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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 3, 1996
DENAMERICA CORP.
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(Exact name of registrant as specified in its charter)
GEORGIA 1-13226 58-1861457
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(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of incorporation)
7373 N. Scottsdale Road, Suite D-120, Scottsdale, Arizona 85253
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (602) 483-7055
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DENAMERICA CORP.
FORM 8-K
CURRENT REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF BLACK-EYED PEA U.S.A., INC.
On July 3, 1996, DenAmerica Corp. (the "Company") acquired all of the
issued and outstanding common stock of Black-eyed Pea U.S.A., Inc. ("BEP") from
BEP Holdings, Inc. ("BEP Holdings") pursuant to an agreement (the "Stock
Purchase Agreement") dated as of May 31, 1996, between the Company and BEP
Holdings (the "BEP Acquisition"). The purchase price for the stock of BEP
consisted of (i) cash of approximately $50.0 million, subject to adjustments
based upon certain of BEP's cash-related accounts as of July 3, 1996 as compared
with amounts stated in those accounts as of the February 5, 1996 balance sheet,
and (ii) a promissory note in the principal amount of $15.0 million issued to
BEP Holdings (the "BEP Purchase Note"). On July 3, 1996, the accounts of BEP
included cash of approximately $4.2 million.
BEP operates approximately 100 casual dining restaurants in 11 states
under the "Black-Eyed Pea" concept and franchises the right to operate an
additional 30 Black-eyed Pea restaurants to third parties. The Company currently
intends to continue to operate most of these restaurants as Black-eyed Pea
restaurants. As a result of the BEP Acquisition and the sale of 23 restaurants
as described in Item 5 of this Report, the Company currently operates 318
restaurants in 30 states.
The Board of Directors of the Company received a fairness opinion dated
July 3, 1996 from The Chicago Corporation, financial advisor to the Company, in
connection with the BEP Acquisition to the effect that the consideration paid
by the Company for BEP is fair to the Company's stockholders from a financial
point of view.
SOURCE OF FUNDS FOR THE BEP ACQUISITION
General
The Company obtained the funds for the cash portion of the purchase
price by entering into sale and lease transactions with (i) FFCA Acquisition
Corporation ("FFCA"), an independent entity, (ii) LH Leasing Company, Inc. ("LH
Leasing"), a corporation owned by Jack M. Lloyd, the Chairman of the Board,
President, and Chief Executive Officer of the Company, and William J. Howard,
Vice President, Secretary, and a director of the Company, and (iii) BEP and
Texas BEP, L.P. ("Texas BEP"), a limited partnership of which BEP is the
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general partner and of which a wholly owned subsidiary of BEP is the sole
limited partner. The Company entered into the sale and lease transactions
discussed below in order to accommodate the requirements of the Company's senior
lenders under the Amended and Restated Credit Agreement dated as of July 3, 1996
among the Company, Banque Paribas, as agent, and the lenders named therein (the
"Amended Credit Agreement") and FFCA. Messrs. Lloyd and Howard formed LH Leasing
only as an accommodation to the Company to enable it to consummate the
BEP Acquisition. Messrs. Lloyd and Howard received no compensation for the
transactions involving LH Leasing described below.
Sale and Lease with FFCA
The sale and lease transaction with FFCA consisted of the sale of the
real properties for 37 restaurants owned by BEP or Texas BEP to FFCA for cash in
the amount of $35.75 million. Concurrently with the sale of the properties to
FFCA, FFCA leased the properties to the Company and the Company subleased the
properties to BEP or Texas BEP. Each of the leases provides for a term of 20
years and includes renewal options for two terms of five years each. The leases
provide for an initial annual rent of 10.5% and additional rental payments if
restaurant sales volume exceeds specified amounts. In addition, the leases
require the Company to pay real estate taxes, insurance premiums, maintenance
costs, and certain other of the landlord's operating costs. The terms of the
subleases between the Company and BEP and Texas BEP are substantially identical
to the terms set forth in the leases between the Company and FFCA.
Sale and Lease with LH Leasing
The sale and lease transaction with LH Leasing consisted of the sale to
LH Leasing, for cash in the amount of $14.25 million, of the equipment located
at 62 restaurants leased by BEP and Texas BEP. Concurrently with the sale of the
equipment to LH Leasing, LH Leasing leased the equipment to the Company, and the
Company subleased the equipment to BEP and Texas BEP. The equipment lease
provides for a term of five years and grants the Company an option to purchase
the equipment at its fair market value upon the expiration of the lease. The
terms of the subleases between the Company and BEP and Texas BEP are
consistent with the terms set forth in the equipment lease between the Company
and LH Leasing.
In order to finance its sale and lease transaction with the Company, LH
Leasing borrowed cash in the amount of $14.25 million from FFCA. Messrs. Lloyd
and Howard jointly and severally guaranteed repayment of the loan. In addition,
Messrs. Lloyd and Howard pledged their stock in LH Leasing to FFCA as additional
collateral for the loan.
Sale/Leaseback Transactions with BEP and Texas BEP
In connection with the sale and lease transactions with FFCA and LH
Leasing, the Company entered into sale/leaseback transactions with BEP and Texas
BEP in which those entities sold to the Company the equipment located at the 37
real properties subject to the
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sale/leaseback transaction with FFCA described above. Concurrently with the sale
of such equipment to the Company, the Company leased the equipment to BEP or
Texas BEP. Each of the equipment leases provides for a term of five years. The
Company entered into the sale/leaseback transactions with BEP and Texas BEP in
order to convey a security interest and contractual landlord liens in the
equipment to FFCA.
BEP PURCHASE NOTE
The BEP Purchase Note is an unsecured obligation of the Company and is
subordinate to all of the Company's senior indebtedness, as defined in the BEP
Purchase Note, including the Company's borrowings under the Amended Credit
Agreement. The BEP Purchase Note bears interest at 12% per annum, subject to
adjustment as described below if the note is not repaid by March 31, 1997.
Interest on the BEP Purchase Note will accrue from July 3, 1996 to March 31,
1997, at which time any accrued but unpaid interest will be added to the
outstanding principal on the BEP Purchase Note. The Company will then pay all
accrued interest on the BEP Purchase Note on each June 30, September 30,
December 31, and March 31, beginning on June 30, 1997. The BEP Purchase Note
will mature on March 31, 2002.
To the extent permitted by the Amended Credit Agreement and related
intercreditor agreement, the Company, at its option, may repay all or any
portion of the amount outstanding under the BEP Purchase Note at any time
without premium or penalty. The BEP Purchase Note also requires the Company to
use its best efforts to repay all or a portion of the amount outstanding under
such note on or before March 31, 1997 and June 30, 1997, respectively, by making
certain borrowings as permitted under the Amended Credit Agreement or by
utilizing cash or other investments in excess of working capital needs as
permitted under the BEP Purchase Note and the Amended Credit Agreement. In the
event that (i) the Company makes a request for borrowings under the Amended
Credit Agreement to repay all or a portion of the BEP Purchase Note and, at the
time of the request, is in compliance with the requirements of the Amended
Credit Agreement with respect to such request, and (ii) Banque Paribas denies,
does not consent to, or otherwise prohibits such borrowings, then the interest
payable under the BEP Purchase Note will be adjusted to 14% per annum
retroactive to January 1, 1997. In addition to the prepayment requirements
described above, the BEP Purchase Note requires the Company to repay all or a
portion of the amount outstanding under such note in the event of certain
"Equity Issuances" or a "Change of Control," as those terms are defined in the
BEP Purchase Note.
The BEP Purchase Note contains certain other provisions with respect to
representations, warranties, covenants, reporting requirements, and events of
default. The BEP Purchase Note also contains certain provisions that, among
other things, limits the ability of the Company and its subsidiaries to incur
additional indebtedness, pay certain dividends or make certain distributions on
their respective capital stock, repurchase shares of their respective capital
stock, make or hold certain investments, or make asset acquisitions or sales.
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In conjunction with the BEP Purchase Note, the Company issued BEP
Holdings a Common Stock Purchase Warrant dated as of July 3, 1996 (the "BEP
Purchase Warrant"), which will entitle BEP Holdings to purchase that number of
shares of the Company's Common Stock equal to (i) the total amount of principal
and interest outstanding under the BEP Purchase Note on April 1, 1997, times
(ii) one half of one percent of the number of shares of Common Stock outstanding
on March 31, 1997, on a fully diluted basis (excluding shares issuable upon
exercise of the BEP Purchase Warrant and employee stock options). The exercise
price per share of Common Stock underlying the BEP Purchase Warrant will be 80%
of the lesser of (a) the fair market value of the Common Stock on July 3, 1996,
or (b) the fair market value of the Common Stock on the date that is five
business days following the publication of the Company's earnings release for
the period ending March 31, 1997. The number of shares purchasable and the
purchase price will be subject to adjustment pursuant to the terms of the BEP
Purchase Warrant upon the occurrence of certain events, including the sale or
issuance by the Company of shares of Common Stock for a per share consideration
less than the exercise price of the BEP Purchase Warrant in effect immediately
prior to such sale or issuance, stock dividends or distributions, stock splits,
or reorganizations. The BEP Purchase Warrant becomes exercisable on October 1,
1997 and will expire on March 31, 2002. In the event that the Company repays the
BEP Purchase Note in full on or before March 31, 1997, the BEP Purchase Warrant
will automatically be cancelled at the time of repayment. In the event that all
or a portion of the principal of the BEP Purchase Note is repaid on or after
April 1, 1997, but on or prior to September 30, 1997, the Company may elect to
redeem all or a portion of the BEP Purchase Warrant from BEP Holdings at a
redemption price of $0.25 per share issuable upon exercise of the BEP Purchase
Warrant.
In connection with the BEP Purchase Warrant, the Company entered into a
registration rights agreement (the "Registration Rights Agreement") with BEP
Holdings pursuant to which BEP Holdings has certain demand and piggyback
registration rights with respect to the Common Stock issuable upon the exercise
of the BEP Purchase Warrant. BEP Holdings' rights to have shares registered
pursuant to the Registration Rights Agreement are subject to certain
limitations, including certain "blackout periods" that may be imposed by the
Company and customary underwriters' cutbacks.
OTHER TRANSACTIONS
Repayment of Series A Notes
Pursuant to the Stock Purchase Agreement and as a condition precedent
to the closing of the BEP Acquisition, on July 3, 1996, the Company repaid all
of the $6.0 million principal amount outstanding on its Series A 13%
Subordinated Notes due 2003 (the "Series A Notes"), plus accrued and unpaid
interest on the Series A Notes as of July 3, 1996. Pursuant to an agreement
dated May 29, 1996 (the "Payoff Agreement") with BancBoston Ventures Inc.
("BancBoston"), the holder of the Series A Notes and a holder of approximately
14.3% of the Company's outstanding Common Stock on that date, the Company repaid
the Series A Notes by paying to BancBoston cash of approximately $5.2 million
and issuing to BancBoston 250,000
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shares of Common Stock valued at $4.00 per share, which was the fair market
value of the Common Stock on the date of the Payoff Agreement. Pursuant to the
Payoff Agreement, on July 3, 1996, the Company, BancBoston, and certain other
holders of the Company's Common Stock also amended the terms of a registration
rights agreement to which they are parties to include the 250,000 shares of
Common Stock issued to BancBoston as "registrable securities" under that
agreement. Pursuant to the terms of the Series A Common Stock Purchase Warrant
to purchase 188,047 shares of Common Stock held by BancBoston (the "Series A
Warrant"), the Series A Warrant was automatically cancelled upon repayment of
the Series A Notes.
Supplemental Indenture
As a result of the issuance of the BEP Purchase Note and repayment of
the Series A Notes in connection with the BEP Acquisition, the Company entered
into a supplemental indenture (the "Supplemental Indenture") with State Street
Bank and Trust Company, as trustee (the "Trustee") under the existing indenture
(the "Indenture") with respect to the Company's outstanding Series B 13%
Subordinated Notes due 2003 (the "Series B Notes"). The Supplemental Indenture
(i) reflects payment of the Series A Notes and issuance of the BEP Purchase
Note, which were senior to the Series B Notes; (ii) creates sub-series of the
Series B Notes designated as "Sub-Series B-1 Notes" and "Sub-Series B-2 Notes;"
(iii) differentiates the redemption rights of the Sub-Series B-1 Notes and
Sub-Series B-2 Notes in the event of an "Equity Issuance," as that term is
defined in the Indenture; and (iv) makes certain other technical amendments to
the Indenture to reflect the changes described above.
In connection with the Supplemental Indenture and the issuance of the
BEP Purchase Note, the Company, the Trustee, and certain of the holders of the
Series B Notes entered into an intercreditor agreement (the "Intercreditor
Agreement") pursuant to which such holders of Series B Notes may not enforce
remedies under the Series B Notes unless (i) such holders have given the holders
of the BEP Purchase Note written notice at least 30 days prior to taking any
action to enforce any remedies with respect to the Series B Notes and (ii) no
"Standstill Period" (as defined) is continuing. A "Standstill Period," as
defined in the Intercreditor Agreement, will be a period of up to 180 days
commencing on the date the Company receives a written notice of the imposition
of the Standstill Period from a representative appointed by the holders of the
BEP Purchase Note. The Intercreditor Agreement also provides that, at any time
prior to repayment in full of the BEP Purchase Note, any modification,
amendment, termination, extension or waiver, of any provision of the BEP
Purchase Note that is identical or substantially identical to any provision of
the Series B Indenture or Series B Notes (a "Parallel Provision") shall
automatically modify, amend, terminate, extend or waive the Parallel Provision.
In addition, any forebearance by the holders of the BEP Purchase Note of any
provision in the BEP Purchase Note will automatically result in an identical
forebearance of the Parallel Provision. However, no such modification,
amendment, waiver or forebearance will be effective as to the Parallel
Provision if it would (a) decrease the principal amount of Series B Notes, or
(b) decrease the interest rate payable on or in respect of the Series B Notes.
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Amended Credit Agreement
The Company, Banque Paribas, and the Company's other senior lenders
entered into the Amended Credit Agreement in order to amend and restate the
previous credit facility between the Company and those lenders so as to reflect
the BEP Acquisition and the various transactions associated with the BEP
Acquisition and to make certain other modifications to the previous credit
facility. The Amended Credit Agreement includes (i) modifications to certain
restrictive covenants that were required in order to permit the Company to
acquire BEP; (ii) amendments necessary to enable the Company to repay the Series
A Notes and to issue the BEP Purchase Note; (iii) amendments necessary to enable
the Company to enter into the sale and lease transactions with FFCA and LH
Leasing; (iv) changes to certain financial covenants; (v) changes made in
contemplation of additional security for borrowings under the Amended Credit
Agreement that the Company will provide as a result of the BEP Acquisition; and
(vi) changes made in contemplation of the sale of 23 restaurants to Mid-American
Restaurants, Inc., as described under Item 5 of this Report. Payments under the
Amended Credit Agreement are secured by substantially all of the tangible and
intangible assets of the Company, including the assets of BEP and its
subsidiaries. The Company also pledged all of the stock of BEP and BEP pledged
the stock of certain of its subsidiaries as additional security under the
Amended Credit Agreement. The Company paid Banque Paribas an amendment fee of
$650,000, plus certain other fees and expenses, in connection with the
negotiation and execution of the Amended Credit Agreement. In addition, the
Company issued to Banque Paribas a six-year warrant to purchase an aggregate of
300,000 shares of the Company's Common Stock. The exercise price for 150,000
shares of Common Stock issuable upon exercise of the warrant is $4.30 per share
and the exercise price for the remaining 150,000 shares issuable upon exercise
of the warrant is $6.45 per share.
ITEM 5. OTHER EVENTS.
SALE OF 23 RESTAURANTS TO MID-AMERICAN RESTAURANTS, INC.
Effective as of July 3, 1996, the Company sold the assets related to 23
restaurants operated under the "Ike's" and "Jerry's" trade names to Mid-American
Restaurants, Inc. ("Mid-American"), a corporation wholly owned by Haig V.
Antranikian, a former officer and director of the Company. As payment for the
restaurants, Mid-American issued to the Company a promissory note in the
principal amount of $4.6 million (the "Mid-American Note"). The Mid-American
Note (i) bears interest at the rate of 10% per annum through June 30, 2001, 11%
per annum through June 30, 2002, and 12% per annum through June 30, 2003, and
(ii) requires Mid-American to make 60 equal installments of $65,000 per month
beginning on July 31, 1996, 12 equal installments of $75,000 per month beginning
on July 31, 2001, and 11 equal installments of $85,000 per month beginning on
July 31, 2002. All unpaid principal and interest on the Mid-American Note will
be due and payable on June 30, 2003. Payment of amounts due under the
Mid-American Note is secured by (a) all of the assets transferred to
Mid-American, (b) the personal guaranty of Mr. Antranikian and his wife, and (c)
the pledge of all of the outstanding stock of Mid-American owned by Mr.
Antranikian. The Mid-American Note
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also contains provisions that require Mid-American to prepay all or a portion of
the outstanding principal under such note in the event of (1) an equity issuance
or other contribution to Mid-American's capital in excess of $500,000, in which
case Mid-American must make prepayments equal to 50% of Mid-American's net
proceeds from each such issuance or contribution up to $5.0 million and 100% of
such net proceeds in excess of $5.0 million, or (2) a sale by Mid-American of
any of its assets, to the extent that such sale results in net proceeds to
Mid-American in excess of $25,000.
In connection with the sale to Mid-American, the Company and
Mid-American entered into a master sublease agreement (the "Master Sublease")
with respect to the 23 restaurant properties pursuant to which Mid-American
subleases each of the restaurant properties on essentially the same terms as
the terms of the leases between the Company and the respective owners of those
properties. Mid-American's obligations under the Master Sublease are secured by
Mr. Antranikian's personal guaranty.
Also in connection with the sale to Mid-American, (i) Mr. Antranikian
repaid all outstanding principal and interest, totalling approximately $120,000,
under a loan made by the Company to Mr. Antranikian in April 1996; (ii) Mr.
Antranikian resigned as an officer and director of the Company; (iii) all of the
Company's obligations under Mr. Antranikian's employment agreement with the
Company were cancelled; and (iv) unvested employee stock options to purchase
28,667 shares of the Company's Common Stock held by Mr. Antranikian were
cancelled.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
As of the date of filing of this Report on Form 8-K, it is
impracticable for the Registrant to provide the financial statements required by
this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than September
16, 1996.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial information
required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such
financial statements shall be filed by amendment to this Form 8-K no later than
September 16, 1996.
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(c) Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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2.5 Stock Purchase Agreement dated May 31, 1996, between BEP
Holdings, Inc. and DenAmerica Corp.
4.6 Supplemental Indenture (Series B Notes) between DenAmerica Corp.
and State Street Bank and Trust Company, as trustee
4.7 Common Stock Purchase Warrant dated July 3, 1996, issued to BEP
Holdings, Inc.
4.8 Common Stock Purchase Warrant dated July 3, 1996, issued to
Banque Paribas
10.92A Amended and Restated Credit Agreement dated as of July 3, 1996,
among DenAmerica Corp., the Banks named therein, and Banque
Paribas, as Agent
10.96 Senior Subordinated Promissory Note dated July 3, 1996, in the
principal sum of $15,000,000, payable by DenAmerica Corp. to BEP
Holdings, Inc.
10.97 Registration Rights Agreement dated as of July 3, 1996, between
DenAmerica Corp. and BEP Holdings, Inc.
10.98 Intercreditor Agreement among DenAmerica Corp., certain holders
of DenAmerica's Series B Notes, and State Street Bank and Trust
Company
10.99 Sale and Lease Agreement dated July 3, 1996, among FFCA
Acquisition Corporation, Black-eyed Pea U.S.A., Inc., and Texas
BEP, L.P.
10.100 Form of Lease dated July 3, 1996, between FFCA Acquisition Corp.
and DenAmerica Corp.
10.101 Form of Sublease dated July 3, 1996, between DenAmerica Corp.
and Black-eyed Pea U.S.A., Inc.
10.102 Form of Sublease dated July 3, 1996, between DenAmerica Corp.
and Texas BEP, L.P.
10.103 Equipment Purchase Agreement and Bill of Sale dated July 3,
1996, between LH Leasing Company, Inc. and Black-eyed Pea
U.S.A., Inc.
10.104 Equipment Purchase Agreement and Bill of Sale dated July 3,
1996, between LH Leasing Company, Inc. and Texas BEP, L.P.
10.105 Equipment Lease dated July 3, 1996, between LH Leasing Company,
Inc. and DenAmerica Corp.
10.106 Equipment Sublease dated July 3, 1996, between DenAmerica Corp.
and Black-eyed Pea, U.S.A., Inc.
10.107 Equipment Sublease dated July 3, 1996, between DenAmerica Corp.
and Texas BEP, L.P.
10.108 Asset Purchase Agreement effective as of July 3, 1996, among
Mid-American Restaurants, Inc., Haig V. Antranikian, and
DenAmerica Corp
21.2 List of Subsidiaries of DenAmerica Corp.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
July 17, 1996 DENAMERICA CORP.
By: /s/ Todd S. Brown
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Todd S. Brown
Vice President and Chief Financial Officer
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