<PAGE> 1
As filed with the Securities and Exchange Commission on April 1, 1999
Registration Statement No. 333-71491
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
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. [ ]
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.
PROSPECTUS
AMERICAN RESTAURANT GROUP, INC.
11 1/2% SENIOR SECURED NOTES DUE 2003
12% SENIOR PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK
Certain selling securityholders (the "Selling Securityholders") may offer
and sell from time to time up to $31,083,000 principal amount of the 11 1/2%
Senior Secured Notes due 2003 (the "Notes") and 26,188 shares (including shares
which may be issued as dividends from time to time) of the 12% Senior
Pay-in-Kind Exchangeable Preferred Stock (the "Preferred Stock," and together
with the Notes, the "Securities") of American Restaurant Group, Inc., a Delaware
Corporation (the "Company"). The following terms apply to the Notes and the
Preferred Stock as indicated. For more detailed information, see "Description of
the Notes" and "Description of the Preferred Stock." We will receive no proceeds
from the sale of these Securities.
THE NOTES
- - Interest Payment Dates: February 15 and August 15 of each year
- - Record Dates: February 1 and August 1 preceding each Interest Payment Date
- - Redeemable at our option on or after February 15, 2001 at 105.75% and 100%
after February 15, 2002
- - Up to 1/3 also redeemable at our option prior to February 15, 2000 out of
proceeds of a qualified equity offering at 111.5%
- - Mandatory offer to repurchase upon change of control at 101% of the
aggregate principal amount plus accrued and unpaid interest
- - Unconditionally guaranteed by each of our restricted subsidiaries
THE PREFERRED STOCK
- - Dividend Payment Dates: February 15 and August 15 of each year
- - Record Dates: February 1 and August 1 preceding each Dividend Payment Date
- - Dividends payable in cash or additional shares of Preferred Stock
- - Liquidation preference of $1,000 per share
- - Redeemable at any time at our option for 110% of the liquidation
preference plus unpaid dividends
- - Mandatory redemption on August 15, 2003 for 110% of the liquidation
preference plus accrued and unpaid dividends
- - 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 16 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.
<PAGE> 3
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.
April 2, 1999
2
<PAGE> 4
TABLE OF CONTENTS
THE OFFERING...................................................................8
RISK FACTORS..................................................................16
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............22
USE OF PROCEEDS...............................................................23
CAPITALIZATION................................................................23
SELLING SECURITYHOLDERS.......................................................23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................25
DESCRIPTION OF THE NOTES......................................................27
DESCRIPTION OF THE PREFERRED STOCK............................................46
DESCRIPTION OF THE EXCHANGE DEBENTURES........................................53
DESCRIPTION OF CERTAIN INDEBTEDNESS...........................................62
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.........................62
PLAN OF DISTRIBUTION..........................................................67
LEGAL MATTERS.................................................................68
EXPERTS.......................................................................68
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
28, 1998.
3
<PAGE> 5
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.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary highlights selected information from this
Prospectus. It may not contain all of the information that is important to you.
This Prospectus includes specific terms of the Notes and Preferred Stock being
offered, as well as information regarding our business and detailed financial
data. We encourage you to read this Prospectus, including the documents
incorporated by reference, in its entirety.
THE COMPANY
Overview
We operate five restaurant concepts:
- - Stuart Anderson's Black Angus ("Black Angus") (100 restaurants);
- - Grandy's (83 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 221 restaurants, including 100 Black Angus
restaurants, located primarily in the Western and Southwestern regions of the
United States.
Background
Since our formation in 1987, we have been a highly leveraged company. This
has resulted in the need to dedicate significant portions of our cash flow to
service our debt obligations. In addition, we have operated under restrictive
covenants and significant liquidity constraints. All of these factors have
limited our operating flexibility and growth potential.
More recently, our growth and profitability have declined as a result of:
- - the strategic decision in 1992 to gradually limit and phase out the Black
Angus late-night entertainment operations;
- - the decline of the Grandy's operations due, in part, to the failure of
Grandy's prior management to properly position Grandy's in its markets;
and
- - the economic conditions in 1995 in our principal markets.
As recently as 1992, Black Angus operated 66 in-restaurant lounges which
offered disc jockeys, dancing and a focus on the sale of alcoholic beverages
during the after-dinner and late-night time periods. While the late-night
entertainment business in isolation generated favorable profit margins, we were
concerned that this business was negatively affecting visits by our core
customer base of middle-income families and that liability and other expenses
associated with the business were increasing. We began limiting Black Angus'
late-night entertainment business in 1992 and subsequently, between 1994 and
1998, we phased out the business in 8 to 19 restaurants per year. As of March
1, 1999, we operated 4 Black Angus restaurants with late-night entertainment.
Our Grandy's division experienced a decline in its performance during the
last several years. Grandy's prior management had adopted a strategy to compete
primarily on the basis of price. This
5
<PAGE> 7
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
6
<PAGE> 8
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
7
<PAGE> 9
aggregate principal amount of the Notes and 20,167 shares of Preferred Stock.
The Selling Securityholders may sell the Securities from time to time directly
to purchasers or through agents in ordinary brokerage transactions, in
negotiated transactions or otherwise, at prices that represent or relate to then
prevailing market prices or are negotiated. The Selling Securityholders reserve
the right to withdraw, cancel or modify the offer or solicitation of offers made
hereby without notice. The Selling Securityholders may reject any offer in whole
or in part. See "Plan of Distribution."
8
<PAGE> 10
THE OFFERING
These Securities may be offered by certain Selling Securityholders of
American Restaurant Group, Inc.
DESCRIPTION OF THE NOTES
Maturity Date........... February 15, 2003
Interest................ 11 1/2% per year, payable in cash.
Interest Payment Dates.. February 15 and August 15 to holders of record on
the immediately preceding February 1 and August 1,
respectively.
Guarantors.............. Each of our current and future restricted
subsidiaries, jointly and severally. See "Description
of the Notes--Guarantors."
Security................ The Notes and the guarantees, together with the
Credit Facility, are secured, subject to an
intercreditor agreement (the "Intercreditor
Agreement"), by a first-priority security interest in
a portion of our and our restricted subsidiaries'
owned or leased real property, a substantial portion
of our and our restricted subsidiaries' owned
personal property and substantially all of our and
our restricted subsidiaries' accounts receivable, a
pledge of all of the capital stock of our restricted
subsidiaries, and proceeds of the foregoing (the
"Collateral"). See "Risk Factors--The Collateral
Securing the Notes May Be Insufficient or Unavailable
in the Event of a Default" and "Description of the
Notes--Collateral"
Ranking................. The Notes are our senior secured obligations.
Pursuant to the Intercreditor Agreement, proceeds
from the sale of the Collateral described above will
be used first to satisfy the obligations under the
Credit Facility, and thereafter, the Notes. In
addition, the Notes are effectively subordinated to
all of our other secured indebtedness to the extent
of the assets that secure such indebtedness. See
"Description of the Notes--Collateral" and
"Description of the Notes--Certain Covenants".
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.
9
<PAGE> 11
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, subject to increase in
certain circumstances. See "Certain Covenants"
below. We may, at our option, pay dividends in cash
or in additional shares of Preferred Stock having an
aggregate liquidation preference equal to the amount
of such dividends. We currently intend to pay
dividends by issuing additional shares of Preferred
Stock.
Dividend Payment Dates.. February 15 and August 15 of each year to holders of
record on the immediately preceding February 1 and
August 1, respectively.
Liquidation Preference.. $1,000 per share.
Ranking................. The Preferred Stock ranks senior in right of payment
with respect to all junior securities.
Optional Redemption..... We may redeem the Preferred Stock at our option, in
whole or in part, at any time, at 110% of the
liquidation preference plus accrued and unpaid
dividends to the date of redemption. See "Description
of Preferred Stock -- Redemption."
Mandatory Redemption.... We are obligated to redeem the Preferred Stock on
August 15, 2003 for 110% of the liquidation
preference plus accrued and unpaid dividends.
Voting Rights........... The Preferred Stock does not have any voting rights,
except as set forth in this Prospectus or as
otherwise required by law.
10
<PAGE> 12
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. The Certificate of Designation provides that
the dividend rate for the Preferred Stock
automatically increases to 13.5% in the subsequent
quarter for the first two quarters in which the
Maintenance Test Ratio exceeds the Maximum Test Ratio
(whether or not such fiscal quarters were
consecutive) and 15% for any other quarter thereafter
for which the Maintenance Test Ratio is exceeded. If
this were to occur, we may seek to obtain consents
from the holders of the Preferred Stock to amend the
Maximum Test Ratio. In such an event, the TCW
Investors may be able to approve those amendments
without the consent of any other holder of Preferred
Stock. See "Description of the Preferred
Stock--Dividends."
Exchange................ Subject to certain limitations, we may on any
February 15 or August 15, commencing on February 15,
1999, exchange the Preferred Stock, in whole but not
in part, for our 12% Subordinated Debentures due 2003
(the "Exchange Debentures"). Shares of Preferred
Stock will be exchanged for Exchange Debentures with
an aggregate principal amount equal to the then
aggregate liquidation preference of the Preferred
Stock plus accrued and unpaid dividends on the
Preferred Stock.
For a more detailed description of the Preferred
Stock, see "Description of the Preferred Stock."
DESCRIPTION OF THE EXCHANGE DEBENTURES
Maturity Date........... August 15, 2003. At maturity, we will pay a premium
of 10% of the principal amount.
Interest................ 12% per year. We may at our option pay interest in
cash or in additional Exchange Debentures having an
aggregate principal amount equal to the amount of
such interest.
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 30, 1996, December 29, 1997 and December
28, 1998 has been derived from our consolidated financial statements which have
been audited by Arthur Andersen LLP, independent accountants.
Our pro forma financial data for the fifty-two week period ended December
28, 1998 are for informational purposes only and give effect to our
Recapitalization as if it had been consummated on December 30, 1997 for the
fifty-two week period ended December 28, 1998.
The unaudited condensed pro forma information appearing in this
Prospectus does not purport to represent what our results of operations or
financial position would have been had such transactions in fact occurred at
the beginning of the periods or on the date indicated or to project our
financial position or results of operations for the present year or any future
period.
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 Year Ended Year Ended
---------------------------------------- -------------
Dec. 30, Dec. 29, Dec. 28, Dec. 28,
1996 1997 1998 1998
---------------------------------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues.................................................... $ 445,424 $ 440,039 $ 426,928 $ 422,535
Gross Profit(2)............................................. 52,699 55,790 54,364 54,973
Operating Profit before Non-Cash Charges(3)................. 4,227 6,803 17,369 18,490
Interest Expense, Net....................................... 27,714 23,985 20,269 19,496
Net Income/(Loss)........................................... (38,461) (20,292) 143(4) 2,037(4)
Ratio of Earnings to Fixed Charges(5)....................... -- -- -- --
Deficiency in Earnings to cover Fixed Charges(5)............ (36,558) (20,154) (9,277) (7,383)
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends(6)................................................ -- -- -- --
Deficiency in Earnings to cover Fixed Charges and Preferred
Stock Dividends(6).......................................... (36,558) (20,154) (13,601) (12,934)
Restaurant Data:
Restaurants (end of period)................................. 247 231 224 224
Increase/(Decrease) in Same-store-sales:
Consolidated(7)........................................ (2.9)% (2.3)% (0.6)% (0.6)%
Black Angus (excluding late-night entertainment)(7)(8) 1.0% 1.4% 3.3% 3.3%
Other Data:
EBITDA(9).................................................. $ 26,100 $ 30,713 $ 32,937 $ 33,736
EBITDAR(10)................................................. 50,913 61,389 61,593 60,647
Depreciation and Amortization............................... 20,386 19,627 14,638 14,316
Capital Expenditures........................................ 13,279 4,650 12,316 12,316
</TABLE>
As of Dec. 28, 1998
(dollars in thousands)
Balance Sheet Data:
Cash................................................... $ 8,832
Property, Plant & Equipment, Net....................... 90,565
Total Assets........................................... 150,459
Long-term Debt, including current portion.............. 167,443
Cumulative Preferred Stock, Mandatorily Redeemable..... 36,801
Common Stockholders' Equity (Deficit).................. (119,175)
(footnotes on following page)
14
<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 30, 1997 for the fifty-two weeks ended December
28, 1998.
(2) Gross Profit is defined as revenues less food and beverage, payroll and
direct operating costs.
(3) Operating Profit is stated before non-cash charges for impairment of
long-lived assets of $13.2 million in 1996, $3.0 million in 1997 and $1.4
million in 1998 as well as a non-cash charge for assets to be disposed of
$5.0 million in 1998.
(4) Includes a $9.6 million extraordinary gain on extinguishment of debt.
(5) For the purpose of determining the ratio or deficiency of earnings to
cover fixed charges, earnings consist of earnings before extraordinary
gain or loss, income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, the amortization of debt issue costs and that
portion of operating rental expense representative of the interest factor.
(6) The ratio or deficiency of earnings to fixed charges and preferred stock
dividends are the same as the ratio of earnings to fixed charges except
that preferred stock dividends are added to fixed charges even though the
Company intends to pay such dividends by issuing additional shares of
Preferred Stock.
(7) Same stores are defined as restaurants which have been in operation for
the entire prior year.
(8) This presentation excludes all late-night entertainment operations of the
Black Angus restaurants and, in 1997, the lunch business in 14 Black Angus
restaurants where lunch was discontinued in 1997.
(9) EBITDA is defined as operating profit before impairment charges and
non-cash charges for assets to be disposed plus depreciation and
amortization and net losses on sale of properties. For the years ended
December 30, 1996, December 29, 1997 and December 28, 1998, the net losses
on the sale of properties were $1.5 million, and $0.9 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.
(10) EBITDAR is defined as EBITDA plus rent expense. EBITDAR has been presented
for the purposes of providing information on our operations before giving
effect to financing activities such as the sale/leaseback transactions and
to facilitate comparisons to prior periods. In the second half of 1996, we
completed $63.4 million of sale/leaseback transactions and used the
proceeds to repay $50.5 million of indebtedness at par and for general
corporate purposes. As a result of these transactions, annual rent expense
increased by $8.0 million. EBITDAR should not be considered an alternative
to, or more meaningful than, earnings from operations or other traditional
indicators of operating performance and cash flow from operating
activities.
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 December 28, 1998, our total
consolidated long-term indebtedness was approximately $167.4 million and we had
a common stockholders' deficit of $119.2 million. Further, we have approximately
$42.5 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
December 28, 1998 was approximately $39.6 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 28, 1998 was approximately $26.9 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 1998, our earnings before extraordinary loss, income taxes and fixed
charges were insufficient to cover fixed charges by $9.3 million. On a pro
forma basis, after giving effect to the Recapitalization, for 1998, our earnings
before extraordinary loss, income taxes and fixed charges were insufficient to
cover (i) fixed charges by
16
<PAGE> 18
$7.4 million and (ii) fixed charges and preferred stock dividends by $12.9
million. In addition, on a pro forma basis, our ratio of EBITDA to net interest
expense would have been 1.7x for 1998. We cannot assure that our earnings before
income taxes and fixed charges will be sufficient to cover fixed charges and
preferred stock dividends in the future.
FUTURE PERFORMANCE MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES AND THE
PREFERRED STOCK.
Our ability to meet our debt service obligations, pay the Preferred Stock
mandatory redemption price, satisfy certain financial covenants relating to the
Preferred Stock and to grow will depend upon our future performance. We had net
losses after extraordinary items of $38.5 million in 1996, $20.3 million in
1997 and a profit of $0.1 million in 1998. We do not expect to have sufficient
cash from operations to pay the Notes at maturity or the mandatory redemption
price of the Preferred Stock. As a result, we expect that we will need to
refinance all or part of this debt or the Preferred Stock, obtain additional
financing, or sell assets in order to make the required payments. We cannot
assure that any such refinancing or sale would be possible or would not contain
terms and 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 December 28, 1998, we had $8.8 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
March 1, 1999 had an accreted value of approximately $96.0 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.
19
<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 28, 1998, we had available net operating loss carryforwards
for federal income tax purposes of $125.8 million, expiring in 2004 to 2013.
Generally, a cumulative change of greater than 50% in the stock ownership of a
corporation within a three-year period will, for federal income tax purposes,
limit the amount of preownership change net operating losses that the
corporation may use during the post-ownership change period. Whether an
ownership change has occurred in any particular case entails the resolution of
both legal and factual issues which may not be readily determinable. We have
taken the position that the Recapitalization did not result in an ownership
change. However, no assurance can be given that this position will be upheld if
challenged by the Internal Revenue Service. In addition, future equity issuances
by us or Holdings and certain transfers of stock by either our or Holdings'
shareholders, within three years of the Recapitalization which occurred in
February, 1998 could trigger an ownership change when taken together with the
change in the stock ownership resulting from the Recapitalization.
LACK OF A MARKET FOR THE NOTES OR PREFERRED STOCK.
We have not, and do not intend to, list the Notes or the Preferred Stock
on any national securities exchange, or to seek the admission of the Notes or
the Preferred Stock to trading in the National Association of Securities Dealers
Automated Quotation System.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR HOLDERS OF PREFERRED STOCK
AND EXCHANGE DEBENTURES
Distributions of cash, and to the extent of their issue price, additional
shares of the Preferred Stock on the Preferred Stock will be treated as
dividends taxable as ordinary income to holders thereof to the extent of the
Company's current and accumulated earnings and profits as determined under
United States federal income tax principles. In addition to the cash and
additional Preferred Stock received, a holder will be treated as having received
as a distribution, to the extent of current and accumulated earnings and profits
of the Company, an amount equal to the annual accrual of the difference between
the issue price of the Preferred Stock and its mandatory redemption price (the
"Redemption Premium"). The amount of the Redemption Premium with respect to the
Preferred Stock issued as part of a Preferred Stock Unit may differ from the
Redemption Premium in respect of Preferred Stock paid as a dividend on Preferred
Stock, which may have a different issue price. Any such difference in tax
characteristics could adversely affect the liquidity of the Preferred Stock.
A redemption of the Preferred Stock by the Company for cash or Exchange
Debentures would be treated, under Section 302 of the Internal Revenue Code of
1986, as amended (the "Code"), either as a sale or exchange or as a dividend. If
the redemption is treated as a sale or exchange, a holder will recognize capital
gain or loss equal to the difference between the amount of cash or the issue
price of the Exchange Debenture received and the holder's adjusted tax basis in
the Preferred Stock exchanged. If the redemption is treated as a dividend, such
holder (i) will not recognize any loss on the exchange, (ii) will recognize
dividend income (rather than capital gain) in an amount equal to the amount of
cash or the fair market value of the Exchange Debentures received without regard
to the holder's adjusted tax basis in the shares of Preferred Stock surrendered
in the exchange, to the extent of the proportionate share of the Company's
current and accumulated earnings and profits and (iii) the holding period of
Exchange Debentures received will begin on the day after the day on which the
Exchange Debentures are acquired by the exchanging holder.
An Exchange Debenture will be issued with original issue discount ("OID")
for United States federal income tax purposes equal to the excess of its
"stated redemption price at maturity" over its "issue price." Holders of
Exchange Debentures should generally be aware that they must include OID in
gross income for United States federal income tax purposes on an annual basis
under a constant yield method. As a result, a holder will include OID in income
in advance of the receipt of cash attributable to such income, but generally
will not be required to include separately in income cash payments received on
such Exchange Debentures, even if denominated as interest.
For a discussion of these and other tax considerations, see "Certain
United States Federal Income Tax Consequences."
WE MAY NOT BE YEAR 2000 COMPLIANT.
We utilize certain programs and operating systems in our organization,
including applications used in sales, financial business systems and various
administrative functions. To the extent that our software applications or the
software applications of our suppliers contain source code that is unable to
appropriately interpret the upcoming calendar year 2000 and beyond, some level
of modification or replacement of such applications will be necessary. We do not
expect year 2000 compliance costs to have any material adverse impact on the
Company. We cannot assure, however, that all of the Company's systems or systems
of its suppliers will be year 2000 compliant or that compliance costs or the
impact of the Company's failure to achieve substantial year 2000 compliance will
not have a material adverse effect on the Company.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, earnings
consist of earnings (loss) from continuing operations before income taxes,
extraordinary items, the cumulative effect of accounting changes and fixed
charges (interest expense, amortization of debt costs, an estimate of interest
portion of rent expense and preferred stock dividends, adjusted to a pretax
basis).
The following table sets forth our ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends for the periods
indicated:
22
<PAGE> 24
<TABLE>
<CAPTION>
DEC. 26, DEC. 25, DEC. 30, DEC. 29, DEC. 28,
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges ... -- -- -- -- --
Deficiency in Earnings to Cover
Fixed Charges ....................... $(11,922) $(39,417) $(36,558) $(20,154) $ (9,277)
Ratio of Earnings to Fixed Charges
& Preferred Stock Dividends ......... -- -- -- -- --
Deficiency in Earnings to Cover Fixed
Charges and Preferred Stock Dividends $(11,922) $(39,417) $(36,558) $(20,154) $(13,601)
</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 ..... 950
Current portion of other debt ........................ 421
---------
Total short-term debt .............................. 1,371
---------
Long-term debt:
Capitalized lease obligations ........................ 6,566
Other debt ........................................... 906
Senior Secured Notes ................................. 158,600
---------
Total long-term debt ............................... 166,072
---------
Cumulative preferred stock, mandatorily redeemable ..... 36,801
Common stockholders' equity:
Common stockholders' deficit ....................... (119,175)
---------
Total capitalization ............................... $ 85,069
=========
</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
TCW GEM4, Ltd. .......................... 1,000,000 1,000,000 0
----------- ----------- -----------
Total ................................. $31,083,000 $31,083,000 $ 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. ..... 11,204 11,204 0
TCW Shared Opportunity Fund II, L.P. . 5,602 5,602 0
TCW Shared Opportunity Fund IIB, L.L.C 2,241 2,241 0
Brown University ..................... 1,120 1,120 0
------ ------ ------
Total ..................... 20,167 20,167 0
</TABLE>
* Plus shares issued from time to time as dividends on the Preferred Stock.
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 March 1, 1999, by (i) each of our
directors, (ii) the Chief Executive Officer and certain other of our highly
compensated executive officers, (iii) all executive officers and directors as a
group and (iv) each person believed by us to own beneficially more than 5% of
our outstanding common stock. Pursuant to the Voting Trust Agreement, Anwar S.
Soliman controls Holdings and, accordingly, together with his direct ownership
of Common Stock and the New Voting Trust Agreement (as described below),
effectively controls the voting of all (without giving effect to the exercise
of Warrants and any other outstanding warrants) the outstanding Common Stock,
subject to the terms of the Securityholders Agreement. See "--Securityholders
Agreement" and "Risk Factors-- Ownership and Control is Held By a Limited
Number of Members of Senior Management and Selling Securityholders."
<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
Ken A. Di Lillo -- -- --
Robert D. Beyer (3) -- -- --
George G. Golleher (4) -- -- --
M. Brent Stevens (5) -- -- --
Jeffry K. Weinhuff -- -- --
American Restaurant Group Holdings,
Inc. (6) 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 (7) 55,558(8) -- 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 8) and the TCW Investors are affiliates. Mr.
Beyer shares investment power for the following TCW Investors: TCW
Shared Opportunity Fund II L.P., TCW Leveraged Income Trust, L.P. and
TCW Shared Opportunity Fund IIB, LLC. See footnote 7.
(4) George G. Golleher was elected Director of the Company, as nominee of the
TCW Investors. See "--Securityholders Agreement."
(5) Does not include shares deemed to be beneficially owned by Jeffries &
Company, Inc.
25
<PAGE> 27
(6) 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."
(7) TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P.,
Brown University and TCW Shared Opportunity Fund IIB, LLC.
(8) 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 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
30
<PAGE> 32
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.
31
<PAGE> 33
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
32
<PAGE> 34
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
33
<PAGE> 35
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
34
<PAGE> 36
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
35
<PAGE> 37
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.
36
<PAGE> 38
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.
37
<PAGE> 39
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.
38
<PAGE> 40
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.
39
<PAGE> 41
"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
40
<PAGE> 42
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
41
<PAGE> 43
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,
42
<PAGE> 44
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
43
<PAGE> 45
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.
44
<PAGE> 46
"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.
45
<PAGE> 47
"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. If this were
to occur, the Company may seek to obtain consents from the holders of the
Preferred Stock to amend the Maximum Test Ratio. In such an event, the TCW
Investors may be able to approve those amendments without the consent of any
other holder of Preferred Stock.
46
<PAGE> 48
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
47
<PAGE> 49
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
48
<PAGE> 50
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.
49
<PAGE> 51
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."
50
<PAGE> 52
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
51
<PAGE> 53
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
52
<PAGE> 54
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).
53
<PAGE> 55
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
54
<PAGE> 56
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
55
<PAGE> 57
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.
56
<PAGE> 58
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
57
<PAGE> 59
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
58
<PAGE> 60
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.
59
<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.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries are qualified in their entirety by reference
to the definitive agreements and instruments described herein.
NEW CREDIT FACILITY
The Company and certain of its subsidiaries entered into the New
Credit Facility on February 25, 1998 with BankBoston, N.A., as agent, and a
group of banks in an aggregate principal amount of $15.0 million. The New
Credit Facility includes a letter of credit facility in the principal amount of
availability of up to $10.0 million, which may be used only by the subsidiaries
of the Company party to the New Credit Facility to support certain insurance,
workers' compensation and performance or payment obligations of such
subsidiaries. At March 1, 1999, the Company had $4.3 million of letters of
credit outstanding under the New Credit Facility. The New Credit Facility
matures on February 25, 2001.
The New Credit Facility provides for a quarterly commitment fee an
fees payable on outstanding letters of credit. Borrowings under the New Credit
Facility, at the Company's option, bear interest at BankBoston, N.A.'s prime
rate plus 1.0% or the applicable eurodollar rate plus 2.5%.
The New Credit Facility is secured, subject to the Intercreditor
Agreement, by a first-priority security interest in the Collateral. See
"--Intercreditor Agreement and Collateral Documents."
The New Credit Facility contains financial and other covenants,
including, without limitation, (i) restrictions on the incurrence of
indebtedness, leases, liens and contingent obligations, (ii) restrictions on
mergers, acquisitions, sales of assets, investments and transactions with
affiliates, (iii) restrictions on dividends and other payments with respect to
shares of the Company's capital stock, (iv) restrictions on redemptions,
prepayments and distributions with respect to certain debt, (v) restrictions on
amendments to the Indenture, agreements relating to capital stock and certain
other agreements, (vi) a prohibition on engaging in business unrelated to the
business currently conducted by the Company and (vii) minimum debt service
coverage, minimum interest coverage and maximum leverage.
Events of Default under the New Credit Facility include, among others,
(i) any failure of the Company to pay amounts owing under the New Credit
Facility, subject, except in the case of principal, to a two-day grace period,
(ii) the breach by the Company or any of its subsidiaries of any covenants,
representations or warranties contained in the New Credit Facility, (iii) any
failure to pay amounts due under other indebtedness or contingent obligations
of the Company or any of its subsidiaries or defaults that result in or permit
the acceleration of such indebtedness or contingent obligations, if the
aggregate amount of such indebtedness or contingent obligations exceeds a
specified amount, (iv) certain events of bankruptcy, insolvency or dissolution
of the Company or any of its subsidiaries and (v) certain changes of control of
the Company.
INTERCREDITOR AGREEMENT AND COLLATERAL DOCUMENTS
Pursuant to mortgages, deeds of trust, personal property security
agreements, pledge agreements, a trademark security agreement and a cash
collection account agreement, in each case executed and delivered by the Company
and/or the Subsidiary Guarantors (as amended or supplemented, collectively, the
"Collateral Documents"), the Company and the Subsidiary Guarantors granted to
the Trustees, as Collateral Agent (the "Collateral Agent"), a first-priority
security interest in a portion of the owned or leased real property, in a
substantial portion of the owned personal property, in substantially all of the
accounts receivable of the Company and its Restricted Subsidiaries and a pledge
of all of the capital stock of the Company's Restricted Subsidiaries and
proceeds of the foregoing (collectively, the "Collateral") for the benefit of
the holders of the Notes and the lenders under the New Credit Facility. Pursuant
to an intercreditor agreement executed among the Trustee and the agents for the
lenders under the New Credit Facility (the "Intercreditor Agreement"), proceeds
from the sale of the Collateral are first to be applied to repay Indebtedness
outstanding under the New Credit Facility (with the principal amount thereof not
to exceed $20,000,000), if any, and thereafter paid to the Trustee for the
benefit of the holders of the Notes and the Exchange Notes. The Collateral Agent
will be directed by the agent under the New Credit Facility, and not the Trustee
under the Indenture, unless amounts due under the New Credit Facility have been
paid in full or 180 days have elapsed from the occurrence of an Event of Default
under the Indenture. See "Description of the Notes--Collateral."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income
tax consequences of the ownership of Preferred Stock and Exchange Debentures.
Except where noted, this summary deals only with Preferred Stock and Exchange
Debentures held as capital assets by United States Holders (as defined below)
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, tax-exempt entities, life
insurance companies, persons holding Preferred Stock or Exchange Debentures as a
part of a hedging, short-sale or conversion transaction or a straddle or holders
of Preferred Stock or Exchange Debentures whose "functional currency" is not the
U.S. dollar. Furthermore, the discussion below is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in United
States federal income tax consequences different from those discussed below.
As used herein, a "United States Holder" of Preferred Stock or Exchange
Debentures means a holder that is (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust (x) that is subject to the supervision
of a court within the United States and the control of one or more United States
persons as described in section 7701(a)(30) of the Code or (y) that has a valid
election in effect under applicable U.S. Treasury Regulations to be treated as a
U.S. Person.
CLASSIFICATION OF PREFERRED STOCK AND EXCHANGE DEBENTURES
Although the characterization of an instrument as debt or equity is a
factual determination that cannot be predicted with certainty, the Company
intends to treat the Preferred Stock as stock and the Exchange Debentures as
debt for United States federal income tax purposes. The remainder of this
discussion assumes that such treatment will be respected, but no opinion is
either expressed or implied on this issue.
PREFERRED STOCK
Dividends
Assuming that the Preferred Stock is treated as stock for United States
federal income tax purposes, distributions on the Preferred Stock will
constitute dividends to the extent paid from current or accumulated earnings and
profits of the Company (as determined under United States federal income tax
principles). Dividends "paid in kind" through the issuance of additional
Preferred Stock will be treated as distributions in an amount equal to the fair
market value of such additional Preferred Stock as of the date of distribution.
Such amount will also be the initial issue price and tax basis of the newly
distributed
62
<PAGE> 64
Preferred Stock for United States federal income tax purposes. In addition to
the amount of cash and stock received, a United States Holder will be treated as
having received as a distribution, to the extent of current or accumulated
earnings and profits of the Company, an amount equal to the annual accrual of
the difference between the issue price of the Preferred Stock and the mandatory
redemption price of the stock (the "Redemption Premium"). Such accrual will be
determined under a constant yield method that will result in increasing amounts
of accruals of income over the term of the Preferred Stock. As discussed above,
additional Preferred Stock will have an issue price (and tax basis) in an amount
equal to the fair market value of such Preferred Stock as of the date of
distribution. Consequently, such additional Preferred Stock may have a different
issue price and different tax characteristics than Preferred Stock issued as
part of a Preferred Stock Unit. This difference in tax characteristics could
adversely affect the liquidity of the shares.
The Preferred Stock was issued as part of a unit with a warrant.
Consequently, the amount paid for each unit must be allocated between the
Preferred Stock and the warrant. The amount so allocated to the preferred Stock
constitutes its initial tax basis and issue price. A U.S. Holder's allocation
must be based on the fair market value estimates provided by the Company unless
the United States Holder discloses the use of a different allocation on its
federal income tax return for the year including the acquisition date of the
unit. The Company believes that the warrants had no value on the date of issue
and consequently allocated 100% of the amount paid for each unit to the
Preferred Stock. There can be no assurance, however, that the Internal Revenue
Service (the "IRS") will respect the Company's allocation.
Dividends Received Deduction
Under Section 243 of the Code, corporate United States Holders
generally will be able to deduct 70% of the amount of any distribution
qualifying as a dividend. There are, however, many exceptions and restrictions
relating to the availability of such dividends received deduction.
Section 246A of the Code reduces the dividends received deduction
allowed to a corporate United States Holder that has incurred indebtedness
"directly attributable" to its investment in portfolio stock. Section 246(c) of
the Code requires that, in order to be eligible for the dividends received
deduction, a corporate United States Holder must generally hold the shares of
the Preferred Stock for a minimum of 46 days (91 days in the case of certain
preferred stock dividends) during the 90-day period beginning on the date which
is 45 days before the date on which such share becomes ex-dividend with respect
to such dividend (during the 180-day period beginning 90 days before such date
in the case of certain preferred stock dividends). A United States Holder's
holding period for these purposes is suspended during any period in which it has
certain options or contractual obligations with respect to substantially
identical stock or holds one or more other positions with respect to
substantially identical stock that diminishes the risk of loss from holding the
Preferred Stock.
Under Section 1059 of the Code, a corporate United States Holder is
required to reduce its tax basis (but not below zero) in the Preferred Stock by
the nontaxed portion of any "extraordinary dividend" if such stock has not been
held for more than two years before the earliest of the date such dividend is
declared, announced, or agreed to. Generally, the nontaxed portion of an
extraordinary dividend is the amount excluded from income by operation of the
dividends received deduction provisions of Section 243 of the Code. An
extraordinary dividend on the Preferred Stock generally would be a dividend that
(i) equals or exceeds 5% of the corporate United States Holder's adjusted tax
basis in the Preferred Stock, treating all dividends having ex-dividend dates
within an 85-day period as one dividend or (ii) exceeds 20% of the corporate
United States Holder's adjusted tax basis in the Preferred Stock, treating all
dividends having ex-dividend dates within a 365-day period as one dividend. In
determining whether a dividend paid on the Preferred Stock is an extraordinary
dividend, a corporate United States Holder may elect to substitute the fair
market value of the stock for such United States Holder's tax basis for purposes
of applying these tests, provided such fair market value is established to the
satisfaction of the Secretary of the Treasury as of the day before the
ex-dividend date. An extraordinary dividend also currently includes any amount
treated as a dividend in the case of a redemption that is either non-pro rata as
to all stockholders or in partial liquidation of the Company, regardless of the
stockholder's holding period and regardless of the size of the dividend. If any
part of the nontaxed portion of an extraordinary dividend is not applied to
reduce the United States Holder's tax basis as a result of the limitation on
reducing such basis below zero, such part will be treated as capital gain and
will be recognized in the taxable year in which the extraordinary dividend is
received.
Special rules exist with respect to extraordinary dividends for
"qualified preferred dividends." A qualified preferred dividend is any fixed
dividend payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable not less frequently than annually and (ii) is not in
arrears as to dividends at the time the United States Holder acquired such
stock. A qualified preferred dividend does not include any dividend payable with
respect to any share of stock if the actual rate of return of such stock exceeds
15%. Section 1059 does not apply to qualified preferred dividends if the
63
<PAGE> 65
corporate United States Holder holds such stock for more than five years. If the
United States Holder disposes of such stock before it has been held for more
than five years, the amount subject to extraordinary dividend treatment with
respect to qualified preferred dividends is limited to the excess of the actual
rate of return over the stated rate of return. Actual or stated rates of return
are the actual or stated dividends expressed as a percentage of the lesser of
(1) the United States Holder's tax basis in such stock or (2) the liquidation
preference of such stock. CORPORATE UNITED STATES HOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO
THEIR OWNERSHIP OR DISPOSITION OF THE PREFERRED STOCK.
Disposition of Preferred Stock
A United States Holder's adjusted tax basis in the Preferred Stock
will, in general, be the United States Holder's initial tax basis of such
Preferred Stock increased by the Redemption Premium previously included in
income by the United States Holder. A corporate United States Holder's tax basis
may be further adjusted by the extraordinary dividend provision discussed above.
Upon the sale or other disposition of Preferred Stock (other than by redemption)
a United States Holder will generally recognize capital gain or loss equal to
the difference between the amount realized upon the disposition and the adjusted
tax basis of the Preferred Stock. Such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, exchange,
redemption or other disposition the Preferred Stock has been held for more than
one year. Net capital gain of individuals derived in respect of capital assets
held for more than one year are eligible for reduced rates of taxation.
Prospective investors should consult their own tax advisors with respect to the
tax consequences of the new legislation. The deductibility of capital losses is
subject to limitations.
A redemption of the Preferred Stock by the Company would be treated,
under Section 302 of the Code, either as a sale or exchange giving rise to
capital gain or loss or as a dividend. In the case of a redemption of Preferred
Stock for Exchange Debentures, the amount realized on the exchange would be
equal to the "issue price" of the Exchange Debenture plus any cash received on
the exchange. The issue price of an Exchange Debenture would be equal to (i) its
fair market value as of the exchange date if the Exchange Debentures are traded
on an established securities market on or at any time during a specified period
or (ii) the fair market value at the exchange date of the Preferred Stock if
such Preferred Stock is traded on an established securities market during a
specified period but the Exchange Debentures are not. If neither the Preferred
Stock nor the Exchange Debentures are so traded, the issue price of the Exchange
Debentures would be determined under Section 1274 of the Code, in which case the
issue price would be the stated principal amount of the Exchange Debentures
provided that the yield on the Exchange Debentures is equal to or greater than
the "applicable federal rate" in effect at the time the Exchange Debentures are
issued. If the yield on the Exchange Debentures is less than such applicable
federal rate, its issue price under section 1274 of the Code would be equal to
the present value as of the issue date of all payments to be made on the
Exchange Debentures, discounted at the applicable federal rate. It can not be
determined at the present time whether the Preferred Stock or the Exchange
Debentures will be, at the relevant time, traded on an established securities
market within the meaning of the Treasury Regulations or whether the yield on
the Exchange Debentures will equal or exceed the applicable federal rate, as
discussed above.
If a redemption of shares of the Preferred Stock for cash or an
exchange of the Preferred Stock for Exchange Debentures is treated as a dividend
with respect to a particular exchanging United States Holder under Section 302
of the Code, such United States Holder (i) will not recognize any loss on the
exchange, (ii) will recognize dividend income (rather than capital gain) in an
amount equal to the fair market value of the Exchange Debentures received
without regard to the United States Holder's basis in the shares of Preferred
Stock surrendered in the exchange, to the extent of its proportionate share of
the
64
<PAGE> 66
Company's current or accumulated earnings and profits and (iii) the
holding period for the Exchange Debentures will begin on the day after the day
on which the Exchange Debentures are acquired by the exchanging United States
Holder. Pursuant to Section 302 of the Code, the redemption or exchange will
not be treated as a dividend, if after giving effect to the constructive
ownership rules of Section 318 of the Code, the redemption or exchange (i)
represents a "complete termination" of the exchanging United States Holder's
stock interest in the Company, (ii) is "substantially disproportionate" with
respect to the exchanging United States Holder or (iii) is "not essential
equivalent to a dividend" with respect to the exchanging United States Holder,
all within the meaning of Section 302(b) of the Code. An exchange will be "not
essentially equivalent to a dividend" as to a particular United States Holder
if it results in a "meaningful reduction" in such United States Holder's
interest in the Company (after application of the constructive ownership rules
of Section 318 of the Code). In general, there are no fixed rules for
determining whether a "meaningful reduction" has occurred. EACH UNITED STATES
HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO ITS ABILITY IN LIGHT OF ITS OWN
PARTICULAR CIRCUMSTANCES TO SATISFY ANY OF THE FOREGOING TESTS. ADDITIONALLY,
CORPORATE UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE AVAILABILITY OF THE CORPORATE DIVIDENDS RECEIVED DEDUCTION AND
THE POSSIBLE APPLICATION OF THE EXTRAORDINARY DIVIDEND RULES OF SECTION 1059 OF
THE CODE TO AN EXCHANGE BY A CORPORATE HOLDER FOR WHOM THE DISTRIBUTION IS
TAXABLE AS A DIVIDEND.
Depending upon a United States Holder's particular circumstances, the
tax consequences of holding Exchange Debentures may be less advantageous than
the tax consequences of holding Preferred Stock because, for example, payments
of interest on the Exchange Debentures will not be eligible for any dividends
received deduction that may be available to corporate United States Holders and
because, as discussed at "Exchange Debentures -- Original Issue Discount,"
Exchange Debentures may be issued with greater amounts of OID than the
Redemption Premium with respect to the Preferred Stock.
EXCHANGE DEBENTURES
Original Issue Discount
An Exchange Debenture will be issued with original issue discount
("OID") equal to the excess of its "stated redemption price at maturity" over
its "issue price." United States Holders of Exchange Debentures will be subject
to special tax accounting rules, as described in greater detail below. United
States Holders of Exchange Debentures should be aware that they generally must
include OID in gross income for United States federal income tax purposes on an
annual basis under a constant yield method. As a result, such United States
Holders will include OID in income in advance of the receipt of cash
attributable to that income. However, United States Holders of Exchange
Debentures generally will not be required to include separately in income cash
payments received on such Debentures, even if denominated as interest, to the
extent such payments do not constitute qualified stated interest (as defined
below). The Company will report to United States Holders of any OID Debentures
on a timely basis the reportable amount of OID and interest income based on its
understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the
sum of its principal amount plus all other payments required thereunder, other
than payments of "qualified stated interest." For this purpose, "qualified
stated interest" means stated interest that is unconditionally payable in cash
or in property (other than the debt instruments of the issuer), at least
annually at a single fixed rate during the
65
<PAGE> 67
entire term of the debt instrument that appropriately takes into account the
length of the intervals between payments). Because the Company has the option
to pay interest on the Exchange Debentures by issuing additional Exchange
Debentures, none of the stated interest on such Exchange Debentures will be
treated as qualified stated interest. The "issue price" of an Exchange
Debenture will be determined as described under "--Disposition of Preferred
Stock."
The amount of OID includible in income by the initial United States
Holder of an Exchange Debenture is the sum of the "daily portions" of OID with
respect to the Exchange Debenture for each day during the taxable year or
portion of the taxable year in which such United States Holder held such
Exchange Debenture ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for an Exchange Debenture
may be of any length and may vary in length over the term of the Exchange
Debenture, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of (a) the product of the Exchange
Debenture's adjusted issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of an Exchange Debenture at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period and reduced by any payments made on such Exchange Debenture
(other than qualified stated interest) on or before the first day of the accrual
period. Under these rules, a United States Holder will have to include in income
increasingly greater amounts of OID in successive accrual periods.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES OF OWNING EXCHANGE DEBENTURES.
Redemption, Sale or Exchange of Exchange Debentures
The adjusted tax basis of a United States Holder who receives Exchange
Debentures in exchange for Exchangeable Preferred Stock will, in general, be
equal to the initial tax basis of such Exchange Debentures, increased by OID
previously included in income by the United States Holder and reduced by any
cash payments on the Exchange Debentures other than qualified stated interest.
Upon the redemption, sale, exchange or retirement of an Exchange Debenture, a
United States Holder will recognize capital gain or loss equal to the
difference between the amount realized upon the redemption, sale, exchange or
retirement (less any amount attributable to accrued qualified stated interest)
and the adjusted tax basis of the Exchange Debenture. Net capital gain of
individuals derived in respect of capital assets held for more than one year
are eligible for reduced rates of taxation. Prospective investors should
consult their own tax advisors with respect to the tax consequences of the new
legislation. The deductibility of capital losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to dividends
paid in respect of Preferred Stock including the accrual of the Redemption
Premium and to the proceeds received on the sale, exchange or redemption of
Preferred Stock to United States Holders other than certain exempt recipients
(such as corporations). A 31 percent backup withholding tax will apply to such
payments if the United States Holder fails to provide a taxpayer identification
number or certification of exempt status or
66
<PAGE> 68
fails to report in full dividend and interest income. United States Holders
should consult their tax advisors concerning the application of information
reporting and backup withholding to the Exchange Debentures.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such United States Holder's United States
federal income tax liability provided the required information is furnished to
the IRS.
PLAN OF DISTRIBUTION
The Selling Securityholders may offer and sell the Securities from time to
time and will act independently of us in deciding the timing, manner and size of
any sale. We expect that sales generally will be made at then prevailing market
prices, but prices in negotiated transactions may differ considerably. We cannot
predict the extent, if any, to which Selling Securityholders may sell the
Securities.
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.
67
<PAGE> 69
The Company has agreed to pay substantially all the expenses incident to
the registration, offering and sale of the Securities by the Selling
Securityholders to the public other than any brokers' commission, finder's fee
or underwriter's discount or commission, which will be borne by the relevant
Selling Securityholder. We have agreed to indemnify the Selling Securityholders
against certain liabilities in connection with certain statements made or
omitted herein, or to make contribution with respect thereto.
LEGAL MATTERS
The validity of the Securities and certain tax matters will be passed upon
for the Company by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements appearing or incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 28, 1998, to
the extent and for the periods indicated in their report have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
68
<PAGE> 70
- --------------------------------------------------------------------------------
AMERICAN RESTAURANT GROUP, INC.
------------------------------
PROSPECTUS
April 2, 1999
------------------------------
- --------------------------------------------------------------------------------
<PAGE> 71
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.................................................... 100,000
Blue Sky fees and expenses................................................. 0
Accounting fees and expenses............................................... 10,000
Printing and duplicating expenses.......................................... 7,000
Miscellaneous expenses..................................................... 138,400
--------
Total........................................................... $138,400
========
</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> 72
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> 73
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> 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).*****
4.9 Pledge Agreement dated as of February 25, 1998 among
the Company and the Subsidiary Pledgors in favor of
U.S. Trust Company of California, N.A., as Collateral
Agent.*******
4.10 Security Agreement dated as of February 25, 1998
between the Company and U.S. Trust Company of
California, N.A., as Collateral Agent.*******
4.11 Security Agreement dated as of February 25, 1998
between certain subsidiaries of the Company and U.S.
Trust Company of California, N.A., as Collateral
Agent.*******
4.12 Intercreditor and Collateral Agency Agreement dated as
of February 25, 1998 among the Company, U.S. Trust
Company of California, N.A. and BankBoston, N.A.*******
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.*
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.******
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.
II-4
<PAGE> 75
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.
****** Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
28, 1998 filed with the Securities Exchange Commission
on March 29, 1999.
******* Filed herewith.
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> 76
(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> 77
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 1st day of April, 1999.
AMERICAN RESTAURANT GROUP, INC.
By: /s/ Ken A. Di Lillo
----------------------------------
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 April 1, 1999
------------------------------------------------- and Director
(Anwar S. Soliman) (Principal Executive Officer)
By: /s/ Ralph S. Roberts President, Chief Operating Officer April 1, 1999
------------------------------------------------- and Director
(Ralph S. Roberts)
By: /s/ Ken A. Di Lillo Vice President--Finance and April 1, 1999
------------------------------------------------- Treasurer
(Ken A. Di Lillo) (Principal Accounting Officer)
By: /s/ Robert D. Beyer Director April 1, 1999
-------------------------------------------------
(Robert D. Beyer)
By: Director
-------------------------------------------------
(George G. Golleher)
By: Director
-------------------------------------------------
(M. Brent Stevens)
</TABLE>
<PAGE> 78
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> 79
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).*****
4.9 Pledge Agreement dated as of February 25, 1998 among
the Company and the Subsidiary Pledgors in favor of
U.S. Trust Company of California, N.A., as Collateral
Agent.*******
4.10 Security Agreement dated as of February 25, 1998
between the Company and U.S. Trust Company of
California, N.A., as Collateral Agent.*******
4.11 Security Agreement dated as of February 25, 1998
between certain subsidiaries of the Company and U.S.
Trust Company of California, N.A., as Collateral
Agent.*******
4.12 Intercreditor and Collateral Agency Agreement dated as
of February 25, 1998 among the Company, U.S. Trust
Company of California, N.A. and BankBoston, N.A.*******
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.*
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 28, 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.
****** Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 28, 1998 filed with the Securities Exchange
Commission on March 29, 1999.
******* Filed herewith.
<PAGE> 1
EXHIBIT 4.9
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
February 25, 1998, and is entered into by AMERICAN RESTAURANT GROUP, INC., a
Delaware corporation (the "COMPANY"), and each of the undersigned Subsidiaries
of the Company (the "SUBSIDIARY PLEDGORS"; the Company and the Subsidiary
Pledgors each individually referred to herein as a "PLEDGOR" and collectively as
"PLEDGORS"; provided that after the Closing Date, "Pledgors" shall be deemed to
include any new subsidiary of any Pledgor which executes an acknowledgment to
this Agreement pursuant to Section 7 hereof agreeing to be bound by the terms
hereof) in favor of U.S. TRUST COMPANY OF CALIFORNIA, N.A. ("U.S. Trust"), as
collateral agent for and representative of (in such capacity referred to herein
as "COLLATERAL AGENT") the Secured Parties (as hereinafter defined).
RECITALS
WHEREAS, pursuant to that certain Indenture dated as of
February 25, 1998 (as supplemented and otherwise amended from time to time, the
"Senior Note Indenture"), by and among the Company, the Subsidiary Pledgors, and
U.S. Trust as Trustee thereunder (in such capacity, the "Indenture Trustee"),
the Company will issue 11.50% Series A senior secured notes (and, in connection
with the Exchange Offer as defined in the Senior Note Indenture, the Series B
senior secured notes) due on or before 2003 in an aggregate principal amount of
up to $155,000,000 (collectively, the "Senior Notes") to the holders thereof
(the "Senior Note Holders");
WHEREAS, the Company, each of the Subsidiary Pledgors, the
lenders listed on the signature pages thereof and BankBoston, N.A., as agent
thereunder (the "Agent"), have entered into that certain Credit Agreement (as
defined in the Intercreditor Agreement referenced to below and together with any
loan documents referred to therein, the "New Credit Facility");
WHEREAS, pursuant to a guaranty included in the Senior Note
Indenture, the Subsidiary Pledgors have guaranteed the obligations of the
Company under the Senior Notes, the Senior Note Indenture and the other
documents to which the Company is a party;
WHEREAS, the Collateral Agent, the Senior Note Trustee and the
Agent have entered into that certain Intercreditor Agreement, dated as of the
date hereof (the "Intercreditor Agreement") providing for, among other things,
the appointment of the Collateral Agent to administer and enforce the Collateral
Documents and Collateral as provided therein;
1
<PAGE> 2
WHEREAS, it is a condition precedent to the Senior Note
Indenture and the New Credit Facility that Pledgors shall have entered into this
Agreement and granted the pledges provided herein;
WHEREAS, each Pledgor wishes to grant pledges and security
interests in favor of Collateral Agent for the benefit of the Indenture Trustee,
the Senior Note Holders, the Agent, the Lenders and the persons who may in the
future become secured parties in accordance with the terms of the Intercreditor
Agreement(all such beneficially interested parties being the "SECURED PARTIES");
and
WHEREAS, the rights and obligations of each of the Secured
Parties are further governed by and subject to the Intercreditor Agreement;
WHEREAS, each Pledgor is the legal and beneficial owner of (a)
the shares of capital stock listed opposite the name of such Pledgor in Part A
of Schedule I hereto (the "PLEDGED SHARES"), which shares constitute all of the
issued and outstanding shares of capital stock of the corporations named therein
and (b) the intercompany indebtedness listed opposite the name of such Pledgor
described in Part B of Schedule I issued by the obligors named therein
(collectively, the "INTERCOMPANY INDEBTEDNESS");
NOW, THEREFORE, in consideration of the premises set forth
herein and in order to induce the Senior Note Holders to purchase the Senior
Notes and to induce the Lenders to make loans and other extensions of credit
under the New Credit Facility, Pledgors hereby agree with the Collateral Agent
for the ratable benefit of the Secured Parties as follows:
SECTION 1. CERTAIN DEFINED TERMS. The following terms as used
herein shall have the following meanings:
"PLEDGED COLLATERAL" means collectively the Pledged Debt and
Pledged Equity.
"PLEDGED DEBT" means all of each Pledgor's rights to repayment
and other rights with respect to Indebtedness owed from time to time to
such Pledgor by the Company or any direct or indirect Subsidiary of the
Company including, without limitation, the Intercompany Indebtedness
issued to any Pledgor following the date hereof and any other
instruments evidencing such Indebtedness, all rights with respect to
collateral pledged to secure such Indebtedness and, all instruments,
interest, cash and other property and proceeds from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Indebtedness and all Proceeds thereof.
2
<PAGE> 3
"PLEDGED EQUITY" means:
(a) the Pledged Shares and the certificates representing the
Pledged Shares and any interest of any Pledgor in Security Entitlements
(within the meaning of Article 8 of the Uniform Commercial Code), the
entries on the books of any securities intermediary pertaining to the
Pledged Shares, and all dividends, cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
the Pledged Shares;
(b) all additional shares of, and all securities convertible
into and warrants, options and other rights to purchase, stock of any
issuer of the Pledged Shares from time to time acquired by any Pledgor
in any manner (which shares shall be deemed to be part of the Pledged
Shares), the certificates or other instruments representing such
additional shares, securities, warrants, options or other rights and
any interest of any Pledgor in the entries on the books of any
financial intermediary pertaining to such additional shares, and all
dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
additional shares, securities, warrants, options or other rights;
(c) all shares of, and all securities convertible into and
warrants, options and other rights to purchase, stock of any Person
that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of any Pledgor (which shares shall be
deemed to be part of the Pledged Shares) and the certificates or other
instruments representing such shares, securities, warrants, options or
other rights and any interest of any Pledgor in the entries on the
books of any financial intermediary pertaining to such shares, and,
subject to Section 8, all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of such shares, securities, warrants, options or other
rights; and
(d) to the extent not covered above, all Proceeds thereof.
"PROCEEDS" shall have the meaning assigned that term under the
Uniform Commercial Code (the "CODE") as in effect in any relevant
jurisdiction or under relevant law and, in any event, shall include,
but not be limited to, any and all (i) proceeds of any indemnity or
guaranty payable to any Pledgor or any Secured Party from time to time
with respect to any of the Pledged Collateral and (ii) any other
amounts from time to time paid or payable under or in connection with
any of the Pledged Collateral or otherwise receivable or received when
the Pledged Collateral is or proceeds are sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or
involuntary.
3
<PAGE> 4
SECTION 2. PLEDGE OF SECURITY. Each Pledgor hereby pledges to
Collateral Agent and grants to Collateral Agent, for its benefit and for the
ratable benefit of the Secured Parties, a first priority security interest in
the Pledged Equity and Pledged Debt.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures,
and the Pledged Collateral is collateral security for, the prompt payment and
performance in full when due, whether at stated maturity, by acceleration or
otherwise (including the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. Section 362(a), or any successor provision thereto), of all Secured
Obligations to the extent and as provided in Section 2 hereof, whether now
existing or hereafter arising, voluntary or involuntary, whether or not jointly
owed with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished and
later increased, created or incurred and all or any portion of such obligations
that are paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from the Collateral Agent or Secured Parties as
a preference, fraudulent transfer or otherwise (all such obligations being the
"UNDERLYING DEBT"), and all obligations or liabilities of every nature of
Pledgors now or hereafter existing under this Agreement (all such obligations of
Pledgors, together with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 4. DELIVERY OF PLEDGED COLLATERAL. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Collateral Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or, as applicable, shall be accompanied
by the applicable Pledgor's endorsement, where necessary, or duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Collateral Agent. If an Event of Default shall have occurred and
be continuing, Collateral Agent shall have the right, at any time in its
discretion and without notice to any Pledgor, to transfer to or to register in
the name of Collateral Agent or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in Section 8(a)
hereof. In addition, Collateral Agent shall have the right at any time to
exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Pledgor
represents and warrants as follows:
(a) Pledged Equity and Pledged Debt. All of the Pledged Shares
pledged by such Pledgor have been duly authorized and validly issued and are
fully paid and nonassessable. All of the Pledged Debt pledged by such Pledgor
has been duly authorized, authenticated or issued and delivered, and is the
legal, valid and binding obligation of the issuers thereof (except as may be
limited by bankruptcy, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally or by general principles of equity
relating to enforceability), and is not in default. The Pledged Shares
constitute all of the issued and outstanding shares of each issuer thereof and
there are no outstanding options, warrants, rights to subscribe, stock purchase
rights or other agreements outstanding with
4
<PAGE> 5
respect to, or property that is now or hereafter convertible into, or that
requires the issuance or sale of, any Pledged Shares. The Pledged Debt
constitutes all of the issued and outstanding Intercompany Indebtedness owing to
such Pledgor by the Company or any direct or indirect Subsidiary of the Company.
(b) Ownership of Pledged Collateral. Such Pledgor is the
legal, record and beneficial owner of the Pledged Collateral pledged by such
Pledgor free and clear of any Lien except for the security interest created by
this Agreement.
(c) Consents. No consent of any other party (including,
without limitation, stockholders or creditors of such Pledgor or any Person
under any contractual obligation of such Pledgor) and no consent, authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either (i) for the pledge by such
Pledgor of the Pledged Collateral pledged by such Pledgor pursuant to this
Agreement and the grant by such Pledgor of the security interest granted hereby
or for the execution, delivery or performance of this Agreement by such Pledgor
or (ii) for the exercise by Collateral Agent of the voting or other rights
provided for in this Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Agreement (except (x) those which have been obtained
or made (y) as may be required in connection with a disposition of Pledged
Collateral by laws affecting the offering and sale of securities generally).
(d) Perfection. The pledge and delivery to Collateral Agent of
the Pledged Collateral pursuant to this Agreement creates a valid and perfected
security interest of Collateral Agent, on behalf of the Secured Parties, in the
Pledged Collateral of such Pledgor, securing the payment of the Secured
Obligations, with the priority set forth herein, and all actions necessary or
desirable to perfect and protect such security interest have been duly taken.
(e) Regulations G, T, U and X. The pledge of the Pledged
Collateral pursuant to this Agreement does not violate Regulations G, T, U or X
of the Board of Governors of the Federal Reserve System.
SECTION 6. CERTAIN COVENANTS. Each Pledgor hereby covenants
that, until the Secured Obligations have been indefeasibly paid in full, such
Pledgor will:
(a) not, (i) except as permitted by each of the agreements
governing the Underlying Debt from time to time in effect (including without
limitation the Senior Note Indenture and the New Credit Facility), sell, assign
(by operation of law or otherwise) or otherwise dispose of, or grant any option
with respect to, any of the Pledged Collateral pledged hereunder by such
Pledgor, (ii) create or permit to exist any Lien upon or with respect to any of
Pledged Collateral, except for the security interest under this Agreement or
(iii) permit, except as permitted by each of the agreements governing the
Underlying Debt from time to time in effect (including without limitation the
Senior Note Indenture and the New Credit Facility), any issuer of Pledged Shares
to merge or consolidate with any Person;
5
<PAGE> 6
provided, however, that in the event any Pledged Collateral is sold, transferred
or otherwise disposed of in any transaction permitted by each of the Senior Note
Indenture and the New Credit Facility (as long as all such agreements are in
effect, otherwise by whichever agreements remain in effect), such Pledged
Collateral shall, concurrently therewith, be automatically released from the
lien and security interest under this Agreement and the Collateral Agent shall,
at such Pledgor's expense, execute and deliver to such Pledgor such documents as
the Pledgor shall reasonably request to evidence such release; provided that
arrangements satisfactory to the Collateral Agent have been made for delivery to
it of the amounts, if any, required to be paid to the Secured Parties out of the
net proceeds of such disposition;
(b) (i) cause each issuer of Pledged Shares not to issue any
stock or other securities in addition to or in substitution for the Pledged
Shares issued by such issuer, except to such Pledgor, (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of Pledged Shares,
and (iii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all shares of stock of any Person which, after the
date of this Agreement, becomes, as a result of any occurrence, a direct
Subsidiary of such Pledgor;
(c) (i) pledge hereunder, immediately upon their issuance, any
and all instruments or other evidences of additional indebtedness from time to
time owed (directly or indirectly) to such Pledgor by any direct or indirect
Subsidiary of the Company, and (ii) pledge hereunder, immediately upon their
issuance, any and all instruments or other evidences of indebtedness from time
to time owed (directly or indirectly) to such Pledgor by any Person that after
the date of this Agreement becomes, as a result of any occurrence, a direct or
indirect Subsidiary of such Pledgor; and
(d) promptly deliver to Collateral Agent all written notices
received by it with respect to the Pledged Collateral.
SECTION 7. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
(a) Each Pledgor agrees that at any time and from time to
time, at the expense of Pledgors, Pledgors shall promptly execute and deliver
all further instruments and documents, and take all further actions, that may be
necessary or desirable, or that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral.
(b) Each Pledgor further agrees that it will, upon obtaining
any additional shares of stock or other securities required to be pledged
hereunder as provided in Section 6(b) or (c) hereof, promptly (and in any event
within five Business Days) deliver to Collateral Agent a Pledge Amendment, duly
executed by such Pledgor, in substantially the form of Schedule II hereto (a
"PLEDGE AMENDMENT"), in respect of the additional Pledged Shares or Pledged Debt
to be pledged pursuant to this Agreement. Each Pledgor hereby
6
<PAGE> 7
authorizes Secured Party to attach each Pledge Amendment to this Agreement and
agrees that all Pledged Shares or Pledged Debt listed on any Pledge Amendment
delivered to Secured Party shall for all purposes hereunder be considered
Pledged Collateral.
(c) Each Pledgor further agrees that it will cause any direct
or indirect Subsidiary acquired or created after the Closing Date promptly after
such acquisition or creation of such new Subsidiary (in any event within five
(5) Business Days after the date such acquisition or creation, as the case may
be) to deliver to Collateral Agent an acknowledgment duly executed by such new
Subsidiary in substantially the form of Schedule III hereto (a "PLEDGE
ACKNOWLEDGMENT").
SECTION 8. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default (as defined below) shall
have occurred and be continuing:
(i) Pledgors shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of any of
the agreements governing the Underlying Debt secured hereby from time
to time in effect (including without limitation the Senior Note
Indenture and the New Credit Facility). It is understood, however, that
neither (A) the voting by Pledgors of any Pledged Shares for or
Pledgors' consent to the election of directors at a regularly scheduled
annual or other meeting of stockholders or with respect to incidental
matters at any such meeting nor (B) Pledgors' consent to or approval of
any action otherwise permitted under each of the agreements governing
the Underlying Debt secured hereby from time to time in effect
(including without limitation the Senior Note Indenture and the New
Credit Facility) shall be deemed inconsistent with the terms of any of
the agreements governing the Underlying Debt secured hereby from time
to time in effect (including without limitation and the Senior Note
Indenture and the New Credit Facility) within the meaning of this
Section 8(a)(i), and no notice of any such voting or consent need be
given to Collateral Agent.
(ii) Pledgors shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Agreement, any and all
dividends and interest paid in respect of the Pledged Collateral;
provided, however, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
(other than cash) received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Pledged Collateral in connection
with a partial or total liquidation or dissolution (except any
distribution upon liquidation to another
7
<PAGE> 8
Pledgor to the extent permitted under each of the agreements
governing the Underlying Debt secured hereby from time to time
in effect (including without limitation the Senior Note
Indenture and the New Credit Facility)), or in connection with
a reduction of capital, capital surplus or paid-in-surplus,
and
(C) cash paid, payable or otherwise distributed in
respect of principal or in redemption of or in exchange for
any Pledged Collateral,
shall be, and shall forthwith be delivered to Collateral Agent to hold
as, Pledged Collateral and shall, if received by any Pledgor, be
received in trust for the benefit of Collateral Agent, be segregated
from the other property or funds of such Pledgor and be forthwith
delivered to Collateral Agent as Pledged Collateral in the same form as
so received (with all necessary endorsements).
(iii) Collateral Agent shall promptly execute and deliver (or
cause to be executed and delivered) to appropriate Pledgor all such
proxies, dividend payment orders and other instruments as such Pledgor
may from time to time reasonably request for the purpose of enabling
such Pledgor to exercise the voting and other consensual rights which
it is entitled to exercise pursuant to paragraph (i) above and to
receive the dividends, principal or interest payments which it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) Upon written notice from Collateral Agent to the Company,
all rights of Pledgors to exercise the voting and other consensual
rights which they would otherwise be entitled to exercise pursuant to
Section 8(a)(i) shall cease, and all such rights shall thereupon become
vested in Collateral Agent who shall thereupon have the right to
exercise such voting and other consensual rights.
(ii) All rights of Pledgors to receive the dividends and
interest payments which they would otherwise be authorized to receive
and retain pursuant to Section 8(a)(ii) shall cease, and all such
rights shall thereupon become vested in Collateral Agent who shall
thereupon have the right to receive and hold as Pledged Collateral such
dividends and interest payments which shall, upon written notice from
Collateral Agent, be paid to Collateral Agent.
(iii) All dividends, principal and interest payments which are
received by any Pledgor contrary to the provisions of paragraph (ii) of
this Section 8(b) shall be received in trust for the benefit of
Collateral Agent, shall be segregated from other funds of such Pledgor
and shall forthwith be paid over to Collateral Agent as Pledged
Collateral in the same form as so received (with any necessary
endorsements).
8
<PAGE> 9
(c) In order to permit Collateral Agent to exercise the voting
and other consensual rights which it may be entitled to exercise pursuant to
Section 8(b)(i) hereof and to receive all dividends and other distributions
which it may be entitled to receive under Section 8(a)(ii) hereof or Section
8(b)(ii) hereof, Pledgors shall promptly execute and deliver (or cause to be
executed and delivered) to Collateral Agent all such proxies, dividend payment
orders and other instruments as Collateral Agent may from time to time
reasonably request.
SECTION 9. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each
Pledgor hereby irrevocably appoints Collateral Agent as such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, from time to time in Collateral
Agent's reasonable discretion to take any action and to execute any instrument,
including but not limited to financing and continuation statements, which
Collateral Agent may deem necessary or advisable, subject to the terms and
conditions of this Agreement, to accomplish the purposes of this Agreement,
including, without limitation, (a) to receive, endorse and collect all
instruments made payable to such Pledgor representing any dividend, principal or
interest payment or other distribution in respect of the Pledged Collateral or
any part thereof and to give full discharge for the same, and (b) if an Event of
Default shall have occurred and be continuing, to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Pledged Collateral, and to file
any claims or take any action or institute any proceedings which Collateral
Agent may deem necessary or desirable for the collection of any of the Pledged
Collateral or to enforce the rights of Collateral Agent with respect to any of
the Pledged Collateral.
SECTION 10. COLLATERAL AGENT MAY PERFORM. If any Pledgor fails
to perform any agreement contained herein, Collateral Agent may, upon thirty
days' notice to the Pledgors (unless otherwise expressly set forth in this
Agreement or an Event of Default shall have occurred and be continuing, in which
case, no notice shall be required) itself perform, or cause performance of, such
agreement, and the expenses of Collateral Agent incurred in connection therewith
shall be payable by Pledgors under Section 16(b) hereof.
SECTION 11. STANDARD OF CARE. The powers conferred on
Collateral Agent hereunder are solely to protect its interest in the Pledged
Collateral and shall not impose on it any duty to exercise such powers.
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equivalent to that which
Collateral Agent accords its own property consisting of negotiable securities,
it being understood that Collateral Agent shall have no responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not any Secured Party has or is deemed to have knowledge of such matters, (b)
taking any necessary steps (other than steps taken in accordance with the
standard of care set forth above to maintain possession of the Pledged
Collateral) to preserve rights against any parties with respect to any Pledged
Collateral, (c) taking any necessary steps to collect or realize upon the
Secured Obligations or any
9
<PAGE> 10
guarantee therefor, or any part thereof, or any of the Pledged Collateral or (d)
initiating any action to protect the Pledged Collateral against the possibility
of a decline in market value.
SECTION 12. EVENTS OF DEFAULT. The occurrence of any "EVENT OF
DEFAULT" as defined in any of the agreements governing the Underlying Debt
secured hereby from time to time in effect (including without limitation the
Senior Note Indenture and the New Credit Facility) shall constitute an Event of
Default under this Agreement.
SECTION 13. REMEDIES UPON DEFAULT.
(a) Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(i) Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Code as in effect in the State of
New York (or any other state with jurisdiction over the Pledged
Collateral) at that time, and Collateral Agent may also in its sole
discretion, without notice (except as specified below), sell the
Pledged Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of
Collateral Agent's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and
upon such other terms as Collateral Agent may deem commercially
reasonable, irrespective of the impact of any such sales on the market
price of the Pledged Collateral. Collateral Agent may be the purchaser
of any or all of the Pledged Collateral at any such sale and shall be
entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Pledged Collateral
sold at any such public sale, to use and apply any of the Secured
Obligations as a credit on account of the purchase price of any Pledged
Collateral payable by Collateral Agent at such sale. Each purchaser at
any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Pledgor, and each Pledgor hereby
waives (to the extent permitted by law) all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted.
Pledgors agree that, to the extent notice of sale shall be required by
law, at least ten days' notice to Pledgors of the time and place of any
public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Collateral Agent shall not be
obligated to make any sale of Pledged Collateral regardless of notice
of sale having been given. Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Each Pledgor hereby
waives any claims against Collateral Agent arising by reason of the
fact that the price at which any Pledged Collateral may have been sold
at such a private sale was less than the price which might have been
obtained at a public sale, even if Collateral Agent accepts the first
offer received and does not offer such Pledged Collateral to more
10
<PAGE> 11
than one offeree. If the proceeds of any sale or other disposition of
the Pledged Collateral are insufficient to pay all the Secured
Obligations, Pledgors shall be liable for the deficiency and the fees
of any attorneys employed by Collateral Agent to collect such
deficiency.
(ii) Each Pledgor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as from time to
time amended (the "SECURITIES ACT"), and applicable state securities
laws, Collateral Agent may be compelled, with respect to any sale of
all or any part of the Pledged Collateral conducted without prior
registration or qualification of such Pledged Collateral under the
Securities Act and/or such state securities laws, to limit purchasers
to those who will agree, among other things, to acquire the Pledged
Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Each Pledgor acknowledges that any
such private sales may be at prices and on terms less favorable to
Collateral Agent than those obtainable through a public sale without
such restrictions (including, without limitation, a public offering
made pursuant to a registration statement under the Securities Act)
and, notwithstanding such circumstances, each Pledgor agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner and that Collateral Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any
Pledged Collateral for the period of time necessary to permit the
issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so
register it.
(iii) If Collateral Agent determines to exercise its right to
sell any or all of the Pledged Collateral, upon written request,
Pledgors shall and shall cause each issuer of any Pledged Shares to be
sold hereunder from time to time to furnish to Collateral Agent all
such information as Collateral Agent may request in order to determine
the number of shares and other instruments included in the Pledged
Collateral which may be sold by Collateral Agent in exempt transactions
under the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereunder, as the same are from
time to time in effect.
(b) Decisions Relating to Exercise of Remedies.
Notwithstanding anything in this Agreement to the contrary, as provided in the
Intercreditor Agreement, the Collateral Agent shall exercise, or shall refrain
from exercising any remedy provided in Section 8(b)(i) and Section 13(a) hereof
in accordance with the instructions of the Requisite Party (as defined in the
Intercreditor Agreement) and the Secured Parties shall be bound by such
instructions; and sole rights of the Secured Parties under this Agreement shall
be to be secured by the Pledged Collateral as provided herein and to receive the
payments provided for in Section 14 hereof.
SECTION 14. APPLICATION OF PROCEEDS. All Proceeds received by
Collateral Agent in respect of any sale of, collection from, or other
realization upon all or
11
<PAGE> 12
any part of the Pledged Collateral may, in the discretion of Collateral Agent,
be held by Collateral Agent as Pledged Collateral for, and/or then or at any
time thereafter applied in whole or in part by Collateral Agent against the
Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, and all expenses, liabilities and advances made
or incurred by Collateral Agent in connection therewith and all amounts for
which the Collateral Agent is entitled to indemnification hereunder and all
advances made by the Collateral Agent hereunder for the account of Pledgors or
for the payment of all costs and expenses paid or incurred by the Collateral
Agent in connection with the exercise of any right or remedy hereunder, all in
accordance with Section 16 hereof;
SECOND: With respect to Proceeds received in respect of the
Pledged Collateral and Proceeds thereof, to the payment in full of all Secured
Obligations in accordance with Section 4 of the Intercreditor Agreement; and
THIRD: To the payment to or upon the order of Pledgors, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 15. COLLATERAL AGENT. Collateral Agent has been
appointed as Collateral Agent hereunder pursuant to the Intercreditor Agreement.
Collateral Agent shall be obligated and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including, without limitation, the
release or substitution of Collateral) solely in accordance with the
Intercreditor Agreement. Collateral Agent may resign and a successor Collateral
Agent may be appointed in the manner provided for resignation and appointment of
a successor in the Intercreditor Agreement. Upon the acceptance of any
appointment as a Collateral Agent by a successor Collateral Agent, that
successor Collateral Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Collateral Agent under
this Agreement, and the retiring Collateral Agent shall thereupon be discharged
from its duties and obligations under this Agreement and shall deliver any
Collateral in its possession to the successor Collateral Agent. After any
retiring Collateral Agent's resignation, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent.
SECTION 16. INDEMNITY AND EXPENSES.
(a) Pledgors jointly and severally agree to indemnify
Collateral Agent, each Secured Party and each of the officers, directors,
agents, employees and affiliates of each of them (each an "INDEMNITEE"), from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this Agree-
12
<PAGE> 13
ment), except claims, losses or liabilities resulting from the gross negligence
or willful misconduct of the Indemnitee seeking indemnification.
(b) Pledgors will upon demand pay to Collateral Agent the
amount of any and all costs and expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which Collateral Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Collateral Agent hereunder or (iv) the
failure by any Pledgor to perform or observe any of the provisions hereof.
SECTION 17. WAIVERS OF PLEDGORS.
(a) Each Pledgor hereby waives any right to require Collateral
Agent to: (i) proceed against the Company, any guarantor of any of the Secured
Obligations or any other person or entity; (ii) proceed against or exhaust any
other security held from any other person or entity; (iii) give notice to any
Pledgor of the terms, time and place of any public or private sale of the
Pledged Collateral or any other security, or otherwise comply with Section 9504
of the Code; (iv) pursue any other remedy in Collateral Agent's power; or (v)
except as otherwise expressly provided herein, make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of protest
or notices of dishonor in connection with any obligations or evidences of
indebtedness which constitute in whole or in part the Secured Obligations or in
connection with the creation of new or additional Secured Obligations;
(b) Each Pledgor waives any defense arising by reason of: (i)
any disability or other defense of the Company, any other Pledgor or any other
entity, including, without limitation, any defense based on or arising out of
the unenforceability of any of the Secured Obligations, legal or equitable
discharge of the Secured Obligations or this Agreement or any statute of
limitations affecting such Pledgor's liability hereunder or the Company's
liability under the Senior Note Indenture or the enforcement hereof or thereof;
(ii) the cessation from any cause whatsoever, other than payment in full, of the
Secured Obligations or the release or substitution of any sureties or guarantors
of the Secured Obligations; (iii) any act or omission by Collateral Agent which
directly or indirectly results in or aids the discharge of any Pledgor or any of
the Secured Obligations by operation of law or otherwise; (iv) the release of
any other collateral securing the Secured Obligations or the failure by
Collateral Agent to perfect or maintain the perfection of any such other
collateral; (v) any modification of the Secured Obligations, in any form
whatsoever, including, but not limited to the renewal, extension, acceleration
or other change in the time for payment of the Secured Obligations, and any
change in the terms of the Secured Obligations, including, but not limited to,
any increase or decrease of the rate of interest on the Secured Obligations; and
(vi) any law limiting the liability of or exonerating guarantors or sureties;
and
(c) until all the Secured Obligations shall have been paid in
full, and all commitments to lend under the New Credit Facility shall have been
terminated and all letters
13
<PAGE> 14
of credit issued, extended or renewed thereunder shall have been cancelled or
rescinded, each Pledgor waives any right to enforce any remedy which Collateral
Agent now has or may hereafter have against any person or entity guaranteeing or
securing the Secured Obligations, and waives any benefit of, or any right to
participate in any security whatsoever now or hereafter held by Collateral Agent
for the Secured Obligations.
SECTION 18. CONTINUING SECURITY INTEREST; TRANSFER OF
INDEBTEDNESS. This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (a) remain in full force and effect until
indefeasible payment in full of all Secured Obligations, the cancellation or
termination of the Commitments to extend credit under the New Credit Facility,
the cancellation or expiration of all outstanding letters of credit, (b) be
binding upon each Pledgor, its successors and assigns, and (c) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and each Secured Party and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), subject to the provisions of the Senior Note Indenture and the New Credit
Facility, each Secured Party may assign or otherwise transfer any Indebtedness
held by it to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to a
Secured Party herein or otherwise. Upon the indefeasible payment in full of all
Secured Obligations, the cancellation or termination of the Commitments to
extend credit under the New Credit Facility, the cancellation or expiration of
all outstanding letters of credit, each Pledgor shall be entitled to the return,
upon its request and at its expense, against receipt and without recourse to
Collateral Agent, of such of the Pledged Collateral pledged by such Pledgor
hereunder as shall not have been sold or otherwise applied pursuant to the terms
hereof.
SECTION 19. NO WAIVER BY SECURED PARTY; AUTHORITY OF PLEDGORS.
No failure on the part of Collateral Agent to exercise, and no course of dealing
with respect to, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise by Collateral Agent of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies herein provided are cumulative to the fullest extent
permitted by law and are not exclusive of any remedies provided by law. It is
not necessary for Collateral Agent to inquire into the powers of any Pledgor or
the officers, directors or agents acting or purporting to act on behalf of any
of them.
SECTION 20. AMENDMENT, ETC. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by any Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Pledgors and the Collateral Agent on behalf of the Requisite
Party (as defined in the Intercreditor Agreement), and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 21. ADDRESSES FOR NOTICES. Unless otherwise
specifically provided herein, any notice or other communication herein required
or permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by United States
14
<PAGE> 15
mail or courier service and shall be deemed to have been given when delivered in
person, upon receipt (in the case of telecopy or telex) or four business days
after depositing it in the United States mail, registered or certified, with
postage prepaid and properly addressed; provided that any notice sent to
Collateral Agent shall not be effective until received. For purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is delivered
as provided in this Section 21) shall be as set forth under each party's name on
the signature pages hereof.
SECTION 22. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES), EXCEPT TO
THE EXTENT THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein, terms defined in Article 9 of the Code are used herein as
therein defined.
SECTION 23. SEVERABILITY. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdictions, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
All judicial proceedings brought against any Pledgor with respect to this
Agreement may be brought in any state or federal court of competent jurisdiction
sitting in New York, New York, and by execution and delivery of this Agreement,
each Pledgor accepts for itself and in connection with its properties, generally
and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Each Pledgor designates and appoints The Prentice-Hall
Corporation System, Inc., 15 Columbus Circle, New York, New York 10023 and such
other Persons as may hereafter be selected by such Pledgor irrevocably agreeing
in writing to so serve, as its agent to receive on its behalf service of all
process in any such proceedings in any court in New York, New York, such service
being hereby acknowledged by such Pledgor to be effective and binding service in
every respect. A copy of any such process so served shall be mailed by
registered mail to such Pledgor at its address referred to in Section 21 hereof,
except that unless otherwise provided by applicable law, any failure to mail
such copy shall not affect the validity of service of process. If any agent
appointed by any Pledgor refuses to accept service, such Pledgor hereby agrees
that service upon it by mail shall constitute sufficient notice. Nothing herein
shall affect the right to serve process in any other manner permitted by law or
shall limit the right of the Collateral Agent to bring proceedings against any
Pledgor in the courts of any other jurisdiction.
15
<PAGE> 16
SECTION 25. WAIVER OF JURY TRIAL. Each Pledgor and Collateral
Agent hereby agree to waive their respective rights to jury trial of any claim
or cause of action based upon or arising out of this Agreement. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. Each Pledgor and the
Collateral Agent each acknowledge that this waiver is a material inducement for
such Pledgor and the Collateral Agent to enter into a business relationship,
that each Pledgor and the Collateral Agent have already relied on the waiver in
entering into this Agreement and that each will continue to rely on the waiver
in their related future dealings. Each Pledgor and the Collateral Agent further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
TRIAL BY THE COURT.
SECTION 26. MARSHALING; PAYMENTS SET ASIDE. Collateral Agent
shall not be under any obligation to marshal any assets in favor of any Pledgor
or any other party or against or in payment of any or all of the Secured
Obligations. To the extent that any Pledgor makes a payment or payments to
Collateral Agent or Collateral Agent enforces its security interests or
exercises its rights of setoff, and such payment or payments or proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
SECTION 27. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement or be given any substantive effect.
SECTION 28. COUNTERPARTS. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which together shall constitute one and the same Agreement.
16
<PAGE> 17
IN WITNESS WHEREOF, Pledgors have caused this Agreement to be
duly executed and delivered by their officers thereunto duly authorized as of
the date first above written.
"PLEDGORS"
AMERICAN RESTAURANT GROUP,
INC., a Delaware corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
ARG ENTERPRISES, INC.,
a California corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
ARG PROPERTY MANAGEMENT
CORPORATION, a California corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
GRANDY'S, INC.,
a California corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
<PAGE> 18
SPECTRUM FOODS, INC.,
a California corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
LOCAL FAVORITE, INC.,
a California corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
SPOONS RESTAURANTS, INC.,
a Texas corporation
By: /s/ William J. McCaffrey Jr.
------------------------------------
Title: Vice President and
Chief Financial Officer
2
<PAGE> 19
NOTICE ADDRESS FOR PLEDGORS:
450 Newport Center Drive
Newport Beach, California 92660
Attention: Chairman and Chief
Executive Officer
WITH COPIES TO:
Patrick J. Kelvie, Esq.
American Restaurant Group, Inc.
4410 El Camino Real, Suite 201
Los Altos, California 94022
and
Philip T. Ruegger III, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
3
<PAGE> 20
"COLLATERAL AGENT"
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., AS COLLATERAL AGENT
By: /s/
------------------------------------
Title: Authorized Officer
---------------------------------
NOTICE ADDRESS:
515 South Flower St., Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
4
<PAGE> 21
SCHEDULE I
to the Pledge Agreement
Attached to and forming a part of the Pledge Agreement dated
as of February 25, 1998 between Pledgors and U.S. Trust Company of California,
N.A., as Collateral Agent.
Part A
Pledgor: American Restaurant Group, Inc.
<TABLE>
<CAPTION>
Issued and
Stock Outstanding Number of
Class of Certificate Par Number of Shares
Stock Issuer Stock Nos. Value Shares Pledged
- ------------ -------- ----------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
ARG Enterprises, Inc. Common 3 10.00 10,000 10,000
ARG Property Common 3 10.00 100 100
Management
Corporation
Grandy's, Inc. Common 2 1.00 1,000 1,000
Spectrum Foods, Inc. Common 85 10.00 1,000 1,000
Spoons Restaurants, Inc. Common 5 1.00 1,000 1,000
Local Favorite, Inc. Common 1 0 100 100
</TABLE>
Pledgor: ARG Enterprises, Inc.
<TABLE>
<CAPTION>
Issued and
Stock Outstanding Number of
Class of Certificate Par Number of Shares
Stock Issuer Stock Nos. Value Shares Pledged
- ------------ -------- ----------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Black Angus Common 5 -0- 1 1
Enterprises of
Idaho, Inc.
</TABLE>
I-1
<PAGE> 22
Part B
Debt Issuer Payee Amount of Indebtedness
- ----------- ----- ----------------------
[None]
I-2
<PAGE> 23
SCHEDULE II
to the Pledge Agreement
[FORM OF PLEDGE AMENDMENT]
This Pledge Amendment, dated _______, 19__, is delivered
pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned
hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement
dated February 25, 1998, between the American Restaurant Group, Inc. and its
Subsidiaries who are signatories thereto and U.S. Trust Company of California,
N.A., as Collateral Agent (the "Pledge Agreement"; capitalized terms defined
therein being used herein as therein defined) and that the [Pledged
Shares]/[Pledged Debt] listed on this Pledge Amendment shall be deemed to be
part of the [Pledged Shares]/[Pledged Debt] and shall become part of the Pledged
Collateral and shall secure the Secured Obligations as provided in the Pledge
Agreement.
[PLEDGOR]
By:______________________
Title:___________________
<TABLE>
<CAPTION>
Issued and
Stock Outstanding Number of
Class of Certificate Par Number of Shares
Stock Issuer Stock Nos. Value Shares Pledged
- ------------ -------- ----------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
Debt Issuer Amount of Indebtedness
II-1
<PAGE> 24
SCHEDULE III
to the Pledge Agreement
[FORM OF ACKNOWLEDGMENT OF NEW SUBSIDIARY]
Reference is hereby made to the Pledge Agreement dated as of
February 25, 1998 (the "Pledge Agreement") among American Restaurant Group, Inc.
and its Subsidiaries who are signatories thereto and U.S. Trust Company of
California, N.A., as Collateral Agent in which this Acknowledgment and its
attachments are incorporated.
The undersigned is a new Subsidiary and, as such, is required
to pledge its Pledged Shares and its Pledged Debt to secure the Secured
Obligations (all as defined in the Pledge Agreement) as provided in the Pledge
Agreement. The undersigned hereby represents and warrants (a) that it is the
legal and beneficial owner of the shares of capital stock described in Part A of
Schedule 1 hereto which shares constitute all of the issued and outstanding
shares of all classes of capital stock of the Subsidiary or Subsidiary so listed
and (b) that it is legal and beneficial owner of the indebtedness described in
Part B of said Schedule 1.
The undersigned acknowledges the terms of the Pledge Agreement
and agrees to be bound thereby.
[NEW SUBSIDIARY]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Notice Address:
------------------------------
------------------------------
------------------------------
III-1
<PAGE> 25
SCHEDULE 1
to the Acknowledgment to New Subsidiary
PART A: Capital Stock of Subsidiaries
PART B: Indebtedness owned by new Subsidiary
I-1
<PAGE> 1
EXHIBIT 4.10
COMPANY SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "AGREEMENT") is dated as of
February 25, 1998, and is entered into by and between AMERICAN RESTAURANT GROUP,
INC., a Delaware corporation (the "GRANTOR"), and U.S. TRUST COMPANY OF
CALIFORNIA, N.A. ("U.S. TRUST"), as collateral agent for and representative of
(in such capacity herein called the "COLLATERAL AGENT") the Secured Parties (as
hereinafter defined).
R E C I T A L S
WHEREAS, pursuant to that certain Indenture dated as of
February 25, 1998 (as supplemented and otherwise amended from time to time, the
"Senior Note Indenture"), by and among the Grantor, the Guarantors (defined
therein), and U.S. Trust, as Trustee thereunder (in such capacity, the
"Indenture Trustee"), the Grantor will issue 11.50% Series A senior secured
notes (and, in connection with the Exchange Offer as defined in the Senior Note
Indenture, the Series B senior secured notes) due on or before 2003 in an
aggregate principal amount of up to $155,000,000 (collectively, the "Senior
Notes") to the holders thereof (the "Senior Note Holders");
WHEREAS, the Grantor, each of the Grantor's subsidiaries, the
lenders listed on the signature pages thereof (the "Lenders") and Bank Boston,
N.A., as agent thereunder (the "Agent"), have entered into that certain Credit
Agreement (as defined in the Intercreditor Agreement referred to below and
together with any loan documents referred to therein, the "New Credit
Facility");
WHEREAS, pursuant to a guaranty included in the Senior Note
Indenture, the Guarantors have guaranteed the obligations of the Grantor under
the Senior Notes, the Senior Note Indenture and the other documents to which the
Grantor is a party;
WHEREAS, the Collateral Agent, the Indenture Trustee and the
Agent have entered into that certain Intercreditor Agreement, dated as of the
date hereof (the "Intercreditor Agreement"), providing for, among other things,
the appointment of the Collateral Agent to administer and enforce the Collateral
Documents and Collateral as provided therein;
WHEREAS, it is a condition precedent to the Senior Note
Indenture and the New Credit Facility that the Grantor shall have entered into
this Agreement and granted the security interests provided herein;
WHEREAS, the Grantor wishes to grant a security interest in
favor of the Collateral Agent for the benefit of the Indenture Trustee, the
Senior Note Holders, the
<PAGE> 2
Agent and the Lenders and the persons who may in the future become secured
parties in accordance with the terms of the Intercreditor Agreement (all such
beneficially interested parties being herein referred to as the "SECURED
PARTIES"); and
WHEREAS, the rights and obligations of each of the Secured
Parties are further governed by and subject to the Intercreditor Agreement;
NOW, THEREFORE, in consideration of the premises set forth
herein and in order to induce the Senior Note Holders to purchase the Senior
Notes and to induce the Lenders to make loans and other extensions of credit
under the New Credit Facility, the Grantor hereby agrees with the Collateral
Agent for the ratable benefit of the Secured Parties as follows:
SECTION 1. GRANT OF SECURITY. The Grantor, in order to secure
the Secured Obligations (as defined in Section 2), hereby assigns and pledges to
the Collateral Agent for its benefit and for the ratable benefit of the Secured
Parties and hereby grants to the Collateral Agent for its benefit and for the
ratable benefit of the Secured Parties a first-priority security interest in all
of the Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which the Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
(a) All items of "equipment" and "fixtures" (as such terms are
defined in Sections 9-109(2) and 9-313 of the Uniform Commercial Code
of the State of New York (the "Code"), respectively) and including all
equipment, machinery, furnishings, fixtures, tools, supplies,
automotive equipment, motor vehicles and other equipment of any kind
and nature, together with all replacements, substitutions, attachments,
parts (including spare parts), modifications, additions, improvements,
upgrades and accessions of, to or upon such items of equipment or
fixtures (together referred to herein as the "EQUIPMENT");
(b) All inventory in all of its forms, wherever located now or
hereafter existing as such term is defined in Section 9-109(4) of the
Code, including, but not limited to, (i) all goods held by the Grantor
for sale or lease or to be furnished under contracts of service or so
leased or furnished, (ii) all raw materials, work in process, finished
goods, and materials used or consumed in the manufacture, packing,
shipping, advertising, selling, leasing, furnishing or production of
such inventory or otherwise used or consumed in the Grantor's business,
(iii) goods in which the Grantor has an interest in mass or a joint or
other interest or right of any kind, (iv) goods which are returned to
or repossessed by the Grantor and (v) all additions and accessions
thereto and replacements thereof (all such inventory, accessions and
products being the "INVENTORY");
2
<PAGE> 3
(c) All accounts (as such term is defined in Section 9-106 of
the Code), contract rights, chattel paper (as such term is defined in
Section 9-105(b) of the Code), investment property (as such term is
defined in Section 9-115 of the Code) instruments (as such term is
defined in Section 9-105(1)(i) of the Code), guaranties, letters of
credit, documents (as such term is defined in Section 9- 105(f) of the
Code), drafts, acceptances, tax refunds, insurance claims, rights to
performance, judgments, security agreements, leases, other obligations
or receivables and general intangibles (as such term is defined in
Section 9-106 of the Code) of every nature, including without
limitation, all rights and claims to the payment or receipt of money or
other forms of consideration of any kind included in this clause (c)
(any and all such rights and claims to the payment or receipt of money
or other forms of consideration being the "PAYMENT RIGHTS," and any and
all such leases, security agreements and other contracts being the
"RELATED CONTRACTS");
(d) All United States and foreign trademarks, trademark
rights, service marks, certification marks, collective marks, service
mark rights, trade names, trade name rights, designs, logos, indicia,
corporate names, company names, business names, fictitious business
names, trade styles and/or other source and/or business identifiers,
registrations and applications pertaining thereto, renewals and
extensions thereof, whether now owned or hereafter acquired or issued,
all common law and other rights in and to the foregoing and the
accompanying goodwill and other like business property rights and the
right (but not the obligation) to register claim under trademark and to
renew and extend such trademarks, and the right (but not the
obligation) to sue in the name of the Grantor for past, present or
future infringement of trademark and all proceeds of the foregoing,
including, without limitation, license royalties, income, payments,
claims, damages, and proceeds of suit ("TRADEMARK PROPERTY");
(e) All United States and foreign common law and/or statutory
copyrights, rights and interests of every kind and nature in copyrights
and works protectable by copyright, whether now owned or hereafter
created or acquired and renewals and extensions of copyrights, and the
right (but not the obligation) to make publication thereof for
copyright purposes, to register claim upon copyright and the right (but
not the obligation) to renew and extend such copyrights, and the right
(but not the obligation) to sue in the name of the Grantor for past,
present and future infringements of copyright, and all proceeds of the
foregoing, including without limitation, royalties, income, payments,
claims, damages, and proceeds of suit ("COPYRIGHT PROPERTY");
(f) All United States and foreign patents and patent
applications now owned or hereafter acquired from time to time, and
licenses and rights in, and the right (but not the obligation) to sue
in the name of the Grantor or in the name of
3
<PAGE> 4
the Collateral Agent for, all past, present and future infringements of
any such properties, and all reissues, divisions, continuations,
continuations-in-part, extensions, renewals, and reexaminations of any
of the foregoing, and all proceeds of the foregoing including, without
limitation, royalties, income, payments, claims, damages, and proceeds
of suit and the right to sue for past infringements of any of the
foregoing ("PATENT PROPERTY");
(g) All cash, money, currency and all deposit accounts listed
on Schedule I hereto, including demand, time, savings, passbooks or
similar accounts maintained with the Senior Note Holders, the Lenders
or other banks, savings and loan associations or similar entities (the
"PLEDGED DEPOSITS");
(h) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
(owned by the Grantor or in which it has an interest) that at any time
evidence or contain information relating to any of the Collateral or
are otherwise necessary or helpful in the collection thereof or
realization thereupon;
(i) all shares of capital stock of any Subsidiary, and all
options or rights to acquire any such shares or interests, in each case
now or hereafter owned by the Grantor, all distributions on such
capital stock (as constituted immediately prior to such distribution)
constituting securities (whether debt or equity securities or
otherwise), and all other or additional stock, notes, securities or
property paid or distributed in respect of capital stock (as
constituted immediately prior to such payment or distribution) (A) by
way of stock-split, spin-off, split-up, reclassification, combination
of shares or similar rearrangement or (B) by reason of any
consolidation, merger, exchange of stock, conveyance of assets,
liquidation, bankruptcy or similar corporate reorganization or other
disposition of capital stock;
(j) all dividends, distributions, payments of interest and
principal and other amounts (whether consisting of securities,
personalty or other property) from time to time received, receivable or
otherwise distributed in respect of or in exchange or substitution for
any capital stock;
(k) the account (which may be a securities account)
established and maintained by U.S. Trust and its successors and
assigns, entitled "American Restaurant Group Collateral Account, U.S.
Trust Company of California, N.A., as collateral agent, secured party",
and any successor account and all funds, securities and other property
or other items from time to time credited to such account and all
interest, income and distributions thereon (the "COLLATERAL ACCOUNT");
4
<PAGE> 5
(l) all rights to payment for goods sold or leased or services
rendered, whether or not earned by performance and all rights in
respect of the account debtor, including without limitation all such
rights constituting or evidenced by any account, chattel paper or
instrument, together with (a) any collateral assigned, hypothecated or
held to secure any of the foregoing and the rights under any security
agreement granting a security interest in such collateral, (b) all
goods, the sale of which gave rise to any of the foregoing, including,
without limitation, all rights in any returned or repossessed goods and
unpaid seller's rights, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing and (d) all powers of
attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith (the "RECEIVABLES");
(m) all original copies of all documents, instruments or other
writings evidencing the Receivables, all books, correspondence, credit
or other files, records, ledge sheets or cards, invoices, and other
papers relating to Receivables, including without limitation all tapes,
cards, computer tapes, computer discs, computer runs, record keeping
systems and other papers and documents relating to the Receivables,
whether in the possession or under the control of the Grantor or any
computer bureau or agent from time to time acting for the Grantor or
otherwise and all credit information, reports and memoranda relating
thereto (the "RECEIVABLES RECORDS");
(n) all interest rate or currency protection or hedging
arrangements, including without limitation, caps, collars, floors,
forwards and any other similar or dissimilar interest rate or currency
exchange agreements or other interest rate or currency hedging
arrangements;
(o) all insurance policies;
(p) all motor vehicles, tractors, trailers and other like
property, if title thereto is governed by a certificate of title
ownership; and
(q) All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under insurance
(whether or not the Collateral Agent or any other Secured Party is the
loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral. For purposes of this Agreement, the term
"proceeds" includes whatever is receivable or received when Collateral
or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including returned premiums,
with respect to any insurance relating thereto.
5
<PAGE> 6
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by acceleration or otherwise, (including
the payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
Section 362(a)) of all obligations of every nature of the Grantor under (a) the
Senior Note Indenture and the Senior Notes, (b) the New Credit Facility, and (c)
any instrument governing other indebtedness of the Grantor which is then secured
by the Collateral in accordance with the terms of the Intercreditor Agreement,
whether for principal, interest (including, without limitation, interest that,
but for the filing of a petition in bankruptcy with respect to the Grantor,
would accrue on such obligations), fees, expenses or otherwise, whether now
existing or hereafter arising, voluntary or involuntary, whether or not jointly
owed with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished and
later increased, created or incurred and all or any portion of such obligations
that are paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from the Collateral Agent as a preference,
fraudulent transfer or otherwise (all such obligations being the "UNDERLYING
DEBT"), and all obligations of every nature of the Grantor now or hereafter
existing under this Agreement (all such obligations of the Grantor, together
with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. THE GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Collateral Agent of any of its rights hereunder shall not release the Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral and (c) neither the Collateral Agent nor any Secured
Party shall have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Collateral
Agent or any Secured Party be obligated to perform any of the obligations or
duties of the Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Grantor represents
and warrants as follows:
(a) Location of Equipment and Inventory; Office Locations;
Fictitious Names. As of the Closing Date, all of the Equipment and
Inventory (other than Equipment and Inventory which, either singly or in
the aggregate, is not material) is located at the places specified on
Schedule I hereto. As of the Closing Date, the chief place of business and
the chief executive office of the Grantor is located at 450 Newport Center
Drive, 6th Floor, Newport Beach, California 92660. As of
6
<PAGE> 7
the Closing Date, the offices where the Grantor keeps its material records
regarding the Payment Rights and all originals of all chattel paper that
evidence Payment Rights are set forth on Schedule II hereto. As of the
Closing Date, the Grantor does not do business under any trade name or
fictitious business name except as set forth on Schedule II hereto and
does not have any UCC-1 financing statements filed against it under any
trade name or fictitious business name.
(b) Delivery of Certain Collateral. All chattel paper, notes and
other instruments (excluding checks) comprising any or all of the items of
Collateral have been delivered to the Collateral Agent duly endorsed and
accompanied by duly executed instruments of transfer or assignment in
blank.
(c) Payment Rights Valid. Each material Payment Right constitutes
the legally valid and binding obligation of the party obligated to pay the
same (the "ACCOUNT GRANTOR") except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by general principles of equity
relating to enforceability. To the knowledge of the Grantor, no Account
Grantor has any material defense, set off, claim or counterclaim against
the Grantor which can be asserted against the Collateral Agent whether in
a proceeding to enforce the Collateral Agent's rights in the Collateral or
otherwise. Each such material Payment Right complies in all material
respects with the provisions of all applicable laws and regulations,
whether federal, state or local, applicable thereto (including, without
limitation, any usury law, the Federal Truth and Lending Act and
Regulation C of the Federal Reserve System). None of the Payment Rights is
evidenced by a promissory note or other instrument, other than a check,
that has not been delivered to the Collateral Agent.
(d) Ownership of Collateral. Except for the security interest
created by this Agreement and Liens permitted by each of the agreements
governing the Underlying Debt secured hereby from time to time in effect,
including without limitation the Senior Note Indenture and the New Credit
Facility (collectively, "PERMITTED LIENS"), the Grantor owns the
Collateral free and clear of any Lien. Except as may have been filed in
favor of the Collateral Agent relating to this Agreement or in connection
with Permitted Liens, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any filing or recording office.
(e) Perfection. Subject only to Permitted Liens, in the case of
existing Collateral, this Agreement creates, and in the case of after
acquired Collateral, at the time the Grantor first has rights in such
after acquired Collateral, this Agreement will create, in each case upon
the making of the filings described in clause (f) below or the taking of
possession by Collateral Agent with respect to
7
<PAGE> 8
security interests in Collateral which can only be perfected by taking
possession of such Collateral, for all Collateral other than the Pledged
Deposits and, upon the Collateral Agent's giving proper notice pursuant to
the Agency Account Agreement, dated the date hereof, among the Collateral
Agent, the Agent, Wells Fargo Bank, N.A., the Grantor, and certain
subsidiaries of the Grantor (the "Agency Account Agreement") or in the
form of Exhibit A hereto to Wells Fargo Bank, National Association with
respect to account no. 4001-197235 (the "Collection Account") and the
holders of the other accounts listed on Schedule I hereto, for the Pledged
Deposits held in the Collection Account and the accounts listed on
Schedule I hereto, a valid, perfected, first priority security interest,
in each case securing the payment and performance of the Secured
Obligations. Upon making the filings described in clause (f) below or the
taking of possession by Collateral Agent with respect to security
interests in Collateral which can only be perfected by taking possession
of such Collateral, in each case for all Collateral other than the Pledged
Deposits, and upon the Collateral Agent's giving proper notice to the
holders of the Pledged Deposits held in the Collection Account and the
accounts listed on Schedule I hereto, for the Pledged Deposits held in the
Collection Account and the accounts listed on Schedule I hereto, all
filings and other actions necessary or desirable to protect and to perfect
the security interests referenced above shall have been duly taken;
provided that the security interest granted hereunder in the Trademark
Property, Copyright Property and Patent Property shall only be perfected
to the extent such interests can be perfected by filing Uniform Commercial
Code financing statements in the jurisdictions set forth on Schedule III
annexed hereto and the filing of the Trademark Collateral Agreement in the
United States Patent and Trademark Office and, in the case of Copyright
Property, the filing of appropriate documentation in the United States
Copyright Office and in the case of Patent Property, the filing of
appropriate documentation in the United States Patent and Trademark
Office. As of the Closing Date, the Grantor has no interest in any
Copyright Property or Patent Property.
(f) Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the Grantor of the
security interest granted hereby or for the execution, delivery or
performance of this Agreement by the Grantor or (ii) for the perfection of
(except as otherwise specified in paragraph (e) of this Section 4), or the
exercise by, the Collateral Agent of its rights and remedies hereunder,
except for the filing of a Uniform Commercial Code financing statement
with the appropriate authorities in the jurisdictions listed on Schedule
III hereto, and in the case of Trademark Property the filing of the
Trademark Collateral Agreement in the United States Patent and Trademark
Office and, in the case of Copyright Property, the filing of appropriate
documentation in the United States Copyright Office and in the case of
Patent
8
<PAGE> 9
Property, the filing of appropriate documentation in the United States
Patent and Trademark Office.
(g) Other Information. All information heretofore, herein or
hereafter supplied to the Collateral Agent by, or on behalf of, the
Grantor with respect to the Collateral (in each case, as such information
has been amended, supplemented or updated as of the date this
representation is deemed made) is accurate and complete in all material
respects.
(h) Receivables. Each Receivable (i) is and will be the genuine,
legal, valid and binding obligation of the account debtor in respect
thereof, representing an unsatisfied obligation of such account debtor,
(ii) is and will be enforceable in accordance with its terms, (iii) is and
will be in full force and effect and is not and will not be subject to any
setoffs, defenses, taxes, counterclaims (except (x) with respect to
refunds, returns and allowances in the ordinary course of business and (y)
to the extent that such Receivable may not yet have been earned by
performance) and (iv) is and will be in compliance with all applicable
laws, whether federal, state, local or foreign. The representations and
warranties contained in this Section 4(h) shall be deemed to be repeated
by the Grantor as of the time when each Receivable arises.
SECTION 5. FURTHER ASSURANCES.
(a) The Grantor agrees that from time to time, at the expense of the
Grantor, the Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary or desirable, or that the Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Grantor
will: (i) at the reasonable request of the Collateral Agent, mark
conspicuously each chattel paper included in the material Payment Rights
and each material Related Contract and each of its material records
pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to the Collateral Agent, indicating that such
items are subject to the security interest granted hereby; (ii) if any
Payment Right shall be evidenced by a promissory note or other instrument
(excluding checks), deliver and pledge to the Collateral Agent hereunder
for the benefit of the Secured Parties such note or instrument duly
endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral
Agent; (iii) at the request of the Collateral Agent, deliver and pledge to
the Collateral Agent all promissory notes and other instruments (including
checks if an Event of Default shall have occurred and be continuing) and
all original counterparts of chattel
9
<PAGE> 10
paper constituting Collateral duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Collateral Agent; (iv) upon the reasonable request of
the Collateral Agent, execute and file with the registrar of motor
vehicles or other appropriate authority of any jurisdiction under the law
of which indication of a security interest on a certificate of title is
required as a condition of perfection an application or other document
requesting the notation or other indication of the security interest
created hereunder on such certificate of title and will deliver to the
Collateral Agent copies of all such applications or other documents filed
and copies of all such certificates of title issued indicating the
security interest created hereunder in such Collateral; (v) execute and
file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as
the Collateral Agent may reasonably request, in order to perfect and
preserve the security interests granted or purported to be granted hereby,
(vi) at any reasonable time and upon reasonable notice, upon demand by the
Collateral Agent exhibit the Collateral to and allow inspection of the
Collateral by the Collateral Agent, or persons designated by the
Collateral Agent and (vii) at the Collateral Agent's reasonable request,
appear in and defend any action or proceeding that may affect the
Grantor's title to or the Collateral Agent's security interest in the
Collateral.
(b) The Grantor agrees that, with respect to the Pledged Deposits,
the Grantor shall (i) provide the Collateral Agent with notice within
thirty days after establishing any deposit accounts after the date hereof
and (ii) maintain all Pledged Deposits with banks or other financial
institutions located within the State of California or in a jurisdiction
where all action required by Section 5(a) hereof to perfect the security
interest of Collateral Agent in the Pledged Deposits shall have been taken
to the extent possible under the applicable law of such jurisdiction.
(c) The Grantor hereby authorizes the Collateral Agent to file one
or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of the
Grantor where permitted by law. A carbon, photographic or other
reproduction of this Agreement or a financing statement signed by the
Grantor shall be sufficient as a financing statement where permitted by
law.
(d) The Grantor will furnish to the Collateral Agent from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Collateral Agent may reasonably request, all in reasonable detail.
10
<PAGE> 11
SECTION 6. COVENANTS OF THE GRANTOR. The Grantor shall:
(a) Not use or permit any Collateral to be used in violation of any
provision of this Agreement, or any applicable statute, regulation or
ordinance or any policy of insurance covering the Collateral (unless such
violation together with all previous other violations does not and could
not reasonably be expected to have a material adverse effect on the value
or use of any material portion of the Collateral);
(b) Notify the Collateral Agent of any change in the Grantor's name,
trade names, fictitious business names, identity or corporate structure at
least thirty days prior to such change; and
(c) Give the Collateral Agent thirty days' prior written notice of
any change in the location of the Grantor's (i) chief place of business,
(ii) chief executive office and (iii) offices where the Grantor's material
records regarding Payment Rights and the originals of all chattel paper
that evidence Payment Rights are kept.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND
INVENTORY. The Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory sold in
the ordinary course of business and other than such Equipment and
Inventory which either singly or in the aggregate is not material) at the
places therefor specified on Schedule I hereto or at such other places in
jurisdictions where all action has been taken that may be necessary or
desirable, or that the Collateral Agent may reasonably request, in order
to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Collateral Agent to exercise and enforce
its rights and remedies hereunder with respect to such Equipment and
Inventory;
(b) Keep records of the Inventory which are correct and accurate in
all material respects, itemizing and describing the kind, type and
quantity of Inventory and the Grantor's cost therefor all in accordance
with the past practices of the Grantor; and
(c) If any Inventory is in possession or control of any of the
Grantor's agents or processors, then upon the occurrence and during the
continuance of an Event of Default, at the request of the Collateral
Agent, instruct such agent or processor to hold all such Inventory for the
account of the Collateral Agent and subject to the instructions of the
Collateral Agent.
11
<PAGE> 12
SECTION 8. INSURANCE.
(a) Unless otherwise agreed in writing by Collateral Agent, each
insurance policy covering the Collateral shall (i) name the Grantor and
the Collateral Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the Collateral Agent) as
their interests may appear, (ii) contain an agreement by the insurer that,
to the extent provided in the Collateral Documents, any loss thereunder
shall be payable to the Collateral Agent notwithstanding any action,
inaction or breach of representation or warranty by the Grantor, (iii)
have attached thereto a lender's loss payable endorsement or its
equivalent, or a loss payable clause acceptable to the Collateral Agent,
for the benefit of the Secured Parties, (iv) provide that there shall be
no recourse against the Collateral Agent for payment of premiums or other
amounts with respect thereto and (v) provide that at least thirty days'
prior written notice of cancellation or lapse, material amendment, or
material reduction in scope or limits of coverage shall be given to the
Collateral Agent by the insurer. The Grantor shall, if so requested by the
Collateral Agent, deliver to the Collateral Agent original or duplicate
policies of such insurance and, as often as the Collateral Agent may
reasonably request (but, unless an Event of Default shall have occurred
and be continuing, in no event more than once each calendar year), a
report of a reputable insurance broker with respect to such insurance.
Further, the Grantor shall, at the request of the Collateral Agent, duly
execute and deliver instruments of assignment of such insurance policies
to comply with the requirements of Section 5 hereof and use its best
efforts to cause the respective insurers to acknowledge notice of such
assignment.
(b) Reimbursement under any liability insurance maintained by the
Grantor may be paid directly to the person who shall have incurred
liability covered by such insurance. In case of any material loss
involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, any proceeds of insurance maintained by the
Grantor pursuant to this Section 8 shall be paid to the Grantor and the
Grantor shall use such proceeds to make the necessary repairs or
replacements of such Equipment or Inventory or to purchase additional
Equipment or Inventory or other property of equivalent value and
constituting Collateral hereunder or under the other Collateral Documents.
(c) Upon the occurrence and during the continuance of an Event of
Default, at the request of the Collateral Agent, all insurance payments in
respect of such Equipment and Inventory shall be paid to and applied by
the Collateral Agent as specified in Section 18.
(d) Prior to the expiration of each insurance policy with respect to
the Equipment and Inventory, upon written request of the Collateral Agent,
the
12
<PAGE> 13
Grantor shall furnish the Collateral Agent with evidence satisfactory to
the Collateral Agent of the reissuance of a policy continuing insurance in
force as required by this Agreement and at or prior to the date payment of
the premium therefor is due, evidence satisfactory to the Collateral Agent
of such payment. In the event the Grantor fails to provide, maintain, keep
in force or deliver and furnish to the Collateral Agent the policies of
insurance required by this Section 8, the Collateral Agent, upon thirty
(30) days' prior written notice to the Grantor, may (but shall not be
obligated to) procure such insurance or single interest insurance for such
risks covering Secured Parties' interests, and the Grantor will pay all
premiums thereon promptly upon demand by the Collateral Agent, together
with interest thereon at 13.50% per annum, from the date of expenditure by
the Collateral Agent until reimbursement by the Grantor.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO PAYMENT RIGHTS AND
RELATED CONTRACTS.
(a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its material records
concerning the Payment Rights and Related Contracts, and all originals of
all chattel paper that evidence Payment Rights, at the location therefor
specified in Section 4 or at such other locations in a jurisdiction where
all action that may be necessary or desirable, or that the Collateral
Agent may request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral
Agent to exercise and enforce its rights and remedies hereunder with
respect to such Payment Rights and Related Contracts. The Grantor will
hold and preserve such material records and chattel paper in accordance
with Grantor's past practice and will permit representatives of the
Collateral Agent at any time during normal business hours and upon
reasonable notice to inspect and make abstracts from such records and
chattel paper and the Grantor agrees to render to the Collateral Agent, at
the Grantor's cost and expense, such clerical and other assistance as may
be reasonably requested with regard thereto. Promptly upon the request of
the Collateral Agent, the Grantor shall deliver to, or make available for
review by, the Collateral Agent complete and correct copies of each
Related Contract.
(b) The Grantor shall, for not less than three years from the date
on which such Payment Rights arose, maintain substantially complete and
accurate records with respect to the material Payment Rights in accordance
with its customary practices as of the date hereof.
(c) The Grantor shall duly fulfill all obligations on its part to be
fulfilled under or in connection with the Payment Rights and the Related
Contracts except to the extent that the failure to fulfill its obligations
could not
13
<PAGE> 14
reasonably be expected to, either singly or in the aggregate, have a
material adverse effect on the value or use of any material portion of the
Collateral, and shall do nothing to materially impair the rights of the
Collateral Agent with respect to any Payment Right or Related Contract.
(d) Except as otherwise provided in this subsection (d) of this
Section 9, the Grantor shall continue to collect, at its own expense, all
amounts due or to become due the Grantor under the Payment Rights and
Related Contracts. In connection with such collections, the Grantor may
take (and, if an Event of Default shall have occurred and be continuing,
at the Collateral Agent's direction, shall take) such action as the
Grantor (or, if an Event of Default shall have occurred and be continuing,
the Collateral Agent) may deem necessary or advisable to enforce
collection of the Payment Rights; provided, however, that the Collateral
Agent shall have the right at any time, if an Event of Default shall have
occurred and be continuing, and upon written notice to the Grantor of its
intention to do so, to notify the account debtors or obligors under any
Payment Rights of the assignment of such Payment Rights to the Collateral
Agent and to direct such account debtors or obligors to make payment of
all amounts due or to become due to the Grantor thereunder directly to the
Collateral Agent, to notify each Person maintaining a lock box or similar
arrangement to which account debtors or obligors under any Payment Rights
have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to the Collateral
Agent and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Payment Rights and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the
same extent as the Grantor might have done. After receipt by the Grantor
of the notice from the Collateral Agent referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including checks and
other instruments) received by the Grantor in respect of the Payment
Rights and the Related Contracts shall be received in trust for the
benefit of the Collateral Agent and the Secured Parties hereunder, shall
be segregated from other funds of the Grantor and shall be forthwith paid
over or delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement) to be held as cash collateral in the
Collateral Account and either (x) released to the Grantor so long as no
Event of Default shall have occurred and be continuing or (y) if any Event
of Default shall have occurred and be continuing, applied as provided by
Section 18 hereof, and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Payment Right, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
14
<PAGE> 15
SECTION 10. DEPOSIT ACCOUNTS; COLLATERAL ACCOUNT.
(a) Deposit Accounts. (i) Grantor shall (x) cause all cash proceeds
of Receivables, all cash payments received in the ordinary course of
Grantor's restaurant business and all other cash of Grantor to be
deposited only into the Collection Account and the other accounts listed
in Schedule I and (y) direct all depository institutions holding Pledged
Deposits to cause all such Pledged Deposits to be transferred no less
frequently than once each day to, and only to, the Collection Account,
with the Collateral Agent or Agent having the right so to direct such
depository institutions (which notice may be given by the Collateral Agent
or the Agent at any time following the occurrence of an Event of Default,
regardless of whether or not such Event of Default has been cured or
waived). So long as no Event of Default shall have occurred and no notice
shall have been given by the the Collateral Agent or the Agent, the
Grantor shall be entitled to receive, retain and use any and all interest
or other distributions paid in respect of the Pledged Deposits.
(ii) Upon the occurrence and during the continuance of an
Event of Default and upon notice (as provided in clause (y) of the
previous paragraph) having been given by the Collateral Agent or the
Agent, (A) all interest or other distributions in respect of the
Pledged Deposits shall be received in trust for the benefit of the
Collateral Agent and the Secured Parties, and upon written notice
from the Collateral Agent or from the Agent to Grantor shall be
segregated from other funds of the Grantor and shall be forthwith
paid over from the Collection Account to (x) prior to the full and
final payment of all of the Secured Obligations under the New Credit
Facility, the termination of all commitments to lend thereunder and
the cancellation or expiration of all letters of credit issued,
extended or renewed thereunder, the Agent as Collateral in the same
form as so received (with any necessary endorsement) for deposit in
the Grantor's account No. 546-11302 with the Agent or such other
account as the Agent may specify in writing (the "Agent Account")
and (y) upon the full and final payment of all of the Secured
Obligations under the New Credit Facility, the termination of all
commitments to lend thereunder and the cancellation or expiration of
all letters of credit issued, extended or reversed thereunder, the
Collateral Agent for deposit in the Collateral Account as Collateral
in the same form as so received (with any necessary endorsement),
and (B) the Requisite Party (as defined in the Intercreditor
Agreement) may exercise dominion and control over, and refuse to
permit further withdrawals (whether of money, securities,
instruments or other property) from deposit accounts maintained with
the Agent, the Collateral Agent, any Secured Party or any other
person constituting part of the Collateral.
15
<PAGE> 16
(b) Collateral Account. (i) There is hereby established with the
Collateral Agent the Collateral Account. The Collateral Account shall be
under the sole and exclusive dominion and control of the Collateral Agent
and the Grantor shall not have any rights with respect to the Collateral
Account other than with respect to the receipt of proceeds of Collateral
deposited therein upon the termination of this Agreement and the full and
final payment of all of the Secured Obligations and the termination of all
commitments to lend under the New Credit Facility and the cancellation or
expiration of all letters of credit issued, extended or reversed
thereunder. Without limiting the generality of the foregoing, Grantor
shall not have any right of withdrawal or transfer from the Collateral
Account.
(ii) Subject to the terms of the Intercreditor Agreement,
there shall be deposited in the Collateral Account from time to time
the cash proceeds (as defined in Section 9-306(1) of the UCC) of any
of the Collateral (including insurance proceeds thereon and
excluding amounts paid to the Agent Account pursuant to Section
10(a)) required to be delivered to the Collateral Agent pursuant
hereto, under the Senior Note Indenture, the New Credit Facility or
any other Security Document. All amounts and investments and other
items credited to the Collateral Account from time to time shall
constitute Collateral hereunder and shall not constitute payment of
the Secured Obligations until applied as hereinafter provided. So
long as no Event of Default has occurred and is continuing, the
Collateral Agent shall, upon five business days' prior written
notice from the Grantor (which notice shall be accompanied by a
certificate (in form and substance satisfactory to the Collateral
Agent) executed by a senior officer of the Grantor as to the absence
of any such Event of Default) release funds then credited to the
Collateral Account to the Grantor. At any time following the
occurrence and during the continuance of an Event of Default, the
Collateral Agent may in its discretion apply or cause to be applied
(subject to collection) the balance from time to time outstanding to
the credit of the Collateral Account to the payment of the Secured
Obligations in the manner specified herein.
(iii) Subject to the terms of the Intercreditor Agreement, if
an Event of Default shall not then have occurred and be continuing,
substantially all amounts credited to the Collateral Account shall
be invested from time to time by the Collateral Agent upon the
direction of the Company in Cash Equivalents reasonably satisfactory
to the Collateral Agent and in which the Collateral Agent shall have
a first priority perfected security interest, which accounts,
investments, instruments and securities shall be held in the name
and be under the control of the Collateral Agent. If an Event of
Default shall have occurred and be continuing, all amounts credited
to the Collateral Account shall be
16
<PAGE> 17
invested by the Collateral Agent in such accounts (interest-bearing
or otherwise), investments, instruments and securities as the
Collateral Agent shall elect in its sole discretion. The Collateral
Agent shall have no responsibility or liability for any losses in
connection with any investment in connection with the Collateral
Account, including, without limitation, losses incurred in
connection with the liquidation of any such investments.
SECTION 11. LICENSE OF TRADEMARKS AND TRADE NAMES. The Grantor
hereby assigns, transfers and conveys to the Collateral Agent, effective upon
the occurrence of, and during the continuance of, any Event of Default, the
nonexclusive right and license to use all trademarks, trade names and copyrights
owned or used by the Grantor that relate to the Collateral and any other
collateral granted by the Grantor as security for the Secured Obligations,
together with any goodwill associated therewith, all to the extent necessary to
enable the Collateral Agent to use, possess and realize on the Collateral and
any successor or assignee to enjoy the benefits of the Collateral. This right
and license shall inure to the benefit of the Collateral Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to the Grantor. If (a) an Event of
Default shall have occurred and, by reason of waiver, modification, amendment or
otherwise, no longer be continuing, (b) no other Event of Default shall be
continuing, (c) an assignment to the Collateral Agent shall have been previously
made pursuant to this Section 11, and (d) the Secured Obligations shall not have
become immediately due and payable, upon the written request of the Grantor, the
Collateral Agent shall promptly execute and deliver to the Grantor such
assignments as may be necessary to reassign to the Grantor any rights, title and
interests as may have been assigned pursuant to this Section 11, subject to any
disposition thereof that may have been made by the Collateral Agent pursuant
hereto; provided that, after giving effect to such reassignment, the Collateral
Agent's security interest and conditional assignment granted pursuant to this
Section 11, as well as all other rights and remedies of the Collateral Agent
granted hereunder, shall continue to be in full force and effect; and provided,
further, that the rights, title and interests so reassigned shall be free and
clear of all Liens other than Liens (if any) encumbering such rights, title and
interest at the time of their assignment to the Collateral Agent.
SECTION 12. TRANSFERS AND OTHER LIENS. The Grantor shall not:
(a) Except as permitted by each of the agreements governing the
Underlying Debt secured hereby from time to time in effect (including
without limitation the Senior Note Indenture and the New Credit Facility),
sell, assign (by operation of law or otherwise) or otherwise dispose of
any of the Collateral.
17
<PAGE> 18
(b) Except as permitted by each of the agreements governing the
Underlying Debt secured hereby from time to time in effect (including
without limitation the Senior Note Indenture and the New Credit Facility),
create or suffer to exist any Lien upon or with respect to any of the
Collateral to secure the indebtedness or other obligations of any person
or entity.
In the event any Collateral is sold, transferred or otherwise
disposed of in an Asset Sale or other transaction permitted by the Senior Note
Indenture and the New Credit Facility (as long as both such agreements are in
effect, otherwise by whichever agreement remains in effect), such Collateral
shall, concurrently therewith, be automatically released from the lien and
security interest under this Agreement and the Collateral Agent shall, at the
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such release; provided that
arrangements satisfactory to the Collateral Agent have been made for delivery to
the Collateral Agent of the amounts, if any, required to be paid to the Secured
Parties out of the net proceeds of such disposition.
SECTION 13. THE COLLATERAL AGENT. The Collateral Agent has been
appointed as the Collateral Agent hereunder pursuant to the Intercreditor
Agreement. The Collateral Agent shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking action (including,
without limitation, the release or substitution of Collateral) solely in
accordance with the Intercreditor Agreement. The Collateral Agent may resign and
a successor Collateral Agent may be appointed in the manner provided for in the
Intercreditor Agreement for resignation and appointment of a successor
Collateral Agent. Upon the acceptance of any appointment as the Collateral Agent
by a successor Collateral Agent, the successor Collateral Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent under this Agreement, and the retiring
Collateral Agent shall thereupon be discharged from its duties and obligations
under this Agreement and shall deliver any Collateral in its possession to the
successor Collateral Agent. After any retiring Collateral Agent's resignation,
the provisions of this Agreement shall inure to its benefit as to any actions
taken or omitted to be taken by it under this Agreement while it was the
Collateral Agent.
SECTION 14. THE COLLATERAL AGENT APPOINTED Attorney-in-Fact. The
Grantor hereby irrevocably appoints the Collateral Agent the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor, the Collateral Agent or otherwise, from time to time
in the Collateral Agent's reasonable discretion to take any action and to
execute any instrument that the Collateral Agent may deem necessary or
advisable, subject to the terms and conditions of this Agreement, to accomplish
the purposes of this Agreement, including, without limitation:
18
<PAGE> 19
(a) Subject to the last sentence of Section 8(d) hereof, and after
consultation with the Grantor, to obtain and adjust insurance required to
be maintained by the Grantor or paid to the Collateral Agent pursuant to
Section 8 hereof;
(b) Upon the occurrence of, and during the continuance of, an Event
of Default, to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(c) Upon the occurrence of, and during the continuance of, an Event
of Default, to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clauses (a)
and (b) above;
(d) Upon the occurrence of, and during the continuance of, an Event
of Default, to file any claims or take any action or institute any
proceedings that the Collateral Agent may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights
of the Collateral Agent with respect to any of the Collateral;
(e) After consultation with the Grantor, to pay or discharge taxes
(other than taxes not then required to be paid or discharged by any of the
agreements governing the Underlying Debt secured hereby, from time to time
in effect including without limitation the Senior Note Indenture and the
New Credit Facility) or Liens (other than Permitted Liens), levied or
placed upon or threatened against the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined
by the Collateral Agent in its reasonable discretion, and such payments
made by the Collateral Agent to become obligations of the Grantor to the
Collateral Agent, due and payable immediately without demand;
(f) Upon the occurrence of, and during the continuance of, an Event
of Default, to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and
other documents relating to the Collateral; and
(g) Upon the occurrence of, and during the continuance of, an Event
of Default, generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner thereof
for all purposes, and to do, at the Collateral Agent's option and the
Grantor's expense, at any time, or from time to time, all acts and things
that the Collateral Agent deems necessary to protect,
19
<PAGE> 20
preserve or realize upon the Collateral and the Collateral Agent's
security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Grantor might do.
SECTION 15. COLLATERAL AGENT MAY PERFORM. If the Grantor fails to
perform any agreement contained herein, the Collateral Agent may, upon thirty
days' prior written notice to the Grantor (unless otherwise expressly set forth
in this Agreement or an Event of Default shall have occurred and be continuing,
in which case, no such notice shall be required), itself perform, or cause
performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Grantor under Section
18 hereof.
SECTION 16. THE COLLATERAL AGENT'S DUTIES AND LIABILITIES.
(a) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any
Collateral. The Collateral Agent shall be deemed to exercise reasonable
care in the custody and preservation of such Collateral if such Collateral
is accorded treatment substantially equivalent to that which the
Collateral Agent accords its own property.
(b) The Collateral Agent shall not be liable to the Grantor (i) for
any loss or damage sustained by it, or (ii) for any loss, damage,
depreciation or other diminution in the value of any of the Collateral,
that may occur as a result of, in connection with or that is in any way
related to (x) any exercise by the Collateral Agent of any right or remedy
under this Agreement or (y) any other act of or failure to act by the
Collateral Agent, except to the extent that the same shall be determined
by a judgment of a court of competent jurisdiction to be the result of
acts or omissions on the part of the Collateral Agent constituting gross
negligence or willful misconduct.
(c) Except to the extent resulting from acts or omissions on the
part of the Collateral Agent or its affiliates, directors, officers,
employees, attorneys, or agents constituting gross negligence or willful
misconduct, no claim may be made by the Grantor against the Collateral
Agent or its affiliates, directors, officers, employees, attorneys or
agents for any special, indirect, or consequential damages in respect of
any breach or wrongful conduct (whether the claim therefor is based on
contract, tort or duty imposed by law) in connection with, arising out of
or in any way related to the transactions contemplated and relationship
established by
20
<PAGE> 21
this Agreement, or any act, omission or event occurring in connection
therewith; and the Grantor hereby waives, releases and agrees not to sue
upon any such claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
SECTION 17. REMEDIES UPON DEFAULT; DECISIONS RELATING TO EXERCISE OF
REMEDIES.
(a) Events of Default. The occurrence of any "EVENT OF DEFAULT" as
defined in any of the agreements governing the Underlying Debt secured
hereby from time to time in effect (including without limitation the
Senior Note Indenture and the New Credit Facility) shall constitute an
Event of Default under this Agreement.
(b) Remedies Upon an Event of Default. If any Event of Default shall
have occurred and be continuing, the Collateral Agent may exercise in
respect of the Collateral, (i) all the rights and remedies of a secured
party on default under the Uniform Commercial Code as in effect in any
applicable jurisdiction (the "Applicable UCC") (whether or not the
Applicable UCC applies to the affected Collateral), (ii) all of the rights
and remedies provided for in this Agreement, the Senior Note Indenture,
the New Credit Facility, and any other agreement between the Grantor and
any Secured Party and (iii) such other rights and remedies as may be
provided by law or otherwise (such rights and remedies of any Secured
Party to be cumulative and non-exclusive). If an Event of Default shall
have occurred and be continuing, the Collateral Agent also may (i) require
the Grantor to, and the Grantor hereby agrees that it will, at its expense
and upon request of the Collateral Agent forthwith, assemble all or part
of the Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place to be designated by the
Collateral Agent that is reasonably convenient to both parties, (ii) enter
onto the property where any Collateral is located and take possession
thereof with or without judicial process, (iii) prior to the disposition
of the Collateral, store, process, repair or recondition the Collateral or
otherwise prepare the Collateral for disposition in any manner to the
extent the Collateral Agent deems appropriate, (iv) take possession of the
Grantor's premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Grantor's
equipment for the purpose of completing any work in process, taking any
actions described in the preceding clause (iii) and collecting any Secured
Obligation, and (v) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Collateral Agent may deem commercially reasonable. The
Grantor agrees that, to the extent notice of sale shall be required at
law, at least ten days' prior written notice to the Grantor
21
<PAGE> 22
of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
If an Event of Default shall have occurred and be continuing, the
Collateral Agent may retain any of the Grantor's directors, officers and
employees, in each case upon such terms as the Collateral Agent and any
such person may agree, notwithstanding the provisions of any employment,
confidentiality or non-disclosure agreement between any such person and
the Grantor, and the Grantor hereby waives its rights under any such
agreement and consents to each such retention.
(c) Decisions Relating to Exercise of Remedies. Notwithstanding
anything in this Agreement to the contrary, as provided in the
Intercreditor Agreement, the Collateral Agent shall exercise, or shall
refrain from exercising any remedy provided for in Section 17(b) in
accordance with the instructions of the Requisite Party (as defined in the
Intercreditor Agreement) and the Secured Parties shall be bound by such
instructions; and the sole rights of the Secured Parties under this
Agreement shall be to be secured by the Collateral and to receive the
payments provided for in Section 18 hereof.
SECTION 18. APPLICATION OF PROCEEDS. All proceeds received by the
Collateral Agent in respect of any sale of, collection from or other realization
upon all or any part of the Collateral may, in the discretion of the Collateral
Agent, be held by the Collateral Agent as Collateral for, and/or then, or at any
other time thereafter applied, in full or in part by the Collateral Agent
against the Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization and all other expenses, liabilities and
advances made or incurred by the Collateral Agent in connection therewith
and all amounts for which the Collateral Agent is entitled to
indemnification hereunder and all advances made by the Collateral Agent
hereunder for the account of the Grantor and for the payment of all costs
and expenses paid or incurred by the Collateral Agent in connection with
the exercise of any right or remedy hereunder, all in accordance with
Section 19 hereof;
SECOND: To the payment of the Secured Obligations as provided in
Section 4 of the Intercreditor Agreement; and
22
<PAGE> 23
THIRD: After payment in full of the amounts specified in the
preceding subparagraphs, to the payment to, or upon the order of, the
Grantor, or whosoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
SECTION 19. INDEMNITY AND EXPENSES.
(a) The Grantor agrees to indemnify the Collateral Agent and each
Secured Party and each of the officers, directors, agents, employees and
affiliates of each of them (each an "INDEMNITEE") from and against any and
all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement).
The foregoing indemnification shall apply whether or not such claims,
losses or liabilities are in any way or to any extent owed, in whole or in
part, under any claim or theory of strict liability, or are caused, in
whole or in part, by any negligent act or omission of any Indemnitee;
provided only that no Indemnitee shall be entitled to receive
indemnification for that portion, if any, of any claims, losses or
liabilities proximately cased by such Indemnitee's gross negligence or
willful misconduct.
(b) The Grantor will upon demand pay to the Collateral Agent the
amount of any and all reasonable expenses, including the reasonable fees
and disbursements of its counsel and of any experts and agents, that
Collateral Agent may incur in connection with (i) the administration of
this Agreement, (ii) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by the Grantor to perform
or observe any of the provisions hereof.
(c) The obligations of Grantor in this Section 19 hereof shall
survive termination of this Agreement and the discharge of Grantor's other
obligations under this Agreement, the Senior Note Indenture, the New
Credit Facility and other Collateral Documents.
SECTION 20. CONTINUING SECURITY INTEREST; TERMINATION. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the indefeasible payment in full
of the Secured Obligations and termination of the Lenders' obligations to lend
and extend credit under the New Credit Facility and the cancellation or
expiration of all outstanding letters of credit, (b) be binding upon the
Grantor, its successors and assigns and (c) inure, together with the rights and
remedies of the Collateral Agent and the Secured Parties hereunder, to the
benefit of the Collateral Agent and the Secured Parties and the successors,
transferees and assigns of each. Without limiting the generality of the
foregoing clause (c), any Secured Party may, subject to the provisions of the
Senior Note Indenture and the New Credit
23
<PAGE> 24
Facility , as applicable, assign or otherwise transfer any Senior Note or loan,
or portion thereof, held by them, respectively, or any other obligations secured
hereby and any agreements or instruments executed in connection therewith to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to that Secured Party
herein or otherwise. Upon the indefeasible payment in full of the Secured
Obligations and termination of the Lenders' obligations to lend or extend credit
under the New Credit Facility and the cancellation or expiration of all
outstanding letters of credit, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantor. Upon any
such termination, the Collateral Agent will, at the Grantor's expense, execute
and deliver to the Grantor, against receipt and without recourse to or warranty
by Collateral Agent, such documents as the Grantor shall reasonably request to
evidence such termination.
SECTION 21. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent on its behalf and on behalf of the Secured Parties, assignments and
pledges made and created hereunder, and all obligations of the Grantor, shall be
absolute and unconditional, irrespective of:
(a) Any lack of validity or enforceability of any of the Secured
Obligations or any agreement or instrument relating thereto;
(b) Any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of, or any consent to any departure from, any
agreement or instrument relating to the Secured Obligations;
(c) Any exchange, release, subordination or nonperfection of any
other collateral, or any release or amendment or waiver of or consent to
any departure from any guaranty, for all or any of the Secured
Obligations; or
(d) Any other circumstance (including, but not limited to, any
statute of limitations) which might otherwise constitute a defense
available to, or a discharge of, the Grantor or a third party grantor or a
security interest.
SECTION 22. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement nor consent to any departure by the Grantor herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Grantor and the Collateral Agent on behalf of the Requisite Party (as defined in
the Intercreditor Agreement), and then such waiver or consent shall be effective
only in the specified instance and for the specific purpose for which given.
SECTION 23. ADDRESSES FOR NOTICES. Unless otherwise specifically
provided herein, any notice or other communication herein required or permitted
to be
24
<PAGE> 25
given shall be in writing and may be personally served, telecopied, telexed or
sent by United States mail or courier service and shall be deemed to have been
given when delivered in person, upon receipt (in the case of telecopy or telex)
or four business days after depositing it in the United States mail, registered
or certified, with postage prepaid and properly addressed; provided that any
notice sent to the Collateral Agent shall not be effective until received. For
purposes hereof, the addresses of the parties hereto (until notice of a change
thereof) is delivered as provided in this Section 23 shall be as set forth under
each party's name on the signature pages hereof.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF Process. All
judicial proceedings brought against the Grantor with respect to this Agreement
may be brought in any state or Federal court of competent jurisdiction sitting
in New York, New York and by execution and delivery of this Agreement the
Grantor accepts for itself and in connection with the Collateral, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgement rendered thereby in connection
with this Agreement. The Grantor designates and appoints The Prentice-Hall
Corporation System, Inc., 15 Columbus Circle, New York, New York 10023 and such
other Person as may be hereafter selected by the Grantor irrevocably agreeing in
writing to so serve, as its agent to receive on its behalf service of all
process in any proceedings in any court sitting in New York, New York, such
service being hereby acknowledged by the Grantor to be effective and binding
service in every respect. A copy of any such process so served shall be mailed
by registered mail to the Grantor, at its address specified in Section 23
hereof, except that unless otherwise provided by applicable law, any failure to
mail such copy shall not affect the validity of service of process. If any agent
appointed by the Grantor refuses to accept service, the Grantor hereby agrees
that service upon it by mail shall constitute sufficient notice. Nothing herein
shall affect the right to serve process in any other manner permitted by law or
shall limit the right of the Collateral Agent to bring proceedings against the
Grantor in the courts of any other jurisdiction.
SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES), EXCEPT
TO THE EXTENT THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein, terms used in Article 9 of the Code are used herein as therein
defined.
SECTION 26. WAIVER OF JURY TRIAL. THE GRANTOR AND THE COLLATERAL
AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED
25
<PAGE> 26
UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation, contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. The Grantor and the Collateral Agent each
acknowledge that this waiver is a material inducement for the Grantor and the
Collateral Agent to enter into a business relationship, that the Grantor and the
Collateral Agent have already relied on the waiver in entering into this
Agreement and that each will continue to rely on the waiver in their related
future dealings. The Grantor and the Collateral Agent further warrant and
represent that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 27. WAIVER. Except as otherwise expressly provided herein,
the Grantor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Secured Obligations and this Agreement
and any requirement that the Collateral Agent or any Secured Party protect,
secure, perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against the Grantor or any other
person or entity or any of the Collateral.
SECTION 28. NO WAIVER. No failure on the part of the Collateral
Agent to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; and no single or partial exercise by the Collateral Agent of any right,
power or remedy hereunder shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies herein
provided are to the fullest extent permitted by law cumulative, and are not
exclusive of any remedies provided by law.
SECTION 29. MARSHALLING; PAYMENT SET ASIDE. The Collateral Agent
shall not be under any obligation to marshal any assets in favor of the Grantor
or any other party or against or in payment of any or all of the Secured
Obligations. To the extent that the Grantor makes a payment or payments to the
Collateral Agent or the Collateral Agent enforces its security interests or
exercises its rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or Federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and
26
<PAGE> 27
remedies therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or setoff had not occurred.
SECTION 30. HEADINGS. Section and subsection headings in
this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement or be given any
substantive effect.
SECTION 31. SEVERABILITY. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation and in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 32. COUNTERPARTS. This Agreement, and any amendments,
waivers, consents or supplements, may be executed in one or more counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which together shall constitute one and the same Agreement.
27
<PAGE> 28
IN WITNESS WHEREOF, the Grantor and the Collateral Agent have caused
this Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
AMERICAN RESTAURANT GROUP, INC.,
a Delaware corporation
By: /s/ William J. McCaffrey Jr.
--------------------------------------
Title: Vice President and
Chief Financial Officer
NOTICE ADDRESS:
450 Newport Center Drive
Newport Beach, California 92660
Attention: Chairman and Chief
Executive Officer
With copies to:
Patrick J. Kelvie, Esq.
American Restaurant Group, Inc.
4410 El Camino Real, Suite 201
Los Altos, California 94022
<PAGE> 29
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., AS COLLATERAL AGENT
By:/s/
------------------------------------
Title: Authorized Officier
--------------------------------
NOTICE ADDRESS:
515 South Flower St., Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
<PAGE> 30
SCHEDULE I
TO COMPANY SECURITY AGREEMENT
Locations of Deposit Accounts: Set forth on Annex A hereto.
Locations of Equipment and Inventory:
450 Newport Center Drive
Newport Beach, California 92660
(American Restaurant Group corporate offices)
1
<PAGE> 31
ANNEX A
CORPORATE
_____________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME MAIN CONCENTRATION
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4001-197235
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME OVERLAND SWEEP
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4417-800414
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME MONEY MARKET
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 6001-720937
______________________________________________
<PAGE> 32
_____________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME CREDIT CARD FUNDING
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4001-197201
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME ACCOUNTS PAYABLE
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4759-000334
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME PAYROLL - DATACCOUNT
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4759-011752
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME PAYROLL - PROBUSINESS
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4759-007925
______________________________________________
<PAGE> 33
_____________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME GENERAL AMERICAN
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4759-005267
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME VPA - CALIFORNIA
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4518-083969
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME VPA - O/S CALIFORNIA
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4518-064134
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME PAYROLL TAX FUNDING
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4600-084586
______________________________________________
<PAGE> 34
_____________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME SALES TAX FUNDING
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4518-053137
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME CRAWFORD FUNDING
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4518-081138
______________________________________________
______________________________________________________________________
UNIT 90900
______________________________________________
______________________________________________
NAME CORPORATE CHECKING
______________________________________________
______________________________________________
BANK WELLS FARGO BANK
______________________________________________
______________________________________________
ADDRESS 707 WILSHIRE BOULEVARD, 13TH FLOOR
______________________________________________
______________________________________________
CITY, STATE, ZIP LOS ANGELES, CA 90017
______________________________________________
______________________________________________
TELEPHONE (213) 614-3757
______________________________________________
______________________________________________
ACCOUNT 4643-067945
______________________________________________
______________________________________________________________________
<PAGE> 35
SCHEDULE II
TO COMPANY SECURITY AGREEMENT
Address of offices where records regarding Payment Rights and Chattel Paper are
maintained:
450 Newport Center Drive
6th Floor
Newport Beach, California 92660
997 Grandy's Lane
Lewisville, Texas 95067
Trade names and/or fictitious business names under which business is conducted:
-None-
1
<PAGE> 36
SCHEDULE III
TO COMPANY SECURITY AGREEMENT
Filing Jurisdictions
American Restaurant Group, Inc.
Secretary of the Department of Natural Resources, Alaska
Secretary of State, Arizona
Secretary of State, California
Secretary of State, Colorado
Secretary of State, Delaware
Secretary of State, Florida
Bureau of Conveyances, Hawaii
Secretary of State, Idaho
Secretary of State, Indiana
Secretary of State, Kansas
Secretary of State, Minnesota
Secretary of State, Nevada
Secretary of State, New Mexico
County Clerk of Oklahoma County, Oklahoma
Secretary of State, Oregon
Secretary of State, Texas
Secretary of State, Utah
State Department of Licensing, Washington
1
<PAGE> 37
Exhibit A - Form of Deposit Account Notice
February __, 1998
[Name and Address of the Bank]
Attention:
Re: American Restaurant Group, Inc.
$155,000,000 Senior Secured Notes
Ladies & Gentlemen:
American Restaurant Group, Inc., a Delaware corporation (the
"Corporation"), has entered into a Company Security Agreement with U.S. Trust
Company of California, N.A. (the "Secured Party") for the benefit of certain
parties, including BankBoston, N.A., as Agent, U.S. Trust Company of California,
N.A., as Indenture Trustee, certain lenders and certain noteholders, dated as of
February 25, 1998. You are hereby notified [pursuant to Section 9-302 of the
Uniform Commercial Code as in effect in the State of California (California
Commercial Code Section 9-302)] that the Corporation granted to the Secured
Party for the benefit of certain parties, including BankBoston, N.A., as Agent,
U.S. Trust Company of California, N.A., as Indenture Trustee, certain lenders
and certain noteholders, a continuing lien on and security interest in all of
the right, title and interest of the Corporation now or hereafter existing in,
to and under the accounts listed on Exhibit A hereto (the "Accounts") and all
monies and other funds, certificates, securities, other instruments, general
intangibles, and other items, property and assets now or hereafter credited to
or received or deposited in the Accounts from time to time, to secure the
Secured Obligations (as defined in the Company Security Agreement).
With respect to the Accounts, you are hereby instructed and by your
signature below hereby agree as follows:
We hereby irrevocably instruct you, and you hereby agree, that upon
receiving notice (the "Notice") from the Secured Party or its agent, BankBoston,
N.A. (the "Agent") substantially in the form attached hereto as Exhibit B: (i)
the name of the holder of each Account listed in such notice will be changed to
"U.S. Trust Company of
<PAGE> 38
[Name and Address of the Bank]
[Date]
California, N.A." (or to the name of any designee of the Secured Party specified
by the Secured Party or the Agent), (ii) the Agent and/or its designee will have
exclusive access to and control over such Account, and neither we nor any of our
affiliates will have any control of such Account or any access thereto, (iii)
you will transfer monies on deposit in the Account, at any time, to Wells Fargo
Bank, National Association with respect to account no. 4001-197235 or such other
account the Agent and/or its designee may direct from time to time, and (iv) all
services to be performed by you under this agreement will be performed by you as
agent for and on behalf of the Secured Party and the Agent. We hereby agree that
the Secured Party or the Agent may deliver such Notice at any time and from time
to time. We agree, however, to continue to pay all fees and other assessments
due to you at any time until the each applicable Account is closed.
Copies of all correspondence, notices, account statements or other
information which you are otherwise obligated to send to us (by law, agreement
or otherwise) will be sent to the Secured Party at the following address:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
with a copy to the Agent at:
Bank Boston, N.A.
100 Federal Street
Boston, MA 02110
Attention: Thomas F. Farley, Jr.
Telecopy No: (617) 434-5812
You hereby acknowledge that, except pursuant to court order, monies
or other property deposited in the Accounts will not be subject to deduction,
setoff, banker's lien or any other lien, claim, encumbrance or right you may
have against us or against the Corporation.
<PAGE> 39
[Name and Address of the Bank]
[Date]
This letter agreement and the rights and obligations of the parties
hereunder will be governed by and construed and interpreted in accordance with
the internal laws of the State of [_______].
This letter agreement contains the entire agreement among the
parties, and may not be altered, modified, terminated or amended in any respect,
nor may any right, power or privilege of any party hereunder be waived or
released or discharged, except upon execution by all parties hereto of a written
instrument so providing. In the event that any provision in this letter
agreement is in conflict with, or inconsistent with, any provision of the
Company Security Agreement or any agreement among you and the Corporation to
which the Secured Party is not a party, this letter agreement will exclusively
govern and control. Each party agrees to take all actions reasonably requested
by any other party to carry out the purposes of this letter agreement or to
preserve and protect the rights of each party hereunder.
4
<PAGE> 40
[Name and Address of the Bank]
[Date]
Please indicate your agreement to the terms of this letter agreement
by signing in the space provided below. This letter agreement may be executed in
any number of counterparts and all of such counterparts taken together will be
deemed to constitute one and the same instrument. This letter agreement will
become effective immediately upon execution of a counterpart of this letter
agreement by all parties hereto.
Very truly yours,
American Restaurant Group, Inc.
By__________________________________
Name:_______________________________
Title:______________________________
U.S. Trust Company of California, N.A.
By__________________________________
Name:_______________________________
Title:______________________________
5
<PAGE> 41
[Name and Address of the Bank]
[Date]
Acknowledged, consented and
agreed to
[the Bank]
By__________________________________
Name:_______________________________
Title:______________________________
6
<PAGE> 42
Exhibit A
The Accounts
<TABLE>
<CAPTION>
Account Number Account Name
- -------------- ------------
<S> <C>
</TABLE>
7
<PAGE> 43
EXHIBIT B
Form of Notice of Control
[from Secured Party or Agent]
___________, 19__
[Name and Address of Bank]
______________________________
______________________________
______________________________
Re: American Restaurant Group $155,000,000 Senior Secured
Notes
Ladies and Gentlemen:
We hereby notify you that we are exercising our rights pursuant to
that certain letter agreement among [insert name of debtor], you and us, dated
February 25, 1998 (the "Agreement") a copy of which is attached to have the name
of, and to have exclusive ownership and control of, account number (the
"Account") maintained with you, transferred to us. The Account will henceforth
be a zero-balance account, and funds deposited in the Account should be sent at
the end of each day to . You are hereby instructed to send a copy of this letter
to [insert name of Corporation] at the address and in the manner provided in the
Agreement.
We appreciate your cooperation in this matter.
Very truly yours,
[the Secured Party]/[Agent]
By__________________________________
Name:_______________________________
Title:______________________________
cc: American Restaurant Group, Inc.
<PAGE> 1
EXHIBIT 4.11
SUBSIDIARY SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "AGREEMENT") is dated as of February 25,
1998, and is entered into by and between each of the undersigned direct and
indirect Subsidiaries of AMERICAN RESTAURANT GROUP, INC., a Delaware corporation
(the "COMPANY") (each such Subsidiary a "GRANTOR" and collectively, the
"GRANTORS"), and U.S. TRUST COMPANY OF CALIFORNIA, N.A. ("U.S. Trust") as
collateral agent for and representative of (in such capacity herein called the
"COLLATERAL AGENT") the Secured Parties (as hereinafter defined).
R E C I T A L S
---------------
WHEREAS, pursuant to that certain Indenture dated as of February 25,
1998 (as supplemented and otherwise amended from time to time, the "Senior Note
Indenture"), by and among the Company, the Grantors, and U. S. Trust, as Trustee
thereunder (in such capacity, the "Indenture Trustee"), the Company will issue
11.50% Series A senior secured notes (and, in connection with the Exchange Offer
as defined in the Senior Note Indenture, the Series B senior secured notes) due
on or before 2003 in an aggregate principal amount of up to $155,000,000
(collectively, the "Senior Notes") to the holders thereof (the "Senior Note
Holders");
WHEREAS, the Company, each Grantor, the lenders listed on the signature
pages thereof (the "Lenders") and BankBoston, N.A., as agent thereunder (the
"Agent"), have entered into that certain Credit Agreement (as defined in the
Intercreditor Agreement referred to below and together with any loan documents
referred to therein, the "New Credit Facility");
WHEREAS, pursuant to a guaranty included in the Senior Note Indenture,
the Grantors have guaranteed the obligations of the Company under the Senior
Notes, the Senior Note Indenture and the other documents to which the Company is
a party;
WHEREAS, the Collateral Agent, the Indenture Trustee and the Agent have
entered into that certain Intercreditor Agreement, dated as of the date hereof
(the "Intercreditor Agreement") providing for, among other things, the
appointment of the Collateral Agent to administer and enforce the Collateral
Documents and Collateral as provided therein;
WHEREAS, it is a condition precedent to the Senior Note Indenture and
the New Credit Facility that each Grantor shall have entered into this Agreement
and granted the security interests provided herein;
WHEREAS, each Grantor wishes to grant a security interest in favor of
the Collateral Agent for the benefit of the Indenture Trustee, the Senior Note
Holders, the
<PAGE> 2
Agent and the Lenders and the persons who may in the future become secured
parties in accordance with the terms of the Intercreditor Agreement (all such
beneficially interested parties being herein referred to as the "SECURED
PARTIES"); and
WHEREAS, the rights and obligations of each of the Secured Parties are
further governed by and subject to the Intercreditor Agreement;
NOW, THEREFORE, in consideration of the premises set forth herein and
in order to induce the Senior Note Holders to purchase the Senior Notes and to
induce the Lenders to make loans and other extensions of credit under the New
Credit Facility, each Grantor hereby agrees with the Collateral Agent for the
ratable benefit of the Secured Parties as follows:
SECTION 1. GRANT OF SECURITY. Each Grantor, in order to secure the
Secured Obligations (as defined in Section 2), hereby assigns and pledges to the
Collateral Agent for its benefit and for the ratable benefit of the Secured
Parties and hereby grants to the Collateral Agent for its benefit and for the
ratable benefit of the Secured Parties a first-priority security interest in all
of the Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which the Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
(a) All items of "equipment" and "fixtures" (as such terms are defined
in Section 9-109(2) and 9-313 of the Uniform Commercial Code of the State
of New York (the "Code"), respectively) and including all equipment,
machinery, furnishings, fixtures, tools, supplies, automotive equipment,
motor vehicles and other equipment of any kind and nature, together with
all replacements, substitutions, attachments, parts (including spare
parts), modifications, additions, improvements, upgrades and accessions
of, to or upon such items of equipment or fixtures (together referred to
herein as the "EQUIPMENT");
(b) All inventory in all of its forms, wherever located now or
hereafter existing (as such term is defined in Section 9-109(4) of the
Code), including, but not limited to, (i) all goods held by the Grantor
for sale or lease or to be furnished under contracts of service or so
leased or furnished, (ii) all raw materials, work in process, finished
goods, and materials used or consumed in the manufacture, packing,
shipping, advertising, selling, leasing, furnishing or production of such
inventory or otherwise used or consumed in the Grantor's business, (iii)
goods in which the Grantor has an interest in mass or a joint or other
interest or right of any kind, (iv) goods which are returned to or
repossessed by the Grantor and (v) all additions and accessions thereto
and replacements thereof (all such inventory, accessions and products
being the "INVENTORY");
(c) All accounts (as such term is defined in Section 9-106 of the
Code), contract rights, chattel paper (as such term is defined in Section
9-105(b) of the
2
<PAGE> 3
Code), investment property (as such term is defined in Section 9-115 of
the Code), instruments (as such term is defined in Section 9-105(1)(i) of
the Code), guaranties, letters of credit, documents (as such term is
defined in Section 9-105(f) of the Code), drafts, acceptances, tax
refunds, insurance claims, rights to performance, judgments, security
agreements, leases, other obligations or receivables and general
intangibles (as such term is defined in Section 9-106 of the Code) of
every nature, including without limitation, all rights and claims to the
payment or receipt of money or other forms of consideration of any kind
included in this clause (c) (any and all such rights and claims to the
payment or receipt of money or other forms of consideration being the
"PAYMENT RIGHTS," and any and all such leases, security agreements and
other contracts being the "RELATED CONTRACTS");
(d) All United States and foreign trademarks, trademark rights, service
marks, certification marks, collective marks, service mark rights, trade
names, trade name rights, designs, logos, indicia, corporate names,
company names, business names, fictitious business names, trade styles
and/or other source and/or business identifiers, registrations and
applications pertaining thereto, renewals and extensions thereof, whether
now owned or hereafter acquired or issued, all common law and other rights
in and to the foregoing and the accompanying goodwill and other like
business property rights and the right (but not the obligation) to
register claim under trademark and to renew and extend such trademarks,
and the right (but not the obligation) to sue in the name of the Grantor
for past, present or future infringement of trademark and all proceeds of
the foregoing, including, without limitation, license royalties, income,
payments, claims, damages and proceeds of suit ("TRADEMARK Property");
(e) All United States and foreign common law and/or statutory
copyrights, rights and interests of every kind and nature in copyrights
and works protectable by copyright, whether now owned or hereafter created
or acquired and renewals and extensions of copyrights, and the right (but
not the obligation) to make publication thereof for copyright purposes, to
register claim upon copyright and the right (but not the obligation) to
renew and extend such copyrights, and the right (but not the obligation)
to sue in the name of the Grantor for past, present and future
infringements of copyright, and all proceeds of the foregoing, including
without limitation, royalties, income, payments, claims, damages, and
proceeds of suit ("COPYRIGHT PROPERTY");
(f) All United States and foreign patents and patent applications now
owned or hereafter acquired from time to time, and licenses and rights in,
and the right (but not the obligation) to sue in the name of the Grantor
or in the name of the Collateral Agent for, all past, present and future
infringements of any such properties, all reissues, divisions,
continuations, continuations-in-part, extensions, renewals, and
reexaminations of any of the foregoing, and all proceeds of the foregoing
including, without limitation, royalties, income, payments, claims,
3
<PAGE> 4
damages, and proceeds of suit and the right to sue for past infringements
of any of the foregoing ("PATENT PROPERTY");
(g) All cash, money, currency and all deposit accounts listed on
Schedule I hereto, including demand, time, savings, passbooks or similar
accounts maintained with the Senior Note Holders, the Lenders or other
banks, savings and loan associations or similar entities (the "PLEDGED
DEPOSITS");
(h) All books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software (owned by the
Grantor or in which it has an interest) that at any time evidence or
contain information relating to any of the Collateral or are otherwise
necessary or helpful in the collection thereof or realization thereupon;
(i) all shares of capital stock of any Subsidiary, and all options or
rights to acquire any such shares or interests, in each case now or
hereafter owned by such Grantor, all distributions on such capital stock
(as constituted immediately prior to such distribution) constituting
securities (whether debt or equity securities or otherwise), and all other
or additional stock, notes, securities or property paid or distributed in
respect of capital stock (as constituted immediately prior to such payment
or distribution) (A) by way of stock-split, spin-off, split-up,
reclassification, combination of shares or similar rearrangement or (B) by
reason of any consolidation, merger, exchange of stock, conveyance of
assets, liquidation, bankruptcy or similar corporate reorganization or
other disposition of capital stock;
(j) all dividends, distributions, payments of interest and principal
and other amounts (whether consisting of securities, personalty or other
property) from time to time received, receivable or otherwise distributed
in respect of or in exchange or substitution for any capital stock;
(k) the account (which may be a securities account) established and
maintained by U.S. Trust and its successors and assigns, entitled
"American Restaurant Group Collateral Account, U.S. Trust Company of
California, N.A., as collateral agent, secured party", and all funds,
securities and other property or other items from time to time credited to
such account and all interest, income and distributions thereon (the
"Collateral Account");
(l) all rights to payment for goods sold or leased or services
rendered, whether or not earned by performance and all rights in respect
of the account debtor, including without limitation all such rights
constituting or evidenced by any account, chattel paper or instrument,
together with (a) any collateral assigned, hypothecated or held to secure
any of the foregoing and the rights under any security agreement granting
a security interest in such collateral, (b) all goods, the sale of which
gave rise to any of the foregoing, including, without limitation, all
4
<PAGE> 5
rights in any returned or repossessed goods and unpaid seller's rights,
(c) all guarantees, endorsements and indemnifications on, or of, any of
the foregoing and (d) all powers of attorney for the execution of any
evidence of indebtedness or security or other writing in connection
therewith (the "Receivables");
(m) all original copies of all documents, instruments or other writings
evidencing the Receivables, all books, correspondence, credit or other
files, records, ledge sheets or cards, invoices, and other papers relating
to Receivables, including without limitation all tapes, cards, computer
tapes, computer discs, computer runs, record keeping systems and other
papers and documents relating to the Receivables, whether in the
possession or under the control of such Grantor or any computer bureau or
agent from time to time acting for such Grantor or otherwise and all
credit information, reports and memoranda relating thereto (the
"Receivables Records");
(n) all interest rate or currency protection or hedging arrangements,
including without limitation, caps, collars, floors, forwards and any
other similar or dissimilar interest rate or currency exchange agreements
or other interest rate or currency hedging arrangements;
(o) all insurance policies;
(p) all motor vehicles, tractors, trailers and other like property, if
title thereto is governed by a certificate of title ownership; and
(q) All proceeds of any and all of the foregoing Collateral and, to the
extent not otherwise included, all payments under insurance (whether or
not the Collateral Agent, or any Secured Party is the loss payee thereof),
or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.
For purposes of this Agreement, the term "proceeds" includes whatever is
receivable or received when Collateral or proceeds are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary
or involuntary, and includes, without limitation, all rights to payment,
including returned premiums, with respect to any insurance relating
thereto.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by acceleration or otherwise, (including
the payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
Section362(a)) of all obligations of every nature of each Grantor under the (a)
the Senior Note Indenture and the Senior Notes, (b) the New Credit Facility and
(c) any instrument governing other indebtedness of any Grantor which is then
secured by the Collateral in accordance with the terms of the Intercreditor
Agreement, whether for principal, interest (including, without limitation,
interest that, but
5
<PAGE> 6
for the filing of a petition in bankruptcy with respect to the Grantor, would
accrue on such obligations), fees, expenses or otherwise, whether now existing
or hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred and all or any portion of such obligations that
are paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Collateral Agent as a preference, fraudulent
transfer or otherwise (all such obligations being the "UNDERLYING DEBT"), and
all obligations of every nature of each Grantor now or hereafter existing under
this Agreement (all such obligations of each such Grantor, together with the
Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. GRANTORS REMAIN LIABLE. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under any contracts and
agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Collateral Agent
of any of its rights hereunder shall not release the Grantor from any of its
duties or obligations under the contracts and agreements included in the
Collateral and (c) neither the Collateral Agent nor any Secured Party shall have
any obligation or liability under any contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Collateral Agent or any
Secured Party be obligated to perform any of the obligations or duties of the
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants as follows:
(a) Location of Equipment and Inventory; Office Locations; Fictitious
Names. As of the Closing Date, all of the Equipment and Inventory (other
than Equipment and Inventory which, either singly or in the aggregate, is
not material) of Grantor is located at the places specified on Schedule I
hereto. As of the Closing Date, the chief place of business and the chief
executive office of the Grantor is located at 450 Newport Center Drive,
6th Floor, Newport Beach, California 92660. As of the Closing Date, the
offices where the Grantor keeps its material records regarding the Payment
Rights of Grantor and all originals of all chattel paper that evidence
Payment Rights are set forth on Schedule II hereto. As of the Closing
Date, the Grantor does not do business under any trade name or fictitious
business name except as set forth on Schedule II hereto and does not have
any UCC-1 financing statements filed against it under any trade name or
fictitious business name.
(b) Delivery of Certain Collateral. All chattel paper, notes and other
instruments (excluding checks) comprising any or all of the items of
Collateral of Grantor have been delivered to the Collateral Agent duly
endorsed and accompanied by duly executed instruments of transfer or
assignment in blank.
6
<PAGE> 7
(c) Payment Rights Valid. Each material Payment Right constitutes the
legally valid and binding obligation of the party obligated to pay the
same (the "ACCOUNT GRANTOR") except as may be limited by bankruptcy,
reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally or by general principles of equity relating to
enforceability. To the knowledge of the Grantor, no Account Grantor has
any material defense, set off, claim or counterclaim against the Grantor
which can be asserted against the Collateral Agent whether in a proceeding
to enforce the Collateral Agent's rights in the Collateral or otherwise.
Each such material Payment Right complies in all material respects with
the provisions of all applicable laws and regulations, whether federal,
state or local, applicable thereto (including, without limitation, any
usury law, the Federal Truth and Lending Act and Regulation C of the
Federal Reserve System). None of the Payment Rights is evidenced by a
promissory note or other instrument, other than a check, that has not been
delivered to the Collateral Agent.
(d) Ownership of Collateral. Except for the security interest created
by this Agreement and Liens permitted by each of the agreements governing
the Underlying Debt secured hereby from time to time in effect, including
without limitation the Senior Note Indenture and the New Credit Facility
(collectively, "PERMITTED LIENS"), the Grantor owns the Collateral pledged
by the Grantor hereunder free and clear of any Lien. Except as may have
been filed in favor of the Collateral Agent relating to this Agreement or
in connection with Permitted Liens, no effective financing statement or
other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office.
(e) Perfection. Subject only to Permitted Liens, in the case of
existing Collateral, this Agreement creates, and in the case of after
acquired Collateral, at the time the Grantor first has rights in such
after acquired Collateral, this Agreement will create, in each case upon
the making of the filings described in clause (f) below or the taking of
possession by Collateral Agent with respect to security interests in
Collateral which can only be perfected by taking possession of such
Collateral, for all Collateral other than the Pledged Deposits and, upon
the Collateral Agent's giving proper notice pursuant to the Agency Account
Agreement, dated the date hereof, among the Collateral Agent, the Agent,
Wells Fargo Bank, N.A., the Grantors and the Company (the "Agency Account
Agreement") or in the form of Exhibit A hereto to Wells Fargo Bank,
National Association with respect to account no. 4001-197235 (the
"Collection Account") and the holders of the other accounts listed on
Schedule I hereto, for the Pledged Deposits held in the Collection Account
and the accounts listed on Schedule I hereto, a valid, perfected, first
priority security interest, in each case securing the payment and
performance of the Secured Obligations. Upon making the filings described
in clause (f) below or the taking of possession by Collateral Agent with
respect to security interests in Collateral which can only be perfected by
taking possession of such Collateral, in each case for all Collateral
other than the Pledged Deposits, and upon the Collateral Agent's giving
proper notice to the holders of
7
<PAGE> 8
the Pledged Deposits held in the Collection Account and the accounts
listed on Schedule I hereto, for the Pledged Deposits held in the
Collection Account and the accounts listed on Schedule I hereto, all
filings and other actions necessary or desirable to protect and to perfect
the security interests referenced above shall have been duly taken;
provided that the security interest granted hereunder in the Trademark
Property, Copyright Property and Patent Property shall only be perfected
to the extent such interests can be perfected by filing Uniform Commercial
Code financing statements in the jurisdiction set forth on Schedule III
annexed hereto and the filing of the Trademark Collateral Agreement in the
United States Patent and Trademark Office and, in the case of Copyright
Property, the filing of appropriate documentation in the United States
Copyright Office and in the case of Patent Property, the filing of
appropriate documentation in the United States Patent and Trademark
Office. As of the Closing Date, no Grantor has an interest in any
Copyright Property or Patent Property.
(f) Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the Grantor of the
security interest granted hereby or for the execution, delivery or
performance of this Agreement by the Grantor or (ii) for the perfection of
(except as otherwise specified in paragraph (e) of this Section 4), or the
exercise by, the Collateral Agent of its rights and remedies hereunder,
except for the filing of a Uniform Commercial Code financing statement
with the appropriate authorities in the jurisdictions listed on Schedule
III hereto, and in the case of Trademark Property the filing of the
Trademark Collateral Agreement in the United States Patent and Trademark
Office and in the case of Copyright Property, the filing of appropriate
documentation in the United States Copyright Office and in the case of
Patent Property, the filing of appropriate documentation in the United
States Patent and Trademark Office.
(g) Other Information. All information heretofore, herein or hereafter
supplied to the Collateral Agent by, or on behalf of, the Grantor with
respect to the Collateral (in each case as such information has been
amended, supplemented or updated as of the date this representation is
deemed made) is accurate and complete in all material respects.
(h) Receivables. Each Receivable (i) is and will be the genuine, legal,
valid and binding obligation of the account debtor in respect thereof,
representing an unsatisfied obligation of such account debtor, (ii) is and
will be enforceable in accordance with its terms, (iii) is and will be in
full force and effect and is not and will not be subject to any setoffs,
defenses, taxes, counterclaims (except (x) with respect to refunds,
returns and allowances in the ordinary course of business and (y) to the
extent that such Receivable may not yet have been earned by performance)
and (iv) is and will be in compliance with all applicable laws, whether
federal, state, local or foreign. The representations and warranties
8
<PAGE> 9
contained in this Section 4(h) shall be deemed to be repeated by each
Grantor as of the time when each Receivable arises.
SECTION 5. FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense of the
Grantor, the Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary or desirable, or that the Collateral Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, each Grantor
will: (i) at the reasonable request of the Collateral Agent, mark
conspicuously each chattel paper included in the material Payment Rights
and each material Related Contract and each of its material records
pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to the Collateral Agent, indicating that such
items are subject to the security interest granted hereby; (ii) if any
Payment Right shall be evidenced by a promissory note or other instrument
(excluding checks), deliver and pledge to the Collateral Agent hereunder
for the benefit of the Secured Parties such note or instrument duly
endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral
Agent; (iii) at the request of the Collateral Agent, deliver and pledge to
the Collateral Agent all promissory notes and other instruments (including
checks if an Event of Default shall have occurred and be continuing) and
all original counterparts of chattel paper constituting Collateral duly
endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral
Agent; (iv) upon the reasonable request of the Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate
authority of any jurisdiction under the law of which indication of a
security interest on a certificate of title is required as a condition of
perfection an application or other document requesting the notation or
other indication of the security interest created hereunder on such
certificate of title and will deliver to the Collateral Agent copies of
all such applications or other documents filed and copies of all such
certificates of title issued indicating the security interest created
hereunder in such Collateral; (v) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments
or notices, as may be necessary or desirable, or as the Collateral Agent
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (vi) at any
reasonable time and upon reasonable notice, upon demand by the Collateral
Agent exhibit the Collateral to and allow inspection of the Collateral by
the Collateral Agent, or persons designated by the Collateral Agent and
(vii) at the Collateral Agent's reasonable request, appear in and defend
any action or proceeding that may affect the Grantor's title to or the
Collateral Agent's security interest in the Collateral.
9
<PAGE> 10
(b) Each Grantor agrees that, with respect to the Pledged
Deposits, the Grantor shall (i) provide the Collateral Agent with
notice within thirty days after establishing any deposit accounts after
the date hereof and (ii) maintain all Pledged Deposits with banks or
other financial institutions located within the State of California or
in a jurisdiction where all action required by Section 5(a) hereof to
perfect the security interest of Collateral Agent in the Pledged
Deposits shall have been taken to the extent possible under the
applicable law of such jurisdiction.
(c) Each Grantor hereby authorizes the Collateral Agent to
file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the
signature of the Grantor where permitted by law. A carbon, photographic
or other reproduction of this Agreement or a financing statement signed
by such Grantor shall be sufficient as a financing statement where
permitted by law.
(d) Each Grantor will furnish to the Collateral Agent from
time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
SECTION 6. COVENANTS OF THE GRANTORS. Each Grantor shall:
(a) Not use or permit any Collateral to be used in violation of
any provision of this Agreement, or any applicable statute,
regulation or ordinance or any policy of insurance covering the
Collateral (unless such violation together with all other violations
does not and could not reasonably be expected to have a material
adverse effect on the value or use of any material portion of the
Collateral);
(b) Notify the Collateral Agent of any change in the Grantor's
name, trade names, fictitious business names, identity or corporate
structure at least thirty days prior to such change; and
(c) Give the Collateral Agent thirty days' prior written notice
of any change in the location of the Grantor's (i) chief place of
business, (ii) chief executive office and (iii) offices where the
Grantor's records regarding Payment Rights and the originals of all
chattel paper that evidence Payment Rights are kept.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND
INVENTORY. Each Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory sold
in the ordinary course of business and other than such Equipment and
Inventory which, either singly or in the aggregate, is not material)
at the places therefor specified on Schedule I hereto or at such
other places in jurisdictions where all
10
<PAGE> 11
action has been taken that may be necessary or desirable, or that
the Collateral Agent may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted
hereby or to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to such Equipment and
Inventory;
(b) Keep records of the Inventory which are correct and accurate
in all material respects, itemizing and describing the kind, type
and quantity of Inventory and the Grantor's cost therefor all in
accordance with the past practices of the Grantor; and
(c) If any Inventory is in possession or control of any of the
Grantor's agents or processors, then upon the occurrence and during
the continuance of an Event of Default, at the request of Collateral
Agent, instruct such agent or processor to hold all such Inventory
for the account of the Collateral Agent and subject to the
instructions of the Collateral Agent.
SECTION 8. INSURANCE.
(a) Unless otherwise agreed in writing by Collateral Agent, each
insurance policy covering the Collateral shall in addition (i) name the
Grantor and the Collateral Agent as insured parties thereunder (without
any representation or warranty by or obligation upon the Collateral
Agent) as their interests may appear, (ii) contain an agreement by the
insurer that, to the extent provided in the Collateral Documents, any
loss thereunder shall be payable to the Collateral Agent
notwithstanding any action, inaction or breach of representation or
warranty by the Grantor, (iii) have attached thereto a lender's loss
payable endorsement or its equivalent, or a loss payable clause
acceptable to the Collateral Agent, for the benefit of the Secured
Parties, (iv) provide that there shall be no recourse against the
Collateral Agent for payment of premiums or other amounts with respect
thereto and (v) provide that at least thirty days' prior written notice
of cancellation or lapse, material amendment, or material reduction in
scope or limits of coverage shall be given to the Collateral Agent by
the insurer. Each Grantor shall, if so requested by the Collateral
Agent, deliver to the Collateral Agent original or duplicate policies
of such insurance and, as often as the Collateral Agent may reasonably
request (but, unless an Event of Default shall have occurred and be
continuing, in no event more than once each calendar year), a report of
a reputable insurance broker with respect to such insurance. Further,
each Grantor shall, at the request of the Collateral Agent, duly
execute and deliver instruments of assignment of such insurance
policies to comply with the requirements of Section 5 hereof and use
its best efforts to cause the respective insurers to acknowledge notice
of such assignment.
(b) Reimbursement under any liability insurance maintained by a
Grantor pursuant to this Section 8 may be paid directly to the person
who shall
11
<PAGE> 12
have incurred liability covered by such insurance. In case of any
material loss involving damage to Equipment or Inventory when
subsection (c) of this Section 8 is not applicable, any proceeds of
insurance maintained by the Grantor shall be paid to the Grantor and
the Grantor shall use such proceeds to make necessary repairs or
replacements of such Equipment and Inventory or to purchase additional
Equipment or Inventory or other property of equivalent value and
constituting Collateral hereunder.
(c) Upon the occurrence and during the continuance of an Event of
Default, at the request of the Collateral Agent, all insurance payments
in respect of such Equipment and Inventory shall be paid to and applied
by the Collateral Agent as specified in Section 18.
(d) Prior to the expiration of each insurance policy with respect to
the Equipment and Inventory, upon written request of the Collateral
Agent, each Grantor shall furnish the Collateral Agent with evidence
satisfactory to the Collateral Agent of the reissuance of a policy
continuing insurance in force as required by this Agreement and at or
prior to the date payment of the premium therefor is due, evidence
satisfactory to the Collateral Agent of such payment. In the event a
Grantor fails to provide, maintain, keep in force or deliver and
furnish to the Collateral Agent the policies of insurance required by
this Section 8, the Collateral Agent, upon thirty (30) days' prior
written notice to such Grantor, may (but shall not be obligated to)
procure such insurance or single interest insurance for such risks
covering Secured Parties' interests, and such Grantor will pay all
premiums thereon promptly upon demand by the Collateral Agent, together
with interest thereon at 13.50% per annum, from the date of expenditure
by the Collateral Agent until reimbursement by such Grantor.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO PAYMENT RIGHTS AND RELATED
CONTRACTS.
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its material records
concerning the Payment Rights and Related Contracts, and all originals
of all chattel paper that evidence Payment Rights, at the location
therefor specified in Section 4 or at such other locations in a
jurisdiction where all action that may be necessary or desirable, or
that the Collateral Agent may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to such Payment Rights and Related
Contracts. Each Grantor will hold and preserve such material records
and chattel paper in accordance with Grantor's past practice and will
permit representatives of the Collateral Agent at any time during
normal business hours and upon reasonable notice to inspect and make
abstracts from such material records and chattel paper and each Grantor
agrees to render to the Collateral Agent, at the Grantor's cost and
expense, such clerical and
12
<PAGE> 13
other assistance as may be reasonably requested with regard thereto.
Promptly upon the request of the Collateral Agent, each Grantor shall
deliver to, or make available for review by, the Collateral Agent
complete and correct copies of each Related Contract.
(b) Each Grantor shall, for not less than three years from the date
on which such Payment Rights arose, maintain substantially complete and
accurate records with respect to the material Payment Rights in
accordance with its customary practices as of the date hereof.
(c) Each Grantor shall duly fulfill all obligations on its part to
be fulfilled under or in connection with the Payment Rights and the
Related Contracts except to the extent that the failure to fulfill its
obligations could not reasonably be expected to, either singly or in
the aggregate, have a material adverse effect on the value or use of
any material portion of the Collateral, and shall do nothing to
materially impair the rights of the Collateral Agent with respect to
any Payment Right or Related Contract.
(d) Except as otherwise provided in this subsection (d) of this
Section 9, each Grantor shall continue to collect, at its own expense,
all amounts due or to become due each Grantor under the Payment Rights
and Related Contracts. In connection with such collections, each
Grantor may take (and, if an Event of Default shall have occurred and
be continuing, at the Collateral Agent's direction, shall take) such
action as the Grantor (or, if an Event of Default shall have occurred
and be continuing, the Collateral Agent) may deem necessary or
advisable to enforce collection of the Payment Rights; provided,
however, that the Collateral Agent shall have the right at any time, if
an Event of Default shall have occurred and be continuing, and upon
written notice to the Grantor of its intention to do so, to notify the
account debtors or obligors under any Payment Rights of the assignment
of such Payment Rights to the Collateral Agent and to direct such
account debtors or obligors to make payment of all amounts due or to
become due to the Grantor thereunder directly to the Collateral Agent,
to notify each Person maintaining a lock box or similar arrangement to
which account debtors or obligors under any Payment Rights have been
directed to make payment to remit all amounts representing collections
on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to the
Collateral Agent and, upon such notification and at the expense of the
Grantor, to enforce collection of any such Payment Rights and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as the Grantor might have done. After
receipt by a Grantor of the notice from the Collateral Agent referred
to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including checks and other instruments) received by such
Grantor in respect of the Payment Rights and the Related Contracts
shall be received in trust for the benefit of the Collateral Agent and
the Secured Parties hereunder, shall be segregated from other funds of
such Grantor and shall be
13
<PAGE> 14
forthwith paid over or delivered to the Collateral Agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral in the Collateral Account and either (x) released to such
Grantor so long as no Event of Default shall have occurred and be
continuing or (y) if any Event of Default shall have occurred and be
continuing, applied as provided by Section 18 hereof, and (ii) such
Grantor shall not adjust, settle or compromise the amount or payment of
any Payment Right, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon.
SECTION 10. DEPOSIT ACCOUNTS; COLLATERAL ACCOUNT.
(a) Deposit Accounts. (i) Each Grantor shall (x) cause all cash
proceeds of Receivables, all cash payments received in the ordinary
course of such Grantor's restaurant business and all other cash of such
Grantor to be deposited only into the Collection Account and the other
accounts listed in Schedule I and (y) direct all depository
institutions holding Pledged Deposits to cause all such Pledged
Deposits to be transferred no less frequently than once each day to,
and only to, the Collection Account, with the Collateral Agent or Agent
having the right so to direct such depository institutions (which
notice may be given by the Collateral Agent or the Agent at any time
following the occurrence of an Event of Default, regardless of whether
or not such Event of Default has been cured or waived). So long as no
Event of Default shall have occurred and no notice shall have been
given by the the Collateral Agent or the Agent, each Grantor shall be
entitled to receive, retain and use any and all interest or other
distributions paid in respect of the Pledged Deposits.
(ii) Upon the occurrence and during the continuance of an Event
of Default and upon notice (as provided in clause (y) of the
previous paragraph) having been given by the Collateral Agent or the
Agent, (A) all interest or other distributions in respect of the
Pledged Deposits shall be received in trust for the benefit of the
Collateral Agent and the Secured Parties, and upon written notice
from the Collateral Agent or from the Agent to the Company shall be
segregated from other funds of the Grantors and shall be forthwith
paid over from the Collection Account to (x) prior to the full and
final payment of all of the Secured Obligations under the New Credit
Facility, the termination of all commitments to lend thereunder and
the cancellation or expiration of all letters of credit issued,
extended or renewed thereunder, the Agent as Collateral in the same
form as so received (with any necessary endorsement) for deposit in
the Grantors' account No. 546-11302 with the Agent or such other
account as the Agent may specify in writing (the "Agent Account")
and (y) upon the full and final payment of all of the Secured
Obligations under the New Credit Facility, the termination of all
commitments to lend thereunder and the cancellation or expiration of
all letters of credit issued, extended or reversed thereunder, the
Collateral Agent for deposit in the Collateral
14
<PAGE> 15
Account as Collateral in the same form as so received (with any
necessary endorsement), and (B) the Requisite Party (as defined in
the Intercreditor Agreement) may exercise dominion and control over,
and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from deposit accounts
maintained with the Agent, the Collateral Agent, any Secured Party
or any other person constituting part of the Collateral.
(b) Collateral Account. (i) The Collateral Account, as
established under Section 10(c) of the Company Security
Agreement, shall be under the sole and exclusive dominion and
control of the Collateral Agent and no Grantor shall have any
rights with respect to the Collateral Account other than with
respect to the receipt of proceeds of Collateral deposited
therein upon the termination of this Agreement and the full
and final payment of all of the Secured Obligations and the
termination of all commitments to lend under the New Credit
Facility and the cancellation or expiration of all letters of
credit issued, extended or renewed thereunder. Without
limiting the generality of the foregoing, no Grantor shall
have any right of withdrawal or transfer from the Collateral
Account.
(ii) Subject to the terms of the Intercreditor
Agreement, there shall be deposited in the Collateral Account
from time to time the cash proceeds (as defined in Section
9-306(1) of the UCC) of any of the Collateral (including
insurance proceeds thereon and excluding amounts paid to the
Agent Account pursuant to Section 10(a)) required to be
delivered to the Collateral Agent pursuant hereto, under the
Senior Note Indenture, the New Credit Facility or any other
Security Document. All amounts and investments and other items
credited to the Collateral Account from time to time shall
constitute Collateral hereunder and shall not constitute
payment of the Secured Obligations until applied as
hereinafter provided. At any time following the occurrence and
during the continuance of an Event of Default, the Collateral
Agent may in its discretion apply or cause to be applied
(subject to collection) the balance from time to time
outstanding to the credit of the Collateral Account to the
payment of the Secured Obligations in the manner specified
herein.
SECTION 11. LICENSE OF TRADEMARKS AND TRADE NAMES. Each
Grantor hereby assigns, transfers and conveys to the Collateral Agent, effective
upon the occurrence of, and during the continuance of, any Event of Default, the
nonexclusive right and license to use all trademarks, trade names and copyrights
owned or used by the Grantor that relate to the Collateral and any other
collateral granted by the Grantor as security for the Secured Obligations,
together with any goodwill associated therewith, all to the extent necessary to
enable the Collateral Agent to use, possess and realize on the Collateral and
any successor or assignee to enjoy the benefits of the Collateral. This right
and license shall inure to the benefit of the Collateral Agent and its
successors, assigns and
15
<PAGE> 16
transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and
license is granted free of charge, without requirement that any monetary payment
whatsoever be made to the Grantor. If (a) an Event of Default shall have
occurred and, by reason of waiver, modification, amendment or otherwise, no
longer be continuing, (b) no other Event of Default shall be continuing, (c) an
assignment to the Collateral Agent shall have been previously made pursuant to
this Section 11, and (d) the Secured Obligations shall not have become
immediately due and payable, upon the written request of the Grantor, the
Collateral Agent shall promptly execute and deliver to the Grantor such
assignments as may be necessary to reassign to the Grantor any rights, title and
interests as may have been assigned pursuant to this Section 11, subject to any
disposition thereof that may have been made by the Collateral Agent pursuant
hereto; provided that, after giving effect to such reassignment, the Collateral
Agent's security interest and conditional assignment granted pursuant to this
Section 11, as well as all other rights and remedies of the Collateral Agent
granted hereunder, shall continue to be in full force and effect; and provided,
further, that the rights, title and interests so reassigned shall be free and
clear of all Liens other than Liens (if any) encumbering such rights, title and
interest at the time of their assignment to the Collateral Agent.
SECTION 12. TRANSFERS AND OTHER LIENS. Each Grantor shall not:
(a) Except as permitted by each of the agreements governing the Underlying
Debt secured hereby from time to time in effect (including without limitation
the Senior Note Indenture and the New Credit Facility), sell, assign (by
operation of law or otherwise) or otherwise dispose of any of the Collateral.
(b) Except as permitted by each of the agreements governing the Underlying
Debt secured hereby from time to time in effect (including without limitation
the Senior Note Indenture and the New Credit Facility), create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any person or entity.
In the event any Collateral is sold, transferred or otherwise disposed of
in an Asset Sale or other transaction permitted by the Senior Note Indenture and
the New Credit Facility (as long as both such agreements are in effect,
otherwise by whichever agreement remains in effect), such Collateral shall,
concurrently therewith, be automatically released from the lien and security
interest under this Agreement and the Collateral Agent shall, at the Grantor's
expense, execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such release; provided that arrangements
satisfactory to the Collateral Agent have been made for delivery to it of the
amounts, if any, required to be paid to the Secured Parties out of the net
proceeds of such disposition.
SECTION 13. COLLATERAL AGENT. The Collateral Agent has been appointed as
the Collateral Agent hereunder pursuant to the Intercreditor Agreement. The
16
<PAGE> 17
Collateral Agent shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking action (including, without limitation, the
release or substitution of Collateral) solely in accordance with the
Intercreditor Agreement. The Collateral Agent may resign and a successor
Collateral Agent may be appointed in the manner provided for in the
Intercreditor Agreement for resignation and appointment of a successor
Collateral Agent. Upon the acceptance of any appointment as the Collateral Agent
by a successor Collateral Agent, the successor Collateral Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent under this Agreement, and the retiring
Collateral Agent shall thereupon be discharged from its duties and obligations
under this Agreement and shall deliver any Collateral in its possession to the
successor Collateral Agent. After any retiring Collateral Agent's resignation,
the provisions of this Agreement shall inure to its benefit as to any actions
taken or omitted to be taken by it under this Agreement while it was the
Collateral Agent.
SECTION 14. THE COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor
hereby irrevocably appoints the Collateral Agent the Grantor's attorney-in-fact,
with full authority in the place and stead of the Grantor and in the name of the
Grantor, the Collateral Agent or otherwise, from time to time in the Collateral
Agent's reasonable discretion to take any action and to execute any instrument
that the Collateral Agent may deem necessary or advisable, subject to the terms
and conditions of this Agreement, to accomplish the purposes of this Agreement,
including, without limitation:
(a) Subject to the last sentence of Section 8(d) hereof, and after
consultation with the Grantor, to obtain and adjust insurance required to be
maintained by the Grantor or paid to the Collateral Agent pursuant to Section
8 hereof;
(b) Upon the occurrence of, and during the continuance of, an Event of
Default, to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) Upon the occurrence of, and during the continuance of, an Event of
Default, to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clauses (a) and (b) above;
(d) Upon the occurrence of, and during the continuance of, an Event of
Default, to file any claims or take any action or institute any proceedings
that the Collateral Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Collateral
Agent with respect to any of the Collateral;
(e) After consultation with the Grantor, to pay or discharge taxes (other
than taxes not then required to be paid or discharged by any of the
17
<PAGE> 18
agreements governing the Underlying Debt secured hereby, from time to time in
effect including without limitation the Senior Note Indenture and the New
Credit Facility) or Liens (other than Permitted Liens), levied or placed upon
or threatened against the Collateral, the legality or validity thereof and
the amounts necessary to discharge the same to be determined by the
Collateral Agent in its reasonable discretion, and such payments made by the
Collateral Agent to become obligations of the Grantor to the Collateral
Agent, due and payable immediately without demand;
(f) Upon the occurrence of, and during the continuance of, an Event of
Default, to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other documents
relating to the Collateral; and
(g) Upon the occurrence of, and during the continuance of, an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all purposes,
and to do, at the Collateral Agent's option and the Grantor's expense, at any
time, or from time to time, all acts and things that the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral and the
Collateral Agent's security interest therein, in order to effect the intent
of this Agreement, all as fully and effectively as the Grantor might do.
SECTION 15. COLLATERAL AGENT MAY PERFORM. If any Grantor fails to perform
any agreement contained herein, the Collateral Agent may, upon thirty days'
prior written notice to the Grantor (unless otherwise expressly set forth in
this Agreement or an Event of Default shall have occurred and be continuing, in
which case, no such notice shall be required), itself perform, or cause
performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by such Grantor under Section
18 hereof.
SECTION 16. THE COLLATERAL AGENT'S DUTIES AND LIABILITIES.
(a) The powers conferred on the Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it
hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral. The Collateral Agent shall
be deemed to exercise reasonable care in the custody and preservation of such
Collateral if such Collateral is accorded treatment substantially equivalent
to that which the Collateral Agent accords its own property.
18
<PAGE> 19
(b) The Collateral Agent shall not be liable to any Grantor (i) for any
loss or damage sustained by it, or (ii) for any loss, damage, depreciation or
other diminution in the value of any of the Collateral, that may occur as a
result of, in connection with or that is in any way related to (x) any
exercise by the Collateral Agent of any right or remedy under this Agreement
or (y) any other act of or failure to act by the Collateral Agent, except to
the extent that the same shall be determined by a judgment of a court of
competent jurisdiction to be the result of acts or omissions on the part of
the Collateral Agent constituting gross negligence or willful misconduct.
(c) Except to the extent resulting from acts or omissions on the part of
the Collateral Agent or its affiliates, directors, officers, employees,
attorneys, or agents constituting gross negligence or willful misconduct, no
claim may be made by any Grantor against the Collateral Agent or its
affiliates, directors, officers, employees, attorneys or agents for any
special, indirect, or consequential damages in respect of any breach or
wrongful conduct (whether the claim therefor is based on contract, tort or
duty imposed by law) in connection with, arising out of or in any way related
to the transactions contemplated and relationship established by this
Agreement, or any act, omission or event occurring in connection therewith;
and each Grantor hereby waives, releases and agrees not to sue upon any such
claim for any such damages, whether or not accrued and whether or not known
or suspected to exist in its favor.
SECTION 17. REMEDIES UPON DEFAULT; DECISIONS RELATING TO EXERCISE OF
REMEDIES.
(a) Events of Default. The occurrence of any "EVENT OF DEFAULT" as defined
in any of the agreements governing the Underlying Debt secured hereby from
time to time in effect (including without limitation the Senior Note
Indenture and the New Credit Facility) shall constitute an Event of Default
under this Agreement.
(b) Remedies Upon an Event of Default. If any Event of Default shall have
occurred and be continuing, the Collateral Agent may exercise in respect of
the Collateral, (i) all the rights and remedies of a secured party on default
under the Uniform Commercial Code as in effect in any applicable jurisdiction
(the "Applicable UCC") (whether or not the Applicable UCC applies to the
affected Collateral), (ii) all of the rights and remedies provided for in
this Agreement, the Senior Note Indenture, the New Credit Facility and any
other agreement between any Grantor and any Secured Party and (iii) such
other rights and remedies as may be provided by law or otherwise (such rights
and remedies of any Secured Party to be cumulative and non-exclusive). If an
Event of Default shall have occurred and be continuing, the Collateral Agent
also may (i) require each Grantor to, and each Grantor hereby agrees that it
will, at its expense and upon request of the Collateral Agent forthwith,
assemble all or part of the Collateral as directed by the Collateral
19
<PAGE> 20
Agent and make it available to the Collateral Agent at a place to be
designated by the Collateral Agent that is reasonably convenient to both
parties, (ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner
to the extent the Collateral Agent deems appropriate, (iv) take possession of
any Grantor's premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of such Grantor's equipment
for the purpose of completing any work in process, taking any actions
described in the preceding clause (iii) and collecting any Secured
Obligation, and (v) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Collateral Agent may deem commercially reasonable. Each
Grantor agrees that, to the extent notice of sale shall be required at law,
at least ten days' prior written notice to the Grantor of the time and place
of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned.
If an Event of Default shall have occurred and be continuing, the
Collateral Agent may retain any of the directors, officers and employees of
any Grantor, in each case upon such terms as the Collateral Agent and any
such person may agree, notwithstanding the provisions of any employment,
confidentiality or non-disclosure agreement between any such person and any
such Grantor, and each Grantor hereby waives its rights under any such
agreement and consents to each such retention.
(c) Decisions Relating to Exercise of Remedies. Notwithstanding anything
in this Agreement to the contrary, as provided in the Intercreditor
Agreement, the Collateral Agent shall exercise, or shall refrain from
exercising any remedy provided for in Section 17(b) in accordance with the
instructions of the Requisite Party (as defined in the Intercreditor
Agreement) and the Secured Parties shall be bound by such instructions; and
the sole rights of the Secured Parties under this Agreement shall be to be
secured by the Collateral and to receive the payments provided for in Section
18 hereof.
SECTION 18. APPLICATION OF PROCEEDS. All proceeds received by the
Collateral Agent in respect of any sale of, collection from or other realization
upon all or any part of the Collateral may, in the discretion of the Collateral
Agent, be held by the Collateral Agent as Collateral for, and/or then, or at any
other time thereafter applied, in
20
<PAGE> 21
full or in part by the Collateral Agent against the Secured Obligations in the
following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization and all other expenses, liabilities and advances made or
incurred by the Collateral Agent in connection therewith and all amounts for
which the Collateral Agent is entitled to indemnification hereunder and all
advances made by the Collateral Agent hereunder for the account of the
Grantors and for the payment of all costs and expenses paid or incurred by
the Collateral Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19 hereof;
SECOND: To the payment of the Secured Obligations as provided in Section 4
of the Intercreditor Agreement; and
THIRD: After payment in full of the amounts specified in the preceding
subparagraphs, to the payment to, or upon the order of, the Grantors, or
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. INDEMNITY AND EXPENSES.
(a) Each Grantor agrees to indemnify the Collateral Agent and each Secured
Party and each of the officers, directors, agents, employees and affiliates
of each of them (each an "INDEMNITEE") from and against any and all claims,
losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement). The foregoing
indemnification shall apply whether or not such claims, losses or liabilities
are in any way or to any extent owed, in whole or in part, under any claim or
theory of strict liability, or are caused, in whole or in part, by any
negligent act or omission of any Indemnitee; provided only that no Indemnitee
shall be entitled to receive indemnification for that portion, if any, of any
claims, losses or liabilities proximately caused by such Indemnitee's gross
negligence or willful misconduct.
(b) Each Grantor will upon demand pay to the Collateral Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, that Collateral
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent
hereunder or (iv) the failure by the Grantor to perform or observe any of the
provisions hereof.
(c) The obligations of Grantor in this Section 19 hereof shall survive
termination of this Agreement and the discharge of Grantor's other
obligations
21
<PAGE> 22
under this Agreement, the Senior Note Indenture, the New Credit Facility and
other Collateral Documents.
SECTION 20. CONTINUING SECURITY INTEREST; TERMINATION. This Agreement
shall create a continuing security interest in the Collateral and shall (a)
remain in full force and effect until the indefeasible payment in full of the
Secured Obligations and termination of the Lenders' obligations to lend and
extend credit under the New Credit Facility and the cancellation or expiration
of all outstanding letters of credit, (b) be binding upon each Grantor, its
successors and assigns and (c) inure, together with the rights and remedies of
the Collateral Agent and the Secured Parties hereunder, to the benefit of the
Collateral Agent and the Secured Parties and the successors, transferees and
assigns of each. Without limiting the generality of the foregoing clause (c),
any Secured Party may, subject to the provisions of the Senior Note Indenture
and the New Credit Facility, as applicable, assign or otherwise transfer any
Senior Note or loan, or portion thereof, held by them, respectively, or any
other obligations secured hereby and any agreements or instruments executed in
connection therewith to any other person or entity, and such other person or
entity shall thereupon become vested with all the benefits in respect thereof
granted to that Secured Party herein or otherwise. Upon the indefeasible payment
in full of the Secured Obligations and termination of the Lenders' obligations
to lend or extend credit under the New Credit Facility and the cancellation or
expiration of all outstanding letters of credit, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors. Upon any such termination, the Collateral Agent will, at the Grantors'
expense, execute and deliver to the Grantors, against receipt and without
recourse to or warranty by Collateral Agent, such documents as the Grantors
shall reasonably request to evidence such termination.
SECTION 21. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent
on its behalf and on behalf of the Secured Parties, assignments and pledges made
and created hereunder, and all obligations of the Grantors, shall be absolute
and unconditional, irrespective of:
(a) Any lack of validity or enforceability of any of the Secured
Obligations or any agreement or instrument relating thereto;
(b) Any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment or
waiver of, or any consent to any departure from, any agreement or instrument
relating to the Secured Obligations;
(c) Any exchange, release, subordination or nonperfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guaranty, for all or any of the Secured Obligations; or
22
<PAGE> 23
(d) Any other circumstance (including, but not limited to, any statute of
limitations) which might otherwise constitute a defense available to, or a
discharge of, the Grantors or a third party grantor or a security interest.
SECTION 22. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by any Grantor herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Grantor and the Collateral Agent on behalf of the Requisite Party (as defined in
the Intercreditor Agreement), and then such waiver or consent shall be effective
only in the specified instance and for the specific purpose for which given.
SECTION 23. ADDRESSES FOR NOTICES. Unless otherwise specifically provided
herein, any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telecopied, telexed or
sent by United States mail or courier service and shall be deemed to have been
given when delivered in person, upon receipt (in the case of telecopy or telex)
or four business days after depositing it in the United States mail, registered
or certified, with postage prepaid and properly addressed; provided that any
notice sent to the Collateral Agent shall not be effective until received. For
purposes hereof, the addresses of the parties hereto (until notice of a change
thereof) is delivered as provided in this Section 23 shall be as set forth under
each party's name on the signature pages hereof.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings brought against each Grantor with respect to this Agreement may be
brought in any state or Federal court of competent jurisdiction sitting in New
York, New York and by execution and delivery of this Agreement each Grantor
accepts for itself and in connection with the Collateral, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgement rendered thereby in connection
with this Agreement. Each Grantor designates and appoints The Prentice-Hall
Corporation System, Inc., 15 Columbus Circle, New York, New York 10023 and such
other Person as may be hereafter selected by the Grantor irrevocably agreeing in
writing to so serve, as its agent to receive on its behalf service of all
process in any proceedings in any court sitting in New York, New York, such
service being hereby acknowledged by the Grantor to be effective and binding
service in every respect. A copy of any such process so served shall be mailed
by registered mail to the applicable Grantor, at its address specified in
Section 23 hereof, except that unless otherwise provided by applicable law, any
failure to mail such copy shall not affect the validity of service of process.
If any agent appointed by a Grantor refuses to accept service, such Grantor
hereby agrees that service upon it by mail shall constitute sufficient notice.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of the Collateral Agent to bring
proceedings against any Grantor in the courts of any other jurisdiction.
SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED
23
<PAGE> 24
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES), EXCEPT TO
THE EXTENT THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein,
terms used in Article 9 of the Code are used herein as therein defined.
SECTION 26. WAIVER OF JURY TRIAL. EACH GRANTOR AND THE COLLATERAL AGENT
HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Each Grantor and the
Collateral Agent each acknowledge that this waiver is a material inducement for
the Grantor and the Collateral Agent to enter into a business relationship, that
the Grantor and the Collateral Agent have already relied on the waiver in
entering into this Agreement and that each will continue to rely on the waiver
in their related future dealings. Each Grantor and the Collateral Agent further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 27. WAIVER. Except as otherwise expressly provided herein, each
Grantor hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Secured Obligations and this Agreement and any
requirement that the Collateral Agent or any Secured Party protect, secure,
perfect or insure any security interest or lien or any property subject thereto
or exhaust any right or take any action against the Grantor or any other person
or entity or any of the Collateral.
SECTION 28. NO WAIVER. No failure on the part of the Collateral Agent to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; and no
single or partial exercise by the Collateral Agent of any right, power or remedy
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies herein provided are to the
fullest extent permitted by law cumulative, and are not exclusive of any
remedies provided by law.
SECTION 29. MARSHALLING; PAYMENT SET ASIDE. The Collateral Agent shall not
be under any obligation to marshal any assets in favor of the Grantors or any
24
<PAGE> 25
other party or against or in payment of any or all of the Secured Obligations.
To the extent that any Grantor makes a payment or payments to the Collateral
Agent or the Collateral Agent enforces its security interests or exercises its
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or Federal
law, common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
SECTION 30. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
SECTION 31. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation and in any other jurisdiction,
shall not in any way be affected or impaired thereby.
SECTION 32. COUNTERPARTS. This Agreement, and any amendments, waivers,
consents or supplements, may be executed in one or more counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which together shall constitute one and the same Agreement.
25
<PAGE> 26
IN WITNESS WHEREOF, each Grantor and the Collateral Agent have
caused this Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
ARG ENTERPRISES, INC.,
a California corporation
By:/s/ William J. McCaffrey, Jr.
-----------------------------
Title: Vice President and
Chief Financial Officer
ARG PROPERTY MANAGEMENT CORPORATION, a
California corporation
By:/s/ William J. McCaffrey, Jr.
-----------------------------
Title: Vice President and
Chief Financial Officer
GRANDY'S, INC.,
a California corporation
By:/s/ William J. McCaffrey, Jr.
-----------------------------
Title: Vice President and
Chief Financial Officer
SPECTRUM\ FOODS, INC.,
a California corporation
By:/s/ William J. McCaffrey, Jr.
-----------------------------
Title: Vice President and
Chief Financial Officer
<PAGE> 27
LOCAL FAVORITE, INC.,
a California corporation
By:/s/ William J. McCaffrey
-----------------------------
Title: Vice President and
Chief Financial Officer
SPOONS RESTAURANTS, INC.,
a Texas corporation
By:/s/ William J. McCaffrey
-----------------------------
Title: Vice President and
Chief Financial Officer
<PAGE> 28
NOTICE ADDRESS FOR ALL GRANTORS:
450 Newport Center Drive
Newport Beach, California 92660
Attention: Chairman and Chief
Executive Officer
WITH COPIES TO:
Patrick J. Kelvie, Esq.
American Restaurant Group, Inc.
4410 El Camino Real, Suite 201
Los Altos, California 94022
<PAGE> 29
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., AS COLLATERAL AGENT
By:/s/
-------------
Title: Authorized Officer
-------------------
NOTICE ADDRESS:
515 South Flower St., Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
<PAGE> 1
EXHIBIT 4.12
INTERCREDITOR AND COLLATERAL
AGENCY AGREEMENT
This INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT (this "Agreement")
is made as of the 25th day of February, 1998, among (i) U.S. Trust Company of
California, N.A., as collateral agent (in such capacity, the "Collateral Agent")
for the Secured Parties (as hereinafter defined), (ii) BankBoston, N.A., as
Agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined),
(iii) U.S. Trust Company of California, N.A., as Trustee (the "Trustee") on
behalf of the holders of Debentures (as defined below), and (iv) American
Restaurant Group, Inc. ("ARG") and each of its subsidiaries listed on the
signature pages hereto (the "Guarantors", and together with ARG, collectively,
the "Borrowers").
WHEREAS, pursuant to a Revolving Credit Agreement dated as of the date
hereof (as supplemented or otherwise amended and in effect from time to time,
the "Original Credit Agreement"), among the Borrowers, BankBoston, N.A. and the
other financial institutions which may from time to time become parties thereto
(the "Lenders") and BankBoston, N.A., as Agent for the Lenders, the Lenders
have, upon the terms and subject to the conditions contained therein, agreed to
make loans, and otherwise extend credit to the Borrowers;
WHEREAS, it is a condition precedent to the Lenders' obligations to
make loans, and otherwise extend credit to the Borrowers that the Borrowers
grant to the Collateral Agent for the benefit of the Lenders and the Agent, as
security for the Borrowers' obligations to the Lenders and the Agent under or in
respect of the Original Credit Agreement, a first priority perfected lien on and
security interest in the Collateral (as hereinafter defined), subject to the
provisions of this Agreement;
WHEREAS, pursuant to an Indenture dated as of the date hereof (as
supplemented or otherwise amended and in effect from time to time, the
"Indenture"), among ARG, the Guarantors and the Trustee, ARG has agreed to issue
its 11.5% Senior Secured Notes Due 2003, (the "Debentures");
WHEREAS, pursuant to a guaranty included in the Indenture, the
Guarantors have guaranteed the obligations of ARG under the Debentures, the
Indenture and the other documents to which ARG is a party;
WHEREAS, in order for the Debentures to be issued by ARG and to be
accepted by the holders thereof, the Indenture requires that the Borrowers grant
to the Collateral Agent for the benefit of the holders of the Debentures and the
Trustee, as security for the Borrowers' obligations to the holders of Debentures
and the Trustee under the Indenture, a first priority perfected security
interest in the Collateral, subject to the provisions of this Agreement;
<PAGE> 2
-2-
WHEREAS, concurrently herewith, the Borrowers and the Collateral Agent
have entered into certain security agreements and related documents pursuant to
which the Borrowers have granted or agreed to grant to the Collateral Agent, for
the benefit of (i) the Lenders, (ii) the Agent, (iii) the Trustee and (iv) the
holders of the Debentures, a security interest in and lien upon the Collateral;
and
WHEREAS, the parties hereto wish to set forth their relative rights and
priorities with respect to the Collateral;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
Section 1.1. DEFINITIONS OF TERMS USED IN CREDIT AGREEMENT. All
capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Credit Agreement as in effect on the date hereof and as
amended from time to time hereafter (but only to the extent any such amendment
complies with the provisions of Section 9 of this Agreement).
Section 1.2. DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Agreement
referred to below:
Act. See Section 2.2.
Actionable Default. Any Event of Default under and as defined
in the Credit Agreement or Event of Default under and as defined in the
Indenture.
Agency Agreements. Each Agency Account Agreement (and any
additions, replacements or substitutions thereof) among the Borrowers, the
Agent, the Collateral Agent and each of the Borrowers' depository banks covering
all concentration (and, to the extent required by the Requisite Party, other)
accounts of the Borrowers with such banks, together with all notices in
substantially the form of Exhibit A to the Company Security Agreement (as
defined in the Credit Agreement) or, as the case may be, to the Subsidiary
Security Agreement (as defined in the Credit Agreement) given by the Borrowers
and the Collateral Agent to the Borrowers' depository banks with respect to
local depository accounts.
Agent. As defined in the preamble hereto and shall include any
replacement or successor Agent under the Original Credit Agreement, or any like
agent(s) (or replacement(s) thereof or successor(s) thereto) under any other
Credit Agreement.
<PAGE> 3
-3-
Agreement. This Intercreditor and Collateral Agency Agreement.
Bank Debt. The "Obligations" as defined in the Original Credit
Agreement, or any like term of the same meaning contained in any replacement
Credit Agreement. Bank Debt shall include without limitation, any interest and
collection costs to the extent allowable under applicable bankruptcy laws and
any such amounts that would have been allowable to the extent that the Liens on
Collateral secured only the Bank Debt. Notwithstanding the foregoing, Bank Debt
shall not include (i) principal amounts under the Credit Agreement, or any
replacement of the Credit Agreement, to the extent, and only to the extent, that
such principal amounts at any one time outstanding exceed the Maximum Bank Debt
Principal (such excess, the "Excess Bank Debt") and (ii) any interest, fees,
collection costs and other amounts to the extent that they relate solely to, or
are allocable solely to, any Excess Bank Debt. As used herein, "Maximum Bank
Debt Principal" shall mean $20,000,000.
Bank Loan Documents. The "Loan Documents", as defined in the
Original Credit Agreement, or any like term of the same meaning contained in any
other Credit Agreement.
Borrowers. As defined in the preamble hereto. Borrowers as
used herein includes the Borrowers as debtors, and the estate of the Borrowers
as debtors, under the federal Bankruptcy Code as well as any permitted
post-confirmation successor to such debtors under Chapter 11 of the federal
Bankruptcy Code.
Collateral. Any of the properties and assets of whatever
nature, tangible or intangible, now owned or existing or hereafter acquired or
arising, of the Borrowers in which the Borrowers have at the time of reference
granted a Lien to the Collateral Agent to secure the Bank Debt and the Debenture
Debt and which has not been released pursuant to the terms hereof; provided
however, Collateral shall not include certain real estate collateral.
Collateral Agent. As defined in the preamble hereto unless and
until a successor Collateral Agent shall have been appointed pursuant to
Section 5.4 hereof, and thereafter "Collateral Agent" shall mean such successor
Collateral Agent.
Credit Agreement. The Original Credit Agreement and the Bank
Loan Documents, and any agreement or agreements designated as a "Credit
Agreement" hereunder by written notice by the Borrowers to the Collateral Agent
with the written consent of the Agent and governing Indebtedness all or part of
which was incurred to refund, refinance or replace all or any portion of the
Indebtedness under the Original Credit Agreement, as the same may hereafter be
amended, renewed, extended, restated, supplemented or otherwise modified
(including without limitation, (i) by increasing the
<PAGE> 4
-4-
amount of Indebtedness thereunder and (ii) any credit facility entered into
after the commencement of an Insolvency Proceeding) from time to time.
Credit Documents. Collectively, the Credit Agreement, the
Debenture Documents, and the Security Documents.
Debenture Acceleration Notice. See definition of Requisite
Party.
Debenture Debt. The "Obligations" as defined in the Indenture.
Debenture Debt shall include, without limitation, all indebtedness and
obligations of the Borrowers to the holders of the Debentures and the Trustee
under the Indenture and the other Debenture Documents, and shall further
include, without limitation, any interest and collection cost to the extent
allowable under applicable bankruptcy laws.
Debenture Documents. The Indenture, the Debentures, and all
documents, instruments and agreements executed in connection therewith and, to
the extent permitted by the Credit Documents, in connection with any
indebtedness issued by the Borrowers to refund or refinance all or substantially
all of the Debentures.
Debentures. As defined in the preamble hereto and, to the
extent permitted by the Credit Documents, any replacement or substitution
therefor issued by the Borrowers to refund or refinance all or substantially all
of the Debentures which is explicitly entitled under the terms and conditions
thereof to the benefits of this Agreement.
Indenture. As defined in the preamble hereto and shall include
any amendment or supplement thereof and, to the extent permitted by the Credit
Documents, any replacement or substitution therefor issued by the Borrowers to
refund or refinance all or substantially all of the Debentures.
Insolvency Proceeding. A case or proceeding, voluntary or
involuntary, for the distribution, division or application of all or part of the
assets of the Borrowers or the proceeds thereof, whether such case or proceeding
be for the liquidation, dissolution or winding up of the Borrowers or their
business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Borrowers for relief under the federal Bankruptcy Code or any other bankruptcy,
reorganization or insolvency law or any other law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement, composition
or extension or marshalling of assets or otherwise.
Lenders. As defined in the preamble hereto, together with
their respective successors and assigns, and shall include any replacement or
successive lenders under the Credit Agreement.
<PAGE> 5
-5-
Lien. Any consensual mortgage, security deed, deed of trust,
pledge, lien, security interest or other voluntary encumbrance, whether now
existing or hereafter created, acquired or arising.
Notice of Actionable Default. A notice by the Requisite Party
delivered to the Collateral Agent, stating that an Actionable Default has
occurred. A Notice of Actionable Default shall be deemed to have been given when
the notice referred to in the preceding sentence has actually been received by
the Collateral Agent and to have been rescinded when the Collateral Agent has
actually received from the notifying party a notice withdrawing such notice. A
Notice of Actionable Default shall be deemed to be outstanding at all times
after such notice has been given until such time, if any, as such notice has
been rescinded. The Requisite Party may rescind a Notice of Actionable Default
during an Insolvency Proceeding.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Requisite Party. The Agent until such time as the Agent shall
certify to the Collateral Agent in writing that the Bank Debt has been paid in
full in cash (or in a manner otherwise satisfactory to the Agent in its sole and
absolute discretion) and the commitments represented by the Credit Agreement
shall have expired or been reduced to zero or terminated; and, thereafter, the
Trustee. Notwithstanding the foregoing, the Trustee shall become the Requisite
Party 180 days after the Trustee has delivered notice to the Collateral Agent
and the Agent that the entire principal amount of the Debenture Debt shall have
become due and payable (a "Debenture Acceleration Notice"), if prior to the end
of such period either the Agent has failed to deliver a Notice of Actionable
Default or an Insolvency Proceeding does not exist. During any Insolvency
Proceeding, until the Bank Debt has been paid in full in cash (or in a manner
otherwise satisfactory to the Agent in its sole and absolute discretion) and the
commitments represented by the Credit Agreement shall have expired or been
reduced to zero or terminated, the Agent shall be the Requisite Party (even if
the Trustee shall have been the Requisite Party prior to the commencement of the
Insolvency Proceeding).
Secured Obligations. Collectively, the Bank Debt (unless and
until the Agent has given notice in writing to the Collateral Agent that either
(i) the Bank Debt has been paid in full and all commitments under the Credit
Agreement have been reduced to zero or (ii) the Bank Debt otherwise no longer
constitutes Secured Obligations under the Security Documents) and the Debenture
Debt (unless and until the Trustee has given notice in writing to the Collateral
Agent that the Debenture Debt no longer constitutes Secured Obligations under
the Security Documents).
<PAGE> 6
-6-
Secured Parties. The Agent, for the benefit of the Lenders and
the Agent, and the Trustee, for the benefit of the holders of Debentures and the
Trustee.
Security Documents. Any instrument or agreement pursuant to
which a Lien in Collateral is created or arises to secure the Bank Debt and the
Debenture Debt.
Trustee. As defined in the preamble hereto and shall include
any replacement or successor Trustee under the Indenture.
Section 1.3. TERMS GENERALLY. The definitions in Section 1.2 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Section s shall be deemed references to Section s of
this Agreement unless the context shall otherwise require.
Section 2. RECOURSE OF SECURED PARTIES; OTHER COLLATERAL; ACTS OF
SECURED PARTIES.
Section 2.1. RECOURSE OF SECURED PARTIES; OTHER COLLATERAL.
(a) Each of the Secured Parties acknowledges and agrees that
except as provided in part (b) of this Section 2.1, (i) it shall only have
recourse to the Collateral through the Collateral Agent and that it shall have
no independent recourse to the Collateral and (ii) the Collateral Agent shall
have no obligation to take any action, or refrain from taking any action, except
upon instructions from the Requisite Party in accordance with Section 2.2
hereof.
(b) Nothing contained herein shall restrict (i) subject to
Section 7.2 hereof, the Agent's or any Lender's right to exercise the right of
setoff, (ii) the Agent's right to give notice under the Agency Agreements, and
to apply all amounts received from the depository accounts covered by the Agency
Agreements to payment of the Bank Debt and (iii) the Agent's and the Trustee's
rights to pursue remedies, by proceedings in law and equity, to collect
principal of or interest on the Bank Debt or, as the case may be, the Debentures
or to enforce the performance of and provisions of the Bank Debt or, as the case
may be, the Debentures, including, without limitation, the filing of, or joining
in the filing of, a petition in bankruptcy, to the extent that such remedies do
not seek recovery from the Collateral or interfere with the Collateral Agent's
right to take action hereunder or under the Security Documents.
Section 2.2. ACTS OF SECURED PARTIES. Any request, demand,
authorization, direction, notice, consent, waiver or other action permitted or
required by this Agreement to be given
<PAGE> 7
-7-
or taken by the Requisite Party, may be and, at the request of the Collateral
Agent, shall be embodied in and evidenced by one or more instruments
satisfactory in form to the Collateral Agent and signed by or on behalf of the
Requisite Party and, except as otherwise expressly provided in any such
instrument, any such action shall become effective when such instrument or
instruments shall have been delivered to the Collateral Agent. The instrument or
instruments evidencing any action (and the action embodied therein and evidenced
thereby) are sometimes referred to herein as an "Act" of the persons signing
such instrument or instruments. The Collateral Agent shall be entitled to rely
absolutely upon an Act of the Requisite Party if such Act purports to be taken
by or on behalf of the Requisite Party, and nothing in this Section 2.2 or
elsewhere in this Agreement shall be construed to require the Agent (if the
Agent is then the Requisite Party) or the Trustee (if the Trustee is then the
Requisite Party) to demonstrate that it has been authorized by the Lenders or,
as the case may be, holders of the Debentures to take any action which it
purports to be taking, the Collateral Agent being entitled to rely conclusively,
and being fully protected in so relying, on any Act of the Agent or the Trustee,
as the case may be.
Section 3. DUTIES OF COLLATERAL AGENT.
Section 3.1. NOTICES TO THE SECURED PARTIES AND THE BORROWERS. The
Collateral Agent shall within five (5) business days following receipt thereof
furnish to each of the Agent, the Trustee, and the Borrowers:
(a) a copy of each Notice of Actionable Default received by
the Collateral Agent;
(b) a copy of each certificate received by the Collateral
Agent rescinding a Notice of Actionable Default;
(c) a copy of each Debenture Acceleration Notice received by
the Collateral Agent;
(d) written notice of any release or subordination by the
Collateral Agent of any Collateral; and
(e) such other notices required by the terms of this Agreement
to be furnished by the Collateral Agent.
Section 3.2. ACTIONS UNDER SECURITY DOCUMENTS. The Collateral Agent
shall not be obligated to take any action under this Agreement or any of the
Security Documents except for the performance of such duties as are specifically
set forth herein or therein or as may be requested in writing by both the Agent
and the Trustee. Subject to the provisions of Section 5 hereof, the Collateral
Agent shall take any action under or with respect to the Security
<PAGE> 8
-8-
Documents which is requested by the Requisite Party and which request shall not
be inconsistent with or contrary to this Agreement; provided that the Collateral
Agent shall not amend or waive any provision of the Security Documents except in
accordance with Section 9 hereof. The Collateral Agent shall, subject in all
cases to the provisions of Section 5 hereof, exercise or refrain from exercising
all such rights, powers and remedies as shall be available to it under the
Security Documents or any of them in accordance with any written instructions
received from the Requisite Party. The Collateral Agent shall have the right to
decline to follow any such direction if the Collateral Agent, being advised by
counsel, determines that the directed action is not permitted by the terms of
this Agreement, the Security Documents or the Credit Documents, may not lawfully
be taken, might jeopardize its rights with respect to the Collateral, or would
subject it to personal liability, and the Collateral Agent shall not be required
to take any such action unless any indemnity which is required hereunder in
respect of such action has been provided. Subject to Section 5 hereof, the
Collateral Agent may rely on any such written direction given to it by the
Requisite Party and shall be fully protected, and shall under no circumstances
(absent the gross negligence or willful misconduct of the Collateral Agent) be
liable to the Borrowers, any holder of any Secured Obligations or any other
Person for taking or refraining from taking action in accordance therewith. In
the absence of written instructions (which may relate to the exercise of
specific remedies or to the exercise of remedies in general) from the Requisite
Party, the Collateral Agent shall not exercise remedies available to it under
any Security Documents with respect to the Collateral or any part thereof.
Section 4. PRIORITY OF RIGHTS AGAINST COLLATERAL AND PROCEEDS THEREOF.
It is the intent of the parties hereto that the Bank Debt shall be paid in full
in cash (or in a manner otherwise satisfactory to the Agent in its sole and
absolute discretion) and that the commitments represented by the Credit
Agreement shall have expired or been reduced to zero or terminated before any of
the Debenture Debt is paid from the Collateral. Accordingly, the parties hereto
acknowledge and agree as follows:
(a) If, prior to its receipt of a Notice of Actionable
Default, the Collateral Agent receives any cash amounts as proceeds of or
otherwise constituting the Collateral (which amounts, under the terms of any of
the Security Documents, are to be applied to any of the Secured Obligations),
including, without limitation, any net proceeds received by the Collateral Agent
during an Insolvency Proceeding or in connection with any sale, exchange,
destruction, condemnation, or other disposition of any of the Collateral (such
net proceeds to be deemed to include any amounts received by the Collateral
Agent under Section 507(b) of the Bankruptcy Code as compensation for a failure
of adequate protection in the context of an Insolvency Proceeding), such cash
amounts shall be paid to the Agent to be applied in accordance with the terms
and conditions of the Bank Loan Documents. Nothing contained herein shall limit
the right of the Agent and the Lenders to continue to make loans, advances and
otherwise extend credit under Bank Loan Documents, including loans, advances and
extensions of credit during an Insolvency Proceeding.
<PAGE> 9
-9-
(b) If, following its receipt of a Notice of Actionable
Default which has not been rescinded, the Collateral Agent receives any cash
amounts in respect of the Collateral (which amounts, under the terms of any of
the Security Documents, are to be applied to any of the Secured Obligations),
including, without limitation, any net proceeds received by the Collateral Agent
during an Insolvency Proceeding or in connection with any sale, exchange,
destruction, condemnation, or other disposition of any of the Collateral (such
net proceeds to be deemed to include any amounts received by the Collateral
Agent under Section 507(b) of the Bankruptcy Code as compensation for a failure
of adequate protection in the context of an Insolvency Proceeding) such cash
amounts shall be paid (i) to the Agent to be applied to the Bank Debt until such
time as the Agent has notified the Collateral Agent in writing that (A) the Bank
Debt has been paid in full in cash (or in a manner otherwise satisfactory to the
Agent in its sole and absolute discretion) and (B) the commitments represented
by the Credit Agreement have expired or been reduced to zero or terminated; (ii)
thereafter to the Trustee for application to the Debenture Debt until such time
as the Trustee has notified the Collateral Agent in writing that the Debenture
Debt has been paid in full in cash (or in a manner otherwise satisfactory to the
Trustee in its sole and absolute discretion) and (iii) thereafter unless
otherwise required by applicable law, to the Borrowers. Nothing contained herein
shall limit the right of the Agent and the Lenders to continue to make loans,
advances and otherwise extend credit under Bank Loan Documents, including loans,
advances and extensions of credit during an Insolvency Proceeding.
(c) If the Collateral Agent receives any non-cash
distributions or proceeds in respect of the Collateral, then, unless the
Security Documents expressly provide to the contrary, the Collateral Agent shall
hold such non-cash distributions and proceeds as Collateral upon the terms of
this Agreement and the Security Documents until converted to cash and thereupon
distributed in accordance with paragraphs (a) and (b) of this Section 4.
Section 5. CONCERNING THE COLLATERAL AGENT.
Section 5.1. APPOINTMENT OF COLLATERAL AGENT. The Agent, acting on
instructions from the Lenders, and the Trustee, acting pursuant to the
Indenture, hereby appoints U.S. Trust Company of California, N.A. to act as
Collateral Agent pursuant to the terms of this Agreement and the Security
Documents. The relationship between the Collateral Agent and the holders of the
Secured Obligations is and shall be that of agent and principal only, and
nothing contained in this Agreement or any of the Credit Documents shall be
construed to constitute the Collateral Agent as a trustee for any such holder.
Section 5.2. LIMITATIONS ON RESPONSIBILITY OF COLLATERAL AGENT. The
Collateral Agent shall not be responsible in any manner whatsoever for the
correctness of any recitals, statements, representations or warranties contained
herein or in any Security Document,
<PAGE> 10
-10-
except for those made by it herein. The Collateral Agent makes no representation
as to the value or condition of the Collateral or any part thereof, as to the
title of the Borrowers to the Collateral, as to the security afforded by this
Agreement or any Security Document or, except as set forth in Section 6, as to
the validity, execution, enforceability, legality or sufficiency of this
Agreement or any Security Document, and the Collateral Agent shall incur no
liability or responsibility in respect of any such matters. The Collateral Agent
shall not be responsible for insuring the Collateral, for the payment of taxes,
charges, assessments or liens upon the Collateral or otherwise as to the
maintenance of the Collateral, except as provided in the immediately following
sentence when the Collateral Agent has possession of the Collateral. The
Collateral Agent shall have no duty to the Borrowers or to the holders of any of
the Secured Obligations as to any Collateral in its possession or control or in
the possession or control of any agent or nominee of the Collateral Agent or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except the duty to accord such of the
Collateral as may be in its possession substantially the same care as it accords
its own assets and the duty to account for monies received by it. The Collateral
Agent shall not be responsible for any loss suffered with respect to any
investment permitted to be made under this Agreement and shall not be
responsible for the consequences of any oversight or error of judgment
whatsoever, except that the Collateral Agent may be liable for losses due to its
willful misconduct or gross negligence. The Collateral Agent shall not be
required to ascertain or inquire as to the performance by the Borrowers of any
of the covenants or agreements contained herein or in any of the Credit
Documents. Neither the Collateral Agent nor any officer, agent or representative
thereof shall be personally liable for any action taken or omitted to be taken
by any such person in connection with this Agreement or any Security Document
except for such person's own gross negligence or willful misconduct. Neither the
Collateral Agent nor any officer, agent or representative thereof shall be
personally liable for any action taken by any such person in accordance with any
notice given by the Requisite Party pursuant to the terms of this Agreement even
if, at the time such action is taken by any such person, the Requisite Party or
person purporting to be the Requisite Party is not entitled to give such notice,
except where the account officer of the Collateral Agent active upon the
Borrower's account has actual knowledge that such Requisite Party or person
purporting to be the Requisite Party is not entitled to give such notice. The
Collateral Agent may execute any of the powers granted under this Agreement or
any of the Security Documents and perform any duty hereunder or thereunder
either directly or by or through agents or attorneys-in-fact, and shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it without gross negligence or willful misconduct.
Section 5.3. RELIANCE BY COLLATERAL AGENT; ETC. (a) Whenever in the
performance of its duties under this Agreement the Collateral Agent shall deem
it necessary or desirable that a matter be proved or established with respect to
any Person in connection with the taking, suffering or omitting of any action
hereunder by the Collateral Agent, such matter may be conclusively deemed to be
proved or established by a certificate executed by an officer of
<PAGE> 11
-11-
such Person, and absent gross negligence or willful misconduct, the Collateral
Agent shall have no liability with respect to any action taken, suffered or
omitted in reliance thereon.
(b) The Collateral Agent may consult with counsel and shall be
fully protected in taking any action hereunder in accordance with any advice of
such counsel. The Collateral Agent shall have the right but not the obligation
at any time to seek instructions concerning the administration of this
Agreement, the duties created hereunder, or any of the Collateral from any court
of competent jurisdiction.
(c) The Collateral Agent shall be fully protected in relying
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order or other paper or document which it believes to
be genuine and to have been signed or presented by the proper party or parties.
In the absence of its gross negligence or willful misconduct, the Collateral
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificate or opinions
furnished to the Collateral Agent in connection with this Agreement.
(d) The Collateral Agent shall not be deemed to have actual,
constructive, direct or indirect notice or knowledge of the occurrence of any
Actionable Default unless and until the Collateral Agent shall have received a
Notice of Actionable Default. The Collateral Agent shall have no obligation
whatsoever either prior to or after receiving such a Notice of Actionable
Default to inquire whether an Actionable Default has, in fact, occurred and
shall be entitled to rely conclusively, and shall be fully protected in so
relying, on any certificate so furnished to it and shall have no obligation,
absent written instructions from the Requisite Party, to take or omit to take
any action with respect to such Notice of Actionable Default.
(e) If the Collateral Agent has been requested by the
Requisite Party to take any specific action pursuant to any provision of this
Agreement, the Collateral Agent shall not be under any obligation to exercise
any of the rights or powers vested in it by this Agreement in the manner so
requested unless, if so requested by the Collateral Agent, it shall have been
provided indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred by it in compliance with such request or
direction.
(f) If any dispute or disagreement shall arise as to the
allocation of any sum of money received by the Collateral Agent hereunder or
under any Security Document, the Collateral Agent shall have the right to
deliver such sum to a court of competent jurisdiction and therein commence an
action for interpleader.
Section 5.4. RESIGNATION OR REPLACEMENT OF THE COLLATERAL AGENT. The
Collateral Agent may at any time resign by giving thirty (30) days' prior
written notice thereof to each Secured Party and the Borrowers, provided that no
resignation shall be effective until a
<PAGE> 12
-12-
successor for the Collateral Agent is appointed. The Requisite Party may at any
time, with or without cause, remove the Collateral Agent and replace it with a
successor Collateral Agent. Following any resignation or removal, the Requisite
Party shall appoint a successor Collateral Agent, which may, but need not be,
the Requisite Party. The Requisite Party shall notify the other parties hereto
in writing of the appointment of any successor Collateral Agent. If no successor
Collateral Agent shall have been so appointed by the Requisite Party and shall
have accepted such appointment within forty-five (45) days after the retiring
Collateral Agent's giving of notice of resignation, then the retiring Collateral
Agent may, on behalf of the Secured Parties, appoint a successor Collateral
Agent, which shall be a financial institution having a long-term bank deposit
rating of not less than "A" if rated by Standard & Poor's Corporation or Moody's
Investors Services, Inc. Upon the acceptance of any appointment as Collateral
Agent hereunder by a successor Collateral Agent, such successor Collateral Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations hereunder.
After any retiring Collateral Agent's resignation or removal, the provisions of
this Agreement and the Security Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Collateral Agent.
Section 5.5. EXPENSES AND INDEMNIFICATION BY THE BORROWERS. By
countersigning this Agreement, the Borrowers agree (a) to reimburse the
Collateral Agent, on demand, for any expenses incurred by the Collateral Agent,
including reasonable counsel fees and disbursements and compensation of agents,
arising out of, in any way connected with, or as a result of, the execution or
delivery of this Agreement or any Security Document or any agreement or
instrument contemplated hereby or thereby or the performance by the parties
hereto or thereto of their respective obligations hereunder or thereunder or in
connection with the enforcement or protection of the rights of the Collateral
Agent and the Secured Parties hereunder or under the Security Documents, (b) to
indemnify and hold harmless the Collateral Agent and its directors, officers,
employees and agents, on demand, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Collateral Agent in its capacity as the
Collateral Agent or any of them in any way relating to or arising out of this
Agreement or any Security Document or any action taken or omitted by them under
this Agreement or any Security Document; provided that the Borrowers shall not
be liable to the Collateral Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or willful
misconduct of the Collateral Agent or any of its directors, officers, employees
or agents as determined by a final non-appealable order of a court of competent
jurisdiction, (c) to indemnify and hold harmless the Collateral Agent, on
demand, from and against any and all liabilities which may be imposed on or
incurred by the Collateral Agent (in its capacity as Collateral Agent) for the
net amount of taxes (after taking into account any
<PAGE> 13
-13-
deduction, credit or other tax reduction or benefit available by reason of the
imposition of any such tax) in any jurisdiction in which the Collateral Agent
would not otherwise be subject to tax except by reason of its acting under this
Agreement or the Security Documents (directly or through agents); provided that
such indemnification for taxes (i) shall apply only in respect of taxes
attributable to the performance of the Collateral Agent's obligations hereunder
and (ii) shall in no event cover any federal, state, local or other taxes
imposed upon the Collateral Agent with respect to or measured by its gross or
net income or profits. A statement by the Collateral Agent that is submitted to
the Borrowers with respect to the amount of such expenses and containing a basic
description thereof and/or the amount of its indemnification obligation shall be
prima facie evidence of the amount thereof owing to the Collateral Agent.
Section 5.6. EXPENSES AND INDEMNIFICATION BY SECURED PARTIES. The
Requisite Party at any time of determination agrees (i) to reimburse the
Collateral Agent, on demand, in the amount of any expenses referred to in
Section 5.5 and fees due pursuant to Section 5.7. which shall not have been
reimbursed or paid by the Borrowers or paid from the proceeds of Collateral as
provided herein and (ii) to indemnify and hold harmless the Collateral Agent and
its directors, officers, employees and agents, on demand from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements referred to in Section 5.5,
to the extent the same shall not have been reimbursed by the Borrowers or paid
from the proceeds of Collateral as provided herein; provided that the Requisite
Party shall not be liable to the Collateral Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Collateral Agent or any of its directors, officers, employees
or agents as determined by a final non-appealable order of a court of competent
jurisdiction.
Section 5.7. COLLATERAL AGENT'S FEE. By countersigning this Agreement,
the Borrowers agree to pay to the Collateral Agent for the Collateral Agent's
own account, a non-refundable Collateral Agent's fee in an amount agreed to by
the parties on the Closing Date and on each anniversary thereof thereafter until
the Secured Obligations have been paid in full in cash (or in a manner otherwise
satisfactory to the Agent in its sole and absolute discretion), the commitments
represented by the Credit Agreement shall have expired or been reduced to zero
or terminated and the Collateral Agent no longer has any duties hereunder.
Section 6. REPRESENTATIONS AND WARRANTIES. Each of the Collateral
Agent, the Trustee, and, by countersigning this Agreement, the Borrowers
represents and warrants to the other parties hereto that (a) the execution,
delivery and performance of this Agreement (i) have been duly authorized by all
requisite corporate action on its part and, in the case of the Agent, by the
Lenders, and, in the case of the Trustee, by the Indenture, and (ii) do not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which it is subject or any judgment, order, writ,
injunction, license or permit
<PAGE> 14
-14-
applicable to it and will not conflict with any provision of its corporate
charter or bylaws or any agreement or other instrument binding upon it; and (b)
this Agreement has been duly executed and delivered by it and constitutes its
legal, valid and binding obligation, enforceable in accordance with its terms.
Section 7. CERTAIN INTERCREDITOR ARRANGEMENTS.
Section 7.1. TURNOVER OF COLLATERAL. If any Secured Party acquires
custody, control or possession of any Collateral or proceeds therefrom, other
than pursuant to the terms of this Agreement or pursuant to the Agency
Agreements, such Secured Party shall promptly cause such Collateral or proceeds
to be delivered to or put in the custody, possession or control of the
Collateral Agent or, if the Collateral Agent shall so designate, an agent of the
Collateral Agent (which agent may be a branch or affiliate of the Collateral
Agent) in the same form of payment received, with appropriate endorsements, in
the country in which such Collateral is held, for distribution in accordance
with the provisions of Section 4. Until such time as the provisions of the
immediately preceding sentence have been complied with, such Secured Party shall
be deemed to hold such Collateral and proceeds in trust for the Collateral
Agent. Notwithstanding the foregoing, (a) if the Requisite Party receives
proceeds of Collateral in the form of cash, the Requisite Party may apply such
amounts to the payment of the Bank Debt (until payment in full of the Bank Debt
in cash (or in a manner otherwise satisfactory to the Agent in its sole and
absolute discretion) and the reduction of all commitments under the Credit
Agreement to zero) or the Debenture Debt (after payment in full of the Bank Debt
in cash (or in a manner otherwise satisfactory to the Agent in its sole and
absolute discretion) and the reduction of all commitments under the Credit
Agreement to zero) and (b) the Trustee and the holders of the Debentures shall
not be required to deliver to the Collateral Agent or such agent of the
Collateral Agent, any amounts received by them prior to the earlier to occur of
(i) receipt by the Collateral Agent of a Notice of Actionable Default or (ii) an
Insolvency Proceeding.
Section 7.2. SETOFFS. If (a) any Lender exercises any right of setoff,
banker's lien or similar right with respect to any Collateral for payment of any
Secured Obligations, each of the Secured Parties agrees with each other Secured
Party that if an amount to be set off is to be applied to Indebtedness of the
Borrowers to such Lender, other than the Bank Debt, such amount shall be applied
ratably to such other Indebtedness and to the Bank Debt, and (b) any Secured
Party, Lender or holder of Debentures shall receive from the Borrowers, whether
by voluntary payment, exercise of the right of setoff, counterclaim, cross
action, enforcement of the claim on the Bank Debt or Debenture Debt by
proceedings against the Borrowers at law or in equity or by proof thereof in
bankruptcy, reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of Bank Debt or Debenture
Debt held by such Person any amount from the Collateral in excess of its ratable
portion of the payments received by the other Lenders or holders of Debentures
with respect to the Bank Debt and Debenture Debt held by all of the Lenders and
holders of Debentures
<PAGE> 15
-15-
as contemplated by this Agreement, such Person will make such disposition and
arrangements with the other Lenders and holders of Debentures with respect to
such excess, either by way of distribution, pro tanto assignment of claims,
subrogation or otherwise, as shall result in each Lender or holder of Debentures
receiving in respect of the Bank Debt or Debenture Debt held by it its
proportionate payment as contemplated by this Agreement; provided that if all or
any part of such excess payment is thereafter recovered from such Lender, such
disposition and arrangements shall be rescinded and the amount restored to the
extent of such recovery, but without interest.
Section 8. RELEASE OR SUBORDINATION OF COLLATERAL; FREEDOM TO DEAL.
Section 8.1. RELEASE OF COLLATERAL. The Collateral Agent is hereby
authorized, upon receipt of instructions from the Requisite Party, and subject
to Section 8.3, to (a) release any Collateral and to provide such releases and
termination statements with respect to any Collateral in connection with any
sale, exchange or other disposition thereof so long as (i) the Collateral Agent
obtains a perfected security interest in any non-cash proceeds of such sale,
exchange or other disposition and (ii) any net cash proceeds of such sale,
exchange or other disposition are paid in accordance with Sections 4(a) or (b)
and (b) consent to the use of cash collateral in connection with any Insolvency
Proceeding. The Trustee and the holders of the Debentures waive any right they
may have to object to the use of cash collateral in connection with any
Insolvency Proceeding so long as the proceeds of Collateral are applied in
accordance with Sections 4(a) or (b).
Section 8.2. SUBORDINATION OF LIEN. To the extent permitted by the
Credit Agreement and the Indenture, the Collateral Agent shall, on the written
instructions of the Requisite Party, and subject to Section 8.3, subordinate by
written instrument the Lien on all or any portion of the Collateral to any other
lender extending to the Borrowers indebtedness permitted by the terms of the
Credit Agreement and the Indenture. Further, following the commencement of any
Insolvency Proceeding, with the consent of the Requisite Party, the Collateral
Agent may subordinate the Lien on portions of the Collateral (including without
limitation, subordination to indebtedness owed to the Agent or any of the
Lenders) so long as the sum of the principal amount of such indebtedness and the
principal amount of the Bank Debt does not exceed in the aggregate $20,000,000.
Section 8.3. TRUST INDENTURE ACT COMPLIANCE. Notwithstanding the
foregoing provisions of this Section 8, except for (i) the collection (including
through a collection agency) of accounts receivable (including checks and other
instruments received by the Borrowers and its Subsidiaries in respect thereof)
in the ordinary course of business, (ii) pursuant to Section 10.3(b) of the
Indenture, the disposition of inventory (as defined in the Uniform Commercial
Code as in effect from time to time in the State of New York) in the ordinary
course of business, (iii) utilization of cash as provided in and subject to
Sections 4(a) and 4(b) hereof, or (iv)
<PAGE> 16
-16-
the release, withdrawal and utilization of cash and all funds on deposit in bank
accounts of the Borrowers and their Subsidiaries (including without limitation
proceeds of Collateral), the Collateral Agent is not authorized to release any
Collateral or to provide any such release, termination statement or instrument
of subordination unless the Collateral Agent shall have received a certificate
from the Borrowers certifying that all documentation required by Section 314(d)
of the Trust Indenture Act of 1939, as amended, in connection with such release
has been duly furnished to the Trustee in accordance with Section 10.4 of the
Indenture.
Section 8.4. LEGALLY REQUIRED RELEASES. Whether or not so instructed by
the Requisite Party, and whether or not any such certificate referred to in
Section 8.3 has been provided to the Collateral Agent, the Collateral Agent may
release any Collateral and may provide any release, termination statement or
instrument of subordination required by order of a court of competent
jurisdiction or otherwise required by applicable law.
Section 8.5. LENDERS' FREEDOM OF DEALING. The Trustee agrees, with
respect to the Bank Debt, any and all guaranties thereof and any and all
Collateral, that the Borrowers and the Lenders may agree to increase the amount
(not to exceed the dollar amount contained in the definition of Bank Debt) of
the Bank Debt or otherwise modify or waive the terms of any of the Bank Debt,
and the Lenders may grant extensions of the time of payment or performance to
and make compromises, including releases of guaranties, collateral which is not
Collateral or Collateral as set forth in Section 8.1 hereof, and settlements
with the Borrowers and all other persons, in each case without the consent of
the Trustee or any of the Debenture holders for which it acts and without
affecting the agreements of the Trustee or the Borrowers contained in this
Agreement.
Section 9. AMENDMENT OF THIS AGREEMENT.
(a) No modification or amendment of this Agreement shall be
effective unless the same shall be in writing and signed by the Secured Parties,
the Collateral Agent and, to the extent that any such modification or amendment
would adversely affect the rights of the Borrowers hereunder or under any
Security Document, the Borrowers, and no modification or amendment of any
Security Document shall be effective without the written consent of the Agent,
the Trustee and the Borrowers; provided, however, no amendment or waiver shall
adversely affect any of the Collateral Agent's rights, immunities or rights to
indemnification hereunder or under any of the Security Documents or expand its
duties or reduce any amount payable to the Collateral Agent hereunder or under
any Security Documents without the written consent of the Collateral Agent.
(b) No waiver of any provision of this Agreement and no
consent to any departure by any party hereto from the provisions hereof shall be
effective unless such waiver or consent shall be set forth in a written
instrument executed by the party against
<PAGE> 17
-17-
which it is sought to be enforced, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any party hereto in any case shall entitle such party to
any other or further notice or demand in the same, similar or other
circumstances.
Section 10. APPROVAL BY THE BORROWERS; BORROWERS' OBLIGATIONS ABSOLUTE.
By countersigning this Agreement, the Borrowers acknowledge and consent to and
agree to perform and be bound by each provision of this Agreement which
expressly recites that the Borrowers are agreeing thereto by countersigning this
Agreement. Nothing contained in this Agreement shall impair, as between the
Borrowers and the Trustee, for the benefit of the security holders for which it
acts, the obligation of the Borrowers to pay to the Trustee, for the benefit of
the security holders for which it acts, all amounts payable in respect of the
Debenture Debt as and when the same shall become due and payable in accordance
with the terms thereof, or prevent the Trustee (except as expressly otherwise
provided in this Agreement) from exercising all rights, powers and remedies
otherwise permitted by the Indenture and by applicable law upon a default in the
payment of the Debenture Debt, all, however, subject to the rights of the Agent
and the Lenders as set forth in this Agreement.
Section 11. MISCELLANEOUS.
Section 11.1. FURTHER ASSURANCES, ETC. The Agent, the Trustee, the
Collateral Agent and, by countersigning this Agreement, the Borrowers agree to
execute and deliver such other documents and instruments, in form and substance
reasonably satisfactory to the Collateral Agent, and shall take such other
action, in each case as the Collateral Agent or any Secured Party may reasonably
request (at the sole cost and expense of the Borrowers which, by countersigning
this Agreement, agree to pay such costs and expenses), to effectuate and carry
out the provisions of this Agreement including, without limitation, by recording
or filing in such places as the requesting party may deem desirable, this
Agreement or such other documents or instruments.
Section 11.2. BANKRUPTCY VOTING RIGHTS. Except as provided in Section
8, at any meeting of creditors of the Borrowers or in the event of any
Insolvency Proceeding, the Secured Parties shall retain the right to vote and
otherwise act with respect to their Secured Obligations (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension),
provided that no Secured Party shall vote to accept any such plan or take any
other action in any way contesting the relative rights and duties of (i) any
holders of any Bank Debt or (ii) the Trustee and the holders of the Debentures,
in each case as established in this Agreement or any instruments or agreements
creating or evidencing any of the Bank Debt or with respect to any of the
Collateral.
<PAGE> 18
-18-
Section 11.3. NO INDIVIDUAL ACTION; MARSHALING; ETC. No holder of any
Secured Obligations may require the Collateral Agent to take or refrain from
taking any action hereunder or under any of the Security Documents or with
respect to any of the Collateral except as and to the extent expressly set forth
in this Agreement. The Agent and the Collateral Agent shall have no duty to, and
the Trustee hereby waives any and all right to require the Agents and the
Collateral Agent to, marshal any assets or otherwise to take any actions with
respect to marshaling.
Section 11.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
on and inure to the benefit of the Collateral Agent, each of the Lenders, the
Agent, the Trustee and each of the Debenture holders and their respective
successors and permitted assigns and shall be binding on the Borrowers and its
successors and permitted assigns. The Trustee acknowledges that the provisions
of this Agreement apply to each of the holders of Debentures for which the
Trustee acts regardless of any sale, transfer, pledge, assignment, hypothecation
or other disposition by such Debenture holder to any person or entity; provided,
that the indemnification provisions set forth in Section 5.6 shall only apply to
holders of the Debentures at the time such expenses were incurred. The Agent
acknowledges that the provisions of this Agreement apply to each of the Lenders
regardless of any replacement, sale, transfer, pledge, assignment, hypothecation
or other disposition by such Lender to any person or entity
Section 11.5. NOTICES. All notices and other communications made or
required to be given pursuant to this Agreement or the Security Documents shall
be in writing and shall be delivered in hand, mailed by United States registered
or certified first class mail, postage prepaid, sent by overnight courier or
sent by telecopy or facsimile, confirmed by delivery via courier or postal
service addressed as follows:
(a) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, Attention: Thomas F. Farley, Jr., with a copy to
Robert A.J. Barry, Bingham Dana LLP 150 Federal Street, Boston,
Massachusetts 02110;
(b) if to the Trustee, at 515 South Flower Street, Suite 2700,
Los Angeles, California, 90071-2291, Attention: Corporate Trust
Department;
(c) if to the Collateral Agent, at 515 South Flower Street,
Suite 2700, Los Angeles, California, 90071-2291, Attention: Corporate
Trust Department; and
(d) if to the Borrowers, at 450 Newport Center Drive, Newport
Beach, California 90266, Attention: Chief Financial Officer.
<PAGE> 19
-19-
Any such notice and other communications shall be deemed to have been duly given
or made and to have become effective (i) if delivered by hand, overnight courier
or facsimile to a responsible officer of the party to which it is directed, at
the time of the receipt thereof by such officer or the sending of such facsimile
and (ii) if mailed, sent by registered or certified first class mail postage
prepaid, on the third Business Day following the mailing thereof; provided,
however, that a Notice of Actionable Default or any other notice to be delivered
to the Collateral Agent pursuant to the terms of this Agreement shall not be
deemed to have been received by the Collateral Agent until the Collateral Agent
actually receives such notice.
Section 11.6. TERMINATION.
(a) Upon (i) receipt by the Collateral Agent from the Agent of
notice stating that either (A) the Bank Debt has been paid in full in cash (or
in a manner otherwise satisfactory to the Agent in its sole and absolute
discretion) and all commitments under the Credit Agreement have been reduced to
zero or (B) the Bank Debt otherwise no longer constitutes Secured Obligations
under the Security Documents, (ii) receipt by the Collateral Agent from the
Trustee of notice that (A) the Debenture Debt has been paid in full in cash (or
in a manner otherwise satisfactory to the holders of the Debentures) defeased in
accordance with the Indenture or (B) the Debenture Debt no longer constitutes
Secured Obligations under the Security Documents and (iii) payment in full in
cash (or in a manner otherwise satisfactory to the Collateral Agent) of all
amounts payable to the Collateral Agent pursuant to Section Section 5.5 and 5.7,
the security interests created by the Security Documents shall terminate
forthwith and all right, title and interest in the Collateral shall revert to
the Borrowers and their successors and assigns.
(b) Upon the termination of the Collateral Agent's security
interest and the release of the Collateral in accordance with subsection (a) of
this Section , the Collateral Agent will promptly at the Borrowers' written
request and expense, (i) execute and deliver to the Borrowers such documents as
the Borrowers shall reasonably request to evidence the termination of such
security interest or the release of the Collateral and (ii) deliver or cause to
be delivered to the Borrowers all property of the Borrowers constituting
Collateral and then held by Collateral Agent or any agent thereof.
(c) This Agreement shall terminate automatically when the
security interest granted under the Security Documents has terminated and the
Collateral has been released.
(d) Upon payment in full of the Bank Debt in cash (or in a
manner otherwise satisfactory to the Agent in its sole and absolute discretion)
and the reduction of all commitments under the Credit Agreement to zero, the
Agent will remit any amounts held by it to the Collateral Agent (unless
otherwise required by law) and will deliver to the
<PAGE> 20
-20-
financial institutions party to the Agency Agreements notices in order to change
(i) the identity of the Person entitled to give notices thereunder to the
Collateral Agent only and (ii) the account to which cash should be distributed
thereunder to the Collateral Account (as defined in the Company Security
Agreement, as defined in the Credit Agreement).
(e) If at any time any payment made or value received with
respect to any Bank Debt is rescinded or must otherwise be returned by the Agent
or any Lender upon the insolvency, bankruptcy or reorganization of the
Borrowers, or otherwise, all as though such payment had not been made or value
received, (i) to the extent necessary to repay in full in cash (or in a manner
otherwise satisfactory to the Agent in its sole and absolute discretion) the
Bank Debt, the Trustee will, following notice from the Agent, deliver to the
Agent any amounts previously received and then held by the Trustee on account of
or in any way relating to the Collateral; except, however, that the Trustee
shall not be required to deliver to the Agent, any payments received by the
Trustee prior to receipt by the Collateral Agent of a Notice of Actionable
Default, and (ii) to the extent previously terminated, the security interest in
the Collateral created by the Security Documents in favor of the Agent and the
Lenders and the rights of the Agent to act as Requisite Party and to receive
amounts pursuant to this Agreement shall be reinstated.
(f) Notwithstanding the foregoing, Section Section 5.5 and 5.6
of this Agreement shall survive, and remain operative and in full force and
effect, regardless of the termination of this Agreement.
Section 11.7. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS) AND SHALL BE A SEALED INSTRUMENT UNDER
SUCH LAWS. THE PARTIES AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT
MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL
COURT SITTING THEREIN AND CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE PARTIES BY
MAIL AT THE ADDRESSES SPECIFIED IN SECTION 12.5. THE PARTIES HEREBY WAIVE ANY
OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR
ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
Section 11.8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT
OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER, OR THE
<PAGE> 21
-21-
PERFORMANCE OF ANY SUCH RIGHTS AND OBLIGATIONS. Except as prohibited by law,
each of the parties hereto hereby waives any right which it may have to claim or
recover in any litigation referred to in the preceding sentence any special,
exemplary, punitive or consequential damages or any damages other than, or in
addition to, actual damages. Each of the parties hereto with respect to itself
(i) certifies that neither the Collateral Agent, the Agent, the Lenders or the
Trustee nor any representative, agent or attorney of the Collateral Agent, the
Agent, the Lenders or the Trustee has represented, expressly or otherwise, that
the Collateral Agent would not, in the event of litigation, seek to enforce the
foregoing waivers, and (ii) acknowledges that, in entering into this Agreement,
the Collateral Agent, the Agent, the Lenders and the Trustee are relying upon,
among other things, the waivers and certifications contained in this Section
11.8.
Section 11.9. WAIVER OF RIGHTS. Neither any failure nor any delay on
the part of any party hereto IN exercising any right, power or privilege
hereunder shall operate as a waiver thereof, and a single or partial exercise
thereof shall not preclude any other or further exercise or the exercise of any
other right, power or privilege.
Section 11.10. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provision.
Section 11.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of wHICH shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
Section 11.12. SECTION HEADINGS. The section headings used herein are
for convenience of reference ONLy and are not to affect the construction of or
be taken into consideration in interpreting this Agreement.
Section 11.13. COMPLETE AGREEMENT. This Agreement constitutes the
entire agreement among the partiES hereto with respect to the subject matter
hereof and supersedes all prior representations, negotiations, writings,
memoranda and agreements with respect to such subject matters. To the extent any
provision of this Agreement conflicts with the Credit Agreement, the Indenture
or any other Credit Document, as between the Secured Parties the provisions of
this Agreement shall be controlling. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement.
<PAGE> 22
IN WITNESS WHEREOF, the Collateral Agent, the Agent, the Trustee and the
Borrowers have caused this Intercreditor and Collateral Agency Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
in its capacity as Collateral Agent
By: /s/
-------------------------------------
Name:
Title: Authorized Officer
BANKBOSTON, N.A., in its capacity as Agent
By: /s/ Thomas F. Farley, Jr.
-------------------------------------
Name: Thomas F. Farley, Jr.
Title: Managing Director
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
IN ITS CAPACITY AS TRUSTEE
By: /s/
-------------------------------------
Name:
Title: Authorized Officer
<PAGE> 23
ACCEPTED AND AGREED TO:
AMERICAN RESTAURANT GROUP, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
LOCAL FAVORITE, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
GRANDY'S, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
ARG ENTERPRISES, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
<PAGE> 24
ARG PROPERTY MANAGEMENT,
CORPORATION
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
SPOONS RESTAURANTS, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
SPECTRUM FOODS, INC.
By: /s/ William J. McCaffrey, Jr.
----------------------------------------
Name: William J. McCaffrey, Jr.
Title: Vice President &
Chief Financial Officer
<PAGE> 1
Exhibit 5
SIMPSON THACHER & BARTLETT
A PARTNERSHIP WHICH INCLUDES PROFESSIONAL CORPORATION
425 LEXINGTON AVENUE
NEW YORK, N.Y. 10017-3954
(212) 455-2000
FAX: (212) 455-2502
April 1, 1999
American Restaurant Group, Inc.
450 Newport Center Drive
Newport Beach, CA 92660
Ladies and Gentlemen:
We have acted as counsel for American Restaurant Group, Inc. A Delaware
corporation (the "Company") in connection with the Registration Statement on
Form S-2 (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the registration by
the Company of $31, 083,000 aggregate principal amount of the Company's 11 1/2%
Senior Secured Notes due 2003 (the "Notes"), 26,188 shares of its 12% Senior
Pay-in Kind Exchangeable Preferred Stock (the "Preferred Stock") and its
$26,188,000 aggregate principal amount of 12% Senior Subordinated Debentures
due 2003 issuable in exchange for the Preferred Stock (the "Debentures").
The Notes were issued under the Indenture dated as of February 25, 1998
(the "Note Indenture") between the Company and U.S. Trust Company of
California, N.A., as trustee, which was filed as an exhibit to the Company's
Annual Report on Form 10-K dated December 29, 1997 filed with the Commission on
March 30, 1998 (the "1998 10-K"); the Preferred Stock was issued pursuant to
the provisions of the Amended and Restated Certificate of Incorporation of the
Company, and the certificate of designations for the Preferred Stock (the
"Certificate of Designations") filed as exhibits to the 1998 10-K; and
<PAGE> 2
-2-
American Restaurant Group, Inc. April 1, 1999
the Debentures, if and when issued, will be issued under an indenture (the
"Debenture Indenture") to be entered into between the Company and a trustee, a
form of which was filed as an exhibit to the Registration Statement on Form
S-4 (Registration No. 333-55861) originally filed with the Securities and
Exchange Commission on June 2, 1998 and as amended by filing of Amendment No. 1
thereto on July 29, 1998.
We have examined the Registration Statement, the Note Indenture, the
Certificate of Designations and the form of Debenture Indenture. In addition,
we have examined the originals, or duplicates or certified or conformed copies,
of such records, agreements, instruments and other documents, and have made
such other and further investigations, as we have deemed relevant and necessary
in connection with the opinions expressed herein. In such examination, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as duplicates
or conformed copies, and the authenticity of the originals of such latter
documents. We have also assumed that, at the time of execution, issuance and
delivery of the Debentures, the Debenture Indenture will be duly authorized,
executed and delivered by the Company.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that:
1. The Notes have been duly authorized, executed and delivered and
constitute valid and legally binding obligations of the Company enforceable
against the Company in accordance with their terms.
<PAGE> 3
-3-
American Restaurant Group, Inc. April 1, 1999
2. The 20,167 outstanding shares of Preferred Stock have been duly
authorized, executed, issued and delivered and are validly issued, fully paid
and non-assessable.
3. The 6,021 shares of Preferred Stock which have not been issued and are
being registered under the Registration Statement will, issued, when duly
authorized by all necessary corporate action by the Company, and when executed,
issued and delivered as dividends on the Preferred Stock pursuant to the terms
of the Certificate of Designations, will be validly issued, fully paid and
non-assessable.
4. The Debentures have been duly authorized and, when duly issued and
executed by the Company, duly authenticated by the Debenture Trustee and
delivered against receipt of shares of Preferred Stock surrendered in exchange
therefor in accordance with the terms of the Certificate of Designations and the
Debentures Indenture, will constitute valid and legally binding obligations of
the Company enforceable against the Company in accordance with their terms.
Our opinions set forth in paragraphs 1 and 4 above are subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principals (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the state of New
York, the federal law of the United States and the Delaware General Corporation
Law.
<PAGE> 4
-4-
American Restaurant Group, Inc. April 1, 1999
This opinion is rendered to you solely in connection with the
above-described transaction and may not be relied upon for any other purpose
without our prior written consent.
We hereby consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 8
SIMPSON THACHER & BARTLETT
A PARTNERSHIP WHICH INCLUDES PROFESSIONAL CORPORATIONS
425 LEXINGTON AVENUE
NEW YORK, N.Y. 10017-3954
(212) 455-2000
FAX: (212) 455-2502
April 1, 1999
American Restaurant Group, Inc.
450 Newport Center Drive
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as special counsel for American Restaurant Group,
Inc., a Delaware corporation (the "Company"), in connection with the
Registration Statement on Form S-2 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration by the Company of $31,083,000 aggregate principal amount of its
11-1/2% Senior Secured Notes due 2003 (the "Notes") and 26,188 shares of its
12% Senior Pay-in-Kind Exchangeable Preferred Stock.
We have examined the Registration Statement. In addition, we have
examined, and have relied as to matters of fact upon, the originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, agreements, documents and other instruments and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as
<PAGE> 2
American Restaurant Group, Inc. -2- April 1, 1999
originals and the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that the statements made in the
Registration Statement under the caption "Certain United States Federal Income
Tax Considerations," insofar as they purport to constitute summaries of matters
of United States federal income tax law and regulations or legal conclusions
with respect thereto, constitute accurate summaries of the matters described
therein in all material respects.
Our opinions are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder and any
other relevant authorities and law, all as in effect on the date hereof.
Consequently, future changes in the law may cause tax treatment of the
transaction referred to herein to be materially different from that described
above.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the federal law of the
United States. This opinion is rendered to you in connection with the
above-described transaction. This opinion may not be relied upon by you for any
other purpose, or relied upon by, or furnished to, any other person, firm or
corporation without our prior written consent.
<PAGE> 3
American Restaurant Group, Inc. -3- April 1, 1999
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Simpson Thacher & Bartlett
--------------------------
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 12
AMERICAN RESTAURANT GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------
DEC. 28, DEC. 27, DEC. 26, DEC. 25, DEC. 30, DEC. 29,
1992 1993 1994 1995 1996 1997
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Before Taxes & Extraordinary Items ($12,129) ($19,418) ($12,073) ($39,596) ($36,692) ($20,229)
ADD:
Fixed Charges 32,642 34,485 37,895 38,624 39,338 39,009
Amortization of Capitalized Interest 145 151 179 134 75
LESS: Capitalized Interest 18 184 130 168 90
--------------------------------------------------------------------------
Total Earnings Before Taxes,
Extraordinary Items &Fixed Charges 20,513 15,212 25,973 (793) 2,780 18,855
==========================================================================
Fixed Charges
Rent Expense (excluding % rent) 17,415 19,283 20,523 21,844 23,919 29,874
Interest Factor 33.0% 33.0% 33.0% 33.0% 33.0% 33.0%
--------------------------------------------------------------------------
Interest Portion of Rent Expenses 5,747 6,363 6,773 7,209 7,893 9,858
Interest Expense 23,185 23,741 27,691 28,004 27,714 23,984
Capitalized Interest 18 184 130 168 90
Amortization of Debt Costs 3,710 4,363 3,247 3,281 3,563 5,087
--------------------------------------------------------------------------
Total Fixed Charges 32,642 34,485 37,895 38,624 39,338 39,009
--------------------------------------------------------------------------
Debt Costs
Amortization of Debt Costs-Preferred
Preferred Stock Outstanding
Preferred Stock Dividends
Pre-Tax Factor
Pre-Tax Pref. Stock Dividends
Liquidation Preference
Total Preferred Dividends & Fees
Total Fixed Charges & Preferred Stock Dividends 32,642 $ 34,485 $ 37,895 $ 38,624 $ 39,338 $ 39,009
==========================================================================
RATIO OF EARNINGS TO FIXED CHARGES 0.628 0.441 0.685 (0.021) 0.071 0.483
INSUFFICIENT AMOUNT $12,129 $ 19,273 $ 11,922 $ 39,417 $ 36,558 $ 20,154
RATIO OF EARNINGS TO FIXED
CHARGES & PREF. STOCK DIVIDENDS 0.628 0.441 0.685 (0.021) 0.071 0.483
INSUFFICIENT AMOUNT $12,129 $ 19,273 $ 11,922 $ 39,417 $ 36,558 $ 20,154
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
---------
DEC. 28, DEC 28,
1998 1998
--------- ---------
<S> <C> <C>
Earnings (Loss) Before Taxes & Extraordinary Items ($ 9,349) ($ 7,455)
ADD:
Fixed Charges 31,926 30,255
Amortization of Capitalized Interest 72 72
LESS: Capitalized Interest 68 68
---------------------
Total Earnings Before Taxes,
Extraordinary Items &Fixed Charges 22,649 22,872
=====================
Fixed Charges
Rent Expense (excluding % rent) 27,923 26,176
Interest Factor 33.0% 33.0%
---------------------
Interest Portion of Rent Expenses 9,215 8,639
Interest Expense 20,269 19,496
Capitalized Interest 68 68
Amortization of Debt Costs 2,374 2,052
---------------------
Total Fixed Charges 31,926 30,255
---------------------
Debt Costs 2,191 2,191
Amortization of Debt Costs-Preferred 332 438
Preferred Stock Outstanding 35,000 35,000
Preferred Stock Dividends 3,660 4,326
Pre-Tax Factor 1 1
--------
Pre-Tax Pref. Stock Dividends 3,660 4,326
Liquidation Preference 332 787
--------
Total Preferred Dividends & Fees 4,324 5,551
--------
Total Fixed Charges & Preferred Stock Dividends $ 36,250 $ 35,806
=====================
RATIO OF EARNINGS TO FIXED CHARGES 0.709 0.758
INSUFFICIENT AMOUNT $ 9,277 $ 7,383
RATIO OF EARNINGS TO FIXED
CHARGES & PREF. STOCK DIVIDENDS 0.625 0.639
INSUFFICIENT AMOUNT $ 13,601 $ 12,934
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 19, 1999, included in American Restaurant Group, Inc.'s Form 10-K for
the year ended December 28, 1998, and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
----------------------------
ARTHUR ANDERSEN LLP
Orange County, California
March 30, 1999
