Business Context and Reporting Period
This Form 8-K, filed on December 17, 2007, reports on Triarc Companies, Inc. (Triarc) and its completion of a corporate restructuring involving the sale of Deerfield & Company LLC (Deerfield). The transaction closed on December 21, 2007, pursuant to a definitive Merger Agreement dated December 17, 2007. Following the transaction, the buyer, Deerfield Triarc Capital Corp., changed its name to Deerfield Capital Corp.
Key Financial Metrics and Transaction Consideration
The filing details the consideration Triarc received for its capital interest (approximately 64%) and profits interest (at least 52%) in Deerfield. The aggregate nominal consideration received by Triarc was approximately $145 million, structured as follows:
- Equity: Approximately 9.6 million shares of Deerfield Triarc Capital Corp. (DFR) convertible preferred stock (liquidation preference of $10.00 per share) and approximately 206,000 shares of DFR common stock.
- Debt: Approximately $48 million in principal amount of Series A senior secured notes issued by Deerfield.
- Cash: The filing notes cash was paid to certain members for taxes and in lieu of notes, but does not specify a net cash amount received by Triarc.
The filing does not provide Triarc's consolidated revenue, profit, cash flow, or liquidity metrics for the reporting period, as this is a current report focused on a specific material agreement rather than a periodic financial statement.
Material Changes and Transaction Terms
The primary material change is the divestiture of Deerfield, a core asset of Triarc. Key terms of the transaction include:
- Preferred Stock Conversion: The DFR Preferred Stock is not initially convertible. Conversion to common stock requires a stockholder vote, with DFR intending to hold a special meeting in the first quarter of 2008. Upon conversion, Triarc expects to own approximately 16% of DFR common stock.
- Dividends: The preferred stock accrues cumulative dividends at 5% per annum (or the greater of 5% or the common stock dividend rate). No cash dividends are payable before the earlier of a conversion vote or March 31, 2008.
- Notes Structure: The Series A Notes mature in December 2012 and bear interest at a variable rate (LIBOR + 500 basis points initially). Repayment rights are subordinated to Series B Notes unless specific prepayment conditions are met by June 30, 2008.
- Management Changes: Gregory H. Sachs resigned as a director and officer of Deerfield and its subsidiaries effective upon the closing of the Merger.
Outlook, Risks, and Contingencies
Management commentary is limited to the mechanics of the transaction. Key risks and contingencies identified include:
- Conversion Uncertainty: Triarc's future equity stake in DFR depends on stockholder approval of the preferred stock conversion. If not approved in Q1 2008, holders of 20% of the preferred stock can force a vote at a subsequent annual meeting.
- Indemnification Obligations: Triarc retains indemnification obligations to DFR for a period of one year following the closing, which may be satisfied using the Notes or Preferred Stock received.
- Executive Severance: Triarc and Deerfield agreed to pay Gregory H. Sachs severance equal to his base salary through July 22, 2009, and a pro-rated 2007 bonus.
- Refinancing Requirement: The Note Documents require the Issuer and DFR to use commercially reasonable efforts to obtain a replacement debt facility to refinance the Notes.
Investor Verification Checklist
- Verify the outcome of the DFR stockholder vote on the conversion of preferred stock scheduled for the first quarter of 2008.
- Confirm the actual cash proceeds received by Triarc after accounting for taxes and any cash paid in lieu of notes.
- Monitor the status of the refinancing efforts for the Series A and B Notes to ensure compliance with the Note Documents.
- Review the impact of the Deerfield sale on Triarc's remaining portfolio and future revenue streams in subsequent 10-Q or 10-K filings.
- Assess the financial impact of the severance package paid to Gregory H. Sachs on Triarc's cash flow.