Filed Pursuant to Rule 424(b)(2)
Registration No. 333-127818
PROSPECTUS
TRIARC COMPANIES, INC.
9,205,601 shares of Class B Common Stock, Series 1
This prospectus relates to up to 9,205,601 shares of our Class B common
stock, Series 1, that may be offered for sale from time to time by the selling
stockholders named in this prospectus. We issued these shares to the selling
stockholders on July 25, 2005 in connection with our acquisition of RTM
Restaurant Group.
The shares of Class B common stock, Series 1, may be sold at fixed
prices, prevailing market prices at the times of sale, prices related to the
prevailing market prices, varying prices determined at the times of sale or
negotiated prices. The shares of Class B common stock, Series 1, offered by
this prospectus and any prospectus supplement may be offered by the selling
stockholders directly to investors or to or through underwriters, dealers or
other agents. We will not receive any of the proceeds from the sale of the
shares of Class B common stock, Series 1, sold by the selling stockholders. We
will bear all expenses of this offering of the Class B common stock, Series 1,
other than the following expenses: all selling expenses (including underwriting
discounts and commissions and transfer taxes) of the selling stockholders, all
fees and expenses of the selling stockholders' counsel, any stock transfer
taxes in connection with any underwritten offering and all registration
expenses to the extent required by applicable law.
Our Class B common stock, Series 1, trades on the New York Stock
Exchange under the symbol "TRY.B." On December 20, 2006, the last reported sale
price of our Class B common stock, Series 1, was $19.60.
_________________________
INVESTING IN THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE
SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
The date of this prospectus is December 21, 2006.
TABLE OF CONTENTS
Where You Can Find More Information.........................................2
Incorporation of Documents by Reference.....................................3
Triarc Companies, Inc.......................................................4
The RTM Acquisition.........................................................6
Potential Corporate Restructuring...........................................8
Risk Factors................................................................9
Forward-Looking Statements.................................................25
Use of Proceeds............................................................27
Selling Stockholders.......................................................28
Plan of Distribution.......................................................30
Legal Matters..............................................................32
Experts....................................................................32
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission (the "SEC") regarding the offering of the securities
offered by this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information included in the
registration statement. For further information about us and the securities
offered by this prospectus, you should refer to the registration statement, its
exhibits and the documents incorporated by reference.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy materials that we have
filed with the SEC at the SEC public reference room located at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings can also be read at
the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Our SEC
filings are also available to the public on the SEC's Internet website at
http://www.sec.gov.
Our Class A common stock is listed on the New York Stock Exchange under
the symbol "TRY" and our Class B common stock, Series 1, is listed on the New
York Stock Exchange under the symbol "TRY.B."
We incorporate by reference into this prospectus the documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, including any
filings after the date of this prospectus, until all of the securities to which
this prospectus relates are sold or the offering is otherwise terminated, other
than any portions of any such documents that are not deemed "filed" under the
Exchange Act in accordance with the Exchange Act and applicable SEC rules and
regulations. The information incorporated by reference is an important part of
this prospectus. Any statement in a document incorporated by reference into
this prospectus will be deemed to be modified or superseded to the extent a
statement contained in (1) this prospectus or (2) any other subsequently filed
document that is incorporated by reference into this prospectus modifies or
supersedes such statement.
2
INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating by reference into this prospectus the following
documents filed by us with the SEC:
o Annual Report on Form 10-K for the fiscal year ended January 1,
2006, filed on April 3, 2006;
o Quarterly Reports on Form 10-Q for the fiscal quarter ended April
2, 2006, filed on May 12, 2006, the fiscal quarter ended July 2,
2006, filed on August 11, 2006, and the fiscal quarter ended
October 1, 2006, filed on November 13, 2006;
o Current Reports on Form 8-K, filed on January 5, 2006, January
27, 2006 (with respect to Item 8.01 and the exhibit filed
pursuant thereto only), February 3, 2006, February 6, 2006,
February 9, 2006, February 13, 2006, March 20, 2006, April 5,
2006, April 17, 2006, May 2, 2006, May 11, 2006, June 7, 2006,
August 11, 2006 (with respect to Item 8.01 and the exhibit filed
pursuant thereto only), September 20, 2006 and October 19, 2006,
October 25, 2006, November 13, 2006 (with respect to Item 8.01
and the exhibit filed pursuant thereto only), November 15, 2006,
November 16, 2006, and December 15, 2006;
o the description of the Class B common stock, Series 1, contained
in the Registration Statement on Form 8-A, filed pursuant to
Section 12 of the Exchange Act on August 11, 2003, and any
amendment or report filed for the purpose of updating such
description; and
o all other documents filed pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the offering other than any such
documents or portions thereof that are not deemed "filed" under
the Exchange Act in accordance with the Exchange Act and
applicable SEC rules and regulations.
You should rely only on the information contained in this document or
that information to which we have referred you. We have not authorized anyone
to provide you with any additional information.
The documents incorporated by reference into this prospectus are
available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this prospectus to any person,
without charge, upon written or oral request. Requests for such copies should
be directed to the following:
Triarc Companies, Inc.
280 Park Avenue
New York, New York 10017
Attention: Investor Relations
Telephone: (212) 451-3000
EXCEPT AS EXPRESSLY PROVIDED ABOVE, NO OTHER INFORMATION, INCLUDING
INFORMATION ON OUR WEBSITE, IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
3
TRIARC COMPANIES, INC.
We are a holding company and, through our subsidiaries, the franchisor
of the Arby's(R) restaurant system, which is comprised of approximately 3,500
restaurants. Of these restaurants, as of October 1, 2006, more than 1,000 are
owned and operated by our subsidiaries. We also own an approximate 64% capital
interest, a profits interest of at least 52% and approximately 94% of the
voting interests in Deerfield & Company LLC ("Deerfield"), which, through its
wholly-owned subsidiary Deerfield Capital Management LLC ("DCM"), is a
Chicago-based asset manager offering a diverse range of fixed income and
credit-related strategies to institutional investors with approximately $14.1
billion under management as of October 1, 2006. We also own an approximate
11.6% capital interest in Jurlique International Pty Ltd, a privately held
Australian skin and health care products company. As of September 29, 2006, we
effectively redeemed our investment in Deerfield Opportunities Fund, LLC
("DOF"), which was managed by DCM. We intend to withdraw our entire investment
in DM Fund, LLC, which is managed by DCM, by December 29, 2006. The following
chart is a summary of our organizational structure as of November 1, 2006:
----------------------
-------------------------------
TRIARC COMPANIES, INC. All ownership common equity and
100% unless otherwise noted
---------------------- -------------------------------
|
|
---------------------------------------------------------------------------
| | | | |
63.6% Capital Interest 69.8% 11.6% | (direct and
(indirect) (indirect) (indirect) | (indirect)
| | | | |
------------------- ------------ ---------------------- ----------------- ------------
Deerfield & Company DM Fund, LLC Jurlique International Arby's Restaurant Other Triarc
LLC Pty, Ltd Holdings, LLC Subsidiaries
------------------- ------------ ---------------------- ----------------- ------------
| |
------------------- -----------------
Deerfied Capital Triarc Restaurant
Management LLC Holdings, LLC
------------------- -----------------
|
----------------------------------
| |
----------------- ------------
Arby's Restaurant Arby's, Inc.
Group, Inc.
----------------- ------------
| |
| -------------
| Arby's Merger
| Co., Inc.
| -------------
|
----------------------------------------------------------------------------------------------------
| | | | | | |
---------------- ----------------- --------------- ----------------- ----------- ----------- ------------
Arby's Support
ARG Services, Center LLC RTM Acquisition Arby's Restaurant Sybra, Inc. Arby's, LLC Arby's IP
Inc. (f/k/a RTMMC Company, L.L.C. LLC Holder Trust
Acquisition, LLC)
---------------- ----------------- --------------- ----------------- ----------- ----------- ------------
| |
(direct and indirect) |
| |
------------------ -----------------
Arby's Restaurant, Arby's of Canada,
LLC Subsidiaries Inc.
------------------ -----------------
For the fiscal year ended January 1, 2006 and the nine months ended
October 1, 2006, our consolidated net loss was approximately $55.6 million and
$9.3 million (unaudited), respectively.
For the fiscal year ended January 1, 2006, our restaurant segment
accounted for approximately 89.0%, and our asset management segment accounted
for approximately 11.0%, of our consolidated operating profit before general
corporate operating losses or costs. For the nine months ended October 1, 2006,
our restaurant segment accounted for approximately 94.0%, and our asset
management segment accounted for approximately 6.0%, of our unaudited
consolidated operating profit before general corporate operating losses or
costs.
4
Our corporate predecessor was incorporated in Ohio in 1929. We
reincorporated in Delaware in June 1994. Our principal executive offices are
located at 280 Park Avenue, New York, New York 10017 and our telephone number
is (212) 451-3000. Our website address is: www.triarc.com. Information
contained on our website is not part of this prospectus.
5
THE RTM ACQUISITION
On July 25, 2005, we completed our acquisition of RTM. Prior to the
acquisition, RTM was the largest Arby's(R) franchisee, with 775 Arby's
restaurants in 22 states. As a result of the RTM acquisition, the 775 Arby's
restaurants previously franchised by RTM are now owned and operated by us.
As total consideration in the RTM acquisition, we paid $175 million in
cash (which is subject to post closing adjustment), we issued 9,684,316 shares
of our Class B common stock, Series 1, and we issued options to purchase
774,066 shares of our Class B common stock, Series 1 (with a weighted average
exercise price of $8.92 per share) in replacement of existing RTM stock
options. The combined value of the shares and options that we issued in
connection with the RTM acquisition was approximately $150 million, based on a
closing price of $15.00 per share on July 25, 2005 and the two days prior. In
connection with the RTM acquisition, Arby's Restaurant Group, Inc. ("ARG"), our
wholly owned subsidiary, also assumed approximately $300 million of RTM debt,
including approximately $175 million of RTM capitalized lease and financing
obligations. We provided $135 million in cash to fund the RTM acquisition, and
ARG provided the remaining cash needed to complete the RTM acquisition,
including transaction costs.
The RTM acquisition was effected as follows: Arby's Acquisition Co.,
our direct wholly owned subsidiary, merged with and into RTM Restaurant Group,
Inc., with RTM Restaurant Group as the surviving corporation. Concurrently with
this first merger, we purchased all of the outstanding membership interests in
RTM Acquisition Company, L.L.C. and RTMMC Acquisition, LLC, our direct wholly
owned subsidiary, acquired all of the assets of RTM Management Company, L.L.C.,
other than specified excluded assets, and assumed all of the liabilities of RTM
Management Company, other than specified excluded liabilities. Immediately
following the first merger, RTM Restaurant Group was merged with and into
Arby's Restaurant, LLC, our direct wholly owned subsidiary, with Arby's
Restaurant as the surviving entity. The following is a graphic depiction of the
RTM acquisition and the resulting structure:
RTM AQUISITION
--------------
-------
Members
-------
---------------------- |
|
Triarc Companies, Inc. <---------------------------------------------|
\ Membership |
----------------------- \ Interest Sale ---------------
| \ \ RTM Acquisition
| \ \ Company, L.L.C.
| \ \ ---------------
| \ \
| --------------- -------------- --------------
| Arby's Arby's ----------> RTM Restaurant
| Restaurant, LLC Acqusition Co. First Group, Inc.
| --------------- -------------- Merger --------------
| ^ |
| | |
| ---------------------------------------------
| Second Merger
|
|
--------------- ---------------
RTMMC <-------- RTM Management
Acqusition, LLC Asset Company, L.L.C.
--------------- Sale ---------------
Structure Immediately
Following the RTM Acquisition
-----------------------------
-----------------------------------
Triarc Companies, Inc.
-----------------------------------
/ | \
/ | \
/ | \
/ | \
---------------------- ---------------------- -------------------------------
Arby's Restaurant, LLC RTMMC Acquisition, LLC RTM Acquisition Company, L.L.C.
---------------------- ---------------------- -------------------------------
6
Immediately following the completion of the RTM acquisition, we
contributed all of the membership interests in RTM Acquisition Company, RTMMC
Acquisition and Arby's Restaurant through each succeeding level of our
subsidiaries to ARG.
The organizational chart included on page 4 reflects our organizational
structure as of October 2, 2006, which includes the contributions that followed
the completion of the RTM acquisition described above.
In connection with the RTM acquisition, ARG refinanced substantially
all of its and RTM's existing indebtedness. This refinancing included the
repayment of approximately $212 million of RTM third-party debt and
approximately $71 million of ARG third-party debt, as well as the defeasance of
the Arby's Franchise Trust, 7.44% insured non-recourse securitization notes
(total principal amount of $198 million at July 25, 2005), which were redeemed
in full on August 22, 2005, and the payment of related prepayment penalties.
The refinancing also included the repayment of approximately $22 million of
indebtedness (including prepayment fees) of certain entities related to RTM and
the selling stockholders that Triarc did not acquire in the transaction. We
refer to those related entities that Triarc did not acquire in the transaction
as the "Non-Acquired Entities". RTM had guaranteed the debt of the Non-Acquired
Entities that was repaid in connection with the RTM acquisition. ARG funded its
portion of the cash consideration paid in the RTM acquisition, the transaction
costs and the refinancing with the proceeds from a new $720 million credit
facility (consisting of a $620 million senior term loan B facility and a $100
million senior revolving credit facility, with a $30 million subfacility for
letters of credit).
At the time the RTM acquisition was completed, we entered into a
registration rights agreement with the selling stockholders. The registration
rights agreement requires us to register for sale from time to time by the
selling stockholders all of the shares of our Class B common stock, Series 1,
that we issued in connection with the RTM acquisition. The shares covered by
this prospectus are being registered in accordance with the registration rights
agreement. Under the registration rights agreement, we have agreed to keep the
shelf registration statement effective until the earlier of the date that is
(i) two years after the date on which the shelf registration statement becomes
effective, as may be extended under certain circumstances and (ii) the date
that all shares received by the selling stockholders from the RTM acquisition
have been sold under the shelf registration statement or under Rule 144 or
Regulation S of the Securities Act. We have agreed to indemnify in certain
circumstances the selling stockholders against certain liabilities, including
liabilities under the Securities Act. The selling stockholders have agreed to
indemnify us in certain circumstances against certain liabilities, including
liabilities under the Securities Act.
We and ARG also entered into an escrow agreement at the time the RTM
acquisition was completed. Pursuant to the escrow agreement, 1,203,372 of the
shares of our Class B common stock, Series 1, that were issued, and $2 million
of the cash that was paid, in connection with the RTM acquisition was deposited
with an escrow agent as security for the post-closing adjustment based upon the
combined RTM net liabilities and for indemnification obligations of the former
shareholders of RTM Restaurant Group, Inc., the former members of RTM
Acquisition Company, L.L.C., RTM Management Company, L.L.C. and the members of
RTM Management Company, L.L.C. under the definitive agreements related to the
RTM acquisition. The indemnification obligations relate in part to certain
lease obligations of certain of the Non-Acquired Entities that are guaranteed
by RTM. Portions of the escrow are subject to release on the 18-month and
24-month anniversaries of the completion of the RTM acquisition, and the escrow
will be terminated on the 30-month anniversary of the completion of the RTM
acquisition or, if there are any claims pending against the escrow on the
30-month anniversary, upon final resolution of those pending claims.
In addition, at the time the RTM acquisition was completed, Michael I.
Lippert, a selling stockholder, entered into a promissory note with ARG
pursuant to which Mr. Lippert promised to pay the principal amount of $519,128
plus interest at an annual rate equal to the base rate announced by Citibank,
N.A. from time to time plus 2%. The promissory note was repaid, in full, by Mr.
Lippert on June 12, 2006.
At the time the RTM acquisition was completed, ARG entered into a
short-term lease arrangement with RTM Management Company, L.L.C., an entity
that is owned by certain selling stockholders, whereby ARG used substantially
all of RTM's then headquarters as its headquarters, and assumed the lease
between RTM Management Company, L.L.C. and RTM Georgia, Inc., a subsidiary of
RTM, for its southeast regional headquarters. The lease for RTM's headquarters
expired on February 28, 2006. The lease for the southeast regional headquarters
7
expired on April 30, 2006. Under the lease for the RTM headquarters, the
monthly rent was approximately $43,557 in addition to a proportionate share of
the real estate taxes and operating costs. Under the assumed lease for the
southeast regional headquarters of RTM, the monthly rent was $10,550, which
included all real estate taxes and operating costs.
In addition, at the time the RTM acquisition was completed, ARG entered
into a management services agreement with certain of the Non-Acquired Entities.
Under the agreement, as amended, ARG provides specified management services in
exchange for (i) a payment of $35,500 per four-week period through May 7, 2006,
(ii) a payment of $8,450 per four-week period through July 30, 2006, (iii) a
payment of $1,850 per four-week period through October 22, 2006; (iv) no
payment for the four-week period ending November 19, 2006; and (v) a payment of
$3,000 per four-week period through March 11, 2007, plus the reimbursement of
out-of-pocket expenses that it has incurred. The management services agreement
may be terminated upon 30 days prior written notice by either party.
Finally, ARG entered into employment agreements with Thomas Garrett,
Sharron Barton and Michael Lippert, and Arby's Restaurant, LLC, our subsidiary
and the successor to RTM Restaurant Group, Inc., entered into employment
agreements with Michael Abt and Jerry Ardizzone, each of which became effective
at the completion of the acquisition of RTM. Each of these individuals is a
selling stockholder. Mr. Garrett serves as ARG's President and Chief Operating
Officer, Ms. Barton serves as ARG's Chief Administrative Officer and Mr.
Lippert serves as ARG's Senior Vice President - Company Operations. Messrs. Abt
and Ardizzone serve as Arby's Restaurant, LLC's South Region President and
Central Region President, respectively. We do not expect any of these
employment agreements to be affected by the potential corporate restructuring
described below.
POTENTIAL CORPORATE RESTRUCTURING
We are continuing to explore a possible corporate restructuring that is
expected to involve the disposition of our asset management operations, whether
through a sale of our ownership interest in Deerfield, a spin-off of our
ownership interest in Deerfield to our stockholders or such other means as our
board of directors may conclude would be in the best interests of our
stockholders. If the corporate restructuring is completed, it is currently
anticipated that Triarc would be renamed Arby's and would be led by ARG's
current President and Chief Executive Officer, Roland Smith, and the ARG
management team. In connection with the potential restructuring, on January 26,
2006, in addition to our regular quarterly dividends, we announced our
intention to declare and pay during 2006 special cash dividends aggregating
$0.45 per share on each outstanding share of our Class A common stock and Class
B common stock, Series 1, the first installment of which, in the amount of
$0.15 per share, was paid on March 1, 2006 and the second installment of which,
in the amount of $0.15 per share, was paid on July 14, 2006. The third and
final installment of such special cash dividends in the amount of $0.15 per
share on each outstanding share of our Class A common stock and Class B common
stock, Series 1, was declared on November 14, 2006 and is scheduled to be paid
on December 20, 2006 to holders of record on December 5, 2006. Options for our
other remaining non-restaurant assets are also under review and could include
the allocation of our remaining cash, cash equivalents, short-term and other
investments between our two businesses (Arby's and Deerfield) and/or additional
special dividends or distributions to stockholders.
If we proceed with a restructuring, various arrangements relating to
the separation of the affected businesses would be necessary, the terms of
which would depend on the nature of the restructuring. We also have employment
agreements and severance arrangements with certain of our executive officers
and corporate employees. A restructuring could also entail significant
severance or contractual settlement payments under these agreements and
arrangements. In the case of certain of our executive officers, any payments
will be subject to negotiation and approval by a special committee comprised of
independent members of our board of directors. There can be no assurance that
the corporate restructuring will occur or the form, terms or timing of such
restructuring if it does occur. Other than as described herein, our board of
directors has not reached any definitive conclusions concerning the form,
scope, benefits or timing of the corporate restructuring.
On November 1, 2005, Messrs. Peltz, May and Garden (collectively, the
"Principals") started a series of equity investment funds (the "Funds") that
are separate and distinct from us and that are being managed by the Principals
and our other senior officers (the "Employees") through a management company
(the "Management Company") formed by the Principals. The investment strategy of
the Funds is to achieve capital appreciation by investing in equity securities
of publicly traded companies and effecting positive change through active
hands-on influence and involvement. In contrast, Deerfield is an asset manager
8
focusing on fixed income and credit-related strategies with approximately $14.1
billion of assets under management as of October 1, 2006, of which
approximately $3.4 million was invested in equity securities of publicly traded
companies. Before agreeing to acquire more than 50% of the outstanding
securities of a company in the quick service restaurant segment in which Arby's
operates, the Principals have agreed to offer us such acquisition opportunity.
The Principals and Employees continue to serve as officers of, and
receive compensation from us. We are making available the services of the
Principals and the Employees, as well as certain support services including
investment research, legal, accounting and administrative services, to the
Management Company. The length of time that these management services will be
provided has not yet been determined. We are being reimbursed by the Management
Company for the allocable cost of these services, including an allocable
portion of salaries, rent and various overhead costs for periods both before
and after the launch of the Funds. Such allocated costs amounted to $775,000
and $2,827,000 for the year ended January 1, 2006 and for the nine months ended
October 1, 2006, respectively. A special committee comprised of independent
members of our board of directors has reviewed and considered these
arrangements.
As of October 1, 2006, we had $396.6 million of cash and cash
equivalents, restricted cash equivalents, investments other than investments
held in deferred compensation trusts and receivables from sales of investments,
net of liabilities related to investments. At October 1, 2006, our consolidated
indebtedness was approximately $724 million, including approximately $696
million of debt of our restaurant subsidiaries. The debt of our restaurant
subsidiaries has neither been guaranteed by us nor secured by our cash, cash
equivalents or investments. The foregoing amounts do not reflect the regular
quarterly cash dividends of $0.08 per share on our Class A Common Stock and
$0.09 per share on our Class B Common Stock, Series 1, that were declared on
November 9, 2006 and are scheduled to be paid on December 15, 2006 in the
aggregate amount of approximately $7.7 million and the last $0.15 per share
installment of special cash dividends that was declared on November 14, 2006
and is scheduled to be paid on December 20, 2006 in the aggregate amount of
approximately $13.4 million.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT DECISION. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS
COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY OF THESE RISKS. THE TRADING PRICE
OF OUR SECURITIES COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
RISKS RELATED TO TRIARC
A SUBSTANTIAL AMOUNT OF OUR SHARES OF CLASS A COMMON STOCK AND CLASS B
COMMON STOCK IS CONCENTRATED IN THE HANDS OF CERTAIN STOCKHOLDERS.
As of April 13, 2006, Nelson Peltz, our Chairman and Chief Executive
Officer, and Peter May, our President and Chief Operating Officer, each
individually beneficially owned shares of our outstanding Class A common stock
and Class B common stock, Series 1 (including shares issuable upon the exercise
of options exercisable within 60 days of April 13, 2006), that collectively
constituted approximately 41.9% of our Class A common stock, 29.8% of our Class
B common stock, Series 1, and 39.7% of our total voting power.
Messrs. Peltz and May may from time to time acquire additional shares
of Class A common stock, including by exchanging some or all of their shares of
Class B common stock, Series 1, for shares of Class A common stock.
Additionally, we may from time to time repurchase shares of Class A common
stock or Class B common stock, Series 1. Such transactions could result in
Messrs. Peltz and May together owning more than a majority of our outstanding
voting power. As a result, Messrs. Peltz and May would be able to determine the
outcome of the election of members of our board of directors and the outcome of
corporate actions requiring majority stockholder approval, including mergers,
consolidations and the sale of all or substantially all of our assets. They
9
would also be in a position to prevent or cause a change in control of us. In
addition, to the extent we issue additional shares of our Class B common stock,
Series 1, for acquisitions, financings or compensation purposes, such issuances
would not proportionally dilute the voting power of existing stockholders,
including Messrs. Peltz and May.
OUR SUCCESS DEPENDS SUBSTANTIALLY UPON THE CONTINUED RETENTION OF
CERTAIN KEY PERSONNEL.
We believe that our success has been and will continue to be dependent
to a significant extent upon the efforts and abilities of our senior management
team. The failure by us to retain members of our senior management team could
adversely affect our ability to build on the efforts undertaken by our current
management to increase the efficiency and profitability of our businesses.
Specifically, the loss of Nelson Peltz, our Chairman and Chief Executive
Officer, or Peter May, our President and Chief Operating Officer, other members
of our senior management team or the senior management of our subsidiaries
could adversely affect us.
We are continuing to explore a possible corporate restructuring that is
expected to involve the disposition of our asset management operations, whether
through a sale of our ownership interest in Deerfield, a spin-off of our
ownership interest in Deerfield to our stockholders or such other means as our
board of directors may conclude would be in the best interests of our
stockholders. If the corporate restructuring is completed, it is currently
anticipated that Triarc would be renamed Arby's and would be led by ARG's
current President and Chief Executive Officer, Roland Smith, and the ARG
management team. Following the corporate restructuring, although Messrs. Peltz
and May will continue to be large stockholders and directors of Arby's, it is
currently expected that they and other members of our existing senior
management team would no longer be involved in actively managing Arby's and the
success of the Arby's business would depend to a significant extent upon the
efforts and abilities of its senior management team.
EQUITY INVESTMENT FUNDS STARTED BY THE PRINCIPALS MAY CREATE A CONFLICT
OF INTERESTS BETWEEN THE FUNDS AND US.
On November 1, 2005, the Principals started the Funds that are separate
and distinct from us and that are being managed by the Principals and other
senior officers through the Management Company. Although the Principals and
other senior officers continue to serve as officers and be compensated by us,
we are making the services of the Principals and these officers available to
the Management Company. Consequently, the Principals and these officers are no
longer providing their services exclusively to us. The arrangement by which the
Principals and other senior officers provide these services was reviewed and
considered by a special committee comprised of independent directors of our
board of directors.
The investment strategy of the Funds is to achieve capital appreciation
by investing in equity securities of publicly traded companies and effecting
positive change through active hands-on influence and involvement. In contrast,
Deerfield is an asset manager focusing on fixed income and credit-related
strategies with approximately $14.1 billion of assets under management as of
October 1, 2006, of which approximately $3.4 million was invested in equity
securities of publicly traded companies. Although neither the Funds nor
Deerfield currently plans to change its investment strategy, a change in
investment strategy by either party in the future may create a conflict of
interests between the Funds and us. In addition, while the Principals have
agreed to offer us the opportunity to acquire more than 50% of the outstanding
securities of a company in the quick service restaurant segment, if we decline
to exercise such opportunity, the Funds could consummate such an acquisition.
WE HAVE BROAD DISCRETION IN THE USE OF OUR SIGNIFICANT CASH, CASH
EQUIVALENTS AND INVESTMENTS.
As of October 1, 2006, we had $396.6 million of cash and cash
equivalents, restricted cash equivalents, investments other than investments
held in deferred compensation trusts and receivables from sales of investments,
net of liabilities related to investments. The foregoing amounts do not reflect
regular quarterly cash dividends of $0.08 per share on our Class A Common Stock
and $0.09 per share on our Class B Common Stock, Series 1, that were declared
on November 9, 2006 and are scheduled to be paid on December 15, 2006 in the
aggregate amount of approximately $7.7 million and the last $0.15 per share
installment of special cash dividends that was declared on November 14, 2006
and is scheduled to be paid on December 20, 2006 in the aggregate amount of
approximately $13.4 million. We have not otherwise designated any specific use
for our significant cash, cash equivalents and investment position. In
10
connection with the potential corporate restructuring, options for our cash,
cash equivalents and investments are under review and could include the
allocation of such assets between our two businesses (Arby's and Deerfield)
and/or additional special dividends or distributions to stockholders.
ACQUISITIONS HAVE BEEN A KEY ELEMENT OF OUR BUSINESS STRATEGY, BUT WE
CANNOT ASSURE YOU THAT WE WILL BE ABLE TO IDENTIFY APPROPRIATE ACQUISITION
TARGETS IN THE FUTURE AND THAT WE WILL BE ABLE TO SUCCESSFULLY INTEGRATE ANY
FUTURE ACQUISITIONS INTO OUR EXISTING OPERATIONS.
Acquisitions involve numerous risks, including difficulties
assimilating new operations and products. In addition, acquisitions may require
significant management time and capital resources. We cannot assure you that we
will have access to the capital required to finance potential acquisitions on
satisfactory terms, that any acquisition would result in long-term benefits to
us or that management would be able to manage effectively the resulting
business. Future acquisitions, if any, are likely to result in the incurrence
of additional indebtedness, which could contain restrictive covenants, or the
issuance of additional equity securities, which could dilute our existing
stockholders.
WE CANNOT ASSURE YOU THAT OUR PROPOSED CORPORATE RESTRUCTURING WILL BE
SUCCESSFULLY IMPLEMENTED.
We are continuing to explore the feasibility, as well as the risks and
opportunities, of a possible corporate restructuring that may involve the
disposition of our asset management operations, whether through a sale of our
ownership interest in Deerfield, a spin-off of our ownership interest in
Deerfield to our stockholders or such other means as our board of directors may
conclude would be in the best interests of our stockholders. There can be no
assurance that the corporate restructuring will occur or the form, terms or
timing of such restructuring if it does occur. Our failure to implement these
transactions timely and economically could materially increase our costs and
impair our results of operations. Even if the restructuring is completed, there
can be no assurance that the expected benefits to Triarc and its stockholders
would be realized.
OUR INVESTMENT OF EXCESS FUNDS MAY BE SUBJECT TO RISK, PARTICULARLY DUE
TO USE OF LEVERAGE AND THE RISKINESS OF UNDERLYING ASSETS.
From time to time we place our excess cash in investment funds managed
by third parties or by DCM. Some of these funds use substantial leverage in
their trading, including through the use of borrowed funds, total return swaps
and/or other derivatives. The use of leverage generates various risks,
including the exacerbation of losses, increased interest expense in the case of
leverage through borrowing, and exposure to counterparty risk in the case of
leverage through derivatives. However, volatility in the value of a fund is a
function not only of the amount of leverage employed but also of the riskiness
of the underlying investments. Therefore, the greater the amount of leverage
used by a fund and the greater the riskiness of a fund's underlying assets, the
greater the risk associated with our investment in such fund.
WE MAY BE REQUIRED TO TAKE OR NOT TAKE CERTAIN ACTIONS, SUCH AS
FOREGOING INVESTMENT OPPORTUNITIES, SO AS NOT TO BE DEEMED AN "INVESTMENT
COMPANY" UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
The Investment Company Act of 1940, as amended (the "1940 Act"),
requires the registration of, and imposes various restrictions on the
operations of, companies that own "investment securities" having a value
exceeding 40% of their assets (excluding government securities and cash items)
on an unconsolidated basis, absent an available exclusion. We and/or our
subsidiaries may be required to take actions that we and/or our subsidiaries
would not otherwise take so as not to be deemed an "investment company" under
the 1940 Act. Presently, neither we nor any of our subsidiaries is an
investment company required to register under the 1940 Act. If we or one of our
subsidiaries invests more than 40% of its assets in investment securities, and
is unable to rely on an exclusion from being an investment company, we and/or
that subsidiary might be required to register under and thus become subject to
the restrictions of the 1940 Act. We and our subsidiaries intend to continue to
make acquisitions and other investments in a manner so as not to be an
investment company. As a result, we and/or our subsidiaries may forego
investments that we and/or our subsidiaries might otherwise make or retain or
dispose of investments or assets that we and/or our subsidiaries might
otherwise sell or hold.
11
IN THE FUTURE, WE MAY HAVE TO TAKE ACTIONS THAT WE WOULD NOT OTHERWISE
TAKE SO AS NOT TO BE SUBJECT TO TAX AS A "PERSONAL HOLDING COMPANY."
If at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value of our
shares and if during such taxable year we receive 60% or more of our gross
income, as specially adjusted, from specified passive sources, we would be
classified as a "personal holding company" for U.S. federal income tax
purposes. If this were the case, we would be subject to additional taxes at the
rate of 15% on a portion of our income, to the extent this income is not
distributed to stockholders. We do not currently expect to have any liability
in 2006 for tax under the personal holding company rules. However, we cannot
assure you that we will not become liable for such tax in the future. Because
we do not wish to be classified as a personal holding company or to incur any
personal holding company tax, we may be required in the future to take actions
that we would not otherwise take. These actions may influence our strategic and
business decisions, including causing us to conduct our business and acquire or
dispose of investments differently than we otherwise would.
OUR CERTIFICATE OF INCORPORATION CONTAINS CERTAIN ANTI-TAKEOVER
PROVISIONS AND PERMITS OUR BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK AND
ADDITIONAL SERIES OF CLASS B COMMON STOCK WITHOUT STOCKHOLDER APPROVAL.
Certain provisions in our certificate of incorporation are intended to
discourage or delay a hostile takeover of control of us. Our certificate of
incorporation authorizes the issuance of shares of "blank check" preferred
stock and additional series of Class B common stock, which will have such
designations, rights and preferences as may be determined from time to time by
our board of directors. Accordingly, our board of directors is empowered,
without stockholder approval, to issue preferred stock and/or Class B common
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power and other rights of the holders of our Class
A common stock and Class B common stock, Series 1. The preferred stock and
additional series of Class B common stock could be used to discourage, delay or
prevent a change in control of us that is determined by our board of directors
to be undesirable. Although we have no present intention to issue any shares of
preferred stock or additional series of Class B common stock, we cannot assure
you that we will not do so in the future.
RISKS RELATING TO ARBY'S
OUR RESTAURANT BUSINESS IS SIGNIFICANTLY DEPENDENT ON NEW RESTAURANT
OPENINGS, WHICH MAY BE INTERRUPTED BY FACTORS BEYOND OUR CONTROL.
Our restaurant business derives earnings from franchise royalties and
fees from franchised restaurants and sales in company-owned restaurants. Growth
in our restaurant revenues and earnings is significantly dependent on new
restaurant openings. Numerous factors beyond our control may affect restaurant
openings. These factors include but are not limited to:
o our ability to attract new franchisees;
o the availability of site locations for new restaurants;
o the ability of potential restaurant owners to obtain financing;
o the ability of restaurant owners to hire, train and retain
qualified operating personnel;
o the availability of construction materials and labor;
o construction and development costs of new restaurants,
particularly in highly-competitive markets;
o the ability of restaurant owners to secure required governmental
approvals and permits in a timely manner, or at all; and
o adverse weather conditions.
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Although as of October 1, 2006, franchisees had signed commitments to
open 251 Arby's restaurants over the next six years and have made or are
required to make non-refundable deposits of $10,000 per restaurant, we cannot
assure you that franchisees will meet these commitments and that they will
result in open restaurants.
ARBY'S FRANCHISEES COULD TAKE ACTIONS THAT COULD HARM OUR BUSINESS.
Arby's franchisees are contractually obligated to operate their
restaurants in accordance with the standards ARG sets in its agreements with
them. ARG also provides training and support to franchisees. However,
franchisees are independent third parties that ARG does not control, and the
franchisees own, operate and oversee the daily operations of their restaurants.
As a result, the ultimate success and quality of any franchise restaurant rests
with the franchisee. If franchisees do not successfully operate restaurants in
a manner consistent with ARG's standards, the Arby's image and reputation could
be harmed, which in turn could hurt ARG's business and operating results.
ARG'S SUCCESS DEPENDS ON ARBY'S FRANCHISEES' PARTICIPATION IN ARG'S
STRATEGY.
Arby's franchisees are an integral part of ARG's business. ARG may be
unable to successfully implement ARG's brand strategies that it believes are
necessary for further growth if Arby's franchisees do not participate in that
implementation. The failure of ARG's franchisees to focus on the fundamentals
of restaurant operations such as quality, service and cleanliness would have a
negative impact on ARG's success.
ARG'S FINANCIAL RESULTS ARE AFFECTED BY THE FINANCIAL RESULTS OF ARBY'S
FRANCHISEES.
ARG receives revenue in the form of royalties and fees from Arby's
franchisees which are generally based on a percentage of sales at franchised
restaurants. Accordingly, a substantial portion of ARG's financial results is
to a large extent dependent upon the operational and financial success of
Arby's franchisees, including their implementation of ARG's strategic plans. If
sales trends or economic conditions worsen for Arby's franchisees, their
financial results may worsen and ARG's collection rates may decline. When ARG
divests company-owned restaurants, ARG is often required to remain responsible
for lease payments for these restaurants to the extent that the relevant
franchisees default on their leases. Additionally, if Arby's franchisees fail
to renew their franchise agreements, or if ARG is required to restructure its
franchise agreements in connection with such renewal, it would result in
decreased revenues for ARG.
ARG MAY BE UNABLE TO MANAGE EFFECTIVELY ITS STRATEGY OF ACQUIRING AND
DISPOSING OF ARBY'S RESTAURANTS, WHICH COULD ADVERSELY AFFECT ARG'S BUSINESS
AND FINANCIAL RESULTS.
ARG's strategy of acquiring Arby's restaurants from franchisees and
eventually "re-franchising" these restaurants by selling them to new or
existing franchisees is dependent upon the availability of sellers and buyers
as well as ARG's ability to negotiate transactions on terms that ARG deems
acceptable. In addition, the operations of restaurants that ARG acquires may
not be integrated successfully, and the intended benefits of such transactions
may not be realized. Acquisitions of Arby's restaurants pose various risks to
ARG's on-going operations, including:
o diversion of management attention to the integration of acquired
restaurant operations;
o increased operating expenses and the inability to achieve
expected cost savings and operating efficiencies;
o exposure to liabilities arising out of sellers' prior operations
of acquired restaurants; and
o incurrence or assumption of debt to finance acquisitions or
improvements and/or the assumption of long-term, non-cancelable
leases.
In addition, engaging in acquisitions and dispositions places increased
demands on ARG's operational, financial and management resources and may
require ARG to continue to expand these resources. If ARG is unable to manage
13
the acquisition and disposition strategy effectively, its business and
financial results could be adversely affected.
ARG DOES NOT EXERCISE ULTIMATE CONTROL OVER ADVERTISING AND PURCHASING
FOR THE ARBY'S RESTAURANT SYSTEM, WHICH COULD HURT SALES AND THE ARBY'S BRAND.
Arby's franchisees control the provision of national advertising and
marketing services to the Arby's franchise system through AFA Service
Corporation, a company controlled by Arby's franchisees. Subject to ARG's right
to protect its trademarks, and except to the extent that ARG participates in
AFA Service Corporation through its company-owned restaurants, AFA Service
Corporation has the right to approve all significant decisions regarding the
national marketing and advertising strategies and the creative content of
advertising for the Arby's system. Although ARG has entered into a management
agreement pursuant to which ARG, on behalf of AFA Service Corporation, manages
the day-to-day operations of AFA Service Corporation, many areas are still
subject to ultimate approval by AFA Service Corporation's independent board of
directors and the management agreement may be terminated by either party for
any reason upon one year's prior notice. In addition, local cooperatives run by
operators of Arby's restaurants in a particular local area (including ARG) make
their own decisions regarding local advertising expenditures, subject to
spending the required minimum amounts. ARG's lack of control over advertising
could hurt sales and the Arby's brand.
In addition, although ARG ensures that all suppliers to the Arby's
system meet quality control standards, Arby's franchisees control the
purchasing of food, proprietary paper, equipment and other operating supplies
from such suppliers through ARCOP, Inc., a not-for-profit entity controlled by
Arby's franchisees. ARCOP negotiates national contracts for such food,
equipment and supplies. ARG is entitled to appoint one representative on the
board of directors of ARCOP and participate in ARCOP through its company-owned
restaurants, but otherwise does not control the decisions and activities of
ARCOP except to ensure that all suppliers satisfy Arby's quality control
standards. If ARCOP does not properly estimate the needs of the Arby's system
with respect to one or more products, makes poor purchasing decisions, or
decides to cease its operations, system sales and operating costs could be
adversely affected and the financial condition of ARG or the financial
condition of Arby's franchisees could be hurt.
SHORTAGES OR INTERRUPTIONS IN THE SUPPLY OR DELIVERY OF PERISHABLE FOOD
PRODUCTS COULD DAMAGE THE ARBY'S BRAND REPUTATION AND ADVERSELY AFFECT ARG'S
OPERATING RESULTS.
ARG and Arby's franchisees are dependent on frequent deliveries of
perishable food products that meet ARG's specifications. Shortages or
interruptions in the supply of perishable food products caused by unanticipated
demand, problems in production or distribution, disease or food-borne
illnesses, inclement weather or other conditions could adversely affect the
availability, quality and cost of ingredients, which would likely lower ARG's
revenues, damage Arby's reputation and otherwise harm ARG's business.
ADDITIONAL INSTANCES OF MAD COW DISEASE OR OTHER FOOD-BORNE ILLNESSES,
SUCH AS BIRD FLU, COULD ADVERSELY AFFECT THE PRICE AND AVAILABILITY OF BEEF,
POULTRY OR OTHER MEATS AND CREATE NEGATIVE PUBLICITY, WHICH COULD RESULT IN A
DECLINE IN SALES.
Instances of mad cow disease or other food-borne illnesses, such as
bird flu, e-coli or hepatitis A, could adversely affect the price and
availability of beef, poultry or other meats, including if additional incidents
cause consumers to shift their preferences to other meats. As a result, Arby's
restaurants could experience a significant increase in food costs if there are
additional instances of mad cow disease or other food-borne illnesses.
In addition to losses associated with higher prices and a lower supply
of our food ingredients, instances of food-borne illnesses could result in
negative publicity for Arby's. This negative publicity, as well as any other
negative publicity concerning food products Arby's serves, may reduce demand
for Arby's food and could result in a decrease in guest traffic to Arby's
restaurants. A decrease in guest traffic to Arby's restaurants as a result of
these health concerns or negative publicity could result in a decline in sales
at company-owned restaurants or in ARG's royalties from sales at franchised
restaurants.
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CHANGES IN CONSUMER TASTES AND PREFERENCES AND IN DISCRETIONARY
CONSUMER SPENDING COULD RESULT IN A DECLINE IN SALES AT COMPANY-OWNED
RESTAURANTS AND IN THE ROYALTIES THAT ARG RECEIVES FROM FRANCHISEES.
The quick service restaurant industry is often affected by changes in
consumer tastes, national, regional and local economic conditions,
discretionary spending priorities, demographic trends, traffic patterns and the
type, number and location of competing restaurants. ARG's success depends to a
significant extent on discretionary consumer spending, which is influenced by
general economic conditions and the availability of discretionary income.
Accordingly, ARG may experience declines in sales during economic downturns.
Any material decline in the amount of discretionary spending or a decline in
family food-away-from-home spending could hurt ARG's revenues, results of
operations, business and financial condition.
In addition, if company-owned and franchised restaurants are unable to
adapt to changes in consumer preferences and trends, ARG and Arby's franchisees
may lose customers and the resulting revenues from company-owned restaurants
and the royalties that ARG receives from its franchisees may decline.
CHANGES IN FOOD AND SUPPLY COSTS COULD HARM ARG'S RESULTS OF
OPERATIONS.
ARG's profitability depends in part on its ability to anticipate and
react to changes in food and supply costs. Any increase in food prices,
especially that of roast beef, could harm ARG's operating results. While fuel
price increases have increased the costs of transportation and distribution
generally, ARG's commodity prices have largely been unaffected by these
distribution cost increases in 2006 due to purchase contracts for commodities,
which are managed by ARCOP, that have allowed only limited increases for
distribution costs. As these contracts expire and are replaced in 2007, ARG
expects to experience more variability in its commodity prices. In addition,
ARG is susceptible to increases in food costs as a result of other factors
beyond its control, such as weather conditions, food safety concerns, product
recalls and government regulations. ARG cannot predict whether it will be able
to anticipate and react to changing food costs by adjusting its purchasing
practices and menu prices, and a failure to do so could adversely affect ARG's
operating results. In addition, ARG may not seek to or be able to pass along
price increases to its customers.
COMPETITION FROM OTHER RESTAURANT COMPANIES COULD HURT ARG.
The market segments in which company-owned and franchised Arby's
restaurants compete are highly competitive with respect to, among other things,
price, food quality and presentation, service, location, and the nature and
condition of the restaurant facility. Arby's restaurants compete with a variety
of locally-owned restaurants, as well as competitive regional and national
chains and franchises. Several of these chains compete by offering high quality
sandwiches and/or menu items that are targeted at certain consumer groups.
Additionally, many of our competitors have introduced lower cost, value meal
menu options. ARG's revenues and those of Arby's franchisees may be hurt by
this product and price competition.
Moreover, new companies, including operators outside the quick service
restaurant industry, may enter Arby's market areas and target Arby's customer
base. For example, additional competitive pressures for prepared food purchases
have recently come from deli sections and in-store cafes of several major
grocery store chains, as well as from convenience stores and casual dining
outlets. Such competitors may have, among other things, lower operating costs,
lower debt service requirements, better locations, better facilities, better
management, more effective marketing and more efficient operations. All such
competition may adversely affect ARG's revenues and profits by reducing
revenues of company-owned restaurants and royalty payments from franchised
restaurants. Many of ARG's competitors have substantially greater financial,
marketing, personnel and other resources than ARG, which may allow them to
react to changes in pricing and marketing strategies in the quick service
restaurant industry better than ARG can.
CURRENT ARBY'S RESTAURANT LOCATIONS MAY BECOME UNATTRACTIVE, AND
ATTRACTIVE NEW LOCATIONS MAY NOT BE AVAILABLE FOR A REASONABLE PRICE, IF AT
ALL.
The success of any restaurant depends in substantial part on its
location. There can be no assurance that current Arby's locations will continue
to be attractive as demographic patterns change. Neighborhood or economic
15
conditions where Arby's restaurants are located could decline in the future,
thus resulting in potentially reduced sales in those locations. In addition,
rising real estate prices, particularly in the Northeastern region of the U.S.,
may restrict the ability of ARG or Arby's franchisees to purchase or lease new
desirable locations. If desirable locations cannot be obtained at reasonable
prices, ARG's ability to effect its growth strategies will be adversely
affected.
ARG'S BUSINESS COULD BE HURT BY INCREASED LABOR COSTS OR LABOR
SHORTAGES.
Labor is a primary component in the cost of operating our company-owned
restaurants. ARG devotes significant resources to recruiting and training its
managers and hourly employees. Increased labor costs due to competition,
increased minimum wage or employee benefits costs or other factors would
adversely impact ARG's cost of sales and operating expenses. In addition, ARG's
success depends on its ability to attract, motivate and retain qualified
employees, including restaurant managers and staff. If ARG is unable to do so,
its results of operations may be hurt.
ARG'S LEASING AND OWNERSHIP OF SIGNIFICANT AMOUNTS OF REAL ESTATE
EXPOSES IT TO POSSIBLE LIABILITIES AND LOSSES, INCLUDING LIABILITIES ASSOCIATED
WITH ENVIRONMENTAL MATTERS.
As of October 1, 2006, ARG leased or owned the land and/or the building
for over 1,000 Arby's restaurants. Accordingly, ARG is subject to all of the
risks associated with leasing and owning real estate. In particular, the value
of our real property assets could decrease, and ARG's costs could increase,
because of changes in the investment climate for real estate, demographic
trends and supply or demand for the use of the restaurants, which may result
from competition from similar restaurants in the area, as well as liability for
environmental matters.
ARG is subject to federal, state and local environmental, health and
safety laws and regulations concerning the discharge, storage, handling,
release and disposal of hazardous or toxic substances. These environmental laws
provide for significant fines, penalties and liabilities, sometimes without
regard to whether the owner, operator or occupant of the property knew of, or
was responsible for, the release or presence of the hazardous or toxic
substances. Third parties may also make claims against owners, operators or
occupants of properties for personal injuries and property damage associated
with releases of, or actual or alleged exposure to, such substances. A number
of ARG's restaurant sites were formerly gas stations or are adjacent to current
or former gas stations, or were used for other commercial activities that can
create environmental impacts. ARG may also acquire or lease these types of
sites in the future. ARG has not conducted a comprehensive environmental review
of all of its properties. ARG may not have identified all of the potential
environmental liabilities at its leased and owned properties, and any such
liabilities identified in the future could cause ARG to incur significant
costs, including costs associated with litigation, fines or clean-up
responsibilities.
ARG leases land generally for initial terms of 20 years. Many leases
provide that the landlord may increase the rent over the term of the lease.
Most leases require ARG to pay all of the costs of insurance, taxes,
maintenance and utilities. ARG generally cannot cancel these leases. If an
existing or future restaurant is not profitable, and ARG decides to close it,
ARG may nonetheless be committed to perform its obligations under the
applicable lease including, among other things, paying the base rent for the
balance of the lease term. In addition, as each of ARG's leases expires, ARG
may fail to negotiate renewals, either on commercially acceptable terms or at
all, which could cause ARG to close stores in desirable locations.
COMPLAINTS OR LITIGATION MAY HURT ARG.
Occasionally, ARG's customers file complaints or lawsuits against it
alleging that ARG is responsible for an illness or injury they suffered at or
after a visit to an Arby's restaurant, or alleging that there was a problem
with food quality or operations at an Arby's restaurant. ARG is also subject to
a variety of other claims arising in the ordinary course of our business,
including personal injury claims, contract claims, claims from franchisees and
claims alleging violations of federal and state law regarding workplace and
employment matters, discrimination and similar matters. ARG could also become
subject to class action lawsuits related to these matters in the future.
Regardless of whether any claims against ARG are valid or whether ARG is found
to be liable, claims may be expensive to defend and may divert management's
attention away from operations and hurt ARG's performance. A judgment
significantly in excess of ARG's insurance coverage for any claims could
16
materially adversely affect ARG's financial condition or results of operations.
Further, adverse publicity resulting from these allegations may hurt ARG and
Arby's franchisees.
Additionally, the restaurant industry has been subject to a number of
claims that the menus and actions of restaurant chains have led to the obesity
of certain of their customers. Adverse publicity resulting from these
allegations may harm the reputation of Arby's restaurants, even if the
allegations are not directed against Arby's restaurants or are not valid, and
even if ARG is not found liable or the concerns relate only to a single
restaurant or a limited number of restaurants. Moreover, complaints, litigation
or adverse publicity experienced by one or more of Arby's franchisees could
also hurt ARG's business as a whole.
ARG'S CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE
AGAINST CLAIMS IT MAY FILE.
ARG currently maintains insurance customary for businesses of its size
and type. However, there are types of losses it may incur that cannot be
insured against or that ARG believes are not economically reasonable to insure,
such as losses due to natural disasters or acts of terrorism. In addition, ARG
currently self-insures a significant portion of expected losses under its
workers compensation, general liability and property insurance programs.
Unanticipated changes in the actuarial assumptions and management estimates
underlying ARG's reserves for these losses could result in materially different
amounts of expense under these programs, which could harm ARG's business and
adversely affect its results of operations and financial condition.
CHANGES IN GOVERNMENTAL REGULATION MAY HURT ARG'S ABILITY TO OPEN NEW
RESTAURANTS OR OTHERWISE HURT ARG'S EXISTING AND FUTURE OPERATIONS AND RESULTS.
Each Arby's restaurant is subject to licensing and regulation by
health, sanitation, safety and other agencies in the state and/or municipality
in which the restaurant is located. There can be no assurance that ARG and/or
Arby's franchisees, will not experience material difficulties or failures in
obtaining the necessary licenses or approvals for new restaurants, which could
delay the opening of such restaurants in the future. In addition, more
stringent and varied requirements of local and tax governmental bodies with
respect to zoning, land use and environmental factors could delay or prevent
development of new restaurants in particular locations. ARG, and Arby's
franchisees, are also subject to the Fair Labor Standards Act, which governs
such matters as minimum wages, overtime and other working conditions, along
with the Americans with Disabilities Act, family leave mandates and a variety
of other laws enacted by the states that govern these and other employment law
matters. One of our subsidiaries is a defendant in a lawsuit alleging failure
to comply with Title III of the Americans with Disabilities Act at
approximately 775 company-owned restaurants acquired as part of the RTM
acquisition in July 2005. Under a court approved settlement of that lawsuit,
ARG estimates that it will spend approximately $1.0 million per year of capital
expenditures over an eight-year period beginning in 2007 to bring these
restaurants into compliance with the Americans with Disabilities Act. ARG
cannot predict the amount of any other future expenditures that may be required
in order to permit company-owned restaurants to comply with any changes in
existing regulations or to comply with any future regulations that may become
applicable to ARG's business.
ARBY'S OPERATIONS COULD BE INFLUENCED BY WEATHER CONDITIONS.
Weather, which is unpredictable, can impact Arby's restaurant sales.
Harsh weather conditions that keep customers from dining out result in lost
opportunities for Arby's restaurants. A heavy snowstorm in the Northeast or
Midwest or a hurricane in the Southeast can shut down an entire metropolitan
area, resulting in a reduction in sales in that area. Our first quarter
includes winter months and historically has a lower level of sales at
company-owned restaurants. Because a significant portion of ARG's restaurant
operating costs is fixed or semi-fixed in nature, the loss of sales during
these periods hurts ARG's operating margins, resulting in restaurant operating
losses. For these reasons, a quarter-to-quarter comparison may not be a good
indication of ARG's performance or how it may perform in the future.
DUE TO THE CONCENTRATION OF ARBY'S RESTAURANTS IN PARTICULAR GEOGRAPHIC
REGIONS, ARG'S BUSINESS RESULTS COULD BE IMPACTED BY THE ADVERSE ECONOMIC
CONDITIONS PREVAILING IN THOSE REGIONS REGARDLESS OF THE STATE OF THE NATIONAL
ECONOMY AS A WHOLE.
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As of October 1, 2006, ARG and Arby's franchisees operated Arby's
restaurants in 48 states, the District of Columbia and four foreign countries.
As of October 1, 2006, the six leading states by number of operating units
were: Ohio, with 286 restaurants; Michigan, with 188 restaurants; Indiana, with
175 restaurants; Florida, with 173 restaurants; Texas, with 155 restaurants;
and Georgia, with 153 restaurants. This geographic concentration can cause
economic conditions in particular areas of the country to have a
disproportionate impact on ARG's overall results of operations. ARG believes
that the adverse economic conditions in Ohio and Michigan, two states which
have a significant number of Arby's restaurants, have adversely impacted its
results of operations. It is possible that adverse economic conditions in those
two states or in other states or regions that contain a high concentration of
Arby's restaurants could have a material adverse impact on ARG's results of
operations in the future.
ARG AND ITS SUBSIDIARIES ARE SUBJECT TO VARIOUS RESTRICTIONS, AND
SUBSTANTIALLY ALL OF THEIR ASSETS ARE PLEDGED UNDER A CREDIT AGREEMENT.
Under its credit agreement, substantially all of the assets of ARG and
its subsidiaries (other than real property) are pledged as collateral security.
The credit agreement also contains financial covenants that, among other
things, require ARG and its subsidiaries to maintain certain financial ratios
and restrict their ability to incur debt, pay dividends or make other
distributions, enter into certain fundamental transactions (including sales of
assets and certain mergers and consolidations) and create or permit liens. If
ARG and its subsidiaries are unable to generate sufficient cash flow or
otherwise obtain the funds necessary to make required payments of interest or
principal under, or are unable to comply with covenants of, the credit
agreement, they would be in default under the terms of the credit agreement
which would, under certain circumstances, permit the lenders to accelerate the
maturity of the indebtedness.
RISKS RELATING TO DEERFIELD
DCM MAY LOSE CLIENT ASSETS, AND THUS FEE REVENUE, FOR VARIOUS REASONS.
DCM's success depends on its ability to earn investment advisory fees
from the client accounts it manages. Such fees generally consist of payments
based on the amount of assets in the account (management fees), and on the
profits earned by the account or the returns to certain investors in the
accounts (performance fees). If there is a reduction in an account's assets,
there will be a corresponding reduction in DCM's management fees from the
account, and a likely reduction in DCM's performance fees (if any) relating to
the account, since the smaller the account's asset base the smaller will be the
potential profits earned by the account. There could be a reduction in an
account's assets as the result of investment losses in the account, the
withdrawal by investors of their capital in the account, or both. Except for
the Deerfield Triarc Capital Corp., a real estate investment trust managed by
DCM (the "REIT"), investors in the accounts managed by DCM have various types
of withdrawal rights, ranging from the right of investors in separate accounts
to withdraw any or all of their capital on a daily basis, the right of
investors in hedge funds to withdraw their capital on a monthly or quarterly
basis, and the right of investors in collateral debt obligation vehicles
("CDOs") to terminate the CDO in specified situations. Investors in hedge funds
and managed accounts may withdraw capital for many reasons, including their
dissatisfaction with the account's performance, adverse publicity regarding
DCM, DCM's loss of key personnel, errors in reporting to investors account
values or account performance, other matters resulting from problems in DCM's
systems technology, investors' desire to invest the capital elsewhere, and
their need (in the case of investors that are themselves investment funds) for
the capital to fund withdrawals by their investors. DCM could experience a
major loss of account assets, and thus advisory fee revenue, at any time.
POOR INVESTMENT PERFORMANCE COULD LEAD TO A LOSS OF CLIENTS AND A
DECLINE IN DCM'S REVENUES.
Investment performance is a key factor for the retention of client
assets, the growth of DCM's assets under management and the generation of
management fee revenue. Poor investment performance could impair DCM's revenues
and growth because:
o existing clients might withdraw funds in favor of better
performing products, which would result in lower investment
management fees for DCM;
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o DCM's subordinate management fees for a CDO may be deferred;
o DCM's ability to attract funds from existing and new clients
might diminish; and
o DCM might earn minimal or no performance fees.
The failure of DCM's investment products to perform well both on an
absolute basis and in relation to competing products, therefore, could have a
material adverse effect on DCM's business.
DCM DERIVES A SUBSTANTIAL PORTION OF ITS REVENUES FROM CONTRACTS THAT
MAY BE TERMINATED ON SHORT NOTICE.
DCM derives a substantial portion of its revenues from investment
management agreements with accounts that generally have the right to remove DCM
as the investment manager of the account and replace it with a substitute
investment manager. Some of these investment management agreements may be
terminated for various reasons, including failure to follow the account's
investment guidelines, fraud, breach of fiduciary duty and gross negligence, or
may not be renewed. With respect to DCM's agreements with some of the CDOs it
manages, DCM can be removed without cause by investors that hold a specified
amount of the securities issued by the CDO. All of DCM's agreements with CDOs
allow investors that hold a specified amount of securities issued by the CDO to
remove DCM for "cause," which typically includes DCM's violation of the
management agreement or the CDO's indenture, DCM's breach of its
representations and warranties under the agreement, DCM's bankruptcy or
insolvency, DCM's fraud or a criminal offense by DCM or its employees, and the
failure of certain of the CDO's performance tests. DCM's investment management
agreements with separate accounts are typically terminable by the client
without penalty on 30 days' notice or less. DCM may not be able to replace
these agreements on favorable terms. The revenue loss that would result from
any such termination could have a material adverse effect on DCM's business.
DCM COULD LOSE CLIENT ASSETS AS THE RESULT OF THE LOSS OF KEY DCM
PERSONNEL.
DCM generally assigns the management of its investment products to
specific teams, consisting of DCM portfolio management and other personnel. The
loss of a particular member or members of such a team - for example, because of
resignation or retirement - could cause investors in the product to withdraw,
to the extent they have withdrawal rights, all or a portion of their investment
in the product, and adversely affect the marketing of the product to new
investors and the product's performance. In the case of some accounts, such as
certain CDOs, DCM can be removed as investment manager upon its loss of
specified key employees. In addition to the loss of specific portfolio
management team members, the loss of one or more members of DCM's senior
management involved in supervising the portfolio teams could have similar
adverse effects on DCM's investment products.
DCM MAY NEED TO OFFER NEW INVESTMENT STRATEGIES AND PRODUCTS IN ORDER
TO CONTINUE TO GENERATE REVENUE.
The segments of the asset management industry in which DCM operates are
subject to rapid change. Investment strategies and products that had
historically been attractive to investors may lose their appeal, for various
reasons. Thus, strategies and products that have generated fee revenue for DCM
in the past may fail to do so in the future. In such case DCM would have to
develop new strategies and products in order to retain investors or replace
withdrawing investors with new investors. It could be both expensive and
difficult for DCM to develop new strategies and products, and there is no
assurance that DCM would be successful in this regard. In addition, alternative
asset management products represent a substantially smaller segment of the
overall asset management industry than traditional asset management products
(such as many corporate bond funds). DCM's inability to expand its offerings
beyond alternative asset management products could inhibit its growth and harm
its competitive position in the investment management industry.
CHANGES IN THE FIXED INCOME MARKETS COULD ADVERSELY AFFECT DCM.
DCM's success depends on the attractiveness to institutional investors
of investing in the fixed income markets, and changes in those markets could
significantly reduce the appeal of DCM's investment products to such investors.
Such changes could include increased volatility in the prices of fixed income
19
instruments, periods of illiquidity in the fixed income trading markets,
changes in the taxation of fixed income instruments, significant changes in the
"spreads" in the fixed income markets (the amount by which the yields on
particular fixed income instruments exceed the yields on benchmark U.S.
Treasury securities), and the lack of arbitrage opportunities between U.S.
Treasury securities and their related instruments (such as interest rate swap
and futures contracts). The fixed income markets can be highly volatile, and
the prices of fixed income instruments may increase or decrease for many
reasons beyond DCM's control or ability to anticipate, including economic and
political events and acts of terrorism. Any adverse changes in the fixed income
markets could reduce DCM's revenues.
THE NARROWING OF CDO SPREADS COULD MAKE IT DIFFICULT FOR DCM TO LAUNCH
NEW CDOS.
It is important for DCM to be able to launch new CDO products from time
to time, both to expand its CDO activities (which are a major part of DCM's
business) and to replace existing CDOs as they are terminated or mature. The
ability to launch new CDOs is dependent on, among other factors, the amount by
which the interest earned on the collateral held by the CDO (such as bank loans
or corporate bonds) exceeds the interest payable by the CDO on the debt
obligations it issues to investors. If these "spreads" are not wide enough, the
proposed CDO will not be attractive to investors and thus cannot be launched.
There may be sustained periods when such spreads will not be sufficient for DCM
to launch new CDO products, which could have a material adverse effect on DCM's
business.
DCM COULD LOSE CLIENT ASSETS AS THE RESULT OF ADVERSE PUBLICITY.
Asset managers such as DCM can be particularly vulnerable to losing
clients because of adverse publicity. Asset managers are generally regarded as
fiduciaries, and if they fail to adhere at all times to a high level of
honesty, fair dealing and professionalism they can incur large and rapid losses
of client assets. Accordingly, a relatively small lapse in this regard,
particularly if it resulted in a regulatory investigation or enforcement
proceeding, could materially hurt DCM's business.
DCM COULD INCUR LOSSES DUE TO TRADING ERRORS.
DCM could make errors in placing transaction orders for client
accounts, such as purchasing a security for an account whose investment
guidelines prohibited the account from holding the security, purchasing an
unintended amount of the security, or placing a buy order when DCM intended to
place a sell order. If the transaction resulted in a loss for the account, DCM
might be required to reimburse the account for the loss, or DCM might choose to
do so for client relations purposes. Such reimbursements could be substantial.
DCM COULD LOSE MANAGEMENT FEE INCOME FROM ITS CDOS BECAUSE OF PAYMENT
DEFAULTS BY ISSUERS OF COLLATERAL HELD BY THE CDOS OR THE TRIGGERING OF CERTAIN
STRUCTURAL PROTECTIONS BUILT INTO CDOS.
Pursuant to the investment management agreements between DCM and the
CDOs it manages, DCM's management fee from the CDO is generally subject to a
"waterfall" structure, under which DCM will not receive all or a portion of its
fees if, among other things, the CDO does not have sufficient cash flows from
its underlying collateral (such as corporate bonds or bank loans) to pay the
required interest on the notes it has issued to investors and certain expenses.
This could occur if there are defaults by issuers of the collateral on their
payments of principal or interest relating to the collateral. In that event,
DCM's management fees would be deferred until funds are available to pay the
fees, if such funds become available. In addition, many CDOs have structural
provisions meant to protect investors from deterioration in the credit quality
of the underlying collateral pool. If those provisions are triggered, then
certain portions of DCM's management fees may be deferred indefinitely.
DCM MAY BE UNABLE TO INCREASE ITS ASSETS UNDER MANAGEMENT IN CERTAIN OF
ITS INVESTMENT VEHICLES, OR IT MAY HAVE TO REDUCE SUCH ASSETS, BECAUSE OF
CAPACITY CONSTRAINTS.
A number of DCM's investment vehicles are limited in the amount of
client assets they can accommodate by the amount of liquidity in the
instruments traded by such vehicles, the arbitrage opportunities available in
those instruments, or other factors. Thus, DCM may manage investment vehicles
that are relatively successful but that cannot accept additional capital
because of such constraints. In addition, DCM might have to reduce the amount
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of assets managed in investment vehicles that face capacity constraints.
Changes in the fixed income markets could materially reduce capacity, such as
an increase in the number of asset managers using the same or similar
strategies as DCM.
THE FIXED INCOME INVESTMENT MANAGEMENT MARKET IS HIGHLY COMPETITIVE AND
DCM MAY LOSE CLIENT ASSETS DUE TO COMPETITION FROM OTHER ASSET MANAGERS WHO
HAVE GREATER RESOURCES THAN DCM DOES OR WHO ARE ABLE TO OFFER SERVICES AND
PRODUCTS AT MORE COMPETITIVE PRICES.
The alternative asset management industry is highly competitive. Many
firms offer similar and additional investment management products and services
to the same clients that DCM targets. DCM currently focuses almost exclusively
on fixed income securities and related financial instruments in managing client
accounts. DCM has limited experience in investing in equity securities. This is
in contrast to numerous other asset managers with comparable assets under
management, which have significant background and experience in both the equity
and debt markets. In addition, many of DCM's competitors have or may in the
future develop greater financial and other resources, more extensive
distribution capabilities, more effective marketing strategies, more attractive
fund structures and broader name recognition. DCM's competitors may be able to
use these resources and capabilities to place DCM at a competitive disadvantage
in retaining assets under management and achieving increased market
penetration. Also, DCM may be at a disadvantage in competing with other asset
managers that are subject to less regulation and thus less restricted in their
client solicitation and portfolio management activities, and DCM may be
competing for non-U.S. clients with asset managers that are based in the
jurisdiction of the prospective client's domicile. Because barriers to entry
into the alternative asset management business are low, DCM may face increased
competition from many new entrants into DCM's relatively limited market of
providing fixed income asset management services to institutional clients.
Also, DCM is a relatively recent entrant into the REIT management business and
DCM competes in this area against numerous firms that are larger, more
experienced or both.
Additionally, if other asset managers offer services and products at
more competitive prices than DCM offers, DCM may not be able to maintain its
current fee structure. Although DCM's investment management fees vary from
product to product, historically DCM has competed primarily on the performance
of its products and not on the level of its investment management fees relative
to those of its competitors. In recent years, however, despite the fact that
alternative asset managers typically charge higher fees than traditional
managers, particularly with respect to hedge funds and similar products, there
has been a trend toward lower fees in the investment management industry
generally. In order to maintain its fee structure in a competitive environment,
DCM must be able to continue to provide clients with investment returns and
service that make investors willing to pay DCM's fees. DCM cannot assure you
that it will succeed in providing investment returns and service that will
allow DCM to maintain its current fee structure. Fee reductions on existing or
future business could have a material adverse effect on DCM's profit margins
and results of operations.
CHANGES IN LAWS, REGULATIONS OR GOVERNMENT POLICIES AFFECTING DCM'S
BUSINESSES COULD LIMIT ITS REVENUES, INCREASE ITS COSTS OF DOING BUSINESS AND
MATERIALLY AND ADVERSELY AFFECT ITS BUSINESS.
DCM's business is subject to extensive government regulation. This
regulation is primarily at the federal level, through regulation by the SEC
under the Investment Advisers Act of 1940, as amended, and regulation by the
Commodity Futures Trading Commission, or CFTC, under the Commodity Exchange
Act, as amended. DCM is also regulated by state regulators. The Investment
Advisers Act imposes numerous obligations on investment advisers including
anti-fraud prohibitions, advertising and custody requirements, disclosure
obligations, compliance program duties and trading restrictions. The CFTC
regulates commodity futures and option markets and imposes numerous obligations
on the industry. DCM is registered with the CFTC as both a commodity trading
advisor and a commodity pool operator and certain of its employees are
registered with the CFTC as "associated persons." DCM is also a member of the
National Futures Association, the self-regulatory organization for the U.S.
commodity futures industry, and thus subject to its regulations. If DCM fails
to comply with applicable laws or regulations, DCM could be subject to fines,
censure, suspensions of personnel or other sanctions, including revocation of
its registration as an investment adviser, commodity trading advisor or
commodity pool operator. Changes in laws, regulations or government policies
could limit DCM's revenues, increase its costs of doing business and materially
adversely affect its business.
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Although DCM is not currently directly regulated outside the United
States, the non-U.S. domiciled investment funds that DCM manages are regulated
in the jurisdiction of their domicile. Changes in the laws or government
policies of these foreign jurisdictions could limit DCM's revenues from these
funds, increase DCM's costs of doing business in these jurisdictions and
materially adversely affect DCM's business. Furthermore, if DCM expands its
business into foreign jurisdictions and establishes offices or subsidiaries
overseas, it could become subject to non-U.S. laws and government policies.
The level of investor participation in DCM's products may also be
affected by the regulatory and self-regulatory requirements and restrictions
applicable to DCM's products and investors, the financial reporting
requirements imposed on DCM's investors and financial intermediaries, and the
tax treatment of DCM's products. Adverse changes in any of these areas may
result in a loss of existing investors or difficulties in attracting new
investors.
OTHER RISKS
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY,
WHICH COULD HARM THE VALUE OF OUR BRANDS AND HURT OUR BUSINESS.
Our intellectual property is material to the conduct of our business.
We rely on a combination of trademarks, copyrights, service marks, trade
secrets and similar intellectual property rights to protect our brands and
other intellectual property. The success of our business strategy depends, in
part, on our continued ability to use our existing trademarks and service marks
in order to increase brand awareness and further develop our branded products
in both existing and new markets. If our efforts to protect our intellectual
property are not adequate, or if any third party misappropriates or infringes
on our intellectual property, either in print or on the Internet, the value of
our brands may be harmed, which could have a material adverse effect on our
business, including the failure of our brands to achieve and maintain market
acceptance. This could harm our image, brand or competitive position and, if we
commence litigation to enforce our rights, cause us to incur significant legal
fees.
We franchise our restaurant brands to various franchisees. While we try
to ensure that the quality of our brands is maintained by all of our
franchisees, we cannot assure you that these franchisees will not take actions
that hurt the value of our intellectual property or the reputation of the
Arby's restaurant system. We have registered certain trademarks and have other
trademark registrations pending in the United States and certain foreign
jurisdictions. The trademarks that we currently use have not been registered in
all of the countries outside of the United States in which we do business or
may do business in the future and may never be registered in all of these
countries. We cannot assure you that all of the steps we have taken to protect
our intellectual property in the United States and foreign countries will be
adequate. The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States.
In addition, we cannot assure you that third parties will not claim
infringement by us in the future. Any such claim, whether or not it has merit,
could be time-consuming, result in costly litigation, cause delays in
introducing new menu items or investment products or require us to enter into
royalty or licensing agreements. As a result, any such claim could harm our
business and cause a decline in our results of operations and financial
condition.
ONE OF OUR SUBSIDIARIES REMAINS CONTINGENTLY LIABLE WITH RESPECT TO
CERTAIN OBLIGATIONS RELATING TO A BUSINESS THAT WE HAVE SOLD.
In July 1999, we sold 41.7% of our then remaining 42.7% interest in
National Propane Partners, L.P. and a sub-partnership, National Propane, L.P.
to Columbia Energy Group, and retained less than a 1% special limited partner
interest in AmeriGas Eagle Propane, L.P. (formerly known as National Propane,
L.P. and as Columbia Propane, L.P.). As part of the transaction, our
subsidiary, National Propane Corporation, agreed that while it remains a
special limited partner of AmeriGas, it would indemnify the owner of AmeriGas
for any payments the owner makes under certain debt of AmeriGas (aggregating
approximately $138 million as of October 1, 2006), if AmeriGas is unable to
repay or refinance such debt, but only after recourse to the assets of
AmeriGas. Either National Propane Corporation or AmeriGas Propane, L.P., the
owner of AmeriGas, may require AmeriGas to repurchase the special limited
partner interest. However, we believe it is unlikely that either party would
22
require repurchase prior to 2009 as either AmeriGas Propane, L.P. would owe us
tax indemnification payments or we would accelerate payment of deferred taxes,
which amount to approximately $36.0 million as of October 1, 2006, associated
with our sale of the propane business.
Although we believe that it is unlikely that we will be called upon to
make any payments under the indemnification described above, if we are required
to make such payments it could have a material adverse effect on our financial
position and results of operations.
CHANGES IN GOVERNMENTAL REGULATION MAY ADVERSELY AFFECT OUR EXISTING
AND FUTURE OPERATIONS AND RESULTS.
Certain of our current and past operations are or have been subject to
federal, state and local environmental laws and regulations concerning the
discharge, storage, handling and disposal of hazardous or toxic substances that
provide for significant fines, penalties and liabilities, in certain cases
without regard to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
In addition, third parties may make claims against owners or operators of
properties for personal injuries and property damage associated with releases
of hazardous or toxic substances. Although we believe that our operations
comply in all material respects with all applicable environmental laws and
regulations, we cannot predict what environmental legislation or regulations
will be enacted in the future or how existing or future laws or regulations
will be administered or interpreted. We cannot predict the amount of future
expenditures that may be required in order to comply with any environmental
laws or regulations or to satisfy any such claims.
RISKS RELATING TO OUR COMMON STOCK
WE ARE A HOLDING COMPANY AND DEPEND ON DIVIDENDS OF AND DISTRIBUTIONS
FROM OUR SUBSIDIARIES AND OUR CASH OR CASH EQUIVALENTS TO MEET OUR OBLIGATIONS.
Because we are a holding company, our ability to service debt and pay
dividends, including dividends on our Class A common stock and Class B common
stock, is dependent upon our cash, cash equivalents and short-term investments
on hand, cash flows from our subsidiaries, including loans, cash dividends and
reimbursement by subsidiaries to us in connection with providing certain
management services and payments by subsidiaries under certain tax sharing
agreements. For the nine months ended October 1, 2006, the distributed cash
flow from our subsidiaries was inadequate to cover all of the expenses of our
holding company. Accordingly, we may need to use our cash and cash equivalents
or income from other investments we may make to pay dividends on our common
stock and preferred stock (if any) and interest and principal on our debt
securities.
Under the terms of the Arby's Restaurant Holdings, LLC credit
agreement, there are restrictions on the ability of Arby's Restaurant Holdings,
LLC and its subsidiaries to pay dividends and/or make loans or advances to us.
The ability of any of our subsidiaries to pay cash dividends and/or make loans
or advances to us is also dependent upon the respective abilities of such
entities to achieve sufficient cash flows after satisfying their respective
cash requirements, including debt service, to enable the payment of such
dividends or the making of such loans or advances.
THE THEN CURRENT HOLDERS OF OUR COMMON STOCK MAY EXPERIENCE A DILUTION
IN THE VALUE OF THEIR EQUITY INTEREST AS A RESULT OF THE ISSUANCE AND SALE OF
ADDITIONAL SHARES OF OUR COMMON STOCK.
We may decide to raise additional funds through public or private debt
or equity financing to fund our operations. If we raise funds by issuing equity
securities, the percentage ownership of then current securityholders will be
reduced and the new equity securities may have rights senior to those of the
then outstanding common stock. This dilution could be significant depending
upon the type of financing obtained and the terms of such financing.
23
SHARES OF OUR COMMON STOCK OR PREFERRED STOCK ELIGIBLE FOR PUBLIC SALE
COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR CLASS A COMMON STOCK AND CLASS B
COMMON STOCK, SERIES 1, AND ANY OTHER OF OUR SECURITIES THAT MAY BE LISTED IN
THE FUTURE.
The market price of our Class A common stock and Class B common stock,
Series 1, and any other of our securities that may be listed in the future
could decline as a result of sales of a large number of shares in the market in
the future or market perception that such sales could occur, including sales or
distributions of shares by one or more of our large securityholders or by our
controlling securityholder. These factors could also make it more difficult for
us to raise funds through offerings of equity securities in the future at a
time and at a price that we deem appropriate. As of October 31, 2006, there
were 27,913,475 shares of our Class A common stock and 61,002,156 shares of our
Class B common stock, Series 1, outstanding. All of the shares of Class A
common stock and Class B common stock, Series 1, are freely transferable
without restriction or further registration under the federal securities laws,
except for any shares held by our affiliates, sales of which will be limited by
Rule 144 under the Securities Act absent registration under the Securities Act,
and except for the shares covered by this prospectus.
WE HAVE OUTSTANDING A SUBSTANTIAL AMOUNT OF STOCK OPTIONS EXERCISABLE
INTO OUR CLASS A COMMON STOCK AND CLASS B COMMON STOCK, SERIES 1.
As of October 1, 2006, options to purchase 3,788,000 shares of our
Class A common stock and 15,290,000 shares of our Class B common stock, Series
1, were outstanding under our equity participation plans for our directors,
officers, key employees and consultants and there were 487,136 shares of Class
A common stock and 2,232,980 shares of Class B common stock, Series 1,
available for future grant. In addition, there were 99,000 and 486,000
contingently issuable restricted shares of Class A common stock and Class B
common stock, respectively, as of October 1, 2006. The exercise of outstanding
options or the future issuance of options (and the exercise of such options) or
restricted stock will dilute the beneficial ownership of holders of our Class A
common stock and Class B common stock, Series 1.
THE PRICE OF OUR CLASS A COMMON STOCK AND CLASS B COMMON STOCK, SERIES
1, MAY FLUCTUATE SIGNIFICANTLY.
The price of our Class A common stock and Class B common stock, Series
1, on the New York Stock Exchange constantly changes. We expect that the market
price of our Class A common stock and Class B common stock, Series 1, will
continue to fluctuate. Our stock prices can fluctuate as a result of a variety
of factors, many of which are beyond our control. These factors include:
o significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving us or our competitors;
o failure to integrate our acquisitions or realize anticipated
benefits from our acquisitions;
o competition, including pricing pressures, the potential impact of
competitors' new units on sales by Arby's restaurants and
consumers' perceptions of the relative quality, variety and value
of the food products offered;
o market acceptance of new product offerings;
o new product and concept development by competitors;
o changing trends in consumer tastes and preferences (including
changes resulting from health or safety concerns with respect to
the consumption of beef, french fries or other foods or the
effects of food-borne illnesses) and in spending and demographic
patterns;
o the ability of franchisees to open new restaurants in accordance
with their development commitments, including the ability of
franchisees to finance restaurant development;
o delays in opening new restaurants or completing remodels;
24
o anticipated and unanticipated restaurant closures by us and our
franchisees;
o availability of qualified personnel to us and to our franchisees;
o changes in government regulations;
o changes in applicable accounting policies and practices; and
o geopolitical conditions such as acts or threats of terrorism or
military conflicts.
General market fluctuations, industry factors and economic conditions,
such as economic slowdowns, recessions or interest rate changes, also could
cause our stock price to fluctuate. See "Forward-Looking Statements."
In addition, the stock market in general has experienced extreme
volatility that has often been unrelated to the operating performance of a
particular company. These broad market fluctuations may adversely affect the
market price of our Class A common stock and Class B common stock, Series 1.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus or incorporated by
reference into this prospectus are "forward-looking statements" that involve
risks, uncertainties and assumptions with respect to us, including some
statements concerning the transactions described in this prospectus, future
results, plans, goals and other events which have not yet occurred. These
statements are intended to qualify for the safe harbors from liability provided
by Section 27A of the Securities Act and Section 21E of the Exchange Act. You
can find many (but not all) of these statements by looking for words like
"will," "may," "believes," "expects," "anticipates," "forecast," "future,"
"intends," "plans" and "estimates" and for similar expressions.
These forward-looking statements are based on our current expectations,
speak only as of the date of this prospectus and are susceptible to a number of
risks, uncertainties and other factors. Our actual results, performance and
achievements may differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. For those
statements, we claim the protection of the safe-harbor for forward-looking
statements contained in the Securities Litigation Reform Act of 1995. Many
important factors could affect our future results and could cause those results
to differ materially from those expressed in the forward-looking statements
contained in this prospectus. Such factors include, but are not limited to, the
following:
o competition, including pricing pressures and the potential impact
of competitors' new units on sales by Arby's restaurants;
o consumers' perceptions of the relative quality, variety and value
of the food products we offer;
o success of operating initiatives;
o development costs;
o advertising and promotional efforts;
o brand awareness;
o the existence or absence of positive or adverse publicity;
o new product and concept development by us and our competitors,
and market acceptance of such new product offerings and concepts;
25
o changes in consumer tastes and preferences, including changes
resulting from concerns over nutritional or safety aspects of
beef, poultry, french fries or other foods or the effects of
food-borne illnesses such as "mad cow disease" and avian
influenza or "bird flu";
o changes in spending patterns and demographic trends;
o adverse economic conditions, including high unemployment rates,
in geographic regions that contain a high concentration of Arby's
restaurants;
o the business and financial viability of key franchisees;
o the timely payment of franchisee obligations due to us;
o availability, location and terms of sites for restaurant
development by us and our franchisees;
o the ability of our franchisees to open new restaurants in
accordance with their development commitments, including the
ability of franchisees to finance restaurant development;
o delays in opening new restaurants or completing remodels;
o the timing and impact of acquisitions and dispositions of
restaurants;
o our ability to successfully integrate acquired restaurant
operations;
o anticipated or unanticipated restaurant closures by us and our
franchisees;
o our ability to identify, attract and retain potential franchisees
with sufficient experience and financial resources to develop and
operate Arby's restaurants successfully;
o changes in business strategy or development plans, and the
willingness of our franchisees to participate in our strategy;
o business abilities and judgment of our and our franchisees'
management and other personnel;
o availability of qualified restaurant personnel to us and to our
franchisees;
o our ability, if necessary, to secure alternative distribution of
supplies of food, equipment and other products to Arby's
restaurants at competitive rates and in adequate amounts, and the
potential financial impact of any interruptions in such
distribution;
o changes in commodity (including beef), labor, supply,
distribution and other operating costs and availability and cost
of insurance;
o adverse weather conditions;
o significant reductions in our client assets under management
(which would reduce our advisory fee revenue), due to such
factors as weak performance of our investment products (either on
an absolute basis or relative to our competitors or other
investment strategies), substantial illiquidity or price
volatility in the fixed income instruments that we trade, loss of
key portfolio management or other personnel (or lack of
availability of additional key personnel if needed for
expansion), reduced investor demand for the types of investment
products we offer, and loss of investor confidence due to adverse
publicity;
o increased competition from other asset managers offering similar
types of products to those we offer;
26
o pricing pressure on the advisory fees that we can charge for our
investment advisory services;
o difficulty in increasing assets under management, or efficiently
managing existing assets, due to market-related constraints on
trading capacity, inability to hire the necessary additional
personnel or lack of potentially profitable trading
opportunities;
o our removal as investment manager of one or more of the CDOs or
other accounts we manage, or the reduction in our CDO management
fees because of payment defaults by issuers of the underlying
collateral or the triggering of certain structural protections
built into CDOs;
o availability, terms (including changes in interest rates) and
deployment of capital;
o changes in legal or self-regulatory requirements, including
franchising laws, investment management regulations, accounting
standards, environmental laws, overtime rules, minimum wage rates
and taxation rates;
o the costs, uncertainties and other effects of legal,
environmental and administrative proceedings;
o the impact of general economic conditions on consumer spending or
securities investing, including a slower consumer economy and the
effects of war or terrorist activities;
o the payment of the future installment of the special cash
dividends referred to elsewhere herein and any other future
dividends are subject to applicable law and will be made at the
discretion of our Board based on such factors as our earnings,
financial condition, cash requirements and other factors,
including whether such future installment of the special cash
dividends would result in a material adjustment to the conversion
price of our 5% convertible notes due 2023; and
o other risks and uncertainties referred to in this prospectus and
in our other current and periodic filings with the SEC, all of
which are difficult or impossible to predict accurately and many
of which are beyond our control.
We will not undertake and specifically decline any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events. In addition, it is our policy generally not to make any specific
projections as to future earnings, and we do not endorse any projections
regarding future performance that may be made by third parties.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our Class B common
stock, Series 1, by the selling stockholders.
27
SELLING STOCKHOLDERS
The shares of our Class B common stock, Series 1, to which this
prospectus relates are being registered for offers and sales by the selling
stockholders named below. We have registered the shares to permit the selling
stockholders and some of their transferees after the date of this prospectus to
sell the shares when they deem appropriate. We refer to all of these possible
sellers as the "selling stockholders" in this prospectus. The selling
stockholders may sell all, a portion or none of their shares at any time.
The following table sets forth information regarding the beneficial
ownership of the Class B common stock, Series 1, by the selling stockholders as
of December 5, 2006.
SHARES OF
CLASS B COMMON
SHARES OF CLASS B COMMON STOCK, STOCK, SERIES 1, SHARES OF CLASS B COMMON
SERIES 1, BENEFICIALLY OWNED THAT MAY BE SOLD STOCK, SERIES 1, BENEFICIALLY
PRIOR TO OFFERING(1) HEREUNDER(1) OWNED AFTER OFFERING
NAME NUMBER PERCENT NUMBER PERCENT
---------------------------------------------------------------------------------------------------------------------
Russell V. Umphenour, Jr.(2) 3,615,856 6.0% 3,614,177 1,679 *
Dennis E. Cooper 1,471,498 2.6% 1,471,498 - -
Thomas A. Garrett 1,229,073(3) 1.7% 691,414 537,659(3) *
J. Russell Welch 947,119 1.6% 947,119 - -
Russell V. Umphenour, III 627,259 1.1% 627,259 - -
Sharon S. Umphenour 481,355 * 481,355 - -
Sharron L. Barton 254,219 * 254,219 - -
Cooper Family Partnership 207,783 * 207,783 - -
Deborah K. Pike 198,453 * 198,453 - -
Michael I. Lippert 132,074(4) * 100,553 31,521(4) *
Joseph Gondolfo 14,563 * 14,563 - -
J. David Pipes 161,471(5) * 3,866 157,605(5) *
Royal Family Kids Camp 103,891 * 103,891 - -
Michael B. Abt 100,553 * 100,553 - -
John L. Gray, Jr. 100,553 * 100,553 - -
Robert P. Rogers 12,495 * 12,495 - -
Ray Biondi 10,682 * 10,682 - -
Robert S. Stallings 3,748 * 3,748 - -
John A. Todd, Jr. 30,165 * 30,165 - -
Karen G. Samples 29,589 * 29,589 - -
Gregory L. Hawkins 20,431 * 20,431 - -
Allison K. Hyer 20,270 * 20,270 - -
Susan A. Bauer 20,110 * 20,110 - -
Daniel T. Collins 20,110 * 20,110 - -
Wendy E. Henderson 20,110 * 20,110 - -
Jeryl M. McIntyre 20,110 * 20,110 - -
Melissa M. Strait 20,110 * 20,110 - -
Michael P. Kovac 11,658 * 11,658 - -
John M. Davis, Jr. 11,034 * 11,034 - -
Jason T. Abelkop 10,908 * 10,908 - -
Patrick S. Herreman 10,215 * 10,215 - -
Thomas L. Stager 10,055 * 10,055 - -
Lynn P. Alexander 2,285 * 2,285 - -
Jerry R. Ardizzone 188 * 188 - -
Cynthia S. Richardson 1,481 * 1,481 - -
28
SHARES OF
CLASS B COMMON
SHARES OF CLASS B COMMON STOCK, STOCK, SERIES 1, SHARES OF CLASS B COMMON
SERIES 1, BENEFICIALLY OWNED THAT MAY BE SOLD STOCK, SERIES 1, BENEFICIALLY
PRIOR TO OFFERING(1) HEREUNDER(1) OWNED AFTER OFFERING
NAME NUMBER PERCENT NUMBER PERCENT
---------------------------------------------------------------------------------------------------------------------
Christopher P. Kuehn 804 * 804 - -
James M. Hannan 504 * 504 - -
John S. Dritt 489 * 489 - -
John A. Odachowski 489 * 489 - -
Kito O. Cody 160 * 160 - -
Gary A. Clough 145 * 145 - -
---------------------------
*Less than 1%.
(1) Includes 1,203,372 shares of Class B common stock, Series 1,
deposited in an escrow account in connection with the RTM
acquisition and available for sale upon release from such escrow
account in accordance with the terms thereof. See "The RTM
Acquisition."
(2) Mr. Umphenour became a director of Triarc on August 11, 2005.
Since that date, he has received an aggregate of 1,679 shares of
Class B common stock, Series 1, in lieu of cash payments of
director's fees otherwise payable to him.
(3) Includes options to purchase 537,659 shares of our Class B common
stock, Series 1, held by Mr. Garre that have vested.
(4) Includes options to purchase 31,521 shares of our Class B common
stock, Series 1, held by Mr. Lippert that have vested.
(5) Includes options to purchase 157,605 shares of our Class B common
stock, Series 1, held by Mr. Pipes that have vested.
RELATIONSHIP WITH SELLING STOCKHOLDERS
All of the shares offered by the selling stockholders were received by
them in connection with the RTM acquisition. As part of the total consideration
in the RTM acquisition, we issued 9,684,316 shares of our Class B common stock,
Series 1, and options to purchase 774,066 shares of our Class B common stock,
Series 1 (with a weighted average exercise price of $8.92 per share). The
number of shares and options that were issued to the selling stockholders are
set forth above. Of the shares that were issued, a total of 1,203,372 shares
were deposited in an escrow account in connection with the RTM acquisition. See
"The RTM Acquisition" for a more detailed description of certain relationships
among us and the selling stockholders.
29
PLAN OF DISTRIBUTION
The selling stockholders may sell the securities from time to time on
any stock exchange or automated interdealer quotation system on which the
securities are listed, in the over-the-counter market, in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices or at prices otherwise negotiated.
The selling stockholders may sell the securities by one or more of the
following methods, without limitation:
o block trades in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and sell
a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer as principal and sale by the
broker or dealer for its own account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of any
stock exchange on which the securities are listed;
o ordinary brokerage transactions and transactions in which the
broker solicits purchases;
o privately negotiated transactions;
o short sales;
o through the writing of options on the securities, whether or not
the options are listed on an options exchange;
o through the distribution of the securities by any selling
stockholder to its partners, members or stockholders;
o one or more underwritten offerings on a firm commitment or best
efforts basis; and
o any combination of any of these methods of sale.
We do not know of any arrangements by the selling stockholders for the
sale of any of the securities.
The selling stockholders may engage brokers and dealers, and any
brokers or dealers may arrange for other brokers or dealers to participate in
effecting sales of the securities. These brokers, dealers or underwriters may
act as principals, or as an agent of a selling stockholder. Broker-dealers may
agree with a selling stockholder to sell a specified number of the securities
at a stipulated price per security. If the broker-dealer is unable to sell
securities acting as agent for a selling stockholder, it may purchase as
principal any unsold securities at the stipulated price. Broker-dealers who
acquire securities as principals may thereafter sell the securities from time
to time in transactions on any stock exchange or automated interdealer
quotation system on which the securities are then listed, at prices and on
terms then prevailing at the time of sale, at prices related to the
then-current market price or in negotiated transactions. Broker-dealers may use
block transactions and sales to and through broker-dealers, including
transactions of the nature described above. The selling stockholders may also
sell the securities in accordance with Rule 144 under the Securities Act rather
than pursuant to this prospectus, regardless of whether the securities are
covered by this prospectus.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the securities owned
by them. The pledgees, secured parties or persons to whom the securities have
been hypothecated will, upon foreclosure in the event of default, be deemed to
be selling stockholders. As and when a selling stockholder takes such actions,
the number of securities offered under this prospectus on behalf of such
selling stockholder will decrease. The plan of distribution for that selling
30
stockholder's securities will otherwise remain unchanged. In addition, a
selling stockholder may, from time to time, sell the securities short, and, in
those instances, this prospectus may be delivered in connection with the short
sales and the securities offered under this prospectus may be used to cover
short sales.
To the extent required under the Securities Act, the aggregate amount
of selling stockholders' securities being offered and the terms of the
offering, the names of any agents, brokers, dealers or underwriters and any
applicable commission with respect to a particular offer will be set forth in
an accompanying prospectus supplement. Any underwriters, dealers, brokers or
agents participating in the distribution of the securities may receive
compensation in the form of underwriting discounts, concessions, commissions or
fees from a selling stockholder and/or purchasers of selling stockholders'
securities for whom they may act (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling stockholders and any underwriters, brokers, dealers or
agents that participate in the distribution of the securities may be deemed to
be "underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the sale of
the securities sold by them may be deemed to be underwriting discounts and
commissions.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the
securities in the course of hedging the positions they assume with that selling
stockholder, including, without limitation, in connection with distributions of
the securities by those broker-dealers. A selling stockholder may enter into
option or other transactions with broker-dealers that involve the delivery of
the securities offered hereby to the broker-dealers, who may then sell or
otherwise transfer those securities. A selling stockholder may also loan or
pledge the securities offered hereby to a broker-dealer and the broker-dealer
may sell the securities offered hereby so loaned or upon a default may sell or
otherwise transfer the pledged securities offered hereby.
A selling stockholder may enter into derivative transactions with third
parties, or sell securities not covered by this prospectus to third parties in
privately negotiated transactions. If the applicable prospectus supplement
indicates, in connection with those derivatives, the third parties may sell
securities covered by this prospectus and the applicable prospectus supplement,
including in short sale transactions. If so, the third party may use securities
pledged by the selling stockholder or borrowed from the selling stockholder or
others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from the selling stockholder in
settlement of those derivatives to close out any related open borrowings of
stock. The third party in such sale transactions will be an underwriter and, if
not identified in this prospectus, will be identified in the applicable
prospectus supplement (or a post-effective amendment).
The selling stockholders and other persons participating in the sale or
distribution of the securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M.
This regulation may limit the timing of purchases and sales of any of the
securities by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of securities
in the market and to the activities of the selling stockholders and their
affiliates. Furthermore, Regulation M may restrict the ability of any person
engaged in the distribution of the securities to engage in market-making
activities with respect to the particular securities being distributed for a
period of up to five business days before the distribution. These restrictions
may affect the marketability of the securities and the ability of any person or
entity to engage in market-making activities with respect to the securities.
We have agreed to indemnify in certain circumstances the selling
stockholders against certain liabilities, including liabilities under the
Securities Act. The selling stockholders have agreed to indemnify us in certain
circumstances against certain liabilities, including liabilities under the
Securities Act.
The securities offered hereby were originally issued to the selling
stockholders in a private placement pursuant to an exemption from the
registration requirements of the Securities Act. We agreed to register the
securities under the Securities Act and to keep the registration statement of
which this prospectus is a part effective for a specified period of time. We
have agreed to pay all expenses in connection with this offering, but not
including underwriting discounts, concessions, commissions or fees of the
selling stockholders or their counsel, or transfer taxes and expenses related
thereto.
31
We will not receive any proceeds from sales of any securities by the
selling stockholders.
We cannot assure you that the selling stockholders will sell all or any
portion of the securities offered hereby.
LEGAL MATTERS
Certain legal matters relating to the validity of the securities will
be passed upon by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New
York.
EXPERTS
The consolidated financial statements and financial statement schedule
as of January 1, 2006 and January 2, 2005 and for each of the three years in
the period ended January 1, 2006 and management's report on the effectiveness
of internal control over financial reporting as of January 1, 2006 incorporated
by reference into this prospectus have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in their reports
which are incorporated herein by reference and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Encore Capital Group, Inc. and
management's report on the effectiveness of Encore's internal control over
financial reporting appearing in Encore's Annual Report on Form 10-K for the
year ended December 31, 2005, incorporated by reference in this Prospectus,
have been audited by BDO Seidman, LLP, an independent registered public
accounting firm, to the extent and for the periods set forth in their reports
dated February 16, 2006 incorporated herein by reference, and are incorporated
herein in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
The combined financial statements of RTM Restaurant Group as of May 29,
2005 and May 30, 2004, and for each of the two years in the period ended May
29, 2005, incorporated herein by reference from our Current Report on Form 8-K
dated October 19, 2006 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated by reference
herein, and are incorporated herein in reliance on such report given on the
authority of such firm as experts in accounting and auditing.
32