of any such Net Proceeds, the
Company or any Subsidiary may temporarily reduce Indebtedness under the New
Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents.
For the purposes of this covenant, the following are deemed to
be cash: (y) securities received by the Company or any Subsidiary from the
transferee that are promptly converted by the Company or such Subsidiary into
cash and (z) assets related to the business of the Company or its Subsidiaries
received in an exchange of assets transaction; provided that (i) in the event
such exchange of assets transaction or series of related exchange of assets
transactions (each an "Exchange Transaction") involves an aggregate value in
excess of $2.5 million, the terms of such Exchange Transaction shall have been
approved by a majority of the disinterested members of the Board of Directors,
(ii) in the event such Exchange Transaction involves an aggregate value in
excess of $5.0 million, the Company shall have received a written opinion from a
nationally recognized independent investment banking firm that the Company has
received consideration equal to the fair market value of the assets disposed of
and (iii) any assets to be received shall be comparable to those being exchanged
as determined in good faith by the Board of Directors.
The amount of Net Proceeds not invested, used or applied as
set forth in the preceding clauses (a) and (b) constitutes "Excess Proceeds." If
the Company elects, or becomes obligated to make an Excess Proceeds Offer, the
Company shall offer to purchase Debentures having an aggregate principal amount
equal to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal
to 110% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date. The Company must commence such Excess
Proceeds Offer not later than 90 days after the expiration of the 12-month
period following the Asset Sale that produced Excess Proceeds. If the aggregate
purchase price for the Debentures tendered pursuant to the Excess Proceeds Offer
is less than the Excess Proceeds, the Company and its Subsidiaries may use the
portion of the Excess Proceeds remaining after payment of such purchase price
for general corporate purposes.
Each Excess Proceeds Offer shall remain open for a period of
20 Business Days and no longer, unless a longer period is required by law (the
"Excess Proceeds Offer Period"). Promptly after the termination of the Excess
Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company shall
purchase and mail or deliver payment for the Purchase Amount for the Debentures
or portions thereof tendered, pro rata or by such other method as may be
required by law, or, if less than the Purchase Amount has been tendered, all
Debentures tendered pursuant to the Excess Proceeds Offer. The principal amount
of Debentures to be purchased pursuant to an Excess Proceeds Offer may be
reduced by the principal amount of Debentures acquired by the Company through
purchase or redemption subsequent to the date of the Asset Sale and surrendered
to the Trustee for cancellation.
Each Excess Proceeds Offer shall be conducted in compliance
with all applicable laws, including without limitation, Regulation 14e-1 of the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that
<PAGE> 27
26
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.10, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.8 by virtue thereof.
Section 4.9. Limitation on Transactions With Affiliates.
The Company shall not, and shall not permit any of the
Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), except for (i) Affiliate Transactions, which
together with all Affiliate Transactions that are part of a common plan, have an
aggregate value of not more than $1.0 million; provided, that such transactions
are conducted in good faith and on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Subsidiary, (ii) Affiliate
Transactions, which together with all Affiliate Transactions that are part of a
common plan, have an aggregate value of not more than $2.5 million; provided,
that a majority of the disinterested members of the Board of Directors of the
Company determine that such transactions are conducted in good faith and on
terms that are no less favorable to the Company or the relevant Subsidiary than
those that would have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate of the Company or
such Subsidiary, (iii) Affiliate Transactions for which the Company delivers to
the Trustee an opinion as to the fairness to the Company or such Subsidiary from
a financial point of view, issued by an investment banking firm of national
standing and (iv) Permitted Affiliate Transactions and other Restricted Payments
permitted by section 4.7 of the indenture governing the Senior Secured Notes.
Section 4.10. Maintenance Test Ratio.
The Company will calculate whether the Maintenance Test Ratio
exceeds any of the following respective amounts at the end of the fiscal quarter
(the "Maximum Test Ratio") set forth opposite such Maximum Test Ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Maximum Test Ratio
-------------------- ------------------
<S> <C>
March, June, September, 1998 6.75
December 1998 6.50
March, June, September, December 1999 6.00
March, June, September, December 2000 5.50
March, June, September, December 2001 5.25
March, June, September, December 2002
and each quarter thereafter 5.00
</TABLE>
<PAGE> 28
27
ARTICLE 5
SUCCESSORS
Section 5.1. When the Company May Merge, etc.
The Company shall not, in a single transaction or through a
series of transactions, consolidate with or merge with or into any other Person
(whether or not the Company is the surviving corporation) or sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets (determined on a consolidated basis for the Company and
its Subsidiaries) to any other Person or Persons, unless at the time and
immediately after giving effect thereto:
(i) either (a) the Company shall be the continuing
corporation or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person
that acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all the properties and assets of the
Company and its Subsidiaries on a consolidated basis (the "Surviving
Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or
the District of Columbia;
(ii) the Debentures shall be converted into or
exchanged for and shall become debt of the Surviving Entity having in
respect of the Surviving Entity the same rights and privileges that the
Debentures had immediately prior to such transaction with respect to
the Company, and the Surviving Entity (if other than the Company) or
the Person to which such transfer has been made shall assume all the
Obligations of the Company, pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee, under the Debentures and
this Indenture;
(iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, no Default,
and no event that after the giving of notice or lapse of time or both
would become a Default, shall have occurred and be continuing;
(iv) the Company (or the Surviving Entity as the case
may be) has (A) a Consolidated Net Worth (immediately after giving
effect to such transaction, but prior to any purchase accounting
adjustments from such transaction) not less than 100% of the
Consolidated Net Worth of the Company immediately before such
transaction and (B) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma
basis (on the assumption that the transaction or series of transactions
occurred on the first day of the four-quarter period immediately prior
to the consummation of such transaction or series of transactions with
the appropriate adjustments with respect to the transaction or series
of transactions being included in such pro forma calculation), could
incur at least $1.00 of additional Indebtedness pursuant to the
"Interest Coverage Ratio" set forth section 1.1 of the indenture
governing the Senior Secured Notes; and
<PAGE> 29
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(v) the Company or the Surviving Entity shall have
delivered to the Holders an Officers' Certificate, each stating that
such consolidation, merger, sale, assignment, conveyance, transfer,
lease or other disposition comply with this Indenture.
Section 5.2. Successor Substituted.
In the event of any transaction (other than a lease)
contemplated by Section 5.1 hereof in which the Company is not the surviving
Person, the successor formed by such consolidation or into or with which the
Company is merged or to which such transfer is made, or formed by such
reorganization, as the case may be, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company, and the Company shall be
discharged from its Obligations under this Indenture and the Debentures with the
same effect as if such successor Person had been named as the Company herein or
therein.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest
on any Debenture when the same becomes due and payable and the Default
continues for a period of 30 days;
(2) the Company defaults in the payment of the
principal (or premium, if any) on any Debenture when the same becomes
due and payable at maturity, upon redemption, by acceleration, in
connection with an Excess Proceeds Offer or otherwise;
(3) the Company defaults in the performance of or
breaches the provisions of Section 4.4 hereof and the Default continues
for 30 days; or the Company defaults in the performance of or breaches
the provisions of Section 4.8 or Article 5 hereof;
(4) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Debentures or this
Indenture and the Default continues for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal
amount of the then outstanding Debentures, such notice to state that it
is a "Notice of Default;"
(5) a default occurs under (after giving effect to
any waivers, amendments, applicable grace periods or any extension of
any maturity date) any
<PAGE> 30
29
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any Subsidiary (or the payment of which is
guaranteed by the Company or any Subsidiary), whether such Indebtedness
or guarantee now exists or is created after the date of this Indenture,
if (a) either (i) such default results from the failure to pay
principal on such Indebtedness or (ii) as a result of such default the
maturity of such Indebtedness has been accelerated, and (b) the
principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness with respect to which such a
payment default (after the expiration of any applicable grace period or
any extension of the maturity date) has occurred, or the maturity of
which has been so accelerated, exceeds $2.5 million in the aggregate;
provided that if such default results from a failure to pay principal
on the New Credit Facility, such default shall not constitute an Event
of Default hereunder until 15 days after such default;
(6) a final non-appealable judgment or judgments for
the payment of money (other than judgments as to which a reputable
insurance company has accepted full liability) is or are entered by a
court or courts of competent jurisdiction against the Company or any
Subsidiary and such judgment or judgments remain undischarged, unbonded
or unstayed for a period of 60 days after entry, provided that the
aggregate of all such judgments exceeds $2.5 million;
(7) written assertion is made by the Company, of the
unenforceability of their obligations under the Indenture or the
Debentures to which they are a party;
(8) the Company or any Material Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order
for relief against it in an
involuntary case,
(c) consents to the appointment of a
Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the
benefit of its creditors,
(e) admits in writing its inability to
pay debts as the same become due;
or
(10) a court of competent jurisdiction enters an
order or decree, and the order or decree remains unstayed and in effect
for 60 days under any Bankruptcy Law that:
<PAGE> 31
30
(a) is for relief against the Company
or any Material Subsidiary in an
involuntary case,
(b) appoints a Custodian of the Company
or any Material Subsidiary or for
all or substantially all of their
property,
(c) orders the liquidation of the
Company, or any Material
Subsidiary. an
The Company shall, upon becoming aware that a Default or Event
of Default has occurred, deliver to the Trustee a statement specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default
specified in clauses (9) and (10) of Section 6.1) occurs and is continuing, the
Trustee by written notice to the Company, or the Holders of at least 25% in
principal amount of the then outstanding Debentures by written notice to the
Company and the Trustee, may declare the unpaid principal of and any accrued
interest on all the Debentures to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately. If an Event of
Default specified in clause (9) or (10) of Section 6.1 with respect to the
Company occurs, all outstanding Debentures shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. At any time after a declaration of acceleration, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
Debentures outstanding, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if (a) the Company has
paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or
advanced by the Trustee and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
(including any interest accrued subsequent to an Event of Default specified in
clauses (9) and (10) of Section 6.1) on all Debentures, (iii) the principal of
and premium, if any, on any Debentures that have become due otherwise than by
such declaration or occurrence of acceleration and interest thereon at the rate
borne by the Debentures, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Debentures; (b)
all Events of Default, other than the non-payment of principal of and interest
on the Debentures that have become due solely by such declaration or occurrence
of acceleration, have been cured or waived; and (c) the rescission would not
conflict with any judgment, order or decree of any court of competent
jurisdiction.
<PAGE> 32
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Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy (under this Indenture or otherwise) to collect
the payment of principal or interest on the Debentures to enforce the
performance of any provision of the Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Debentures or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Holders of a majority of the aggregate principal amount of the
then outstanding Debentures by written notice to the Company and the Trustee may
on behalf of the Holders of all of the Debentures waive any existing Default or
Event of Default and its consequences under this Indenture except a continuing
Default or Event of Default in the payment of the principal of, or interest on,
any Debenture (other than a Default in the payment of principal of, or interest
on, the Debentures that have become due as a result of acceleration) or a
Default or an Event of Default with respect to any covenant or provision which
cannot be modified or amended without the consent of the Holder of each
outstanding Debenture affected. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
The Holders of a majority in principal amount of the then
outstanding Debentures may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders, or that may involve the
Trustee in personal liability.
Section 6.6. Limitation on Suits.
A Holder may pursue a remedy with respect to this Indenture or
the Debentures only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the
then outstanding Debentures make a written request to the Trustee to
pursue the remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Debentures do not give the
Trustee a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
Section 6.7. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Debenture to receive payment of principal and interest
on the Debenture, on or after the respective due dates expressed in the
Debenture, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal and interest remaining unpaid on the Debentures and interest
on overdue principal (and premium, if any) and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders allowed in any judicial proceedings relative to the Company (or any
other obligor under the Debentures), their creditors or their property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable
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compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders of the Debentures may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in accordance with the requirements of the Intercreditor
Agreement and to the extent received in accordance therewith, in the following
order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.7, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders for amounts due and unpaid on the
Debentures for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Debentures for
principal and interest, respectively;
Third: without duplication, to Holders for any other
Obligations owing to the Holders under the Debentures or this Indenture; and
Fourth: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does
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not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.6,
or a suit by Holders of more than 10% in principal amount of the then
outstanding Debentures.
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(1) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(2) Except during the continuance of an Event of
Default:
(a) The duties of the Trustee shall be
determined solely by the express provisions of this Indenture, and the
Trustee need perform only those duties that are specifically set forth
in this Indenture, and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
(b) The Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liabilities
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(a) This paragraph does not limit the effect
of paragraph (2) of this Section.
(b) The Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in ascertaining the
pertinent facts.
(c) The Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.5.
(4) Whether or not therein expressly so provided,
every provision of this Indenture that in any way relates to the Trustee is
subject to paragraphs (1), (2) and (3) of this Section.
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(5) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability. The Trustee may
refuse to perform any duty or exercise any right or power unless it receives
indemnity satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on
any money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(7) The Trustee is hereby authorized to act as
Collateral Agent and to enter into the Intercreditor Agreement.
Section 7.2. Rights of Trustee.
(1) The Trustee may conclusively rely upon any
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated in
the document.
(2) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the advice of such counsel or any Opinion
of Counsel shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
(3) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(4) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company, on behalf of the Company.
(6) Except with respect to Section 4.1, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.1(1), 6.1(2) and 4.1, or (ii) any Default or
Event of Default of which the Trustee shall have received written notification
or obtained actual knowledge.
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Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Debentures and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Debentures, it shall not be accountable for the Company's use of the proceeds
from the Debentures or any money paid to the Company or upon the Company's
direction under any provision hereof, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee and
it shall not be responsible for any statement or recital herein or any statement
in the Debentures or any other document in connection with the sale of the
Debentures or pursuant to this Indenture other than its certificate of
authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and
if the Trustee has knowledge thereof (within the meaning of Section 7.2(6)), the
Trustee shall mail to the Holders a notice of the Default or Event of Default
within 90 days after it occurs.
Section 7.6. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall mail to the Holders a
brief report dated as of such reporting date that complies with TIA Section
313(a) (but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the
TIA, a copy of each report at the time of its mailing to the Holders shall be
filed with the Commission and each stock exchange on which the Debentures are
listed. The Company shall promptly notify the Trustee when the Debentures are
listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
parties shall agree in writing from time to time (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust). The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
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expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel, except such disbursements,
advances and expenses as may be attributable to its negligence.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it without negligence on its part
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, except as set forth below. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Failure by
the Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. In the event that a conflict of interest or
conflicting defenses would arise in connection with the representation of the
Company and the Trustee by the same counsel, the Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own
negligence.
To secure the Company's payment obligations in this Section,
the Company hereby grants to the Trustee a security interest on all money or
property held or collected by the Trustee, except that held in trust to pay
principal of (and premium, if any) and interest on particular Debentures. Such
Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(9) or (10) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Debentures may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
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(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Debentures may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the then
outstanding Debentures may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any Holder who has
been a Holder for at least six months fails to comply with Section 7.10, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided that all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 hereof shall continue
for the benefit of the retiring Trustee, and the Company shall pay to any such
replaced or removed Trustee all amounts owed under Section 7.7 upon such
replacement or removal.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
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Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that, if other
than [TRUSTEE] shall (a) be a corporation organized and doing business under the
laws of the United States of America or of any state thereof or of the District
of Columbia authorized under such laws to exercise corporate trustee power, (b)
be subject to supervision or examination by Federal or state or the District of
Columbia authority, and (c) have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The
Trustee is subject to TIA Section 310(b); provided, however, that there shall be
excluded from the operations of TIA Section 310(b)(1) any indenture or
indentures under which other securities, or certificates of interest or
participation in other securities, of the Company are outstanding, if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Company, as
obligor on the Debentures.
ARTICLE 8
SATISFACTION AND DISCHARGE
Section 8.1. Discharge; Option to Effect Legal Defeasance or Covenant
Defeasance.
This Indenture shall cease to be of further effect (except
that the Company's obligations under Section 7.7 and the Trustee's and the
Paying Agent's obligations under Sections 8.6 and 8.7 shall survive) when all
outstanding Debentures theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Debentures that have been replaced or
paid) to the Trustee for cancellation and the Company have paid all sums payable
hereunder. In addition, the Company may elect at any time to have Section 8.2 or
Section 8.3, at the Company's option, of this Indenture applied to all
outstanding Debentures upon compliance with the conditions set forth below in
this Article 8.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company shall be deemed to have been
discharged from their respective obligations with respect to all outstanding
Debentures on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented and this Indenture shall cease to be of further effect
as to all
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outstanding Debentures, except as to be deemed to be "outstanding" only for the
purposes of Section 8.5 hereof and the other Sections of this Indenture referred
to in (a) and (b) below, and the Company shall be deemed to have satisfied all
other of their respective obligations under such Debentures and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Debentures to receive payments in respect of the
principal of, premium, if any, and interest (and Liquidated Damages, if any) on
such Debentures when such payments are due from the trust described in Section
8.5, (b) the Company's obligations with respect to such Debentures under
Sections 2.4, 2.6, 2.7, 2.10, 4.2, 8.5, 8.6 and 8.7 hereof and (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith. Subject to compliance with this Article 8,
the Company may exercise its option under this Section 8.2 notwithstanding the
prior exercise of its option under Section 8.3 hereof with respect to the
Debentures.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, the Company shall be released from their
respective obligations under the covenants contained in Sections 4.3, 4.4, 4.5,
4.6, 4.7, 4.8, 4.9 and 4.10 and Article 5 and Article 10 hereof with respect to
the outstanding Debentures on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Debentures shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder. For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Debentures, the Company
need not comply with and shall have any liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document, but, except as specified above, the remainder of this
Indenture and such Debentures shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.1 hereof of the option applicable to this
Section 8.3, Sections 6.1(3) through 6.1(10) hereof shall not constitute Events
of Default with respect to the Debentures.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of
either Section 8.2 or 8.3 hereof to the outstanding Debentures:
(i) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.10 hereof who shall agree to comply with the provisions of this
Article 8 applicable to it), in trust, for the benefit of the Holders of the
Debentures, cash, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
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recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
outstanding Debentures on the stated date for payment thereof or on the
redemption date of such principal or installment of principal of, premium, if
any, or interest on such Debentures, and the holders of Debentures must have a
valid, perfected, exclusive security interest in such trust, (ii) in the case of
Legal Defeasance before the date that is one year prior to the final stated
maturity of the Debentures, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of this
Indenture, there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such outstanding Debentures will not recognize
income, gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance before the
date that is one year prior to the final stated maturity of the Debentures, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the Holders of such
outstanding Debentures will not recognize income, gain or loss for Federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of such Debentures over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding other
creditors of the Company; and (vii) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
the conditions precedent provided for, in the case of the Officers' Certificate,
(i) through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest) (ii), (iii) and
(v) of this paragraph, have been complied with.
Section 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding
Debentures shall be held in trust and applied by the Paying Agent, in accordance
with the provisions of such Debentures and this Indenture, to the payment,
either directly or through any other Paying Agent as the Trustee may determine,
to the Holders of such Debentures of all sums due and to become due thereon in
respect of principal, premium, if any, and interest (and Liquidated Damages, if
any), but such money
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need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 8.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Debentures.
Section 8.6. Repayment to the Company.
(a) Anything in this Article 8 to the contrary
notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the
Company from time to time upon the request of the Company any cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.3(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest (and Liquidated Damages, if any) on any Security and remaining
unclaimed for two years after such principal, and premium, if any, or interest
has become due and payable shall be paid to the Company on its request; and the
Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any cash or
U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the
case may be, of this Indenture by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, or if any event occurs at any time in the period ending on the 91st
day after the date of deposit pursuant to Section 8.4 hereof which event would
constitute an Event of Default under Section 6.1 (iv) or (v) had Legal
Defeasance or Covenant Defeasance, as the case may be, not occurred, then the
Company's obligations under this Indenture and the Debentures shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.4 hereof
until such time as the Trustee or Paying Agent is permitted to apply such money
in accordance with Sections 8.2 and 8.3 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest (and Liquidated Damages, if any) on any
<PAGE> 44
43
Security following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Debentures to receive such
payment from the cash or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE 9
AMENDMENTS
Section 9.1. Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture and
the Debentures without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Debentures in addition to or
in place of certificated Debentures;
(3) to comply with Article 5 and Section 10.12 hereof;
(4) to make any change that would provide any additional
rights or benefits to the Holders of the Debentures or that does not
materially adversely affect the legal rights hereunder or thereunder of
any Holder; or
(5) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such
supplemental indenture or amendment, and upon receipt by the Trustee of the
documents described in Section 9.6 hereof required or requested by the Trustee,
the Trustee shall join with the Company in the execution of any supplemental
indenture or amendment authorized or permitted by the terms of this Indenture
and shall make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or amendment that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.2. With Consent of Holders.
Subject to Sections 6.4 and 6.7 hereof, the Company and the Trustee, as
applicable, may amend, or waive any provision of, this Indenture or the
Debentures, with the written consent of the Holders of at least a majority of
the principal amount of the then outstanding Debentures (including consents
obtained in connection with a tender offer or exchange offer for Debentures).
Upon the request of the Company, accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such
supplemental indenture or
<PAGE> 45
44
amendment, and upon filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders as aforesaid, and upon receipt by the
Trustee of the documents described in Section 9.6 hereof, the Trustee shall join
with the Company in the execution of such supplemental indenture or amendment
unless such supplemental indenture or amendment affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed supplemental indenture or
amendment, but it shall be sufficient if such consent approves the substance
thereof.
After a supplemental indenture or amendment under this Section becomes
effective, the Company shall mail to the Holders of each Debenture affected
thereby a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture, amendment
or waiver.
Notwithstanding any other provision hereof, without the consent of each
Holder affected, an amendment or waiver under this Section may not (with respect
to any Debentures held by a non-consenting Holder):
(1) reduce the principal amount of Debentures whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of
interest, including default interest, on any Debenture;
(3) reduce the principal of, or the premium on, or change the
fixed maturity of any Debenture or alter Article 3 hereof or numbered
paragraphs 5 or 6 of Exhibit A to this Indenture or the price at which
the Company shall offer to purchase such Debentures pursuant to Section
4.8 hereof;
(4) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on, or redemption payment
with respect to, any Debenture (other than a Default in the payment of
an amount due as a result of an acceleration if the Holders rescind
such acceleration pursuant to Section 6.2);
(5) make any Debenture payable in money other than that stated
in the Debentures;
(6) make any change in Section 6.4 or 6.7 hereof or in this
Section 9.2; or
(7) make any change adversely affecting the contractual
ranking of the Obligations.
<PAGE> 46
45
A meeting of Holders may be called at any time and from time to time by
the Company or the Trustee for the purpose of taking or consenting to any action
authorized or contemplated to be taken hereunder by the Holders, notice of such
meeting to be provided in the manner set forth herein. Notwithstanding any other
provision of this Indenture, the Trustee may make such reasonable regulations as
it may deem advisable for any action by or any meeting of Holders.
Section 9.3. Compliance with Trust Indenture Act.
If, at the time of an amendment to this Indenture or the Debentures,
this Indenture shall be qualified under the TIA, every amendment to this
Indenture or the Debentures shall be set forth in a supplemental indenture that
complies with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until a supplemental indenture, an amendment or waiver becomes
effective, a consent to it by a Holder of a Debenture is a continuing consent by
the Holder and every subsequent Holder of a Debenture or portion of a Debenture
that evidences the same debt as the consenting Holder's Debenture, even if
notation of the consent is not made on any Debenture. A supplemental indenture,
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
The Company may fix a record date for determining which Holders must
consent to such supplemental indenture, amendment or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders furnished to the Trustee prior to such solicitation pursuant to
Section 2.5, or (ii) such other date as the Company shall designate.
Section 9.5. Notation on or Exchange of Debentures.
The Trustee may place an appropriate notation about a supplemental
indenture, amendment or waiver on any Debenture thereafter authenticated. The
Company in exchange for all Debentures may issue and the Trustee shall
authenticate new Debentures that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Debenture shall
not affect the validity and effect of such amendment or waiver.
Section 9.6. Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be
<PAGE> 47
46
entitled to receive, if requested, an indemnity reasonably satisfactory to it
and to receive and, subject to Section 7.1, shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence
that such amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it shall be valid and
binding upon the Company in accordance with its terms. The Company may not sign
an amendment or supplemental indenture until the Board of Directors of the
Company approves it.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 10.2. Notices.
Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first-class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' addresses:
If to the Company:
American Restaurant Group, Inc.
450 Newport Center Drive, 6th Floor
Newport Beach, California 92660
Attention: Ken A. Di Lillo
Telecopier No.: (714) 721-8941
If to the Trustee:
[TRUSTEE]
[address]
Attention:
Telecopier No.:
The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; upon receipt, if deposited in the mail, postage prepaid; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. All notices and
<PAGE> 48
47
communications to the Trustee shall be deemed to have been duly given only if
actually received by the Trustee.
Any notice or communication to a Holder shall be mailed by first-class
mail, certified or registered, return receipt requested, to his address shown on
the register kept by the Registrar. Failure to mail a notice or communication to
a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 10.3. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Debentures. The
Company, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
Section 10.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5) stating that, in the opinion of such counsel,
all such conditions precedent and covenants have been complied with.
Section 10.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or
<PAGE> 49
48
opinion are based;
(c) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with,
provided that with respect to matters of fact, an Opinion of Counsel may rely
upon an Officers' Certificate or a certificate of a public official.
Section 10.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.7. Legal Holidays.
If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
Section 10.8. No Recourse Against Others.
No director, officer, employee, incorporator, stockholder or
controlling person of the Company, as such, shall have any liability for any
obligations of the Company under the Debentures or this Indenture or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder by accepting a Debenture waives and releases all such
liability. The waiver and release shall be part of the consideration for the
issuance of the Debentures. Notwithstanding the foregoing, nothing in this
provision shall be construed as a waiver or release of any claims under the
Federal securities laws.
Section 10.9. Governing Law.
THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY,
<PAGE> 50
49
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY
IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH HEREIN,
SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF DEBENTURES TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
Section 10.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
Section 10.11. Successors.
All agreements of the Company in this Indenture and the Debentures
shall bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 10.12. Severability.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.13. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
<PAGE> 51
50
Section 10.14. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
<PAGE> 52
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Indenture as of the date first written above.
AMERICAN RESTAURANT GROUP, INC.
Attest: By:_____________________________________
Name:
Title:
________________________________
Name:
Title:
[TRUSTEE], as Trustee
By:_____________________________________
Name:
Title:
<PAGE> 53
EXHIBIT A
(Face of Security)
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR DEBENTURES IN
DEFINITIVE FORM, THIS DEBENTURE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.1
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
DEBENTURE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS DEBENTURE BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH DEBENTURE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR
SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS
PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT
RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE
ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
DEBENTURE (OR ANY PREDECESSOR OF SUCH DEBENTURE) EXCEPT (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH
- --------
1 This paragraph should be included only if the Debenture is issued in global
form.
<PAGE> 54
A-2
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
DEBENTURES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO FOREIGN
PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS
WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING
THE DEBENTURE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
DEBENTURE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
<PAGE> 55
AMERICAN RESTAURANT GROUP, INC.
12% SENIOR SUBORDINATED DEBENTURE
DUE 2003
NO. $___________
CUSIP NO.
American Restaurant Group, Inc., a Delaware corporation (the
"Company"), as obligor, for value received promises to pay to ______________ or
registered assigns, the 110% of the principal sum of Dollars on August 15, 2003.
Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and
August 1 (whether or not a Business Day).
Reference is hereby made to the further provisions of this Debenture
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers.
Dated:
AMERICAN RESTAURANT GROUP, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Debentures referred to in the within-mentioned Indenture:
[ ], as Trustee
By:________________________________________
Authorized Signature
<PAGE> 56
A-4
(Back of Security)
12% SENIOR SUBORDINATED DEBENTURE
DUE 2003
1. Interest. American Restaurant Group, Inc., a Delaware corporation
(the "Company"), as obligor, promises to pay interest on the principal amount of
this Debenture at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of
this Debenture, at the rate of 12% per annum. The Company shall pay interest
semi-annually on February 15 and August 15 of each year, and on the maturity
date, commencing on ______ __, ____, or if any such day is not a Business Day,
on the next succeeding Business Day (each an "Interest Payment Date").
Interest shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from February 24, 1998.
To the extent lawful, the Company shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the same rate.
For all purposes hereunder, the rate of interest on the Debentures
shall be automatically increased in the following events: (i) if at the end of
any fiscal quarter of the Company, the Maintenance Test Ratio exceeds the
Maximum Test Ratio for that fiscal quarter, then for the period during the
immediately succeeding quarter, the rate of interest on the Debentures shall be
13.5% for the first two quarters for which the Maximum Test Ratio is exceeded
(whether or not such fiscal quarters are consecutive) and 15% for any other
quarter thereafter for which the Maximum Test Ratio is exceeded or (ii) if (1)
interest on the Debentures is in arrears and unpaid for any quarterly period,
(2) the Company defaults in the payment of the principal on any Debenture when
the same becomes due and payable at maturity, (3) the Company breaches any of
the covenants contained in the Indenture concerning restricted payments, sales
of assets, affiliate transactions, mergers and sales of assets, or (4) a breach
or violation of any other provision contained in the Indentures occurs which
materially affects the Holders and such breach or violation continues for a
period of 30 days or more after receipts of notices from a majority of the
Holders of the Debentures, the rate of interest on the Debentures shall be 15%
for the period during which such events continue.
2. Method of Payment. The Company shall pay interest on the Debentures
(except defaulted interest) to the Persons who are registered Holders of
Debentures at the close of business on the record date next preceding the
Interest
<PAGE> 57
Payment Date, even if such Debentures are cancelled after such record date and
on or before such Interest Payment Date. The Holder must surrender this
Debenture to a Paying Agent to collect principal payments. The Company shall pay
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company, however, may pay
interest by check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee shall act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Holder. Subject to certain exceptions, the
Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Debentures under an Indenture
dated as of ________ __, ____ (the "Indenture") among the Company and the
Trustee. The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "TIA") (15 U.S. Code SectionSection 77aaa-77bbbb) as in effect on the date
of the Indenture until such time as the Indenture is qualified under the TIA and
thereafter as in effect on the date the Indenture is so qualified. The
Debentures are subject to all such terms, and Holders are referred to the
Indenture and such act for a statement of such terms. The terms of the Indenture
shall govern any inconsistencies between the Indenture and the Debentures. Terms
not otherwise defined herein shall have the meanings assigned in the Indenture.
The Debentures are limited to $80,000,000 in aggregate outstanding principal
amount.
5. Optional Redemption. The Debentures will be redeemable (subject to
restrictions with respect to the legal availability of funds therefor) at the
election of the Company, as a whole or from time to time in part, at any time on
not less than 30 nor more than 60 days' prior notice, at 110% of the aggregrate
principal amount of then outstanding Debentures, plus, without duplication, all
accrued and unpaid interest, if any, to the date of redemption.
6. Denominations, Transfer, Exchange. The Debentures are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Debentures may be registered and Debentures may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar and the
Company need not exchange or register the transfer (i) of any Debenture or
portion of a Debenture selected for redemption or (ii) of any Debentures for a
period of 15 days before a selection of Debentures to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
<PAGE> 58
3
7. Persons Deemed Owners. The registered Holder of a Debenture may be
treated as its owner for all purposes, subject to the provisions of the
Indenture with respect to the record dates for the payment of interest.
8. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Debentures may be amended with the written consent of the Holders of at
least a majority in principal amount of the then outstanding Debentures
(including consents obtained in connection with a tender offer or exchange offer
for Debentures), and any existing Default or Event of Default (except certain
payment defaults) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Debentures (including consents obtained
in connection with a tender offer or exchange offer for Debentures). Without the
consent of any Holders, the Indenture and the Debentures may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's obligations to the Holders in the case of a merger
or consolidation, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to make any change that would provide any
additional rights or benefits to the Holders of the Debentures, or that does not
adversely affect the legal rights under the Indenture of any Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA.
9. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Debentures may declare by written notice to the Company and
the Trustee all the Debentures to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Debentures become due and payable immediately
without further action or notice. Holders may not enforce the Indenture or the
Debentures except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Debentures.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Debentures may direct the Trustee in its exercise of any trust
or power. The Company must furnish an annual compliance certificate to the
Trustee.
10. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee.
11. No Recourse Against Others. No director, officer, employee,
incorporator, stockholder or controlling person of the Company, as such, shall
have
<PAGE> 59
4
any liability for any obligations of the Company under the Debentures, the
Indenture or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder by
accepting a Debenture waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Debentures.
Notwithstanding the foregoing, nothing in this provision shall be construed as a
waiver or release of any claims under the Federal securities laws.
12. Authentication. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
13. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
14. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Debentures and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Debentures or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to: American Restaurant Group, Inc., 450 Newport Center
Drive, 6th Floor, Newport Beach, CA 92660, Attention: Vice President - Finance.
THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE> 60
5
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ agent to transfer this
Debenture on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date:____________________
Your Signature:_____________________________
(Sign exactly as your name appears
on the face of this Debenture)
Signature Guarantee*
- ----------------
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program
(STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
<PAGE> 61
6
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Debenture
purchased by the Company pursuant to Section 4.8 of the Indenture, as the case
may be, state the amount you elect to have purchased (if all, write "ALL"):
$______________
Date:__________________________
Your Signature:_________________________
(Sign exactly as your name appears
on the face of this Debenture)
Signature Guarantee*
- --------------
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program
(STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
<PAGE> 62
SCHEDULE OF EXCHANGES OF DEFINITIVE DEBENTURES**
The following exchanges of a part of this Global Debenture for
Definitive Debentures have been made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of decrease Amount of increase this Global Signature of autho-
in Principal Amount in Principal Amount Debenture following rized signatory of
of this Global of this Global such decrease (or Trustee
Date of Exchange Debenture Debenture increase)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
THIS SHOULD BE INCLUDED ONLY IF THE NOTE IS ISSUED IN GLOBAL FORM.
<PAGE> 63
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
DEBENTURES
RE: [ ]% SENIOR SUBORDINATED DEBENTURES DUE 2003 (THE "DEBENTURES") OF
AMERICAN RESTAURANT GROUP, INC.
THIS CERTIFICATE RELATES TO $______ PRINCIPAL AMOUNT OF DEBENTURES HELD
IN * |_| BOOK-ENTRY OR * |_| DEFINITIVE FORM BY _______________________ (THE
"TRANSFEROR").
THE TRANSFEROR, BY WRITTEN ORDER, HAS REQUESTED THE TRUSTEE:
|_| TO DELIVER IN EXCHANGE FOR ITS BENEFICIAL INTEREST IN THE GLOBAL
DEBENTURE HELD BY THE DEPOSITORY, A DEBENTURE OR DEBENTURES IN
DEFINITIVE, REGISTERED FORM OF AUTHORIZED DENOMINATIONS AND AN
AGGREGATE PRINCIPAL AMOUNT EQUAL TO ITS BENEFICIAL INTEREST IN SUCH
GLOBAL DEBENTURE (OR THE PORTION THEREOF INDICATED ABOVE); OR
|_| TO EXCHANGE OR REGISTER THE TRANSFER OF A DEBENTURE OR DEBENTURES. IN
CONNECTION WITH SUCH REQUEST AND IN RESPECT OF EACH SUCH DEBENTURE, THE
TRANSFEROR DOES HEREBY CERTIFY THAT TRANSFEROR IS FAMILIAR WITH THE
INDENTURE RELATING TO THE ABOVE CAPTIONED DEBENTURES AND, THE TRANSFER
OF THIS DEBENTURE DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") BECAUSE SUCH DEBENTURE:
|_| IS BEING ACQUIRED FOR THE TRANSFEROR'S OWN ACCOUNT, WITHOUT TRANSFER;
|_| IS BEING TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT;
|_| IS BEING TRANSFERRED TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT), IN RELIANCE ON SUCH RULE 144A;
|_| IS BEING TRANSFERRED PURSUANT TO AN EXEMPTION FROM REGISTRATION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT;**
|_| IS BEING TRANSFERRED PURSUANT TO RULE 144 UNDER THE SECURITIES ACT;**
OR
|_| IS BEING TRANSFERRED PURSUANT TO ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (EXPLAIN: ).**
[INSERT NAME OF TRANSFEROR]
BY:_______________________________
DATE:_____________________
* CHECK APPLICABLE BOX.
** IF THIS BOX IS CHECKED, THIS CERTIFICATE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL TO THE
<PAGE> 64
2
EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT.
<PAGE> 65
CROSS-REFERENCE TABLE*
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
310(A)(1)...................................................................7.10
(A)(2)................................................................7.10
(A)(3)................................................................N.A.
(A)(4)................................................................N.A.
(A)(5)................................................................7.10
(B)..............................................................7.8; 7.10
(C)...................................................................N.A.
311(A)......................................................................7.11
(B)...................................................................7.11
(C)...................................................................N.A.
312(A).......................................................................2.5
(B)...................................................................11.3
(C)...................................................................11.3
313(A).......................................................................7.6
(B)(1).................................................................7.6
(B)(2).................................................................7.6
(C)....................................................................7.6
(D)....................................................................7.6
314(A)..................................................................4.3; 4.4
(B)....................................................................N.A
(C)(1)................................................................11.4
(C)(2)................................................................11.4
(C)(3)................................................................N.A.
(D)...................................................................N.A.
(E)...................................................................11.5
(F)...................................................................N.A.
315(A)....................................................................7.1(2)
(B)....................................................................7.5
(C).................................................................7.1(1)
(D).................................................................7.1(3)
(E)...................................................................6.11
316(A)(LAST SENTENCE)........................................................2.9
(A)(1)(A)..............................................................6.5
(A)(1)(B)..............................................................6.4
(A)(2)................................................................N.A.
(B)....................................................................9.2
(C)....................................................................9.4
317(A)(1)....................................................................6.8
(A)(2).................................................................6.9
(B)....................................................................2.4
318(A)......................................................................11.1
(B)...................................................................N.A.
(C)...................................................................11.1
N.A. MEANS NOT APPLICABLE.
*THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE.
<PAGE> 66
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE........................ 1
Section 1.1. Definitions.................................................... 1
Section 1.2. Other Definitions.............................................. 9
Section 1.3. Incorporation by Reference of Trust Indenture Act.............. 9
Section 1.4. Rules of Construction.......................................... 10
ARTICLE 2
THE DEBENTURES....................... 10
Section 2.1. Form and Dating................................................ 10
Section 2.2. Execution and Authentication................................... 11
Section 2.3. Registrar, Paying Agent and Depository......................... 12
Section 2.4. Paying Agent to Hold Money in Trust............................ 12
Section 2.5. Holder Lists................................................... 12
Section 2.6. Transfer and Exchange.......................................... 13
Section 2.7. Replacement Debentures......................................... 16
Section 2.8. Outstanding Debentures......................................... 16
Section 2.9. Treasury Debentures............................................ 16
Section 2.10. Temporary Debentures.......................................... 17
Section 2.11. Cancellation.................................................. 17
Section 2.12. Defaulted Interest............................................ 17
Section 2.13. Legends....................................................... 18
ARTICLE 3
REDEMPTION......................... 18
Section 3.1. Notices to Trustee............................................. 18
Section 3.2. Selection of Debentures to Be Redeemed......................... 19
Section 3.3. Notice of Redemption........................................... 19
Section 3.4. Effect of Notice of Redemption................................. 20
Section 3.5. Deposit of Redemption Price.................................... 20
Section 3.6. Debentures Redeemed in Part.................................... 20
Section 3.7. Optional Redemption............................................ 21
ARTICLE 4
COVENANTS......................... 21
Section 4.1. Payment of Debentures.......................................... 21
Section 4.2. Maintenance of Office or Agency................................ 21
Section 4.3. Reports........................................................ 22
Section 4.4. Compliance Certificate......................................... 23
<PAGE> 67
PAGE
Section 4.5. Taxes.......................................................... 24
Section 4.6. Stay, Extension and Usury Laws................................. 24
Section 4.7. Limitation on Restricted Payments.............................. 24
Section 4.8. Limitation on Asset Sales...................................... 25
Section 4.9. Limitation on Transactions With Affiliates..................... 26
............................................................ 27
ARTICLE 5
SUCCESSORS......................... 27
Section 5.1. When the Company May Merge, etc................................ 27
Section 5.2. Successor Substituted.......................................... 28
ARTICLE 6
DEFAULTS AND REMEDIES................... 29
Section 6.1. Events of Default.............................................. 29
Section 6.2. Acceleration................................................... 31
Section 6.3. Other Remedies................................................. 31
Section 6.4. Waiver of Past Defaults........................................ 31
Section 6.5. Control by Majority............................................ 32
Section 6.6. Limitation on Suits............................................ 32
Section 6.7. Rights of Holders to Receive Payment........................... 33
Section 6.8. Collection Suit by Trustee..................................... 33
Section 6.9. Trustee May File Proofs of Claim............................... 33
Section 6.10. Priorities.................................................... 34
Section 6.11. Undertaking for Costs......................................... 34
ARTICLE 7
TRUSTEE.......................... 34
Section 7.1. Duties of Trustee.............................................. 34
Section 7.2. Rights of Trustee.............................................. 35
Section 7.3. Individual Rights of Trustee................................... 36
Section 7.4. Trustee's Disclaimer........................................... 36
Section 7.5. Notice of Defaults............................................. 37
Section 7.6. Reports by Trustee to Holders.................................. 37
Section 7.7. Compensation and Indemnity..................................... 37
Section 7.8. Replacement of Trustee......................................... 38
Section 7.9. Successor Trustee by Merger, etc............................... 39
Section 7.10. Eligibility; Disqualification................................. 39
Section 7.11. Preferential Collection of Claims Against Company............. 39
ARTICLE 8
SATISFACTION AND DISCHARGE................. 40
<PAGE> 68
PAGE
Section 8.1. Discharge; Option to Effect Legal Defeasance or Covenant
Defeasance.................................................. 40
Section 8.2. Legal Defeasance and Discharge................................. 40
Section 8.3. Covenant Defeasance............................................ 40
Section 8.4. Conditions to Legal or Covenant Defeasance..................... 41
Section 8.5. Deposited Cash and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions....................... 42
Section 8.6. Repayment to the Company....................................... 42
Section 8.7. Reinstatement.................................................. 43
ARTICLE 9
AMENDMENTS......................... 43
Section 9.1. Without Consent of Holders..................................... 43
Section 9.2. With Consent of Holders........................................ 44
Section 9.3. Compliance with Trust Indenture Act............................ 45
Section 9.4. Revocation and Effect of Consents.............................. 45
Section 9.5. Notation on or Exchange of Debentures.......................... 46
Section 9.6. Trustee to Sign Amendments, etc................................ 46
ARTICLE 10
MISCELLANEOUS....................... 46
Section 10.1. Trust Indenture Act Controls.................................. 46
Section 10.2. Notices....................................................... 46
Section 10.3. Communication by Holders with Other Holders................... 47
Section 10.4. Certificate and Opinion as to Conditions Precedent............ 48
Section 10.5. Statements Required in Certificate or Opinion................. 48
Section 10.6. Rules by Trustee and Agents................................... 48
Section 10.7. Legal Holidays................................................ 49
Section 10.8. No Recourse Against Others.................................... 49
Section 10.9. Governing Law................................................. 49
Section 10.10. No Adverse Interpretation of Other Agreements................ 50
Section 10.11. Successors................................................... 50
Section 10.12. Severability................................................. 50
Section 10.13. Counterpart Originals........................................ 50
Section 10.14. Table of Contents, Headings, etc............................. 50
SIGNATURES
EXHIBIT A - FORM OF DEBENTURE...........................................A-1
EXHIBIT B - CERTIFICATE OF TRANSFEROR...................................B-1
<PAGE> 1
EXHIBIT 5
[SIMPSON THACHER & BARTLETT LETTERHEAD]
July 27, 1998
American Restaurant Group, Inc.
450 Newport Center Drive
Newport Beach, California 92660
Dear Sirs:
We have acted as counsel to American Restaurant Group, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of a Registration
Statement on Form S-4 filed (as amended, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to (i) up to $158,600,000 in
aggregate principal amount of 11-1/2% Series B Senior Notes due 2003 of the
Company (the "Notes") to be issued in exchange for the $158,600,000 aggregate
principal amount of the Company's outstanding 11-1/2% Series A Senior Notes due
2003 (the "Old Notes"), (ii) up to 35,000 shares of 12% Series B Senior
Pay-in-Kind Exchangeable Preferred Stock, par value $.01 per share and
liquidation value $100 per share, of the Company (the "Preferred Stock") to be
issued in exchange for the Company's 12% Series A Senior Pay-in-Kind
Exchangeable Preferred Stock (the "Old Preferred Stock"), and (iii) up to
$35,000,000 in aggregate principal amount of the Company's 12% Senior
Subordinated Debentures due 2003 (the "Debentures") issuable, at the Company's
option, in exchange for the Preferred Stock, all as described in the
Registration Statement.
The Notes will be issued under the Indenture dated as of February 25,
1998 (the "Note Indenture") among the Company and U.S. Trust Company of
California, N.A., as Trustee (the "Note Trustee"), which has been filed as an
exhibit to the Registration
<PAGE> 2
American Restaurant Group, Inc. -2- July 27, 1998
Statement. The Preferred Stock will be issued pursuant to the provisions of the
Amended and Restated Certificate of Incorporation of the Company, and the
certificate of designations for the Preferred Stock (the "Certificate of
Designations"), which has been filed as an exhibit to the Registration
Statement. The Debentures, if and when issued, will be issued under an indenture
(the "Debenture Indenture") to be entered into between the Company and a trustee
(the "Debenture Trustee"), a form of which has been filed as an exhibit to the
Registration Statement.
We have examined the Registration Statement and the form of Notes
included in the Indenture and the form of Debenture included in the Debenture
Indenture. In addition, we have examined, and have relied as to matters of fact
upon originals or copies, certified or otherwise identified to our satisfaction,
on such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
<PAGE> 3
American Restaurant Group, Inc. -3- July 27, 1998
1. The Notes have been duly authorized by the Company and,
upon due issuance and execution thereof by the Company, due
authentication thereof by the Note Trustee and delivery of the Notes in
exchange for the Old Notes in accordance with the terms of the
prospectus included in the Registration Statement (the "Prospectus"),
will constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms.
2. The Preferred Stock has been duly authorized, and upon
delivery of the Preferred Stock in exchange for the Old Preferred Stock
in accordance with the terms of the Prospectus, will be validly issued,
fully paid and nonassessable.
3. The Debentures have been duly authorized and, upon due
execution and delivery of the Debenture Indenture by the Company and
the Debenture Trustee and due issuance and execution of the Debentures
by the Company, due authentication by the Debenture Trustee of the
Debentures and delivery of the Debentures against receipt of shares of
Preferred Stock surrendered in exchange therefor in accordance with the
terms of the Debentures Indenture and the Certificate of Designations,
will constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms.
Our opinions set forth in paragraph 1 and 3 above are subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
<PAGE> 4
American Restaurant Group, Inc. -4- July 27, 1998
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the law of the State of
New York and the Delaware General Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Registration Statement.
This opinion letter is rendered to you in connection with the
above-described transactions. This opinion letter may not be relied upon by you
for any other purpose, or relied upon by, or furnished to, any other person,
firm, corporation without our prior written consent.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 8
[Simpson Thacher & Bartlett Letterhead]
July 27, 1998
American Restaurant Group, Inc.
450 Newport Center Drive
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as special counsel for American Restaurant Group, Inc., a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the issuance by the
Company of (i) $158,600,000 aggregate principal amount of its 11 1/2% Senior
Secured Notes due 2003, Series B (the "Exchange Notes"), which are to be offered
by the Company in exchange for $158,600,000 aggregate principal amount of its
outstanding 11 1/2% Senior Secured Notes, due 2003, Series A (the "Notes") (ii)
35,000 shares of its 12% Senior Pay-in-Kind Exchangeable Preferred Stock, Series
B (the "Exchange Stock") for 35,000 shares of its 12% Senior Pay-in-Kind
Exchangeable Preferred Stock, Series A (the "Stock").
We have examined the Registration Statement and the Indenture dated as
of February 25, 1998 (the "Indenture") between the Company and United States
Trust Company of California, N.A., as Trustee (the "Trustee") and the
Certificate of Designations filed with the Secretary of State of Delaware on
February 24, 1998 (as amended on February 25, 1998 and on March 6, 1998, the
"Certificate of Designations"), which have been filed with the Commission as
Exhibits to the Registration Statement. In
<PAGE> 2
American Restaurant Group, Inc. -2- July 27, 1998
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed that the Indenture has been duly
authorized, executed and delivered by the Trustee and that the Certificate of
Designations was duly authorized, executed and filed. In addition, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the authenticity of the originals of such latter
documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby confirm that the statements set forth in
the Registration Statement under the caption "Certain United States Federal
Income Tax Considerations" insofar as they purport to constitute summaries of
United States federal tax law or legal conclusions with respect thereto are
accurate in all material respects.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York and the federal law of the United States. This opinion is rendered to
you solely in connection
<PAGE> 3
American Restaurant Group, Inc. -3- July 27, 1998
with the above-described transaction and may not be relied upon for any other
purpose without our prior written consent.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE> 1
Exhibit 10.3
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
---------------------------
SECOND SUPPLEMENTAL
INDENTURE
Dated as of February 25, 1998
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE, dated as of February 25, 1998,
between AMERICAN RESTAURANT GROUP HOLDINGS, INC., a Delaware corporation (the
"Issuer"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the
"Trustee"), under the Indenture dated as of December 1, 1993, as amended by that
certain First Supplemental Indenture, dated as of March 13, 1996 (the
"Indenture").
RECITALS
WHEREAS, pursuant to the Indenture, the Issuer has issued
$105,557,000 aggregate principal amount of its 14% Senior Discount Debentures
due 2005 (the "Securities");
WHEREAS, Section 9.02 of the Indenture provides, among other things,
that the Issuer and the Trustee may, with the consent of the Holders (as defined
therein) of not less than a majority in aggregate principal amount of the
Securities then outstanding, amend the Indenture in certain respects;
WHEREAS, the Issuer, pursuant to the foregoing authority, pro poses
in and by this Second Supplemental Indenture to amend the Indenture in certain
respects as described herein and to amend and restate the terms of the Series A
and Series B Securities as Series C Securities; and
WHEREAS, all things necessary to make this Second Supplemental
Indenture a valid agreement of the Issuer and the Trustee and a valid amendment
of and supplement to the Indenture have been done;
NOW, THEREFORE, in consideration of the premises, the Issuer and the
Trustee agree as follows:
ARTICLE I
AMENDMENTS TO THE INDENTURE
Section 1.1 Amendment to Section 1.01-New Definitions. Section 1.01
of the Indenture is hereby amended by adding the following new definitions in
the appropriate alphabetical order:
"Beneficial Owner" means any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise, has or
shares with any other Person or Persons (a) the power to vote or give consent
with respect to any Securities under the Indenture, which includes the power to
direct the voting
2
<PAGE> 3
of or consent with respect to any Securities, or (b) the power to invest the
principal of or interest on any Securities, which includes the power to dispose
or direct the disposition of any Securities or any payments thereon or
thereunder or to receive or invest the proceeds therefrom. A person may be
regarded, under circumstances which enable the exercise of the aforesaid powers
(whether or not exercised ), as having beneficial ownership of a Security which
is owned (1) by that person's spouse or minor children or by any of that
person's relatives or spouse's relatives who share the same home with that
person; (2) a partnership of which that person is a partner; or (3) a
corporation of which that person is a substantial shareholder. A person is also
deemed to be the beneficial owner of Securities which that person has the right
to acquire within 60 days, including but not limited to any right to acquire
through the exercise of an option, pursuant to the power to revoke a trust or
pursuant to the automatic termination of a trust.
"Excess Cash" means (a) the aggregate amount of cash and Cash Equivalents
received by the Company from its Subsidiaries, including from dividends plus (b)
the net proceeds from the sale of any stock of ARG by the Company, less in each
case the provision for income and other taxes of the Company for the current
fiscal year and the immediately preceding fiscal year and amounts necessary for
the payment of ordinary and customary operating expenses of the Company.
"Exchange Debentures" means the 12% Subordinated Debentures due 2003 of
ARG issued in exchange for the PIK Preferred Stock having an aggregate principal
amount equal to the aggregate liquidation preference of the PIK Preferred Stock.
"New Credit Facility" means the credit agreement among ARG and its
Subsidiaries, the Credit Agent, BankBoston, N.A. and the lenders party thereto,
providing for loans of up to $20 million, as such agreement may be amended,
supplemented or otherwise modified, refinanced or replaced from time to time.
"New Senior Secured Note Indenture" means the Indenture, dated as of
February 25, 1998, among ARG, the Guarantors named therein and U.S. Trust
Company, as trustee, as amended, supplemented or otherwise modified from time to
time.
"New Senior Secured Notes" means any series of the 11 1/2% Senior Secured
Notes due 2003 of ARG and the guarantees thereof issued under the New Senior
Secured Note Indenture, as amended, supplemented or otherwise modified from time
to time.
"New Warrants" means the Common Stock Purchase Warrants issued on February
25, 1998 to purchase initially 104,794 shares, subject to adjustment
3
<PAGE> 4
pursuant to the Warrant Agreement relating thereto (the "Warrant Agreement") of
the Common Stock, par value $.01 per share of ARG (the "ARG Common Stock"), at
an initial exercise price, subject to adjustment pursuant to the Warrant
Agreement, of $.01 per share.
"Options" means options issued to management and employees of ARG and its
Subsidiaries with respect to up to 15% of the fully diluted ARG Common Stock
outstanding.
"PIK Preferred Stock" means any series of the 12% Senior Exchangeable
Preferred Stock of ARG having an aggregate liquidation preference of up to $100
million outstanding at any time.
"Refinancing Date" means February 25, 1998.
"Series C Securities" means the 14.25% Senior Discount Debentures due
2005, Series C, issued pursuant to this Indenture as an amendment and
restatement of the Series A and Series B Securities.
Section 1.2 Amendment to Section 1.01-Deletion of Definitions.
Section 1.01 of the Indenture is hereby amended by deleting the following
definitions in their entirety: "Credit Facility", "Designated Restaurant", "Net
Cash Proceeds of Mortgage Indebtedness", "Net Proceeds Offer Trigger Date" and
"Plan of Liquidation".
Section 1.3 Amendment to Section 1.01-Accreted Value. The definition
of "Accreted Value" contained in Section 1.01 of the Indenture is hereby amended
by adding the following sentence to the end thereof:
"For the purposes of determining the Accreted Value of the Series C
Securities, "Accreted Value" means as of any date of determination (a) on
or after February 24, 1998 and prior to June 15, 1998, the sum of $341.35
per $1,000 principal amount of Series C Securities plus the Proportionate
Amount on such date and (b) on or after June 15, 1998, the sum of $356.15
plus the portion of the excess of the principal amount of each Series C
Security over such amount which shall have been amortized through such
date, such amount to be so amortized on a daily basis and compounded
semi-annually on each June 15 and December 15 at the rate of 14.25% per
annum from June 15, 1998 through the date of determination computed on the
basis of a 360-day year of twelve 30-day months. The "Proportion ate
Amount" with respect to a Series C Security, as of any date, is defined as
an amount equal to the product of (i) $14.80
<PAGE> 5
multiplied by (ii) a fraction, the numerator of which is the actual number
of days elapsed from February 24, 1998 to and including the date for which
the Proportionate Amount is being determined, and the denominator of which
is 111."
Section 1.4 Amendment to Section 1.01-ARG. The definition of "ARG"
contained in Section 1.01 of the Indenture is hereby amended by deleting from
the end thereof the words ", a Wholly-Owned Subsidiary of the Company".
Section 1.5 Amendment to Section 1.01-Asset Sale. The definition of
"Asset Sale" contained in Section 1.01 of the Indenture is hereby amended by
deleting the words "provided that any sale or transfer of assets (a) from a
Subsidiary to the Company or any Wholly-Owned Subsidiary or (b) made in
accordance with Section 5.01 shall not constitute an Asset Sale" at the end
thereof and replacing such words with the words "provided that any sale or
transfer of assets from a Subsidiary to the Company or any Wholly-Owned
Subsidiary shall not constitute an Asset Sale".
Section 1.6 Amendment to Section 1.01-Change of Control. The
definition of "Change of Control" contained in Section 1.01 of the Indenture is
hereby amended by deleting the reference to "(i)" and deleting at the end
thereof the words "or (ii) so long as Senior Secured Notes remain outstanding,
the occurrence of a "Change of Control" as such term is defined in the Senior
Secured Note Indenture governing such Senior Secured Notes".
Section 1.7 Amendment to Section 1.01 - Credit Agent. The definition
of "Credit Agent" contained in Section 1.01 of the Indenture is hereby amended
and restated in its entirety as follows:
""Credit Agent" means BankBoston, N.A., as agent under the New Credit
Facility, and any successor thereof in such capacity."
Section 1.8 Amendment to Section 1.01-Lenders. The definition of
"Lenders" contained in Section 1.01 of the Indenture is hereby amended and
restated in its entirety as follows:
""Lenders" means the Lenders listed on the signature pages of the New
Credit Facility, together with any financial institution that may become a party
to the New Credit Facility as therein provided."
Section 1.9 Amendment to Section 1.01-Letter of Credit Obligations.
The definition of "Letter of Credit Obligations" contained in Section
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<PAGE> 6
1.01 of the Indenture is hereby amended by replacing the words "Credit Facility"
with the words "New Credit Facility".
Section 1.10 Amendment to Section 1.01-Permitted Investment.
Subsection (viii) of the definition of "Permitted Investment" contained in
Section 1.01 of the Indenture is hereby amended and restated in its entirety as
follows:
"(viii) Investments in connection with any merger or consolidation in
accordance with the provisions of Section 5.01 hereof, and"
Section 1.11 Amendment to Section 1.01-Refinancing Indebtedness. The
definition of "Refinancing Indebtedness" contained in Section 1.01 of the
Indenture is hereby amended and restated by deleting the words "or (xiv)" and
replacing such words with the words ", (xiv), (xv), (xvi) or (xvii),"
Section 1.12 Amendment to Section 1.01-Restricted Security. The
definition of "Restricted Security" contained in Section 1.01 of the Indenture
is hereby amended by adding to the end thereof the following sentence:
"For purposes hereof, the Series C Securities shall be deemed Restricted
Securities, whether or not such Securities bear the Private Placement Legend."
Section 1.13 Amendment to Section 1.01-Securities. The definition of
"Securities" contained in Section 1.01 of the Indenture is hereby amended and
restated in its entirety as follows:
"Securities" and "Security" mean the Series A Securities, Series B
Securities and Series C Securities, as amended or supplemented from time to
time, that are issued under this Indenture, including, without limitation, the
Additional Securities."
Section 1.14 Amendment to Section 1.01-"Wholly-Owned Subsidiary."
The definition of "Wholly-Owned Subsidiary" contained in Section 1.01 of the
Indenture is hereby amended by adding "(a)" after the word "means," and by
adding to the end thereof the words "and (b) with respect to the Company, any
direct Subsidiary of the Company and any Wholly-Owned Subsidiary of such
Subsidiary."
Section 1.15 Amendment to Section 2.01. Section 2.01 of the
Indenture is hereby amended by adding the following sentence after the first
sentence of the first paragraph thereof.
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<PAGE> 7
"The Series C Securities and the Trustee's certificate of authentication
thereof shall be substantially in the form of Exhibit A-3 annexed hereto."
Section 1.16 Amendment to Section 2.02 and Section 2.06.
(a) Section 2.02 of the Indenture is hereby amended by deleting the
last sentence of the fourth paragraph thereof and replacing it with the
following sentence:
"The Trustee or an Authenticating Agent shall authenticate Series C
Securities for original issue in the aggregate principal amount of $245,679,000
upon written order of the Company signed by an Officer of the Company. In each
case, the order shall specify the amount of Securities to be authenticated and
the date on which the original issue of Securities is to be authenticated. The
aggregate principal amount of Securities issued and outstanding at any time may
not exceed $245,678,800, except as provided in Section 2.07."
(b) Section 2.02 of the Indenture is hereby amended by adding the
following sentence to the end of the eighth paragraph thereof:
"Notwithstanding the foregoing, the Series C Securities shall be issued in
the form of certificated Securities in registered form only in denominations of
$1,000,000 and integral multiples of $100 in excess thereof."
(c) Section 2.06 of the Indenture is hereby amended by adding the
following paragraph:
"Neither the Company nor the Registrar shall be required to register the
transfer or exchange of any Series C Securities (i) unless the Registrar has
received a certification, in form and substance satisfactory to the Registrar,
of the number of Beneficial Owners of such Series C Securities or (ii) if such
transfer would be prohibited by the provisions of Section 2.17."
Section 1.17 Amendment to Section 2.15. Section 2.15(b) of the
Indenture is hereby amended by replacing the last sentence thereof with the
following sentence:
"In addition, Physical Securities shall be transferred to all beneficial
owners in exchange for their beneficial interests in Global Securities (i) if
the Depository notifies the Company that it is unwilling or unable to continue
as Depository for any Global Security and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) if an Event of
Default has occurred and is continuing and the Registrar has received a request
from the Depository to issue Physical
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<PAGE> 8
Securities or (iii) with respect to the Series C Securities, at any time after
the issuance of the Series C Securities."
Section 1.18 Amendment to Article 2. Article 2 of the Indenture is
hereby amended by adding the following section to the end thereof:
"Section 2.17. Limited Number of Beneficial Owners of the Securities. By
accepting the Series C Securities, the registered Holder thereof agrees (i) to
promptly notify the Registrar in writing if the number of Beneficial Owners of
such Security changes at any time during the period that such registered Holder
owns such Security, and (ii) that it will not permit the Beneficial Owners of
such Security to be increased without the prior written consent of the
Registrar. The Registrar shall note in the Security Register with respect to the
Series C Securities the number of Beneficial Owners of each Security (as
determined by certifications delivered by the Holders of Securities pursuant to
section 2.06 in their representation letters or other written notification
received from Security holders with respect to changes in the number of
Beneficial Owners of Securities in requesting permission to increase the number
of Beneficial Owners of Securities). The Registrar shall deny permission to
register the Security in the name of a transferee pursuant to Section 2.06 and
not consent to increase the number of Beneficial Owners of a Security if such
registration or consent will result in the number of Beneficial Owners exceeding
75 in number. In monitoring the number of Beneficial Owners of Securities, the
Registrar may rely, without independent inquiry, upon all certifications and
written notifications delivered to the Registrar and may assume that the facts
therein stated for any Securityholder have not changed since the most recent
certification or written notification received with respect to such Security.
The Registrar shall not prohibit the transfer of a Series C Security by a
Securityholder to a purchaser or assignee if such Securityholder has so notified
the Registrar (and, in the case of a prior transfer, received its consent),
provided that the number of Beneficial Owners of such Security subsequent to
such transfer does not exceed the number of Beneficial Owners of such Security
(as determined by reference to the most recent certification or notification of
the transferring Securityholder) prior to such transfer.
Section 1.19 Amendment to Section 3.04. Section 3.04 of the
Indenture is hereby amended by replacing the first sentence thereof with the
following:
"Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price and
shall cease to bear interest (and cease to increase in their Accreted Value)
from and after the redemption date (unless the Company shall default in the
payment of the redemption price or accrued interest).
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<PAGE> 9
Section 1.20 Amendment to Section 3.07. Section 3.07(a) of the
Indenture is hereby amended by replacing each reference to the date "December
15, 1998" with the date "December 15, 2005."
Section 1.21 Amendment to Section 3.08. Section 3.08 shall be
amended in its entirety to read as follows:
"Section 3.08 Excess Cash Offer
(a) Not later than 30 Business Days after any date on which the
Accumulated Amount (as defined) exceeds $1.0 million, the Company will make an
irrevocable, unconditional offer (an "Excess Cash Offer") to the Holders to
purchase the maximum amount of Notes which could be acquired by application of
the Accumulated Amount as described herein (the "Excess Cash Offer Amount"), at
a purchase price (the "Excess Cash Offer Price") equal to 100% of the Accreted
Value of the Notes on the date the Notes tendered are purchased and paid for in
accordance with the Indenture, which date shall be no later than 30 business
Days after the first date on which the Excess Cash Offer is required to be made
(the "Excess Cash Purchase Date"). Notice of an Excess Cash Offer will be sent
at least 20 Business Days prior to the close of business on the third Business
Day prior to the Excess Cash Purchase Date (the "Final Put Date"), by
first-class mail, by the Company to each Holder at the address on the books of
the Registrar, with a copy to the Indenture Trustee. The notice to the Holders
will contain all information, instructions, and materials required by
applicable law or otherwise material to such Holders' decision to tender Notes
pursuant to the Excess Cash Offer. An amount equal to the aggregate of all
Excess Cash received by the Company is referred to as the "Accumulated Amount."
Prior to making any Excess Cash Offer, the Company shall invest the Accumulated
Amount only in cash and Cash Equivalents. The Company may, at its option, elect
to make an Excess Cash Offer in the manner specified herein prior to the time
that the Accumulated Amount exceeds $1.0 million.
(b) To the extent applicable and if required by law, the Company
shall comply with Section 14 of the Exchange Act and the provisions of
Regulation 14E and any other tender offer rules under the Exchange Act and other
securities laws, rules, and regulations which may then be applicable to any
Excess Cash Offer by the Company to purchase the Notes. The Company shall give
the Indenture Trustee prompt notice if the Accumulated Amount exceeds $1.0
million.
(c) On or before an Excess Cash Purchase Date, the Company shall (a)
accept for payment Notes or portions thereof properly tendered pursuant to the
Excess Cash Offer prior to the close of business on the Final Put Date (on a pro
rata basis to the maximum extent possible) based on the Accreted Value of the
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<PAGE> 10
Notes actually tendered if Notes with an Accreted Value in excess of the
Accreted Value of Notes to be acquired are tendered and not withdrawn), (b)
deposit with the Paying Agent U.S. legal Tender sufficient to pay the Excess
Cash Offer Price through the Excess Cash Purchase Date of all Notes or portions
thereof so accepted, and (c) deliver to the Indenture Trustee Notes so accepted
together with an Officers' Certificate stating Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Notes so accepted, payment in an amount equal to the Excess Cash
Offer Price through the Excess Cash Purchase Date for such Notes. The Indenture
Trustee shall promptly cancel all Notes accepted by the Company pursuant to the
Excess Cash Offer and authenticate and mail or deliver to the Holders of Notes
so accepted a new Note equal in Accreted Value to any unpurchased portion of the
Note surrendered. Any Notes not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Excess Cash Offer on or as soon as practicable after
the Excess Cash Payment Date.
(d) If the amount required to acquire all Notes tendered by Holders
pursuant to the Excess Cash Offer (the "Excess Cash Acceptance Amount") shall be
less than the aggregate Excess Cash Offer Amount, the excess of the Excess Cash
Offer Amount over the Excess Cash Acceptance Amount may be (i) invested in cash
or Cash Equivalents or (ii) used by the Company to redeem the Notes. Upon
consummation of any Excess Cash Offer made in accordance with the terms of the
Indenture, the Accumulated Amount will be reduced to zero."
Section 1.22 Amendment to Section 4.04.
(a) Section 4.04(a)(i) of the Indenture is hereby amended and
restated in its entirety as follows:
"(i) intentionally omitted"
(b) Section 4.04(a) of the Indenture is hereby amended by replacing
the word "and" with a comma immediately before "(vi)" and by adding the
following words to the end thereof:
"(vii) the New Credit Facility, (viii) the New Senior Secured Note
Indenture, (ix) the PIK Preferred Stock, (x) the Exchange Debentures and (x) any
other Indebtedness permitted to be incurred under the New Credit Facility or the
New Senior Secured Note Indenture (whether or not still in effect)."
(c) Section 4.04(g) of the Indenture is hereby amended by replacing
the words "Credit Facility as in effect on the Issue Date" with the words "New
Credit Facility".
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Section 1.23 Amendment to Section 4.05.
(a) Section 4.05(b) of the Indenture is hereby amended and restated
by replacing subsections (i) and (ii) thereof with the following:
"(i) Indebtedness of ARG and its Subsidiaries under the New Credit
Facility and any refinancing, refunding, replacement or extension thereof in an
aggregate principal amount at any time outstanding not to exceed $26 million
(plus Obligations for related payments for early termination, interest, fees,
expenses and indemnities and other amounts payable thereunder or in connection
therewith); (ii) Indebtedness evidenced by the Senior Secured Notes and the New
Senior Secured Notes;"
(b) Section 4.05(b) of the Indenture is hereby amended and restated
by replacing subsections (viii) thereof with the following:
"(viii) Mortgage Indebtedness; provided, that such Mortgage Indebtedness
may, at the option of the Company, be incurred by a Mortgage Subsidiary; and
provided, further, the loan-to-value ratio is not less than 60% and not more
than 100% for properties owned in fee at the time of issuance;"
(c) Section 4.05(b) of the Indenture is hereby amended and restated
by replacing the word "and" with a comma immediately before "(xv)" and replacing
subsection (xv) with the following:
"; (xv) the PIK Preferred Stock; (xvi) the Exchange Debentures; (xvii) to
the extent not otherwise permitted hereunder, Indebtedness permitted to be
incurred under the New Senior Secured Note Indenture (whether or not still in
effect); and (xviii) Indebtedness not otherwise expressly permitted by clauses
(i) through (xvii) above in an aggregate principal amount not to exceed
$25,000,000 at any one time."
Section 1.24 Amendment to Section 4.06. Section 4.06 of the
Indenture is hereby amended and restated in its entirety by replacing it with
the following:
"Section 4.06 Intentionally Left Blank."
Section 1.25 Amendment to Section 4.07. Section 4.07(iii) of the
Indenture is hereby amended and restated in its entirety as follows:
"(iii) Liens to secure Indebtedness permitted to be incurred
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<PAGE> 12
pursuant to Section 4.05 and Indebtedness which is incurred to renew, extend,
replace or refinance Indebtedness secured by a Lien on any property or asset of
the Company and which is permitted to be incurred pursuant to Section 4.05
hereof; provided that such Liens do not extend to or cover any property or asset
other than the property or asset securing the Indebtedness being renewed,
extended, replaced or refinanced;"
Section 1.26 Amendment to Section 4.08. Section 4.08 of the
Indenture is hereby amended and restated by (i) replacing each reference to
"Issue Date" with the words "Refinancing Date" and (ii) replacing subsection
(vi) with the following:
"(vi) the existence of, or the performance by the Company or any of its
Subsidiaries of its obligations under the terms of, any Common Stock
Subscription Agreement or other stockholder agreement or any stock option or
incentive plan (including any registration rights agreement or purchase
agreement related thereto) to which the Company or any of its Subsidiaries is a
party as of the Refinancing Date and any similar agreements which it or any of
its Subsidiaries may enter into thereafter; provided, however, that the
performance by the Company or any of its Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Refinancing Date shall only be permitted by this clause
(vi) to the extent that the terms of any such amendment or new agreement are not
otherwise more onerous to the Company or any of its Subsidiaries party to such
agreement in any material respect,"
Section 4.08 of the Indenture is hereby amended by adding the
following:
"or (viii) transactions with Affiliates permitted to be entered into
under the New Senior Secured Note Indenture (whether or not still in effect)."
Section 1.27 Amendment to Section 4.13. Section 4.13 of the
Indenture is hereby amended by deleting the words "or any default in any payment
of principal or interest due under the Credit Facility".
Section 1.28 Amendment to Section 4.10 and Section 4.14.
(a) Section 4.10 of the Indenture is hereby amended by adding
the following sentence: "Notwithstanding the foregoing, ARG may issue (i) the
PIK Preferred Stock and shares of ARG Capital Stock issued to management and
employees of ARG and its Subsidiaries with respect to up to 15% of the fully
diluted ARG Common Stock outstanding , (ii) the New Warrants, the Options and
the shares of common stock of ARG issuable upon exercise or exchange of the PIK
Preferred Stock, the New Warrants and the Options, and (iii) Capital Stock in
bona
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fide public offerings of up to 50% of the outstanding Capital Stock on a fully
diluted basis having the right to vote generally in the election of directors
(including for purposes of such calculation the shares issued in such
offerings)."
(b) Section 4.14(a) and Section 4.14(b) of the Indenture are
hereby amended and restated in their entirety as follows:
"(a) The Company (at its own expense) shall file with the
Trustee within 5 days after filing with the SEC copies of the annual reports and
the information, documents, and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) to be
filed by ARG pursuant to Section 13 or 15(d) of the Exchange Act (without regard
to whether ARG is subject to the requirements of such Section 13 or 15(d) of the
Exchange Act).
(b) At the Company's expense, the Company shall cause an
annual report if furnished by ARG to its stockholders generally and each
quarterly or other financial report if furnished by ARG to its stockholders
generally to be filed with the Trustee and mailed to the Holders at their
addresses appearing in the register of Securities maintained by the Registrar at
the time of such mailing or furnishing to stockholders. If the Trustee (at the
Company's request and expense) is to mail the foregoing information to the
Holders, the Company shall supply such information to the Trustee at least five
days prior thereto."
Section 1.29 Amendment to Section 5.01. Section 5.01 of the
Indenture is hereby amended and restated in its entirety as follows:
"SECTION 5.01. Consolidations, Merger.
The Company shall not in a single transaction or through a
series of related transactions, consolidate with or merge with or into
any other Person, unless:
(1) either the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged (the Company or such other Person being hereinafter referred
to as the "Surviving Person") shall be a corporation organized and validly
existing under the laws of the United States, any State thereof or the District
of Columbia, and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Securities and this Indenture;
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(2) except in the case of a transaction described in this Section
5.01 or between the Company and ARG, immediately after giving effect to such
transaction on a pro forma basis, the Surviving Person could incur $1.00 of
Indebtedness pursuant to the first paragraph of Section 4.05 (without giving
effect to the second paragraph thereof);
(3) immediately before and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause (1)
above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation or
merger and such supple mental indenture comply with this Article 5 and that all
conditions precedent herein provided relating to such transaction have been
satisfied."
Section 1.30 Amendment to Section 5.02. Section 5.02 of the
Indenture is hereby amended by deleting the words "or any transfer of assets"
and "or to which such transfer is made" from the first sentence thereof.
Section 1.31 Amendment to Section 6.02. Section 6.02 of the
Indenture is hereby amended by replacing each reference to the date "December
15, 1998" with the date "December 15, 2005."
Section 1.32 Amendment to Article 10. Article 10 of the
Indenture is hereby amended by adding the following Section to the end thereof:
"10.16 Separate Corporate Identity.
Each Holder of a Security by accepting a Security acknowledges (i) that
the Company is a separate legal entity from ARG, (ii) that the Holder is not
relying on the credit of ARG in acquiring or holding the Security, but is
relying solely on the credit of the Company, whose sole business at the time of
the issuance of the Series C Securities is holding common stock of ARG, (iii)
that the Holder is not looking to or relying on the assets, income, or cash flow
of ARG as a source of payment of the Security, except as such assets, income or
cash flow may be distributed to the Company in its capacity as a stockholder of
ARG to the extent permitted by any agreement to which ARG is a party (including
the New Credit Facility) and to the extent declared by ARG's Board of Directors,
and (iv) that the Holder has not received or relied on any information or
representation that is contrary to the matters set forth above in this
paragraph."
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Section 1.33 Amendment to Sections 7.05, 7.08 and 9.02.
Sections 7.05, 7.08 and 9.02 of the Indenture are hereby amended by deleting the
words "(with a copy to the Credit Agent)".
Section 1.34 Amendment to Exhibits. The Exhibits of the
Indenture are hereby amended by adding as Exhibit A-1 thereto the form of Series
C Security attached hereto as Annex 1.
ARTICLE II
MISCELLANEOUS
Section 2.1 Incorporation of Indenture. All the provisions of
this Second Supplemental Indenture shall be deemed to be incorporated in, and
made a part of, the Indenture; and the Indenture, as supplemented and amended by
this Second Supplemental Indenture, shall be read, taken and construed as one
and the same instrument.
Section 2.2 Headings. The headings of the Articles and
Sections of this Second Supplemental Indenture are inserted for convenience of
reference and shall not be deemed to be a part thereof.
Section 2.3 Counterparts. This Second Supplemental Indenture
may be executed in any number of counterparts, each of which so executed shall
be deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
Section 2.4 Successors. All covenants and agreements in this
Second Supplemental Indenture by the Issuer and the Trustee shall bind their
respective successors.
Section 2.5 Separability Clause. In case any provision in this
Second Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 2.6 Benefits of Second Supplemental Indenture. Nothing
in this Second Supplemental Indenture, express or implied, shall give to any
person, other than the parties hereto and their successors hereunder and the
Holders, any benefit or any legal or equitable right, remedy or claim under this
Second Supple mental Indenture.
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Section 2.7 Terms Defined. All terms defined elsewhere in the
Indenture have the same meanings herein.
Section 2.8 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW.
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IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed and attested, all as of the day and
year first above written.
AMERICAN RESTAURANT GROUP
HOLDINGS, INC.
By:________________________________
Name:
Title:
Attest:
By:_________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:________________________________
Name:
Title:
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<PAGE> 18
ANNEX 1
EXHIBIT A-1
[FORM OF SERIES C SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501 (A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "AC
CREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO AMERICAN RESTAURANT GROUP HOLDINGS, INC. (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY
1-1
<PAGE> 19
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
EACH TRANSFEREE AND HOLDER AGREES TO DELIVER THE CERTIFICATE REQUIRED BY
SECTION 2.06 AND 2.17, RESPECTIVELY, REGARDING THE NUMBER OF, OR ANY CHANGES
IN, BENEFICIAL OWNERS OF THIS SECURITY.
THE NUMBER OF BENEFICIAL OWNERS OF SERIES C SECURITIES SHALL BE LIMITED TO 75.
1-2
<PAGE> 20
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
14.25% Senior Discount Debenture
due December 15, 2005, Series C
No. $
AMERICAN RESTAURANT GROUP HOLDINGS, INC., a Delaware
corporation (the "Company", which term includes any successor corporation), for
value received promises to pay to or registered assigns, the principal sum of
Dollars, on December 15, 2005.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated:
AMERICAN RESTAURANT GROUP
HOLDINGS, INC.
By:______________________________________________
Name:
Title:
By:______________________________________________
Name:
Title:
1-3
<PAGE> 21
This is one of the Securities described in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF CAL
IFFY, N.A., as Trustee
By:__________________________________________
Authorized Signatory
<PAGE> 22
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
14.25% Senior Discount Debenture due 2005, Series C
1. Accretion; Interest.
American Restaurant Group Holdings, Inc., a Delaware
corporation (the "Company"), will not pay cash interest on the principal amount
of this Security. The Accreted Value of this Security will equal as of any date
of determination on or after February 24, 1998 and prior to June 15, 1998 (a)
the sum of $341.35 per $1,000 principal amount of this Security plus the
Proportionate Amount on such date and (b) on or after June 15, 1998, the sum of
$356.15 plus the portion of the excess of the principal amount of this Security
over such amount which shall have been amortized through such date, such amount
to be so amortized on a daily basis and compounded semi-annually on each June 15
and December 15 at the rate of 14.25% per annum from June 15, 1998 through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal to the
extent lawful, at a rate equal to 16.25% per annum.
2. Method of Payment.
Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal, premium, if any, and
interest, if any, in money of the United States that at the time of payment is
legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal, premium, if any, and interest, if any,
by wire transfer of Federal funds, or interest, if any, by its check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar
or co-Registrar.
1-5
<PAGE> 23
4. Indenture.
The Company issued the Securities under an Indenture, dated as
of December 1, 1993, among the Company and United States Trust Company of New
York (the "Trustee"), as amended on March 13, 1996 and February 25,1998 (the
"Indenture"). Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything to
the contrary herein, the Securities are subject to all such terms, and Holders
of Securities are referred to the Indenture and said Act for a statement of
them. The Securities are senior obligations of the Company limited in aggregate
principal amount to $245,678,800.
5. Optional Redemption and Prepayment.
The Securities will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the Accreted Value thereof plus accrued and unpaid interest, if any,
thereon to the applicable redemption date.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. Securities in denominations
larger than $100 may be redeemed in part.
Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Securities called for
redemption shall have been deposited with the Paying Agent for redemption on
such Redemption Date, then, unless the Company defaults in the payment of such
Redemption Price, the Securities called for redemption will cease to bear
interest (and cease to increase in their Accreted Value) and the only right of
the Holders of such Securities will be to receive payment of the Redemption
Price.
1-6
<PAGE> 24
7. Change of Control Offer.
Upon the occurrence of a Change of Control, each Holder shall
have the right to require the repurchase of such Holder's Securities pursuant to
a Change of Control Offer at a purchase price equal to 101% of Accreted Value.
8. Excess Cash Offer.
Under certain circumstances the Company is required to offer
to purchase in an Excess Cash Offer (at a price equal to 100% of Accreted Value)
such aggregate Accreted Value which shall be equal to the Accumulated Amount
required to be applied in such Excess Cash Offer.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000,000 and integral multiples of $100. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
By accepting the Series C Securities, the registered Holder
thereof agrees to comply with Section 2.17 of the Indenture and (i) to promptly
notify the Trustee in writing if the number of Beneficial Owners of such
Security changes at any time during the period that such registered Holder owns
such Security, and (ii) that it will not permit the Beneficial Owners of such
Security to be increased without the prior written consent of the Trustee. The
number of Beneficial Owners of the Securities is limited to 75.
10. Persons Deemed Owners.
1-7
<PAGE> 25
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for one year, the Trustee and the Paying Agents will pay the money
back to the Company at its request. After that, all liability of the Trustee and
such Paying Agents with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S.
Legal Tender or U.S. Government Obligations sufficient to pay the principal of
and interest on the Securities to redemption or maturity and complies with the
other provisions of the Indenture relating thereto, the Company will be
discharged from certain provisions of the Indenture and the Securities.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Securities then outstanding. Without notice to
or consent of any Holder, the parties thereto may amend or supplement the
Indenture or the Securities to, among other things, cure any ambiguity, defect
or inconsistency, provide for uncertificated Securities in addition to or in
place of certificated Securities, comply with Article 5 of the Indenture or
comply with any requirements of the SEC in connection with the qualification of
the Indenture under the TIA, or make any other change that does not adversely
affect the rights of any Holder of a Security. This Security amends and restates
in their entirety the Series A and Series B Securities issued pursuant to the
Indenture.
1-8
<PAGE> 26
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other Person. The limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
15. Successors.
When a successor assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor will be
released from those obligations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest, including pursuant to a
Change of Control Offer or Excess Cash Offer) if it deter mines that withholding
notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or their respective Affiliates as if it
were not the
1-9
<PAGE> 27
Trustee.
18. Against Others.
No stockholder, director, officer, employee or incorporator,
as such, of the Company shall have any liability for any obligation of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder of a
Security by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Securities.
19. Separate Corporate Identity.
Each Holder of a Security by accepting a Security acknowledges
(i) that the Company is a separate legal entity from ARG, (ii) that the Holder
is not relying on the credit of ARG in acquiring or holding the Security, but is
relying solely on the credit of the Company, whose sole business at the time of
the issuance of the Series C Securities is holding common stock of ARG, (iii)
that the Holder is not looking to or relying on the assets, income, or cash flow
of ARG as a source of payment of the Security, except as such assets, income or
cash flow is distributed to the Company in its capacity as a stockholder of ARG,
and (iv) that the Holder has not received or relied on any information or
representation that is contrary to the matters set forth above in this
paragraph.
20. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
21. Abbreviations and Defined Terms.
1-10
<PAGE> 28
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TENENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will cause CUSIP numbers
to be printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
1-11
<PAGE> 29
The Company will furnish to any Holder of a Security upon
written request and without charge a copy of the Indenture. Requests may be made
to: American Restaurant Group Holdings, Inc., 450 Newport Center Drive, Newport
Beach, California 92660, Attn.: Chief Financial Officer.
1-12
<PAGE> 30
ASSIGNMENT FORM
I or we assign and transfer this Security
to_______________________________________________________________
_________________________________________________________________
(Print or type name, address and zip code of assignee)
_________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: Signed: ____________________
Signature Guarantee:
_______________________________
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
1-13
<PAGE> 31
ASSIGNMENT FORM
I or we assign and transfer this Security
to_______________________________________________________________
_________________________________________________________________
(Print or type name, address and zip code of assignee)
_________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: Signed: ____________________
Signature Guarantee:
________________________________
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)
1-14
<PAGE> 32
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 3.07 or 3.08 of the Indenture, check the box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 3.07 or 3.08 of the Indenture, state the amount:
Dated: __________________ Signed: ____________________
(Sign exactly as
name appears on the
other side of this
Security)
Signature
Guarantee:__________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
1-15
<PAGE> 1
EXHIBIT 12
AMERICAN RESTAURANT GROUP, INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
YEAR ENDED ENDED
-------------------------------------------------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER MARCH MARCH
27, 26, 25, 30, 29, 31, 30,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Before Taxes &
Extraordinary Items ................. ($19,418) ($12,073) ($39,596) ($36,692) ($20,229) ($2,125) $1,502
Fixed Charges & Preferred Stock
Dividends ........................... 34,467 37,711 38,494 39,170 38,929 9,597 8,453
Total Earnings Before Taxes,
Extraordinary Items & Fixed
Charges ............................. $ 15,049 $ 25,638 ($ 1,102) $ 2,478 $ 18,700 $ 7,472 $9,955
======== ======== ======== ======== ======== ======= ======
Fixed charges
Rent Expense (excluding & rent) ..... 19,283 20,523 21,844 23,919 29,874 7,553 7,088
Interest Factor ..................... 33.0% 133.0% 33.0% 33.0 33.0% 33.0% 33.0%
-------- -------- -------- -------- -------- ------- ------
Interest Portion of Rent Expense ..... 6,363 6,773 7,209 7,893 9,858 2,492 2,339
Interest Expense ..................... 23,741 27,691 28,004 27,714 23,984 5,925 5,521
Amortization of Debt Costs ........... 4,363 3,247 3,281 3,563 5,087 1,180 593
-------- -------- -------- -------- -------- ------- ------
Total Fixed Charges ................. 34,467 37,711 38,494 39,170 38,929 9,597 8,453
======== ======== ======== ======== ======== ======= ======
Debt Costs ........................... 2,191
Amortization of Debt Costs-
Preferred ........................... 33
Preferred Stock Outstanding .......... 35,000
Preferred Stock Dividends ............ 386
Pre-Tax Factor ...................... 1
------
Pre-Tax Preferred Stock Dividends .... 386
Liquidation Preference ............... 175
------
Total Preferred Dividends & Fees .... 594
------
Total Fixed Charges & Preferred
Stock Dividends ..................... $ 34,467 $ 37,711 $ 38,494 $ 39,170 $ 38,929 $ 9,597 $9,047
======== ======== ======== ======== ======== ======= ======
Ratio of Earnings to Fixed Charges ... 0.437 0.680 (0.029) 0.063 0.480 0.779 1.178
Insuffient Amount .................... $ 19,418 $ 12,073 $ 39,596 $ 36,692 $ 20,229 $ 2,125
Ratio of Earnings to Fixed Charges
& Preferred Stock Dividends ......... 0.437 0.680 (0.029) 0.063 0.480 0.779 1.100
Insufficient Amount .................. $ 19,418 $ 12,073 $ 39,596 $ 36,692 $ 20,229 $ 2,125
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent pubilc accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference
in this registration statement of our report dated February 27, 1998 included
in American Restaurant Group, Inc's Form 10-K for the fiscal year ended
December 29, 1997, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
July 27, 1998
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)___
________________________________
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
(identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
__________________________________
American Restaurant Group
(Exact name of obligor as specified in its charter)
DELAWARE 33-0193602
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE> 2
450 Newport Center Drive, Ste. 600
Newport Beach, CA 92660
(Address of principal chief executive offices)
11 1/2 Series A Senior Notes due 2003
12% Senior Pay-in-Kind Exchangeable Preferred Stock
(Title of indenture securities)
<PAGE> 3
GENERAL
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company, National Association Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
<PAGE> 4
16. LIST OF EXHIBITS
T-1.1 -- A copy of the Articles of Association of U.S. Trust Company,
National Association currently in effect.
T-1.2 -- A copy of the Certificate of Authority of the Trustee to Commence
Business; incorporated by reference to Exhibit T-1.1 filed with Form T-1
Statement, Registration No. 33-33031.
T-1.3 -- A copy of the Authorization of the Trustee to exercise Corporate
Trust Powers; incorporated by reference to Exhibit T-1.1 filed with Form T-1
Statement, Registration No. 33-33031.
T-1.4 -- A copy of the By-Laws of U.S. Trust Company, National Association.
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939; incorporated by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 -- A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
NOTE
As of July 1, 1998 the Trustee had 20,000 shares of Capital Stock outstanding,
all of which are owned by U.S. Trust Corporation
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the
information requested as though U.S. Trust Company, National Association, and
U.S. Trust Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
<PAGE> 5
--------------
Pursuant to the requirements of the Trust Indenture of Act of 1939, the
trustee, U.S. Trust Company, National Association, a corporation organized and
existing under the laws of the State of California, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 23rd day of July, 1998.
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
By: /s/
------------------------------------------
Sandee' Parks
Authorized Signatory
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 3/31/98 ST-BK: 06-0784 PFIBC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-1
LOS ANGELES, CA 90077 Transit # 12204024
9
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C200-
ASSETS Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
1 Cash and balances due from depository institutions (from Schedule RC-A) RCON
2. a. Noninterest-bearing balances and currency and coin(1) 0081 7,317 1.a
b. Interest bearing balances(2) 0071 141 1.b
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 176,441 2.b
3. Federal funds sold and securities purchased under agreements to resell 1350 62,000 3.
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income (from Schedule RC-C) 2122 56,321 4.a
b. LESS: Allowance for loan and lease losses 3123 979 4.b
c. LESS: Allocated transfer risk reserve 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve RCON 55,432
(item 4.a minus 4.b and 4.c) 2125 4.d
5. Trading assets 3545 0 5
6. Premises and fixed assets (including capitalized leases) 2145 8,213 6.
7. Other real estate owned (from Schedule RC-M) 2150 0 7,
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
10. Intangible assets (from Schedule RC-M) 2143 2,331 10.
11. Other assets (from Schedule RC-F) 2160 5,418 11.
12. Total assets (sum of items 1 through 11) 2170 317,203 12.
</TABLE>
- ------------
(1) Includes cash names in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 3/31/98 ST-BK: 06-0784 PFIBC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-2
LOS ANGELES, CA 90077 Transit # 12204024
10
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
C200-
LIABILITIES Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of RCON
columns A and C from Schedule RC-E) 2200 277,776 13.a
RCON
(1) Noninterest-bearing(1) 6631 32,591 13.a.1
(2) Interest-bearing 6636 245,185
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased(2) and securities sold under agreements to
repurchase: RCON 0 14
2800
15. a. Demand notes issued to the U.S. Treasury 2840 0 15.a
b. Trading liabilities 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less 2332 0 16.a
b. With a remaining maturity of more than one year through three years A547 0 16.b
c. With a remaining maturity of more than three years A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 2920 0 18.
19. Subordinated notes and debentures 3200 0 19.
20. Other liabilities (from Schedule RC-G) 2930 7,486 20.
21. Total liabilities (sum of items 13 through 20) 2948 283,262 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 3838 5,000 23.
24. Common stock 3230 2,000 24.
25. Surplus (exclude all surplus related to preferred stock) 3839 12,745 25.
26. a. Undivided profits and capital reserves 3632 11,096 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 1,100 26.b
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 3210 31,941 28.
29. Total liabilities and equity capital (sum of items 21 and 28) 3300 317,203 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank RCON
by independent external auditors as of any date during 1997 6724 1 M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited life preferred stock and related surplus.
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
11 1/2% SERIES A SENIOR
SECURED NOTES DUE 2003
IN EXCHANGE FOR
11 1/2% SERIES B SENIOR
SECURED NOTES DUE 2003.
AND
12% SERIES A SENIOR PAY-IN-KIND
EXCHANGEABLE PREFERRED STOCK
IN EXCHANGE FOR
12% SERIES B SENIOR PAY-IN-KIND
EXCHANGEABLE PREFERRED STOCK
OF
AMERICAN RESTAURANT GROUP, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 A.M.
NEW YORK CITY TIME, ON AUGUST 25, 1998 (THE "EXPIRATION DATE")
UNLESS EXTENDED BY AMERICAN RESTAURANT GROUP, INC.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Mail: By Overnight Delivery:
(insured or registered recommended) (insured or registered recommended) (insured or registered recommended)
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
65 Beaver Street P.O. Box 843 770 Broadway
Ground Floor Cooper Station 7th Floor
New York, NY 10005 New York, New York 10276 New York, New York 10003
Attn: Corporate Trust and Attention: Corporate Trust and Attention: Corporate Trust and
Agency Services Agency Services Agency Services
By Facsimile: Confirm By Telephone:
(212) 420-6152 (800) 548-6565
(For Eligible Institutions Only)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
<PAGE> 2
2
The undersigned acknowledges receipt of the Prospectus dated July 27,
1998 (the "Prospectus") of American Restaurant Group, Inc. (the "Company"), and
this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange (i) $1,000 in
principal amount of its 11 1/2 Series B Senior Secured Notes due 2003 (the
"Exchange Notes") for each $1,000 in principal amount of outstanding 11 1/2
Series A Senior Secured Notes due 2003 (the "Notes") and (ii) one share of its
12% Series B Senior Pay-in-Kind Exchangeable Preferred Stock, par value $0.01
per share (the "Exchange Preferred Stock" and, together with the Exchange Notes,
the "Exchange Securities) for each share of its outstanding 12% Series A Senior
Pay-in-Kind Exchangeable Preferred Stock, par value $0.01 per share (the
"Preferred Stock" and, together with the Notes, the "Securities"). The terms of
the Exchange Securities are substantially identical in all respects (including
principal amount, interest rate and maturity) to the terms of the Securities for
which they may be exchanged pursuant to the Exchange Offer, except that the
Exchange Securities are freely transferable by holders thereof (except as
provided herein or in the Prospectus) and are not subject to any covenant
regarding registration under the Securities Act of 1933, as amended (the "Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE> 3
3
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Notes and/or Preferred Stock to which this Letter of
Transmittal relates. If the space provided below is inadequate, the Certificate
Numbers and Principal Amounts should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED HEREWITH
- ---------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL AMOUNT PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY NOTES* TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered
the full aggregate principal amount represented by such Notes. See
instruction 2.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF PREFERRED STOCK TENDERED HEREWITH
- ----------------------------------------------------------------------------------------------------
NUMBER
OF SHARES NUMBER
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED OF SHARES
(PLEASE FILL IN) NUMBER(S)* BY PREFERRED STOCK* TENDERED**
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered
the full number of shares represented by such Preferred Stock.
See instruction 2.
<PAGE> 4
4
This Letter of Transmittal is to be used either if certificates of
Notes or Preferred Stock are to be forwarded herewith or if delivery of Notes or
shares of Preferred Stock is to be made by book-entry transfer to an account
maintained by the Exchange Agent or its agent at The Depository Trust Company,
pursuant to the procedures set forth in "The Exchange Offer--Tender Procedure"
in the Prospectus. Delivery of documents to the book-entry transfer facility
does not constitute delivery to the Exchange Agent.
Holders whose Notes or shares of Preferred Stock are not immediately
available or who cannot deliver their Notes or shares of Preferred Stock and all
other documents required hereby to the Exchange Agent on or prior to the
Expiration Date must tender their Securities according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer--Tender Procedure."
/ / CHECK HERE IF TENDERED NOTES AND/OR PREFERRED STOCK (PLEASE CIRCLE ONE OR
BOTH) ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT OR ITS AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
/ / Name of Tendering Institution____________________________________________
/ / The Depository Trust Company
/ / Account Number___________________________________________________________
/ / Transaction Code Number__________________________________________________
/ / CHECK HERE IF TENDERED NOTES AND/OR PREFERRED STOCK (PLEASE CIRCLE ONE OR
BOTH) ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s)_____________________________________________
Name of Eligible Institution that Guaranteed Delivery____________________
Date of Execution of Notice of Guaranteed Delivery_______________________
If Delivered by Book-Entry Transfer:
Account Number___________________________________________________________
/ / CHECK HERE IF EXCHANGE NOTES AND/OR EXCHANGE PREFERRED STOCK (PLEASE
CIRCLE ONE OR BOTH) ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON
SIGNING THE LETTER OF TRANSMITTAL:
Name_____________________________________________________________________
(Please Print)
Address__________________________________________________________________
_________________________________________________________________________
(Including Zip Code)
<PAGE> 5
5
/ / CHECK HERE IF EXCHANGE NOTES AND/OR EXCHANGE PREFERRED STOCK (PLEASE
CIRCLE ONE OR BOTH) ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM THAT
LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address__________________________________________________________________
_________________________________________________________________________
(Including Zip Code)
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:____________________________________________________________________
Address__________________________________________________________________
<PAGE> 6
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of the Securities indicated above. Subject to, and effective upon, the
acceptance for exchange of the Securities tendered herewith, the undersigned
hereby exchanges, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to such Securities. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company, in connection with the Exchange
Offer) to cause the Securities to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Securities and to acquire Exchange
Securities issuable upon the exchange of such tendered Securities, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Securities, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered
Securities or transfer ownership of such Securities on the account books
maintained by the book-entry transfer facility. The undersigned further agrees
that acceptance of any and all validly tendered Securities by the Company and
the issuance of Exchange Securities in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement (as defined in the Prospectus) and that the Company shall have
no further obligations or liabilities thereunder.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company), as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Securities tendered hereby and, in such event, the Securities not exchanged will
be returned to the undersigned at the address shown above.
By tendering, each holder of Securities represents that Exchange
Securities acquired in the exchange will be obtained in the ordinary course of
business of such holder or any beneficial owner thereof, that such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Securities, that neither such holder nor any beneficial owner
of the Exchange Securities is an " affiliate" of the Company within the meaning
of Rule 405 under the Act and that such holder is not engaged in, and does not
intend to engage in, a distribution of the Exchange Securities. Any holder of
Securities using the Exchange Offer to participate in a distribution of the
Exchange Securities (i) cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in its interpretive letter with
respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar interpretive letters and (ii) must comply with the registration and
prospectus requirements of the Act in connection with a secondary resale
transaction.
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Securities. If the undersigned is a broker-dealer that will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Securities may be withdrawn
at any time prior to the Expiration Date in accordance with the terms of the
Letter of Transmittal.
Certificates for all Exchange Securities delivered in exchange for
tendered Securities and any Securities delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
<PAGE> 7
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Holder(s)
Dated ____________________ Area Code and Telephone Number:_________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Securities. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s)_________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)___________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No._____________________________________________________
Taxpayer Identification No._____________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized Signature____________________________________________________________
Name____________________________________________________________________________
Title___________________________________________________________________________
Address_________________________________________________________________________
Name of Firm____________________________________________________________________
Area Code and Telephone No._____________________________________________________
Dated __________________________
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Securities or confirmation of
any book-entry transfer to the Exchange Agent's or its agent's account at a
book-entry transfer facility of Securities tendered by book-entry transfer, as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile thereof, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at any of its
addresses set forth herein on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE SECURITIES
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY
MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO
PERMIT TIMELY DELIVERY.
Holders whose Securities are not immediately available or who cannot
deliver their Securities and all other required documents to the Exchange Agent
on or prior to the Expiration Date or comply with book-entry transfer procedures
on a timely basis must tender their Securities pursuant to the guaranteed
delivery procedure set forth in the Prospectus under "The Exchange Offer--Tender
Procedure." Pursuant to such procedure: (i) such tender must be made by or
through an Eligible Institution (as defined in the Prospectus); (ii) on or prior
to the Expiration Date the Exchange Agent must have received from such Eligible
Institution a letter, telex, telegram or facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier) setting forth the name and address of the tendering holder, the names
in which such Securities are registered, and, if possible, the certificate
numbers of the Securities to be tendered; and (iii) all tendered Securities (or
a confirmation of any book-entry transfer of such Securities into the Exchange
Agent's account at a book-entry transfer facility) as well as this Letter of
Transmittal and all other documents required by this Letter of Transmittal, must
be received by the Exchange Agent within five New York Stock Exchange trading
days after the date of execution of such letter, telex, telegram or facsimile
transmission, all as provided in the Prospectus under the caption "The Exchange
Offer--Tender Procedure."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Securities for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes or less than the
full number of shares of Preferred Stock evidenced by a submitted certificate is
tendered, the tendering holder should fill in the principal amount tendered of
Notes and/or number of shares of Preferred Stock in the box entitled "Principal
Amount Tendered" and/or "Number of Shares Tendered," as the case may be. A newly
issued certificate for the principal amount of Securities submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Securities delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
Tenders of Securities pursuant to the Exchange Offer are irrevocable,
except that Securities tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. To be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be
received by the Exchange Agent by 12:00 A.M., New York City time, on the
Expiration Date unless extended by the Company. Any such notice of withdrawal
must specify the person named in the Letter of Transmittal as having tendered
Securities to be withdrawn, the certificate numbers of the Securities to be
withdrawn, the principal amount of Notes and/or number of shares of Preferred
Stock Securities delivered for exchange, a statement that such holder is
withdrawing his or her election to have such Securities exchanged, and the name
of the registered holder of such Securities, and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the
<PAGE> 9
2
beneficial ownership of the Securities being withdrawn. The Exchange Agent will
return the properly withdrawn Securities promptly following receipt of notice of
withdrawal. If Securities have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn Securities or otherwise comply with the book-entry transfer facility's
procedures. All questions as to the validity of notices of withdrawals,
including time of receipt, will be determined by the Company, and such
determination will be final and binding on all parties.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of
the Securities tendered hereby, the signature must correspond with the name(s)
as written on the face of the certificates without alteration, enlargement or
any change whatsoever.
If any of the Securities tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Securities registered in different names are tendered,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Securities.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Securities) of Securities listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Securities listed, such Securities must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Securities.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Securities are tendered: (i) by a registered
holder of such Securities; or (ii) for the account of an Eligible Institution.
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Securities to it or its order pursuant to the Exchange
Offer. If a transfer tax is imposed for any reason other than the transfer and
exchange of Securities to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Securities listed in this Letter of
Transmittal.
<PAGE> 10
3
5. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part,
either of the conditions to the Exchange Offer set forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES.
Any holder whose Securities have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated below for
further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Company at 450 Newport Center Drive,
Newport Beach, California 92660, Attention: Ken A. Di Lillo (telephone: (714)
721-8000).
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES OF SECURITIES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
11 1/2% SERIES A SENIOR
SECURED NOTES DUE 2003
IN EXCHANGE FOR
11 1/2% SERIES B SENIOR
SECURED NOTES DUE 2003
AND
12% SERIES A SENIOR PAY-IN-KIND
EXCHANGEABLE PREFERRED STOCK
IN EXCHANGE FOR
12% SERIES B SENIOR PAY-IN-KIND
EXCHANGEABLE PREFERRED STOCK
OF
AMERICAN RESTAURANT GROUP, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 A.M., NEW YORK
CITY TIME, ON AUGUST 25, 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED BY
AMERICAN RESTAURANT GROUP, INC.
Registered holders of outstanding (i) 11 1/2 Series A Senior Secured
Notes due 2003 (the "Notes"), who wish to tender their Notes in exchange for a
like principal amount of new 11 1/2% Series B Senior Secured Notes due 2003 (the
"Exchange Notes") and (ii) 12% Series A Senior Pay-in-Kind Exchangeable
Preferred Stock, par value $0.01 per share (the "Preferred Stock" and, together
with the Notes, the "Securities") who wish to tender their Preferred Stock in
exchange for a like number of shares of new 12% Series B Senior Pay-in-Kind
Exchangeable Preferred Stock, par value $0.01 per share (the "Exchange Preferred
Stock" and, together with the Exchange Notes, the "Exchange Securities") and
whose Notes or shares of Preferred Stock are not immediately available or who
cannot deliver their Notes or shares of Preferred Stock and Letter of
Transmittal (and any other documents required by the Letter of Transmittal) to
United States Trust Company of New York (the "Exchange Agent") prior to the
Expiration Date, may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand
or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight delivery) or mail to the Exchange
Agent. See "The Exchange Offer--Tender Procedure" in the Prospectus.
<PAGE> 2
2
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Mail: By Overnight Delivery:
(insured or registered recommended) (insured or registered recommended) (insured or registered recommended)
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
65 Beaver Street P.O. Box 843 770 Broadway
Ground Floor Cooper Station 7th Floor
New York, NY 10005 New York, New York 10276 New York, New York 10003
Attn: Corporate Trust and Attention: Corporate Trust and Attention: Corporate Trust and
Agency Services Agency Services Agency Services
By Facsimile: Confirm By Telephone:
(212) 420-6152 (800) 548-6565
(For Eligible Institutions Only)
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of instructions via a facsimile transmission
to a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Notes and/or
shares of Preferred Stock indicated below, upon the terms and subject to the
conditions contained in the Prospectus dated July 27, 1998 of American
Restaurant Group, Inc. (the "Prospectus"), receipt of which is hereby
acknowledged.
<PAGE> 3
3
DESCRIPTION OF NOTES TENDERED
<TABLE>
<CAPTION>
Name and address of registered
holder as it appears on the 11 1/2% Certificate Number(s) Principal Amount
Series A Senior Secured Notes of Notes of Notes
due 2003, ("Notes") Tendered Tendered
(Please Print)
<S> <C> <C>
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
</TABLE>
DESCRIPTION OF PREFERRED STOCK TENDERED
<TABLE>
<CAPTION>
Name and address of registered
holder as it appears on the 12%
Series A Senior Pay-in-Kind Certificate Number(s) Number of Shares
Exchangeable Preferred Stock, of Preferred Stock of Preferred Stock
("Preferred Stock") Tendered Tendered
(Please Print)
<S> <C> <C>
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
- --------------------------------- --------------------- ----------------
</TABLE>
<PAGE> 4
4
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Notes or Preferred Stock, together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required by the Letter of
Transmittal, within five New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
Name of Firm: ______________________ ______________________________________
(Authorized Signature)
Address: ___________________________ Title: _______________________________
____________________________________ Name: ________________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date: ________________________________
____________________________________
NOTE: DO NOT SEND NOTES OR PREFERRED STOCK WITH THIS NOTICE OF
GUARANTEED DELIVERY. SECURITIES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.3
, 1998
EXCHANGE AGENT AGREEMENT
United States Trust Company of New York
515 South Flower Street, Suite 2700
Los Angeles, California 90071
Dear Sirs:
American Restaurant Group, Inc., a Delaware corporation (the "Company),
proposes to offer to exchange (the "Exchange Offer") up to (i) $158,600,000 in
aggregate principal amount of its 11 1/2% Series B Senior Secured Notes due 2003
(the "Exchange Notes"), for up to $158,600,000 in aggregate principal amount of
its outstanding 11 1/2% Series A Senior Secured Notes due 2003 (the "Notes"),
and (ii) 35,000 shares of its 12% Series B Senior Pay-in-Kind Exchangeable
Preferred Stock, par value $0.01 per share (the "Exchange Preferred Stock" and,
together with the Exchange Notes, the "Exchange Securities"), for up to 35,000
shares of its issued and outstanding 12% Senior Pay-in-Kind Exchangeable
Preferred Stock, par value $0.01 per share (the "Preferred Stock" and, together
with the Notes, the "Securities").
The Exchange Offer will commence on , 1998. The Exchange Offer and
withdrawal rights will expire at 5:00 p.m., New York City time, on , 1998,
unless the Company extends the offer by written notice to you (the "Expiration
Date").
1. Appointment as Exchange Agent. Subject to your acceptance hereof,
the Company appoints you as the exchange agent (the "Exchange Agent") for the
purposes and upon the terms and conditions set forth herein. In this connection,
the Company has enclosed the Exchange Documents (as defined below) and certified
copies of resolutions of the Company's Board of Directors approving the Exchange
Offer and authorizing the officers of the Company to enter into this Agreement
and to carry out the transactions contemplated by the Exchange Offer.
2. Compensation. The Company has entered into an agreement with you
with respect to compensation for various services and no additional compensation
is payable in connection with your services hereunder.
3. Receipt of Tenders. You shall receive all tenders of Securities and
determine whether each such tender has been made in accordance with the
procedures set forth in the Prospectus relating to the Exchange Offer dated July
27, 1998 (the "Prospectus") or the Letter of Transmittal described therein (the
"Letter of Transmittal"), subject to the right of the Company to determine the
validity of any tender, as described in the Prospectus.
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Determination of all questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of
Securities shall be made by the Company, whose determination shall be final and
binding.
You shall segregate all tenders which are in accordance with the
procedures set forth in the Prospectus or the Letter of Transmittal from those
which are not ("Defective Deposits"). Upon consultation with the Company or its
representatives, you shall use your best efforts to cause holders who effected
any Defective Deposit to cure such Defective Deposit.
You will hold all items which are deposited for tender with you after
5:00 p.m., New York City time, on the date the Exchange Offer expires pending
further instructions from an officer of the Company.
4. Exchange Documents. At the request of the Company you shall furnish
copies of any or all of the Prospectus, the Letter of Transmittal and the Notice
of Guaranteed Delivery (collectively, the "Exchange Documents") promptly to any
person designated in such request. All mailings under this Section shall be by
first class mail, postage prepaid, unless otherwise specified in such request.
The Company will furnish you with such additional copies of the Exchange
Documents as you may request to fulfill your obligations under this Section.
5. Notification of Changes in the Exchange Offer. At the request of the
Company, you shall notify tendering holders of Securities in the event of any
rescission or modification of the Exchange Offer. In the event of any such
rescission, you will return all tendered Securities to the persons entitled
thereto, at the request of the Company.
6. Delivery of Exchange Securities; Irrevocability of Tenders; Return
of Securities. On the fifth and tenth business days following the commencement
of the Exchange Offer and on each business day thereafter, up to and including
the Expiration Date, you are to advise Mr. Ken A. Di Lillo, Vice President -
Finance of the Company, or another designated officer or agent of the Company,
orally (to be promptly confirmed in writing) of the aggregate principal amount
of Securities which have been properly tendered pursuant to the Exchange Offer.
In addition, you will also inform the aforementioned person or persons upon oral
request made from time to time prior to the Expiration Date of such other
information as they may reasonably request. Upon the expiration of the Exchange
Offer, Mr. Di Lillo, or another designated officer or agent of the Company will
confirm to you orally (oral notice to be promptly confirmed in writing) or in
writing the aggregate principal amount of Securities being exchanged for
Exchange Securities pursuant to the Exchange Offer. The Securities accepted for
exchange are to be cancelled.
As soon as practicable after the Company notifies you of its election
to exchange Securities pursuant to the preceding paragraph and upon receipt by
you of certificates for the Exchange Securities in an aggregate principal amount
equal to the principal amount of Securities to be exchanged pursuant to any such
election, you shall (i) deliver the tendered Securities, which have previously
been cancelled, to such person or entity as the
<PAGE> 3
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Company shall designate by written notice to you, and (ii) deliver over your
window or send by first-class mail postage prepaid to, or at the direction of,
each holder whose Securities are being exchanged a certificate for the Exchange
Securities in respect of the aggregate principal amount of Securities so
exchanged.
Tenders pursuant to the Exchange Offer are irrevocable, except that
Securities tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date.
If, pursuant to the terms of the Exchange Offer, the Company does not
accept and exchange all or any part of the Securities, or Securities are
tendered but withdrawn prior to the Expiration Date, or partial tenders are
made, you shall promptly return to, or upon the order of, the tendering holder,
certificates for Securities not exchanged or, to the extent required, submit to
the Company for reissuance to, or upon the order of, the tendering holder
certificates for Securities not tendered or exchanged, which certificate shall
be returned to you for disposition.
Certificates for unexchanged Securities shall be forwarded by first
class mail under an existing insurance policy protecting you and the Company
from loss or liability arising out of the non-receipt or non-delivery of such
certificates or by registered mail insured separately for the replacement value
of such certificates.
7. Limited Liability of Exchange Agent. As Exchange Agent you:
(a) shall have no duties or obligations other than those
specifically set forth herein;
(b) will not be required to and will make no
representations and have no responsibilities as to the validity,
sufficiency, value or genuineness of any Securities, Letters of
Transmittal or documents deposited with you, or of any Securities or
Exchange Securities delivered by you, pursuant to the Exchange Offer or
of any signatures or endorsements, other than your own, or any thereof;
(c) shall not be obligated to take any action hereunder
that might in your judgment involve any expense or liability unless you
have been furnished with reasonable indemnity;
(d) shall not be liable for any action taken or omitted
by you, or any action suffered by you to be taken or omitted, without
negligence, misconduct or bad faith on your part, in connection with
this Agreement or your compliance with the instructions set forth
herein or with any written or oral instructions delivered to you
pursuant hereto, and may rely on, and shall be protected in acting on,
any certificate, instrument, opinion, notice, letter, telegram or other
document, or any security, delivered to you and reasonably believed by
you to be genuine and to have been signed by a proper party or parties;
<PAGE> 4
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(e) may rely on, and shall be protected in acting on, the
written or oral instructions, with respect to any matter relating to
your duties as Exchange Agent, of any officer of the Company; and
(f) may consult counsel satisfactory to you (including
counsel for the Company) and the advice of such counsel shall be full
and complete authorization and protection in respect of any action
taken, suffered or omitted by you hereunder in good faith and in
accordance with such advice of such counsel.
8. Indemnification of Exchange Agent. The Company agrees
to reimburse you for and to indemnify you against and hold you harmless from all
liability, cost or expense (including reasonable fees and expenses of counsel)
that may be paid, incurred or suffered by you or to which you may become subject
without negligence, misconduct or bad faith on your part, arising out of or in
connection with this Agreement.
The Company shall be notified by you, by letter or by cable or
telex confirmed by letter, of the written assertion of a claim against you or of
any action commenced against you, within ten days after you shall have received
any such written assertion of a claim or shall have been served with the summons
or other first legal process giving information as to the nature and basis of
the claim, but failure to so notify the Company shall not relieve the Company
from any liability which the Company otherwise may have on account of this
Section 8. The Company shall be entitled to participate at its own expense in
the defense of any such claim, and if the Company so elects at any time after
receipt of such notice, the Company shall assume the defense of any suit brought
to enforce any such claim. In the event that the Company assumes the defense of
any such claim, the Company shall not be liable for any fees and expenses of
counsel thereafter incurred by you for the defense of such claim unless there
shall be a conflict of your interests and those of the Company.
9. Notices. Except as otherwise expressly provided
herein, all notice and other communications hereunder shall be in writing, shall
be delivered by hand or first class mail, postage prepaid, shall be deemed given
when received and shall be sent to the addresses listed below or to such other
addresses as the addressee shall designate from time to time by notice:
Company: American Restaurant Group, Inc.
450 Newport Center Drive
Newport Beach, California 92660
Attention: Mr. Ken A. Di Lillo
Vice President - Finance
Exchange
Agent: United States Trust Company of New York
515 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
Ms. Sandee Parks
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10. Amendment, Modification. This Agreement may not be modified,
amended or supplemented without an express written agreement executed by the
parties hereto.
11. Governing Law; Benefit of Agreement. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF. This Agreement shall
inure solely to the benefit of, and the obligations created hereby shall be
binding upon, the parties hereto and their respective successors and assigns. No
other person shall acquire or have any rights under or by virtue of this
Agreement.
If the foregoing is in accordance with your understanding, would you
please indicate your agreement by signing and returning the enclosed copy of
this letter to the Company.
Very truly yours,
AMERICAN RESTAURANT GROUP, INC.
By:_____________________________________
Name: Ken A. DiLillo
Title: Vice President - Finance
Agreed to this ____ day
of July, 1998
UNITED STATES TRUST
COMPANY OF NEW YORK
By:_______________________________
Name:
Title:
