Granite City Food & Brewery Ltd. Completes DHW Debt for Equity Transaction

Granite City Food & Brewery Ltd. (NASDAQ: GCFB) yesterday completed the previously announced debt for equity transaction with DHW Leasing LLC (DHW). Under the terms of the transaction, the company converted approximately $15.0 million of debt owed to DHW Leasing, LLC (DHW) into 28 million shares of the company's common stock. The common stock of Granite City was converted at $0.54 per share.

A key component of the agreement allows the company during the year following the closing to buy back certain DHW-owned shares at $0.001 per share if the average bid price of the company's common stock equals or exceeds $0.714 for any period of 20 consecutive trading days. As an example, if the company's share price were to reach $1.50 for a period of 20 days and be maintained, Granite City would have a one-time right to repurchase approximately 14.7 million shares for $14,700.

The conversion of the debt to equity is estimated to save Granite City approximately $19.0 million of principal and interest payments over the next five years, with the potential of significantly improving the company's cash flow.

As a part of the final agreement, the company also reduced the duration of the leases on the Dunham owned properties. While the company is still in the process of calculating the effects of the reduced terms as they relate to whether the leases are classified as operating leases or a capital leases, based on preliminary estimates, the company expects that the new lease terms will remove approximately $14-20 million of capital lease debt and the related assets from its balance sheet.

'We are pleased to close this transaction. It allows us to clean up our balance sheet, brings new perspectives to our board and allows us to focus all of our energies on continued operational improvement,' said Steven J. Wagenheim, President and Chief Executive Officer of Granite City Food & Brewery Ltd. 'We also feel the transaction provides the opportunity to enhance shareholder value through the share repurchase feature. We hope that shareholders understand that the more our stock price increases over the next year, the greater the number of shares we may be able to repurchase.'

Other terms of the transaction include:

The transaction will result in a change of control of the company, giving DHW ownership of 64 percent of our common stock. Current executive management will stay in place; however, the company's board of directors has been expanded to include four new directors nominated by DHW, Donald A. Dunham, Jr., Joel Longtin, Todd Hanson and John Pesicka. Two of the company's five incumbent directors, James G. Gilbertson, Chief Financial Officer, and Arthur E. Pew III, an independent director, resigned from the board of directors upon closing.

DHW has transferred to the company, free and clear of all liens and encumbrances, the title to all furniture, fixtures and equipment subject to financing lease arrangements between the company and DHW.

Dunham Capital Management, LLC and Dunham Equity Management, LLC (Dunham) have agreed to a limited deferral of 30 percent of the rent due under lease agreements between the company and Dunham. In addition, for all rent payments due on or after June 2009 under restaurant leases with Dunham, rent will be deferred for 30 days. All deferred rents must be repaid upon the company completing a debt or equity financing totaling $2.0 million or upon the first anniversary of closing, whichever occurs first. The company anticipates that the accrued and deferred rent will total approximately $75,000 per month, beginning in June 2009.

In addition to the rent concessions, Dunham and the company have agreed upon rent reductions for 2009 and 2010 and will use reasonable commercial efforts to seek additional reductions on real estate leases payable in 2010 of up to $1.7 million in the aggregate on leases for Dunham-owned properties and certain non-Dunham properties.

The company has entered into lease amendments for the restaurant leases with Dunham to reflect the rent deferrals and rent reductions. In addition, the lease amendments reduce the terms of the applicable leases in an effort to qualify those leases as operating leases for accounting purposes.

For a period of two years following the closing, DHW will have the right to participate in private placements of the company's equity (on the same terms as other investors) so that DHW may maintain its then-percentage ownership.

Logos, product and company names mentioned are the property of their respective owners.

Reader Comments:

Be the first to leave a comment for this article

Tweet