Filed Pursuant to Rule 424(b)(3)
Registration No. 333-72658
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 3, 2002)
ADVANTICA RESTAURANT GROUP, INC.
HAS AMENDED ITS
OFFER TO EXCHANGE
$204,050,000
12 3/4% SENIOR NOTES DUE 2007
OF DENNY'S HOLDINGS, INC. AND
ADVANTICA RESTAURANT GROUP, INC.
FOR
$265,000,000 OUTSTANDING
11 1/4% SENIOR NOTES DUE 2008
OF ADVANTICA RESTAURANT GROUP, INC.
The purposes of this prospectus supplement are to (1) describe changes to
the terms of Advantica's offer to exchange new senior notes to be jointly issued
by Denny's Holdings and Advantica, which we refer to as the new notes, for up to
$265,000,000 aggregate principal amount of outstanding 11 1/4% senior notes due
2008 of Advantica, which we refer to as the old notes, as originally described
in the prospectus dated January 3, 2002, pursuant to which the exchange offer is
being made, and (2) provide an update of recent developments relating to our
fourth quarter and year-end operating results and the FRD bankruptcy proceeding.
The information in this prospectus supplement should be read in conjunction with
the prospectus to which this prospectus supplement is attached.
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INVESTING IN THE NEW NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 12 OF THE PROSPECTUS FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER
IN CONNECTION WITH THIS EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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CHANGES TO THE TERMS OF THE EXCHANGE OFFER
Advantica has modified its offer to exchange new notes to be jointly issued
by Denny's Holdings and Advantica for Advantica's old notes as follows:
- Advantica's offer to exchange, as previously extended to 5:00 p.m., New York
City time, on March 15, 2002, and as amended hereby, is further extended to
5:00 p.m., New York City time, on March 22, 2002, at which time the offer will
expire unless further extended by means described in the prospectus.
- Advantica has waived the condition of the exchange offer that a minimum of
$160,000,000 aggregate principal amount of old notes be validly tendered and
accepted on or prior to the expiration date and has amended the conditions to
the exchange offer to provide that consummation of the exchange offer is now
conditioned on at least $60,000,000 aggregate principal amount of old notes
having been validly tendered and accepted on or prior to the expiration date.
- Advantica has waived the requirement that old notes may be tendered and will
be accepted for exchange only in denominations of $1,000 principal amount or
integral multiples thereof. As provided in the prospectus, new notes will be
issued only in integral multiples of $1,000, and Advantica will pay cash in
lieu of issuing new notes in a lesser principal amount.
The date of this prospectus supplement is March 15, 2002.
- Advantica has modified three covenants in the new notes indenture as follows:
-- Limitation on Restricted Payments has been modified to increase the
amount of old notes that may be repurchased, redeemed or otherwise
acquired or retired for value from $50 million to an amount, not less
than $50 million, equal to the sum of $50 million plus 50% of the
difference between $160 million and the amount of old notes tendered and
accepted pursuant to this exchange offer. Specifically, clause (8) of
the second paragraph of such covenant as set forth in the prospectus
will provide as follows:
"(8) after the date on which a bankruptcy court enters an order
closing the FRD Chapter 11 Case, the repurchase, redemption or
other acquisition or retirement for value of Old Notes by
Advantica for consideration in an aggregate amount not to exceed
an amount, not less than $50 million, equal to the sum of $50
million plus 50% of the difference between $160 million and the
amount of old notes tendered and accepted pursuant to this
exchange offer; provided, however, that no Default or Event of
Default shall have occurred and be continuing at the time of any
such repurchase, redemption or other acquisition or retirement;"
-- Limitation on Additional Indebtedness and Issuance of Disqualified Stock
has been modified to increase the amount of additional indebtedness (in
addition to the other forms of permitted additional indebtedness
enumerated therein) that may be incurred from $50 million to the
difference between $250 million and the amount of new notes issued
pursuant to this exchange offer, subject to the proviso indicated below.
Specifically, subclause (e) of clause (1) of the third paragraph of such
covenant will provide as follows:
"(e) constituting additional Indebtedness in an aggregate
principal amount (including any Indebtedness incurred to refund
or refinance such Indebtedness) at any one time outstanding equal
to the difference between $250 million and the aggregate
principal amount of new notes issued on the date of the
indenture, whether incurred under the Credit Agreement or
otherwise; provided, however, that no more than $50 million of
such additional Indebtedness incurred pursuant to this subclause
(e) shall be secured by a consensual Lien or be incurred by
Advantica or any Subsidiary of Advantica other than Denny's
Holdings,"
-- Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries has been modified to increase the amount of additional
indebtedness in the exclusion therefrom relating to encumbrances or
restrictions existing under or by reason of additional indebtedness (in
addition to the exclusions therefrom relating to other forms of permitted
additional indebtedness enumerated therein) from $50 million to the
difference between $250 million and the amount of new notes issued
pursuant to this exchange offer. Specifically, clause (g) of such
covenant will provide as follows:
"(g) additional Indebtedness in an aggregate principal amount at
any one time outstanding equal to the difference between $250
million and the aggregate principal amount of new notes issued on
the date of the indenture,"
In addition to the provisions set forth above, the new notes indenture will
be modified to make changes consistent with and necessary to effectuate the
intent of the modifications described above.
You may withdraw tendered outstanding old notes at any time prior to the
expiration of the exchange offer, as extended as indicated above.
Although the changes set forth in this prospectus supplement are not
reflected in the letter of transmittal or other documents related to the
exchange offer, Advantica will not distribute new documents reflecting these
changes. Holders of old notes who have previously tendered their old notes by
delivery of physical certificates in proper form for transfer or by compliance
with procedures for book-entry transfer (along with delivery by the registered
holders of a properly completed letter of transmittal or facsimile thereof), as
provided in the prospectus, need not re-tender their securities in order to
participate in the exchange as amended hereby. Holders of old notes who have not
yet tendered their old notes, but desire to do so, should use the originally
distributed letter of transmittal in order to tender their old notes. The letter
of transmittal and all other required documents must be delivered to the
Exchange Agent prior to 5:00 p.m., New York City time, March 22, 2002, in the
manner set forth in the prospectus under "The Exchange Offer -- Procedures for
Tendering" and on the outside back cover of the prospectus to which this
prospectus supplement is attached. All holders who have previously tendered or
who tender old notes pursuant to the offer to exchange will, subject to
acceptance of such tenders by Advantica, participate in the exchange on the
basis of the prospectus, as amended by the terms and provisions described in
this prospectus supplement.
Except as expressly modified as indicated above, the exchange offer and the
terms of the new notes offered in the exchange as described in the prospectus
have not been modified or amended. Please refer to the prospectus to which this
prospectus supplement is attached for additional information.
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Advantica reserves the right to extend, delay or amend further or to
terminate the exchange offer as provided in the prospectus.
RECENT DEVELOPMENTS
Our condensed consolidated operating results for the fourth quarter and for
the year ended December 26, 2001 were as follows (unaudited):
FOURTH QUARTER RESULTS
Revenue at Denny's company-owned restaurants for the fourth quarter of 2001
decreased to $224.4 million from $251.0 million in the prior year quarter as a
result of a 115-unit net reduction in company restaurants, partially offset by a
3.4% increase in same-store sales. The reduction in company restaurants during
2001 included 59 refranchising transactions and the closing of 61
underperforming stores. EBITDA decreased to $27.0 million from $43.2 million in
the prior year quarter. As stated in the prospectus, we define "EBITDA" as
operating income before depreciation, amortization and charges for restructuring
and impairment. Our measure of EBITDA as defined may not be comparable to
similarly titled measures reported by other companies. The decrease in EBITDA
was primarily attributable to $11.7 million less in refranchising gains and, to
a lesser extent, the lower company restaurant base and reduced operating
margins. Higher company restaurant operating costs as a percentage of sales were
attributable to additional store-level labor and benefits as well as continued
increases in repairs and maintenance expenditures. Higher occupancy costs as a
percentage of sales were due to an adjustment that lowered general liability
insurance expense by $3.5 million in the prior year quarter.
Franchise and licensing revenue increased approximately 7.0% to $22.5
million compared with $21.0 million in the prior year quarter, while franchise
operating income increased to $12.9 million from $7.7 million in last year's
quarter. The increase in franchise revenue resulted from a net 42-unit increase
in franchised and licensed units compared with the prior year quarter. In
addition to the unit increase, the improvement in franchise operating income is
attributable to $2.4 million of bad debt expense recorded in last year's
quarter. During the quarter, Denny's system-wide opened 13 restaurants and
closed 40, resulting in 1,749 restaurants at the end of the fourth quarter.
We reported a loss from continuing operations for the quarter of $39.5
million, or $0.98 per diluted common share, compared with last year's fourth
quarter loss of $26.6 million, or $0.66 per diluted common share. This year's
fourth quarter results include amortization of excess reorganization value of
$6.9 million compared with $10.5 million last year. Also, this year's fourth
quarter results include a restructuring charge of $8.4 million compared with a
similar charge of $5.3 million last year. The charge this year reflects
severance and other costs related to our elimination of out-of-restaurant
support staff in the fourth quarter as well as the planned closure of
underperforming stores. Also, this year's fourth quarter results include an
impairment charge of $5.3 million compared with a similar charge of $6.4 million
last year. The charge this year reflects a writedown for underperforming
restaurants, including the units identified for closure.
FULL YEAR RESULTS
Revenue at Denny's company-owned restaurants for fiscal 2001 decreased to
$949.2 million from $1,080.6 million in the prior year. A 2.7% increase in
same-store sales was offset by fewer company-owned units. Franchise and
licensing revenue increased to $90.5 million in 2001 compared with $74.6 million
in the prior year. The increase in franchise revenue resulted from additional
franchised and licensed units compared with the prior year. EBITDA decreased to
$135.1 million from $172.3 million in the prior year. The lower EBITDA primarily
resulted from reduced gains on fewer refranchising transactions.
For the year ended December 26, 2001, we reported a loss from continuing
operations of $96.3 million, or $2.40 per diluted common share, compared with
last year's loss of $82.5 million, or $2.06 per diluted common share. This
year's results reflect restructuring and impairment charges of $30.5 million,
while the loss last year included similar charges of $19.0 million. This year's
results include amortization of excess reorganization value of approximately
$28.7 million compared with $42.1 million last year. Refranchising gains
decreased to $13.3 million compared with $51.2 million last year.
On December 26, 2001, Advantica's $200 million credit facility had
outstanding revolver advances of $58.7 million compared with no outstanding
balances at year end 2000. The revolver advances primarily resulted from
Advantica's satisfaction of the Coco's/Carrows credit facility guarantee in
January 2001. Outstanding letters of credit decreased to $52.2 million from
$65.3 million at year end 2000, leaving a net availability for additional
borrowings of $89.1 million at the end of the 2001.
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SYSTEMWIDE SALES
For the fourth quarter ended December 26, 2001, Denny's systemwide sales,
which include sales from company-owned, franchised and licensed restaurants,
increased to $553 million compared with $547 million in the prior year quarter.
This increase is attributable to a 2.4% gain in systemwide same-store sales,
which reflects an increase of 3.4% at company units and 1.4% at franchised
units. The same-store sales gain is partially offset by a 73-unit net reduction
in total systemwide Denny's restaurants since the end of the same period last
year.
Denny's systemwide sales for the year ended December 26, 2001 increased by
approximately 3% to $2.30 billion compared with $2.23 billion in the prior year.
This increase is primarily attributable to a full-year increase in systemwide
same-store sales of 1.7%, which reflects an increase of 2.7% at company units
and 0.8% at franchised units.
DISCONTINUED OPERATIONS
During the fourth quarter, revenue at FRD declined to $85.9 million from
$91.6 million in the prior year quarter. EBITDA at FRD decreased to $7.4 million
versus $9.0 million in the prior year quarter. FRD's revenue for fiscal year
2001 declined to $350.9 million from $371.1 million in the prior year. EBITDA at
FRD decreased to $25.2 million from $35.7 million in the prior year.
PROPOSED SETTLEMENT IN FRD BANKRUPTCY PROCEEDING
On February 19, 2002, Advantica and Denny's, along with FRD, Coco's and
Carrows, entered into a stipulation and agreement of settlement, or settlement
agreement, with the official committee of unsecured creditors of FRD seeking to
resolve various disputes relating to the administration of FRD's pending case
under Chapter 11 of the United States Bankruptcy Code. The bankruptcy court
approved the settlement agreement on March 8, 2002.
Under the terms of the settlement agreement, Denny's will allow a 120-day
forbearance period (that commenced on March 8, 2002) during which the creditors'
committee and FRD and its operating subsidiaries shall use their best efforts to
obtain new financing to repay, at a discount, the outstanding borrowings from
Denny's (approximately $48.7 million at the date of the settlement agreement),
plus accrued but unpaid interest, fees and expenses. During this forbearance
period, the effort to sell FRD or its assets to a third party will be suspended.
If new financing sufficient to repay the outstanding borrowings from Denny's,
less a $10 million discount, is obtained by the end of the forbearance period,
Denny's will accept such discounted repayment amount in full satisfaction of its
claims against FRD and Coco's and Carrows. If FRD is unable to obtain financing
to repay this discounted repayment amount by the end of the forbearance period,
FRD shall, at the election of the creditors' committee, in lieu thereof:
- pay Denny's the proceeds of any new financing that is obtained, plus
additional cash necessary for a total cash repayment to Denny's of at
least $20 million,
- issue new junior secured notes to Denny's in a principal amount equal to
the amount of Coco's and Carrows' current obligations to Denny's, minus
the amount of any cash paid and any applicable repayment discount as
described in the settlement agreement (such junior secured notes
subordinate in right of payment and as to collateral to the new
financing), and
- issue to Denny's up to 10% of the common stock in FRD dependent upon the
amount of cash repaid to Denny's as described above.
The parties have agreed to attempt to replace the outstanding letters of
credit (approximately $9.6 million at the date of the settlement agreement) and
cause the cash deposit provided by Denny's supporting the letters of credit to
be released. If the letters of credit are not replaced, Denny's will keep them
in place and allow them to terminate in the ordinary course and will receive a
separate note payable from Coco's and Carrows to provide reimbursement if any
letters of credit are drawn upon. Advantica will continue to provide management
and information technology services pursuant to a one-year services agreement at
a cost to FRD set forth in the settlement agreement.
The settlement agreement is also conditioned upon the consent of Denny's
revolving credit facility lender. If the terms of the proposed settlement
agreement, including the financing described above, are satisfied, controlling
interest of FRD and its subsidiaries will be transferred to the creditors of
FRD.
In light of, among other things, the operating results and financial
condition of FRD and the uncertainties as to the outcome of the proposed
settlement agreement outlined above, there can be no assurance that we will be
able to recover any or all of the secured obligations owed to us under the
Coco's/Carrows credit facility.
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