-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/2I9mFpSOvqWIkRULueovpWUR8h4CWm7pNU6svsdDOgRMz110WT52UbgaDe1q7i yrf4fRunrqD5yBqCQnJluA== 0000892569-98-000891.txt : 19980331 0000892569-98-000891.hdr.sgml : 19980331 ACCESSION NUMBER: 0000892569-98-000891 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971229 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000853083 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330193602 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-48183 FILM NUMBER: 98579666 BUSINESS ADDRESS: STREET 1: 450 NEWPORT CENTER DR CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7147218000 MAIL ADDRESS: STREET 1: 450 NEWPORT CENTER DRIVE STREET 2: SUITE 600 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-K405 1 10-K405 FOR FISCAL YEAR ENDED DECEMBER 29, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 29, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from to Commission file number: 33-48183 American Restaurant Group, Inc. - -------------------------------------------------------------------------------- Exact Name of Registrant as Specified in Its Charter Delaware 33-0193602 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 450 Newport Center Drive Newport Beach, California 92660 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (714) 721-8000 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: None Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definite proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendments to this Form 10-K. [X] The number of outstanding shares of the Registrant's Common Stock (one cent par value) as of March 2, 1998 was 128,081. 2 AMERICAN RESTAURANT GROUP, INC. INDEX
PAGE ---- PART I ITEM 1. BUSINESS................................................................ 1 ITEM 2. PROPERTIES.............................................................. 5 ITEM 3. LEGAL PROCEEDINGS....................................................... 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................................... 6 ITEM 6. SELECTED FINANCIAL DATA................................................. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................. 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................... 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................... 13 ITEM 11. EXECUTIVE COMPENSATION.................................................. 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................... 16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................................. 17
i 3 PART I ITEM 1. BUSINESS INTRODUCTION American Restaurant Group, Inc., a Delaware corporation (the "Company"), through its subsidiaries, competes predominately in the midscale segment of the United States restaurant industry. The Company was formed on August 13, 1986 by Anwar S. Soliman, Chairman of the Board and Chief Executive Officer of the Company and other members of current senior management, to acquire certain operations of Saga Corporation, a wholly owned subsidiary of Marriott Corporation (the "Acquisition"). The Acquisition was completed in February 1987. (Prior to the completion of the Acquisition, the Company had no significant operations.) The Company is a subsidiary of American Restaurant Group Holdings, Inc., a Delaware corporation ("Holdings"). As of December 29, 1997, the Company operated 231 restaurants located in 17 states, principally California and Texas. The Company operates five restaurant divisions: Black Angus (western-style steakhouses specializing in steak and prime rib), Grandy's (family-oriented, quick-service restaurants specializing in fried and grilled chicken, country-fried steak and country breakfasts), Spoons (casual-style restaurants featuring fajitas, salads and hamburgers), Spectrum (upscale Northern Italian, American and Mexican specialty restaurants) and National Sports Grill (sports-theme restaurants featuring generous portions and microbrewery beers). In addition, as of December 29, 1997, Grandy's franchised 61 restaurants in the southern United States. DIVISION OVERVIEW BLACK ANGUS As of December 29, 1997, Black Angus operated 102 Stuart Anderson's Black Angus and Stuart Anderson's Cattle Company steakhouses located primarily in California, the Pacific Northwest and Arizona. The chain was founded in Seattle in 1964 and is the Company's largest restaurant concept. Black Angus restaurants are typically located in highly visible and heavily traveled areas in or near retail and commercial businesses. The restaurants are generally freestanding and range in size from 6,600 to 12,000 square feet, seating approximately 220 to 350 customers. Black Angus restaurants are distinctly Western in their design and feature booth seating for dining. They are generally open for lunch from 11:30 a.m. to 4:00 p.m. and for dinner from 4:00 p.m. to 10:00 p.m. As of December 28, 1992, Black Angus operated 66 in-restaurant lounges which offered disc jockeys, dancing and a focus on the sale of alcoholic beverages during the after-dinner and late-night time periods. While the late-night entertainment business in isolation generated favorable profit margins, management was concerned that this business was negatively affecting the positive, family image of the restaurants and negatively affecting visits by its core customer base of middle-income families and that liability and other expenses associated with the late-night entertainment business were increasing. Black Angus began limiting its late-night entertainment business in 1992 and subsequently, between 1994 and 1997, phased out its late-night entertainment business in 9 to 19 restaurants per year. It currently operates 12 restaurants with late-night entertainment and does not intend to discontinue these operations, because management does not believe that the dining operations at these restaurants have been adversely affected by the late-night entertainment operations. GRANDY'S As of December 29, 1997, Grandy's operated 89 family-oriented, quick-service restaurants located primarily in Texas and Oklahoma and franchised an additional 61 restaurants primarily in the southern United States. The chain was founded in Lewisville, Texas in 1973. Grandy's restaurants are generally freestanding and are located near shopping malls or other highly visible, heavily traveled areas. The restaurants range in size from 3,800 to 5,200 square feet and have dining areas, which generally seat 130 to 220 customers. All restaurants offer self-service beverages with free refills, and all but two restaurants have drive-thru service. Grandy's restaurants are generally open from 6:00 a.m. to 10:00 p.m. and serve breakfast, lunch and dinner. Grandy's differentiates itself from its competitors by offering complete home-style meals with limited service. Approximately 51% of Grandy's 1997 revenues were for consumption in the dining room as opposed to take- out. Grandy's franchise agreements generally require initial fees of $15,000 to $25,000 per restaurant, ongoing royalties of 4% of sales (3% for some older franchises) and advertising expenditures of approximately 4% of sales. Grandy's provides certain 1 4 support functions for franchisees, including initial training and ongoing monitoring and consultations. The Company does not provide financing for franchisees. SPOONS Spoons, founded in 1978, operated 19 casual-style restaurants as of December 29, 1997, all of which are located in California. Spoons restaurants are generally freestanding, located in heavily traveled areas, ranging in size from 5,500 to 7,800 square feet and seating approximately 200 customers. These full-service restaurants average a 40-minute table turnover and offer booth and table seating in a casual, highly energetic atmosphere. In addition, each restaurant has a lounge area which also serves food. Spoons restaurants are generally open from 11:00 a.m. to 12:00 midnight and feature the same menu all day. SPECTRUM Spectrum, founded in 1970, operated 15 unique, upscale, specialty restaurants as of December 29, 1997, all of which are located in California. All restaurants focus on "authentic" Northern Italian, contemporary American or Mexican cuisine. The division includes four "Prego" restaurants, three "Tutto Mare" restaurants, two "MacArthur Park" restaurants and six other restaurants which, although operated under different names, generally concentrate on Northern Italian food. Spectrum restaurants vary in size and physical type but are primarily located proximite to concentrations of young professionals and other upper-income customers. The restaurants are generally open from 11:00 a.m. to 12:00 midnight. NATIONAL SPORTS GRILL National Sports Grill, founded in 1993, operated six sports-theme restaurants as of December 29, 1997, all of which are located in California. This concept offers a menu featuring generous portions and microbrewery beers and provides multiple video telecasts of national and regional sporting events as well as interactive video games and other sporting-related games. National Sports Grill restaurants are freestanding and generally range in size from 10,000 to 17,000 square feet, seating approximately 200 to 300 customers. The restaurants feature a bar, a dining area, a billiards area and multiple video screens throughout. National Sports Grill restaurants are typically open from 11:00 a.m. to 2:00 a.m. RESTAURANT OPERATIONS The Company has five distinct divisions. The Black Angus division is generally managed separately from the other divisions and is organized functionally with separate operations, marketing, finance, real estate and human resources departments. Grandy's and the three smaller divisions are each run independently but share among them certain support functions such as finance, administration and human resources. In addition, at its corporate headquarters, the Grandy's headquarters and the Company's law department offices, the Company generally provides purchasing, cash management, insurance and other treasury functions, and accounting and legal services, all on a centralized basis. The Company's corporate headquarters provides strategic direction and approves major capital expenditures, annual budgets and all salaries above a specified level. The Company's cash management system is highly sophisticated with controls down to the server level. Restaurants are required to make daily deposits of cash and the Company uses a centralized cash concentration system which sweeps all of its cash accounts on a daily basis. There is a central accounts payable and check writing system with roughly 7,500 vendors profiled on the system. The Company uses a combination of in-house and outside-contracted services for its management information system needs. In-house systems include a point-of-sale system for each restaurant and stand-alone computing at the restaurant, division and 2 5 corporate levels. The Company contracts for payroll services and for mainframe-based data processing. Each restaurant is staffed with a General Manager who is directly responsible for the operation of the restaurant, including product quality, cleanliness, service, inventory, cash control and the appearance and conduct of store employees. Except for Grandy's, most restaurants also have one or two Assistant Managers and a Chef. Managers and supervisory personnel train other restaurant employees in accordance with detailed procedures and guidelines prescribed by each division. General Managers are supervised by District Managers, each of whom is responsible for approximately seven restaurants. District Managers, General Managers, Assistant Managers and Chefs are eligible for bonuses under each division's extra compensation program, for which goals and objectives are established based on the profitability, sales and other factors relating to the restaurants. PURCHASING AND DISTRIBUTION To ensure standards of quality and to maximize pricing efficiencies, a central purchasing department coordinates the supply of almost all restaurant items. The Company purchases products throughout the United States and abroad through agreements with various food-service vendors. None of the Company's vendors supply the Company exclusively and no material agreements exist. The Company routinely uses public, cold-storage facilities and makes forward commitments in order to establish the availability and price of key food items such as beef and seafood. In order to achieve more favorable terms, the Company recently chose to concentrate its distribution among certain of its vendors but believes that it could replace any of these distributors, if necessary, on a timely basis. COMPETITION AND MARKETS All aspects of the restaurant business are highly competitive. Price, restaurant location, food quality, service and attractiveness of facilities are important aspects of competition. The competitive environment is often affected by factors beyond a particular restaurant management's control, including changes in the public's taste and eating habits, population and traffic patterns and economic conditions. The Company's restaurants compete with a wide variety of restaurants, ranging from national and regional restaurant chains to locally owned restaurants. Competition from other restaurant chains typically represents the more important competitive influence, principally because of their significant marketing and financial resources. Many of the Company's competitors have substantially greater financial, marketing, personnel and other resources than the Company. In addition, competition is not limited to a particular segment of the restaurant industry because fast-food restaurants, steakhouses and casual-dining restaurants are all competing for the same consumer's dining dollars. The Company believes that its principal competitive strengths lie in the distinctive atmosphere and food presentation offered; the value, variety and quality of food products served; the quality and training of its employees; the experience and ability of its management; and the economies of scale enjoyed by the Company because of its size and geographic concentration. The Company continually monitors consumer tastes and adjusts and updates its menus accordingly. 3 6 EMPLOYEES At December 29, 1997, the Company employed approximately 11,800 persons, of whom approximately 10,900 were hourly employees in restaurants, approximately 700 were salaried employees in restaurants (Managers and Chefs) and approximately 200 were hourly and salaried employees in divisional and corporate management and administration. Approximately 63% of the hourly restaurant employees work on a part-time basis (25 hours or less per week). None of the Company's facilities are unionized. The Company believes it provides competitive compensation and benefits to its employees and that its employee relations are good. REGULATIONS Each restaurant is subject to licensing and regulation by state and local health, sanitation, safety, fire and other departments. In addition, each restaurant (except for Grandy's) is subject to licensing with respect to the sale of alcoholic beverages. The loss of licenses or permits by the Company's restaurants to sell alcohol would interrupt or terminate the Company's ability to serve alcoholic beverages at those restaurants and, if a significant number of restaurants were affected, could have a material adverse effect on the Company. The Company believes it has good relations with the various alcoholic beverage authorities. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. Substantially all of the Company's restaurant employees are paid at rates related to the federal and state minimum wage, and, accordingly, increases in the minimum wage increase the Company's labor costs. In June 1996, the Company signed Tip Reporting Alternative Commitment (TRAC) agreements with the Internal Revenue Service ("IRS") for all divisions that have tipped employees. This program gives the Company partial immunity from both past and future audits of employer-paid FICA taxes on tips reported by employees. In exchange, the Company must encourage employees to comply with tip reporting laws through quarterly educational materials. The Company is also required to maintain detailed records for each tipped employee. The IRS has the ability to terminate the TRAC agreements at any time, thereby eliminating the Company's audit protection, if the Company's procedures are inadequate or tip reporting by the Company's employees does not increase. SERVICE MARKS The Company regards its service marks and trademarks as important to the identification of its restaurants and believes they have significant value in the conduct of its business. The Company has registered various service marks and trademarks with the United States Patent and Trademark Office. In addition, certain marks have been registered in the State of California, in various other states and in certain foreign countries. SEASONALITY The Company's restaurant revenues and profitability are not subject to significant seasonal fluctuations. 4 7 ITEM 2. PROPERTIES Of the 231 restaurants operated by the Company on December 29, 1997, the Company owns the land and building for six, owns the building and leases the land for 94, and leases both land and building for the remaining 131 restaurants. In addition, the Company currently leases the land for five, and leases both the land and the building for 11 restaurants which are now closed (of which six are sub-leased to others). Most of the Company's restaurants are freestanding and range from approximately 4,000 square feet for a Grandy's restaurant to as much as 17,000 square feet for the Company's other restaurants. Most of the Company's leases provide for the payment of the greater of a set base rental or a percentage rental of up to 6% of gross revenues, plus real estate taxes, insurance and other expenses. In addition, the Company owns the land and building for the Grandy's headquarters in Lewisville, Texas, and leases office space for its other divisions and corporate headquarters in Los Altos and Newport Beach, California. The following table sets forth, as of December 29, 1997, the number of Company-operated restaurants by division and state of operation:
DIVISION -------------------------------------------------- NATIONAL TOTAL STATE BLACK SPORTS NUMBER OF ANGUS GRANDY'S SPOONS SPECTRUM GRILL RESTAURANTS ----- -------- ------ -------- ----- ----------- California 56 0 19 15 6 96 Texas - 64 - - - 64 Oklahoma - 16 - - - 16 Washington 10 - - - - 10 Arizona 9 - - - - 9 Minnesota 6 - - - - 6 Colorado 5 - - - - 5 Kansas - 5 - - - 5 Oregon 5 - - - - 5 Indiana 3 - - - - 3 Florida - 3 - - - 3 Hawaii 2 - - - - 2 Nevada 2 - - - - 2 New Mexico 1 1 - - - 2 Alaska 1 - - - - 1 Idaho 1 - - - - 1 Utah 1 - - - - 1 --- --- --- --- --- --- Total 102 89 19 15 6 231 === === === === === ===
5 8 ITEM 3. LEGAL PROCEEDINGS The Company is involved in various litigation incidental to its business, including claims arising out of personal injuries, employment practices, worker's compensation cases and contract lawsuits, the claims for which sometimes involve substantial damages. Based on information presently available, management does not believe that the outcome of such litigation will have a material adverse effect on the Company's financial position, business or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the stockholder of the Company in the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK As of March 2, 1998, there were seven record holders of the outstanding shares of the Company's outstanding common stock. There is currently no market for the Company's common stock, nor is such anticipated in the near future. The Company has never paid dividends to its common stockholders and currently has no plans to do so. 6 9 ITEM 6. SELECTED FINANCIAL DATA The following selected historical consolidated financial data for each of the five periods ended December 29, 1997 has been derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.
Year ended (1) ---------------------------------------------------------- Dec. 27, Dec. 26, Dec. 25, Dec. 30 Dec. 29, 1993 1994 1995 1996(2) 1997 ---- ---- ---- ------- ---- (dollars in thousands) INCOME STATEMENT DATA: REVENUES: Black Angus...........................$235,345 $253,634 $243,624 $254,946 $264,175 Grandy's.............................. 111,166 109,301 101,839 90,962 78,832 Other concepts........................ 91,398 97,471 100,503 99,516 97,032 -------- -------- -------- -------- -------- Total revenues.................. 437,909 460,406 445,966 445,424 440,039 RESTAURANT COSTS: Food and beverage..................... 136,255 142,828 138,270 141,032 140,015 Payroll............................... 132,292 136,151 134,532 137,104 133,732 Direct operating...................... 109,462 108,382 110,399 114,589 110,502 Depreciation and amortization........................ 25,682 26,400 22,819 20,386 19,627 -------- -------- -------- -------- -------- Total restaurant costs............ 403,691 413,761 406,020 413,111 403,876 General and administrative expenses.............................. 29,895 31,027 31,360 28,086 29,360 Non-cash charge for impairment of long-lived assets.................. - - 20,178 13,205 3,047 Operating profit (loss)................. 4,323 15,618 (11,592) (8,978) 3,756 Interest expense, net................... 23,741 27,691 28,004 27,714 23,985 Net loss before extraordinary loss.................... (19,216) (12,130) (39,662) (36,773) (20,292) Extraordinary loss on extinguishment of debt................ (10,790) - - (1,688) - Net loss................................$(30,006) $(12,130) $(39,662) $(38,461) $(20,292) Deficiency in earnings to cover fixed charges (3)..................... (19,418) (12,073) (39,596) (36,692) (20,229) BALANCE SHEET DATA: Plant and equipment, net................ 181,889 181,496 171,030 101,169 92,322 Total assets............................ 291,989 282,438 249,053 172,129 152,011 Long-term obligations, including current portion............. 228,612 226,394 233,011 182,137 181,399 Redeemable cumulative preferred stock....................... - - - - - Common stockholder's equity (deficit)...................... (8,307) (20,437) (60,099) (91,446) (111,738)
- ---------------------- (1) The Company's obligations under its 11.5% senior secured notes due 2003 (the "Notes") are guaranteed by each of its subsidiaries (the "Subsidiary Guarantors"). Separate financial statements of the Subsidiary Guarantors are not included in this Form 10-K because the Subsidiary Guarantors are unconditionally jointly and severally liable for the obligations of the Company under the Notes pursuant to such guarantees. The aggregate net assets, earnings and equity of such Subsidiary Guarantors are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. (2) The year ended December 30, 1996 included 53 weeks. (3) For the purpose of determining the deficiency in earnings to cover fixed charges, earnings consist of earnings before extraordinary loss, income taxes and fixed charges. Fixed charges consist of interest on indebtedness, the amortization of debt issue costs and that portion of operating rental expense representative of the interest factor. 7 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Years Ended December 25, 1995, December 30, 1996 and December 29, 1997: Revenues. Total revenues decreased slightly from $446.0 million in 1995 to $445.4 million in 1996 followed by a 1.2% decrease to $440.0 million in 1997. The year ended December 30, 1996 included a 53rd week which added $6.9 million to total revenues. Same-store-sales for 1997 decreased 2.3% from 1996, excluding the 53rd week. Three new restaurants opened during 1997 were offset by the closure of nineteen restaurants. There were 248, 247 and 231 restaurants operating at the end of 1995, 1996 and 1997, respectively. Black Angus revenues increased 4.6% from $243.6 million in 1995 to $254.9 million in 1996 and then increased 3.6% to $264.2 million in 1997. The increase in 1997 was primarily due to $20.0 million resulting from the addition of nine new restaurants in the second half of 1996 and the first quarter of 1997 and a $3.2 million increase in same-store-sales (excluding late-night entertainment and discontinued lunch). This increase was partially offset by a $5.4 million decrease due to the closure of late-night entertainment operations at 11 restaurants, a $4.2 million decrease from the 53rd week in 1996, a $2.6 million decrease due to discontinued lunch at 14 restaurants and a $1.7 million decrease from two closed restaurants. Same-store-sales increased 1.4% (decreased 2.0% including late-night entertainment and discontinued lunch) in 1997. Grandy's revenues decreased 10.7% from $101.8 million in 1995 to $91.0 million in 1996 followed by a 13.3% decrease to $78.8 million in 1997. The decrease in 1997 resulted from a $6.1 million decline due to the closure of 21 restaurants in the second half of 1996 and in 1997, a $5.4 million, or a 7.1%, decline in same-store-sales from de-emphasizing discounted sales and $1.3 million from the 53rd week in 1996. These decreases were partially offset by a $0.6 million increase in franchise income. Franchise revenues were $2.2 million, $2.0 million and $2.6 million in 1995, 1996 and 1997, respectively. Revenues from other concepts (Spoons, Spectrum and National Sports Grill) decreased 1.0% from $100.5 million in 1995 to $99.5 million in 1996 and then decreased 2.5% to $97.0 million in 1997. Revenues declined $2.3 million due to the closure of three restaurants in 1997 and $1.4 million due to the 53rd week in 1996 partially offset by a $1.2 million increase in same-store-sales. 8 11 Food and Beverage Costs. As a percentage of revenues, food and beverage costs increased from 31.0% in 1995 to 31.7% in 1996 and then to 31.8% in 1997. The increase in 1996 was primarily a result of higher grocery expenses. Payroll Costs. As a percentage of revenues, labor costs increased from 30.2% in 1995 to 30.8% in 1996 and then decreased to 30.4% in 1997. The decrease in 1997 was primarily due to lower beverage labor costs at Black Angus as a result of de-emphasizing late-night entertainment operations. Direct Operating Costs. Direct operating costs consist of occupancy, advertising and other expenses incurred by individual restaurants. As a percentage of revenues, these costs increased from 24.8% in 1995 to 25.7% in 1996 and then decreased to 25.1% in 1997. The decrease in 1997 was a result of decreased advertising and promotion expenses partially offset by higher occupancy costs. Depreciation and Amortization. Depreciation and amortization consists of depreciation of fixed assets used by individual restaurants, division and corporate offices, as well as amortization of intangible assets. As a percentage of revenues, depreciation and amortization decreased from 5.1% in 1995 to 4.6% in 1996 and then decreased to 4.5% in 1997. The decrease in 1997 was primarily due to the non-cash reduction of the historical costs of certain long-lived assets and sale/leaseback transactions in 1996. General and Administrative Expenses. General and administrative expenses as a percentage of revenues were 7.0% in 1995, 6.3% in 1996 and 6.7% in 1997. The increase in 1997 was primarily due to a $2.8 million increase in non-cash charges for costs associated with closed restaurants and a legal settlement of $0.9 million. This increase was partially offset by reductions of $2.6 million in division and corporate overhead. Non-Cash Charge for Impairment of Long-Lived Assets. In December 1997 certain assets, including fixed assets and certain related intangible assets, were valued at less than their historic costs and resulted in a non-cash charge of $3.0 million. This non-cash charge was 0.7% of revenues. Similar non-cash charges of $13.2 million and $20.2 million were recorded in 1996 and 1995, respectively. Operating Profit. As a result of the items discussed above, operating profit improved from an operating loss of $11.6 million in 1995 to an operating loss of $9.0 million in 1996 and then improved to an operating profit of $3.8 million in 1997 (an operating profit of $8.6 million, $4.2 million and $6.8 million in 1995, 1996 and 1997, respectively, before the non-cash charge for impairment of long-lived assets). The Company's divisions are not uniform in revenues, size or profitability. For example, for the fiscal year ended 1997, Black Angus had an operating profit of $21.2 million while Grandy's had an operating loss of $2.4 million. The other concepts had a net operating profit of $4.4 million. These amounts exclude corporate general and administrative expenses not allocated to the divisions. Interest Expense - Net. Interest expense decreased from $28.0 million in 1995 to $27.7 million in 1996 and then decreased to $24.0 million in 1997. The average interest rate on Company borrowings was 11.5%, 11.7% and 12.3% for 1995, 1996 and 1997, respectively. Average borrowings (excluding capitalized lease obligations) decreased from $217.7 million in 1995 to $208.2 million in 1996 and then decreased to $171.7 million in 1997. Average borrowings declined in 1997 due to the payment of $44.1 million in principal on the senior secured notes in the second half of 1996. Income Taxes. Income taxes increased from a provision of $66,000 in 1995 to $81,000 in 1996 and then decreased to $63,000 in 1997. The provisions represent amounts provided for certain minimum state income taxes. 9 12 Extraordinary Loss. An extraordinary loss of $1.7 million occurred in 1996 with the extinguishment of a prior term loan. This extraordinary loss resulted from a non-cash charge to expense for capitalized debt costs associated with the debt repaid. There were no extraordinary losses in 1995 or 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flow from operations and borrowings under its credit facilities. The Company requires capital principally for the acquisition and construction of new restaurants, the remodeling of existing restaurants and the purchase of new equipment and leasehold improvements. As of December 29, 1997, the Company had cash of approximately $5.7 million. In general, restaurant businesses do not have significant accounts receivable because sales are made for cash or by credit card vouchers which are ordinarily paid within three to five days, and do not maintain substantial inventory as a result of the relatively brief shelf life and frequent turnover of food products. Additionally, restaurants generally are able to obtain trade credit in purchasing food and restaurant supplies. As a result, restaurants are frequently able to operate with working capital deficits, i.e., current liabilities exceed current assets. At December 29, 1997, the Company had a working capital deficit of $57.2 million. All of the Company's senior debt was classified as long term at the end of 1997 due to the consummation of its Recapitalization Plan in February 1998. The Company estimates that capital expenditures of $6.0 million to $10.0 million are required annually to maintain and refurbish its existing restaurants. In addition, the Company spends approximately $10.0 million to $13.0 million annually for repairs and maintenance which are expensed as incurred. Other capital expenditures, which are generally discretionary, are primarily for the construction of new restaurants and for expanding, reformatting and extending the capabilities of existing restaurants and for general corporate purposes. Total capital expenditures were $16.3 million in 1995, $13.3 million in 1996, and $4.6 million in 1997. New store capital expenditures included in these amounts were $3.6 million, $4.8 million and $0.4 million for 1995, 1996 and 1997, respectively. The Company estimates that capital expenditures in 1998 will be approximately $12.0 million. The Company intends to open new restaurants with small capital outlays and to finance most of the expenditures through operating leases. On March 13, 1996, Holdings completed a private placement of its 14% senior discount debentures due 2005 with a face value of $17.0 million producing aggregate proceeds of approximately $7.1 million. Substantially all of the net proceeds of the offering were contributed by Holdings to the Company. The new proceeds were used by the Company for general corporate purposes. In the second half of 1996, the Company completed sale/leaseback transactions, under which it sold certain land, buildings, and other improvements relating to 24 Black Angus restaurants, 30 Grandy's restaurants and two Spoons restaurants for an aggregate sale price of $63.4 million and simultaneously executed long-term leases under which it will continue to operate the restaurants. The leases call for initial aggregate annual rent payments of $8.0 million with scheduled future increases. The proceeds of the transactions were used to redeem at par a portion of its senior secured notes in the amount of $45.4 million, representing principal and interest thereon; to repay bank debt and interest thereon and to partially cash collateralize outstanding letters of credit in a combined amount of $7.4 million; and for fees and expenses of such transactions as well as a consent solicitation relating to the senior secured notes, with the balance used by the Company to make capital expenditures and to purchase other assets. The Company recorded an extraordinary loss on extinguishment of debt relating to the write-off of capitalized debt costs in the amount of $1.7 million and a $2.2 million loss on 10 13 disposition of assets underlying certain leases. In addition, a $5.9 million gain related to the Black Angus sale/leasebacks was deferred and will be amortized over the initial term of the underlying leases. In March 1997, the Company's senior secured noteholders consented to an amendment which provided for an increase of $10 in the stated principal amount for each $1,000 in stated principal amount of consenting noteholders. This resulted in an increase of approximately $1.6 million in the stated principal amount of the senior secured notes and $1.2 million in the actual outstanding principal amount of the senior secured notes. In September 1997, the Company failed to make the $40.5 million payment that was due under the sinking fund provisions of its senior secured notes. The Company was late, but within the grace period, in paying the quarterly interest of $4.1 million on its senior secured notes which was due September 15, 1997. The Company was restricted from paying the quarterly interest of $1.2 million on its subordinated debt which was due September 15, 1997 and December 15, 1997. In December 1997, the Company was late, but within the grace period, in paying the quarterly interest of $4.1 million on its senior secured notes which was due December 15, 1997. On February 25, 1998, the Company completed a recapitalization plan (the "Recapitalization Plan") which included, among other things, the issuance by the Company of (a) $155.0 million of the 11.5% senior secured notes due 2003 (the "Notes") and (b) 35,000 preferred stock units of the Company (the "Units"), each Unit consisting of $1,000 initial liquidation preference of 12% senior pay-in-kind exchangeable preferred stock and one common stock purchase warrant initially to purchase 2.66143 shares of the common stock at an initial exercise price of one cent per share. Also as part of the Recapitalization Plan, the Company concurrently (a) redeemed at par senior secured notes of $126.4 million together with accrued and penalty interest thereon and repaid certain other interest-bearing short-term liabilities, (b) repurchased its existing 10.25% subordinated notes at 65% of the aggregate principal amount of $45.0 million together with accrued and penalty interest thereon, and canceled the related warrants to purchase common stock of Holdings, and (c) established a $15.0 million revolving credit facility to include letters of credit. Letters of credit outstanding after the Recapitalization Plan were $3.9 million. A quarterly fee of 0.5% per annum is payable on the unused portion of the revolving credit facility and a fee of 2.5% per annum is payable on outstanding letters of credit. As an additional component of the Recapitalization Plan, Holdings extended the accretion period on its senior discount debentures due 2005 (the "Holdings Debentures"), from June 15, 1999 to maturity on December 15, 2005, and amended certain provisions of the Holdings Debentures. The Holdings Debentures will accrete at a rate of 14.25%, compounded semi-annually. Certain holders of the Holdings Debentures with an accreted value of approximately $10.8 million surrendered such debentures for cancellation and received $3.6 million principal amount of the Notes, in addition to the $155.0 million of the Notes sold as mentioned above. Substantially all assets of the Company are pledged to its senior lenders. In addition, the subsidiaries have guaranteed the indebtedness owed by the Company and such guarantee is secured by substantially all of the assets of the subsidiaries. In connection with such indebtedness, contingent and mandatory prepayments may be required under certain specified conditions and events. There are no compensating balance requirements. Although the Company is highly leveraged, based upon current levels of operations and anticipated growth, the Company expects that cash flows generated from operations together with its other available sources of liquidity will be adequate to make required payments of principal and interest on its indebtedness, to make 11 14 anticipated capital expenditures and to finance working capital requirements. However, the Company does not expect to generate sufficient cash flow from operations in the future to pay the Notes upon maturity and, accordingly, it expects to refinance all or a portion of such debt, obtain new financing or possibly sell assets. The Company's net operating loss carryforwards may be subject to significant limitations on use or elimination under applicable provisions of the Internal Revenue Code of 1986, as amended, as a result of changes in ownership of the Company. YEAR 2000 COMPLIANCE The Company utilizes certain programs and operating systems in its organization, including applications used in sales, financial business systems and various administrative functions. To the extent that the Company's software applications contain source code that is unable to appropriately interpret the upcoming calendar year 2000 and beyond, some level of modification or replacement of such applications will be necessary. Management does not expect year 2000 compliance costs to have any material adverse impact on the Company. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 128 Earnings per Share and SFAS No. 129 Disclosure of Information about Capital Structure were issued in February 1997 and are effective for periods ending after December 15, 1997. The Company adopted SFAS No. 128 and SFAS No. 129 for the period ending December 29, 1997 and such adoption has not materially affected the Company's financial statements. SFAS No. 130 Reporting Comprehensive Income and SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information were issued in June 1997. The Company will adopt SFAS No. 130 and SFAS No. 131 in 1998 and anticipates that such adoption will not materially affect the Company's financial statements. IMPACT OF INFLATION Although inflationary increases in food, labor or operating costs could adversely affect operations, the Company has generally been able to offset increases in cost through price increases, labor scheduling and other management actions. FORWARD-LOOKING STATEMENTS Certain statements contained herein are forward-looking regarding cash flow from operations, restaurant openings, capital requirements and other matters. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, governmental regulations and inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information about the Company's current directors and each of its executive officers and key management personnel:
NAME AGE POSITION WITH COMPANY ---- --- --------------------- Anwar S. Soliman 60 Chairman, Chief Executive Officer, Director Ralph S. Roberts 55 President, Chief Operating Officer, Director William J. McCaffrey, Jr. 51 Chief Financial Officer, Vice President, Treasurer, Assistant Secretary Wilfred H. Partridge 68 Vice President - Purchasing Patrick J. Kelvie 46 Secretary and General Counsel
Officers are elected by the Board of Directors and serve at the discretion of the Board. Anwar S. Soliman. Mr. Soliman has served as Chairman, Chief Executive Officer and a Director of the Company since its organization in 1986. Prior to joining the Company, Mr. Soliman was Executive Vice President of W. R. Grace & Co. ("Grace") and Group Executive of the Grace Restaurant Group, which he started in 1977. Mr. Soliman spent 22 years with Grace in various executive positions. He is also a trustee of the Orange County Museum of Art and a member of the Board Council of Boys Hope of California. Mr. Soliman received both a B. Commerce and an M.B.A. from Alexandria University and a Ph.D. from New York University. Ralph S. Roberts. Mr. Roberts has served as a Director of the Company since 1991 and has served as the President and Chief Operating Officer of the Company since 1986. Mr. Roberts has over 25 years of experience in the restaurant industry and before joining the Company was Deputy Group Executive of Operations of the Grace Restaurant Group and Vice President of Grace. Prior to joining Grace in 1980, he was Vice President of the Stouffer Restaurant Division and President and co-founder of the Rusty Scupper restaurants. Mr. Roberts received a B.A. from Princeton University. William J. McCaffrey, Jr. Mr. McCaffrey served as a Director of the Company from 1991 to 1998 and has served as the Chief Financial Officer, Vice President, Treasurer and Assistant Secretary of the Company since 1986. Prior thereto he was Chief Financial Officer of the Grace Restaurant Group, having spent 12 years with Grace. For eight years, Mr. McCaffrey was assistant to the Chief Executive Officer of Grace. He received a B.S., M.E. from the University of Notre Dame and an M.B.A. from Harvard University. Wilfred H. Partridge. Mr. Partridge has served as Vice President responsible for purchasing and distribution for the Company since 1986. Mr. Partridge has over 30 years experience in the restaurant industry encompassing purchasing, production and distribution, as well as restaurant operations, and was President of Grace Restaurant Services before joining the Company. Mr. Partridge served as Vice President of Purchasing, Production and Distribution with Marriott Corporation (Bob's Big Boy Division) for 19 years. He served as Director of Manufacturing and Distribution for Foodmaker Company (Jack-in-the-Box) and also operated his own restaurants in the San Diego area. He received a B.A. in Commercial Science from Benjamin Franklin University. 13 16 Patrick J. Kelvie. Mr. Kelvie has served as General Counsel of the Company since 1987 and Secretary of the Company since 1989. From 1987 to 1989, Mr. Kelvie was an Assistant Secretary of the Company. Between 1978 and 1987, Mr. Kelvie held various legal counsel positions for Saga Corporation. Mr. Kelvie received a B.A. from the University of California at Berkeley and a J.D. from Harvard Law School. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation for services rendered in all capacities which the Company paid to or accrued for the Chief Executive Officer and each of the other four most highly compensated executive officers. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ---------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS - --------------------------------------------------------------- ------------------- ------- OTHER NUMBER ALL ANNUAL RESTRICTED OF OTHER NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL POSITION YEAR SALARY BONUS SATION(a) AWARD(S) SARS PAYOUTS SATION(b) - ------------------ ---- ------ ----- ------------------ ---- ------- --------- Anwar S. Soliman 1997 $ 945,793 $ 0 $99,975 - - - $24,300 (Chairman and CEO) 1996 1,233,640 0 96,125 - - - 24,303 1995 1,233,640 0 62,660 - - - 18,002 Ralph S. Roberts 1997 558,181 0 50,360 - - - 13,050 (President and COO) 1996 704,935 0 48,295 - - - 8,351 1995 704,935 0 28,230 - - - 8,351 William J. Mccaffrey, Jr. 1997 252,500 0 3,850 - - - 17,525 (Chief Financial Officer) 1996 325,000 0 5,680 - - - 14,846 1995 311,539 30,000 0 - - - 9,571 Wilfred H. Partridge 1997 225,308 0 5,900 - - - 7,038 (Vice President - 1996 290,000 0 7,610 - - - 5,754 Purchasing) 1995 279,231 30,000 0 - - - 5,884 Patrick J. Kelvie 1997 188,077 0 0 - - - 1,512 (Secretary And 1996 175,000 0 0 - - - 1,312 General Counsel) 1995 175,000 0 0 - - - 1,262
- ---------- (a) Amounts shown are for reimbursement during the fiscal year for the payment of premiums and income taxes thereon relating to executive life and disability plans. In addition, Holdings and the Company maintain key man life insurance policies for the benefit of Holdings and the Company on Messrs. Soliman and Roberts. (b) Amounts shown in this column for the last fiscal year include the following: group term life insurance premiums of $24,300, $13,050, $15,286 and $5,040 for Messrs. Soliman, Roberts, McCaffrey and Partridge, respectively; and Company matching contributions to a 401(k) plan of $2,239, $1,998 and $1,512 for Messrs. McCaffrey, Partridge and Kelvie, respectively. 14 17 EMPLOYMENT AGREEMENTS The following table sets forth, with respect to each executive officer who has entered into an employment agreement with the Company, the base salary for such officer provided for therein together with the termination date of such agreement:
BASE TERMINATION NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED SALARY DATE - ------------------ ------------------------ ------ ---- Anwar S. Soliman Chairman and Chief Executive Officer $ 740,184 12/31/98 Ralph S. Roberts President and Chief Operating Officer 422,961 12/31/98 Wilfred H. Partridge Vice President - Purchasing 174,000 12/31/98
Each of the agreements provides, among other things, for adjustments to the base salaries and automatic extensions of the termination date. The agreements also provide for certain other benefits, including, in the case of Mr. Soliman, one year's severance pay equal to his then salary in the event of disability or death; in the case of Mr. Roberts, one year's severance pay in the event of death and salary for the remainder of the calendar year in the event of disability; in the case of Mr. Partridge, six months' severance pay in the event of death and salary for the remainder of the calendar year in the event of disability. The employment agreements of Mr. Soliman and Mr. Roberts each provide six months' severance pay if either executive terminates his employment for cause. None of the Company's employment agreements provides for any salary obligations in the event of termination by the Company for cause. SAVINGS PLAN The Company currently has the American Restaurant Group Savings and Investment Plan (the "Savings Plan"), which is a 401(k) plan established for the benefit of employees who have satisfied certain requirements. These requirements include completion of one year of service with a minimum of 1,000 hours worked. Subject to applicable limits imposed on tax qualified plans, eligible employees may elect pre-tax contributions up to 18.5% of a participant's total earnings for a calendar year (but not in excess of $9,500 for 1997). The Company makes matching contributions to the Savings Plan equal to 25% of the participant's contributions up to 6% of the participant's earnings. A participant is entitled to a distribution from the Savings Plan upon termination of employment and any such distribution will be in a lump sum form. Distributable benefits are based on the value of the participant's individual account balance which is invested at the direction of the participant in one or a combination of six investment funds, none of which include investments in the Company. Under certain circumstances, a participant may borrow amounts held in his account under the Savings Plan. Based upon the Savings Plan vesting schedule, as of 1997, 100% of the Company matching contributions were vested for Messrs. McCaffrey, Partridge and Kelvie. 15 18 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's common stock (as if all outstanding warrants were exercised), as of March 2, 1998, by (i) each of the Company's directors, (ii) the Chief Executive Officer and certain other highly compensated executive officers of the Company, (iii) all executive officers and directors as a group and (iv) each person believed by the Company to own beneficially more than 5% of the Company's outstanding common stock:
AMOUNT AND NATURE PERCENT NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OF CLASS - ---------------- ----------------------- -------- Anwar S. Soliman 19,409 (1) 8.3% Roberts Family Limited Partnership 9,702 4.2 William J. McCaffrey, Jr. 2,426 1.0 Wilfred H. Partridge 2,426 1.0 Patrick J. Kelvie 387 0.2 American Restaurant Group Holdings, Inc. 93,150 40.0 All directors and officers of the Company as a group (5 persons) 34,350 (2) 14.8 TCW Asset Management Company 55,558 (3) 23.9
- ---------- (1) Does not include 92,172 shares of the Company's common stock which Mr. Soliman is deemed to be the owner of pursuant to the Voting Trust Agreement. (2) Does not include directors to be nominated by TCW Asset Management Company and the initial purchaser of the Notes. (3) Represents warrants which are immediately exercisable at a nominal price per share. None of such warrants are exercisable after August 15, 2008. Includes warrants beneficially owned by TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P., Brown University and TCW Shared Opportunity Fund IIB, LLC, as to which warrants TCW Asset Management Company or an affiliate controls voting and investment power in its capacity as general partner, investment manager or manager, and of which TCW Asset Management Company disclaims beneficial ownership. All of the Company's management stockholders have entered into a voting trust agreement in accordance with which Anwar S. Soliman, Chairman and Chief Executive Officer of the Company, exercises, as voting trustee, all voting and substantially all other rights to which such shareholders would otherwise be entitled until the earlier of August 15, 2005 or the earlier termination of the Voting Trust Agreement. As a result, Mr. Soliman is considered the beneficial owner of approximately 87.1% of the outstanding shares of Company's common stock (approximately 47.9% on a diluted basis). In connection with the Recapitalization Plan, each of Holdings, the Management Stockholders, the initial purchaser of the Notes, and TCW Asset Management Company ("TCW") entered into a stockholders agreement concerning the Company (the "Stockholders Agreement"). The Stockholders Agreement provides that the parties will agree to vote all of their shares of the Company's equity securities so that the composition of the Company's Board of Directors consists of five directors, with two directors designated by TCW, two by the Management Stockholders and the remaining director by the initial purchaser of the Notes, provided that after the Company does a public offering of its common stock, TCW and the Management Stockholders will mutually choose the remaining director and the initial purchaser will no longer have director designation rights. A compensation committee for the Company will also be established consisting of the two TCW designees, one of the Management Stockholders' designees and the remaining director. The compensation committee will determine, among other things, the compensation of management and the structuring of performance option plans, including any options to be issued to management. The two TCW director designees will sit on all other board committees. The Stockholders Agreement does not limit the rights of the holders of the Preferred Stock under the Certificate of Designation to elect additional directors to serve on the Company's Board of Directors in certain circumstances. 16 19 The Stockholders Agreement also provides that (i) in the event that Holdings sells or transfers any of its shares of Company equity securities, directly or indirectly, TCW will have the option to include its Company equity securities in such sale or transfer on the same terms as Holdings' sale or transfer; (ii) TCW will have a right of first refusal with respect to any sale of equity securities by the Company or a party to the Stockholders Agreement (other than Management Stockholders) to purchase the equity securities being sold; and (iii) TCW will have the nontransferable right to approve certain major corporate transactions concerning the Company, including mergers and consolidations, sales of certain assets, a sale of substantially all of the assets and properties of the Company, transactions with affiliates and amendments to the Company's Certificate of Incorporation and Bylaws. In addition, the Stockholders Agreement provides that certain of the TCW purchasers will receive payments from the Company with respect to withholding obligations as a result of their ownership of the Preferred Stock, which amount shall not exceed $125,000 per year. None of the rights under the Stockholders Agreement are transferable by TCW. As of March 2, 1998, holders of the Company's exchangeable preferred stock held warrants for common stock of approximately 41% on a diluted basis. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Consolidated Financial Statements. See the Index to Consolidated Financial Statements on page F-1. (c) List of Exhibits Exhibit No. Description - ----------- ----------- 2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG Property Management Corporation and ARG Enterprises, Inc. and ARG Properties I, LLC.*** 2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.*** 2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.*** 2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.*** 2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.*** 2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to ARG Properties I, LLC as Landlord.*** 2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four Minnesota restaurants.*** 2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant and Safeway Inc. as Landlord.*** 3.1 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 23, 1991.* 17 20 Exhibit No. Description - ----------- ----------- 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 21, 1992.* 3.3 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on February 23, 1998. 3.4 By-Laws of the Company.* 4.1 Indenture dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as Trustee (including specimen certificate of 11.5% Senior Secured Note due 2003). 4.2 Warrant Agreement dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as warrant agent (including specimen certificate of Warrant). 4.3 Registration Rights Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc. 4.4 Securityholders' and Registration Right Agreement dated as February 25, 1998 between the Company and Jefferies & Company, Inc., as purchaser. 4.5 Management Registration Right Agreement dated as of February 28, 1998 between the Company and the Management Stockholders. 4.6 Certificate of Designation filed with the Secretary of State of Delaware on February 24, 1998. 4.7 Certificate of Correction to the Certificate of Designation filed with the Secretary of State of Delaware on February 25, 1998. 9.1 Common Stock Voting Trust and Transfer Agreement dated as of February 24, 1998 among the Company and the stockholders parties thereto and Anwar S. Soliman, as voting trustee. 9.2 Securityholders Agreement dated as of February 25, 1998 among the Company, American Restaurant Group Holdings, Inc., Jefferies & Company, Inc., TCW Asset Management Company and the Management Stockholders. 10.1 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Anwar S. Soliman.** 10.2 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Ralph S. Roberts.** 10.3 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Wilfred H. Partridge.** 18 21 Exhibit No. Description - ----------- ----------- 21.1 Subsidiaries of the Company.** 27 Financial Data Schedule - ------------------------------- * Incorporated by reference to the Registrant's Registration Statement No. 33-48183 on Form S-4 filed with the Securities and Exchange Commission on May 28, 1992 as amended with Amendment No. 1 filed on September 11, 1992. ** Incorporated by reference to the Registrant's Registration Statement No. 33-74010 on Form S-4 filed with the Securities and Exchange Commission on January 12, 1994. *** Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 13, 1996 filed with the Securities and Exchange on September 30, 1996. 19 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN RESTAURANT GROUP, INC. By: /s/ ANWAR S. SOLIMAN -------------------------------- Anwar S. Soliman Chairman, Chief Executive Officer and Director March 30, 1998 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE --------- /s/ ANWAR S. SOLIMAN Chairman, Chief Executive March 30, 1998 - ----------------------------- Officer and Director Anwar S. Soliman (Principal Executive Officer) /s/ WILLIAM J. McCAFFREY, JR. Chief Financial Officer, Vice March 30, 1998 - ----------------------------- President, Treasurer and William J. McCaffrey, Jr. Assistant Secretary (Principal Financial and Accounting Officer) /s/ RALPH S. ROBERTS President, Chief Operating March 30, 1998 - ----------------------------- Officer and Director Ralph S. Roberts
20 23 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants............................................... F-2 Consolidated Balance Sheets as of December 30, 1996 and December 29, 1997.......................................................... F-3 Consolidated Statements of Operations for the Years Ended December 25, 1995, December 30, 1996 and December 29, 1997.......................................................... F-5 Consolidated Statements of Common Stockholder's Equity for Years Ended December 25, 1995, December 30, 1996 and December 29, 1997........................................ F-6 Consolidated Statements of Cash Flows for Years Ended December 25, 1995, December 30, 1996 and December 29, 1997.......................................................... F-7 Notes to Consolidated Financial Statements............................................. F-8
F-1 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors of American Restaurant Group, Inc.: We have audited the accompanying consolidated balance sheets of AMERICAN RESTAURANT GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 30, 1996 and December 29, 1997, and the related consolidated statements of operations, common stockholder's equity (deficit) and cash flows for the years ended December 25, 1995, December 30, 1996 and December 29, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Restaurant Group, Inc. and subsidiaries as of December 30, 1996 and December 29, 1997, and the results of their operations and their cash flows for the years ended December 25, 1995, December 30, 1996 and December 29, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California February 27, 1998 F-2 25 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 30, 1996 AND DECEMBER 29, 1997 ASSETS
December 30, December 29, 1996 1997 ------------ ------------ CURRENT ASSETS: Cash $ 7,493,000 $ 5,737,000 Accounts receivable, net of reserve of $1,041,000 and $916,000 at December 30, 1996 and December 29, 1997, respectively 7,465,000 5,606,000 Notes receivable -- 1,000,000 Inventories 6,818,000 5,893,000 Prepaid expenses 4,485,000 3,142,000 ------------ ------------ Total current assets 26,261,000 21,378,000 ------------ ------------ PROPERTY AND EQUIPMENT: Land and land improvements 6,158,000 5,610,000 Buildings and leasehold improvements 110,071,000 110,800,000 Fixtures and equipment 84,162,000 85,603,000 Property held under capital leases 12,375,000 12,375,000 Construction in progress 6,487,000 1,827,000 ------------ ------------ 219,253,000 216,215,000 Less -- Accumulated depreciation 118,084,000 123,893,000 ------------ ------------ 101,169,000 92,322,000 ------------ ------------ OTHER ASSETS: Intangible assets 13,039,000 12,375,000 Deferred debt costs 20,168,000 21,692,000 Leasehold interests 9,946,000 9,666,000 Franchise rights 6,876,000 6,024,000 Liquor licenses and other 6,259,000 6,857,000 Cost in excess of net assets acquired 13,305,000 12,332,000 ------------ ------------ 69,593,000 68,946,000 Less -- Accumulated amortization 24,894,000 30,635,000 ------------ ------------ 44,699,000 38,311,000 ------------ ------------ Total assets $172,129,000 $152,011,000 ============ ============
(consolidated balance sheets continued on following page) The accompanying notes are an integral part of these consolidated statements. F-3 26 LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
December 30, December 29, 1996 1997 ------------- ------------- CURRENT LIABILITIES: Accounts payable $ 33,394,000 $ 29,420,000 Accrued liabilities 14,315,000 18,021,000 Accrued insurance 15,848,000 11,251,000 Accrued interest 1,016,000 7,514,000 Accrued payroll costs 11,059,000 10,861,000 Current portion of obligations under capital leases 902,000 926,000 Current portion of long-term debt 41,532,000 537,000 ------------- ------------- Total current liabilities 118,066,000 78,530,000 ------------- ------------- LONG-TERM LIABILITIES, net of current portion: Obligations under capital leases 8,443,000 7,517,000 Long-term debt 131,260,000 172,419,000 ------------- ------------- Total long-term liabilities 139,703,000 179,936,000 ------------- ------------- DEFERRED GAIN 5,806,000 5,283,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES REDEEMABLE CUMULATIVE PREFERRED STOCK: Redeemable cumulative senior preferred stock, $0.01 par value; 1,400,000 shares authorized, no shares issued or outstanding -- -- Redeemable cumulative junior preferred stock, $0.01 par value; 100,000 shares authorized, no shares issued or outstanding -- -- COMMON STOCKHOLDER'S EQUITY: Common stock, $0.01 par value; 1,000,000 shares authorized, 93,150 shares issued and outstanding 1,000 1,000 Paid-in capital 63,246,000 63,246,000 Accumulated deficit (154,693,000) (174,985,000) ------------- ------------- Total common stockholder's deficit (91,446,000) (111,738,000) ------------- ------------- Total liabilities and common stockholder's equity $ 172,129,000 $ 152,011,000 ============= =============
The accompanying notes are an integral part of these consolidated statements. F-4 27 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 25, 1995, DECEMBER 30, 1996 AND DECEMBER 29, 1997
Year ended --------------------------------------------------------- December 25, December 30, December 29, 1995 1996 1997 ------------- ------------- ------------- REVENUES $ 445,966,000 $ 445,424,000 $ 440,039,000 ------------- ------------- ------------- RESTAURANT COSTS: Food and beverage 138,270,000 141,032,000 140,015,000 Payroll 134,532,000 137,104,000 133,732,000 Direct operating 110,399,000 114,589,000 110,502,000 Depreciation and amortization 22,819,000 20,386,000 19,627,000 GENERAL AND ADMINISTRATIVE EXPENSES 31,360,000 28,086,000 29,360,000 NON-CASH CHARGE FOR IMPAIRMENT OF LONG-LIVED ASSETS 20,178,000 13,205,000 3,047,000 ------------- ------------- ------------- Operating profit (loss) (11,592,000) (8,978,000) 3,756,000 INTEREST EXPENSE, net 28,004,000 27,714,000 23,985,000 ------------- ------------- ------------- Loss before provision for income taxes and extraordinary loss (39,596,000) (36,692,000) (20,229,000) PROVISION FOR INCOME TAXES 66,000 81,000 63,000 ------------- ------------- ------------- Loss before extraordinary item (39,662,000) (36,773,000) (20,292,000) EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT -- (1,688,000) -- ------------- ------------- ------------- Net loss $ (39,662,000) $ (38,461,000) $ (20,292,000) ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-5 28 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 25, 1995, DECEMBER 30, 1996 AND DECEMBER 29, 1997
Common Paid-in Accumulated Stock Capital Deficit Total -------- ------------- ------------- ------------- BALANCE, December 26, 1994 $ 1,000 $ 56,132,000 $ (76,570,000) $ (20,437,000) Net loss -- -- (39,662,000) (39,662,000) -------- ------------- ------------- ------------- BALANCE, December 25, 1995 1,000 56,132,000 (116,232,000) (60,099,000) Net loss -- -- (38,461,000) (38,461,000) Cash contribution from parent -- 7,114,000 -- 7,114,000 -------- ------------- ------------- ------------- BALANCE, December 30, 1996 1,000 63,246,000 (154,693,000) (91,446,000) Net loss -- -- (20,292,000) (20,292,000) -------- ------------- ------------- ------------- BALANCE, December 29, 1997 $ 1,000 $ 63,246,000 $(174,985,000) $(111,738,000) ======== ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-6 29 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 25, 1995, DECEMBER 30, 1996 AND DECEMBER 29, 1997
YEAR ENDED ----------------------------------------------------- DECEMBER 25, DECEMBER 30, DECEMBER 29, 1995 1996 1997 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received From Customers $ 446,355,000 $ 445,678,000 $ 440,695,000 Cash Paid To Suppliers And Employees (413,206,000) (415,662,000) (417,714,000) Interest Paid, Net (27,912,000) (32,524,000) (17,358,000) Income Taxes Paid (86,000) (74,000) (30,000) ------------- ------------- ------------- Net Cash Provided By (Used In) Operating Activities 5,151,000 (2,582,000) 5,593,000 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (16,277,000) (13,279,000) (4,650,000) Net (Increase) Decrease In Other Assets 181,000 (2,455,000) (945,000) Proceeds From Disposition Of Assets 29,000 64,560,000 620,000 Sale/leaseback Costs Included In Deferred Gain -- (1,112,000) -- ------------- ------------- ------------- Net Cash Provided By (Used In) Investing Activities (16,067,000) 47,714,000 (4,975,000) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments On Indebtedness (3,949,000) (51,907,000) (1,334,000) Borrowings On Indebtedness 11,000,000 1,791,000 186,000 Net Increase In Deferred Debt Costs (5,000) (4,165,000) (324,000) Payments On Capital Lease Obligations (777,000) (857,000) (902,000) Contribution From Parent -- 7,114,000 -- ------------- ------------- ------------- Net Cash Provided By (Used In) Financing Activities 6,269,000 (48,024,000) (2,374,000) ------------- ------------- ------------- NET DECREASE IN CASH (4,647,000) (2,892,000) (1,756,000) CASH, At Beginning Of Period 15,032,000 10,385,000 7,493,000 ------------- ------------- ------------- CASH, At End Of Period $ 10,385,000 $ 7,493,000 $ 5,737,000 ============= ============= ============= RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net Loss $ (39,662,000) $ (38,461,000) $ (20,292,000) Adjustments To Reconcile Net Loss To Net Cash Provided By (Used In) Operating Activities: Extraordinary Loss On Extinguishment Of Debt -- 1,688,000 -- Loss On Impairment Of Long-lived Assets 20,178,000 13,205,000 3,047,000 Depreciation And Amortization 22,819,000 20,386,000 19,627,000 Loss On Disposition Of Assets 684,000 1,610,000 4,806,000 Amortization Of Deferred Gain -- (123,000) (523,000) Accretion On Indebtedness 87,000 99,000 110,000 Loss In Value Of Interest Rate Swap 98,000 -- -- (Increase) Decrease In Current Assets: Accounts Receivable, Net 389,000 254,000 1,656,000 Notes Receivable -- -- (1,000,000) Inventories 1,483,000 (221,000) 925,000 Prepaid Expenses (1,288,000) (467,000) (766,000) Increase (Decrease) In Current Liabilities: Accounts Payable (1,706,000) 4,155,000 (3,974,000) Accrued Liabilities 856,000 160,000 255,000 Accrued Insurance 2,167,000 (846,000) (4,597,000) Accrued Interest (93,000) (4,909,000) 6,517,000 Accrued Payroll Costs (861,000) 888,000 (198,000) ------------- ------------- ------------- Net Cash Provided By (Used In) Operating Activities $ 5,151,000 $ (2,582,000) $ 5,593,000 ============= ============= =============
The accompanying notes are an integral part of these consolidated statements. F-7 30 AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 25, 1995, DECEMBER 30, 1996 AND DECEMBER 29, 1997 1. Background and Summary of Significant Accounting Policies a. Company American Restaurant Group, Inc., (the "Company") a Delaware corporation, through its subsidiaries, operates middle and upper price full-service restaurants, casual-style restaurants and quick-service restaurants primarily in California and Texas. The Company is a subsidiary of American Restaurant Group Holdings, Inc. ("Holdings"), also a Delaware corporation. At year end 1995, 1996 and 1997, the Company and its subsidiaries, collectively referred to herein as the Company, operated 248, 247 and 231 restaurants, respectively. b. Operations The Company's operations are affected by local and regional economic conditions, including competition in the restaurant industry. The Company has had recurring operating losses in recent years and was unable to meet a required debt principal payment during 1997. A recapitalization plan was consummated subsequent to year end 1997 (see Note 9, "Subsequent Events"). This plan substantially eliminated debt principal payments until the year 2003. Management believes the recapitalization will also allow it to effect changes in its operations and has already implemented measures to reduce overhead costs. However, the Company does not expect to generate sufficient cash flow from operations in the future to make principal payments on long-term debt upon maturity in the year 2003 and, accordingly, it expects to refinance all or a portion of such debt, obtain new financing or possibly sell assets. c. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. d. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. e. Inventories and Prepaid Expenses Inventories consist of food, beverages and supplies and are valued at the lower of cost (first-in, first-out method) or market value. When a restaurant is opened, the initial purchase of expendable equipment, such F-8 31 as china, glassware and silverware, is recorded as prepaid supplies and is not depreciated; however, all replacements are expensed. f. Advertising Costs Advertising costs are accrued as a percentage of sales and expensed during the year. Production costs are allocated to the related advertisements. At year end, production costs for advertisements which have not been aired are included in prepaid expenses. Prepaid advertising costs of $1,215,000 and $912,000 were included in prepaid expenses at December 30, 1996 and December 29, 1997, respectively. Advertising expenses included in net loss were $16,768,000, $20,870,000 and $16,995,000 in fiscal years 1995, 1996 and 1997, respectively. g. Preopening Costs Costs incurred in connection with opening a new restaurant, principally occupancy and staff training, are accumulated as prepaid expenses and amortized over the initial year of operations. h. Property and Equipment Property and equipment is carried at the lower of cost or, if impaired, at the estimated fair value of the asset (see Note 2, "Impairement of Long-Lived Assets"). The Company provides for depreciation and amortization based upon the estimated useful lives of depreciable assets using the straight-line method. Estimated useful lives are as follows: Land improvements 20 years Buildings 30 to 35 years Leasehold improvements Life of lease Fixtures and equipment 3 to 10 years Property held under capital leases Life of lease Substantially all of the Company's assets, including property and equipment, are pledged as collateral on the senior debt of the Company. i. Interest Costs Interest costs incurred during the construction period of restaurants are capitalized. The Company capitalized approximately $130,000, $168,000 and $90,000 for the years ended 1995, 1996 and 1997, respectively. j. Other Assets Other assets include intangible assets, leasehold interests, franchise rights, liquor licenses and cost in excess of net assets acquired. These costs are amortized using the straight-line method over the periods estimated to be benefited, not greater than 40 years. Deferred debt costs are amortized using the effective interest method over the related debt term. Estimated useful lives are as follows: Intangible assets 3 to 40 years Deferred debt costs Term of debt Leasehold interests Life of lease Franchise rights 35 years Liquor licenses 40 years Cost in excess of net assets acquired 40 years F-9 32 The following table details the components of intangible assets included in the accompanying consolidated balance sheets (in thousands):
December 30, December 29, 1996 1997 ------- ------- Assembled workforce $ 5,109 $ 4,862 Goodwill 3,502 3,295 Trademark/service marks 2,769 2,632 Acquisition costs 1,209 1,143 Other 450 443 ------- ------- Total $13,039 $12,375 ======= =======
k. Insurance The Company self-insures the first $100,000 of its annual medical and dental benefits per family. The Company also self-insures up to the first $350,000 per incident for property and casualty risks inherent in its operations. Reserves for losses are established currently based upon estimated obligations. l. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, accounts receivable and payable and debt instruments. The carrying values of all financial instruments, other than debt instruments, are representative of their fair value due to their short-term maturity. The fair value of the Company's long-term debt instruments is estimated based on the current rates offered to the Company. m. Franchise Income The Company franchises Grandy's quick-service restaurants. Franchise fees are recognized as income as services are rendered. Franchise royalties based upon a percentage of the franchisees' gross sales are accrued currently. Revenues include franchise royalties and franchise fees of $2,176,000, $1,995,000, and $2,586,000, respectively, for the years ended 1995, 1996 and 1997. There were 55, 56 and 61 franchised restaurants at year end 1995, 1996 and 1997, respectively. n. Accounting Period The Company's fiscal year ends on the last Monday in December. The years ended 1995 and 1997 included 52 weeks while 1996 included 53 weeks. o. Reclassifications Certain prior year accounts have been reclassified to conform with the current year presentation. 2. Impairment of Long-Lived Assets Effective December 25, 1995, the Company adopted the provisions of Financial Accounting Standards Number 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). This statement changed the method of evaluating the impairment of the Company's long-lived assets, including intangible assets. Various assumptions and estimates are used to determine fair value. The calculation of the impairment loss is based on estimated future cash flows. The estimates used to determine the impairment adjustment can change in the near term as the economy and operations of specific restaurants change. The adoption of SFAS 121, together with the effects of continuing adverse operations of certain F-10 33 restaurants, resulted in pre-tax non-cash charges of $20,178,000, $13,205,000 and $3,047,000 for the years ended 1995, 1996 and 1997, respectively. 3. Lease Obligations The Company leases certain of its operating facilities under terms ranging up to 40 years. These leases are classified as both operating and capital leases. Certain of the leases contain provisions calling for additional rentals based on sales or other provisions obligating the Company to pay related property taxes and certain other expenses. The following is a summary of property held under leases that have been capitalized and included in the accompanying consolidated balance sheets (in thousands):
December 30, December 29, 1996 1997 ------- ------- Property $12,375 $12,375 Less-- Accumulated depreciation 7,066 7,687 ------- ------- $ 5,309 $ 4,688 ======= =======
The following represents the minimum lease payments remaining under noncancelable operating leases and capitalized leases as of December 29, 1997 (in thousands):
Operating Capitalized Fiscal years ending Leases Leases -------- ------- 1998 $ 27,602 $ 1,881 1999 26,483 1,791 2000 25,220 1,694 2001 23,669 1,694 2002 21,691 1,612 Thereafter 236,239 5,026 -------- ------- Total minimum lease payments $360,904 13,698 ======== Less -- Imputed interest (8.75% to 15.5%) 5,255 ------- Present value of minimum lease payments 8,443 Less -- Current portion 926 Long-term portion $ 7,517 =======
Rental expense (including $1,019,000, $895,000 and $802,000, respectively, for contingent rents under operating leases) was $22,863,000, $24,814,000 and $30,676,000 during 1995, 1996 and 1997, respectively. F-11 34 4. Long-Term Debt Long-term debt is summarized as follows (in thousands):
December 30, December 29, 1996 1997 --------- -------- Senior secured notes, interest only due semi-annually beginning September 15, 1992 at 12%, amended to 13% beginning August 28, 1996 due quarterly, principal due September 15, 1998, paid February 25, 1998 $ 84,270 $ 84,356 Senior secured notes, interest only due semi-annually beginning March 15, 1994 at 12%, amended to 13% beginning August 28, 1996 due quarterly, principal due September 15, 1998, paid February 25, 1998 41,584 41,906 Subordinated notes payable, quarterly principal payments of $5,625,000 due beginning December 31, 1998, interest only due quarterly at 10.25%, redeemed February 25, 1998 45,000 45,000 Other 1,938 1,694 --------- -------- 172,792 172,956 Less -- Current portion 41,532 537 --------- -------- Long-term portion $ 131,260 $172,419 ========= ========
Subsequent to year end 1997, the Company refinanced the senior secured notes and subordinated notes payable with no principal payments due until 2003 and, therefore, this debt is classified as long-term on the balance sheet (see Note 9, "Subsequent Events"). Maturities of the remaining long-term debt during each of the five fiscal years subsequent to year end 1997 are $537,000, $250,000, $281,000, $315,000 and $311,000. In March 1996, Holdings completed a private placement of its 14% senior discount debentures due 2005 with a face value of $17,000,000 producing aggregate proceeds of approximately $7,114,000. Substantially all of the net proceeds of the offering were contributed by Holdings to the Company. The net proceeds were used by the Company for general corporate purposes. In the second half of 1996, the Company completed sale/leaseback transactions, under which it sold certain land, buildings, and other improvements relating to 24 Black Angus restaurants, 30 Grandy's restaurants and two Spoons restaurants for an aggregate sales price of $63,358,000 and simultaneously executed long-term leases under which it will continue to operate the restaurants. The proceeds of the transactions were used to redeem at par a portion of its senior secured notes in the amount of $45,403,000, representing principal and interest thereon; to repay bank debt and interest thereon and to partially cash collateralize outstanding letters of credit in a combined amount of $7,408,000; and for fees and expenses of such transactions as well as a consent solicitation relating to the senior secured notes, with the balance used by the Company to make capital expenditures and to purchase other assets. The Company recorded an extraordinary loss on extinguishment of debt relating to the write-off of F-12 35 capitalized debt costs in the amount of $1,646,000 and a loss of $2,230,000 on disposition of assets underlying certain leases. In addition, a gain of $5,929,000 related to the Black Angus sale/leasebacks was deferred and will be amortized over the initial term of the underlying leases. In March 1997, the Company's senior secured noteholders consented to an amendment which provided for an increase of $10 in the stated principal amount for each $1,000 in stated principal amount of consenting noteholders. This resulted in an increase of approximately $1,617,000 in the stated principal amount of the senior secured notes and $1,200,000 in the actual outstanding principal amount of the senior secured notes. In September 1997, the Company failed to make the $40,531,000 payment that was due under the sinking fund provisions of its senior secured notes. The Company was late, but within the grace period, in paying the quarterly interest of $4,124,000 on its senior secured notes which was due September 15, 1997. The Company was restricted from paying the quarterly interest of $1,153,000 on its subordinated debt which was due September 15, 1997 and December 15, 1997. In December 1997, the Company was late, but within the grace period, in paying the quarterly interest of $4,107,000 on its senior secured notes which was due December 15, 1997. Also in December 1997, the Company initiated a recapitalization plan which was successfully completed in February 1998. As part of the recapitalization plan, the Company repaid the senior secured notes and redeemed the subordinated notes payable (see Note 9, "Subsequent Events"). Substantially all assets of the Company are pledged to its senior lenders. In addition, the subsidiaries have guaranteed the indebtedness owed by the Company and such guarantee is secured by substantially all of the assets of the subsidiaries. In connection with such indebtedness, contingent and mandatory prepayments may be required under certain specified conditions and events. There are no compensating balance requirements. At year end 1996 and 1997, the Company had outstanding letters of credit primarily related to its self-insurance programs of approximately $12,356,000 and $11,005,000, respectively. 5. Income Taxes The Company's state income tax provision, all of which was current, was $66,000, $81,000 and $63,000 in 1995, 1996 and 1997, respectively. No provision for Federal income tax was required in any year. F-13 36 The income tax effects of temporary differences that give rise to significant portions of the Company's deferred income tax assets and liabilities are as follows (in thousands):
Year ended --------------------------- December 30, December 29, 1996 1997 -------- -------- Deferred income tax asset: Reserves and other accrued expenses not currently deductible for tax purposes $ 2,543 $ 2,833 Long-lived asset impairment not recognized on tax return 5,426 6,675 Tax gain on sale/leaseback transactions, net 3,759 3,545 Net operating loss carryforward 38,524 45,899 -------- -------- Deferred income tax asset 50,252 58,952 -------- -------- Deferred income tax liability: Tax depreciation greater than depreciation for financial reporting purposes (7,000) (8,034) Costs capitalized for financial reporting purposes and expensed on tax return (4,973) (4,338) Other, net (985) (1,906) -------- -------- Deferred income tax liability (12,958) (14,278) -------- -------- Deferred asset, net of deferred liability 37,294 44,674 Valuation allowance (37,294) (44,674) -------- -------- Net deferred income tax asset $ -- $ -- ======== ========
The effective tax rate differs from the Federal statutory rate of 34 percent as a result of the following items (in thousands):
Year ended ---------------------------------------------- December 25, December 30, December 29, 1995 1996 1997 -------- -------- -------- Federal income tax benefit at statutory rates $(13,464) $(13,049) $ (6,878) State income tax provision for which no federal benefit was recorded 44 53 42 Losses for which no federal benefit was recorded 11,513 12,834 6,125 Nondeductible items, principally intangible amortization 1,973 243 774 -------- -------- -------- Provision for income taxes $ 66 $ 81 $ 63 ======== ======== ========
At December 29, 1997, the Company had available net operating loss carryforwards for Federal income tax purposes of $134,996,000, expiring in 2003 to 2012, and Federal general business credit carryforwards of $9,192,000, expiring in 2003 to 2012. F-14 37 6. Commitments and Contingencies The Company is obligated under employment agreements with certain officers and employees. Obligations under the agreements are $1,337,000, provide for periodic increases and expire in 1998 unless extended. The Company has been named as defendant in various lawsuits. It is the opinion of management that the outcome of such litigation will not materially affect the Company's financial position or results of operations. 7. Redeemable Cumulative Senior and Junior Preferred Stock At year end 1996 and 1997, there were 1,400,000 authorized shares of senior preferred stock (one cent par value). There were no issued or outstanding shares. At year end 1996 and 1997, there were 100,000 authorized shares of junior preferred stock (one cent par value). There were no issued or outstanding shares. 8. Common Stock Common stock (one cent par value) authorized, issued and outstanding is as follows:
December 30, December 29, 1996 1997 ------------ ------------ Shares authorized 1,000,000 1,000,000 Shares issued 93,150 93,150 Shares outstanding 93,150 93,150
As of December 29, 1997, all of the Company's common stock was owned by American Restaurant Group Holdings, Inc. The Chairman and certain other members of the Company's management owned all outstanding shares of Holdings common stock other than shares of Holdings common stock issued to holders of the debenture units in connection with the refinancing and rights to acquire shares of Holdings common stock issuable upon exercise of options and warrants. All such shares owned by management are subject to a common stock voting trust agreement, in accordance with which the Chairman and Chief Executive Officer of the Company exercises all voting and substantially all other rights to which stockholders would otherwise be entitled until the earlier of August 15, 2005 or the termination of the common stock voting trust agreement (see Note 9, "Subsequent Events"). 9. Subsequent Events In February 1998, the Company completed a recapitalization plan (the "Recapitalization Plan") which included, among other things, (a) the private placement by the Company of $155,000,000 of 11.5% senior secured notes due 2003 (the "Notes") and (b) the issuance of 35,000 preferred stock units of the Company (the "Units"), each Unit consisting of $1,000 initial liquidation preference of 12% senior pay-in-kind exchangeable preferred stock and one common stock purchase warrant initially to purchase 2.66143 shares of the common stock at an initial exercise price of one cent per share. Also as part of the Recapitalization Plan, the Company concurrently (a) redeemed at par senior secured notes of $126,381,000 together with interest thereon and repaid certain other interest-bearing short-term liabilities, (b) repurchased its existing 10.25% subordinated notes at 65% of the par amount of $45,000,000 together with interest thereon, and canceled the F-15 38 related warrants to purchase common stock of Holdings, and (c) established a $15,000,000 revolving credit facility to include letters of credit. Letters of credit outstanding after the Recapitalization Plan were $3,395,000. A quarterly fee of 0.5% per annum is payable on the unused portion of the letter of credit facility and a quarterly fee of 2.5% per annum is payable on outstanding letters of credit. As an additional component of the Recapitalization Plan, Holdings extended the accretion period on its senior discount debentures due 2005 (the "Holdings Debentures"), from June 15, 1999 to maturity on December 15, 2005, and amended certain provisions of the Holdings Debentures. The Holdings Debentures will accrete at a rate of 14.25%, compounded semi-annually. In addition, holders of the Holdings Debentures with an accreted value of approximately $10,757,000 surrendered such debentures for cancellation and received $3,600,000 principal amount of the Notes, in addition to the Notes sold as mentioned above. The Company recorded this non-cash transaction as a contribution to its parent company. In conjunction with the Recapitalization Plan, the Company issued shares of common stock to certain members of the Company's management (the "Management Stockholders") in an aggregate amount equal to 15% of the common stock on a fully diluted basis. Such Management Stockholders have entered into a voting trust agreement in accordance with which the Chairman and Chief Executive Officer of the Company will exercise all voting and substantially all other rights to which such Management Stockholders would otherwise be entitled until August 15, 2005, or the earlier termination of the agreement. The Management Stockholders also entered into a stockholders agreement with the remaining Company stockholders, which provides that the parties will agree to vote all of their shares of the Company's equity securities so that the Board of Directors of the Company consists of five directors, with two directors designated by TCW Asset Management Company, two by the Management Stockholders, with the remaining director being an independent director initially designated by the initial purchaser of the Notes. F-16 39 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Purchase Agreement dated as of September 11, 1996 by and between ARG Property Management Corporation and ARG Enterprises, Inc. and ARG Properties I, LLC.*** 2.2 Master lease dated September 11, 1996 between ARG Properties I, LLC, as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.3 Lease #06152 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Bloomington, Minnesota.*** 2.4 Lease #06153 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Fridley, Minnesota.*** 2.5 Lease #06154 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Minnetonka, Minnesota.*** 2.6 Lease #06155 dated September 11, 1996 between Captec Net Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for Roseville, Minnesota.*** 2.7 Lease dated September 11, 1996 between Safeway Inc. as Landlord and ARG Enterprises, Inc. as Tenant.*** 2.8 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to ARG Properties I, LLC as Landlord.*** 2.9 A Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant to Captec Net Lease Realty, Inc. as Landlord for each of four Minnesota restaurants.*** 2.10 Guaranty of Lease dated September 11, 1996 by ARG Enterprises, Inc. as Tenant and Safeway Inc. as Landlord.*** 3.1 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 23, 1991.* 40 Exhibit No. Description - ----------- ----------- 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 21, 1992.* 3.3 Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on February 23, 1998. 3.4 By-Laws of the Company.* 4.1 Indenture dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as Trustee (including specimen certificate of 11.5% Senior Secured Note due 2003). 4.2 Warrant Agreement dated as of February 25, 1998 between the Company and U.S. Trust Company of California, N.A., as warrant agent (including specimen certificate of Warrant). 4.3 Registration Rights Agreement dated as of February 25, 1998 between the Company and Jefferies & Company, Inc. 4.4 Securityholders' and Registration Right Agreement dated as February 25, 1998 between the Company and Jefferies & Company, Inc., as purchaser. 4.5 Management Registration Right Agreement dated as of February 28, 1998 between the Company and the Management Stockholders. 4.6 Certificate of Designation filed with the Secretary of State of Delaware on February 24, 1998. 4.7 Certificate of Correction to the Certificate of Designation filed with the Secretary of State of Delaware on February 25, 1998. 9.1 Common Stock Voting Trust and Transfer Agreement dated as of February 24, 1998 among the Company and the stockholders parties thereto and Anwar S. Soliman, as voting trustee. 9.2 Securityholders Agreement dated as of February 25, 1998 among the Company, American Restaurant Group Holdings, Inc., Jefferies & Company, Inc., TCW Asset Management Company and the Management Stockholders. 10.1 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Anwar S. Soliman.** 10.2 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Ralph S. Roberts.** 10.3 Amended and Restated Employment Agreement dated as of December 14, 1993 between the Company and Wilfred H. Partridge.** 41 Exhibit No. Description - ----------- ----------- 21.1 Subsidiaries of the Company.** 27 Financial Data Schedule - ------------------------------- * Incorporated by reference to the Registrant's Registration Statement No. 33-48183 on Form S-4 filed with the Securities and Exchange Commission on May 28, 1992 as amended with Amendment No. 1 filed on September 11, 1992. ** Incorporated by reference to the Registrant's Registration Statement No. 33-74010 on Form S-4 filed with the Securities and Exchange Commission on January 12, 1994. *** Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 13, 1996 filed with the Securities and Exchange on September 30, 1996. EX-3.3 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN RESTAURANT GROUP, INC. FIRST: The name of the Corporation is American Restaurant Group, Inc. SECOND: The registered office and registered agent of the Corporation is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 1,160,000, of which 1,000,000 shares shall be shares of Common Stock, par value of $.01 per share, and 160,000 shares of preferred stock, par value $.01 each (hereinafter referred to as "Preferred Stock"). FIFTH: The Board of Directors of the Corporation is authorized to fix by resolution or resolutions the designation of each series of Preferred Stock and the powers, designations, preferences and relative participating, optional or other rights, if any, or the qualifications, limitations or restrictions thereof, including, without limiting the generality of the foregoing, such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors under the General Corporation Law of the State of Delaware. SIXTH: The Board of Directors of the Corporation, acting by majority vote, may alter, amend or repeal the By-Laws of the Corporation. SEVENTH: Except as otherwise provided by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this ARTICLE SEVENTH by the Stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. EX-4.1 3 INDENTURE DATED AS OF FEBRUARY 25, 1998 1 EXHIBIT 4.1 AMERICAN RESTAURANT GROUP, INC. as obligor and the Guarantors referred to herein $158,600,000 11 1/2% Senior Secured Notes due 2003 ------------------------------------ INDENTURE Dated as of February 25, 1998 ------------------------------------ U.S. Trust Company of California, N.A. Trustee 2 INDENTURE, dated as of February 25, 1998, among American Restaurant Group, Inc., a Delaware corporation (the "Company"), the Guarantors named herein and U.S. Trust Company of California, N.A., as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Company's 11 1/2% Senior Secured Notes due 2003: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Debt" means Indebtedness of a Person existing at the time such Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary, other than Indebtedness incurred in connection with, or in contemplation of, such Person merging with or into the Company or a Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that Indebtedness of such other Person that is redeemed, defeased, retired or otherwise repaid at the time, or immediately upon consummation of the transaction by which such other Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired Debt. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (B) trusts, any trustee or beneficiaries of which are such Person or members of such Person's immediate family. Notwithstanding the foregoing, neither the Initial Purchaser nor any of its Affiliates will be deemed to be Affiliates of the Company. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock or a Restricted Subsidiary (other than directors' qualifying shares), property or other assets, including by way of a sale/leaseback transaction (each referred to for the purposes of this definition as a "disposition"), by the Company or any of its Restricted Subsidiaries (including any disposition by means of merger, consolidation or similar transaction) other than (i) a disposition by a 3 2 Restricted Subsidiary to the Company or by the company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or assets in the ordinary course of business, (iii) dispositions of inventory in the ordinary course of business, (iv) for purposes of the "Limitation on Asset Sales" covenant only, a disposition that constitutes a Restricted Payment permitted by Section 4.7 hereof, (v) the sale, lease, transfer or other disposition of all or substantially all the assets of the Company as permitted under Section 5.1 hereof, (vi) the grant of Liens permitted by Section 4.12 hereof and (vii) sales of obsolete or worn- out equipment. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means the board of directors or any duly constituted committee of any corporation or of a corporate general partner of a partnership and any similar body empowered to direct the affairs of any other entity. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, and (ii) with respect to any other Person, any and all partnership or other equity interests of such Person. "Cash Collection Account Agreement" means the Agency Account Agreement dated as of February 25, 1998 between Wells Fargo Bank and the Collateral Agent. "Cash Equivalents" means (i) 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), (ii) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 and commercial paper issued by others rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition and (iii) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (i) and (ii) above. "Change of Control" means (i) the transfer (in one transaction or a series of transactions) of all or substantially all of the Company's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than to one or more Existing Holders, (ii) the liquidation or dissolution of the Company or the adoption of a plan 4 3 by the stockholders of the Company relating to the dissolution or liquidation of the Company, (iii) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Existing Holders, of beneficial ownership, directly or indirectly, of more than 50% of the aggregate ordinary voting power of the total outstanding Voting Stock of the Company, or (iv) during any period of two consecutive years, Continuing Directors cease for any reason to constitute a majority (excluding the Preferred Directors, if any) of the Board of Directors of the Company then still in office. "Closing Date" means the date upon which the Series A Notes are first issued. "Collateral" means any assets of the Company or any of its Subsidiaries defined as "Collateral" in any of the Security Documents and assets from time to time in which a Lien exists as security for any of the Obligations. "Collateral Agent" shall mean the Secured Party as defined in the Security Agreement. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Company" means the party named as such above, until a successor replaces such Person in accordance with the terms of this Indenture, and thereafter means such successor. "Company Security Agreement" means the Company Security Agreement, dated as of the date hereof, by and between the Company and the Collateral Agent, as amended or supplemented from time to time. "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, President or Senior Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Consolidated EBITDA" means, with respect to any Person (the referent Person) for any period, consolidated operating profit of such Person and its subsidiaries for such period, determined in accordance with GAAP, plus (to the extent such amounts are deducted in calculating such operating profit (loss) of such Person for such period, and without duplication) amortization, depreciation and other non-cash charges (including, without limitation, non-cash impairment charges, amortization of goodwill, deferred financing fees and other intangibles but excluding non-cash charges incurred after the date of this Indenture that require an accrual of or a reserve for cash charges for any future period); provided, that the income from operations of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of 5 4 dividends or distributions paid during such period to the referent Person or a Wholly Owned Subsidiary of the referent Person. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense (net of interest income) of such Person and its subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, noncash interest payments and the interest component of Capital Lease Obligations but excluding amortization of deferred financing costs), to the extent such expense was deducted in computing Consolidated Net Income of such Person for such period, and (ii) dividend requirements of such Person and its consolidated subsidiaries (whether in cash or otherwise (except dividends payable solely in shares of Qualified Capital Stock)) with respect to preferred stock paid, accrued, or scheduled to be paid or accrued during such period, in each case to the extent attributable to such period and excluding items eliminated in consolidation. For purposes of clause (ii) above, dividend requirements shall be increased to an amount representing; the pre-tax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator or which is such dividend requirements and the denominator of which is 1 minus the applicable actual combined effective federal, state, local, and foreign income tax rate of such Person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Consolidated Interest Expense. "Consolidated Net Income" means, with respect to any Person (the referent Person) for any period, the aggregate of the Net Income of such Person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included in calculating the referent Person's Consolidated Net Income only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a Wholly Owned Subsidiary of the referent Person, (ii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, and (iii) the Net Income of any Subsidiary will be excluded to the extent that declarations of dividends or similar distributions by that Subsidiary of such Net Income are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its owners. "Consolidated Net Worth" means, with respect to any Person, the total stockholders' equity of such Person determined on a consolidated basis in accordance with GAAP, adjusted to exclude (to the extent included in calculating such equity), (i) the amount of any such stockholders' equity attributable to Disqualified Capital Stock of such Person and its consolidated subsidiaries, and (ii) all upward revaluations and other write-ups in the book value of any asset of such person or a consolidated subsidiary of such person subsequent to the Closing Date, and (iii) all Investments in persons that are not consolidated Restricted Subsidiaries. 6 5 "Continuing Directors" means (i) individuals who at the beginning of such period were directors of the Company; (ii) any TCW Director and (iii) any director whose election by the Board of Directors of the Company or whose nomination for election by the stockholders of the Company was approved by a majority of the Continuing Directors then still in office. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 11.2 or such other address as the Trustee may specify by notice to the Company. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any event that is, or after notice or the passage of time or both would be, an Event of Default. "Definitive Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, that do not include the footnotes thereto. "Depository" means the Person specified in Section 2.3 hereof as the Depository with respect to the Notes issuable in global form, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "Disqualified Stock" means any Equity Interest that either by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) is or upon the happening of an event would be required to be redeemed or repurchased prior to the final stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final stated maturity. "DTC" means The Depository Trust Company. "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). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer that may be made by the Company pursuant to the Registration Rights Agreement to exchange Series B Notes for Series A Notes. "Existing Holders" shall mean the holders of the Common Stock of the Company on the Issue Date, TCW or any of their affiliates. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting 7 6 Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and in the rules and regulations of the Commission, that are in effect on the date of this Indenture. "Global Note" means a Note that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2 in the form of the Note attached hereto as Exhibit A. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means all direct or indirect current and future Restricted Subsidiaries, other than Black Angus Enterprises of Idaho, Inc. ("Idaho, Inc.") until the Company or any of its Subsidiaries makes an Investment in Idaho, Inc. "Holder" means a Person in whose name a Note is registered. "Holdings" means American Restaurant Group Holdings, Inc., a Delaware corporation. "Indebtedness" of any Person means (without duplication) (1) all liabilities and obligations, contingent or otherwise, of such Person (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) representing the deferred purchase price of property or services (other than liabilities incurred in the ordinary course of business which are not more than 90 days past due), (iv) created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) as lessee under capitalized leases, (vi) under bankers' acceptance and letter of credit facilities, (vii) to purchase, redeem, retire, defease or otherwise acquire for value any Disqualified Stock, or (viii) in respect of Hedging Obligations, (2) all liabilities and obligations of others of the type described in clause (1), above, that are Guaranteed by such Person, and (3) all liabilities and obligations of others of the type described in clause (1), above, that are secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person; provided, that the amount of such Indebtedness shall (to the extent such Person has not assumed or become liable for the payment of such Indebtedness in full) be the lesser of (x) the fair market value of such property at the time of determination and (y) the amount of such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. 8 7 "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Purchaser" means Jefferies & Company, Inc. "Intercreditor Agreement" means the intercreditor agreement among BankBoston, N.A., as agent to the lenders under the New Credit Facility, the Trustee, the Collateral Agent and certain other parties thereto, dated the Closing Date. "Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA of the Company for such period, to (ii) Consolidated Interest Expense of the Company for such period. In calculating the Interest Coverage Ratio for any period, pro forma effect shall be given to: (a) the incurrence, assumption, guarantee, repayment, repurchase, redemption or retirement by the Company or any of its Subsidiaries of any Indebtedness subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation is being made, as if the same had occurred at the beginning of the applicable period; and (b) the occurrence of any Asset Sale during such period by reducing Consolidated EBITDA for such period by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets sold and by reducing Consolidated Interest Expense by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness assumed by third parties or repaid with the proceeds of such Asset Sale, in each case as if the same had occurred at the beginning of the applicable period. For purposes of making the computation referred to above, acquisitions that have been made by the Company or any of its Restricted Subsidiaries subsequent to the commencement of such period but on or prior to the date on which the event for which the calculation is being made shall be given effect on a pro forma basis, assuming that all such acquisitions had occurred on the first day of such period in a manner consistent with the calculations described in "Unaudited Selected Consolidated Pro Forma Condensed Financial Data" contained in the Offering Circular. Without limiting the foregoing, the financial information of the Company with respect to any portion of such four fiscal quarters that falls before the Closing Date shall be adjusted to give pro forma effect to the issuance of the Notes and the application of the proceeds therefrom as if they had occurred at the beginning of such four fiscal quarters. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans, Guarantees, advances or capital contributions (excluding (i) commission, travel and similar advances to officers and employees of such Person made in the ordinary course of business and (ii) bona fide accounts receivable arising from the sale of goods or services in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. 9 8 "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" has the meaning set out in the Registration Rights Agreement. "Material Subsidiary" means any Subsidiary (a) that is a "Significant Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated by the Commission or (b) is otherwise material to the business of the Company. "Mortgages" means those certain first priority mortgages and deeds of trust, each with assignments of leases and rents and including fixture filings, dated the Closing Date, made by the Company and its Subsidiaries in favor of the Collateral Agent. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period, determined in accordance with GAAP, excluding any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sales and dispositions pursuant to sale and leaseback transactions, and excluding any extraordinary gain (but not loss), together with any related provision for taxes on such gain (but not loss). "Net Proceeds" means the aggregate proceeds received in the form of cash or Cash Equivalents in respect of any Asset Sale (including payments in respect of deferred payment obligations when received), net of (i) the reasonable and customary direct out-of-pocket costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), other than any such costs payable to an Affiliate of the Company, (ii) taxes actually payable directly as a result of such Asset Sale (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) amounts required to be applied to the permanent repayment of Indebtedness in connection with such Asset Sale, and (iv) appropriate amounts provided as a reserve by the Company or any Restricted Subsidiary, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or such Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations arising from such Asset Sale. "New Credit Facility means the New Credit Facility, entered into on the Closing Date between the Company, certain of its Subsidiaries, the lenders named therein and the agent for such Lenders as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced 10 9 from time to time; and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with such amendment, modification, renewal, refunding, replacement or refinancing in an aggregate amount not to exceed $20 million. "Notes" means, collectively, the Series A Notes and the Series B Notes. "Obligations" means any principal, interest, premium, penalties, fees, indemnifications, reimbursements, damages and other obligations and liabilities of the Company or any of the Guarantors under this Indenture, the Security Documents, the Notes or the Guarantees of the Notes. Offering Circular" means the Company's Offering Circular dated February 17, 1998. "Officers" means the Chairman of the Board, the President, the Chief Financial Officer, Chief Operating Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary, any Assistant Secretary or any Senior Vice President of the Company. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the President, Chief Financial Officer, Treasurer, Controller or a Senior Vice President of the Company. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Affiliate Transactions" means (i) employment agreements, stockholder agreements, stock options or other incentive plans existing on the Closing Date or thereafter entered into by the Company or any Restricted Subsidiary in the ordinary course of business with the approval of a majority of the disinterested members of the Company's Board of Directors; (ii) transactions between or among the Company and/or its Restricted Subsidiaries; or (iii) reasonable and customary fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary as determined in good faith by a majority of the disinterested directors of the Company's Board of Directors. "Permitted Investments" means (i) Investments in the Company, any Guarantor or any Restricted Subsidiary (including without limitation, Guarantees of Indebtedness of any such Person), (ii) Investments in Cash Equivalents, (iii) Investments in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary, (iv) Hedging Obligations, (v) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers, (vi) Investments as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.10 of this Indenture, (vii) 11 10 Investments existing on the Closing Date, (viii) accounts receivable owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, (ix) payroll, travel and similar advances in the ordinary course of business, (x) loans or advances to employees made in the ordinary course of business; and (xi) Guarantees permitted to be made pursuant to Section 4.9. "Permitted Liens" means (i) Liens in favor of the Company and/or its Restricted Subsidiaries other than with respect to intercompany Indebtedness, (ii) Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition, (iii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition, (iv) Liens incurred in the ordinary course of business in respect of Hedging Obligations, (v) Liens incurred in the ordinary course of business to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations (exclusive of obligations constituting Indebtedness) of a like nature including, without limitation, cash retainages, (vi) Liens existing or created on the date of this Indenture, (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested or remedied in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as may be required in conformity with GAAP has been made therefor, (viii) Liens arising by reason of any judgment, decree or order of any court with respect to which the Company or any of its Restricted Subsidiaries is then in good faith prosecuting an appeal or other proceedings for review, the existence of which judgment, order or decree is not an Event of Default under this Indenture, (ix) encumbrances consisting of zoning restrictions, survey exceptions, utility easements, licenses, rights of way, easements of ingress or egress over property of the Company or any of its Restricted Subsidiaries, rights or restrictions of record on the use of real property, minor defects in title, landlord's and lessor's liens under leases on property located on the premises rented, mechanics' liens, warehouseman's liens, supplier's liens, repairman's liens, vendors' liens, contractor's liens and similar encumbrances, rights or restrictions on personal or real property, in each case not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, (x) Liens incidental to the conduct of business or the ownership of properties incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, bids, and government contracts and leases and subleases, (xi) Liens for any interest or title of a lessor under any Capitalized Lease Obligation permitted to be incurred under this Indenture; provided, that such Liens do not extend to any property or asset that is not leased property subject to such Capitalized Lease Obligation, (xii) any extension, renewal, or replacement (or successive extensions, renewals or replacements), in whole or in part, of Liens described in clauses (i) through (xi) above, (xiii) Liens securing the Notes, and (xiv) 12 11 Liens in addition to the foregoing, which in the aggregate, are secured by assets with a fair market value not in excess of $100,000 at any time. "Permitted Tax Payments to Holdings" means payments made to Holdings to enable Holdings to pay foreign, Federal, state, and local tax liabilities imposed directly upon Holdings ("Tax Payments"); provided, however, that (i) notwithstanding the foregoing, in the case of any Tax Payment that is permitted to be made to Holdings in respect of its Federal income tax liability for any taxable period during which Holdings is the parent company of an affiliated group that includes the Company and each of its United States subsidiaries as members and files a consolidated Federal income tax return, such payment shall be determined on the basis of assuming that the Company is the parent company of an affiliated group (the "Company Affiliated Group") filing a consolidated Federal income tax return and that Holdings and each such United States subsidiary is a member of the Company Affiliated Group and (ii) any Tax Payment made to Holdings shall either be used by Holdings to pay such tax liabilities to the applicable taxing authority within 10 days of Holdings' receipt of such payment or refunded to the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. "Pledge Agreement" means the Pledge Agreement, dated as of the date hereof, by and between the Company and its Subsidiaries, on the one hand and the Collateral Agent, on the other, as amended or supplemented from time to time. "Preferred Directors" means the two members of the Company's Board of Directors that the holders of a majority of the Preferred Stock, voting as one class, may be entitled from time to time to elect pursuant to the terms of the Preferred Stock upon the Company's failure to discharge certain obligations thereunder, or breach of certain provisions thereof or failure to satisfy certain tests therein. "Preferred Stock Repurchases" means any purchase of Preferred Stock with the portion of Excess Proceeds remaining after payment of the purchase price of the Notes tendered pursuant to an Excess Proceeds Offer if such purchase of Preferred Stock is within 485 days of the date of the Asset Sale which gave rise to such Excess Proceeds Offer. "Purchase Money Liens" means Liens to secure or securing Purchase Money Obligations permitted to be incurred under this Indenture. "QIB" shall mean "qualified institutional buyer" as defined in Rule 144A. "Qualified Capital Stock" means, with respect to any Person, Capital Stock of such Person other than Disqualified Capital Stock. "Qualified Equity Offering" means (i) an underwritten primary public offering of Qualified Capital Stock of the Company pursuant to an effective registration statement 13 12 under the Securities Act or (ii) a private offering of Qualified Capital Stock other than issuances of common stock pursuant to employee benefit plans or as compensation to employees. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, by and among the Company, the Guarantors and the Initial Purchaser as such agreement may be amended, modified or supplemented from time to time. "Responsible Officer" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee located at the Corporate Trust Office (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Securities" means Notes that bear or are required to bear the legends set forth in Exhibit A hereto. "Restricted Subsidiary" means a Subsidiary other than an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreements" means the Company Security Agreement and Subsidiary Security Agreement. "Security Documents" means, collectively, the Mortgages, the Security Agreements, the Pledge Agreement, the Cash Collection Account Agreement, the Intercreditor Agreement, the Trademark Security Agreement and any other document, instrument or agreement executed or delivered by the Company or any of its Subsidiaries from time to time pursuant to which the Company or any such Subsidiary shall grant a Lien on any of their respective properties, assets or revenues to secure payment of the Obligations hereunder and under the Notes or relating to intercreditor matters. "Series A Notes" means the Company's 11 1/2% Series A Senior Secured Notes due 2003, as authenticated and issued under this Indenture. "Series B Notes" means the Company's 11 1/2% Series B Senior Secured Notes due 2003, as authenticated and issued under this Indenture. 14 13 "subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person or a combination thereof and (ii) any partnership in which such Person or any of its subsidiaries is a general partner. "Subsidiary" means any subsidiary of the Company. "Subsidiary Security Agreement" means the Subsidiary Security Agreement, dated as of the date hereof, by and between the Restricted Subsidiaries and the Collateral Agent, as amended or supplemented from time to time. "TCW " means TCW Asset Management Company, TCW Shared Opportunities Fund II, TCW Leveraged Income Trust L.P.or any of their affiliates. "TCW Directors" means members of the Board of Directors nominated by TCW or any of their affiliates pursuant to the Stockholders Agreement (as defined herein). "TCW Tax Payments" means the payments made to TCW pursuant to Section 4.2 of the Securityholders Agreement dated as of February 25, 1998 among Holdings, the Company, TCW and the other parties thereto, which payments shall not exceed $125,000 per year. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss. ss. 77aaa-77bbbb), as amended, as in effect on the date hereof until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA. "Trademark Security Agreement" means the Trademark Collateral Security Agreement, dated as of the Closing Date, between the Company and the Restricted Subsidiaries, on the one hand, and the Collateral Agent on the other, as amended or supplemented from time to time. "transfer" means any direct or indirect sale, assignment, transfer, lease, conveyance, or other disposition (or series of related sales, leases, transfers or dispositions) (including, without limitation, by way of merger or consolidation). "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means any Subsidiary that has been designated by the Company (by written notice to the Trustee as provided below) as an Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (i) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, the Company or any Restricted Subsidiary (other than such Subsidiary), (ii) 15 14 neither immediately prior thereto nor after giving pro forma effect to such designation, would there exist a Default or Event of Default, (iii) immediately after giving effect to such designation on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to Section 4.9(a) of this Indenture and (iv) the creditors of such Subsidiary have no direct or indirect recourse (including, without limitation, recourse with respect to the payment of principal or interest on Indebtedness of such Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (a) no Default or Event of Default is existing or will occur as a consequence thereof and (b) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to Section 4.9(a) of this Indenture. Each such designation shall be evidenced by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. The Company shall be deemed to make an Investment in each Subsidiary designated as an "Unrestricted Subsidiary" immediately following such designation in an amount equal to the Investment in such Subsidiary and its subsidiaries immediately prior to such designation; provided, that if such Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount of such Investment shall be deemed to be reduced (but not below zero) by the fair market value of the net consolidated assets of such Subsidiary on the date of such redesignation. "U.S. Government Obligations" means direct obligations of the United States of America, or any agency or instrumentality thereof for the payment of which the full faith and credit of the United States of America is pledged. "Voting Stock" means, with respect to any Person, (i) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency), (ii) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (i) above and (iii) the Warrants. "Warrants" means the warrants to purchase shares of the Company's common stock, $0.01 par value per share, issued pursuant to the Warrant Agreement dated February 25, 1998 between the Company and U.S. Trust of California, N.A., as Warrant Agent. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years (rounded to the nearest one-twelfth) obtained by dividing (i) the then outstanding principal amount of such Indebtedness into (ii) the total of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. 16 15 "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. Section 1.2. Other Definitions. Defined in Term Section ---- ------- "Affiliate Transaction".................... 4.11 "Change of Control Offer".................. 4.14 "Change of Control Payment"................ 4.14 "Change of Control Payment Date"........... 4.14 "Definitive Notes"......................... 2.1 "Event of Default"......................... 6.1 "Excess Proceeds".......................... 4.10 "Excess Proceeds Offer".................... 4.10 "Excess Proceeds Offer Period"............. 4.10 "Excess Proceeds Payment Date"............. 4.10 "Global Note".............................. 2.1 "Guaranty"................................. 10.7 "Hedging Obligations"...................... 4.9(b) "Paying Agent"............................. 2.3 "Purchase Amount".......................... 4.10 "Purchase Money Indebtedness".............. 4.9(b) "Refinance"................................ 4.9(b) "Refinancing Indebtedness"................. 4.9(b) "Registrar"................................ 2.3 "Restricted Payments"...................... 4.7 Section 1.3. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; 17 16 "obligor" on the Notes means the Company, the Guarantors and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. Section 1.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE 2 THE NOTES Section 2.1. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto, the terms of which are incorporated in and made a part of this Indenture. Each Note shall include the Guaranty executed by each of the Guarantors in the form of Exhibit C attached hereto, the terms of which are incorporated and made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued in denominations of $1,000 and integral multiples thereof. The Notes will be issued (i) in global form (the "Global Note"), substantially in the form of Exhibit A attached hereto (including the text referred to in footnotes 1 and 2 thereto) and (ii) in definitive form (the "Definitive Notes"), substantially in the form of Exhibit A attached hereto (excluding the text referred to in footnotes 1 and 2 thereto). The Global Note shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon; provided, that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Note to reflect the amount of any increase 18 17 or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A attached hereto. The Trustee shall, upon a Company Order, authenticate for original issue up to $158,600,000 aggregate principal amount of each series of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $158,600,000 except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authenticating by the Trustee includes authenticating by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of principal of and (subject to the provisions of this Indenture and the Notes with respect to record dates) interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Except as set forth in the next sentence, the Notes will initially be issued in the form of one or more registered global Notes which will be deposited on the Closing Date with, or on behalf of, the Depository and registered in the name of the global Holder. Notes that are originally issued to or transferred to an institutional "accredited investor" (within the meaning of Rule 501 under the Securities Act) who is not a "qualified institutional buyer" (within the meaning of Rule 144A (a "QIB) or to any other persons who are not QIBs shall be issued in the form of certificated Notes in registered form substantially in the form set forth in Exhibit A. 19 18 Section 2.3. Registrar, Paying Agent and Depository. The Company shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) an office or agency where Notes may be presented for payment ("Paying Agent"). The Company initially appoints the Trustee as Registrar and Paying Agent. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co- registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar, except that for purposes of Articles Three and Eight and Sections 4.1, 4.10 and 4.14 neither the Company nor any of its Subsidiaries shall act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company initially appoints DTC to act as Depository with respect to the Global Notes. The Trustee shall act as custodian for the Depository with respect to the Global Notes. Section 2.4. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money delivered to the Trustee. If the Company or a Subsidiary of the Company acts as Paying Agent (subject to Section 2.3), it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Section 2.5. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders, including the 20 19 aggregate principal amount thereof, and the Company shall otherwise comply with TIA ss. 312(a). Section 2.6. Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request (1) to register the transfer of the Definitive Notes or (2) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, that the Definitive Notes so presented (A) have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing; and (B) in the case of a Restricted Security, such request shall be accompanied by the following additional documents: (i) if such Restricted Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (ii) if such Restricted Security is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (iii) if such Restricted Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto) and an opinion of counsel reasonably acceptable to the Company and the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may be exchanged for a beneficial interest in a Global Note only upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) written instructions from the entity surrendering such Definitive Note directing the Trustee to make an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, and (ii) if such Definitive Note is a Restricted Security, a certification (in substantially the form of Exhibit B attached hereto) to the effect that such Definitive Note is being transferred to a QIB in accordance with Rule 144A; in which case the Trustee shall cancel such Definitive Note and cause the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global 21 20 Note is then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture and the procedures of the Depository therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. Upon receipt by the Trustee of written transfer instructions (or such other form of instructions as is customary for the Depository) from the Depository (or its nominee) on behalf of any Person having a beneficial interest in a Global Note, the Trustee shall, in accordance with the standing instructions and procedures existing between the Depository and the Trustee, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee a Definitive Note in the appropriate principal amount; provided, that in the case of a Restricted Security, such instructions shall be accompanied by the following additional documents: (i) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (ii) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (iii) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto) and an opinion of counsel reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. Definitive Notes issued in exchange for a beneficial interest in a Global Note shall be registered in such names and in such authorized denominations as the Depository shall instruct the Trustee. (e) Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture, the Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository; provided, that if: 22 21 (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository and a successor Depository is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute and the Trustee shall authenticate and make available for delivery, Definitive Notes in an aggregate principal amount equal to the aggregate principal amount of the Global Note in exchange for such Global Note in the names and in such authorized dominations as the Depository shall direct the Trustee and such Notes shall be made available for delivery to the Persons designated by the Depository. (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in the Global Note have either been exchanged for Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be returned to or retained and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the aggregate principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee to reflect such reduction. (g) General Provisions Relating to Transfers and Exchanges. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be legal, valid and binding obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange (without transfer to another person) pursuant to Sections 2.10, 3.7, 4.10, 4.14 and 9.5 of this Indenture). The Company shall not be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (iii) register the transfer of or exchange a Note between a record date and the next succeeding interest payment date. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any 23 22 Note is registered as the absolute owner of such Note for all purposes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (h) Exchange of Series A Notes for Series B Notes. The Series A Notes may be exchanged for Series B Notes pursuant to the terms of the Exchange Offer. The Trustee and Registrar shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (A) upon issuance of the Series B Notes, the transactions contemplated by the Exchange Offer have been consummated; and (B) the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by a Global Note and the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by Definitive Notes, the name of each Holder of such Definitive Notes, the principal amount at maturity properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Notes for Series B Notes shall be registered and sent for each such Holder. The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an Opinion of Counsel to the effect that the Series B Notes have been registered under Section 5 of the Securities Act and this Indenture has been qualified under the TIA and (iii) a Company Order, shall authenticate (A) a Global Note for Series B Notes in an aggregate principal amount equal to the aggregate principal amount of Series A Notes represented by a Global Note indicated in such Officers' Certificate as having been properly tendered and (B) Definitive Notes representing Series B Notes registered in the names of, and in the principal amounts indicated in such Officers' Certificate. If the principal amount of the Global Note for the Series B Notes is less than the principal amount of the Global Note for the Series A Notes, the Trustee shall make an endorsement on such Global Note for Series A Notes indicating a reduction in the principal amount represented thereby. The Trustee shall deliver such Definitive Notes for Series B Notes to the Holders thereof as indicated in such Officers' Certificate. Section 2.7. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements for replacements of Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the 24 23 Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company or the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. If a Note is replaced pursuant to Section 2.7 hereof, the replaced Note ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. Section 2.9. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows to be so owned shall be considered as not outstanding. Section 2.10. Temporary Notes. Pending the preparation of definitive Notes, the Company (and the Guarantors) may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Notes that are printed, lithographed, typewritten, mimeographed or otherwise reproduced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company (and the Guarantors) shall cause definitive Notes to be prepared without unreasonable delay. The definitive Notes shall be 25 24 printed, lithographed or engraved, or provided by any combination thereof, or in any other manner permitted by the rules and regulations of any principal national securities exchange, if any, on which the Notes are listed, all as determined by the Officers executing such definitive Notes. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency maintained by the Company for such purpose pursuant to Section 4.2 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company (and the Guarantors) shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor the same aggregate principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall retain or destroy cancelled Notes in accordance with its normal practices (subject to the record retention requirement of the Exchange Act) unless the Company directs them to be returned to it. The Company may not issue new Notes to replace Notes that have been redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be returned to the Company. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to the Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Legends. (a) Except as permitted by subsections (b) or (c) hereof, each Note shall bear legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A attached hereto. (b) Upon any sale or transfer of a Restricted Security (including any Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: 26 25 (i) in the case of any Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Restricted Security for a Definitive Note that does not bear the legends required by subsection (a) above; and (ii) in the case of any Restricted Security represented by a Global Note, such Restricted Security shall not be required to bear the legends required by subsection (a) above, but shall continue to be subject to the provisions of Section 2.6(c) hereof; provided, that with respect to any request for an exchange of a Restricted Security that is represented by a Global Note for a Definitive Note that does not bear the legends required by subsection (a) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144. (c) The Company (and the Guarantors) shall issue and the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer. The Series B Notes shall not bear the legends required by subsection (a) above unless the Holder of such Series A Notes is either (A) a broker-dealer who purchased such Series A Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. ARTICLE 3 REDEMPTION Section 3.1. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of Section 3.7 pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.2. Selection of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, pro rata, by lot or by such method as the Trustee deems to be fair and reasonable. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. 27 26 Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption by first class mail to each Holder whose Notes are to be redeemed at such Holder's registered address. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part only, the portion of the principal amount of such Note to be redeemed and that, after the redemption date, upon cancellation of the original Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes or portions of Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or the section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) the CUSIP number of the Notes to be redeemed. At the Company's request, the Trustee shall give the notice of redemption in the name of the Company and at its expense; provided that the Company shall deliver to the Trustee, at least 45 days (unless a shorter period is acceptable to the Trustee) prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. Effect of Notice of Redemption. Once notice of redemption has been mailed to the Holders in accordance with Section 3.3 herein, Notes called for redemption become due and payable on the redemption date at the redemption price. At any time prior to the mailing of a notice of redemption to the Holders pursuant to Section 3.3, the Company may withdraw, revoke or rescind any notice of redemption delivered to the Trustee without any continuing obligation to redeem the Notes as contemplated by such notice of redemption. 28 27 Section 3.5. Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Trustee (to the extent not already held by the Trustee) or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. Interest on the Notes to be redeemed shall cease to accrue on the applicable redemption date, whether or not such Notes are presented for payment, if the Company makes or deposits the redemption payment in accordance with this Section 3.5. If any Note called for redemption shall not be paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes. Section 3.6. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.7. Optional Redemption. (a) Except as set forth in Section 3.7(b), the Notes are not redeemable at the Company's option prior to February 15, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on February 15 of the years indicated below:
Year Percentage ---- ---------- 2001 . . . . . . . . . . . . . . .105.75% 2002 and thereafter . . . . . . . 100%
(b) Notwithstanding the foregoing, at any time or from time to time prior to February 15, 2000, the Company may, at its option, redeem up to one-third of the original principal amount of the Notes, at a redemption price of 111.5% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Qualified Equity Offerings; provided, that (i) such redemption shall occur within 60 days of the date of closing of such public offering and (ii) at least two-thirds of the original aggregate principal amount of Notes remains outstanding immediately after giving effect to each such redemption. 29 28 ARTICLE 4 COVENANTS Section 4.1. Payment of Notes. The Company shall pay the principal and premium, if any, of, and interest on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds on or before that date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than three Business Days following the date of payment, any money that exceeds such amount of principal, premium, if any, and interest then due and payable on the Notes. The Company shall pay any and all amounts, including without limitation Liquidated Damages, if any, on the dates and in the manner required under the Registration Rights Agreement. The Company shall pay interest (including post-petition interest) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.2. Maintenance of Office or Agency. The Company shall maintain an office or agency (which may be an office of the Trustee, Registrar or co-registrar) in the Borough of Manhattan, The City of New York where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. 30 29 Section 4.3. Reports. (a) The Company shall file with the Trustee, within 15 days after the time of filing with the Commission, copies of the reports, information and other documents (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Commission and the Trustee all such reports, information and other documents as it would be required to file if it were subject to the requirements of Section 13 or 15(d) of the Exchange Act; provided, that the Company shall not be in default of the provisions of this Section 4.3 for any failure to file reports with the Commission solely by refusal by the Commission to accept the same for filing. The Company shall deliver (or cause the Trustee to deliver) copies of all reports, information and documents required to be filed with the Trustee pursuant to this Section 4.3 to the Holders at their addresses appearing in the register of Notes maintained by the Registrar. The Company shall also comply with the provisions of TIA ss. 314(a). (b) If the Company is required to furnish annual, quarterly or current reports to its stockholders pursuant to the Exchange Act, the Company shall cause any annual, quarterly, current or other financial report furnished by it generally to its stockholders to be filed with the Trustee mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar. If the Company is not required to furnish annual, quarterly or current reports to its stockholders pursuant to the Exchange Act, then, to the extent not already filed with the Trustee or provided to the Holders pursuant to paragraph (a) above, the Company shall cause the financial statements of the Company and its consolidated Subsidiaries (and similar financial statements for all unconsolidated Subsidiaries, if any), including any notes thereto (and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to that which would have been required to appear in annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act to be so filed with the Trustee and mailed to the Holders promptly, but in any event, within 90 days after the end of each of the fiscal years of the Company and within 45 days after the end of each of the first three quarters of each such fiscal year. (c) So long as is required for an offer or sale of the Notes to qualify for an exemption under Rule 144A, the Company (and the Guarantors) shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Notes identified by any Holder of Restricted Securities. Section 4.4. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate (provided, that one of the signatories to such Officers' Certificate shall be the Company's principal executive officer, principal financial officer or principal accounting officer) stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of 31 30 the signing Officers with a view to determine whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that each of the Company and its Subsidiaries has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge and what action each is taking or proposes to take with respect thereto). (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the independent public accountants of the Company (which shall be a firm of established national reputation reasonably satisfactory to the Trustee) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that either the Company or any of its Subsidiaries has violated any provisions of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee forthwith upon any Officer becoming aware of (i) any Default or Event of Default or (ii) any event of default under any mortgage, indenture or instrument referred to in Section 6.1(5) hereof, an Officers' Certificate specifying such Default, Event of Default or other event of default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. Taxes. The Company shall, and shall cause its Subsidiaries to, file all tax returns required to be filed and to pay prior to delinquency all material taxes, assessments and governmental levies except as contested in good faith and by appropriate proceedings and for which reserves have been established in accordance with GAAP. Section 4.6. Stay, Extension and Usury Laws. The Company (and each Guarantor) covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Guarantor hereby expressly (to the extent that it may lawfully do so) waives all benefit or advantage of any such law and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee but shall suffer and permit the execution of every such power as though no such law has been enacted. 32 31 Section 4.7. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of any Equity Interests of the Company or any of its Restricted Subsidiaries (other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or (y) dividends or distributions payable to the Company or any Restricted Subsidiary or (z) if the Subsidiary making such dividend or distribution is not a Wholly Owned Subsidiary, dividends to its shareholders on a pro-rata basis), (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interest of the Company, any Subsidiary or any other Affiliate of the Company (other than any such Equity Interest owned by the Company or any Wholly Owned Subsidiary), (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is subordinated in right of payment to the Notes or such Guarantor's Guarantee thereof, as the case may be, (iv) make any Restricted Investment, or (v) make any payment or transfer any assets to, or on behalf of, Holdings or any of its Affiliates (all such payments and other actions set forth in clauses (i) through (v) above being collectively referred to as "Restricted Payments") unless, at the time of such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, (2) immediately after giving effect thereto on a pro forma basis, the Company could incur at least $1.00 of additional Indebtedness under Section 4.9(a) hereof, and (3) such Restricted Payment (the value of any such payment, if other than cash, being determined in good faith by the Board of Directors and evidenced by a resolution set forth in an Officers' Certificate delivered to the Trustee), together with the aggregate of all other Restricted Payments made after the date of this Indenture (including Restricted Payments permitted by clauses (i), (v) (to the extent made in cash) and (vi) of Section 4.7(b) and excluding Restricted Payments permitted by the other clauses therein), is less than the sum of (x) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of 33 32 the first quarter commencing immediately after the Closing Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of Equity Interests of the Company (other than Disqualified Stock) after the date of this Indenture and on or prior to the time of such Restricted Payment, plus (z) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of any convertible or exchangeable debt security of the Company that has been converted or exchanged into Equity Interests of the Company (other than Disqualified Stock) pursuant to the terms thereof after the date of this Indenture and on or prior to the time of such Restricted Payment (including any additional net cash proceeds not included in clause (y) above received by the Company upon such conversion or exchange). The aggregate amount of each Investment constituting a Restricted Payment since the date hereof shall be reduced by the aggregate after-tax amount of all payments made to the Company and its Restricted Subsidiaries with respect to such Investments; provided, that (a) the maximum amount of such payments shall not exceed the original amount of such Investment and (b) such payments shall also be excluded from the calculations contemplated by clauses (3)(x) through (z) of this Section 4.7. (b) The provisions of subsection (a) above shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would not have been prohibited by the provisions of this Indenture, (ii) the redemption, purchase, retirement or other acquisition of any Equity Interests of the Company or Indebtedness of the Company or any Restricted Subsidiary solely in exchange for Equity Interests of the Company (other than Disqualified Stock), (iii) the redemption, repurchase or payoff of any Indebtedness with proceeds of any Refinancing Indebtedness permitted to be incurred pursuant to the provisions of Section 4.9(b)(x) hereof, (iv) payments by the Company to Holdings in respect of Permitted Tax Payments to Holdings, (v) the redemption of the Preferred Stock with the proceeds of a Qualified Equity Offering, (vi) Permitted Affiliate Transactions, or 34 33 (vii) Preferred Stock Repurchases, (viii) the TCW Tax Payments, (ix) payments of dividends on Disqualified Stock issued in accordance with Section 4.9(a) hereof, or (x) other Restricted Payments in an aggregate amount not to exceed $2.0 million. (c) Not later than the date of making each Restricted Payment (other than Restricted Payments contemplated by Section 4.7(b)), the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted, and setting forth the basis upon which the calculations required by this Section 4.7 were computed, which calculations may be based upon the Company's latest available financial statements. Section 4.8. Limitation on Restrictions on Subsidiary Dividends. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary (a) to (1) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with respect to any other interest or participation in, or measured by, such Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, or (b) to make loans or advances to the Company or any of its Restricted Subsidiaries, or (c) to transfer any of its assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (i) the New Credit Facility, as in effect on the Closing Date, or any refinancings, amendments, modifications or supplements thereof containing dividend or other payment restrictions that are not materially more restrictive than those contained in the New Credit Facility on the Closing Date, (ii) this Indenture, the Security Documents and the Notes, (iii) applicable law, 35 34 (iv) restrictions with respect to a Subsidiary that was not a Subsidiary on the Closing Date in existence at the time such Person becomes a Subsidiary (but not created as a result of or in anticipation of such Person becoming a Subsidiary); provided, that such restrictions are not applicable to any other Person or the properties or assets of any other Person, (v) customary non-assignment and net worth provisions of any contract or lease entered into in the ordinary course of business, (vi) customary restrictions on the transfer of assets subject to a Lien permitted under this Indenture imposed by the holder of such Lien, (vii) restrictions imposed by any agreement to sell assets or Capital Stock to any Person pending the closing of such sale, and (viii) permitted Refinancing Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that such restrictions contained in any agreement governing such Refinancing Indebtedness are not materially more restrictive than those contained in any agreements governing the Indebtedness being Refinanced. Section 4.9. Limitation on Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, (1) create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to, contingently or otherwise (collectively, "incur"), any Indebtedness (including Acquired Debt) or (2) issue any Disqualified Stock; provided, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and any Restricted Subsidiary may incur Acquired Debt, in each case if (x) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to such incurrence or issuance, and (y) the Interest Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least equal to 2:1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness (including Acquired Debt) had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) The limitations of Section 4.9(a) shall not prohibit the incurrence of: (i) Indebtedness under the New Credit Facility, provided, that the aggregate principal amount of Indebtedness so incurred on any date, together with all other Indebtedness incurred pursuant to this clause (i) and outstanding on such date, shall not exceed $20 million, 36 35 (ii) performance bonds, appeal bonds, surety bonds, insurance obligations or bonds and other similar bonds or obligations incurred in the ordinary course of business, (iii) obligations incurred to fix the interest rate on any variable rate Indebtedness otherwise permitted by this Indenture ("Hedging Obligations"), (iv) Indebtedness owed by (1) a Restricted Subsidiary to the Company or to a Wholly Owned Subsidiary or (2) the Company to a Wholly Owned Subsidiary, (v) Indebtedness outstanding on the date of this Indenture, including the Notes and the Guarantees, (vi) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, that such Indebtedness is extinguished within three Business Days of incurrence, (vii) Indebtedness represented by Guarantees by the Company of Indebtedness otherwise permitted to be incurred pursuant to this covenant and Indebtedness represented by Guarantees by a Restricted Subsidiary of Indebtedness of the Company or another Restricted Subsidiary otherwise permitted to be Incurred pursuant to this covenant; (viii) obligations with respect to customary provisions regarding post-closing purchase price adjustments and indemnification in agreements for the purchase or sale of a business or assets otherwise permitted by the Indenture; (ix) other Indebtedness in an aggregate principal amount at any one time outstanding not to exceed $5.0 million; and (x) Indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund (collectively, "Refinance") Indebtedness referred to in clause (v) above or this clause (x) or Indebtedness incurred pursuant to the Interest Coverage Ratio test set forth in Section 4.9(a) hereof ("Refinancing Indebtedness"); provided, that (A) the principal amount of such Refinancing Indebtedness does not exceed the principal amount of Indebtedness so Refinanced (plus the premiums required to be paid, and the out-of-pocket expenses (other than those payable to an Affiliate of the Company) reasonably incurred, in connection therewith), (B) the Refinancing Indebtedness has a final scheduled maturity that exceeds the final stated maturity, and a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being Refinanced, and (C) the Refinancing Indebtedness ranks, in right of payment, no more favorable to the Notes as the Indebtedness being Refinanced. 37 36 Section 4.10. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets subject to such Asset Sale, (ii) at least 75% of the consideration for such Asset Sale is in the form of cash, Cash Equivalents or liabilities of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee of the Notes) that are assumed by the transferee of such assets (provided, that following such Asset Sale there is no further recourse to the Company and its Restricted Subsidiaries with respect to such liabilities), and (iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to the business of the Company or its Restricted Subsidiaries, or (b) used to repay, purchase or otherwise acquire Indebtedness under the New Credit Facility or (c) to the extent not used as provided in clause (a) or (b), applied to make an offer to purchase Notes as described below (an "Excess Proceeds Offer"); provided, that if the amount of Net Proceeds from any Asset Sale not invested or used pursuant to clause (a) or (b) above is less than $5.0 million, the Company shall not be required to make an offer pursuant to clause (c) until the aggregate amount of Excess Proceeds from all Asset Sales exceeds $5.0 million. Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness under the New Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents. For the purposes of this covenant, the following are deemed to be cash: (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash and (z) assets related to the business of the Company or its Restricted Subsidiaries received in an exchange of assets transaction; provided that (i) in the event such exchange of assets transaction or series of related exchange of assets transactions (each an "Exchange Transaction") involves an aggregate value in excess of $2.5 million, the terms of such Exchange Transaction shall have been approved by a majority of the disinterested members of the Board of Directors, (ii) in the event such Exchange Transaction involves an aggregate value in excess of $5.0 million, the Company shall have received a written opinion from a nationally recognized independent investment banking firm that the Company has received consideration equal to the fair market value of the assets disposed of and (iii) any assets to be received shall be comparable to those being exchanged as determined in good faith by the Board of Directors. The amount of Net Proceeds not invested, used or applied as set forth in the preceding clauses (a) and (b) constitutes "Excess Proceeds." If the Company elects, or becomes obligated to make an Excess Proceeds Offer, the Company shall offer to purchase Notes having an aggregate principal amount equal to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date. The Company must commence such Excess Proceeds Offer not later than 30 days after the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds. If the aggregate purchase price for 38 37 the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and its Restricted Subsidiaries may use the portion of the Excess Proceeds remaining after payment of such purchase price for general corporate purposes, including Preferred Stock Purchases. Each Excess Proceeds Offer shall remain open for a period of 20 Business Days and no longer, unless a longer period is required by law (the "Excess Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company shall purchase and mail or deliver payment for the Purchase Amount for the Notes or portions thereof tendered, pro rata or by such other method as may be required by law, or, if less than the Purchase Amount has been tendered, all Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the principal amount of Notes acquired by the Company through purchase or redemption (other than pursuant to a Change of Control Offer) subsequent to the date of the Asset Sale and surrendered to the Trustee for cancellation. Each Excess Proceeds Offer shall be conducted in compliance with all applicable laws, including without limitation, Regulation 14E of the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.10 by virtue thereof. The Company shall, no later than 30 days following the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds, commence the Excess Proceeds Offer, if an Excess Proceeds Offer is required by the terms of this Indenture, by mailing to the Trustee and each Holder, at such Holder's last registered address, a notice, which shall govern the terms of the Excess Proceeds Offer, and shall state: (1) that the Excess Proceeds Offer is being made pursuant to this Section 4.10, the principal amount of Notes which shall be accepted for payment and that all Notes validly tendered shall be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase; (3) that any Notes not tendered or accepted for payment pursuant to the Excess Proceeds Offer shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the purchase price with respect to any Notes tendered, Notes accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest after the Excess Proceeds Payment Date; (5) that Holders electing to have Notes purchased pursuant to an Excess Proceeds Offer shall be required to surrender their Notes, with the form 39 38 entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company prior to the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date; (6) that Holders shall be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day preceding the Excess Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that if the aggregate purchase price of the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company may use the portion of the Excess Proceeds remaining after payment of such purchase price for general corporate purposes, including Preferred Stock Purchases. (8) that Holders whose Notes are purchased only in part shall be issued Notes representing the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in principal amount of $1,000 or whole multiples thereof; and (9) the instructions that Holders must follow in order to tender their Notes. On or before the Excess Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis the Notes or portions thereof tendered pursuant to the Excess Proceeds Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee the Notes so accepted, together with an Officers' Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price of such Notes, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Note surrendered. The Company shall make a public announcement of the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For the purposes of this Section 4.10, the Trustee shall act as the Paying Agent. Section 4.11. Limitation on Transactions With Affiliates. The Company shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not 40 39 more than $1.0 million; provided, that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's- length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary, (ii) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $2.5 million; provided, that a majority of the disinterested members of the Board of Directors of the Company determine that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary, (iii) Affiliate Transactions for which the Company delivers to the Trustee an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view, issued by an investment banking firm of national standing and (iv) Permitted Affiliate Transactions and other Restricted Payments permitted by the provisions described in Section 4.7 hereof. Section 4.12. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset (including, without limitation, all real, tangible or intangible property) of the Company or any Restricted Subsidiary, whether now owned or hereafter acquired, or on any income or profits therefrom, or assign or convey any right to receive income therefrom, except (i) Liens in favor of the Collateral Agent securing the Notes and Indebtedness incurred under the New Credit Facility, (ii) Purchase Money Liens, and (iii) Permitted Liens. Section 4.13. Corporate Existence. Subject to Article 5 of this Indenture, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its respective Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any Subsidiary, if the Board of Directors on behalf of the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. Section 4.14. Repurchase Upon a Change of Control. Upon the occurrence of a Change of Control, the Company shall notify the Trustee in writing thereof and shall make an offer to purchase all of the Notes then outstanding as described below (the "Change of Control Offer") at a purchase price equal to 41 40 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (the "Change of Control Payment"). The Change of Control Offer shall be made in compliance with all applicable laws, including without limitation, Regulation 14E of the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.14, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.14 by virtue thereof. Within 30 days following any Change of Control, the Company shall commence the Change of Control Offer by mailing to the Trustee and each Holder a notice, which shall govern the terms of the Change of Control Offer, and shall state that: (i) the Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes tendered will be accepted for payment, (ii) the purchase price and the purchase date, which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), (iii) that any Note not tendered for payment pursuant to the Change of Control Offer shall continue to accrue interest, (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date, (v) that any Holder electing to have Notes purchased pursuant to a Change of Control Offer shall be required to surrender such Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date, (vi) that any Holder shall be entitled to withdraw such election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes such Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased, (vii) that a Holder whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof, 42 41 (viii) the instructions that Holders must follow in order to tender their Notes, and (ix) the circumstances and relevant facts regarding such Change of Control. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment the Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and not withdrawn, and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Trustee shall authenticate and mail to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any, provided, that each such new Note will be in principal amount of $1,000 or an integral multiple thereof. The Company shall make a public announcement of the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For the purposes of this Section 4.14, the Trustee shall act as the Paying Agent. Section 4.15. Maintenance of Properties. The Company shall, and shall cause each of its Subsidiaries to, maintain their properties and assets in normal working order and condition as on the date of this Indenture (reasonable wear and tear excepted) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be reasonably necessary for the proper conduct of the business of the Company and its Subsidiaries taken as a whole; provided, that nothing herein shall prevent the Company or any of its Subsidiaries from discontinuing any maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole. Section 4.16. Maintenance of Insurance. The Company shall, and shall cause each of its Subsidiaries to, maintain liability, casualty and other insurance (including self-insurance consistent with prior practice) with responsible insurance companies in such amounts and against such risks as is in accordance with customary industry practice in the general areas in which the Company and its Subsidiaries operate. Section 4.17. Restrictions on Sale and Issuance of Subsidiary Stock. The Company shall not sell, and shall not permit any of its Restricted Subsidiaries to issue or sell, any shares of Capital Stock of any Restricted Subsidiary (other than directors' qualifying shares) to any Person other than the Company or a Wholly Owned 43 42 Subsidiary; provided however, that this provision shall not prohibit the sale of all of the Capital Stock of any Restricted Subsidiary owned by the Company and its Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance with the provisions of Section 4.10 of this Indenture. Section 4.18. Line of Business. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any type of business other than the type of business conducted or proposed to be conducted by the Company and the Restricted Subsidiaries on the Closing Date and businesses reasonably related thereto. ARTICLE 5 SUCCESSORS Section 5.1. When the Company May Merge, etc. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or transfer all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, any other Person unless: (i) the Company is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such transfer has been made is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such transfer has been made assumes all the Obligations of the Company, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes, this Indenture, the Security Documents and the Registration Rights Agreement, (iii) immediately before and after such transaction, no Default or Event of Default exists, and (iv) the Company, or any Person formed by or surviving any such consolidation or merger, or to which such transfer has been made, (A) has a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) not less than 100% of the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall be permitted, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, to incur at least $1.00 of additional Indebtedness pursuant to Section 4.9(a) hereof. 44 43 The Company shall deliver to the Trustee prior to the consummation of any proposed transaction an Officers' Certificate to the foregoing effect, an Opinion of Counsel, stating all conditions precedent to the proposed transaction provided for in this Indenture have been complied with and a written statement from a firm of independent public accountants of established national reputation reasonably satisfactory to the Trustee stating that the proposed transaction complies with clause (iv). For purposes of this Section 5.1, the transfer of all or substantially all of the properties and assets of one or more Restricted Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Restricted Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Section 5.2. Successor Substituted. In the event of any transaction (other than a lease) contemplated by Section 5.1 hereof in which the Company is not the surviving Person, the successor formed by such consolidation or into or with which the Company is merged or to which such transfer is made, or formed by such reorganization, as the case may be, shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its Obligations under this Indenture, the Notes, the Security Documents and the Registration Rights Agreement with the same effect as if such successor Person had been named as the Company herein or therein. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on any Note when the same becomes due and payable and the Default continues for a period of 30 days; (2) the Company defaults in the payment of the principal (or premium, if any) on any Note when the same becomes due and payable at maturity, upon redemption, by acceleration, in connection with an Excess Proceeds Offer, a Change of Control Offer or otherwise; (3) the Company defaults in the performance of or breaches the provisions of Sections 4.7 or 4.9 hereof and the Default continues for 30 days; or the Company defaults in the performance of or breaches the provisions of Sections 4.10, 4.14 or Article 5 hereof; 45 44 (4) the Company or any Guarantor fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture and the Default continues for 30 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes, such notice to state that it is a "Notice of Default;" (5) a default occurs under (after giving effect to any waivers, amendments, applicable grace periods or any extension of any maturity date) any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is created after the date of this Indenture, if (a) either (i) such default results from the failure to pay principal on such Indebtedness or (ii) as a result of such default the maturity of such Indebtedness has been accelerated, and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which such a payment default (after the expiration of any applicable grace period or any extension of the maturity date) has occurred, or the maturity of which has been so accelerated, exceeds $2.5 million in the aggregate; provided that if such default results from a failure to pay principal on the New Credit Facility, such default shall not constitute an Event of Default hereunder until 15 days after such default; (6) a final non-appealable judgment or judgments for the payment of money (other than judgments as to which a reputable insurance company has accepted full liability) is or are entered by a court or courts of competent jurisdiction against the Company or any Restricted Subsidiary and such judgment or judgments remain undischarged, unbonded or unstayed for a period of 60 days after entry, provided that the aggregate of all such judgments exceeds $2.5 million; (7) there is a breach by the Company or any Guarantor of any provision of the Security Documents and the default continues for 30 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes, such notice to state that it is a "Notice of Default"; (8) written assertion is made by the Company or any of the Guarantors, of the unenforceability of their obligations under the Indenture, the Security Documents, the Notes, or the Guarantees to which they are a party; (9) the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, 46 45 (b) consents to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, (e) admits in writing its inability to pay debts as the same become due; or (10) a court of competent jurisdiction enters an order or decree, and the order or decree remains unstayed and in effect for 60 days under any Bankruptcy Law that: (a) is for relief against the Company or any Material Subsidiary in an involuntary case, (b) appoints a Custodian of the Company or any Material Subsidiary or for all or substantially all of their property, (c) orders the liquidation of the Company, or any Material Subsidiary. an The Company shall, upon becoming aware that a Default or Event of Default has occurred, deliver to the Trustee a statement specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 6.2. Acceleration. If an Event of Default (other than an Event of Default specified in clauses (9) and (10) of Section 6.1) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest on all the Notes to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in clause (9) or (10) of Section 6.1 with respect to the Company occurs, all outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Notes outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue 47 46 interest (including any interest accrued subsequent to an Event of Default specified in clauses (9) and (10) of Section 6.1) on all Notes, (iii) the principal of and premium, if any, on any Notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes; (b) all Events of Default, other than the non-payment of principal of and interest on the Notes that have become due solely by such declaration or occurrence of acceleration, have been cured or waived; and (c) the rescission would not conflict with any judgment, order or decree of any court of competent jurisdiction. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy (under this Indenture or otherwise) to collect the payment of principal or interest on the Notes to enforce the performance of any provision of the Notes, this Indenture or the Security Documents. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Holders of a majority of the aggregate principal amount of the then outstanding Notes by written notice to the Company and the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, or interest on, any Note (other than a Default in the payment of principal of, or interest on, the Notes that have become due as a result of acceleration) or a Default or an Event of Default with respect to any covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Note affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. Control by Majority. The Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability. 48 47 Section 6.6. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid on the Notes and interest on overdue principal (and premium, if any) and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. 49 48 Section 6.9. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor under the Notes), their creditors or their property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders of the Notes may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in accordance with the requirements of the Intercreditor Agreement and to the extent received in accordance therewith, in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; Third: without duplication, to Holders for any other Obligations owing to the Holders under the Notes or this Indenture; and Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. 50 49 The Trustee may fix a record date and payment date for any payment to Holders. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.6, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee. (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (2) Except during the continuance of an Event of Default: (a) The duties of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee need perform only those duties that are specifically set forth in this Indenture and the Security Documents, and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (b) The Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture and the Security Documents. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture and the Security Documents. (3) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) This paragraph does not limit the effect of paragraph (2) of this Section. 51 50 (b) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (4) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2) and (3) of this Section. (5) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (6) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (7) The Trustee is hereby authorized to act as Collateral Agent and to enter into the Intercreditor Agreement. Section 7.2. Rights of Trustee. (1) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (3) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. 52 51 (5) Unless otherwise specifically provided in this Indenture or the Security Documents, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company, on behalf of the Company. (6) Except with respect to Section 4.1, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.1(1), 6.1(2) and 4.1, or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if the Trustee has knowledge thereof (within the meaning of Section 7.2(6)), the Trustee shall mail to the Holders a notice of the Default or Event of Default within 90 days after it occurs. Section 7.6. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c). Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to the Holders shall be filed with the Commission and 53 52 each stock exchange on which the Notes are listed. The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree in writing from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel, except such disbursements, advances and expenses as may be attributable to its negligence. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it without negligence on its part arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. In the event that a conflict of interest or conflicting defenses would arise in connection with the representation of the Company and the Trustee by the same counsel, the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent. The obligations of the Company under this Section 7.7 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence. To secure the Company's payment obligations in this Section, the Company hereby grants to the Trustee a security interest on all money or property held or collected by the Trustee, except that held in trust to pay principal of (and premium, if any) and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. 54 53 Section 7.8. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided that all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee, and the Company 55 54 shall pay to any such replaced or removed Trustee all amounts owed under Section 7.7 upon such replacement or removal. Section 7.9. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that, if other than U.S. Trust Company of California, N.A., shall (a) be a corporation organized and doing business under the laws of the United States of America or of any state thereof or of the District of Columbia authorized under such laws to exercise corporate trustee power, (b) be subject to supervision or examination by Federal or state or the District of Columbia authority, and (c) have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. ss. 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to TIA ss. 310(b); provided, however, that there shall be excluded from the operations of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The provisions of TIA ss. 311 shall apply to the Company, as obligor on the Notes. ARTICLE 8 SATISFACTION AND DISCHARGE Section 8.1. Discharge; Option to Effect Legal Defeasance or Covenant Defeasance. This Indenture shall cease to be of further effect (except that the Company's and the Guarantors' obligations under Section 7.7 and the Trustee's and the Paying Agent's obligations under Sections 8.6 and 8.7 shall survive) when all outstanding Notes theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Notes that have been replaced or paid) to the Trustee for cancellation and the Company or the Guarantors have paid all sums payable hereunder. In addition, the Company may elect at any 56 55 time to have Section 8.2 or Section 8.3, at the Company's option, of this Indenture applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.2. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company and the Guarantors shall be deemed to have been discharged from their respective obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented and this Indenture shall cease to be of further effect as to all outstanding Notes and Guarantees, except as to be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and the Company and the Guarantors shall be deemed to have satisfied all other of their respective obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest (and Liquidated Damages, if any) on such Notes when such payments are due from the trust described in Section 8.5, (b) the Company's obligations with respect to such Notes under Sections 2.4, 2.6, 2.7, 2.10, 4.2, 8.5, 8.6 and 8.7 hereof and (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof with respect to the Notes. Section 8.3. Covenant Defeasance. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company and the Guarantors shall be released from their respective obligations under the covenants contained in Sections 4.3, 4.4, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.14, 4.15, 4.16, 4.17, 4.18 and Article 5 and Article 10 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, neither the Company nor any Guarantor need comply with and shall have any liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, Sections 6.1(3) through 6.1(10) hereof shall not constitute Events of Default with respect to the Notes. 57 56 Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall agree to comply with the provisions of this Article 8 applicable to it), in trust, for the benefit of the Holders of the Notes, cash, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest (and Liquidated Damages, if any) on such outstanding Notes on the stated date for payment thereof or on the redemption date of such principal or installment of principal of, premium, if any, or interest on such Notes, and the holders of Notes must have a valid, perfected, exclusive security interest in such trust, (ii) in the case of Legal Defeasance before the date that is one year prior to the final stated maturity of the Notes, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of such outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance before the date that is one year prior to the final stated maturity of the Notes, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the Holders of such outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding other creditors of the Company; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that the conditions precedent provided for, in the case of the Officers' Certificate, (i) through (vi) and, in the case of the opinion of counsel, clauses (i), (with respect to the validity and perfection of the security interest) (ii), (iii) and (v) of this paragraph, have been complied with. Section 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust; Other 58 57 Miscellaneous Provisions. Subject to Section 8.6 hereof, all cash and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Paying Agent, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any other Paying Agent as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest (and Liquidated Damages, if any), but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 8.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Notes. Section 8.6. Repayment to the Company. (a) Anything in this Article 8 to the contrary notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the Company from time to time upon the request of the Company any cash or U.S. Government Obligations held by it as provided in Section 8.4 hereof which in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.3(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. (b) Any cash and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest (and Liquidated Damages, if any) on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request; and the Holder of such Security shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any cash or U.S. Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case may be, of this 59 58 Indenture by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, or if any event occurs at any time in the period ending on the 91st day after the date of deposit pursuant to Section 8.4 hereof which event would constitute an Event of Default under Section 6.1 (iv) or (v) had Legal Defeasance or Covenant Defeasance, as the case may be, not occurred, then the Company's and the Guarantors' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.4 hereof until such time as the Trustee or Paying Agent is permitted to apply such money in accordance with Sections 8.2 and 8.3 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest (and Liquidated Damages, if any) on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the cash or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS Section 9.1. Without Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement this Indenture and the Notes without the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to comply with Article 5 and Section 10.12 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not materially adversely affect the legal rights hereunder or thereunder of any Holder; (5) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (6) to release any Guarantee of the Notes permitted to be released under Section 10.7 hereof. Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such supplemental indenture or amendment, and upon receipt by the Trustee of the documents described in Section 9.6 hereof required or requested by the Trustee, the Trustee shall join with the Company in the execution of any supplemental indenture or amendment authorized or permitted by the terms of this Indenture and shall make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental 60 59 indenture or amendment that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2. With Consent of Holders. Subject to Sections 6.4 and 6.7 hereof, the Company, the Guarantors and the Trustee, as applicable, may amend, or waive any provision of, this Indenture or the Notes, with the written consent of the Holders of at least a majority of the principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such supplemental indenture or amendment, and upon filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture or amendment unless such supplemental indenture or amendment affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed supplemental indenture or amendment, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or amendment under this Section becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture, amendment or waiver. Notwithstanding any other provision hereof, without the consent of each Holder affected, an amendment or waiver under this Section may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (3) reduce the principal of, or the premium on, or change the fixed maturity of any Note or alter Article 3 hereof or numbered paragraphs 5 or 6 of Exhibit A to this Indenture or the price at which the Company shall offer to purchase such Notes pursuant to Sections 4.10 or 4.14 hereof; 61 60 (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on, or redemption payment with respect to, any Note (other than a Default in the payment of an amount due as a result of an acceleration if the Holders rescind such acceleration pursuant to Section 6.2); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in Section 6.4 or 6.7 hereof or in this Section 9.2; or (7) make any change adversely affecting the contractual ranking of the Obligations. A meeting of Holders may be called at any time and from time to time by the Company or the Trustee for the purpose of taking or consenting to any action authorized or contemplated to be taken hereunder by the Holders, notice of such meeting to be provided in the manner set forth herein. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any action by or any meeting of Holders. Section 9.3. Compliance with Trust Indenture Act. If, at the time of an amendment to this Indenture or the Notes, this Indenture shall be qualified under the TIA, every amendment to this Indenture or the Notes shall be set forth in a supplemental indenture that complies with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until a supplemental indenture, an amendment or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. A supplemental indenture, amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such supplemental indenture, amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.5, or (ii) such other date as the Company shall designate. 62 61 Section 9.5. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about a supplemental indenture, amendment or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment or waiver. Section 9.6. Trustee to Sign Amendments, etc. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive and, subject to Section 7.1, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors of the Company approves it. ARTICLE 10 COLLATERAL AND SECURITY AND GUARANTY Section 10.1. Collateral Documents. The due and punctual payment of the principal and premium, if any, of, and interest on, the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Notes and performance of all other Obligations, shall be secured as provided in the Security Documents. The Company shall, and shall cause each of its Restricted Subsidiaries to, do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Security Documents, to assure and confirm to the Collateral Agent the security interest in the Collateral contemplated hereby and by the Security Documents, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein and therein expressed. The Company shall, and shall cause each of its Restricted Subsidiaries to, take, upon request of the Trustee or the Collateral Agent, any and all actions required to cause the Security Documents to create and maintain, as security for the Obligations, valid and enforceable, perfected (except as expressly provided herein or 63 62 therein), Liens in and on all the Collateral, in favor of the Collateral Agent, superior to and prior to the rights of all third Persons, and subject to no other Liens, other than as provided herein and therein. Each Holder of a Note, by its acceptance thereof, consents and agrees to the terms of the Security Documents and the Intercreditor Agreement (including, without limitation, the provisions providing for foreclosure and release of Collateral and indemnification of the Collateral Agent) as the same may be in effect or may be amended from time to time in accordance with their terms and authorizes and directs (i) the Collateral Agent, with respect to each of the Security Documents to which it is a party and the Intercreditor Agreement, and (ii) the Trustee, with respect to the Intercreditor Agreement, to perform their respective obligations and exercise their respective rights thereunder in accordance therewith; provided, however, that upon qualification of this Indenture with the TIA, if any provision of the Intercreditor Agreement limits, qualifies or conflicts with the duties imposed by the provisions of the TIA, the TIA shall control. Section 10.2. Opinions. To the extent required by the TIA, the Company shall furnish to the Trustee within three months after each anniversary of the Closing Date, an Opinion of Counsel, dated as of such date, stating either that (i) in the opinion of such counsel, all action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Liens of the Security Documents and reciting the details of such action or (ii) in the opinion of such Counsel, no such action is necessary to maintain such Liens, which Opinion of Counsel also shall state what actions it then believes are necessary to maintain the effectiveness of such liens during the next two years. Section 10.3. Release and Substitution of Collateral. (a) Subject to subsections (b) and (c) of this Section 10.3, (i) in the event that any Collateral is sold, transferred or otherwise disposed of in an Asset Sale or any other transaction permitted by this Indenture, such Collateral shall, concurrently with the disposition of such Collateral or the issuance of such Indebtedness, as the case may be, automatically be released from the lien of the relevant Security Documents and (ii) the Company and its Subsidiaries may from time to time substitute property or securities released from the lien of the Security Documents in connection with the sale, transfer or other disposition thereof for other property or securities to be subjected to the lien of the Security Documents, in each case in accordance with the provisions of the Security Documents. (b) At any time when an Event of Default shall have occurred and be continuing and the maturity of the Securities shall have been accelerated (whether by declaration or otherwise) and such acceleration shall not have been rescinded or annulled, no release of Collateral pursuant to the provisions of this Indenture or of the Security Documents shall be effective as against the Holders of the Securities without the consent of the Collateral Agent. The Trustee shall promptly notify the Collateral Agent of any rescission or 64 63 annulment, pursuant to Section 6.4 hereof, of an acceleration of the Securities. (c) The release of any Collateral from the terms of the Security Documents will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Collateral is released pursuant to the Security Documents. At all time after qualification of this Indenture under the TIA, to the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of property or securities from the lien of the Security Documents and relating to the substitution therefor of any property or securities to be subjected to the lien of the Collateral Documents to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent person, which person shall be an independent engineer, appraiser or other expert selected or approved by the Trustee in the exercise of reasonable care. Section 10.4. Certificates of the Company. The Company shall furnish to the Trustee prior to each proposed release of Collateral other than by reason of transactions referred to in Section 10.3(b), all documents required by TIA ss. 314(d). The Trustee may, to the extent permitted by Sections 7.1 and 7.2 hereof, accept as conclusive evidence of compliance with the foregoing provisions the appropriate statements contained in such instruments. Any certificate or opinion required by TIA ss. 314(d) may be made by an Officer of the Company except in cases where TIA ss. 314(d) requires that such certificate or opinion be made by an independent engineer, appraiser or other expert within the meaning of TIA ss. 314(d). Section 10.5. Authorization of Actions to be Taken by the Trustee Under the Security Documents. Subject to the provisions of the Security Documents and the Intercreditor Agreement, the Trustee may, in its sole discretion and without the consent of the Holders, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Documents and (b) collect and receive any and all amounts payable in respect of the Obligations of the Company and the Guarantors hereunder. The Trustee shall have the power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interest and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or the Trustee). 65 64 Section 10.6. Authorization of Receipt of Funds by the Trustee Under the Security Documents. The Trustee is authorized to receive any funds for the benefit of the Holders distributed under the Security Documents, and to make further distributions of such funds to the Holders according to the provisions of this Indenture and the Security Documents. Section 10.7. Release Upon Termination of the Company's Obligations. (a) If (i) the Company delivers an Officer's Certificate certifying that all of its obligations under this Indenture have been indefeasibly satisfied and discharged by complying with the provisions of Article Eight hereof or (ii) all outstanding Securities issued under this Indenture shall be surrendered to the Trustee for cancellation, the Trustee shall deliver to the Collateral Agent a notice stating that the Trustee, for itself and on behalf of the Holders, disclaims and has given up any and all rights it has in or to the Collateral, and any rights it has under the Security Documents, and, upon and after the receipt by the Collateral Agent of such notice, the Collateral Agent shall no longer be deemed to hold the Lien in the Collateral on behalf of the Trustee for the benefit of itself and the Holders. (b) Any release of Collateral made in compliance with this Section 10.7 shall not be deemed to impair the Lien under the Security Documents or the Collateral thereunder in contravention of the provisions of this Indenture or the Security Documents. Section 10.8. Guaranty. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, subject to Section 10.10 hereof, each Guarantor, jointly and severally, hereby unconditionally guarantees (such guarantees, together with further guarantees granted from time to time pursuant to Section 10.13, being the "Guaranty") to each Holder, the Trustee and the Collateral Agent, irrespective of the validity or enforceability of this Indenture, the Notes, the Security Documents or the Obligations hereunder or thereunder: (i) the due and punctual payment of the principal and premium, if any, of, and interest on, the Notes (including, without limitation, interest after the filing of a petition initiating any proceedings referred to in clause (9) or (10) of Section 6.1 hereof), whether at maturity or on an interest payment date, by acceleration, call for redemption or otherwise; (ii) the due and punctual payment of interest on the overdue principal and premium, if any, of, and interest on, the Notes, if lawful; (iii) the due and punctual payment and performance of all other Obligations, all in accordance with the terms set forth herein and in the Notes and the Security Documents; and (iv) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, the due and punctual payment or performance thereof in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. 66 65 Each Guarantor hereby agrees that (i) its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes, this Indenture, the Security Documents or the Obligations hereunder or thereunder, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, any releases of Collateral, any amendment of the Indenture, the Notes or Security Documents, any delays in obtaining or realizing upon or failures to obtain or realize upon Collateral, the recovery of any judgment against the Company or any of its Subsidiaries, any action to enforce the same, or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor and (ii) this Guaranty will not be discharged except by complete performance of the Obligations. Each Guarantor hereby agrees that it shall not be entitled to and irrevocably waives (i) diligence, presentment, demand of payment, filing of claim with a court in the event of insolvency or bankruptcy of the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under the Notes, any right to require a proceeding first against the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents, protest, notice and all demands whatsoever, (ii) any right of subrogation, reimbursement, exoneration, contribution or indemnification in respect of any Obligations guaranteed hereby and (iii) any claim or other rights that it may now or hereafter acquire against the Company or any of its Subsidiaries that arise from the existence or performance of its Obligations under this Guaranty, including, without limitation, any right to participate in any claim or remedy of a Holder against the Company or any of its Subsidiaries or any Collateral that a Holder now has or hereafter acquires, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, and including, without limitation, the right to take or receive from the Company or any of its Subsidiaries, directly or indirectly, in cash or other property, by setoff or in any other manner, payment or security on account of such claim or other rights. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents, trustee, liquidator, or other similar official, any amount paid by the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents to the Trustee or such Holder, this Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Section 6.2 for the purposes of this Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those Obligations as provided in Section 6.2, those Obligations (whether or not due and payable) will forthwith become due and payable by each of the Guarantors for the purpose of this Guaranty. 67 66 Section 10.9. Execution and Delivery of Guaranty. To evidence the Guaranty set forth in Section 10.8 the Company and each Guarantor hereby agrees that (a) a notation of such Guaranty substantially as set forth on Exhibit C hereto shall be endorsed on each Note authenticated and delivered by the Trustee. Such endorsement shall be executed on behalf of each Guarantor by its Chairman of the Board, President, Chief Financial Officer, Chief Operating Officer, Treasurer, Secretary or any Vice President and (b) a counterpart signature page to this Indenture shall be executed on behalf of each Guarantor by its Chairman of the Board, President or one of its Vice Presidents and attested to by another officer acknowledging such Guarantor's agreement to be bound by the provisions hereof and thereof. Each Guarantor hereby agrees that its Guaranty set forth in Section 10.8 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guaranty. If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates the Notes on which a Guaranty is endorsed, the Guaranty shall nevertheless be valid. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guaranty set forth in this Indenture on behalf of the Guarantor. Section 10.10. Limitation on Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guaranty not constitute a fraudulent transfer or conveyance for purposes of any Federal or state law. To effectuate the foregoing intention, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Guaranty shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guaranty, result in the Obligations of such Guarantor under the Guaranty not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law. Section 10.11. Rights under the Guaranty. (a) No payment by any Guarantor pursuant to the provisions hereof shall entitle such Guarantor to any payment out of any Collateral or give rise to any claim of the Guarantors against the Trustee or any Holder. (b) Each Guarantor waives notice of the issuance, sale and purchase of the Notes and notice from the Trustee or the Holders from time to time of any of the Notes of their acceptance and reliance on this Guaranty. 68 67 (c) No set-off, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature (other than performance by the Guarantors of their obligations hereunder) that any Guarantor may have or assert against the Trustee or any Holder shall be available hereunder to such Guarantor. (d) Each Guarantor shall pay all costs, expenses and fees, including all reasonable attorneys' fees, that may be incurred by the Trustee in enforcing or attempting to enforce the Guaranty or protecting the rights of the Trustee or the Holder, if any, in accordance with this Indenture. Section 10.12. Primary Obligations. The Obligations of each Guarantor hereunder shall constitute a guaranty of payment and not of collection. Each Guarantor agrees that it is directly liable to each Holder hereunder, that the Obligations of each Guarantor hereunder are independent of the Obligations of the Company or any other Guarantor, and that a separate action may be brought against each Guarantor, whether such action is brought against the Company or any other Guarantor or whether the Company or any other Guarantor is joined in such action. Each Guarantor agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by the Trustee or the Holders of whatever remedies they may have against the Company or any other Guarantor, or the enforcement of any lien or realization upon any security Trustee may at any time possess. Each Guarantor agrees that any release that may be given by the Trustee or the Holders to the Company or any other Guarantor shall not release such Guarantor. Section 10.13. Guarantee by Subsidiary. (a) The Company shall cause each Restricted Subsidiary that is formed or acquired after the date hereof or that otherwise becomes a Restricted Subsidiary after the date hereof, in each case concurrently therewith, to (i) become a Guarantor hereunder and execute and deliver to the Trustee a Guaranty in the form of Exhibit C attached hereto and a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's Obligations as set forth in Section 10.8 of this Indenture; and (ii) execute a Security Agreement (substantially in the form of the Security Agreement entered into on the Closing Date) and other Security Documents necessary or reasonably requested by the Trustee to grant the Trustee a valid, enforceable, perfected Lien on the Collateral described therein, subject only to Liens permitted under Section 4.12; and (iii) cause such Restricted Subsidiary to deliver to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that (i) such Security Agreement, supplemental indenture and Guaranty have been duly authorized, executed and delivered by such Restricted Subsidiary and (ii) such Security Agreement, this Indenture and such Guaranty constitute a legal, valid, binding and enforceable obligation of such Restricted Subsidiary, subject to customary exceptions for bankruptcy, fraudulent transfer and equitable principles. Each Note issued after the date of execution by any Guarantor of a Guaranty 69 68 shall be endorsed with a form of Guaranty that has been executed by such Guarantor. However, the failure of any Note to have endorsed thereon a Guaranty executed by such Guarantor shall not affect the validity or enforceability of such Guaranty against such Guarantor. Section 10.14. Release of Guarantors. If all of the Capital Stock of any Guarantor is sold to a Person (other than the Company or any of its Restricted Subsidiaries), then such Guarantor will be released and discharged from all of its obligations under its Guarantee of the Notes and this Indenture. ARTICLE 11 MISCELLANEOUS Section 11.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. Section 11.2. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first-class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' addresses: If to the Company: American Restaurant Group, Inc. 450 Newport Center Drive, 6th Floor Newport Beach, California 92660 Attention: William J. McCaffrey Telecopier No.: (714) 721-8941 If to the Trustee: U.S. Trust Company of California, N.A. 515 South Flower Street, 28th Floor Los Angeles, California 90071 Attention: Corporate Trust Department Telecopier No.: (213) 488-1370 The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. 70 69 All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon receipt, if deposited in the mail, postage prepaid; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. All notices and communications to the Trustee shall be deemed to have been duly given only if actually received by the Trustee. Any notice or communication to a Holder shall be mailed by first-class mail, certified or registered, return receipt requested, to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. Communication by Holders with Other Holders. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA ss. 312(c). Section 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall include: 71 70 (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with, provided that with respect to matters of fact, an Opinion of Counsel may rely upon an Officers' Certificate or a certificate of a public official. Section 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.7. Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 11.8. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or controlling person of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, this Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release shall be part of the consideration for the issuance of the Notes and the Guarantees. Notwithstanding the foregoing, nothing in this provision shall be construed as a waiver or release of any claims under the Federal securities laws. Section 11.9. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE 72 71 COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY NOTEHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. Section 11.10. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.11. Successors. All agreements of the Company and any Guarantors in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 11.12. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 73 72 Section 11.13. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.14. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 74 SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed and delivered this Indenture as of the date first written above. AMERICAN RESTAURANT GROUP, INC. Attest: By: /s/ William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer /s/ Patrick J. Kelvie - ----------------------- Name: Patrick J. Kelvie Title: Secretary GUARANTORS ARG ENTERPRISES, INC. By: /s/ William J. McCaffrey, Jr. ---------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer LOCAL FAVORITE, INC. GRANDY'S. INC. By: /s/ William J. McCaffrey, Jr. By: /s/ William J. McCaffrey, Jr. ----------------------------- ---------------------------- Name: William J. McCaffrey, Jr. Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer Title: V.P. & Chief Financial Officer SPOONS RESTURANTS, INC. SPECTRUM FOODS, INC. By: /s/ William J. McCaffrey, Jr. By: /s/ William J. McCaffrey, Jr. ----------------------------- ---------------------------- Name: William J. McCaffrey, Jr. Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer Title: V.P. & Chief Financial Officer 75 ARG PROPERTY MANAGEMENT CORPORATION By: /s/ William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: /s/ Gus Kourkoulis ----------------- Name: Gus Kourkoulis Title: Authorized Officer 76 A-2 EXHIBIT A (Face of Security) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO FOREIGN PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. This paragraph should be included only if the Note is issued in global form. 77 AMERICAN RESTAURANT GROUP, INC. 11 1/2% SENIOR SECURED NOTE DUE 2003 No. $___________ CUSIP NO. American Restaurant Group, Inc., a Delaware corporation (the "Company"), as obligor, for value received promises to pay to ______________ or registered assigns, the principal sum of Dollars on February 15, 2003. Interest Payment Dates: February 15 and August 15. Record Dates: February 1 and August 1 (whether or not a Business Day). Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Dated: AMERICAN RESTAURANT GROUP, INC. By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Trustee's Certificate of Authentication: This is one of the Notes referred to in the within-mentioned Indenture: [ ], as Trustee By:______________________________ Authorized Signature 78 (Back of Security) 11 1/2% SENIOR SECURED NOTE DUE 2003 1. Interest. American Restaurant Group, Inc., a Delaware corporation (the "Company"), as obligor, promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. The Company shall pay, in cash, interest on the principal amount of this Note, at the rate of 11.5% per annum. The Company shall pay interest semi-annually on February 15 and August 15 of each year, and on the maturity date, commencing on August 15, 1998, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 24, 1998. To the extent lawful, the Company shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date. The Holder must surrender this Note to a Paying Agent to collect principal payments. The Company shall pay interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay interest by check to a Holder's registered address. 3. Paying Agent and Registrar. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Holder. Subject to certain exceptions, the Company or any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of February 25, 1998 (the "Indenture") among the Company, the Guarantors named therein and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA and thereafter as in effect on the date the Indenture is so qualified. The Notes are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. Terms not otherwise defined herein shall have the meanings assigned in the Indenture. The Notes are limited to $158,600,000 in aggregate outstanding principal amount. The Obligations under the Indenture, the Notes and the Guarantee thereof are secured by the Collateral described in the Security Documents, subject to the provisions of such agreement. Holders are referred to the Security Agreement for a statement of such terms. 5. Optional Redemption. The Notes are not redeemable at the Company's option prior to February 15, 2001. Thereafter, the Notes will be subject to redemption at the 79 2 option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on February 15 of the years indicated below:
Year Percentage ---- ---------- 2001....................... 105.75% 2002 and thereafter........ 100.00%
Notwithstanding the foregoing, at any time or from time to time prior to February 15, 2000, the Company may, at its option, redeem up to one-third of the original principal amount of the Notes, at a redemption price of 111.5% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Qualified Equity Offerings; provided, that (a) such redemption shall occur within 60 days of the date of closing of such public offering and (b) at least two-thirds of the original aggregate principal amount of Notes remains outstanding immediately after giving effect to each such redemption. 6. Mandatory Redemption. There shall be no mandatory redemption of the Notes. 7. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Registrar and the Company need not exchange or register the transfer (i) of any Note or portion of a Note selected for redemption or (ii) of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes, subject to the provisions of the Indenture with respect to the record dates for the payment of interest. 9. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing Default or Event of Default (except certain payment defaults) may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of any Holders, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company's obligations to the Holders in the case of a merger or consolidation, to provide for uncertificated Notes in addition to or in place of certificated Notes, to make any change that would provide any additional rights or benefits to the Holders of the Notes, or that does not adversely affect the legal rights under the Indenture of any Holder, to release any Guarantee of the Notes permitted to be released under the terms of the Indenture or 80 3 to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. 10. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare by written notice to the Company and the Trustee all the Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Company must furnish an annual compliance certificate to the Trustee. 11. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 12. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or controlling person of the Company or Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Guarantees. Notwithstanding the foregoing, nothing in this provision shall be construed as a waiver or release of any claims under the Federal securities laws. 13. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 14. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 15. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 16. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of February 25, 1998, among the Company and the parties named on the signature page thereof (the "Registration Rights Agreement"). 81 4 The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: American Restaurant Group, Inc., 450 Newport Center Drive, 6th Floor, Newport Beach, CA 92660, Attention: Chief Financial Officer. THIS NOTE (INCLUDING THE GUARANTY ENDORSED HEREON) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 82 5 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - --------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - --------------------------------------------------------------------- - --------------------------------------------------------------------- - --------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint______________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - --------------------------------------------------------------------- Date: ------------------- Your Signature: -------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - ---------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). 83 6 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, as the case may be, state the amount you elect to have purchased (if all, write "ALL"): $ ---------------- Date: ------------------- Your Signature: -------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - -------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). 84 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES** The following exchanges of a part of this Global Note for Definitive Notes have been made:
Principal Amount of Signature of autho- Amount of decrease in Amount of increase in this Global Note rized signatory of Principal Amount of Principal Amount of following such decrease Trustee Date of Exchange this Global Note this Global Note (or increase) - --------------------------------------------------------------------------------------------------------------------------------
- -------- This should be included only if the Note is issued in global form. 85 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: [Series A] [Series B] [ ]% Senior Notes due 2003 (the "Notes") of American Restaurant Group, Inc. This Certificate relates to $______ principal amount of Notes held in * |_| book-entry or * |_| definitive form by _______________________ (the "Transferor"). The Transferor, by written order, has requested the Trustee: |_| to deliver in exchange for its beneficial interest in the Global Note held by the depository, a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or |_| to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and, the transfer of this Note does not require registration under the Securities Act of 1933, as amended (the "Securities Act") because such Note: |_| is being acquired for the Transferor's own account, without transfer; |_| is being transferred pursuant to an effective registration statement; |_| is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on such Rule 144A; |_| is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act;** |_| is being transferred pursuant to Rule 144 under the Securities Act;** or |_| is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain: ____________________________ _____________________________________________________________________).** ------------------------------ [INSERT NAME OF TRANSFEROR] By:___________________________ Date:_____________________ * Check applicable box. ** If this box is checked, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. 86 EXHIBIT C [FORM OF GUARANTY] GUARANTY For good and valuable consideration received from the Company by the undersigned (hereinafter referred to as the "Guarantors," which term includes any successor or additional Guarantors), the receipt and sufficiency of which is hereby acknowledged, subject to and in accordance with, Sections 10.8 through 10.14 of the Indenture, each Guarantor, jointly and severally, hereby unconditionally guarantees, irrespective of the validity or enforceability of the Indenture, the Notes, the Security Documents or the Obligations, (a) the due and punctual payment of the principal and premium, if any, of and interest on the Notes (including, without limitation, interest after the filing of a petition initiating any proceedings referred to in Sections 6.1(9) or (10) of the Indenture), whether at maturity or on an interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal and premium, if any, of and interest, if any, on the Notes, if lawful, (c) the due and punctual payment and performance of all other Obligations, all in accordance with the terms set forth in the Indenture, the Notes and the Security Documents, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, the due and punctual payment or performance thereof in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No director, officer, employee, incorporator, stockholder or controlling person of the Guarantor, as such, shall have any liability under this Guaranty for any obligations of the Guarantor under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. ARG ENTERPRISES, INC. By: ____________________________ Name: _________________________ Title: __________________________ LOCAL FAVORITE, INC. GRANDY'S, INC. By: ____________________________ By: ____________________________ Name: _________________________ Name: _________________________ Title: __________________________ Title: __________________________ SPOONS RESTAURANTS, INC. SPECTRUM FOODS, INC. By: ____________________________ By: ____________________________ Name: _________________________ Name: _________________________ Title: __________________________ Title: __________________________ ARG PROPERTY MANAGEMENT CORPORATION By: ____________________________ Name: _________________________ Title: __________________________ 87 2 88 CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section ----------- ----------------- 310(a)(1)....................................................... 7.10 (a)(2)...................................................... 7.10 (a)(3)...................................................... N.A. (a)(4)...................................................... N.A. (a)(5)...................................................... 7.10 (b)......................................................... 7.8; 7.10 (c)......................................................... N.A. 311(a).......................................................... 7.11 (b)......................................................... 7.11 (c)......................................................... N.A. 312(a).......................................................... 2.5 (b)......................................................... 11.3 (c)......................................................... 11.3 313(a).......................................................... 7.6 (b)(1)...................................................... 7.6 (b)(2)...................................................... 7.6 (c)......................................................... 7.6 (d)......................................................... 7.6 314(a).......................................................... 4.3; 4.4 (b)......................................................... N.A (c)(1)...................................................... 11.4 (c)(2)...................................................... 11.4 (c)(3)...................................................... N.A. (d)......................................................... N.A. (e)......................................................... 11.5 (f)......................................................... N.A. 315(a).......................................................... 7.1(2) (b)......................................................... 7.5 (c)......................................................... 7.1(1) (d)......................................................... 7.1(3) (e)......................................................... 6.11 316(a)(last sentence)........................................... 2.9 (a)(1)(A)................................................... 6.5 (a)(1)(B)................................................... 6.4 (a)(2)...................................................... N.A. (b)......................................................... 9.2 (c)......................................................... 9.4 317(a)(1)....................................................... 6.8 (a)(2)...................................................... 6.9 (b)......................................................... 2.4 318(a).......................................................... 11.1 (b)......................................................... N.A. (c)......................................................... 11.1 N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. 89 TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATIONBY REFERENCE Section 1.1. Definitions............................................ 1 Section 1.2. Other Definitions...................................... 19 Section 1.3. Incorporation by Reference of Trust Indenture Act...... 19 Section 1.4. Rules of Construction.................................. 20 ARTICLE 2 THE NOTES Section 2.1. Form and Dating........................................ 21 Section 2.2. Execution and Authentication........................... 21 Section 2.3. Registrar, Paying Agent and Depository................. 22 Section 2.4. Paying Agent to Hold Money in Trust.................... 23 Section 2.5. Holder Lists........................................... 24 Section 2.6. Transfer and Exchange.................................. 24 Section 2.7. Replacement Notes...................................... 29 Section 2.8. Outstanding Notes...................................... 29 Section 2.9. Treasury Notes......................................... 30 Section 2.10. Temporary Notes........................................ 30 Section 2.11. Cancellation........................................... 31 Section 2.12. Defaulted Interest..................................... 31 Section 2.13. Legends................................................ 31 ARTICLE 3 REDEMPTION Section 3.1. Notices to Trustee..................................... 32 Section 3.2. Selection of Notes to Be Redeemed...................... 33 Section 3.3. Notice of Redemption................................... 33 Section 3.4. Effect of Notice of Redemption......................... 34 Section 3.5. Deposit of Redemption Price............................ 34 Section 3.6. Notes Redeemed in Part................................. 35 Section 3.7. Optional Redemption.................................... 35 ARTICLE 4 COVENANTS Section 4.1. Payment of Notes....................................... 36 Section 4.2. Maintenance of Office or Agency........................ 36 Section 4.3. Reports................................................ 37 Section 4.4. Compliance Certificate................................. 38 Section 4.5. Taxes.................................................. 39 Section 4.6. Stay, Extension and Usury Laws......................... 39 Section 4.7. Limitation on Restricted Payments...................... 39 Section 4.8. Limitation on Restrictions on Subsidiary Dividends..... 42 Section 4.9. Limitation on Incurrence of Indebtedness............... 44 Section 4.10. Limitation on Asset Sales.............................. 46 Section 4.11. Limitation on Transactions With Affiliates............. 49 Section 4.12. Limitation on Liens.................................... 50 Section 4.13. Corporate Existence.................................... 50 Section 4.14. Repurchase Upon a Change of Control.................... 51 Section 4.15. Maintenance of Properties.............................. 53 Section 4.16. Maintenance of Insurance............................... 53 Section 4.17. Restrictions on Sale and Issuance of Subsidiary Stock.. 53 90 Page ---- Section 4.18. Line of Business....................................... 54 ARTICLE 5 SUCCESSORS Section 5.1. When the Company May Merge, etc......................... 54 Section 5.2. Successor Substituted................................... 55 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default....................................... 56 Section 6.2. Acceleration............................................ 58 Section 6.3. Other Remedies.......................................... 59 Section 6.4. Waiver of Past Defaults................................. 59 Section 6.5. Control by Majority..................................... 60 Section 6.6. Limitation on Suits..................................... 60 Section 6.7. Rights of Holders to Receive Payment.................... 61 Section 6.8. Collection Suit by Trustee.............................. 61 Section 6.9. Trustee May File Proofs of Claim........................ 61 Section 6.10. Priorities............................................. 62 Section 6.11. Undertaking for Costs.................................. 63 ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee....................................... 63 Section 7.2. Rights of Trustee....................................... 64 Section 7.3. Individual Rights of Trustee............................ 65 Section 7.4. Trustee's Disclaimer.................................... 66 Section 7.5. Notice of Defaults...................................... 66 Section 7.6. Reports by Trustee to Holders........................... 66 Section 7.7. Compensation and Indemnity.............................. 67 Section 7.8. Replacement of Trustee.................................. 68 Section 7.9. Successor Trustee by Merger, etc........................ 69 Section 7.10. Eligibility; Disqualification........................... 69 Section 7.11. Preferential Collection of Claims Against Company....... 70 ARTICLE 8 SATISFACTION AND DISCHARGE Section 8.1. Discharge; Option to Effect Legal Defeasance or Covenant Defeasance .................................. 70 Section 8.2. Legal Defeasance and Discharge.......................... 70 Section 8.3. Covenant Defeasance..................................... 71 Section 8.4. Conditions to Legal or Covenant Defeasance.............. 72 Section 8.5. Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions......... 73 Section 8.6. Repayment to the Company................................ 73 Section 8.7. Reinstatement........................................... 74 ARTICLE 9 AMENDMENTS Section 9.1. Without Consent of Holders.............................. 75 Section 9.2. With Consent of Holders................................. 76 Section 9.3. Compliance with Trust Indenture Act..................... 77 Section 9.4. Revocation and Effect of Consents....................... 78 Section 9.5. Notation on or Exchange of Notes........................ 78 Section 9.6. Trustee to Sign Amendments, etc......................... 78 91 Page ---- ARTICLE 10 COLLATERAL AND SECURITY AND GUARANTY Section 10.1. Collateral Documents................................... 79 Section 10.2. Opinions............................................... 80 Section 10.3. Release and Substitution of Collateral................. 80 Section 10.4. Certificates of the Company............................ 81 Section 10.5. Authorization of Actions to be Taken by the Trustee Under the Security Documents......................... 81 Section 10.6. Authorization of Receipt of Funds by the Trustee Under the Security Documents......................... 82 Section 10.7. Release Upon Termination of the Company's Obligations.. 82 Section 10.8. Guaranty............................................... 82 Section 10.9. Execution and Delivery of Guaranty..................... 84 Section 10.10. Limitation on Guarantor's Liability.................... 85 Section 10.11. Rights under the Guaranty.............................. 85 Section 10.12. Primary Obligations.................................... 86 Section 10.13. Guarantee by Subsidiary................................ 86 Section 10.14. Release of Guarantors.................................. 87 ARTICLE 11 MISCELLANEOUS Section 11.1. Trust Indenture Act Controls........................... 87 Section 11.2. Notices................................................ 88 Section 11.3. Communication by Holders with Other Holders............ 89 Section 11.4. Certificate and Opinion as to Conditions Precedent..... 89 Section 11.5. Statements Required in Certificate or Opinion.......... 89 Section 11.6. Rules by Trustee and Agents............................ 90 Section 11.7. Legal Holidays......................................... 90 Section 11.8. No Recourse Against Others............................. 90 Section 11.9. Governing Law.......................................... 91 Section 11.10. No Adverse Interpretation of Other Agreements.......... 91 Section 11.11. Successors............................................. 92 Section 11.12. Severability........................................... 92 Section 11.13. Counterpart Originals.................................. 92 Section 11.14. Table of Contents, Headings, etc....................... 92 SIGNATURES EXHIBIT A - FORM OF NOTE........................................A-1 EXHIBIT B - CERTIFICATE OF TRANSFEROR...........................B-1 EXHIBIT C - FORM OF GUARANTY....................................C-1 EX-4.2 4 WARRANT AGREEMENT DATED AS OF FEBRUARY 25, 1998 1 EXHIBIT 4.2 WARRANT AGREEMENT Dated as of February 25, 1998 Between AMERICAN RESTAURANT GROUP, INC. and U.S. Trust Company of California, N.A. as the Warrant Agent ----------------------------------- Warrants for Common Stock of American Restaurant Group, Inc. ----------------------------------- 2 TABLE OF CONTENTS Page ---- ARTICLE I Definitions.............................. 2 SECTION 1.1 Definitions.................................................... 2 SECTION 1.2 Rules of Construction.......................................... 5 ARTICLE II Warrant Certificates and Client Certificates....... 5 SECTION 2.1 Form of Warrant Certificates................................... 5 SECTION 2.2 Legends........................................................ 6 SECTION 2.3 Execution and Delivery of Warrant Certificates................. 7 SECTION 2.4 Loss or Mutilation............................................. 8 ARTICLE III Exercise Terms.....................9 SECTION 3.1 Exercise Price................................................. 9 SECTION 3.2 Exercise Period................................................ 9 SECTION 3.3 Expiration..................................................... 9 SECTION 3.4 Manner of Exercise............................................. 9 SECTION 3.5 Issuance of Warrant Shares..................................... 10 SECTION 3.6 Fractional Warrant Shares...................................... 11 SECTION 3.7 Reservation of Warrant Shares.................................. 11 SECTION 3.8 Cancellation of Warrant Certificates........................... 11 SECTION 3.9 Compliance with Law............................................ 11 3 Page ---- ARTICLE IV Antidilution Provisions.................... 12 SECTION 4.1 Adjustment of Exercise Price and Warrant Number............... 12 SECTION 4.2 Adjustment for Change in Capital Stock........................ 12 SECTION 4.3 Adjustment for Rights Issue................................... 13 SECTION 4.4 Adjustment for Other Distributions............................ 14 SECTION 4.5 Adjustment for Common Stock Issue............................. 15 SECTION 4.6 Adjustment for Convertible Securities Issue................... 16 SECTION 4.7 [INTENTIONALLY OMITTED.]...................................... 17 SECTION 4.8 Consideration Received........................................ 17 SECTION 4.9 When De Minimis Adjustment May Be Deferred.................... 18 SECTION 4.10 Adjustment to Exercise Price.................................. 18 SECTION 4.11 When No Adjustment Required................................... 18 SECTION 4.12 Notice of Holders............................................. 19 SECTION 4.13 Voluntary Reduction........................................... 20 SECTION 4.14 Reorganizations............................................... 21 SECTION 4.15 Form of Warrants.............................................. 22 SECTION 4.16 Miscellaneous ................................................ 21 SECTION 4.17 Non-applicability of Article IV............................... 22 ARTICLE V Transferability.................... 23 SECTION 5.1 Transfer and Exchange......................................... 23 SECTION 5.2 Registration, Registration of Transfer and Exchange........... 24 SECTION 5.3 [INTENTIONALLY OMITTED]....................................... 25 SECTION 5.4 Special Transfer Provisions................................... 25 SECTION 5.5 Surrender of Warrant Certificates............................. 27 4 Page ---- ARTICLE VI Warrant Agent.................... 26 SECTION 6.1 Appointment of Warrant Agent.................................. 26 SECTION 6.2 Rights and Duties of Warrant Agent............................ 27 SECTION 6.3 Individual Rights of Warrant Agent............................ 28 SECTION 6.4 Warrant Agent's Disclaimer.................................... 28 SECTION 6.5 Compensation and Indemnity.................................... 28 SECTION 6.6 Successor Warrant Agent....................................... 28 ARTICLE VII Miscellaneous.................. 30 SECTION 7.1 [INTENTIONALLY OMITTED.]...................................... 30 SECTION 7.2 SEC Reports and Other Information............................. 30 SECTION 7.3 Rule 144A..................................................... 30 SECTION 7.4 Persons Benefitting........................................... 31 SECTION 7.5 Rights of Holders............................................. 31 SECTION 7.6 Amendment..................................................... 31 SECTION 7.7 Notices....................................................... 31 SECTION 7.8 Governing Law................................................. 32 SECTION 7.9 Successors.................................................... 33 SECTION 7.10 Multiple Originals............................................ 33 SECTION 7.11 Table of Contents............................................. 33 SECTION 7.12 Severability.................................................. 33 SECTION 7.13 Further Assurances............................................ 33 5 THIS WARRANT AGREEMENT (this "Agreement"), dated as of February 25, 1998, is between AMERICAN RESTAURANT GROUP, INC., a Delaware corporation (together with its permitted successors and assigns, the "Company"), and U.S. Trust Company of California, N.A., as warrant agent (together with its permitted successors and assigns, the "Warrant Agent"). WHEREAS, the Company has entered into a purchase agreement, dated February 13, 1998 (the "Purchase Agreement"), with Jefferies & Company, Inc. (the "Purchaser"), pursuant to which the Company has agreed to issue and sell to the Purchaser, and the Purchaser has agreed to purchase from the Company, 35,000 Units (as defined below), consisting of (i) $35,000,000 aggregate initial liquidation preference amount of 12% Senior Pay-In-Kind Exchangeable Preferred Stock (the "Preferred Stock") and (ii) 35,000 warrants (together with the 4,375 warrants (the "Purchaser Warrants") to purchase shares of the Company's Common Stock (as defined below) issued to the Purchaser pursuant to the letter agreement dated November 6, 1997 between the Company and the Purchaser and to others pursuant to the letter agreement dated as of February 25, 1998 between the Company and TCW Asset Management Company, the "Warrants") to purchase initially 93,150 shares (together with the shares of the Company's Common Stock underlying the Purchaser Warrants, the "Warrant Shares") of the Company's common stock, $0.01 par value per share (the "Common Stock"), at an initial exercise price of $.01 per share; WHEREAS, the Warrants are to be issued pursuant to this Agreement; WHEREAS, the Preferred Stock and the Warrants (other than the Purchaser Warrants) (the "Unit Warrants") will be sold in Units, each Unit consisting of (i)$1,000 initial liquidation preference amount of Preferred Stock and (ii) one Warrant to purchase initially 2.66143 Warrant Shares at an initial exercise price of $.01 per share (the "Units"); WHEREAS, prior to the Separation Date, beneficial ownership of the Preferred Stock and the Unit Warrants will be evidenced by record ownership of the Units; WHEREAS, the shares of Preferred Stock and the Unit Warrants comprising the Units shall be evidenced by Preferred Stock Certificates and Warrant Certificates that will be physically attached together with Unit Certificates in the form of Exhibit C hereto; WHEREAS, the Company further desires the Warrant Agent to act on behalf of the Company in connection with the issuances, division, transfer, exchange, substitution and exercise of the Warrants, and the Warrant Agent is willing to so act; and NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the registered holders of Warrants (or until the Separation Date (as defined below), the registered holders of Preferred Stock) (each a "Holder"): 6 2 ARTICLE I Definitions SECTION 1.1 Definitions. Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified Person means (i) any other Person which, directly or indirectly, is controlling or controlled by or under direct or indirect common control with such specified Person, or (ii) any other Person who is a director or executive officer (A) of such Person, (B) of any subsidiary of such specified Person, or (C) of any Person described in clause (i) above. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" has the meaning given to such term in Section 5.3. "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means any day other than (i) Saturday or Sunday, (ii) or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Common Stock" has the meaning given to such term in the recitals to this Agreement. "Company" has the meaning given to such term in the preamble to this Agreement. "Current Market Value" per share of Common Stock or any other security at any date means, on any date of determination (a) the average of the daily closing sale prices for each of 15 trading days immediately preceding such date (or such shorter number of days during which such security has been listed or traded), if the security has been listed on the New York Stock Exchange, the American Stock Exchange or other national securities exchange or the NASDAQ National Market for at least 10 trading days prior to such date, (b) if such security is not so listed or traded, the average of the daily closing bid prices for each of the 15 trading days immediately preceding such date (or such shorter number of days during which such security had been quoted), if the security has been quoted on a national over-the-counter market for at least 10 trading days, (c) in the case of a firm commitment underwritten public offering, the bona fide price paid by the underwriters and (d) otherwise, the value of the security most recently determined as of a date within the six months preceding such day by the Board. 7 3 "Definitive Warrants" has the meaning given to such term in Section 2.1. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC pursuant thereto. "Exchange Offer" means the offer by the Company to exchange the Company's Notes and the Preferred Stock for senior secured debt securities and preferred stock of the Company with terms substantially identical to the Notes and the Preferred Stock, respectively. "Exercise Date" has the meaning given to such term in Section 3.2. "Exercise Price" has the meaning given to such term in Section 3.1. "Expiration Date" has the meaning given to such term in Section 3.2. "Global Warrant" has the meaning given to such term in Section 2.1. "Global Warrants" has the meaning given to such term in Section 2.1. "Holders" has the meaning given to such term in the recitals to this Agreement. "Institutional Accredited Investor" has the meaning given to such term in Section 2.3. "Issue Date" means the date on which Warrants are initially issued, which is February 25, 1998. "Liquidation Preference" means $1,000 per share of Preferred Stock. "Notes" means the Company's 11 1/2 Senior Secured Notes due 2003. "Offering Circular" means the final Offering Circular of the Company dated February 17, 1998 relating to the issuance and sale of the Units. "Officer" means the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President or the Treasurer of the Company. "Person" means any individual, corporation, company (including any limited liability company), partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof. 8 4 "Preferred Stock Certificates" means stock certificates evidencing the Perferred Stock. "Preferred Stock Transfer Agent" means U.S. Trust Company of California, N.A. "Public Company Date" means the date that is 45 days after the date upon which underwritten primary public offerings of Common Stock of the Company pursuant to effective registration statements under the Securities Act have resulted in 35% of the Company's Common Stock (measured on a fully diluted basis after giving effect to such offerings) being sold to the public and in the Company's Common Stock being listed for trading on any of the New York Stock Exchange, the NASDAQ National Market or the American Stock Exchange. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redeemable Stock" means, with respect to any Person, any capital stock that by its terms (or by the terms of any security into which it is convertible or exchangeable) or otherwise (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchasable at the option of the holder thereof, in whole or in part, or (iii) is convertible or exchangeable for indebtedness. "Restricted Definitive Warrant" has the meaning given to such term in Section 2.3. "Restricted Warrant" means a Global Warrant or a Restricted Definitive Warrant. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Separation Date" means the earliest to occur of (i) August 15, 1998, (ii) the date of commencement of the Exchange Offer (iii) such earlier date as may be determined by the Purchaser, (iv) the date on which the Company mails a notice of a Change of Control to holders of the Preferred Stock, (v) in the event that the Company elects to redeem the Preferred Stock, the date on which the Company mails notice thereof to the holders of the Preferred Stock, and (vi) the date on which the Company consummates a public offering of Common Stock. "Stock Transfer Agent" has the meaning given to such term in Section 3.5. 9 5 "Voting Stock" means all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Warrant Agent" has the meaning given to such term in the Recitals. "Warrant Certificates" has the meaning given to such term in Section 2.1. "Warrant Number" has the meaning given to such term in Article IV. "Warrant Shares" means the Common Stock (and other securities) issuable upon the exercise of the Warrants. "Warrants" has the meaning given to such term in the Recitals. SECTION SECTION 1.2 Rules of Construction. Unless the text otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including, without limitation; (v) references to "Section" and "Article" refer to Sections and Articles of this Agreement, unless the context clearly requires otherwise; and (vi) words in the singular include the plural and words in the plural include the singular. ARTICLE ARTICLE II Warrant Certificates and Client Certificates SECTION 2.1 Form of Warrant Certificates. Unit Warrants shall be initially issued together with the issuance of the Preferred Stock and shall not be separately transferrable until the Separation Date (as defined). Prior to the Separation Date, beneficial ownership of the Unit Warrants will be evidenced by record ownership of the Units. The Unit Warrants and Units will be issued (a) in global form (as applicable, the "Global Warrant" or "Global Unit"), substantially in the form of Exhibit A and Exhibit C, respectively, attached hereto (including the text accompanying the footnotes thereto), and (b) in definitive form (as applicable, the "Definitive Warrants" or "Definitive Units"), substantially in the form of Exhibit A and Exhibit C, respectively, (excluding the text accompanying the footnotes thereto). The Purchaser Warrants will be issued as a Definitive Warrant or Warrants. The Global Warrant shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon; provided that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Warrant or Global Unit to reflect the amount of any increase or decrease in the amount of outstanding Warrants or Units represented thereby shall be made by the Warrant Agent in accordance with instructions given by the holder thereof. 10 6 The Depository with respect to the Global Warrant and Global Unit (the "Depository") shall be The Depository Trust Company until a successor shall be appointed by the Company and become such Depository. The Global Warrant or Global Unit shall be registered in the name of the Depository, or the nominee of such Depository. So long as the Depository or its nominee is the registered owner of such Global Warrant or Global Unit it will be deemed the sole owner and holder of such Global Warrant or Global Unit for all purposes hereunder and under such Global Warrant or Global Unit. The certificates (the "Warrant Certificates") evidencing the Global Warrant and the Definitive Warrants to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit A attached hereto. The certificates evidencing the Units to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit C hereto (the "Unit Certificates"). Until the Separation Date, all references herein to "Warrant Certificates," unless the context dictates otherwise, shall also mean the related Unit Certificates. Neither the Company nor the Warrant Agent will have any responsibility or liability for any aspects of the records relating to beneficial ownership interest of the Global Warrant or Units in the name of the Depository or its nominee or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.2 Legends. Unless and until a Warrant or Warrant Share is sold under an effective registration statement, each Warrant Certificate evidencing the Global Warrants and the Definitive Warrants (and all Warrant Certificates issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares shall bear a legend in substantially the following form (with any appropriate modification for the Warrant Shares): THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH AMERICAN RESTAURANT GROUP, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS 11 7 OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. SECTION 2.3 Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase initially an aggregate of up to 104,794 Warrant Shares (subject to adjustment and except as provided in Section 2.4) and Unit Certificates evidencing 35,000 Units may be issued hereunder. On the Issue Date, subject to Section 2.1, the Company shall execute and deliver to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates and Unit Certificates upon the order and at the direction of the Company to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates and Unit Certificates as required by this Agreement. The Warrant Certificates and Unit Certificates shall be executed on behalf of the Company by an Officer of the Company either manually or by facsimile signature printed thereon. The Warrant Certificates and Unit Certificates shall be countersigned manually by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any Officer of the Company whose signature shall have been placed upon any of the Warrant Certificates and Unit Certificates shall cease to be such Officer of the Company before countersignature by the Warrant Agent and issuance and delivery thereof, such Warrant Certificates and Unit Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such Officer of the Company. Warrants and Units offered and sold in their initial distribution to a limited number of institutions that are accredited investors (which are not QIBs) within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and institutions in which all the equity owners are such accredited investors) (together referred to as "Institutional Accredited Investors") in transactions exempt from registration under the Securities Act will 12 8 be delivered, in certificated fully registered form (as applicable, a "Restricted Definitive Warrant" or a "Restricted Definitive Unit") substantially in the form set forth in Exhibit A and Exhibit C. Such Warrants shall be delivered to such Institutional Accredited Investors only upon the execution and delivery to the Company and the Initial Purchaser of an institutional accredited investor transferee compliance letter (an "Investor Letter") substantially in the form of Annex A-1 to the Offering Circular. Restricted Definitive Warrants and Restricted Definitive Units may not be transferred or exchanged for interests in the Global Warrant or Global Unit or another Restricted Definitive Warrant or Restrictive Definitive Unit, except as provided herein. SECTION 2.4 Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity satisfactory to them and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Units or Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and an authorized signatory of the Warrant Agent shall manually countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Units or Warrants. Upon the issuance of any new Warrant Certificate under this Section 2.4, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the fees and expenses of the Warrant Agent and of counsel to the Company) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Section 2.4 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Company, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable under applicable law, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.4 are exclusive and shall preclude (to the extent lawful) all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary, with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. ARTICLE ARTICLE III Exercise Terms SECTION 3.1 Exercise Price. Each Warrant shall initially entitle the Holder thereof, subject to adjustment pursuant to the terms of this Agreement, to purchase 2.66143 shares of Common Stock for an initial exercise price of $.01 per share of Common Stock (the "Exercise Price"). The Warrant Number and Exercise Price are both subject to adjustment as set forth in Article IV. 13 9 SECTION 3.2 Exercise Period. (a) Subject to the terms and conditions set forth herein, the Warrants are exercisable at any time or from time to time on any Business Day commencing on the Issue Date (the "Exercise Date"). ( (b) ) No Warrant shall be exercisable after the earlier of (i) the Public Company Date and (ii) August 15, 2008 (the "Expiration Date"). SECTION 3.3 Expiration. A Warrant shall terminate and become void as of the earlier of (i) the close of business on the Expiration Date or (ii) the date such Warrant is exercised. The Company shall give notice not less than 90, and not more than 120, days prior to the Expiration Date to the Holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of the close of business on the Expiration Date; provided, however, that notwithstanding that the Company may fail to give notice as provided in this Section 3.3, the Warrants will terminate and become void on the Expiration Date. SECTION 3.4 Manner of Exercise. (a) Warrants may be exercised at any time on or after th Exercise Date by surrendering to the Warrant Agent the Warrant Certificates at any office or agency maintained for that purpose, together with the form of election to purchase Common Stock on the reverse thereof duly completed and signed by the Holder thereof and by paying in full the Exercise Price for each Warrant exercised and any other amounts required to be paid pursuant to Section 5.2 hereof to the Warrant Agent at its corporate trust office. Payment of the Exercise Price (and any other required amounts) shall be made in the form of cash or a certified or official bank check payable to the order of the Company or by bank wire transfer of immediately available funds. The date on which (i) payment in full of the Warrant Price and (ii) the Warrant Certificate with the form of election to purchase Warrant Securities set forth on the reverse side of the Warrant Certificate properly completed and duly executed, are received by the Warrant Agent shall be deemed to be the date on which the Warrant is exercised. The Warrant Agent shall deposit all funds received by it in payment of the Warrant Price in an account of the Company maintained with it or in such other account designated by the Company and shall advise the Company by telephone at the end of each day on which a payment for the exercise of Warrants is received of the amount so deposited to its account. The Warrant Agent shall promptly confirm such telephone advice to the Company in writing. In lieu of exercising the Warrant by paying in full the Exercise Price, the Warrant holder may, from time to time, convert this Warrant (a "Warrant Conversion"), in whole or in part, into a number of shares of Common Stock determined by dividing (a) the aggregate Current Market Value of the number of Warrant Shares represented by the Warrants converted, minus the aggregate Exercise Price for such Warrant Shares (and any other required amounts), by (b) the Current Market Value of one Warrant Share. For purposes of this Agreement, such conversion shall be deemed payment in full of the Exercise Price. (b) Subject to Section 3.2, the rights represented by the Warrants shall be exercisable at the election of the Holders thereof either in full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise in respect of less than all the Warrant Shares purchasable on such exercise at any time prior to the expiration of the Exercise Period, a new Warrant Certificate exercisable for the remaining 14 10 Warrant Shares will be issued. The Warrant Agent shall manually countersign and deliver the required new Warrant Certificates, and the Company, at the Warrant Agent's request, shall supply the Warrant Agent with Warrant Certificates duly signed on behalf of the Company for such purpose. (c) The Warrant Agent shall, from time to time, as promptly as practicable, advise the Company of (i) the number of Warrants exercised, (ii) the instructions of each holder of the Warrant Certificates evidencing such Warrants with respect to delivery of the Warrant Securities to which such holder is entitled upon such exercise, (iii) delivery of Warrant Certificates evidencing the balance, if any, of the Warrants remaining after such exercise and (iv) such other information as the Company shall reasonably require. (d) The Company shall not be required to pay any stamp or other tax other governmental charge required to be paid in connection with any transfer involved in the issuance of the Warrant Shares, and in the event that any such transfer is involved, the Company shall not be required to issue or deliver any Warrant Shares until such tax or other charge shall have been paid or it has been established to the Company's satisfaction that no such tax or other charge is due. SECTION 3.5 Issuance of Warrant Shares. Upon the surrender of Warrant Certificates, as set forth in Section 3.4, the Company shall issue and cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Stock Transfer Agent") to countersign and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise, to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price, as aforesaid. SECTION 3.6 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.6, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the same fraction of the Current Market Value for one share of Common Stock less the portion of the Exercise Price attributable thereto, rounded to the nearest whole cent. SECTION 3.7 Reservation of Warrant Shares. The Company shall at all times prior to the Expiration Date keep reserved out of its authorized shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall at all times 15 11 until the expiration of the Exercise Period reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Stock Transfer Agent. The Company will supply such Stock Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.6. The Company will furnish to such Stock Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each Holder. The Company covenants that all shares of Common Stock that may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of preemptive rights, free from all taxes and free from all liens, charges and security interests, created by or through the Company, with respect to the issue thereof. SECTION 3.8 Cancellation of Warrant Certificates. In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if so delivered, shall be promptly canceled by it and retired. The Warrant Agent shall cancel all Warrant Certificates properly surrendered for exchange, substitution, transfer or exercise. The Warrant Agent shall destroy canceled Warrant Certificates held by it and deliver a certificate of destruction to the Company. SECTION 3.9 Compliance with Law. (a) Notwithstanding anything in this Agreement to the contrary, in no event shall a Holder be entitled to exercise a Warrant, unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective; provided, however, that in no event shall the Company be required to file a Registration Statement in order to permit a Holder to exercise a Warrant, or (ii) an exemption from the registration requirements is available under the Securities Act for the issuance of the Warrant Shares (and the delivery of any other securities for which the Warrants may at the time be exercisable) at the time of such exercise and, if requested by the Company, an opinion of counsel addressed to the Warrant Agent and the Company, satisfactory in form and substance to the Company, confirms such exemption. (b) If any shares of Common Stock required to be reserved for purposes of exercise of Warrants require, under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any governmental authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will in good faith and as expeditiously as reasonably possible endeavor to cause such shares to be duly registered or approved by such governmental authority or listed on the relevant national securities exchange, as the case may be 16 12 ARTICLE IV Antidilution Provisions SECTION 4.1 Adjustment of Exercise Price and Warrant Number. The number of shares of Common Stock issuable upon the exercise of each Warrant (the "Warrant Number") is initially 2.66143. The Warrant Number is subject to adjustment from time to time upon the occurrence of the events enumerated in, or as otherwise provided in, this Article IV . SECTION 4.2 Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (3) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock (other than reclassifications arising solely as a result of a change in the par value or no par value of the Common Stock); then the Warrant Number in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which such holder would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. 17 13 Such adjustment shall be made successively whenever any event listed above shall occur. If the occurrence of any event listed above results in an adjustment under Section 4.3 or 4.4 below, no further adjustment shall be made under this Section 4.2. SECTION 4.3 Adjustment for Rights Issue. If the Company distributes (and receives no consideration therefor) any rights, options or warrants (whether or not immediately exercisable) to holders of any class of its Common Stock (as such) entitling them to purchase shares of Common Stock at a price per share less than the Current Market Value per share on the record date relating to such distribution, the Warrant Number shall be adjusted in accordance with the formula: W' = W x O + N ----- O + N x P ----- M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date for any such distribution. O = the number of shares of Common Stock outstanding on the record date for any such distribution. N = the number of additional shares of Common Stock issuable upon exercise of such rights, options or warrants. P = the exercise price per share of such rights, options or warrants. M = the Current Market Value per share of Common Stock on the record date for any such distribution. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. SECTION 4.4 Adjustment for Other Distributions. If the Company distributes to holders of any class of its Common Stock (as such) (i) any evidences of indebtedness of the Company or any of its subsidiaries, (ii) any assets of the Company or any of its subsidiaries (excluding cash dividends or other cash 18 14 distributions from retained earnings), or (iii) any rights, options or warrants to acquire any of the foregoing or to acquire any other securities of the Company (any of the foregoing being hereinafter in this Section 4.4 called the "Securities"), then, in each such case, unless the Company elects to reserve such Securities for distribution to the holders of the Warrants so that any such holder exercising Warrants will receive upon such exercise, in addition to the shares of the Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had, immediately prior to the record date for the distribution of the Securities, exercised its Warrants, the Warrant Number shall be adjusted in accordance with the formula: W' = W x M ------ M - F where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to the record date mentioned below. M = the Current Market Value per share of Common Stock on the record date mentioned below. F = the fair market value on the record date mentioned below of the shares, indebtedness, assets, rights, options or warrants distributable to the holder of one share of Common Stock. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the adjusted Warrant Number shall be immediately readjusted as if "F" in the above formula was the fair market value on the record date of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the record date. In the event that "F" in the above formula is greater than or equal to "M" in the above formula, then each Holder of the Warrants, notwithstanding that such Holder's Warrants have not been exercised, shall receive the distribution referred to in this Section 4.4 on the basis of number of Warrant Shares underlying the Warrants held by each such Holder, unless the Company elects to reserve such Securities for distribution to the holders of the Warrants upon the exercise of the Warrants as described above. This subsection does not apply to rights, options or warrants referred to in Section 4.3. 19 15 SECTION 4.5 Adjustment for Common Stock Issue. If the Company issues shares of Common Stock for a consideration per share less than the Current Market Value per share on the date the Company fixes the offering price of such additional shares, the Warrant Number shall be adjusted in accordance with the formula: W' = W x A -------- O + P -- M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock. P = the aggregate consideration received for the issuance of such additional shares of Common Stock. M = the Current Market Value per share of Common Stock on the date of issuance of such additional shares. A = the number of shares of Common Stock outstanding immediately after the issuance of such additional shares of Common Stock. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This Section 4.5 does not apply to any of the transactions described in Section 4.2. SECTION 4.6 Adjustment for Convertible Securities Issue. If the Company issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than securities issued in transactions described in Sections 4.3 or 4.4) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities less than the Current Market Value per share on the date of issuance of such securities, the Warrant Number shall be adjusted in accordance with this formula: 20 16 W' = W x O + D ----- O + P - M where: W' = the adjusted Warrant Number. W = the Warrant Number immediately prior to any such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. P = the sum of the aggregate consideration received for the issuance of such securities and the aggregate minimum consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities. M = the Current Market Value per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares of Common Stock deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when the conversion, exchange or exercise rights of such securities have expired or been terminated, then the adjusted Warrant Number shall promptly be readjusted to the adjusted Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. If the aggregate minimum consideration receivable by the Company for issuance of Common Stock upon conversion or in exchange for, or upon exercise of, such securities shall be increased by virtue of provisions therein contained or upon the arrival of a specified date or the happening of a specified event, then the Warrant Number shall promptly be readjusted to the Warrant Number which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of such increased minimum consideration. This Section 4.6 does not apply to the issuance of the Warrants or to any of the transactions described in Section 4.3. SECTION 4.7 [INTENTIONALLY OMITTED.] SECTION 4.8 Consideration Received. 21 17 For purposes of any computation respecting consideration received pursuant to Sections 4.5 and 4.6, the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash (without any deduction being made for any commissions, discounts or other expenses incurred by the Compa ny for any underwriting of the issue or otherwise in connection therewith); (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof (irrespective of the accounting treatment thereof) as determined in good faith by the Board; and (3) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion, exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subsection). SECTION 4.9 When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant Number need be made unless the adjustment would require an increase or decrease of at least 1.0% in the Warrant Number. Any adjustment that is not made shall be carried forward and taken into account in any subsequent adjustment, provided that no such adjustment shall be deferred beyond the date on which a Warrant is exercised. All calculations under this Article IV shall be made to the nearest cent or to the nearest .01 of a share, as the case may be, with one-half cent and .005 of a share, respectively, being rounded upward. Anything in this Article IV to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Warrant Price, in addition to those required by this Section 4.9 as it in its discretion shall determine advisable in order that any stock dividend, subdivision of shares, distribution of rights or warrants to purchase stock or securities, or distribution of other assets (other than cash dividends) hereafter made by the Company to its stockholders shall not be taxable. SECTION 4.10 Adjustment to Exercise Price. Upon each adjustment to the Warrant Number pursuant to this Article IV, the Exercise Price shall be adjusted so that it is equal to the Exercise Price in effect immediately prior to such adjustment multiplied by a quotient, the numerator of which is the Warrant Number in 22 18 effect immediately prior to such adjustment, and the denominator of which is the Warrant Number in effect immediately after such adjustment; provided, that the Exercise Price shall not be adjusted below the lesser of $0.01 per share of Common Stock and the then par value per share of Common Stock. SECTION 4.11 When No Adjustment Required. If an adjustment is made upon the establishment of a record date for a distribution subject to Sections 4.2, 4.3 or 4.4 hereof and such distribution is subsequently cancelled, the Warrant Number and Exercise Price then in effect shall be readjusted, effective as of the date when the Board determines to cancel such distribution, to that which would have been in effect if such record date had not been fixed. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the amount of cash into which such Warrants are exercisable. Interest will not accrue on the cash. SECTION 4.12 Notice of Holders. Upon any adjustment pursuant to Article IV hereof, the Company shall promptly thereafter (i) cause to be filed with the Warrant Agent a certificate of an officer of the Company setting forth the Warrant Number, the Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and (ii) cause to be given to each of the Holders at its address appearing on the Warrant Register written notice of such adjustments in accordance with the provisions of this Section 4.12. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 4.12. In case: (a) the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; (b) the Company shall authorize the distribution to all holders of shares of Common Stock of assets, including cash, evidences of its indebtedness or other securities; (c) of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) or of a tender offer or exchange offer for shares of Common Stock; (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or 23 19 (e) the Company proposes to take any action that would require an adjustment to the Warrant Number or the Exercise Price pursuant to Article IV hereof; then the Company shall cause to be given to each of the Holders at its address appearing on the Warrant Register, at least 30 days prior to the applicable record date hereinafter specified, or the date of the event in the case of events for which there is no record date, in accordance with the provisions of Section 14 hereof, a written notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, options, warrants or distribution are to be determined, (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock or (iii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 4.12 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. Nothing contained in this Agreement or in any Warrant Certificate shall be construed as conferring upon the Holders (prior to the exercise of such Warrants) the right to vote, to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of Directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company; provided, however, that nothing in the foregoing provision is intended to detract from any rights explicitly granted to any Holder hereunder. SECTION 4.13 Voluntary Reduction. The Company from time to time may reduce the Exercise Price by any amount for any period of time (including, without limitation, permanently) if the period is at least 20 days and if the reduction is irrevocable during the period. Whenever the Exercise Price is reduced, the Company shall mail to the Holders and the Warrant Agent a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced Exercise Price takes effect. The notice shall state the reduced Exercise Price and the period it will be in effect. A reduction of the Exercise Price under this Section 4.13 (other than a permanent reduction) does not change or adjust the Exercise Price otherwise in effect for purposes of Sections 4.2, 4.3, 4.4, 4.5 or 4.6. SECTION 4.14 Reorganizations. In case of any capital reorganization, other than in the cases referred to in Sections 4.2, 4.3, 4.4, 4.5 or 4.6 hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common 24 20 Stock into shares of other stock or other securities or property), or the sale of the property of the Company as an entirety or substantially as an entirety (collectively, such actions being hereinafter referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the amount of cash, the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of the Company, whose determination shall be described in a duly adopted resolution certified by the Company's Secretary or Assistant Secretary, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization or the corporation purchasing or leasing such assets or other appropriate corporation or entity shall expressly assume, by a supplemental Warrant Agreement or other acknowledgment executed and delivered to the Holder(s), the obligation to deliver to each such Holder such cash, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and all other obligations and liabilities under this Agreement. In the case of a consolidation, merger, sale or conveyance, the Company shall thereupon be relieved of any further obligation hereunder or under the Warrants, and the Company as the predecessor corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor or assuming corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Warrant Certificates issuable hereunder which theretofore shall not have been signed by the Company, and may execute and deliver Warrant Shares in its own name, in fulfillment of its obligations to deliver Warrant Shares upon the exercise of the Warrants. In any case of any such reclassification, change, consolidation, merger, sale or conveyance, such changes in phraseology and form (but not in substance) may be made in the Warrants thereafter to be issued as may be appropriate. SECTION 4.15 Form of Warrants. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. 25 21 SECTION 4.16 Miscellaneous. For purpose of this Article IV the term "shares of Common Stock" shall mean (i) shares of any class of stock designated as Common Stock of the Company as of the date of this Agreement, (ii) shares of any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value and (iii) shares of Common Stock of the Company issuable upon exercise of options, warrants or rights to purchase Common Stock of the Company or upon conversion or exchange of securities convertible into or exchangeable for shares of Common Stock of the Company outstanding at the date of determination. In the event that at any time, as a result of an adjustment made pursuant to this Article IV, the holders of Warrants shall become entitled to purchase any securities of the Company other than, or in addition to, shares of Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in Sections 4.2 through 4.15 of this Article IV, inclusive, and the provisions of this Agreement with respect to the Warrant Shares or the Common Stock shall apply on like terms to any such other securities. SECTION 4.17 Non-applicability of Article IV. The provisions of this Article IV do not apply to (i) a change solely in the par value or no par value of the Common Stock, provided that the Company shall not increase the par value to exceed the Exercise Price, (ii) the conversion or exchange (other than pursuant to a reclassification), in any case on a share-for-share basis, of Common Stock for non-voting or light voting common stock that has rights (other than voting rights) identical to the Common Stock, or of such non-voting or light voting stock for Common Stock, (iii) the issuance to employees of the Company or any of its subsidiaries of stock or stock options in an amount which, upon purchase or exercise, as the case may be, would represent in the aggregate, less than 15% of the Company's Common Stock on a fully-diluted basis, (iv) any exercise of Warrants, options, warrants or convertible securities, or (v) any bona fide firm commitment underwritten public offering. ARTICLE ARTICLE V Transferability SECTION 5.1 Transfer and Exchange. Prior to the Separation Date, a Unit Warrant may be exchanged or transferred only together with the Preferred Stock to which the Unit Warrant was initially attached, and only for the purpose of effecting or in conjunction with an exchange or transfer of such Preferred Stock. Prior to the Separation Date, each transfer of a Unit on the register of the Units shall operate to transfer both the Preferred Stock and the Unit Warrant comprising such Unit. The Company shall notify the holders of the Preferred Stock, the Preferred Stock Transfer Agent and the Warrant Agent of the Separation Date. 26 22 The Company shall cause to be kept at the office of the Warrant Agent a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrant Certificates and Unit Certificates and transfers or exchanges of Warrant Certificates and Unit Certificates as herein provided. All Warrant Certificates and Unit Certificates issued upon any registration of transfer or exchange of Warrant Certificates and Unit Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefit under this Agreement, as the Warrant Certificates and Unit Certificates surrendered for such registration of transfer or exchange. A Holder may transfer its Warrants only by complying with the terms of this Agreement. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the register. Prior to the registration of any transfer of Warrants or Units by a Holder as provided herein, the Company, the Warrant Agent, any agent of the Company or the Warrant Agent may treat the Person in whose name the Warrants or Units are registered as the owner thereof for all purposes and as the Person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of a Global Warrant or Global Unit shall, by acceptance of such Global Warrant or Global Unit, agree that transfers of beneficial interests in such Global Warrant or Global Unit may be effected only through a book-entry system maintained by the Holder of such Global Warrant (or its agent), and that ownership of a beneficial interest in the Warrants represented thereby shall be required to be reflected in a book entry. When Warrant Certificates or Unit Certificates are presented to the Warrant Agent with a request to register the transfer or to exchange them for an equal amount of Warrants or Units of other authorized denominations, subject to the provisions of Section 5.2 below, the Warrant Agent shall register the transfer or make the exchange in accordance with the provisions hereof. To permit registrations of transfer and exchanges, the Company shall make available to the Warrant Agent a sufficient number of executed Warrant Certificates and Unit Certificates to effect such registrations of transfers and exchanges. No service charge shall be made to the Holder for any registration of transfer or exchange of Warrants or Units, but the Company may require from the transferring or exchanging Holder payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.4 and exchanges in respect of portions of Warrants not exercised and the Company may deduct such taxes from any payment of money to be made and such transfer or exchange shall not be consummated (if such taxes are not deducted in full) unless or until the Holder shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company and the Warrant Agent that such tax has been paid. SECTION 5.2 Registration, Registration of Transfer and Exchange. (a) Transfer and Exchange of Definitive Warrants or Units. When Definitive Warrants or Units are presented to the Warrant Agent with a request (i) to register the transfer of the Definitive Warrant or Unit or (ii) to exchange such Definitive Warrants or Units for an equal number of Definitive Warrants or Units of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Definitive Warrants or Units so presented have 27 23 been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Warrant Agent, duly executed by the holder thereof or by his attorney, duly authorized in writing; (b) Transfer of a Definitive Warrant or Unit for a Beneficial Interest in Global Warrant. A Definitive Warrant or Unit may be exchanged for a beneficial interest in the Global Warrant or Unit only upon receipt by the Warrant Agent of a Definitive Warrant or Unit, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with written instructions directing the Warrant Agent to make an endorsement on the Global Warrant or Unit to reflect an increase in the number of Warrants and Warrant Shares or Units represented by the Global Warrant or Unit, and then the Warrant Agent shall cancel such Definitive Warrant or Units and cause the number of Warrants and Warrant Shares or Units represented by the Global Warrant or Unit to be increased accordingly. If no Global Warrant or Unit is then outstanding, the Company shall issue and the Warrant Agent shall countersign a new Global Warrant or Unit representing the appropriate number of Warrants and Warrant Shares or Units. (c) Transfer and Exchange of Global Warrant or Unit. The transfer and exchange of the Global Warrant or Unit or beneficial interests therein shall be effected through the Depository, in accordance with this Warrant Agreement and the procedures of the Depository therefor. Notwithstanding any other provisions of this Warrant Agreement, the Global Warrant or Unit may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository: provided, that: (i) if the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Warrant or Unit and a successor Depository for the Global Warrant or Unit is not appointed by the Company within 90 days after delivery of such notice; or (ii) if the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants or Units under this Warrant Agreement; or (iii) immediately following the Separation Date; the Company shall execute and the Warrant Agent shall countersign and deliver, Definitive Warrants or Units in an aggregate number equal to the number of Warrants or Units evidenced by the Global Warrant or Unit, in exchange for such Global Warrant or Unit. (d) Transfer of a Beneficial Interest in Global Warrant or Unit for a Definitive Warrant or Unit. Upon receipt by the Warrant Agent of written transfer instructions (or such other form of instructions as is customary for the Depository) from the Depository (or its nominee) on behalf of any person having a beneficial interest in the Global Warrant or Unit, the Warrant Agent shall cause, in accordance with the standing instructions and procedures existing between the Depository and the Warrant Agent (the "Standing Instructions"), the number of Warrants and Warrant Shares or Units represented by the Global Warrant or Unit to be reduced and, following such reduction, the Company shall execute and the Warrant Agent shall countersign and deliver to the transferee, 28 24 as the case may be, a Definitive Warrant or Unit. Definitive Warrants or Units issued in exchange for a beneficial interest in the Global Warrant or Unit shall be registered in such names and in such authorized denominations as the Depository shall instruct the Warrant Agent. (e) Cancellation and/or Adjustment of Global Warrant or Unit. At such time as all beneficial interests in the Global Warrant or Unit have either been exchanged for Definitive Warrants or Units, exercised or cancelled, the Global Warrant or Unit shall be returned to or retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in the Global Warrant or Unit is exchanged for Definitive Warrants or Units, exercised or cancelled, the number of Warrants and Warrant Shares represented by such Global Warrant or Unit shall be reduced and an endorsement shall be made on such Global Warrant or Unit by the Warrant Agent to reflect such reduction. [INTENTIONALLY OMITTED]. SECTION 5.3 Special Transfer Provisions. The following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants or Units to any Institutional Accredited Investor that is not a QIB (excluding Non-U.S. Persons): (i) The Warrant Agent shall register the transfer of any Warrant Certificate, if (x)(A) the requested transfer is at least two years after the Issue Date and such transferor is not an affiliate of the Company or (B) the proposed transferee has delivered to the Warrant Agent certificates substantially in the forms of Exhibit B hereto and (y) in the case of a transfer pursuant to clause D, E or F of the legend on the Warrant, the proposed transferee has delivered to the Warrant Agent and the Company, if requested, an opinion of counsel acceptable to the Warrant Agent or the Company that such transfer is in compliance with the Securities Act. (b) Transfers to QIBs. Subject to Section 2.5, the following provisions shall apply with respect to the registration of any proposed transfer of Warrants to a QIB: (ii) If the Warrants or Units to be transferred are represented by (x) Restricted Definitive Warrants or Units, the Warrant Agent shall register the transfer if it has received from such transferor a certificate substantially in the form of Exhibit B hereto that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Warrant Certificate stating, or has otherwise advised the Company and the Warrant Agent in writing, that it is purchasing the Warrants or Units for its own account or an account with respect to which it exercises sole investment discretion and that 29 25 it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A and upon the transfer referred to in this clause (x), the transferee shall take an interest in the Global Warrant or Unit or (y) an interest in the Global Warrant or Unit, the transfer of such interest may be effected only through the book-entry system maintained by DTC. (c) General. By its acceptance of any Warrants or Units represented by a Warrant Certificate bearing the legend in Section 2.2, each Holder of such Warrants or Units acknowledges the restrictions on transfer of such Warrants or Units set forth in this Agreement and in the legend and agrees that it will transfer such Warrants or Units only as provided in this Agreement. The Warrant Agent shall not register a transfer of any Warrants or Units unless such transfer complies with the requirements of this Section 5.4. In connection with any transfer of Warrants or Units, each Holder agrees by its acceptance of Warrants or Units to furnish the Warrant Agent or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act and applicable state "blue sky" laws; provided, however, that the Warrant Agent shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Warrant Agent's only obligation to enforce the transfer restrictions of this Agreement shall be to require the certifications and opinions specifically required by this Section 5.4 as a condition to a transfer. (d) Records. The Warrant Agent shall retain copies of all letters, notices and other written communications received pursuant to Section 5.3 hereof or this Section 5.4. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Warrant Agent. SECTION 5.4 Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange or exercise of the Warrants or Units represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent and shall not be reissued by the Company and, except as provided in this Article V in case of an exchange or in Article III hereof in case of the exercise of less than all the Warrants represented thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such canceled Warrant Certificates as the Company may direct in writing. 30 26 ARTICLE VI Warrant Agent SECTION 6.1 Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with provisions of this Agreement and the Warrant Agent hereby accepts such appointment. The Warrant Agent shall have the powers and authority granted to and conferred upon it in the Warrant Certificates and hereby and such further powers and authority to act on behalf of the Company as the Company may hereafter grant to or confer upon it. All of the terms and provisions with respect to such powers and authority contained in the Warrant Certificates are subject to and governed by the terms and provisions hereof. SECTION 6.2 Rights and Duties of Warrant Agent. (a) Agent for the Company. In acting under this Warrant Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship or agency or trust for or with any of the holders of Warrant Certificates or beneficial owners of Warrants. (b) Counsel. The Warrant Agent may consult with counsel satisfactory to it, and the written advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel. (c) Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (d) No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder which may tend to involve it in any expense or liability the payment of which within a reasonable time is not, in its opinion, assured to it or for which it does not receive indemnity if such indemnity is requested. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates countersigned by the Warrant Agent and delivered by it to the Holders or on behalf of the Holders pursuant to this Agreement or for the application by the Company of the proceeds of the Warrants. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the receipt of any written demand from a Holder with respect to such default, including any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise. 31 27 (e) Not Responsible for Adjustments or Validity of Stock. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require an adjustment of the Warrant Number or the Exercise Price, or with respect to the nature or extent of any adjustment when made, or with respect to the method employed, or herein or in any supplemental agreement provided to be employed, in making the same. The Warrant Agent shall not be accountable with respect to the validity or value of any shares of Common Stock or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or upon any adjustment pursuant to Article IV, and it makes no representation with respect thereto. The Warrant Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates upon the surrender of any Warrant Certificate for the purpose of exercise or upon any adjustment pursuant to Article IV, or to comply with any of the covenants of the Company contained in Article IV, except for such responsibility as may arise from the failure of the Warrant Agent to perform its obligations hereunder. SECTION 6.3 Individual Rights of Warrant Agent. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or its affiliates or become pecuniarily interested in transactions in which the Company or its affiliates may be interested, or contract with or lend money to the Company or its affiliates or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 6.4 Warrant Agent's Disclaimer. The Warrant Agent shall not be responsible for and makes no representation as to the validity or adequacy of this Agreement or the Warrant Certificates and it shall not be responsible for any statement in this Agreement or the Warrant Certificates other than its countersignature thereon. SECTION 6.5 Compensation and Indemnity. The Company agrees to pay the Warrant Agent the compensation to be agreed upon with the Company for all services to be rendered by the Warrant Agent and to reimburse the Warrant Agent upon request for all reasonable out-of-pocket expenses incurred by it, including the reasonable compensation and expenses of the Warrant Agent's agents and counsel, in connection with the services rendered hereunder. The Company shall indemnify the Warrant Agent against any loss, liability or expense (including reasonable agents' and attorneys' fees and expenses) incurred by it without negligence on its part arising out of or in connection with the acceptance or performance of its duties under this Agreement. The Warrant Agent shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Warrant Agent through willful misconduct or gross negligence. The Company's payment obligations pursuant to this Section 6.5 shall survive the termination of this Agreement. SECTION 6.6 Successor Warrant Agent. (a) The Company To Provide Warrant Agent. The Company agrees for the benefit of the Holders that there shall at all times be a Warrant Agent hereunder until all the Warrants have been exercised or are no longer exercisable. 32 28 (b) Resignation and Removal. The Warrant Agent may at any time resign by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall not be less than 90 days after the date on which such notice is given unless the Company otherwise agrees. The Warrant Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed by or on behalf of the Company and specifying such removal and the date when it shall become effective. Any removal under this Section 6.6 shall take effect upon the appointment by the Company as hereinafter provided of a successor Warrant Agent (which shall be a bank or trust company authorized under the laws of the jurisdiction of its organization to exercise corporate trust powers) and the acceptance of such appointment by such successor Warrant Agent. (c) The Company To Appoint Successor. In case at any time the Warrant Agent shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or shall commence a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Warrant Agent or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Warrant Agent in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law; or a decree order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant Agent or of its property or affairs, or any public officer shall take charge or control of the Warrant Agent or of its property or affairs for the purpose of rehabilitation, conservation, winding up of or liquidation, a successor Warrant Agent, qualified as aforesaid, shall be appointed by the Company by an instrument in writing, filed with the successor Warrant Agent (or, in the absence of such appointment within 60 days after the notice of resignation or removal, either party to the underwriting agreement may petition the appointment of a successor by a court of competent jurisdiction.) Upon the appointment as aforesaid of a successor Warrant Agent and acceptance by the successor Warrant Agent of such appointment, the Warrant Agent shall cease to be Warrant Agent hereunder; provided, however, that in the event of the resignation of the Warrant Agent under this subsection (c), such resignation shall be effective on the earlier of (i) the date specified in the Warrant Agent's notice of resignation and (ii) the appointment and acceptance of a successor Warrant Agent hereunder. As soon as practicable after appointment of the successor Warrant Agent, the Company shall cause written notice of the change in the Warrant Agent to be given to each of the registered holders of the Warrants in the manner provided for in Section 7.7 hereof. However, failure to give any notice provided for in this clause (c) or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. (d) Successor Expressly To Assume Duties. Any successor Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor 33 29 Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of such predecessor with like effect as if originally named as Warrant Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor Warrant Agent shall be entitled to receive, all monies, securities and other property on deposit with or held by such predecessor, as Warrant Agent hereunder. (e) Successor by Merger. Any corporation into which the Warrant Agent hereunder may be merged or converted or any corporation with which the Warrant Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation to which the Warrant Agent shall sell or otherwise transfer all or substantially all of its corporate trust business; provided that it shall be qualified as aforesaid, shall be the successor Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE VII Miscellaneous SECTION 7.1 [INTENTIONALLY OMITTED.] SECTION 7.2 SEC Reports and Other Information. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall, for all periods ending after the date of this Warrant Agreement, file with the SEC and thereupon provide the Warrant Agent and Holders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections, provided however, that the Company shall not be obligated to file such documents and reports with the SEC if the SEC will not accept them. SECTION 7.3 Rule 144A. The Company hereby agrees with each Holder, for so long as any Warrants or Warrant Shares remain outstanding and such Warrants or Warrant Shares are "restricted securities" as defined in Rule 144 under the Securities Act and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to any Holder or beneficial owner of Warrants or Warrant Shares in connection with any sale thereof and any prospective purchaser of such Warrants or Warrant Shares from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Warrants or Warrant Shares pursuant to Rule 144A. SECTION 7.4 Persons Benefitting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the Company, the Warrant Agent and the Holders any right, remedy or claim under or by reason of this agreement or any part hereof. 34 30 SECTION 7.5 Rights of Holders. Except as expressly contemplated herein, holders of unexercised Warrants are not entitled (i) to receive dividends or other distributions with respect to the Common Stock, (ii) to receive notice of or vote at any meeting of the stockholders, (iii) to consent to any action of the stockholders, (iv) to exercise any preemptive right or to receive notice of any other proceedings of the Company or (v) to exercise any other rights whatsoever as stockholders of the Company. SECTION 7.6 Amendment. This Agreement may be amended by the parties hereto without the consent of any Holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defects or inconsistencies contained herein or making any other change that does not materially adversely affect the rights of the Holders; provided, however, that the Company determines that such change shall not materially adversely affect the rights of the holders, which such determination may be relied upon by the Warrant Agent. Any amendment or supplement to this Agreement that has a material adverse effect on the interests of the Holders shall require the written consent of the Holders of a majority of the then outstanding Warrants. The consent of each Holder affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided in Article IV as of the Issue Date of the Warrants). In determining whether the Holders of the required number of Warrants have concurred in any direction, waiver or consent, Warrants owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Warrant Agent shall be protected in relying on any such direction, waiver or consent, only Warrants which the Warrant Agent knows are so owned shall be so disregarded. Also, subject to the foregoing, only Warrants outstanding at the time shall be considered in any such determination. SECTION 7.7 Notices. Any notice or communication shall be in writing and delivered in Person or mailed by first-class mail addressed as follows: if to the Company: American Restaurant Group, Inc. 450 Newport Center Drive 6th Floor Newport Beach, California 92660 Attention: William J. McCaffrey with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10012 Attention: Philip T. Ruegger, III if to the Warrant Agent: 35 31 U. S. Trust Company of California, N.A. 515 South Flower Street Suite 2700 Los Angeles, California 90071 Attention: Corporate Trust Department The Company or the Warrant Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to the Holder at the Holder's address as it appears on the register in which the Company shall provide for the registration of Warrants and Warrant Shares and of transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 7.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF ITSELF, HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF ITSELF, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 7.9 Successors. All agreements of the Company in this Agreement and the Warrant Certificates shall bind its successors. All agreements of the Warrant Agent in this Agreement shall bind its successors. SECTION 7.10 Multiple Originals. The parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Agreement. SECTION 7.11 Table of Contents. The table of contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference 36 32 only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 7.12 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. SECTION 7.13 Further Assurances. From time to time on and after the date hereof, the Company shall deliver or cause to be delivered to the Warrant Agent such further documents and instruments and shall do and cause to be done such further acts as the Warrant Agent shall reasonably request (it being understood that the Warrant Agent shall have no obligation to make such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected hereunder. 37 33 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. AMERICAN RESTAURANT GROUP, INC. By: /s/ William J. McCaffrey, Jr. ------------------------------- Name: William J. McCaffrey, Jr. ------------------------------- Title: V.P. & Chief Financial Officer -------------------------------- U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Warrant Agent, By: /s/ Gus Kourkoulis -------------------- Name: Gus Kourkoulis -------------------- Title: Authorized Officer ------------------- 38 EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH AMERICAN RESTAURANT GROUP, INC. ("THE COMPANY") ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D),(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. 39 2 [Unless and until it is exchanged in whole or in part for Warrants in definitive form, this Warrant may not be transferred except as a whole by the depository to a nominee of the depository or by a nominee of the depository to the depository or another nominee of the depository or by the depository or any such nominee to a successor depository or a nominee of such successor depository. The Depository Trust Company ("DTC") (55 Water Street, New York, New York) shall act as the depository until a successor shall be appointed by the Company and the Warrant Agent. Unless this certificate is presented by an authorized representative of DTC to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]* - -------- * To be included only if the Warrant is in global form. 40 EXERCISABLE ONLY IF COUNTERSIGNED BY THE WARRANT AGENT AS PROVIDED HEREIN [Prior to the Separation Date (as defined in the Warrant Agreement), this Warrant Certificate cannot be transferred or exchanged unless attached to Preferred Stock.]* WARRANTS TO PURCHASE COMMON STOCK OF AMERICAN RESTAURANT GROUP, INC. VOID AFTER 5 P.M. NEW YORK CITY TIME ON THE EARLIER OF THE PUBLIC COMPANY DATE (AS DEFINED IN THE WARRANT AGREEMENT) AND AUGUST 15, 2008 No. [ ] Certificate for ______ Warrants THIS CERTIFIES THAT, [ ], is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the Holder thereof, at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from American Restaurant Group, Inc., a Delaware corporation ("the Company"), initially 2.66143 shares of Common Stock, $0.01 par value, of the Company (the "Common Stock") at the per share exercise price of $ .01 (the "Exercise Price"). This Warrant Certificate shall terminate and become void as of the close of business on the earlier of (i) the Public Company Date (as defined in the Warrant Agreement) and (ii) August 15, 2008 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares purchasable upon exercise of the Warrants and the Exercise Price per share shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of February 25, 1998 (the "Warrant Agreement"), between the Company and U. S. Trust Company of California, N.A. (the "Warrant Agent," which term includes any successor Warrant Agent under the Warrant Agreement), and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent at U.S. Trust Company of California, N.A., 515 S. Flower Street, Suite 2700, Los Angeles, California 90071, attention of Corporate Trust Department. In no event shall a Holder be entitled to exercise a Warrant, unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective; provided, however, that in no event shall the Company be required to file a Registration Statement in order to permit a Holder to exercise a Warrant, or (ii) an exemption from the registration requirements is available under the Securities Act for the - -------- * To be included only if the Warrant is a Unit Warrant. 41 2 issuance of the Warrant Shares (and the delivery of any other securities for which the Warrants may at the time be exercisable) at the time of such exercise and, if requested by the Company, an opinion of counsel, satisfactory in form and substance to the Company, confirms such exemption. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by presentation of this Warrant Certificate. The term "Holder" as used herein shall mean, prior to the Separation Date (as defined in the Warrant Agreement), the registered owner of the Company's Preferred Stock to which this Warrant Certificate is initially attached, and after such Separation Date, the person in whose name at the time this Warrant Certificate shall be registered upon the books to be maintained by the Warrant Agent for that purpose pursuant to Section 5.1 of the Warrant Agreement. As provided in the Warrant Agreement and subject to the terms and conditions therein set forth, the Warrants shall be exercisable at any time or from time to time on any Business Day commencing on the Issue Date; provided, however, that no Warrant shall be exercisable after the Expiration Date. The Holder may exercise the Warrants evidenced hereby by providing certain information set forth on the back hereof, and by paying in full in cash or by certified check or official bank check or by bank wire transfer, in each case, in immediately available funds, the Warrant Price for each Warrant exercised to the Warrant Agent and by surrendering this Warrant Certificate, with the purchase form on the back hereof duly executed, at the corporate trust office of Warrant Agent currently at the address specified on the reverse hereof, and upon compliance with and subject to the conditions set forth herein and in the Warrant Agreement. In lieu of exercising the Warrant by paying in full the Exercise Price, the Warrant holder may, from time to time, convert this Warrant (a "Warrant Conversion"), in whole or in part, into a number of shares of Common Stock determined by dividing (a) the aggregate Current Market Value of the number of Warrant Shares represented by the Warrants converted, minus the aggregate Exercise Price for such Warrant Shares (and any other required amounts), by (b) the Current Market Value of one Warrant Share. Prior to the Separation Date, this Warrant Certificate may be exchanged or transferred only together with the Preferred Stock to which this Warrant Certificate was initially attached, and only for the purpose of effecting, or in conjunction with, an exchange or transfer of such Preferred Stock. After such date, this Warrant Certificate may be registered when this Warrant Certificate is surrendered at the corporate trust office of the Warrant Agent by the registered owner or his assigns, in person or by any attorney duly authorized in writing, in the manner and subject to the limitations provided in the Warrant Agreement. Upon any partial exercise of the Warrants, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrants shall not have been exercised. Except as provided in the immediately preceding paragraph, and subject to the terms of the Warrant Agreement, after countersignature 42 3 by the Warrant Agent and prior to the expiration of this Warrant Certificate, this Warrant Certificate may be exchanged at the corporate trust office of the Warrant Agent by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for Warrant Certificates representing the same aggregate number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Market Price for one Warrant Share on the trading day immediately preceding the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of any Warrant. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 5.2 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and nonassessable. The Holder in whose name the Warrant Certificate is registered may be deemed and treated by the Company and the Warrant Agent as the absolute owner of the Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. 43 4 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. AMERICAN RESTAURANT GROUP, INC. By: --------------------------- Name: --------------------------- Title: -------------------------- Attest: - --------------------- Secretary DATED: Countersigned: U.S. Trust Company of California, N.A., as Warrant Agent By: ---------------------- Authorized Signatory 44 SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS* The following exchanges of a part of this Global Warrant for definitive Warrants have been made: Number of Warrants in Amount of this Global increase/ Warrant Signature of decrease in Number following authorized Date of of Warrants in such increase/ officer of Exchange this Global Warrant decrease Warrant Agent - -------- * To be included only if the Warrant is in global form. 45 FORM OF ELECTION TO PURCHASE OR CONVERT (To Be Executed upon Exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive [_________ shares of Common Stock and herewith tenders payment for such shares to the order of American Restaurant Group, Inc. in the amount of $___________ in accordance with the terms hereof.] [the number of shares of Common Stock determined by dividing (a) the aggregate Current Market Value of the number of shares of Common Stock represented by the Warrants hereby converted pursuant to a Warrant Conversion, minus the aggregate Exercise Price for such shares (and any other required amounts) by (b) the Current Market Price of one share of Common Stock.] The undersigned requests that a certificate for such shares be registered in the name of___________________, whose address is _______________ and that such shares be delivered to _______________ whose address is ________________. If said number of shares is less than all of the shares of Common Stock purchasable or issuable upon conversion hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of___________________________ , whose address is___________________ , and that such Warrant Certificate be delivered to____________________________ , whose address is _______________________. Signature(s): --------------------- NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. If this Warrant is held of record by two or more joint owners, all such owners must sign. Date: -------------------------- Signature Guaranteed*: ------------------- NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee program: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP): (3) The Stock Exchange Medallian Program (SEMP). 46 FORM OF ASSIGNMENT (To be signed only upon assignment of Warrant Certificate) FOR VALUE RECEIVED, hereby sells, assigns and transfers unto whose address is and whose social security number or other identifying number is , the within Warrant Certificate, together with all rights, title and interest therein and to the Warrants represented thereby, and does hereby irrevocably constitute and appoint , attorney, to transfer said Warrant Certificate on the books of the within-named Company, with full power of substitution in the premises. Signature(s): ---------------------- NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. If this Warrant is held of record by two or more joint owners, all such owners must sign. Date: ------------------ Signature Guaranteed*: ----------------- NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee program: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP): (3) The Stock Exchange Medallian Program (SEMP). 47 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of American Restaurant Group, Inc. This Certificate relates to Warrants initially to purchase _________ shares of Common Stock of American Restaurant Group, Inc. held in* |_| book-entry or * |_| definitive form by (the "Transferor"). The Transferor* by written order, has requested the Warrant Agent: |_| to deliver, in exchange for its beneficial interest in the Global Warrant held by the depository, a Warrant or Warrants in definitive, registered form of authorized denominations and an aggregate amount equal to its beneficial interest in such Global Warrant (or the portion thereof indicated above); or |_| to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to such Warrants and that the transfer of this Warrant is pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act") or does not require registration under the Securities Act because such Warrant: |_| is being acquired for the Transferor's own account, without transfer; |_| is being transferred pursuant to an effective registration statement; |_| is being transferred to a qualified institutional buyer (as defined in Rule144A under the Securities Act), in reliance on such Rule 144A; |_| is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act;** |_| is being transferred pursuant to Rule 144 under the Securities Act; ** 48 2 |_| is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain:___________________ ).** [INSERT NAME OF TRANSFEROR] By: Date: --------------- ---------------- - --------- * Check applicable box. ** If this box is check, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. 49 EXHIBIT C [FORM OF FACE OF UNIT CERTIFICATE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) UNDER THE SECURITIES ACT AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH AMERICAN RESTAURANT GROUP, INC. ("THE COMPANY") ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D),(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE WARRANT AGENT. [Unless and until it is exchanged in whole or in part for Units in definitive form, this Unit may not be transferred except as a whole by the depository to a nominee of the depository or by a nominee of the depository to the depository or another nominee of the depository or by the depository or any such nominee to a successor depository or a nominee of such successor 50 2 depository. The Depository Trust Company ("DTC") (55 Water Street, New York, New York) shall act as the depository until a successor shall be appointed by the Company and the Warrant Agent. Unless this certificate is presented by an authorized representative of DTC to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]** - -------- * To be included only if the Unit is in global form. 51 3 UNTIL THE SEPARATION DATE, THIS UNIT CERTIFICATE SHALL BE ATTACHED TO THE PREFERRED STOCK CERTIFICATE AND WARRANT CERTIFICATE THAT EVIDENCE THE PREFERRED STOCK AND WARRANTS THAT COMPRISE THIS UNIT. AMERICAN RESTAURANT GROUP, INC. UNITS CONSISTING OF 12% SENIOR PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS No. [ ] [ ] Units CUSIP [ ] THIS CERTIFIES THAT, [ ] is the registered holder of the number of Units set forth above (the "Units"). Each Unit consists of one share of 12% Senior Pay-in-Kind Exchangeable Preferred Stock (the "Preferred Stock") of American Restaurant Group, Inc., a Delaware corporation (the "Company") and one Warrant to purchase 2.66143 shares of Common Stock, par value $0.01 per share, of the Company for $0.01 per share (subject to adjustment) at any time before the close of business on the earlier to occur of the Public Company Date and August 15, 2008 (the "Expiration Date"). The Preferred Stock and the Warrants are not separately transferable until the earlier of (i) August 15, 1998, (ii) the date of commencement of the Exchange Offer, (iii) such earlier date as may be determined by Jefferies & Company, Inc., (iv) the date on which the Company mails a notice of a Change of Control to holders of the Preferred Stock, (v) in the event that the Company elects to redeem the Preferred Stock, the date on which the Company mails notice thereof to the holders of the Preferred Stock and (vi) the date on which the Company consummates a public offering of Comon Stock (such earliest date being the "Separation Date"). The terms of the Warrants are governed by a Warrant Agreement dated as of February 25, 1998 (the "Warrant Agreement") between the Company and U.S. Trust Company of California, N.A., as Warrant Agent (the "Warrant Agent"), and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit consents by acceptance hereof. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Warrant Agreement. Reference is made to the further provisions of the Preferred Stock and the Warrants evidenced by this Unit on the Preferred Stock Certificate and Warrant Certificate attached hereto, which will, for all purposes, have the same effect as if set forth at this place. 52 4 IN WITNESS WHEREOF, the Company has caused this Unit to be signed manually or by facsimile by its duly authorized officer. AMERICAN RESTAURANT GROUP, INC. By: ------------------------- Attest: - ----------------------------- Secretary DATED: Countersigned: [ ], as Warrant Agent By: -------------------------- Authorized Signatory 53 SCHEDULE OF EXCHANGES OF DEFINITIVE UNITS* The following exchanges of a part of this Global Unit for definitive Units have been made: Number of Units in Amount of this Global increase/ Unit Signature of decrease in Number following authorized Date of of Units in such increase/ officer of Exchange this Global Unit decrease Warrant Agent - -------- * To be included only if the Unit is in global form. 54 FORM OF ASSIGNMENT (To be signed only upon assignment of Unit Certificate) FOR VALUE RECEIVED, hereby sells, assigns and transfers unto whose address is and whose social security number or other identifying number is , the within Unit Certificate, together with all rights, title and interest therein and to the Units represented thereby, and does hereby irrevocably constitute and appoint , attorney, to transfer said Unit Certificate on the books of the within-named Company, with full power of substitution in the premises. Signature(s): --------------------------- NOTE: The above signature(s) must correspond with the name written upon the face of this Unit Certificate in every particular, without alteration or enlargement or any change whatever. If this Unit is held of record by two or more joint owners, all such owners must sign. Date: ------------------------- Signature Guaranteed*: --------------------- NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee program: (1) The Securities Transfer Agent Medallian Program (STAMP); (2) The New York Stock Exchange Medallian Program (MSP): (3) The Stock Exchange Medallian Program (SEMP). EX-4.3 5 REGISTRATION RIGHTS AGREEMENT, FEBRUARY 25, 1998 1 EXHIBIT 4.3 AMERICAN RESTAURANT GROUP, INC. $155,000,000 11 1/2 % Senior Secured Notes due 2003 $35,000,000 12 % Senior Pay-In-Kind Exchangeable Preferred Stock REGISTRATION RIGHTS AGREEMENT February 25, 1998 JEFFERIES & COMPANY, INC. 11100 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: AMERICAN RESTAURANT GROUP, INC., a Delaware corporation (the "Company"), is issuing and selling to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in a purchase agreement, dated as of February 25, 1998 (the "Purchase Agreement"), $155,000,000 aggregate principal amount of its 11 1/2 % Senior Secured Notes due 2003, (the "Notes") and 35,000 units (the "Preferred Stock Units" or the "Units"), each Unit consisting of (i) $1,000 initial liquidation preference of 12% Senior Pay-In-Kind Exchangeable Preferred Stock (the "Preferred Stock"), and (ii) one Common Stock Purchase Warrant (the "Warrants") initially to purchase 2.66143 shares of the common stock, par value $.01 per share (the "Common Stock"), of the Company at an initial exercise price of $.01 per share. As an inducement to the Purchaser to enter into the Purchase Agreement, the Company and each of the guarantors (the "Guarantors") named in the Indenture (defined below) agrees with the Purchaser, for the benefit of the holders of the Securities (defined below) (including, without limitation, the Purchaser), as follows: 1. Definitions Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 6. Agreement: This Registration Rights Agreement. Applicable Period: See Section 2(f). 2 2 Business Days: Any day other than (i) Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. Class A Exchange Debentures: The Class A 12% Subordinated Exchange Debentures due 2003 of the Company issuable in exchange for the Preferred Stock. Class B Exchange Debentures: The Class B 12% Subordinated Exchange Debentures due 2003 of the Company issuable in exchange for the Exchange Preferred Stock, identical in all material respects to the Class A Subordinated Debentures, except for references to series and restrictive legends. Closing Date or "Issue Date": February 25, 1998. Company: American Restaurant Group, Inc. Confidential Information: See Section 6(a). Effectiveness Date: The 150th day following the Closing Date. Effectiveness Period: See Section 3(a). Event Date: See Section 4(a). Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Debenture Indenture: means the indenture to be dated as of the date of issuance of either the Class A Exchange Debentures or Class B Exchange Debentures between the Company and the Exchange Debenture Trustee. Exchange Debenture Trustee: means a bank or trust company, as trustee under the Exchange Debenture Indenture to be selected by the Company prior to the Exchange Offer. Exchange Offer: See Section 2(a). Exchange Offer Registration Statement: See Section 2(a). Exchange Notes: The Company's 12% Senior Secured Notes due 2003, including the guarantees endorsed thereon, identical in all material respects to the Notes, except for references to series and restrictive legends. 3 3 Exchange Preferred Stock: The Company's 12% Senior Pay-In-Kind Exchangeable Preferred Stock, identical in all material respects to the Preferred Stock, except for references to series and restrictive legends. Exchange Securities: Collectively, the Exchange Notes and the Exchange Preferred Stock or the Class B Exchange Debentures, as the case may be. Filing Date: The 90th day following the Closing Date. Holder: Each holder of Registrable Securities. Indenture: The Indenture, dated the date hereof, between the Company and U.S. Trust Company of California, N.A., as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time, in accordance with the terms thereof. Initial Shelf Registration: See Section 3(a). Losses: See Section 8(a). NASD: The National Association of Securities Dealers, Inc. Participating Broker-Dealer: See Section 2(f). Person: Any individual, corporation, partnership, joint stock company, association joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. Private Exchange Notes: See Section 2(g) Private Exchange Preferred Stock: See Section 2(g) Private Exchange: See Section 2(g). Private Exchange Securities: See Section 2(g). Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Securities: (i) Notes, (ii) Preferred Stock or Class A Exchange Debentures, as the case may be, and (iii) Private Exchange Securities. 4 4 Registration Statement: Any registration statement of the Company that covers any of the Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities: The Notes, the Preferred Stock or the Class A Subordinated Debentures, as the case may be, the Private Exchange Securities and the Exchange Securities, collectively. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(i). Shelf Registration Statement: The Initial Shelf Registration Statement and any Subsequent Shelf Registration Statement. Special Counsel: Counsel chosen by the holders of a majority in aggregate principal/liquidation amount of Securities. Subsequent Shelf Registration Statement: See Section 3(b). Transfer Agent: U.S. Trust Company of California, NA. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if any, the trustee under any indenture governing the Exchange Securities or the Private Exchange Securities. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 5 5 Weekly Liquidated Damages Amount: See Section 4(a). 2. Exchange Offer (a) The Company and the Guarantors shall (i) prepare and file with the SEC promptly after the date hereof, but in no event later than the Filing Date, a registration statement, or, if applicable, a Shelf Registration Statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer (the "Exchange Offer") to the Holders to issue and deliver to such Holders, in exchange for the Notes and the Preferred Stock or Class A Subordinated Debentures, as the case may be, a like aggregate principal or liquidation amount, as the case may be, of Exchange Securities, (ii) use their best efforts to cause the Exchange Offer Registration Statement to become effective as promptly as practicable after the filing thereof, but in no event later than the Effectiveness Date, (iii) keep the Exchange Offer Registration Statement effective until the consummation of the Exchange Offer pursuant to its terms, and (iv) unless the Exchange Offer would not be permitted by a policy of the SEC, commence the Exchange Offer and use their best efforts to issue, on or prior to 180 business days after the Closing Date, Exchange Securities in exchange for all Notes and Preferred Stock tendered prior thereto in the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC. (b) (i) The Exchange Notes shall be issued under, and entitled to the benefits of, the Indenture or a trust indenture that is identical to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA), (ii) the Exchange Preferred shall be issued in accordance with the Certificate of Designation relating to the Preferred Stock and have the rights, powers and preferences specified therein and (iii) the Class B Exchange Debentures shall be issued under, and be entitled to the benefits of, the Exchange Debenture Indenture. (c) In connection with the Exchange Offer, the Company and the Guarantors shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal that is an exhibit to the Exchange Offer Registration Statement and related documents; (ii) keep the Exchange Offer open for not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depository for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Notes and Preferred Stock at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open; and 6 6 (v) otherwise comply with all laws applicable to the Exchange Offer. (d) As soon as practicable after the close of the Exchange Offer, the Company and the Guarantors shall: (i) accept for exchange all Notes and Preferred Stock or Class A Exchange Debentures, as the case may be, validly tendered and not validly withdrawn pursuant to the Exchange Offer; (ii) deliver to the Trustee, Transfer Agent or Exchange Debenture Trustee, as the case may be, for cancellation all Notes and Preferred Stock or Class A Exchange Debentures, as the case may be, so accepted for exchange; and (iii) cause the Trustee promptly to authenticate and deliver to each Holder of Notes, Exchange Notes equal in aggregate principal amount to the Notes of such Holder so accepted for exchange and cause the Transfer Agent to execute and deliver to each Holder of Preferred Stock, Exchange Preferred Stock equal in aggregate liquidation preference amount to the Preferred Stock of such Holder so accepted for exchange or, in the event that such Preferred Stock had previously been exchanged for Class A Exchange Debentures to cause the Exchange Debenture Trustee to authenticate and deliver, Class B Exchange Debentures equal in aggregate principal amount to the Class A Exchange Debentures of such Holder so accepted for exchange. (e) Interest on each Exchange Note and Private Exchange Note and, if applicable, each Class B Exchange Debenture and Private Exchange Debenture, will accrue from the last interest payment date on which interest was paid on the Notes or Class A Exchange Debentures surrendered in exchange therefor or, if no interest has been paid on the Notes or Class A Exchange Debentures, from the date of original issue of the Notes or Class A Exchange Debentures. Each Exchange Note and Private Exchange Note or Class B Exchange Debenture and Private Exchange Debenture shall bear interest at the rate set forth thereon; provided, that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Notes or Class A Exchange Debentures from time to time during such period. Dividends on each Exchange Preferred Stock and Private Exchange Preferred Stock will effectively accrue from the last dividend payment date on which dividends were paid on the Preferred Stock surrendered for exchange therefor or, if no dividends had been paid on the Preferred Stock, from the date of original issue of the Preferred Stock. The Exchange Preferred Stock and Private Exchange Preferred Stock shall accrue dividends at the rate set forth thereon; provided, that dividends with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Preferred Stock from time to time during such period. (f) The Company and the Guarantors shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," containing a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is 7 7 the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including (without limitation) all Participating Brokers-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirement of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Securities; provided that such period shall not exceed 90 days after consummation of the Exchange Offer (as such period may be extended pursuant to the last paragraph of Section 6 hereof (the "Applicable Period")). (g) If, prior to consummation of the Exchange Offer, the Purchaser holds any Notes and/or Preferred Stock or Class A Exchange Debentures, as the case may be, acquired by it and having the status as an unsold allotment in the initial distribution, the Company shall, upon the request of the Purchaser, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue (in the case of debt securities, pursuant to the same indentures as the Exchange Securities) and deliver to the Purchaser, in exchange for the Notes and/or Preferred Stock or Class A Exchange Debentures, as the case may be, held by the Purchaser (the "Private Exchange"), a like principal amount of debt securities (the "Private Exchange Notes") of the Company and/or a like initial liquidation preference amount of preferred stock (the "Private Exchange Preferred Stock") or Exchange Debentures (the "Private Exchange Debentures"), as the case may be, of the Company that are identical to the Exchange Securities (collectively, the "Private Exchange Securities") except that such Private Exchange Securities shall continue to bear thereon the legend restricting transfer. The Private Exchange Securities shall bear the same respective CUSIP numbers as the Exchange Securities. (h) The Company may require each Holder participating in the Exchange Offer to represent to the Company that at the time of the consummation of the Exchange Offer (i) any Exchange Securities received by such Holder in the Exchange Offer will be acquired in the ordinary course of its business, (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities within the meaning of the Securities Act or resale of the Exchange Securities in violation of the Securities Act, (iii) if such Holder is not a broker-dealer, that it is not engaged in and does not intend to engage in, the distribution of the Exchange Securities, (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Notes and/or Preferred Stock that were acquired as a result of market-making or other trading activities and that it will deliver a prospectus, as required by law, in connection with any resale of such Exchange Securities, and (v) if such Holder is an affiliate of the Company, that it will comply with the registration and prospectus delivery requirements of the Securities Act applicable to it. 8 8 (i) If (i) applicable interpretations of the staff of the SEC would not permit the consummation of the Exchange Offer prior to the Effectiveness Date, (ii) subsequent to the consummation of the Private Exchange but within 270 days of the Closing Date, the Purchaser so requests with respect to Securities held by the Purchaser and having the status as an unsold allotment, (iii) the Exchange Offer is not consummated within 180 days of the Closing Date for any reason or (iv) in the case of any Holder not permitted to participate in the Exchange Offer or of any Holder participating in the Exchange Offer that receives Exchange Securities that may not be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act) and, in either case contemplated by this clause (iv), such Holder notifies the Company within six months of consummation of the Exchange Offer, then the Company shall promptly deliver to the Holders (or in the case of any occurrence of the event described in clause (iv) hereof, to any such Holder) and the Trustee, Transfer Agent or Exchange Debenture Trustee notice thereof (the "Shelf Notice") and shall as promptly as possible thereafter file an Initial Shelf Registration pursuant to Section 3. 3. Shelf Registration If a Shelf Notice is required to be delivered pursuant to Section 2(i)(i), (ii) or (iii), then this Section 3 shall apply to all Registrable Securities. Otherwise, upon consummation of the Exchange Offer in accordance with Section 2, the provisions of this Section 3 shall apply solely with respect to (i) Notes and/or Preferred Stock or Class A Exchange Debentures, as the case may be, held by any Holder thereof not permitted to participate in the Exchange Offer and (ii) Exchange Securities that are not freely tradeable as contemplated by Section 2(i)(iv) hereof, provided in each case that the relevant Holder has duly notified the Company within six months of the Exchange Offer as required by Section 2(i)(iv). (a) Initial Shelf Registration Statement. The Company and the Guarantors shall prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration Statement"). If the Company and the Guarantors have not yet filed an Exchange Offer, the Company and the Guarantors shall file with the SEC the Initial Shelf Registration Statement on or prior to the Filing Date. Otherwise, the Company and the Guarantors shall use their best efforts to file the Initial Shelf Registration Statements within 45 days after an obligation to file such Initial Shelf Registration arises. The Initial Shelf Registration Statement shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company and the Guarantors shall (i) not permit any securities other than the Registrable Securities to be included in any Shelf Registration, and (ii) use their best efforts to cause the Initial Shelf Registration Statement to be declared effective as promptly as practicable after the filing thereof and to keep the Initial Shelf Registration Statement continuously effective until the date that is 24 months after the Effectiveness Date (subject to extension pursuant to the last paragraph of Section 6 hereof) (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf 9 9 Registration Statement have been sold or (ii) a Subsequent Shelf Registration Statement covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations Statements. If any Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Registrable Securities registered thereunder), the Company and the Guarantors shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration Statement is filed, the Company and the Guarantors shall use their best efforts to cause the Subsequent Shelf Registration Statement to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration Statement, and any Subsequent Shelf Registration Statement, was previously effective. (c) Notwithstanding the foregoing provisions of this Section 3 (but subject to Section 4 below), the Company shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, for a period not to exceed an aggregate of 60 days in any calendar year if, (i) an event occurs and is continued as a result of which the Shelf Registration Statement would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on (a) the business, operations or prospects of the Company or (b) a pending material business transaction that has not yet been publicly disclosed. 4. Liquidated Damages. (a) The Company and the Guarantors acknowledge and agree that the holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if the Company and the Guarantors fail to fulfill their obligations hereunder. Accordingly, in the event of such failure, the Company and the Guarantors jointly and severally agree to pay liquidated damages to each Holder under the circumstances and to the extent set forth below: (i) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration Statement is declared effective by the SEC on or prior to the Effectiveness Date; or (ii) the Exchange Offer, if permitted, has not been consummated within 180 days after the Closing Date; or 10 10 (iii) if a Shelf Registration Statement is filed and declared effective by the SEC but thereafter ceases to be effective without being succeeded within 45 days by a Subsequent Shelf Registration Statement filed and declared effective; (each of the foregoing a "Registration Default," and the date on which the Registration Default occurs being referred to herein as an "Event Date"). Upon the occurrence of any Registration Default, the Company shall pay, or cause to be paid (and the Guarantors hereby guarantee the payment of), in addition to amounts otherwise due under the Indenture, the Exchange Debenture Indenture and the Registrable Securities, as liquidated damages, and not as a penalty, to each holder of a Registrable Security to which such Registration Default is applicable, an additional amount (the "Weekly Liquidated Damages Amount") equal to (A) for each weekly period beginning on the Event Date for the first 90-day period immediately following such Event Date, $.05 per week per $1,000 principal or liquidation amount, as the case may be, of Registrable Securities held by such holder, and (B) for each weekly period beginning with the first full week after the 90-day period set forth in the foregoing clause (A), $.10 per week per $1,000 principal or liquidation amount of Registrable Securities, as the case may be, held by such holder; provided that such liquidated damages will, in each case, cease to accrue (subject to the occurrence of another Registration Default) on the date on which all Registration Defaults have been cured. A Registration Default under clause (i) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration Statement is declared effective by the SEC; a Registration Default under clause (ii) above shall be cured on the date the Exchange Offer is consummated with respect to all Notes and Preferred Stock or Class A Exchange Debentures validly tendered; and a Registration Default under clause (iii) above shall be cured on the earlier of (A) the date on which the applicable Shelf Registration Statement is no longer subject to an order suspending the effectiveness thereof or proceedings relating thereto or (B) a Subsequent Shelf Registration Statement is declared effective. (b) The Company shall notify the Trustee within five Business Days after each Event Date. The Company will not be required to pay liquidated damages in respect of more than the Registration Default in respect of any given period of time. All accrued liquidated damages in respect of the Notes or Class A Exchange Debentures will be paid in the same manner as interest payments on the Notes on semiannual damages payment dates that correspond to interest payment dates for the Notes. All accrued liquidated damages in respect of the Preferred Stock will be paid on February 15 and August 15 in the same manner (in cash or with the issuance of additional shares of Preferred Stock) as dividends on the Preferred Stock. 5. Hold-Back Agreements The Company and the Guarantors agree not to effect any public sale pursuant to Rule 144A sale of any securities the same as or similar to those covered by a Shelf Registration Statement filed pursuant to Section 3 hereof, or any securities convertible into or exchangeable or exercisable for such securities, during the 10 days prior to, and during the 11 11 90-day period beginning on the commencement of a firm commitment underwritten public distribution of Registrable Securities, where the managing underwriter so requests. 6. Registration Procedures In connection with the registration of any Securities pursuant to Sections 2 or 3 hereof, each of the Company and each Guarantor shall effect such registrations to permit the sale of such Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company and each Guarantor shall: (a) Prepare and file with the SEC on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that, if (i) such filing is pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company and the Guarantors shall, if requested, furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, their Special Counsel, each Participating Broker-Dealer, the managing underwriters, if any, and their counsel, a reasonable opportunity to review and make available for inspection by such Persons copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed, such financial and other information and books and records of the Company and the Guarantors, and cause the officers, directors and employees of the Company and the Guarantors, Company counsel and independent certified public accountants of the Company, to respond to such inquiries, as shall be necessary, in the opinion of respective counsel to such holders, Participating Broker-Dealer and underwriters, to conduct a reasonable investigation within the meaning of the Securities Act (it being understood that a period of five business days shall be deemed to afford such reasonable opportunity); provided that the foregoing investigation shall be coordinated on behalf of the Holders by one representative of the Notes and one representative of the Preferred Stock or Class A Exchange Debentures designated by and on behalf of such Holders; provided further that the foregoing investigation shall be conducted by the Purchaser on behalf of the Holders if the Purchaser has Registrable Securities covered by such Registration Statement. The Company may require each Holder to agree to keep confidential any non-public information relating to the Company ("Confidential Information") received by such Holder and not disclose such Confidential Information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 6(a)) until such information has been made generally available to the public, other than as a result of a disclosure by such Holder, its directors, officers, employees, agents or advisors or by any other person subject to a confidentiality agreement, unless the release of such Confidential Information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors). The Company may also require each Holder to agree (i) to give the Company prompt notice of any request to disclose any Confidential Information received by such Holder so that the 12 12 Company may seek appropriate protective orders, (ii) to consult with the Company with respect to the Company's taking steps to restrict or narrow the scope of such requests, and (iii) if the release of the Confidential Information is required by law or necessary to respond to inquiries of regulatory authorities, to give specific written notice to the Company describing the Confidential Information to be disclosed (as far in advance of its disclosure as is practicable) and to use its reasonable best efforts to obtain assurances from the recipient that confidential treatment will be accorded to the Confidential Information. (b) Provide an indenture trustee for each class of the Registrable Securities as applicable, and cause the Indenture (or other indenture relating to the Registrable Securities) to be qualified under the TIA not later than the effective date of the first Registration Statement; and in connection therewith, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (c) Prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods required hereby; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable thereto with respect to the disposition of all securities covered by such Registration Statement, as so amended, or in such Prospectus, as so supplemented, in accordance with the intended methods of distribution set forth in such Registration Statement or Prospectus as so amended. (d) Furnish to such selling Holders and Participating Broker-Dealers who so request (i) upon the Company's receipt, a copy of the order of the SEC declaring such Registration Statement and any post-effective amendment thereto effective and (ii) such reasonable number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (iii) such reasonable number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such reasonable number of copies of the final Prospectus as filed by the Company pursuant to Rule 424(b) under the Securities Act, in conformity with the requirements of the Securities Act, and (iv) such other documents (including any amendments required to be filed pursuant to clause (c) of this Section), as any such Person may reasonably request. The Company and the Guarantors hereby consent to the use of the Prospectus by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment thereto. 13 13 (e) If (A) a Shelf Registration Statement is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the selling Holders of Registrable Securities, their Special Counsel, each Participating Broker-Dealer and the managing underwriters, if any, promptly (but in any event within two Business Days), and confirm such notice in writing, (i) when a Prospectus has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any Prospectus or the initiation of any proceedings for that purpose, (iii) if, at any time when a Prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities, the representations and warranties of the Company or of any Guarantor contained in any agreement (including any underwriting agreement) contemplated by Section 6(n) below cease to be true and correct in any material respect, (iv) of the receipt by the Company or any Guarantor of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the contemplation, initiation or threatening of any proceeding for such purpose, (v) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (f) Use its reasonable efforts to register or qualify (to the extent required by applicable law), and, if applicable, to cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of, Securities to be included in a Registration Statement for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer or the managing underwriters reasonably request in writing; and, if Securities are offered other than through an Underwritten Offering, the Company shall cause its counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 6(f) at the expense of the Company; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things which may be reasonably necessary or advisable to enable the disposition in such jurisdictions of the Securities covered by the applicable Registration Statement, provided, however, that none of the Company nor the Guarantors shall be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) to take action that would 14 14 subject it to general service of process in any jurisdiction where it is not so subject or (iii) subject it to taxation in any such jurisdiction where it is not then subject. (g) Use its reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Securities for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible time. (h) If (A) a Shelf Registration Statement is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal/liquidation amount of the Registrable Securities, (i) promptly incorporate in a Prospectus or post-effective amendment such information as the managing underwriters, if any, or such Holders reasonably request to be included therein required to comply with any applicable law and (ii) make all required filings of such Prospectus or such post-effective amendment as soon as practicable after the Company has received notification of such matters required by applicable law to be incorporated in such Prospectus or post-effective amendment. (i) If (A) a Shelf Registration Statement is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, cooperate with the selling Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may reasonably request. (j) If (i) a Shelf Registration Statement is filed pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 6(e)(v) or 6(e)(vi) above, as promptly as practicable prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, such Registration Statement or Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 15 15 (k) Prior to the effective date of the first Registration Statement relating to the Securities, (i) provide the applicable trustee or transfer agent with printed certificates for the Securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for each of the Securities. (l) If a Shelf Registration Statement is filed pursuant to Section 3, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings of securities similar to the Notes and the Preferred Stock or the Class A Exchange Debentures, as the case may be, as may be appropriate in the circumstances) and take all such other actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal/liquidation amount of the Registrable Securities being sold) in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, if such registration is an Underwritten Registration, (i) make such representations and warranties to the Holders and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings of securities similar to the Notes and the Preferred Stock or the Class A Exchange Debentures, as the case may be, as may be appropriate in the circumstances, and confirm the same if and when reasonably requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, addressed to each of the underwriters, if any, covering the matters customarily covered in opinions of counsel to the Issuer requested in underwritten offerings of securities similar to the Notes and the Preferred Stock or the Class A Exchange Debentures, as the case may be, as may be appropriate in the circumstances; (iii) obtain "cold comfort" letters and updates thereof (which letters and updates (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters and each selling Holder, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of securities similar to the Notes and the Preferred Stock or the Class A Exchange Debentures, as the case may be, as may be appropriate in the circumstances, and such other matters as reasonably requested by underwriters; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal/liquidation amount of the Registrable Securities being sold and the managing underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any conditions contained in the underwriting agreement or other similar agreement entered into by the Company. Nothing contained in this clause (n) requires the Company or the Guarantors, their counsel or their accountants to make any representations or warranties, to render any legal opinion or to deliver any comfort letters that are not true. 16 16 (m) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing on the first day of the fiscal quarter following each fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (n) If an Exchange Offer or Private Exchange is to be consummated, upon delivery of the Registrable Securities by such Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, and in no event shall such Registrable Securities be marked as paid or otherwise satisfied. (o) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. (p) Use its reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such reasonable information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities as the Company may, from time to time, reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any seller or Exchange Securities of any Participating Broker-Dealer who fails to furnish such information promptly after receiving such request. Each Holder and each Participating Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange Securities of any Participating Broker-Dealer that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 6(e)(ii), 6(e)(iv), 6(e)(v) or 6(e)(vi), such Holder will forthwith discontinue disposition (in the jurisdictions specified in a notice of a 6(e)(iv) event, and elsewhere in a notice of a 6(e)(ii), 6(e)(v) or 6(e)(vi) event) of such Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(j), or until it is advised in writing (the "Advice") by the Company that offers or sales in a particular jurisdiction may be resumed or that the use of the applicable Prospectus may be resumed, as the case may be, and 17 17 has received copies of any amendments or supplements thereto. If the Company shall give such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of such Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 6(j) or (y) the Advice. 7. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company and the Guarantors shall be borne by the Company and the Guarantors whether or not the Exchange Offer or a Shelf Registration Statement is filed or becomes effective, including, without limitation: (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the Holders are located, in the case of the Exchange Securities, or (y) as provided in Section 6(f), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period); (ii) reasonable printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal/liquidation amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be); (iii) reasonable messenger, telephone, duplication, word processing and delivery expenses incurred by the Company in the performance of its obligations hereunder; (iv) fees and disbursements of counsel for the Company; (v) fees and disbursements of all independent certified public accountants referred to in Section 6(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); 18 18 (vi) Securities Act liability insurance, if the Company so desires such insurance; (vii) fees and expenses of all other Persons retained by the Company; internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties); and the expense of any annual audit; and (viii) rating agency fees and the fees and expenses incurred in connection with the listing of the Securities to be registered on any securities exchange. (b) The Company and the Guarantors shall reimburse the Holders for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal/liquidation amount of the Registrable Securities to be included in any Registration Statement. The Company shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of the Exchange Securities or Private Exchange Securities in exchange for the Notes and Preferred Stock or Class A Exchange Debentures, as the case may be; provided that the Company shall not be required to pay taxes payable in respect of any transfer involved in the issuance or delivery of any Exchange Security or Private Exchange Security in a name other than that of the holder of the Note or Preferred Stock or Class A Exchange Debenture, as the case may be, in respect of which such Exchange Security or Private Exchange Security is being issued. (c) Neither the Company or the Guarantors shall be liable for any underwriting, brokerage, finder's or similar fees, discounts or commissions, if any, attributable to the sale of the Registrable Securities which discounts, commissions or taxes shall be paid by the Holders of such Registrable Securities. 8. Indemnification (a) Indemnification by the Company. In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by the Purchaser or a Participating Broker-Dealer, as applicable, the Company shall, without limitation as to time, indemnify and hold harmless each selling Holder and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, each Person who controls each such selling Holder (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and Participating Broker-Dealer and controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees as provided in this Section 8) and expenses (including, without limitation, reasonable costs and expenses incurred in connection with investigating, preparing, pursuing or defending against any of the foregoing) (collectively, "Losses"), as incurred, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue or alleged untrue statement of a material fact contained in 19 19 any Registration Statement, Prospectus or form of prospectus, or in any amendment or supplement thereto, or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such Losses are based upon information relating to such selling Holder or Participating Broker-Dealer and furnished in writing to the Company (or reviewed and approved in writing) by such Holder or Participating Broker-Dealer expressly for use therein; provided, however, that the Company shall not be liable to any Indemnified Party to the extent that any such losses arise solely out of an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Indemnified Party or related holder of a Registrable Security failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Indemnified Party or the related holder of a Registrable Security to the person asserting the claim from which such Losses arise, (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission, and (iii) the Company has complied with their obligations under Section 6(e) hereof. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus in which a Holder is participating, such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus and shall, without limitation as to time, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, to the fullest extent lawful, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent, but only to the extent, that such untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact is contained in or omitted from any information so furnished in writing by such Holder to the Company expressly for use therein. In no event shall the liability of any selling Holder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall promptly notify the party or parties from which such indemnity is sought (the "indemnifying parties") in writing; provided, that the failure to so notify the indemnifying parties shall not relieve the indemnifying parties from any obligation 20 20 or liability except to the extent (but only to the extent) that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal) that the indemnifying parties have been prejudiced materially by such failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party, within 20 business days after receipt of written notice from such indemnified party of such Proceeding, to assume, at its expense, the defense of any such Proceeding, provided, that an indemnified party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless: (1) the indemnifying party has agreed to pay such fees and expenses; or (2) the indemnifying party shall have failed promptly to assume the defense of such Proceeding or shall have failed to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party or any of its affiliates or controlling persons, and such indemnified party shall have been advised by counsel that there may be one or more defenses available to such indemnified party that are in addition to, or in conflict with, those defenses available to the indemnifying party or such affiliate or controlling person (in which case, if such indemnified party notifies the indemnifying parties in writing that it elects to employ separate counsel at the expense of the indemnifying parties, the indemnifying parties shall not have the right to assume the defense and the reasonable fees and expenses of such counsel shall be at the expense of the indemnifying party; it being understood, however, that, the indemnifying party shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified party or parties). No indemnifying party shall be liable for any settlement of any such Proceeding effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent, or if there be a final judgment for the plaintiff in any such Proceeding, each indemnifying party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each indemnified party from and against any and all Losses by reason of such settlement or judgment. The indemnifying party shall not consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such Proceeding for which such indemnified party would be entitled to indemnification hereunder (whether or not any indemnified party is a party thereto). (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms (other than by reason of exceptions provided in this Section 8), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation 21 21 to contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such statement or omission. The amount paid or payable by an indemnified party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any Proceeding, to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 8(a) or 8(b) was available to such party. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a selling Holder shall not be required to contribute, in the aggregate, any amount in excess of such Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution Amount" shall equal the excess of (i) the aggregate proceeds received by such Holder pursuant to the sale of such Registrable Securities over (ii) the aggregate amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that the indemnifying parties may have to the indemnified parties. 9. Rule 144 and Rule 144A Each of the Company and each Guarantor covenants that it shall (a) file the reports required to be filed by it (if so required) under the Securities Act and the Exchange Act in a timely manner and, if at any time any such Person is not required to file such reports for so long as the Registrable Securities are "restricted securities" as defined in Rule 144, it will, upon the request of any Holder, make publicly available other information necessary to permit sales pursuant to Rule 144 and Rule 144A and (b) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A. Upon the request of any Holder, the Company and the Guarantors shall deliver to such Holder a written statement as to whether they have complied with such information and requirements. 22 22 10. Underwritten Registrations If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal/liquidation amount of such Registrable Securities included in such offering with the consent of the Company, which consent shall not be reasonably withheld; it being understood that any Underwritten Offering shall include at least $10,000,000 principal/liquidation amount of the Registrable Securities. No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 11. Miscellaneous (a) Remedies. In the event of a breach by the Company or any of the Guarantors of any of its respective obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Purchasers, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each of the Guarantors agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not entered into, as of the date hereof, and shall not enter into, after the date of this Agreement, any agreement with respect to any of its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal/liquidation amount of Registrable Securities; provided, that Sections 6(a) and 8 shall not be amended, modified or supplemented, and waivers or consents to departures from this proviso may not be given, unless the Company has obtained the written consent of each Holder. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority in aggregate principal/liquidation amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence 23 23 may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, certified first-class mail, return receipt requested, next-day air courier or facsimile: (i) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 11(d), which address initially is, with respect to each holder, the address of such holder maintained by the Registrar under the Indenture, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, telecopy number (213) 687-5600, Attention: Rod A. Guerra, Jr., Esq.; and (ii) if to the Company or any of the Guarantors, initially 450 Newport Center Drive, 6th Floor, Newport Beach, California 92660, telecopy number (714) 721-8941, Attention: William J. McCaffrey, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 11(d), with copies to Simpson, Thatcher & Bartlett, 425 Lexington Avenue, New York, New York 10017, telecopy number (212) 455-2502, Attention: Philip T. Ruegger, III. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF 24 24 THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELAT ING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE COMPANY AND EACH GUARANTOR IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company in respect of securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 25 25 (k) Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than Holders deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage. 26 REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. --------------------------------- Name: William J. McCaffrey, Jr. Title:V.P. & Chief Financial Officer ARG ENTERPRISES, INC. LOCAL FAVORITE, INC. By: /s/William J. McCaffrey, Jr. By: /s/William J. McCaffrey, Jr. --------------------------------- --------------------------------- Name: William J. McCaffrey, Jr. Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer Title: V.P. & Chief Financial Officer GRANDY'S, INC. SPOONS RESTAURANTS, INC. By: /s/William J. McCaffrey, Jr. By: /s/William J. McCaffrey, Jr. --------------------------------- --------------------------------- Name: William J. McCaffrey, Jr. Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer Title: V.P. & Chief Financial Officer SPECTRUM FOODS, INC. By: /s/William J. McCaffrey, Jr. --------------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer 27 ARG PROPERTY MANAGEMENT COR- PORATION By: /s/William J. McCaffrey, Jr. --------------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer ACCEPTED AND AGREED TO: JEFFERIES & COMPANY, INC. By: /s/Jeffrey K. Weinhuff --------------------------- Name: Jeffrey K. Weinhuff Title: Executive Vice President EX-4.4 6 SECURITYHOLDERS AND REGISTRATION RIGHT AGREEMENT 1 EXHIBIT 4.4 AMERICAN RESTAURANT GROUP, INC. SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT February 25, 1998 JEFFERIES & COMPANY, INC. 11100 Santa Monica Blvd. 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: American Restaurant Group, Inc. (the "Company"), a Delaware corporation, proposes to issue and sell to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in a purchase agreement, dated as of February 13, 1998 (the "Purchase Agreement"), between the Purchaser and the Company, 35,000 Units (as defined below), consisting of (i) $35,000,000 aggregate initial liquidation preference amount of 12% Senior Pay-In-Kind Exchangeable Preferred Stock (the "Preferred Stock") and (ii) 35,000 warrants (together with the 4,375 warrants (the "Purchaser Warrants") to purchase shares of the Company's Common Stock (as defined below) issued to the Purchaser pursuant to the letter agreement dated November 6, 1997 between the Company and the Purchaser and to others pursuant to the letter agreement dated as of February 25, 1998 between the Company and TCW Asset Management Co. the "Warrants") to purchase initially 93,150 shares (together with the shares of Common Stock underlying the Purchaser Warrants, the "Warrant Shares") of the Company's common stock, $0.01 par value per share (together with any securities issued in exchange therefor or in substitution thereof, the "Common Stock"), at an initial exercise price of $ .01 per share. The Warrants are to be issued pursuant to a warrant agreement (the "Warrant Agreement"), to be dated as of February 25, 1998, between the Company and the warrant agent named therein (the "Warrant Agent"). The Preferred Stock and the Warrants will be sold in Units, each Unit consisting of (i) $1,000 initial liquidation preference of Preferred Stock and (ii) one Warrant to purchase initially 2.66143 Warrant Shares at an exercise price of $ .01 per share (the "Units"). Unless the context requires otherwise, references herein to "Securities" shall be deemed to include the Units, Preferred Stock, Warrants, and Warrant Shares. As an inducement to the Purchaser to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchaser thereunder, the Company agrees with the Purchaser, (i) for the benefit of the Purchaser and (ii) for the benefit of the holders from time to time of the Warrants and the Warrant Shares, as follows: 2 2 1. Definitions. Capitalized terms used but not defined herein shall have the respective meaning given to such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified person, means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day other than (i) Saturday or Sunday or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participations, or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into corporate stock), warrants or options to purchase any of the foregoing, including without limitation, each class of common stock and preferred stock of such Person, if such Person is a corporation, and each general or limited partnership interest or other equity interest of such Person, if such Person is a partnership. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" means the Persons with a beneficial interest in the Warrant Shares or other Registrable Securities. "Initiating Holders" means one or more Holders owning individually or in the aggregate not less than the Requisite Securities. "Management Holders" means those employees of the Company who are holders of securities of the Company that are or become parties to the Management Registration Rights Agreement. "Management Registration Rights Agreement" means the registration rights agreement, dated as of February 25, 1998, between the Company and the Management Holders. "Officer's Certificate" means a certificate signed by any one of the Chairman, any Vice Chairman, any Chief Executive Officer, any Senior Vice President or the Chief Financial Officer. "Person" means an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. 3 3 "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. "Public Equity Offering" means an underwritten public offering managed by a nationally recognized member of the National Association of Securities Dealers of Capital Stock of any Person pursuant to an effective registration statement filed with the SEC pursuant to the Securities Act. "Registrable Securities" means any of (i) the Warrant Shares (whether or not the related Warrants have been exercised) or the Purchaser Warrant Shares (whether or not the related warrants have been exercised) and (ii) any other securities issued or issuable with respect to any Warrant Shares or Purchaser Warrant Shares by way of stock dividends or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Registration Statement, (ii) such securities are eligible for sale to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under the Securities Act, (iii) such securities shall have been otherwise transferred by such Holder thereof and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (iv) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), preparing, printing, filing, duplicating and distributing the Registration Statement and the related prospectus, the cost of printing stock certificates, the cost and charges of any transfer agent, rating agency fees, printing expenses, messenger, telephone and delivery expenses, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants, the fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Selling Holders), and reasonable fees and expenses of one counsel for the Holders (which counsel shall be reasonably acceptable to the Company). "Registration Statement" shall mean any appropriate registration statement of the Company filed with the SEC pursuant to the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to 4 4 any such Registration Statement, including post-effective amendments in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Securities" shall mean a number of Registrable Securities equal to not less than 25% of the Registrable Securities held in the aggregate by all Holders. "Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 144A" means Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 174" means Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 424" means Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended form time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Selling Holder" shall mean a Holder who is selling Registrable Securities in accordance with the provisions of this Agreement. "Special Counsel" means any special counsel to the Holders, for which Holders will be reimbursed pursuant to this Agreement. 2. Demand Registration. (a) From time to time after 180 days following the completion by the Company of a Public Equity Offering, one or more Initiating Holders owning 5 5 individually or in the aggregate not less than the Requisite Securities may request in writing that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof (the "Demand Request"). The Company will give written notice of the Demand Request to all registered holders of Registrable Securities within fifteen (15) days of receipt thereof. Within 120 days of receipt of the Demand Request the Company will, subject to the terms of this Agreement, file a Registration Statement and use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 20 days after the giving of such written notice by the Company (which request shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition of such Registrable Securities); (iii) all shares of securities which the management employees of the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2; and (iv) all shares of securities which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional securities so to be registered. (b) Registrations under this Section (each, a "Demand Registration") shall be on such appropriate registration form of the SEC (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. (c) The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2. The Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, in connection with each Registration Statement requested under this Section 2, which costs shall be allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration on the basis of the respective amounts of the Registrable Securities then being registered on their behalf. (d) The Holders shall be entitled to request two (2) registrations pursuant to this Section 2. A Registration Statement requested pursuant to this Section 2 shall not be deemed to have been effected (i) unless a Registration Statement with respect 6 6 thereto has been declared effective by the SEC and (ii) the Company has complied in a timely manner and in all material respects with all of its obligations under this Agreement; provided, (i) if, after such Registration Statement has become effective, the offering of Warrant Shares pursuant to such Registration Statement is or becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Warrant Shares under such Registration Statement for any reason, other than by reason of some act or omission by any Holder participating in such registration, and does not become effective within a reasonable period of time thereafter, such period not to exceed 60 days from the date of such stop order, injunction, or other governmental order or requirement, (ii) the Registration Statement does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Selling Holders of all of the Registrable Securities covered thereby or (iii) if the Selling Holders are not able to sell at least 70% of the Registrable Securities to be included therein, less any Registrable Securities withdrawn or excluded from such Demand Registration in accordance with the provisions hereof, then, in each case, such Registration Statement shall be deemed not to have been effected. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not in effect shall be excluded. The Holders shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. (e) If a requested registration pursuant to this Section 2 involves an underwritten offering, and the managing underwriter or underwriters shall advise the Company in writing (with a copy to each Holder requesting registration) that, in such managing underwriter's or underwriters' opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the Holders, pro rata among such holders requesting such registration on the basis of the number of such securities requested to be included by such Holders and (ii) second, securities held by other Persons, including the Company. 3. Piggy-Back Registration. (a) If at any time after the Company has completed a Public Equity Offering (or in connection with the Company's initial Public Equity Offering if any Management Holders are given the opportunity to register any securities in such Public Equity Offering) the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of the holders of any class of its Common Stock in a firmly underwritten Public Equity Offering (other than (i) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a Registration Statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event fewer than 10 days before the anticipated filing date), and such notice shall offer such Holders the 7 7 opportunity to register such number of Warrant Shares as each such Holder may request in writing within 20 days after receipt of such written notice from the Company (which request shall specify the Warrant Shares intended to be disposed of by such Selling Holder) (a "Piggy-Back Registration"). Upon the written request of any such Holder made within 20 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement that covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 3 shall relieve the Company of its obligation to effect any registration upon request under Section 2, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2. (b) The Company shall use its reasonable efforts to cause the managing underwriter or underwriters of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included in the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to these provisions by giving written notice to the Company of its request to withdraw prior to the effective date of such registration statement. (c) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3 and the Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, relating to the sale of such Selling Holders' Registrable Securities pursuant to this Section 3, such costs being allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration on the basis of the respective amounts of Registrable Securities then being registered on their behalf. (d) Priority in Piggy-Back Registrations. If a registration pursuant to this Section 3 involves an underwritten offering of the securities so being registered, 8 8 whether or not for sale for the account of the Company, the Company will, if requested by any Holder and subject to the provisions of this Section 3, use its reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. Notwithstanding anything to the contrary, if the managing underwriter of such underwritten offering shall, in writing, inform the Holders requesting such registration and the holders of any of the Company's other securities which shall have exercised registration rights in respect of such underwritten offering of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then the Company will be required to include in such registration statement only the amount of securities that it is so advised should be included in such registration. In such event, (x) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities that the Company proposes to register, (ii) second, the securities that have been requested to be included in such registration by Holders and Management Holders (pro rata on the amount of securities sought to be registered by such Holders and Management Holders), and (iii) third, the securities that have been requested to be included in such registration by Persons (other than Holders and Management Holders) entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata on the amount of securities sought to be registered by such Persons); and (y) in cases not initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering as follows: (i) first, the securities of any person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (provided that if such person is a Holder, there shall be no priority as among Holders and Warrant Shares sought to be included by Holders shall be included pro rata based on the amount of securities sought to be registered by such persons), (ii) second, the securities that have been requested to be included in such registration by Holders and Management Holders (pro rata on the amount of securities sought to be registered by such Holders and Management Holders), (iii) third, securities of other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such persons) and (iv) fourth, the securities which the Company proposes to register. 4. Registration Procedures. In connection with any Demand Registration or Piggy-back Registration, the Company shall (provided that it will not be required to take any action pursuant to this Section 4 that would, in the written opinion of counsel for the Company, violate applicable law): (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), if requested, furnish to the Holders, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, their Special Counsel and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such 9 9 inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act, and shall use reasonable efforts to reflect in each such document filed pursuant to a Demand Registration, when so filed with the SEC, such reasonable comments as the Holders, their Special Counsel and the managing underwriters, if any, may propose in writing; provided, however, that the Company shall not be deemed to have kept a Registration Statement effective during the applicable period if it voluntarily takes or fails to take any action that results in Selling Holders covered thereby not being able to sell such Registrable Securities pursuant to Federal securities laws during that period; provided, further, the Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto in connection with a Demand Registration to which the Holders of a majority of the Registrable Securities, their Special Counsel, or the managing underwriters, if any, shall reasonably object on a timely basis; (b) Take such action as may be necessary so that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated herein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (c) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (d) Notify the Selling Holders, their Special Counsel and the managing underwriters, if any, promptly (and in any case within 2 Business Days), and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of either the Company 10 10 contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to such Registration Statement would be appropriate; (e) Use its reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; (f) If requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold in connection with such offering reasonably in advance of the filing thereof, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders reasonably agree should be included therein, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement; (g) Furnish to Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested as soon as practicable after the filing of such documents with the SEC; (h) Deliver to each Selling Holder, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; 11 11 (i) Prior to any public offering of Registrable Securities, use its reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform "blue sky" investigations and file registrations and qualifications required to be filed pursuant to this Section 4(i); to use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to use its reasonable best efforts do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (j) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates (with appropriate CUSIP numbers) representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the DTC, and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may request at least two Business Days prior to any sale of Registrable Securities; (k) Use its best efforts to cause the offering of the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required as a consequence of the nature of such Selling Holder's business, in which case the Company will cooperate in all reasonable respects at the expense of such Selling Holder with the filing of such Registration Statement and the granting of such approvals as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; provided, however, that the Company shall not be required to register the Registrable Securities in any jurisdiction that would subject them to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject or to require the Company to qualify to do business in any jurisdiction where it is not then so qualified; (l) Upon the occurrence of any event contemplated by Section 4(d)(vi) or 4(d)(vii), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact 12 12 required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders of the occurrence of any event contemplated by paragraph 4(d)(vi) or 4(d)(vii) above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made; (m) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by it), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing or sole underwriters, if any, addressed to the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters (iii) obtain customary "comfort" letters and updates thereof (including, if such registration includes an underwritten public offering, a "bring down" comfort letter dated the date of the closing under the underwriting agreement) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business which may hereafter be acquired by the Company for which financial statements and financial data are required to be included in the Registration Statement), addressed to each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and such other matters as reasonably required by the managing underwriter or underwriters and as permitted by the Statement of Auditing Standards No. 72; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Selling Holders and the underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate number of Registrable Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate number of the Registrable Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause 4(n)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (n) Make available for inspection by one representative of the Selling Holders, the managing underwriter participating in any such disposition of Registrable 13 13 Securities, if any, and any attorney, consultant or accountant retained by such Selling Holders or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company, and cause the officers, directors, agents and employees of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such Inspector in connection with such Registration, provided, however, the Company may first require that such Persons agree to keep confidential any non-public information relating to the Company received by such Person and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 4(n)) until such information has been made generally available to the public (other than as a result of a disclosure or failure to safeguard by such Inspector) unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors); without limiting the foregoing, no such information shall be used by such Inspector as the basis for any market transactions in securities of the Company or its subsidiaries in violation of law; (o) Use its best efforts to cause the Warrant Shares issuable upon exercise of the Warrants to be quoted or listed on any exchange upon which the Company's Common Stock is then quoted or listed; (p) Comply with all applicable rules and regulations of the SEC and make generally available to their security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act), no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and (q) Use its best efforts to take all other steps reasonably necessary to effect the registration, offering and sale of the Registrable Securities covered by the Registration Statement. The Company may require each Selling Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the applicable Registration Statement and the Company may exclude from such registration the Registrable Securities of any Selling Holder who unreasonably fails to furnish such information promptly after receiving such request. 14 14 If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(v) or 4(d)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the 90-day period referred to in Section 2(d) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 5. Certain Limitations, Conditions and Qualifications to the Company's Obligations Under Sections 2 and 3. The obligations of the Company described in Sections 2 and 3 of this Agreement are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing or effectiveness of, or suspend the rights of any Holder to make sales pursuant to, any Registration Statement otherwise required to be prepared, filed and made and kept effective by it under the registration covenants described in Sections 2 hereof; provided, however, that the duration of such postponement or suspension may not exceed the earlier to occur of (A) 30 days after the cessation of the circumstances described in the next sentence of this paragraph on which such postponement or suspension is based or (B) 120 days after the date of the determination of the Board of Directors of the Company referred to in the next sentence, and the duration of such postponement or suspension shall be excluded from the calculation of the 90-day period described in Section 2(d) hereof. Such postponement or suspension may only be effected if the Board of Directors of the Company determines in good faith that the filing or effectiveness of, or sales pursuant to, such registration 15 15 statement would materially impede, delay or interfere with any financing, offer or sale of securities, acquisition, corporate reorganization or other significant transaction involving the Company or any of its affiliates (whether or not planned, proposed or authorized prior to the exercise of demand registration rights hereunder or any other registration rights agreement) or require disclosure of material information which the Company has a bona fide business purpose for preserving as confidential. If the Company shall so postpone the filing or effectiveness of, or suspend the rights of any Holders to make sales pursuant to, a Registration Statement it shall, as promptly as possible, notify any Selling Holders of such determination, and the Selling Holders shall (y) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Selling Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice, or (z) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted for purposes of the two Demand Registrations referred to in Section 2(d) hereof. (b) The Company shall not be required by this Agreement to include securities in a Registration Statement relating to a Piggy-back Registration above if (i) in the written opinion of counsel to the Company, addressed to the Holders seeking registration and delivered to them, the Holders of such securities seeking registration would be free to sell all such securities within the succeeding three-month period, without registration, under Rule 144 under the Securities Act, which opinion may be based in part upon the representation by the Holders of such securities seeking registration, which registration shall not be unreasonably withheld, that each such Holder is not an affiliate of the Company within the meaning of the Securities Act, and (ii) all requirements under the Securities Act for effecting such sales are satisfied at such time. (c) The Company's obligations shall be subject to the obligations of the Selling Holders to furnish all information and materials and not to take any and all actions as may be required under Federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. 6. Indemnification (a) The Company agrees to indemnify and hold harmless (i) each Selling Holder, (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of the Purchaser, each Selling 16 16 Holder, each broker-dealer participating in an offering subject to this Agreement or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of Prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing indemnity with respect to any preliminary Prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person or the Underwriter. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all reasonable fees and expenses; provided, however, that the failure to so notify the Company shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Company, (ii) the Company shall have failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and the Company and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or 17 17 circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred). The Company shall not be liable for any settlement of any such action effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Indemnified Person from and against any loss or liability by reason of such settlement. The Company shall not, without the prior written consent of the Indemnified Person, which consent shall not be unreasonbly withheld, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement in which a Holder is participating, such Holder agrees, severally and not jointly, to indemnify and hold harmless each of the Company, its directors, its officers, agents and employees and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the directors, officers, agents or employees of such controlling persons, to the same extent as the foregoing indemnity from the Company to each Indemnified Person but only with reference to information relating to such Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in such Registration Statement or any Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. In case any action shall be brought against the Company, any of their directors, any such officer, agent or employee or any person controlling the Company based on such Registration Statement and in respect of which indemnity may be sought against any Indemnified Person, the Indemnified Person shall have the rights and duties given to the Company (except that if the Company shall have assumed the defense thereof, such Indemnified Person shall not be required to do so, but may employ separate counsel therein and participate in defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnified Person), and the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the Indemnified Person, by Sections 6(b) and 6(d) hereof. (d) If the indemnification provided for in this Section 6 is unavailable to an Indemnified Person or is insufficient to hold such Indemnified Person harmless in respect of any losses, claims, damages, liabilities or judgments referred to therein, then the Company, in lieu of indemnifying such Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Person on the other hand from the offering of the Warrant Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and each such Indemnified Person in connection with the statements or omissions (or alleged statements or omissions) which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and each such Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement 18 18 of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Indemnified Person were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an the Company as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other fees or expenses reasonably incurred by such indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the total net proceeds received by it in connection with the sale of the Warrant Shares pursuant to this Agreement exceeds the amount of any damages which such Indemnified Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 6 will be in addition to any liability which the Company may otherwise have to the Indemnified Persons referred to above. The Indemnified Persons' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective amount of Warrant Shares included in any such Registration Statement by each Indemnified Person and not joint. 7. Rules 144 and 144A The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit, sales of its Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations (a) If any of the Registrable Securities covered by any Registration Statement pursuant to a Demand Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate number of such Registrable Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). 19 19 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. (b) Each Holder of a Warrant or Warrant Shares agrees, if requested (pursuant to a timely written notice) by the managing underwriter or underwriters in an underwritten offering, not to effect any public sale or distribution of any of the issue being registered or a similar security of the Company or any securities convertible or exchangeable or exercisable for such securities including a sale pursuant to Rule 144 or Rule 144A (except as part of such underwritten offering), during the period beginning 10 days prior to, and ending 90 days after, the closing date of each underwritten offering made pursuant to such registration statement (or such shorter period as the managing underwriter or underwriters may agree), to the extent timely notified in writing by the Company or by the managing underwriter or underwriters. 9. Miscellaneous (a) Remedies. In the event of a breach by the Company, or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any person the right to request it to register any of its equity securities under the Securities Act (other than pursuant to the Management Registration Rights Agreement) unless the rights so granted are subject in all respects to the prior rights of the Holders set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the written consent of the Holders of a majority of the then outstanding Registrable Securities is obtained; provided, however, that, for the purposes of this Agreement, Registrable Securities that are owned, directly or indirectly, by the Company or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate number of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; 20 20 provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, or facsimile: (i) if to the Company: American Restaurant Group, Inc. 450 Newport Center Drive Newport Beach, California 92660 Fax: (714) 721-8941 Attention: Chief Financial Officer with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Fax: (212) 455-2502 Attention: Philip T. Rugger, III (ii) if to the Purchaser: Jefferies & Company, Inc. 111 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Fax: (310) 575-5299 Attention: Jerry M. Gluck with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue 34th Floor Los Angeles, California 90071 Fax: (213) 687-5600 Attention: Rod A. Guerra (iii) if to any other person who is then a registered Holder, to the address of such Holder as it appears in the share register of the Company. 21 21 Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Notwithstanding the foregoing, no transferee shall have any of the rights granted under this Agreement until such transferee shall acknowledge its rights and obligations hereunder by a signed written statement of such transferee's acceptance of such rights and obligations. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (g) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (h) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this 22 22 Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (j) Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (k) Entire Agreement. This Agreement, together with the Purchase Agreement, the Warrant Agreement, and the Indenture, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, the Purchase Agreement, the Warrant Agreement, and the Indenture supersede all prior agreements and understandings between the parties with respect to such subject matter. 23 23 Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ------------------------------- Name: William J. McCaffrey, Jr. Title: V.P. & Chief Financial Officer The foregoing Securityholders' and Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. JEFFERIES & COMPANY, INC. By: /s/Jeffrey K. Weinhuff ------------------------------- Name: Jeffrey K. Weinhuff Title: Executive Vice President 24 EX-4.5 7 AMANAGEMENT REGISTRATION RIGHT AGREEMENT 1 EXHIBIT 4.5 AMERICAN RESTAURANT GROUP, INC. MANAGEMENT REGISTRATION RIGHTS AGREEMENT AGREEMENT, dated as of February 25, 1998, between AMERICAN RESTAURANT GROUP, INC., a Delaware corporation (the "Company"), and ANWAR S. SOLIMAN, PATRICK J. KELVIE, WILFRED H. PARTRIDGE, WILLIAM J. McCAFFREY, JR., MEREDITH R. TAYLOR and RALPH ROBERTS (together with any subsequent member of management who purchases common stock of the Company pursuant to a subscription agreement, the "Management Stockholders"). WHEREAS, the Company will enter into common stock subscription agreements (the "Subscription Agreements"), to be dated the date hereof, with the Management Stockholders pursuant to which the Company will issue and sell shares of the Company's common stock, $0.01 par value per share (the "Common Stock") (together with any securities issued in exchange therefor or in substitution thereof, the "Management Shares") to the Management Stockholders; and WHEREAS, in order to induce the Management Stockholders to acquire the Management Shares the Company has agreed to provide the Management Stockholders with certain registration rights with respect to the Management Shares. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Management Stockholders and the Company hereby agree as follows: 1. Definitions. Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Purchase Agreement, dated as of February 13, 1998 , between Jefferies & Company, Inc. (the "Purchaser") and the Company,. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" of any specified person, means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day other than (i) Saturday or Sunday or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participations, or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into corporate stock), warrants or options to purchase any of the foregoing, including without limitation, each class 2 2 of common stock and preferred stock of such Person, if such Person is a corporation, and each general or limited partnership interest or other equity interest of such Person, if such Person is a partnership. "DTC" means The Depository Trust Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" means the Persons with a beneficial interest in the Management Shares or other Registrable Securities. "Initiating Holders" means one or more Holders owning individually or in the aggregate not less than the Requisite Securities. "Officer's Certificate" means a certificate signed by any one of the Chairman, any Vice Chairman, any Chief Executive Officer, any Senior Vice President or the Chief Financial Officer. "Person" means an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. "Public Equity Offering" means an underwritten public offering managed by a nationally recognized member of the National Association of Securities Dealers of Capital Stock of any Person pursuant to an effective registration statement filed with the SEC pursuant to the Securities Act. "Purchaser Warrant Shares" means the 9,315 shares of Common Stock issuable upon exercise of certain warrants issued to the Purchaser (the "Purchaser Warrants"). "Registrable Securities" means any of (i) the Management Shares or any other Shares ("Other Shares") of Common Stock issuable to Management Stockholders, including pursuant to any stock option plan, and (ii) any other securities issued or issuable with respect to any Management Shares or Other Shares by way of stock dividends or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Registration Statement, (ii) such securities are eligible for sale to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under 3 3 the Securities Act, (iii) such securities shall have been otherwise transferred by such Holder thereof and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (iv) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), preparing, printing, filing, duplicating and distributing the Registration Statement and the related prospectus, the cost of printing stock certificates, the cost and charges of any transfer agent, printing expenses, messenger, telephone and delivery expenses, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants, the fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Selling Holders), and reasonable fees and expenses of one counsel for the Holders (which counsel shall be reasonably acceptable to the Company). "Registration Statement" shall mean any appropriate registration statement of the Company filed with the SEC pursuant to the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Securities" shall mean a number of Registrable Securities equal to not less than 25% of the Registrable Securities held in the aggregate by all Holders. "Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 144A" means Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. 4 4 "Rule 174" means Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "Rule 424" means Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended form time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Securityholders and Registration Rights Agreement" means the securityholders and registration rights agreement , to be dated the date hereof, providing the Purchaser and its direct and indirect transferees with, among other things, certain registration rights and tag-along rights for the Warrants and the Warrant Shares. "Selling Holder" shall mean a Holder who is selling Registrable Securities in accordance with the provisions of this Agreement. "Special Counsel" means any special counsel to the Holders, for which Holders will be reimbursed pursuant to this Agreement. "Voting Trust Agreement" means the Voting Trust and Transfer Agreement, dated as of the date hereof, among the Company, Anwar S. Soliman, as Trustee, and the Management Stockholders, as amended, supplemented or otherwise modified from time to time. "Warrant Holders" means Persons with a beneficial interest in the Warrant Shares, the Purchaser Warrant Shares or any other securities issued in exchange for or in substitution for the Warrant Shares or the Purchaser Warrant Shares. "Warrant Shares" the Purchaser Warrant Shares together with the shares issuable upon exercise of the Warrants. 5 5 "Warrants" means the 35,000 Common Stock Purchase Warrants to purchase initially 93,150 shares of Common Stock, at an initial exercise price of $ .01 per share, sold to the Purchaser pursuant to the Purchase Agreement. 2. Demand Registration. (a) From time to time after 180 days following the completion by the Company of a Public Equity Offering, one or more Initiating Holders owning individually, or in the aggregate not less than the Requisite Securities may request in writing that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof (the "Demand Request"). The Company will give written notice of the Demand Request to all registered holders of Registrable Securities within fifteen (15) days of receipt thereof. Within 120 days of receipt of the Demand Request the Company will, subject to the terms of this Agreement, file a Registration Statement and use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 20 days after the giving of such written notice by the Company (which request shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition of such Registrable Securities); (iii) all shares of securities which the Warrant Holders may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2; and (iv) all shares of securities which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional securities so to be registered. (b) Registrations under this Section (each, a "Demand Registration") shall be on such appropriate registration form of the SEC (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. (c) The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2. The Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, in connection with each Registration Statement requested under this Section 2, which costs shall be allocated pro rata 6 6 among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration, on the basis of the respective amounts of the Registrable Securities then being registered on their behalf. (d) The Holders shall be entitled to request two (2) registrations pursuant to this Section 2. A Registration Statement requested pursuant to this Section 2 shall not be deemed to have been effected (i) unless a Registration Statement with respect thereto has been declared effective by the SEC and (ii) the Company has complied in a timely manner and in all material respects with all of its obligations under this Agreement; provided, (i) if, after such Registration Statement has become effective, the offering of Registrable Securities pursuant to such Registration Statement is or becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Registrable Securities under such Registration Statement for any reason, other than by reason of some act or omission by any Holder participating in such registration, and does not become effective within a reasonable period of time thereafter, such period not to exceed 60 days from the date of such stop order, injunction, or other governmental order or requirement, (ii) the Registration Statement does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Selling Holders of all of the Registrable Securities covered thereby or (iii) if the Selling Holders are not able to sell at least 70% of the Registrable Securities to be included therein, less any Registrable Securities withdrawn or excluded from such Demand Registration in accordance with the provisions hereof, then, in each case, such Registration Statement shall be deemed not to have been effected. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not in effect shall be excluded. The Holders shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. (e) If a requested registration pursuant to this Section 2 involves an underwritten offering, and the managing underwriter or underwriters shall advise the Company in writing (with a copy to each Holder requesting registration) that, in such managing underwriter's or underwriters' opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the Holders, pro rata among such holders requesting such registration on the basis of the number of such securities requested to be included by such Holders and (ii) second, securities held by other Persons, including the Company. 3. Piggy-Back Registration. (a) If at any time after the Company has completed a Public Equity Offering the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of the holders of any class of its Common Stock in a firmly 7 7 underwritten Public Equity Offering (other than (i) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a Registration Statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event fewer than 10 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request in writing within 20 days after receipt of such written notice from the Company (which request shall specify the Registrable Securities intended to be disposed of by such Selling Holder) (a "Piggy-Back Registration"). Upon the written request of any such Holder made within 20 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement that covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 3 shall relieve the Company of its obligation to effect any registration upon request under Section 2, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2. (b) The Company shall use its reasonable efforts to cause the managing underwriter or underwriters of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included in the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to these provisions by giving written notice to the Company of its request to withdraw prior to the effective date of such registration statement. (c) The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3 and the Selling Holders shall pay the underwriting discounts, commissions, and transfer taxes, if any, relating 8 8 to the sale of such Selling Holders' Registrable Securities pursuant to this Section 3, such costs being allocated pro rata among all Selling Holders on whose behalf Registrable Securities of the Company are included in such registration on the basis of the respective amounts of Registrable Securities then being registered on their behalf. (d) Priority in Piggy-Back Registrations. If a registration pursuant to this Section 3 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, the Company will, if requested by any Holder and subject to the provisions of this Section 3, use its reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. Notwithstanding anything to the contrary, if the managing underwriter of such underwritten offering shall, in writing, inform the Holders requesting such registration and the holders of any of the Company's other securities which shall have exercised registration rights in respect of such underwritten offering of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering, then, the Company will be required to include in such registration statement only the amount of securities that it is so advised should be included in such registration. In such event, (x) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities that the Company proposes to register, (ii) second, the securities that have been requested to be included in such registration by Management Stockholders and Warrant Holders (pro rata on the amount of securities sought to be registered by such Holders and Management Holders), and (iii) third, the securities that have been requested to be included in such registration by Persons (other than Management Stockholders and Warrant Holders) entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata on the amount of securities sought to be registered by such Persons); and (y) in cases not initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering as follows: (i) first, the securities of any person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (provided that if such person is a Holder, there shall be no priority as among Holders and securities sought to be included by Holders shall be included pro rata based on the amount of securities sought to be registered by such persons), (ii) second, the securities that have been requested to be included in such registration by Holders and Warrant Holders (pro rata on the amount of securities sought to be registered by such Holders and Warrant Holders), (iii) third, securities of other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such persons) and (iv) fourth, the securities which the Company proposes to register. 4. Registration Procedures. In connection with any Demand Registration or Piggy-back Registration, the Company shall (provided that it will not be required to take any action pursuant to this Section 4 that would, in the opinion of counsel for the Company, violate applicable law): 9 9 (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), if requested, furnish to the Holders, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, their Special Counsel and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act, and shall use reasonable efforts to reflect in each such document filed pursuant to a Demand Registration, when so filed with the SEC, such reasonable comments as the Holders, their Special Counsel and the managing underwriters, if any, may propose in writing; provided, however, that the Company shall not be deemed to have kept a Registration Statement effective during the applicable period if it voluntarily takes or fails to take any action that results in Selling Holders covered thereby not being able to sell such Registrable Securities pursuant to Federal securities laws during that period; (b) Take such action as may be necessary so that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated herein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading; (c) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; 10 10 (d) Notify the Selling Holders, their Special Counsel and the managing underwriters, if any, promptly (and in any case within 15 Business Days), and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of either the Company contained in any agreement (including any underwriting agreement) contemplated hereby cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to such Registration Statement would be appropriate; (e) Use its reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; (f) If requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold in connection with such offering reasonably in advance of the filing thereof, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders reasonably agree should be included therein, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement; 11 11 (g) Furnish to Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested as soon as practicable after the filing of such documents with the SEC; (h) Deliver to each Selling Holder, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (i) Prior to any public offering of Registrable Securities, use its reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform "blue sky" investigations and file registrations and qualifications required to be filed pursuant to this Section 4(i); to use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to use its reasonable best efforts do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject; (j) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the DTC, and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may request at least two Business Days prior to any sale of Registrable Securities; (k) Use its best efforts to cause the offering of the Registrable Securities covered by the Registration Statement to be registered with or approved by such other 12 12 governmental agencies or authorities within the United States; provided, however, that the Company shall not be required to register the Registrable Securities in any jurisdiction that would subject them to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject or to require the Company to qualify to do business in any jurisdiction where it is not then so qualified; (l) Upon the occurrence of any event contemplated by Section 4(d)(vi) or 4(d)(vii), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders of the occurrence of any event contemplated by paragraph 4(d)(vi) or 4(d)(vii) above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made; (m) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate number of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company (including with respect to businesses or assets acquired or to be acquired by it), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing or sole underwriters, addressed to the underwriters, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such and underwriters (iii) obtain customary "comfort" letters and updates thereof (including, if such registration includes an underwritten public offering, a "bring down" comfort letter dated the date of the closing under the underwriting agreement) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business which may hereafter be acquired by the Company for which financial statements and financial data are required to be included in the Registration Statement), addressed to each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "comfort" 13 13 letters in connection with underwritten offerings and such other matters as reasonably required by the managing underwriter or underwriters and as permitted by the Statement of Auditing Standards No. 72; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the Selling Holders and the underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate number of Registrable Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate number of the Registrable Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause 4(n)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (n) Make available for inspection by the Selling Holders, the managing underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, consultant or accountant retained by such Selling Holders or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company, and cause the officers, directors, agents and employees of the Company (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such Inspectors in connection with such Registration, provided, however, the Company may first require that such Persons agree to keep confidential any non-public information relating to the Company received by such Person and not disclose such information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 4(o)) until such information has been made generally available to the public (other than as a result of a disclosure or failure to safeguard by such Inspector), unless the release of such information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors); without limiting the foregoing, no such information shall be used by such Inspector as the basis for any market transactions in securities of the Company or its subsidiaries in violation of law; (o) Comply with all applicable rules and regulations of the SEC and make generally available to their security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act), no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, 14 14 commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and (p) Use its best efforts to take all other steps reasonably necessary to effect the registration, offering and sale of the Registrable Securities covered by the Registration Statement. The Company may require each Selling Holder as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the applicable Registration Statement and the Company may exclude from such registration the Registrable Securities of any Selling Holder who unreasonably fails to furnish such information promptly after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(v) or 4(d)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the 90-day period referred to in Section 2(d) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(l) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 15 15 5. Certain Limitations, Conditions and Qualifications to the Company's Obligations Under Sections 2 and 3. The obligations of the Company described in Sections 2 and 3 of this Agreement are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing or effectiveness of, or suspend the rights of any Holder to make sales pursuant to, any Registration Statement otherwise required to be prepared, filed and made and kept effective by it under the registration covenants described in Sections 2 hereof; provided, however, that the duration of such postponement or suspension may not exceed the earlier to occur of (A) 30 days after the cessation of the circumstances described in the next sentence of this paragraph on which such postponement or suspension is based or (B) 120 days after the date of the determination of the Board of Directors of the Company referred to in the next sentence, and the duration of such postponement or suspension shall be excluded from the calculation of the 90-day period described in Section 2(d) hereof. Such postponement or suspension may only be effected if the Board of Directors of the Company determines in good faith that the filing or effectiveness of, or sales pursuant to, such registration statement would materially impede, delay or interfere with any financing, offer or sale of securities, acquisition, corporate reorganization or other significant transaction involving the Company or any of its affiliates (whether or not planned, proposed or authorized prior to the exercise of demand registration rights hereunder or any other registration rights agreement) or require disclosure of material information which the Company has a bona fide business purpose for preserving as confidential. If the Company shall so postpone the filing or effectiveness of, or suspend the rights of any Holders to make sales pursuant to, a Registration Statement it shall, as promptly as possible, notify any Selling Holders of such determination, and the Selling Holders shall (y) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Selling Holders of not less than a majority of the Registrable Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice, or (z) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted for purposes of the two Demand Registrations referred to in Section 2(d) hereof. (b) The Company shall not be required by this Agreement to include securities in a Registration Statement relating to a Piggy-back Registration above if, in the written opinion of counsel to the Company addressed to the Holders seeking registration and delivered to them, the Holders of such securities seeking registration would be free to sell all such securities within the next succeeding three-month period, without registration under Rule 144 under the Securities Act, which opinion may be based in part upon the representation by the Holders of such securities seeking registration, which representation shall not be unreasonably withheld, that all requirements under the Securities Act for effecting such sales are satisfied at such time. 16 16 (c) The Company's obligations shall be subject to the obligations of the Selling Holders to furnish all information and materials and not to take any and all actions as may be required under Federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. 6. Indemnification. (a) The Company agrees to indemnify and hold harmless (i) each Selling Holder (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of each Selling Holder, each broker-dealer participating in an offering subject to this Agreement or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of Prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing indemnity with respect to any preliminary Prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person or the Underwriter. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to 17 17 such Indemnified Person and payment of all reasonable fees and expenses; provided, however, that the failure to so notify the Company shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Company, (ii) the Company shall have failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and the Company and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred). The Company shall not be liable for any settlement of any such action effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Indemnified Person from and against any loss or liability by reason of such settlement. The Company shall not, without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement in which a Holder is participating, such Holder agrees, severally and not jointly, to indemnify and hold harmless each of the Company, its directors, its officers, agents and employees and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the directors, officers, agents or employees of such controlling persons, to the same extent as the foregoing indemnity from the Company to each Indemnified Person but only with reference to information relating to such Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in such Registration Statement or any Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. In case any action shall be brought against the Company, any of their directors, any such officer, agent or employee or any person controlling the Company based on such Registration Statement and in respect of which indemnity may be sought against any Indemnified Person, the Indemnified Person shall have the rights and duties given to the Company (except that if the Company shall have assumed the defense thereof, such Indemnified Person shall not be required to do so, but may employ separate counsel therein 18 18 and participate in defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnified Person), and the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the Indemnified Person, by Sections 6(b) and 6(d) hereof. (d) If the indemnification provided for in this Section 6 is unavailable to an Indemnified Person or is insufficient to hold such Indemnified Person harmless in respect of any losses, claims, damages, liabilities or judgments referred to therein, then the Company, in lieu of indemnifying such Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Person on the other hand from the offering of the securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and each such Indemnified Person in connection with the statements or omissions (or alleged statements or omissions) which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and each such Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or the alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Indemnified Persons were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an the Company as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other fees or expenses reasonably incurred by such indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the total net proceeds received by it in connection with the sale of the securities pursuant to this Agreement exceeds the amount of any damages which such Indemnified Person has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 6 will be in addition to any liability which the Company may otherwise have to the Indemnified Persons referred to above. The Indemnified Persons' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective amount of securities included in any such Registration Statement by each Indemnified Person and not joint. 19 19 7. Rules 144 and 144A The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit, sales of its Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations (a) If any of the Registrable Securities covered by any Registration Statement pursuant to a Demand Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Company, subject to the consent of the Holders of a majority in aggregate number of such Registrable Securities included in such offering (which will not be unreasonably withheld or delayed). No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. (b) Each Holder agrees, if requested (pursuant to a timely written notice) by the managing underwriter or underwriters in an underwritten offering, not to effect any public sale or distribution of any of the issue being registered or a similar security of the Company or any securities convertible or exchangeable or exercisable for such securities including a sale pursuant to Rule 144 or Rule 144A (except as part of such underwritten offering), during the period beginning 10 days prior to, and ending 90 days after, the closing date of each underwritten offering made pursuant to such registration statement (or such shorter period as the managing underwriter or underwriters may agree), to the extent timely notified in writing by the Company or by the managing underwriter or underwriters. 9. Miscellaneous. (a) Remedies. In the event of a breach by the Company, or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. 20 20 (b) No Inconsistent Agreements. Without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any person the right to request it to register any of its equity securities under the Securities Act (other than pursuant to the Securityholders and Registration Rights Agreement) unless the rights so granted are subject in all respects to the prior rights of the Holders set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the written consent of the Holders of a majority of the then outstanding Registrable Securities is obtained; provided, however, that, for the purposes of this Agreement, Registrable Securities that are owned, directly or indirectly, by the Company or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate number of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, or facsimile: (i) if to the Company: American Restaurant Group, Inc. 450 Newport Center Drive Newport Beach, California 92660 Fax: (714) 721-8941 Attention: Chief Financial Officer with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Fax: (212) 455-2502 Attention: Philip T. Rugger, III 21 21 (ii) if to the Holders, to their addresses as set forth below their signatures hereto. (iii) if to any other person who is then a registered Holder, to the address of such Holder as it appears in the share register of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Notwithstanding the foregoing, no transferee shall have any of the rights granted under this Agreement until such transferee shall acknowledge its rights and obligations hereunder by a signed written statement of such transferee's acceptance of such rights and obligations. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (g) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (h) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by 22 22 such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (j) Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (k) Entire Agreement. This Agreement, together with the Subscription Agreements and the Voting Trust Agreement, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, the Subscription Agreement, and the Voting Trust Agreement, supersede all prior agreements and understandings between the parties with respect to such subject matter. 23 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/Wilfred H. Partridge -------------------------------- Name: Wilfred H. Partridge Printed Address: 1211 Sun Valley Road Solana Beach, CA 92075 24 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/Patrick J. Kelvie --------------------------------- Name: Patrick J. Kelvie Printed Address: 36 Jennings Lane Atherton, CA 94027 25 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/William J. McCaffrey, Jr. --------------------------------- Name: William J. McCaffrey, Jr. Printed Address: 2525 Ocean Boulevard, Apt. G-4 Corona Del Mar, CA 92625 26 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/Meredith R. Taylor --------------------------------- Name: Meredith R. Taylor Printed Address: 13830 Skyline Boulevard Woodside, CA 94062 27 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/Ralph S. Roberts --------------------------------- Name: Ralph S. Roberts Printed Address: 880 Hillsborough Avenue Hillsborough, CA 94010 28 IN WITNESS WHEREOF, the parties hereto have executed this Management Registration Rights Agreement as of the date first above written. AMERICAN RESTAURANT GROUP, INC. By: William J. McCaffrey, Jr. ----------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer /s/Anwar Soliman --------------------------------- Name: Anwar Soliman Printed Address: 375 Camden Place Laguna Beach, CA 92651 EX-4.6 8 CERTIFICATE OF DESIGNATION FILED FEBRUARY 24, 1998 1 EXHIBIT 4.6 CERTIFICATE OF THE DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF THE 12% SERIES A SENIOR PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK AND THE 12% SERIES B SENIOR PAY-IN-KIND EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- American Restaurant Group, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware ("GCL"), does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by its Certificate of Incorporation, as amended, (hereinafter referred to as the "Certificate of Incorporation") and pursuant to the provisions of Section 151 of the GCL, said Board of Directors, by written consent dated February 24, 1998, duly approved and adopted the following resolution (the "Resolution"): RESOLVED, that pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors hereby creates, authorizes and provides for the issuance of two series of Preferred Stock of the Company, designated as 12% Series A Senior Pay-In-Kind Exchangeable Preferred Stock of the Company, par value $0.01 per share, and 12% Series B Senior Pay-In-Kind Exchangeable Preferred Stock of the Company, par value $0.01 per share, having the designations, preferences, relative, participating, optional and other special rights of the shares of each such series, and the qualifications, limitations and restrictions thereof that are set forth in this Resolution, as follows: SECTION 1. Designation and Amount. The designations for the two series of Preferred Stock authorized by this Resolution shall be the 12% Series A Senior Pay-In-Kind Exchangeable Preferred Stock, par value $0.01 per share (the "Series A Senior Preferred Stock") and the 12% Series B Senior Pay-In-Kind Exchangeable Preferred Stock, par value $0.01 per share (the "Series B Senior Preferred Stock" and, together with the Series A Senior Preferred Stock, the "Senior Exchangeable Preferred Stock"). The liquidation preference of the Senior Exchangeable Preferred Stock is $1,000.00 per share (the "Liquidation Preference") and the original issue price for each such share is $1,000.00. The Liquidation Preference or the issue price per share of the Senior Exchangeable Preferred Stock shall not for any purpose be considered to be a determination by the Board of Directors with respect to the capital and surplus of the Company. The number of shares constituting such Series A Senior Preferred Stock shall be 80,000, consisting of an initial issuance of 35,000 shares of Series A Senior Preferred Stock and 2 45,000 shares of Series A Senior Preferred Stock, if the Company elects to pay dividends in additional shares of Series A Senior Preferred Stock. The number of shares constituting such Series B Senior Preferred Stock shall be 80,000, to be registered under the Securities Act and exchanged for the outstanding Series A Senior Preferred Stock and to be issued as dividends if the Company elects to pay dividends in additional shares of Series B Senior Preferred Stock. SECTION 2. Dividends. (a) Beginning on the Issuance Date, Holders of the outstanding shares of Senior Exchangeable Preferred Stock (the "Holders") will be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends on the Senior Exchangeable Preferred Stock at an annual rate of 12% of the Liquidation Preference per share, subject to increase as provided below (the "Dividend Rate"). All dividends will be cumulative and accrue daily, whether or not earned or declared, and will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 1998, to Holders of record on the February 1 and August 1 immediately preceding the relevant Dividend Payment Date. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Senior Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends; provided, however, that if the Company pays dividends in additional shares of Senior Exchangeable Preferred Stock, Holders of Series A Senior Preferred Stock shall be paid in additional shares of Series A Senior Preferred Stock and Holders of Series B Senior Preferred Stock shall be paid in additional shares of Series B Senior Preferred Stock. Dividends on the Series B Senior Preferred Stock will accrue from the last dividend payment date on which dividends were paid on the Series A Senior Preferred Stock surrendered for exchange therefor or, if no dividends had been paid on the Series A Senior Preferred Stock, from the date of original issue of the Series A Senior Preferred Stock. Dividends shall cease to accrue in respect of the shares of Senior Exchangeable Preferred Stock on the Exchange Date or on the Redemption Date unless the Company shall have failed, as applicable, to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Senior Exchangeable Preferred Stock on the Exchange Date or shall have failed to pay the relevant redemption price on the Redemption Date. For all purposes hereunder, the Dividend Rate shall be automatically increased in the following events: (i) if at the end of any fiscal quarter of the Company, the Maintenance Test Ratio exceeds the Maximum Test Ratio (each as defined in Section 8(e) hereof) for that fiscal quarter, then for the period during the immediately succeeding quarter, the Dividend Rate shall be 13.5% for the first two quarters for which the Maximum Test Ratio is exceeded (whether or not such fiscal quarters are consecutive) and 15% for any other quarter thereafter for which the Maximum Test Ratio is exceeded or (ii) if a Voting Rights Triggering Event (other than a Voting Rights Triggering Event occurring -2- 3 solely because of the breach of the Maintenance Test Ratio set forth in Section 8(e) hereof) occurs, then the Dividend Rate shall be 15% for the period during which the voting rights relating to such Voting Rights Triggering Event continue in accordance with the provisions of Section 5(b) hereof. (b) All dividends paid with respect to shares of the Senior Exchangeable Preferred Stock pursuant to Section 2(a) of this Certificate of Designation shall be paid pro rata to the Holders entitled thereto. (c) Holders shall be entitled to receive the dividends provided for in Section 2(a) of this Certificate of Designation (including any accrued and unpaid cash dividends on the Senior Exchangeable Preferred Stock) in preference to and in priority over any cash dividends (including accrued and unpaid dividends) upon any of the Junior Securities. (d) Dividends on account of arrears for any past dividend period and dividends in connection with any optional redemption may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record of the Senior Exchangeable Preferred Stock on such date, not more than 30 days prior to the payment thereof, as may be fixed by the Board of Directors. (e) Each fractional share of Senior Exchangeable Preferred Stock outstanding, if any, shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of Senior Exchangeable Preferred Stock pursuant to Section 2(a), and all such dividends with respect to such outstanding fractional shares shall accrue at the Dividend Rate and shall be payable in the same manner and at such times as provided for in Section 2(a) with respect to dividends on each outstanding share of Senior Exchangeable Preferred Stock. (f) Dividends payable on the Senior Exchangeable Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which dividends are payable. (g) In addition, in the event that the Company is required by the terms of the Registration Rights Agreement to be entered into between the Company, its Subsidiaries and Jefferies & Company, Inc. (the "Initial Purchaser"), contemplated by the Purchase Agreement dated as of February 13, 1998 between the Company and the Initial Purchaser, and approved by the Board of Directors of the Company, to pay liquidated damages, the Company may pay such liquidated damages in the form of additional dividends on the Series A Senior Exchangeable Preferred Stock in accordance with this Section 2. -3- 4 SECTION 3. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, Holders will be entitled to be paid, out of the assets of the Company legally available for distribution to stockholders, 110% of the then effective Liquidation Preference per share of Senior Exchangeable Preferred Stock, plus, without duplication, an amount in cash equal to all accrued and unpaid dividends, if any, thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Junior Securities. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Senior Exchangeable Preferred Stock are not paid in full, the Holders of the Senior Exchangeable Preferred Stock will share equally and ratably in any distribution of assets of the Company based on 110% of the Liquidation Preference of the Senior Exchangeable Preferred Stock, together, with all accrued and unpaid dividends. For the purposes of this Section 3, neither the sale, conveyance, lease or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with one or more entities shall be deemed to be a liquidation, dissolution or winding-up of the Company. Any liquidation payment with respect to each outstanding fractional share of Senior Exchangeable Preferred Stock, if any, shall be equal to a ratably proportionate amount of the liquidation payments with respect to each outstanding full share of Senior Exchangeable Preferred Stock. SECTION 4. Exchange. (a) The Company may, at its option, subject to the conditions described below, on any scheduled Dividend Payment Date occurring on or after February 15, 1999, exchange the Senior Exchangeable Preferred Stock, in whole but not in part, for the Exchange Debentures. At least 30 and not more than 60 days prior to the date fixed for exchange, the Company shall send a written notice (the "Exchange Notice") of exchange by mail to each Holder, which notice shall state: (i) that the Company has elected to exchange the Senior Exchangeable Preferred Stock into Exchange Debentures pursuant to this Certificate of Designation; (ii) the date of such exchange (the "Exchange Date"); (iii) that the Holder is to surrender to the Company, at the place or places and in the manner designated in the Exchange Notice, its certificate or certificates representing the shares of Senior Exchangeable Preferred Stock; -4- 5 (iv) that dividends on the shares of Senior Exchangeable Preferred Stock to be exchanged shall cease to accrue at the close of business on the day prior to the Exchange Date, whether or not certificates for shares of Senior Exchangeable Preferred Stock are surrendered for exchange on the Exchange Date, unless the Company shall default in the delivery of Exchange Debentures; and (v) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Senior Exchangeable Preferred Stock are surrendered for exchange on the Exchange Date. On the Exchange Date, if the conditions set forth in clauses (A) through (F) below are satisfied and if the exchange is then permitted under the Exchange Indenture, the Company shall issue Exchange Debentures in exchange for the Senior Exchangeable Preferred Stock as provided in the next paragraph; provided that: (A) on the Exchange Date there are no accrued and unpaid dividends on the Senior Exchangeable Preferred Stock (including the dividend payable on such date) or other contractual impediments to such exchange; (B) there shall be legally available funds sufficient for the exchange to occur (including, without limitation, legally available funds sufficient therefor under Section 160 and 170 (or any successor provisions) of the GCL; (C) no Voting Rights Triggering Event has occurred and is continuing at the time of such exchange; (D) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Indenture) would exist under the Exchange Indenture, and no Default or Event of Default would exist under any material instrument governing Indebtedness outstanding of the Company at the time of such exchange, including without limitation the Senior Secured Notes and the New Credit Facility; (E) the Exchange Indenture shall have been qualified under the Trust Indenture Act, if qualification is required; and (F) the Company shall have delivered to the Debenture Trustee, an Officers' Certificate, dated the Exchange Date, regarding the satisfaction of the conditions set forth in clauses (A) through (E). In the event that any of the conditions set forth in clauses (A) through (F) of the preceding sentence are not satisfied on the Exchange Date, then no shares of Senior Exchangeable Preferred Stock shall be exchanged, and in order to effect an exchange as provided for in this Section 4, the Company shall be required to fix another date for the exchange and issue a new Exchange Notice and the Company shall use its best efforts to satisfy such conditions and effect such exchange as soon as practicable. (b) Upon any exchange pursuant to this Section 4, Holders shall be entitled to receive for each share of Senior Exchangeable Preferred Stock, subject to the provisions hereof, a principal amount of Exchange Debentures equal to 100% of the Liquidation Preference of such share, plus all accrued and unpaid dividends thereon to the Exchange Date; provided that the Company -5- 6 shall pay cash to Holders in lieu of issuing an Exchange Debenture in a principal amount of less than $1,000 (or, at the option of the Company, $100) and provided further that the Exchange Debentures will be issuable only in denominations of $1,000 (or, at the option of the Company, $100) and integral multiples thereof. (c) On or before the Exchange Date, each Holder shall surrender the certificate or certificates representing such shares of the Senior Exchangeable Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Company shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of the Senior Exchangeable Preferred Stock so exchanged (properly endorsed or assigned for transfer, if the Exchange Notice shall so state), such shares shall be exchanged by the Company into Exchange Debentures as aforesaid. The Company shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (d) If the Exchange Notice has been mailed as aforesaid, and if before the Exchange Date all Exchange Debentures necessary for such exchange shall have been duly executed by the Company and delivered to the Debenture Trustee with irrevocable instructions to authenticate the Exchange Debentures necessary for such exchange, then the rights of the Holders as stockholders of the Company shall cease (except the right to receive the Exchange Debentures and cash in lieu of any Exchange Debenture that is in a principal amount less than $1,000 (or, if denominations of $100 are issued by the Company, $100), and the person or persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated for all purposes as a registered holder or holders of such Exchange Debentures as of the Exchange Date. SECTION 5. Voting Rights. (a) Holders, except as otherwise required under the laws of the State of Delaware or as set forth below, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Company. (b) If (i) dividends on the Senior Exchangeable Preferred Stock are in arrears and unpaid for any quarterly period; (ii) the Company fails to discharge its obligation to redeem the Senior Exchangeable Preferred Stock on the Mandatory Redemption Date or fails to otherwise discharge any redemption obligation with respect to the Senior Exchangeable Preferred Stock; (iii) the Maintenance Test Ratio exceeds the applicable Maximum Test Ratio (each as defined herein) for a period of eight (8) consecutive fiscal quarters; (iv) the Company breaches any of the covenants in Section 8 concerning Restricted Payments, sales of assets, affiliate transactions, mergers and sales of assets; or (v) a breach or violation of any other provision contained in -6- 7 this Certificate of Designation occurs which materially affects the Holders and such breach or violation continues for a period of 30 days or more after receipt of notice from a majority of the Holders of the Senior Exchangeable Preferred Stock, then (A) the number of members comprising the Company's Board of Directors shall automatically increase by two and (B) the holders of the majority of the then outstanding Senior Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, will be entitled to elect two directors to the Board of Directors to fill the vacancies created by such increase. Such voting rights will continue until such time as, in the case of a dividend default, all dividends in arrears on the Senior Exchangeable Preferred Stock are paid in full and, in all other cases, any failure, breach or default giving rise to such voting rights is remedied (which in the case of the Maintenance Test Ratio exceeding the Maximum Test Ratio, shall be the first quarter when the Maintenance Test Ratio does not exceed the Maximum Test Ratio) or waived by the holders of at least a majority of the shares of Senior Exchangeable Preferred Stock then outstanding, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (i) through (v) above is referred to herein as a "Voting Rights Triggering Event." (c) Immediately after voting power to elect directors shall have become vested and be continuing in the Holders pursuant to Section 5(b) or if vacancies shall exist in the offices of directors elected by the Holders, a proper officer of the Company shall call a special meeting of the Holders for the purpose of electing the directors which such Holders are entitled to elect. Any such meeting shall be held at the earliest practicable date, and the Company shall provide Holders with access to the lists of Holders, pursuant to the provisions of this Section 5(c). At any meeting held for the purpose of electing directors at which the Holders shall have the right, voting separately as a class, to elect directors, the presence in person or by proxy of the Holders of at least a majority of the outstanding shares of Senior Exchangeable Preferred Stock shall be required to constitute a quorum of such Holders. (d) Any vacancy occurring in the office of a director elected by the Holders pursuant to Section 5(b) may be filled by the remaining director elected by the Holders unless and until such vacancy shall be filled by the Holders. (e) The Company shall not modify, change, affect or amend the Certificate of Incorporation or this Certificate of Designation to affect materially and adversely the specified rights, preferences or privileges of the Holders of the Senior Exchangeable Preferred Stock, or authorize the issuance of any additional shares of Senior Exchangeable Preferred Stock, without the affirmative vote or consent of Holders of at least a majority of the shares of Senior Exchangeable Preferred Stock then -7- 8 outstanding, voting or consenting, as the case may be, as one class. (f) In any case in which the Holders shall be entitled to vote pursuant to this Section 5 or pursuant to the laws of the State of Delaware, each Holder shall be entitled to one vote for each share of Senior Exchangeable Preferred Stock held. (g) In lieu of voting at a meeting, Holders may act by written consent in accordance with Section 228 of the GCL. (h) Except as otherwise required by the GCL, Holders of at least a majority of the then outstanding shares of Senior Exchangeable Preferred Stock, voting or consenting, as the case may be, separately as a class, may waive compliance with any provision of this Certificate of Designation. SECTION 6. Redemption. (a) Optional Redemption. (i) The Senior Exchangeable Preferred Stock will be redeemable (subject to restrictions with respect to the legal availability of funds therefor) at the election of the Company, as a whole or from time to time in part, at any time on not less than 30 nor more than 60 days' prior notice, at 110% of the then effective Liquidation Preference, plus, without duplication, all accrued and unpaid dividends, if any, to the date of redemption (the "Redemption Date"). (ii) No optional redemption may be authorized or made unless on or prior to such redemption full unpaid cumulative dividends shall have been paid, or a sum set apart in cash or in shares of Senior Exchangeable Preferred Stock for such payment, on all shares of Senior Exchangeable Preferred Stock then outstanding. If less then all the Senior Exchangeable Preferred Stock is to be redeemed, the particular shares to be redeemed will be determined pro rata. If any Senior Exchangeable Preferred Stock is to be redeemed in part, the Redemption Notice that relates to such Senior Exchangeable Preferred Stock shall state the portion of the liquidation preference to be redeemed. New shares of the same Series of Senior Exchangeable Preferred Stock having an aggregate liquidation preference equal to the unredeemed portion will be issued in the name of the holder thereof upon cancellation of the original shares of Senior Exchangeable Preferred Stock and, unless the Company fails to pay the redemption price on the Redemption Date, after the Redemption Date dividends will cease to accrue on the Senior Exchangeable Preferred Stock called for redemption. (b) Mandatory Redemption. The Company shall redeem all outstanding Senior Exchangeable Preferred Stock (subject to -8- 9 the legal availability of funds therefor) in whole on the redemption date of August 15, 2003 (the "Mandatory Redemption Date"), at a redemption price equal to 110% of the Liquidation Preference thereof, plus all accrued and unpaid dividends, if any, to the date of redemption. (c) Procedure for Redemption. (i) Not more than 60 and not less then 30 days prior to any Redemption Date, written notice (the "Redemption Notice") shall be given by first-class mail, postage prepaid, to each Holder of record of shares to be redeemed on the record date fixed for such redemption of the Senior Exchangeable Preferred Stock at such Holder's address as the same appears on the stock register of the Company. The Redemption Notice shall state: (A) the Redemption Price; (B) whether all or less than all of the outstanding shares of the Senior Exchangeable Preferred Stock are to be redeemed and the total number of shares of such Senior Exchangeable Preferred Stock being redeemed; (C) the number of shares of Senior Exchangeable Preferred Stock held by the Holder that the Company intends to redeem; (D) the Redemption Date; (E) that the Holder is to surrender to the Company, at the place or places, which shall be designated in such Redemption Notice, its certificates representing the shares of Senior Exchangeable Preferred Stock to be redeemed; (F) that dividends on the shares of the Senior Exchangeable Preferred Stock to be redeemed shall cease to accrue on such Redemption Date unless the Company defaults in the payment of the redemption price; and (G) the name of any bank or trust company performing the duties referred to in subsection (c)(v) below. (ii) On or before the Redemption Date, each Holder of Senior Exchangeable Preferred Stock to be redeemed shall surrender the certificate or certificates representing such shares of Senior Exchangeable Preferred Stock to the Company, in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full redemption price for such shares shall be payable in cash to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be returned to authorized but unissued shares. In the event that less than all of the shares represented by any such certificate are redeemed, a new -9- 10 certificate shall be issued representing the unredeemed shares. (iii) Unless the Company defaults in the payment in full of the redemption price, dividends on the Senior Exchangeable Preferred Stock called for redemption shall cease to accrue on the Redemption Date, and the Holders of such shares shall cease to have any further rights with respect thereto on the Redemption Date, other than the right to receive the redemption price, without interest. (iv) If a Redemption Notice shall have been duly given, and if, on or before the Redemption Date specified therein, all funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds, in trust for the pro rata benefit of the Holders of the Senior Exchangeable Preferred Stock called for redemption so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, all shares so called for redemption shall no longer be deemed outstanding, and all rights with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the Holders thereof to receive the amount payable on redemption thereof, without interest. (v) If a Redemption Notice shall have been duly given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable authorization promptly to give such notice, and if on or before the Redemption Date specified therein the funds necessary for such redemption shall have been deposited by the Company with such bank or trust company in trust for the pro rata benefit of the Holders of the Senior Exchangeable Preferred Stock called for redemption, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit, all shares so called, or to be so called pursuant to such irrevocable authorization, for redemption shall no longer be deemed to be outstanding and all rights with respect of such shares shall forthwith cease and terminate, except only the right of the Holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest. The aforesaid bank or trust company shall be organized and in good standing under the laws of the United States of America or of the State of New York, shall be doing business in the Borough of Manhattan, The City of New York, shall have capital, surplus and undivided profits aggregating at least $100,000,000 according to its last published statement of condition, and shall be identified in the Redemption Notice. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds -10- 11 so set aside or deposited, as the case may be, and unclaimed at the end of three years from such Redemption Date shall, to the extent permitted by law, be released or repaid to the Company, after which repayment the Holders of the shares so called for redemption shall look only to the Company for payment thereof. SECTION 7. Ranking. The Senior Exchangeable Preferred Stock shall, with respect to dividends and distributions upon liquidation, winding-up and dissolution of the Company, rank senior to all classes of Common Stock and to each other class of Capital Stock or series of preferred stock of the Company existing on, or established after, the Issuance Date by the Board of Directors (collectively referred to, together with all classes of Common Stock of the Company, as "Junior Securities"). SECTION 8. Covenants and Certain Additional Provisions. (a) Limitations on Restricted Payments. The Company shall not, and, with respect to clause (ii) below, shall not permit any Subsidiary to, directly or indirectly, take any of the following actions: (i) declare, set aside for payment or pay any dividend on, or make any distribution to the holders of any Junior Securities (other than dividends or distributions payable solely in shares of a class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Junior Securities other than Common Stock, together with cash in lieu of fractional shares); or (ii) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, any Junior Securities (such payments or other actions described in (but not excluded from) clauses (i) and (ii) are collectively referred to as "Restricted Payments"), unless at the time of, and immediately after giving effect to, the proposed Restricted Payment (1) no Voting Rights Triggering Event shall have occurred and be continuing, and (2) all accrued dividends on the Senior Exchangeable Preferred Stock shall have been paid in full, or funds (or shares of Senior Exchangeable Preferred Stock) sufficient for payment thereof have been set apart for payment. (b) Limitation on Asset Sales. The Company will not, and will not permit any Subsidiary to, make any Asset Sale unless (i) the Company or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Board of Directors as evidenced by a Board Resolution) of the assets subject to such Asset Sale; (ii) at least 75% of the consideration for such Asset -11- 12 Sale is in the form of cash, Cash Equivalents or liabilities of the Company or any Subsidiary that are assumed by the transferee of such assets (provided, that following such Asset Sale there is no further recourse to the Company and its Subsidiaries with respect to such liabilities); and (iii) within 12 months of such Asset Sale, the Net Proceeds thereof, at the Company's election, are (A) invested in assets related to the business of the Company or its Subsidiaries, or (B) used to repay, purchase or otherwise acquire any Indebtedness of the Company or its Subsidiaries, including Indebtedness under the New Credit Facility or the Senior Secured Notes, or (C) used during such 12 months, or within 60 days after such 12 month period, to purchase or otherwise acquire shares of Senior Exchangeable Preferred Stock or (D) to the extent not used as provided in clauses (A) through (C), applied to make an offer to purchase the Senior Exchangeable Preferred Stock (an "Excess Proceeds Payment") pursuant to the offer described below (the "Excess Proceeds Offer") and the other procedures set forth herein; provided, that if the amount of the Net Proceeds from any Asset Sale not invested or used pursuant to clauses (A), (B) or (C) above is less than $5.0 million, the Company will not be required to make an offer pursuant to clause (D) until the aggregate amount of Excess Proceeds from all Asset Sales exceeds $5.0 million. Pending final application of any such Net Proceeds, the Company or any Subsidiary may temporarily reduce Indebtedness under the New Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents. For the purpose of this Section 8(b), the following are deemed to be cash: (y) securities received by the Company or any Subsidiary from the transferee that are promptly converted by the Company or such Subsidiary into cash and (z) assets related to the business of the Company or its Subsidiaries received in an exchange of assets transaction; provided that (i) in the event such exchange of assets transaction or series of related exchange of assets transactions (each an "Exchange Transaction") involves an aggregate value in excess of $2.5 million, the terms of such Exchange Transaction shall have been approved by a majority of the disinterested members of the Board of Directors of the Company as evidenced by a Board Resolution, (ii) in the event such Exchange Transaction involves an aggregate value in excess of $5.0 million, the Company shall have received a written opinion from a nationally recognized independent investment banking firm that the Company has received consideration equal to the fair market value of the assets disposed of and (iii) any assets to be received shall be comparable to those being exchanged as determined in good faith by the Board of Directors of the Company as evidenced by a Board Resolution. The amount of Net Proceeds not invested, used or applied as set forth in the preceding clauses (A) through (C) constitutes "Excess Proceeds." If the Company elects, or becomes obligated to make an Excess Proceeds Offer, the Company will offer to purchase, with such Excess Proceeds, shares of Senior Exchangeable Preferred Stock at a purchase price equal to 110% of -12- 13 the Liquidation Preference thereof, plus accrued and unpaid dividends, if any, to the purchase date (the "Purchase Amount"). The Company must commence such Excess Proceeds Offer not later than 90 days after the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds. If the aggregate purchase price for the shares of Senior Exchangeable Preferred Stock tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and its Subsidiaries may use the portion of the Excess Proceeds remaining after payment of such purchase price for general corporate purposes. Each Excess Proceeds Offer will remain open for a period of 20 Business Days and no longer, unless a longer period is required by law (the "Excess Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company will purchase and mail or deliver payment for the Purchase Amount for the shares of Senior Exchangeable Preferred Stock tendered, pro rata or by such other method as may be required by law, or, if less shares than the Purchase Amount has been tendered, all shares tendered pursuant to the Excess Proceeds Offer. The shares to be purchased pursuant to an Excess Proceeds Offer may be reduced by the Liquidation Preference of shares acquired by the Company through purchase or redemption subsequent to the date of the Asset Sale and surrendered to the transfer agent for cancellation. Each Excess Proceeds Offer will be conducted in compliance with applicable regulations under the federal securities laws, including Exchange Act Rule 14e-1. To the extent that the provisions of any securities laws or regulations conflict with this Section 8(b), the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 8(b) by virtue thereof. (c) Limitation on Transactions with Affiliates. the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $1.0 million; provided, that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have bene obtained in a comparable transaction at such time on a arms-length basis from a Person that is not an Affiliate of the Company or such Subsidiary; (ii) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than -13- 14 $2.5 million; provided, that a majority of the disinterested members of the Board of Directors of the Company, as evidenced by a Board Resolution, determine that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate of the Company or such Subsidiary; (iii) Affiliate Transactions for which the Company delivers to the Holders an opinion as to the fairness to the Company or such Subsidiary from a financial point of view, issued by an investment banking firm of national standing; and (iv) Permitted Affiliate Transactions and other "Restricted Payments" (as defined in the Senior Secured Notes) permitted by the provisions on the "Limitations on Restricted Payments" covenant contained in the Senior Secured Notes. (d) Consolidation, Merger and Sale of Assets. The Company shall not, in a single transaction or through a series of transactions, consolidate with or merge with or into any other Person (whether or not the Company is the surviving corporation) or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets (determined on a consolidated basis for the Company and its Subsidiaries) to any other Person or Persons, unless at the time and immediately after giving effect thereto: (i) either (a) the Company shall be the continuing corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by sale, assignment, conveyance, transfer, lease or disposition all or substantially all the properties and assets of the Company and its Subsidiaries on a consolidated basis (the "Surviving Entity") shall be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia; (ii) the Senior Exchangeable Preferred Stock shall be converted into or exchanged for and shall become shares of the Surviving Entity having in respect of the Surviving Entity the same rights and privileges that the Senior Exchangeable Preferred Stock had immediately prior to such transaction with respect to the Company; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis, no Voting Rights Triggering Event, and no event that after the giving of notice or lapse of time or both would become a Voting Rights Triggering Event, shall have occurred and be continuing; (iv) the Company (or the Surviving Entity as the case may be) has (A) a Consolidated Net Worth (immediately after giving effect to such transaction, but prior to any purchase -14- 15 accounting adjustments from such transaction) not less than 100% of the Consolidated Net Worth of the Company immediately before such transaction and (B) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the four-quarter period immediately prior to the consummation of such transaction or series of transactions with the appropriate adjustments with respect to the transaction or series of transactions being included in such pro forma calculation), could incur at least $1.00 of additional Indebtedness pursuant to the "Interest Coverage Ratio" test set forth in the Senior Secured Notes; and (v) the Company or the Surviving Entity shall have delivered to the Holders an Officers' Certificate, each stating that such consolidation, merger, sale, assignment conveyance, transfer, lease or other disposition comply with this Certificate of Designation. The Surviving Entity shall file an appropriate certificate of designation with respect to the preferred stock referred to in clause (ii) above with the secretary of state (or similar public official) of the jurisdiction under whose laws it is organized. In such event, the Company shall be released from its obligations under this Certificate of Designation. (e) Maintenance Test Ratio. The Company will calculate whether the Maintenance Test Ratio exceeds any of the following respective amounts at the end of the fiscal quarter (the "Maximum Test Ratio") set forth opposite such Maximum Test Ratio:
Fiscal Quarter Ended Maximum Test Ratio -------------------- ------------------ March, June, September, 1998 6.75 December 1998 6.50 March, June, September, December 1999 6.00 March, June, September, December 2000 5.50 March, June, September, December 2001 5.25 March, June, September, December 2002 and each quarter thereafter 5.00
(f) Reports and Other Information. The Company shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the -15- 16 Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. The Company shall also (i) file with the transfer agent, and provide to each Holder of Senior Exchangeable Preferred Stock, without cost to such holder, copies of such reports and documents within fifteen days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required, and (ii) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective holder of Senior Exchangeable Preferred Stock promptly upon written request together with an Officers' Certificate. SECTION 9. No Reissuance of Senior Exchangeable Preferred Stock. None of the shares of Senior Exchangeable Preferred Stock acquired by the Company by reason of redemption, purchase, or otherwise shall be reissued, except shares of Series A Senior Exchangeable Preferred Stock acquired by the Company in exchange for Series B Senior Exchangeable Preferred Stock which are reissued in payment of dividends on the Series B Senior Exchangeable Preferred Stock. SECTION 10. Business Day. If any payment or redemption shall be required by the terms hereof to be made on a day that is not a Business Day, such payment or redemption shall be made on the immediately succeeding Business Day and dividends shall accrue on any such payment or redemption so deferred from the payment date or redemption date to the next succeeding Business Day and be paid on such payment date or redemption date. SECTION 11. Transfer Restrictions. (a) The Series A Senior Preferred Stock will bear a legend to the following effect (as applicable) unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(k) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST -16- 17 DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF SUCH SECURITY, EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO FOREIGN PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. (b) Except as provided in this Section 11, the transfer agent shall refuse to register any transfer of Series A Senior Preferred Stock in violation of the restrictions contained in the legend provided for in Section 11(a). (c) The legend provided for in Section 11(a) may be removed if the Series A Senior Preferred Stock has been registered pursuant to a Preferred Stock Shelf Registration Statement under the Securities Act. Unlegended Series B Senior Preferred Stock may be issued in exchange for Series A Senior Preferred Stock pursuant to a Preferred Stock Exchange Offer. (d) In connection with proposed transfers of Series A Senior Preferred Stock described in Exhibit A, the transfer agent or the Company may require the transferor or transferee, as the case may be, to deliver the letter attached hereto as Exhibit A. Each Holder of Series A Senior Preferred Stock shall notify the Company or the transfer agent in the event of any transfer by such Holder of any shares of Series A Senior Preferred Stock to a foreign transferee. -17- 18 SECTION 12. Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Affiliate" means, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, will mean (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (B) trusts, any trustee or beneficiaries of which are such Person or members of such Person's immediate family. Notwithstanding the foregoing, neither Jefferies & Company, Inc. nor any of its Affiliates will be deemed to be Affiliates of the Company. "Affiliate Transaction" has the meaning set forth in Section 8(c) hereof. "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock or a Subsidiary (other than directors' qualifying shares), property or other assets, including by way of a sale/leaseback transaction (each referred to for the purposes of this definition as a "disposition"), by the Company or any of its Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Subsidiary to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or assets in the ordinary course of business, (iii) dispositions of inventory in the ordinary course of business, (iv) for purposes of Section 8(b) hereof only, a disposition that constitutes a "Restricted Payment" (as defined in the Senior Secured Notes) permitted by the provisions of the "Limitation on Restricted Payments" covenant contained in the Senior Secured Notes, (v) the sale, lease, transfer or other disposition of all or substantially all the assets of the Company as permitted under Section 8(d) hereof, (vi) the grant of Liens permitted by the covenant "Limitation on Liens" contained in the Senior Secured Notes and (vii) sales of obsolete or worn-out equipment. -18- 19 "Board of Directors" means, with respect to any Person, the board of directors of such Person or any duly authorized committee of such board. "Board Resolution" means a resolution of the Company's Board of Directors and, if requested by a majority of the Holders, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors of the Company and to be in full force and effect on the date of such certification and delivered to the Holders. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are authorized or obligated by law, regulation or executive order to close. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participation, rights or other equivalents (however designated) of corporate stock of such Person; and (ii) with respect to any other Person, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means: (i) securities issued by the United States of America or any agency or instrumentality thereof; (ii) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 and commercial paper issued by others rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition; and (iii) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (i) and (ii) above. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act. "Common Stock" means any and all shares, interests or other participations in, and other equivalents (however designated, whether voting or non-voting) of the Company's common stock, whether outstanding on the Issuance Date or issued after the Issuance Date, and includes, without limitation, all series and classes of such common stock. -19- 20 "Company" means the Person named as the "Company" in the first paragraph of this Certificate of Designation until a successor Person shall have become such pursuant to the applicable provisions of this Certificate of Designation, and thereafter "Company" shall mean such successor Person. "Consolidated EBITDA" means, with respect to any Person (the referent Person) for any period, consolidated operating profit of such Person and its subsidiaries for such period, determined in accordance with GAAP, plus (to the extent such amounts are deducted in calculating such operating profit (loss) of such Person for such period, and without duplication) amortization, depreciation and other non-cash charges (including, without limitation, non-cash impairment charges, amortization of goodwill, deferred financing fees and other intangibles but excluding non-cash charges incurred after the date of the Indenture that require an accrual of or a reserve for cash charges for any future period); provided, that the operating profit (loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a Wholly Owned Subsidiary of the referent Person. "Consolidated Net Worth" means, with respect to any Person, the total stockholders' equity of such Person determined on a consolidated basis in accordance with GAAP adjusted to exclude (to the extent included in calculating such equity) (i) the amount of any such stockholders' equity attributable to Disqualified Capital Stock of such Person and its consolidated subsidiaries; (ii) all upward revaluations and other write-ups in the book value of any asset of such person or a consolidated subsidiary of such person subsequent to the Issuance Date; and (iii) all Investments in persons that are not consolidated Subsidiaries. "Debenture Trustee" means the trustee under the Exchange Debenture, which is a bank or trust company organized and in good standing under the laws of the United States of America or of the State of New York, doing business in the Borough of Manhattan, The City of New York, and having capital, surplus and undivided profits aggregating at least $100,000,000 according to its last published statement of condition. "Disqualified Capital Stock" means any Equity Interest that either by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) is or upon the happening of an event would be required to be redeemed or repurchased prior to the final stated maturity of the Senior Secured Notes or is redeemable at the option of the holder thereof at any time prior to such final stated maturity. "Dividend Payment Date" means each February 15 and August 15 of each year on which dividends shall be paid or are -20- 21 payable, any Redemption Date and any other date on which dividends in arrears may be paid. "Dividend Rate" has the meaning specified in Section 2(a) hereof. "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). "Excess Proceeds," "Excess Proceeds Offer," "Excess Proceeds Offer Period," "Excess Proceeds Payment," and "Excess Proceeds Payment Date" have the respective meanings specified in Section 8(b) hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Date" has the meaning specified in Section 4(a) hereof. "Exchange Debentures" means the 12% Subordinated Exchange Debentures due 2003 of the Company issuable in exchange for the Senior Exchangeable Preferred Stock, at the option of the Company, plus any additional Exchange Debentures issued in lieu of cash interest, pursuant to the Exchange Indenture. "Exchange Indenture" means the Indenture among the Company and the Debenture Trustee thereunder, relating to the Exchange Debentures in the form filed with the Secretary of the Company. "Exchange Notice" has the meaning specified in Section 4(a) hereof. "Exchange Transaction" has the meaning specified in Section 8(b) hereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and in the rules and regulations of the Commission, that are in effect on the Issuance Date. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and -21- 22 reimbursement agreement in respect thereof), of all or any part of any Indebtedness. "Holder" has the meaning specified in Section 2(a) hereof. "Indebtedness" of any Person means (without duplication) (1) all liabilities and obligations, contingent or otherwise, of such Person (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) evidenced by bonds, debentures, notes or other similar instruments, (c) representing the deferred purchase price of property or services (other than trade payables and other liabilities incurred in the ordinary course of business which are not more than 90 days past due), (d) created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) as lessee under Capitalized Lease Obligations, (f) under bankers' acceptance and letter of credit facilities, (g) to purchase, redeem, retire, defease or otherwise acquire for value any Disqualified Capital Stock, or (h) in respect of hedging obligations, (2) all liabilities and obligations of others of the type described in clause (1), above, that are Guaranteed by such Person, and (3) all liabilities and obligations of others of the type described in clause (1), above, that are secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person; provided, that the amount of such Indebtedness shall (to the extent such Person has not assumed or become liable for the payment of such Indebtedness in full) be the lesser of (x) the fair market value of such property at the time of determination and (y) the amount of such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans, Guarantees, advances or capital contributions (excluding (i) commission, travel and similar advances to officers and employees of such Person made in the ordinary course of business; and (ii) bona fide accounts receivable arising from the sale of goods or services in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. -22- 23 "Issuance Date" means the date on which the Series A Senior Exchangeable Preferred Stock is originally issued under this Certificate of Designation. "Junior Securities" has the meaning specified in Section 7 hereof. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Maintenance Test Ratio" means, at any time, the ratio of (i) the result of (x) the aggregate amount of Indebtedness of the Company and its Subsidiaries (on a consolidated basis) as of the time of determination plus (y) 110% of the then applicable Liquidation Preference of the Senior Exchangeable Preferred Stock, and the liquidation preference of any other shares of preferred stock of the Company or any Subsidiary of the Company (other than preferred stock owned by the Company or a Wholly Owned Subsidiary), plus, in each case, accrued and unpaid dividends as of the time of determination, to (ii) the result of (a) the Consolidated EBITDA of the Company for the last four fiscal quarters from the time of determination less (b) the aggregate amount of the cash charges in such four quarter period against the reserve established by the Company and its Subsidiaries on a consolidated basis relating to the elimination of costs associated with restaurants closed in 1997 and prior years as set forth in "Unaudited Selected Consolidated Pro Forma Condensed Financial Data" contained in the Offering Circular plus (c) $3.3 million for the four quarter period ended March 1998, $2.2 million for the four quarter period ended June 1998 and $1.6 million for the four quarter period ended September 1998. "Mandatory Redemption Date" has the meaning specified in Section 6(b) hereof. "Maximum Test Ratio" has the meaning specified in Section 8(e) hereof. "Net Proceeds" means the aggregate proceeds received in the form of cash or Cash Equivalents in respect of any Asset Sale (including payments in respect of deferred payment obligations when received), net of (a) the reasonable and customary direct out-of-pocket costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sale commissions), other than any such costs payable to an Affiliate of the Company, (b) taxes actually payable directly as a result of such Asset Sale (after taking into account any available net operating loss carryovers, tax credits or -23- 24 deductions and any tax sharing arrangements), (c) amounts required to be applied to the permanent repayment of Indebtedness in connection with such Asset Sale, and (d) appropriate amounts provided as a reserve by the Company or any Subsidiary, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or such Subsidiary, as the case may be, after such Asset Sale, including without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations arising from such Asset Sale. "New Credit Facility" means the New Credit Facility, entered into on the Issuance Date between the Company, certain of its subsidiaries and the agents for the lenders named therein as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time; and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with such amendment, modification, renewal, refunding, replacement or refinancing. "Offering Circular" means the Final Offering Circular, dated February 17, 1998, prepared by the Company relating to, among other offerings, the original offering of the Series A Senior Exchangeable Preferred Stock. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial officer or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Holders. "Opinion of Counsel" means a written opinion of legal counsel, which and who may be counsel for the Company, including an employee of the Company, and who shall be reasonably acceptable to the Holders and their counsel. "Permitted Affiliate Transactions" means (i) employment agreements, stockholder agreements, stock options or other incentive plans existing on the Issuance Date or thereafter entered into by the Company or any Subsidiary in the ordinary course of business with the approval of a majority of the disinterested members of the Company's Board of Directors as evidenced by a Board Resolution; (ii) transactions between, among or for the benefit of the Company and/or its Subsidiaries; (iii) reasonable and customary fees and compensation paid to and indemnity, loans or advances provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary as determined in good faith by a majority of the -24- 25 disinterested members of the Company's Board of Directors as evidenced by a Board Resolution and (iv) payments made to affiliates of the TCW Shared Opportunities Fund or the TCW Leverage Income Trust in connection with any tax liability for withholding, which payments shall not exceed $125,000 per year. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. "Preferred Stock Exchange Offer" means an offer by the Company to exchange the Series A Senior Preferred Stock for the Series B Senior Preferred Stock pursuant to an effective registration statement. "Preferred Stock Shelf Registration Statement" means a shelf registration statement which becomes effective and covers resales of the Series A Senior Preferred Stock. "Redemption Date" has the meaning specified in Section 6(a)(i) hereof. "Redemption Notice" has the meaning specified in Section 6(c)(i) hereof. "Redemption Price" means the price at which the Senior Exchangeable Preferred Stock may be redeemed. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Exchangeable Preferred Stock" has the meaning set forth in Section 1 hereof. "Senior Secured Notes" means the Company's 11 1/2% Senior Secured Notes in the aggregate principal amount of $155 million together with the related Indenture under which such 11 1/2% Senior Secured Notes were issued, as the same exist on February 25, 1998 without regard to any subsequent amendment, modification, supplement or waiver. "Series A Senior Preferred Stock" has the meaning set forth in Section 1 hereof. "Series B Senior Preferred Stock" has the meaning set forth in Section 1 hereof. "Subsidiary" means any Person a majority of the equity ownership or Voting Stock of which is at the time owned or controlled, directly or indirectly, by the Company or by one or -25- 26 more other Subsidiaries or by the Company and one or more other Subsidiaries. "Surviving Entity" has the meaning set forth in Section 8(d) hereof. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force on the date on which this Certificate of Designation was filed. "Voting Rights Triggering Event" has the meaning set forth above in Section 5(b) hereof. "Voting Stock" means, with respect to any Person (i) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency); and (ii) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (i) above. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. -26- 27 IN WITNESS WHEREOF, the Company has caused the Certificate of Designation to be duly executed in its corporate name on this __th day of February, 1998. AMERICAN RESTAURANT GROUP, INC. By: /s/ WILLIAM J. McCAFFREY, JR. ----------------------------------------------- Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer By: /s/ PATRICK J. KELVIE ----------------------------------------------- Name: Patrick J. Kelvie Title: Secretary This instrument was acknowledged before me on February __, 1998 by Patrick J. Kelvie as Secretary of American Restaurant Group, Inc. /s/ JANE KROPP ---------------------------------------------- Notary Public (Seal, if any) 28 EXHIBIT A Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Accredited Investors or Transfers Pursuant to Regulation S [Date] Jefferies & Company, Inc. 11100 Santa Monica Boulevard Suite 1100 Los Angeles, California 90025 American Restaurant Group, Inc. 450 Newport Center Dr. Newport Beach, California 92660 Ladies and Gentlemen: In connection with our proposed purchase of Senior Pay-in-kind Exchangeable Preferred Stock (the "Preferred Stock") of American Restaurant Group, Inc. (the "Company"), the undersigned confirms that: 1. We understand and acknowledge that the Preferred Stock has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other applicable securities law, is being sold to us in a transaction not requiring registration under the Securities Act or any other securities law, and may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, pursuant to an exemption therefrom and in each case in compliance with the conditions for transfer set forth below. 2. We have received a copy of the Offering Circular relating to the offering of the Preferred Stock, dated February 17, 1998 (the "Offering Circular"), upon which we are relying in making our investment decision with respect to the Preferred Stock. In addition, we have had access to such financial and other information concerning the Company and the Preferred Stock as we have deemed necessary in connection with our decision to purchase any of the Preferred Stock, including an opportunity to ask questions of and request information from Jefferies & Company, Inc. (the "Initial Purchaser") and the Company. We acknowledge that neither the Company nor the Initial Purchaser, nor any person representing the Company or the Initial Purchaser has made any representation to us with respect to the Company or the offering or sale of any Preferred Stock. 29 3. We are a corporation, partnership or other entity that invests in or purchases securities similar to the Preferred Stock during the normal course of our business and having such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing any of the Preferred Stock; and we are (or any account for which we are purchasing under paragraph 4 below is) an institutional "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, able to bear the economic risk of an investment in the Preferred Stock for an indefinite period of time. 4. We are acquiring the Preferred Stock for our own account (or for accounts as to which we exercise sole investment discretion and have full power to make, and do make, the statements contained in this letter on behalf of each such account) for investment purposes and not with a view to, or for offer or sale in connection with, any distribution of the Preferred Stock in violation of the Securities Act, subject, nevertheless, to the understanding that the disposition of our property or the property of such investor account or accounts shall at all times be and remain within our control. 5. We confirm that neither the Company nor any person acting on its behalf has offered to sell the Preferred Stock, and that we have not been made aware of the offering of the Preferred Stock by, any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio. 6. We understand that (a) the Preferred Stock will be delivered to us in registered form only and that the certificates delivered to us in respect of the Preferred Stock will bear a legend substantially to the following effect: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(k) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE A-2 30 LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF SUCH SECURITY, EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO FOREIGN PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. and (b) such certificate will be reissued without the foregoing legend only in the event of a disposition of the Preferred Stock in accordance with the provisions of paragraph 7(e) or (f) below, or at our request at such time as we would be permitted to dispose of the Preferred Stock in accordance with paragraph 7(e) below. 7. We agree that in the event that at some future time we wish to dispose of any of the Preferred Stock, we will not do so unless: (a) the Preferred Stock is sold to the issuer thereof; (b) the Preferred Stock is sold to a qualified institutional buyer in compliance with Rule 144A under the Securities Act that purchases for its own account or for the account of a qualified institutional buyer A-3 31 and to whom notice is given that the transfer is being made in reliance of Rule 144A; (c) the Preferred Stock is sold to an institutional accredited investor, as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, that prior to such transfer furnishes to the transfer agent, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Preferred Stock (the form of which letter can be obtained from the transfer agent); (d) the Preferred Stock is sold to non-U.S. persons in offshore transactions in compliance with Rule 903 or rule 904 of Regulation S under the Securities Act; (e) the Preferred Stock is sold pursuant to Rule 144 under the Securities Act; or (f) the Preferred Stock is sold pursuant to an effective registration statement under the Securities Act. 8. Upon purchase, the Preferred Stock would be registered in the name of the undersigned: Name: Address: Taxpayer ID Number: We acknowledge that the Initial Purchaser and the Company and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agree that, if any of the acknowledgements, representations and agreements made by us are no longer accurate, we shall promptly notify the Initial Purchaser. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW. Very truly yours, [PURCHASER] By:_____________________________ (Authorized Officer) A-4 EX-4.7 9 CERTIFICATE OF CORRECTION 1 EXHIBIT 4.7 CERTIFICATE OF CORRECTION TO THE CERTIFICATE OF DESIGNATION OF AMERICAN RESTAURANT GROUP, INC. ----------------------------------------- Pursuant to Section 103(f) of the General Corporation Law of the State of Delaware ----------------------------------------- American Restaurant Group, Inc. (the "Company"), does hereby certify as follows: FIRST: On February 24, 1998, the Company filed with the Secretary of State of Delaware a Certificate of Designation of the 12% Series A Senior Pay-In-Kind Exchangeable Preferred Stock and the 12% Series B Senior Pay-In-Kind Exchangeable Preferred Stock (the "Certificate of Designation"). SECOND: The inaccuracies contained in the Certificate of Designation are as follows: Paragraph (a) of Section 2 incorrectly specified the date on which dividends commence to accrue in two locations. Section 12 omitted language required to accurately define the term "Exchange Indenture." Accordingly, the text of Paragraph (a) of Section 2 should be corrected to read in its entirety as follows: SECTION 2. Dividends. (a) Beginning on February 24, 1998, holders of the outstanding shares of Senior Exchangeable Preferred Stock (the "Holders") will be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends on the Senior Exchangeable Preferred Stock at an annual rate of 12% of the Liquidation Preference per share, subject to increase as provided below (the "Dividend Rate"). All dividends will be cumulative and 2 accrue daily, whether or not earned or declared, and will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 1998, to Holders of record on the February 1 and August 1 immediately preceding the relevant Dividend Payment Date. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Senior Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends; provided, however, that if the Company pays dividends in additional shares of Senior Exchangeable Preferred Stock, Holders of Series A Senior Preferred Stock shall be paid in additional shares of Series A Senior Preferred Stock and Holders of Series B Senior Preferred Stock shall be paid in additional shares of Series B Senior Preferred Stock. Dividends on the Series B Senior Preferred Stock will accrue from the last dividend payment date on which dividends were paid on the Series A Senior Preferred Stock surrendered for exchange therefor or, if no dividends had been paid on the Series A Senior Preferred Stock, from February 24, 1998. Dividends shall cease to accrue in respect of the shares of Senior Exchangeable Preferred Stock on the Exchange Date or on the Redemption Date unless the Company shall have failed, as applicable, to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Senior Exchangeable Preferred Stock on the Exchange Date or shall have failed to pay the relevant redemption price on the Redemption Date. For all purposes hereunder, the Dividend Rate shall be automatically increased in the following events: (i) if at the end of any fiscal quarter of the Company, the Maintenance Test Ratio exceeds the Maximum Test Ratio (each as defined in Section 8(e) hereof) for that fiscal quarter, then for the period during the immediately succeeding quarter, the Dividend Rate shall be 13.5% for the first two quarters for which the Maximum Test Ratio is exceeded (whether or not such fiscal quarters are consecutive) and 15% for any other quarter thereafter for which the Maximum Test Ratio is exceeded or (ii) if a Voting Rights Triggering Event (other than a Voting 2 3 Rights Triggering Event occurring solely because of the breach of the Maintenance Test Ratio set forth in Section 8(e) hereof) occurs, then the Dividend Rate shall be 15% for the period during which the voting rights relating to such Voting Rights Triggering Event continue in accordance with the provisions of Section 5(b) hereof. AND FURTHER, the definition of the term "Exchange Indenture" in Section 12 should be corrected to read in its entirety as follows: "Exchange Indenture" means the Indenture, relating to the Exchange Debentures, to be entered into among the Company and the Debenture Trustee thereunder, substantially on the terms set forth in the "Description of Exchange Debentures" set forth in the Offering Circular. THIRD: This Certificate of Correction has been prepared in accordance with the provisions of Section 103(f) of the General Company Law of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Certificate of Correction to the Certificate of Designation to be executed in its corporate name this 25th day of February, 1998. AMERICAN RESTAURANT GROUP, INC. By: /s/ WILLIAM J. McCAFFREY, JR. ------------------------------------ Name: William J. McCaffrey, Jr. Title: Vice President and Chief Financial Officer 3 EX-9.1 10 COMMON STOCK VOTING TRUST & TRANSFER AGREEMENT 1 EXHIBIT 9.1 COMMON STOCK VOTING TRUST AND TRANSFER AGREEMENT COMMON STOCK VOTING TRUST AND TRANSFER AGREEMENT (the "Agreement"), dated as of February 24, 1998, among the stockholders named on Schedule I hereto (individually, a "Stockholder" and collectively, the "Stockholders") as holders of shares of common stock, par value $.01 per share (the "Common Stock"), of American Restaurant Group, Inc., a Delaware corporation (the "Company"), and Anwar S. Soliman, as voting trustee (in such capacity and his successor(s) in such capacity being referred to as the "Trustee") in the voting trust created hereunder. WHEREAS, the Stockholders are the owners of shares of Common Stock and desire to (i) grant to the Trustee the right to vote their shares of Common Stock, (ii) to create a voting trust in respect of all of such shares and any additional shares of Common Stock hereafter acquired by the Stockholders during the term of this Agreement, (iii) limit the free disposition of such shares of Common Stock by the Stockholder and such Stockholder's permitted transferees for designated periods and (iv) provide Anwar S. Soliman (together with his successors, "Soliman") (and Soliman's designees) under certain circumstances described herein, with the option to acquire the shares of Common Stock at a price determined in a designated manner applicable to the particular circumstances, all upon the terms hereinafter provided. NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Stockholders, the Company (for the purposes of paragraphs 10 and 13 hereof) and the Trustee hereby agree as follows: 1. Transfer of Stock to Trustee. Each of the Stockholders agrees that by executing this Agreement, it is subjecting such Stockholder's shares of Common Stock to the voting trust described herein and the other terms and conditions of this Agreement. Each Stockholder who shall become a party to this Agreement subsequent to the date hereof agrees that by executing this Agreement such Stockholder subjects its shares of Common Stock to the voting trust described herein and to the other terms and conditions of this Agreement. Each Stockholder agrees that such Stockholder will subject any shares of Common Stock that such Stockholder may acquire from the Company in a transaction not registered under the Securities Act of 1933, as amended (the "Act"), while this Agreement shall be in effect, to the voting trust described herein and to the terms and conditions of this Agreement. The shares of Common Stock subject to the voting trust and this Agreement are collectively referred to herein as the "Shares". 2. Creation of Voting Trust; Legends on Share Certificates. There is hereby created a voting trust with respect to all of the Shares. All certificates of Shares now issued or in the future are issued which are subject to this Agreement shall bear an appropriate legend reflecting that the Shares represented by each such certificate are subject to the terms of this Agreement, and that any transfer of ownership or voting rights with respect to such Shares must be made in compliance with this Agreement. 2 2 3. Powers and Duties of Trustee. (a) The Trustee shall have the full and unqualified right and power in his discretion, as long as any Shares are subject to the provisions of this Agreement, (i) to vote the Shares either in person or by proxy, for every purpose for which the Shares may be voted according to the Company's Certificate of Incorporation, or to give written consent in lieu of voting thereon to any corporate act of the Company (including, without limitation, the election of the directors of the Company who may be elected by holders of the Shares, any amendment or amendments of the Certificate of Incorporation of the Company, the merger or consolidation of the Company into or with any other corporation or corporations, the sale of all or any part of the assets of the Company and the liquidation or dissolution of the Company), (ii) to waive notice of any regular or special meeting of stockholders of the Company, (iii) to call meetings of stockholders, (iv) to subject the voting of the Shares to the terms of any stockholder agreement with other stockholders of the Company and (v) to exercise all stockholders' rights and powers with respect to the Shares; provided, however, that if the Company shall be party to a merger, consolidation or other transaction as the result of which the holders of its Common Stock are entitled by law to surrender their shares of stock and receive in exchange therefor the fair market value thereof, the Trustee will, as soon as he is notified by the Company of the existence of such rights, notify the Stockholders of the transaction and of the existence of such rights and take appropriate steps to perfect and preserve such rights for those of the Stockholders who desire to exercise the same. The right to vote the Shares and the manner of voting them shall be determined by the Trustee in his sole discretion. (b) Nothing herein contained shall disqualify the Trustee from serving as such if he does any of the following, nor shall anyone serving in such capacity be incapacitated from doing any of the following: (i) dealing or contracting with the Company or any of its affiliates, either as a vendor, or purchaser, or (ii) serving the Company or any of its affiliates as an officer or director, or in any other capacity, and receiving compensation therefor. 4. Dividends and Distributions. All dividends on and distributions in respect of any of the Shares (other than dividends, distributions or other payments made in shares of any voting stock of the Company) shall be paid to the Stockholders. Dividends, distributions or other payments made in shares of any voting stock of the Company shall be subject to the voting trust described herein and the other terms and conditions of this Agreement. 5. Transfer of Shares. (a) No Stockholder shall, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (herein a "Transfer") any of the Shares or any beneficial interest in any of the Shares, and no such Transfer shall be valid or effective, unless such Transfer is made subject to the terms of this Agreement and the transferee of such Restricted Shares agrees in writing to be bound by the provisions of this Agreement. (b) If the Stockholder receives a bona fide offer to purchase any or all of the Shares held by him from a third party for cash consideration (any such offer to purchase being referred to herein as an "Offer" and any such third party making an Offer being referred to herein as an "Offeror") and the Stockholder wishes to accept such Offer, the Stockholder shall cause the Offer to be reduced to writing and shall notify Soliman in writing 3 3 of his wish to accept the Offer and otherwise comply with the provisions of this Section. The Stockholder's notice shall contain an irrevocable offer to sell such Shares to Soliman (in the manner set forth below) at a purchase price equal to the price contained in and on the same terms and conditions of, the Offer and shall be accompanied by a true copy of the Offer (which shall identify the Offeror). At any time within 30 days after the date of the receipt by Soliman of the Stockholder's notice, Soliman may give notice of his election to purchase (or to have his designee purchase) all of the Shares covered by the Offer and 10 days after the giving of such notice, Soliman (or his designee) shall have the right and option to purchase all of the Shares covered by the Offer at the same price and on the same terms and conditions as the Offer by delivering a certified bank check or checks in the appropriate amount to the Stockholder against delivery of certificates representing the Shares so purchased, appropriately endorsed by the Stockholder. If at the end of a 30-day period following the giving of such notice by Soliman, Soliman has not tendered the purchase price for such Shares in the manner set forth above, the Stockholder may during the succeeding 45-day period sell not less than all of the Shares covered by the Offer to the Offeror on terms no less favorable to the Stockholder than those contained in the Offer. No sale may be made to any Offeror unless the Offeror agrees in writing with Soliman to be bound by the provisions of this Agreement. Promptly after such sale, the Stockholder shall notify Soliman of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by Soliman. If, within 45 days following the expiration of the 30-day period for Soliman to give notice of his intention to purchase the Shares as set forth in this paragraph, the Stockholder has not completed the sale of such Shares pursuant to the Offer as aforesaid, all the restrictions on Transfer contained in this Agreement shall again be in effect with respect to such Shares. (c) If Soliman is entitled to purchase Shares pursuant to an Offer, Soliman may designate a third party to purchase such Shares. (d) The restrictions on Transfer set forth in this Section 5, including without limitation, the Stockholder's obligation pursuant to paragraph (b) above to give Soliman a right of first refusal prior to selling its Shares, shall automatically terminate with respect to Shares upon the closing of a Public Offering of Common Stock. (e) As used herein, the term "Public Offering" shall mean a public offering by the Company of shares of Common Stock held by Anwar Soliman (or if Anwar Soliman is no longer the Chairman of the Board of Directors and Chief Executive Officer of the Company, his successor in such capacity) pursuant to a registration statement (other than with respect to an employee benefit plan) effective under the Act. 6. Options Effective Upon the Termination of Employment of the Stockholder. (a) If, at any time prior to the earlier of August 15, 2005 or the closing of a Public Offering of Common Stock, the Stockholder's active employment with the Company is voluntarily or involuntarily terminated by the Company or the Stockholder for any reason whatsoever (including by reason of death or Disability), Soliman (or his designee) shall have the option (any such option being referred to herein as a "Call"), subject to the terms and conditions hereof, to acquire not less than all of the Shares of the Stockholder. Soliman shall give the 4 4 Stockholder written notice within 90 days of the date of the Stockholder's termination of employment of his intention to exercise his Call. The purchase price to be paid for the Shares to be purchased pursuant to the Call shall be determined in accordance with the provisions of Section 7(a) hereof. The closing of the purchase pursuant to the Call shall take place at the principal office of the Company on a business day designated by Soliman which shall be no later than 90 days following the date on which Soliman gave the Stockholder notice of his intention to exercise the Call (or, if applicable, such later date as the Fair Market Value of the Stock subject to the Call shall have been determined in accordance with the definition thereof in Section 7(d)). The purchase price shall be paid by delivering a certified or official bank check or checks to the Stockholder, against delivery of certificates representing the Shares so purchased, appropriately endorsed by the Stockholder. (b) If Soliman is entitled to purchase Shares pursuant to a Call, Soliman may designate a third party to purchase such Shares. 7. Purchase Price. (a) The purchase price (which shall be determined on the date the Call is exercised) for any Shares purchased by Soliman pursuant to Section 6 shall be the greater of (x) Stockholder Cost, (y) Adjusted Book Value and (z) Fair Market Value. (b) Soliman may satisfy his obligation to make any payments hereunder, including payments for the purchase of Shares upon the exercise of any Call or otherwise hereunder, with cash or by certified or bank check. (c) As used in this paragraph 7, the term "Adjusted Book Value" of a Share shall mean, as of any date of determination, (i) the consolidated book value of the Company applicable to the Company's Common Stock on such date as determined in accordance with generally accepted accounting principles divided by (ii) the number of outstanding shares of Common Stock plus the number of shares of Common Stock issuable in respect of outstanding options, warrants and convertible securities but such shares shall only be added if including shares relating to any option, warrant or convertible security would cause the Adjusted Book Value of a Share to decrease after adding to the amount in clause (i) the aggregate exercise or conversion price per share of Common Stock, as the case may be, of any such option, warrant or convertible security, which amount shall be added to the amount in clause (i) to the extent such warrant, option or convertible security is so included. (d) As used herein, the term "Fair Market Value" of a Share means, as of any date of determination, (i) the average of the daily market prices (determined as set forth in the next sentence) for a share of Common Stock, if any, for 30 consecutive business days commencing 45 business days before such date or (ii) if no such market exists, the fair market value of a share of Common Stock as determined by an opinion of an investment banking firm reasonably acceptable to the Company. The market price for each such business day shall be the average of the last sale prices on such date on all domestic stock exchanges on which the Common Stock may then be listed, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on such exchanges, or, if the Common Stock is not then listed or admitted to trading on any domestic stock exchange, the last sale price on the National Association of Securities 5 5 Dealers Automatic Quotation Systems ("NASDAQ") market, or, if the Common Stock is not then listed on the NASDAQ market, the market price for each such business day shall be the average of the reported bid and asked prices on such day in the over-the-counter market, as furnished by the National Quotation Bureau, Inc., or, if such firm at the time is not engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business and selected by the Company or, if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc., selected by the Company. (e) As used in this paragraph 7, the term "Stockholder Cost" shall mean the purchase price paid by the Stockholder for such Shares. 8. Termination. Upon the earlier of (i) August 15, 2005 or (ii) the date on which there shall have been no Trustee in office and no successor Trustee elected or serving for a period of 120 days in accordance with paragraph 11 hereof, this Agreement shall terminate and be of no further force and effect. 9. Merger, Dissolution or Liquidation. If the Company shall merge into or be consolidated with another Company or substantially all of the assets of the Company should be transferred to another corporation, and such other corporation is a subsidiary or affiliate of the Company, this Agreement shall continue in effect and the term "Company" shall be deemed to refer to such successor corporation, and each Stockholder shall hold in accordance with this Agreement any securities received by him from such successor corporation on account of his ownership of the Shares and subject such securities to the voting trust described herein. 10. Compensation of Trustee. The Trustee shall not be entitled to any compensation for services rendered as such but shall be entitled to reimbursement as hereinafter set forth for reasonable expenses and charges which may be incurred as Trustee, including but not limited to the employment of such agents, attorneys and counsel as the Trustee may deem necessary and proper for the carrying out of this Agreement, and all taxes or other governmental charges actually paid as a result of the transfer or issuance of any Common Stock or in respect of any dividends, distributions or other rights in respect of such stock. Any such charges or expenses incurred shall be reimbursed to the Trustee by the Company. 11. Trustee. (a) The Trustee may resign at any time by mailing to the Company and to each of the registered holders of Shares a written resignation to take effect twenty days thereafter or upon the prior acceptance thereof. The Trustee shall have the right to designate a successor trustee to succeed him effective upon his resignation by notice in writing sent by certified mail, return receipt requested, to the Company and to each of the registered holders of the Shares. Such successor trustee shall, by acceptance of such trust, become party hereto with like effect as though an original party hereto and shall be deemed to be the Trustee hereunder. (b) Upon the death or other incapacity of the Trustee or his inability or refusal to serve hereunder or his resignation without designating a successor Trustee, Ralph S. 6 6 Roberts, or his designee, shall be the Trustee. If for any reason whatsoever there is no Trustee hereunder and Ralph S. Roberts is not willing or able to serve as Trustee, then the Stockholders holding a beneficial interest in a majority of the Shares shall designate the Trustee. 12. Amendment. This Agreement may be amended from time to time by a written instrument executed by the Trustee and Stockholders (or their successors) holding a beneficial interest in at least 66-2/3% of the Shares held by all Stockholders, provided that any amendment to the first sentence of paragraph 4 hereof and any amendment which extends the date on which this agreement shall terminate pursuant to paragraph 8 hereof shall require the consent of the Trustee and each of the Stockholders (or his successor). Upon any Transfer, pursuant to paragraphs 5(a) and 5(c) hereof, by a Stockholder of his beneficial interest in Restricted Shares, the transferee of such beneficial interest and the Trustee shall execute a supplement hereto by which such transferee agrees to be bound by the terms of this Agreement, and from and after the execution of such supplement the transferee shall be deemed to be a Stockholder. 13. Liability of Trustee. The Trustee shall not be liable by reason of any matter arising out of or in relation to this Agreement, except for such loss or damage as the holders of Shares may suffer by reason of the Trustee's willful misconduct, and, without limiting the foregoing, the Trustee shall not be liable for any action taken, or omitted to be taken, by him in reliance upon and in conformity with, the advice of counsel. The Trustee shall be indemnified and held harmless by the Company from and against any and all liabilities, costs, claims, suits and proceedings (including reasonable attorneys' fees) arising out of the Trustee's actions pursuant to this Agreement, except for such Trustee's willful misconduct. The Trustee shall not be required to give a bond or other security for the faithful performance of his duties as such. 14. Benefits. This agreement shall inure to the benefit of and be binding upon the Trustee and each of the Stockholders and their respective heirs, legal representatives, successors and assigns. 15. Construction of Agreement. The Trustee is authorized and empowered to construe this Agreement, and his construction of the same in good faith shall be final, conclusive and binding upon him, the Stockholders and any other interested party. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York. 17. Notices. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) if the Trustee, to him in care of: American Restaurant Group, Inc. 7 7 450 Newport Center Drive Newport Beach, California 92660 (b) if to a Stockholder, to him at the address set forth below his signature to the Common Stock Subscription Agreement between such Stockholder and the Company or at such other address as any party hereto shall have specified by notice in writing to the other parties hereto. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 8 IN WITNESS WHEREOF, the parties hereto have executed this Common Stock Voting Trust and Transfer Agreement as of the date first written above. /s/Anwar S. Soliman -------------------------------------- Anwar S. Soliman, Trustee STOCKHOLDERS: /s/Anwar S. Soliman -------------------------------------- Anwar S. Soliman /s/Mary Ellen Bennett -------------------------------------- Mary Ellen Bennett /s/Ralph S. Roberts -------------------------------------- Roberts Family Limited Partnership By: Ralph S. Roberts /s/William J. McCaffrey, Jr. -------------------------------------- William J. McCaffrey, Jr. /s/Wilfred H. Partridge -------------------------------------- Wilfred H. Partridge /s/Loise Partridge -------------------------------------- Loise Partridge /s/Meredith R. Taylor -------------------------------------- Meredith R. Taylor /s/Gregory A. Taylor -------------------------------------- Gregory A. Taylor /s/Patrick J. Kelvie -------------------------------------- Patrick J. Kelvie /s/Diane F. Kelvie -------------------------------------- Diane F. Kelvie For purposes of paragraphs 10 and 13 hereof, accepted and agreed to as of the day and year first above written. AMERICAN RESTAURANT GROUP, INC. By: /s/William J. McCaffrey, Jr. -------------------------------------- Title: V.P. & Chief Financial Officer 9 Schedule I
Stockholders Number of Initial Shares - ------------ ------------------------ Anwar S. Soliman Roberts Family Limited Partnership William J. McCaffrey, Jr. Wilfred H. Partridge Meredith R. Taylor Patrick J. Kelvie
EX-9.2 11 SECURITYHOLDERS AGREEMENT DATED FEBRUARY 25, 1998 1 EXHIBIT 9.2 SECURITYHOLDERS AGREEMENT This Securityholders Agreement ("Agreement"), dated as of February 25, 1998, is entered into by and among American Restaurant Group, Inc., a Delaware corporation ("Company"), American Restaurant Group Holdings, Inc., a Delaware corporation ("Holdings"), Jefferies & Company, Inc. ("Jefferies"), TCW Shared Opportunity Fund II, L.P. ("TCW Opp II"), TCW Leveraged Income Trust, L.P. ("TCW Lev"), Brown University ("Brown"), TCW Shared Opportunity Fund IIB, LLC ("TCW Opp IIB" and, together with TCW Opp II, TCW Lev and Brown, the "TCW Investors"), TCW Asset Management Company ("TAMCO"), and each of the persons identified on the signature pages hereto as "Management Stockholders" (collectively, "Management Stockholders" and, together with Holdings, Jefferies, TCW Investors and TAMCO, "Holders"). WHEREAS, Holdings is the owner of the number of shares of common stock of the Company, par value $.01 per share ("Common Stock"), set forth opposite Holdings' name on Schedule I; WHEREAS, each Management Stockholder is the owner of the aggregate number of shares of Common Stock set forth opposite the name of such Management Stockholder on Schedule I; WHEREAS, pursuant to a Purchase Agreement, dated as of February 13, 1998 (as the same exists on the date hereof without any amendment, modification or waiver, "Purchase Agreement"), by and among Jefferies, Company and the other ARG Entities identified on the signature pages thereto, Company has issued, and Jefferies has purchased, among other things, 35,000 units ("Units") consisting of $35,000,000 aggregate initial liquidation preference of Company's 12% Senior Exchangeable Preferred Stock ("Preferred Stock") and 35,000 Warrants ("Warrants") exercisable for shares of Common Stock. WHEREAS, Company has agreed to issue to Jefferies, as a fee in connection with the transactions contemplated by the Offering Circular prepared by Company, dated February 17, 1998, relating to, among other things, the offering of the Units ("Offering Circular"), warrants exercisable for the number of shares of Common Stock set forth opposite Jefferies' name on Schedule I ("Jefferies Warrants"); WHEREAS, Company has agreed to issue to TAMCO, as a fee in connection with the transactions contemplated by the Offering Circular, warrants exercisable for the number of shares of Common Stock set forth opposite TAMCO's name on Schedule I ("TAMCO Warrants" and, together with Jefferies Warrants, "Fee Warrants"); WHEREAS, each TCW Investor desires to purchase from Jefferies a portion of the Units, including Warrants which are exercisable for the number of shares of Common Stock set forth opposite such TCW Investor's name on Schedule I, and as a 2 condition to such purchase each of the parties hereto has agreed to enter into this Agreement. NOW, THEREFORE, in consideration of the promises and the mutual agreements, covenants and provisions contained herein, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I REPRESENTATIONS AND WARRANTIES Section 1.1. Company Representations and Warranties. Company hereby represents and warrants to the TCW Investors and TAMCO as follows: (a) Company is duly incorporated and validly existing under the laws of the State of Delaware, has full right, power and authority to execute and enter into this Agreement, and this Agreement constitutes the legal, valid and binding obligation of Company enforceable in accordance with its terms. (b) There is no provision of any existing mortgage, indenture, contract, agreement or instrument to which Company or any of its Subsidiaries is a party or to which Company or any of its Subsidiaries is subject, and no statute, rule or decree of any court or government instrumentality binding upon Company or any of its Subsidiaries, which has been or may be contravened, breached or defaulted by Company's execution, delivery or performance of this Agreement. (c) There is no legal, administrative or arbitration proceeding or investigation pending or, to the knowledge of Company, threatened against Company or any other Person which questions the validity of this Agreement. (d) There is no covenant, approval or authorization of, or designation, declaration or filing with, any Person that is required in connection with the execution, delivery or performance by Company of this Agreement or any action taken or to be taken by Company hereunder, except those that have been obtained and are in full force and effect as of the date of the execution and delivery hereof. (e) Each of the following is in full force and effect and has not been further amended or modified (and, with respect to the Certificate of Incorporation and Certificate of Designation, has been duly filed with the Secretary of State of the State of Delaware): - 2 - 3 (i) The Certificate of Incorporation, the Certificate of Designation and Bylaws of Company (the "Charter Documents"); and (ii) The Employment Agreements. (f) Immediately upon issuance of the Warrants, and without any further action on the part of any Person, (i) William J. McCaffrey, Jr.'s resignation from the Board and all committees of the Board will be effective in all respects; (ii) the Board will be comprised solely of Robert Beyer, Anwar S. Soliman, Ralph S. Roberts and Jeffry Weinhuff, and the fifth director position on the Board will be vacant; (iii) the Compensation Committee will be comprised solely of Robert Beyer, Anwar S. Soliman and Jeffry Weinhuff, and a fourth director position on the Compensation Committee will be vacant and (iv) all other committees of the Board shall be comprised of at least Robert Beyer and have at least one vacancy. (g) The authorized Capital Stock of Company consists solely of 1,000,000 shares of Common Stock and 160,000 shares of preferred stock, of which only the Preferred Stock and the other shares identified on Schedule I are outstanding. All such outstanding shares are duly authorized, validly issued, fully paid and nonassessable. The only Convertible Securities of Company are the Warrants and the Fee Warrants and there is no other outstanding commitments on the part of Company to issue any Common Stock, Convertible Securities or other Capital Stock of Company, other than dividends paid, at the option of Company, in shares of Preferred Stock on the Preferred Stock. (h) Company has no Subsidiaries other than the ARG Entities identified on the signature pages to the Purchase Agreement, each of which is a Wholly Owned Subsidiary, and there is no commitment on the part of any such ARG Entity to issue any of its Capital Stock to a Person other than to Company or to a Wholly Owned Subsidiary. (i) Each stock certificate evidencing outstanding shares of Common Stock set forth on Schedule I will contain the legend set forth in Section 3.4. Section 1.2. Holder Representations and Warranties. Each Holder hereby represents and warrants, severally but not jointly, to the other Holders as follows: (a) If such Holder is not a natural person, such Holder is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. - 3 - 4 (b) Such Holder has full right, power and authority to execute and enter into this Agreement, and this Agreement constitutes the legal, valid and binding obligation of such Holder enforceable against such Holder in accordance with its terms. (c) There is no provision of any existing mortgage, indenture, contract, agreement or instrument to which such Holder is a party or to which such Holder is subject, and no statute, rule or decree of any court or government instrumentality binding upon such Holder, which has been or may be contravened, breached or defaulted by such Holder's execution, delivery or performance of this Agreement. (d) There is no legal, administrative or arbitration proceeding or investigation pending or, to the knowledge of such Holder, threatened against such Holder or any other Person which questions the validity of this Agreement. (e) There is no covenant, approval or authorization of, or designation, declaration or filing with, any Person that is required in connection with the execution, delivery or performance by such Holder of this Agreement or any action taken or to be taken by such Holder hereunder, except those that have been obtained and are in full force and effect as of the date of the execution and delivery hereof. (f) The total number of shares of Common Stock or Capital Stock (other than shares of Preferred Stock) of the Company and the number of shares of Common Stock issuable upon exercise of the Warrants, the Fee Warrants or other Convertible Securities of Company, owned or controlled, directly or indirectly, by such Holder is set forth on Schedule I. No Holder has the right to purchase any shares of the Capital Stock of any Subsidiary of the Company. ARTICLE II BOARD OF DIRECTORS; SIGNIFICANT BUSINESS DECISIONS Section 2.1. Number of Directors. Each Holder agrees that, except as otherwise specifically provided herein or in the Certificate of Designation under which the Preferred Stock is issued, the Board of Directors of the Company (the "Board") shall consist of five (5) directors. Section 2.2. Identity of Directors. Each Holder agrees that the Board shall be comprised of (x) two (2) directors nominated by the TCW Investors ("TCW Directors"), (y) two (2) directors nominated by the Management Stockholders ("Management Directors"), and (z) one (1) director nominated by Jefferies (the "Remaining Director"); provided that on and after the Public Company Date, the right to nominate, replace and remove the - 4 - 5 Remaining Director shall be mutually agreed upon by the TCW Investors and the Management Stockholders (subject to the occurrence of the New Management Date), and Jefferies shall have no further right hereunder to designate any person to serve as a member of the Board; provided, further, that from and after the date upon which both Anwar S. Soliman and Ralph S. Roberts cease to be employed as executive officers of Company (such date, the "New Management Date"), (i) the right of the Management Stockholders hereunder to nominate, replace and remove the Management Directors as provided in clause (y) above shall terminate and each Holder agrees that the directors for the two Board seats formerly reserved for the Management Directors shall be nominated, replaced and removed by the stockholders of the Company by a vote of holders of a majority of the outstanding shares of Common Stock or such lesser vote as is required to elect directors at a duly called stockholders meeting (such vote, a "Stockholder Vote") and (ii) if the Public Company Date has also occurred, the right of the Management Stockholders hereunder to participate in the nomination, replacement and removal of the Remaining Director as provided in the first proviso shall terminate and each Holder agrees that the director for the one Board seat formerly reserved for the Remaining Director shall be designated by the majority of the members of the Board, subject to election by a Stockholder Vote. No Holder to this Agreement shall transfer or assign, directly or indirectly, such Holder's right to designate a director to serve on the Board of the Company or otherwise enter into any arrangement or agreement that has the effect of transferring or assigning such designation rights, except with respect to transfers or assignments to a Permitted Transferee of such Holder; provided, that such Permitted Transferee agrees to be bound by the terms of this Agreement to the same extent as the Holder from whom the transfer was made; provided, further, that Jefferies shall not transfer its right to designate a director under any circumstances. The TCW Investors hereby nominate Robert Beyer as one of the initial TCW Directors; the other initial TCW Director shall be nominated by the TCW Investors after the date hereof. The Management Stockholders hereby nominate Anwar S. Soliman and Ralph S. Roberts as the initial Management Directors. Jefferies hereby nominates Jeffry Weinhuff as the initial Remaining Director. Should these initial directors or any other individual nominated as a director pursuant to this Section 2.2 be unwilling or unable to serve, or otherwise cease to serve for any reason (including by means of removal or replacement in accordance with the following sentence), the TCW Investors (with respect to the Board seats reserved for the TCW Directors), the Management Stockholders for so long as they have the right hereunder to nominate the Management Directors (with respect to the Board seats reserved for the Management Directors), Jefferies for so long as Jefferies has the right hereunder to nominate the Remaining Director (with respect to the Board seat reserved for the Remaining Director), the stockholders by Stockholder Vote after the New Management Date (with respect to the Board seats - 5 - 6 formerly reserved for the Management Directors), and a majority of the Board after both the Public Company Date and the New Management Date (with respect to nomination of a person to fill the Board seat formerly reserved for the Remaining Director), as the case may be, shall be entitled at any time to nominate or designate any replacement to fill the vacancy existing in a Board seat for which they or it, as the case may be, have a right of nomination under this Section 2.2; provided that the majority of the members of the Board shall have the exclusive right hereunder, once both the Public Company Date and the New Management Date have occurred, to nominate a person to fill any vacancy created in the Board seat formerly reserved for the Remaining Director, subject to election by the stockholders by Stockholder Vote. (i) If the TCW Investors propose to remove or replace any TCW Director; or (ii) if (a) the Management Stockholders, for so long as Management Stockholders have the right to nominate the Management Directors, propose to remove or replace any Management Director and (b) following the New Management Date, the stockholders of Company by Stockholder Vote, propose to remove or replace any Management Director or any director holding a Board seat formerly reserved for a Management Director; or (iii) if (x) Jefferies, for so long as Jefferies has the right to nominate the Remaining Director, proposes to remove or replace the Remaining Director and (y) following the Public Company Date but before the New Management Date, the TCW Investors and the Management Stockholders, acting by mutual consent, propose to remove or replace the Remaining Director and (z) following both the Public Company Date and the New Management Date, the stockholders by Stockholder Vote remove the Remaining Director or the director elected to the Board Seat formerly reserved for the Remaining Director, as applicable, then each Holder agrees, with respect to each of clauses (i) through (iii), to take all action in its power to cause such removal or replacement and any resulting vacancy shall be filled in accordance with the preceding sentence and the nominating rights set forth in the first paragraph of this Section 2.2. The Holders agree not to take any action to remove or replace, with or without cause, any director other than in accordance with the foregoing. The failure to exercise any nominating rights, or other rights with respect to directors pursuant to this Section 2.2, shall not constitute a waiver or diminution of such rights, nor shall it prevent a Holder or group of Holders from fully exercising such rights prospectively. Nothing in this Agreement shall limit the rights of the holders of the Preferred Stock pursuant to Section 5 of the Certificate of Designation to elect additional directors to serve on the Company's Board of Directors and each Holder agrees to take all action, to the extent that it has the power to do so, necessary to increase the size of the Board and cause the additional directors elected by the holders of the Preferred Stock to fill the vacancies thereby created in accordance with such holders' rights under the Certificate of Designation. - 6 - 7 Section 2.3. Board Action. Each Holder covenants and agrees to take all action, to the extent that it has the power to do so, so that at least three directors must be present, in person, by telephone or by proxy, at every meeting of the Board to constitute a quorum. Each director shall be given notice at least ten (10) business days prior to all Board meetings unless such director attends the meeting or waives such notice in writing. Any proposal to be acted upon by the Board (other than a proposal with respect to or relating to any matter referred to a committee established pursuant to Sections 2.4 and 2.5 hereof) shall require the approval of the majority of a quorum. Section 2.4. Compensation Committee. Each Holder covenants and agrees to take all action in its power, so that a compensation committee of the Board ("Compensation Committee") is established and comprised of four directors, consisting of the two TCW Directors, one Management Director and the Remaining Director. The Compensation Committee shall determine the compensation of management and the structuring of performance incentive plans, including without limitation any issuances of Capital Stock or Convertible Securities by Company to the management of Company and its Subsidiaries (other than stock owned by Management Stockholders and listed on Schedule I) and any amendments or renewals of the Employment Agreements. Section 2.5. Other Committees of the Board of Directors. Each Holder covenants and agrees that in its power, the two TCW Directors shall be entitled, but not obligated, to serve on any committee established by the Board. Section 2.6. Significant Business Decisions. Notwithstanding that no vote may be required, or that a lesser percentage vote may be specified, by law, by the Charter Documents, or otherwise, Company and each of the Holders covenant and agree, to the extent such Holder has the power to do so, that Company shall not take, and shall not cause or permit any Subsidiary of Company to take, any of the following actions, in a single transaction or a series of related transactions, without the written approval of the TCW Investors: (a) merge or consolidate with or into any other corporation (other than transactions solely involving the merger or consolidation of a Wholly Owned Subsidiary of Company with or into Company or another Wholly Owned Subsidiary of Company); (b) purchase, lease or otherwise acquire any material amount (as hereinafter defined) of securities or assets of any other Person; (c) commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal or state bankruptcy, insolvency or receivership or similar - 7 - 8 law; consent to the institution of or fail to contest in a timely and appropriate manner any such proceeding or filing; apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Company or any of its Subsidiaries; file an answer admitting the material allegations of a petition filed against it in any such proceeding; make a general assignment for the benefit of creditors; admit in writing its inability or fail generally to pay its debts as they become due; or take any action for the purpose of effecting any of the foregoing; (d) sell, lease, exchange, transfer or otherwise dispose of any capital stock of Subsidiaries, or a material amount of its other assets; (e) except as otherwise contemplated herein, enter into or engage in, or amend or modify the terms of, or terminate any transaction or arrangement between Company or any of its Subsidiaries, on the one hand, and any director of Company, any relative of any such director or any Affiliate of any such director or relative (including, without limitation, (i) any transaction or arrangement regarding employment or the appointment or removal of any such Person as an officer or employee of Company or any of its Subsidiaries and (ii) any transaction or arrangement regarding employment or the appointment or removal of any of Anwar S. Soliman, Ralph S. Roberts or Wilfred H. Partridge as an officer, employee or director of Company or any of its Subsidiaries), on the other hand; (f) amend, modify or repeal any provision of the Charter Documents or any similar governing document of any Subsidiary of Company, or any provision of this Agreement; (g) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, any equity securities, other than the Preferred Stock, of Company; (h) issue any equity securities of Company or of any Subsidiary of Company (except, (i) issuances to Company or a Wholly Owned Subsidiary of Company or (ii) Permitted Issuances; or (i) enter into any contract, agreement, arrangement or commitment to do or engage in any of the foregoing. For purposes of this Section 2.6, a "material amount" means a cash amount (or its equivalent) that equals or exceeds $15,000,000. Section 2.7. Further Assurances. Each of the Holders covenants and agrees, subject to compliance with applicable law, to take all action, including voting, or taking action by consent - 8 - 9 with respect to, all shares of Common Stock owned or controlled, directly or indirectly, at any time by such Holder, in accordance with the terms of this Agreement, including without limitation, voting, or acting promptly by written consent, in favor of (i) the election of the directors nominated in accordance with Section 2.2 hereof and (ii) any amendment to the Charter Documents to cause the parties hereto to comply with the terms of this Agreement. Except for rights granted to a Holder pursuant to the Certificate of Designation, each Holder hereby waives, to the fullest extent permitted by law, any rights it has under any other agreement or arrangement that are inconsistent with the provisions of this Agreement. ARTICLE III RESTRICTIONS ON TRANSFERS Section 3.1. Restrictions on Transfers; Permitted Transferees. (a) Company and each Holder, severally and not jointly, agrees and acknowledges that Company or such Holder, as applicable, will not, directly or indirectly, offer, issue, sell, assign, pledge, encumber or otherwise transfer (each, a "Transfer") any shares of Common Stock or Convertible Securities or solicit any offers to purchase or otherwise acquire or make a pledge of any shares of Common Stock or Convertible Securities unless such Transfer complies with the provisions of this Agreement; provided, however, that immediately prior to an IPO the parties hereto agree to negotiate in good faith and without seeking any additional compensation to establish an arrangement that both (x) permits the Holders and the Holders' Permitted Transferees hereunder to Transfer their equity securities of the Company without the Transfer being subject to the provisions of this Agreement, including any Transfer restrictions (other than those restrictions imposed by Section 3.2 and 3.3 hereof) and (y) preserves the rights of the TCW Investors to designate and cause the TCW Directors to serve on the Board under Article II and, to the extent practicable, to preserve such other rights as the TCW Investors deem significant. (b) No Holder shall Transfer any shares of Common Stock or Convertible Securities to any Person (regardless of the manner in which such Holder initially acquired such shares or securities) nor shall Company Transfer any shares of Common Stock or Convertible Securities to any Person (all Persons acquiring or receiving a Transfer of shares of Common Stock or Convertible Securities from a Holder or from Company or from one of their respective Permitted Transferees, regardless of the method of Transfer, shall be referred to collectively as "Transferees" and individually as a "Transferee"), unless (i) such shares of Common Stock or Convertible Securities bear legends as provided in Section 3.4 hereof and (ii) such Transferee shall have executed and delivered to Company and the TCW Investors, as a condition precedent to any Transfer of shares of Common Stock or - 9 - 10 Convertible Securities, an instrument in form and substance satisfactory to Company and the TCW Investors confirming that such Transferee takes such shares or securities subject to all the terms and conditions of this Agreement, and agrees to be bound by the terms of this Agreement to the same extent as the Holder from whom the Transfer was made. Company shall not transfer upon its books any shares of Common Stock or Convertible Securities to any Person except in accordance with this Agreement and any attempted Transfer that is not in compliance with the terms hereof shall be void. Notwithstanding the foregoing, this Section 3.1(b) shall not apply to: (i) Permitted Issuances by Company approved by the Board or, as applicable, approved by the Compensation Committee; (ii) Any Transfer by the TCW Investors, by TAMCO, by the TCW Investors' Permitted Transferees, or by TAMCO's Permitted Transferees, in each case, to any Transferee; or (iii) Any Transfer by any of the Holders (other than TCW Investors, TAMCO, TCW Investors' Permitted Transferees or TAMCO's Permitted Transferees) or such Holder's respective Permitted Transferees; provided that immediately after giving effect to such Transfer, all Holders and Permitted Transferees who are then parties to this Agreement own and control (including, without limitation, the power to vote for directors and approve amendments to the Charter Documents) at least a majority of the outstanding shares of Common Stock measured on both an actual and fully diluted basis (assuming, with respect solely to the determination of outstanding shares on a fully diluted basis, the exercise of all Convertible Securities as of the time of determination); provided, further, that with respect to Transfers under this clause (iii) by Holdings and its Permitted Transferees, Holdings and its Permitted Transferees first comply with the provisions of Sections 3.2 and 3.3 hereof. (c) Except as specifically contemplated hereby, no Holder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to any shares of Common Stock or Convertible Securities nor shall any Holder enter into any stockholder agreements or arrangements of any kind with any Person with respect to any shares of Common Stock or Convertible Securities inconsistent with the provisions of this Agreement (whether or not such agreements and arrangements are with other Holders or holders of shares of Common Stock or Convertible Securities who are not parties to this Agreement), including, but not limited to, agreements or arrangements with respect to the acquisition, disposition or voting of shares of Common Stock, nor shall any Holder act, for any reason, as a member of a group or in concert with any other Persons in connection with the acquisition, disposition or voting of shares of Common Stock or - 10 - 11 Convertible Securities in any manner which is inconsistent with the provisions of this Agreement. (d) The provisions of Section 3.2 and 3.3 hereof shall not apply: (i) to any Transfer (for consideration or as a gift) by any Holder to any spouse, child, parent, sibling or grandchild of such Holder, or by any of such relatives to such Holder or to any one or more of such relatives, or by any Holder or any such relatives to a trust of which there are no principal beneficiaries other than one or more of such relatives; (ii) to any Transfer to a legal representative in the event any Holder becomes mentally incompetent; (iii) to any Transfer by will or the laws of descent; (iv) with respect to a Holder which is a corporation, partnership or limited liability company, to any Transfer by such Holder to any Affiliate thereof; (v) to bona fide pledgees of shares of Common Stock or Convertible Securities by a Holder to Company, a bank or other financial institution in order to secure indebtedness for borrowed money incurred by such Holder in order to finance or refinance the purchase of shares of Common Stock or Convertible Securities or to pay taxes related to the sale of such shares or securities by such Holder; (vi) with respect to any Holder which is a limited partnership, to the partners, or a liquidating trust for the benefit of the partners, of such Holder in accordance with the provisions of the limited partnership agreement governing such Holder as then in effect; (vii) to any Transfer to any Affiliate of the TCW Investors or TAMCO; (viii) subject to applicable securities laws, to any Transfer by Jefferies to an employee of Jefferies; provided that with respect to each of clauses (i) through (viii), each Transferee, donee, distributee or pledgee (a "Permitted Transferee") agrees to take such shares subject to and to comply with the provisions of Section 3.1(b) hereof. For purposes hereof, the Permitted Transferees of a Holder shall include the Permitted Transferees of such Holder's Permitted Transferees. Section 3.2. Right of First Offer. (a) Except for Permitted Issuances by Company, Transfers by Holdings to Permitted Transferees of Holdings and, following an IPO, sales to the public in either registered underwritten offerings or pursuant to Rule 144 under the Securities Act of 1933, as amended, any action by Company, Holdings or any Permitted Transferees of Holdings (each, a "Seller") to issue or Transfer any shares of Common Stock or Convertible Securities shall first be preceded by written notice (a "Seller's Notice") to the TCW Investors stating Seller's desire to make such Transfer, the number of shares of Common Stock or Convertible Securities proposed to be Transferred (the "Offered Securities") and the cash price which Seller proposes to be paid for the Offered Securities (the "First Offer Price"). (b) Upon receipt of Seller's Notice (the "First Offer"), the TCW Investors shall have the irrevocable and exclusive option to purchase up to all of the Offered Securities at the First Offer Price. The TCW Investors shall have 15 days - 11 - 12 from the date of the Seller's Notice to accept the First Offer, in whole or in part, by delivering a written notice to Seller stating the number of Offered Securities the TCW Investors desire to purchase. (c) If the Seller's Notice shall be duly given, and if the TCW Investors shall not exercise their option to purchase the Offered Securities at the First Offer Price, then Seller shall be free (subject to Section 3.3 hereof), for a period of 60 days from the earlier of (i) the 30th day following the date of the Seller's Notice or (ii) the date Seller shall have received written notice from the TCW Investors stating the TCW Investors' intention not to exercise their rights under the First Offer, to Transfer the Offered Securities to any third party Transferee at a cash price equal to or greater than the First Offer Price; provided that such Transfer complies with the provisions of Section 3.1 of this Agreement. (d) If the proposed purchase price of a Transferee for the Offered Securities is less than the First Offer Price, Seller shall not Transfer, in compliance with Section 3.1, any of the Offered Securities unless the Seller shall first reoffer the Offered Securities at such lesser price to the TCW Investors by giving written notice (the "Reoffer Notice") thereof, stating the Seller's intention to make such Transfer at such lower price (the "Reoffer Price"). The TCW Investors shall then have the irrevocable and exclusive option to purchase the Offered Securities at the Reoffer Price, exercisable in the same order of priority, proportions and manner as provided in Section 3.2(b). Any Offered Securities not purchased by the TCW Investors may be Transferred by Seller (subject to Section 3.3 hereof) to any third party Transferee within 60 days following the earlier of (i) the 30th day from the date of the Reoffer Notice or (ii) the date on which Seller shall have received written notice from the TCW Investors stating the TCW Investors' intention not to exercise the option granted in this Section 3.2(d), at a cash price equal to or greater than the Reoffer Price; provided that such Transfer complies with the provisions of Section 3.1 of this Agreement. (e) If the TCW Investors do not exercise their option to purchase the Offered Securities at the First Offer Price or at the Reoffer Price, and Seller shall not have Transferred the Offered Securities to any third party Transferee approved by the Board for any reason before the expiration of the 60-day period described in Section 3.2(d) in the event of a Reoffer or, if no Reoffer Notice is given, the 60-day period described in Section 3.2(c), then Seller shall not give a Seller's Notice with respect to a transaction which would require compliance with this Section 3.2 for a period of three months from the last day of such applicable 60-day period. (f) The closing of all purchases pursuant to the first offer rights granted under this Section 3.2 shall take place at - 12 - 13 the principal offices of the Company at 10 a.m. on the later of (x) the tenth Business Day following the delivery to Seller of all notices exercising such first offer rights with respect to the Offered Securities to be sold by Seller or (y) the fifth Business Day following the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to such purchases, or at such other time and/or place as the parties to such purchases may agree. At such closing, (i) Seller shall assign and Transfer to the TCW Investors (or any nominees thereof) good and valid title to the shares being purchased by it, by delivery of the certificates representing the shares of Common Stock or Convertible Securities to be sold and Transferred, duly endorsed in blank, with the requisite stock transfer tax stamps attached, together with such stock powers, certificates, legal opinions and other instruments of Transfer as the TCW Investors shall reasonably request; and (ii) the TCW Investors shall pay to Seller the purchase price for the shares being purchased by them in cash, by delivery of a certified or bank check or by wire transfer of immediately available funds to such account as Seller shall direct by written notice delivered to the TCW Investors not later than two (2) Business Days before such closing. Section 3.3. Tag-Along Rights. In the event that (and without limiting the obligations to comply with Sections 3.1 and 3.2 hereof) Holdings or any of its Permitted Transferees (collectively, the "Tag Sellers") propose, pursuant to a single transaction or series of related transactions, to Transfer shares of Common Stock to any Person other than a Permitted Transferee of Holdings or, following an IPO, sales to the public in either registered underwritten offerings or pursuant to Rule 144 under the Securities Act of 1933, as amended (a "Purchaser"), then, the Tag Sellers shall provide notice of such proposed Transfer to the TCW Investors (a "Proposal Notice") no later than twenty (20) days prior to the proposed closing of such Transfer, and the TCW Investors shall have the right (a "Tag-Along Right") to require the Tag Seller to reduce the number of shares of Common Stock to be sold by the Tag Seller, and have Purchaser purchase from the TCW Investors, upon the same terms and conditions applicable to the Tag Seller, that number of shares of Common Stock derived by multiplying the total number of shares being offered to Purchaser by the TCW Investors' fractional interest, rounded up to the nearest whole number. For purposes of this Section, the term "fractional interest" means (a) the sum of the total number of shares of Common Stock owned by the TCW Investors and its Permitted Transferees (on a fully diluted basis, assuming exercise of all Warrants and other Convertible Securities as of the time of determination), divided by (b) the sum of (I) the aggregate number of shares of Common Stock owned by the TCW Investors and TAMCO and their Permitted Transferees plus (II) the aggregate number of shares of Common Stock owned by Holdings and, to the extent shares were Transferred by Holdings to a Permitted Transferee of Holdings, the number of shares of Common Stock - 13 - 14 owned by Holding's Permitted Transferees (on a fully diluted basis, assuming exercise of all Warrants and other Convertible Securities as of the time of determination). The TCW Investors shall give written notice of its decision to exercise its Tag-Along Right to the Tag Seller no later than ten (10) days after its receipt of a Proposal Notice. Section 3.4. Legend on Certificates. During the term of this Agreement, Company and each Holder, to the extent that such Holder has the power to do so, covenants and agrees that each outstanding certificate representing shares of Common Stock or Convertible Securities that are now owned or hereafter acquired by the Holders or otherwise subject to this Agreement shall bear a legend reading substantially as follows: The sale, assignment, pledge, encumbrance or other transfer of the securities represented by this certificate is subject to the provisions of a Securityholders Agreement, dated as of February 25, 1998, among the Company and the other parties named on the signature pages thereto, a copy of which is on file at the principal executive office of the Company. ARTICLE IV ADDITIONAL AGREEMENTS Section 4.1. Restrictions on TCW Investors. The TCW Investors shall not transfer any of their rights under this Agreement; provided, that the TCW Investors and Permitted Transferees of the TCW Investors may Transfer, in whole or in part, any of their respective rights hereunder to Permitted Transferees who comply with the provisions of Section 3.1(b) hereof. Section 4.2. Tax Issues. If any withholding taxes imposed by Internal Revenue Code 1441 and 1442 (or any successor provision thereof) ("Taxes") with respect to the TCW Investors' partners that are not United States persons (collectively, the "Foreign Partners"), are required to be deducted or withheld from any amount payable to the TCW Investors either by Company or by any TCW Investor with respect to the TCW Investors' Foreign Partner's allocable share of the TCW Investors' income attributable to dividends on the Preferred Stock paid to the TCW Investors by Company, Company shall pay additional amounts in cash (either to the appropriate taxing authority or to the TCW Investors, as appropriate) so that the amount received and retained by the TCW Investors after the deduction or payment of such Taxes (including Taxes on such additional amounts) equals the amount the TCW Investors would have received and retained if no Taxes had been deducted or been payable by the TCW Investors; provided, that the Company shall in no event be obligated to pay additional amounts to the TCW Investors in the aggregate in - 14 - 15 excess of $125,000 each year. If Company acts as withholding agent, Company shall pay to the appropriate taxing authority all Taxes required to be deducted or withheld and shall, within 30 days after paying such Taxes, deliver to the TCW Investors the original or a certified copy of the receipt for such payment. The TCW Investors shall determine all amounts required to be paid by Company with respect to Taxes under this Section; provided that, at the request of Company, the TCW Investors shall provide Company with the information used in determining such amounts; provided, further, that if Company objects to such determination within 15 days, and such objection is accompanied by an opinion of tax counsel in support of such objection, then Company and the TCW Investors will negotiate in good faith to mutually resolve any disagreement over such determination and following the failure to mutually resolve such disagreement, either party may submit the matter to a "Big Six" accounting firm, reasonably acceptable to both parties, which does not serve as the primary independent accountants for either party, whose decision shall be final. The TCW Investors and the TCW Investors' Foreign Partners shall provide Company, at Company's request, properly completed forms, if applicable, W-8 and, if applicable, 1001 (or any successors thereto) with respect to the TCW Investors and the TCW Investors' Foreign Partners, provided that no such additional amounts shall be payable in respect of any dividends paid on the Preferred Stock to the extent that Taxes would not have been imposed but for the failure of the TCW Investors or the TCW Investors' Foreigner Partners to provide such forms. For purposes hereof, the parties agree that dividends shall be deemed to be paid and withholding required (x) with respect to dividends paid in stock, at such times as dividends are paid in stock and (y) with respect to the redemption premium, each regular dividend payment date based on the constant interest method; provided, however, if the Company has no, or projects no, accumulated or current earnings or profits for any taxable year, withholding shall not be required to the extent permitted by law, and if withholding is required, the Company shall pay such additional amounts but the TCW Investors and the TCW Investors' Foreign Partners shall apply for any available refund of their withholding taxes and pay it to the Company. Section 4.3. Directors' and Officers' Indemnification, Insurance and Expense. (a) The Company (together with its successors and assigns, the "Indemnifying Party"), shall indemnify, defend and hold harmless each person who is now, or becomes at any time after the date hereof, a director of Company (each, an "Indemnified Party") against all losses, claims, damages, costs and expenses (including reasonable attorneys' fees), liabilities, judgments and settlement amounts that are paid or incurred in connection with any claim, action, suit, proceeding or investigation (whether civil, criminal, administrative or investigative and whether asserted or claimed before or after the term of this Agreement) that is based in whole or in part on, or arises in whole or in part out of, the fact that such Indemnified Party is or was a director of Company - 15 - 16 and relates to or arises out of any action or omission ("Indemnified Liabilities") to the full extent a corporation is permitted under applicable law to indemnify its directors, as the case may be. Without limiting the foregoing, in the event that any such claim, action, suit, proceeding or investigation is brought against any Indemnified Party, (x) the Indemnifying Party will pay expenses in advance of the final disposition of any such claim, action, suit, proceeding or investigation to each Indemnified Party to the full extent permitted by applicable law; (y) the Indemnifying Party shall pay all reasonable fees and expenses of counsel for the Indemnified Parties promptly as statements therefor are received; and (z) the Indemnifying Party shall use all commercially reasonable efforts to assist in the defense of any such matter. Any Indemnified Party wishing to claim indemnification under this Section 4.3, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Indemnifying Party, but the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which it may have under this paragraph except to the extent such failure to give notice materially and irreparably prejudices the Indemnifying Party. (b) Except to the extent required by law, no party hereto will take any action so as to amend, modify or repeal the provisions for indemnification of directors contained in the Charter Documents of Company in such a manner as would adversely affect the rights of any Indemnified Party. (c) From and after the date hereof, to the extent commercially available, Company shall maintain directors' liability insurance for each director of Company of a character usually insured by corporations engaged in the same or similar business in the amounts customarily insured against by such corporations; provided, that such amount shall at least be $5,000,000. (d) To the fullest extent permitted by applicable law, Company shall, from time to time upon request therefor, promptly reimburse each director of Company for the reasonable out-of-pocket expenses incurred by him or her in connection with his or her attendance at meetings of the Board and committees thereof and any other activities undertaken by him or her in his or her capacity as a director of Company. The foregoing shall be in addition to, and not in lieu of, any indemnification or reimbursement obligations of Company or its Subsidiaries under the Charter Documents (or comparable charter documents) and this Section 4.3. (e) The provisions this Sections are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and legal representatives, and shall be in addition to any other rights such Indemnified Party or director may have under the Charter Documents (or comparable charter documents) of Company and its Subsidiaries. - 16 - 17 Section 4.4. Financial Statements, Certificates and Information. The Company will deliver to the TCW Investors: (a) as soon as practicable, but in any event not later then ninety (90) days after the end of each fiscal year of the Company, the consolidated balance sheet of the Company and its Subsidiaries and the consolidating balance sheet of the Company and its Subsidiaries, each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated and consolidating statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified by the Company's independent certified public accountants; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the fiscal quarters of the Company, copies of the unaudited consolidated balance sheet of the Company and its Subsidiaries and the unaudited consolidating balance sheet of the Company and its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income for such quarter and the portion of the Company's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial position of the Company and their Subsidiaries on the date thereof (subject to year-end adjustments); (c) as soon as practicable, but in any event within thirty (30) days after the end of each month in each fiscal year of the Company, the unaudited consolidated balance sheet of the Company and its Subsidiaries and unaudited consolidating balance sheet of the Company and their Subsidiaries, each as at the end of such month, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income for such month, all in reasonable detail and each prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial condition of the Company and its Subsidiaries on the date thereof (subject to year-end adjustments); (d) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Company setting forth in reasonable detail - 17 - 18 computations evidencing compliance with certain covenants made by the Company and (if applicable) reconciliations to reflect changes in generally accepted accounting principles to the Balance Sheet Date; (e) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Company; (f) on or prior to the end of each fiscal year of the Company and their Subsidiaries and otherwise from time to time upon request of the TCW Investors, a monthly budget for the next fiscal year of the Company and their Subsidiaries including pro forma consolidated and consolidating (prepared by division rather than by corporate entity) statements of income and consolidated statement of cash flows of the Company and their Subsidiaries; and (g) from time to time such other financial data and information (including accountants, management letters) as the TCW Investors may reasonably request. (h) Company shall notify the TCW Investors forthwith in writing, upon becoming aware of any default or event which is or would be, upon the passing of time, a "Voting Rights Triggering Event," including any occasion upon which the Maintenance Test Ratio exceeds the Maximum Test Ratio (as such terms are defined in the Certificate of Designation). Section 4.5. Additional Provisions. (a) Notwithstanding anything herein to the contrary, the provisions of this Agreement as they relate to securities of the Company owned or controlled directly or indirectly at any time by Jefferies shall be limited to the Jefferies Warrants and the Common Stock received upon exercise thereof. (b) Following an IPO, if requested by Holdings, Company shall cooperate in good faith with Holdings to register under the Securities Act of 1933, as amended, the shares of Common Stock held by Holdings; provided such registration has no material adverse affect on the Company and does not materially interfere with the rights of the Holders hereunder or materially interfere with the rights granted under any registration rights agreement. (c) So long as Holdings and Company are consolidated for federal income tax purposes, Holdings shall not own any assets or conduct any operations other than ownership of the stock of the Company and incidental activities related thereto. (d) Notwithstanding the fact that Company has agreed to issue to TAMCO the TAMCO Warrants, each party to this - 18 - 19 Agreement acknowledges and agrees that TAMCO, the TCW Investors and their respective Affiliates are not acting in any agency, advisory or other fiduciary capacity with respect to the Company or any other Holder (except as provided in Section 4.6 hereof) in connection with the transactions contemplated by the Offering Circular. Section 4.6. TCW Agent and Management Agent. Each of the TCW Investors, individually and in the capacity in which they are acting herein, hereby appoint TAMCO as agent (together with its successors in such capacity herein referred to as the "TCW Agent") to act for and on behalf of the TCW Investors under and pursuant to this Agreement, until such time as the TCW Agent and Company receives written notice from the holders of a majority of the shares of Common Stock (measured on a fully diluted basis, assuming the exercise of all Convertible Securities as of the time of determination) owned by the TCW Investors, that TAMCO has been removed as the TCW Agent and a successor has been named, in which case such successor shall act as the TCW Agent hereunder for all purposes. Each of the Management Stockholders, individually and in the capacity in which they are acting herein, hereby appoint Anwar S. Soliman as agent (together with his successors in such capacity herein referred to as the "Management Agent") to act for and on behalf of the Management Stockholders under and pursuant to this Agreement, until such time as Anwar S. Soliman and Company receives written notice from the holders of a majority of the shares of Common Stock (measured on a fully dilute basis, assuming the exercise of all Convertible Securities as of the time of determination) owned by the Management Stockholders, that Anwar S. Soliman has been removed as the Management Agent and a successor has been named, in which case such successor shall act as the Management Agent hereunder for all purposes. The TCW Agent and the Management Agent (collectively referred to hereinafter as the "Agents") do hereby accept such appointment and are authorized to act on behalf of the TCW Investors and the Management Stockholders, respectively, in (i) exercising rights and remedies with respect to any matter under or pursuant to this Agreement, (ii) giving notices to the parties hereto, (iii) receiving information or notices from the parties hereto, (iv) communicating to the parties hereto determinations required or permitted to be made under this Agreement, and (v) all other actions which the TCW Investors or the Management Stockholders, respectively, are entitled to take hereunder. Such appointment of TAMCO as agent for the TCW Investors and Anwar S. Soliman as agent for the Management Stockholders shall not, however, impair or modify any rights, obligations or duties which TAMCO or any Affiliate of TAMCO otherwise has with respect to any of the TCW Investors, individually or as a group, or which Anwar S. Soliman otherwise has with respect to any of the Management Stockholders. - 19 - 20 In its administration of this Agreement as an agent, the TCW Agent and the Management Agent, respectively (i) shall have no duty or fiduciary relationship, except as expressly set forth in this Agreement with respect solely to the parties for whom such Agent acts, (ii) may request and rely on written directions from the TCW Investors and the Management Stockholders, respectively, (iii) may execute any duty under this Agreement by and through agents or attorneys selected by it using reasonable care, (iv) shall have liability only as to acts of gross negligence and willful misconduct, and shall not be liable for any other party's failure to perform under this Agreement, and (v) shall be entitled to rely upon any communication by a proper party which it believes to be genuine. ARTICLE V CERTAIN DEFINITIONS Except for capitalized terms defined elsewhere in this Agreement or the following terms, which shall have the definitions set forth below, capitalized terms used herein shall have the meanings set forth in the Purchase Agreement: "Affiliate" has the meaning given such term in Rule 12b-2 under the Exchange Act. "Board" has the meaning set forth in Section 1.1. "Business Day" means any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York. "Bylaws" means the By-laws of the Company as set forth in Exhibit 3.3 to the Company Annual Report on Form 10-K for the fiscal year ended December 30, 1996. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock of such Person; and (ii) with respect to any other Person, any and all partnership or other equity interests of such Person. "Certificate of Designation" means the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the 12% Series A Senior Pay-In-Kind Exchangeable Preferred Stock and the 12% Series B Senior Pay-In-Kind Exchangeable Preferred Stock and Qualifications, Limitations or Restrictions Thereof, as filed with the Secretary of State of the State of Delaware on February 24, 1998. - 20 - 21 "Certificate of Incorporation" means the Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on February 23, 1998. "Charter Documents" has the meaning set forth in Section 1.1 hereof. "Common Stock" means any and all shares, interests or other participations in, and other equivalents (however designated, whether voting or non-voting) of Company's common stock, par value $.01 per share, whether outstanding on the date hereof or issued after such date, and includes, without limitation, all series and classes of such common stock. "Compensation Committee" has the meaning set forth in Section 2.4. "Convertible Securities" means any warrants, options or rights to acquire shares or securities convertible into or exchangeable for shares of Common Stock. "Employment Agreements" means each of (i) the Amended and Restated Employment Agreement dated as of December 14, 1992, between the Company and Anwar S. Soliman; (ii) the Amended and Restated Employment Agreement dated as of December 14, 1993, between the Company and Ralph S. Roberts; and (iii) the Amended and Restated Employment Agreement dated as of December 14, 1993, between the Company and Wilfred H. Partridge. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and in the rules and regulations of the Securities and Exchange Commission, that are in effect on the date hereof. "IPO" means an underwritten initial public offering of Common Stock by Company pursuant to an effective registration statement under the Securities Act. "Permitted Issuances" means, (i) any issuance of shares of Common Stock by Company pursuant to the exercise or conversion of Convertible Securities outstanding on the date hereof, including the Warrants and the other Convertible Securities identified on Schedule I; (ii) the sale or issuance of shares of Common Stock or Convertible Securities pursuant to any employee - 21 - 22 stock option plan, stock purchase plan, employee benefit plan, employment contract, or any similar benefit or incentive program or agreement, where the primary purpose of such plan, program or agreement is not to raise capital for the Company and in case where such sale or issuance or plan is approved by the Compensation Committee; (iii) the issuance of shares of Common Stock or Convertible Securities pursuant to any merger transaction involving the Company or any of its Subsidiaries as direct consideration for the acquisition by the Company or any of its subsidiaries of assets or another business entity; (iv) the issuance of preferred stock authorized under the Certificate of Designation; or (v) a Registered Underwritten Public Offering, provided that immediately after giving effect to such Registered Public Offering, Holders and Permitted Transferees who are then parties to this Agreement own and control (including, without limitation, the power to vote for directors and approve amendments to the Charter Documents) at least a majority of the outstanding shares of Common Stock measured on both an actual and fully diluted basis (assuming, with respect solely to the determination of outstanding shares on a fully diluted basis, the exercise of all Convertible Securities as of the time of determination). "Permitted Transferees" has the meaning set forth in Section 3.1(d) hereof. "Person" means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union or association. "Public Company Date" means the date that is 45 days after the date upon which underwritten primary public offerings of Common Stock of the Company pursuant to effective registration statements under the Securities Act have resulted in 35% of the Company's Common Stock (measured on a fully diluted basis after giving effect to such offering) being sold to the public and in the Company's Common Stock being listed for trading on any of the New York Stock Exchange, the NASDAQ National Market or the American Stock Exchange. "Registered Underwritten Public Offering" means issuances of Common Stock by the Company to the public in an underwritten offering registered under the Securities Act, immediately whereafter the Common Stock is listed for trading on any of the New York Stock Exchange, NASDAQ National Market or the American Stock Exchange. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Subsidiary" means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company or by one or more other - 22 - 23 Subsidiaries or by the Company and one or more other Subsidiaries. "Transfer" has the meaning set forth in Section 3.1(a). "Transferee" has the meaning set forth in Section 3.1(b). "Voting Stock" means, with respect to any Person (i) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency); and (ii) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (i) above. "Wholly Owned Subsidiary" means a Person all of whose capital stock is owned by the Company or a Wholly Owned Subsidiary of the Company. ARTICLE VI MISCELLANEOUS Section 6.1. Amendment; Termination. This Agreement shall not be terminated, modified or amended except as provided in the following sentence. This Agreement (i) may be terminated by a majority of the entire Board, with the concurrence of the TCW Investors and (ii) may be terminated, modified or amended by approval of each of (A) the holders of a majority of the outstanding shares of Common Stock of the Company (measured on a fully diluted basis assuming the conversion of all Convertible Securities) owned by the TCW Investors; (B) the holders of a majority of the outstanding shares of Common Stock of the Company (measured on a fully diluted basis assuming the conversion of all Convertible Securities) owned by the Management Stockholders; and (C) Holdings; provided that Jefferies' approval shall be required with respect to modifications or amendments to this Agreement that impose additional material obligations on Jefferies and its Permitted Transferees. Section 6.2. Notices. All notices to be given by any party hereunder shall be in writing and shall be deemed to have been duly given if mailed, by first class or registered mail, three (3) Business Days after deposit in the United States Mail, or if telexed or telecopied, sent by telegram, or delivered by hand or reputable overnight courier, when confirmation is received, in each case as follows: (i) in the case of Company, Holdings or any Management Stockholder to: - 23 - 24 c/o American Restaurant Group, Inc. 450 Newport Center Drive, 6th Floor Newport Beach, CA 92660 Attention: Chairman Telecopy: (714) 721-8941 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Philip T. Ruegger III, Esq. Telecopy: (212) 455-2502 (ii) in the case of TAMCO or the TCW Investors to: TCW Asset Management Company 11100 Santa Monica Blvd., 20th Floor Los Angeles, CA 90025 Attention: Nicholas W. Tell Telecopy: (310) 235-5966 with a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attention: Kenneth J. Baronsky, Esq. Telecopy: (213) 629-5063 (iii) in the case of Jefferies to: Jefferies & Company, Inc. 11100 Santa Monica Blvd., 10th Floor Los Angeles, CA 90025 Attention: Jerry M. Gluck Telecopy: (310) 575-5165 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Suite 3400 Los Angeles, CA 90071 Attention: Rod A. Guerra, Jr. Telecopy: (213) 687-5600 The parties may change their respective addresses for purposes of notice hereunder by giving notice of such change to all other parties in the manner provided in this Section 6.2. Section 6.3. Binding Effect. This Agreement represents the entire agreement among the parties hereto with respect to the subject matter hereof, supersedes all prior - 24 - 25 negotiations, statements and agreements of the parties hereto with respect to the subject hereof, and shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto. Section 6.4. Counterparts. This Agreement may be executed in counterparts and all of which are deemed to be one and the same agreement binding upon each of the parties hereto. Section 6.5. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. Section 6.6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts of law doctrine, except for matters of corporate law, which shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware. Section 6.7. Injunctive Relief. It is hereby agreed and acknowledged by each of the parties hereto that it will be impossible to measure in money the damages that would be suffered if the parties to this Agreement fail to comply with any of the obligations imposed on them by this Agreement and that in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy at law. Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. Section 6.8. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. Section 6.9. Recapitalization, etc. In the event that any capital stock or other securities are issued in respect of, in exchange for, or in substitution of, any shares of Common Stock by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the shares of Common Stock or any other change in the Company's capital structure, appropriate adjustments shall be made to the provisions of this Agreement so as to fairly and equitably preserve, as far as practicable, - 25 - 26 the original rights and obligations of the parties hereto under this Agreement. [SIGNATURE PAGES FOLLOW] - 26 - 27 [SIGNATURE PAGE 1 OF 5 TO SECURITYHOLDERS AGREEMENT] IN WITNESS WHEREOF, the undersigned, thereunto duly authorized, have hereunto set their respective hands as of the day and year first above written. "COMPANY": AMERICAN RESTAURANT GROUP, INC. By: /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Name: William J. McCaffrey, Jr. Its: Vice President and Chief Financial Officer 28 [SIGNATURE PAGE 2 OF 5 TO SECURITYHOLDERS AGREEMENT] "HOLDERS": "HOLDINGS": AMERICAN RESTAURANT GROUP HOLDINGS, INC. By: /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Name: William J. McCaffrey, Jr. Its: Vice President and Chief Financial Officer 29 [SIGNATURE PAGE 3 OF 5 TO SECURITYHOLDERS AGREEMENT] "HOLDERS" (continued): "JEFFERIES": JEFFERIES & COMPANY, INC. By: /s/ RICHARD A. GOLDENBERG ---------------------------------------------- Name: Richard A. Goldenberg Its: Power of Attorney 30 [SIGNATURE PAGE 4 OF 5 TO SECURITYHOLDERS AGREEMENT] "HOLDERS" (continued): "MANAGEMENT STOCKHOLDERS": /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Anwar S. Soliman /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Roberts Family Limited Partnership /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- William J. McCaffrey, Jr. /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Wilfred H. Partridge /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Patrick J. Kelvie /s/ WILLIAM J. McCAFFREY, JR. ---------------------------------------------- Meredith Taylor 31 [SIGNATURE PAGE 5 OF 5 TO SECURITYHOLDERS AGREEMENT] "HOLDERS" (continued): "TAMCO": TCW ASSET MANAGEMENT COMPANY By: /s/ MELISSA V. WELLER -------------------------------------------- Name: Melissa V. Weller Its: Managing Director By: /s/ NICHOLAS W. TELL -------------------------------------------- Name: Nicholas W. Tell Its: Senior Vice President "TCW INVESTORS": TCW SHARED OPPORTUNITY FUND II, L.P. By: TCW Investment Management Company Its: Investments Manager By: /s/ MELISSA V. WELLER -------------------------------------------- Name: Melissa V. Weller Its: Managing Director By: /s/ NICHOLAS W. TELL -------------------------------------------- Name: Nicholas W. Tell Its: Senior Vice President TCW LEVERAGED INCOME TRUST, L.P. By: TCW Advisory (Bermuda), Ltd. Its: General Partner By: /s/ NICHOLAS W. TELL -------------------------------------------- Name: Nicholas W. Tell Its: Senior Vice President By: /s/ MELISSA V. WELLER -------------------------------------------- Name: Melissa V. Weller Its: Managing Director BROWN UNIVERSITY By: Brown University Third Century Fund By: /s/ MARK L. ATTANASIO -------------------------------------------- Name: Mark L. Attanasio Its: Investment Manager TCW SHARED OPPORTUNITY FUND IIB, LLC By: TCW Asset Management Company Its: Investments Manager By: /s/ MELISSA V. WELLER -------------------------------------------- Name: Melissa V. Weller Its: Managing Director By: /s/ NICHOLAS W. TELL -------------------------------------------- Name: Nicholas W. Tell Its: Senior Vice President 32 SCHEDULE I
Shares of Type of Convertible "Holders" Common Stock Security - --------- ------------ ------------------- "TAMCO" TCW Asset Management TAMCO Warrants Company 0 875 "TCW INVESTORS" TCW Shared Opportunity Warrants Fund II, L.P. 0 5,000 TCW Leveraged Income Warrants Trust, L.P. 0 10,000 Warrants Brown University 0 1,000 Shared Opportunity Fund Warrants IIB, LLC 0 2,000 "Jefferies" Jefferies Warrants Jefferies & Company, Inc. 0 3,500 "Holdings" American Restaurant Group Holdings, Inc. 93,150 0 "Management Stockholders" Anwar S. Soliman 19,409 0 Roberts Family Limited Partnership 9,702 0 William J. McCaffrey, Jr. 2,426 0 Wilfred H. Partridge 2,426 0 Patrick J. Kelvie 387 0 Meredith Taylor 581 0 TOTAL SHARES: 128,081 22,375
EX-27 12 FINANCIAL DATA STATEMENT
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 29, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-K. 12-MOS DEC-29-1997 DEC-31-1996 DEC-29-1997 5,737,000 0 7,522,000 916,000 5,893,000 21,378,000 216,215,000 123,893,000 152,011,000 78,530,000 0 0 0 1,000 (111,739,000) 152,011,000 440,039,000 440,039,000 140,015,000 244,234,000 19,627,000 96,000 23,985,000 (20,229,000) 63,000 (20,292,000) 0 0 0 (20,292,000) 0 0
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