PROSPECTUS
American Restaurant Group, Inc.
11 1/2% Senior Secured Notes due 2003
12% Senior Pay-in-Kind Exchangeable Preferred Stock
_________________________
Certain selling securityholders (the "Selling Securityholders") may
offer and sell from time to time up to $31,083,000 principal amount of
the 11 1/2% Senior Secured Notes due 2003 (the "Notes") and 26,188 shares
(including shares which may be issued as dividends from time to time) of
the 12% Senior Pay-in-Kind Exchangeable Preferred Stock (the "Preferred
Stock," and together with the Notes, the "Securities") of American
Restaurant Group, Inc., a Delaware Corporation (the "Company"). The
following terms apply to the Notes and the Preferred Stock as indicated.
For more detailed information, see "Description of the Notes" and
"Description of the Preferred Stock." We will receive no proceeds from
the sale of these Securities.
The Notes
Interest Payment Dates: February 15 and August 15 of each year
Record Dates: February 1 and August 1 preceding each Interest
Payment Date
Redeemable at our option on or after February 15, 2001 at 105.75%
and 100% after February 15, 2002
Up to 1/3 also redeemable at our option prior to February 15, 2000
out of proceeds of a qualified equity offering at 111.5%
Mandatory offer to repurchase upon change of control at 101% of the
aggregate principal amount plus accrued and unpaid interest
Unconditionally guaranteed by each of our restricted subsidiaries
The Preferred Stock
Dividend Payment Dates: February 15 and August 15 of each year
Record Dates: February 1 and August 1 preceding each Dividend
Payment Date
Dividends payable in cash or additional shares of Preferred Stock
Liquidation preference of $1,000 per share
Redeemable at any time at our option for 110% of the liquidation
preference plus unpaid dividends
Mandatory redemption on August 15, 2003 for 110% of the liquidation
preference plus accrued and unpaid dividends
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Exchangeable by us after February 15, 1999 for our 12% Subordinated
Debentures due 2003
We intend to pay dividends by issuing additional shares of
Preferred Stock.
We do not intend to list the Notes or the Preferred Stock on any
securities exchange.
_________________________
See "Risk Factors" on page 15 of this Prospectus for a description
of certain factors that should be considered in evaluating an investment
in these securities.
_________________________
The Selling Securityholders may sell the Securities from time to
time directly to purchasers or through agents in ordinary brokerage
transactions, in negotiated transactions or otherwise, at prices that
represent or relate to then prevailing market prices or are negotiated.
The Selling Securityholders reserve the right to withdraw, cancel or
modify the offer or solicitations of offers made hereby without notice.
The Selling Securityholders may reject any offer in whole or in part.
The Selling Securityholders and any broker/dealers that participate in
the distribution of the Securities may be deemed to be "underwriters" as
defined in the Securities Act of 1933, as amended (the "Act"), and agency
commissions paid by Selling Securityholders to broker/dealers as well as
profits realized by Selling Securityholders and broker/dealers purchasing
Securities for their own account may be deemed underwriting discounts or
commissions under the Act in connection with the sale of the Securities.
This Prospectus may not be used to consummate sales of Notes or
Preferred Stock unless accompanied by our latest Annual Report on Form
10-K and any subsequently filed Quarterly Reports on Form 10-Q.
_________________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
_________________________
May 13 , 1999
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TABLE OF CONTENTS
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . 31
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SELLING SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 33
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . 39
DESCRIPTION OF THE PREFERRED STOCK . . . . . . . . . . . . . . . . . 67
DESCRIPTION OF THE EXCHANGE DEBENTURES . . . . . . . . . . . . . . . 78
DESCRIPTION OF CERTAIN INDEBTEDNESS . . . . . . . . . . . . . . . . . 90
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 98
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-2 relating to the Notes and the
Preferred Stock offered hereby (together with all amendments and
exhibits, referred to as the "Registration Statement"). 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 SEC. For further information relating to us,
the Notes and the Preferred Stock offered by this Prospectus, you should
review the Registration Statement. Statements made in this Prospectus as
to the contents of any contract, agreement or other document 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 of its terms and conditions.
We file annual, quarterly and current reports and other
information with the SEC. You may read and copy any document we file at
the Public Reference Section of the SEC at Room 1024, 450 Fifth Street,
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N.W., Washington, D.C. 20549 and at the Regional Offices of the SEC 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. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available at the
SEC's web site at http://www.sec.gov. In addition, so long as any Notes
or Preferred Stock are outstanding, we will furnish to the holders
thereof the quarterly and annual financial reports that we are required
to file with the SEC (or similar reports in the event we are not at the
time required to file such reports with the SEC).
You should rely only on the information incorporated by reference
or provided in this Prospectus. We have not authorized anyone else to
provide you with different information. The Selling Securityholders may
not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this Prospectus
is accurate as of any date other than the date on the front of this
document.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this Prospectus. We incorporate by
reference the documents listed below filed by us with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"):
1. Our Annual Report on Form 10-K for the fiscal year
ended December 28, 1998; and
2. Our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 1999.
You may request a copy of these documents (other than the
exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents) at no cost by writing us
at the following address: American Restaurant Group, Inc., 450 Newport
Center Drive, Newport Beach, California 92660, Attention: Vice President
- -- Finance.
We will deliver without charge a copy of our latest Annual
Report on Form 10-K and our Quarterly Report on Form 10-Q for the fiscal
quarter ended march 29, 1999.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this
Prospectus. It may not contain all of the information that is important
to you. This Prospectus includes specific terms of the Notes and
Preferred Stock being offered, as well as information regarding our
business and detailed financial data. We encourage you to read this
Prospectus, including the documents incorporated by reference, in its
entirety.
The Company
Overview
We operate five restaurant concepts:
. Stuart Anderson's Black Angus ("Black Angus") (100 restaurants);
. Grandy's (77 restaurants);
. Spoons (18 restaurants);
. Spectrum (14 restaurants); and
. National Sports Grill (6 restaurants).
Our 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.
Grandy's, our second largest division, is a family-oriented,
country-kitchen style restaurant. Our other three restaurant concepts
are: Spoons, a casual-style restaurant concept featuring fajitas, salads
and hamburgers; Spectrum, consisting of upscale Northern Italian,
American and Mexican restaurants; and National Sports Grill, consisting
of sports-theme restaurants.
We operate a total of 215 restaurants, including 100 Black Angus
restaurants, located primarily in the Western and Southwestern regions of
the United States.
Background
Since our formation in 1987, we have been a highly leveraged
company. This has resulted in the need to dedicate significant portions
of our cash flow to service our debt obligations. In addition, we have
operated under restrictive covenants and significant liquidity
constraints. All of these factors have limited our operating flexibility
and growth potential.
More recently, our growth and profitability have declined as a
result of:
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- - the strategic decision in 1992 to gradually limit and phase out the
Black Angus late-night entertainment operations;
- - 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
- - the economic conditions in 1995 in our principal markets.
As recently as 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, we were concerned that this business was negatively affecting
visits by our core customer base of middle-income families and that
liability and other expenses associated with the business were
increasing. We began limiting Black Angus' late-night entertainment
business in 1992 and subsequently, between 1994 and 1998, we phased out
the business in 8 to 19 restaurants per year. As of March 29, 1999, we
operated 4 Black Angus restaurants with late-night entertainment.
Our Grandy's division experienced a decline in its performance
during the last several years. Grandy's prior management had 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, we restructured Grandy's management team in an
effort to return the division to its historical image. In connection
with the restructuring, Grandy's has closed 29 restaurants, reduced
overhead and advertising expenses and revised the pricing, menu and
marketing strategies. We intend to restore Grandy's to its image of a
quick-service, family-dining restaurant concept focused on quality,
"home-cooked" meals.
Business Strategy
We have implemented a business strategy designed to enhance the
growth of our core Black Angus division, reduce corporate overhead and
improve the performance of the Grandy's division. In addition, we plan
to selectively expand our other divisions.
Enhance growth of Black Angus. Our strategy is to increase same-store-
sales through our successful television advertising campaigns, suggestive
sales through on-table promotions, and leveraging our reputation for
high-quality food and service. We also intend to expand the Black Angus
division through the opening of new restaurants.
Reduce overhead. We have implemented a strategy designed to reduce
overhead. In 1997, we 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, we transferred
accounting activities for certain of our restaurants from those
restaurants to the Grandy's headquarters.
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Improve Grandy's performance. The plan of Grandy's restructured
management team is to:
- - identify and close unprofitable stores;
reduce overhead;
- - restore Grandy's image from a price-point competitor to a quality
quick-service/family- dining restaurant; and
- - improve customer counts.
Most recently, the new management team reconfigured the menu to
focus on increasing the average check through the sale of whole meals and
reduced single-item discounting in its marketing strategy
Other
Our Spoons, Spectrum and National Sports Grill concepts are smaller
divisions representing 38 of our 215 restaurants. We may selectively
expand each of these concepts by one or two restaurants per year.
Although we have no current arrangements to sell any restaurants or
divisions, we will review opportunities to sell restaurants in our
smaller divisions from time to time. In addition, we are in the process
of converting 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 we will sell any restaurants or if
we elect to sell restaurants the amount of consideration we will receive
in such sales.
Recapitalization
On February 25, 1998, we completed a recapitalization (the
"Recapitalization") intended to reduce our aggregate cash interest
expense, provide more operational liquidity and permit us to expand in
our core markets in the western United States.
The principal elements of the Recapitalization were the following:
(i) The issuance of $158.6 million aggregate principal amount of
senior secured notes (the "Initial Notes") in a transaction
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. The Initial Notes were substantially
identical in all respects (including interest rate and
maturity) to the terms of the Notes, except that the Initial
Notes were not freely transferable by holders thereof. The
Selling Securityholders purchased $30,083,000 aggregate
principal amount of the Initial Notes;
(ii) The issuance of 35,000 units (the "Units") also in a
transaction not registered under the Act, each Unit consisting
of $1,000 initial liquidation preference of preferred stock
(the "Initial Preferred Stock") and one warrant (the
"Warrants") initially to purchase 2.66143 shares of our common
stock at an initial exercise price of $.01 per share. The
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Initial Preferred Stock was substantially identical to the
form and terms of the Preferred Stock, except that the Initial
Preferred Stock was not freely transferable by holders
thereof. The Selling Securityholders purchased 18,000 of the
Units, including 18,000 shares of Initial Preferred Stock;
(iii) The redemption of $126.4 million aggregate principal amount of
our Senior Secured Notes due 1998 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
our 10.25% Subordinated Notes at a price equal to 65% of the
aggregate principal amount, plus accrued and penalty interest
thereon, and the cancellation of the related warrants to
purchase common stock of our parent, American Restaurant Group
Holdings, Inc. ("Holdings").
(v) The extension of the accretion period on Holdings' Senior
Discount Debentures due 2000, with an accreted value on
November 2, 1998 of approximately $92.0 million, from June 15,
1999 to maturity on December 15, 2005 and the amendment of
certain provisions of Holdings' debentures. Such amended
debentures accrete at a rate of 14.25%, compounded
semi-annually. 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 Initial Notes;
and
(vi) The establishment of a $15.0 million credit facility (the
"Credit Facility").
Exchange for Notes and Preferred Stock
On September 3, 1998, we exchanged $158.6 million principal amount
of the Initial Notes and 35,000 shares of the Initial Preferred Stock for
the same principal amount of Notes and the same number of shares of the
Preferred Stock, including the Initial Notes and Initial Preferred Stock
held by the Selling Securityholders. The Notes and Preferred Stock
received by the Selling Security Holders were subject to certain transfer
restrictions. These Notes (and $1,000,000 of additional Notes
subsequently purchased by one of the Selling Securityholders) and
Preferred Stock are being offered by this Prospectus.
For a description of our consolidated capitalization after giving
effect to the exchange described above and the Recapitalization, see
"Capitalization."
American Restaurant Group, Inc. is a Delaware corporation. Our
principal office is located at 450 Newport Center Drive, 6th Floor,
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Newport Beach, California 92660 and our telephone number is (949) 721-
8000.
Selling Securityholders
The Selling Securityholders consist of (i) 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"),
which collectively purchased more than 50% of the Units at the time of
the Recapitalization, and (ii) certain separate accounts for which TCW
Asset Management Company ("TCW") is the investment advisor. See "Selling
Securityholders." As of the date of this Prospectus, the Selling
Securityholders held $31,083,000 aggregate principal amount of the Notes
and 20,167 shares of Preferred Stock. The Selling Securityholders may
sell the Securities from time to time directly to purchasers or through
agents in ordinary brokerage transactions, in negotiated transactions or
otherwise, at prices that represent or relate to then prevailing market
prices or are negotiated. The Selling Securityholders reserve the right
to withdraw, cancel or modify the offer or solicitation of offers made
hereby without notice. The Selling Securityholders may reject any offer
in whole or in part. See "Plan of Distribution."
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THE OFFERING
These Securities may be offered by certain Selling Securityholders
of American Restaurant Group, Inc.
Description of the Notes
Maturity Date . . . . . . . February 15, 2003
Interest . . . . . . . . . 11 1/2% per year, payable in cash.
Interest Payment Dates . . February 15 and August 15 to holders of
record on the immediately preceding
February 1 and August 1, respectively.
Guarantors . . . . . . . . Each of our current and future restricted
subsidiaries, jointly and severally. See
"Description of the Notes--Guarantors."
Security . . . . . . . . . The Notes and the guarantees, together
with the Credit Facility, are secured,
subject to an intercreditor agreement (the
"Intercreditor Agreement"), by a first-
priority security interest in a portion of
our and our restricted subsidiaries' owned
or leased real property, a substantial
portion of our and our restricted
subsidiaries' owned personal property and
substantially all of our and our
restricted subsidiaries' accounts
receivable, a pledge of all of the capital
stock of our restricted subsidiaries, and
proceeds of the foregoing (the
"Collateral"). See "Risk Factors--The
Collateral Securing the Notes May Be
Insufficient or Unavailable in the Event
of a Default" and "Description of the
Notes--Collateral"
Ranking . . . . . . . . . . . The Notes are our senior secured
obligations. Pursuant to the Intercreditor
Agreement, proceeds from the sale of the
Collateral described above will be used
first to satisfy the obligations under the
Credit Facility, and thereafter, the
Notes. In addition, the Notes are
effectively subordinated to all of our
other secured indebtedness to the extent
of the assets that secure such
indebtedness. See "Description of the
Notes--Collateral" and "Description of the
Notes--Certain Covenants".
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Optional Redemption . . . . We may redeem the Notes at our option, in
whole or in part, on or after February 15,
2001, at the redemption prices set forth
in this Prospectus, plus accrued interest,
if any, to the date of redemption. In
addition, at any time or from time to time
prior to February 15, 2000, we may redeem
up to one-third of the original aggregate
principal amount of the 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 we redeem the Notes within
60 days of the date of the closing of such
offering and at least two-thirds of the
original aggregate principal amount of the
Notes remains outstanding. See
"Description of the Notes--Redemption."
Mandatory Redemption . . . None.
Change of Control . . . . . Upon a change of control, we will be
required to offer to repurchase all of the
outstanding 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 Notes--Change of
Control" and "--Certain Covenants."
Certain Covenants . . . . . The indenture contains certain covenants
that limit our ability and the ability of
our restricted subsidiaries, if any, to,
among other things:
- incur additional indebtedness; - make
restricted payments; - issue and
sell capital stock of subsidiaries; -enter
into certain transactions with
affiliates;- create certain liens;
- sell certain assets; and -
merge, consolidate or sell substantially
all of our assets.
See "Description of the Notes--Certain
Covenants."
For a more detailed description of the
Notes see "Description of the Notes."
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Description of the Preferred Stock
Dividend Rate . . . . . . . Dividends accrue at a rate of 12% per year
of the liquidation preference, subject to
increase in certain circumstances. See
"Certain Covenants" below. We may, at our
option, pay dividends in cash or in
additional shares of Preferred Stock
having an aggregate liquidation preference
equal to the amount of such dividends. We
currently intend to pay dividends by
issuing additional shares of Preferred
Stock.
Dividend Payment Dates . . February 15 and August 15 of each year to
holders of record on the immediately
preceding February 1 and August 1,
respectively.
Liquidation Preference . . $1,000 per share.
Ranking The Preferred Stock ranks senior in right
of payment with respect to all junior
securities.
Optional Redemption . . . . We may redeem the Preferred Stock at our
option, in whole or in part, at any time,
at 110% of the liquidation preference plus
accrued and unpaid dividends to the date
of redemption. See "Description of
Preferred Stock -- Redemption."
Mandatory Redemption . . . We are obligated to redeem the Preferred
Stock on August 15, 2003 for 110% of the
liquidation preference plus accrued and
unpaid dividends.
Voting Rights . . . . . . . The Preferred Stock does not have any
voting rights, except as set forth in this
Prospectus or as otherwise required by
law.
Certain Covenants . . . . . The certificate of designation governing
the Preferred Stock (the "Certificate of
Designation") contains covenants that
limit our ability, among other things, to:
- redeem or repurchase junior securities
and pay dividends,
- merge or consolidate with any other
entity,
- sell certain assets,
- sell all or substantially all of our
assets, and
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- enter into transactions with
affiliates.
The Certificate of Designation also
requires us to deliver certain reports and
information, including reporting as to
whether we meet certain financial tests
each quarter, to the holders of the
Preferred Stock. The Certificate of
Designation provides that the dividend
rate for the Preferred Stock automatically
increases to 13.5% in the subsequent
quarter for the first two quarters in
which the Maintenance Test Ratio exceeds
the Maximum Test Ratio (whether or not
such fiscal quarters were consecutive) and
15% for any other quarter thereafter for
which the Maintenance Test Ratio is
exceeded. If this were to occur, we may
seek to obtain consents from the holders
of the Preferred Stock to amend the
Maximum Test Ratio. In such an event, the
TCW Investors may be able to approve those
amendments without the consent of any
other holder of Preferred Stock. See
"Description of the Preferred Stock--
Dividends."
Exchange . . . . . . . . . Subject to certain limitations, we may on
any February 15 or August 15, commencing
on February 15, 1999, exchange the
Preferred Stock, in whole but not in part,
for our 12% Subordinated Debentures due
2003 (the "Exchange Debentures"). Shares
of Preferred Stock will be exchanged for
Exchange Debentures with an aggregate
principal amount equal to the then
aggregate liquidation preference of the
Preferred Stock plus accrued and unpaid
dividends on the Preferred Stock.
For a more detailed description of the
Preferred Stock, see "Description of the
Preferred Stock."
Description of the Exchange Debentures
Maturity Date . . . . . . . August 15, 2003. At maturity, we will pay
a premium of 10% of the principal amount.
Interest . . . . . . . . . 12% per year. We may at our option pay
interest in cash or in additional Exchange
Debentures having an aggregate principal
amount equal to the amount of such interest.
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Interest Payment Dates . . February 15 and August 15 of 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.
Optional Redemption . . . . We may redeem the Exchange Debentures at
any time at our option, 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.
Mandatory Redemption . . . None.
Ranking . . . . . . . . . . The Exchange Debentures will be our
subordinated obligations and will be
subordinated in right of payment to all of
our existing and future senior debt. See
"Description of the Exchange Debentures--
Subordination."
Certain Covenants . . . . . The indenture governing the Exchange
Debentures will contain certain covenants,
including covenants relating to:
- restricted payments;
- transactions with affiliates;
- certain asset sales;
- our ability to exceed certain financial
ratios; and
- 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."
Use of Proceeds
The Selling Securityholders are selling the Notes and Preferred
Stock being offered by this Prospectus. We will not receive any proceeds
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for the sale of the Notes and the Preferred Stock by the Selling
Securityholders.
Risk Factors
Before you invest in the Notes or the Preferred Stock, you should
be aware that there are various risks, including those described under
"Risk Factors." You should carefully consider these risk factors as well
as the other information set forth in this Prospectus before you decide
to purchase any Notes or Preferred Stock.
_______________________
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data for
each of the last three years ended December 30, 1996, December 29, 1997
and December 28, 1998 has been derived from our consolidated financial
statements which have been audited by Arthur Andersen LLP, independent
accountants.
The financial data for the thirteen weeks ended March 30, 1998 and
March 29, 1999 have been derived from our unaudited financial statements,
which in the opinion of management include all adjustments necessary for
a fair presentation of the data for interim periods.
Our pro forma financial data for the fifty-two week period ended
December 28, 1998 are for informational purposes only and give effect to
our Recapitalization as if it had been consummated on December 30, 1997
for the fifty-two week period ended December 28, 1998.
The unaudited condensed pro forma information appearing in this
Prospectus does not purport to represent what our 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 our financial position or results of operations for the present
year or any future period. The results of operations for the thirteen
weeks ended March 29, 1999 are not necessarily indicative of the results
that may be expected for the full fiscal year.
You should read this Summary Historical and Pro Forma Financial
Data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto incorporated by reference in this
Prospectus.
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<TABLE>
<CAPTION>
Pro
Forma(1)
Historical Thirteen ----------
Historical Year Ended Weeks Ended Year Ended
--------------------------------------- ---------------------------------
Dec. 30, Dec. 29, Dec. 28, Mar. 30, Mar. 29, Dec. 28,
1996 1997 1998 1998 1999 1998
-------- ------- ------ --- --- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $445,424 $440,039 $426,928 $112,122 $109,463 $422,535
Gross Profit(2) . . . . . . . . . . 52,699 55,790 54,364 16,081 15,272 54,973
Operating Profit before Non-Cash
Charges(3) . . . . . . . . . . . . 4,227 6,803 17,369 7,023 7,357 18,490
Interest Expense, Net . . . . . . . 27,714 23,985 20,269 5,521 4,840 19,496
Net Income/(Loss) . . . . . . . . . (38,461) (20,292) 143(4) 11,060(4) 2,515 2,037
Ratio of Earnings to Fixed
Charges(5) . . . . . . . . . . . . -- -- -- 1.2x 1.3x --
Deficiency in Earnings to cover
Fixed Charges(5) . . . . . . . . . (36,558) (20,154) (9,277) -- -- (7,383)
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) . . . . . . . . . . . (36,558) (20,154) (13,972) -- -- (12,862)
Restaurant Data:
Restaurants (end of period) . . . . 247 231 224 230 215 224
Increase/(Decrease) in
Same-store-sales:
Consolidated(7) . . . . . . . . (2.9)% (2.9)% (0.6)% 1.4% (0.1)% (0.6)%
Black Angus (excluding
late-night entertainment)(7)(8) . . 1.0% 1.4% 3.3% 4.0% 2.6% 3.3%
Other Data:
EBITDA(9) . . . . . . . . . . . . . $26,100 $30,713 $32,937 $10,672 $9,988 $33,736
EBITDAR(10) . . . . . . . . . . . . 50,913 61,389 61,593 17,948 16,975 60,647
Depreciation and Amortization . . . 20,386 19,627 14,638 3,749 3,522 14,316
Capital Expenditures . . . . . . . 13,279 4,650 12,316 2,259 2,072 12,316
</TABLE>
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<TABLE>
<CAPTION>
As of Mar. 29, 1999
-------------------
(dollars in
thousands)
<S> <C>
Balance Sheet Data:
Cash . . . . . . . . . . . . . . . . $ 8,270
Property, Plant & Equipment, Net . . 88,273
Total Assets . . . . . . . . . . . . 145,119
Long-term Debt, including current
portion . . . . . . . . . . . . . . . 167,124
Cumulative Preferred Stock,
Mandatorily Redeemable . . . . . . . 37,965
Common Stockholders' Equity (Deficit) (117,824)
</TABLE>
-- (footnotes on following page)
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(1) Gives effect to the issuance of the Initial Notes and the
Units and the use of proceeds therefrom and the
Recapitalization as if these activities had occurred on
December 30, 1997 for the fifty-two weeks ended December
28, 1998.
(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 $13.2 million in 1996,
$3.0 million in 1997 and $1.4 million in 1998 as well as
a non-cash charge for assets to be disposed of $5.0
million in 1998 and $0.1 million for the thirteen weeks
ended March 29, 1999.
(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.
(7) Same stores are defined as restaurants which have been in
operation for the entire prior year.
(8) 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.
(9) EBITDA is defined as operating profit before impairment
charges and non-cash charges for assets to be disposed plus
depreciation and amortization and net losses on sale of
properties. For the years ended December 30, 1996, December
29, 1997 and December 28, 1998, the net losses on the sale
of properties were $1.5 million, $4.3 million, $0.9 million,
respectively. For the thirteen weeks ended March 30, 1998
and March 29, 1999, the amortization of deferred gains,
which exceeded losses on the sale of properties, netted to
$0.1 million and $0.2 million, respectively. EBITDA should
not be considered an alternative to, or more meaningful
than, earnings from operations or other traditional
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indicators of operating performance and cash flow from
operating activities. In connection with the closing of
restaurants in 1997, we established a closed-unit reserve to
which we charge 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.
(10) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has
been presented for the purposes of providing information on
our 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, we
completed $63.4 million of sale/leaseback transactions and
used the proceeds 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.
20
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RISK FACTORS
Before you invest in these Notes or Preferred Stock you should be
aware that payment of these Notes and Preferred Stock is subject to
various risks, including those described below. You should consider
carefully the following specific risk factors, as well as the other
information set forth in this Prospectus, before purchasing Notes or
Preferred Stock offered hereby. This Prospectus, including the documents
incorporated by reference in this Prospectus, includes "forward-looking
statements" including, in particular, the statements about the Company's
plans, strategies, and prospects under the headings "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and "Business." Such statements can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. Although we
believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we can give
no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this
Prospectus, including the documents incorporated by reference in this
Prospectus, are set forth in the risk factors below and elsewhere in this
Prospectus, including the documents incorporated by reference in this
Prospectus. All forward-looking statements attributable to the Company
or persons acting on our behalf are expressly qualified in their entirety
by the foregoing cautionary statements. The risk factors set forth below
are generally applicable to the Notes and the Preferred Stock.
High leverage and significant rent expense may affect our ability to
make payments on the Notes and the Preferred Stock.
We have a significant amount of debt. At March 29, 1999, our
total consolidated long-term indebtedness was approximately $167.1
million and we had a common stockholders' deficit of $117.8 million.
Further, we have approximately $42.3 million aggregate liquidation
preference of Preferred Stock outstanding, which amount will increase as
dividends are paid in kind on the Preferred Stock. The Preferred Stock is
mandatorily redeemable in cash on August 15, 2003 (following the maturity
of the Notes) at 110% of the aggregate liquidation preference. In
addition, in certain circumstances, the dividend rate on the Preferred
Stock could increase to 13.5% or 15%. See "Description of Preferred
Stock--Covenants" and "--Certain Definitions." Moreover, the indenture
permits us and our subsidiaries to incur additional indebtedness in the
future, subject to compliance with certain conditions. In addition, as is
common in the restaurant industry, we operate with a working capital
deficit, which as of March 29, 1999 was approximately $33.4 million.
In addition to our leverage, we have significant annual rent
expenses, which increased substantially in 1996. In the second half of
1996, we 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
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payments of $8.0 million, subject to certain escalation clauses. Our
aggregate rent expense for the year ended December 28, 1998 was
approximately $26.9 million on a pro forma basis, and approximately $7.0
million for the fiscal quarter ended March 29, 1999.
The above factors could have consequences to holders of the Notes
and the Preferred Stock by making it difficult for us to fulfill our
obligations to those holders. These difficulties could be caused by:
- our potential vulnerability to changes in general economic
conditions;
- difficulty we may have in obtaining additional financing or
acceptable terms from vendors for working capital or general
corporate purposes;
- our competitive disadvantage due to our high degree of debt in
relation to some of our competitors; and
- the dedication of a large portion of our cash flow from
operations to debt service, rent expense and necessary
redemption payments.
For 1998, our earnings before extraordinary loss, income taxes and
fixed charges were insufficient to cover fixed charges by $9.3 million.
On a pro forma basis, after giving effect to the Recapitalization, for
1998, our earnings before extraordinary loss, income taxes and fixed
charges were insufficient to cover (i) fixed charges by $7.4 million and
(ii) fixed charges and preferred stock dividends by $12.9 million. For
the fiscal quarter ended March 29, 1999, our ratios of earnings before
extraordinary loss, income taxes and fixed charges to (i) fixed charges,
and (ii) fixed and preferred stock dividends, were 1.3x and 1.1x,
respectively. In addition, on a pro forma basis, our ratio of EBITDA to
net interest expense would have been 1.7x for 1998. We cannot assure that
our earnings before income taxes and fixed charges will be sufficient to
cover fixed charges and preferred stock dividends in the future.
Future performance may affect our ability to make payments on the Notes
and the Preferred Stock.
Our ability to meet our debt service obligations, pay the Preferred
Stock mandatory redemption price, satisfy certain financial covenants
relating to the Preferred Stock and to grow will depend upon our future
performance. We had net losses after extraordinary items of $38.5 million
in 1996 and $20.3 million in 1997 and a profit of $0.1 million in 1998. We
do not expect to have sufficient cash from operations to pay the Notes at
maturity or the mandatory redemption price of the Preferred Stock. As a
result, we expect that we will need to refinance all or part of this debt
or the Preferred Stock, obtain additional financing, or sell assets in
order to make the required payments. We cannot assure that any such
refinancing or sale would be possible or would not contain terms and
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conditions that could have a material adverse effect on us and our
results of operations.
The collateral securing the Notes may be insufficient or unavailable in
the event of a default.
The Collateral securing the Notes also secures obligations under
our Credit Facility. Any proceeds from a sale of the Collateral will be
used first to satisfy obligations under the Credit Facility. If we
commenced a bankruptcy proceeding, or if a bankruptcy proceeding were to
be commenced against us or a Guarantor, the Trustee, as Collateral Agent
(the "Collateral Agent"), is authorized to subordinate its security
interest in the Collateral to other indebtedness which, together with
amounts outstanding under the Credit Facility, would not exceed $20
million. In certain circumstances, the Collateral Agent could be
required to release claims on Collateral we propose to sell further
reducing the sufficiency of the Collateral securing the Notes. In
addition, as of March 29, 1999, we had $8.5 million of secured
indebtedness other than the Notes and the Credit Facility.
In the event of a default under the Notes, the proceeds from the
sale of the Collateral securing the Notes may not be sufficient to
satisfy our obligations under the Credit Facility and the Notes for,
among others, the following reasons:
- the book value of the Collateral is less than the principal
amount of the Notes and the Credit Facility.
- the Collateral is illiquid and may have no readily
ascertainable market value.
- third parties (including the lenders under our Credit
Facility) enjoy liens on the Collateral property which could
adversely affect the value of the Collateral.
- the sale of the Collateral other than as a part of our
business as a whole may be impossible or valueless.
- in most cases, we own the improvements included in the
Collateral only so long as the lease is in effect. Any
expiration or early termination of those leases could make
such Collateral (which may be a significant portion of the
Collateral) unavailable to the holders of the Notes.
- landlords' rights, the rights of landlords' lenders, or state
laws governing the sale of encumbered property by a creditor
with a real property security interest may impair or prevent
the Collateral Agent from foreclosing upon portions of the
Collateral which are leasehold estates or owned improvements.
Bankruptcy proceedings commenced by or against us could make it
difficult for the Collateral Agent to foreclose upon and sell the
Collateral for the benefit of the holders of the Notes. We cannot predict
whether payments under the Notes would be made following commencement of
a bankruptcy case, whether or when the Collateral Agent could foreclose
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upon the Collateral or whether or to what extent holders of Notes would
be compensated for any delay in payment or loss of value of the
Collateral. Furthermore, if a bankruptcy court determined that the value
of the Collateral was not sufficient to repay all amounts due on the
Notes, holders of Notes would hold "under-secured claims." 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.
Junior ranking of Preferred Stock may limit holders' rights to receive
payments.
The Preferred Stock is junior in right of payment to all of our
existing and future obligations (other than our obligations under common
stock and any preferred stock which is on parity with or junior to the
Preferred Stock offered by this Prospectus). We cannot assure that there
will be sufficient cash flow to pay the mandatory redemption price on the
Preferred Stock for, among others, the following reasons:
- the mandatory redemption of the Preferred Stock is our
obligation alone, and, because we are a holding company, our
ability to pay the mandatory redemption price will depend upon
the operating cash flow of our subsidiaries and the payment of
funds by such subsidiaries to us in the form of loans,
dividends or otherwise.
- if we were to liquidate, dissolve, or wind up our operations,
our lenders and other creditors would be entitled to be paid
in full before any payments could be made to holders of the
Preferred Stock.
- holders of the Preferred Stock would have no right to proceed
against the assets of our subsidiaries or to cause the
liquidation or bankruptcy of our subsidiaries.
- if our subsidiaries became insolvent, were liquidated or
reorganized, creditors of our subsidiaries would be entitled
to be paid in full from the subsidiaries' assets before we, as
a shareholder of our subsidiaries, would receive any payment.
We intend to pay dividends on the Preferred Stock by issuing
additional shares of Preferred Stock. The indenture for the Notes and our
Credit Facility limit our ability to pay dividends on the Preferred
Stock in cash. Our ability to pay cash dividends on the Preferred Stock
may also be restricted by future indebtedness or agreements.
We are implementing a new, untested business strategy which may not be
successful.
We are currently executing a new business strategy aimed at cutting
costs and raising revenues. This strategy includes opening new Black
Angus restaurants in markets where we can capitalize on consumer
awareness of the Black Angus name. We do not know if we will be able to
open new restaurants as planned. We also do not know whether other new
business strategies, including the strategies with respect to Grandy's,
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will be successful or that we will be able to increase revenue, operate
successfully with our reduced overhead or improve our cash flow and
results of operations.
Our debt subjects us to certain restrictions and requires us to meet
certain goals.
Our Credit Facility and the indenture relating to the Notes contain
financial and other covenants, including:
- limitations on the amount of debt we may incur;
limitations on the payment of dividends, investments and other
payments;
- limitations on transactions with affiliates;
- limitations on liens;
- limitations concerning the debt and capital stock of our
subsidiaries; and
- limitations on the sales of assets.
On numerous occasions in the past, we have been in default or
failed to comply with certain covenants relating to our debt, and we have
been required to obtain amendments and waivers from our lenders. Most
recently, we were three weeks late, but within the grace period, in
paying the quarterly interest which was due September 15, 1997 on our 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 Recapitalization, we were in default under our old
senior secured notes for the failure to meet certain financial covenants
and for the failure to make a $40.9 million sinking fund payment that was
due on September 15, 1997. As a result, we were restricted from paying
the quarterly interest payments of $1.2 million each, due on September
15, 1997 and December 15, 1997 on our subordinated notes. We redeemed our
old senior secured notes on February 24, 1998 at a price equal to par
value plus accrued and penalty interest.
Our credit agreement also requires us to comply with financial
covenants. A failure to comply with any of these covenants could result
in the acceleration of the debt. In addition, we cannot assure that such
restrictions will not adversely affect our ability to conduct our
business. See "Description of the Notes."
The indebtedness of our parent company places certain restrictions on our
operations.
American Restaurant Group Holdings, Inc., our parent, owns
approximately 73% of our common stock (40% assuming the exercise of all
of our outstanding warrants). Holdings has an outstanding series of
debentures, which as of March 29, 1999 had an accreted value of
approximately $96.9 million and which will accrete to approximately
$245.7 million at maturity on December 15, 2005. The indenture under
which the debentures were issued contains certain covenants which require
our parent to restrict our operations and those of our subsidiaries.
25
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We may be unable to purchase Notes as required upon a change of control.
We will be required to offer to purchase all outstanding Notes at a
price equal to 101% of the principal amount of the Notes plus all accrued
and unpaid interest in the event of a change of control. Our Credit
Facility provides that some change of control events are defaults under
the Credit Facility. This means that if a change of control event were to
occur, we may be required to repay or refinance all borrowings under the
Credit Facility. Even if the change of control event is not a default
under our Credit Facility, the offer to purchase the Notes would be a
default under our Credit Facility. If a change of control were to occur,
it is unlikely that we would have the money to purchase the Notes or
repay the Credit Facility. If we engage in a highly leveraged
transaction, including a recapitalization, which does not result in a
change of control, we will have no obligation to offer to purchase the
Notes.
We depend on key personnel for our success.
We believe that our success is largely dependent on the abilities
and experience of our senior management team and our ability to attract
and retain qualified management and employees. The loss of services of
one or more of our senior executives could adversely affect our ability
to effectively manage our overall operations or successfully execute
current or future business strategies.
Ownership and control is held by a limited number of members of senior
management and Selling Securityholders.
Certain members of our management own approximately 27% of our
common stock (15% upon the exercise of outstanding warrants), with
Holdings owning the other 73% (40% upon the exercise of the warrants).
Anwar S. Soliman, our Chairman and Chief Executive Officer, and other
members of management own approximately 82% of the common stock of
Holdings. All of Holdings' management stockholders have entered into a
voting trust agreement which gives Anwar S. Soliman the right to exercise
all voting and substantially all other rights to which those stockholders
would otherwise be entitled until August 15, 2005 or an earlier
termination of the voting trust agreement. In addition, all of our
management stockholders have entered into a voting trust agreement (the
"New Voting Trust Agreement") in accordance with which Anwar S. Soliman
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. Mr. Soliman's position as voting trustee of our parent
company, as voting trustee under the New Voting Trust Agreement and his
direct ownership interest in our company effectively gives him control of
our company. In addition, all of the directors of Holdings are members of
our management, and there are no independent directors of Holdings.
The Selling Securityholders, which together own more than 50% of
the Warrants, entered into a securityholders agreement (the
"Securityholders Agreement") with holders of our common stock relating to
the election of directors. The Securityholders Agreement provides that
the parties will agree to vote all of their shares of our equity
securities so that the composition of our board of directors consists of
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five members, two of whom will be management nominees, two of whom will
be nominees of the TCW Investors and one of whom will be an independent
director initially designated by Jefferies & Co., Inc., the "Initial
Purchaser" of the Notes and the Units. The Securityholders Agreement,
combined with the Selling Securityholders' ownership of Preferred Stock,
may give the Selling Securityholders the ability, in certain
circumstances, to elect a majority of our board of directors. The
Securityholders Agreement also provides these investors with certain tag-
along rights, rights of first refusal and the right to approve certain
major corporate transactions. Due to their ownership of Preferred Stock,
these investors may also have the ability to approve waivers or
amendments to the terms of the Preferred Stock without the vote of any
other holder of Preferred Stock. See "Description of the Notes--
Repurchase Upon Change of Control" and "Description of the Preferred
Stock--Voting Rights."
Our operations are concentrated in a limited geographic area.
A majority of our restaurants are located in California and Texas.
These restaurants account for a large percentage of our net sales. We are
particularly vulnerable to adverse developments in these regions, which
may have a negative effect on customer traffic and sales. These
developments could include:
- economic downturns;
- unfavorable weather conditions;
- increased competition;
- changes in consumer preferences; and
- demographic changes.
The restaurant industry is highly competitive.
All aspects of the restaurant business are highly competitive.
Price, restaurant location, food quality, service and attractiveness of
facilities are important aspects of competition. Our 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 our competitors have substantially greater
financial, marketing, personnel and other resources than we have.
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. We
have more debt than many of our competitors, which places us at a
competitive disadvantage.
We are subject to a variety of government regulations which impact the
way we run our businesses.
Each of our restaurants is subject to licensing and regulation by
the health, sanitation, safety, building and fire agencies of the states
and municipalities in which the restaurants are located. Failure to
comply with any of these regulations could result in sanctions against
27
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our restaurants, which may include the closing of facilities for
indeterminate periods of time, or third-party litigation.
Each of our restaurants (except for our Grandy's restaurants) serve
alcoholic beverages and, as a result, is subject to licensing
requirements. The loss of licenses or permits to sell alcohol would
interrupt or terminate our ability to serve alcoholic beverages at those
restaurants, which could cause a significant loss of revenues.
We are also subject to laws and regulations which govern our
relationships with our employees, including minimum-wage requirements,
overtime, reporting of tip income, work and safety conditions and
citizenship requirements. Since a significant number of our employees
are paid at rates which are related to the federal minimum wage, any
increase in the minimum wage could significantly increase our labor
costs.
Under federal, state and local laws, owners or operators of real
estate may be held liable for the costs of removal or remediation of
certain hazardous or toxic substances found on or in such property. This
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 we are not aware of any environmental problems at
our properties, we have not conducted a comprehensive environmental
review of our properties or operations and we cannot assure that we have
identified all of the potential environmental liabilities that could have
a material adverse effect on our business.
There are possible effects on holders of these securities of fraudulent
transfer laws.
Under federal bankruptcy law and similar state fraudulent transfer
laws, if we, or any of the Guarantors at the time the debt evidenced by
the Notes or the guarantees were incurred:
- did not receive adequate consideration for incurring this
debt;
- was insolvent, or rendered insolvent by the incurrence of this
debt;
- was engaged or about to engage in a business or transaction
for which its remaining property constituted unreasonably
small capital; or
- intended to incur, or believed it would incur, debts beyond
its ability to pay as such debts mature;
then, among other things, a court could:
a. void all or a portion of our or the Guarantor's
obligations to holders of the Notes, the liens securing
the Notes or the guarantee; and/or
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b. subordinate our obligations to holders of the Notes or
the guarantee to other of our or the Guarantor's existing
or future indebtedness, and/or subordinate the liens
securing the Notes or the guarantee to other existing or
future liens; the effect of which would be to entitle
other creditors to be paid in full before any payment
could be made on the Notes.
In addition, if a court were to find that at the time we made a
payment of dividends on, or redemption of the Preferred Stock, that we:
i. were insolvent or were rendered insolvent by making the
payment;
ii. were engaged or about to engage in a business or
transaction for which our remaining property constituted
unreasonably small capital; or
iii. intended to incur, or believed we would incur, debt
beyond our ability to pay as such debts mature;
then the relevant payment to holders of the 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 amount to or for the
benefit of existing or future creditors.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any proceeding
to determine whether a fraudulent transfer has occurred. Generally, we or
a Guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they become absolute and mature, or
- it could not pay its debts as they become due.
Potential limitation imposed upon net operating losses.
As of December 28, 1998, we had available net operating loss
carryforwards for federal income tax purposes of $125.8 million, expiring
in 2004 to 2013. Generally, a cumulative change of greater than 50% in
the stock ownership of a corporation within a three-year period will, for
federal income tax purposes, limit the amount of preownership change net
operating losses that the corporation may use during the post-ownership
change period. Whether an ownership change has occurred in any particular
case entails the resolution of both legal and factual issues which may
not be readily determinable. We have taken the position that the
Recapitalization did not result in an ownership change. However, no
assurance can be given that this position will be upheld if challenged by
the Internal Revenue Service. In addition, future equity issuances by us
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or Holdings and certain transfers of stock by either our or Holdings'
shareholders, within three years of the Recapitalization which occurred
in February, 1998 could trigger an ownership change when taken together
with the change in the stock ownership resulting from the
Recapitalization.
Lack of a market for the Notes or Preferred Stock.
We have not, and do not intend to, list the Notes or the Preferred
Stock on any national securities exchange, or to seek the admission of
the Notes or the Preferred Stock to trading in the National Association
of Securities Dealers Automated Quotation System.
Certain Federal Income Tax Consequences for Holders of Preferred Stock
and Exchange Debentures
Distributions of cash, and to the extent of their issue price,
additional shares of the Preferred Stock on the Preferred Stock will be
treated as dividends taxable as ordinary income to holders thereof to the
extent of the Company's current and accumulated earnings and profits as
determined under United States federal income tax principles. In addition
to the cash and additional Preferred Stock received, a holder will be
treated as having received as a distribution, to the extent of current
and accumulated earnings and profits of the Company, an amount equal to
the annual accrual of the difference between the issue price of the
Preferred Stock and its mandatory redemption price (the "Redemption
Premium"). The amount of the Redemption Premium with respect to the
Preferred Stock issued as part of a Preferred Stock Unit may differ from
the Redemption Premium in respect of Preferred Stock paid as a dividend
on Preferred Stock, which may have a different issue price. Any such
difference in tax characteristics could adversely affect the liquidity of
the Preferred Stock.
A redemption of the Preferred Stock by the Company for cash or
Exchange Debentures would be treated, under Section 302 of the Internal
Revenue Code of 1986, as amended (the "Code"), either as a sale or
exchange or as a dividend. If the redemption is treated as a sale or
exchange, a holder will recognize capital gain or loss equal to the
difference between the amount of cash or issue price of the Exchange
Debenture received and the holder's adjusted tax basis in the Preferred
Stock exchanged. If the redemption is treated as a dividend, such 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
amount of cash or the fair market value of the Exchange Debentures
received without regard to the holder's adjusted tax basis in the shares
of Preferred Stock surrendered in the exchange, to the extent of the
proportionate share of the Company's current and accumulated earnings and
profits and (iii) the holding period of Exchange Debentures received will
begin on the day after the day on which the Exchange Debentures are
acquired by the exchanging holder.
An Exchange Debenture will be issued with original issue discount
("OID") for United States federal income tax purposes equal to the excess
of its "stated redemption price at maturity" over its "issue price."
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<PAGE>
Holders of Exchange Debentures should generally be aware that they 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, a holder
will include OID in income in advance of the receipt of cash attributable
to such income, but generally will not be required to include separately
in income cash payments received on such Exchange Debentures, even if
denominated as interest.
For a discussion of these and other tax considerations, see
"Certain United States Federal Income Tax Consequences."
We may not be Year 2000 Compliant.
We utilize certain programs and operating systems in our
organization, including applications used in sales, financial business
systems and various administrative functions. To the extent that our
software applications or the software applications of our 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. We do not expect year
2000 compliance costs to have any material adverse impact on the Company.
We cannot assure, 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.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
For purposes of computing the ratios of earnings to fixed charges
and earnings to combined fixed charges and preferred stock dividends,
earnings consist of earnings (loss) from continuing operations before
income taxes, extraordinary items, the cumulative effect of accounting
changes and fixed charges (interest expense, amortization of debt costs,
an estimate of interest portion of rent expense and preferred stock
dividends, adjusted to a pretax basis).
The following table sets forth our ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred stock
dividends for the periods indicated: --
31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Dec. 26, Dec. 25, Dec. 30, Dec. 29, Dec. 28, Mar. 30, Mar. 29,
1994 1995 1996 1997 1998 1998 1999
-------- --------- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges . . -- -- -- -- -- 1.2x 1.3x
Deficiency in Earnings to Cover Fixed
Charges . . . . . . . . . . . . . . . . $(11,922) $(39,417) $(36,558) $(20,154) $( 9,277) -- --
Ratio of Earnings to Fixed Charges &
Preferred Stock Dividends . . . . . . . -- -- -- -- -- 1.1x 1.1x
Deficiency in Earnings to Cover Fixed
Charges and Preferred Stock Dividends . $(11,922) $(39,417) $(36,558) $(20,154) $(13,972) -- --
- --
</TABLE>
USE OF PROCEEDS
The Notes and Preferred Stock being offered hereunder are being
sold by the Selling Securityholders. We will not receive any proceeds
from the sale of the Notes and Preferred Stock offered by this prospectus
by the Selling Securityholders.
CAPITALIZATION
Our capitalization will not change as a result of a sale of the
Notes and Preferred Stock by the Selling Securityholders. The following
table sets forth the consolidated capitalization of the Company as of
March 29, 1999. You should read the table in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere
in, and incorporated by reference in, this Prospectus.
32
<PAGE>
<PAGE>
<TABLE>
Mar. 29, 1999
------------
(dollars in
thousands)
<S> <C>
Short-term debt:
Working capital facility . . . . . . . . . . . $ 0
Current portion of capitalized lease
obligations . . . . . . . . . . . . . . . . . 945
Current portion of other debt . . . . . . . . 387
-------
Total short-term debt . . . . . . . . . . . 1,332
-------
Long-term debt:
Capitalized lease obligations . . . . . . . . 6,353
Other debt . . . . . . . . . . . . . . . . . . 839
Senior Secured Notes . . . . . . . . . . . . . 158,600
-------
Total long-term debt . . . . . . . . . . . . 165,792
-------
Cumulative preferred stock, mandatorily redeemable . . . . 37,965
Common stockholders' equity:
Common stockholders' deficit . . . . . . . . (117,824)
--------
Total capitalization . . . . . . . . . . . . $ 87,265
========
SELLING SECURITYHOLDERS
The Selling Securityholders consist of (i)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"),
which collectively purchased more than 50% of the Units at the time of
the Recapitalization, and (ii) certain funds and separate accounts for
which an affiliate of TCW is the investment advisor. In connection with
our Recapitalization, the Selling Securityholders purchased $30,083,000
aggregate principal amount of the Initial Notes and 18,000 of the Units,
including 18,000 shares of Initial Preferred Stock. We subsequently
exchanged the Initial Notes and the Initial Preferred Stock held by the
Selling Securityholders for the Notes and Preferred Stock being offered
by this Prospectus. One of the Selling Securityholders subsequently
purchased $1,000,000 of additional Notes, which are also being offered by
this Prospectus.
At the time of our Recapitalization, we granted, for the benefit of
the Selling Securityholders, among others, certain registration rights
relating to the Notes and the Preferred Stock. Pursuant to the exercise
of such registration rights, we are registering for resale Notes and
Preferred Stock held by the Selling Securityholders. The Selling
Securityholders may sell the Securities from time to time directly to
purchasers or through agents in ordinary brokerage transactions, in
negotiated transactions or otherwise, at prices that represent or relate
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<PAGE>
<PAGE>
to then prevailing market prices or are negotiated. The Selling
Securityholders reserve the right to withdraw, cancel or modify the offer
or solicitations of offers made hereby without notice. The Selling
Securityholders may reject any offer in whole or in part. See "Plan of
Distribution."
The following tables set forth, as of April 2, 1999, the beneficial
ownership of the Notes and the Preferred Stock of each of the Selling
Securityholders, the aggregate principal amount of Notes and the number
of shares of Preferred Stock being offered by each of the Selling
Securityholders, and the aggregate principal amount of Notes and the
number of shares of Preferred Stock to be owned by each Selling
Securityholder after sale, if any.
- --
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount of
Notes Principal
Beneficially Principal Amount
Owned Amount of Beneficially
Prior to Notes Owned after
Offering Offered the Offering
------------ ---------- ------------
<S> <C> <C> <C>
AEGIS Insurance Services, Inc. . . $250,000 $250,000 $0
TCW Galileo High Yield Fund . . . . 750,000 750,000 0
TCW Galileo Core Fixed High Yield Fund 50,000 50,000 0
Allstate Life Insurance Company-
Custodial. . . . . . . . . . . . . 1,500,000 1,500,000 0
Aurora National Life Insurance
Company . . . . . . . . . . . . . . 500,000 500,000 0
TCW High Yield Fund . . . . . . . . 950,000 950,000 0
Westpoint Stevens Pension Trust . . 300,000 300,000 0
Raytheon Company . . . . . . . . . 625,000 625,000 0
Colorado Fire/Police Pension Ass'n 750,000 750,000 0
Crescent-Mach I L.P. . . . . . . . 1,000,000 1,000,000 0
TCW High Yield L.P. . . . . . . . . 1,250,000 1,250,000 0
TCW/DW Income & Growth Fund . . . . 225,000 225,000 0
TCW Leveraged Income Trust, L.P. . 12,000,00 12,000,00 0
Alexander Hamilton Life Insurance
Company . . . . . . . . . . . . . . 1,100,000 1,100,000 0
TCW Leveraged Income Trust II . . . 5,333,000 5,333,000 0
TCW Shared Opportunity Fund II, L.P. 2,500,000 2,500,000 0
Brown University . . . . . . . . . 1,000,000 1,000,000 0
TCW GEM4, Ltd. .................... 1,000,000 1,000,000 0
---------- --------- ---
Total . . . . $31,083,000 $31,083,000 $0
</TABLE>
34
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares
Owned Beneficially
Prior to Owned
Name of Selling Securityholder the Shares After The
of Preferred Stock Offering Offered<F1> Offering
- ------------------------------ --------- ------- --------------
<S> <C> <C> <C>
TCW Leveraged Income Trust, L.P. . 11,204 11,204 0
TCW Shared Opportunity Fund II, L.P. 5,602 5,602 0
TCW Shared Opportunity Fund IIB,
L.L.C. . . . . . . . . . . . . . 2,241 2,241 0
Brown University . . . . . . . . . 1,120 1,120 0
------ ------ ---
Total . . . . 20,167 20,167 0
<FN>
<F1> Plus shares issued from time to time as dividends on the Preferred
Stock.
</TABLE>
- -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of our common stock (as if the Warrants and any
other outstanding warrants were exercised), as of April 1, 1999, by (i)
each of our directors, (ii) the Chief Executive Officer and certain other
of our highly compensated executive officers, (iii) all executive
officers and directors as a group and (iv) each person believed by us to
own beneficially more than 5% of our 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 "--Securityholders Agreement"
and "Risk Factors-- Ownership and Control is Held By a Limited Number of
Members of Senior Management and Selling Securityholders."
35
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Percent of Percent of
Beneficial Outstanding Diluted
Name and Address Ownership Class Class<F1>
- ---------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Anwar S. Soliman 19,990<F2> 15.6% 8.6%
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
Ken A. Di Lillo -- -- --
Robert D. Beyer<F3> -- -- --
George G. Golleher<F4> -- -- --
M. Brent Stevens<F5> -- -- --
American Restaurant
Group Holdings,Inc.<F6> 93,150 72.7 40.0
All directors and officers
of the Company
as a group (8 persons) 34,931 27.3 15.0
TCW Investors<F8> 55,558<F8> -- 23.9
____________________
<FN>
<F1> Gives effect to the exercise of all outstanding warrants.
<F2> 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.
<F3> Does not include shares deemed to be beneficially owned by the TCW
Investors. Robert D. Beyer is a Group Managing Director of TCW, of
which TCW Group (see footnote 8) 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 7.
<F4> George G. Golleher was elected Director of the Company, as nominee
of the TCW Investors. See "--Securityholders Agreement."
<F5> Does not include shares deemed to be beneficially owned by
Jeffries & Co.
<F6> 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-- Ownership and Control
is Held By a Limited Number of Members of Senior Management and
Selling Securityholders."
<F7> TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust,
L.P., Brown University and TCW Shared Opportunity Fund IIB, LLC.
<F8> Represents warrants which are immediately exercisable at a nominal
price per share. Includes warrants beneficially owned by the TCW
Investors and of which TCW 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.
</TABLE>
36
<PAGE>
<PAGE>
Securityholders Agreement
In connection with the Recapitalization, each of Holdings,
certain management stockholders, Jefferies & Company, Inc., the TCW
Investors and TCW entered into 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 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
certain circumstances when Holdings sells or transfers any of its shares
of Company equity securities, directly or indirectly, the TCW Investors
have the option to include a portion of 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 Holdings 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.
New Voting Trust Agreement and Other Agreements
All of our management stockholders have entered into the New
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 our common stock until the earlier of August 15,
37
<PAGE>
<PAGE>
2005 or the earlier termination of the Voting Trust Agreement. See "Risk
Factors--Ownership and Control is Held By a Limited Number of Members of
Senior Management and Selling Securityholders." 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.
38
<PAGE>
<PAGE>
DESCRIPTION OF THE NOTES
General
The Notes were issued pursuant to the indenture (the
"Indenture") among American Restaurant Group, Inc. (the "Company"), the
Guarantors and U.S. Trust Company of California, N.A. as trustee (the
"Trustee"). The terms of the 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) does not purport to be complete and is qualified by
reference to the Indenture and the Collateral Documents including the
definitions therein of certain terms used below. Copies of the forms of
the Indenture and the Collateral Documents 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 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 Notes are issued in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to
$158,600,000 and will mature on February 15, 2003. Interest on the Notes
is payable semi-annually on February 15 and August 15 of each year to
holders of record on the immediately preceding February 1 and August 1,
respectively. The Notes bear interest at 11 1/2% per annum. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day
months. The Notes are 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 Notes at their
respective addresses set forth in the register of holders of 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 will accrue for the
intervening period.
Redemption
The Notes are not redeemable at the Company's option prior
to February 15, 2001. Thereafter, the 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
39
<PAGE>
<PAGE>
redeemed during the 12-month period beginning on February 15 of the years
indicated below:
Year Percentage
2001 105.75%
2002 and thereafter 100.00%
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 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 Notes remains outstanding immediately after giving
effect to each such redemption.
If less than all of the Notes are to be redeemed at any time,
selection of 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 Notes are listed, or, if the 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 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 Notes to be redeemed at such holder's
registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note will state the portion of
the principal amount thereof to be redeemed. A new 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 Note. On and
after the date of redemption, interest will cease to accrue on Notes or
portions thereof called for redemption.
The Notes are not entitled to any mandatory redemption or sinking
fund.
Guarantors
The repayment of the Notes is 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 Notes remain outstanding, any
future Restricted Subsidiary will 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
40
<PAGE>
<PAGE>
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 Notes and the Guarantees are
secured, subject to the terms of the Intercreditor Agreement, by a first
priority security interest in the Collateral. The Notes are not secured
by any other property. See "Risk Factors--The Collateral Securing the
Notes May Be Insufficient or Unavailable in the Event of a Default."
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 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 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 Credit Facility,
and not the Trustee under the Indenture, unless amounts due under the
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
Notes may not enforce the Collateral Documents. Proceeds from the sale of
Collateral will first be applied to repay Indebtedness outstanding under
the 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
41
<PAGE>
<PAGE>
payable to the Trustee under the 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 Notes and the 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 Credit Facility) enjoy Permitted Liens
(as defined), 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--The Collateral Securing the Notes May Be Insufficient or
Unavailable in the Event of a Default."
Upon the full and final payment and performance of all Obligations
of the Company under the Indenture and the Notes (or defeasance of such
Obligations), and all obligations under the 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 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 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
42
<PAGE>
<PAGE>
in the payment of the Change of Control Payment, all 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 Notes purchased pursuant to a Change of Control Offer
will be required to surrender the Notes, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Notes completed, to
the paying agent with respect to the 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 Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that a holder whose Notes are being purchased only
in part will be issued new Notes equal in principal amount to the
unpurchased portion of the 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 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 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 Notes or portions thereof so tendered and not withdrawn; and
(iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officer's Certificate stating that the Notes or
portions thereof tendered to the Company are accepted for payment. The
Paying Agent will promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and the
Trustee will authenticate and mail to each holder a new Note equal in
principal amount to any unpurchased portion of the 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
Notes to require that the Company repurchase or redeem the Notes in the
event of a takeover, recapitalization or similar restructuring.
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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 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;
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(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% 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
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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 Preferred Stock with the
proceeds of a Qualified Equity Offering; (vi) Permitted Affiliate
Transactions; (vii) 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 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
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 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
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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 Notes
or any Guarantee of the 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
Credit Facility or (c) to the extent not used as provided in clause (a)
or (b), applied to make an offer to purchase 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 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 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 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 Notes
tendered pursuant to the Excess Proceeds Offer is less than the Excess
Proceeds, the Company and its Restricted Subsidiaries may use the portion
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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 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 Notes tendered pursuant to the Excess
Proceeds Offer. The principal amount of Notes to be purchased pursuant to
an Excess Proceeds Offer may be reduced by the principal amount of 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 Notes and Indebtedness permitted to be
incurred under the 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 Credit Facility, as in effect on the Closing Date,
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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 Credit Facility on the Closing Date; (ii) the
Indenture, the Security Documents and the 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 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 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."
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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 Indenture, the 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
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are used in accordance with the terms of the covenant described under "--
Limitation on Asset Sales.
Guarantors. The Indenture will provide that so long as any 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
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 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 Notes,
result in the obligations of such Guarantor under its Guarantee of the
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 Notes are outstanding, the Company will
furnish to the Trustee, and deliver or cause to be delivered to the
holders of 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 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
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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 Notes; (ii) default in payment of principal (or premium, if any) on
the 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 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 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.
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
Notes may declare by written notice to the Company and the Trustee all of
the 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 Notes will become due and
payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount
of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power.
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The holders of a majority in aggregate principal amount of the
Notes then outstanding, by written notice to the Company and the Trustee,
may on behalf of the holders of all of the 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 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 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 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 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 Notes
The Indenture provides that the Company (i) will be discharged from
any and all obligations in respect of the Notes, other than the
obligation to duly and punctually pay the principal of, and premium, if
any, and interest on, the Notes in accordance with the terms of the 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 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
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
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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 Notes by delivering to the Trustee for
cancellation all outstanding Notes or by depositing with the Trustee or
the Paying Agent, if applicable, after the Notes have become due and
payable, cash sufficient to pay all amounts due under all of the
outstanding 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
Notes and the Indenture.
Transfer and Exchange
A holder may transfer or 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 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 Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender
offer or exchange offer for Notes) and any existing Default or Event of
Default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting holder of
Notes) (i) reduce the principal amount of 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 Notes in a
manner adverse to the holders of the Notes, or alter the price at which
repurchases of the 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 Notes; (v) make any Exchange Note payable in money other
than that stated in the Notes; (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of
holders of Notes to receive payments of principal of or interest on the
Notes; (vii) waive a redemption payment with respect to any Exchange
Note; (viii) adversely affect the contractual ranking of the Notes or
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Guarantees of the Notes; or (ix) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders
of Notes, the Company, the Guarantors and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in
place of certificated Notes, to provide for the assumption of the
Company's obligations to holders of the Notes or any Guarantor's
obligation under its Guarantee of the 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 Notes or that does not adversely
affect the legal rights under the Indenture of any such holder, to
release any Guarantee of the 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 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
Notes, unless such holder shall have offered to the 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
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
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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.
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"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.
"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
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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.
"Credit Facility" means the 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.
"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
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be required to be redeemed or repurchased prior to the final stated
maturity of the 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).
"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.
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"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 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 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
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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.
"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 Notes or the Guarantees of the 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
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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 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
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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 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.
"Preferred Stock Repurchases" means any purchase of Preferred Stock
with the portion of Excess Proceeds remaining after payment of the
purchase price of the Notes tendered pursuant to an Excess Proceeds Offer
if such purchase of Preferred Stock is within 485 days of the date of the
Asset Sale which gave rise to such Excess Proceeds Offer.
"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
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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.
"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.
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"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.
"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
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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.
DESCRIPTION OF THE 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 Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock. The statements below
describing the 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 Preferred Stock ranks, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company, senior to the Common Stock, any additional class of common stock
and any other series of preferred stock expressly made junior to the
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 Preferred Stock; Consequences of Holding
Company Structure."
Dividends
Dividends on the Preferred Stock accrue at a rate of 12% per annum
of the liquidation preference. Dividends are paid semi-annually, on
February 15 and August 15 of each year. The Company may, at its option,
pay dividends in cash or in additional fully paid and non-assessable
shares of Preferred Stock having an aggregate liquidation preference at
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least equal to the amount of such dividends. The Company intends to pay
dividends by issuing additional shares of Preferred Stock. Each such
dividend will 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 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. If this were to occur, we may seek to
obtain consents from the holders of the Preferred Stock to amend the
Maximum Test Ratio. In such an event, the TCW Investors may be able to
approve those amendments without the consent of any other holder of
Preferred Stock.
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 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 Preferred Stock is 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 Preferred Stock, plus an amount equal to
all accrued and unpaid dividends to the date of redemption.
If fewer than all of the outstanding shares of Preferred Stock 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
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 Preferred Stock to be
redeemed; (iii) the redemption price; (iv) the place or places where
certificates for such 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 Preferred Stock are to be redeemed, the notice mailed to
each such holder thereof shall also specify the number of shares of
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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 Preferred Stock, the Board of Directors may fix a
record date for the determination of shares of 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 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 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 Preferred Stock are in arrears, the Company may, at any time
and from time to time, purchase any shares of 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
Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding up of the Company (collectively, "Junior
Securities"), the holders of 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 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
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 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
Preferred Stock in the distributions of assets upon liquidation,
dissolution or winding up, then the holders of such 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 Preferred Stock, the remaining assets of the Company shall
be distributed among the holders of any other classes or series of
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capital stock ranking junior to such series of 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
Holders of the Preferred Stock do 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 Preferred Stock will be required to
issue any additional shares of 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 Preferred Stock. As a result of the TCW Investors' ownership of the
Preferred Stock, the TCW Investors may have the ability to approve
(without the vote of any other holder of Preferred Stock) waivers or
amendments to the terms of the Preferred Stock.
The Company's Board of Directors will automatically increase by two
members and the holders of a majority of the then outstanding 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 Preferred Stock 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
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
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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 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 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
Credit Facility, or (c) used during such 12 months, or within 60 days
after such 12 month period, to purchase or otherwise acquire Preferred
Stock or 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 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 Net Proceeds, the Company or any Subsidiary may temporarily reduce
Indebtedness under the 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
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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 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 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 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 Preferred Stock tendered pursuant
to the Excess Proceeds Offer. The principal amount of Preferred Stock to
be purchased pursuant to an Excess Proceeds Offer may be reduced by the
principal amount of 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
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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 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 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 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 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
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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 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:
Fiscal Quarter Ended Maximum Test Ratio
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
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 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 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 Preferred Stock promptly upon written request
together with an Officers' Certificate.
Exchange
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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
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
Preferred Stock then outstanding. See "Description of Exchange
Debentures" for a description of the terms of the Exchange Debentures. In
such event, shares of 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 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 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 Preferred Stock for Exchange
Debentures unless such Indebtedness is permitted to be incurred under its
other agreements, including the Indenture and the 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 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 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
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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 redeemed or repurchased prior to the
final stated maturity of the 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
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
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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 Opportunities 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 Preferred Stock are in arrears and
unpaid for any quarterly period; (ii) the Company fails to discharge its
obligation to redeem the Preferred Stock on the Mandatory Redemption Date
or fails to otherwise discharge any redemption obligations with respect
to the Preferred Stock; (iii) the Maintenance Test Ratio exceeds the
applicable Maximum Test Ratio 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 Preferred Stock.
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"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.
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 Preferred Stock--Certain Definitions" and "--Certain Definitions"
below.
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
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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.
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
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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 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.
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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 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.
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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 Credit Facility, or (c) used during such 12
months, or within 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 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 Exchange Debentures having an
aggregate principal amount equal to the Excess Proceeds (the "Purchase
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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
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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.
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
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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 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:
Fiscal Quarter Ended
Maximum Test Ratio
December 19986.50
March, June, September, December 19996.00
March, June, September, December 20005.50
March, June, September, December 20015.25
March, June, September, December 2002
and each quarter thereafter5.00
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
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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"; (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
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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
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
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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 an 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
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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 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
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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 "Description of the 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.
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 March 29, 1999, the Company
had $3.6 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%.
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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 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
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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 Notes--Collateral."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes certain United States federal
income tax consequences of the ownership of Preferred Stock and Exchange
Debentures. Except where noted, this summary deals only with Preferred
Stock 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 or Exchange Debentures as a part of a hedging,
short-sale or conversion transaction or a straddle or holders of
Preferred Stock 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 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 (x) that
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 or (y) that has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a U.S.
Person.
Classification of Preferred Stock and Exchange Debentures
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 and the Exchange
Debentures as debt 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
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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 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. As discussed above, additional Preferred
Stock will have an issue price (and tax basis) in an amount equal to the
fair market value of such Preferred Stock as of the date of distribution.
Consequently, such additional Preferred Stock may have a different issue
price and different tax characteristics than Preferred Stock issued as
part of a Preferred Stock unit. This difference in tax characteristics
could adversely affect the liquidity of the Preferred Stock.
The Preferred Stock was issued as part of a unit with a warrant.
Consequently, the amount paid for each unit must be allocated between the
Preferred Stock and the warrant. The amount so allocated to the
preferred Stock constitutes its initial tax basis and issue price. A
U.S. Holder's allocation must be based on the fair market value estimates
provided by the Company unless the United States Holder discloses the use
of a different allocation on its federal income tax return for the year
including the acquisition date of the unit. The Company believes that
the warrants had no value on the date of issue and consequently allocated
100% of the amount paid for each unit to the Preferred Stock. There can
be no assurance, however, that the Internal Revenue Service (the "IRS")
will respect the Company's allocation.
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
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(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
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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 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. Net capital gain of individuals derived in respect
of capital assets held for more than one year are eligible for reduced
rates of taxation. 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.
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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. 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 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
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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
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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. Net capital gain of
individuals derived in respect of capital assets held for more than one
year are eligible for reduced rates of taxation. 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.
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 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.
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.
PLAN OF DISTRIBUTION
The Selling Securityholders may offer and sell the Securities from
time to time and will act independently of us in deciding the timing,
manner and size of any sale. We expect that sales generally will be made
at then prevailing market prices, but prices in negotiated transactions
may differ considerably. We cannot predict the extent, if any, to which
Selling Securityholders may sell the Securities.
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Selling Securityholders may sell Securities in the over-the-counter
market or otherwise, at prices that (i) represent or relate to then
prevailing market prices or (ii) are negotiated, including by means of
purchase by a broker-dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus, ordinary brokerage
transactions and transactions in which a broker solicits purchasers, and
block trades in which a broker-dealer so engaged will attempt to sell the
Securities as agent but may take a position and resell a portion of the
block as principal to facilitate the transaction. In addition, any
Securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 of the Securities Act may be sold under Rule 144 rather than
pursuant to this Prospectus. The Selling Securityholders reserve the
right to withdraw, cancel or modify the offer or solicitations of offers
made hereby without notice. The Selling Securityholders may reject any
offer in whole or in part.
No Selling Securityholder has advised us, as of the date hereof,
that it has arranged for the offering or sale of any Security with any
broker. Underwriters, brokers, dealers or agents (collectively,
"underwriters") may participate in these transactions as agents and, in
that capacity, may (i) be deemed underwriters for purposes of the Act and
(ii) receive brokerage commissions from Selling Securityholders or their
purchasers which (together with any profits received by the Selling
Securityholders) may be deemed underwriting discounts and commissions
under the Act. The Selling Securityholders have disclaimed the status of
"underwriters" under the Act.
To comply with the securities laws of certain jurisdictions, if
applicable, the Securities will be offered or sold in those jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain jurisdictions, the Securities may not be offered or sold unless
they have been registered or qualified for sale in those jurisdictions or
unless an exemption from that registration or qualification is available
and is complied with.
We have advised the Selling Securityholders that under applicable
rules and regulations under the Exchange Act, any person engaged in a
distribution of the Securities may be limited in its ability to engage in
market activities respecting the Securities. In addition and without
limiting the foregoing, we have advised the Selling Securityholders that
each Selling Securityholder is subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Rule
10b-2 and Regulation M, which provisions may limit the timing of
purchases and sales of any of the Securities by the Selling
Securityholders. All the foregoing may affect the marketability of the
Securities.
The Company may suspend the use of this Prospectus in certain
circumstances because of pending corporate developments or a need to file
a post-effective amendment. In any such event, the Company will use its
reasonable efforts to ensure that the use of the Prospectus is resumed as
soon as practicable.
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The Company has agreed to pay substantially all the expenses
incident to the registration, offering and sale of the Securities by the
Selling Securityholders to the public other than any brokers' commission,
finder's fee or underwriter's discount or commission, which will be borne
by the relevant Selling Securityholder. We have agreed to indemnify the
Selling Securityholders against certain liabilities in connection with
certain statements made or omitted herein, or to make contribution with
respect thereto.
LEGAL MATTERS
The validity of the Securities and certain tax matters will be
passed upon for the Company by Simpson Thacher & Bartlett, New York, New
York.
EXPERTS
The financial statements appearing or incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December 28,
1998, 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 incorporated
herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
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American Restaurant
Group, Inc.
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PROSPECTUS
MAY 13, 1999
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