Filed pursuant to Rule 424(b)(3)
Registration Number: 333-102126
PROSPECTUS
DENNY'S CORPORATION
DENNY'S HOLDINGS, INC.
OFFER TO EXCHANGE
$50,000,000 REGISTERED
12 3/4% SENIOR NOTES DUE 2007
OF DENNY'S CORPORATION AND
DENNY'S HOLDINGS, INC.
FOR
$50,000,000 OUTSTANDING UNREGISTERED
12 3/4% SENIOR NOTES DUE 2007
OF DENNY'S CORPORATION AND
DENNY'S HOLDINGS, INC.
Denny's Corporation (formerly Advantica Restaurant Group, Inc.) is
offering to exchange up to $50,000,000 aggregate principal amount of 12 3/4%
senior notes due 2007 to be jointly issued by Denny's Corporation and Denny's
Holdings, Inc., which we refer to as the new notes, for up to $50,000,000
aggregate principal amount of outstanding 12 3/4% senior notes due 2007 of
Denny's Holding and Denny's Corporation, which we refer to as the old notes.
The terms of the new notes are identical in all respects to the terms of the
old notes, except that the new notes are registered under the Securities Act of
1933, as amended, and generally are not subject to transfer restrictions or
registration rights.
PLEASE CONSIDER THE FOLLOWING REGARDING THE OFFER TO EXCHANGE:
o The offer to exchange new notes for old notes will expire at midnight,
New York City time, on February 10, 2003, unless we extend the expiration
date. We do not currently intend to extend the expiration date.
o We will exchange outstanding old notes up to an aggregate principal amount
of $50,000,000 that are validly tendered and not properly withdrawn prior
to the expiration date of the exchange offer. You should carefully review
the procedures for tendering the old notes set forth in this prospectus.
o We reserve the right to extend, delay, amend or terminate the exchange
offer.
o You may withdraw tendered outstanding old notes at any time prior to the
expiration of the exchange offer.
o We will not receive any proceeds from the exchange offer.
o The old notes are not listed, and we do not intend to list the new notes,
on any security.
_________________________
Investing in the new notes involves risks. See "Risk Factors" beginning on
page 10 of this prospectus for a discussion of factors that you should consider
in connection with this exchange offer and an investment in the new notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
___________________
The date of this prospectus is January 10, 2003.
iv
___________________
TABLE OF CONTENTS
Page
Important Information About This Prospectus..................................ii
Where You Can Find More Information.........................................iii
Forward-Looking Statements...................................................iv
Summary.......................................................................1
Selected Consolidated Financial Data..........................................6
Risk Factors.................................................................10
Use of Proceeds..............................................................17
The Exchange Offer...........................................................17
Description of Indebtedness..................................................24
The New Notes................................................................27
United States Federal Income Tax Consequences................................46
Legal Matters................................................................49
Experts......................................................................49
___________________
i
Important Information about this Prospectus
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
different or additional information. If anyone provides you with different or
additional information, you should not rely on it. You should assume that the
information contained in this prospectus is accurate as of the date on the
front cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since then. We are not making an
offer to sell, or soliciting an offer to buy, any of the securities offered by
this prospectus in any jurisdiction where the exchange offer is not permitted.
We are not making this exchange offer to, and we will not accept
surrenders for exchange from, holders of old notes in any jurisdiction in which
this exchange offer or the acceptance of this exchange offer would violate the
securities or other laws of that jurisdiction.
Unless the context otherwise requires, as used in this prospectus:
o the terms "Denny's," "our" and "we" refer to the combined entities of
Denny's Corporation and Denny's Holdings, Inc. and their subsidiaries;
o the term "old notes" refers to the 12 3/4% notes due 2007 that are not
registered;
o the term "new notes" refers to the 12 3/4%% notes due 2007 that we have
registered under the Securities Act in connection with this exchange offer
and that we are offering in exchange for the old notes; and;
o the term "notes" refers to the old notes and the new notes, collectively.
ii
WHERE YOU CAN FIND MORE INFORMATION
Denny's Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and accordingly files reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. In addition, we have filed with the SEC a registration
statement on Form S-4 under the Securities Act of 1933, as amended, with respect
to the new notes offered in this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules that are a part of the registration statement. For further
information with respect to us and the new notes, we refer you to the
registration statement and the exhibits and schedules filed or referenced as a
part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document is an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract
or document filed or referenced as an exhibit is qualified in all respects by
the exhibit. Copies of our reports, proxy statements and other information may
be inspected and copied at the public reference room maintained by the SEC at:
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
Information on the operation of the public reference room may be obtained
by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
reports, proxy statements and other information regarding Denny's. The address
of the SEC website ishttp://www.sec.gov. This information is also available on
our website, the address of which is http://www.dennys.com. Information
contained at our website is not, and should not be deemed to be, a part of this
prospectus.
The SEC allows us to incorporate by reference information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for information superseded by information contained directly in, or
incorporated by reference in, this prospectus. This prospectus incorporates by
reference the documents set forth below that we previously filed with the SEC
and that contain important information about us:
o Annual Report on Form 10-K for the fiscal year ended December 26, 2001;
o Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 2002;
o Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 2002;
o Quarterly Report on Form 10-Q for the fiscal quarter ended
September 25, 2002; and
o Current Reports on Form 8-K dated July 10, 2002, August 12, 2002,
November 18, 2002 and December 16, 2002.
Included with this prospectus are copies of our Annual Report on Form 10-K
for the fiscal year ended December 26, 2001 and our Quarterly Report on Form
10-Q for the fiscal quarter ended September 25, 2002.
In addition, we will provide, without charge, to each person to whom this
prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents (other than exhibits to documents that are not
specifically incorporated by reference to the documents). Please direct such
requests to 203 East Main Street, Spartanburg, South Carolina 29319-9966,
(864) 597-8000, Attention: Corporate Secretary.
If you would like to request documents, please do so by January 31, 2003,
in order to receive them before the scheduled expiration of the exchange offer
on February 10, 2003.
iii
FORWARD-LOOKING STATEMENTS
This prospectus contains numerous forward-looking statements about our
financial condition, results of operations, cash flows, financing plans,
business strategies, operating efficiencies, capital and other expenditures,
competitive positions, growth opportunities, plans and objectives of
management, markets for our stock and debt securities and other matters which
reflect management's best judgment based on factors currently known. These
forward-looking statements involve risks and uncertainties. The words
"estimate," "project," "intend," "expect," "believe," "forecast" or similar
expressions, or the negative of these terms or expressions, are intended to
identify these forward-looking statements, but some of these statements use
other phrasing. In addition, any statement in this prospectus that is not a
historical fact is a "forward-looking statement." Except as required by law, we
expressly disclaim any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events. Actual
results could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors including, among others:
o competitive pressures from within the restaurant industry;
o the level of success of our operating initiatives and advertising and
promotional efforts, including the initiatives and efforts specifically
mentioned in this prospectus;
o adverse publicity;
o changes in business strategy or development plans;
o terms and availability of capital;
o regional weather conditions;
o overall changes in the general economy, particularly at the retail level;
and
o other factors included in the sections containing the forward-looking
statements, including the section entitled "Risk Factors" in this
prospectus.
iv
SUMMARY
This summary highlights material information from the prospectus. It may
not contain all of the information that is important to you. For a more
complete understanding of our company, the exchange offer and the terms of the
new notes, you should read this entire prospectus and the other documents to
which it refers you.
The Issuers
Denny's Corporation is the parent company and owner of 100% of Denny's
Holdings, Inc., a holding company that in turn owns 100% of Denny's, Inc., the
operator of almost 1,700 company-owned and franchised restaurants. Prior to
their divestiture in July, 2002, Denny's Corporation also owned and operated
the Coco's and Carrows restaurant chains through our subsidiary FRD
Acquisition Co., or FRD.
Our principal executive offices are located at 203 East Main Street,
Spartanburg, South Carolina 29319-9966. Our telephone number is (864) 597-8000.
Description of Business
Denny's is the nation's largest family dining restaurant chain in terms of
market share, number of units and U.S. system-wide sales. At September 25,
2002, Denny's restaurants operated in 49 states, the District of Columbia, two
U.S. territories and four foreign countries, with concentrations in California
(24% of total restaurants), Florida (11%) and Texas (9%). Of the 1,686 Denny's
restaurants operating at September 25, 2002, 1,109 (66%) were franchised or
licensed units. Our restaurants generally are open 24 hours a day, 7 days a
week. We offer traditional family fare (including breakfast items, hamburgers,
sandwiches, steaks and chicken), and provide both counter and table service.
Our sales are evenly distributed across each of the typical mealtimes; however,
breakfast items account for the majority of our sales. Denny's restaurants are
designed to provide a "dining value" with moderately priced food, friendly and
efficient service and a pleasant atmosphere. We believe that Denny's benefits
from its generally strong market position and consumer recognition.
Risk Factors
For a discussion of the risks facing our business and the factors that you
should consider in connection with the exchange offer and an investment in the
new notes, see "Risk Factors" beginning on page 10 of this prospectus.
1
The Exchange Offer
Offerors.......................................Denny's Corporation and Denny's
Holdings, Inc.
Exchange Offer Size............................Subject to the terms and
conditions set forth in this
prospectus, Denny's Corporation
and Denny's Holdings, Inc. are
offering to exchange up to $50.0
million aggregate principal
amount of registered 12 3/4%
senior notes due 2007 of Denny's
Corporation and Denny's
Holdings, which we refer to as
the new notes, for up to $50.0
million aggregate principal
amount of unregistered 12 3/4%
senior notes due 2007 of Denny's
Corporation and Denny's
Holdings, which we refer to as
the old notes.
General........................................We are offering to exchange old
notes for a like principal
amount of new notes. Old notes
may be tendered, and new notes
will be issued, only in integral
multiples of $1,000 principal
amount. Currently, $50.0 million
in principal amount of old notes
is outstanding. See "The
Exchange Offer - Terms Of The
Exchange Offer."
This exchange offer is intended
to satisfy our obligations under
the note exchange and
registration rights agreements
that we entered into when we
issued the old notes. See "The
Exchange Offer - Background and
Purpose of the Exchange Offer."
The terms of the new notes are
identical in all respects to the
terms of the old notes, except
that the new notes are
registered under the Securities
Act and generally are not
subject to transfer restrictions
or registration rights.
Expiration Date;
Extensions; Termination;
Amendments.....................................This exchange offer expires at
midnight, New York City time, on
February 10, 2003, unless the
exchange offer is extended. We
do not currently intend to
extend the expiration date.
Denny's reserves the right to
extend, delay, amend or
terminate the exchange offer.
See "The Exchange Offer -
Expiration Date; Extensions;
Termination; Amendments."
Conditions of the Exchange
Offer..........................................This exchange is subject to
customary conditions, which we
may assert or waive. For more
information about these
conditions, see "The Exchange
Offer - Conditions of the
Exchange Offer."
Resale of New Notes............................We believe that you can resell
and transfer your new notes
without registering them
under the Securities Act and
delivering a prospectus if:
o you are acquiring the new notes in the ordinary course of your business
for investment purposes;
o you are not engaged in, do not intend to engage in and have no arrangement
or understanding with anyone to participate in a distribution of the new
notes (within the meaning of the Securities Act);
o you are not a broker-dealer who purchased the old notes directly from us
for resale pursuant to Rule 144A or any other available exemption under
the Securities Act; and
2
o you are not an affiliate of Denny's within the meaning of Rule 405 under
the Securities Act.
Our belief is based on
interpretations expressed in
some of the SEC's no-action
letters to other issuers in
similar exchange offers.
However, we cannot guarantee
that the SEC would make a
similar decision about this
exchange offer. If our belief is
wrong, or if you cannot
truthfully make the necessary
representations, and you
transfer any new note received
in this exchange offer without
meeting the registration and
prospectus delivery requirements
of the Securities Act or without
an exemption from these
requirements, then you could
incur liability under the
Securities Act. We are not
indemnifying you for any
liability that you may incur
under the Securities Act.
Consequences of Failure to
Exchange Your Old
Notes..........................................Old notes that are not tendered
in the exchange offer or that
are not accepted for exchange
will continue to bear legends
restricting their transfer. You
will not be able to offer or
sell the old notes unless:
o each offer or sale is made pursuant to an exemption from the requirements
of the Securities Act; or
o the old notes are registered under the Securities Act.
After the exchange offer is
closed, we will no longer have
an obligation to register the
old notes. See "The Exchange
Offer - Consequences of Failure
to Exchange Old Notes."
Procedures for Tendering
Old Notes......................................If you wish to tender your old
notes for exchange, you must:
o complete and sign the accompanying letter of transmittal;
o indicate the amount of old notes, if less than all, to which your election
to tender for new notes applies;
o have the signature guaranteed if required by the letter of transmittal;
and
o mail or deliver the certificates for the old notes, together with a
properly completed and duly executed letter of transmittal (or a facsimile
thereof), with any required signature guarantees and any other required
documents, to the exchange agent at its address shown on the back cover
page of this prospectus on or prior to the expiration date.
For more detailed information,
see "The Exchange Offer -
Procedures for Tendering."
Guaranteed Delivery
Procedures.....................................If you wish to tender your old
notes but are not able to
deliver the required documents
prior to the expiration date for
the exchange offer, you may
tender your old notes according
to the guaranteed delivery
procedures set forth in "The
Exchange Offer - Guaranteed
Delivery."
Withdrawal Rights..............................You may withdraw tenders of old
notes at any time on or prior
to the expiration date. Any old
notes not accepted for exchange
will be returned to the
tendering holder without cost
promptly after the termination
or expiration
3
of the exchange offer. For more
information on withdrawing
tenders of old notes, see "The
Exchange Offer - Withdrawal of
Tenders."
Acceptance of Tenders;
Delivery of New Notes..........................Subject to the satisfaction or
waiver of all conditions of the
exchange offer, Denny's will
accept for exchange all old
notes that have been validly
tendered in the exchange offer
and not properly withdrawn on or
prior to the expiration date. We
will issue and deliver the new
notes in exchange for the
applicable old notes accepted
pursuant to the exchange offer
promptly following the
expiration date. See "The
Exchange Offer - Acceptance of
Tenders; Compliance with
Conditions of the Exchange
Offer; Delivery of New Notes."
U.S. Federal Income Tax
Considerations.................................The exchange of old notes for
new notes in this exchange offer
should not be a taxable event
for U.S. federal income tax
purposes. See "United States
Federal Income Tax
Considerations."
Exchange Agent.................................U.S. Bank National Association
is acting as the exchange agent
in the exchange offer. The
address and phone numbers of the
exchange agent are set forth on
the outside back cover of this
prospectus.
The New Notes
Issuers........................................Denny's Corporation and Denny's
Holdings, Inc.
Notes Offered..................................Up to $50.0 million aggregate
principal amount of 12 3/4%
senior notes due 2007.
Interest Payment Dates.........................Interest on the new notes will
be payable semi-annually in
arrears on each March 31 and
September 30, commencing
March 31, 2003.
Maturity Date..................................September 30, 2007.
Optional Redemption............................Except as provided below, the
new notes may not be redeemed
prior to September 30, 2004. On
and after September 30, 2004,
the new notes will be
redeemable, in whole or in part,
at 106.3750% of their principal
amount, at decreasing amounts
thereafter to and including
September 30, 2006,
and thereafter at 100% of their
principal amount, together in
each case with accrued and
unpaid interest. Notwithstanding
the foregoing, from the closing
date until September 30, 2004,
the issuers may redeem up to 35%
of the aggregate principal
amount of new notes, at a
redemption price of 112.75%,
plus accrued and unpaid interest
to the redemption date, from the
net proceeds of any public
offering for cash of certain
equity securities of Denny's
Corporation, Denny's Holdings
or any of their subsidiaries.
Ranking........................................The new notes will be senior
obligations of the issuers and
will rank equal in right of
payment with all other senior
indebtedness of the issuers. The
new notes will be senior to all
existing and future subordinated
indebtedness of the issuers.
However, the new notes will be
effectively subordinated to the
issuers' secured indebtedness to
the extent of the assets
securing that indebtedness and
structurally subordinated to the
indebtedness and other
obligations of the issuers'
subsidiaries, including Denny's,
Inc. As of September 25, 2002,
we had total indebtedness of
approximately $606.1 million. Of
that amount, $81.2 million, plus
trade payables, would be
4
structurally senior to the new
notes. See "Capitalization" for
more information.
Covenants......................................The indenture governing the new
notes contains covenants that,
among other things, will limit
our ability to incur additional
indebtedness, pay dividends or
make other distributions, make
loans and investments, enter
into asset sales and use those
proceeds, create liens, enter
into transactions with
affiliates, merge, consolidate
or transfer all or substantially
all of our assets or make
investments in unrestricted
subsidiaries. For additional
information, see "The New Notes
- Certain Covenants."
Change of Control..............................If we experience a change of
control, we must offer to
purchase the new notes at a
purchase price equal to 101% of
the principal amount, plus
accrued and unpaid interest.
We might not be able to pay you
the required price for the new
notes you present to us at the
time of a change of control
because our revolving credit
facility or other indebtedness
may prohibit payment or we might
not have enough funds at the
time. See "The New Notes -
Change Of Control."
Previously Registered 12 3/4% Notes
due 2007 Outstanding.......................... The new notes will be issued
pursuant to an indenture under
which we already have issued and
outstanding, in addition to the
old notes that are the subject
of this exchange offer, an
aggregate of $70.4 million of
12 3/4% senior notes due 2007
that have been registered under
the Securities Act. The new
notes will have the same terms
and conditions as these
previously registered
outstanding 12 3/4%
senior notes due 2007.
Trustee........................................U.S. Bank National Association
will serve as trustee under the
indenture governing the new
notes.
5
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated balance sheet data as of December 31, 1997, December 30,
1998 and December 29, 1999 and the related statements of consolidated
operations and consolidated cash flow data for the fiscal year ended December
31, 1997, the one week period ended January 7, 1998, and the fifty-one week
period ended December 30, 1998 are derived from our audited consolidated
financial statements that are not included in this prospectus. The consolidated
balance sheet data as of December 27, 2000 and December 26, 2001 and the
statements of consolidated operations and consolidated cash flow data for the
fiscal years ended December 29, 1999, December 27, 2000 and December 26, 2001
are derived from our audited consolidated financial statements that are
incorporated by reference into this prospectus. The consolidated balance sheet
data as of September 26, 2001 and September 25, 2002 and the statements of
consolidated operations and consolidated cash flow data for the three quarters
ended September 26, 2001 and September 25, 2002 are derived from our unaudited
consolidated financial statements that are incorporated by reference into this
prospectus. In the opinion of management, our unaudited interim consolidated
financial statements include all adjustments necessary for a fair presentation
of our consolidated results of operations, cash flows and financial condition
for these interim periods. Excluding impairment and restructuring charges and
exit costs, all of such adjustments are of a normal and recurring nature. The
unaudited interim consolidated results of operations are not necessarily
indicative of the consolidated results of operations for any other interim
period or for any fiscal year as a whole. You should read the selected
consolidated financial data and other information in conjunction with our
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference into this prospectus.
Predecessor Company Successor Company(a)
----------------------- -------------------------------------------------------
Fiscal Year One Week Fifty-One Fiscal Year Ended
Ended Ended Weeks Ended -----------------------------------------
December 31, January 7, December 30, December 29, December 27, December 26,
1997(b) 1998 1998 1999 2000 2001
------------ ---------- ------------ ------------ ------------ ------------
(In millions, except ratios
and per share amounts)
Income Statement Data:
Operating revenue $ 1,193.3 $ 23.2 $ 1,156.0 $ 1,200.2 $ 1,155.2 $ 1,039.7
Operating income (loss)(c) 78.2 8.7 (51.2) (195.9) (0.3) (19.7)
(Loss) income from
continuing operations(d) (83.2) 602.9(e) (126.0) (275.8) (82.5) (88.5)
Basic (loss) per share
from continuing
operations
applicable to common
shareholders (2.29) 14.21 (3.15) (6.89) (2.06) (2.21)
Diluted (loss) income per
share from continuing
operations applicable to
common shareholders (2.29) 10.93 (3.15) (6.89) (2.06) (2.21)
Cash dividends per common
per share(f) -- -- -- -- -- --
Ration of earnings to
fixed charges(g) -- 268.5x -- -- -- --
Deficiency in the
coverage of
fixed charges by earnings
before fixed charges(g) 82.0 -- 129.1 275.0 80.7 94.8
Balance Sheet Data (at end
of period):
Current assets(h) $ 129.6 $ 291.1 $ 379.5 $ 56.4 $ 40.1
Working capital
(deficit)(h)(i) (230.2) (81.2) (197.0) (170.6) (147.5)
Net property and equipment 625.8 630.3 510.9 425.3 362.4
Total assets 1,407.4 1,930.7 1,236.3 745.3 607.3
Long-term debt, excluding
current portion 594.2(j) 1,141.2 615.4 593.7 645.1
Other Data:
EBITDA as defined(k) $ 136.4 $ 9.7 $ 140.0 $ 160.4 $ 172.3 $ 135.1
Net cash flows provided by
(used in) operating 37.0 7.7 (10.7) (31.1) (8.4) 8.2
activities
Net cash flows (used in)
provided by investing
activities(l) (41.6) 7.9 180.3 86.7 204.8 (75.1)
Net cash flows (used in)
provided by financing
activities(m) (28.4) (5.3) (66.6) (47.9) (335.0) 46.3
Successor Company(a)
---------------------------
Three Quarters Ended
----------------------------
September 26, September 25,
2001 2002
------------- -------------
(In millions, except ratios
and per share amounts)
Income Statement Data:
Operating revenue $ 792.8 $ 721.7
Operating income (loss)(c) (0.8) 47.2
(Loss) income from
continuing operations(d) (49.0) 11.1
Basic (loss) income per
share from continuing
operations
applicable to common
shareholders (1.22) (1.68)
Diluted (loss) income per
share from continuing
operations applicable to
common shareholders (1.22) (1.67)
Cash dividends per common
share(f) -- --
Ration of earnings to
fixed charges(g) -- 1.1x
Deficiency in the
coverage of
fixed charges by earnings
before fixed charges(g) 47.7 --
Balance Sheet Data (at end
of period):
Current assets(h) $ 41.4 $ 28.5
Working capital
(deficit)(h)(i) (113.9) (146.2)
Net property and equipment 369.7 328.0
Total assets 630.1 549.8
Long-term debt, excluding
current portion 661.5 561.7
Other Data:
EBITDA as defined(k) $ 108.1 $ 113.5
Net cash flows provided by
(used in) operating (14.4) 2.7
activities
Net cash flows (used in)
provided by investing
activities(l) (63.6) 30.7
Net cash flows (used in)
provided by financing
activities(m) 54.4 (36.1)
Certain amounts in all periods presented have been reclassified to conform to
the 2002 presentation.
6
(a) Denny's Corporation's predecessor, Flagstar Companies, Inc, or FCI,
and its wholly owned subsidiary Flagstar Corporation, or Flagstar,
emerged from bankruptcy on January 7, 1998. The change in ownership
of Denny's Corporation effected by the financial restructuring
resulting from the bankruptcy required the application of fresh
start reporting effective January 7, 1998 in accordance with the
American Institute of Certified Public Accountants' Statement of
Position 90-7, or SOP 90-7, "Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code." All financial statements
subsequent to January 7, 1998 are referred to as "Successor Company"
statements, as they reflect periods subsequent to the implementation
of fresh start reporting and are not comparable to the financial
statements for periods prior to January 7, 1998.
(b) Effective January 1, 1997, we changed our fiscal year end from
December 31 to the last Wednesday of the calendar year. Concurrent
with this change, we changed to a four-four-five week quarterly
closing calendar. This reporting schedule generally results in four
13-week quarters during the fiscal year, for a total of 52 weeks.
Due to the timing of thiS change, the fiscal year ended December 31,
1997 included five additional days of Denny's operations.
(c) Operating income (loss) reflects impairment and restructuring
charges and exit costs of $136.5 million, $19.0 million and $30.5
million for 1999, 2000 and 2001, respectively, and $16.8 million
and $4.1 million for the three quarters ended September 26, 2001
and September 25, 2002, respectively.
(d) We have classified as discontinued operations restaurant
subsidiaries Flagstar Enterprises, Inc., or FEI, (which operated our
Hardee's restaurants under licenses from Hardee's Food Systems),
Quincy's Restaurants, Inc., or Quincy's, El Pollo Loco, Inc., or
EPL, and FRD. FEI and Quincy's were sold in 1998, and EPL was sold
in 1999. We completed the divestiture of FRD on July 10, 2002.
(e) The income from continuing operations for the one week ended
January 7, 1998 includes reorganization items of $582.0 million
resulting from the application of fresh start reporting in
accordance with SOP 90-7.
(f) Our bank facilities have prohibited, and our public debt indentures
have significantly limited, distributions and
dividends on our (and our predecessors') common equity securities.
(g) For purposes of computing the ratio of earnings to fixed charges or
deficiency in the coverage of fixed charges by earnings before fixed
charges, fixed charges consist of interest expense including
capitalized interest, amortization of debt expenses and the interest
element in rental payments under operating leases (estimated to be
one third of the total rental payments). Earnings consist of income
from continuing operations before income taxes and fixed charges
excluding capitalized interest.
(h) The current assets and working capital deficit amounts presented
exclude assets held for sale of $347.0 million as of December 31,
1997, $87.7 million as of December 30, 1998, and net liabilities of
discontinued operations of $54.0 million as of December 29, 1999,
$69.4 million as of December 27, 2000, $15.1 million as of
December 26, 2001 and $13.5 million as of September 26, 2001. Assets
held for sale for 1997 relate to FEI and Quincy's. For 1998, net
assets held for sale relate to EPL. For 1999, 2000 and 2001, net
liabilities of discontinued operations relate to FRD. We completed
the divestiture of FRD on July 10, 2002.
(i) A negative working capital position is not unusual for a restaurant
operating company. The decrease in the working capital deficit from
December 31, 1997 to December 30, 1998 is attributable primarily to
an increase in cash and cash equivalents from the sales of FEI and
Quincy's. The increase in the working capital deficit from
December 30, 1998 to December 29, 1999 is attributable primarily to
the reclassification of certain mortgage notes to current
liabilities and a reduction in cash and cash equivalents related to
acquisitions of restaurants, the retirement of a portion of senior
notes and expenditures related to Denny's reimaging program. The
decrease in working capital deficit from December 29, 1999 to
December 27, 2000 is attributable primarily to the increase in
Denny's refranchising activity in 2000. The decrease in the
working capital from December 27, 2002 to December 26, 2001 is
primarily related to the use of cash on hand and borrowings under
the revolving credit facility to satisfy current liabilities, the
reduction of capital lease obligations and the reduction of company
owned units from refranchising activity and store closures.
7
(j) Reflects the reclassification of $1,496.7 million of long-term debt
to liabilities subject to compromise in accordance with SOP 90-7 as
a result of the Chapter 11 filing.
(k) We define "EBITDA" as operating income (loss) before depreciation,
amortization and charges for impairment and restructuring and exit
costs as follows:
Predecessor Company Successor Company(a)
------------------------ ---------------------------------------------------------
Fiscal Year One Week Fifty-One Fiscal Year Ended
Ended Ended Weeks Ended -----------------------------------------
December 31, January 7, December 30, December 29, December 27, December 26,
1997 1998 1998 1999 2000 2001
------------ ---------- ------------ ------------ ------------- ------------
(In millions)
Operating income
(loss) $ 78.2 $ 8.7 $ (51.2) $ (195.9) $ (0.3) $ (19.7)
Total amortization
and depreciation 58.2 1.0 191.2 219.8 153.6 124.3
Total impairment
and restructuring charges
and exit costs - - - 136.5 19.0 30.5
------------ ---------- ------------ ------------ ------------- ------------
EBITDA as defined $ 136.4 $ 9.7 $ 140.0 $ 160.4 $ 172.3 $135.1
=========== ========== ============ ============= ============= ============
Successor Company(a)
-----------------------------
Three Quarters Ended
-----------------------------
September 26, September 25,
2001 2002
------------- -------------
(In millions)
Operating income
(loss) $ (0.8) $ 47.2
Total amortization
and depreciation 92.0 62.3
Total impairment
and restructuring charges
and exit costs 16.9 4.0
------------- -------------
EBITDA as defined $ 108.1 $ 113.5
============= =============
We believe that EBITDA as defined is a key internal measure used to
evaluate the amount of cash flow available for debt repayment and
funding of additional investments. EBITDA as defined is not a
measure defined by accounting principles generally accepted in the
United States of America and should not be considered as an
alternative to net income or cash flow data prepared in accordance
with accounting principles generally accepted in the United States
of America. Our measure of EBITDA as defined may not be comparable
to similarly titled measures reported by other companies, and
although the definition of EBITDA in our revolving credit facility
differs somewhat from the definition of "EBITDA as defined," the
amount of our EBITDA as defined has been the same as that calculated
under the revolving credit facility since our emergence from
bankruptcy in January 1998.
(l) Net cash flows (used in) provided by investing activities include
net proceeds of $460.4 million from the disposition of FEI and
Quincy's in the fifty-one weeks ended December 31, 1998 and net
proceeds of $109.4 million from the sale of EPl in 1999. For 2000,
net cash flows from investing activities include $158.7 million of
proceeds from the maturity of investments securing our in-substance
defeased debt (see (m) below). For fiscal year 2001, net cash flows
used in investing activities include $53.3 million of advances to
discontinued operations. For the three quarters ended September 25,
2002, net cash flows from investing activities include $39.4 million
of receipts from discontinued operations resulting primarily from
the divestiture of FRD on July 10, 2002.
(m) Net cash flows (used in) provided by financing activities for 2000
include the repayment of the $160.0 million principal amount of our
mortgage notes and the repayment of the $153.3 million principal
amount of our in-substance defeased debt through the use of the
proceeds described in (l) above. For fiscal year 2001, net cash
flows provided by financing activities includes borrowings of $58.7
million under our revolving credit facility.
8
(n) We adopted Statement of Financial Accounting Standard No. 142, or
SFAS 142, "Goodwill and Other Intangible Assets" at the beginning of
fiscal year 2002, and as a result we are no longer amortizing
reorganization value, goodwill and trade names. During the first
quarter of 2002, we completed our testing of intangible assets with
definite lives and our assessment of impairment of goodwill and
other intangible assets with indefinite lives. We performed an
impairment test and determined that none of the recorded goodwill or
other intangible assets with indefinite lives was impaired. In
accordance with SFAS 142, goodwill and other intangible assets with
indefinite lives will be tested for impairment at least annually,
and more frequently if circumstances indicate that they may be
impaired. We anticipate performing our annual impairment test
during the fourth quarter of each fiscal year. The following table
reflects consolidated operating results as though we adopted SFAS
142 as the beginning of fiscal year 1997:
Predecessor Company Successor Company(a)
------------------------- ----------------------------------------------------------
Fiscal Year One Week Fifty-One Fiscal Year Ended
Ended Ended Weeks Ended ------------------------------------------
December 31, January 7, December 30, December 29, December 27, December 26,
1997 1998 1998 1999 2000 2001
------------ ---------- ------------ ------------ ------------ ------------
(In millions)
Reported net
income (loss) $ (148.6) $ 1,394.6 $ (181.4) $ (381.9) $ (98.0) $ (88.5)
Add back amortization
of reorganization
value -- -- 89.2 88.9 42.1 28.7
Add back goodwill
amortization -- -- 0.2 1.0 1.4 1.6
Add back trade
name amortization -- -- 1.1 1.2 1.2 1.2
------------ ---------- ------------ ------------ ------------ ------------
Adjusted net
income (loss) $ (148.6) $ 1,394.6 $ (90.9) $ (290.8) $ (53.3) $ (57.0)
============ ========== ============ =========== ============ ============
Reported basic
income (loss) per
share $ (3.50) $ 32.87 $ (4.53) $ (9.54) $ (2.45) $ (2.21)
Add back amortization
of reorganization
value -- -- 2.23 2.22 1.05 0.71
Add back goodwill
amortization -- -- 0.01 0.02 0.04 0.04
Add back trade name
amortization -- -- 0.03 0.03 0.03 0.03
------------ ---------- ------------ ------------ ----------- ------------
Adjusted basic
income (loss) per
share $ (3.50) $ 32.87 $ (2.26) $ (7.27) $ (1.33) $ (1.43)
============ ========== ============ ============ =========== ============
Reported diluted
income (loss) per
share $ (3.50) $ 25.30 $ (4.53) $ (9.54) $ (2.45) $ (2.21)
Add back amortization
of reorganization
value -- -- 2.23 2.22 1.05 0.71
Add back goodwill
amortization -- -- 0.01 0.02 0.04 0.04
Add back trade name
amortization -- -- 0.03 0.03 0.03 0.03
------------ ---------- ------------ ------------ ----------- ------------
Adjusted diluted
income (loss) per
share $ (3.50) $ 25.30 $ (2.26) $ (7.27) $ (1.33) $ (1.43)
============ ========== ============ ============ =========== ============
Successor Company(a)
----------------------------
Three Quarters Ended
----------------------------
September 26, September 27,
2001 2002
------------- -------------
(in millions)
Reported net
income (loss) $ (49.0) $ 67.7
Add back amortization
of reorganization
value 21.8 --
Add back goodwill
amortization 1.2 --
Add back trade
name amortization 0.9 --
------------- -------------
Adjusted net
income (loss) $ (25.1) $ 67.7
============= =============
Reported basic
income (loss) per
share $ (1.22) $ 1.68
Add back amortization
of reorganization
value 0.54 --
Add back goodwill
amortization 0.03 --
Add back trade name
amortization 0.02 --
------------- -------------
Adjusted basic
income (loss) per
share $ (0.63) $ 1.68
============= =============
Reported diluted
income (loss) per
share $ (1.22) $ 1.67
Add back amortization
of reorganization
value 0.54 --
Add back goodwill
amortization 0.03 --
Add back trade name
amortization 0.02 --
------------- -------------
Adjusted diluted
income (loss) per
share $ (0.63) $ 1.67
============= =============
9
RISK FACTORS
You should read and carefully consider the risks described in this
section, as well as the other information contained in this prospectus, before
making a decision to tender your old notes in exchange for new notes in the
exchange offer.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our operations, including
our ability to perform our obligations under the old notes and the new notes.
We have now and will continue to have a significant amount of
indebtedness. As of September 25, 2002, we had total indebtedness of
approximately $606.1 million, and a shareholders' deficit of $271.8 million.
Our substantial indebtedness could have important consequences to you.
For example, it could:
o make it more difficult for us to satisfy our obligations with respect to
the old notes and the new notes;
o require us to continue to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, which would reduce the
availability of our cash flow to fund future working capital, capital
expenditures, acquisitions and other general corporate purposes;
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o restrict us from making strategic acquisitions or pursuing business
opportunities;
o place us at a competitive disadvantage compared to our competitors that
have relatively less indebtedness; and
o limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on our
business, financial condition and results of operations.
Despite current indebtedness levels, we may still incur substantially more
indebtedness, including secured indebtedness. Incurring more indebtedness
could intensify the risks described above.
Subject to the restrictions in our revolving credit facility, the
indenture governing the notes and the indenture governing Denny's Corporation's
11 1/4% senior notes due 2008, or the 11 1/4% notes, we may incur significant
additional indebtedness. Although the terms of the revolving credit facility,
the indenture governing the notes and the indenture governing the 11 1/4 notes
contain restrictions on the incurrence of additional indebtedness, these
restrictions are subject to a number of qualifications and exceptions, and
additional indebtedness incurred in compliance with these restrictions could be
substantial. If new debt is added to our current debt levels, the related
risks that we now face could intensify. As of September 25, 2002, we had $40.0
million of advances and $52.1 million of letters of credit outstanding under
our prior revolving credit facility, leaving $63.2 million of additional
permitted borrowings available under that facility. As of December 16, 2002,
we refinanced our prior credit facility and entered into a new $125 million
credit facility that expires December 20, 2004. As of December 16, 2002, we had
$43.9 million of advances and $48.8 million of letters of credit outstanding
under our revolving credit facility, leaving $32.3 million of additional
permitted borrowings thereunder.
Your right to receive payment on the notes will be effectively subordinate to
our obligations under the revolving credit facility and structurally
subordinate to the debt of our subsidiaries.
Our revolving credit facility is secured by a first priority security
interest on the majority of our assets, including the capital stock of our
subsidiaries. Any borrowings under our revolving credit facility or other
secured indebtedness would be
10
effectively senior to the notes to the extent of the security. In the event of
our liquidation or insolvency, or if any of our secured indebtedness is
accelerated, the secured assets will be first applied to repay our obligations
under our secured indebtedness in full and then to repay our obligations under
our unsecured indebtedness, including under the notes. Accordingly, there may
not be sufficient assets remaining to pay amounts due on any or all of the
notes then outstanding. In addition, borrowings of our subsidiaries, including
Denny's, Inc., whether secured or not and including capital lease obligations
and trade payables, will be structurally senior to the notes.
As holding companies, Denny's Corporation and Denny's Holdings depend on
upstream payments from their operating subsidiaries.
Denny's Corporation is a holding company that currently conducts its
operations through consolidated subsidiaries, including Denny's Holdings.
Accordingly, Denny's Corporation is dependent upon dividends, loans and other
intercompany transfers from its subsidiaries to meet its debt service and other
obligations. These transfers are subject to contractual restrictions and are
contingent upon the earnings of its subsidiaries. Similarly, Denny's Holdings
is itself a holding company, which conducts its operations through consolidated
subsidiaries. Dividends, loans and other intercompany transfers from
subsidiaries to Denny's Holdings are also subject to contractual restrictions
and are contingent upon the earnings of its subsidiaries. We cannot assure you
that the operating results of our subsidiaries will be sufficient to enable us
to make payments on the notes.
Our ability to generate cash depends on many factors beyond our control, and we
may not be able to generate the cash required to service or repay our
indebtedness.
Our ability to pay or refinance our indebtedness, including the notes,
will depend upon our future operating performance, which will be affected by
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Our historical financial results have
been, and our future financial results are expected to be, subject to
substantial fluctuations. We cannot assure you that our business will generate
sufficient cash flow from operations, that currently anticipated revenue growth
and operating improvements will be realized or that future borrowings will be
available to us under our revolving credit facility or any refinancing thereof
in amounts sufficient to enable us to service or reduce our indebtedness,
including the notes, or to fund our other liquidity needs. Our ability to
maintain or increase operating cash flow will depend upon:
o consumer tastes;
o the success of our marketing initiatives and other efforts by us to
increase customer traffic in our restaurants; and
o prevailing economic conditions and other matters, many of which are beyond
our control.
If we are unable to meet our debt service obligations or fund other
liquidity needs, we may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity or seek additional equity capital.
We cannot assure you that we will be able to pay or refinance our indebtedness
or obtain additional equity capital on commercially reasonable terms, if at all.
Restrictive covenants in our debt instruments restrict or prohibit our ability
to engage in or enter into a variety of transactions, which could adversely
affect us.
The indenture governing the notes contains various covenants that
limit, among other things, our ability to:
o incur additional indebtedness;
o pay dividends or make distributions or certain other restricted payments;
o make certain investments;
o create dividend or other payment restrictions affecting restricted
subsidiaries;
11
o issue or sell capital stock of restricted subsidiaries;
o guarantee indebtedness;
o enter into transactions with stockholders or affiliates;
o create liens;
o sell assets and use the proceeds thereof;
o engage in sale-leaseback transactions; and
o enter into certain mergers and consolidations.
Our revolving credit facility and the indenture governing our 11 1/4%
notes each contain similar and additional restrictive covenants, including
financial maintenance requirements. These covenants could have an adverse
effect on our business by limiting our ability to take advantage of financing,
merger and acquisition or other corporate opportunities and to fund our
operations.
A breach of a covenant in our debt instruments could cause acceleration of a
significant portion of our outstanding indebtedness.
A breach of a covenant or other provision in any debt instrument
governing our current or future indebtedness could result in a default under
that instrument and, due to cross-default and cross-acceleration provisions,
could result in a default under our other debt instruments. In addition, our
revolving credit facility requires us to maintain certain financial ratios. Our
ability to comply with these covenants may be affected by events beyond our
control, and we cannot assure you that we will be able to comply with these
covenants. Upon the occurrence of an event of default under the revolving
credit facility or any other debt instrument, the lenders could elect to
declare all amounts outstanding to be immediately due and payable and terminate
all commitments to extend further credit. If we were unable to repay those
amounts, the lenders could proceed against the collateral granted to them, if
any, to secure the indebtedness. If the lenders under our current or future
indebtedness accelerate the payment of the indebtedness, we cannot assure you
that our assets would be sufficient to repay in full our outstanding
indebtedness, including the notes.
We may be unable to repurchase the notes and/or 11 1/4% notes upon a change of
control.
In the event of a "change of control" (as defined in the indenture for
the notes), we must offer to purchase the notes at a purchase price equal to
101% of the principal amount, plus accrued and unpaid interest to the date of
repurchase. See "The New Notes - Change of Control." Denny's Corporation has a
similar obligation under the indenture governing the 11 1/4% notes. In the
event that we are required to make such an offer, there can be no assurance
that we would have sufficient funds available to purchase any notes or 11 1/4%
notes, and we may be required to refinance the notes and/or the 11 1/4% notes.
There can be no assurance that we would be able to accomplish a refinancing or,
if a refinancing were to occur, that it would be accomplished on commercially
reasonable terms.
Our revolving credit facility prohibits us from repurchasing any notes
or 11 1/4% notes, except under limited circumstances. Our revolving credit
facility also provides that certain change of control events would constitute a
default. In the event a change of control occurs at a time when we are
prohibited from purchasing the notes and/or the 11 1/4% notes, we could seek
the consent of the lenders under the revolving credit facility to purchase the
notes and/or the 11 1/4% notes or we could attempt to refinance the revolving
credit facility. If we did not obtain such a consent or were unable to
refinance the revolving credit facility, we would remain prohibited from
purchasing the notes and/or the 11 1/4% notes. In this case, our failure to
purchase would constitute an event of default under the indentures. The
provisions relating to a change of control included in the indentures may also
increase the difficulty of a potential acquirer from obtaining control of us.
12
Insolvency proceedings involving Denny's Corporation or Denny's Holdings may
hinder the receipt of payment on the notes.
An investment in the notes involves insolvency and bankruptcy
considerations that investors should carefully consider. If Denny's Corporation
or Denny's Holdings becomes a debtor subject to insolvency proceedings under
the United States Bankruptcy Code, such circumstances are likely to result in
delays in the payment of the notes and may result in our inability to make
payment of all or a portion of the amounts due under the notes. Provisions of
the United States Bankruptcy Code or general principles of equity that could
result in the impairment of your rights include the automatic stay, avoidance
of transfers by a trustee or debtor-in-possession, substantive consolidation,
limitations on the collectibility of unmatured interest or attorneys' fees, and
forced restructuring of the notes.
If Denny's Corporation or Denny's Holdings becomes a debtor in a case
under the United States Bankruptcy Code, claims could be made by creditors that
the assets and liabilities of any one of those entities should be substantively
consolidated with those of any other of those entities. If such claims are
successful, the effect could impair the ability of Denny's Corporation and
Denny's Holdings to repay the notes.
Substantive consolidation is an exception rather than the rule,
especially if one of the companies involved is not in bankruptcy. If Denny's
Corporation or Denny's Holdings becomes a debtor in a case under the United
States Bankruptcy Code, the equitable doctrine of substantive consolidation
could permit a bankruptcy court to disregard the corporate separateness of
those entities and to consolidate and pool their respective assets and
liabilities as though they were held and incurred by one entity. If a court
were to order the substantive consolidation of the assets and liabilities of
Denny's Corporation and Denny's Holdings, the notes would lose their structural
seniority over the 11 1/4% notes issued by Denny'ss Corporation, of which
$379.0 million in aggregate principle amount is currently outstanding. In such
event, the holders of the notes would have the same priority as the holders of
the 11 1/4% notes with respect to the assets of the consolidated entities. The
assets of the substantively consolidated entities may not be sufficient to pay
amounts then due on the notes.
Risks Related to the Exchange Offer
If you fail to properly exchange your old notes for new notes, you will
continue to hold old notes subject to transfer restrictions, and the liquidity
of the trading market for any untendered old notes may be substantially limited.
We will only issue new notes in exchange for old notes that you timely
and properly tender. You should allow sufficient time to ensure timely delivery
of the old notes, and you should carefully follow the instructions on how to
tender your old notes set forth under "The Exchange Offer -- Procedures for
Tendering" and in the letter of transmittal that accompanies this prospectus.
Neither we nor the exchange agent are required to notify you of any defects or
irregularities relating to your tender of old notes.
If you do not exchange your old notes for new notes in this exchange
offer, the old notes you hold will continue to be subject to the existing
transfer restrictions. In general, you may not offer or sell the old notes
except under an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. If you continue to hold
any old notes after this exchange offer is completed, you will not have any
further registration rights and you may have trouble selling them because of
these restrictions on transfer. We expect that the liquidity of the market for
the old notes after completion of this exchange offer
will be substantially limited.
We expect that there will be only a limited trading market for the new notes,
if any, and you may be unable to sell the new notes or to sell them at a price
you deem sufficient.
Although the new notes will be registered, we do not intend to list
the new notes on any exchange, and we expect that there will be only a limited
trading market for the new notes, if any. We cannot give you any assurance as
to:
o the liquidity of any trading market that currently exists or that may
develop;
o the ability of holders to sell their new notes; or
o the price at which holders would be able to sell their new notes.
13
Even if a more active trading market develops, the new notes may trade
at higher or lower prices than their principal amount, depending on many
factors, including:
o prevailing interest rates;
o the number of holders of the new notes;
o the interest of securities dealers in making a market for the new notes;
o the market for similar notes; and
o our financial performance.
Risks Related to Our Business
The restaurant business is highly competitive.
The restaurant business is highly competitive and the competition is
expected to increase. If we are unable to compete effectively, our business
will be adversely affected. The following are important aspects of competition:
o price;
o restaurant location;
o food quality;
o quality and speed of service;
o attractiveness and repair and maintenance of facilities; and
o the effectiveness of marketing and advertising programs.
Our restaurants compete with a wide variety of restaurants ranging
from national and regional restaurant chains to locally owned restaurants. Some
of these competitors have substantially greater financial resources than we do.
There is also active competition for advantageous commercial real estate sites
suitable for restaurants.
Food service businesses may be adversely affected by changes in consumer
tastes, economic conditions and demographic trends.
Food service businesses are often adversely affected by changes in:
o consumer tastes;
o national, regional and local economic conditions; and
o demographic trends.
The performance of individual restaurants may be adversely affected by
factors such as:
o traffic patterns;
o demographic considerations; and
o the type, number and location of competing restaurants.
14
Multi-unit food service chains such as ours can also be materially and
adversely affected by publicity resulting from:
o poor food quality;
o illness;
o injury; and
o other health concerns or operating issues.
Dependence on frequent deliveries of fresh produce and groceries
subjects food service businesses to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the
availability, quality and cost of ingredients. In addition, the food service
industry in general and our results of operations and financial condition in
particular also may be adversely affected by unfavorable trends or developments
such as:
o inflation;
o increased food costs;
o labor and employee benefits costs (including increases in hourly wage and
minimum unemployment tax rates);
o regional weather conditions; and
o the availability of experienced management and hourly employees.
The locations where we have restaurants may cease to be attractive as
demographic patterns change.
The success of our owned and franchised restaurants is significantly
influenced by location. Current locations may not continue to be attractive as
demographic patterns change. It is possible that the neighborhood or economic
conditions where our restaurants are located could decline in the future,
potentially resulting in reduced sales in those locations.
Franchising problems could adversely affect our royalty income.
We have refranchised, and may continue to refranchise, a significant
portion of our company-owned restaurants. This franchising initiative may
ultimately not be successful due to a lack of franchisee interest or changing
economic conditions. In addition, even if our franchising initiative is
successful, there can be no assurance that this decision will prove
advantageous to us from an operational standpoint. The interests of franchisees
might sometimes conflict with our interests. For example, whereas franchisees
are concerned with their individual business strategies and objectives, we are
responsible for ensuring the success of the entire Denny's chain.
Franchising also presents certain financial risks for us. The family
dining industry is intensely competitive, and some of our franchisees are and
will be highly leveraged. Some of our current franchisees have recently
experienced financial difficulties. Financial problems of our franchisees
adversely affect our royalty income and the value of the Denny's brand.
Numerous government regulations impact our business.
We and our franchisees are subject to federal, state and local laws
and regulations governing, among other things:
o health;
o sanitation;
o environmental matters;
15
o safety;
o the sale of alcoholic beverages; and
o hiring and employment practices, including minimum wage laws.
Restaurant operations also are subject to federal and state laws that
prohibit discrimination and laws regulating the design and operation of
facilities, such as the American With Disabilities Act of 1990. The operation
of our franchisee system also is subject to regulations enacted by a number of
states and rules promulgated by the Federal Trade Commission. If we or our
franchisees fail to comply with these laws and regulations, we could be
subjected to closure, fines, penalties, and litigation, which may be costly. We
cannot predict the effect on our operations, particularly on our relationship
with franchisees, caused by the future enactment of additional legislation
regulating the franchise relationship.
Negative publicity generated by incidents at a few restaurants can adversely
affect the operating results of our entire chain and the Denny's brand.
Food safety concerns, criminal activity, alleged discrimination or
other operating issues stemming from one restaurant or a limited number of
restaurants do not just impact that particular restaurant or a limited number
of restaurants. Rather, our entire chain of restaurants is at risk from
negative publicity generated by an incident at a single restaurant. This
negative publicity can adversely affect the operating results of our entire
chain and the Denny's brand.
16
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
note exchange and registration rights agreements that we entered into when we
issued the old notes. We will not receive any cash proceeds from this exchange
offer. In exchange for old notes tendered pursuant to this exchange offer, you
will receive new notes in like principal amount. The old notes that are
surrendered in exchange for the new notes will be retired and cancelled by us
upon receipt and cannot be reissued. Accordingly, the issuance of the new
notes under this exchange offer will not result in any change in our
outstanding debt.
THE EXCHANGE OFFER
Background And Purpose Of The Exchange Offer
Up to $50 million in aggregate principal amount of new notes will be
exchanged in this exchange offer for up to $50.0 million in aggregate principal
amount of old notes. We issued the old notes without compliance with the
registration requirements of the Securities Act in reliance upon an exemption
from those registration requirements. In connection with the issuance of the
old notes, we entered into note exchange and registration rights agreements
with the holders of the old notes pursuant to which we agreed to file with the
SEC, a registration statement under the Securities Act with respect to the
issuance of new registered notes in an exchange offer. We have filed the form
of the note exchange and registration rights agreement as an exhibit to the
registration statement of which this prospectus is a part.
Based on interpretations by the staff of the SEC, as set forth in
no-action letters issued to third parties, we believe that the new notes issued
pursuant to this exchange offer may be offered for resale, resold or otherwise
transferred by a holder under U.S. federal securities laws without compliance
with the registration and prospectus deliver requirements of the Securities
Act, provided that:
o the holder is acquiring the new notes in the ordinary course of
business for investment purposes;
o the holder is not engaged in, does not intend to engage in and
has no arrangement or understanding with any person to
participate in a distribution of the new notes (within the
meaning of the Securities Act);
o the holder is not a broker-dealer who purchased the old notes
directly from us for resale pursuant to Rule 144A or any
other available exemption under the Securities Act; and
o the holder is not an affiliate of ours within the meaning of Rule
405 under the Securities Act.
If you wish to participate in this exchange offer, you must represent
to us in the letter of transmittal that the conditions above have been met.
However, we do not intend to request the SEC to consider, and the SEC has not
considered, this exchange offer in the context of a no-action letter, and we
cannot assure you that the staff of the SEC would make a similar determination
with respect to this exchange offer. Therefore, if you transfer any new note
delivered to you in the exchange offer without delivering a prospectus meeting
the requirements of the Securities Act or without an exemption from
registration of your new notes from such requirements, you may incur liability
under the Securities Act. We do not assume this liability or indemnify you
against this liability, but we do not believe this liability would exist if the
above conditions are met.
If any holder is an affiliate of ours, or is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the new notes, that holder may not participate in this exchange
offer. In addition, this exchange offer is not being made to, nor will we
accept tenders for exchange from, holders of old notes in any jurisdiction in
which the exchange offer or the acceptance of it would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Terms Of The Exchange Offer
Upon the terms and subject to the conditions of this exchange offer,
we will accept any and all old notes validly tendered prior to midnight, New
York time, on the expiration date. We will issue, promptly following
acceptance of validly tendered old notes, up to $50 million in aggregate
principal amount of new notes for a like principal amount of old notes
17
tendered and accepted in this exchange offer. Holders may tender some or all
of their old notes in connection with this exchange offer, but only in $1,000
increments of principal amount.
The terms of the new notes are identical in all material respects to
the terms of the old notes, except that the new notes have been registered
under the Securities Act and will be issued free from any transfer restrictions
or any covenant regarding registration. The new notes will evidence the same
debt as the old notes and will be issued under the same indenture and be
entitled to the same benefits under that indenture as the old notes being
exchanged. As of the date of this prospectus, $50.0 million in aggregate
principal amount of unregistered old notes is outstanding.
The new notes initially will be issued, upon consummation of the
exchange offer, in the form of physical, certificated securities. Immediately
thereafter, at the election of a holder and by notice to U.S. Bank National
Association, as transfer agent, and The Depository Trust Company, or DTC, the
new notes may be re-issued as part of the already outstanding global note
issued under the indenture for the already outstanding $70.4 million of 12 3/4%
senior notes due 2007, which global note is registered in the name of DTC or
its nominee. Thereafter, each beneficial owner's interest in the global note
will be transferable in book-entry form through DTC.
Holders of old notes do not have any appraisal or dissenters' rights
in connection with this exchange offer. Old notes that are tendered but not
accepted in connection with this exchange offer will remain outstanding and be
entitled to the benefits of the indenture under which they were issued.
However, the registration rights under the note exchange and registration
rights agreement will terminate upon completion of this exchange offer, and
holders of the old notes will not be entitled to any further registration
rights under the note exchange and registration rights agreement.
We will have accepted validly tendered old notes if and when we have
given oral or written notice to the exchange agent. The exchange agent will act
as agent for the tendering holders for the purpose of receiving the new notes
from us. If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, we will return the old notes, without expense, to the
tendering holder as promptly as possible after the expiration date.
Holders who tender old notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes on the exchange of old notes in connection with
this exchange offer. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with this exchange offer. See
"Fees and Expenses."
Interest on the New Notes
Interest on the new notes will accrue at a rate of 12 3/4% per annum from
the most recent date on which interest on the old notes has been paid, or if no
interest has been paid, from the date provided in the indenture governing the
notes.
Expiration Date; Extensions; Termination; Amendments
The exchange offer will expire at midnight, New York City time, on
February 10, 2003, subject to extension by us by notice to the exchange agent
as provided in this prospectus. We reserve the right to extend the exchange
offer in our reasonable discretion, in which event the expiration date will be
the latest time and date to which the exchange offer is extended. In order to
extend the expiration date, we will notify the exchange agent of any extension
by oral or written notice and make a public announcement by making a timely
release through an appropriate news agency.
In addition, we reserve the right, in our discretion:
o to delay acceptance of any old notes tendered or to terminate the exchange
offer and not accept for exchange any old notes by giving oral or written
notice of such extension or termination to the exchange agent; and
o to amend the terms of the exchange offer in any manner.
Any such delay, termination or amendment will be followed as promptly as
practicable by a public announcement. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose the
18
amendment in a manner reasonably calculated to inform the holders
of old notes of the amendment and will extend the exchange offer for the
minimum period of time required by applicable law (which in certain instances
could be five or ten business days from the date of such amendment, if the
exchange offer would otherwise expire during this five or ten business day
period). The rights reserved by us in this paragraph are in addition to our
rights set forth below under the caption "- Conditions of the Exchange Offer."
Conditions of the Exchange Offer
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange any old notes or issue any new notes and may
terminate the exchange offer if, at any time prior to the expiration of the
exchange offer, we determine, in our reasonable judgment, that any of the
following conditions has not been satisfied prior to or concurrently with the
expiration of the exchange offer:
o no action or proceeding has been instituted or threatened or is pending in
any court or by or before any governmental agency or instrumentality, and
there has been proposed, adopted or enacted, no law, statute, rule or
regulation with respect to the exchange offer or us that, in our
reasonable judgment, has or may have a material adverse effect on our
business, financial condition, operations or prospects or that, in our
reasonable judgment, impairs the benefits of the exchange offer to us or
our ability to proceed with the exchange offer;
o there shall not have occurred or be likely to occur any event that, in our
reasonable judgment, has or may have a material adverse effect on our
business, financial condition, operations or profits or impair the
benefits of the exchange offer to us or our ability to proceed with the
exchange offer; and
o there shall not have occurred:
(1) any general suspension of or general limitation on
prices for, or trading in, securities on any national securities
exchange or in the over-the-counter market;
(2) any limitation by a governmental agency or authority
that may adversely affect our ability to complete the
transactions contemplated by the exchange offer;
(3) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States
or any limitation by any governmental agency or authority that
adversely affects the extension of credit; or
(4) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing
existing at the time of the commencement of th exchange offer, a
material acceleration or worsening thereof.
The foregoing conditions are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to such conditions. These
conditions may be waived or amended by us in whole or in part at any time and
from time to time prior to expiration of the exchange offer in our reasonable
discretion. If we waive or amend the foregoing conditions, we will, if required
by applicable law, extend the exchange offer for the minimum period of time
required by applicable law (which in certain instances could be five or ten
business days) commencing on the date that we first give notice, by public
announcement or otherwise, of such waiver or amendment, if the exchange offer
would otherwise expire within this time period. Any determination by us
concerning the events described will be final and binding upon all parties.
In addition, we will not accept for exchange any old notes tendered, and
no new notes will be issued in exchange for any such old notes, if at such time
any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus forms a part.
19
Consequences of Failure to Exchange Old Notes
In the event the exchange offer is completed, we will not be required, and
do not intend, to register the remaining old notes for resale under the
Securities Act or otherwise provide registration rights to the holders thereof.
Remaining old notes will continue to be subject to the following restrictions
on transfer:
o the remaining old notes may be resold only if registered
pursuant to the Securities Act, if any exemption from
registration is available, or if neither registration nor an
exemption is required by law; and
o the remaining old notes will bear a legend restricting transfer
in the absence of registration or an exemption.
Procedures for Tendering
The tender of old notes by a holder pursuant to the procedures set forth
below, upon our acceptance of such tender, will constitute an agreement between
such holder on the one hand and us on the other in accordance with the terms
and subject to the conditions set forth in this prospectus and in the
associated letter of transmittal.
A holder who wishes to tender old notes for exchange pursuant to the
exchange offer must, on or prior to the expiration date, deliver the
certificates for such old notes in proper form for transfer.
The registered holder must also deliver a properly completed letter of
transmittal (or a facsimile thereof), duly executed by the registered holder
with any required signature guarantee(s) and any other documents required
thereby, prior to the expiration date of the exchange offer in order for the
tender of old notes to be valid and complete.
YOU SHOULD SEND LETTERS OF TRANSMITTAL AND OLD NOTES TO THE EXCHANGE AGENT
AND NOT TO DENNY'S CORPORATION, DENNY'S HOLDINGS OR THE TRUSTEE UNDER THE
INDENTURE.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes tendered pursuant thereto
are tendered either:
o by a registered holder of old notes who has not completed the boxes
entitled "Special Issuance Instructions" and "Special Delivery
Instructions" on the letter of transmittal; or
o for the account of an eligible guarantor institution.
In the event that signatures on a letter of transmittal are required to be
guaranteed, such guarantee must be by a firm that is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
in the United States, or an eligible guarantor institution within the meaning
of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.
Holders of old notes whose certificates for such old notes are not
immediately available or who cannot deliver all required documents to the
exchange agent on or prior to the expiration date may tender their old notes
according to the guaranteed delivery procedures set forth below under
"- Guaranteed Delivery."
The method of delivery of the letter of transmittal, old notes and all
other required documents is at the election and risk of the tendering holders,
and the delivery will be deemed made only when actually received or confirmed
by the exchange agent. If the letter of transmittal, old notes or other
required documents are sent by mail, it is suggested that the mailing be by
registered mail, properly insured, with return receipt requested and made
sufficiently in advance of the expiration date to permit delivery to the
exchange agent on or prior to the expiration date.
Generally, only a registered holder of old notes may tender old notes in
the exchange offer. If the letter of transmittal is signed by a person other
than the registered holder of the old notes, such old notes must be endorsed or
accompanied by
20
appropriate bond powers, signed exactly as the name or names of the registered
holder (or registered holders) appear on the old notes. If the letter of
transmittal or any old notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing and, unless waived by us, provide evidence satisfactory
to us of their authority to so act.
Any beneficial owner whose old notes are registered in the name of its
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender old notes in the exchange offer should contact such registered holder
promptly and instruct such registered holder to tender on its behalf by
completing the form of instructions (including the section regarding
eligibility to participate in the exchange offer) provided by its broker, bank
or other nominee. If a beneficial owner wishes to tend on its own behalf, the
beneficial owner must, prior to completing and executing the letter of
transmittal and delivering its old notes, either make appropriate arrangements
to register ownership of the old notes in such holder's name or obtain a
properly completed bond power from the registered holder. Beneficial owners
should be aware that the transfer of record ownership may take considerable
time.
Guaranteed Delivery
If a holder desires to tender old notes pursuant to the exchange offer and
the certificates for such old notes are not immediately available or time will
not permit all required documents to reach the exchange agent on or prior to
the expiration date, such old notes may nevertheless be tendered, provided that
all of the following guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an eligible guarantor institution;
(2) prior to the expiration date, the exchange agent receives from an
eligible guarantor institution a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form accompanying
the letter of transmittal, setting forth the name and address of the
holder of the old notes and the amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that, within
three trading days of the New York Stock Exchange after the date of
execution of the Notice of Guaranteed Delivery, a properly completed
and duly executed letter of transmittal and the certificates for all
physically tendered old notes, in proper form for transfer, and any
other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange
agent. The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the exchange agent and must
include a guarantee by an eligible guarantor institution in the form
set forth in the Notice of Guaranteed Delivery; and
(3) the certificates representing all tendered old notes, in proper form
for transfer, together with a properly completed and duly executed
letter of transmittal, with any required signature guarantees and any
other documents required by the letter of transmittal, are received by
the exchange agent within three trading days of the New York Stock
Exchange after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal of Tenders
Tenders of old notes pursuant to the exchange offer may be properly
withdrawn at any time on or prior to the expiration date. Thereafter, such
tenders may be withdrawn only if the exchange offer is terminated without any
old notes being accepted for exchange.
If you have tendered old notes, you may withdraw such old notes prior to
the expiration date by delivering a written notice of withdrawal and
revocation, subject to the limitations described in this prospectus. To be
effective, a written notice of withdrawal and revocation must be delivered by
hand, overnight courier, mail or telegraphic or facsimile transmission and must:
o be timely received by the exchange agent at its addresses set forth on the
back cover hereof on or prior to the expiration date;
o specify the name of the person having tendered the old notes to be
withdrawn and the principal amount of such old notes to be withdrawn;
21
o identify the old notes to be withdrawn (including the principal amount of
such old notes); and
o be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered (including
any required signature guarantees).
If certificates representing old notes to be withdrawn have been delivered
or otherwise identified to the exchange agent, then the name of the registered
holder and the serial numbers of the particular certificate evidencing the old
notes to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution (except in the case of old notes tendered
by an eligible institution for which no signature guarantee will be required)
must also be so furnished to the exchange agent as aforesaid prior to the
physical release of the certificates for the withdrawn old notes. We reserve
the right to contest the validity of any withdrawal or revocation. A purported
withdrawal and revocation which is not received by the exchange agent in a
timely fashion will not be effective.
Any old notes properly withdrawn will thereafter be deemed not to have
been validly tendered for purposes of the exchange offer and the holder will
not receive any consideration in the exchange offer. Withdrawn old notes may be
re-tendered by again following the appropriate procedures described in this
prospectus at any time on or prior to the expiration date.
Acceptance of Tenders; Compliance with Conditions of the Exchange Offer;
Delivery of New Notes
Upon the terms and subject to the conditions of the exchange offer, we
will accept for exchange all old notes validly tendered and not properly
withdrawn on or prior to the expiration date. The acceptance for exchange of
old notes validly tendered and not properly withdrawn and the delivery of new
notes will be made as promptly as practicable after the expiration date upon
consummation of the exchange offer. We expressly reserve the right to delay
acceptance of any of the old notes or to terminate the exchange offer and not
accept for exchange and payment any old notes not theretofore accepted if any
of the conditions set forth under the heading "- Conditions of the Exchange
Offer" have not been satisfied or waived. In all cases, the issuance of new
notes in exchange for old notes accepted for exchange pursuant to the exchange
offer will be made only after timely receipt by the exchange agent of old
notes, together with a properly completed and validly executed letter of
transmittal (or a facsimile thereof) with any required signature guarantees and
any other documents required thereby.
For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered old notes when, as and if we give oral or written notice
thereof to the exchange agent. The exchange agent will act as agent for the
tendering holders of old notes for the purpose of receiving the new notes.
All questions as to the form of all documents and the validity,
eligibility (including the time of receipt and eligibility under applicable
state securities laws), acceptance and withdrawal of tendered old notes will be
determined by us, in our discretion, which determination shall be final and
binding. We expressly reserve the right to reject any and all tenders not in
proper form and to determine whether the acceptance of or exchange for such
tenders would be unlawful. We also reserve the right, subject to applicable
laws, to waive or amend any of the conditions to the exchange offer or to waive
any defect or irregularity in the tender of any of the old notes. None of
Denny's Corporation, Denny's Holdings, the exchange agent or any other person
will be under any duty to give notification of any defects or irregularities in
tenders or will incur any liability for failure to give any such notification.
No tender of old notes will be deemed to have been validly made until all
defects and irregularities with respect to such old notes have been cured or
waived. Any old notes received by the exchange agent that are not properly
tendered and as to which irregularities have not been cured or waived will be
returned by the exchange agent to the appropriate tendering holder as soon as
practicable. Our interpretation of the terms and conditions of the exchange
offer (including the letter of transmittal and the instructions thereto) will
be final and binding on all parties.
Lost or Missing Certificates
If you desire to tender old notes pursuant to the exchange offer, but your
old note has been mutilated, lost, stolen or destroyed, you should write to or
telephone the exchange agent at the telephone number or address listed on the
back cover page of this prospectus, concerning the procedures for obtaining
replacement certificates for such old notes, arranging for indemnification
or any other matter with regard to the tender.
22
Exchange Agent
U.S. Bank National Association has been appointed as exchange agent for
the exchange offer. Letters of transmittal, notices of guaranteed delivery and
all correspondence in connection with the exchange offer should be sent or
delivered by each holder of old notes or a beneficial owner's broker, dealer,
commercial bank, trust company or other nominee to the exchange agent at the
address set forth on the back cover page of prospectus and associated letter of
transmittal. We will pay the exchange agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
Fees and Expenses
Except as described above, we will not make any payments to brokers,
dealers, or other persons soliciting acceptances of the exchange offer. We will,
however, pay the reasonable and customary fees and out-of-pocket expenses of
the exchange agent, the trustee and legal, accounting and other related fees
and expenses associated with the exchange offer. We will also pay the
reasonable expenses of holders in delivering their old notes to the exchange
agent. We will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus and related documents to the beneficial
owners of the old notes and in handling or forwarding tenders for exchange.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, new notes and/or substitute
old notes for principal amounts not exchanged are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the old notes, or if tendered old notes are registered in the name of
any person other than the person signing the letter of transmittal, or if a
transfer tax is imposed for any reason other than the exchange of old notes
pursuant to the exchange offer, the amount of any those transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted, the amount of such transfer taxes will be
billed directly to the tendering holder.
23
DESCRIPTION OF INDEBTEDNESS
The following summary of the principal terms of our indebtedness does not
purport to be complete and is qualified in its entirety by reference to the
documents governing our indebtedness, including the definitions of certain
terms therein, copies of which are exhibits to the registration statement filed
with the SEC that contains this prospectus or the other documents incorporated
by reference into this prospectus. Whenever particular provisions of these
documents are referred to in this prospectus, such provisions are incorporated
by reference, and the statements are qualified in their entirety by such
reference.
The Revolving Credit Facility
As of December 16, 2002, our principal operating subsidiary, Denny's, Inc.
and its subsidiary Denny's Realty, Inc. entered into a revolving credit
facility, as borrowers, with JPMorgan Chase Bank and other lenders named
therein, which established a $125.0 million senior secured revolving credit
facility.
This facility is available for our working capital advances, letters of
credit (up to a $60.0 million sublimit) and general corporate purposes. The
revolving credit facility is guaranteed by Denny's Corporation and Denny's
Holdings and, subject to certain exceptions, by our subsidiaries that are not
borrowers under the revolving credit facility. The credit facility generally is
secured by liens on the stock of our direct and indirect subsidiaries, accounts
receivable, intellectual property and cash and cash accounts (along with
additional liens on our corporate headquarters in Spartanburg, South Carolina).
It is also secured by first-priority mortgages on 246 owned restaurant
properties. The revolving credit facility matures on December 20, 2004.
The revolving credit facility contains covenants customarily found in
credit agreements for leveraged financings that, among other things, place
limitations on:
o dividends on capital stock;
o redemptions and repurchases of capital stock;
o prepayments, redemptions and repurchases of debt (other than loans under
the credit agreement);
o liens and sale-leaseback transactions;
o loans and investments;
o incurrence of debt;
o capital expenditures;
o operating leases;
o mergers and acquisitions;
o asset sales;
o transactions with affiliates;
o changes in the business conducted by us and our subsidiaries; and
o amendment of debt and other material agreements.
The revolving credit facility also contains covenants that require us, on
a consolidated basis, to meet certain financial ratios and tests described
below:
24
Consolidated Total Debt Ratio. We are required not to permit the ratio of
(a) total debt outstanding on the last day of any fiscal quarter to (b) EBITDA
(as defined) of the borrowers and the guarantors on a consolidated basis for
the period of four consecutive fiscal quarters then ended, to be more than
6.25:1.00 at March 31, 2003, June 30, 2003, September 30, 2003 and December
31, 2003; 5.90:1.00 at March 31, 2004 and June 30, 2004; and 5.75:1.00 at
September 30, 2004. These ratios will be adjusted to reflect the reduction in
Consolidated Total Debt (net of expenses and taxes) resulting from our closing
of certain senior note exchanges permitted by the revolving credit facility.
Consolidated Senior Secured Debt Ratio. We are required not to permit the
ratio of (a) senior secured debt outstanding on the last day of any fiscal
quarter to (b) EBITDA of the borrowers and the guarantors on a consolidated
basis for the period of four consecutive fiscal quarters then ended, to be more
than 1.50:1.00 from March 31, 2003 and thereafter.
Consolidated Fixed Charge Coverage Ratio. We are required not to permit
the ratio, determined on the last day of each fiscal quarter for the period of
four consecutive fiscal quarters then ended, of (a) the sum of (1) EBITDA of
the borrowers and the guarantors on a consolidated basis and (2) Consolidated
Lease Expense to (b) the sum of (1) Consolidated Cash Interest Expense (as
defined) and (2) Consolidated Lease Expense (as defined), to be less than
1.25:1.00 on March 31, 2003, June 30, 2003, September 30, 2003 and December 31,
2003; 1.30:1.00 on March 31, 2004 and June 30, 2004; and 1.35:1.00 on
September 30, 2004.
Consolidated Capital Expenditures; Acquisitions. We are required not to
permit the borrowers and the guarantors on a consolidated basis to incur
Consolidated Capital Expenditures (as defined) or make acquisition of
properties or related assets in excess of $45 million in the aggregate for each
of our 2002 and 2003 fiscal years or in excess of $60 million in the aggregate
for our 2004 fiscal year, subject in each case to a limited carryover provision
providing for our ability to carryover a portion of any unused amounts from the
immediately preceding fiscal year. Notwithstanding the above, however, not
more than $45 million (plus any permitted carryover amount from our 2003 fiscal
year) of Consolidated Capital Expenditures and acquisitions of properties and
related assets during our 2004 fiscal year may be funded from sources other
than permitted indebtedness under the revolving credit facility.
Minimum Consolidated EBITDA. We are required not to permit the EBITDA of
the borrowers and the guarantors on a consolidated basis for the period of four
consecutive fiscal quarters then ended, to be less than $105 million on
March 31, 2003, June 30, 2003 and September 30, 2003; $110 million on December
31, 2003, March 31, 2004 and June 30, 2004; and $115 million on September 30,
2004.
Events of default under the revolving credit facility include (1) a
default in the payment of principal amounts due thereunder, (2) a default in
the payment of interest and the continuance thereof for three business days,
(3) a default in the observance or performance of financial and other covenants,
including, but not limited, to those described or referred to above (and, in
the case of certain non-financial covenants, the continuance thereof for 10
days), (4) our failure to pay, when due or payable, principal or interest on
our other indebtedness having a principal amount in excess of $10.0 million or
our failure to observe other terms, covenants, conditions or agreements under
such indebtedness if the effect of such failure is to permit the acceleration
of such indebtedness, (5) certain events of bankruptcy or other similar
proceedings, (6) a money judgment against us in an amount in excess of $5.0
million remaining undischarged for 30 days or other non-monetary judgment
against us reasonably likely to have a material adverse effect, (7) the lenders'
loss of security interests securing our indebtedness under the revolving credit
facility, and (8) a Change of Control (as defined).
Upon the occurrence and during the continuance of an event of default, the
lenders may terminate their commitments under the revolving credit facility and
declare amounts outstanding thereunder immediately due and payable, except that
in the case of an event of default referred to in clause (5) above, such
remedies shall become automatically effective.
Public Debt
On April 15, 2002, we exchanged $88.1 million aggregate principal amount
of Denny's Corporation's 11 1/4% senior notes due 2008, or 11 1/4% Notes, for
approximately $70.4 million aggregate principal amount of 12 3/4% senior
notes due 2007, or 12 3/4% Notes. These 12 3/4% Notes were issued under the
same indenture that governs the old notes and the new notes that are the
subject of the exchange offer. Pursuant to a tack-on provision in that
indenture, in a subsequent series of privately negotiated transactions, we
exchanged an additional $62.5 million of 11 1/4% Notes for the $50.0 million of
old notes that we are offering to exchange pursuant to this prospectus. We now
have $379.0 million aggregate principal amount of 11 1/4% Notes outstanding and
$120.4 million aggregate principal amount of 12 3/4% Notes.
25
Denny's Corporation and Denny's Holdings, Inc. are jointly obligated with
respect to the 12 3/4% Notes. Because only Denny's Corporation is obligated
with respect to the 11 1/4% Notes, the 12 3/4% Notes are structurally senior to
the 11 1/4% Notes. The 11 1/4% Notes pay interest on January 15 and July 15 of
each year and will expire on January 7, 2008. The 12 3/4% Notes pay interest
on March 31 and September 30 of each year and will expire on September 30, 2007.
26
THE NEW NOTES
The new notes will be issued under the indenture, dated April 15, 2002,
among Denny's Corporation and Denny's Holdings, as issuers, and U.S. Bank
National Association, as trustee. In this section of the prospectus, the term
"issuers" refers to Denny's Corporation and Denny's Holdings, Inc.; the term
"Denny's Corporation" refers only to Denny's Corporation (formerly Advantica
Restaurant Group, Inc.); and the term "Denny's Holdings" refers only to Denny's
Holdings, Inc. The terms of the new notes will include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939 as in effect on the date of the indenture. The new notes
will be subject to all of these terms, and holders of the new notes are
referred to the indenture and the Trust Indenture Act for a statement thereof.
The following is a summary of the material provisions of the indenture. It does
not restate the indenture in its entirety. We urge you to read the indenture
because it, and not this description, defines your rights as a holder of the
new notes. Copies of the indenture and the form of the new notes will be filed
as exhibits to our registration statement filed with the SEC that contains this
prospectus.
General
The new notes will be issued only in registered form without coupons in
denominations of $1,000 or multiples thereof. New notes, in an aggregate
principal amount not to exceed $50 million, the amount permitted to be issued
under the indenture pursuant to this exchange offer, may be executed by the
issuers and delivered to the trustee for authentication, and the trustee will
then authenticate and deliver the new notes to or upon the written order of the
issuers, as provided in the indenture. Principal of, premium, if any, and
interest on the new notes will be payable, and the new notes will be
transferable and exchangeable, at the corporate trust office or agency of the
trustee in The Borough of Manhattan, The City of New York, maintained for such
purposes. In addition, interest may be paid, at the option of the issuers, by
wire transfer or check mailed to the person entitled thereto as shown on the
register for the new notes.
An aggregate of up to $50.0 million principal amount of new notes is being
offered in the exchange offer. There are currently issued and outstanding under
the indenture $120.4 million in aggregate principal amount of 12 3/4% senior
notes due 2007, which are subject to the same terms and conditions as the new
notes and which consist of (i) the $50 million in aggregate principal amount of
unregistered notes for which the registered new notes are offered in exchange
pursuant to this prospectus and (ii) $70.4 million in aggregate principal
amount of 12 3/4% senior notes due 2007 originally issued under the indenture
as of April 15, 2002, referred to in this section as the "original notes". The
original notes, which will remain outstanding following the completion of this
exchange offer, and the new notes will constitute part of the same series of
securities and will vote together as a series on all matters. Except where the
context otherwise requires, all references to the new notes in this section
includes the original notes.
The new notes will be senior unsecured obligations of the issuers and will
be equal in right of payment to all Senior Indebtedness of the issuers.
Interest on the new notes will accrue at a rate equal to 12 3/4% per annum,
payable in arrears on each March 31 and September 30, commencing March 31,
2003, until maturity, to holders of record of new notes at the close of
business on each March 15 and September 15 next preceding the interest payment
date. Interest on the new notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
indenture. Interest will be computed on the basis of a 360-day year of twelve
30-day months. The new notes will mature September 30, 2007.
Optional Redemption
Except as provided below, the new notes may not be redeemed at the option
of the issuers prior to September 30, 2004. On and after September 30, 2004,
the new notes will be redeemable, in whole or in part, at the option of the
issuers, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month period beginning on September
30 of the years indicated below:
27
Year Percentage
2004......................................................106.3750%
2005......................................................103.1875%
2006 and thereafter.......................................100.0000%
provided that, if the date fixed for redemption is on an interest payment date,
then the interest payable on such date shall be paid to the holder of record on
the March 15 or September 15 next preceding such interest payment date.
Notwithstanding the foregoing, prior to September 30, 2004, the issuers may
redeem up to 35% of the aggregate principal amount of new notes outstanding on
the date of the indenture at a redemption price (expressed as a percentage of
the principal amount) of 112.75%, plus accrued and unpaid interest, if any, to
the redemption date, from the net proceeds of any Public Offering.
Selection And Notice
Notice of redemption shall be mailed at least 30 and not more than 60 days
prior to the redemption date to each holder of new notes to be redeemed. In the
event of a redemption of less than all of the new notes, the trustee shall
select, in such manner as it shall deem appropriate and fair, but generally pro
rata or by lot, which new notes shall be redeemed in whole or in part, and
shall promptly notify the issuers in writing of the new notes selected for
redemption. On and after the redemption date, interest ceases to accrue on the
new notes or portions thereof called for redemption and all rights of the
holder with respect to such redeemed new notes, except the right to payment of
amounts payable on such redemption, shall cease.
Certain Definitions
Set forth below (notwithstanding any other usage of terms in other
sections of this prospectus) is a summary of certain of the defined terms used
in the indenture (except only that we have modified the defined terms and
references in this section to refer to Denny's Corporation by its current name
rather than its former name, Advantica Restaurant Group, Inc.). Reference is
made to the indenture for the full definitions of all terms set forth below and
used in such indenture as well as for any other capitalized terms used in this
section for which no definition is provided.
"Acquisition Indebtedness" means Indebtedness of any person existing at
the time such person becomes a Subsidiary of an issuer (or at the time such
person is merged with or into a Subsidiary of an issuer), excluding
Indebtedness of any Subsidiary of an issuer incurred in connection with, or in
contemplation of, such person becoming a Subsidiary of such issuer.
"Adjusted Consolidated Net Worth" means, with respect to any person as of
any date, the Consolidated Net Worth of such person plus (1) the respective
amounts reported on such person's most recent consolidated balance sheet with
respect to any Preferred Stock (other than Disqualified Stock) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
person upon issuance of such Preferred Stock or of securities converted into
such Preferred Stock, excluding (2) any amount reflecting any equity adjustment
resulting from a foreign currency translation on a consolidated balance sheet
of such person, but only to the extent not excluded in calculating Consolidated
Net Worth of such person, plus (3) any gain realized upon the sale or other
disposition of any Business Segment to the extent such gains do not exceed the
sum of the aggregate amount of any losses included (on a net after tax basis)
in the computation of Consolidated Net Worth.
"Affiliate" means, with respect to any person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such person. For the purposes of this definition, beneficial
ownership of 10% or more of the voting common equity of a person shall be
deemed to be control unless ownership of a lesser amount may be deemed to be
control under the Trust Indenture Act.
"Asset Segment" means (1) Denny's Holdings, or (2) any Subsidiary, group
of Subsidiaries or group of assets (other than inventory held for sale in the
ordinary course of business) of an issuer or its Subsidiaries which (A)
accounts for at least 20 percent of the total assets of such issuer and its
Subsidiaries on a consolidated basis as of the end of the last fiscal quarter
immediately preceding the date for which such determination is being made or
(B) accounts for at least 20 percent of the income from continuing operations
before income taxes, extraordinary items and cumulative effects of changes in
accounting
28
principles of such issuer and its Subsidiaries on a consolidated
basis for the four full fiscal quarters immediately preceding the date for
which such calculation is being made.
"Business Segment" means (1) each Significant Subsidiary of an issuer,
(2) the Equity Interests of any of an issuer's Subsidiaries or (3) any group of
assets of an issuer or any of its Subsidiaries, whether now owned or hereafter
acquired; provided, in each case, that the sale (other than the sale of
inventory in the ordinary course of business), lease, conveyance or other
disposition of such Significant Subsidiary, Equity Interests or group of
assets, as the case may be, either in a single transaction or group of related
transactions that are part of a common plan, results in Net Proceeds to such
issuer or any of its Subsidiaries of $50 million or more.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock.
"Cash Equivalents" means (1) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof), (2) time deposits and
certificates of deposit with a maturity date not more than one year from the
date of acquisition issued by any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million or a commercial
bank organized under the laws of any other country that is a member of the
Office for Economic Cooperation and Development and having total assets in
excess of $500 million, (3) repurchase obligations with a term of not more than
7 days for underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in clause
(2) above, (4) commercial paper issued by the parent corporation of any
domestic commercial bank of recognized standing having capital and surplus in
excess of $500 million and commercial paper issued by others rated at least A-2
or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or t
he equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (5) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (1) through (4) above.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Consolidated Fixed Charges" means, with respect to any person for a given
period, (1) consolidated interest expense of such person and its consolidated
Subsidiaries to the extent deducted in computing Consolidated Net Income of
such person (including, without limitation, amortization of original issue
discount and non-cash interest payments, all net payments and receipts in
respect of Interest Rate Agreements and the interest component of capital
leases, but excluding deferred financing costs existing immediately after the
date of the indenture and the amortization thereof), plus (2) the amount of all
cash dividend payments on any series of Preferred Stock of such person;
provided that if, during such period, (1) such person or any of its
Subsidiaries shall have made any asset sales (other than, in the case of an
issuer and its Subsidiaries, sales of the Capital Stock of, or any assets of,
Unrestricted Subsidiaries), Consolidated Fixed Charges of such person and its
Subsidiaries for such period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to the assets that are the
subject of such asset sales for such period and (2)such person or any of its
Subsidiaries has made any acquisition of assets or Capital Stock (occurring by
merger or otherwise), including, without limitation, any acquisition of assets
or Capital Stock occurring in connection with the transaction causing a
calculation to be made under the indenture, Consolidated Fixed Charges of such
person and its Subsidiaries shall be calculated on a pro forma basis as if such
acquisition of assets or Capital Stock (including the incurrence of any
Indebtedness in connection with any such acquisition and the application of the
proceeds thereof) took place on the first day of such period.
"Consolidated Net Income" means, with respect to any person for a given
period, the aggregate of the Net Income of that person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with generally
accepted accounting principles; provided that (1) the Net Income of any person
that is not a Subsidiary of that person or is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid to that person and its Subsidiaries, (2) the
Net Income of any person that is a Subsidiary (other than a Subsidiary of which
at least 80% of the Capital Stock having ordinary voting power for the election
of directors or other governing body of such Subsidiary is owned by that person
directly or indirectly through one or more Subsidiaries) shall be included only
to the extent of the lesser of (a) the amount of dividends or distributions
paid to that person and its Subsidiaries and (b) the Net Income of such person,
(3) the Net Income of any person acquired by that person and its Subsidiaries
in a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (4) with respect to an issuer, the Net Income
(if positive) of any person that becomes a Subsidiary of such issuer after the
date of the indenture shall be included
29
only to the extent that the declaration or payment of dividends on Capital
Stock or any similar distributions, by that Subsidiary to such issuer or to
any other consolidated Subsidiary of such issuer, of such Net Income is at the
time permitted under the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
binding upon or applicable to that Subsidiary, provided that, if the exclusion
from an otherwise positive Net Income of certain amounts pursuant to this
clause (4) would cause such Net Income to be negative, then such Net Income
shall be deemed to be zero.
"Consolidated Net Worth" means, with respect to any person at any date of
determination, the sum of the Capital Stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of such person and its
Subsidiaries on a consolidated basis, each item to be determined in conformity
with generally accepted accounting principles (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52), except that all effects of
the application of Accounting Principles Board Opinions Nos. 16 and 17 and
related interpretations shall be disregarded.
"Credit Agent" means any person acting as managing agent (or in a similar
capacity) under the Credit Agreement, or any successor thereto; provided that
"Credit Agent" shall also mean any person acting as managing agent (or in a
similar capacity) under any agreement pursuant to which the Credit Agreement is
refunded or refinanced if such person is designated as such by each person that
is at the time of such designation a Credit Agent; and provided further that if
at any time there shall be more than one Credit Agent, then "Credit Agent"
shall mean each such Credit Agent, and any notice, consent or waiver to be
given by, action to be taken by, or notice to be given to, the Credit Agent
shall be given or taken by, or given to, each such Credit Agent.
"Credit Agreement" means the Credit Agreement, dated as of January 7,
1998, among Denny's, Inc., El Pollo Loco, Inc., Flagstar Enterprises, Inc.,
Flagstar Systems, Inc. and Quincy's Restaurants, Inc., as borrowers, Denny's
Corporation as a guarantor, the lenders named therein, and The Chase Manhattan
Bank, as administrative agent, as amended through and including the date of the
indenture, including any and all related notes, collateral and security
documents, instruments and agreements executed in connection therewith
(including, without limitation, all Loan Documents (as defined in such Credit
Agreement)) and all obligations of Denny's Corporation and its Subsidiaries
incurred thereunder or in respect thereof, and in each case as amended,
supplemented, restructured or otherwise modified, extended or renewed and each
other agreement pursuant to which any or all of the foregoing may be refunded
or refinanced, from time to time.
"Default" means any event that is, or after notice or passage of time
would be, an Event of Default.
"Denny's Corporation Group" means Denny's Corporation (formerly Advantica
Restaurant Group, Inc.) and any Subsidiary of Denny's Corporation, other than
Denny's Holdings or any Subsidiary of Denny's Holdings.
"Denny's Holdings Group" means Denny's Holdings and any Subsidiary of
Denny's Holdings.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorly
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the new notes.
"EBITDA" means, with respect to any person and its consolidated
Subsidiaries for a given period, the Consolidated Net Income of such person for
such period plus, with respect to an issuer and its consolidated Subsidiaries,
(1) an amount equal to any net loss realized upon the sale or other disposition
of any Business Segment (to the extent such loss was deducted in computing
Consolidated Net Income), (2) any provision for taxes based on income or
profits deducted in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (1) hereof, (3) consolidated
interest expense (including amortization of original issue discount and
non-cash interest payments, all net payments and receipts in respect of
Interest Rate Agreements and the interest component of capital leases) and
(4) depreciation and amortization (including amortization of goodwill and
deferred financing costs existing immediately after the date of the indenture
and other intangibles) to the extent required under generally accepted
accounting principles, all on a consolidated basis; provided that if, during
such period, (x) such person or any of its Subsidiaries shall have made any
asset sales (other than, in the case of an issuer and its Subsidiaries, sales
of the Capital Stock of, or any assets of, Unrestricted Subsidiaries), EBITDA
of such person and its Subsidiaries for such period shall be reduced by an
amount equal to the EBITDA directly attributable to the assets that are the
subject of such asset sales for such period, and (y) such person or any of its
Subsidiaries
30
has made any acquisition of assets or Capital Stock (occurring by
merger or otherwise), including, without limitation, any acquisition of assets
or Capital Stock occurring in connection with the transaction causing a
calculation to be made under the indenture, EBITDA of such person and its
Subsidiaries shall be calculated, excluding any expenses which in the good
faith estimate of management of such person will be eliminated as a result of
such acquisition, on a pro forma basis as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period.
"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).
"Excluded Property" means Denny's Corporation's corporate headquarters
property located in Spartanburg, South Carolina.
"Existing Indebtedness" means Indebtedness of an issuer or any of its
Subsidiaries existing on the date of the indenture (other than Indebtedness
under the Old Notes and the Credit Agreement).
"Fixed Charge Coverage Ratio" means, with respect to any person for a
given period, the ratio of the EBITDA of such person for such period to the
Consolidated Fixed Charges of such person for such period.
"FRD" means FRD Acquisition Co., a Delaware corporation, a wholly owned
subsidiary of Denny's Corporation, and an Unrestricted Subsidiary under the
indenture.
"FRD Chapter 11Case" means the voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware,
Case No. 01 0436 PJW, filed by FRD on February 14, 2002.
"FRD Investment" means any Investment in FRD by either issuer or any of
its Subsidiaries existing on the date of the indenture.
"Indebtedness" means, with respect to any person at any date, without
duplication, (1) all obligations of such person for borrowed money, (2) all
obligations of such person evidenced by bonds, debentures, notes or other
similar instruments other than Interest Rate Agreements, (3) all reimbursement
obligations and other liabilities of such person with respect to letters of
credit issued for such person's account, (4) all obligations of such person to
pay the deferred purchase price of property or services, except accounts
payable arising in the ordinary course of business, (5) all obligations of such
person as lessee in respect of capital lease obligations under capital leases
and (6) all obligations of others of a nature described in any of clauses
(1) Through (5) above guaranteed by such person; provided that, in the case of
clauses (1) through (5) above, Indebtedness shall include only obligations
reported as liabilities in the financial statements of such person in
accordance with generally accepted accounting principles.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge arrangement to or under which an issuer or any
of its subsidiaries is or becomes a party or a beneficiary.
"Investment" means any direct or indirect advance (other than advances to
customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of any person or its subsidiaries), loan or
other extension of credit or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Equity
Interests, bonds, notes, debentures or other securities issued by, any other
person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any capital
lease, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
31
"Mortgage Financing" means the incurrence by an issuer or any of its
Subsidiaries of any Indebtedness secured by a mortgage or other Lien on real
property acquired or improved by such issuer or any such Subsidiary after the
date of the indenture.
"Mortgage Financing Proceeds" means, with respect to any Mortgage
Financing, the aggregate amount of cash proceeds received or receivable by an
issuer or any of its Subsidiaries in connection with such financing after
deducting therefrom brokerage commissions, legal fees, finder's fees, closing
costs and other expenses incidental to such Mortgage Financing and the amount
of taxes payable in connection with or as a result of such transaction, to the
extent, but only to the extent, that the amounts so deducted are, at the time
of receipt of such cash, actually paid to a person that is not an Affiliate of
such issuer or its Subsidiaries and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Mortgage Refinancing" means the incurrence by an issuer or any of its
Subsidiaries of any Indebtedness secured by a mortgage or other Lien on real
property subject to a mortgage or other Lien existing on the date of the
indenture or created or incurred subsequent to the date hereof as permitted
hereby and owned by such issuer or any such Subsidiary.
"Mortgage Refinancing Proceeds" means, with respect to any Mortgage
Refinancing, the aggregate amount of cash proceeds received or receivable by an
issuer or any of its Subsidiaries in connection with such refinancing after
deducting therefrom the original mortgage amount of the underlying indebtedness
refinanced therewith and brokerage commissions, legal fees, finder's fees,
closing costs and other expenses incidental to such Mortgage Refinancing and
the amount of taxes payable in connection with or as a result of such
transaction, to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a person
that is not an Affiliate of such issuer or its Subsidiaries and are properly
attributable to such transaction or to the asset that is the subject thereof.
"Net Income" of any person shall mean the net income (loss) of such
person, determined in accordance with generally accepted accounting principles,
excluding, however, (1) with respect to an issuer and its Subsidiaries,
any gain or loss, together with any related provision for taxes on such gain or
loss, realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale and leaseback transactions) of a
Business Segment, and (2) any gain or loss realized upon the sale or other
disposition by such person of any capital stock or marketable securities.
"Net Proceeds" with respect to any Asset Sale, sale and leaseback
transaction or sale or other disposition of a Business Segment, means (1) cash
(freely convertible into U.S. dollars) received by an issuer or any of its
Subsidiaries from such transaction, after (a) provision for all income or other
taxes measured by or resulting from such transaction, (b) payment of all
brokerage commissions and other expenses (including, without limitation, the
payment of principal, premium (if any) and interest on Indebtedness required
(other than pursuant to the provisions described in the first paragraph under
"Certain Covenants- Limitation on Sale of Assets") to be paid as a result of
such transaction) in connection with such transaction and (c) deduction of
appropriate amounts to be provided by an issuer as a reserve, in accordance
with generally accepted accounting principles, against any liabilities
associated with the asset disposed of in such transaction and retained by such
issuer or its Subsidiaries after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction and (2) promissory
notes received by an issuer or any of its Subsidiaries in connection with such
transaction upon the liquidation or conversion of such notes into cash.
"Obligations" means, with respect to any Indebtedness or any Interest Rate
Agreement, any principal, premium, interest (including, without limitation,
interest, whether or not allowed, after the filing of a petition initiating
certain bankruptcy proceedings), penalties, commissions, charges, expenses,
fees, indemnifications, reimbursements and other liabilities or amounts payable
under or in respect of the documentation governing such Indebtedness or such
Interest Rate Agreement.
"Old Notes" means any outstanding 11 1/4% senior notes due 2008 of Denny's
Corporation issued pursuant to that certain indenture, dated as of January 7,
1998, by and between Denny's Corporation and U.S. Bank National Association
(formerly, First Trust National Association), as Trustee..
"Permitted Investments" means (1) Investments in cash (including major
foreign currency or currency of a country in which an issuer or any of its
Subsidiaries has operations) or Cash Equivalents, (2) with respect to each
issuer and its Subsidiaries, Investments that are in persons at least a
majority of whose revenues are derived from food service operations, ancillary
operations or related activities and that have the purpose of furthering the
food service operations of such issuer or any of its Subsidiaries (other than
any Investment by any of the Denny's Holdings Group in any of the Denny's
Corporation
32
Group), (3) advances to employees of Denny's Corporation or its Subsidiaries
not in excess of $5 million in the aggregate at any one time outstanding,
(4) accounts receivable created or acquired in the ordinary course of business,
(5) obligations or shares of stock received in connection with any good faith
settlement or bankruptcy proceeding involving a claim relating to a Permitted
Investment, (6) evidences of Indebtedness, obligations or other Investments not
exceeding $5 million in the aggregate held at any one time by Denny's
Corporation or any of its Subsidiaries and (7) currency swap agreements
and other similar agreements designed to hedge against fluctuations in foreign
exchange ates entered into in the ordinary course of business in connection
with the operation of the business.
"Permitted Payments to Denny's Corporation" means, without duplication,
payments by any Subsidiary of Denny's Corporation to Denny's Corporation in an
amount sufficient to enable Denny's Corporation to (a) pay reasonable and
necessary operating expenses and other general corporate expenses of Denny's
Corporation and its subsidiaries, (b) pay foreign, federal, state and local tax
liabilities of Denny's Corporation and its current and former subsidiaries to
the extent that Denny's Corporation has an obligation to pay such tax
liabilities, the determination of which shall take into account any operating
losses, net operating loss carryovers, and other tax attributes available to
Denny's Corporation and its subsidiaries, (c) pay, as and when the same becomes
due and payable, interest on the Old Notes, (d) pay, as and when the same
becomes due and payable, (i) interest and (ii) principal at maturity (or as
otherwise required pursuant to contractually scheduled principal payments,
which, in the case of Existing Indebtedness are existing on the date of the
indenture, and, in the case of Indebtedness incurred after the date of the
indenture are existing on the date such Indebtedness is incurred), in each case
on the Credit Agreement, any Existing Indebtedness and on any other
Indebtedness incurred after the date of the indenture that was permitted to be
incurred in accordance with the covenant "Limitation on Additional Indebtedness
and Issuance of Disqualified Capital Stock" and (e) repurchase, redeem or
otherwise acquire or retire for value, Equity Interests in Denny's Corporation
in accordance with clause (3) of, and the Old Notes in accordance with clause
(8) of, the covenant "Limitation on Restricted Payments." Notwithstanding
anything herein to the contrary, any such payments made to Denny's Corporation
pursuant hereto shall either be used by Denny's Corporation for the purpose
such payment was made to Denny's Corporation within 90 days of Denny's
Corporation's receipt of such payment or refunded to the party from whom
Denny's Corporation received such payment; provided, however, that to the
extent that any such payments have not been paid within such 90 day period,
Denny's Corporation shall be entitled to retain an amount that shall not at any
time exceed an aggregate of $250,000 for the purpose of making the payments
described herein.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
persons' stock which is preferred or has a preference with respect to the
payment of dividends, or as to distributions upon any dissolution or
liquidation over Equity Interests of any other class of such person whether now
outstanding or issued after the date of the indenture.
"Public Offering" means any underwritten public offering for cash pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act of Capital Stock other than Disqualified Stock of Denny's
Corporation or any of its Subsidiaries.
"Restricted Investments" means (a) any Investment by any of the
(i) Denny's Corporation Group in any person that is not a wholly owned
Subsidiary of Denny's Corporation and (ii) Denny's Holdings Group in any person
that is not a wholly owned Subsidiary of Denny's Holdings, or (b) other
transfers of assets by any of the (i) Denny's Corporation Group to any
Subsidiary or Affiliate of Denny's Corporation that is not a wholly owned
Subsidiary of Denny's Corporation or (ii) Denny's Holdings Group to any
Subsidiary or Affiliate of Denny's Holdings that is not a wholly owned
Subsidiary of Denny's Holdings (other than any such other transfers of assets
described in clause (b) above in transactions the terms of which are fair and
reasonable to the transferor and are at least as favorable as the terms that
could be obtained by the transferor in a comparable transaction made on an
arms' length basis between unaffiliated parties, as conclusively determined,
for any such transfer involving aggregate consideration in excess of $5
million, by a majority of the directors of Denny's Corporation or Denny's
Holdings, as applicable, that are unaffiliated with the transferee or, if there
are no such directors, by a majority of the directors of Denny's Corporation or
Denny's Holdings, as applicable), except in each case for Permitted Investments
and any such Investments existing on the date of the indenture.
"Senior Indebtedness" means (1) all obligations of an issuer and its
Subsidiaries now or hereafter existing under or in respect of the Credit
Agreement, the Old Notes, and the new notes, whether for principal, interest
(including, without limitation, interest accruing after the filing of a
petition initiating any bankruptcy, insolvency or similar proceeding, whether
or not such interest is in allowable claim under such proceeding), penalties,
commissions, charges, indemnifications, liabilities, reimbursement obligations
in respect of letters of credit, fees, expenses or other amounts payable under
or in
33
respect of the Credit Agreement, the Old Notes and the new notes and all
obligations and claims related thereto, (2) all Obligations of an issuer in
respect of Interest Rate Agreements and (3) additional Indebtedness permitted
by the covenant "Limitation on Additional Indebtedness and Issuance of
Disqualified Stock" (other than pursuant to clause (3) of the third paragraph
thereof) which is not expressly by its terms subordinated to the new notes and
all Obligations and claims related thereto; provided, that Senior Indebtedness
shall not include (x) any Indebtedness of an issuer to any of its Subsidiaries
or (y) Indebtedness incurred for the purchase of goods or services (other than
services provided by the Credit Agent in connection with the Credit Agreement
or any other party to an agreement evidencing Senior Indebtedness in connection
with such agreement) obtained in the ordinary course of business. "Senior
Indebtedness" under or in respect of the Credit Agreement, the Old Notes and
the new notes shall continue to constitute Senior Indebtedness for all
purposes of the indenture notwithstanding that such Senior Indebtedness or any
obligations or claims in respect thereof may be disallowed, avoided or
subordinated pursuant to any Bankruptcy Law or other applicable insolvency law
or equitable principles.
"Significant Subsidiary" means any Subsidiary of an issuer that would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the
date of the in denture) excluding, except for the purposes of determining an
Event of Default, subparagraph (c) of Rule 1-02 of Regulation S-X).
"Subsidiary" of any person means any entity of which shares of the Capital
Stock or other Equity Interests (including partnership interests) entitled to
cast at least a majority of the votes that may be cast by all shares or Equity
Interests having ordinary voting power for the election of directors or other
governing body of such entity are owned by such person directly and/or through
one or more Subsidiaries of such person; provided that each Unrestricted
Subsidiary shall be excluded from the definition of "Subsidiary."
"Unrestricted Subsidiary" means (1) FRD, (2) any subsidiary of an issuer
that at the time of determination is an Unrestricted Subsidiary (as designated
by such issuer's board of directors, as provided below) and (3) any subsidiary
of an Unrestricted Subsidiary. The board of directors of such issuer may
designate any subsidiary of an issuer (including any Subsidiary and any newly
acquired or newly formed subsidiary) to be an Unrestricted Subsidiary unless
such subsidiary owns any Capital Stock of, or owns, or holds any lien on, any
property of, any Subsidiary of such issuer (other than any subsidiary of the
subsidiary to be so designated); provided that (a) any Unrestricted Subsidiary
must be an entity of which shares of the Capital Stock or other Equity
Interests (including partnership interests) entitled to cast at least a
majority of the votes that may be cast by all shares or Equity Interests having
ordinary voting power for the election of directors or other governing body are
owned, directly or indirectly, by such issuer (b) such issuer certifies that
such designation complies with the covenants described under "Certain Covenants
- Limitation on Restricted Payments" and "Investments in Unrestricted
Subsidiaries" and (c) each of (1) the subsidiary to be so designated and
(2) its subsidiaries have not at the time of designation, and do not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to
which the lender has recourse to any of the assets of such issuer or any of its
Subsidiaries. The board of directors of such issuer may designate any
Unrestricted Subsidiary to be a Subsidiary; provided that, immediately after
giving effect to such designation, Denny's Corporation could incur at least $1
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described under "Certain Covenants - Limitation on Additional Indebtedness and
Issuance of Disqualified Stock" on a pro forma basis taking into account such
designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (1) the then
outstanding aggregate principal amount of such Indebtedness into (2) the total
of the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
Certain Covenants
Limitation on Restricted Payments. The indenture provides that each
issuer will not, and will not permit any of its Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on
account of the Capital Stock or other Equity Interests of such issuer or
any Subsidiary of Denny's Corporation or Denny's Holdings ((A) other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of such issuer or such Subsidiary and (B) other than
dividends or distributions payable by a Subsidiary (other than dividends
or distributions payable by any of the Denny's Holdings
34
Group to any of the Denny's Corporation Group) so long as, in the case of
any dividend or distribution payable on any class or series of securities
issued by a Subsidiary other than a wholly owned Subsidiary, such issuer
or a Subsidiary of such issuer receives at least its pro rata share of
such dividend or distribution in accordance with its Equity Interest in
such class or series of securities);
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of such issuer or any Subsidiary of Denny's Corporation
or Denny's Holdings (other than any such Equity Interests (i) owned by
Denny's Corporation or any of its Subsidiaries so purchased, redeemed or
otherwise acquired or retired for value by any of the Denny's Corporation
Group and (ii) owned by any of the Denny's Holdings Group so purchased,
redeemed or otherwise acquired or retired for value by any of the
Denny's Holdings Group);
(3) voluntarily prepay any Old Notes or any Indebtedness that is
subordinated to the new notes other than in connection with any
(a) refinancing of such Indebtedness specifically permitted by the terms
of the indenture, (b) Indebtedness between (i) Denny's Corporation and any
of its Subsidiaries in the Denny's Corporation Group or between
Subsidiaries in the Denny's Corporation Group, (ii) Denny's Holdings and
any of its Subsidiaries in the Denny's Holdings Group or between
Subsidiaries in the Denny's Holdings Group or (c) Indebtedness of any of
the Denny's Corporation Group to any of the Denny's Holdings Group; or
(4) make any Restricted Investments (other than an Investment in
any Unrestricted Subsidiary)
(all such dividends, distributions, purchases, redemptions or other
acquisitions, retirements, prepayments or Restricted Investments being
collectively referred to as "Restricted Payments"), if, at the time of such
Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(b) immediately after such Restricted Payment and after giving
effect thereto on a pro forma basis, Denny's Corporation would not be
able to incur $1 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test described under "Limitation on Additional
Indebtedness and Issuance of Disqualified Stock" below; or
(c) such Restricted Payment, without duplication, together with
(A) the aggregate of all other Restricted Payments (in each case
valued, where other than cash, at their fair market value as of the
date such Restricted Payment is made) made after the date of the
indenture and (B) the amount by which the aggregate of all then
outstanding Investments in Unrestricted Subsidiaries (other than the
FRD Investment), calculated without giving effect to amounts included
pursuant to clause (z)(2) below, exceeds $25 million, is greater than
the sum of, without duplication: (v) 50% of the aggregate
Consolidated Net Income of Denny's Holdings for the period (taken as
one accounting period) from the beginning of the first quarter
immediately after the date of the indenture to the end of its most
recently ended fiscal quarter at the time of such Restricted Payment;
provided that if such Consolidated Net Income for such period is less
than zero, then minus 100% of the amount of such loss, plus (w) 100%
of the aggregate amortization of goodwill and of excess reorganization
value for the period specified in clause (v) above, plus (x) 100% of
the aggregate net cash proceeds and the fair market value of
marketable securities received by Denny's Holdings from the issue or
sale, after the date of the indenture, of Capital Stock of Denny's
Holdings (other than Capital Stock issued and sold to a Subsidiary of
Denny's Holdings and other than Disqualified Stock), or any
Indebtedness or other security convertible into any such Capital Stock
that has been so converted plus (y) 100% of the aggregate amounts
contributed to the capital of Denny's Holdings after the date of the
indenture plus (z) 100% of the aggregate amounts received in cash and
the fair market value of marketable securities (other than Restricted
Investments) received from (1) the sale or other disposition of
Restricted Investments made after the date of the indenture by Denny's
Holdings and its Subsidiaries or (2) the sale of the stock of an
Unrestricted Subsidiary or the sale of all or substantially all of the
assets of an Unrestricted Subsidiary to the extent that a liquidating
dividend is paid to Denny's Holdings or any Subsidiary of Denny's
Holdings from the proceeds of such sale (in each case, other than to
the extent of the FRD Investment and only to the extent that such
amounts were not applied to reduce the aggregate amount of all
outstanding Investments in Unrestricted Subsidiaries for purposes of
calculating the aggregate amount of all such Investments in (B) above);
provided, that no such amounts shall be included pursuant to clause (x)
or (y) above to the extent that the proceeds (including by exchange)
from any such issuance, sale or contribution were used as provided in
clause (2), (4) or (5) in the next succeeding paragraph. For purposes
of this
35
clause (c), the fair market value of property other than cash
shall be conclusively determined in good faith by the board of
directors of Denny's Holdings.
Notwithstanding the foregoing, the indenture permits:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the indenture;
(2) the retirement of any shares of Capital Stock of an issuer in
exchange for, or out of the net proceeds of the substantially concurrent
sale (other than to a Subsidiary of such issuer) of, other shares of such
issuer's Capital Stock, other than any Disqualified Stock;
(3) payments for the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests in Denny's Corporation
issued to members of management of Denny's Corporation and its
Subsidiaries pursuant to subscription and option agreements in effect on
the date of the indenture and Equity Interests in Denny's Corporation
issued to future members of management pursuant to subscription agreements
executed subsequent to the date of the indenture, containing provisions
for the repurchase of such Equity Interests upon death, disability or
termination of employment of such persons which are substantially
identical to those contained in the subscription agreements in effect on
the date of the indenture; provided that the amount of such dividends or
distributions, after the date of the indenture, in the aggregate will not
exceed the sum of (A) $5 million plus (B) the cash proceeds from any
reissuance of such Equity Interests by Denny's Corporation to members of
management of Denny's Corporation and its Subsidiaries;
(4) the repurchase, redemption or other acquisition or retirement
for value of any Indebtedness of an issuer that is subordinated in right
of payment to the new notes in exchange for or with the proceeds of the
issuance of shares of such issuer's Equity Interests (other than
Disqualified Stock);
(5) the redemption, repurchase or retirement for value of any
Indebtedness of an issuer that is subordinated to the new notes (A) with
the proceeds of, or in exchange for, Indebtedness incurred pursuant to
clause (2) of the third paragraph under "Limitation on Additional
Indebtedness and Issuance of Disqualified Stock" below or (B) if, after
giving effect to such redemption, repurchase or retirement, Denny's
Corporation could incur at least $1 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test described under "Limitation on
Additional Indebtedness and Issuance of Disqualified Stock" below;
(6) the purchase, redemption or other acquisition or retirement
for value of Equity Interests of any Subsidiary of Denny's Corporation
(other than any such Equity Interests (i) owned by Denny's Corporation or
any of its Subsidiaries so purchased, redeemed or otherwise acquired or
retired for value by any of the Denny's Corporation Group and (ii) owned
by any of the Denny's Holdings Group so purchased, redeemed or otherwise
acquired or retired for value by any of the Denny's Holdings Group) in an
aggregate cumulative amount not to exceed $5 million annually;
(7) so long as no Default or Event of Default shall have occurred
and be continuing, Permitted Payments to Denny's Corporation; and
(8) after the date on which a bankruptcy court enters an order
closing the FRD Chapter 11 Case, the repurchase, redemption or other
acquisition or retirement for value of Old Notes by Denny's Corporation
for consideration in an aggregate amount not to exceed an amount, not less
than $50 million, equal to the sum of $50 million plus 50% of the
difference between $160 million and the amount of Old Notes tendered and
accepted in exchange for the original notes on April 15, 2002; provided,
however, that no Default or Event of Default shall have occurred and be
continuing at the time of any such repurchase, redemption or other
acquisition or retirement;
provided, that in determining the aggregate amount expended for Restricted
Payments in accordance with clause (c) of the first paragraph of this covenant,
(x) no amounts expended under clauses (2), (4), or (5) of this paragraph shall
be included, (y) 100% of the amounts expended under clauses (3), (6), (7) and
(8) of this paragraph shall be included, and (z) 100% of the amounts expended
under clause (1), to the extent not included under subclauses (x) or (y) of
this proviso, shall be included.
36
Limitation on Additional Indebtedness and Issuance of Disqualified Stock.
The indenture provides that (1) each issuer will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume or
guarantee any Indebtedness (other than (A) Indebtedness (a) owing from any of
the Denny's Holdings Group payable to any of the Denny's Corporation Group; (b)
between Denny's Holdings and a Subsidiary of Denny's Holdings; (c) between
Subsidiaries of Denny's Holdings; (d) between Denny's Corporation and a
Subsidiary of Denny's Corporation in the Denny's Corporation Group; or
(e) between Subsidiaries of the Denny's Corporation Group; and (B) guarantees
by Denny's Corporation or any Subsidiary of Denny's Corporation of Indebtedness
of any of the Denny's Holdings Group or guarantees by any Subsidiary in the
Denny's Corporation Group of Indebtedness of any of the Denny's Corporation
Group) and (2) neither issuer will issue any Disqualified Stock, unless
(a) such Indebtedness or Disqualified Stock is either Acquisition Indebtedness
or is created, incurred, issued, assumed or guaranteed by such issuer and not a
Subsidiary of such issuer and (b) Denny's Corporation's Fixed Charge Coverage
Ratio for the four full fiscal quarters last preceding the date such additional
Indebtedness is created, incurred, assumed or guaranteed, or such additional
stock is issued, would have been at least 2.25:1, determined on a pro forma
basis (including a pro forma application of the net proceeds of such
Indebtedness or such issuance of stock) as if the additional Indebtedness had
been created, incurred, assumed or guaranteed, or such additional stock had
been issued, at the beginning of such four-quarter period.
The foregoing limitations will not apply to the incurrence by an issuer or
any of its Subsidiaries of any Indebtedness pursuant to the Credit Agreement;
provided, however, that the principal amount of such Indebtedness incurred and
outstanding at any time pursuant to the Credit Agreement (including any
Indebtedness incurred to refund or refinance such Indebtedness) for this
purpose will not exceed the greater of $250 million and the aggregate amount of
the commitments under the Credit Agreement on the date of the indenture.
In addition, the foregoing limitations notwithstanding,
(1) Denny's Corporation or any of its Subsidiaries may create,
incur, issue, assume or guarantee Indebtedness pursuant to the Credit
Agreement or otherwise, (a) in connection with or arising out of Mortgage
Financings, Mortgage Refinancings and sale and lease-back transactions;
provided that the Mortgage Financing Proceeds, Mortgage Refinancing
Proceeds (excluding any Mortgage Refinancing Proceeds received in
connection with any refinancing of any Indebtedness secured by a mortgage
or Lien on the Excluded Property) or Net Proceeds, as the case may be,
incurred, assumed or created in connection therewith are used to pay
any outstanding Senior Indebtedness, and provided further that any amounts
used to repay Indebtedness outstanding under the Old Notes shall be
applied only as and when permitted under the covenant "Limitation on
Restricted Payments", (b) constituting purchase money obligations for
property acquired in the ordinary course of business or other similar
financing transactions (including, without limitation, in connection with
Mortgage Financings and Mortgage Refinancings as and to the extent
permitted in clause (a) above); provided that, in the case of Indebtedness
exceeding $2 million for any such obligation or transaction, such
Indebtedness exists at the date of the purchase or transaction or is
created within 180 days thereafter, (c) constituting capital lease
obligations, (d) constituting reimbursement obligations with respect to
letters of credit, including, without limitation, letters of credit in
respect of workers' compensation claims issued for the account of an
issuer or a Subsidiary of an issuer in the ordinary course of its
business, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims, (e) constituting
additional Indebtedness in an aggregate principal amount (including any
Indebtedness incurred to refund or refinance such Indebtedness) at any one
time outstanding of up to $179,611,000 (which is equal to the difference
between $250 million and the aggregate principal amount of original notes
issued on April 15, 2002), whether incurred under the Credit Agreement or
otherwise, provided, however that no more than $50 million of such
additional Indebtedness incurred pursuant to this subclause (e) shall be
secured by a consensual Lien or be secured by Denny's Corporation or any
Subsidiary of Denny's Corporation other than Denny's Holdings,
(f) constituting Indebtedness secured by the Excluded Property, and
(g) constituting Existing Indebtedness and permitted refinancings thereof
in accordance with clause (2) of this paragraph;
(2) an issuer or any Subsidiary of an issuer may create, incur,
issue, assume or guarantee any Indebtedness that serves to refund,
refinance or restructure the new notes, Existing Indebtedness or any other
Indebtedness incurred as permitted under the indenture, or any
Indebtedness issued to so refund, refinance or restructure such
Indebtedness, in an amount equal to or less than the Indebtedness being so
refunded, refinanced or restructured, including additional Indebtedness
incurred to pay premiums and fees in connection therewith ("Refinancing
Indebtedness"), prior to its respective maturity; provided, however, that
such Refinancing Indebtedness is incurred by the obligor on the
Indebtedness being refinanced and (a) bears an interest rate per annum
that is equal to or less than the interest rate per annum then payable
under such Indebtedness being refunded or refinanced (calculated in
accordance with any formula
37
set forth in the documents evidencing any such Indebtedness) unless such
Refinancing Indebtedness is incurred, created or assumed within twelve
months of the scheduled maturity of the Indebtedness being refinanced,
(b) has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining Weighted
Average Life to Maturity of such Indebtedness being refunded or
refinanced, and (c) to the extent such Refinancing Indebtedness refinances
Indebtedness subordinated to the new notes, such refinancing indebtedness
is subordinated to the new notes at least to the same extent as the
Indebtedness being refinanced or refunded, and provided further that
subclauses (a), (b) and (c) of this clause (2) will not apply to any
refunding or refinancing of any Senior Indebtedness; and
(3) any nonconsolidated subsidiary of an issuer created after the date
of the indenture may create, incur, issue, assume, guarantee or otherwise
become liable with respect to any additional Indebtedness; provided that
such Indebtedness is nonrecourse to any issuer and its consolidated
subsidiaries, and the issuers and their consolidated Subsidiaries have no
liability with respect to such additional Indebtedness.
Limitation on Liens. The indenture provides that, subject to certain
exceptions, each issuer shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
upon any asset now owned or hereafter acquired, except with respect to
(a) Liens securing or arising under or in connection with any Indebtedness of
an issuer not expressly by its terms subordinate or junior in right of payment
to any other Indebtedness of such issuer; (b) Liens existing on the date of the
indenture; (c) Liens permitted by or required pursuant to the Credit Agreement;
(d) Liens relating to judgments to the extent such judgments do not give rise
to specified Events of Default; (e) Liens arising under or in connection with
the satisfaction and discharge of the indenture; (f) Liens incurred in the
ordinary course of business so long as the Indebtedness secured by such Lien
does not exceed $5 million at any one time outstanding; (g) Liens for taxes or
assessments and similar charges either (x) not delinquent or (y) contested in
good faith by appropriate proceedings and as to which either issuer or a
Subsidiary of either issuer shall have set aside on its books such reserves as
may be required pursuant to generally accepted accounting principles; (h) Liens
incurred or pledges and deposits in connection with workers' compensation,
unemployment insurance and other social security benefits, or securing
performance bids, tenders, leases, contracts (other than for the repayment of
borrowed money), statutory obligations, progress payments, surety and appeal
bonds and other obligations of like nature, incurred in the ordinary course of
business; (i) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's and vendors' Liens, incurred in good faith in the
ordinary course of business; (j) zoning restrictions, easements of licenses,
covenants, reservations, restrictions on the use of real property or minor
irregularities of title incident thereto of any of the Denny's Holdings Group
which do not in the aggregate materially detract from the value of the property
or assets of the Denny's Holdings Group, taken as a whole, or of any of the
Denny's Corporation Group which do not in the aggregate materially detract from
the value of the property or assets the Denny's Corporation Group, taken as a
whole, or materially impair the operation of the business of, as applicable,
either the Denny's Holdings Group, taken as a whole, or the Denny's Corporation
Group, taken as a whole; (k) Liens created by Subsidiaries in the Denny's
Holdings Group to secure Indebtedness of such Subsidiaries to any of Denny's
Holdings Group or Liens created by Subsidiaries in the Denny's Corporation
Group to secure Indebtedness of such Subsidiaries to any of the Denny's
Corporation Group or the Denny's Holdings Group; (l) pledges of or Liens on
raw materials or on manufactured products as security for any drafts or bills
of exchange in connection with the importation of such raw materials or
manufactured products in the ordinary course of business; (m) a Lien on any
assets (x) securing Indebtedness incurred or assumed pursuant to clause (b) or
(c) or paragraph (1) of the covenant "Limitation on Additional Indebtedness and
Issuance of Disqualified Stock" for the purpose of financing all or any part of
the cost of acquiring such asset or construction thereof or thereon or
(y) existing on assets or businesses at the time of the acquisition thereof;
(n) the Lien granted to the Trustee pursuant to the indenture and any
substantially equivalent Lien granted to the respective trustees under the
indentures for other debt securities of either issuer; (o) Liens arising in
connection with any Mortgage Financing or Mortgage Refinancing by either issuer
or any of its Subsidiaries; (p) Liens securing reimbursement obligations with
respect to letters of credit issued for the account of either issuer or any of
its Subsidiaries in the ordinary course of business; (q) any Lien on the
Excluded Property; (r) Liens securing an interest of a landlord in real
property leases; and (s) Liens created in connection with the refinancing of
any Indebtedness secured by Liens permitted to be incurred or to exist pursuant
to the foregoing clauses; provided, however, that no additional assets are
encumbered by such Liens in connection with such refinancing, unless permitted
by clause (c) above or the immediately succeeding sentence. The indenture
provides that, notwithstanding the foregoing, an issuer may create or assume
any Lien upon its properties or assets if such issuer shall cause the new notes
to be equally and ratably secured with all other Indebtedness secured by such
Lien as long as such other Indebtedness shall be so secured. Notwithstanding
anything in the indenture to the contrary, in no event shall any Lien be
incurred (i) securing Indebtedness outstanding pursuant to the Old Notes or
(ii) on any assets of the Denny's Holdings Group securing Indebtedness of any
of
38
the Denny's Corporation Group (other than such Indebtedness of any of the
Denny's Corporation Group which is also Indebtedness of any of the Denny's
Holdings Group).
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The indenture provides that each issuer will not, and will not
permit any of its Subsidiaries (other than nonconsolidated subsidiaries) to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any such
Subsidiary to (1) pay dividends or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by, its profits,
owned by an issuer or any of its Subsidiaries or pay any Indebtedness owed to
an issuer or any of its Subsidiaries, (2) make loans or advances to an issuer
or any of its Subsidiaries or (3) transfer any of its properties or assets to
an issuer or any of its Subsidiaries, except in each case for such encumbrances
or restrictions existing under or by reason of (a) applicable law, (b) the
indenture, (c) the Credit Agreement or any other agreement entered into in
connection therewith or as contemplated thereby, (d) customary provisions
restricting subletting or assignment of any lease governing a leasehold
interest of an issuer or any of its Subsidiaries, (e) any instrument governing
Indebtedness of a person acquired by an issuer or any of its Subsidiaries at
the time of such acquisition; provided that such Indebtedness is not incurred
in connection with or in contemplation of such acquisition, (f) the Old Notes,
Existing Indebtedness or other contractual obligation of an issuer or any of
its Subsidiaries existing on the date of the indenture, (g) additional
Indebtedness in an aggregate principal amount at any one time outstanding of up
to $179,611,000 (which is equal to the difference between $250 million and the
amount of original notes issued on April 15, 2002), (h) any amendment,
modification, renewal, extension, replacement, refinancing or refunding of
encumbrances or restrictions imposed pursuant to clauses (b), (c), (f) or (g)
above; provided that the restrictions contained in any such amendment,
modification, renewal, extension, replacement, refinancing or refunding are no
less favorable in all material respects to the holders of the new notes, (i)
any Mortgage Financing or Mortgage Refinancing, (j) any Permitted Investment or
(k) contracts for the sale of assets so long as such encumbrances or
restrictions apply only to the assets to be sold pursuant thereto.
Limitation on Sale of Assets. The indenture provides that neither issuer
nor any of their respective Subsidiaries (other than nonconsolidated
subsidiaries) will (A) (x) sell, lease, convey or otherwise dispose of, in any
transaction or group of transactions that are a part of a common plan, all or
substantially all of the assets or Capital Stock of any Asset Segment (provided
that the sale, lease, conveyance or other disposition of all or substantially
all of an issuer's assets will not be governed by this provision but rather by
the provisions described under "-Merger, Consolidation or Sale of All or
Substantially All Assets") or (y) issue or sell Equity Interests of any Asset
Segment (each of the foregoing, an "Asset Sale") or (B) sell, lease, convey or
otherwise dispose of any Business Segment, unless in each case, such issuer
shall apply the Net Proceeds from such Asset Sale or such sale, lease,
conveyance or other disposition of a Business Segment to one or more of the
following in such combination as such issuer may choose: (1) an Investment in
another asset or business in the same line of business as, or a line of
business similar to that of, the line of business of Denny's Corporation and
its Subsidiaries (other than in the case of any Asset Sale of an Asset Segment
in any of the Denny's Holdings Group or any sale, lease, conveyance or other
disposition of any Business Segment in any of the Denny's Holdings Group, any
Investment by any of the Denny's Holdings Group in any of the Denny's
Corporation Group) and such Investment occurs within 366 days of such Asset
Sale or such sale, lease, conveyance or other disposition of a Business
Segment, (2) a Net Proceeds Offer (defined below) expiring within 366 days of
such Asset Sale or such sale, lease, conveyance or other disposition of a
Business Segment or (3) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness within 366 days of such Asset Sale
or such sale, lease, conveyance or other disposition of a Business Segment,
provided that any amounts used to repay Indebtedness outstanding under the Old
Notes shall be applied only as and when permitted under the covenant
"Limitation on Restricted Payments"; provided, however, that if the net amount
not invested pursuant to clause (1) above or applied pursuant to clause
(3) above is less than $15 million, such issuer shall not be further obligated
to offer to repurchase new notes pursuant to clause (2) above. Notwithstanding
the foregoing, the receipt of all proceeds of insurance paid on account of the
loss of or damage to any Business Segment and awards of compensation for any
such Business Segment taken by condemnation or eminent domain which result in
net proceeds to such issuer of $50 million or more (excluding proceeds to be
used for replacement of such Business Segment, provided that the trustee has
received notice from such issuer within 90 days of such receipt of its
intention to use such proceeds for suchpurpose) will be deemed an "Asset Sale."
Notwithstanding anything herein to the contrary, the following will not be
deemed an "Asset Sale" or a sale or other disposition of a Business Segment:
(a) Permitted Investments, (b) sales, leases, conveyances or other dispositions
of assets by (i) any of the Denny's Corporation Group to Denny's Corporation or
any of its wholly owned subsidiaries or (ii) any of the Denny's Holdings Group
to Denny's Holdings, or (c) a Public Offering of any Subsidiary of Denny's
Corporation, but only to the extent that the proceeds of which are used to
redeem up to 35% of the aggregate principal amount of new notes as provided
above under "Optional Redemption."
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For purposes of clause (2) of the preceding paragraph, the issuers shall
apply the Net Proceeds of the Asset Sale or the sale, lease, conveyance or
other disposition of a Business Segment to make a tender offer in accordance
with applicable law (a "Net Proceeds Offer") to repurchase new notes at a price
not less than 100% of the principal amount thereof, plus accrued and unpaid
interest. Any Net Proceeds Offer shall be made by the issuers only if and to
the extent permitted under, and subject to prior compliance with, the terms of
any agreement governing Senior Indebtedness. If on the date any Net Proceeds
Offer is commenced, securities of an issuer ranking pari passu in right of
payment with the new notes are at the time outstanding, and the terms of such
securities provide that a similar offer is to be made with respect thereto,
then the Net Proceeds Offer for the new notes shall be made concurrently with
such other offer, and securities of each issue shall be accepted pro rata in
proportion to the aggregate principal amount of securities of each issue which
the holders of securities of such issue elect to have repurchased. After the
last date on which holders of the new notes are permitted to tender their new
notes in a Net Proceeds Offer, the issuer that originally received the Net
Proceeds shall not be restricted under this "Restrictions on Sale of Assets"
covenant as to its use of any Net Proceeds available to make such Net Proceeds
Offer (up to the amount of Net Proceeds that would have been used to repurchase
new notes assuming 100% acceptance of the Net Proceeds Offer) but not used to
repurchase new notes pursuant thereto.
Notwithstanding any provision of the indenture to the contrary, for a
period of 120 days after the last date on which holders of the new notes are
permitted to tender their new notes in the Net Proceeds Offer, the issuer that
originally received the Net Proceeds may use any Net Proceeds available to make
such Net Proceeds Offer but not used to repurchase new notes pursuant thereto
to purchase, redeem or otherwise acquire or retire for value any securities of
such issuer ranking junior in right of payment to the new notes at a price,
stated as a percentage of the principal or face amount of such junior
securities, not greater than the price, stated as a percentage of the principal
amount of the new notes, offered in the Net Proceeds Offer; provided that, if
the Net Proceeds Offer is for a principal amount (the "Net Proceeds Offer
Amount") of the new notes less than the aggregate principal amount of the new
notes then outstanding, then the Net Proceeds available for use by such issuer
for such a purchase, redemption or other acquisition or retirement for value of
junior securities shall not exceed the Net Proceeds Offer Amount.
Limitation on Transactions with Affiliates. The indenture provides that
each issuer will not, and will not permit any of its Subsidiaries to, directly
or indirectly, enter into any transaction with any Affiliate (including,
without limitation, the purchase, sale, lease or exchange of any property or
the rendering of any service) involving aggregate consideration in excess of
$5,000,000 for any one transaction, except for (1) transactions (including any
investments, loans or advances by or to any Affiliate) in good faith the terms
of which are fair and reasonable to such issuer or Subsidiary, as the case may
be, and are at least as favorable as the terms that could be obtained by such
issuer or Subsidiary, as the case may be, in a comparable transaction made on
an arm's length basis between unaffiliated parties (in each case as
conclusively determined by a majority of the board of directors of Denny's
Corporation or Denny's Holdings, as applicable, unaffiliated with such
Affiliate or, if there are no such directors, as conclusively determined by a
majority of the board of directors of Denny's Corporation or Denny's Holdings,
as applicable), (2) transactions in which such issuer or any of its
Subsidiaries, as the case may be, delivers to the holders of the new notes a
written opinion of a nationally recognized investment banking firm stating that
such transaction is fair to such issuer or Subsidiary, as the case may be,
from a financial point of view, (3) transactions between such issuer and its
Subsidiaries or between Subsidiaries of such issuer that are not otherwise
prohibited by the covenant described under "Limitation on Restricted Payments,"
and (4) payments or loans to employees or consultants pursuant to employment or
consultancy contracts which are approved by the board of directors of Denny's
Corporation or Denny's Holdings, as applicable, in good faith.
Investments in Unrestricted Subsidiaries. The indenture provides that
each issuer will not, and will not permit any of its Subsidiaries to, directly
or indirectly, make any Investment in any Unrestricted Subsidiary unless
(1) the amount of such Investment does not exceed the amount then permitted to
be used to make a Restricted Payment pursuant to clause (c) of the first
paragraph under "Limitation on Restricted Payments" above and (2) immediately
after such Investment, and after giving effect thereto on a pro forma
basis deducting from Net Income the amount of any Investment the issuers and
Subsidiaries of the issuers have made in Unrestricted Subsidiaries during the
four full fiscal quarters last preceding the date of such Investment, Denny's
Corporation would be able to incur $1 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test described under "Limitation on Additional
Indebtedness and Issuance of Disqualified Stock" above.
Notwithstanding clauses (1) and (2) of the immediately preceding paragraph
or any provision contained in the indenture to the contrary, the issuers and
their Subsidiaries shall be permitted to make investments in Unrestricted
Subsidiaries in an aggregate amount not to exceed $25 million (without regard
to the FRD
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Investment) at any one time outstanding. The amount by which the aggregate of
all Investments in Unrestricted Subsidiaries exceeds $25 million (without
regard to the FRD Investment) shall be counted in determining the aggregate
permissible amount of Restricted Payments pursuant to clause (c) of the first
paragraph under "Limitation on Restricted Payments" above. Neither issuer will
permit any Unrestricted Subsidiary to become a Subsidiary, except pursuant to
the last sentence of the definition of "Unrestricted Subsidiary."
Merger, Consolidation or Sale of All or Substantially All Assets. The
indenture provides that neither issuer will consolidate or merge with or into,
or sell, transfer, lease or convey all or substantially all of its assets to,
any person unless:
(1) the person formed by or surviving any such consolidation or merger
(if other than such issuer), or to which such sale, transfer, lease or
conveyance shall have been made, is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
(2) the corporation formed by or surviving any such consolidation or
merger (if other than such issuer), or to which such sale, transfer, lease
or conveyance shall have been made, assumes all the obligations of such
issuer pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee under the new notes and the indenture;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) such issuer or any corporation formed by or surviving any such
consolidation or merger, or to which such sale, transfer, lease or
conveyance shall have been made, shall have an Adjusted Consolidated Net
Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater
than the Adjusted Consolidated Net Worth of such issuer immediately
preceding the transaction; provided, however, that clause (4) will not
apply to any transaction where the consideration consists solely of common
stock or other Equity Interests of such issuer or any surviving
corporation and any liabilities of such person are not assumed by and are
specifically non-recourse to such issuer or such surviving corporation;
and
(5) after giving effect to such transaction and immediately
thereafter, such issuer or any corporation formed by or surviving any such
consolidation or merger, or to which such sale, transfer, lease or
conveyance shall have been made, shall be permitted to incur at least $1
of additional indebtedness as provided under clause (b) of the first
paragraph under "Limitation on Additional Indebtedness and Issuance of
Disqualified Stock" above if such provision were applicable to such entity.
Future Subsidiary Guarantors. The indenture provides that each issuer
will not permit any of its Subsidiaries to guarantee the payment of any
Indebtedness of an issuer that is expressly by its terms subordinate or junior
in right of payment to any other Indebtedness of such issuer (a "Subordinated
Indebtedness Guarantee"), unless (i) such Subsidiary executes and delivers a
supplemental indenture evidencing its guarantee of such issuer's Obligations
under the indenture and under the new notes on a substantially similar basis
(the "Securities Guarantee") and (ii) the Securities Guarantee is senior in
right of payment to such Subordinated Indebtedness Guarantee to the same extent
as the new notes are senior in right of payment to such junior Indebtedness of
such issuer; provided that if such Subordinated Indebtedness Guarantee ceases
to exist for any reason, the Securities Guarantee shall thereupon automatically
cease to exist. Notwithstanding anything herein to the contrary, in no event
shall any Subsidiary of Denny's Corporation guarantee Indebtedness outstanding
pursuant to the Old Notes.
Change Of Control
The indenture provides that, if at any time
(1) all or substantially all of an issuer's assets are sold as an
entirety to any person or related group of persons,
(2) an issuer is merged with or into another corporation or another
corporation is merged with or into an issuer with the effect that
immediately after such transaction the stockholders of such issuer
immediately prior to such transaction hold less than a majority in
interest of the total voting power entitled to vote in the election of
directors, managers or trustees of the person surviving such transaction,
(3) any person or related group of persons acquires a majority in
interest of the total voting power or voting stock of an issuer,
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(4) the persons constituting the board of directors of Denny's
Corporation on the date of the indenture or persons nominated or elected
to the board of directors of Denny's Corporation by a majority vote of
such directors (the "Continuing Directors") or by a majority vote of the
Continuing Directors do not constitute a majority of the members of the
board of directors of Denny's Corporation, or
(5) Denny's Corporation shall cease to own, directly or indirectly,
100% of the Equity Interests of Denny's Holdings having ordinary voting
power for the election of directors or other governing body,
then, in any such case, the issuers will notify the holders of the new notes in
writing of such occurrence and will make an offer to purchase in accordance
with the terms of the indenture (the "Change of Control Offer") all new notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the repurchase date;
provided, however, that such repurchase will only occur if there has been no
acceleration which has not been withdrawn or paid pursuant to the Credit
Agreement prior to the time of notice of a Change of Control Offer.
Prior to the mailing of the notice to holders provided for above, the
issuers will (x) to the extent then repayable or prepayable, repay in full all
Indebtedness under the Credit Agreement and, to the extent not then repayable
or prepayable, offer to repay in full all such Indebtedness and to repay the
Indebtedness of each lender under the Credit Agreement who has accepted such
offer or (y) obtain the requisite consent under the Credit Agreement to permit
the repurchase of the new notes. The issuers shall first comply with the
proviso in the preceding sentence before they shall be required to repurchase
the new notes pursuant to this covenant. The issuers will comply with all
applicable tender offer rules (including without limitation Rule 14e-1 under
the Exchange Act, if applicable) in the event that the repurchase option is
triggered under the circumstances described herein. Not less than 30 or more
than 60 days following any change of control, the issuers will mail a notice to
each holder of any new notes stating, among other things, (a) that a change of
control has occurred and that a change of control offer is being made as
described in this provision, (b) the purchase price and the change of control
payment date and (c) the instructions determined by the issuers, consistent
with this provision, that a holder of the new notes must follow in order to
have such holder's new notes repurchased.
Events Of Default And Remedies
"Events of Default" under the indenture include:
(1) default for 30 days in payment of interest on any of the new
notes;
(2) default in payment when due of principal, whether at maturity,
upon redemption or otherwise;
(3) failure by the issuers for 30 days after notice to comply with any
other agreements or covenants in the indenture or the new notes;
(4) default under any instrument governing any Indebtedness of an
issuer or its Subsidiaries (other than (A) Indebtedness of any of the
Denny's Corporation Group to any of the Denny's Corporation Group or
Indebtedness of any of the Denny's Holdings Group to any of the Denny's
Holdings Group or (B) Indebtedness of a nonconsolidated subsidiary of an
issuer that is nonrecourse to such issuer or its consolidated
Subsidiaries), if (a) either (x) such default results from the failure to
pay principal upon the final maturity of such Indebtedness (after the
expiration of any applicable grace period) or (y) as a result of such
default the maturity of such Indebtedness has been accelerated prior to
its final maturity, (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness with
respect to which the principal amount remains unpaid upon its final
maturity (after the expiration of any applicable grace period), or the
maturity of which has been so accelerated, aggregates $30 million or more
and (c) such default does not result from compliance with any applicable
law or any court order or governmental decree to which such issuer or any
of its Subsidiaries is subject;
(5) failure by an issuer or any of its Subsidiaries to pay certain
final judgments aggregating in excess of $10 million (net of amounts
covered by insurance, treating any deductibles, self-insurance or
retention as not so covered) which judgments remain undischarged for a
period of 60 days after their entry by a competent tribunal; and
(6) certain events of bankruptcy or insolvency.
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An Event of Default shall not be deemed to have occurred under clause (4)
or (5) until the issuers shall have received written notice thereof from the
trustee or the holders of at least 30% in principal amount of the new notes
then outstanding.
If an Event of Default, other than in respect of any events of bankruptcy
or insolvency, occurs and is continuing with respect to the new notes, the
trustee or the holders of at least 30% (or 25% in the case of an Event of
Default with respect to payment of principal of or interest on the new notes)
in principal amount of the new notes then outstanding may declare in writing
100% of the principal amount of, and any accrued and unpaid interest on, the
new notes to be due and payable immediately; provided, however, that if any
Senior Indebtedness is outstanding pursuant to the Credit Agreement, then all
the new notes shall be due and payable upon the earlier of (x) the day that is
five business days after the provision to the issuers and the Credit Agent of
such written notice of acceleration unless such Event of Default is cured or
waived prior to such date and (y) the date of acceleration of any Senior
Indebtedness under the Credit Agreement. In the event of a declaration of
acceleration because an event of default described in clause (4) of the
immediately preceding paragraph has occurred and is continuing, such
declaration of acceleration shall be automatically annulled if such payment
default is cured or waived or the holders of the Indebtedness which is the
subject of such Event of Default have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereof and the
trustee has received written notice of such cure, waiver or rescission and no
other Event of Default described in clause (4) of the preceding paragraph has
occurred and is continuing with respect to which 60 days have elapsed since the
declaration of acceleration of the Indebtedness which is the subject thereof
(without rescission of the declaration of acceleration of such indebtedness).
Upon an Event of Default arising from certain events of bankruptcy or
insolvency, the unpaid principal of and any accrued and unpaid interest on all
the new notes will immediately become due and payable without further action or
notice.
Holders of the new notes may not enforce the indenture or the new notes
except as provided in the indenture. Subject to certain limitations, holders of
a majority in principal amount of the new notes then outstanding may direct the
trustee in its exercise of any trust or power.
The trustee may withhold from holders of the new notes notice of any
continuing Default or Event of Default (except a default or event of default in
payment of principal or interest) if it determines in good faith that
withholding notice is in the interests of such holders.
The holders of a majority in aggregate principal amount of the new notes
then outstanding may on behalf of the holders of all of the new notes waive any
past Default or Event of Default under the indenture and its consequences,
except a continuing Default or Event of Default in the payment of the principal
of or interest on the new notes.
The issuers are required to deliver to the trustee annually a statement
regarding compliance with the indenture, and, upon an officer of an issuer
becoming aware of any event of default or of certain defaults, a statement
specifying such event of default or default and what action the issuers are
taking or propose to take with respect thereto.
Recourse Against Incorporators, Officers, Directors And Stockholders
No recourse shall be had against any incorporator, officer, director or
stockholder, as such, of Denny's Corporation or Denny's Holdings for any
obligation under the new notes or the indenture, and each holder of the new
notes by accepting a new note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the new notes.
Nothing in this provision limits the liability, if any, of any such
incorporator, officer, director or stockholder, as such, under the federal
securities laws.
Transfer And Exchange
The issuers may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange
or registration of transfer of new notes. No service charge will be made for
any registration of transfer or exchange of the new notes.
The trustee is not required to transfer or exchange any new notes selected
for redemption except, in the case of any new note where public notice has been
given that such new note is to be redeemed in part, the portion thereof not so
to be redeemed. Also, the trustee is not required to transfer or exchange any
new note for a period of 15 days before the mailing of a notice of redemption
of new notes to be redeemed.
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The registered holder of a new note will be treated as its owner for all
purposes.
Satisfaction And Discharge
The indenture and the new notes provide that the indenture shall cease to
be of further effect (except for specified rights of registration of transfer
and exchange; the issuers' right of optional redemption; substitution of
mutilated, defaced, destroyed, lost or stolen new notes; rights of holders to
receive payments of principal and interest on the new notes; the rights,
obligations and immunities of the trustee under the indenture; rights of note
holders as beneficiaries of the indenture with respect to the property so
deposited with the trustee payable to all or any of them; and the obligation of
the issuers to maintain an office or agency for payment of the new notes), if
at any time:
(a) the issuers shall have paid or caused to be paid the
principal of and interest on all of the new notes outstanding, as and when
the same shall have become due and payable, or
(b) the issuers shall have delivered to the trustee for
cancellation all new notes previously authenticated (subject to specified
exceptions), or
(c) all new notes not previously cancelled or delivered to the
trustee for cancellation shall have become due and payable, or are by
their terms to become due and payable within one year, or are to be called
for redemption within one year under arrangements satisfactory to the
trustee for the giving of notice of redemption, and the issuers shall
deposit with the trustee, in trust, funds sufficient to pay at maturity or
upon redemption of all of the new notes (other than any that have been
destroyed, lost or stolen and have been replaced or paid as provided in
the indenture) not previously cancelled or delivered to the trustee for
cancellation, including principal and interest due or to become due to
such date of maturity or redemption date, as the case be, (but excluding,
however, the amount of any moneys for the payment of principal of or
interest on the new notes previously repaid to the issuers pursuant to
specified provisions of the indenture or unclaimed property or similar
laws), or
(d) the issuers shall also pay or cause to be paid all other sums
payable under the indenture by the issuers.
In addition, the issuers must deliver an Officers' Certificate and an
Opinion of Counsel to the trustee indicating that they have complied with all
conditions precedent to obtaining satisfaction and discharge under this
provision.
Defeasance
The indenture and the new notes provide that the issuers will be deemed to
be discharged from any and all obligations in respect of the new notes (except
for certain obligations to register the transfer, substitution or exchange of
new notes to replace stolen, lost or mutilated new notes and to maintain paying
agencies, and except for the right of the holders of the new notes to receive
payments of principal, premium, if any, and interest on the new notes from the
defeasance trust, and the rights, obligations and immunities of the trustee)
within 91 days after applicable conditions have been satisfied, or that the
issuers may terminate their obligations under certain covenants in the
indenture upon the satisfaction of applicable conditions, including, in either
case, upon the deposit with the trustee, in trust, of money and/or U.S.
Government obligations which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and each installment
of interest on the new notes on the stated maturity of such payments or on a
selected date of redemption in accordance with the terms of the indenture and
the new notes. Such a trust may only be established if, among other things, the
issuers have delivered to the trustee either (1) an opinion of counsel to the
effect that holders of the new notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such deposit, discharge or
covenant defeasance and will be subject to U.S. federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit, discharge or covenant defeasance had not occurred or
(2) a private letter ruling to such effect directed to the trustee received
from the Internal Revenue Service.
Modification of Indenture
With the consent of the holders of not less than a majority in aggregate
principal amount of the new notes at the time outstanding, the issuers, when
authorized by a resolution of their respective boards of directors, and the
trustee may, from
44
time to time and at any time, enter into an indenture or
indentures supplemental to the indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the indenture or of any supplemental indenture or of modifying in any manner
the rights of the holders of the new notes; provided that no such supplemental
indenture shall (a) extend the final maturity of any new notes, reduce the
principal amount thereof, reduce the rate or extend the time of payment of
interest thereon, or reduce the premium, if any, payable thereon, or reduce any
amount payable on redemption thereof, or impair or affect the right of any
holder to institute suit for the payment thereof, or waive a default in the
payment of principal of, premium, if any, or interest on any new notes, change
the currency of payment of principal of, premium, if any, or interest on any
new notes, or modify any provision in the indenture with respect to the
priority of the new notes in right of payment without the consent of the holder
of each new note so affected, or (b) reduce the aforesaid percentage of new
notes, the consent of the holders of which is required for any such
supplemental indenture, without the consent of the holders of each new note
then outstanding. The indenture also contains provisions permitting the issuers
and the trustee to enter into supplemental indentures for certain limited
purposes without the consent of any holders of the new notes.
Concerning the Trustee
U.S. Bank National Association is acting as the trustee under the
indenture and will be the paying and registrar for the new notes.
45
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
United States Tax Consequences
Alston & Bird LLP, counsel to the issuers, has advised us that the
following reflects its opinion as to the material United States federal income
tax consequences associated with the exchange of the old notes for the new
notes pursuant to the exchange offer and the ownership and disposition of the
new notes. Except where noted, this discussion deals only with those holders
who hold the old notes and new notes as capital assets and does not deal with
special situations, such as those of brokers, dealers in securities or
currencies, financial institutions, tax-exempt entities, insurance companies,
persons liable for alternative minimum tax, United States persons whose
functional currency is not the U.S. dollar, persons holding old notes or new
notes as part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, and traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings. The
following summary does not address any state, local or non-United States tax
consequences or United States federal tax consequences (such as estate or gift
tax) other than those pertaining to the income tax.
Furthermore, this discussion is based on provisions of the Internal
Revenue Code of 1986, as amended, the treasury regulations promulgated
thereunder, and administrative and judicial interpretations of the foregoing,
all as in effect as of the date hereof and all of which are subject to change,
possibly with retroactive effect. Moreover, substantial uncertainty, resulting
from a lack of definitive judicial or administrative authority and
interpretation, exists with respect to various aspects of the exchange offer,
as discussed below. This discussion represents our counsel's legal judgment,
which will not be binding in any manner on the Internal Revenue Service or the
courts. No ruling has been or will be requested from the IRS on any tax matters
relating to the tax consequences of the exchange offer, and no assurance can be
given that the IRS will not successfully challenge certain of the conclusions
set forth below. This discussion does not address tax consequences of the
purchase, ownership, or disposition of the new notes to holders of new notes
other than those holders who acquired their new notes pursuant to the exchange
offer. If a partnership holds the old notes or new notes, the tax treatment of
a partner will generally depend upon the status of the partner and the
activities of the partnership. Partners of partnerships that hold old notes or
will acquire new notes pursuant to the exchange offer should consult their own
tax advisors.
As used herein, the term U.S. Holder means a holder of old notes or new
notes that is, for United States federal income tax purposes:
(1) an individual who is a citizen or resident of the United States;
(2) a corporation or partnership created or organized in or under the
law of the United States or of any political subdivision thereof;
(3) an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source; or
(4) a trust if (a) a United States court is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust or (b) the trust was in existence on August 20, 1996, was
treated as a United States person prior to that date, and elected to
continue to be treated as a United States person.
Each U.S. Holder and non-U.S. Holder should consult its tax advisor
regarding the particular tax consequences to such holder of the exchange of the
old notes for the new notes pursuant to the exchange offer, the ownership and
disposition of the old notes and/or the new notes, as well as any tax
consequences that may arise under the laws of any other relevant foreign,
state, local, or other taxing jurisdiction.
U.S. Holders
Exchange Offer
The exchange of old notes for new notes should not be considered a taxable
exchange for federal income tax purposes because the new notes should not
constitute a material modification of the terms of the old notes. Accordingly,
such
46
exchange should have no federal income tax consequences to a U.S. Holder,
and the basis of a U.S. Holder in a new note will be the same as the adjusted
tax basis in the old note exchanged therefor.
Payment of Interest
Stated interest payable on the new notes generally will be included in the
gross income of a U.S. Holder as ordinary interest income at the time accrued
or received, in accordance with such U.S. Holder's method of accounting for
United States federal income tax purposes.
Amortizable Bond Premium
Generally, if the tax basis of a debt obligation exceeds its stated
redemption price at maturity, the holder may elect to treat such excess as
amortizable bond premium, in which case the amount required to be included in
income each year with respect to interest on the obligation will be reduced by
the amount of amortizable bond premium allocable to such year, determined on
the basis of the obligation's yield to maturity. Any election to amortize bond
premium applies to all taxable debt obligations held at the beginning of the
first taxable year to which the election applies or acquired thereafter, and
may not be revoked without the consent of the Internal Revenue Service.
Sale, Exchange and Retirement of Notes
A U.S. Holder generally will recognize capital gain or loss upon the sale,
exchange, retirement at maturity, or other taxable disposition of the new notes
equal to the difference between the amount realized by such holder (less an
amount equal to any accrued and unpaid interest not previously included in
income, which will be treated as ordinary interest income) and such holder's
adjusted tax basis in the notes. The deductibility of capital losses may be
subject to limitations.
A U.S. Holder, other than an initial purchaser of the old notes, should be
aware that a sale or other disposition of the new notes may be affected by the
market discount provisions of the code. These rules generally provide that if a
U.S. Holder of the old notes purchased such notes, subsequent to the original
offering, at a market discount in excess of a statutorily defined de minimis
amount, and thereafter recognizes gain upon a disposition (including a partial
redemption) of the new notes received in exchange for such old notes, the
lesser of such gain or the portion of the market discount that accrued while
the old notes and the new notes were held by such holder will be treated as
ordinary interest income at the time of disposition. The market discount rules
also provide that a U.S. Holder who acquires the new notes at a market discount
may be required to defer a portion of any interest expense that may otherwise
be deductible on any indebtedness incurred or maintained to purchase or carry
the new notes until the U.S. Holder disposes of such notes in a taxable
transaction. If a U.S. Holder of the new notes elects to include market
discount in income currently, neither of the foregoing rules would apply.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal and interest on the new notes and to the proceeds of the sale of new
notes made to U.S. Holders other than certain exempt recipients (such as
corporations). A backup withholding tax will apply to such payments if the U.S.
Holder fails to file a Form W-9, fails to provide a taxpayer identification
number, furnishes an incorrect taxpayer identification number, fails to certify
foreign or other exempt status from backup withholding, or fails to report in
full dividend and interest income. Backup withholding is not an additional tax.
Any amounts withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a credit against the holder's United
States federal income tax liability and may entitle the holder to a refund,
provided that the required information is furnished to the IRS.
Non-U.S. Holders
Subject to the discussion of backup withholding below, the interest income
and gains that a non-U.S. Holder derives in respect of the old notes and the
new notes generally will be exempt from United States federal income taxes,
including withholding tax.
Payments of interest or principal in respect of the new notes to a holder
that is a non-U.S. Holder will not be subject to withholding of United States
federal income tax, provided that, in the case of payments of interest:
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(1) the income is effectively connected with the conduct by such non-U.S.
Holder of a trade or business carried on in the United States and the non-U.S.
Holder complies with applicable identification requirements (described below
under "Backup Withholding and Information Reporting"); or
(2) the non-U.S. Holder and/or each securities clearing organization,
bank, or other financial institution that holds the new notes on behalf of such
non-U.S. Holder in the ordinary course of its trade or business, in the chain
between the non-U.S. Holder and the paying agent, complies with applicable
identification requirements (described below under "Backup Withholding and
Information Reporting") to establish that the holder is a non-U.S. Holder and
in addition, that the following requirements of the portfolio interest
exemption under the code are satisfied:
o the non-U.S. Holder does not actually or constructively own 10% or more of
the voting stock of Denny's Corporation or Denn's Holdings;
o the non-U.S. Holder is not a controlled foreign corporation with respect
to Denny's Corporation and Denny's Holdings; and the non-U.S. Holder is
not a bank whose receipt of interest on the new notes is described in
Section 881(c)(3)(A) of the code.
Any gain realized by a non-U.S. Holder on the sale or exchange of the new notes
generally will be exempt from U.S. federal income tax, including withholding
tax, unless:
(1) such gain is effectively connected with the conduct of a
trade or business in the United States (or if a tax treaty applies, such
gain is attributable to a permanent establishment of the non-U.S. Holder);
(2) in the case of a non-U.S. Holder that is an individual, such
non-U.S. Holder is present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or other disposition
occurs; or
(3) in the case of gain representing accrued interest, the
requirements of the portfolio interest exemption are not satisfied.
If the interest income paid on the new notes or gain recognized from a
sale or exchange of the new notes is effectively connected
with the conduct of a trade or business in the United States by a non-U.S.
Holder, such non-U.S. holder will generally be taxed under the same rules that
govern the taxation of a U.S. Holder. In addition, if such holder is a foreign
corporation, it may be subject to an additional branch profits tax.
Backup Withholding and Information Reporting
Payment of the proceeds of a sale of a note or payment of interest will be
subject to information reporting requirements and backup withholding tax unless
the beneficial owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption provided that the paying agent
does not actually know, or has reason to know, that the holder is actually a
U.S. Holder). Recently promulgated treasury regulations provide certain
presumptions under which a non-U.S. Holder will be subject to backup
withholding and information reporting unless such holder certifies as to its
non-U.S. status or otherwise establishes an exemption. In addition, the recent
treasury regulations change certain procedural requirements related to
establishing a holder's non-United States status. Non-U.S. Holders should
consult with their tax advisors regarding the above issues.
Any amounts withheld from a payment to a non-U.S. Holder under the backup
withholding rules will be allowed as a credit against the holder's United
States federal income tax liability and may entitle the holder to a refund,
provided that the required information is furnished to the IRS.
Applicable identification requirements generally will be satisfied if
there is delivered to a securities clearing organization either directly, or
indirectly, by the appropriate filing of a Form W-8IMY:
(1) IRS Form W-8BEN signed under penalties of perjury by the
non-U.S. Holder, stating that such holder of the new notes is not a United
States person and providing such non-U.S. Holder's name and address;
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(2) with respect to non-U.S. Holders of the new notes residing in
a country that has a tax treaty with the United States who seek an
exemption or reduced tax rate (depending on the treaty terms),
Form W-8BEN. If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the non-U.S. Holder qualifies
under the portfolio interest rules set forth in the code and files a
W-8BEN; or
(3) with respect to interest income "effectively connected" with
the conduct by such non-U.S. Holder of a trade or
business carried on in the United States, Form W-8ECI;
provided that in any such case:
o the applicable form is delivered pursuant to applicable procedures and is
properly transmitted to the United States withholding agent, otherwise
required to withhold tax; and
o none of the entities receiving the form has actual knowledge or reason to
know that the holder is a U.S. Holder.
LEGAL MATTERS
Certain legal matters in connection with the exchange offer will be passed
upon for us by Alston & Bird LLP, Charlotte, North Carolina.
EXPERTS
The financial statements as of December 27, 2000 and December 26, 2001,
and for each of the three fiscal years in the period ended December 26, 2001
included and incorporated by reference in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which
is included and incorporated by reference herein, and has been so included and
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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