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As filed with the Securities and Exchange Commission on January 29, 1999
Registration Statement No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
AMERICAN RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
33-0193602
(I.R.S. Employer Identification No.)
450 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(949) 721-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
KEN A. DI LILLO
VICE PRESIDENT -- FINANCE AND TREASURER
AMERICAN RESTAURANT GROUP, INC.
(949) 721-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy To:
Philip T. Ruegger III, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Each Class of Amount to be Proposed Offering Proposed Aggregate Amount of
Securities to be Registered Registered Price per Security (1) Offering Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Series B Senior Secured Notes due 2003.... $ 31,083,000 100% $31,083,000 $8,900
Guarantees of the 11 1/2% Series B Senior Secured $ 31,083,000 None(2) None(2) None(2)
Notes due 2003...................................
12% Series B Senior Pay-in-Kind Exchangeable
Preferred Stock................................... 26,934 Shares $1,000 $26,934,000 $7,500
12% Senior Subordinated Debentures Due 2003....... $ 26,934,000 None(3) None(3) None(3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) No separate consideration will be received for the guarantees of the
11 1/2% Series B Senior Secured Notes due 2003 by subsidiaries of American
Restaurant Group, Inc.
(3) No separate consideration will be received for the 12% Senior Subordinated
Debentures due 2003 issuable upon exchange of the 12% Series B Senior
Pay-in-Kind Exchangeable Preferred Stock.||
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
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 26,934 shares (excluding 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
- - 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 QUARTERLY
REPORT ON FORM 10-Q.
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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.
, 1999
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TABLE OF CONTENTS
THE OFFERING...................................................................8
RISK FACTORS..................................................................15
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............21
USE OF PROCEEDS...............................................................22
CAPITALIZATION................................................................22
SELLING SECURITYHOLDERS.......................................................22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................24
DESCRIPTION OF THE NOTES......................................................24
DESCRIPTION OF THE PREFERRED STOCK............................................43
DESCRIPTION OF THE EXCHANGE DEBENTURES........................................50
PLAN OF DISTRIBUTION..........................................................59
LEGAL MATTERS.................................................................60
EXPERTS.......................................................................60
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, 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
29, 1997;
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2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 30, 1998, June 29, 1998 and September 28, 1998; and
3. Our Current Reports on Form 8-K dated January 30, 1998 and March
3, 1998.
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 QUARTERLY REPORT ON FORM 10-Q.
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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") (101 restaurants);
- - Grandy's (85 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 224 restaurants, including 101 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:
- - 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
1997, we phased out the business in 9 to 19 restaurants per year. As of December
28, 1998, 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
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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.
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 39 of our 224 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
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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 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, 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
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aggregate principal amount of the Notes and 19,026 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, beginning on February 15,
1999, 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".
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.
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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."
DESCRIPTION OF THE PREFERRED STOCK
Dividend Rate........... Dividends accrue at a rate of 12% per year of the
liquidation preference. 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, commencing on
February 15, 1999 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.
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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
- 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.
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.
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:
11
<PAGE> 13
- 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 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.
12
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data for each of
the last three years ended December 25, 1995, December 30, 1996 and December 29,
1997 has been derived from our consolidated financial statements which have been
audited by Arthur Andersen LLP, independent accountants.
The financial data for the thirty-nine weeks ended September 29, 1997 and
September 28, 1998 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
29, 1997 and for the thirty-nine week period ended September 28, 1998, are for
informational purposes only and give effect to our Recapitalization as if it had
been consummated on December 31, 1996 for the fifty-two week period ended
December 29, 1997 and on December 30, 1997 for the thirty-nine week period ended
September 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 thirty-nine weeks ended September 28, 1998 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.
13
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA(1)
-----------------------
HISTORICAL THIRTY-NINE THIRTY-NINE
HISTORICAL YEAR ENDED WEEKS ENDED YEAR ENDED WEEKS ENDED
------------------------------------- ----------------------- --------- ---------
DEC. 25, DEC. 30, DEC. 29, SEPT. 29, SEPT. 28, DEC. 29, SEPTEMBER 28,
1995 1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 445,966 $ 445,424 $ 440,039 $ 333,198 $ 324,795 $ 423,269 $ 320,731
Gross Profit(2) ............. 62,765 52,699 55,790 41,871 41,547 56,826 42,009
Operating Profit before
Impairment Charges(3) ..... 8,586 4,227 6,803 4,929 15,019 12,850 15,715
Interest Expense, Net ....... 28,004 27,714 23,985 17,688 15,330 19,505 14,616
Net Income/(Loss) ........... (39,662) (38,461) (20,292) (12,807) 9,120(4) (9,766) 10,530(4)
Ratio of Earnings to
Fixed Charges(5) .......... -- -- -- -- 1.0x -- 1.1x
Deficiency in Earnings to
cover Fixed Charges(5) .... (39,417) (36,558) (20,154) (12,702) -- (9,628) --
Ratio of Earnings to Fixed
Charges and Preferred Stock
Dividends(6) .............. -- -- -- -- -- 1.0x
Deficiency in Earnings
to cover Fixed Charges
and Preferred Stock
Dividends(6) .............. (39,417) (36,558) (20,154) (12,702) (1,570) (15,254) --
RESTAURANT DATA:
Restaurants (end of period) . 248 247 231 232 226 229 226
Increase/(Decrease) in
Same-store-sales:
Consolidated(7)(8) ....... (5.8)% (2.9)% (2.3)% (3.5)% 0.1 % (2.3)% 0.1 %
Black Angus (excluding
late-night
entertainment)(7)(9) .... (5.1)% 1.0 % 1.4 % (0.8)% 4.2 % 1.4 % 4.2 %
OTHER DATA:
EBITDA(10) .................. $ 32,089 $ 26,100 $ 30,713 $ 23,427 $ 25,947 $ 33,449 $ 26,409
EBITDAR(11) ................. 54,952 50,913 61,389 46,755 47,710 61,249 46,768
Depreciation and
Amortization ................ 22,819 20,386 19,627 14,839 10,848 16,316 10,614
Capital Expenditures ........ 16,277 13,279 4,650 3,631 8,941 4,650 8,941
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPT. 28, 1998
---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash.................................................... $2,848
Property, Plant & Equipment, Net........................ 93,100
Total Assets............................................ 152,571
Long-term Debt, including current portion............... 167,789
Cumulative Preferred Stock, Mandatorily Redeemable...... 35,562
Common Stockholders' Equity (Deficit)................... (108,959)
</TABLE>
(footnotes on following page)
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<PAGE> 16
(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 31, 1996 for the fifty-two weeks ended December
29, 1997 and on December 30, 1997 for the thirty-nine weeks ended
September 28, 1998. Does not give effect to the reduction of $2.2 million
in corporate salaries and expenses relating to actions taken in the later
half of 1997.
(2) Gross Profit is defined as revenues less food and beverage, payroll and
direct operating costs.
(3) Operating Profit is stated before non-cash charges for impairment of
long-lived assets of $20.2 million in 1995, $13.2 million in 1996 and $3.0
million in 1997.
(4) Includes a $9.6 million extraordinary gain on extinguishment of debt.
(5) For the purpose of determining the ratio or deficiency of earnings to
cover fixed charges, earnings consist of earnings before extraordinary
gain or loss, income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, the amortization of debt issue costs and that
portion of operating rental expense representative of the interest factor.
(6) The ratio or deficiency of earnings to fixed charges and preferred stock
dividends are the same as the ratio of earnings to fixed charges except
that preferred stock dividends are added to fixed charges even though the
Company intends to pay such dividends by issuing additional shares of
Preferred Stock.
(7) Same stores are defined as restaurants which have been in operation for
the entire prior year.
(8) Excludes Velvet Turtle restaurants. As of February 1997, we closed the
last Velvet Turtle restaurant.
(9) This presentation excludes all late-night entertainment operations of the
Black Angus restaurants and, in 1997, the lunch business in 14 Black Angus
restaurants where lunch was discontinued in 1997.
(10) EBITDA is defined as operating profit before impairment charges plus
depreciation and amortization and net losses on sale of properties. For
the years ended December 25, 1995, December 30, 1996 and December 29, 1997
and for the thirty-nine weeks ended September 29, 1997 and September 28,
1998, the net losses on the sale of properties were $0.7 million, $1.5
million, $4.3 million, $4.0 million and $0.4 million, respectively. EBITDA
should not be considered an alternative to, or more meaningful than,
earnings from operations or other traditional indicators of operating
performance and cash flow from operating activities. In connection with
the closing of restaurants in 1997, 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.
(11) 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.
15
<PAGE> 17
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 September 28, 1998, our total
consolidated long-term indebtedness was approximately $167.8 million and we had
a stockholders' deficit of $109.0 million. Further, we have approximately $39
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 September 28,
1998 was approximately $36.9 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 payments of $8.0 million, subject to
certain escalation clauses. Our aggregate rent expense for the year ended
December 29, 1997 was approximately $27.9 million on a pro forma basis.
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 1997, our earnings before extraordinary loss, income taxes and fixed
charges were insufficient to cover fixed charges by $20.2 million. On a pro
forma basis, after giving effect to the Recapitalization, for 1997, our earnings
before extraordinary loss, income taxes and fixed charges were insufficient to
cover (i) fixed charges by
16
<PAGE> 18
$9.6 million and (ii) fixed charges and preferred stock dividends by $15.3
million. In addition, on a pro forma basis, our ratio of EBITDA to net interest
expense would have been 1.7x for 1997. 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 $39.7 million in 1995, $38.5 million in 1996
and $20.3 million in 1997. 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 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 September 28, 1998, we had $9.2 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 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
17
<PAGE> 19
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, 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
18
<PAGE> 20
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
December 29, 1998 had an accreted value of approximately $93.9 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.
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.
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<PAGE> 21
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 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 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.
20
<PAGE> 22
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
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
21
<PAGE> 23
- it could not pay its debts as they become due.
POTENTIAL LIMITATION IMPOSED UPON NET OPERATING LOSSES.
As of December 29, 1997, we had available net operating loss carryforwards
for federal income tax purposes of $135.0 million, expiring in 2003 to 2011.
Generally, a cumulative change of greater than 50% in the stock ownership of a
corporation within a three-year period 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. This position could be challenged by the Internal Revenue Service. In
addition, future equity issuances by us 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.
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:
22
<PAGE> 24
<TABLE>
<CAPTION>
THIRTY-NINE
YEAR ENDED WEEKS ENDED
---------------------------------------------------------- ---------------------
DEC. 27, DEC. 26, DEC. 25, DEC. 30, DEC. 29, SEPT. 29, SEPT. 28,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges ... -- -- -- -- -- -- 1.0x
Deficiency in Earnings to Cover
Fixed Charges ....................... $(19,273) $(11,922) $(39,417) $(36,558) $(20,154) $(12,702) $ (1,570)
Ratio of Earnings to Fixed Charges
& Preferred Stock Dividends ......... -- -- -- -- -- -- --
Deficiency in Earnings to Cover Fixed
Charges and Preferred Stock Dividends $(19,273) $(11,922) $(39,417) $(36,558) $(20,154) $(12,702) $ (1,570)
</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 September 28, 1998. 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.
<TABLE>
<CAPTION>
SEPT. 28, 1998
---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:
Working capital facility ............................. $ 0
Current portion of capitalized lease obligations ..... 953
Current portion of other debt ........................ 471
---------
Total short-term debt .............................. 1,424
---------
Long-term debt:
Capitalized lease obligations ........................ 6,793
Other debt ........................................... 972
Senior Secured Notes ................................. 158,600
---------
Total long-term debt ............................... 166,365
---------
Cumulative preferred stock, mandatorily redeemable ..... 35,562
Common stockholders' equity:
Common stockholders' deficit ....................... (108,959)
---------
Total capitalization ............................... $ 94,392
=========
</TABLE>
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 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
23
<PAGE> 25
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 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 the date of this Prospectus, 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>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF NOTES AMOUNT
BENEFICIALLY PRINCIPAL BENEFICIALLY
OWNED PRIOR TO AMOUNT OF NOTES OWNED AFTER THE
NAME OF SELLING SECURITYHOLDER OF NOTES OFFERING OFFERED 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. ........ 12,000,000 12,000,000 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
----------- ----------- -----------
Total ................................. $30,083,000 $30,083,000 $ 0
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
NAME OF SELLING SECURITYHOLDER OF PREFERRED STOCK THE OFFERING SHARES OFFERED OFFERING
- ------------------------------------------------- ------------ -------------- --------
<S> <C> <C> <C>
TCW Leveraged Income Trust, L.P. ..... 10,570 10,570 0
TCW Shared Opportunity Fund II, L.P. . 5,285 5,285 0
TCW Shared Opportunity Fund IIB, L.L.C 2,114 2,114 0
Brown University ..................... 1,057 1,057 0
------ ------ ------
Total ..................... 19,026 19,026 0
</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 December 28, 1998, 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."
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP OUTSTANDING CLASS DILUTED CLASS(1)
- ---------------- -------------------- ----------------- ----------------
<S> <C> <C> <C>
Anwar S. Soliman 19,990(2) 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
Robert D. Beyer (3) -- -- --
George G. Golleher (4) -- -- --
Jeffry K. Weinhuff -- -- --
American Restaurant Group Holdings,
Inc. (5) 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 (6) 55,558(7) -- 23.9
</TABLE>
- ----------
(1) Gives effect to the exercise of all outstanding warrants.
(2) Does not include shares of the Common Stock which Mr. Soliman is deemed to
be the owner of pursuant to the New Voting Trust Agreement.
(3) Does not include shares deemed to be beneficially owned by the TCW
Investors. Robert D. Beyer is a Group Managing Director of TCW, of which
TCW Group (see footnote 7) and the TCW Investors are affiliates. Mr. Beyer
shares investment power for the following TCW Investors: TCW Shared
Opportunity Fund II L.P., TCW Leveraged Income Trust, L.P. and TCW Shared
Opportunity Fund IIB, LLC. See footnote 6.
(4) George G. Golleher was elected Director of the Company, as nominee of the
TCW Investors. See "--Securityholders Agreement."
25
<PAGE> 27
(5) Anwar S. Soliman owns 228,577 shares of Holdings common stock,
representing 46.4% of the outstanding common stock of Holdings. In
addition, Mr. Soliman is deemed to be the owner, pursuant to the Voting
Trust Agreement, of an additional 175,963 shares of Holdings common stock.
See "Risk Factors--Ownership and Control is Held By a Limited Number of
Members of Senior Management and Selling Securityholders."
(6) TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P.,
Brown University and TCW Shared Opportunity Fund IIB, LLC.
(7) Represents warrants which are immediately exercisable at a nominal price
per share. Includes warrants beneficially owned by the TCW Investors and
of which TCW 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.
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, 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.
26
<PAGE> 28
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, commencing on February 15, 1999, 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 redeemed during the 12-month period beginning
on February 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 105.75%
2002 and thereafter 100.00%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
February 15, 2000, the Company may, at its option, redeem up to one third of the
original aggregate principal amount of the 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.
27
<PAGE> 29
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 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
28
<PAGE> 30
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
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 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.
29
<PAGE> 31
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.
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
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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;
(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 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.
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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");
(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
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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 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 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
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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, 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
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transaction, no Default or Event of Default exists; and (iv) the Company, or any
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition has been
made, (A) has a Consolidated Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments resulting from the transaction) not
less than 100% of the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will be permitted, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, to incur at
least $1.00 of additional Indebtedness pursuant to the Interest Coverage Ratio
test set forth in the covenant described under "Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Indenture,
the Notes, the Collateral Agreements and the Registration Rights Agreement.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all Affiliate Transactions that are
part of a common plan, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith and on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction at such time on
an arms-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary; (ii) Affiliate Transactions, which together with all
Affiliate Transactions that are part of a common plan, have an aggregate value
of not more than $2.5 million; provided, that a majority of the disinterested
members of the Board of Directors of the Company determine that such
transactions are conducted in good faith and on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction at such time on an arms-length basis
from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary; (iii) Affiliate Transactions for which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view, issued by an investment banking firm
of national standing; and (iv) Permitted Affiliate Transactions and other
Restricted Payments permitted by the provisions described above under
"Limitations on Restricted Payments."
Line of Business. The Company will not, and will not permit any Restricted
Subsidiary to, engage in any type of business other than the type of business
conducted or proposed to be conducted by the Company and the Restricted
Subsidiaries on the Closing Date and businesses reasonably related thereto.
Restrictions on Sale and Issuance of Subsidiary Stock. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any shares of Capital Stock of any Restricted Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary, other than directors'
qualifying shares; provided, however, that this provision shall not prohibit the
sale of all of the Capital Stock of any Restricted Subsidiary owned by the
Company and its Restricted Subsidiaries if the Net Proceeds from such sale or
issuance are used in accordance with the terms of the covenant described under
"--Limitation on Asset Sales.
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
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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
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.
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If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding 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.
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 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.
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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 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.
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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 or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that
Indebtedness of such other Person that is redeemed, defeased, retired or
otherwise repaid at the time, or immediately upon consummation, of the
transaction by which such other Person is merged with or into the Company or a
Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired
Debt.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(i) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; (ii) in the case of a
corporation, beneficial ownership of 10% or more of any class of Capital Stock
of such Person; and (iii) in the case of an individual (A) members of such
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act) and (B) trusts, any trustee or
beneficiaries of which are such Person or members of such Person's immediate
family. Notwithstanding the foregoing, neither the Initial Purchaser nor any of
its Affiliates will be deemed to be Affiliates of the Company.
"Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of Capital
Stock or a Restricted Subsidiary (other than directors' qualifying shares),
property or other assets, including by way of a sale/leaseback transaction (each
referred to for the purposes of this definition as a "disposition"), by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets in the ordinary course of business, (iii) dispositions of
inventory in the ordinary course of business, (iv) for purposes of the
"Limitation on Asset Sales" covenant only, a disposition that constitutes a
Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, (v) the sale, lease, transfer or other disposition of all or
substantially all the assets of the Company as permitted under the covenant
"Merger, Consolidation or Sale of Assets", (vi) the grant of Liens permitted by
the covenant "Limitation on Liens" and (vii) sales of obsolete or worn-out
equipment.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; and (ii) with respect to
any other Person, any and all partnership or other equity interests of such
Person.
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"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 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
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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 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.
"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
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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 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,
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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 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 conduct
of the
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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 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.
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"Security Documents" means, collectively, the Mortgages, the Security
Agreements, the Pledge Agreement, the Cash Collection Account Agreement, the
Intercreditor Agreement, the Trademark Security Agreement and any other
document, instrument or agreement executed or delivered by the Company or any of
its Subsidiaries from time to time pursuant to which the Company or any such
Subsidiary shall grant a Lien on any of their respective properties, assets or
revenues to secure payment of the Obligations hereunder and under the Notes or
relating to intercreditor matters.
"subsidiary" means, with respect to any Person (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person or a combination thereof; and (ii) any partnership in which such
Person or any of its subsidiaries is a general partner.
"Subsidiary" means any subsidiary of the Company.
"TCW Directors" means members of the Board of Directors nominated by Trust
Company of the West pursuant to the Securityholders Agreement (as defined
herein).
"TCW Tax Payments" means the payments made to the TCW entities in
connection with any tax liability for withholding, which payments shall not
exceed $125,000 per year.
"transfer" means any direct or indirect sale, assignment, transfer, lease,
conveyance, or other disposition (including, without limitation, by way of
merger or consolidation).
"Unrestricted Subsidiary" means any Subsidiary that has been designated by
the Company (by written notice to the Trustee as provided below) as an
Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an
"Unrestricted Subsidiary" unless (i) such Subsidiary does not own any Capital
Stock of, or own or hold any Lien on any property of, the Company or any
Restricted Subsidiary (other than such Subsidiary), (ii) neither immediately
prior thereto nor after giving pro forma effect to such designation, would there
exist a Default or Event of Default, (iii) immediately after giving effect to
such designation on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness" and (iv)
the creditors of such Subsidiary have no direct or indirect recourse (including,
without limitation, recourse with respect to the payment of principal or
interest on Indebtedness of such Subsidiary) to the assets of the Company or of
a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (i) no Default or Event of Default is existing or will occur
as a consequence thereof; and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness." Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions. The Company shall be deemed to make an Investment in each Subsidiary
designated as an "Unrestricted Subsidiary" immediately following such
designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation; provided, that if such
Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount
of such Investment shall be deemed to be reduced (but not below zero) by the
fair market value of the net consolidated assets of such Subsidiary on the date
of such redesignation.
"Voting Stock" means, with respect to any Person (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency); and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount of
such Indebtedness into (ii) the total of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest one
twelfth) that will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
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 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.
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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 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
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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 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 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
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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 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.
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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 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 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."
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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
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
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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 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 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
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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.
"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).
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PRINCIPAL, MATURITY AND INTEREST
The Exchange Debenture Indenture authorizes a maximum aggregate principal
amount of $80,000,000 of the Exchange Debentures. The Exchange Debentures will
be due on August 15, 2003. At maturity, the Company shall pay a premium of
10% of the principal amount. The Exchange Debentures will bear interest from the
Exchange Date at a rate per annum equal to 12%. Interest on the Exchange
Debentures will be payable semi-annually on February 15 and August 15 in each
year to holders of record at the close of business on the first day of the
calendar month in which such interest payment date occurs, commencing on the
first interest payment date after issuance. Alternatively, the Company may, at
its option, issue new Exchange Debentures having an aggregate principal amount
equal to the amount of such interest payments.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Exchange Debentures will be payable both as to
principal and interest at the office or agency of the Company maintained for
such purpose within The City of New York or, at the option of the Company,
payment of interest may be made by check mailed to the holders of the Exchange
Debentures at their respective addresses set forth in the register of holders of
Exchange Debentures. Until otherwise designated by the Company, such office or
agency will be the office of the Exchange Debenture Trustee maintained for such
purpose. If a payment date is a legal holiday, payment may be made at that place
on the next succeeding day that is not a legal holiday, and no interest shall
accrue for the intervening period.
The Exchange Debentures provide that the rate of interest on the Exchange
Debentures shall be automatically increased if at the end of any fiscal quarter
of the Company, the Maintenance Test Ratio exceeds the Maximum Test Ratio for
that fiscal quarter, then for the period during the immediately succeeding
quarter, the rate of interest hereunder shall be 13.5% for the first two
quarters for which the Maximum Test Ratio is exceeded (whether or not such
fiscal quarters are consecutive) and 15% for any other quarter thereafter for
which the Maximum Test Ratio is exceeded or in certain other circumstances.
OPTIONAL REDEMPTION
The Exchange Debentures are redeemable as a whole or from time to time in
part, at the option of the Company, at a redemption price equal to 110% of the
principal amount, together with accrued interest to the Redemption Date, but
interest installments due on or prior to such Redemption Date will be payable to
the record holders of such Exchange Debentures on the relevant Record Dates
referred to on the face thereof.
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
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full or (ii) upon the happening of any default in payment of any principal of or
interest on any Senior Debt when the same becomes due and payable (a "Payment
Default"), unless and until such Payment Default shall have been cured or waived
or shall have ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt to declare such Senior Debt to
be due and payable (or, in the case of letters of credit, require cash
collateralization thereof) and (ii) written notice of such event of default
given to the Company and the Exchange Debenture Trustee, by the lenders' agent
under the Credit Facility or holders of an aggregate of at least $15 million
principal amount outstanding of any Senior Debt or their representative (a
"Payment Notice"), then, unless and until such event of default has been cured
or waived or otherwise has ceased to exist, no payment (by set-off or otherwise)
may be made by or on behalf of the Company on account of any Obligation in
respect of the Exchange Debentures, including the principal of, premium, if any,
or interest on the Exchange Debentures, or to repurchase any of the Exchange
Debentures, or on account of the redemption provisions of the Exchange
Debentures, in any such case, other than payments made with Junior Securities.
Notwithstanding the foregoing, unless the Senior Debt in respect of which such
event of default exists has been declared due and payable in its entirety within
179 days after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, the Company shall be required to pay all
sums not paid to the holders of the Exchange Debentures during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Exchange Debentures. Any number of Payment
Notices may be given; provided, however, that (i) not more than one Payment
Notice shall be given within a period of any 360 consecutive days, and (ii) no
default that existed upon the date of such Payment Notice or the commencement of
such Payment Blockage Period (whether or not such event of default is on the
same issue of Senior Debt) shall be made the basis for the commencement of any
other Payment Blockage Period unless such other Payment Blockage Period is
commenced by a Payment Notice and such event of default shall have been cured or
waived for a period of at least 90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Exchange Debenture Trustee or the holders at a time when such
payment or distribution is prohibited by the foregoing provisions, such payment
or distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Exchange Debenture Trustee or
such holders, as the case may be, to the holders of such Senior Debt remaining
unpaid or unprovided for or to their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Debt may have issued, ratably according to the
aggregate principal amounts remaining unpaid on account of such Senior Debt held
or represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts due by settlement in other than
cash or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Upon any distribution of assets of the Company, upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities, (i) the holders of all 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
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of such Senior Debt or their representative to the extent necessary to make
payment in full in Cash or Cash Equivalents (or have such payment duly provided
for) on all such Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
Because of these subordination provisions, creditors of the Company who
are holders of Senior Debt may recover more, ratably, than the holders of the
Exchange Debentures. The subordination provisions described above will cease to
be applicable to the Exchange Debentures upon any legal defeasance or covenant
defeasance of the Exchange Debentures as described under "--Defeasance and
Discharge of the Exchange Debenture Indenture and the Exchange Debentures."
COVENANTS
Limitation on Restricted Payments. The Company shall not, and, with
respect to clause (ii) below, shall not permit any Subsidiary to, directly or
indirectly, take any of the following actions: (i) declare, set aside for
payment or pay any dividend on, or make any distribution to the holders of any
Junior Securities (other than dividends or distributions payable solely in
shares of a class or series upon which such dividends are declared or paid, or
payable in shares of Common Stock with respect to Junior Securities other than
Common Stock, together with cash in lieu of fractional shares), or (ii)
purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any Junior Securities (such payments or other actions described in
(but not excluded from) clauses (i) and (ii) are collectively referred to as
"Restricted Payments"), unless at the time of, and immediately after giving
effect to, the proposed Restricted Payment (1) no Default shall have occurred
and be continuing, and (2) all accrued interest on the Exchange Debentures shall
have been paid in full, or funds sufficient for payment thereof have been set
apart for payment.
Limitation on Asset Sales. The Company shall not, and shall not permit any
Subsidiary to, make any Asset Sale unless (i) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors as evidenced
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Exchange Debenture Trustee) of the assets subject to such Asset
Sale, (ii) at least 75% of the consideration for such Asset Sale is in the form
of cash, Cash Equivalents or liabilities of the Company or any Subsidiary (other
than liabilities that are by their terms subordinated to the Exchange
Debentures) that are assumed by the transferee of such assets (provided, that
following such Asset Sale there is no further recourse to the Company and its
Subsidiaries with respect to such liabilities), and (iii) within 12 months of
such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to
the business of the Company or its Subsidiaries, or (b) used to repay, purchase
or otherwise acquire Indebtedness under the 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.
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The amount of Net Proceeds not invested, used or applied as set forth in
the preceding clauses (a) and (b) constitutes "Excess Proceeds." If the Company
elects, or becomes obligated to make an Excess Proceeds Offer, the Company shall
offer to purchase Exchange Debentures having an aggregate principal amount equal
to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal to
110% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date. The Company must commence such Excess
Proceeds Offer not later than 90 days after the expiration of the 12-month
period following the Asset Sale that produced Excess Proceeds. If the aggregate
purchase price for the Exchange Debentures tendered pursuant to the Excess
Proceeds Offer is less than the Excess Proceeds, the Company and its
Subsidiaries may use the portion of the Excess Proceeds remaining after payment
of such purchase price for general corporate purposes.
Each Excess Proceeds Offer shall remain open for a period of 20 Business
Days and no longer, unless a longer period is required by law (the "Excess
Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds
Offer Period (the "Excess Proceeds Payment Date"), the Company shall purchase
and mail or deliver payment for the Purchase Amount for the Exchange Debentures
or portions thereof tendered, pro rata or by such other method as may be
required by law, or, if less than the Purchase Amount has been tendered, all
Exchange Debentures tendered pursuant to the Excess Proceeds Offer. The
principal amount of Exchange Debentures to be purchased pursuant to an Excess
Proceeds Offer may be reduced by the principal amount of Exchange Debentures
acquired by the Company through purchase or redemption subsequent to the date of
the Asset Sale and surrendered to the Exchange Debenture Trustee for
cancellation.
Each Excess Proceeds Offer shall be conducted in compliance with all
applicable laws, including without limitation, Regulation 14e-1 of the Exchange
Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
Merger, Consolidation or Sale of Assets. The Company shall not, in a
single transaction or through a series of transactions, consolidate with or
merge with or into any other Person (whether or not the Company is the surviving
corporation) or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets (determined on a
consolidated basis for the Company and its Subsidiaries) to any other Person or
Persons, unless at the time and immediately after giving effect thereto: (i)
either (a) the Company shall be the continuing corporation or (b) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person that acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all the properties and assets of the
Company and its Subsidiaries on a consolidated basis (the "Surviving Entity")
shall be a corporation duly organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia; (ii)
the Exchange Debentures shall be converted into or exchanged for and shall
become debt of the Surviving Entity having in respect of the Surviving Entity
the same rights and privileges that the Exchange Debentures had immediately
prior to such transaction with respect to the Company, and the Surviving Entity
(if other than the Company) or the Person to which such transfer has been made
shall assume all the Obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Exchange
Debentures and the Exchange Debenture Indenture; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis, no
Default, and no event that after the giving of notice or lapse of time or both
would become a Default, shall have occurred and be continuing; (iv) the Company
(or the Surviving Entity as the case may be) has (A) a Consolidated Net Worth
(immediately after giving effect to such transaction, but prior to any purchase
accounting adjustments from such transaction) not less than 100% of the
Consolidated Net Worth of the Company immediately before such transaction and
(B) immediately before and immediately after giving effect to such transaction
or series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
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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 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:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Maximum Test Ratio
-------------------- ------------------
<S> <C>
December 1998 6.50
March, June, September, December 1999 6.00
March, June, September, December 2000 5.50
March, June, September, December 2001 5.25
March, June, September, December 2002
and each quarter thereafter 5.00
</TABLE>
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Debentures are outstanding, the Company will
furnish to the Exchange Debenture Trustee, and deliver or cause to be delivered
to the holders of Exchange Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's independent certified public
accountants; and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. From
and after the time a registration statement with respect to
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the Exchange Debentures is declared effective by the Commission, the Company
will file such information with the Commission, provided that the Commission
will accept such filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Exchange Debenture Indenture (i) default for 30 days in the payment when due of
interest on the Exchange Debentures; (ii) default in payment of principal (or
premium, if any) on the Exchange Debentures when due at maturity, redemption, by
acceleration or otherwise; (iii) default in the performance or breach of the
provisions of "Limitation on Asset Sales," and "--Merger, Consolidation or Sale
of Assets"; (iv) default in the performance or breach of the provisions of
"Limitation on Restricted Payments" and the continuance of such default for a
period of 30 days; (v) failure by the Company for 30 days after notice to comply
with certain other agreements in the Exchange Debenture Indenture or the
Exchange Debentures; (vi) default under (after giving effect to any waivers,
amendments, applicable grace periods or any extension of any maturity date) any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any Subsidiary (or the payment of which is guaranteed by the Company
or any Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the date of the Exchange Debenture Indenture, if (a) either (1)
such default results from the failure to pay principal on such Indebtedness or
(2) as a result of such default the maturity of such Indebtedness has been
accelerated, and (b) the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness with respect to which such a
payment default (after the expiration of any applicable grace period or any
extension of the maturity date) has occurred, or the maturity of which has been
so accelerated, exceeds $2.5 million in the aggregate; (vii) failure by the
Company or any Subsidiary to pay final non-appealable judgments (other than any
judgment as to which a reputable insurance company has accepted full liability)
aggregating in excess of $2.5 million which judgments are not discharged, bonded
or stayed within 60 days after their entry; (viii) written assertion by the
Company of the unenforceability of its obligations under the Exchange Debenture
Indenture or the Exchange Debentures to which it is a party; and (ix) certain
events of bankruptcy or insolvency with respect to the Company or any Material
Subsidiary.
If any Event of Default occurs and is continuing, the Exchange Debenture
Trustee or the holders of at least 25% in principal amount of the then
outstanding Exchange Debentures may declare by written notice to the Company and
the Exchange Debenture Trustee all of the Exchange Debentures to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Exchange Debentures will become due and payable without further action or
notice. Holders of the Exchange Debentures may not enforce the Exchange
Debenture Indenture or the Exchange Debentures except as provided in the
Exchange Debenture Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Exchange Debentures may
direct the Exchange Debenture Trustee in its exercise of any trust or power.
The holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding, by written notice to the Company and the Exchange
Debenture Trustee, may on behalf of the holders of all of the Exchange
Debentures (i) waive any existing Default or Event of Default and its
consequences under the Exchange Debenture Indenture except a continuing Default
or Event of Default in the payment of interest on, or the principal of, the
Exchange Debentures or a Default or an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the holder of each outstanding Debenture affected; and/or (ii) rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Exchange Debenture Trustee a statement specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
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<PAGE> 61
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
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
60
<PAGE> 62
holders of a majority in principal amount of the then outstanding Exchange
Debentures (including consents obtained in connection with a tender offer or
exchange offer for Exchange Debentures).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Exchange Debentures held by a non-consenting holder of
Exchange Debentures) (i) reduce the principal amount of Exchange Debentures
whose holders must consent to an amendment, supplement or waiver; (ii) reduce
the principal of, or the premium on, or change the fixed maturity of any
Exchange Debenture, alter the provisions with respect to the redemption of the
Exchange Debentures in a manner adverse to the holders of the Exchange
Debentures, or alter the price at which repurchases of the Exchange Debentures
may be made pursuant to an Excess Proceeds Offer; (iii) reduce the rate of or
change the time for payment of interest on any Exchange Debenture; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Exchange Debentures; (v) make any Exchange Debenture payable
in money other than that stated in the Exchange Debentures; (vi) make any change
in the provisions of the Exchange Debenture Indenture relating to waivers of
past Defaults or the rights of holders of Exchange Debentures to receive
payments of principal of or interest on the Exchange Debentures; (vii) waive a
redemption payment with respect to any Exchange Debenture; (viii) adversely
affect the contractual ranking of the Exchange Debentures; or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of
Exchange Debentures, the Company and the Exchange Debenture Trustee may amend or
supplement the Exchange Debenture Indenture or the Exchange Debentures to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Exchange
Debentures in addition to or in place of certificated Exchange Debentures, to
provide for the assumption of the Company's obligations to holders of the
Exchange Debentures in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the holders of the
Exchange Debentures or that does not adversely affect the legal rights under the
Exchange Debenture Indenture of any such holder or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Exchange Debenture Indenture under the Trust Exchange Debenture Indenture Act.
CONCERNING THE EXCHANGE DEBENTURE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the
rights of the Exchange Debenture Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Exchange Debenture Trustee will be permitted to engage in other transactions;
provided, that if the Exchange Debenture Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Exchange
Debenture Trustee, subject to certain exceptions. The Exchange Debenture
Indenture provides that in case an Event of Default occurs (and is not cured),
the Exchange Debenture Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Exchange Debenture Trustee will be under no
obligation to exercise any of its rights or powers under the Exchange Debenture
Indenture at the request of any holder of Exchange Debentures, unless such
holder shall have offered to the Exchange Debenture Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Any person who receives this Prospectus may obtain a copy of the form of
Exchange Debenture Indenture without charge by writing to the Company at 450
Newport Center Drive, 6th Floor, Newport Beach, California 92660.
61
<PAGE> 63
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.
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.
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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<PAGE> 64
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 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.
EXPERTS
The financial statements appearing or incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 29, 1997, 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.
63
<PAGE> 65
- --------------------------------------------------------------------------------
AMERICAN RESTAURANT
GROUP, INC.
---------------------------
PROSPECTUS
, 1999
---------------------------
Dealer Prospectus Delivery Obligation
Until , 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering described in this Registration Statement are as follows:
<TABLE>
<S> <C>
Registration Fee........................................................... $16,400
Legal fees and expenses.................................................... *
Blue Sky fees and expenses................................................. *
Accounting fees and expenses............................................... *
Printing and duplicating expenses.......................................... *
Miscellaneous expenses..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") provides in relevant part that a Delaware corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such officer or director acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, for criminal proceedings, had no reasonable cause to believe
that his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Article IV of the by-laws of American Restaurant Group, Inc. (the
"Company") provides for indemnification of its officers and directors to the
fullest extent permitted by Section 145 of the GCL.
Section 102(b)(7) of the GCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the GCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
II-1
<PAGE> 67
Article 7 of the Certificate of Incorporation of the Company provides for
the elimination of personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except as otherwise provided by the GCL.
II-2
<PAGE> 68
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Purchase Agreement dated as of September 11, 1996 by
and between ARG Property Management Corporation and ARG
Enterprises, Inc. and ARG Properties I, LLC.**
2.2 Master lease dated September 11, 1996 between ARG
Properties I, LLC, as Landlord and ARG Enterprises,
Inc. as Tenant.**
2.3 Lease #06152 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Bloomington, Minnesota.**
2.4 Lease #06153 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Fridley, Minnesota.**
2.5 Lease #06154 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Minnetonka, Minnesota.**
2.6 Lease #06155 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Roseville, Minnesota.**
2.7 Lease dated September 11, 1996 between Safeway Inc. as
Landlord and ARG Enterprises, Inc. as Tenant.**
2.8 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to ARG Properties I, LLC as
Landlord.**
2.9 A Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to Captec Net Lease Realty,
Inc. as Landlord for each of four Minnesota
restaurants.**
2.10 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant and Safeway Inc. as
Landlord.**
4.1 Indenture dated as of February 25, 1998 between the
Company and U.S. Trust Company of California, N.A., as
Trustee (including specimen certificate of 11.5% Senior
Secured Note due 2003).***
4.2 Warrant Agreement dated as of February 25, 1998 between
the Company and U.S. Trust Company of California, N.A.,
as warrant agent (including specimen certificate of
Warrant).***
4.3 Registration Rights Agreement dated as of February 25,
1998 between the Company and Jefferies & Company,
Inc.***
4.4 Securityholders' and Registration Rights Agreement
dated as of February 25, 1998 between the Company and
Jefferies & Company, Inc., as purchaser.***
4.5 Management Registration Rights Agreement dated as of
February 28, 1998 between the Company and the
Management Stockholders.***
II-3
<PAGE> 69
EXHIBIT NO. DESCRIPTION
----------- -----------
4.6 Certificate of Designation filed with the Secretary of
State of Delaware on February 24, 1998.***
4.7 Certificate of Correction to the Certificate of
Designation filed with the Secretary of State of
Delaware on February 25, 1998.***
4.8 Form of Indenture relating to the 12% Senior
Subordinated Debentures to be entered into between the
Company and a trustee (including specimen certificate
of 12% Senior Subordinated Debenture due 2003).*****
5 Opinion of Simpson Thacher & Bartlett.******
8 Opinion of Simpson Thacher & Bartlett regarding tax
matters.******
10.1 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Anwar S.
Soliman.*
10.2 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Ralph S.
Roberts.*
10.3 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Wilfred H.
Partridge.*
12 Statement setting forth Computation of Ratio of
Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock
Dividends.******
13.1 Annual Report on Form 10-K for the fiscal year ended
December 29, 1997.******
13.2 Quarterly Report on Form 10-Q for the quarterly period
ended September 29, 1998.******
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Simpson Thacher & Bartlett (included in
Exhibit 5 hereto).******
23.3 Consent of Simpson Thacher & Bartlett (included in
Exhibit 8 hereto).******
25 Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 of United States
Trust Company of New York.*****
* Incorporated by reference to the Registrant's
Registration Statement No. 33-74010 on Form S-4 filed
with the Securities and Exchange Commission on January
12, 1994.
** Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 13, 1996 filed with
the Securities and Exchange Commission on September 30,
1996.
*** Incorporated by reference to the Registrant's Annual
Report on Form 10-K dated December 29, 1997 filed with
the Securities and Exchange Commission on March 30,
1998.
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<PAGE> 70
EXHIBIT NO. DESCRIPTION
----------- -----------
**** Incorporated by reference to the American Restaurant
Group Holdings, Inc.'s Registration Statement No.
33-74012 on Form S-4 filed with the Securities and
Exchange Commission on January 12, 1994.
***** Incorporated by reference to the Registrant's
Registration Statement No. 333-55861 on Amendment No. 1
to Form S-4 filed with the Securities and Exchange
Commission on July 29, 1998.
****** To be filed by Amendment.
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; or
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
II-5
<PAGE> 71
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
II-6
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form S-2 Registration Statement to be signed on its behalf
by the undersigned, hereunto duly authorized in the City of Newport Beach, State
of California on the 29th day of January, 1999.
AMERICAN RESTAURANT GROUP, INC.
By: /s/ Ken A. Di Lillo
----------------------------------
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Form S-2
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
AMERICAN RESTAURANT GROUP, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------------
<S> <C> <C>
By: /s/ Anwar S. Soliman Chairman, Chief Executive Officer January 29, 1999
------------------------------------------------- and Director
(Anwar S. Soliman) (Principal Executive Officer)
By: /s/ Ralph S. Robert President, Chief Operating Officer January 29, 1999
------------------------------------------------- and Director
(Ralph S. Roberts)
By: /s/ Ken A. Di Lillo Vice President--Finance and January 29, 1999
------------------------------------------------- Treasurer
(Ken A. Di Lillo) (Principal Accounting Officer)
By: /s/ Robert D. Beyer Director January 29, 1999
-------------------------------------------------
(Robert D. Beyer)
By: /s/ George G. Golleher Director January 29, 1999
-------------------------------------------------
(George G. Golleher)
By: Director January , 1999
-------------------------------------------------
(Jeffry K. Weinhuff)
</TABLE>
<PAGE> 73
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Purchase Agreement dated as of September 11, 1996 by
and between ARG Property Management Corporation and ARG
Enterprises, Inc. and ARG Properties I, LLC.**
2.2 Master lease dated September 11, 1996 between ARG
Properties I, LLC, as Landlord and ARG Enterprises,
Inc. as Tenant.**
2.3 Lease #06152 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Bloomington, Minnesota.**
2.4 Lease #06153 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Fridley, Minnesota.**
2.5 Lease #06154 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Minnetonka, Minnesota.**
2.6 Lease #06155 dated September 11, 1996 between Captec
Net Lease Realty, Inc. and ARG Enterprises, Inc. as
Tenant for Roseville, Minnesota.**
2.7 Lease dated September 11, 1996 between Safeway Inc. as
Landlord and ARG Enterprises, Inc. as Tenant.**
2.8 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to ARG Properties I, LLC as
Landlord.**
2.9 A Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to Captec Net Lease Realty,
Inc. as Landlord for each of four Minnesota
restaurants.**
2.10 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant and Safeway Inc. as
Landlord.**
4.1 Indenture dated as of February 25, 1998 between the
Company and U.S. Trust Company of California, N.A., as
Trustee (including specimen certificate of 11.5% Senior
Secured Note due 2003).***
4.2 Warrant Agreement dated as of February 25, 1998 between
the Company and U.S. Trust Company of California, N.A.,
as warrant agent (including specimen certificate of
Warrant).***
4.3 Registration Rights Agreement dated as of February 25,
1998 between the Company and Jefferies & Company,
Inc.***
4.4 Securityholders' and Registration Rights Agreement
dated as of February 25, 1998 between the Company and
Jefferies & Company, Inc., as purchaser.***
4.5 Management Registration Rights Agreement dated as of
February 28, 1998 between the Company and the
Management Stockholders.***
<PAGE> 74
EXHIBIT NO. DESCRIPTION
----------- -----------
4.6 Certificate of Designation filed with the Secretary of
State of Delaware on February 24, 1998.***
4.7 Certificate of Correction to the Certificate of
Designation filed with the Secretary of State of
Delaware on February 25, 1998.***
4.8 Form of Indenture relating to the 12% Senior
Subordinated Debentures to be entered into between the
Company and a trustee (including specimen certificate
of 12% Senior Subordinated Debenture due 2003).*****
5 Opinion of Simpson Thacher & Bartlett.******
8 Opinion of Simpson Thacher & Bartlett regarding tax
matters.******
10.1 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Anwar S.
Soliman.*
10.2 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Ralph S.
Roberts.*
10.3 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Wilfred H.
Partridge.*
12 Statement setting forth Computation of Ratio of
Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock
Dividends.******
13.1 Annual Report on Form 10-K for the fiscal year ended
December 29, 1997.******
13.2 Quarterly Report on Form 10-Q for the quarterly period
ended September 29, 1998.******
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Simpson Thacher & Bartlett (included in
Exhibit 5 hereto).******
23.3 Consent of Simpson Thacher & Bartlett (included in
Exhibit 8 hereto).******
25 Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 of United States
Trust Company of New York.*****
* Incorporated by reference to the Registrant's
Registration Statement No. 33-74010 on Form S-4 filed
with the Securities and Exchange Commission on January
12, 1994.
** Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 13, 1996 filed with
the Securities and Exchange Commission on September 30,
1996.
*** Incorporated by reference to the Registrant's Annual
Report on Form 10-K dated December 29, 1997 filed with
the Securities and Exchange Commission on March 30,
1998.
**** Incorporated by reference to the American Restaurant
Group Holdings, Inc.'s Registration Statement No.
33-74012 on Form S-4 filed with the Securities and
Exchange Commission on January 12, 1994.
***** Incorporated by reference to the Registrant's
Registration Statement No. 333-55861 on Amendment No. 1
to Form S-4 filed with the Securities and Exchange
Commission on July 29, 1998.
****** To be filed by Amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby certify consent to the
incorporation by reference in this registration statement of our report dated
February 27, 1998, included in American Restaurant Group, Inc.'s Form 10-K for
the year ended December 29, 1997, and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
----------------------------
ARTHUR ANDERSEN LLP
Orange County, California
January 29, 1999
