<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1999
REGISTRATION NO. 333-79419
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VOLUME SERVICES AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5812 57-0969174
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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201 EAST BROAD STREET
SPARTANBURG, SC 29306
(864) 598-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JANET L. STEINMAYER, ESQ.
VOLUME SERVICES AMERICA, INC.
300 FIRST STAMFORD PLACE
P.O. BOX 10203
STAMFORD, CT 06904-2203
(203) 975-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
RISE B. NORMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANT GUARANTORS
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<CAPTION>
EXACT NAME OF STATE OR OTHER I.R.S. ADDRESS INCLUDING ZIP CODE,
REGISTRANT GUARANTOR JURISDICTION OF EMPLOYER AND TELEPHONE NUMBER INCLUDING AREA CODE,
AS SPECIFIED INCORPORATION OR IDENTIFICATION OF REGISTRANT GUARANTOR'S
IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------ ---------------- ------------- -----------------------------------------
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Events Center Catering, Inc. Wyoming 57-1007720 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
Service America Maryland 06-1182149 201 East Broad Street,
Concessions Corporation Spartanburg, SC 29306 (864) 598-8600
Service America Corporation Delaware 13-1939453 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
Service America Corporation Wisconsin 39-1655756 201 East Broad Street,
of Wisconsin Spartanburg, SC 29306 (864) 598-8600
Servo-Kansas, Inc. Kansas 06-1238400 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
Servomation Duchess, Inc. California 95-1943117 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
SVM of Texas, Inc. Texas 75-1913406 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
Volume Services America Delaware 13-3870167 201 East Broad Street,
Holdings, Inc. Spartanburg, SC 29306 (864) 598-8600
Volume Services, Inc. Delaware 36-2786575 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
Volume Services, Inc. Kansas 57-0973901 201 East Broad Street,
Spartanburg, SC 29306 (864) 598-8600
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 19, 1999
Prospectus
$100,000,000 [LOGO]
VOLUME SERVICES AMERICA, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES
DUE 2009 FOR 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
o We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that are
freely tradeable.
o You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
o The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
THE EXCHANGE NOTES
o The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the exchange
notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
o The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods.
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------------------------
The date of this prospectus is , 1999.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................ 1
Risk Factors.................................. 16
Special Note Regarding Forward-Looking
Statements.................................. 29
Use of Proceeds............................... 30
Capitalization................................ 31
Unaudited Pro Forma Combined Financial
Information of Volume Holdings.............. 32
Selected Historical Financial Information of
Volume Holdings............................. 39
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations.................................. 42
Business...................................... 54
Management.................................... 69
Certain Relationships and Related
Transactions................................ 75
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Security Ownership............................ 80
Description of the Senior Credit Facilities... 81
The Exchange Offer............................ 84
Description of the Notes...................... 94
Exchange and Registration Rights Agreement.... 136
Book-Entry; Delivery and Form................. 139
Certain United States Federal Income Tax
Consequences of the Exchange Offer.......... 143
Plan of Distribution.......................... 146
Legal Matters................................. 147
Experts....................................... 147
Where You Can Find More Information........... 147
Index to Financial Statements................. F-1
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PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
is important to you. We encourage you to read this prospectus in its entirety.
In this prospectus, "Volume Holdings," "we," "us," or "our" refers to Volume
Services America Holdings, Inc. and its subsidiaries. Volume Holdings is a
holding company. Its principal assets are the capital stock of its subsidiary,
Volume Services America, Inc. In this prospectus, "Volume Services America" or
the "Issuer" refers to Volume Services America, Inc. Volume Services America is
also a holding company. Its principal assets are the capital stock of its
subsidiaries, Volume Services, Inc. and Service America Corporation. In this
prospectus, "Volume Services" refers to Volume Services Inc. and "Service
America" refers to Service America Corporation. For more information about this
corporate structure, please see the chart on page 4.
VOLUME HOLDINGS
OVERVIEW
We are a leading provider of catering, concession and merchandise services
for sports facilities, convention centers and other entertainment facilities
throughout the United States. We represent the combination in August 1998 of
Volume Services, one of the leading suppliers of food and beverages services to
sports facilities in the United States, with Service America, one of the leading
suppliers of food and beverages to convention centers in the United States. As a
result of this combination, based on the number of facilities served, we are the
largest provider of food and beverage services to:
o facilities which are home to National Football League teams;
o minor league baseball and spring training facilities in the United
States; and
o major convention centers, which are defined for the purposes of this
prospectus as those with at least 300,000 square feet of exhibition
space, in the United States.
We are also the third largest provider of food and beverage services to
facilities which are home to Major League Baseball teams.
We currently provide our services at 118 client facilities. We typically
have long-term contracts at these facilities which grant us the exclusive right
to provide our services. Our major clients, on the basis of revenue and industry
recognition, include Yankee Stadium in New York, Qualcomm Stadium in San Diego,
the Jacob K. Javits Center in New York, the Cobb-Galleria Center in Atlanta and
the Los Angeles Zoo.
Since April 1997 we have been awarded the contract to provide food and
beverage services to the Louisiana Superdome, home of the New Orleans Saints NFL
team, the Tennessee Titans' new NFL stadium, which is scheduled to open in 1999,
the Seattle Mariners' Northwest Baseball Park, the San Francisco Giants'
Pacific Bell Ballpark, which is scheduled to open in 2000, and the Cleveland
Convention Center.
In addition to the cost of providing our services at each individual
facility, we have general corporate overhead expenses which we are not able to
allocate to individual contracts. We therefore analyze our performance under
each of our contracts by reference to the amount of EBITDA generated by the
contract, without any deduction for these general corporate overhead expenses.
We refer to this measure as "Contract EBITDA." As of March 30, 1999, our
contracts had an average of approximately 8.2 years left to run before their
scheduled expiration, after weighting each contract by the amount of Contract
EBITDA which it generated in the preceding fifty-two week period. The 118
facilities which we serve are comprised of 55 sports facilities, 29 convention
centers and 34 other entertainment facilities, representing approximately 64%,
27% and 9%, respectively, of Contract EBITDA for the fifty-two week period ended
March 30, 1999.
1
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Our pro forma net sales and adjusted EBITDA were $404.2 million and
$46.8 million, respectively, for the fifty-two week period ended March 30, 1999.
Our net loss for the fifty-two week period ended March 30, 1999 was
$8.3 million.
We believe that EBITDA provides useful information regarding our ability to
service debt, but it should not be considered in isolation of our consolidated
statement of operations or cash flows prepared in accordance with generally
accepted principles and included elsewhere in this prospectus, or as a measure
of our operating performance, profitability or liquidity. While EBITDA is
frequently used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to differences in the method of calculation. See
"Summary Historical and Pro Forma Financial Information of Volume Holdings,"
"Selected Historical Financial Information of Volume Holdings" and "Unaudited
Pro Forma Combined Statement of Operations Of Volume Holdings" included
elsewhere in this prospectus for a definition of EBITDA and adjusted EBITDA.
INDUSTRY
The recreational food service industry primarily consists of the supply of
food and beverage services to a range of recreational facilities. For the
purposes of our business, these facilities fall into three main categories:
o sports facilities, consisting of stadiums and arenas;
o convention centers; and
o other entertainment facilities, which include horse racing tracks, music
amphitheaters, motor speedways, national and state parks, skiing
facilities, theme parks and zoos.
Management estimates that annual sales in these categories of the North
American recreational food service industry, whether generated by the owner of
the facility or outsourced to an organization like us, are currently more than
$4.0 billion.
COMPETITIVE STRENGTHS
We believe that we will be able to develop our business because we possess
the following attributes:
o leading market position;
o diversified client base with long-term contracts;
o exclusive service contracts with high retention rate;
o high quality, full service capabilities; and
o experienced management team.
BUSINESS STRATEGY
Our strategic objectives are to maintain and strengthen our position as an
industry leader by selectively retaining existing contracts and adding new
contracts through the following initiatives:
o leverage complementary strengths of Volume Services and Service America;
o exploit our national presence;
o develop innovative contract structures; and
o capitalize on our ability to provide high quality, reliable and
innovative service.
2
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ACQUISITION OF SERVICE AMERICA
On August 24, 1998, Volume Holdings purchased approximately 98% of the
capital stock of Service America from General Electric Capital Corporation
(referred to as "GE Capital") and members of Service America's management team
under an exchange agreement for aggregate consideration of (1) $1,000 in cash,
(2) newly issued shares representing approximately 28.5% of the outstanding
common stock of Volume Holdings and (3) the issuance to GE Capital of a senior
subordinated promissory note, which is referred to as the "GE Capital Note", in
an aggregate principal amount of $500,000.
This consideration was contributed to Recreational Services L.L.C., a
limited liability company owned by GE Capital and members of our current
management team, of which GE Capital is the managing member.
Volume Holdings subsequently purchased the remaining 2% of the capital
stock of Service America for consideration valued at less than $0.2 million, and
contributed all of the capital stock of Service America to Volume Services
America. Service America then became a wholly owned subsidiary of Volume
Services America.
RECENT DEVELOPMENTS
On June 24, 1999, Odgen Entertainment Inc., a subsidiary of Ogden
Corporation, which is referred to as "Ogden", entered into an agreement with BCP
Volume L.P. and BCP Offshore Volume L.P., together referred to in this
prospectus as "Blackstone", VSI Management Direct and Recreational Services,
collectively referred to as the "Sellers", to purchase all of the outstanding
common stock of Volume Holdings for $127 million in cash. The closing of this
transaction is expected to occur in the fall of 1999 and is subject to a number
of customary conditions, as well as Ogden's determination that the transaction
is not reasonably likely to have a material adverse effect on Ogden and its
subsidiaries or Ogden's ability to effect its planned recapitalization.
Following the closing of this transaction, Ogden plans to combine the operations
of Volume Services America with its entertainment business. Prior to closing
this transaction, Volume Services America will either need to obtain the consent
of the lenders under its senior credit facilities to the proposed change of
control, or these senior credit facilities must be refinanced.
The closing of this transaction would also constitute a change of control
under the terms of the notes. As a result of this change of control:
o we will have the right to repurchase your notes at a price equal to 100%
of the principal amount, plus any premium which may be payable, together
with accrued and unpaid interest, if any, to the date of repurchase; and
o you will have the right to require us to repurchase your notes at a price
equal to 101% of the principal amount together with accrued and unpaid
interest, if any, to the date of repurchase.
3
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CORPORATE STRUCTURE
The following table sets forth our current corporate structure:
- --------------- -------------- -----------------
VSI Management Blackstone Recreational
Direct L.P. Services
- --------------- -------------- -----------------
| | |
| 4.2% | 59.4% | 36.4%
----------------------------------------------------------
|
|
------------------
Volume Holdings
------------------
|
| 100%
------------------
Volume Services
America
------------------
| |
| 100% | 100%
------------------- -------------------
Volume Services Service America
------------------- -------------------
| | |
| | |
- ----------------- ----------------- ---------------
Canadian
Wholly-Owned Wholly-Owned Subsidiary/Non-
U.S. Subsidiaries(1) U.S. Subsidiaries(2) Wholly-Owned
Interests(3)
- ----------------- ----------------- ---------------
(1) Volume Services has three wholly-owned U.S. subsidiaries.
(2) Service America has five wholly-owned U.S. subsidiaries.
(3) Service America has two non wholly-owned subsidiaries, and is a party
to three joint ventures.
The exchange agreement contains ongoing indemnification obligations of the
stockholders of Volume Holdings the representations and warranties made by the
sellers to Volume Holdings upon the acquisition of Service America. If claims
are made by Volume Holdings for breaches of these representations and
warranties, those claims will be satisfied by transfers of shares of Volume
Holdings common stock from Recreational Services to Blackstone and VSI
Management Direct. If made, any transfers would consequently affect the
percentage of common stock owned by each stockholder. All share ownership
information assumes that no transfers of shares to satisfy indemnification
obligations will be made.
THE ISSUER
Volume Services America, Inc. is a Delaware corporation incorporated on
December 31, 1992. Our principal offices are located at 201 East Broad Street,
Spartanburg, South Carolina 29306, and our telephone number is (864) 598-8600.
4
<PAGE>
THE TRANSACTIONS
On December 3, 1998, the Issuer entered into a credit agreement with and
obtained senior credit facilities from Goldman Sachs Credit Partners L.P., The
Chase Manhattan Bank and other financial institutions. These senior credit
facilities comprised a $75.0 million revolving credit facility and $160.0
million of term loans. For a detailed description of the senior credit
facilities see "Description of the Senior Credit Facilities".
References in this prospectus to the "Financings" are a collective
reference to the following:
o the offering of the outstanding notes and the use of proceeds from the
offering; and
o the borrowing of the term loans under the senior credit facilities and
the use of proceeds from the borrowing.
References in this prospectus to the "Transactions" are a collective
reference to the following:
o the acquisition of Service America;
o the offering of the outstanding notes and the use of proceeds from the
offering; and
o the borrowing of the term loans under the senior credit facilities and
the use of proceeds from the borrowing.
5
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
On March 4, 1999, the Issuer completed the private offering of the
outstanding notes. References to "Notes" in this prospectus are references to
both the outstanding notes and the exchange notes.
The Issuer and the guarantors entered into an exchange and registration
rights agreement with the initial purchasers in the private offering in which
the Issuer and the guarantors agreed to deliver to you this prospectus and the
Issuer agreed to complete the exchange offer within 210 days after the date of
original issuance of the outstanding notes. You are entitled to exchange in the
exchange offer your outstanding notes for exchange notes which are identical in
all material respects to the outstanding notes except that:
o the exchange notes have been registered under the Securities Act; and
o certain contingent interest rate provisions are no longer applicable.
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The Exchange Offer.................. The Issuer is offering to exchange up to $100.0 million aggregate principal
amount of exchange notes for up to $100.0 million aggregate principal
amount of outstanding notes. Outstanding notes may be exchanged only in
amounts which are equal to whole multiples of $1,000.
Resales............................. Based on an interpretation by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we
believe that the exchange notes issued pursuant to the exchange offer in
exchange for outstanding notes may be offered for resale, resold and
otherwise transferred by you, unless you are an "affiliate" of Volume
Services America within the meaning of Rule 405 under the Securities Act,
without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that you are acquiring the exchange notes
in the ordinary course of your business and that you have not engaged in,
do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of the exchange notes.
Each participating broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer in exchange for outstanding notes
that were acquired as a result of market-making or other trading activity
must acknowledge that it will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of Distribution."
Any holder of outstanding notes who
o is an affiliate of Volume Services America;
o does not acquire exchange notes in the ordinary course of its business;
or
o tenders in the exchange offer with the intention to participate, or for
the purpose of participating, in a distribution of exchange notes,
cannot rely on the position of the staff of the Commission enunciated in
Exxon Capital Holdings Corporation, Morgan Stanley & Co. Incorporated or
similar no-action letters and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of
the
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Securities Act in connection with the resale of the exchange notes.
Expiration Date; Withdrawal of
Tenders........................... The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, or such later date and time to which the Issuer
extends it, referred to as the "expiration date." The Issuer does not
currently intend to extend the expiration date. A tender of outstanding
notes pursuant to the exchange offer may be withdrawn at any time prior to
the expiration date. The expiration date for the exchange offer will not in
any event be extended to a date later than , 1999. Any
outstanding notes not accepted for exchange for any reason will be returned
without expense to the tendering holder promptly after the expiration or
termination of the exchange offer.
Certain Conditions to the Exchange
Offer............................. The exchange offer is subject to customary conditions, which the Issuer may
waive. Please read the section captioned "The Exchange Offer--Certain
Conditions to the Exchange Offer" of this prospectus for more information
regarding the conditions to the exchange offer.
Procedures for Tendering Outstanding
Notes............................. If you wish to accept the exchange offer, you must complete, sign and date
the accompanying letter of transmittal, or a facsimile of the letter of
transmittal, according to the instructions contained in this prospectus and
the letter of transmittal. You must also mail or otherwise deliver the
letter of transmittal, or a facsimile of the letter of transmittal,
together with the outstanding notes and any other required documents, to
the exchange agent at the address set forth on the cover page of the letter
of transmittal. If you hold outstanding notes through The Depository Trust
Company ("DTC") and wish to participate in the exchange offer, you must
comply with the Automated Tender Offer Program procedures of DTC, by which
you will agree to be bound by the letter of transmittal. By signing, or
agreeing to be bound by, the letter of transmittal, you will represent to
us that, among other things:
o any exchange notes that you receive will be acquired in the ordinary
course of your business;
o you have no arrangement or understanding with any person or entity to
participate in a distribution of the exchange notes;
o if you are a broker-dealer that will receive exchange notes for your
own account in exchange for outstanding notes that were acquired as a
result of market-making activities, that you will deliver a prospectus,
as required by law, in connection with any resale of such exchange
notes; and
o you are not an "affiliate," as defined in Rule 405 of the Securities
Act, of Volume Services America or, if you are an affiliate, you will
comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
Special Procedures for Beneficial
Owners............................ If you are a beneficial owner of outstanding notes which are registered
in the name of a broker, dealer, commercial bank,
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trust company or other nominee, and you wish to tender such outstanding
notes in the exchange offer, you should contact such registered holder
promptly and instruct such registered holder to tender on your behalf. If
you wish to tender on your own behalf, you must, prior to completing and
executing the letter of transmittal and delivering your outstanding notes,
either make appropriate arrangements to register ownership of the
outstanding notes in your name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the
expiration date.
Guaranteed Delivery Procedures...... If you wish to tender your outstanding notes and your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other documents required by the letter of
transmittal or comply with the applicable procedures under DTC's Automated
Tender Offer Program prior to the expiration date, you must tender your
outstanding notes according to the guaranteed delivery procedures set forth
in this prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
Effect on Holders of Outstanding
Notes............................. As a result of the making of, and upon acceptance for exchange of all
validly tendered outstanding notes pursuant to the terms of the exchange
offer, we will have fulfilled a covenant contained in the exchange and
registration rights agreement and, accordingly, we will not be obligated to
pay liquidated damages as described in the exchange and registration rights
agreement. If you are a holder of outstanding notes and you do not tender
your outstanding notes in the exchange offer, you will continue to hold
such outstanding notes and you will be entitled to all the rights and
limitations applicable to the outstanding notes in the indenture, except
for any rights under the exchange and registration rights agreement that by
their terms terminate upon the consummation of the exchange offer.
To the extent that outstanding notes are tendered and accepted in the
exchange offer, the trading market for outstanding notes could be adversely
affected.
Consequences of Failure to
Exchange.......................... All untendered outstanding notes will continue to be subject to the
restrictions on transfer provided for in the outstanding notes and in the
indenture. In general, the outstanding notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Other than in connection with the exchange offer,
the Issuer does not currently anticipate that it will register the
outstanding notes under the Securities Act.
Certain U.S. Federal Income Tax
Considerations.................... The exchange of outstanding notes for exchange notes in the exchange offer
will not be a taxable event for U.S. federal income
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8
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tax purposes. See "Certain United States Federal Income Tax Consequences of
the Exchange Offer."
Use of Proceeds..................... We will not receive any cash proceeds from the issuance of exchange notes
pursuant to the exchange offer.
Exchange Agent...................... Norwest Bank Minnesota, National Association is the exchange agent for the
exchange offer. The address and telephone number of the exchange agent are
set forth in the section captioned "Exchange Offer--Exchange Agent" of this
prospectus.
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9
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
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Issuer.............................. Volume Services America, Inc.
Notes Offered....................... $100,000,000 aggregate principal amount of 11 1/4% Senior Subordinated
Notes due 2009.
Maturity Date....................... March 1, 2009.
Interest............................ Annual rate: 11 1/4%.
Payment frequency: every six months on March 1 and September 1.
First payment: September 1, 1999.
Optional Redemption................. On or after March 1, 2004, the Issuer may redeem some or all of the notes
at the redemption prices listed in the section entitled "Description of the
Notes--Optional Redemption."
At any time on or prior to March 1, 2002, the Issuer may redeem up to
$35,000,000 of the notes with the proceeds of certain public or private
offerings of equity at the price listed in the section entitled
"Description of the Notes--Optional Redemption."
Change of Control................... Upon the occurrence of a change of control,
o we will have the right at any time on or prior to March 1, 2004 to
repurchase your notes at a price equal to 100% of the principal amount,
plus any premium which may be payable, together with accrued and unpaid
interest if any to the date of repurchase; and
o you will have the right to require the Issuer to repurchase your notes
at a price equal to 101% of the principal amount together with accrued
and unpaid interest, if any, to the date of repurchase.
See "Description of the Notes--Optional Redemption" and "Description of
Notes--Change of Control."
Ranking and Guarantees.............. The outstanding notes are, and the exchange notes will be, jointly and
severally guaranteed by Volume Holdings, Volume Services, Service America
and each of Volume Services' and Service America's wholly-owned U.S.
subsidiaries on a full and unconditional basis. The notes and the
guarantees are unsecured senior subordinated debt. The guarantees will be
junior to the guarantees of senior indebtedness issued by the guarantors
under the senior credit facilities. See "Description of the Notes--
Guarantees."
The notes and the guarantees rank behind all of the Issuer's and the
guarantors' current and future indebtedness, other than trade payables,
except indebtedness that expressly provides that it is not senior to the
notes or the guarantees and certain other types of indebtedness. The Issuer
is a holding company that derives all of its operating income and cashflow
from its subsidiaries. See "Description of the Notes--Ranking."
As of March 30, 1999,
o the Issuer had $119.2 million of senior secured debt to which the notes
would be subordinated;
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<PAGE>
<TABLE>
<S> <C>
o the Issuer had no senior subordinated debt with which the notes would
rank equally;
o the guarantors had $0.8 million of senior secured debt to which the
notes would be subordinated;
o the guarantors had no senior subordinated debt with which the notes
would rank equally; and
o the guarantors had total liabilities, excluding liabilities owed to
Volume Holdings, of $274.4 million.
As of March 30, 1999, the subsidiaries of Volume Services and Service
America that are not guaranteeing the notes had total liabilities,
excluding liabilities owed to Volume Holdings, of $1.2 million.
Certain Covenants................... The Issuer issued the outstanding notes, and will issue the exchange notes,
under an indenture with Norwest Bank Minnesota, National Association, the
trustee. The indenture, among other things, restricts our ability and the
ability of our subsidiaries to:
o borrow money and issue preferred stock;
o pay dividends on stock, purchase stock or purchase debt that is junior
to the notes;
o make investments;
o sell certain assets or merge with or into other companies;
o use assets as security in other transactions;
o engage in transactions with our affiliates;
o guarantee other indebtedness; and
o allow certain restrictions on distributions from our subsidiaries.
For more details, see "Description of the Notes--Certain Covenants."
Absence of a Public Market
for the Exchange Notes............ The exchange notes generally will be freely transferable but will also be
new securities for which there will not initially be a market. Accordingly,
we cannot assure you whether a market for the exchange notes will develop
or as to the liquidity of any such market. We do not intend to apply for a
listing of the exchange notes on any securities exchange or automated
dealer quotation system. The initial purchasers in the private offering of
the outstanding notes have advised us that they currently intend to make a
market in the exchange notes. However, they are not obligated to do so, and
any market making with respect to the exchange notes may be discontinued
without notice.
</TABLE>
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION OF
VOLUME HOLDINGS
The following table sets forth summary historical financial information of
Volume Holdings as of and for fiscal years 1996, 1997, and 1998 and as of and
for the thirteen week periods ended March 31, 1998 and March 30, 1999. The
fiscal year of Volume Holdings ends on the Tuesday closest to December 31 and
references in this prospectus to a specific fiscal year of Volume Holdings mean
the year ended on the Tuesday closest to December 31 of that year.
The historical financial information as of and for fiscal years 1996, 1997,
and 1998 has been derived from the consolidated financial statements of Volume
Holdings and the notes thereto, which have been audited by Deloitte and
Touche LLP, independent auditors, and which are included elsewhere in this
prospectus. The historical financial information as of and for the thirteen week
periods ended March 31, 1998 and March 30, 1999 has been derived from the
unaudited consolidated financial statements of Volume Holdings and the notes
thereto, which are included elsewhere in this prospectus. The unaudited
consolidated financial statements of Volume Holdings include, in the opinion of
management, all adjustments, which consist only of normal recurring accruals,
necessary for a fair presentation of the results of operations and financial
positions for and as of the end of such periods. Results of operations for the
thirteen week period ended March 30, 1999 are not necessarily indicative of the
results to be expected for the full year or for any future period. The
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Selected Historical Financial Information of Volume Holdings" and the
consolidated financial statements of Volume Holdings and the notes thereto
included elsewhere in this prospectus.
Volume Holdings is a guarantor of the notes and the senior credit
facilities and has no substantial operations or assets other than the capital
stock of the Issuer. As a result, the consolidated financial position and
results of operations of Volume Holdings are substantially the same as those of
the Issuer.
As a result of the consummation of the acquisition of Service America on
August 24, 1998, the financial position and results of operations of Service
America after August 24, 1998 are consolidated in the financial position and
results of operations of Volume Holdings for the period subsequent to that date.
The following table also sets forth certain unaudited summary pro forma
combined financial information of Volume Holdings for the periods indicated. The
unaudited summary pro forma combined statement of operations data for fiscal
year 1998 and for the thirteen week period ended March 30, 1999 each give effect
to the Transactions as if they had occurred on December 31, 1997. The unaudited
summary pro forma combined financial information does not purport to represent
what Volume Holdings' results of operations would actually have been had the
Transactions in fact occurred as of such dates or to project Volume Holdings'
results of operations for any future period. The unaudited summary pro forma
combined financial data should be read in conjunction with the Unaudited Pro
Forma Combined Statements of Operations and the notes thereto appearing
elsewhere in this prospectus.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION OF
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PROFORMA
-----------------
THIRTEEN THIRTEEN THIRTEEN
FISCAL YEAR WEEK PERIOD WEEK PERIOD WEEK PERIOD
------------------------ PROFORMA ENDED ENDED ENDED
1996 1997 1998 1998(A) MARCH 31, 1998 MARCH 30, 1999 MARCH 30, 1999(A)
------ ------ ------ --------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $190.4 $196.0 $283.4 $ 405.9 $ 27.3 $ 66.3 $ 66.3
Depreciation and amortization.... 12.6 12.9 18.2 28.4 2.9 6.4 6.4
Operating profit (loss)(b)....... 2.9 4.8 8.7 7.7 (2.5) (4.9) (4.9)
Interest expense................. 7.3 7.9 11.3 23.6 2.3 4.6 5.8
Loss before income taxes,
extraordinary item and
cumulative effect of change in
accounting principle........... (3.9) (2.8) (2.2) (15.5) (4.8) (9.4) (10.6)
Income tax provision (benefit)... -- 0.3 1.5 (5.6) -- (2.7) (4.1)
Net loss(c)...................... (3.9) (3.1) (5.2) (9.9) (4.8) (7.8) (7.6)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents........ $ 5.2 $ 5.4 $ 8.8 $ 12.1 $ 9.0
Working capital (deficit)(d)..... (5.4) 0.5 (6.4) (4.6) (8.5)
Total assets..................... 117.3 137.8 267.2 144.5 268.8
Total debt(e).................... 69.7 79.0 161.3 93.9 220.0
Total stockholders' equity
(deficit)...................... 21.9 25.2 49.9 23.9 (6.8)
OTHER DATA:
Net cash provided by used in
operating activities........... 11.0 15.3 1.4 (9.1) (5.9)
Net cash used in investing
activities..................... (13.5) (31.0) (5.3) (0.5) (1.2)
Net cash provided by (used in)
financing activities........... (0.4) 15.9 7.3 16.3 7.3
EBITDA(f)........................ $ 16.3 $ 20.8 $ 32.1 $ 41.7 $ 0.5 $ 2.7 $ 2.7
Adjusted EBITDA(g)............... $ 46.6 $ 3.6
Total capital additions(h)....... 20.7 37.6 18.8 5.8 1.2
Interest expense excluding
amortization of debt issuance
costs.......................... 6.9 7.4 10.8 22.2 2.2 4.3 5.5
Ratio of earnings to fixed
charges(i)..................... -- -- -- -- -- -- --
</TABLE>
13
<PAGE>
NOTES TO SUMMARY HISTORICAL FINANCIAL INFORMATION OF
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
(a) For a discussion of the transactions reflected in the pro forma information
set forth in the table, see "Unaudited Pro Forma Combined Statements of
Operations," "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and "Prospectus Summary--The Transactions."
(b) Operating profit (loss) includes non-cash charges of $2.5 and $1.4 in fiscal
years 1997 and 1998, respectively, related to contract termination costs.
Operating profit (loss) for fiscal years 1996, 1997 and 1998 and the
thirteen week periods ended March 31, 1998 and March 30, 1999, includes
management fees paid to equity holders of $0.3, $0.3 and $0.3, $0.1 and
$0.1, respectively.
(c) Net loss for Volume Holdings includes an extraordinary loss (net of income
taxes) of $1.5 and $0.9 for the non-cash write-off of deferred financing
costs for fiscal year 1998 and the thirteen week period ended March 30,
1999, respectively, and $0.3 resulting from cumulative change in accounting
principles (net of income taxes) in the thirteen week period ended
March 30, 1999.
(d) Working capital is defined as current assets less current liabilities.
(e) Includes the current portion of long-term debt.
(f) EBITDA is defined as net loss before extraordinary item, interest expense,
income tax expense, depreciation, amortization and:
o for fiscal year 1997, a $2.5 non-cash charge related to contract
termination costs for Volume Holdings;
o for fiscal year 1998, $1.4 million of non-cash charge related to contract
termination costs for Volume Holdings and $3.1 of non-recurring severance
expense associated with Volume Services' employees;
o for fiscal 1998, on a proforma basis, $3.1 of non-recurring severance
expense associated with Volume Services' employees and other Service
America expenses in connection with the acquisition of Service America,
$1.4 of non-charges related to contract termination costs for Volume
Holding and $0.2 of non-cash charges related to contract termination
costs for Service America;
o for the thirteen week period ended March 30, 1999, and the thirteen week
period ended March 30, 1999 on a proforma basis, $1.0 of non-recurring
severance expenses and other non-recurring expenses in connection with
the acquisition of Service America; and
o For fiscal 1996, 1997 and 1998 and for the thirteen week periods ended
March 31, 1998 and March 30, 1999, $0.3, $0.3, $0.3, $0.1, and $0.1, for
management fees paid to equity owners.
We believe that EBITDA provides useful information regarding our ability to
service debt but should not be considered in isolation, or as a substitute
for the consolidated statement of operations or cash flow data prepared in
accordance with generally accepted accounting principles and included
elsewhere in this prospectus, or as a measure of our operating performance,
profitability or liquidity. While EBITDA is frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other companies
due to differences in methods of calculation.
EBITDA, including the adjustments shown for non-cash items, is a component
in the calculation of the fixed charge coverage ratio contained in a
financial covenant in the indenture for the notes, as described in
"Description of Notes."
14
<PAGE>
(g) Adjusted EBITDA reflects the following changes in our cost structure as a
result of implementation of the Integration Plan:
<TABLE>
<CAPTION>
THIRTEEN WEEK
PERIOD ENDED
MARCH 30,
FISCAL YEAR 1998 1999
----------------- -------------
<S> <C> <C>
Pro forma EBITDA................................... $41.7 $ 2.7
Cost savings:
Elimination of overlapping regional office
personnel..................................... 1.1 0.3
Corporate overhead staff reductions.............. 1.5 0.4
Reduction in operating costs..................... 2.5 0.6
----- -----
Total......................................... 5.1 1.3
Cost savings realized in the applicable period... 0.2 0.4
----- -----
Remaining cost savings to be realized............ 4.9 0.9
----- -----
Adjusted EBITDA.................................... $46.6 $ 3.6
----- -----
----- -----
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Integration Plan" for a full explanation of these savings and
of the Integration Plan.
(h) In connection with entering into certain new contracts, or extending or
renewing certain existing contracts, we are required to make some form of
up-front or committed future capital investment. We account for these
capital investments as purchases of property and equipment and we account
for grants as purchases of contract rights. We capitalize these investments
and depreciate or amortize them over the lesser of the useful life of the
applicable asset or the remaining life of the contract. For a detailed
explantion of these capital investments, see "Business--Contracts."
(i) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as loss before income taxes and extraordinary item plus fixed
charges. Fixed charges include interest expense on all indebtedness,
amortization of deferred financing costs, and one-third of rental expense on
operating leases representing that portion of rental expense deemed to be
attributable to interest. Earnings were insufficient to cover fixed charges
by $3.9, $2.8, $2.2, $4.8 and $9.4 for fiscal years 1996, 1997 and 1998 and
the thirteen week periods ended March 31, 1998 and March 30, 1999,
respectively. On a pro forma basis, earnings were insufficient to cover
fixed charges by $15.5 for fiscal 1998, and $10.6 for the thirteen week
period ended March 30, 1999.
15
<PAGE>
RISK FACTORS
You should carefully consider the risk factors discussed below, together
with the other information in this prospectus, before deciding whether to
participate in the exchange offer. The following risks include all of the risks
which we believe to be material at the current time. However, there may be
additional risks which affect our business, financial condition or results of
operations in the future and of which we are not currently aware.
THERE MAY BE ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES.
If you do not exchange your outstanding notes for exchange notes under the
exchange offer, then the transfer restrictions on the outstanding notes
described in the offering memorandum relating to the offering of the outstanding
notes will continue to apply to you. In general, the outstanding notes may not
be offered or sold unless they are registered or exempt from registration under
the Securities Act and applicable state securities laws. Except as required by
the exchange and registration rights agreement, we do not intend to register
resales of the outstanding notes under the Securities Act. You should refer to
"Prospectus Summary--Summary of Terms of the Exchange Offer" and "The Exchange
Offer" for information about how to tender your outstanding notes.
The tender of outstanding notes under the exchange offer will reduce the
principal amount of notes outstanding. This may have an adverse effect upon, and
increase the volatility of, the market price of the outstanding notes due to a
reduction in liquidity.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND HAVE SIGNIFICANT INTEREST PAYMENT
REQUIREMENTS.
We have a substantial amount of debt. As of March 30, 1999, we had debt of
$220.0 million, excluding unused commitments, of which $120.0 million was senior
debt, and stockholders' deficit of $6.8 million. In addition, so long as we
comply with restrictions in our senior credit facilities and in the indenture
governing the notes, we may borrow more money for working capital, capital
expenditures, acquisitions or for other purposes. On a pro forma basis after
giving effect to the Transactions, our earnings would have been insufficient to
cover our fixed charges by $15.5 million for fiscal year 1998 and $10.6 million
for the thirteen week period ended March 30, 1999.
Our high level of debt could have important consequences for you, including
the following:
o we will need to use a large portion of the money earned by our
subsidiaries to pay principal and interest on the senior credit
facilities, the notes and on other debt, which will reduce the amount of
money available to us to finance our operations and other business
activities;
o as of March 30, 1999, approximately 50% of our debt had a variable rate
of interest, which exposes us to the risk of increased interest rates;
o we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes which may adversely
affect, among other things, our ability to make capital investments and
therefore obtain new contracts and/or retain existing contracts;
o we may have a much higher level of debt than our competitors, which may
put us at a competitive disadvantage;
o debt under the senior credit facilities is secured by all our assets and
will mature prior to the notes;
o our debt level makes us more vulnerable to economic downturns and adverse
developments in our business;
o our debt level reduces our flexibility in responding to changing business
and economic conditions, including increased competition in the
recreational food service industry; and
16
<PAGE>
o our debt level could prevent us from repurchasing all of the notes
tendered to us upon a change of control.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes, the senior credit facilities and other debt and to
fund capital expenditures or to finance acquisitions from the operations of our
subsidiaries and from additional loans under the senior credit facilities. Our
ability to meet our expenses therefore depends on the future performance of our
subsidiaries, which will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors, such as economic
conditions in the markets where our subsidiaries operate, and pressure from
competitors. We cannot be certain that the money earned by our subsidiaries will
be sufficient to allow us to pay principal and interest on our debt, including
the notes, and meet our other obligations. If we do not have enough money, we
may be required to reduce or delay planned capital expenditures, obtain
additional equity capital, refinance all or part of our existing debt, including
the notes, sell assets or borrow more money. We cannot guarantee that we will be
able to refinance our debt, sell assets or borrow more money on terms acceptable
to us. In addition, the terms of existing or future debt agreements, including
the senior credit facilities and the indenture, may restrict us from adopting
any of these alternatives.
Under the senior credit facilities, we must also comply with specified
financial ratios and tests. If we do not comply with these or other covenants
and restrictions contained in the senior credit facilities, we could default
under the senior credit facilities. Such debt, together with accrued interest,
could then be declared immediately due and payable. This could, in turn, result
in other debt being declared due and payable. Our ability to comply with such
provisions may be affected by events beyond our control.
THE NOTES ARE SUBORDINATED TO THE DEBT OF OUR SUBSIDIARIES AND THE DEBT OF
THE NON-GUARANTOR SUBSIDIARIES.
We are a holding company with no significant assets other than the capital
stock of Volume Services and Services America, our operating subsidiaries.
Consequently, we are dependent upon dividends or other intercompany transfers of
funds from our subsidiaries to meet our debt service and other obligations.
Claims of creditors of our subsidiaries will generally have priority over our
claims to the assets of these subsidiaries. The notes therefore will be
effectively subordinated to creditors of our direct and indirect subsidiaries.
Although the guarantees provide you with a direct claim against the assets
of the guarantors, enforcement of the guarantees:
o may be challenged by creditors of these guarantors in the case of
bankruptcy; and
o would be subject to certain defenses available to guarantors generally.
For details of these defenses, see "--U.S. bankruptcy or fraudulent
conveyance law may interfere with payment of the notes." Transfer
Considerations."
To the extent the guarantees are not enforceable, the notes would be
effectively subordinated to all liabilities of the guarantors, whether or not
these liabilities are senior indebtedness. The notes will also be effectively
subordinated to all liabilities of the subsidiaries of Volume Services and
Service America which are not wholly-owned domestic subsidiaries and which are
therefore not guarantors (referred to as "Non-Guarantor Subsidiaries").
As of March 30, 1999,
o the guarantors had total liabilities, excluding liabilities owed to
Volume Holdings, of $274.4 million;
o the Non-Guarantor Subsidiaries had total liabilities, excluding
liabilities owed to Volume Holdings, of $1.2 million; and
o the Non-Guarantor Subsidiaries generated 7.2% of our net sales and 4.6%
of our contract EBITDA for the preceding fifty-two week period, and
accounted for 4.2% of our assets.
17
<PAGE>
If we were unable to pay our debts, or entered into a reorganization, you
may not receive any amounts from us in respect of the notes until we had paid
the creditors of our subsidiaries in full. In addition, the ability of our
subsidiaries to pay dividends and make other payments to us may be restricted
by, among other things, applicable corporate and other laws and regulations and
agreements of the subsidiaries. Although the indenture limits the ability of
these subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, there are a number of significant
qualifications and exceptions to these limitations. For more details about these
qualifications and exceptions, see "Description of the Notes--Certain
Covenants--Dividend and Other Payment Restrictions Affecting Subsidiaries."
WE HAVE A HISTORY OF RECORDING NET LOSSES AND MAY NOT ACHIEVE PROFITABILITY IN
THE FUTURE.
Volume Holdings incurred net losses of:
o $1.0 million in fiscal year 1995;
o $3.9 million in fiscal year 1996;
o $3.1 million in fiscal year 1997; and
o $5.2 million in fiscal year 1998.
Service America incurred net losses of:
o $91.0 million in fiscal year 1994;
o $11.5 million in fiscal year 1995;
o $14.3 million in fiscal year 1997;
o $3.4 million in the twenty-six week period ended June 28, 1997; and
o $2.0 million in the twenty-six week period ended June 27, 1998.
On a pro forma basis, we would have incurred net losses of $11.4 million in
fiscal year 1998 and $7.6 million in the thirteen week period ended March 30,
1999.
We may not achieve profitability in the future or be able to generate cash
flow sufficient to meet our interest and principal payment obligations and other
capital needs.
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS.
The indenture imposes restrictions on us and our restricted subsidiaries.
These restrictions include:
o the incurrence of additional indebtedness;
o the issuance of disqualified stock and preferred stock;
o the payment of dividends on, and purchases of, capital stock;
o the purchase of indebtedness that is junior in right of payment to the
notes;
o other restricted payments, including investments;
o sales of some of our assets;
o specific transactions with affiliates;
o the creation of specific liens; and
o consolidations, mergers and transfers of all or substantially all of our
assets.
The indenture also prohibits certain restrictions on distributions from our
restricted subsidiaries. The terms of the senior credit facilities include other
and more restrictive covenants and prohibit us from prepaying our other
indebtedness, including the notes, while indebtedness under the senior credit
facilities is outstanding. For more details of these restrictions, see
"Description of the Notes--
18
<PAGE>
Certain Covenants" and "Description of Senior Credit Facilities." The senior
credit facilities also require us to maintain specified financial ratios and
satisfy financial condition tests. A breach of any of these covenants, ratios or
tests could result in a default under the senior credit facilities and/or the
indenture. Our ability to comply with the ratios or tests may be affected by
events beyond our control, including prevailing economic, financial and industry
conditions. Certain events of default under the senior credit facilities would
prohibit the Issuer from making payments on the notes, including payment of
interest when due. In addition, upon the occurrence of an event of default under
the senior credit facilities, the lenders could elect to declare all amounts
outstanding under the senior credit facilities, together with accrued interest,
to be immediately due and payable. If we were unable to repay those amounts, the
lenders could proceed against the security granted to them to secure that
indebtedness. If the lenders accelerate the payment of the indebtedness, our
assets may not be sufficient to repay in full this indebtedness and our other
indebtedness, including the notes.
THE NOTES AND THE GUARANTEES ARE CONTRACTUALLY SUBORDINATED TO OUR SENIOR DEBT.
The notes are contractually subordinated in right of payment to all of our
senior indebtedness and the guarantees are contractually subordinated in right
of payment to all senior indebtedness of the guarantors. As of March 30, 1999,
o we had $119.2 million of senior secured debt to which the notes would be
subordinated;
o we had no senior subordinated debt with which the notes would rank
equally;
o the guarantors had $0.8 million of senior secured debt to which the notes
would be subordinated;
o the guarantors had no senior subordinated debt with which the notes would
rank equally; and
o the guarantors had total liabilities, excluding liabilities owed to the
Volume Holdings, of $274.4 million.
As of March 30, 1999, the Non-Guarantor Subsidiaries had total liabilities,
excluding liabilities owed to Volume Holdings, of $1.2 million.
The indenture permits us and the guarantors to borrow additional debt,
which may be senior indebtedness and which may be substantial.
The indenture provides that we, the guarantors and the Non-Guarantor
Subsidiaries may not borrow any debt which is junior to senior indebtedness and
senior in right of payment to the notes. Furthermore, it is possible that the
guarantees could be set aside under fraudulent conveyance or similar laws. For
details on the circumstances in which this could happen, see "--.U.S. bankruptcy
or fraudulent conveyance law may interfere with payment of the notes."
If we or the guarantors are declared bankrupt or insolvent, or if there is
a payment default under any senior indebtedness, we are required to pay the
lenders under the senior credit facilities and any other creditors who are
holders of senior indebtedness in full before we pay you. Accordingly, we may
not have enough assets remaining after payments to holders of this senior
indebtedness to pay you. In addition, in some circumstances, we may not pay any
amount on the notes if senior indebtedness, including debt under the senior
credit facilities, is not paid when due or any other default on our senior
indebtedness exists. For details of these circumstances, see "Description of the
Notes--Ranking."
OUR ASSETS ARE PLEDGED TO SECURE PAYMENT OF THE SENIOR CREDIT FACILITIES.
In addition to being junior to all existing and future senior indebtedness,
our obligations under the notes are unsecured while our obligations under the
senior credit facilities are secured. We have granted the lenders under the
senior credit facilities security interests in substantially all of our current
and future assets and the current and future assets of Volume Holdings and our
wholly-owned domestic subsidiaries, including a pledge of all of our capital
stock and the capital stock of
19
<PAGE>
Volume Holdings and our wholly-owned domestic subsidiaries. If we default under
the senior credit facilities, the lenders will have a superior claim on our
stock and assets. If we were unable to repay this indebtedness, the lenders
could foreclose on the pledged stock of our subsidiaries to your exclusion, even
if an event of default exists under the indenture at such time.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE BUSINESSES OF VOLUME
SERVICES AND SERVICE AMERICA.
Volume Services and Service America have historically operated
independently, and our success depends on the ability of management to
coordinate and integrate the operations and the businesses of Volume Services
and Service America and successfully implement their business strategy.
Management may not be able to achieve this. If we fail to successfully integrate
the operations of Volume Services and Service America, it may affect our
revenues and/or results of operations. We may not be able to pay our expenses or
the principal and interest on the notes, the senior credit facilities or any
other debt.
We adopted a plan, referred to as the "Integration Plan", in the fourth
quarter of fiscal year 1998 in order to realize cost savings as a result of the
combination of Volume Services and Service America. When its benefits are fully
realized, we expect the Integration Plan to result in annual cost savings of
approximately $6.3 million and an incremental increase in annual overhead
expenses of approximately $1.2 million, resulting in net annual cost savings of
approximately $5.1 million. We also expect to incur a total of $6.5 million of
one-time expenses and charges in connection with the implementation of the
Integration Plan. However, the Integration Plan may not produce the expected
future cost savings, and, in implementing the Integration Plan, we may incur
expenses or charges beyond those currently expected. Realization of the cost
savings could be affected by a number of factors beyond our control, including
general economic conditions, increased operating costs, the response of
competitors or clients, regulatory developments and delays in implementation.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Integration Plan" for a detailed discussion and explanation of the
Integration Plan.
OUR REVENUES WOULD BE AFFECTED BY A DECLINE IN ATTENDANCE AT CLIENT FACILITIES.
We depend on our clients to attract events to their facilities and to
encourage attendance at these events. The number of events held, the level of
attendance at these events and the amount spent by each attendee have a direct
impact on our net sales and results of operations. The level of maintenance and
upkeep is the responsibility of our client, and the poor condition of a facility
may adversely affect the number of events held or attendance at these events. If
facility owners and managers fail to attract an adequate number of well-attended
events to their facilities, it may affect our revenues and results of
operations.
Factors such as labor stoppages involving sports leagues, poor performance
by the sports teams using a facility, loss of a major sports team using a
facility, changing consumer preferences for leisure time activities and
inclement weather could also limit the number of events at a facility or reduce
attendance. This would also reduce our revenues and results of operations. For
example, our revenues and results of operations were materially adversely
affected by the labor stoppage which disrupted the 1995 MLB season. For a better
understanding of how this stoppage affected our results of operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Similar labor stoppages may affect us in the future.
Furthermore, a significant recession may cause persons sponsoring and
attending events held at convention center facilities at which we operate to
cancel, reduce or postpone their use of the facilities and/or may cause
attendees at these facilities to reduce spending on discretionary purchases,
such as the products which we sell. This would also reduce our revenues.
WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon a change of control under the indenture, we will be required to offer
to purchase all of the notes then outstanding at 101% of their principal amount,
plus any accrued interest and
20
<PAGE>
liquidated damages to the date of repurchase. If a change of control were to
occur, we can provide no assurance that we would have sufficient funds to pay
the purchase price (as defined in the indenture) for the notes then outstanding,
and we expect that we would require third party financing. However, we may not
be able to obtain such financing on favorable terms, if at all. We will not be
required to offer to purchase the notes, and the indenture does not offer you
any other protection, if we are involved in any highly leveraged or similar
transaction which may adversely affect you but which does not result in a change
of control. A change of control under the indenture will result in an event of
default under the senior credit facilities and may cause the acceleration of
other senior indebtedness, if any, in which case the subordination provisions of
the notes would require payment in full of the senior credit facilities and any
other senior indebtedness before repurchase of the notes. In addition, the
senior credit facilities restrict our ability to repurchase the notes, including
in an offer required on a change of control, until the borrowings under the
senior credit facilities have been repaid or the lenders of the senior credit
facilities have consented. If we fail to repay the borrowings or obtain this
consent we will have defaulted under the indenture and senior credit facilities.
The proposed acquisition by Ogden Entertainment, Inc. of all of Volume Holdings'
common stock, which is described in "Summary--Recent Developments", would
constitute a change of control under the indenture if it is completed.
Any future debt which we incur may also contain restrictions or
requirements regarding a change of control. If a change of control occurs, we
may not have sufficient assets to satisfy our obligations under the indenture
and the senior credit facilities.
The change of control provisions in the indenture may also make it more
difficult for us to be sold or taken over. The inability to repay senior
indebtedness, if accelerated, and to purchase all of the tendered notes, would
constitute an event of default under the indenture.
THE NATURE OF OUR CONTRACTS EXPOSES US TO CERTAIN RISKS.
We generally supply our services under one of three different types of
contract:
o profit & loss contract;
o profit sharing contract; or
o management fee contract.
These contracts expose us to different types of risk, as discussed in the
following paragraphs.
The profit and loss contract is our most common type of contract, and
accounted for approximately 86.1% and 90.3% of our pro forma net sales and
Contract EBITDA, for the fifty-two week period ended March 30, 1999. Under a
profit and loss contract, we receive all of the revenues from the provision of
our services at a facility and bear all of the expenses. We must therefore
carefully control our operating expenses and obtain price increases in line with
cost increases in order to achieve our anticipated level of profitability. Some
of our profit and loss contracts contain minimum guaranteed commissions or
equivalent payments to the client regardless of the level of sales at the
facility or whether or not a profit is being generated. If revenues do not
exceed our costs under a contract which contains minimum guaranteed commissions
we will be liable for bearing any losses which are incurred. We may incur losses
under our profit and loss contracts, and these losses may materially affect our
results of operations.
Profit sharing contracts are our second most common type of contract, and
accounted for approximately 13.5% and 6.7% of our pro forma net sales and
Contract EBITDA, for the fifty-two week period ended March 30, 1999. Under
profit sharing contracts, we receive a percentage of any profits earned from the
provision of our services at a facility after deducting expenses. Any profit
sharing contract which incurs a loss will not generate any profits for us.
Management fee contracts are our least common type of contract, and
accounted for approximately 0.4% and 3.0% of our pro forma net sales and
Contract EBITDA for the fifty-two week period ended March 30, 1999. Under
management fee contracts, we receive a management
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fee and, in some cases, an incentive fee. We are typically entitled to receive
these fees irrespective of the revenues generated by the provision of our
services at a facility. Management fee contracts do not therefore expose us to
any risk of loss.
A few of our contracts give the client the right to terminate the contract
without cause on little or no notice. Additionally, some of our contracts
exclude certain events or products from within the scope of the contract, or
give the client the right to modify the terms under which we may operate at
certain events. Our revenues and results of operations could be adversely
affected if one or more clients were to exercise these rights in a way which was
detrimental to us.
We are typically obliged to comply with the instructions of our clients in
determining which products are sold at individual venues. In addition,
substantially all of our contracts limit our ability to raise prices on the
food, beverages and merchandise we sell within a particular facility without the
client's consent. The refusal by individual clients to permit the sale of some
products at their venues, or the imposition by clients of maximum prices which
are not economically feasible for us, could adversely affect our revenues or
results of operations.
We negotiate mutually agreed terminations of some of our contracts from
time to time. We typically do not recover all of the unamortized portion of our
capital investment upon a mutually agreed termination of a contract. When this
happens, we recognize a loss in our operating profit equal to the unrecovered
portion. In addition, disputes with clients arise under contracts from time to
time. A dispute may arise under one or more of our existing or future contracts,
which could have an adverse effect on our revenues or results of operations.
OUR REVENUES WOULD BE AFFECTED IF WE WERE UNABLE TO RETAIN EXISTING OR OBTAIN
NEW CLIENTS.
We are dependent upon our ability to extend or renew existing client
contracts on favorable terms and to negotiate and obtain acceptable new client
contracts. If we are unable to extend or renew existing contracts on terms which
are as favorable as the initial contract terms, or at all, or if we are unable
to negotiate and obtain new contracts, our revenues and results of operations
could suffer. Contracts in the recreational food service industry are generally
gained or renewed through a competitive bidding process. Some of our competitors
may be prepared to accept less favorable commission structures than us when
negotiating contracts. Furthermore, providers of recreational food services
often accept less favorable terms from their clients when negotiating the
renewal of existing contracts.
Many professional sports teams, including many of our clients, are
currently either planning to move to a new facility or are considering doing so.
Some of our sports facility contracts do not contain any protection for us in
the event that the sports team tenant of the facility moves to a new facility.
In addition, changes in the ownership of a facility which we serve, or of a
sports team tenant of such a facility, may result in disputes concerning the
terms under which we provide our services at such facility. Jack Kent Cooke
Stadium, home of the NFL's Washington Redskins, was recently purchased by a new
owner. We have operated at Jack Kent Cooke Stadium since 1997 under a letter of
agreement signed by us and the former owner, pursuant to which we have made a
substantial capital investment. Although we believe that the new owner of the
stadium will be subject to the terms of the letter of agreement, we cannot
predict how the new owner will seek to conduct its operations. Change of
ownership of a facility which we serve, or of a sports team tenant of a facility
which we serve, or the move by the sports team tenant of a facility which we
serve to a facility which we do not serve, could have a material adverse effect
on our revenues or results of operations.
Nine of our 20 largest contracts by Contract EBITDA, representing
approximately 20.2% of Contract EBITDA for the fifty-two week period ended March
30, 1999 are scheduled to expire by the end of 2001. In addition, 10 of our 20
largest contracts by Contract EBITDA, representing approximately 35.1% of
Contract EBITDA for the fifty-two week period ended March 30, 1999 are scheduled
to expire by the end of 2003. We may not be able to extend or renew these, or
any of our other, contracts. Our revenues or results of operations could be
affected if we fail to do so.
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During the period from 1993 through 1998, we failed to retain 31 contracts,
representing approximately 15% of total Contract EBITDA up for renewal during
that period, calculated by reference to the amount of Contract EBITDA generated
by each contract in the last full year prior to its expiration. Excluded from
this calculation are seven contracts which we terminated by mutual agreement
with the client and 11 contracts for which we did not submit a final bid. These
contracts accounted in the aggregate for approximately $3.9 million of Contract
EBITDA in their last full fiscal year of operation.
Our ability to obtain and retain contracts will depend in part upon our
ability to make capital investments, including grants, and to obtain performance
bonds, bid bonds or letters of credit. Our ability to do so may be limited by
restrictions imposed by the senior credit facilities and by the significant
amount we have borrowed.
WE DEPEND ON A FEW OF OUR LARGEST CLIENTS FOR A LARGE PROPORTION OF OUR
REVENUES.
We are dependent to a significant extent on the Contract EBITDA generated
by our key facilities. On a pro forma basis, for the fifty-two week period ended
March 30, 1999:
o our largest client contract accounted for approximately 14.8% of our
Contract EBITDA;
o our three largest client contracts together accounted for approximately
33.7% of our Contract EBITDA; and
o our ten largest client contracts accounted for approximately 59.5% of our
Contract EBITDA.
We expect to continue to be dependent upon key facilities and our revenues
or results of operations could be affected if we lost or failed to renew the
contract to provide our services at any one of them.
THE ABILITY TO MAKE INVESTMENTS IN CONTRACTS AND GRANTS TO CLIENTS IS AN
IMPORTANT PART OF OUR BUSINESS.
When we enter into new contracts, or extend or renew existing contracts, we
are often required to make some form of up-front or committed future capital
investment to help finance facility construction or renovation. This expenditure
typically takes the form of investment in:
o leasehold improvements;
o food service equipment; and/or
o grants to owners or operators of facilities.
If we fail to meet our capital investment obligations under a contract, we
will have breached the contract, which may result in termination of the contract
or other action against us.
During the period from 1994 through 1998, we made capital investments under
client contracts aggregating approximately $148.0 million. We are currently
committed to fund capital investments of approximately $25.7 million and $1.2
million in 1999 and 2000, respectively. We will rely on availability under the
revolving credit facility and cash flow from operations to meet our future
capital investment requirements. However, this availability or cash flow may not
be sufficient to meet these requirements.
The ability to make capital investments has become an important element in
the competitive process of bidding for new contracts and renewing existing
contracts. Our inability to make capital commitments would place us at a
competitive disadvantage and could affect our ability to obtain new contracts
and retain existing contracts. This would have a material adverse effect on our
revenues and results of operations.
We are also often required to obtain performance bonds, bid bonds or
letters of credit to secure our contractual obligations. As of March 30, 1999,
we had requirements for performance bonds and letters of credit of $10.7 million
and $13.5 million, respectively. Under the revolving credit facility, we have
an aggregate of $35.0 million available for letters of credit, subject to an
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overall borrowing limit of $75.0 million under this facility. This may not be
sufficient to satisfy our anticipated future performance bond, bid bond or
letter of credit obligations.
We amortize capital investments made in contracts over the shorter of the
useful life of the applicable asset and the remaining life of the contract. As
of March 30, 1999, we had unamortized capital investments of approximately
$138.7 million. Many of our contracts provide that we will not recover any part
of our capital investment if a contract is terminated prior to its expiration
date due to our default. If a contract is terminated prior to its expiration
date for any other reason, the client typically is contractually required to
return the portion of our capital investment which is unamortized at the date of
termination. However, not all of our clients are obligated to do this. Our
profits at a given facility over the term of a contract may not exceed the
amortization of our capital investment. If we fail to recover the unamortized
portion of our investment on termination of a contract, our results of
operations will be adversely affected.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
The recreational food service industry is highly fragmented and
competitive, with several national food service providers as well as a large
number of smaller independent businesses serving discrete local and regional
markets and/or competing in distinct areas. Those companies that lack a
full-service capability, because, for example, they cannot cater for luxury
suites at stadiums and arenas, often bid for contracts in conjunction with one
of the other national food service companies that can offer such services. We
may not be able to compete successfully against our competitors, which could
have a material adverse effect on our revenues and results of operations.
We compete for contracts against a variety of food service providers.
However, we consider our major competitors to be other national food service
providers, including ARAMARK, Delaware North Corporation, Ogden Corporation,
Fine Host Corporation and Levy Restaurants. We also face competition from
regional and local service contractors, some of which are better established
within a specific geographic region. Existing or potential clients may also
elect to "self operate" their food services, eliminating the opportunity for us
to compete for the account.
Contracts are generally gained and renewed through a competitive bidding
process. We selectively bid on contracts to provide services at both privately
owned and publicly controlled facilities. The privately negotiated transactions
are generally competitive in nature, with several other large national
competitors submitting proposals. Contracts for publicly controlled facilities
are generally awarded through a request-for-proposal process. Successful bidding
on contracts for publicly controlled facilities often requires a long-term
effort focused on building relationships in the community in which the venue is
located.
We compete primarily on the following factors:
o the ability to make capital investments;
o commission or management fee structure;
o service innovation;
o quality and breadth of products and services; and
o reputation within the industry.
Some of our competitors may be prepared to accept less favorable commission
or management fee structures than us when bidding for contracts. A number of our
competitors also have substantially greater financial and other resources than
us. Furthermore, the fact that we have more debt than some of our competitors
could place us at a competitive disadvantage.
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WE HAVE ACCEPTED SOME CONTRACTUAL LIMITATIONS ON THE TYPE OF BUSINESS IN
WHICH WE MAY BE INVOLVED.
Service America has entered into noncompetition agreements in connection
with the sale of portions of its institutional vending and dining operations.
With some exceptions, these agreements prohibit us from providing certain
vending and dining services in specified geographical areas. These agreements
have differing durations, with the last agreement terminating in May 2002. These
agreements may prevent us from engaging in some sectors of the food service
industry during their respective terms and may prevent us from completing
acquisitions, or structuring such acquisitions in desirable forms, with
companies which compete in these markets.
WE ARE DEPENDENT ON KEY PERSONNEL.
We believe our success is largely dependent on the abilities and experience
of our senior management team. The loss of the services of one or more of these
senior executives could affect our ability to:
o effectively retain existing contracts;
o obtain new contracts;
o manage our overall operations; or
o successfully execute current or future business strategies.
This could have a material adverse effect on our revenues or results of
operations. Our success will also depend upon our ongoing ability to attract and
retain qualified management and other employees. See "Management."
OUR BUSINESS IS SEASONAL IN NATURE AND OUR REVENUES AND RESULTS VARY FROM
QUARTER TO QUARTER.
Our revenues and operating results have varied, and we expect them to
continue to vary, from quarter to quarter as a result of factors which include:
o seasonal patterns within the industry;
o the unpredictability in the number, timing and type of new contracts;
o the timing of contract expirations and special events; and
o the level of attendance at facilities which we serve.
Business at the principal types of facilities which we serve is seasonal in
nature, with MLB and minor league baseball sales concentrated in the second and
third quarters, the majority of NFL activity occurring in the fourth quarter and
convention centers and arenas generally hosting fewer events during the summer
months. Consequently, our results of operations for the first quarter are
typically substantially lower than in other quarters. Results of operations for
any particular quarter may not be indicative of results of operations for future
periods. Seasonal and quarterly fluctuations may have a material adverse effect
on our revenues or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE COST OF PROVIDING OUR SERVICES IS AFFECTED BY CHANGING LABOR COSTS.
As substantially all of our client contracts require us to obtain the
consent of the facility owner before raising prices, we may not be able to
offset any increases in our wage costs through price changes. Therefore, any
factors which increase the wage rates that we have to pay in order to attract
suitable employees, including any tightening of the labor supply in any of the
markets where we operate, may affect our results of operations. See "--The
nature of our Contracts exposes us to certain risks."
We operate at some facilities under collective bargaining agreements. Under
many of these agreements, we are obligated to contribute to multi-employer
pension plans. If any of our service
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contracts at these facilities were terminated or not renewed, and the applicable
multi-employer pension plan at that time had unfunded vested benefits, we could
be subject to withdrawal liability to the multi-employer plan. It is impossible
to determine the extent of our potential liability, if any, for any withdrawal
in the future. However, we may be exposed to material withdrawal liability under
these circumstances.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER.
Blackstone currently owns approximately 60% of Volume Holdings' common
stock. In addition, an agreement among certain of our large stockholders
contains restrictions prohibiting Volume Holdings from taking certain corporate
actions without the consent of both Blackstone and Recreational Services. For
details of these corporate actions, see "Certain Relationships and Related
Transactions--Amended Stockholders' Agreement." As a result of Volume Holdings'
ownership of all of our common stock, Blackstone and/or GE Capital have the
ability to determine whether or not the Issuer takes certain actions. The
interests of Blackstone and/or GE Capital may not coincide with the interests of
holders of the notes. If the proposed acquisition of Volume Holdings by Ogden
Entertainment, Inc. is completed, Ogden Entertainment, Inc. will own all of
Volume Holdings' common stock.
THERE ARE RISKS ASSOCIATED WITH THE SERVICE OF FOOD AND BEVERAGES TO THE PUBLIC.
We may be affected by the general risks of the food industry, and
particularly by:
o consumer product liability claims;
o the risk of product tampering;
o evolving consumer preferences;
o nutritional and health-related concerns;
o federal, state, and local food controls; and
o the availability and expense of insurance.
Claims of illness or injury relating to food quality or handling are common
in the food service industry and a number of these claims may exist at any given
time. Food service providers can also be adversely affected by negative
publicity resulting from food quality or handling claims at one or more
facilities. Although we maintain product liability insurance, the level of
coverage presently in place may not be adequate and adequate coverage may not be
available in the future. Any losses that we may suffer from future liability
claims, including the successful assertion against us of one or a series of
large claims in excess of our insurance coverage, could affect our results of
operations.
WE ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS.
Our operations are subject to various governmental regulations, including
those governing:
o the service of food and alcoholic beverages;
o minimum wage regulations;
o employment;
o environmental protection; and
o human health and safety.
In addition, federal, state, and local authorities periodically inspect our
facilities and products. We cannot assure you that we are in compliance with all
applicable laws and regulations or that we will be able to comply with any
future laws and regulations. Furthermore, additional federal or state
legislation, or changes in regulatory implementation, may limit our activities
in the future or significantly increase the cost of regulatory compliance. If we
fail to comply with applicable laws
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and regulations, criminal sanctions or civil remedies, including fines,
injunctions, recalls, or seizures, could be imposed on us. This could have a
material adverse effect on our results of operations.
The United States Food and Drug Administration may regulate and inspect our
kitchens. Every commercial kitchen in the United States must meet the FDA's
minimum standards relating to the handling, preparation and delivery of food,
including requirements relating to the temperature of food and the cleanliness
of the kitchen and the hygiene of its personnel. We must also comply with state,
local and federal laws regarding the disposition of property and leftover
foodstuffs. We cannot assure you that we are in compliance with all applicable
laws and regulations or that we will be able to comply with any future laws and
regulations. Furthermore, additional or amended regulations by the FDA may limit
our activities in the future, or significantly increase the cost of compliance.
We serve alcoholic beverages at many facilities, and must comply with the
"dram-shop" statutes of the states in which we serves alcoholic beverages.
"Dram-shop" statutes generally provide that serving alcohol to an intoxicated or
minor patron is a violation of law. In most states, if one of our employees
sells alcoholic beverages to an intoxicated or minor patron, we may be liable to
third parties for the acts of the patron. Although we sponsor regular training
programs in cooperation with state authorities to minimize the likelihood of
this, we cannot guarantee that intoxicated or minor patrons will not be served
or that liability for their acts will not be imposed on us. We also maintain
general liability insurance, which includes liquor liability coverage. However,
we cannot guarantee you that this insurance will be adequate to cover any
potential liability or that this insurance will continue to be available on
commercially acceptable terms. A large uninsured damage award could have a
material adverse impact on our results of operations.
We must also obtain and comply with the terms of licenses in order to sell
alcoholic beverages in the states in which we serve alcoholic beverages. Failure
to receive or retain, or the suspension of, liquor licenses or permits would
interrupt or terminate our ability to serve alcoholic beverages at these
locations and, if a significant number of locations were affected, could have a
material adverse effect on our revenues or results of operations. Some of our
contracts require us to pay liquidated damages during any period in which our
liquor license for the facility is suspended, and most contracts are subject to
termination if we lose our liquor license for the facility. Additional
regulation relating to liquor licenses may limit our activities in the future or
significantly increase the cost of compliance.
U.S. BANKRUPTCY OR FRAUDULENT CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF
THE NOTES.
Under U.S. federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, an obligation of Volume Services America, including
the notes, could be voided, or subordinated to all of our other debts if, among
other things, at the time we issued the notes, we
o incurred such debt with the intent of hindering, delaying or defrauding
current or future creditors; or
o received less than reasonably equivalent value or fair consideration for
incurring the debt; and
o we were insolvent or were rendered insolvent by reason of such
incurrence;
o we were engaged, or about to engage, in a business or transaction
for which the assets remaining with us constituted unreasonably
small capital to carry on our business;
o we intended to incur, or believed that we would incur, debts beyond
our ability to pay as these debts matured; or
o we were a defendant in an action for money damages, or had a
judgment for money damages docketed against us if, in either case,
after final judgment the judgment was unsatisfied.
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The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction that is being applied in any such proceeding. Generally,
however, we would be considered insolvent if, at the time we incurred the
indebtedness, either
o the sum of our debts, including contigent liabilities, is greater than
our assets, at fair valuation; or
o the present fair saleable value of our assets is less than the amount
required to pay the probable liability on our total existing debts and
liabilities, including contingent liabilities, as they become absolute
and matured.
On the basis of our analysis, internal cash flow projections, estimated
values of our assets and liabilities and other factors, we believe that at the
time we initially incurred indebtdeness represented by the outstanding notes, we
o were not insolvent nor rendered insolvent as a result of the issuance of
the notes;
o were in possession of sufficient capital to run our business effectively;
o were incurring debts within our ability to pay as they matured or became
due; and
o had sufficient assets to satisfy any probable money judgement against us
in any pending action.
We cannot assure you, however, as to what standard a court would apply in
making these determinations or that a court passing on these questions would
reach the same conclusions.
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT US.
The "year 2000 problem" relates to computer systems that are designed using
two digits, rather than four, to represent a given year. Therefore, these
systems may recognize "00" as the year 1900 rather than 2000, possibly resulting
in major system failures or miscalculations and causing disruptions in our
operations. Also, our operations could be disrupted if any of our clients,
suppliers or other third parties with whom we conduct business fail to achieve
their own year 2000 compliance in a timely fashion.
We have conducted a review of our computer systems to identify the systems
that could be affected by the year 2000 problem, and believe that most of them
are year 2000 compliant. We do not expect to exceed the $80,000 which we have
budgeted for expenditures related to our year 2000 compliance program.
While we believe that we will be taking appropriate steps to achieve our
year 2000 compliance in a timely fashion, we cannot assure you that our
computers, or those of third parties with whom we conduct business, will be year
2000 compliant prior to December 31, 1999, or that the costs incurred will not
materially exceed amounts budgeted.
Some of our largest suppliers have contacted us stating that they expect to
be year 2000 compliant in a timely fashion. However, we have not been in contact
with all of our suppliers or clients. If any of our suppliers or clients do not
successfully achieve year 2000 compliance in a timely manner, our results of
operations could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000."
YOU MAY NOT BE ABLE TO SELL YOUR EXCHANGE NOTES.
There is no existing market for the exchange notes, and we cannot assure
you as to:
o the liquidity of any markets that may develop for the exchange notes;
o your ability to sell your exchange notes; or
o the prices at which you would be able to sell your exchange notes.
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Future trading prices of the exchange notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results
and the market for similar securities. We do not intend to apply for a listing
of the exchange notes on any securities exchange or automated dealer quotation
system. The initial purchasers of the outstanding notes have advised us that
they currently intend to make a market in the exchange notes. However, they are
not obligated to do so and any market making may be discontinued at any time
without notice.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the exchange notes will be subject to disruptions. Any disruptions
may have a negative effect on you, as a holder of the exchange notes, regardless
of our prospects and financial performance.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business". We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
o our high degree of leverage and significant debt service obligations;
o our history of net losses;
o the successful integration of Volume Services, Inc. and Service America
Corporation and the realization of the cost savings we expect to achieve;
o the level of attendance at events held at the facilities at which we
provide our services and the level of spending on the services which we
provide at such events;
o the risk of labor stoppages affecting sports teams at whose facilities we
provide our services;
o the risk of sports facilities at which we provide services losing their sports
team tenants;
o our ability to retain existing clients or obtain new clients;
o the highly competitive nature of the recreational food service industry;
o any future changes in management;
o general risks associated with the food industry;
o future changes in government regulation; and
o the potential effect of year 2000 computer issues.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange a like principal amount of outstanding
notes, the terms of which are identical in all material respects to the exchange
notes. The outstanding notes surrendered in exchange for the exchange notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in any change in our capitalization.
The net proceeds of the offering of the outstanding notes were
approximately $95.0 million after deduction of discounts to the initial
purchasers and other fees and expenses. These proceeds were used to:
o repay $45.0 million of our outstanding term loans;
o pay a dividend to Volume Holdings to fund the repurchase of $2.8 million,
$39.2 million and $7.5 million of Volume Holdings' common stock from VSI
Management Direct L.P., Blackstone and Recreational Services; and
o pay a dividend to Volume Holdings to fund the repayment by Volume
Holdings to Recreational Services of a loan note in the amount of $0.5
million.
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CAPITALIZATION
The following table sets forth our historical unaudited consolidated
capitalization as of March 30, 1999. You should read this information in
conjunction with the "Selected Historical Financial Information of Volume
Holdings," "Unaudited Pro Forma Combined Financial Information of Volume
Holdings," the consolidated financial statements of Volume Holdings and Service
America, in each case together with the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 30, 1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents.................................................................... $ 9.0
-------
-------
Long-term debt (including current portion):
Revolving credit facility(1)............................................................ 4.5
Term loans.............................................................................. 114.7
Senior Subordinated Notes............................................................... 100.0
Capital lease obligations............................................................... 0.8
-------
Total long-term debt and capital lease obligations.................................... 220.0
Stockholders' deficit........................................................................ (6.8)
-------
Total capitalization.................................................................. 213.2
-------
-------
</TABLE>
- ------------------
(1) The revolving credit facility provides for borrowings of up to $75.0 million
with a sublimit of $35.0 million for letters of credit. As of March 30,
1999, we had approximately $4.5 million of outstanding borrowings under the
revolving credit facility and approximately $13.5 million of letters of
credit outstanding, which had not been drawn upon and which reduced
availability under the revolving credit facility to $57.0 million.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF
VOLUME HOLDINGS
The following unaudited pro forma combined statements of operations have
been prepared based on the historical financial statements of Volume Holdings
and Service America included elsewhere in this prospectus, adjusted to give pro
forma effect to the Transactions. For a description of the Transactions, see
"Prospectus Summary--The Transactions".
The unaudited pro forma combined statements of operations for fiscal year
1998 and the thirteen week period ended March 30, 1999 give effect to the
Transactions as if they had occurred on December 31, 1997. The unaudited pro
forma adjustments, which are based upon available information and upon certain
assumptions that management believes are reasonable, are described in the
accompanying notes. The unaudited pro forma combined statements of operations
are for informational purposes only and do not purport to represent what our
results of operations would actually have been had the Transactions in fact
occurred on such date or to project our results of operations for any future
period or date. The unaudited pro forma combined statements of operations should
be read in conjunction with "Selected Historical Financial Information of Volume
Holdings," the consolidated financial statements of Volume Holdings and the
consolidated financial statements of Service America, in each case together with
the notes thereto, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the other financial information included
elsewhere in this prospectus.
The acquisition of Service America was accounted for using the purchase
method of accounting. The total purchase cost was allocated to the assets
acquired and liabilities assumed, based on their respective fair values. The
allocation of the total purchase cost reflected in the unaudited pro forma
combined financial information is preliminary. The actual purchase accounting
adjustment to reflect the fair values of the assets acquired and liabilities
assumed will be based upon appraisals that are currently in process. A
preliminary allocation of the purchase cost has been made to major categories of
assets and liabilities in the accompanying unaudited pro forma combined
financial information based on our estimates. Accordingly, the adjustments that
have been included in the unaudited pro forma combined financial information may
change based upon the final allocation of the total purchase cost of the
acquisition of Service America. The actual allocation of the purchase cost and
the resulting effect on income may differ from the unaudited pro forma amounts
included in this prospectus. However, based on current information, management
does not expect the final allocation of the purchase price to differ materially
from that used in the accompanying statement of operations.
The unaudited pro forma combined statements of operations do not include
any adjustments for the cost savings, incremental overhead expenses or one-time
charges and expenses which we expect the Integration Plan to generate.
Volume Holdings is a guarantor of the notes and the senior credit
facilities and has no substantial operations or assets other than the capital
stock of the Issuer. As a result, the consolidated financial position and
results of operations of Volume Holdings are substantially the same as those of
the Issuer.
As a result of the consummation of the acquisition of Service America on
August 24, 1998, the financial position and results of operations of Service
America after August 24, 1998 are consolidated in the financial position and
results of operations of Volume Holdings for periods subsequent to that date.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1998
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
VOLUME SERVICE AMERICA VOLUME
HOLDINGS THIRTY-FOUR WEEK HOLDINGS
FISCAL YEAR PERIOD ENDED TRANSACTION FISCAL YEAR
1998 AUGUST 24, 1998 ADJUSTMENTS 1998
----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................................ $ 283.4 $122.5 $ -- $ 405.9
Cost of sales........................................ 222.5 97.1 319.6
Selling, general and administrative expense.......... 30.9 16.1 0.1 (b) 47.1
Depreciation and amortization........................ 18.2 5.5 4.7 (a) 28.4
Transaction fees and expenses........................ 3.1 3.0 (3.0)(c) 3.1
------- ------ ------- -------
Operating profit (loss)............................ 8.7 0.8 (1.8) 7.7
Other income, net.................................... (0.4) -- (0.4)
Interest expense, net................................ 11.3 4.5 7.8 (d) 23.6
------- ------ ------- -------
Loss before income taxes and extraordinary item.... (2.2) (3.7) (9.6) (15.5)
Income tax provision (benefit)....................... 1.5 -- (7.1)(e) (5.6)
------- ------ ------- -------
Loss before extraordinary item (f)................. $ (3.7) $ (3.7) $ (2.5) $ (9.9)
------- ------ ------- -------
------- ------ ------- -------
OTHER DATA:
Ratio of earnings to fixed charges(g)................ --
-------
-------
</TABLE>
33
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
VOLUME VOLUME
HOLDINGS HOLDINGS
THIRTEEN WEEK THIRTEEN WEEK
PERIOD ENDED TRANSACTION PERIOD ENDED
MARCH 30, 1999 ADJUSTMENTS MARCH 30, 1999
-------------- ----------- --------------
<S> <C> <C> <C>
Net sales....................................................... $ 66.3 $ 66.3
Cost of sales................................................... 54.3 54.3
Selling, general and administrative expense..................... 9.5 9.5
Depreciation and amortization................................... 6.4 6.4
Transaction fees and expenses................................... 1.0 1.0
------ ------
Operating loss................................................ (4.9) (4.9)
Other income, net............................................... (0.1) (0.1)
Interest expense, net........................................... 4.6 $ 1.2 (d) 5.8
------ ----- ------
Loss before income taxes, extraordinary item and cumulative
effect of change in accounting principle................... (9.4) (1.2) (10.6)
Income tax benefit.............................................. (2.7) (1.4)(e) (4.1)
------ ----- ------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principles(f)......................... $ (6.7) $ 0.2 $ (6.5)
------ ----- ------
------ ----- ------
OTHER DATA:
Ratio of earnings to fixed charges (g).......................... --
------
------
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
(a) The acquisition of Service America was accounted for using the purchase
method of accounting. The total purchase cost was allocated to the assets
acquired and liabilities assumed, based on their respective fair values. The
allocation of the total purchase cost reflected in the Volume Holdings,
balance sheets at March 30, 1999 and December 29, 1998 is preliminary. The
actual purchase accounting adjustment to reflect the fair values of the
assets acquired and liabilities assumed will be based upon appraisals that
are currently in process. Accordingly, the adjustments that have been
included may change based upon the final allocation of the total purchase
cost of the acquisition of Service America. The actual allocation of the
purchase cost and the resulting effect on income may differ significantly
from those reflected in this prospectus. The preliminary allocation is as
follows:
<TABLE>
<S> <C>
Purchase cost:
Acquisition............................................................................. $30.0(i)
Estimated acquisition fees and expenses................................................. 2.8
-----
Total purchase cost.................................................................. 32.8
-----
-----
Adjusted book value of net assets acquired:
Preferred stock, restricted stock and warrants.......................................... 28.8
Accumulated deficit of Service America at August 24, 1998............................... (65.6)
-----
Total adjusted book value of net assets acquired..................................... (36.8)
-----
Excess of purchase cost over total adjusted book value of net assets
acquired................................................................................ 69.6
-----
Preliminary allocation of purchase cost:
Increase contract rights to estimated fair value........................................ 25.7
Increase trademarks to estimated fair value............................................. 6.6
Increase in deferred tax liability resulting from purchase accounting................... (4.5)(ii)
Increase in accrued expenses............................................................ (1.4)(iii)
-----
Total preliminary allocation of purchase cost........................................ 26.4
-----
Cost in excess of net assets acquired..................................................... $43.2
-----
-----
</TABLE>
(i) The purchase price of Service America was based on an independent appraisal.
(ii) Represents adjustments to deferred taxes resulting from the
acquisition of Service America:
<TABLE>
<S> <C>
Increase contract rights to estimated fair value..................................... $25.7
Increase trademarks to estimated fair value.......................................... 6.6
Increase in accrued expenses......................................................... (1.4)(iii)
-----
30.9
Effective tax rate................................................................... 40%
-----
Deferred tax liability credited in purchase accounting............................... 12.4
Net change in deferred tax assets:
Volume Holdings...................................................................... (5.7)
Service America...................................................................... (2.2)
-----
Net increase in deferred taxes....................................................... $ 4.5
-----
-----
</TABLE>
(iii) Represents the accrual for exit, severance and related costs in
connection with employee terminations and the write-off of assets.
35
<PAGE>
The application of purchase accounting is expected to result in an increase
in amortization expense from December 31, 1997 to the date of the acquisition of
Service America, which was August 24, 1998, as follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEK
PERIOD ENDED
DECEMBER 29, 1998
-----------------
<S> <C>
Contract rights....................................................... $ 3.7
Trademarks............................................................ 0.1
Cost in excess of net assets acquired................................. 0.9
-----
$ 4.7
-----
-----
</TABLE>
The adjustments for estimated unaudited pro forma amortization are based on
estimated fair values. Contract rights are expected to be amortized over a
weighted average useful life of 4.5 years. Cost in excess of net assets
acquired and trademarks are expected to be amortized over their useful
lives, not to exceed 30 years. For pro forma purposes, a 30-year life has
been used for both cost in excess of net assets acquired and trademarks.
(b) GE Capital will receive a management fee of $0.2 per annum for consulting,
monitoring and financial advisory services provided to us. For fiscal 1998,
$0.1 of this management fee was paid. See "Certain Relationships and Related
Transactions".
(c) Transaction fees and expenses include $3.0 in fees and expenses incurred by
Service America in connection with its acquisition by Volume Holdings prior
to the acquisition. These expenses have been eliminated in the Unaudited Pro
Forma Combined Statement of Operations for fiscal year 1998 as the
Transactions were assumed to occur on January 1, 1998 and the expenses were
non-recurring and directly attributable to the Transactions.
(d) Represents the net adjustment to interest expense as a result of the
borrowings under the Term Loans and the issuance of the notes, calculated as
follows:
<TABLE>
<CAPTION>
FIFTY-TWO WEEK THIRTEEN WEEK PERIOD
PERIOD ENDED ENDED MARCH 30,
DECEMBER 29, 1998 1999
----------------- --------------------
<S> <C> <C>
Cash interest expense on term loans and
notes(i)....................................... $ 21.4 $ 5.3
Commitment and other fees(ii).................... 0.8 0.2
------- ------
Cash interest expense.......................... 22.2 5.5
Estimated amortization of deferred financing
costs(iii)..................................... 1.4 0.3
------- ------
Pro forma interest expense(iv)................. 23.6 5.8
Elimination of historical interest expense,
net............................................ (15.8) (4.6)
------- ------
Pro forma adjustment to interest expense,
net......................................... $ 7.8 $ 1.2
------- ------
------- ------
</TABLE>
(i) Represents interest expense on the $115.0 net principal amount of term
loans and $100.0 principal amount of notes outstanding, assuming a
weighted average blended interest rate of 9.95%.
(ii) Represents a commitment fee of 0.5% applied to the pro forma $54.3
principal amount of unused balance of the Revolving Credit Facility
and 2.5% on approximately $20.7 outstanding letters of credit, as of
December 29, 1998. As of March 30, 1999, we had approximately $4.5 of
outstanding borrowings under the revolving credit facility and
approximately $13.5 of letters of credit outstanding, which had not
been drawn upon and which reduced availability under the revolving
credit facility to $57.0.
36
<PAGE>
(iii) Deferred financing costs are amortized using the interest method over
the term of the related debt which is 10 years for the notes, 8 years
for term loan B, and 6 years for the revolving credit facility.
(iv) Each 0.125% change in interest rates in respect of the term loan would
increase or decrease pro forma interest expense by $0.1.
(e) The adjustment necessary to reflect the pro forma income tax provision is
based upon the pro forma operating loss before income taxes and the
applicable statutory tax rates in the relevant jurisdictions.
(f) EBITDA is defined as income (loss) before extraordinary item, interest
expense, income tax expense, depreciation, amortization, and
o for fiscal year 1998, $3.1 of non-recurring severance expense associated
with Volume Services' employees and other Service America expenses in
connection with the acquisition of Service America, $1.4 of non-cash
charges related to contract termination costs for Volume Holdings, $0.2 of
non-cash charges related to contract termination costs for Service
America, $0.3 of management fees paid to Volume Holdings' equity owners
and $0.1 of pro forma adjustment for management fees paid to Service
America's equity owners; and
o for the thirteen week period ended March 30, 1999, $1.0 of non-recurring
severance expense and other non-recurring expenses incurred in connection
with the acquisition of Service America and $0.1 of management fees paid
to Volume Holding's equity owners.
EBITDA, including the adjustments shown for non-cash items, is a component in
the calculation of the fixed charge coverage ratio contained in a financial
covenant in the indenture for the notes, as described in "Description of Notes".
We believe that EBITDA provides useful information regarding our ability to
service debt but should not be considered in isolation or as a substitute for
the combined statement of operations or cash flow data prepared in accordance
with generally accepted accounting principles and included elsewhere in this
prospectus or as a measure of our operating performance, profitability or
liquidity. While EBITDA is frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable to
other similarly titled captions of other companies due to differences in methods
of calculation.
<TABLE>
<CAPTION>
SERVICE AMERICA
THIRTY-FOUR WEEK PRO FORMA
VOLUME HOLDINGS PERIOD ENDED VOLUME HOLDINGS
FISCAL YEAR AUGUST 24, TRANSACTION FISCAL YEAR
1998 1998 ADJUSTMENTS 1998
----------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
EBITDA........................... $32.1 $9.6 -- $41.7
----- ---- ------- -----
----- ---- ------- -----
Adjusted EBITDA.................. $46.6(i)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA VOLUME
VOLUME HOLDINGS THIRTEEN HOLDINGS THIRTEEN WEEK
WEEK PERIOD ENDED TRANSACTION PERIOD ENDED
MARCH 30, 1999 ADJUSTMENT MARCH 30, 1999
------------------------ ----------- ----------------------
<S> <C> <C> <C>
EBITDA.................................. $2.7 -- $2.7
---- ----
---- ----
Adjusted EBITDA......................... $3.6(i)
----
----
</TABLE>
37
<PAGE>
(i) Adjusted EBITDA reflects the following changes in our cost structure as
a result of implementation of the Integration Plan:
<TABLE>
<CAPTION>
THIRTEEN WEEK
PERIOD ENDED
FISCAL YEAR MARCH 30,
1998 1999
----------------- -------------
<S> <C> <C>
Pro forma EBITDA................................... $41.7 $ 2.7
Cost savings:
Elimination of overlapping regional office
personnel..................................... 1.1 0.3
Corporate overhead staff reductions.............. 1.5 0.4
Reduction in operating costs..................... 2.5 0.6
----- -----
Total......................................... 5.1 1.3
Cost savings realized in the applicable period... 0.2 0.4
----- -----
Remaining cost savings to be realized............ 4.9 0.9
----- -----
Adjusted EBITDA.................................... $46.6 $ 3.6
----- -----
----- -----
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Integration Plan" for a full explanation of these savings and
of the Integration Plan.
(g) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as income (loss) before income taxes and
extraordinary item, plus fixed charges. Fixed charges include interest
expense on all indebtedness, amortization of deferred financing fees, and
one third of rental expense on operating leases representing that portion of
rental expense which we deem to be attributable to interest. On a pro forma
basis, earnings were insufficient to cover fixed charges by $15.5 for fiscal
year 1998, and $10.6 for the thirteen week period ended March 30, 1999.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF
VOLUME HOLDINGS
The following table sets forth selected historical financial information of
Volume Holdings as of and for fiscal years 1994, 1995, 1996, 1997, 1998 and the
thirteen week periods ended March 31, 1998 and March 30, 1999. The fiscal year
of Volume Holdings ends on the Tuesday closest to December 31 and references in
this prospectus to a specific fiscal year of Volume Holdings mean the year ended
on the Tuesday closest to December 31 of that year.
The historical financial information as of and for fiscal years 1994 and
1995 has been derived from the consolidated financial statements of Volume
Holdings and the notes thereto, which have been audited by Deloitte & Touche
LLP, independent auditors, but which are not included in this prospectus. The
historical financial information as of and for fiscal years 1996, 1997 and 1998
has been derived from the consolidated financial statements of Volume Holdings
and the notes thereto, which have been audited by Deloitte & Touche LLP, and
which are included elsewhere in this prospectus. The historical financial
information as of the thirteen week periods ended March 31, 1998 and March 30,
1999 have been derived from unaudited consolidated financial statements of
Volume Holdings and the notes thereto, which are included elsewhere in this
prospectus. The unaudited consolidated financial statements of Volume Holdings
include, in the opinion of management, all adjustments, which consist only of
normal recurring accruals, necessary for a fair presentation of the results of
operations and financial position for and as of the end of such periods. Results
of operations for the thirteen week period ended March 30, 1999 are not
necessarily indicative of the results to be expected for the full year or any
future period. The information presented below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Volume Holdings and the
notes thereto included elsewhere in this prospectus.
Volume Holdings is a guarantor of the notes and the senior credit
facilities and has no substantial operations or assets other than the capital
stock of the Issuer. As a result, the consolidated financial position and
results of operations of Volume Holdings are substantially the same as those of
the Issuer. Volume Holdings was formed to effect the December 21, 1995
acquisition of the Issuer. Prior to December 1995, the results of operations of
Volume Services, which are currently reported in the financial statements of
Volume Holdings, were reported in the financial statements of the Issuer. The
Issuer is therefore the predecessor entity of Volume Holdings for reporting
purposes. For convenience purposes, and due to the immateriality of the results
of operations for the 12-day period ended January 2, 1996, the results of the
two separate periods, the 353-day period ended December 21, 1995 for the
predecessor company and the 12-day period ended January 2, 1996 for Volume
Holdings, have been combined as the predecessor company for fiscal year 1995,
without any pro forma or other adjustments.
As a result of the consummation of the acquisition of Service America on
August 24, 1998, the financial position and results of operations of Service
America after August 24, 1998 are consolidated in the financial position and
results of operations of Volume Holdings for the period subsequent to that date.
39
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF
VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------
THIRTEEN WEEK PERIOD ENDED
PREDECESSOR --------------------------
--------------- MARCH 31,
1994 1995 1996 1997 1998 1998
------ ------ ------ ------ ------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........................ $186.6 $164.7 $190.4 $196.0 $283.4 $ 27.3
Depreciation and amortization.... 9.8 11.8 12.6 12.9 18.2 2.9
Operating profit (loss)(a)....... 3.2 (0.3) 2.9 4.8 8.7 (2.5)
Interest expense................. 0.4 0.5 7.3 7.9 11.3 2.3
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change in
accounting principle........... 2.8 (1.0) (3.9) (2.8) (2.2) (4.8)
Income tax provision (benefit)... 1.0 -- -- 0.3 1.5 --
Net income (loss)(b)............. 1.8 (1.0) (3.9) (3.1) (5.2) (4.8)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash
equivalents.................... $ 3.9 $ 6.8 $ 5.2 $ 5.4 $ 8.8 $ 12.1
Working capital (deficit)(c)..... 5.5 (2.0) (5.4) 0.5 (6.4) (4.6)
Total assets..................... 71.4 120.1 117.3 137.8 267.2 141.5
Total debt(d).................... -- 70.0 69.7 79.0 161.3 93.9
Total stockholders' equity
(deficit)...................... 49.2 26.6 21.9 25.1 49.9 23.9
OTHER DATA:
Net cash provided by (used in)
operating activities........... 7.7 5.6 11.0 15.3 1.4 (9.1)
Net cash used in investing
activities..................... (18.0) (97.7) (13.5) (31.0) (5.3) (0.5)
Net cash provided by (used in)
financing activities........... 12.2 99.2 (0.4) 15.9 7.3 16.3
EBITDA(e)........................ $ 13.9 $ 12.4 $ 16.3 $ 20.8 $ 32.1 $ 0.5
Total capital additions.......... 18.1 10.6 20.7 37.6 18.8 5.8
Interest expense excluding
amortization of debt issuance
costs.......................... 0.2 0.2 6.9 7.4 10.8 2.2
Ratio of earnings to fixed
charges(f)..................... 5.5x -- -- -- -- --
<CAPTION>
THIRTEEN WEEK PERIOD ENDED
--------------------------
MARCH 30,
1999
--------------------------
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........................ $ 66.3
Depreciation and amortization.... 6.4
Operating profit (loss)(a)....... (4.9)
Interest expense................. 4.6
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change in
accounting principle........... (9.4)
Income tax provision (benefit)... (2.7)
Net income (loss)(b)............. (7.8)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash
equivalents.................... $ 9.0
Working capital (deficit)(c)..... (8.5)
Total assets..................... 268.8
Total debt(d).................... 220.0
Total stockholders' equity
(deficit)...................... (6.8)
OTHER DATA:
Net cash provided by (used in)
operating activities........... (5.9)
Net cash used in investing
activities..................... (1.2)
Net cash provided by (used in)
financing activities........... 7.3
EBITDA(e)........................ $ 2.7
Total capital additions.......... 1.2
Interest expense excluding
amortization of debt issuance
costs.......................... 4.3
Ratio of earnings to fixed
charges(f)..................... --
</TABLE>
40
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL
INFORMATION OF VOLUME HOLDINGS
(DOLLARS IN MILLIONS)
(a) Operating profit (loss) includes a non-cash charge of $2.5 and $1.4 in
fiscal years 1997 and 1998, respectively, for the non-cash charges related
to contract termination costs. Operating profit (loss) for fiscal years
1994, 1995, 1996, 1997 and 1998 and the thirteen week periods ended March
31, 1998 and March 30, 1999 includes management fees paid to equity owners
of $0.9, $1.1, $0.3, $0.3, $0.3, $0.1 and $0.1, respectively.
Additionally, operating profit (loss) includes $0.9 of trademark fees
charged by the Issuer's former owners for fiscal years 1994 and 1995.
(b) Net income (loss) for Volume Holdings includes an extraordinary loss (net
of income taxes) of $1.5 and $0.9 for the non-cash write-off of deferred
financing costs in fiscal year 1998 and the thirteen week period ended
March 30, 1999, respectively. Additionally, net income (loss) for the
thirteen week period ended March 30, 1999 includes a charge of $0.3 for
the effect of a change in accounting principle (net of income taxes).
(c) Working capital is defined as current assets less current liabilities.
(d) Includes the current portion of long-term debt.
(e) EBITDA is defined as net income (loss) before interest expense, income tax
expense, depreciation, amortization, and
o for fiscal year 1997, a $2.5 non-cash charge related to contract
termination costs;
o for fiscal year 1998, $3.1 of non-recurring severance expenses
associated with Volume Services' employees and other Service America
expenses incurred in connection with the acquisition of Service America
and $1.4 of non-cash charges related to contract termination costs for
Volume Holdings;
o for the thirteen week period ended March 30, 1999, $1.0 of non-recurring
severance expenses and other non-recurring expenses in connection with
the acquisition of Service America; and
o For fiscal 1994, 1995, 1996, 1997 and 1998 and for the thirteen week
periods ended March 31, 1998 and March 30, 1999, $0.9, $1.1, $0.3, $0.3,
$0.1 and $0.1, respectively, for management fees paid to equity owners.
We believe that EBITDA provides useful information regarding our ability
to service debt but should not be considered in isolation or as a
substitute for the consolidated statement of operations or cash flow data
prepared in accordance with generally accepted accounting principles and
included elsewhere in this prospectus or as a measure of our operating
performance, profitability or liquidity. While EBITDA is frequently used
as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to differences in methods of calculation.
EBITDA, including the adjustments shown for non-cash items, is a component
in the calculation of the fixed charge coverage ratio contained in a
financial covenant in the indenture for the notes, as described in
"Description of Notes."
(f) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income (loss) before income taxes, extraordinary
item and cumulative effect of change in accounting principle plus fixed
charges. Fixed charges include interest expense on all indebtedness,
amortization of deferred financing costs and one-third of rental expense
on operating leases representing that portion of rental expense deemed to
be attributable to interest. Earnings were insufficient to cover fixed
charges by $1.0, $3.9, $2.8, $2.2, $4.8 and $9.4 for fiscal years 1995,
1996, 1997 and 1998 and for the thirteen week periods ended March 31, 1998
and March 30, 1999, respectively.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis presents the factors that had a material
effect on our results of operations and cash flows during the three years ended
December 31, 1998, and our financial position at December 31, 1998 and December
31, 1997. You should read this discussion and analysis in conjunction with the
"Selected Historical Financial Information of Volume Holdings," and the
consolidated financial statements of Volume Services and Service America, in
each case together with the related notes, included elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of food and beverage concession, high-end
catering and merchandise services for sports facilities, convention centers and
other entertainment facilities throughout the United States. We represent the
combination in August 1998 of Volume Services, one of the leading providers of
food and beverage services to sports facilities in the United States, with
Service America, one of the leading providers of food and beverage services to
convention centers in the United States. This combination was the result of the
acquisition in August 1998 by Volume Holdings of substantially all the capital
stock of Service America. We accounted for the acquisition using the purchase
method of accounting. Under purchase accounting, the total purchase cost is
allocated to the assets acquired and liabilities assumed based on their
respective fair values.
Our net sales and results of operations are primarily driven by five
factors:
o the number and terms of our contracts with clients;
o the number of events held at facilities at which we provide our services;
o the level of attendance at these events;
o the amount spent on food and beverages and merchandise by attendees at
the events; and
o our ability to provide our services on a cost-effective basis.
Many of these factors are affected by local economic conditions and the
state of repair of the facilities, which may affect the number of events held at
a facility, as well as the attendance and level of spending at these events. We
are dependent to a certain extent on the ability of our clients to attract
events to their facilities and to encourage attendance at these events. See
"Risk Factors--Dependence on Attendance at Client Facilities."
The recreational food service industry is highly fragmented and
competitive, with several national food service providers as well as a large
number of smaller independent businesses serving discrete local and regional
markets and/or competing in distinct areas. Contracts are generally gained and
renewed through a competitive bidding process. We selectively bid on contracts
to provide services at both privately owned and publicly controlled facilities.
See "Risk Factors--Competition."
We currently provide services at 118 client facilities, typically pursuant
to long-term contracts which grant us the exclusive right to provide services
within the facility. Our contracts are generally structured as:
o a P&L Contract;
o a Profit Sharing Contract; or
o a Management Fee Contract.
For further information regarding each of these categories of contracts,
see "Business--Contracts." Each of our contracts fall into one of these three
categories, although any particular contract may contain elements of any of the
other types of contracts as well as other features specific to that contract.
These modifications are made in an effort to meet our needs and the needs of the
particular client, and so obtain or retain the right to provide services at the
facility.
In connection with entering into certain new contracts, or extending or
renewing certain existing contracts, we are required to make some form of
up-front or committed future capital investment to
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help finance facility construction or renovation. While the amount of capital
commitment required can vary significantly, the ability to make such
expenditures is often an essential element of a successful bid. Commission and
management fee rates vary significantly among contracts based primarily upon the
amount of capital invested, the type of facility involved, the term of the
contract and the services provided. In general, within each client category the
level of capital investment and commission are related, such that the greater
the capital investment we make, the lower the commission we pay to the client.
We account for capital investments in leasehold improvements and food
service equipment as purchases of property and equipment, and we account for
grants as purchases of contract rights. We capitalize capital investments, and
amortize or depreciate them over the lesser of the useful life of the asset or
the remaining life of the contract. Our contracts generally provide that the
client must reimburse us for any undepreciated or unamortized capital
investments made pursuant to the terms of the contract in the event of early
termination of the contract by either party, other than due to our default. We
are currently committed under client contracts to fund capital investments of
approximately $25.7 million and $1.2 million in 1999 and 2000, respectively.
Under P&L Contracts and Profit Sharing Contracts, we recognize all food and
beverage revenues and expenses, including commissions paid to clients, in our
statement of operations. Food and beverage revenues are recognized as they are
sold to the ultimate customer. The most significant of these expenses are the
commissions paid to clients, the cost of goods sold and labor costs. The
commission percentages vary from facility to facility, depending on various
factors, including attendance, profitability and size of the capital investment
made. Under Management Fee Contracts, we record only the fixed and incentive
fees, if any, as operating revenues. We recognize Management Fee Contract
revenue on a monthly basis as earned. While Management Fee Contracts generally
provide lower profit margins than P&L Contracts and Profit Sharing Contracts, we
do not bear the risk of operating loss under these contracts.
INTEGRATION PLAN
We adopted the Integration Plan in the fourth quarter of fiscal year 1998
to realize cost savings as a result of the combination of Volume Services and
Service America. The Integration Plan identified three principal areas for cost
reduction as a result of the combination:
o eliminating overlapping personnel, and associated costs, within our
regional operations;
o reducing corporate overhead staff; and
o reducing operating costs such as property, casualty and financial
insurance premiums, payroll processing fees, computer lease costs,
facility rental and certain telecommunication costs.
When its benefits are fully realized, we expect the Integration Plan to result
in annual cost savings of approximately $6.3 million and an increase in
incremental annual overhead expenses of approximately $1.2 million, resulting in
net annual cost savings of approximately $5.1 million. We also expect to incur a
total of $6.5 million of one-time expenses and charges in connection with the
implementation of the Integration Plan, consisting of $5.7 million of cash
expenses and $0.8 million of non-cash charges. The elements of this
approximately $5.1 million annual net cost saving are as follows:
<TABLE>
<CAPTION>
ANNUAL COST SAVINGS
-------------------
(Dollars in
Millions)
<S> <C>
Elimination of overlapping regional office personal.............................. $ 1.1
Corporate overhead staff reductions(a)........................................... 1.5
Reduction in operating costs(b).................................................. 2.5
-----
Total....................................................................... $ 5.1
-----
-----
</TABLE>
(Footnotes on next page)
43
<PAGE>
(Footnotes from previous page)
(a) Net of $735,000 of estimated salaries for nine new administrative
personnel.
(b) Net of $480,000 of estimated incremental operating costs.
Within our regional operations, as of March 30, 1999 we had terminated four
employees and transferred three other employees to previously vacant positions
and eliminated their prior positions. We expect to realize annual cost savings
of approximately $1.1 million from the elimination of these employees and
positions during the remainder of fiscal 1999.
The Integration Plan also provides for the reduction of our corporate
overhead staff by terminating 18 employees at our Stamford, Connecticut
headquarters and three employees at our Spartanburg, South Carolina
headquarters, and reassigning three employees to previously vacant positions and
eliminating their prior positions. We expect to realize annual cost savings of
approximately $2.2 million upon the termination or reassignment of all of these
employees and the elimination of their positions, to be offset by approximately
$0.7 million of annual salaries for nine new administrative employees to be
hired at our Spartanburg, South Carolina headquarters. As of March 30, 1999, we
had terminated 19 of the employees and notified the remaining five employees of
their termination or reassignment. The 19 employees terminated as of March 30,
1999 account for approximately $1.6 million of the expected $2.2 million of
annual cost savings. All of the remaining five employees had left or begun in
their new positions by the end of the second quarter of fiscal 1999.
The final component of the Integration Plan involves the reduction of
certain of our operating expenses. These reductions consist primarily of:
o subleasing our Stamford, Connecticut headquarters office space;
o renegotiating our insurance policies;
o operating our payroll function internally rather than using an outside
vendor;
o consolidating the independent accountant services required by Service
America and Volume Services for annual audits of their respective
financial statements; and
o reducing our computer lease costs.
We expect to realize annual cost savings of approximately $3.0 million upon
the completion of this component of the Integration Plan, partially offset by an
estimated $0.5 million of additional annual operating expenses. These additional
operating expenses will consist primarily of:
o increased lease expense for replacement space in Stamford, Connecticut;
o incremental internal payroll operating costs; and
o an increase in the fees charged by our remaining independent accountants
for their annual audit of our financial statements.
As of March 30, 1999, we had taken all necessary steps to achieve
approximately $2.0 million of the total expected annual operating cost savings,
consisting primarily of:
o renegotiating our insurance policies, which accounts for $1.3 million of
the annual net savings;
o moving the payroll function in-house and terminating the arrangement with
the outside vendor;
o buying out the relevant computer leases;
o renegotiating the fee for our annual audit; and
o relocating our computer system and reducing telecommunications costs.
We expect to achieve the remainder of these annual cost savings during the
remainder of fiscal year 1999.
As of March 30, 1999, we had taken all steps necessary to realize
approximately $4.1 million of the annual cost savings expected in connection
with the implementation of the Integration Plan and had begun to incur
approximately $0.5 million of the offsetting incremental annual overhead
expenses. Furthermore, as of March 30, 1999, we had incurred approximately
$3.8 million of the
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expected $5.7 million of one-time cash expenses and recorded all of the $0.8
million of expected one-time non-cash charges in connection with the
implementation of the Integration Plan. We have subsequently incurred a further
$1.0 million of these expenses, and expect to incur the remaining approximately
$0.9 million of expenses during the remainder of fiscal year 1999.
The expected cost savings described above are measured relative to actual
amounts incurred by Volume Services and Service America, and their respective
subsidiaries, during fiscal year 1998. The steps that we have taken, and the
steps remaining to be taken, in connection with the implementation of the
Integration Plan may not produce the expected future cost savings and, in taking
these steps, we may incur expenses or charges beyond those currently expected.
See "Risk Factors--Integration of Volume Services and Service America."
OVERVIEW--VOLUME HOLDINGS
Volume Holdings is a holding company, the principal assets of which are the
capital stock of its subsidiary, the Issuer. Volume Holdings' financial
information is therefore substantially the same as that of the Issuer. Since
August 25, 1998, following consummation of the acquisition of Service America,
the results of operations of Volume Holdings have included those of Service
America.
Prior to December 31, 1998, Volume Holdings capitalized certain costs
related to the opening of new contract locations, such as preopening payroll and
various training expenses which were deferred until the contract locations
commenced operations. Such expenses were then amortized by Volume Holdings over
the subsequent 12 months. Pursuant to Statement of Position ("SOP") 98-5 issued
by the American Institute of Certified Public Accountants, Volume Services was
required to expense such preopening costs beginning December 31, 1998. As a
result of this SOP, we wrote off our unamortized preopening costs of $256,000
(net of tax) on December 31, 1998, as a cumulative effect of a change in
accounting principle.
RESULTS OF OPERATIONS
The following table outlines Volume Holdings' financial performance for
fiscal years 1996, 1997 and 1998 and the thirteen week periods ended March 31,
1998 and March 30, 1999:
<TABLE>
<CAPTION>
THIRTEEN WEEK
PERIOD ENDED
FISCAL YEAR ----------------------
-------------------------- MARCH 31, MARCH 30,
1996 1997 1998 1998 1999
------ ------ ------ --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $190.4 $196.0 $283.4 $27.3 $66.3
Cost of sales................................... 155.7 157.0 222.5 22.4 54.3
Selling, general and administrative expenses.... 19.2 21.3 30.9 4.5 9.4
Depreciation and amortization................... 12.6 12.9 18.2 2.9 6.4
Transaction fees and expenses................... -- -- 3.1 -- 1.0
Operating profit (loss)......................... 2.9 4.8 8.7 (2.5) (4.9)
As a Percentage of Net Sales
Net sales....................................... 100% 100% 100% 100% 100%
Cost of sales................................... 81.8 80.1 78.5 82.1 81.9
Selling, general and administrative expenses.... 10.1 10.9 10.9 16.3 14.2
Depreciation and amortization................... 6.6 6.6 6.4 10.7 9.6
Transaction fees and expenses................... -- -- 1.1 -- 1.5
Operating profit (loss)......................... 1.5 2.4 3.1 (9.1) (7.3)
</TABLE>
45
<PAGE>
THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999 COMPARED TO THE THIRTEEN WEEK PERIOD
ENDED MARCH 31, 1998
Net Sales. Net sales increased 142.9% from $27.3 million in the thirteen
week period ended March 31, 1998 to $66.3 million in the thirteen week period
ended March 30, 1999. The increase was primarily due to the acquisition of
Service America, which generated $40.2 million in net sales for the thirteen
week period ended March 30, 1999. Excluding the effect of the acquisition, net
sales decreased by $1.2 million in the thirteen week period ended March 30, 1999
due to a decrease in sales at one sports facility and the demolition of another
sports facility.
Cost of Sales. Cost of sales increased 142.4% from $22.4 million in the
thirteen week period ended March 31, 1998 to $54.3 million in the thirteen week
period ended March 30, 1999. Cost of sales as a percentage of net sales was
substantially the same as the thirteen week period of the prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 108.9% from $4.5 million in the thirteen
week period ended March 31, 1998 to $9.4 million in the thirteen week period
ended March 30, 1999, primarily due to the acquisition of Service America. As a
percentage of sales, selling, general and administrative expenses decreased from
16.3% in the thirteen week period ended March 31, 1998 to 14.2% in the thirteen
week period ended March 30, 1999. The decrease was due to the economies of sales
realized from the acquisition of Service America, which resulted in lower
expenses on the incremental sales.
Depreciation and amortization. Depreciation and amortization increased by
120.7% from $2.9 million in the thirteen week period ended March 31, 1998 to
$6.4 million in the thirteen week period ended March 30, 1999. Approximately
$1.7 million of the increase was due to an increase in amortization which arises
from the application of purchase accounting to the acquisition of Service
America. The remaining $1.8 million increase was due to the depreciation of
capital expenditures made during 1998 and the thirteen week period ended
March 30, 1999. As a percentage of net sales, depreciation and amortization
decreased from 10.7% in the thirteen week period ended March 31, 1998 to 9.6% in
the thirteen week period ended March 30, 1999.
Transaction fees and expenses. Volume Holdings incurred $1.0 million in
transaction fees and expenses for the thirteen week period ended March 30, 1999.
These fees and expenses primarily relate to non-recurring severance expense and
other non-recurring expenses for Volume Services in connection with the
acquisition of Service America.
Operating Profit (Loss). Operating loss increased 96.0% from a loss of
$2.5 million, or 9.1% of net sales, in the thirteen week period ended March 31,
1998 to a loss of $4.9 million, or 7.3% of net sales, in the thirteen week
period ended March 30, 1999. The increase was primarily due to the factors
discussed above.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. Net sales increased 44.6% from $196.0 million in fiscal year
1997 to $283.4 million in fiscal year 1998. The increase was primarily due to
the acquisition of Service America which resulted in the inclusion of
$75.5 million in revenues for the period from August 24, 1998 to the end of the
fiscal year. In addition, net sales at MLB venues serviced by the Company
increased by $11.6 million as a result of post-season playoff games and a 20.7%
increase in average attendance at one client facility.
Cost of sales. Cost of sales increased 41.7% from $157.0 million in fiscal
year 1997 to $222.5 million in fiscal year 1998. As a percentage of net sales,
cost of sales declined from 80.1% in fiscal year 1997 to 78.5% in fiscal year
1998 principally due to the inclusion of Service America whose cost of sales
percentage was 76.7% for the eighteen weeks ended December 29, 1998, compared to
Volume Holdings' percentage of 79.0%, excluding Service America. Other factors
contributing to the decrease in cost of sales percentage are directly related to
the net sales increase at Volume Holdings' MLB facilities. The increased
attendance at MLB regular season and playoff games is incrementally more
profitable due to the ability of the employment base to service more customers
without a corresponding increase in labor costs. In addition, Volume Holdings
secured a new
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<PAGE>
service contract in 1998 that had a lower commission rate than the average of
its other contracts contributing to the reduction in cost of sales as a
percentage of net sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 45.1% from $21.3 million in fiscal 1997 to
$30.9 million in fiscal 1998. Excluding non-cash charges for the termination of
contracts in fiscal 1997 of $2.5 million and in fiscal 1998 of $1.4 million, the
percentage of selling, general and administrative expenses as a percentage of
net sales increased from 9.6% in fiscal 1997 to 10.4% in fiscal 1998. The
increase as a percentage of net sales is due to the acquisition of Service
America, with such expenses representing 13.4% of its net sales.
Depreciation and amortization. Depreciation and amortization increased
41.1% from $12.9 million in fiscal year 1997 to $18.2 million in fiscal year
1998. The dollar increase was due to:
o Service America's depreciation and amortization from August 24, 1998 to
the end of the fiscal year of $2.4 million;
o amortization of trademark fees, step-up value of location contracts and
costs in excess of fair value of net assets acquired of $2.6 million
resulting from the application of the purchase method of accounting for
the acquisition of Service America; and
o capital investments made in connection with six new contracts of
$1.3 million.
Transaction fees and expenses. Transaction fees and expenses primarily
include non-recurring severence expense and other non-recurring expenses for
Volume Services in connection with the acquisition of Service America.
Operating profit. Operating profit increased 81.2% from $4.8 million, or
2.4% of net sales, in fiscal year 1997 to $8.7 million, or 3.1% of net sales, in
fiscal year 1998. The increase was primarily due to the factors as discussed
above.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales. Net sales increased 2.9% from $190.4 million in fiscal year
1996 to $196.0 million in fiscal year 1997. The increase was primarily due to
$16.8 million of net sales generated by seven new client contracts entered into
in fiscal 1997, and an increase of $10.9 million in net sales from existing MLB
and NFL contracts as a result of increased attendance and higher per capita
spending by attendees at the facilities. The increase in net sales was partially
offset by a $16.8 million reduction in net sales as a result of four terminated
or expired contracts, including a $13.1 million decrease in net sales resulting
from the expiration of the Oakland Coliseum contract on December 31, 1996.
Cost of sales. Cost of sales increased 0.8% from $155.7 million in fiscal
year 1996 to $157.0 million in fiscal year 1997. Cost of sales as a percentage
of net sales decreased from 81.8% of net sales in fiscal year 1996 to 80.1% of
net sales in fiscal year 1997. The decrease in cost of sales as a percentage of
net sales was due in part to a reduction in the commission (calculated as a
percentage of net sales) paid to the 3Com Park facility operator in connection
with our acquisition of the contract to provide services to Pacific Bell
Ballpark, the future home of MLB's San Francisco Giants, which is scheduled to
open in 2000. The other significant factor contributing to the decrease in cost
of sales as a percentage of net sales was the realization of certain operating
efficiencies at two client facilities, which we achieved by altering the product
mix to sell more higher margin food items in place of lower margin food items
and a reduction in the number of employees used to staff the facilities.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 10.9% from $19.2 million, or 10.1% of net
sales, in fiscal year 1996 to $21.3 million, or 10.9% of net sales, in fiscal
year 1997. The increase was primarily due to a non-recurring non-cash charge of
$2.5 million incurred in writing down assets to net realizable value upon the
termination of the contract to provide services at Ericsson Stadium. The
increase in selling, general and administrative expenses was partially offset by
a reduction of $0.4 million in expenses at the corporate office due to the
non-recurrence of 1996 start up costs.
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<PAGE>
Depreciation and amortization. Depreciation and amortization increased
2.4% from $12.6 million in fiscal year 1996 to $12.9 million in fiscal year
1997. Depreciation and amortization as a percentage of net sales remained
constant at 6.6% of net sales for both periods. The increase in the dollar
amount of depreciation and amortization was primarily due to the capital
investments made in connection with seven new contracts entered into in fiscal
year 1996. The increase was partially offset by the elimination of depreciation
and amortization related to four contracts which expired or were terminated
during the same period.
Operating profit (loss). Operating profit (loss) increased 65.5% from $2.9
million, or 1.5% of net sales, in fiscal year 1996 to $4.8 million, or 2.4% of
net sales, in fiscal year 1997. The increase was primarily due to the factors
discussed above.
VOLUME HOLDINGS' HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
Volume Holdings' liquidity needs have historically been for making capital
investments in connection with client contracts, satisfying interest and
principal payment obligations and satisfying working capital requirements.
Volume Holdings has historically met its liquidity and capital investment needs
with internally generated funds, borrowings under its credit facilities and the
proceeds of equity investments.
For the thirteen week period ended March 30, 1999, net cash used in
operating activities was $5.9 million compared to $9.1 million in the thirteen
week period ended March 31, 1998. The $3.2 million decrease in cash used in
operating activities was primarily due to the acquisition of Service America.
Service America contributed net sales of $40.2 million during the thirteen weeks
ended March 30, 1999, with high concentrations of convention center business.
This business is typically more active in the first three months of the year
than Volume Services' business, as Volume Services serve a higher concentration
of baseball and football venues, which host fewer events in the first three
months of the year.
For the thirteen week period ended March 30, 1999, net cash used in
investing activities was $1.2 million compared to $0.5 million in the thirteen
week period ended March 31, 1998. The primary components of net cash used in
investing activities for these periods were purchases of property and equipment,
and investments in contract rights in connection with acquiring or renewing
contracts. The difference in the amount of net cash used in investing activities
in these two periods was primarily due to large capital investments which we
made at Tropicana Field MLB Stadium in St. Petersburg, FL, during the 1998
period. Typically, capital investments are non-recurring items from one year to
the next. We also made investments of $1.2 million in the purchase of property
and equipment at numerous locations in the 1999 period. In addition, we received
$10.0 million of proceeds from the sale of assets held for sale after the
termination of the Ericsson Stadium contract in the 1998 period, and deposited
$4.9 million of cash into a cash account restricted for future use in capital
expenditures.
For the thirteen week period ended March 30, 1999, net cash provided by
financing activities was $7.3 million compared to $16.3 million in the thirteen
week period ended March 31, 1998. The 1999 figure reflects the issuance of
$100.0 million of senior subordinated notes, and the use of the proceeds to
retire $45.0 million of senior secured debt and $0.5 million of GE Capital debt,
redeem $49.5 million of stock, and pay related fees of $5.5 million. Excluding
this financing, we borrowed $4.5 million under our revolving credit facility in
the 1999 period, and increased our bank overdrafts (outstanding checks) by
$3.1 million to fund working capital and capital expenditures. This is compared
to the borrowing of $14.3 million under our revolving credit facility, the
receipt of $3.5 million of cash equity from Blackstone and the decrease of our
bank overdrafts by $2.1 million to fund working capital and capital expenditures
which occurred in the 1998 period.
For fiscal year 1998, net cash provided by operating activities was
$1.4 million compared to $15.3 million provided by operating activities for
fiscal year 1997. The $13.9 million decrease in cash provided by operating
activities was primarily due to an increase of $2.1 million in net loss and a
net increase in working capital of $10.1 million, primarily as a result of the
acquisition of
48
<PAGE>
Service America. This was partially offset by a $5.3 million increase in
depreciation and amortization and a $1.5 million extraordinary loss.
For fiscal year 1998, net cash used in investing activities was
$5.3 million compared to $31.0 million for fiscal year 1997. The primary
components of net cash used in investing activities for these periods were
purchases of property and equipment, and investments in contract rights in
connection with acquiring or renewing contracts. Volume Holdings used
$12.6 million and $26.0 million in the purchase of property and equipment and
$6.2 million and $11.6 million for investments in contract rights, for fiscal
year 1998 and fiscal year 1997, respectively. The difference in the amount of
net cash used in investing activities in these two periods was primarily due to
the large capital investments which we made in Jack Kent Cooke Stadium,
Tropicana Field and Pac Bell Park in fiscal 1997. In addition, in fiscal 1998,
we received $12.6 million of proceeds from assets held for sale after the
termination of the Ericsson Stadium contract.
For fiscal year 1998, net cash provided by financing activities was
$7.3 million compared to $15.9 million for fiscal year 1997. The $8.6 million
decrease in cash provided by financing activities was primarily due to decreased
borrowings under our revolving credit facilities and lower capital contributions
to capital investments made to retain contracts or to acquire new contracts.
This decrease was partially offset by additional borrowings net of debt
repayments and payment of financing costs.
For fiscal year 1997, net cash provided by operating activities was
$15.3 million compared to $11.0 million for fiscal year 1996. The $4.3 million
increase was primarily due to a decrease of $0.8 million in net loss, a
$2.5 million non-cash loss due to the termination of a contract in the 1997
period, an increase in accounts payable and accrued salaries and vacations. This
was partially offset by an increase in accounts receivable.
For fiscal year 1997, net cash used in investing activities was
$31.0 million compared to $13.5 million for fiscal year 1996. The primary
components of net cash used in investing activities for these periods were
purchases of property and equipment, and investments in contract rights in
connection with acquiring or renewing contracts. Volume Holdings used
$26.0 million and $15.6 million in the purchase of property and equipment, and
$11.6 million and $5.0 million for investments in contract rights for fiscal
years 1997 and 1996, respectively. The increase in net cash used in investing
activities was primarily due to capital investments in 1997 at Jack Kent Cooke
Stadium, Tropicana Field and Pacific Bell Ballpark.
For fiscal year 1997, net cash provided by financing activities was
$15.9 million compared to $0.4 million for fiscal year 1996. The $15.5 million
increase in net cash provided by financing activities was primarily due to
borrowings of $16.1 million under Volume Services' revolving credit facility to
fund capital investments to acquire new contracts and retain existing contracts,
and a $6.4 million capital contribution, principally by Blackstone. This was
partially offset by a $6.5 million increase in principal payments on debt.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
We believe that cash flow from operating activities, together with
borrowings available under the revolving credit facility, will be sufficient to
fund our currently anticipated capital investment requirements, interest and
principal payment obligations and working capital requirements. See "Risk
Factors." Any future acquisitions, joint ventures or other similar transaction
will likely require additional capital and such capital may not be available to
us on acceptable terms or at all. We are currently committed under client
contracts to fund capital investments of approximately $25.7 million and
$1.2 million in 1999 and 2000, respectively.
We adopted the Integration Plan in the fourth quarter of fiscal year 1998
in order to realize cost savings as a result of the combination of Volume
Services and Service America. As of March 30, 1999, we have incurred
approximately $3.8 million of the expected $5.7 million of one-time cash
expenses and recorded all of the $0.8 million of expected one-time non-cash
charges, in connection with the implementation of the Integration Plan. We
expect to incur the remaining approximately $1.9 million of expenses in the
second quarter of fiscal 1999. The steps that we have
49
<PAGE>
taken, and the steps remaining to be taken, in connection with the
implementation of the Integration Plan may not produce the expected future cost
savings and, in taking these steps, we may incur expenses or charges beyond
those currently expected. See "Risk Factors--We may not be able to successfully
integrate the businesses of Volume Services and Service America."
We are significantly leveraged. As of March 30, 1999, we had outstanding
$220.0 million in aggregate principal amount of indebtedness, with
$57.0 million of additional indebtedness available under the revolving credit
facility, and total stockholders' deficit of $6.8 million. As a result of the
Financings, our liquidity requirements have been significantly increased,
primarily due to increased interest expense obligations. On a pro forma basis,
after giving effect to the Transactions, our earnings would have been
insufficient to cover our fixed charges by $15.5 million for fiscal year 1998
and $10.6 million for the thirteen week period ended March 30, 1999. See
"Unaudited Pro Forma Combined Financial Information of Volume Holdings" and
"Risk Factors--Substantial Leverage and Debt Service."
On December 3, 1998 we obtained the senior credit facilities, consisting of
the following:
o a $75.0 million revolving credit facility, with a sublimit of $35.0
million for letters of credit, which reduces availability thereunder by
an equal amount, and a sublimit of $5.0 million for swingline loans;
o a fully drawn $40.0 million term loan A; and
o a fully drawn $120.0 million term loan B.
We used $45.0 million of the net proceeds from the offering of the notes to
repay all of term loan A and $5.0 million of term loan B.
Installments of the outstanding term loan B are due in consecutive
quarterly installments on the last day of each fiscal quarter, each referred to
as an "Installment Date", commencing March 30, 1999, with 25% of the annual
amounts due on each Installment Date. Annual payments for term loan B total $1.2
million in each year from 1999 through 2005, and $106.7 million in 2006.
Except for the swingline loans, which bear interest based on a base rate,
borrowings under the senior credit facilities bear interest at a rate per annum
equal, at our option, to a margin over either a base rate or an adjusted LIBO
rate. This margin may vary from 1.25% up to 3.0%, depending on several factors
including our financial performance. The commitments under the revolving credit
facility are available to fund capital investment requirements, working capital,
general corporate and our other cash needs. All borrowings outstanding under the
revolving credit facility are due on December 3, 2004. As of March 30, 1999 we
had $4.5 million of outstanding borrowings under the revolving credit facility
and approximately $13.5 million of letters of credit outstanding, which had not
been drawn upon and which reduced availability under the revolving credit
facility to $57.0 million.
We expect that our working capital needs and other cash requirements will
require us to obtain replacement revolving credit facilities upon the expiration
of the senior credit facilities. We cannot assure you that we will be able to
arrange any such replacement. See "Description of the Senior Credit Facilities."
The notes will mature in 2009. The Issuer's obligations under the notes are
subordinate and junior in right of payment to all of our existing and future
senior indebtedness, including all indebtedness under the senior credit
facilities. The obligations of the Issuer under the notes are guaranteed, on an
unsecured senior subordinated basis by:
o Volume Holdings;
o all of the Issuer's wholly-owned U.S. subsidiaries on the date the
outstanding notes were issued; and
o all future U.S. restricted subsidiaries that incur indebtedness or issue
shares of disqualified stock or preferred stock.
The indenture restricts, among other things, the Issuer's and its
restricted subsidiaries' ability to:
50
<PAGE>
o incur additional indebtedness;
o issue shares of disqualified stock and preferred stock;
o incur liens;
o pay dividends or make certain other restricted payments;
o enter into certain transactions with affiliates;
o merge or consolidate with any other person; or
o sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets,
and prohibits certain restrictions on the ability of a subsidiary of the Issuer
to pay dividends or make certain payments to the Issuer.
The senior credit facilities also contain other and more restrictive
covenants. The senior credit facilities prohibit us from prepaying other
indebtedness, including the notes, and require us to maintain specified
financial ratios (such as a maximum net leverage ratio, an interest coverage
ratio and a minimum consolidated cash net worth test) and satisfy financial
condition tests. The senior credit facilities and indenture contain customary
events of default. See "Description of the Senior Credit Facilities",
"Description of the Notes" and "Risk Factors--Restrictive Debt Covenants."
Our ability to fund our capital investment requirements, interest and
principal payment obligations and working capital requirements and to comply
with all of the financial covenants under our debt agreements depends on our
future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond our control. See "Risk Factors."
INFLATION
We do not believe that inflation has had a material impact on our financial
position or results of operations for the periods discussed above. Although
inflationary increases in food, labor or operating costs could adversely affect
operations, we have generally been able to offset increases in costs through
price increases, labor scheduling and other management actions.
SEASONALITY
Our net sales and operating results have varied, and are expected to
continue to vary, from quarter to quarter as a result of factors which include:
o seasonal patterns within the industry;
o the unpredictability in the number, timing and type of new contracts;
o the timing of contract expirations and special events; and
o the level of attendance at facilities which we serve.
Business at the principal types of facilities which we serve is seasonal in
nature. MLB and minor league baseball sales are concentrated in the second and
third quarters, the majority of NFL activity occurs in the fourth quarter and
convention centers and arenas generally host fewer events during the summer
months. Consequently, our results of operations for the first quarter are
typically substantially lower than in other quarters. Results of operations for
any particular quarter may not be indicative of results of operations for future
periods. Seasonal and quarterly fluctuations may have a material adverse effect
on our business, financial condition or results of operations. See "Risk
Factors--Dependence on Attendance at Client Facilities."
YEAR 2000
The year 2000 ("Y2K") problem stems from computer programs written in a way
that differentiates calendar years by using two rather than four digits. As a
result, many information systems may be unable to properly recognize and process
date sensitive information beyond December 31, 1999.
51
<PAGE>
We have been addressing the "Y2K" situation since 1996. In 1996, we
replaced our primary information systems with systems that are certified "Y2K"
compliant. As of March 30, 1999, we had replaced other peripheral equipment that
connects with our primary information system. As a result of these two
initiatives, we believe that our primary information system, and all accounting
systems at our headquarters location, are ready for "Y2K" transactions.
We have developed a plan outline to assess, remediate and test other
non-critical information technology systems, such as communication, security,
and point of sale systems. We initiated a survey and assessment of secondary
information systems and other equipment on May 10, 1999. An independent
consultant has been retained to assist us in performing the survey and
assessment. The equipment survey is approximately 90% complete and the
assessment will be completed during July 1999. We have, through normal operating
requirements, been upgrading secondary information systems on an as required
basis.
We have identified key vendors and suppliers and are determining potential
exposure due to their failure to remediate their own "Y2K" issues. Product
warranties and certification are being sought from vendors and suppliers. We
have currently obtained "Year 2000 Statements" from national vendors and
suppliers, including Lawson, Sysco, IBM, Microsoft, Coke, Pepsi, Budweiser, and
Miller. Based on these statements, we have concluded that the lack of product
availability due to Y2K issues should not be material to our business.
Risks. We acquired our primary network, financial accounting, purchasing
and payroll processing systems in 1996. The systems were "Y2K" certified at the
time we acquired them. Management believes, based on the information currently
available to it, that scenarios which could adversely affect us and which could
be caused by technology failures relating to "Y2K" include:
o legal risks, over failure to deliver contracted services;
o increased operational costs, due to manual processing, data corruption or
disaster recovery; and
o cancellation of events at venues we serve.
Contingency Plans. We maintain contingency plans for computer failures,
power outages, and natural disasters. "Y2K" contingency plans for critical
systems will be developed and integrated with the existing contingency plans
where appropriate by December 1999.
Costs. Based on the current status of projected plans, we believe that the
costs associated with modifying our computer and other automated systems, and
"Y2K" events caused by our operational systems, would not have a material
adverse impact on our operations or financial condition. The aggregate
incremental costs associated with Y2K compliance are expected to be less than
$100,000. However, we cannot assure you that these estimates will be achieved
and actual results could differ materially from those anticipated.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards. We adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, in 1998.
SFAS No. 130 specifies that components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is included in the accompanying
statements of operations and comprehensive loss. Prior year disclosures have
been reclassified to conform to the SFAS No. 130 requirements.
We also adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, in 1998. SFAS No. 131 establishes standards for
reporting selected information about operating segments determined using
quantitative thresholds and a "management approach", which reflects how the
chief operating decision maker evaluates segment performance and allocates
resources. The combined operations of our contracts comprise one operating
segment and, as such, adoption of SFAS No. 131 has not changed our disclosures.
New Accounting Standards. In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities, which
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provides additional guidance on the financial reporting of start-up costs,
requiring costs of start-up activities to be expensed as incurred. As a result,
we wrote off our unamortized preopening costs of $253,000 (net of tax) as of
December 31, 1998 as a cumulative effect of a change in accounting principle.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measures
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative. The statement is effective for our fiscal year 2001 financial
statements and may not be applied retroactively. We have not yet completed our
analysis of the effects of this new standard on our results of operations or
financial position.
INTEREST RATE SENSITIVITY
We are exposed to interest rate volatility with regard to existing
issuances of variable rate debt. We use interest rate swaps to reduce interest
rate volatility and to achieve a desired proportion of variable versus fixed
rate debt, based on current and projected market conditions. The table below
provides information about our derivative financial instruments and other
financial instruments that are sensitive to changes in interest rates, including
interest rate swaps and debt obligations. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. For interest rate swaps, the table presents notional
amounts and weighted average interest rates by expected (contractual) maturity
dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
<TABLE>
<CAPTION>
FAIR VALUE
EXPECTED MATURITY DATE ------------
------------------------------------- DECEMBER 29,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
----- ----- ----- ----- ----- ---------- ----- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Variable rate................................ $ 4.2 $ 5.2 $ 6.2 $ 8.2 $ 8.2 $128.0 $ 160 $ 160
Average interest rate........................ 8.8% 8.8% 8.8% 8.8% 8.8% 8.8%
Interest rate swap
Variable to fixed............................ $ 80 $ 80 $ 0.4
Average pay rate............................. 5.0%
Average receive rate......................... 8.8%
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE
EXPECTED MATURITY DATE ------------
------------------------------------- MARCH 30,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1999
----- ----- ----- ----- ----- ---------- ----- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Variable rate................................ $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $108.7 $114.7 $114.7
Average interest rate........................ 8.8% 8.8% 8.8% 8.8% 8.8% 8.8%
Fixed rate................................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 100 $ 100 $ 100
Average interest rate........................ 11.25% 11.25% 11.25% 11.25% 11.25% 11.25%
Interest rate swap
Variable to fixed............................ $ 80 $ 80 $ 0.2
Average pay rate............................. 5.0%
Average receive rate......................... 8.8%
</TABLE>
53
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of food and beverage concession, high-end
catering and merchandise services for sports facilities, convention centers and
other entertainment facilities throughout the United States. We represent the
combination in August 1998 of Volume Services, one of the leading providers of
food and beverage services to sports facilities in the United States, with
Service America, one of the leading providers of food and beverage services to
convention centers in the United States. As a result of this combination, based
on the number of facilities served, we are the largest provider of food and
beverage services to:
o facilities which are home to NFL teams;
o minor league baseball and spring training facilities in the United
States; and
o major convention centers, defined for the purposes of this prospectus as
those with at least 300,000 square feet of exhibition space, in the
United States.
We are also the third largest provider of food and beverage services to
facilities which are home to MLB teams.
Major accounts across our client categories include:
o Yankee Stadium in New York;
o Qualcomm Stadium in San Diego;
o the Jacob K. Javits Center in New York;
o the Cobb-Galleria Center in Atlanta; and
o the Los Angeles Zoo.
We currently provide services at 118 client facilities, typically pursuant
to long-term contracts which grant us the exclusive right to provide certain
food and beverage (and, under certain contracts, merchandise) products and
services within the facility. As of March 30, 1999 our contracts had an average
of approximately 8.2 years left to run before their scheduled expiration, after
weighting each contract by the amount of Contract EBITDA which it generated in
the preceding fifty-two week period. The breakdown of facilities which we serve
by primary client category is as follows: 55 sports facilities, 29 convention
centers and 34 other entertainment facilities, representing approximately 64%,
27% and 9%, respectively, of Contract EBITDA for the fifty-two week period ended
March 30, 1999. Our pro forma net sales and pro forma Adjusted EBITDA were 404.2
million and 46.8 million, respectively, for the fifty-two week period ended
March 30, 1999.
We have built strong relationships with many of our clients, as evidenced
by our retention of approximately 85% of the total Contract EBITDA up for
renewal for the period from 1993 through 1998. This percentage is calculated by
reference to the amount of Contract EBITDA generated by each of our contracts in
the last full year prior to their expiration, and is referred to in this
prospectus as our "Retention Rate". Excluded from this calculation are seven
contracts which we terminated by mutual agreement with the client, and 11
contracts for which we did not submit a final bid because we determined that
such contracts would not meet our internal rate of return criteria. These
contracts accounted in the aggregate for approximately $3.9 million of Contract
EBITDA in their last full fiscal year of operation.
Management believes that our combination of market leadership,
long-standing relationships with clients, reputation as an innovative operator
and experienced management team has enabled us to achieve our high Retention
Rate and to secure attractive new contracts. Since April 1997, we have been
awarded the contract to provide food and beverage services at the following
facilities:
o the Louisiana Superdome, home of the New Orleans Saints NFL team;
54
<PAGE>
o the Tennessee Titans' new NFL stadium, which is scheduled to open in
1999;
o the Seattle Mariners' Northwest Baseball Park;
o the San Francisco Giants' Pacific Bell Ballpark, which is scheduled to
open in 2000; and
o the Cleveland Convention Center.
Our contracts are generally structured so that we receive either:
o all of the revenues and bear all of the expenses from the provision of
our services at a facility, pursuant to a P&L Contract;
o a percentage of any profits earned from the provision of our services at
a facility after deducting expenses, plus, in some cases, a fixed fee,
pursuant to a Profit Sharing Contract; or
o a management fee, which is typically calculated as a fixed dollar amount
and/or a fixed or variable percentage of various categories of sales
plus, in some cases, an additional incentive fee based on our performance
under the contract, pursuant to a Management Fee Contract.
For purposes of the above calculations, expenses include the payment of
commissions to the client. These commissions are typically calculated as a fixed
or variable percentage of various categories of sales.
Under Profit Sharing Contracts and Management Fee Contracts, we are also
reimbursed by the client for the on-site expenses which we incur in providing
services under the contract. In contrast to P&L Contracts, we are therefore
generally not responsible for any losses incurred under Profit Sharing or
Management Fee Contracts. While each of our contracts fall into one of these
three categories, any particular contract may contain elements of either of the
other types of contracts as well as other factors specific to that contract. See
"--Contracts".
When we enter into new contracts, or extend or renew existing contracts,
particularly for sports facilities, we are often required to make some form of
up-front or committed future capital investment to help finance facility
construction or renovation. This expenditure typically takes the form of
investment in:
o leasehold improvements;
o food service equipment; and/or
o grants to owners or operators of facilities.
Commission and management fee rates vary significantly among contracts, based
primarily upon:
o the amount of capital which we invest;
o the type of facility involved;
o the term of the contract; and
o the services provided.
In general, within each client category, the level of capital investment
and commission paid are related, such that the greater the capital investment
which we make, the lower the commission we pay to the client. In structuring our
bid for a particular facility contract, we analyze the contract opportunity by
calculating projected internal rates of return based on varying up-front capital
investment levels, commission structures, attendance assumptions, cost
structures and estimated per capita spending rates. See "--Contracts".
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<PAGE>
INDUSTRY
The recreational food service industry primarily consists of the supply of
food and beverage services to a range of recreational facilities in a variety of
formats, service levels and price points. For the purposes of our business,
these facilities fall into three main categories:
o sports facilities, consisting of stadiums and arenas;
o convention centers; and
o other entertainment facilities, which include horse racing tracks, music
amphitheaters, motor speedways, national and state parks, skiing
facilities, theme parks and zoos.
Management estimates that annual sales in these categories of the North
American recreational food service industry, whether generated by the owner of
the facility or outsourced to an organization like us, are currently more than
$4.0 billion.
The primary source of growth in the sports facilities category of the
industry has been the increased level of per capita spending on food, beverages
and merchandise by attendees of events held at newly constructed or refurbished
sports facilities. According to an independently produced 1997 report by a
national firm of consultants, concession sales per attendee at professional
sports facilities were approximately 70% higher for facilities built in the last
ten years than for older facilities. Management believes that the sports
facilities category of the industry will continue to benefit from the
construction of new, and the refurbishment of existing, sports facilities.
According to Street & Smith's SportsBusiness Journal, as of December 1998, 22
new stadiums and arenas were under development or being planned. This number
does not include existing stadiums and arenas which may be undergoing
refurbishment.
Management believes that one of the primary reasons for growth in the
convention center category of the industry has been the level of attendance at
trade shows, conventions and exhibitions, which is in part dependent upon the
amount of exhibit space available. According to Tradeshow Week's 1998 Major
Exhibit Hall Directory, the square footage of exhibit space used by trade shows
at convention centers grew 6.8% in 1997. According to the same source, an
additional 11 million square feet of exhibit space is planned for development
during the period between the second half of 1998 and the end of 2003,
representing an increase of approximately 17% in total industry capacity.
Management believes that the convention center category of the industry will
benefit from the construction of new, and the expansion of existing, convention
centers.
COMPETITIVE STRENGTHS
Leading Market Position. Based on the number of facilities served, we are
the largest provider of food and beverage services to facilities which are home
to NFL teams, to minor league baseball and spring training facilities in the
United States, and to major convention centers in the United States. We are also
the third largest provider of food and beverage services to facilities which are
home to MLB teams. Management believes that our position as a market leader
increases the likelihood that we will be invited to bid for new contracts to
supply food and beverage services to recreational facilities. Furthermore,
relative to smaller competitors, we benefit from our ability to make significant
capital investments in clients' facilities, which has become an important
competitive factor in the bidding process for contracts to serve certain
facilities, particularly sports facilities.
Diversified Client Base with Long-Term Contracts. We serve a diverse group
of clients pursuant to contracts to provide services at 118 facilities. As of
March 30, 1999, these contracts had an average of approximately 8.2 years left
to run before their scheduled expiration, after weighting each contract by the
amount of Contract EBITDA which it generated in the preceding fifty-two week
period. The breakdown of facilities which we serve by primary client category is
as follows: 55 sports facilities, 29 convention centers and 34 other
entertainment facilities, representing approximately 64%, 27% and 9%,
respectively, of Contract EBITDA for the fifty-two week period ended March 30,
1999. Within sports facilities, our client base is further diversified, and
includes
56
<PAGE>
contracts to provide services at nine NFL facilities, seven MLB facilities, and
21 minor league baseball and spring training facilities. As of March 30, 1999,
the average number of years our contracts had left to run before their scheduled
expiration, after weighting each contract by the amount of Contract EBITDA which
it generated in the preceding fifty-two week period, was 11.3, 2.6 and 3.9 years
for sports facilities, convention centers and other entertainment facilities.
Exclusive Service Contracts with High Retention Rate. We typically
provides services to our clients' facilities pursuant to long-term contracts
which grant us the exclusive right to provide certain food and beverage (and,
under certain contracts, merchandise) products and services within the facility.
Contracts are typically renegotiated for extension several months and, in some
cases, years prior to their expiration. Our Retention Rate was approximately 85%
during the period from 1993 through 1998. As of March 30, 1999 we had been
providing services to our clients' facilities for an average of 14.3 years after
weighting each contract by the amount of Contract EBITDA which it generated in
the preceding fifty-two week period, with three of our top clients--Yankee
Stadium in New York City, Qualcomm Stadium in San Diego and the Truman Sports
Complex in Kansas City--having been clients for more than 25 years. Management
believes that our market leadership position as well as our broad, high-quality
product offerings and reliable client service have enabled us to achieve our
high Retention Rate and maintain long-standing relationships with many of our
clients.
High Quality, Full Service Capabilities. We believe that our expertise in
high-end catering and concession sales, coupled with our reputation for
high-quality food and beverage products and services, provide a competitive
advantage when we bid for contracts. Our full service capability is particularly
important given the trend in new sports facilities toward providing more premium
seating and luxury suites that require high-end catering services. We also
believe that our expertise in designing and assisting in the planning of
appealing and efficient food service facilities, including food courts, kitchens
and permanent and portable concession stands, increases revenues and enhances
our ability to obtain and retain clients. For example, we believe that our
extensive redesign and improvement of the food court and retail areas of the
Jacob K. Javits Center in New York City was an important factor in obtaining an
extension of that contract in 1997.
Experienced Management Team. Our management team, comprised of members
from both Volume Services and Service America, intends to draw upon each
company's industry expertise to maintain and expand our leading position in the
recreational food service industry. The members of our senior management team
have an average of approximately 20 years of experience in the recreational food
service industry and our facility general managers have an average of
approximately 10 years of experience in the industry. Our Chairman and Chief
Executive Officer, John T. Dee, previously held several senior management
positions at ARAMARK, serving with ARAMARK for more than 22 years before joining
Service America in 1993.
BUSINESS STRATEGY
Our strategy is to maintain and strengthen our position as an industry
leader by selectively retaining existing contracts and adding new contracts
through the following initiatives:
Leverage Complementary Strengths. Management intends to leverage the
experience, contacts and industry know-how which Volume Services and Service
America have developed in their respective areas of expertise to market Volume
Services America as a full-service provider of both concession and high-end
catering services. While both companies were represented in many sectors of the
industry prior to the acquisition, Volume Services and Service America focused
on different aspects of the recreational food service business. Volume Services
traditionally had a strong presence in sports facilities and consequently
provided concession services to a wide range of clients within this category,
while Service America focused more on the provision of high-end catering
services at convention centers and other entertainment facilities. Management
therefore believes that Volume Services America is well-positioned to capitalize
on growth opportunities across the recreational food service industry. An
example of the successful implementation of this strategy is our bid to provide
both concession and high-end catering services at the Louisiana
57
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Superdome, home of NFL's New Orleans Saints, which was recently accepted. In
leveraging the complementary strengths of Volume Services and Service America,
management intends to identify areas of operation which are common to both
companies and apply the best practices of each to Volume Services America.
Exploit National Presence. Management intends to capitalize on our
existing infrastructure and contacts in many of the large metropolitan areas in
which we currently have food service operations to add additional contracts.
Management believes that we can eliminate many duplicative costs which would
otherwise be associated with the operation of two or more separate facilities in
one geographic area by carrying out many administrative tasks on a regional or
localized basis. By exploiting our substantial presence in cities such as Kansas
City, New York, San Diego, San Francisco and Tampa, we intend to add contracts
from which we may derive additional revenues without a commensurate increase in
overhead. The fragmented nature of the recreational food service industry may
also provide us with the opportunity to acquire smaller or regional operators.
Develop Innovative Contract Structures. We intend to continue our
innovative approach to structuring client contracts. We seek to use our
knowledge of the recreational food service industry to structure attractive
contracts which provide us and our clients with the opportunity to realize
increasing cash flows. Examples of innovative contract features that we employ
include:
o step-scale commissions, in which our commission payment to a client
varies according to sales performance;
o minimum attendance caps, in which a client will refund a portion of the
commissions which it receives from us if a minimum attendance level is
not reached at the facility; and
o merchandise inventory guarantees, under which we return certain unsold
inventory to the client without charge to us.
These structures represent our efforts to tailor our contracts to best suit
a particular client opportunity, and reflect our experience with comparable
facilities, sensitivity analyses of economic assumptions, competitor analyses
and general market research.
Capitalize on Ability to Provide High Quality, Reliable and Innovative
Service. We intend to continue providing our clients with high quality,
reliable service and an innovative approach to meeting their needs. We have
successfully introduced several new concepts, such as the cigar bar at the
Washington Redskins' Jack Kent Cooke Stadium, and branded food service, such as
the "Taste of Tampa" at Tropicana Field, where popular local restaurants provide
their products under a subcontracting agreement. We intend to seek new
opportunities to employ similar client-specific concepts in the future.
Management believes that, in a number of instances, we have retained existing
contracts or won new contracts because of our ability to creatively operate the
facility's various food and merchandise services. Management intends to continue
to employ these skills to both procure new business opportunities and increase
returns from our existing contract base.
SERVICES AND CLIENT CATEGORIES
Overview
We are a leading provider of food and beverage concession, high-end
catering and merchandise services for sports facilities, convention centers and
other entertainment facilities throughout the United States. While the type of
food service provided varies depending upon the facility, examples of the
services which we provide include:
o food and beverage catering and concession services at sports facilities;
o small- to large-scale banquet catering and food court operations at
convention centers; and
o in-facility restaurants and catering across the range of facilities which
we serve.
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We also provide merchandise and program management services at many of the
sports facilities which we serve. We are responsible for satisfying all
personnel, inventory control, purchasing and food preparation requirements in
connection with the provision of these services.
In addition to providing the services described above, we often work
closely with clients in designing or renovating the food, beverage and
merchandising features of the facilities at which we provide our services. By
using our in-house capabilities in conjunction with outside consultants, we have
designed state-of-the-art concessions and restaurant facilities in, among other
facilities, Jack Kent Cooke Stadium, home of the Washington Redskins, and
Tropicana Field, home of the Tampa Bay Devil Rays, and in the
soon-to-be-completed stadiums of the NFL's Tennessee Titans and MLB's San
Francisco Giants and Seattle Mariners. Similarly, we believe that our extensive
redesign and improvement of the food court and retail areas of the Jacob K.
Javits Center in New York City was an important factor in obtaining an extension
of that contract in 1997.
We seek to assist certain of our clients in marketing their facilities, as
our revenues are directly affected by the number and quality of events attracted
to these facilities. We also seek to build relationships with event sponsors in
order to facilitate referrals of recurring events, such as annual trade shows,
to facilities at which we provide our services.
Sports Facilities
We are a leading provider of food and beverage services to sports
facilities throughout the United States. We currently have contracts to provide
services, including food and beverage concessions, at 55 such facilities. At
certain of these facilities, we also provide high-end catering services for
premium seating, luxury suites and in-stadium restaurants. Sports facilities
include stadiums and arenas where there is an anchor sports team tenant. The
stadiums at which we provide our services seat from 21,000 to 102,000 persons
and typically host sporting events such as NFL and college football games and
MLB or minor league baseball games, as well as concerts and other large civic
events. The arenas at which we provide our services seat from 7,500 to 21,000
persons and host events such as:
o NBA and college basketball games;
o minor league hockey games;
o concerts;
o ice shows; and
o circuses.
These facilities may also host conventions, trade shows and meetings.
For the fifty-two week period ended March 30, 1999 sports facility
contracts accounted for approximately 55.6% and 64.0% of our pro forma net sales
and Contract EBITDA, respectively.
Concession-style sales of food and beverages represent the majority of our
business at sports facilities. High-end catering for premium seating, luxury
suites and in-stadium restaurants is responsible for a significantly smaller
portion of net sales at sports facilities. However, high-end catering is a
service upon which our clients place great importance because of the significant
revenues generated by purchasers of luxury seats and suites. Consequently, the
ability to provide high-end catering is an increasingly important factor when
competing for contracts, and we expect it to become more important in the
future.
In addition to the provision of food and beverage catering and concession
services, we sell team-licensed and other merchandise during events at certain
facilities. For example, we provide a wide range of merchandise services,
including in-stadium stores and roving vendors, at all six MLB facilities which
we serve. In providing merchandise services, we purchase team logo apparel and
other novelties and resell such merchandise during events.
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Our contracts with sport facilities are typically for terms ranging from
five to twenty years. As of March 30, 1999, our existing sports facility
contracts had an average remaining life of 11.3 years weighted by Contract
EBITDA for the preceding fifty-two week period. In general, stadium and, to a
lesser extent, arena contracts require a larger up-front or committed future
capital investment than contracts for convention centers and other entertainment
facilities, and typically have a longer contract term. In addition, certain
sports facility contracts require greater capital investment than others, and we
typically receive a more favorable commission structure at facilities where we
have made larger capital investments.
The following chart lists some of our major contracts within the sports
facilities category:
<TABLE>
<CAPTION>
NAME LOCATION SPORTS TEAM TENANT SEATING CAPACITY (SPORT)
- ------------------------ ------------------ --------------------------- ---------------------------------
<S> <C> <C> <C>
ALLTEL Stadium Jacksonville, FL Jacksonville Jaguars 73,000 (NFL)
Florida Citrus Bowl Orlando, FL N/A 70,000 (College Football)
HHH Metrodome Minneapolis, MN Minnesota Vikings, 64,000 (NFL) (College Football),
Minnesota Twins 44,000 (MLB)
Jack Kent Cooke Stadium Landover, MD Washington Redskins 80,000 (NFL)
Palace of Auburn Hills Auburn Hills, MI Detroit Pistons 21,000 (NBA)
Qualcomm Stadium San Diego, CA San Diego Chargers, 71,400 (NFL),
San Diego Padres 60,750 (MLB)
RCA Dome Indianapolis, IN Indianapolis Colts 60,000 (NFL)
Rose Bowl Pasadena, CA N/A 102,000 (College Football)
3Com Park San Francisco, CA San Francisco 49ers, 68,000 (NFL),
San Francisco Giants 52,000 (MLB)
Tropicana Field St. Petersburg, FL Tampa Bay Devil Rays 48,500 (MLB)
Truman Sports Complex Kansas City, MO Kansas City Chiefs, 79,000 (NFL),
Kansas City Royals 40,600 (MLB)
Yankee Stadium New York, NY New York Yankees 55,000 (MLB)
</TABLE>
Convention Centers
Based on the number of facilities served, we are the largest provider of
food and beverage services to major convention centers, defined for the purposes
of this prospectus as those with at least 300,000 square feet of exhibition
space, in the United States. We currently have contracts to provide services
including banquet catering and food court operations to 29 convention centers,
two of which are located in Canada. Convention centers typically host:
o conventions;
o industrial and trade shows;
o company meetings;
o banquets;
o receptions; and
o consumer exhibitions, such as auto, boat or computer shows.
Most of the convention centers at which we provide our services are located
in major metropolitan areas, which provide greater hotel room capacity and
entertainment options, and are therefore more attractive to event planners. The
facilities at which we provide our services generally consist of large exhibit
areas supplemented by a variety of banquet and meeting rooms of various sizes.
For the fifty-two week period ended March 30, 1999, convention center contracts
accounted for approximately 28.3% and 26.9% of our pro forma net sales and
Contract EBITDA, respectively.
The services which we provide at convention centers typically include:
o catering services, including planning, preparing and serving banquets;
o providing food court operations;
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<PAGE>
o assisting in planning events; and
o marketing clients' facilities.
Catering services consist primarily of providing large-scale banquet
services to functions held in the facilities' ballrooms and banquet halls.
Generally, banquets are held for 300 to 2,000 persons at the facility, though
catered meals at certain facilities can be served for larger groups, when we may
draw, as needed, on the services of chefs, event managers and other employees
throughout the region in which the facility is located. At trade shows and
consumer exhibitions, we frequently provide smaller-scale catering services,
such as services to meetings, exhibitions and trade show booths. In operating
food courts at convention centers, we typically provide concession sales
services from several different booths, which sell a variety of specialty foods
and beverages, including nationally branded, franchised food and beverage
products.
Our contracts with convention centers are typically for terms ranging from
two to five years. As of March 30, 1999, our existing convention center
contracts had an average remaining life of 2.6 years weighted by Contract EBITDA
for the preceding fifty-two week period. In general, convention center contracts
are for a shorter contract term than contracts for sports facilities, but
typically require less up-front or committed future capital investment. However,
as for contracts for sports facilities, certain convention center contracts
require greater capital investment than others, and we typically receive a more
favorable commission structure at facilities where we have made larger capital
investments.
The following chart lists certain of our major contracts within the
convention center category:
<TABLE>
<CAPTION>
SIZE
NAME LOCATION (APPROX. SQ. FT)(1)
- --------------------------------- ------------------- -------------------
<S> <C> <C>
American Royal Center Kansas City, MO 372,000
Cobb Galleria Center Atlanta, GA 280,000
Cleveland Convention Center Cleveland, OH 409,000
Colorado Convention Center Denver, CO 300,000
Cow Palace San Francisco, CA 300,000
Indiana Convention Center Indianapolis, IN 418,000
Jacob K. Javits Center New York, NY 760,000
Kentucky Fair & Expo Center Louisville, KY 1,068,000
Miami Beach Convention Center Miami Beach, FL 503,000
National Trade Center Toronto, ON Canada 1,000,000
San Diego Convention Center San Diego, CA 349,000
Washington, DC Convention Center Washington, DC 381,000
</TABLE>
- ------------------
(1) Source: Tradeshow Week's 1998 Major Exhibit Hall Directory
Other Entertainment Facilities
We have contracts to provide a wide range of services to 34 other
entertainment facilities located throughout the United States. Such facilities
include:
o horse racing tracks;
o music amphitheaters;
o motor speedways;
o national and state parks;
o skiing facilities;
o theme parks; and
o zoos.
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<PAGE>
While the services which we provide can vary widely depending on the type
of facility concerned, we primarily provide:
o concession services at theme parks, zoos and music amphitheaters;
o high-end concession services at music amphitheaters; and
o in-facility restaurants, concession services, food court operations and
high-end catering services at horse racing tracks.
For the fifty-two week period ended March 30, 1999, contracts to serve
these other entertainment facilities accounted for approximately 16.1% and 9.1%
of our pro forma net sales and Contract EBITDA, respectively.
The duration, level of capital investment required and commission or
management fee structure of the contracts for these other entertainment
facilities varies from facility to facility. However, as for contracts relating
to sports facilities and convention centers, we typically receive a more
favorable commission structure at facilities where we have made larger capital
investments. As of March 30, 1999, our existing contracts to serve these other
entertainment facilities had an average remaining life of 3.9 years weighted by
Contract EBITDA for the preceding fifty-two week period.
The following chart lists examples of our contracts within the other
entertainment facilities category:
<TABLE>
<CAPTION>
NAME LOCATION VENUE TYPE
- -------------------------------------- ------------------- --------------------
<S> <C> <C>
Alpine Valley Amphitheater Walworth, WI Music Amphitheater
Belmont, Saratoga and Aqueduct Tracks New York Horse Racing Tracks
Chicago Theater Chicago, IL Theater
Glen Helen Pavilion San Bernardino, CA Music Amphitheater
Irvine Meadows Laguna Hills, CA Music Amphitheater
Lake Perris State Park Perris, CA Marina Operation
Lake Placid Ski Resort Lake Placid, NY Ski Resort
Los Angeles Zoo Los Angeles, CA Zoo
Pine Knob Amphitheater Pontiac, MI Music Amphitheater
Sea Life Park Oahu, HI Theme Park
Walnut Creek Amphitheater Raleigh, NC Music Amphitheater
</TABLE>
CONTRACTS
We typically enter into one of three types of contract with our clients:
o P&L Contracts;
o Profit Sharing Contracts; and
o Management Fee Contracts.
Each of our contracts falls into one of these three categories, although
any particular contract may contain elements of any of the other types as well
as other features specific to that contract. These modifications are made in an
effort to meet our needs and the needs of the particular client, and obtain or
retain the right to provide services at the facility.
Profit and Loss Contracts. Under P&L Contracts, we receive all of the
revenues and bear all of the expenses of the provision of our services at a
facility. These expenses include commissions paid to the client, which are
typically calculated as a fixed or variable percentage of various categories of
sales. While we benefit from greater upside potential with P&L Contracts, as we
are entitled to retain all profits from the provision of our services at a
facility after paying expenses, including commissions to the client, we are
responsible for all associated costs and therefore are also responsible for any
losses incurred. We consequently bear greater risk with a P&L Contract than with
a Profit Sharing or Management Fee Contract. In order to achieve our anticipated
level of profitability on a P&L Contract, we must carefully control our
operating expenses and obtain price
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<PAGE>
increases commensurate with our cost increases. As of March 30, 1999, we served
96 facilities under P&L Contracts. For the fifty-two week period ended
March 30, 1999, P&L Contracts accounted for 86.1% and 90.3% of our pro forma net
sales and Contract EBITDA, respectively.
Profit Sharing Contracts. Under Profit Sharing Contracts, also commonly
referred to in the industry as incentive bonus contracts, we receive a
percentage of any profits earned from the provision of our services at a
facility after deducting expenses. These expenses include commissions payable to
the client, which are typically calculated as a fixed or variable percentage of
various categories of sales. In addition, under certain Profit Sharing
Contracts, we receive a fixed fee prior to the determination of profits under
the contract. Under Profit Sharing Contracts, we generally do not bear
responsibility for any losses incurred in connection with the provision of our
services as we are reimbursed for our on-site expenses. However, if a loss is
incurred, we typically will receive no payments under the contract other than
reimbursement of our expenses and our fixed fee, if any. As of March 30, 1999 we
served 13 facilities under Profit Sharing Contracts. For the fifty-two week
period ended March 30, 1999, Profit Sharing Contracts accounted for 13.5% and
6.7% of our pro forma net sales and Contract EBITDA, respectively.
Management Fee Contracts. Under Management Fee Contracts, we receive a
management fee, typically calculated as a fixed dollar amount and/or a fixed or
variable percentage of various categories of sales. In addition, certain
Management Fee Contracts entitle us to incentive fees based upon our performance
under the contract, as measured by factors such as revenues or operating costs.
We are reimbursed for all of our on-site expenses under these contracts. The
benefit of this type of contract is that we do not bear the risks associated
with the provision of our services at the facility. However, as a result of this
reduced risk, we also have reduced upside potential, as we are only entitled to
receive a management fee, and any incentive fees provided for in the contract,
and do not share in any profits. As of March 30, 1999, we served 11 facilities
under Management Fee Contracts. For the fifty-two week period ended September
29, 1998, Management Fee Contracts accounted for 0.4% and 3.0% of our pro forma
net sales and Contract EBITDA, respectively.
Although our contracts generally fall within one of the three types
discussed above, we often modify our contracts in a variety of ways to meet our
needs and the needs of a particular client. These modifications include:
o step-scale commissions, in which our commission payment to a client will
vary according to sales performance;
o minimum attendance caps, in which a client will refund a portion of the
commissions which it receives from us if a minimum attendance level is
not reached at the facility; and
o merchandise inventory guarantees, under which we return certain unsold
inventory to the client without charge to us.
These modifications represent our efforts to tailor our contracts to best
suit a particular client opportunity, and reflect our experience with comparable
facilities, sensitivity analyses of economic assumptions, competitor analyses
and general market research.
Some of our P&L Contracts contain minimum guaranteed commissions or
equivalent payments to the client in connection with our right to provide
services within the particular facility, regardless of the level of sales at the
facility or whether a profit is being generated at the facility. These
guaranteed payments are often structured as a fixed dollar amount, frequently
increasing over the life of the contract, or as a fixed per capita amount,
generally on an escalating scale based on event attendance or per capita
spending levels.
In addition, substantially all of our contracts limit our ability to raise
prices on the food, beverages and merchandise we sell within the particular
facility without the client's consent. However, some of the contracts contain
pricing restrictions which allow us to raise our prices without the client's
consent if we are able to demonstrate that prices on similar items at specified
benchmark facilities have increased.
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When we enter into new contracts, or extend or renew existing contracts
(particularly for sports facilities), we are often required to make some form of
up-front or committed future capital investment to help finance facility
construction or renovation. This expenditure typically takes the form of
investment in:
o leasehold improvements;
o food service equipment; and/or
o grants to owners or operators of facilities.
While the amount of capital commitment required can vary significantly, the
ability to make such expenditures is often an essential element of a successful
bid. Commission and management fee rates vary significantly among contracts
based primarily upon:
o the amount of capital which we invest;
o the type of facility involved;
o the term of the contract; and
o the services we provide.
In general, within each client category, the level of capital investment
and commission are related, such that the greater the capital investment which
we make, the lower the commission we pay to the client. Our Profit Sharing
Contracts generally provide that we are reimbursed each year for the
amortization of our capital investments prior to determining the profits under
the contract.
At the end of the contract term, all capital investments which we have made
in leasehold improvements, equipment and grants to facility owners or operators
typically remain the property of the client. We capitalize capital investments
in our clients' facilities and amortize or depreciate them over the lesser of
the useful life of the applicable asset or the remaining life of the contract.
Our contracts generally provide that the client must reimburse us for any
undepreciated or unamortized capital investments made pursuant to the terms of
the contract in the event of early termination of the contract by either party,
other than due to our default.
The length of contracts which we enter into with clients varies depending
on:
o the type of facility;
o the type of contract;
o the services provided; and
o the level of capital investment required by the contract.
Contracts in connection with sports facilities generally require the
highest capital investments but have correspondingly longer terms, typically of
five to twenty years. Convention center contracts generally require lower
capital investments and have average terms of two to five years. Our contracts
are generally terminable in the following circumstances:
o by either party in the event of default or bankruptcy of the other party;
o in the case of sports facility contracts, by either party if the
principal sports team using the facility ceases to do so; and
o by our client in the event of suspension or loss of our liquor license.
However, some of our contracts give the client the right to terminate the
contract with or without cause on little or no notice. See "Risk Factors--Nature
of Contracts."
We generally acquire facility contracts through a competitive bidding
process. In determining whether to bid for a particular facility contract, we
analyze the contract opportunity by calculating projected internal rates of
return based on factors which include:
o varying up-front capital investment levels;
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o commission structures;
o attendance assumptions;
o cost structures; and
o estimated per capita spending rates.
COMPETITION
The recreational food service industry is highly fragmented and
competitive, with several national food service providers as well as a large
number of smaller independent businesses serving discrete local and regional
markets and/or competing in distinct areas. Those companies that lack a
full-service capability, because, for example, they cannot cater for luxury
suites at stadiums and arenas, often bid for contracts in conjunction with one
of the other national food service companies that can offer such services.
We compete for contracts against a variety of food service providers.
However, our major competitors are other national food service providers,
including ARAMARK, Delaware North Corporation, Ogden Corporation, Fine Host
Corporation and Levy Restaurants. We also face competition from regional and
local service contractors, some of which are better established within a
specific geographic region. Existing or potential clients may also elect to
"self operate" their food services, eliminating the opportunity for us to
compete for the account.
Contracts are generally gained and renewed through a competitive bidding
process. We selectively bid on contracts to provide services at both privately
owned and publicly controlled facilities. The privately negotiated transactions
are generally competitive in nature, with several other large national
competitors submitting proposals. Contracts for publicly controlled facilities
are generally awarded pursuant to a request-for-proposal process. Successful
bidding on contracts for such publicly controlled facilities often requires a
long-term effort focused on building relationships in the community in which the
venue is located.
We compete primarily on the following factors:
o the ability to make capital investments;
o commission or management fee structure;
o service innovation;
o quality and breadth of products and services; and
o reputation within the industry.
Some of our competitors may be prepared to accept less favorable commission
or management fee structures than us when bidding for contracts. A number of our
competitors also have substantially greater financial and other resources than
us. Furthermore, we have more indebtedness than certain of our competitors,
which could place us at a competitive disadvantage. See "Risk
Factors--Substantial Leverage and Debt Service."
SALES AND MARKETING
A Vice President--Sales and Marketing heads our sales and marketing team.
Our Chief Executive Officer, John T. Dee, general managers and regional vice
presidents also typically play an important role in the marketing effort.
Through our own internal tracking system, trade publications and other industry
sources, we gather information regarding both new and expiring contracts in the
recreational food service industry. As a result of their many years of
experience in the industry, management has developed relationships with a wide
variety of participants in the industry, including:
o the general managers of public and private facilities;
o league and team owners;
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<PAGE>
o event sponsors; and
o a network of consultants facility owners often hire to formulate bid
specifications.
Additionally, members of our management team maintain membership in various
industry trade associations. Substantially all of our clients and potential
clients in publicly controlled facilities are members of these trade groups.
PURCHASING
After the acquisition of Service America in 1998, we hired a Director of
Purchasing to analyze each of Volume Services' and Service America's purchasing
arrangements. This analysis was intended to identify any potential cost-saving
opportunities from adopting any particular purchasing practice or expanding any
particular purchasing arrangement throughout Volume Services America. As a
result of this review, we have extended the national distribution contract which
Service America had with SYSCO to cover Volume Services' operations. We also
have a number of national purchasing programs with companies such as Coca-Cola,
Pepsi, Sweetheart and J&J Pretzel which enable our general managers to receive
discounted pricing on certain items. The purchase of other items, the most
significant of which are alcoholic beverages which must, by law, be purchased
in-state, is handled on a local basis.
In instances where our contract with a particular client requires us to use
a specific branded product for which we do not have a purchasing program or
distribution contract, or which results in us bearing additional costs, the
client will typically cover any excess cost associated with the use of the brand
name product through reduced commission rates for such products.
In order to secure as competitive a pricing structure as possible, we
purchase any equipment that we require directly from the manufacturer, thereby
avoiding the payment of commissions to dealers. We typically obtain several bids
when filling our food service equipment requirements.
CONTROLS
Since a large portion of our business is transacted in cash (principally
food and beverage concessions and food court operation sales), we have stringent
inventory and cash controls in place. We typically record inventory levels
before and after each event to determine if the sales recorded match the decline
in inventory. The process is typically completed within hours of conclusion of
the event and any discrepancy can generally be traced to either specific points
of sale or control processes set up throughout the facility. We also run yield
reports on food supplies on a monthly basis to determine if there is any
significant difference between inventory and sales.
PROPERTIES
We lease our corporate headquarters of approximately 19,300 square feet in
Spartanburg, South Carolina, the headquarters of Service America in Stamford,
Connecticut, which are approximately 12,600 square feet, and regional offices
in:
o Rosemont, Illinois;
o Fords, New Jersey; and
o Pleasanton, California.
We are currently trying to sublease much of the office space in Stamford.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Integration Plan."
We currently provide our services at 119 client facilities, all of which
are owned or leased by our clients. Our contracts with our clients generally
permit us to use certain areas within the facility to perform our administrative
functions and fulfill our warehousing needs, as well as provide the food and
beverage services.
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EMPLOYEES
Our operating staff consists of six regional vice presidents for
concessions, who report directly to the Chief Executive Officer, and two
regional vice presidents for convention centers, who report to a senior vice
president for convention centers. Each regional vice president is responsible
for between 11 and 21 accounts, with between approximately $45 million and $60
million in annual revenues. Each facility which we serve is typically managed by
a facility general manager. Our facility general managers, who on average have
approximately 10 years of experience in the recreational food service industry,
have a high level of autonomy with respect to the day-to-day operations of their
respective facilities.
As of March 30, 1999, we had approximately 1,400 full-time employees.
During calendar 1998, approximately 22,600 employees were part-time or hired on
an event-by-event basis. The number of part-time employees at any point in time
varies significantly due to the seasonal nature of the business.
As of March 30, 1999, approximately 40% of our employees, including full
and part-time employees, were covered by collective bargaining agreements with
several different unions. We have not experienced any significant interruptions
or curtailments of operations due to disputes with our employees, and we
consider our labor relations to be good. We have hired, and expect to continue
to hire, a large number of qualified, temporary workers at particular events. At
some locations, local charitable groups raise funds by working at our
concessions operations in exchange for a percentage of gross revenues.
We believe that our training programs are important to our operations. New
management-track recruits participate in extensive on-the-job orientation and
training which exposes them to a broad range of functions at facilities,
including the start-up of new accounts, financial control and planning of
special events. We also have developed training programs which enable us to
train efficiently the large number of part-time employees hired to meet our
seasonal needs at certain facilities. The training programs teach new employees
merchandising techniques, controls, courtesy, company policies and alcohol
awareness. We regularly repeat alcohol awareness programs at all facilities.
INTELLECTUAL PROPERTY
We have the patents, trademarks, trade names and licenses which are
necessary for the operation of our business as we currently conduct it. We do
not consider our patents, trademarks, trade names and licenses to be material to
our business.
INSURANCE
We have customary levels of insurance for a company of our size in our type
of business, subject to customary deductibles and limits. As part of the
implementation of the Integration Plan, we have renegotiated our insurance
arrangements, which we expect to result in annual cost savings of $1.3 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Integration Plan."
GOVERNMENT REGULATION
Our operations are subject to various governmental regulations, such as
those governing:
o the service of food and alcoholic beverages;
o minimum wage regulations;
o employment;
o environmental protection; and
o human health and safety.
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In addition, our facilities and products are subject to periodic inspection
by federal, state, and local authorities. The cost of regulatory compliance is
subject to additions to or changes in federal or state legislation, or changes
in regulatory implementation. If we fail to comply with applicable laws, we
could be subject to civil remedies, including fines, injunctions, recalls, or
seizures, as well as potential criminal sanctions. See "Risk Factors--Government
Regulation."
The FDA regulates and inspects our kitchens. Every commercial kitchen in
the United States must meet the FDA's minimum standards relating to the
handling, preparation and delivery of food, including requirements relating to
the temperature of food and the cleanliness of the kitchen and the hygiene of
its personnel. We are also subject to certain state, local and federal laws
regarding the disposition of property and leftover foodstuffs. The cost of
compliance with FDA regulations is subject to additions to or changes in FDA
regulations.
We serve alcoholic beverages at many facilities, and are subject to the
"dram-shop" statutes of the states in which we serve alcoholic beverages.
"Dram-shop" statutes generally provide that serving alcohol to an intoxicated or
minor patron is a violation of law. In most states, if one of our employees
sells alcoholic beverages to an intoxicated or minor patron, we may be liable to
third parties for the acts of the patron. We sponsor regular training programs
in cooperation with state authorities to minimize the likelihood of serving
alcoholic beverages to intoxicated or minor patrons, and we maintain general
liability insurance which includes liquor liability coverage. See "Risk
Factors--Government Regulation."
We are also subject to licensing with respect to the sale of alcoholic
beverages in the states in which we serve alcoholic beverages. Failure to
receive or retain, or the suspension of, liquor licenses or permits would
interrupt or terminate our ability to serve alcoholic beverages at those
locations. A few of our contracts require us to pay liquidated damages during
any period in which our liquor license for the relevant facility is suspended
and most contracts are subject to termination in the event that we lose our
liquor license for the relevant facility.
LEGAL PROCEEDINGS
We are from time to time involved in various legal proceedings incidental
to the conduct of our business. In the opinion of management, any liability
arising out of currently pending proceedings will not have a material adverse
effect on our financial condition or results of operations.
On February 22, 1999, a former senior vice president of Service America
filed a lawsuit against Service America and John Dee in the Superior Court of
the State of Connecticut alleging breach of contract and wrongful termination in
retaliation for having opposed allegedly discriminatory employment practices and
certain trade practices. The complaint seeks unspecified damages. We intend
vigorously to defend against this lawsuit and do not believe that it will have a
material adverse effect on our business, results of operations or financial
condition.
INFORMATION SYSTEMS
Each of Volume Services and Service America had its own information
systems, including applications used in sales, financial business systems and
various administrative functions. We spent $350,000 in 1998 to integrate and
develop the respective information systems, and believe that this process is now
substantially complete. See "Risk Factors--Year 2000 Compliance."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of our
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- -------------------------------------------------
<S> <C> <C>
John T. Dee............................. 60 Chief Executive Officer and Chairman of the Board
of Directors
Kenneth R. Frick........................ 43 Vice President and Chief Financial Officer
Michael J. Higgins...................... 54 Executive Vice President of Service America
Janet L. Steinmayer..................... 43 Vice President, General Counsel and Secretary
Howard A. Lipson........................ 34 Director
David Blitzer........................... 29 Director, Vice President and Assistant Secretary
Caleb S. Everett........................ 28 Director, Vice President and Assistant Secretary
</TABLE>
John T. Dee, Chief Executive Officer and Chairman of the Board of
Directors. Mr. Dee has served as Chief Executive Officer and Chairman of the
Board of Directors of Volume Services America since August 24, 1998. Mr. Dee has
served as President, Chief Executive Officer and a director of Service America
since January 1993 and as a consultant to Service America from November 1992 to
January 1993. He has been Chairman of the Board of Directors of Service America
since January 1997. From 1989 to 1992, Mr. Dee was President of Top Food
Services, Inc., a company engaged in the food service business. From 1980 to
1989, he was Group President at ARAMARK, with responsibility for ARAMARK's
recreational food service and public restaurant operations. From 1979 to 1980,
he held senior positions, including President, at Sportservice Corporation, and
was responsible for concessions and merchandise operations at airports,
theaters, stadiums, arenas and racetracks. From 1968 to 1979, he held various
positions at ARAMARK, including Vice President--Sales and President of the
Leisure Services Group, a division of ARAMARK engaged in the recreational food
service industry.
Kenneth R. Frick, Vice President and Chief Financial Officer. Mr. Frick
has served as Chief Financial Officer of Volume Services America since August
24, 1998 and as Chief Financial Officer of Volume Services since 1995.
Mr. Frick has seventeen years of experience in the recreational food service
industry, fourteen of them with Volume Services. Prior to becoming Chief
Financial Officer of Volume Services in 1995, Mr. Frick was the Controller for
Volume Services, and for seven years was Assistant Controller and Southeast
Regional Controller of Volume Services. Mr. Frick is a certified public
accountant.
Michael J. Higgins, Executive Vice President of Services
America. Mr. Higgins has served as Executive Vice President of Service America
since January 1997 and was Chief Financial Officer of Service America from June
1994 to January 1999. He served as a director of Service America from January
1997 to January 1999. From January 1992 to June 1994, Mr. Higgins was Executive
Vice President and Chief Financial Officer of ARAMARK Leisure Services Group.
From 1977 to 1992, he held various positions with ARAMARK, including Vice
President--Internal Audit. Prior to that, Mr. Higgins was employed in the audit
division of Arthur Andersen & Co. for more than ten years. Mr. Higgins is a
certified public accountant.
Janet L. Steinmayer, Vice President, General Counsel and Secretary. Janet
L. Steinmayer has been Vice President, General Counsel and Secretary of Volume
Services America since August 24, 1998. Ms. Steinmayer has been Corporate Vice
President, General Counsel and Secretary of Service America since November 1993.
From 1992 to 1993, she was Senior Vice President--External Affairs and General
Counsel of Trans World Airlines, Inc. ("TWA"). From 1990 to 1991, she served as
Vice President--Law, Deputy General Counsel and Corporate Secretary at TWA.
Ms. Steinmayer was a partner at the Connecticut law firm of Levett, Rockwood &
Sanders, P.C. from 1988 to 1990.
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Howard A. Lipson, Director. Mr. Lipson is Senior Managing Director of The
Blackstone Group L.P., referred to in this prospectus as the "Blackstone
Group", which he joined in 1988, and has been a director of both Volume
Services America and Volume Services since December 1995. Prior to joining the
Blackstone Group, Mr. Lipson was a member of the Mergers and Acquisitions
Group of Salomon Brothers Inc. He currently serves on the Board of Directors of
Allied Waste Industries, Inc., AMF Group Inc., Ritvik Holdings Inc., Prime
Succession Inc. and Roses, Inc. and is a member of the Advisory Committee of
Graham Packaging Company.
David Blitzer, Director, Vice President and Assistant
Secretary. Mr. Blitzer is a Managing Director of the Blackstone Group which he
joined in 1991, and has been a director of both Volume Services America and
Volume Services since December 1995. Mr Blitzer is also a director of Haynes
International, Inc., Republic Engineered Steels, Inc., Bar Technologies, Inc.
and The Imperial Home Decor Group Inc.
Caleb S. Everett, Director, Vice President and Assistant
Secretary. Mr. Everett was elected director of both Volume Services America and
Volume Services in August 1998. Mr. Everett has been involved in the Blackstone
Group's principal activities since joining the Blackstone Group in August 1997.
From 1995 to 1997 Mr. Everett was employed by Morgan Stanley & Co., where he
worked in the Mergers, Acquisitions and Restructuring department. Prior to 1995,
Mr. Everett attended The Wharton School at the University of Pennsylvania.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors does not have any committees.
EXECUTIVE COMPENSATION
The table below describes certain information concerning the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of Volume Services America based on 1998 salary
and bonuses, Lawrence A. Hatch, former Chairman, Chief Executive Officer and
President of Volume Services and Ronald Skadow, former Vice President, General
Counsel and Secretary of Volume Services, referred to together as the "Named
Executives". The principal components of such individuals' current cash
compensation are the annual base salary and other compensation included in the
Summary Compensation Table.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
OTHER ANNUAL ALL OTHER
YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
---- -------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John T. Dee(3)
Chief Executive Officer and Chairman of
the Board of Directors.................. 1998 $483,716 $ -- $ 579 $ --
Kenneth R. Frick(4)
Vice President and Chief Financial
Officer................................. 1998 153,175 20,535 4,584 --
Michael J. Higgins(3)
Executive Vice President of Service
America................................. 1998 230,160 -- 2,267 --
Janet L. Steinmayer(3)
Vice President, General Counsel and
Secretary............................... 1998 291,900 150,000 18,300 --
J. Wayne Tolleson(4)
Vice President, Sales and Marketing..... 1998 78,000 -- 89,289 --
Lawrence A. Hatch(4).................... 1998 319,686 25,000 9,458 500,000
Ronald Skadow(4)........................ 1998 118,790 17,310 20,447 290,004
</TABLE>
(Footnotes on next page)
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(Footnotes from previous page)
- ------------------
(1) Other annual compensation includes company car, life insurance, commissions,
401(k) employer matching contributions and reimbursement of interest on
investor notes.
(2) All other compensation includes severance pay and stay bonus.
(3) Compensation paid solely by Service America.
(4) Compensation paid solely by Volume Services.
DIRECTOR COMPENSATION
Directors of Volume Services America do not receive compensation, except in
their capacity as officers or employees.
EMPLOYMENT AND SEVERANCE AGREEMENTS
We have entered into the following arrangements with our directors and
executive officers:
On August 24, 1998, Volume Holdings entered into an employment agreement
with Mr. Dee. The agreement provides that Mr. Dee will be employed by Volume
Holdings at an annual base salary of $465,000 for a term of five years, subject
to earlier termination by Volume Holdings for or without Cause, or by Mr. Dee
for Good Reason, each as defined in the agreement. Mr. Dee is entitled to a
bonus at the discretion of the Board of Directors of Volume Holdings and to
participate in any executive bonus plan and all employee benefit plans
maintained by Volume Holdings. The agreement provides for severance pay in the
case of a termination by Volume Holdings without Cause or by Mr. Dee for Good
Reason in an amount equal to Mr. Dee's annual base salary for the balance of the
term of employment and ancillary benefits. During and for two years after Mr.
Dee's employment, Mr. Dee has agreed that, without the written consent of Volume
Holdings, he will not:
o be engaged, in any capacity, in any business that competes with Volume
Holdings' business; or
o solicit any person who was employed by Volume Holdings during the 12
months preceding such solicitation.
On November 17, 1995, Volume Services entered into an employment agreement
with Mr. Frick. The agreement provides that Mr. Frick will be employed by Volume
Services until he resigns or is dismissed by Volume Services for or without
Cause, as defined in the agreement. Mr. Frick's base salary under the contract
is $195,000 subject to annual review. Mr. Frick is also entitled to receive an
annual bonus pursuant to any management incentive compensation plan established
by Volume Services. In the case of termination of employment due to resignation,
Mr. Frick will receive his salary up to the 30th day following his resignation
and any accrued but unpaid bonus. In the case of termination without Cause by
Volume Services, Mr. Frick will receive a one-time payment of two times his base
annual salary plus any accrued but unpaid bonus. During and for two years after
his employment, Mr. Frick has agreed not to:
o solicit employees of Volume Services to cease such employment without the
written consent of Volume Services; or
o have any involvement in any capacity in any contract concessions business
similar to that of Volume Services in those states in the United States
in which Volume Services does business and over which Mr. Frick has had
supervisory responsibility.
On August 24, 1998, Service America entered into an employment agreement
with Mr. Higgins. The agreement provides that Mr. Higgins will be employed by
Service America for an initial period of one year at an annual base salary of
$218,400. The term of the agreement will automatically be extended for
successive six-month periods unless and until terminated by Service America for
or without Cause, or by Mr. Higgins for Good Reason, each as defined in the
agreement. Mr. Higgins is entitled to a bonus at the discretion of Service
America's Board of Directors and to participate in
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any executive bonus plan and all employee benefit plans maintained by Service
America. The agreement provides for severance pay in the case of a termination
by Service America without Cause or by Mr. Higgins for Good Reason in an amount
equal to Mr. Higgins' salary for the balance of the term plus the equivalent of
his annual salary and ancillary benefits. During and for one year after Mr.
Higgins' employment, Mr. Higgins has agreed that without the written consent of
Service America he will not:
o be engaged, in any capacity, in any business that competes with Service
America's business; or
o solicit any person who was employed by Service America or its affiliates
during the 12 months preceding such solicitation.
Under a letter agreement dated July 27, 1998, GE Capital and Service
America agreed that GE Capital will be responsible for that portion of Mr.
Higgins' salary that relates to the time that Mr. Higgins devotes to the affairs
of GE Capital in the first year of the agreement, and for all payments
thereafter, including severance payments, provided that GE Capital has the right
to determine when notice of termination is given.
On September 29, 1998, Volume Holdings entered into an employment agreement
with Ms. Steinmayer. The agreement provides that Ms. Steinmayer will be employed
by Volume Holdings at an annual base salary of $180,000, plus $250 per hour for
each hour that she works in excess of 24 hours per week, until the agreement is
terminated by Volume Holdings for or without Cause, or by Ms. Steinmayer for
Good Reason, each as defined in the agreement. Ms. Steinmayer is entitled to a
bonus at the discretion of the Board of Directors of Volume Holdings and to
participate in any executive bonus plan and all employee benefit plans
maintained by Volume Holdings. The agreement provides for severance pay in the
case of a termination by Volume Holdings without Cause or by Ms. Steinmayer for
Good Reason in an amount equal to two times her compensation in the one year
period prior to the date of termination (annualized in the case of termination
prior to the end of the first year), plus ancillary benefits. During and for two
years after Ms. Steinmayer's employment, she has agreed that she will not,
without the prior written consent of Volume Holdings:
o have any involvement in any enterprise which provides food services, as
defined in the agreement in any of the states in the United States in
which Volume Holdings operates; or
o solicit any employee of Volume Holdings to leave its employment.
On December 22, 1995, Volume Services entered into an employment agreement
with Lawrence A. Hatch. The agreement provided that Mr. Hatch would be employed
by Volume Services as Chairman, Chief Executive Officer and President until he
resigned or was dismissed by Volume Services for or without Cause, as defined in
the agreement. Mr. Hatch's base salary under the contract was $300,000, subject
to annual review. On October 13, 1998, Volume Services entered into a
termination agreement with Mr. Hatch. Pursuant to the agreement, on October 13,
1998, Mr. Hatch resigned from his position as Chairman, from every executive
officer capacity in which he served and as a director of Volume Services and all
of its affiliates for which he served as a director. In addition, the agreement
provides that Mr. Hatch will resign from all other positions related to his
employment with Volume Services on March 31, 1999, at which time he will receive
$700,000 from Volume Services. Until then, Mr. Hatch will continue to receive
his annual base salary and other ancillary benefits. On October 13, 1998, Mr.
Hatch also signed a waiver and general release, in connection with which Volume
Services paid Mr. Hatch $500,000 and transferred the benefit of a $900,000 term
life insurance policy held by Volume Services to Mr. Hatch. On March 31, 1999
Mr. Hatch resigned from all other positions related to his employment with
Volume Services, and received $700,000.
The agreement contains the grant by Mr. Hatch of an irrevocable option to
Volume Holdings, exercisable at any time within five years from the date of the
agreement, to purchase all of Mr. Hatch's equity interests, referred to as the
"VSI Equity" in VSI Management Direct L.P., referred to as "VSI Management" and
VSI Management II L.P. for an aggregate purchase price of $1.5
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<PAGE>
million, plus interest, if any, which will begin accruing from October 13, 2000.
The agreement also contains the grant by Volume Holdings of an irrevocable
option to Mr. Hatch, exercisable upon the occurrence of a distribution of cash
or marketable securities with an aggregate value of at least $1.5 million by any
of BCP Volume L.P., BCP Offshore Volume L.P. or VSI Management Direct L.P.
within five years from the date of the agreement, to sell all of the VSI Equity
to Volume Holdings for an aggregate purchase price of $1.5 million, plus
interest, if any, which will begin accruing from October 13, 2000. On March 9,
1999, Volume Holdings paid Mr. Hatch $1.5 million for the VSI Equity in
accordance with the terms of the agreement. Mr. Hatch has agreed that, prior to
March 31, 2001, he will not, without the prior written consent of Volume
Services, hire any member of corporate management or any site manager of Volume
Holdings or solicit such employee to leave Volume Holdings, except for employees
who have been dismissed by Volume Holdings or have left Volume Holdings and
joined another employer. Mr. Hatch has also agreed that, prior to March 31,
2001, he will not:
o solicit any third party to sever or alter its relationship with Volume
Holdings; or
o provide Food Services, as defined in the agreement, to any existing
customer of Volume Holdings or any customer who is identified in the
agreement as a person whose business was then being pursued by Volume
Holdings.
SAVINGS PLANS
Volume Services sponsors the Volume Services, Inc. 401(k) Plan, which is a
401(k) plan established for the benefit of employees of Volume Services who have
satisfied certain requirements. These requirements include attainment of age 21
and completion of one month of service. The Volume 401(k) Plan excludes:
o employees covered by a collective bargaining agreement;
o nonresident aliens;
o employees compensated on an hourly basis;
o leased employees; and
o employees of a member of the employer's related group who does not
participate in the Volume 401(k) Plan.
Subject to applicable limits imposed on tax-qualified plans, participants
may elect to make pre-tax contributions of up to 15% of their compensation in
each year. Volume Services makes matching contributions to the Volume 401(k)
Plan equal to 25% of the participant's contributions, up to 6% of the
participant's earnings. The Volume 401(k) Plan also permits Volume Services to
make additional discretionary matching contributions, as well as discretionary
contributions unrelated to participant pre-tax contributions. The participants
in the Volume 401(k) Plan are 100% vested in their account balances at all
times.
Volume Services also sponsors the Volume Services, Inc. Deferred
Compensation Plan, referred to as the "Volume Deferral Plan", which is a
non-qualified plan established for the benefit of employees of Volume Services
who are:
o members of VSI Management;
o members of a select group of highly compensated or management employees
of Volume Services; or
o selected by an administrative committee appointed by the Board of
Directors of Volume Services.
Participants in the Volume Deferral Plan may elect to make pre-tax
deferrals of a portion of their base salaries and/or bonuses. The administrative
committee may provide for a matching contribution on any amount deferred. Each
participant's deferral will be credited to a bookkeeping
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<PAGE>
account, which will also be credited with earnings and losses based upon
hypothetical investments. The participants in the Volume Deferral Plan are
unsecured general creditors of Volume Services and are paid their benefits from
assets which continue to be part of the general, unrestricted assets of Volume
Services.
Service America sponsors the Service America Corporation Retirement and
Savings Plan, referred to as the "Service 401(k) Plan", which is a 401(k) plan
established for the benefit of employees who have attained 21 years of age and
have completed one year of service. The Service 401(k) Plan excludes employees
who are:
o nonresident aliens;
o covered by a collective bargaining agreement which does not provide for
participation in the Service 401(k) Plan; and
o leased employees.
Subject to applicable limits imposed on tax-qualified plans, participants
may elect to make pre-tax contributions of up to 16% of their Compensation, as
defined in the Service 401(k) Plan, but not in excess of $10,000 for 1998. The
Service 401(k) Plan permits discretionary matching contributions on pre-tax
contributions of up to 6% of a participant's Compensation. All participants in
the Service 401(k) Plan are 100% vested in their account balances at all times.
Service America sponsors the Service America Corporation Deferred
Compensation Plan, referred to as the "Service America Deferral Plan", which is
a non-qualified plan established for the benefit of employees of Service America
who are members of a select group of highly compensated or management employees
of Service America and selected by an administrative committee appointed by the
Board of Directors of Volume Services.
Participants in the Service America Deferral Plan may elect to make pre-tax
deferrals of a portion of their base salaries and/or bonuses. The administrative
committee may provide for a matching contribution on any amount deferred. Each
participant's deferral will be credited to a bookkeeping account, which will
also be credited with earnings and losses based upon hypothetical investments.
The participants in the Service America Deferral Plan are unsecured general
creditors of Service America and are paid their benefits from assets which
continue to be part of the general, unrestricted assets of Service America.
OTHER COMPENSATION PLANS
In January 1998, Volume Services introduced the "Stay Put Severance Policy"
to provide enhanced severance pay to employees terminated pursuant to the
acquisition of Service America. Amounts payable in connection with this policy
are included in the $4.9 million of one-time expenses and charges which we
expect to incur in connection with the implementation of the Integration Plan.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Integration Plan."
In January 1999, Volume Services America introduced a bonus plan for
general managers and senior management personnel. Eligible personnel qualify for
bonus payments in the event that Volume Services America exceeds annual
financial performance targets.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICE AMERICA TRANSACTIONS
Service America Recapitalization. In January 1997, GE Capital and certain
members of Service America's management, referred to as "Management
Stockholders", consummated a recapitalization by merging Service America with
and into Servam Acquisition Corp., referred to as the "Service America
Recapitalization". In the merger, the previously outstanding shares of common
stock of Service America, all of which were held by Servam Corporation, were
converted into the right to receive an aggregate of $80.0 million in cash.
Effective upon the merger, Service America was capitalized with:
o term loan debt of $55.0 million and revolving debt of $5.0 million loaned
by GE Capital under a credit facility dated January 17,1997;
o 200,000 shares of Series B preferred stock with a liquidation preference
of $20.0 million in the aggregate and a warrant, referred to as the "GE
Capital Warrant", exercisable for 711,538 shares of Service America
common stock (which represented approximately 70% of the Service America
common stock on a fully diluted basis), which were purchased by GE
Capital for an aggregate of $20.0 million;
o 30,000 shares of Series A preferred stock, which was junior to the
Series B preferred stock, with a liquidation preference of $3.0 million
in the aggregate, purchased by the Management Stockholders for $97,500;
and
o 250,000 shares of Service America common stock, constituting all of the
outstanding Service America common stock (which represented 30% of the
Service America common stock on a fully diluted basis), purchased by the
Management Stockholders for $2,500.
Service America became a wholly owned subsidiary of Volume Services America
in December 1998. See "Prospectus Summary--Acquisition of Service America."
The GE Capital Warrant. The GE Capital Warrant, issued in connection with
the Service America Recapitalization, entitled GE Capital to acquire an
aggregate of 711,538 shares of Service America common stock at an exercise price
of $0.01 per share. The GE Capital Warrant was scheduled to expire in January
2007 and provided for certain customary adjustments in the number of shares for
which it could be exercised and the price at which it could be exercised upon
the occurrence of certain events, including the issuance by Service America of
equity securities at a price below the then-current market price of such
securities. In addition, the GE Capital Warrant provided for cashless exercise.
Volume Holdings acquired the GE Capital Warrant from GE Capital in exchange for
the issue of Volume Holdings common stock to GE Capital as part of the
acquisition of Service America.
Assignment and Assumption Agreement. Pursuant to the assignment and
assumption agreement, Service America assigned the promissory notes and common
stock of Compass Group plc received from the sale to Compass of Service
America's institutional vending and dining business, which were valued by the
parties at $108.4 million, to GE Capital in consideration for:
o the forgiveness of $17.9 million of debt and interest and $3.8 million of
accrued dividends owed by Service America to GE Capital; and
o the assumption by GE Capital of a percentage of certain categories of
liabilities on Service America's balance sheet as of the closing date of
the Compass transaction. These percentages represented an approximation
of the amount of each category of liabilities attributable to all
institutional vending and dining operations sold by Service America on or
prior to September 27, 1996.
Pursuant to the assignment and assumption agreement, Service America serves
as GE Capital's agent for purposes of paying and discharging all of such assumed
liabilities, and these transactions with GE Capital are reflected in Service
America's financial statements. Certain
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liabilities assumed by GE Capital are subject to an aggregate maximum of
approximately $16.3 million, but this amount does not apply to:
o certain anticipated or contingent liabilities, which are assumed 100% by
GE Capital;
o casualty insurance, including worker's compensation;
o medical insurance; and
o certain accrued taxes.
As of December 31, 1998, GE Capital had assumed accrued liabilities of
$16.1 million subject to the limit. We do not believe that outstanding
liabilities subject to the limit will exceed the $0.2 million which remains
available, but we cannot assure you that this will be the case. If such
liabilities do exceed the limit, we will be liable for them. As of
December 31,1998, approximately $2.2 million of liabilities not subject to the
limit were outstanding. GE Capital is solely responsible for these liabilities
until February 2000. In February 2000, GE Capital will pay us a sum equal to
125% of the total liabilities which we agree with GE Capital to be then
outstanding. After payment of this sum, we will be responsible for the entire
actual amount of these liabilities.
The actual amount of the liabilities may exceed the sum which is paid to us
in February 2000. See note 4 to the consolidated financial statements of Service
America for the fifty-two week period ended December 27, 1997, the thirty-nine
week period ended December 28, 1996 and the fifty-three week period ended
March 30, 1996, included elsewhere in this prospectus.
Tax Indemnity Agreement. Service America ceased being a member of the
General Electric Company consolidated group, referred to as the
"GE Consolidated Group", for federal income tax purposes by reason of the
Service America Recapitalization. Accordingly, Service America and GE Capital in
January 1997 entered into a tax indemnity agreement. Under this agreement:
o GE Capital agreed to indemnify Service America for, and became entitled
to any refund of, all consolidated or combined federal, state and local
income taxes payable while Service America was a member of the
GE Consolidated Group; and
o as authorized by the consolidated return Treasury Regulations, the
GE Consolidated Group became entitled to re-attribute to itself the
portion of Service America's net operating losses that did not exceed the
amount of "disallowed losses" (as defined in those regulations) which GE
Capital realized on the Service America Recapitalization.
Repayment of Credit Facilities. On December 3, 1998, we used $69.1 million
of the borrowings under the senior credit facilities to repay GE Capital in full
for credit facilities which GE Capital had previously provided to Service
America.
The Advisory Agreement. Pursuant to a letter agreement, dated July 1, 1996,
as amended, referred to as the "Advisory Agreement", Service America retained
Impala Partners LLC as a financial advisor through December 31, 1997. Mr. Paul
Street, a director of Service America from January 1997 to January 1999, is a
general partner of Impala. Based on a letter agreement dated December 8, 1997,
Impala provided financial advisory services to Service America in connection
with the Service America Recapitalization and the acquisition of Service America
by Volume Holdings.
Pursuant to the Advisory Agreement, Service America paid financial advisory
fees to Impala of $1.6 million for initial valuation services and other
valuation functions in connection with the acquisition of Service America. In
addition, Service America has reimbursed Impala for all out-of-pocket expenses
incurred in connection with its advisory services.
Letters of Credit. Upon entering into the senior credit facilities in
December 1998, the Issuer obtained two letters of credit in favor of GE Capital
for $1.1 million (which has subsequently been cancelled) and $6.8 million (which
has subsequently been reduced to $0.3 million), respectively. These letters of
credit were obtained to reimburse GE Capital for any liability which it may
incur pursuant to its guarantee of certain letters of credit provided to support
obligations of Service America prior to its acquisition by Volume Holdings and
which are still outstanding.
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Letter of Support. On July 10, 1998, Service America received a letter from
GE Capital confirming that GE Capital would provide financial support to Service
America. This letter was replaced after consummation of the credit agreement by
a letter from Volume Holdings to the same effect.
VOLUME SERVICES TRANSACTIONS
The Blackstone Advisory Agreement. Pursuant to a letter agreement, dated
May 1, 1998, Volume Services retained the Blackstone Group as its exclusive
financial advisor in connection with the acquisition of Service America. Volume
Services paid a retainer fee of $125,000 to the Blackstone Group in July 1998,
and a transaction fee of $2,275,000 in December 1998 for initial valuation
services and other valuation functions.
The Monitoring Agreement. Certain administrative and management functions
are provided to Volume Services by Blackstone Management Partners L.P. Volume
Services paid Blackstone Management Partners L.P. approximately $250,000 during
fiscal year 1998. This agreement does not have a fixed term. However, it will
be terminated if the aquisition of Volume Holdings by Ogden Entertainment, Inc.
is completed.
AMENDED STOCKHOLDERS' AGREEMENT
On December 21, 1995, VSI Management, BCP Volume L.P. and BCP Offshore
Volume L.P., together referred to as the "VSI Holders", and Volume Holdings
entered into a stockholders' agreement. Pursuant to the exchange agreement, on
August 24, 1998, the VSI Holders, Volume Holdings, GE Capital and Recreational
Services entered into an amended and restated stockholders' agreement. Certain
provisions of the amended stockholders' agreement are set out below.
Management; Board of Directors. The Board of Volume Holdings will be
comprised of a Chairman, one director appointed by VSI Management (provided that
the Chairman is not a partner of VSI Management and that VSI Management consults
with Blackstone prior to the appointment) and three directors appointed by
Blackstone (provided that Blackstone is the sole Controlling Shareholder,
defined in the agreement). If Blackstone ceases to be the sole Controlling
Shareholder, GE Capital will have the right to appoint two directors. Until GE
Capital is entitled to appoint a director, it is entitled to appoint an
Observer, as defined in the agreement, who is not entitled to vote on any Board
matters.
Transfers of Shares. No transfers of the shares of Volume Holdings' common
stock, referred to as the "Shares", may be made by any stockholder, as defined
in the agreement, within one year from the date of the amended stockholders'
agreement other than:
o to a defined category of persons affiliated with or successors in title
to existing stockholders, each of whom agrees to be bound by the terms of
the amended stockholders' agreement, each referred to as a "Permitted
Transferee";
o pursuant to a public offering of the Shares; or
o in accordance with the exercise of the drag-along or tag-along rights
discussed below.
If either of Blackstone or Recreational Services, for these purposes,
referred to as the "Transferring Stockholder", intends to transfer its Shares
while the amended stockholders' agreement is in effect (other than by way of a
public offering or pursuant to Rule 144 of the Securities Act or to a Permitted
Transferee) and the Transferring Stockholder still beneficially owns at least
one-third of the number of Shares on a fully diluted basis that it held at the
date of the amended stockholders' agreement, then each other stockholder will
have the right to require the purchaser of such Transferring Stockholder's
Shares to purchase the same proportion of the Shares which such stockholder
owns, on the same terms as those offered to the Transferring Stockholder,
referred to as the "tag-along right".
If all of the Controlling Stockholders accept an offer by a party other
than a stockholder, referred to as a "Third Party", to purchase all of the
Shares owned by the stockholders (and the
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Controlling Stockholder to whom the offer was made still owns at least one-third
of the Shares owned by it at the date of the amended stockholders' agreement),
then each stockholder is obliged to transfer its Shares to the Third Party on
the same terms as those accepted by the Controlling Stockholders, referred to as
the "drag-along right".
After one year from the date of the amended stockholders' agreement, a
stockholder may also transfer Shares:
o pursuant to a transfer which is exempt from the registration requirements
of the Securities Act; or
o if such stockholder is not a Controlling Stockholder, after offering the
Shares first to Volume Holdings and then to each of Blackstone and
Recreational Services in proportion to their respective holdings of
Shares.
Unless a stockholder transfers Shares pursuant to a public offering, Rule
144 under the Securities Act or the drag-along right, all transferees are
required to become bound by the terms of the amended stockholders' agreement.
Restrictions on Corporate Action. For so long as Recreational Services owns
at least 20% of the Shares, we may not take certain fundamental corporate
actions without the consent of each of Recreational Services and Blackstone,
including the amendment of the certificate of incorporation or by-laws of Volume
Holdings or the modification of any stock option, bonus or benefit plan.
Similarly, Volume Holdings may not enter into any transaction with Blackstone,
or its affiliates, without the consent of Recreational Services, except for:
o transactions provided for or contemplated by the Transactions;
o the payment of regular fees or expenses to its directors;
o transactions which are reasonable in the light of industry practice and
which are of a value not greater than $500,000 individually and
$1,000,000 in the aggregate in any one year;
o the payment of the monitoring fee discussed below; or
o transaction fees up to 1% of the value of a company being acquired by
Volume Holdings, as long as GE Capital also receives a proportional fee
based on Recreational Services' Share ownership relative to Blackstone's
Share ownership.
Annual Fees. The amended stockholders' agreement permits the payment of
annual monitoring fees by Volume Holdings of $250,000 to Blackstone and $167,000
to GE Capital. The fees payable to GE Capital relate to financial consultation
services and have been accounted for as an expense, but not yet paid.
Registration Rights. Blackstone has the right to demand registration of the
Shares by Volume Holdings under the Securities Act at any time, subject to a
maximum of three such registrations. Recreational Services has the right to
demand such registration on one occasion only, at any time on or after the third
anniversary of the date of the amended stockholders' agreement.
Financings. The amended stockholders' agreement also obliges Volume
Holdings to use its reasonable best efforts to consummate a financing by August
24, 1999. The proceeds of the financing are to be applied to pay related fees
and expenses, to repay debt of Volume Holdings and to repurchase Shares from the
holders in accordance with a formula set out in the exchange agreement. Volume
Holdings satisfied this requirement by consummation of the Financings.
ADVISORY AGREEMENT
Pursuant to a letter agreement, Volume Holdings has retained the Blackstone
Group as its exclusive financial advisor in connection with proposed acquisition
by Ogden Entertainment, Inc. of all of Volume Holdings' common stock. If the
acquisition is completed, Volume Holdings will pay the Blackstone Group a fee of
$3 million.
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SECURITY OWNERSHIP
The Issuer is a wholly owned subsidiary of Volume Holdings. The following
table and accompanying footnotes set forth certain information concerning the
approximate beneficial ownership of all of the Volume Holdings common stock.
None of the directors or executive officers of the Issuer beneficially owns more
than 1% of Volume Holdings common stock. The Issuer has not made any equity plan
or options to purchase Volume Holdings common stock available to its directors
or executive officers. Except as indicated in the footnotes to this table, the
Issuer believes that the persons named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OWNED
- ------------------------------------------------------------------------- ------------ ----------------
<S> <C> <C>
BCP Volume L.P.(1)
345 Park Avenue
New York, NY 10154 157.0 47.1%
BCP Offshore Volume L.P.(1)
345 Park Avenue
New York, NY 10154 40.7 12.3%
Recreational Services LLC(2)
201 High Ridge Road
Stamford, Connecticut 06927 120.8 36.4%
VSI Management Direct L.P.(3)
c/o Volume Services, Inc.
201 East Broad Street
Spartanburg, South Carolina 29306 14.1 4.2%
</TABLE>
(1) BCP Volume L.P. and BCP Offshore Volume L.P. are controlled by, and 85% of
their partnership interests are collectively owned by, BCP II, Blackstone
Family Investment Partnership II L.P. and Blackstone Offshore Capital
Partners II L.P. (collectively, the "Blackstone Partnerships"). Blackstone
Management Associates II L.P. is the general partner of each of the
Blackstone Partnerships and as such exercises voting and dispositive power
with respect to such shares. Messrs. Peter G. Petersen, Stephen A.
Schwarzman and Howard A. Lipson are members of BMA II, which has investment
and voting control over the shares held or controlled by the Blackstone
Partnerships. Each person disclaims beneficial ownership of such shares. The
address of each of them is 345 Park Avenue, New York, NY 10154. The
remaining 15% partnership interests of BCP Volume L.P. and BCP Offshore
Volume L.P. are owned by VSI Management II L.P. VSI Management II L.P. is a
limited partnership, the general partner of which is VSI Management I LLC.
The limited partners of VSI Management II L.P. are current and former
members of Volume Services' management team.
(2) Recreational Services is a limited liability company, the managing member of
which is GE Capital. Recreational Services has three classes of membership
interests: Class A interests, Class B interests and Class C interests. GE
Capital owns all of the Class A interests and Class B interests. The Class A
interests and Class B interests entitle the holders thereof to a
preferential dividend. Upon payment in full of this preferential dividend,
all distributions by Recreational Services will be made pro rata to the
holders of Class C interests. GE Capital owns 63.8% of the Class C interests
and certain current members of Service America's management team own the
remaining 36.2% of the Class C interests.
(3) VSI Management Direct L.P. is a limited partnership, the general partner of
which is VSI Management I LLC, a limited liability company. The managing
members of VSI Management I LLC are Kenneth R. Frick, our Vice President and
Chief Financial Officer, and BMA II. The limited partners of VSI Management
Direct L.P., who own 99% of its partnership interests, and the non-managing
members of VSI Management I LLC are current and former members of Volume
Services' management team. Current members of Volume Services' management
team own approximately 60.1% of the limited partnership interests of VSI
Management Direct L.P., and former members of Volume Services' management
team own the remaining approximately 39.9%. The general partner of VSI
Management Direct L.P. owns the remaining 1% of the partnership interests.
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DESCRIPTION OF THE SENIOR CREDIT FACILITIES
The following is a summary of the senior credit facilities. It summarizes
all of the material terms of the senior credit facilities. However, it is not
complete and is qualified by reference to all the provisions of the credit
agreement which governs the senior credit facilities. A copy of this credit
agreement is available upon request from Volume Services America.
GENERAL
On December 3, 1998, the Issuer and Volume Holdings entered into a credit
agreement with:
o Goldman Sachs Credit Partners L.P., as joint lead arranger and
syndication agent;
o The Chase Manhattan Bank, referred to as "Chase", as joint lead arranger,
swingline lender and administrative agent;
o Chase Manhattan Bank Delaware, as the fronting bank; and
o the other lenders.
The senior credit facilities governed by this credit agreement consisted of
a revolving credit facility in an aggregate principal amount of up to $75.0
million and term loans in an aggregate principal amount of $160.0 million. We
used $45.0 million of the net proceeds of the offering of the outstanding notes
to repay all of term loan A and $5.0 million of term loan B. The following is a
summary of certain principal terms of the credit agreement. The summary is
qualified by reference to the actual terms of the agreement.
All obligations of the Issuer under the credit agreement are guaranteed by
Volume Holdings and by the Issuer's existing and future domestic wholly-owned
subsidiaries. Indebtedness under the senior credit facilities is secured by a
first priority security interest in:
o 65% of the issued and outstanding capital stock of each foreign
subsidiary of the Issuer and 100% of the issued and outstanding capital
stock of Volume Holdings, the Issuer and its domestic wholly-owned
subsidiaries; and
o substantially all other tangible and intangible assets owned or acquired
in the future by Volume Holdings, the Issuer and its domestic
wholly-owned subsidiaries.
REVOLVING CREDIT FACILITY
The revolving credit facility allows the Issuer to borrow up to $75.0
million. The revolving credit facility includes a sublimit of $35.0 million for
letters of credit and a sub-limit of $5.0 million for swingline loans. This
facility matures on December 3, 2004.
TERM LOANS
The senior credit facilities currently consist of a term loan in an
aggregate principal amount of $115.0 million. The term loan will mature on
December 3, 2006. Installments of the term loans are due in consecutive
quarterly installments on each Installment Date, commencing March 30, 1999, with
25% of the annual amounts due on each Installment Date. Annual payments for the
term loan total $1.2 million in each year from 1999 through 2005, and $106.7
million in 2006.
USE OF PROCEEDS
Proceeds of the term loans were used to repay in full all outstanding
indebtedness of Volume Services and Service America under their existing credit
facilities and to pay fees and expenses related to the acquisition of Service
America and the credit agreement. The commitments under the revolving credit
facility are available to fund our capital investment requirements, working
capital, general corporate and other cash needs.
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INTEREST RATES
The Issuer may elect that the revolving loans bear interest at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin or the
Adjusted LIBO Rate plus the Applicable Margin, and swingline loans will bear
interest based upon the Alternate Base Rate. The Issuer may elect that term loan
B bears interest at a rate per annum equal to the Alternate Base Rate plus 2.75%
or the Adjusted LIBO Rate plus 3.75%.
The Alternate Base Rate refers to the higher of:
o Chase's prime rate of interest; and
o the federal funds rate plus 0.5%.
Interest on each Alternate Base Rate borrowing will be computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days when
determined by reference to the prime rate and over a year of 360 days at all
other times.
The Adjusted LIBO Rate refers to the rate (adjusted for statutory reserve
requirements for eurocurrency liabilities) at which eurodollar deposits for one,
two, three or six months, as the Issuer selects, are offered in the interbank
eurodollar market. Interest on each Eurodollar borrowing will be computed on the
basis of the actual number of days elapsed over a year of 360 days.
The Applicable Margin for any revolving loan that bears interest at a rate
determined by reference to the Alternate Base Rate and for swingline loans will
be 2.00% per annum until the date of delivery of financial statements for the
period ending June 29, 1999. The Applicable Margin for these loans after such
date will fluctuate, depending on a calculation of the Issuer's leverage ratio,
between 1.25% and 2.00%. The Applicable Margin for any revolving loan that bears
interest at a rate determined by reference to the Adjusted LIBO Rate will be
3.00% per annum until the date of delivery of financial statements for the
period ending June 29, 1999. The Applicable Margin for these loans after such
date will fluctuate, depending on the Issuer's leverage ratio, between 2.25% and
3.00%.
FEES
The Issuer has agreed to pay customary fees with respect to the senior
credit facilities, including:
o commitment fees on the unused portion of the revolving credit facility;
o letter of credit participation fees;
o fronting bank fees; and
o fees to the syndication agent and the administrative agent.
MANDATORY AND OPTIONAL PREPAYMENT
The term loans will be prepaid, subject to certain conditions and
exceptions, with
o 100% of the net cash proceeds received by Volume Holdings, the Issuer or
any of its subsidiaries from any loss, damage, destruction or
condemnation of, or any sale, transfer or other disposition to any person
of any assets;
o 100% of the net proceeds from the incurrence of any indebtedness by
Volume Holdings, the Issuer or any of its subsidiaries, other than the
notes;
o 50% of the net proceeds of any sale or issuance of equity by Volume
Holdings; and
o 100% of cash flow in excess of certain expenditures, costs and payments.
These mandatory prepayments will be applied as follows:
o first, pro rata to reduce outstanding term loans (and after the term
loans have been paid in full, to prepay revolving loans), so long as, at
the election of holders of term loan B, the portion of proceeds otherwise
allocable to term loan B may be allocated to repay term loan A; and
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o second, to the prepayment of the amounts outstanding under the revolving
credit facility.
Mandatory prepayments of amounts outstanding under the revolving credit
facility will not reduce the commitments of the lenders to make loans under the
revolving credit facility. The credit agreement provides that the Issuer may
voluntarily prepay loans in whole or in part without penalty, subject to minimum
prepayments.
COVENANTS
The credit agreement contains covenants that, subject to certain
exceptions, restrict the ability of Volume Holdings, the Issuer and its
subsidiaries to, among other things:
o incur indebtedness and guarantees;
o incur liens;
o make loans and investments;
o engage in mergers, consolidations, acquisitions and asset sales;
o pay dividends and make distributions on, or repurchase or redeem, capital
stock;
o enter into transactions with affiliates and sale leaseback transactions;
o make changes in their line of business;
o amend certain material agreements; and
o sell capital stock of the Issuer's subsidiaries.
The Issuer will also be required to comply with certain financial
covenants, including a maximum net leverage ratio, an interest coverage ratio
and a minimum consolidated cash net worth test. The credit agreement contains
affirmative covenants, including entry by Volume Holdings, the Issuer and its
subsidiaries into interest rate protection agreements, and customary
representations and warranties.
EVENTS OF DEFAULT
The credit agreement contains certain customary events of default
including:
o non-payment of principal;
o non-payment of interest or fees (with a customary grace period);
o violation of covenants contained in the credit agreement;
o inaccuracy of representations and warranties in any material respect;
o cross-default to certain other indebtedness;
o bankruptcy and insolvency events;
o material judgments;
o violations of the Employee Retirement Income Security Act of 1974, as
amended;
o change of control transactions;
o failure to maintain security interests;
o invalidity or asserted invalidity of credit documents entered into
pursuant to the credit agreement, including guarantees; and
o failure of the obligations contained in the credit agreement and the
guarantees to be senior in right of payment to other indebtedness.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Issuer has entered into an exchange and registration rights agreement
with the initial purchasers of the outstanding notes in which it agreed, under
certain circumstances, to file a registration statement relating to an offer to
exchange the outstanding notes for exchange notes. The Issuer also agreed to use
its reasonable best efforts to cause such offer to be consummated within 210
days following the original issue of the outstanding notes. The exchange notes
will have terms substantially identical to the outstanding notes except that the
exchange notes will not contain terms with respect to transfer restrictions,
registration rights and liquidated damages for failure to observe certain
obligations in the exchange and registration rights agreement. The outstanding
notes were issued on March 4, 1999.
Under the circumstances set forth below, the Issuer will use its reasonable
best efforts to cause the Commission to declare effective a shelf registration
statement with respect to the resale of the outstanding notes and keep the
statement effective for up to two years after the effective date of the shelf
registration statement. These circumstances include:
o if any changes in law, Commission rules or regulations or applicable
interpretations thereof by the staff of the Commission do not permit the
Issuer to effect the exchange offer as contemplated by the exchange and
registration rights agreement;
o if any outstanding notes validly tendered in the exchange offer are not
exchanged for exchange notes within 210 days after the original issue of
the outstanding notes;
o if any initial purchaser of the outstanding notes so requests (but only
with respect to any outstanding notes not eligible to be exchanged for
exchange notes in the exchange offer); or
o if any holder of the outstanding notes notifies the Issuer that it is not
permitted to participate in the exchange offer or would not receive fully
tradable exchange notes pursuant to the exchange offer.
If the Issuer fails to comply with certain obligations under the exchange
and registration rights agreement, it will be required to pay liquidated damages
to holders of the outstanding notes. Please read the section captioned "Exchange
and Registration Rights Agreement" for more details regarding the exchange and
registration rights agreement.
Each holder of outstanding notes that wishes to exchange such outstanding
notes for transferable exchange notes in the exchange offer will be required to
make the following representations:
o any exchange notes will be acquired in the ordinary course of its
business;
o such holder has no arrangement with any person to participate in the
distribution of the exchange notes; and
o such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Issuer or if it is an affiliate, that it will
comply with applicable registration and prospectus delivery requirements
of the Securities Act.
RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff set forth in no action
letters issued to unrelated third parties, the Issuer believes that exchange
notes issued under the exchange offer in exchange for outstanding notes may be
offered for resale, resold and otherwise transferred by any
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exchange Note holder without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
o such holder is not an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act;
o such exchange notes are acquired in the ordinary course of the holder's
business; and
o the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
o cannot rely on the position of the staff of the Commission enunciated in
"Exxon Capital Holdings Corporation" or similar interpretive letters; and
o must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives exchange notes for its own account in exchange for outstanding notes,
where such outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, the Issuer will accept for exchange any
outstanding notes properly tendered and not withdrawn prior to the expiration
date. The Issuer will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes surrendered under
the exchange offer. Outstanding notes may be tendered only in integral multiples
of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes except the exchange notes will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any liquidated damages upon failure of the
Issuer to fulfill its obligations under the exchange and registration rights
agreement to file, and cause to be effective, a registration statement. The
exchange notes will evidence the same debt as the outstanding notes. The
exchange notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the outstanding notes. Consequently,
both series will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of the Notes"
below.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $100 million aggregate principal amount
of the outstanding notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining registered holders of outstanding
notes entitled to participate in the exchange offer.
The Issuer intends to conduct the exchange offer in accordance with the
provisions of the exchange and registration rights agreement, the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the Commission. Outstanding notes that are not
tendered for exchange in the exchange offer will remain outstanding and
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continue to accrue interest and will be entitled to the rights and benefits such
holders have under the indenture relating to the outstanding notes.
The Issuer will be deemed to have accepted for exchange properly tendered
outstanding notes when it has given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from the Issuer and
delivering exchange notes to such holders. Subject to the terms of the exchange
and registration rights agreement, the Issuer expressly reserves the right to
amend or terminate the exchange offer, and not to accept for exchange any
outstanding notes not previously accepted for exchange, upon the occurrence of
any of the conditions specified below under the caption "--Certain Conditions to
the Exchange Offer."
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. The Issuer will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the exchange offer.
It is important that you read the section labeled "--Fees and Expenses" below
for more details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 1999, unless in its sole discretion, the Issuer extends it.
In order to extend the exchange offer, the Issuer will notify the exchange
agent orally or in writing of any extension. The Issuer will notify the
registered holders of outstanding notes of the extension no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
The Issuer reserves the right, in its sole discretion:
o to delay accepting for exchange any outstanding notes;
o to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
o subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If the Issuer amends the exchange offer
in a manner that it determines to constitute a material change, it will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of outstanding notes of such amendment.
Without limiting the manner in which it may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, the Issuer shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
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CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, the Issuer will not be
required to accept for exchange, or exchange any exchange notes for, any
outstanding notes, and it may terminate the exchange offer as provided in this
prospectus before accepting any outstanding notes for exchange if in its
reasonable judgment:
o the exchange notes to be received will not be tradable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
of 1934 and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States;
o the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Commission; or
o any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in the Issuer's judgment, would reasonably be expected to
impair the ability of the Issuer to proceed with the exchange offer.
In addition, the Issuer will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to the Issuer:
o the representations described under "--Purpose and Effect of the Exchange
Offer," "--Procedures for Tendering" and "Plan of Distribution"; and
o such other representations as may be reasonably necessary under
applicable Commission rules, regulations or interpretations to make
available to it an appropriate form for registration of the exchange
notes under the Securities Act.
The Issuer expressly reserves the right, at any time or at various times,
to extend the period of time during which the exchange offer is open.
Consequently, the Issuer may delay acceptance of any outstanding notes by giving
oral or written notice of such extension to their holders. During any such
extensions, all outstanding notes previously tendered will remain subject to the
exchange offer, and the Issuer may accept them for exchange. The Issuer will
return any outstanding notes that it does not accept for exchange for any reason
without expense to their tendering holder as promptly as practicable after the
expiration or termination of the exchange offer.
The Issuer expressly reserves the right to amend or terminate the exchange
offer, and to reject for exchange any outstanding notes not previously accepted
for exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. The Issuer will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for the sole benefit of the Issuer and the Issuer may
assert them regardless of the circumstances that may give rise to them or waive
them in whole or in part at any or at various times in its sole discretion. If
the Issuer fails at any time to exercise any of the foregoing rights, this
failure will not constitute a waiver of such right. Each such right will be
deemed an ongoing right that the Issuer may assert at any time or at various
times.
In addition, the Issuer will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any such outstanding
notes, if at such time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act of
1939.
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PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
o complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
o comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
o the exchange agent must receive outstanding notes along with the letter
of transmittal; or
o the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC according to the procedures for
book-entry transfer described below or a properly transmitted agent's
message; or
o the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, the Issuer recommends that holders use
an overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
the Issuer. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its outstanding notes; either:
o make appropriate arrangements to register ownership of the outstanding
notes in such owner's name; or
o obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the outstanding notes tendered pursuant thereto
are tendered:
o by a registered holder who has not competed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
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o for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed on the outstanding notes, such
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the outstanding notes and an eligible institution must
guarantee the signature on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by the
Issuer, they should also submit evidence satisfactory to the Issuer of their
authority to deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
o DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
o such participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
o the agreement may be enforced against such participant.
The Issuer will determine in its sole discretion all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
outstanding notes and withdrawal of tendered outstanding notes. The Issuer's
determination will be final and binding. The Issuer reserves the absolute right
to reject any outstanding notes not properly tendered or any outstanding notes
the acceptance of which would, in the opinion of the Issuer's counsel, be
unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular outstanding notes. The
Issuer's interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding notes must be cured within such time as
the Issuer shall determine. Although the Issuer intends to notify holders of
defects or irregularities with respect to tenders of outstanding notes, neither
the Issuer, the exchange agent nor any other person will incur any liability for
failure to give such notification. Tenders of outstanding notes will not be
deemed made until such defects or irregularities have been cured or waived. Any
outstanding notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned to the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, the Issuer will issue exchange notes for outstanding notes
that it has accepted for exchange under the exchange offer only after the
exchange agent timely receives:
o outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC; and
o a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
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By signing the letter of transmittal, each tendering holder of outstanding
notes will represent to the Issuer that, among other things:
o any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
o the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
o if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
o if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for outstanding notes that were acquired as a
result of market-making activities, that it will deliver a prospectus, as
required by law, in connection with any resale of such exchange notes;
and
o the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Issuer or, if the holder is an affiliate, it will
comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus; and any financial institution participating
in DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer such outstanding notesinto the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their outstanding
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or prior to the expiration
date must tender their outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or comply with the applicable procedures under DTC's Automated Tender
Offer Program prior to the expiration date may tender if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
o setting forth the name and address of the holder, the registered
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered;
o stating that the tender is being made thereby; and
o guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the outstanding notes or a
book-entry confirmation, and any other documents required by the
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
o the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered
outstanding notes in proper form for transfer or a
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book-entry confirmation, and all other documents required by the letter
of transmittal, within three (3) New York State Exchange trading days
after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
o the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange Agent", or
o holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
o specify the name of the person who tendered the outstanding notes to be
withdrawn;
o identify the outstanding notes to be withdrawn (including the principal
amount of such outstanding notes); and
o where certificates for outstanding notes have been transmitted, specify
the name in which such outstanding notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
o the serial numbers of the particular certificates to be withdrawn; and
o a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of such facility. The
Issuer will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices, and our determination shall be
final and binding on all parties. The Issuer will deem any outstanding notes so
withdrawn not to have validity tendered for exchange for purposes of the
exchange offer. Any outstanding notes that have been tendered for exchange but
that are not exchanged for any reason will be returned to their holder without
cost to the holder (or, in the case of outstanding notes tendered by book-entry
transfer into the exchange agent's account at DTC according to the procedures
described above, such outstanding notes will be credited to an account
maintained with DTC for outstanding notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
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EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as exchange
agent for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for the notice of guaranteed delivery to the
exchange agent addressed as follows:
<TABLE>
<S> <C>
For Delivery by Registered or Certified Mail: For Overnight Delivery Only or by Hand:
Norwest Bank Minnesota, NA Norwest Bank Minnesota, NA
Sixth Street and Marquette Avenue 608 Second Avenue
Minneapolis, MN 55479-0069 NorStar East Building
Attention: Corporate Trust Department 12th Floor
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
</TABLE>
By Facsimile Transmission (for eligible institutions only):
(612) 667-9825
Attention: Corporate Trust Department
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, the Issuer may make additional
solicitations by telegraph, telephone or in person by its officers and regular
employees and those of our affiliates.
The Issuer has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer. The Issuer will, however, pay the
exchange agent reasonable and customary fees for its services and reimburse it
for its related reasonable out-of-pocket expenses.
The Issuer will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$600,000. They include:
o Commission registration fees;
o fees and expenses of the exchange agent and trustee;
o accounting and legal fees and printing costs; and
o related fees and expenses.
TRANSFER TAXES
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of outstanding notes under the exchange offer. The tendering holder, however,
will be required to pay any transfer taxes (whether imposed on the registered
holder or any other person) if:
o certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
o tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
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If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
Holders who tender their outstanding notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct the Issuer to
register exchange notes in the name of, or request that outstanding notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be required to pay any applicable
transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes under the exchange offer will remain subject to the
restrictions on transfer of such outstanding notes:
o as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
o otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the exchange and registration rights agreement, the Issuer
does not intend to register resales of the outstanding notes under the
Securities Act. Based on interpretations of the Commission staff, exchange notes
issued pursuant to the exchange offer may be offered for resale, resold or
otherwise transferred by their holders (other than any such holder that is our
"affiliate" within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holders acquired the exchange notes in the
ordinary course of the holders' business and the holders have no arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired in the exchange offer. Any holder who tenders in the exchange offer for
the purpose of participating in a distribution of the exchange notes:
o could not rely on the applicable interpretations of the Commission; and
o must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
The Issuer will record the exchange notes in its accounting records at the
same carrying value as the outstanding notes, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, the Issuer will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. The Issuer will record the
expenses of the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
The Issuer may in the future seek to acquire untendered outstanding notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuer has no present plans to acquire any outstanding
notes that are not tendered in the exchange offer or to file a registration
statement to permit resales of any untendered outstanding notes.
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DESCRIPTION OF THE NOTES
The following is a summary description of the notes. It summarizes all of
the material terms of the notes. However, it is not complete and is qualified by
reference to all the provisions of the indenture. However, it does provide an
accurate summary of the material terms of the Notes.
GENERAL
The outstanding Notes were issued and the exchange Notes will be issued
under an indenture, dated as of March 4, 1999, among the Issuer, the Guarantors
and Norwest Bank Minnesota, National Association as trustee, a copy of which is
filed as an exhibit to the Registration Statement of which this prospectus is a
part.
The following summary of certain provisions of the indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA. The definition of certain terms used in this summary are set forth below in
the section "--Certain Definitions." For the purposes of this summary, "Volume
Holdings" refers only to Volume Services America Holdings, Inc. and not any of
its subsidiaries.
The indenture provides for the issuance of up to $100.0 million aggregate
principal amount of additional Notes having identical terms and conditions to
the Notes offered hereby (referred to as the "Additional Notes"), subject to
compliance with the covenants contained in the indenture. Any Additional Notes
will be part of the same issue as the outstanding Notes and will vote on all
matters with the outstanding Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Issuer in the Borough of Manhattan, The City of New York (which initially shall
be the office of the Trustee maintained for such purpose at The Depository Trust
Company, 55 Water Street, New York, NY 10041), except that, at the option of the
Issuer, payment of interest may be made by check mailed to the Holders at their
registered addresses.
The outstanding Notes were issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Issuer may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NOTES
The outstanding Notes are and the exchange Notes will be unsecured senior
subordinated obligations of the Issuer and will mature on March 1, 2009. Each
Note bears interest at a rate per annum shown on the front cover of this
prospectus from March 4, 1999 or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the February 15 or August 15 immediately preceding the
interest payment date on March 1, and September 1, of each year, commencing
September 1, 1999.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Issuer prior to March 1, 2004. Thereafter, the
Notes will be redeemable, at the Issuer's option, in whole or in part upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to
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receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on March 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ---------------------------------------------------------------------- ----------
<S> <C>
2004.................................................................. 105.625%
2005.................................................................. 103.750
2006.................................................................. 101.875
2007 and thereafter................................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to March 1, 2002, the
Issuer may redeem in the aggregate up to 35% of the original aggregate principal
amount of the Notes (calculated after giving effect to any issuance of
Additional Notes) with the net cash proceeds of one or more Equity Offerings:
o by the Issuer or;
o by Volume Holdings to the extent the net cash proceeds thereof are
contributed to the Issuer or used to purchase from the Issuer Capital
Stock (other than Disqualified Stock) of the Issuer,
at a redemption price (expressed as a percentage of principal amount thereof) of
111.25% plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 65% of the original aggregate principal amount
of the Notes (calculated after giving effect to any issuance of Additional
Notes) must remain outstanding after each such redemption and provided further
that such redemption shall occur within 90 days after the date on which any such
Equity Offering is consummated upon not less than 30 nor more than 60 days'
notice mailed to each holder of Notes being redeemed and otherwise in accordance
with the procedures set forth in the indenture.
At any time on or prior to March 1, 2004, the Notes may be redeemed as a
whole but not in part at the option of the Issuer upon the occurrence of a
Change of Control (as defined), upon not less than 30 or more than 60 days'
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued but
unpaid interest and liquidated damages, if any, to, the redemption date, subject
to the right of Holders on the relevant record date to receive interest due on
the relevant interest payment date.
"Applicable Premium" means with respect to a Note at any redemption date,
the greater of:
(1) 1.0% of the principal amount of such Note or;
(2) the excess of
(A) the present value of
(x) the redemption price of such Note at March 1, 2004 (such
redemption price being set forth in the tables above); plus
(y) all required interest payments due on such Note through
March 1, 2004, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over
(B) the then-outstanding principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
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publicly available source or similar market data)) most nearly equal to the
period from the redemption date to March 1, 2004; provided, however, that if the
period from the redemption date to March 1, 2004 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the redemption date to March 1, 2004 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not so listed, on a pro rata basis, by lot or by
such other method as the Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); provided that no Notes
of $1,000 or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption so long as the Issuer has deposited with the Paying Agent
funds sufficient to pay the principal of, plus accrued and unpaid interest and
liquidated damages (if any) on, the Notes to be redeemed.
RANKING
The indebtedness evidenced by the outstanding Notes is and the exchange
Notes will be unsecured senior subordinated indebtedness of the Issuer, will be
subordinated in right of payment, as set forth in the indenture, to all existing
and future Senior Indebtedness of the Issuer, will rank pari passu in right of
payment with all existing and future Pari Passu Indebtedness of the Issuer and
will be senior in right of payment to all existing and future Subordinated
Indebtedness of the Issuer. The outstanding Notes are and the exchange Notes
will be also effectively subordinated to any Secured Indebtedness of the Issuer
to the extent of the value of the assets securing such Indebtedness. However,
payment from the money or the proceeds of U.S. Government Obligations held in
any defeasance trust described under "--Defeasance" below is not subordinated to
any Senior Indebtedness or subject to the restrictions described in this
prospectus.
The indebtedness evidenced by the Guarantees is unsecured senior
subordinated indebtedness of the applicable Guarantor, is subordinated in right
of payment, as set forth in the indenture, to all existing and future Senior
Indebtedness of such Guarantor, ranks pari passu in right of payment with all
existing and future Pari Passu Indebtedness of such Guarantor and is senior in
right of payment to all existing and future Subordinated Indebtedness of such
Guarantor. The Guarantees are also effectively subordinated to any Secured
Indebtedness of the applicable Guarantor to the extent of the value of the
assets securing such Indebtedness.
As of March 30, 1999:
(1) the Issuer had $119.2 million aggregate principal amount of Senior
Indebtedness outstanding (excluding unused commitments), all of which was
Secured Indebtedness;
(2) the Issuer had no Pari Passu Indebtedness outstanding other than
the Notes and no indebtedness that is subordinate or junior in right of
payment to the Notes;
(3) the Guarantors had $0.8 million aggregate principal amount of
Senior Indebtedness outstanding (exclusive of guarantees of the senior
credit facilities);
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(4) the Guarantors had no Pari Passu Indebtedness outstanding
(exclusive of the Guarantees) and no indebtedness that is subordinate or
junior in right of payment to the Guarantees and total liabilities
(excluding indebtedness and liabilities owed to Volume Holdings, the Issuer
or any of its Subsidiaries) of $274.4 million; and
(5) the Non-Guarantor Subsidiaries had total liabilities (excluding
liabilities owed to Volume Holdings, the Issuer or any of its Subsidiaries)
of $1.2 million.
Although the indenture contains limitations on the amount of additional
Indebtedness which the Issuer, the Guarantors and the Non-Guarantor Subsidiaries
may Incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock" below.
As a holding company, the Issuer has no operations and, therefore, is
dependent on the cash flow of its subsidiaries and other entities to meet its
own obligations, including the payment of interest and principal obligations on
the Notes when due. As of March 30, 1999, on a pro forma basis the total
liabilities of the Issuer's subsidiaries were approximately $275.6 million,
including trade payables. Although the indenture limits the Incurrence of
Indebtedness by and the issuance of Preferred Stock of certain of the Issuer's
subsidiaries, such limitation is subject to a number of significant
qualifications.
"Senior Indebtedness" with respect to the Issuer or any Guarantor means all
Indebtedness of the Issuer or such Guarantor, including interest thereon
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Issuer or any Subsidiary of the
Issuer whether or not a claim for post-filing interest is allowed in such
proceeding) and other amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof,
whether outstanding on the Issue Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Notes or such Guarantor's Guarantee, as applicable; provided,
however, that Senior Indebtedness shall not include, as applicable,
(1) any obligation of the Issuer to any Subsidiary of the Issuer, of
such Guarantor to the Issuer or any other Subsidiary of the Issuer;
(2) any liability for Federal, state, local or other taxes owed or
owing by the Issuer or such Guarantor;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of the Issuer or such Guarantor
which is subordinate or junior in any respect to any other Indebtedness or
obligation of the Issuer or such Guarantor, as applicable, including any
Pari Passu Indebtedness and any Subordinated Indebtedness;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the indenture.
Only Indebtedness of the Issuer or a Guarantor that is Senior Indebtedness
will rank senior to the Notes or the relevant Guarantee in accordance with the
provisions of the indenture. The Notes and each Guarantee in all respects rank
pari passu with all other Pari Passu Indebtedness of the Issuer and the relevant
Guarantor, respectively.
The Issuer may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (except that Holders may receive and retain
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(a) Permitted Junior Securities and (b) payments made from the trust described
under "--Defeasance" below) (collectively, "pay the Notes") if:
(1) a default in the payment of the principal of, premium, if any, or
interest on any Designated Senior Indebtedness occurs and is continuing or
any other amount owing in respect of any Designated Senior Indebtedness is
not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms,
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Issuer may pay the Notes without regard to the
foregoing if the Issuer and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (1) or (2)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Issuer may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Issuer) of
written notice (a "Blockage Notice") of such default from the Representative of
the Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated:
(1) by written notice to the Trustee and the Issuer from the Person or
Persons who gave such Blockage Notice;
(2) by repayment in full of such Designated Senior Indebtedness; or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
Notwithstanding the provisions described in the immediately preceding
sentence (but subject to the provisions contained in the first sentence of this
paragraph and in the succeeding paragraph), unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, the Issuer may
resume payments on the Notes after the end of such Payment Blockage Period. Not
more than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give one additional Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this Section, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Issuer upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Issuer or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of the Senior Indebtedness before the
Noteholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the
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subordination provisions of the indenture will be made to holders of the Senior
Indebtedness as their interests may appear (except that Holders of Notes may
receive and retain (a) Permitted Junior Securities; and (b) payments made from
the trust described under "--Defeasance" so long as, on the date or dates the
respective amounts were paid into the trust, such payments were made with
respect to the Notes without violating the subordination provisions described in
this prospectus). If a distribution is made to Noteholders that due to the
subordination provisions of the indenture should not have been made to them,
such Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Issuer or the Trustee shall promptly notify the holders of the Designated Senior
Indebtedness (or their Representative) of the acceleration. If any Designated
Senior Indebtedness is outstanding, the Issuer may not pay the Notes until five
Business Days after such holders or the Representative of the Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the indenture otherwise permit
payment at that time.
By reason of such subordination provisions contained in the indenture, in
the event of insolvency, creditors of the Issuer who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Issuer who are not holders of Senior Indebtedness or of Pari Passu
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Pari
Passu Indebtedness.
The indenture contains substantially similar subordination provisions
relating to each Guarantor's obligations under its Guarantee.
GUARANTEES
Volume Holdings, each of the Issuer's direct and indirect Wholly Owned
Subsidiaries organized under the laws of any state of the United States of
America on the Issue Date and certain future Subsidiaries of the Issuer (as
described below), as primary obligors and not merely as sureties, have jointly
and severally irrevocably and unconditionally guaranteed on an unsecured senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Issuer
under the indenture and the Notes, whether for payment of principal of, premium,
if any, or interest or liquidated damages on the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by such Guarantors
being called the "Guaranteed Obligations" in this prospectus). Such Guarantors
have agreed to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) Incurred by the Trustee or the
Holders in enforcing any rights under the Guarantees. Each Guarantee is limited
in amount to an amount not to exceed the maximum amount that can be guaranteed
by the applicable Guarantor without rendering the Guarantee, as it relates to
such Guarantor, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally. Since the Issue Date, the Issuer has and will continue to cause each
Restricted Subsidiary organized under the laws of the United States of America
or any state or territory thereof that Incurs Indebtedness or issues shares of
Disqualified Stock or Preferred Stock to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Restricted Subsidiary will
guarantee payment of the Notes. See "--Certain Covenants--Future Guarantors"
below.
Each Guarantee is a continuing guarantee and shall
(1) remain in full force and effect until payment in full of all the Guaranteed
Obligations;
(2) be binding upon each such Guarantor and its successors; and
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(3) inure to the benefit of and be enforceable by the Trustee, the
Holders and their successors, transferees and assigns.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each, a "Change of
Control"), each Holder will have the right to require the Issuer to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all the assets of the Issuer and its
Subsidiaries, taken as a whole, to a Person other than the Permitted
Holders;
(2)(A) the Issuer becomes aware (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) of the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of
Rule 13d-5(b)(1) under the Exchange Act), other than the Permitted Holders,
in a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision), of 35% or more of the total voting power
of the Voting Stock of the Issuer or Volume Holdings; and
(B) the Permitted Holders beneficially own (as defined above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Issuer or Volume Holdings, as
applicable, than such other Person or group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors; or
(3) during any one year period, individuals who at the beginning of
such period constituted the board of directors of the Issuer or Volume
Holdings (together with any new directors whose election by such board of
directors or whose nomination for election by the shareholders of the
Issuer or Volume Holdings, as applicable, was approved by a vote of a
majority of the directors of the Issuer or Volume Holdings, as applicable,
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors of the Issuer or Volume Holdings, as applicable, then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Issuer shall:
(1) repay in full all Bank Indebtedness or offer to repay in full all
Bank Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer; or
(2) obtain the requisite consent under the agreements governing the
Bank Indebtedness to permit the repurchase of the Notes as provided for in
the immediately following paragraph.
Within 30 days following any Change of Control, unless the Issuer has
exercised its right to redeem the Notes as described under "--Optional
Redemption", the Issuer shall mail a notice (a "Change of Control Offer") to
each Holder with a copy to the Trustee stating:
(A) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the
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principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase (subject to the right of Holders
of record on a record date to receive interest on the relevant interest
payment date);
(B) the circumstances and relevant facts and financial information
regarding such Change of Control;
(C) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(D) the instructions determined by the Issuer, consistent with this
covenant, that a Holder must follow in order to have its Notes purchased.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer or if the Issuer exercises its option to redeem the Notes upon a
Change of Control as described under "--Optional Redemption."
The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuer and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Issuer would decide to do so in the future. Subject to the limitations
discussed below, the Issuer could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Issuer's capital structure or credit ratings.
The occurrence of events which would constitute a Change of Control would
constitute a default under the Credit Agreement. Future Senior Indebtedness of
the Issuer may contain prohibitions on certain events which would constitute a
Change of Control or require such Senior Indebtedness to be repurchased upon a
Change of Control. Moreover, the exercise by the Holders of their right to
require the Issuer to repurchase the Notes could cause a default under such
Senior Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Issuer. Finally, the Issuer's ability
to pay cash to the Holders upon a repurchase may be limited by the Issuer's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
The definition of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" the assets of the Issuer and its
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Issuer to repurchase such Notes as a result of a
sale, lease or transfer of less than all of the assets of the Issuer and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
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CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock. The indenture provides that
(1) the Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) or issue any shares of Disqualified Stock; and
(2) the Issuer will not permit any of its Restricted Subsidiaries to
issue any shares of Preferred Stock;
provided, however, that the Issuer and any Guarantor may Incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock and any
Guarantor may issue shares of Preferred Stock if the Fixed Charge Coverage Ratio
of the Issuer for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is Incurred or such Disqualified Stock or
Preferred Stock is issued would have been at least 2.00 to 1.00 determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been Incurred, or the
Disqualified Stock or Preferred Stock had been issued, as the case may be, and
the application of proceeds therefrom had occurred at the beginning of such
four-quarter period.
The foregoing limitations will not apply to:
(a) the Incurrence by the Issuer or its Restricted Subsidiaries of
Indebtedness under the Credit Agreement and the issuance and creation of
letters of credit and bankers' acceptances thereunder (with letters of
credit and bankers' acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$230.0 million outstanding at any one time;
(b) the Incurrence by the Issuer and the Guarantors of Indebtedness
represented by the Notes (not including any Additional Notes) and the
Guarantees, as applicable;
(c) Indebtedness existing on the Issue Date (other than Indebtedness
described in clauses (a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) Incurred by
the Issuer or any of its Restricted Subsidiaries, to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
Incurred pursuant to this clause (d) and all Refinancing Indebtedness (as
defined below) Incurred to refund, refinance or replace any Indebtedness
Incurred pursuant to this clause (d), does not exceed the greater of 7.5%
of Total Assets at the time of Incurrence or $10.0 million;
(e) Indebtedness Incurred by the Issuer or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims,
health, disability or other employee benefits or property, casualty or
liability insurance or self-insurance, or with respect to agreements to
provide services, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit, such obligations are reimbursed
within 30 days following such drawing;
(f) Indebtedness arising from agreements of the Issuer or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, Incurred in connection with the
disposition of any business, assets or a Subsidiary of the Issuer in
accordance with the terms of the indenture, other than guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition;
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(g) Indebtedness of the Issuer to a Restricted Subsidiary of the
Issuer; provided that any such Indebtedness is subordinated in right of
payment to the Notes; provided further that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary of the Issuer
or any other subsequent transfer of any such Indebtedness (except to the
Issuer or another Restricted Subsidiary) shall be deemed, in each case to
be an Incurrence of such Indebtedness;
(h) shares of Preferred Stock of a Restricted Subsidiary issued to the
Issuer or another Restricted Subsidiary of the Issuer; provided that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such shares of Preferred
Stock (except to the Issuer or another Restricted Subsidiary of the Issuer)
shall be deemed, in each case, to be an issuance of shares of Preferred
Stock;
(i) Indebtedness of a Restricted Subsidiary to the Issuer or another
Restricted Subsidiary of the Issuer; provided that:
(1) any such Indebtedness is made pursuant to an intercompany note; and
(2) if a Guarantor incurs such Indebtedness to a Restricted
Subsidiary that is not a Guarantor such Indebtedness is subordinated in
right of payment to the Guarantee of such Guarantor; provided further
that any subsequent issuance or transfer of any Capital Stock or any
other event which results in any Restricted Subsidiary lending such
Indebtedness ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such Indebtedness (except to the Issuer or
another Restricted Subsidiary of the Issuer) shall be deemed, in each
case, to be an Incurrence of such Indebtedness;
(j) Hedging Obligations that are Incurred in the ordinary course of
business
(1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the
indenture to be outstanding;
(2) for the purpose of fixing or hedging currency exchange rate
risk with respect to any currency exchanges; or
(3) for the purpose of fixing or hedging commodity price risk with
respect to any commodity purchases;
(k) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by the Issuer or any Restricted Subsidiary
in the ordinary course of business;
(l) Indebtedness or Disqualified Stock of the Issuer and any
Restricted Subsidiary not otherwise permitted hereunder in an aggregate
principal amount, which when aggregated with the principal amount or
liquidation preference of all other Indebtedness and Disqualified Stock
then outstanding and Incurred pursuant to this clause (l), does not exceed
$25.0 million at any one time outstanding; provided, however, that
Indebtedness of Foreign Subsidiaries, which when aggregated with the
principal amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and Incurred pursuant to this clause (l), does not exceed $10.0
million (or the equivalent thereof in any other currency) at any one time
outstanding (it being understood that any Indebtedness Incurred under this
clause (l) shall cease to be deemed Incurred or outstanding for purposes of
this clause (l) but shall be deemed to be Incurred for purposes of the
first paragraph of this covenant from and after the first date on which the
Issuer could have Incurred such Indebtedness under the first paragraph of
this covenant without reliance upon this clause (l));
(m) any guarantee by the Issuer or a Guarantor of Indebtedness or
other obligations of the Issuer or any of its Restricted Subsidiaries so
long as the Incurrence of such Indebtedness Incurred by the Issuer or such
Restricted Subsidiary is permitted under the terms of the indenture;
provided that if such Indebtedness is by its express terms subordinated in
right of payment to the Notes or the Guarantee of such Restricted
Subsidiary, as applicable, any such
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guarantee of such Guarantor with respect to such Indebtedness shall be
subordinated in right of payment to such Guarantor's Guarantee with respect
to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes or the Guarantee of such Restricted Subsidiary,
as applicable;
(n) the Incurrence by the Issuer or any of its Restricted Subsidiaries
of Indebtedness which serves to refund or refinance any Indebtedness
Incurred as permitted under the first paragraph of this covenant and
clauses (b) and (c) above, or any Indebtedness issued to so refund or
refinance such Indebtedness (subject to the following proviso, "Refinancing
Indebtedness") prior to its respective maturity; provided, however, that
such Refinancing Indebtedness
(1) has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is Incurred which is not less than the
remaining Weighted Average Life to Maturity of the Indebtedness being
refunded or refinanced;
(2) has a Stated Maturity which is no earlier than the Stated
Maturity of the Indebtedness being refunded or refinanced;
(3) to the extent such Refinancing Indebtedness refinances
Indebtedness pari passu with the Notes or the Guarantee of such
Restricted Subsidiary, as applicable, is pari passu with the Notes or
the Guarantee of such Restricted Subsidiary, as applicable;
(4) is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or
less than the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced plus premium and fees Incurred in
connection with such refinancing; and
(5) shall not include
(x) Indebtedness of the Issuer or a Restricted Subsidiary that
is not a Guarantor that refinances Indebtedness of the Issuer; or
(y) Indebtedness of the Issuer or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary;
and provided further that subclauses (1) and (2) of this clause (n) will not
apply to any refunding or refinancing of any Senior Indebtedness;
(o) Indebtedness or Disqualified Stock of Persons that are acquired by
the Issuer or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of the indenture;
provided, however, that such Indebtedness or Disqualified Stock is not
Incurred in contemplation of such acquisition or merger or to provide all
or a portion of the funds or credit support required to consummate such
acquisition or merger; provided further, however, that after giving effect
to such acquisition and the Incurrence of such Indebtedness either
(1) the Issuer would be permitted to Incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first sentence of this covenant; or
(2) the Fixed Charge Coverage Ratio would be greater than
immediately prior to such acquisition; and
(p) Contribution Indebtedness.
Notwithstanding the foregoing, neither the Issuer nor any Guarantor may
Incur any Indebtedness pursuant to the immediately preceding paragraph if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Indebtedness unless such
Indebtedness will be subordinated to the Notes or such Guarantor's Guarantee, as
applicable, to at least the same extent as such Subordinated Indebtedness. For
purposes of determining compliance with this covenant, in the event that an item
of Indebtedness meets the criteria of more than one of the categories of
permitted Indebtedness
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described in clauses (a) through (p) above or is entitled to be Incurred
pursuant to the first paragraph of this covenant, the Issuer shall, in its sole
discretion, classify or reclassify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been Incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an Incurrence of Indebtedness for purposes of this covenant.
Limitation on Restricted Payments. The indenture provides that the Issuer
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on account of
Volume Holdings', the Issuer's or any of its Restricted Subsidiaries'
Equity Interests, including any payment made in connection with any merger
or consolidation involving the Issuer (other than:
(A) dividends or distributions by the Issuer payable solely in
Equity Interests (other than Disqualified Stock) of the Issuer; or
(B) dividends or distributions by a Restricted Subsidiary so long
as, in the case of any dividend or distribution payable on or in respect
of any class or series of securities issued by a Restricted Subsidiary
other than a Wholly Owned Restricted Subsidiary, the Issuer or a
Restricted Subsidiary receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in such
class or series of securities);
(2) purchase or otherwise acquire or retire for value any Equity
Interests of Volume Holdings or the Issuer;
(3) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value, in each case prior to any scheduled
repayment or scheduled maturity, any Subordinated Indebtedness (other than
the payment, redemption, repurchase, defeasance, acquisition or retirement
of
(A) Subordinated Indebtedness in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of such payment, redemption,
repurchase, defeasance, acquisition or retirement; and
(B) Indebtedness permitted under clauses (g) and (i) of the second
paragraph of the covenant described under "--Limitations on Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock"); or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction on a pro
forma basis, the Issuer could Incur $1.00 of additional Indebtedness
under the provisions of the first paragraph of "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the Issue Date (including Restricted Payments
permitted by clauses (1), (5), (6), and (8) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the
next succeeding paragraph), is less than the sum of, without
duplication,
(1) 50% of the Consolidated Net Income of the Issuer for the
period (taken as one accounting period) from the fiscal quarter that
first begins after the Issue Date to the end of the Issuer's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, in the case
such
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Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus
(2) 100% of the aggregate net proceeds, including cash and the
Fair Market Value (as determined in accordance with the next
succeeding sentence) of property other than cash, received by the
Issuer since the Issue Date from the issue or sale of Equity
Interests of the Issuer (excluding Refunding Capital Stock (as
defined below), Designated Preferred Stock, Excluded Contributions
and Disqualified Stock), including Equity Interests issued upon
conversion of Indebtedness or upon exercise of warrants or options
(other than an issuance or sale to a Subsidiary of the Issuer or an
employee stock ownership plan or trust established by the Issuer or
any of its Subsidiaries), plus
(3) 100% of the aggregate amount of contributions to the capital
of the Issuer received in cash and the Fair Market Value (as
determined in accordance with the next succeeding sentence) of
property other than cash since the Issue Date (other than Excluded
Contributions, Refunding Capital Stock, Designated Preferred Stock
and Disqualified Stock), plus
(4) 100% of the aggregate amount received in cash and the Fair
Market Value (as determined in accordance with the next succeeding
sentence) of property other than cash received from:
(A) the sale or other disposition (other than to the Issuer
or a Restricted Subsidiary) of Restricted Investments made by the
Issuer and its Restricted Subsidiaries and from repurchases and
redemptions of such Restricted Investments from the Issuer and
its Restricted Subsidiaries by any Person (other than the Issuer
or any of its Subsidiaries) and from repayments of loans or
advances which constituted Restricted Investments;
(B) the sale (other than to the Issuer or a Subsidiary) of
the Capital Stock of an Unrestricted Subsidiary; or
(C) a distribution or dividend from an Unrestricted
Subsidiary; plus
(5) in the event any Unrestricted Subsidiary has been
redesignated as a Restricted Subsidiary or has been merged,
consolidated or amalgamated with or into, or transfers or conveys its
assets to, or is liquidated into, the Issuer or a Restricted
Subsidiary, the Fair Market Value (as determined in good faith by the
Board of Directors) of the Investment of the Issuer in such
Unrestricted Subsidiary at the time of such redesignation,
combination or transfer (or of the assets transferred or conveyed, as
applicable), after deducting any Indebtedness associated with the
Unrestricted Subsidiary so designated or combined or any Indebtedness
associated with the assets so transferred or conveyed, not to exceed,
in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Issuer or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation
of the amount of Restricted Payments, less
(6) the amount of all Specified Cash Contributions.
The Fair Market Value of property other than cash covered by clauses (2),
(3), (4) and (5) above shall be determined in good faith by the Issuer and:
(A) in the event of property with a Fair Market Value in excess of
$2.5 million, shall be set forth in an Officers' Certificate; or
(B) in the event of property with a Fair Market Value in excess of
$10.0 million, shall be set forth in a resolution approved by at least a
majority of the Board of Directors.
The foregoing provisions will not prohibit:
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(1) the payment of any dividend or distribution within 60 days after
the date of declaration thereof, if at the date of declaration such payment
would have complied with the provisions of the indenture;
(2) (a) the repurchase, retirement or other acquisition of any Equity
Interests ("Retired Capital Stock") or Subordinated Indebtedness of the
Issuer in exchange for, or out of the proceeds of the substantially
concurrent sale of, Equity Interests of the Issuer or contributions to the
equity capital of the Issuer (other than any Disqualified Stock or any
Equity Interests sold to a Subsidiary of the Issuer or to an employee stock
ownership plan or any trust established by the Issuer or any of its
Subsidiaries) (collectively, including any such contributions, "Refunding
Capital Stock") and
(b) the declaration and payment of accrued dividends on the Retired
Capital Stock out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Issuer or to an employee stock ownership
plan or any trust established by the Issuer or any of its Subsidiaries) of
Refunding Capital Stock;
(3) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Issuer made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of the
Issuer which is Incurred in accordance with the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock" so long as:
(A) the principal amount of such new Indebtedness does not exceed
the principal amount of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired for value (plus the amount of any
premium required to be paid under the terms of the instrument governing
the Subordinated Indebtedness being so redeemed, repurchased, acquired
or retired);
(B) such Indebtedness is subordinated to Senior Indebtedness and
the Notes at least to the same extent as such Subordinated Indebtedness
so purchased, exchanged, redeemed, repurchased, acquired or retired for
value;
(C) such Indebtedness has a final scheduled maturity date equal to
or later than the final scheduled maturity date of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired; and
(D) such Indebtedness has a Weighted Average Life to Maturity equal
to or greater than the remaining Weighted Average Life to Maturity of
the Subordinated Indebtedness being so redeemed, repurchased, acquired
or retired;
(4) the repurchase, retirement or other acquisition (or dividends to
Volume Holdings to finance any such repurchase, retirement or other
acquisition) for value of Equity Interests of the Issuer or Volume Holdings
held, directly or indirectly, by any future, present or former employee,
director or consultant of the Issuer or any Subsidiary of the Issuer or any
entity in which any of the foregoing has a beneficial or economic ownership
interest pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement or any other
agreement pursuant to which stock is held for the benefit of such persons;
provided, however, that the aggregate amounts paid under this clause (4) do
not exceed $3.5 million in any calendar year (with unused amounts in any
calendar year being permitted to be carried over for the two succeeding
calendar years); provided further, however, that such amount in any
calendar year may be increased by an amount not to exceed:
(x) the cash proceeds received by the Issuer or any of its
Restricted Subsidiaries from the sale of Equity Interests of the Issuer
(other than Disqualified Stock) to members of management, directors or
consultants of the Issuer and its Restricted Subsidiaries that occurs
after the Issue Date (provided that the amount of such cash proceeds
utilized for any such repurchase, retirement, other acquisition or
dividend will not increase the amount available for Restricted Payments
under clause (c) of the immediately preceding paragraph), plus
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(y) the cash proceeds of key man life insurance policies received
by the Issuer and its Restricted Subsidiaries after the Issue Date
(provided that the Issuer may elect to apply all or any portion of the
aggregate increase contemplated by clauses (x) and (y) above in any single
calendar year);
(5) the declaration and payment of dividends or distributions to
holders of any class or series of Disqualified Stock of the Issuer or any
of its Restricted Subsidiaries issued or incurred in accordance with the
covenant entitled "--Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock and Preferred Stock";
(6) the declaration and payment of dividends or distributions to
holders of any class or series of Designated Preferred Stock issued after
the Issue Date; provided, however, that:
(A) for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the
date of issuance of such Designated Preferred Stock, after giving effect
to such issuance (and the payment of dividends or distributions) on a
pro forma basis, the Issuer would have had a Fixed Charge Coverage Ratio
of at least 2.25 to 1.00; and
(B) the aggregate amount of dividends declared and paid pursuant to
this clause (6) does not exceed the net cash proceeds received by the
Issuer from the sale of Designated Preferred Stock issued after the
Issue Date;
(7) Investments in Unrestricted Subsidiaries having an aggregate Fair
Market Value, taken together with all other Investments made pursuant to
this clause (7) that are at that time outstanding, not to exceed $10.0
million (with the Fair Market Value of each Investment being measured at
the time made and without giving effect to subsequent changes in value);
(8) the payment of dividends on the Issuer's Common Stock (or the
payment of dividends to Volume Holdings to fund the payment by Volume
Holdings of dividends on Volume Holdings' common stock) following the first
public offering of common stock of the Issuer or Volume Holdings, as the
case may be, after the Issue Date, of up to 6% per annum of the net
proceeds received by the Issuer or contributed to the Issuer by Volume
Holdings from such public offering;
(9) Investments that are made with Excluded Contributions;
(10) other Restricted Payments in an aggregate amount not to exceed $7.5
million;
(11) the payment of dividends, other distributions or other amounts by
the Issuer for the purposes set forth in clauses (A) and (B) below:
(A) to Volume Holdings in amounts equal to the amounts required for
Volume Holdings to pay fees and expenses required to maintain its
corporate existence and other operating costs in an aggregate amount of
up to $1.0 million per fiscal year; or
(B) to Volume Holdings in amounts equal to amounts required for
Volume Holdings to pay franchise taxes and Federal, state and local
income taxes to the extent such income taxes are attributable to the
income of the Issuer and its Restricted Subsidiaries (and, to the extent
of amounts actually received from its Unrestricted Subsidiaries, in
amounts required to pay such taxes to the extent attributable to the
income of such Unrestricted Subsidiaries);
(12) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(13) the transfer to Volume Holdings of trademarks and servicemarks
and the payment of license fees to Volume Holdings in respect of such
trademarks and servicemarks; provided, however, that all such license fees
are immediately contributed by Volume Holdings to the Issuer or used to
repay or service existing Indebtedness of Volume Holdings to the Issuer
(provided that the amount of such contributions or repayments will not
increase the amount
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available for Restricted Payments under clause (c) of the immediately
preceding paragraph); and
(14) dividends to Volume Holdings in an amount not to exceed
$50.0 million as contemplated by the "Use of Proceeds" section of the
Offering Memorandum;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (5), (6), (7), (8) and (10), no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof; provided further, however, that for purposes of
determining the aggregate amount expended for Restricted Payments in accordance
with clause (c) of the immediately preceding paragraph, only the amounts
expended under clauses (1), (5), (6) and (8) shall be included.
As of the Issue Date, all of the Issuer's Subsidiaries were Restricted
Subsidiaries. The Issuer will not permit any Unrestricted Subsidiary to become a
Restricted Subsidiary except pursuant to the definition of "Unrestricted
Subsidiary." For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Issuer and its
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount determined as
set forth in the last sentence of the definition of "Investments." Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (7), (9) or (10)) and if such Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
indenture provides that the Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to:
(a) (x) pay dividends or make any other distributions to the Issuer or
any of its Restricted Subsidiaries:
(1) on its Capital Stock; or
(2) with respect to any other interest or participation in, or
measured by, its profits; or
(y) pay any Indebtedness owed to the Issuer or any of its Restricted
Subsidiaries;
(b) make loans or advances to the Issuer or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Issuer or any of its Restricted Subsidiaries, except in each case for such
encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Issue Date, including pursuant to the Credit Agreement and the other
Senior Credit Documents;
(2) the indenture and the Notes;
(3) applicable law or any applicable rule, regulation or order;
(4) any agreement or other instrument relating to Indebtedness
of a Person acquired by the Issuer or any Restricted Subsidiary which
was in existence at the time of such acquisition (but not created in
contemplation thereof or to provide all or any portion of the funds
or credit support utilized to consummate such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(5) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition;
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(6) Secured Indebtedness otherwise permitted to be Incurred
pursuant to the covenants described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock" and "--Liens" that limit the right of the debtor to
dispose of the assets securing such Indebtedness;
(7) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of
business;
(8) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(9) customary provisions contained in leases, agreements to
provide services and other similar agreements entered into in the
ordinary course of business that impose restrictions of the type
described in clause (c) above;
(10) other Indebtedness of Restricted Subsidiaries permitted to
be Incurred subsequent to the Issue Date pursuant to clause (l) of
the second paragraph of the covenant described under "--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock"; or
(11) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (1) through
(10) above; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Board of Directors, no more restrictive with respect to such dividend
and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Asset Sales. The indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, cause or make an Asset Sale,
unless:
(x) the Issuer, or its Restricted Subsidiaries, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value (as determined in good faith by the Issuer) of the assets
sold or otherwise disposed of; and
(y) except in the case of a Permitted Asset Swap, at least 75% of the
consideration therefor received by the Issuer, or such Restricted
Subsidiary, as the case may be, is in the form of Cash Equivalents;
provided that the amount of:
(a) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the
Issuer or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes) that are assumed by the
transferee of any such assets;
(b) any notes or other obligations or other securities received by
the Issuer or such Restricted Subsidiary from such transferee that are
converted by the Issuer or such Restricted Subsidiary into cash within
180 days of the receipt thereof (to the extent of the cash received);
and
(c) any Designated Noncash Consideration received by the Issuer or
any of its Restricted Subsidiaries in such Asset Sale having an
aggregate Fair Market Value, taken together with all other Designated
Noncash Consideration received pursuant to this clause (c) that is at
that time outstanding, not to exceed the greater of 7.5% of Total Assets
or $10.0 million (with the Fair Market Value of each item of Designated
Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value)
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shall be deemed to be Cash Equivalents for the purposes of this
provision.
Within 365 days after the Issuer's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Issuer or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option:
(1) to permanently reduce Obligations under the Credit Agreement (and,
in the case of revolving Obligations, to correspondingly reduce commitments
with respect thereto) or other Senior Indebtedness or Pari Passu
Indebtedness (provided that if the Issuer shall so reduce Obligations under
Pari Passu Indebtedness, it will equally and ratably reduce Obligations
under the Notes by making an offer (in accordance with the procedures set
forth below for an Asset Sale Offer) to all Holders to purchase at a
purchase price equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and liquidated damages, if any, the pro rata principal
amount of Notes) or Indebtedness of a Restricted Subsidiary, in each case
other than Indebtedness owed to the Issuer or an Affiliate of the Issuer;
(2) to an investment in any one or more businesses, capital
expenditures or acquisitions of other assets in each case used or useful in
a Similar Business; and/or
(3) to make an investment in properties or assets that replace the
properties and assets that are the subject of such Asset Sale.
Pending the final application of any such Net Proceeds, the Issuer or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. The indenture provides that any Net
Proceeds from any Asset Sale that are not applied as provided and within the
time period set forth in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Issuer shall make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes, that
is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and liquidated damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the indenture. The Issuer will commence an Asset Sale
Offer with respect to Excess Proceeds within ten Business Days after the date
that Excess Proceeds exceeds $15.0 million by mailing the notice required
pursuant to the terms of the indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Issuer may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described below.
Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws or regulations are applicable in connection with the repurchase of the
Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the indenture,
the Issuer will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in the indenture
by virtue thereof.
If more Notes are tendered pursuant to an Asset Sale Offer than the Issuer
is required to purchase, selection of such Notes for purchase will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed, or if such Notes
are not so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be purchased in part.
Notices of an Asset Sale Offer shall be mailed by first class mail, postage
prepaid, at least 30 but not more than 60 days before the purchase date to each
Holder of Notes at such Holder's registered address. If any Note is to be
purchased in part only, any notice of purchase that relates
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to such Note shall state the portion of the principal amount thereof that has
been or is to be purchased.
A new Note in principal amount equal to the unpurchased portion of any Note
purchased in part will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the purchase date unless the
Issuer defaults in payment of the purchase price, interest shall cease to accrue
on Notes or portions thereof purchased.
Transactions with Affiliates. The indenture provides that the Issuer will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly:
o make any payment to;
o sell, lease, transfer or otherwise dispose of any of its properties or
assets to;
o purchase any property or assets from; or
o enter into or make or amend any transaction or series of transactions,
contract, agreement, understanding, loan, advance or guarantee with, or
for the benefit of, any Affiliate of the Issuer (each of the foregoing,
an "Affiliate Transaction") involving aggregate consideration in excess
of $2.5 million,
unless:
(a) such Affiliate Transaction is on terms that are not materially
less favorable to the Issuer or the relevant Restricted Subsidiary than
those that could have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $10.0
million, the Issuer delivers to the Trustee a resolution adopted by the
majority of the Board of Directors of the Issuer, approving such Affiliate
Transaction and set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following:
(1) transactions between or among the Issuer and/or any of its Restricted
Subsidiaries;
(2) Permitted Investments and Restricted Payments permitted by the
provisions of the indenture described above under the covenant
"--Limitation on Restricted Payments";
(3) the payment of annual management, consulting, monitoring and
advisory fees to Blackstone or GE Capital in an amount not to exceed
$1.5 million in any calendar year and any related out-of-pocket expenses;
(4) the payment of reasonable and customary fees paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultants of the Issuer or any Restricted Subsidiary;
(5) payments by the Issuer or any of its Restricted Subsidiaries to
Blackstone or GE Capital, made for any financial advisory, financing,
underwriting or placement services or in respect of other investment
banking activities, including, without limitation, in connection with
acquisitions or divestitures, which payments are approved by a majority of
the Board of Directors of the Issuer in good faith;
(6) transactions in which the Issuer or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Issuer or such Restricted Subsidiary from a financial point of view or
meets the requirements of clause (a) of the preceding paragraph;
(7) payments or loans to employees or consultants in the ordinary
course of business which are approved by a majority of the Board of
Directors of the Issuer in good faith;
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(8) any agreement as in effect as of the Issue Date or any amendment
thereto (so long as any such amendment is not disadvantageous to the
holders of the Notes in any material respect) or any transaction
contemplated thereby;
(9) the existence of, or the performance by the Issuer or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by the Issuer
or any of its Restricted Subsidiaries of its obligations under any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause
(9) to the extent that the terms of any such amendment or new agreement are
not otherwise disadvantageous to the Holders of the Notes in any material
respect;
(10) the payment of all fees and expenses related to the Transactions,
including fees to Blackstone, which are described in the Offering
Memorandum;
(11) transactions with customers, clients, suppliers or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the indenture, which
are fair to the Issuer and its Restricted Subsidiaries in the reasonable
determination of the Board of Directors or the senior management of the
Issuer, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; and
(12) the issuance of Capital Stock (other than Disqualified Stock) of
the Issuer or Volume Holdings to any Permitted Holder.
Liens. The indenture provides that the Issuer will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
Incur or suffer to exist any Lien on any asset or property of the Issuer or such
Restricted Subsidiary, or any income or profits therefrom, or assign or convey
any right to receive income therefrom, that secures any obligations of the
Issuer or any of its Subsidiaries (other than Senior Indebtedness) unless the
Notes are equally and ratably secured with (or on a senior basis to, in the case
of obligations subordinated in right of payment to the Notes) the obligations so
secured or until such time as such obligations are no longer secured by a Lien.
The preceding sentence will not require the Issuer or any Restricted Subsidiary
to secure the Notes if the Lien consists of a Permitted Lien.
The indenture provides that no Guarantor will directly or indirectly
create, Incur or suffer to exist any Lien on any asset or property of such
Guarantor or any income or profits therefrom, or assign or convey any right to
receive income therefrom, that secures any obligation of such Guarantor (other
than Senior Indebtedness of such Guarantor) unless the Guarantee of such
Guarantor is equally and ratably secured with (or on a senior basis to, in the
case of obligations subordinated on right of payment to such Guarantor's
Guarantee) the obligations so secured or until such time as such obligations are
no longer secured by a Lien. The preceding sentence will not require any
Guarantor to secure its Guarantee if the Lien consists of a Permitted Lien.
Limitation on Other Pari Passu Indebtedness. The indenture provides that
the Issuer will not, and will not permit any Guarantor to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Issuer or any
Indebtedness of any Guarantor, as the case may be, unless such Indebtedness is
either:
(1) pari passu in right of payment with the Notes or such Guarantor's
Guarantee, as the case may be, or
(2) subordinate in right of payment to the Notes or such Guarantor's
Guarantee, as the case may be.
Reports and Other Information. The indenture provides that notwithstanding
that the Issuer may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly
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reporting pursuant to rules and regulations promulgated by the SEC, the Issuer
will file with the SEC (and provide the Trustee and Holders with copies thereof,
without cost to each Holder, within 15 days after it files them with the SEC):
(1) within 90 days after the end of each fiscal year, annual reports
on Form 10-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such successor
or comparable form);
(2) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form);
(3) promptly from time to time after the occurrence of an event
required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and
(4) any other information, documents and other reports which the
Issuer would be required to file with the SEC if it were subject to
Section 13 or 15(d) of the Exchange Act;
provided, however, the Issuer shall not be so obligated to file such reports
with the SEC if the SEC does not permit such filing, in which event the Issuer
will make available such information to prospective purchasers of Notes, in
addition to providing such information to the Trustee and the Holders, in each
case within 15 days after the time the Issuer would be required to file such
information with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act. Notwithstanding the foregoing, such requirements shall be deemed
satisfied prior to the earlier of
(1) 90 days after the Issue Date; and
(2) the filing with the SEC of the Exchange Offer Registration
Statement (as defined) and/or Shelf Registration Statement,
by the filing with the SEC of the Exchange Offer Registration Statement and/or
Shelf Registration Statement, with such financial information that satisfies
Regulation S-X of the Securities Act, provided, however, that in order for the
provisions of clause (1) above to be deemed satisfied with respect to the year
ended December 29, 1998, such Exchange Offer Registration Statement or Shelf
Registration Statement must include audited financial statements for the year
ended December 29, 1998.
Future Guarantors. The indenture provides that the Issuer will cause each
Restricted Subsidiary organized under the laws of the United States of America
or any state or territory thereof that Incurs Indebtedness or issues shares of
Disqualified Stock or Preferred Stock to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Subsidiary will guarantee payment
of the Notes. Each Guarantee will be limited to an amount not to exceed the
maximum amount that can be guaranteed by that Subsidiary without rendering the
Guarantee, as it relates to such Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The indenture provides that the Issuer may not consolidate or merge with or
into or wind up into (whether or not the Issuer is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to any Person unless:
(1) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made is a corporation, partnership or limited
liability company organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory
thereof (the Issuer or such Person, as the case may be, being called the
"Successor Company" in this prospectus);
(2) the Successor Company (if other than the Issuer) expressly assumes
all the obligations of the Issuer under the indenture and the Notes
pursuant to a supplemental indenture or other documents or instruments in
form reasonably satisfactory to the Trustee;
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(3) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any of its Restricted Subsidiaries as a result of such transaction as
having been Incurred by the Successor Company or such Restricted Subsidiary
at the time of such transaction) no Default or Event of Default shall have
occurred and be continuing;
(4) immediately after giving pro forma effect to such transaction, as
if such transaction had occurred at the beginning of the applicable
four-quarter period, either:
(A) the Successor Company would be permitted to Incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first sentence of the covenant described
under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock"; or
(B) the Fixed Charge Coverage Ratio for the Successor Company and
its Restricted Subsidiaries would be greater than such ratio for the
Issuer and its Restricted Subsidiaries immediately prior to such
transaction;
(5) each Guarantor, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Guarantee shall apply to such Person's obligations under the indenture and
the Notes; and
(6) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture.
The Successor Company will succeed to, and be substituted for, the Issuer under
the indenture and the Notes. Notwithstanding the foregoing clauses (3) and (4):
(a) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Issuer or to
another Restricted Subsidiary; and
(b) the Issuer may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Issuer in another state of the United States
so long as the amount of Indebtedness of the Issuer and its Restricted
Subsidiaries is not increased thereby.
The indenture further provides that, subject to certain limitations
described in the indenture governing release of a Guarantee upon the sale or
disposition of a Guarantor, each Guarantor will not, and the Issuer will not
permit a Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any Person unless:
(1) such Guarantor is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than such
Guarantor) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation, partnership or
limited liability company organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any
territory thereof (such Guarantor or such Person, as the case may be, being
called the "Successor Guarantor");
(2) the Successor Guarantor (if other than such Guarantor) expressly
assumes all the obligations of such Guarantor under the indenture and such
Guarantors's Guarantee pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee;
(3) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Guarantor or
any of its Subsidiaries as a result of such transaction as having been
Incurred by the Successor Guarantor or such Subsidiary at the time of such
transaction) no Default or Event of Default shall have occurred and be
continuing; and
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(4) the Guarantor shall have delivered or caused to be delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the indenture.
Subject to certain limitations described in the indenture, the Successor
Guarantor will succeed to, and be substituted for, such Guarantor under the
indenture and such Guarantor's Guarantee. Notwithstanding the foregoing clause
(3), a Guarantor may merge with an Affiliate incorporated solely for the purpose
of reincorporating such Guarantor in another state of the United States so long
as the amount of Indebtedness of the Guarantor is not increased thereby.
DEFAULTS
An Event of Default is defined in the indenture as:
(1) a default in any payment of interest on any Note when due, whether
or not prohibited by the provisions described under "--Ranking" above,
continued for 30 days;
(2) a default in the payment of principal or premium, if any, of any
Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "--Ranking" above;
(3) the failure by the Issuer to comply with its obligations under the
covenant described under "--Merger, Consolidation or Sale of All or
Substantially All Assets" above;
(4) the failure by the Issuer to comply for 30 days after notice with
any of its obligations under the covenants described under "--Change of
Control" or "--Certain Covenants" above (in each case, other than a failure
to purchase Notes);
(5) the failure by the Issuer to comply for 60 days after notice with
its other agreements contained in the Notes or the indenture;
(6) the failure by the Issuer or any Significant Subsidiary to pay any
Indebtedness (other than Indebtedness owing to the Issuer or a Restricted
Subsidiary) within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $15.0 million or its foreign currency equivalent (the "cross
acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Issuer or a Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any judgment or decree for the payment of money
(other than judgments which are covered by enforceable insurance policies
issued by solvent carriers) in excess of $15.0 million or its foreign
currency equivalent against the Issuer or a Significant Subsidiary if:
(A) an enforcement proceeding thereon is commenced; or
(B) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed
(the "judgment default provision"); or
(9) any Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Guarantor denies or disaffirms
its obligations under the indenture or any Guarantee and such Default
continues for 10 days.
The foregoing constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (4) or (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Issuer of the
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default and the Issuer does not cure such default within the time specified in
clauses (4) and (5) hereof after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Issuer) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Issuer may declare the principal of,
premium, if any, and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Issuer occurs, the principal of,
premium, if any, and interest on all the Notes will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity;
and
(5) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
actually known to the Trustee, the Trustee must mail to each Holder notice of
the Default within the earlier of 90 days after it occurs or 30 days after it is
actually known to a Trust Officer or written notice of it is received by the
Trustee. Except in the case of a Default in the payment of principal of, premium
(if any) or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
notice is in the interests of the Noteholders. In addition, the Issuer is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Issuer also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Issuer is taking or proposes to take in respect thereof.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"Optional Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
(6) make any change to the subordination provisions of the indenture
that adversely affects the rights of any Holder;
(7) impair the right of any Holder to receive payment of principal of,
premium, if any, and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's Notes;
(8) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions; or
(9) modify the Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Issuer and Trustee may amend the
indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership or limited liability
company of the obligations of the Issuer under the indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated Notes
are described in Section 163(f)(2)(B) of the Code), to add Guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the Issuer
for the benefit of the Holders or to surrender any right or power conferred upon
the Issuer, to make any change that does not adversely affect the rights of any
Holder, to comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA or to make certain changes to the
indenture to provide for the issuance of Additional Notes. However, no amendment
may be made to the subordination provisions of the indenture that adversely
affects the rights of any holder of Senior Indebtedness then outstanding unless
the holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
The consent of the Noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Issuer is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
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TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer may require a Noteholder to pay any taxes
required by law or permitted by the indenture. The Issuer is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The outstanding Notes have been and the exchange Notes will be issued in
registered form and the registered Holder of a Note will be treated as the owner
of such Note for all purposes.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuer at any time may terminate its obligations under the covenants
described under "Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under "--Defaults" above and the
limitations contained in clause (4) of the first paragraph under "Merger,
Consolidation or Sale of All or Substantially All Assets" above ("covenant
defeasance"). If the Issuer exercises its legal defeasance option or its
covenant defeasance option, each Guarantor will be released from all of its
obligations with respect to its Guarantee.
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) with respect only to
Significant Subsidiaries, (8) with respect only to Significant Subsidiaries or
(9) under "--Defaults" above or because of the failure of the Issuer to comply
with clause (4) of the first paragraph under "--Merger, Consolidation or Sale of
All or Substantially All Assets" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
indenture and Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The indenture provides that it and the Notes are governed by, and construed
in accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person; and
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(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, in each case, other than Indebtedness Incurred as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by such Person, or
such asset was acquired by such person, as applicable.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For purposes of the
provisions described under "--Certain Covenants--Transactions with Affiliates"
and "--Certain Covenants--Asset Sales" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Issuer or Volume Holdings or
of rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Sale" means:
(1) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a Sale/Leaseback Transaction) of the Issuer or
any Restricted Subsidiary (each referred to in this definition as a
"disposition"); or
(2) the issuance or sale of Equity Interests of any Restricted
Subsidiary (other than to the Issuer or another Restricted Subsidiary)
(whether in a single transaction or a series of related transactions), in
each case other than:
(a) a disposition of Cash Equivalents or Investment Grade
Securities or obsolete or worn out equipment in the ordinary course of
business;
(b) the disposition of all or substantially all of the assets of
the Issuer in a manner permitted pursuant to the provisions described
above under "--Merger, Consolidation or Sale of All or Substantially All
Assets" or any disposition that constitutes a Change of Control;
(c) any Restricted Payment or Permitted Investment that is
permitted to be made, and is made, under the covenant described above
under "--Limitation on Restricted Payments";
(d) any disposition of assets with an aggregate Fair Market Value
of less than $2.0 million;
(e) any disposition of property or assets by a Restricted
Subsidiary to the Issuer or by the Issuer or a Restricted Subsidiary to
a Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar
Business;
(g) sales of assets received by the Issuer upon the foreclosure on
a Lien;
(h) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; and
(i) sales of inventory in the ordinary course of business
consistent with past practices and sales of equipment upon termination
of a contract with a client entered into in the ordinary course of
business pursuant to the terms of such contract.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including
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interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Issuer whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof.
"Blackstone" means Blackstone Capital Partners II Merchant Banking Fund
L.P. and its Affiliates.
"Board of Directors" means the Board of Directors of the Issuer or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) U.S. dollars and foreign currency exchanged into U.S. dollars
within 180 days;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof;
(3) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight
bank deposits, in each case with any commercial bank having capital and
surplus in excess of $500.0 million and whose long-term debt is rated "A"
or the equivalent thereof by Moody's or S&P;
(4) repurchase obligations for underlying securities of the types
described in clauses (2) and (3) above entered into with any financial
institution meeting the qualifications specified in clause (3) above;
(5) commercial paper issued by a corporation (other than an Affiliate
of the Issuer) rated at least "A-2" or the equivalent thereof by Moody's or
S&P and in each case maturing within one year after the date of
acquisition;
(6) investment funds investing at least 95% of their assets in
securities of the types described in clauses (1) through (5) above;
(7) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P;
and
(8) Indebtedness or preferred stock issued by Persons (other than
Blackstone, GE Capital or their Affiliates) with a rating of "A" or higher
from S&P or "A-2" or higher from Moody's.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense (excluding amortization of deferred financing fees) of such Person and
its Restricted Subsidiaries for such period on a consolidated basis and
otherwise determined in accordance with GAAP.
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, the interest component of Capitalized Lease Obligations (or any
financing lease which has substantially the same economic effect as a
Capitalized Lease Obligation) and net payments and receipts (if any)
pursuant to Hedging Obligations and excluding amortization of deferred
financing fees);
(2) consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued; and
(3) the earned discount or yield with respect to the sale of receivables.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis; provided, however, that:
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto) shall be excluded;
(2) any increase in amortization or depreciation resulting from
purchase accounting in relation to any acquisition that is consummated
after the Issue Date, net of taxes, shall be excluded;
(3) the Net Income for such period shall not include the cumulative
effect of a change in accounting principles during such period;
(4) any net after-tax income or loss from discontinued operations and
any net after-tax gains or losses on disposal of discontinued operations
shall be excluded;
(5) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the
ordinary course of business (as determined in good faith by the Board of
Directors) shall be excluded;
(6) the Net Income for such period of any Person that is not a
Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is
accounted for by the equity method of accounting, shall be included only to
the extent of the amount of dividends or distributions or other payments
paid in cash (or to the extent converted into cash) to the referent Person
or a Restricted Subsidiary thereof in respect of such period;
(7) the Net Income of any Person acquired in a pooling of interests
transaction shall not be included for any period prior to the date of such
acquisition; and
(8) the Net Income for such period of any Restricted Subsidiary shall
be excluded to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of its Net Income is
not at the date of determination permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by the
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, unless such
restrictions with respect to the payment of dividends or in similar
distributions have been legally waived; provided that the net loss of any
such Restricted Subsidiary shall be included.
Notwithstanding the foregoing, for the purpose of the covenant described under
"--Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Issuer or a Restricted
Subsidiary to the extent such dividends, repayments or transfers increase the
amount of Restricted Payments permitted under such covenant pursuant to clauses
(c)(4) and (5) of the first paragraph thereof.
"Contribution Indebtedness" means Indebtedness of the Issuer in an
aggregate principal amount not greater than the amount of all Specified Cash
Contributions, provided that such Contribution Indebtedness:
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(1) has a Stated Maturity later than the Stated Maturity of the Notes;
(2) is Incurred substantially concurrently with such Specified Cash
Contributions; and
(3) is so designated as Contribution Indebtedness pursuant to an
Officers' Certificate on the Incurrence date thereof.
"Credit Agreement" means the credit agreement dated as of December 3, 1998,
as amended, restated, supplemented, waived, replaced, restructured, repaid,
refunded, refinanced or otherwise modified from time to time, including any
agreement extending the maturity thereof or otherwise restructuring all or any
portion of the Indebtedness under such agreement (except to the extent that any
such amendment, restatement, supplement, waiver, replacement, refunding,
refinancing or other modification thereto would be prohibited by the terms of
the indenture, unless otherwise agreed to by the Holders of at least a majority
in aggregate principal amount of Notes at the time outstanding), among the
Issuer, Volume Holdings, the financial institutions named therein and The Chase
Manhattan Bank, as Administrative Agent.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of noncash
consideration received by the Issuer or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Cash Equivalents received in connection with
a subsequent sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means Preferred Stock of the Issuer (other
than Disqualified Stock) that is issued for cash (other than to a Subsidiary of
the Issuer or an employee stock ownership plan or trust established by the
Issuer or any of its Subsidiaries) and is so designated as Designated Preferred
Stock, pursuant to an Officers' Certificate, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in clause (c)
of the covenant described under "--Limitation on Restricted Payments."
"Designated Senior Indebtedness" means, with respect to the Issuer or a
Guarantor:
(1) the Bank Indebtedness and;
(2) any other Senior Indebtedness of the Issuer or such Guarantor
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof, are committed to lend up to, at least $15.0 million and is
specifically designated by the Issuer or such Guarantor in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is redeemable or exchangeable), or upon the
happening of any event:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in each case prior to the first anniversary of the maturity date of
the Notes;
provided, however, that only the portion of Capital Stock which so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so redeemable at
the option of the holder thereof prior to such first anniversary shall be deemed
to be Disqualified Stock; provided further, however, that if such Capital Stock
is issued to any employee or to any plan for the benefit of employees of the
Issuer or its Subsidiaries or by any such plan to such employees, such Capital
Stock shall not constitute Disqualified Stock solely because it may be required
to be repurchased by the Issuer in order to satisfy applicable statutory or
regulatory obligations or as a result of such employee's termination, death or
disability.
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"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus, without duplication:
(1) provision for taxes based on income or profits of such Person for
such period deducted in computing Consolidated Net Income; plus
(2) Consolidated Interest Expense of such Person for such period to
the extent the same was deducted in computing Consolidated Net Income; plus
(3) Consolidated Depreciation and Amortization Expense of such Person
for such period to the extent such Consolidated Depreciation and
Amortization Expense was deducted in computing Consolidated Net Income;
plus
(4) any non-recurring fees, expenses or charges related to any Equity
Offering, Permitted Investment, acquisition or Indebtedness permitted to be
Incurred by the indenture (in each case, whether or not successful),
including any such fees, expenses or charges related to the Transactions
(including fees to Blackstone), deducted in such period in computing
Consolidated Net Income; plus
(5) the amount of any nonrecurring charges related to client contract
terminations, one-time severance costs related to the acquisition of
Service America or one-time severance costs incurred in connection with
acquisitions consummated after the Issue Date deducted in such period in
computing Consolidated Net Income; plus
(6) any other noncash charges reducing Consolidated Net Income for
such period (excluding any such charge which consists of or requires an
accrual of, or cash reserve for, anticipated cash charges for any future
period); plus
(7) the amount of annual management, monitoring, consulting and
advisory fees and related expenses paid to Blackstone and GE Capital
deducted in such period in computing Consolidated Net Income in an amount
not to exceed $1.5 million during any fiscal year,
less, without duplication,
(8) noncash items increasing Consolidated Net Income of such Person
for such period (excluding any items which represent the reversal of any
accrual of, or cash reserve for, anticipated cash charges in any prior
period).
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the Issuer
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating Consolidated Net Income and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Issuer by such
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of common stock or
Preferred Stock of the Issuer or Volume Holdings (other than Disqualified
Stock), other than:
(1) public offerings with respect to the Issuer's common stock
registered on Form S-8; and
(2) any such public or private sale that constitutes an Excluded
Contribution or a Specified Cash Contribution.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Excluded Contributions" means the net cash proceeds (other than Specified
Cash Contributions) received by the Issuer after the Issue Date from:
(1) contributions to its common equity capital; and
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(2) the sale (other than to a Subsidiary of the Issuer or to any
Issuer or Subsidiary management equity plan or stock option plan or any
other management or employee benefit plan or agreement) of Capital Stock
(other than Disqualified Stock and Designated Preferred Stock) of the
Issuer,
in each case designated as Excluded Contributions pursuant to an Officers'
Certificate executed by an Officer of the Issuer, the cash proceeds of which are
excluded from the calculation set forth in clause (c) of the "--Limitation on
Restricted Payments" covenant.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Issuer or any of its
Restricted Subsidiaries Incurs or redeems any Indebtedness (other than in the
case of revolving credit borrowings, in which case interest expense shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period) or issues or redeems Preferred Stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such Incurrence or
redemption of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable four-quarter
period.
For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP), in each case with respect to an
operating unit of a business, that have been made by the Issuer or any of its
Restricted Subsidiaries during the four-quarter reference period or subsequent
to such reference period and on or prior to or simultaneously with the
Calculation Date shall be calculated on a pro forma basis assuming that all such
Investments, acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
four-quarter reference period. If since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Issuer or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation, in each case with respect to an operating unit of a
business, that would have required adjustment pursuant to this definition, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning of
the applicable four-quarter period. For purposes of this definition, whenever
pro forma effect is to be given to any transaction, the pro forma calculations
shall be made in good faith by a responsible financial or accounting officer of
the Issuer. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be calculated as
if the rate in effect on the Calculation Date had been the applicable rate for
the entire period (taking into account any Hedging Obligations applicable to
such Indebtedness if such Hedging Obligation has a remaining term in excess of
12 months). Interest on a Capitalized Lease Obligation shall be deemed to accrue
at an interest rate reasonably determined by a responsible financial or
accounting officer of the Issuer to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP.
For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the
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rate actually chosen, or, if none, then based upon such optional rate chosen as
the Issuer may designate. Any such pro forma calculation may include adjustments
appropriate, in the reasonable determination of the Issuer as set forth in an
Officers' Certificate, to reflect operating expense reductions reasonably
expected to result from any acquisition or merger.
"Fixed Charges" means, with respect to any Person for any period, the sum
of:
(1) Consolidated Interest Expense of such Person for such period; and
(2) all cash dividend payments (excluding items eliminated in
consolidation) on any series of Preferred Stock or Disqualified Stock of
such Person and its Subsidiaries.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States of America or any state or
territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date. For the purposes of the
indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary, but the interest of such Person in an Unrestricted
Subsidiary will be accounted for as an Investment.
"GE Capital" means General Electric Capital Corporation and its Affiliates.
"Government Securities" means securities that are:
(1) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged; or
(2) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America,
which, in each case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect to
any such Government Securities or a specific payment of principal of or interest
on any such Government Securities held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Securities or the specific payment of
principal of or interest on the Government Securities evidenced by such
depository receipt.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantee" means any guarantee of the obligations of the Issuer under the
indenture and the Notes by any Person in accordance with the provisions of the
indenture.
"Guarantor" means any Person that Incurs a Guarantee; provided that upon
the release or discharge of such Person from its Guarantee in accordance with
the indenture, such Person ceases to be a Guarantor.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) currency exchange, interest rate or commodity swap agreements,
currency exchange, interest rate or commodity cap agreements and currency
exchange, interest rate or commodity collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity
prices.
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"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person:
(1) the principal and premium (if any) of any indebtedness of such
Person, whether or not contingent:
(a) in respect of borrowed money;
(b) evidenced by bonds, notes, debentures or similar instruments or
letters of credit or bankers' acceptances (or, without duplication,
reimbursement agreements in respect thereof);
(c) representing the deferred and unpaid purchase price of any
property, except any such balance that constitutes a trade payable or
similar obligation to a trade creditor due within six months from the
date on which it is Incurred, in each case Incurred in the ordinary
course of business, which purchase price is due more than six months
after the date of placing the property in service or taking delivery and
title thereto;
(d) in respect of Capitalized Lease Obligations; or
(e) representing any Hedging Obligations, if and to the extent that
any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability on a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance
with GAAP;
(2) to the extent not otherwise included, any obligation of such
Person to be liable for, or to pay, as obligor, guarantor or otherwise, on
the Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), and
(3) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not
such Indebtedness is assumed by such Person);
provided, however, that the amount of such Indebtedness will be the
lesser of:
(a) the Fair Market Value of such asset at such date of
determination; and
(b) the amount of such Indebtedness of such other Person;
provided, further, that any obligation of the Issuer or any Restricted
Subsidiary in respect of:
(x) minimum guaranteed commissions, or other similar payments,
to clients; or
(y) indemnification obligations to clients,
in each case pursuant to contracts to provide services to clients entered into
in the ordinary course of business shall be deemed not to constitute
Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm or consultant to Persons engaged in a Similar Business,
in each case of nationally recognized standing that is, in the good faith
determination of the Issuer, qualified to perform the task for which it has been
engaged.
"Initial Purchasers" means Chase Securities Inc. and Goldman, Sachs & Co.
"Investment Grade Securities" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(other than Cash Equivalents);
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(2) debt securities or debt instruments (other than those issued by
Blackstone, GE Capital or any of their Affiliates) with a rating of BBB-or
higher by S&P or Baa3 or higher by Moody's or the equivalent of such rating
by such rating organization, or if no rating of S&P or Moody's then exists,
the equivalent of such rating by any other nationally recognized securities
rating agency, but excluding any debt securities or instruments
constituting loans or advances among the Issuer and its Subsidiaries; and
(3) investments in any fund that invests exclusively in investments of
the type described in clauses (1) and (2) which fund may also hold
immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
trade credit and advances to customers and commission, travel and similar
advances to officers, employees and consultants made in the ordinary course of
business), purchases or other acquisitions for consideration (including
agreements providing for the adjustment of purchase price) of Indebtedness,
Equity Interests or other securities issued by any other Person and investments
that are required by GAAP to be classified on the balance sheet of the Issuer in
the same manner as the other investments included in this definition to the
extent such transactions involve the transfer of cash or other property.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Limitation on Restricted Payments:"
(1) "Investments" shall include the portion (proportionate to the Issuer's
equity interest in such Subsidiary) of the Fair Market Value of the net assets
of a Subsidiary of the Issuer at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Issuer shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount
(if positive) equal to:
(x) the Issuer's "Investment" in such Subsidiary at the time of such
redesignation; less
(y) the portion (proportionate to the Issuer's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"Issue Date" means March 4, 1999.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided that in no event shall an operating lease be deemed to constitute a
Lien.
"Management Group" means the group consisting of the directors, executive
officers and other personnel of the Issuer and Volume Holdings on the Issue
Date.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received in respect of or upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale
and any cash payments received by way of deferred payment of
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principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding the assumption by the acquiring person of
Indebtedness relating to the disposed assets or other considerations received in
any other noncash form), net of the direct costs relating to such Asset Sale and
the sale or disposition of such Designated Noncash Consideration (including,
without limitation, legal, accounting and investment banking fees, and brokerage
and sales commissions), and any relocation expenses Incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements related
thereto), amounts required to be applied to the repayment of principal, premium
(if any) and interest on Indebtedness required (other than pursuant to the
second paragraph of the covenant described under "--Asset Sales") to be paid as
a result of such transaction, and any deduction of appropriate amounts to be
provided by the Issuer as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Issuer after such sale or other disposition thereof, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and bankers' acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness; provided that Obligations with respect to the Notes shall not
include fees or indemnifications in favor of the Trustee and other third parties
other than the Holders of the Notes.
"Offering Memorandum" means the Offering Memorandum dated February 25,
1999, issued by the Issuer in connection with the issue of the outstanding
Notes.
"Officer" means the Chairman of the Board, the President, any Executive
Vice President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Issuer.
"Officers' Certificate" means a certificate signed on behalf of the Issuer
by two Officers of the Issuer, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Issuer that meets the requirements set forth in the
indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer or the Trustee.
"Pari Passu Indebtedness" means:
(1) with respect to the Issuer, the Notes and any Indebtedness which
ranks pari passu in right of payment to the Notes and;
(2) with respect to any Guarantor, its Guarantee and any Indebtedness
which ranks pari passu in right of payment to such Guarantor's Guarantee.
"Permitted Asset Swap" means any one or more transactions in which the
Issuer or any Restricted Subsidiary exchanges assets for consideration
consisting of:
(1) assets used or useful in a Similar Business; and
(2) any cash or Cash Equivalents, provided that such cash or Cash
Equivalents will be considered Net Proceeds from an Asset Sale.
"Permitted Holders" means Blackstone, GE Capital and the Management Group.
"Permitted Investments" means:
(1) any Investment in the Issuer or any Restricted Subsidiary;
(2) any Investment in Cash Equivalents or Investment Grade Securities;
(3) any Investment by the Issuer or any Restricted Subsidiary of the
Issuer in a Person that is primarily engaged in a Similar Business if as a
result of such Investment:
(a) such Person becomes a Restricted Subsidiary; or
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(b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or a Restricted Subsidiary:
(4) any Investment in securities or other assets not constituting Cash
Equivalents and received in connection with an Asset Sale made pursuant to
the provisions of "--Asset Sales" or any other disposition of assets not
constituting an Asset Sale;
(5) any Investment existing on the Issue Date;
(6) advances to employees not in excess of $5.0 million outstanding at
any one time in the aggregate;
(7) any Investment acquired by the Issuer or any of its Restricted
Subsidiaries:
(a) in exchange for any other Investment or accounts receivable
held by the Issuer or any such Restricted Subsidiary in connection with
or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts
receivable; or
(b) as a result of a foreclosure by the Issuer or any of its
Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default;
(8) Hedging Obligations permitted under clause (j) of the
"--Limitations of Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock" covenant;
(9) additional Investments having an aggregate Fair Market Value,
taken together with all other Investments made pursuant to this clause
(9) that are at that time outstanding, not to exceed the greater of 7.5% of
Total Assets or $10.0 million at the time of such Investment (with the Fair
Market Value of each Investment being measured at the time made and without
giving effect to subsequent changes in value);
(10) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar
expenses, in each case Incurred in the ordinary course of business;
(11) Investments the payment for which consists of Equity Interests of
the Issuer (other than Disqualified Stock); provided, however, that such
Equity Interests will not increase the amount available for Restricted
Payments under clause (c) of the "--Limitation on Restricted Payments"
covenant;
(12) any transaction to the extent it constitutes an Investment that
is permitted by and made in accordance with the provisions of the second
paragraph of the covenant described under "--Transactions with Affiliates"
(except transactions described in clauses (2), (6) and (7) of such
paragraph);
(13) Investments consisting of the licensing or contribution of
intellectual property pursuant to joint marketing arrangements with other
Persons;
(14) Guarantees issued in accordance with the "--Limitations of
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock" covenant;
(15) any Investment by Restricted Subsidiaries in other Restricted
Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries;
(16) Investments consisting of purchases and acquisitions of
inventory, supplies, materials and equipment or purchases of contract
rights or licenses or leases of intellectual property, in each case in the
ordinary course of business;
(17) loans and advances to Volume Holdings not to exceed $20.0 million
in aggregate principal amount at any time outstanding provided that any
cash proceeds thereof shall be immediately contributed by Volume Holdings
to the Issuer or used to repay or service existing Indebtedness of Volume
Holdings to the Issuer (provided that the amount of such contributions
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or repayments will not increase the amount available for Restricted
Payments under clause (c) of the covenant described under "--Limitation on
Restricted Payments");
(18) loans and advances to VSI Management Direct L.P. and/or
Recreational Services, L.L.C. and/or current or former management personnel
of the Issuer not to exceed $7.5 million in aggregate principal amount at
any time outstanding, the proceeds of which will be used to purchase or
redeem, directly or indirectly, shares of Capital Stock of the Issuer or
Volume Holdings or to purchase limited partnership interests in VSI
Management Direct L.P. or Recreational Services, L.L.C., and
(19) loans to clients made in connection with entering into contracts
to provide services not to exceed $15.0 million in any fiscal year or $30.0
million in aggregate amount at any time outstanding.
"Permitted Junior Securities" shall mean debt or equity securities of the
Issuer or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Issuer that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Issuer at least to the same extent
that the Notes are subordinated to the payment of all Senior Indebtedness of the
Issuer on the Issue Date, so long as to the extent that any Senior Indebtedness
of the Issuer outstanding on the date of consummation of any such plan of
reorganization or readjustment is not paid in full in cash on such date, either:
(a) the holders of any such Senior Indebtedness not so paid in full in
cash have consented to the terms of such plan of reorganization or
readjustment; or
(b) such holders receive securities which constitute Senior
Indebtedness and which have been determined by the relevant court to
constitute satisfaction in full in cash of any Senior Indebtedness not paid
in full in cash.
"Permitted Liens" means, with respect to any Person:
(a) pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review;
(c) Liens for taxes, assessments or other governmental charges not yet
due or payable or subject to penalties for nonpayment or which are being
contested in good faith by appropriate proceedings;
(d) Liens in favor of issuers of performance and surety bonds or bid
bonds or completion guarantees or with respect to other regulatory
requirements or letters of credit issued pursuant to the request of and for
the account of such Person in the ordinary course of its business;
(e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(f) Liens securing Indebtedness permitted to be incurred pursuant to
clause (d) of the second paragraph of the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock";
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(g) Liens to secure Indebtedness permitted pursuant to clause (a) of
the second paragraph of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock";
(h) Liens existing on the Issue Date;
(i) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that such Liens are not
created or Incurred in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such
Liens may not extend to any other property owned by the Issuer or any
Restricted Subsidiary;
(j) Liens on property at the time the Issuer or a Restricted
Subsidiary acquired the property, including any acquisition by means of a
merger or consolidation with or into the Issuer or any Restricted
Subsidiary; provided, however, that such Liens are not created or Incurred
in connection with, or in contemplation of, such acquisition; provided
further, however, that the Liens may not extend to any other property owned
by the Issuer or any Restricted Subsidiary;
(k) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Issuer or another Restricted Subsidiary permitted
to be incurred in accordance with the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock";
(l) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the indenture, secured by a
Lien on the same property securing such Hedging Obligations;
(m) Liens on specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(n) leases and subleases of real property which do not materially
interfere with the ordinary conduct of the business of the Issuer or any of
its Restricted Subsidiaries;
(o) Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Issuer and its
Restricted Subsidiaries in the ordinary course of business;
(p) Liens in favor of the Issuer;
(q) Liens on equipment of the Issuer granted in the ordinary course of
business to the Issuer's client at which such equipment is located;
(r) Liens encumbering deposits made in the ordinary course of business
to secure obligations arising from statutory, regulatory, contractual or
warranty requirements, including rights of offset and set-off;
(s) Liens on the Equity Interests of Unrestricted Subsidiaries
securing obligations of Unrestricted Subsidiaries not otherwise prohibited
by the indenture;
(t) Liens to secure Indebtedness permitted by clause (l) of the second
paragraph of the covenant described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock"; and
(u) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by any
Lien referred to in the foregoing clauses (f), (g), (h), (i), (j), (k),
(l) and (t);
provided, however, that
(x) such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements on such property); and
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(y) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of:
(A) the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clauses (f), (g), (h), (i), (j), (k),
(l) or (t) at the time the original Lien became a Permitted Lien under the
indenture; and
(B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Issuer or a Restricted Subsidiary whereby the
Issuer or a Restricted Subsidiary transfers such property to a Person and the
Issuer or such Restricted Subsidiary leases it from such Person, other than
leases between the Issuer and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"S&P" means Standard and Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Issuer secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Senior Credit Documents" means the collective reference to the Credit
Agreement, the notes issued pursuant thereto and the guarantees thereof, and the
collateral documents relating thereto.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Similar Business" means a business, the majority of whose revenues are
derived from the provision of food, beverage, catering, merchandise, management
or other services at stadiums, convention centers, ball parks, concert halls,
theaters, seaports, airports, golf courses, arenas, racetracks, parks, malls,
zoos, bandstands, or other recreational venues, or the activities of the Issuer
and its Subsidiaries as of the Issue Date or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Specified Cash Contributions" means the aggregate amount of cash
contributions (other than Excluded Contributions) made to the capital of the
Issuer which are designated as "Specified Cash Contributions" pursuant to an
Officers' Certificate.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Indebtedness" means:
(a) with respect to the Issuer, any Indebtedness of the Issuer which
is by its terms subordinated in right of payment to the Notes; and
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(b) with respect to any Guarantor, any Indebtedness of such Guarantor
which is by its terms subordinated in right of payment to its Guarantee.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity (other than
a partnership, joint venture or limited liability company) of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof; and
(2) any partnership, joint venture or limited liability company of
which:
(x) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general and limited partnership
interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of
that Person or a combination thereof, whether in the form of membership,
general, special or limited partnership interests or otherwise; and
(y) such Person or any Wholly Owned Restricted Subsidiary of such
Person is a controlling general partner or otherwise controls such
entity.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the indenture.
"Total Assets" means the total consolidated assets of the Issuer and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Issuer.
"Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means:
(1) any officer within the corporate trust department of the Trustee,
including any vice president, assistant vice president, assistant
secretary, assistant treasurer, trust officer or any other officer of the
Trustee who customarily performs functions similar to those performed by
the Persons who at the time shall be such officers, respectively, or to
whom any corporate trust matter is referred because of such person's
knowledge of and familiarity with the particular subject; and
(2) who shall have direct responsibility for the administration of the
indenture.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Issuer that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Issuer (including any
newly acquired or newly formed Subsidiary of the Issuer) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity
Interests or Indebtedness of, or owns or holds any Lien on any property of, the
Issuer or any other Subsidiary of the Issuer that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that the Subsidiary to be so
designated and its Subsidiaries do not at the time of designation have and do
not thereafter Incur any Indebtedness pursuant to which the lender has recourse
to any of the assets of the Issuer or any of its Restricted Subsidiaries;
provided further, however, that either:
(a) the Subsidiary to be so designated has total consolidated assets of
$1,000 or less; or
(b) if such Subsidiary has consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled "--Limitation on
Restricted Payments."
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The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) (1) the Issuer could Incur $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock"; or
(2) the Fixed Charge Coverage Ratio for the Issuer and its Restricted
Subsidiaries would be greater than such ratio for the Issuer and its Restricted
Subsidiaries immediately prior to such designation, in each case on a pro forma
basis taking into account such designation; and
(y) no Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing:
(1) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Disqualified Stock multiplied by the amount of such payment, by
(2) the sum of all such payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Issuer, the initial purchasers in connection with the issuance of the
outstanding Notes and the guarantors entered into an exchange and registration
rights agreement on March 4, 1999. Pursuant to the exchange and registration
rights agreement, the Issuer and the guarantors agreed to:
o file with the Commission on or prior to 90 days after the date of
issuance of the outstanding Notes a registration statement on an
appropriate form under the Securities Act relating to a registered
exchange offer for the outstanding Notes under the Securities Act; and
o use their reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 180 days after the issuance of the outstanding Notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, the Issuer will offer to the holders of Transfer
Restricted Securities (as defined below) who are not prohibited by any law or
policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Transfer Restricted Securities for an issue of a
second series of notes that are identical in all material respects to the
outstanding Notes (except that the exchange Notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. The Issuer and the guarantors will keep the exchange offer open
for not less than 20 business days (or longer, if required by applicable law)
after the date on which notice of the Exchange offer is mailed to the holders of
the Notes.
If:
o because of any change in law or applicable interpretations thereof by the
staff of the Commission, the Issuer is not permitted to effect the
exchange offer as contemplated hereby;
o any outstanding Notes validly tendered pursuant to the exchange offer are
not exchanged for exchange Notes within 210 days after the Issue Date;
o the initial purchasers so request with respect to outstanding Notes not
eligible to be exchanged for exchange Notes in the exchange offer;
o any applicable law or interpretations do not permit any holder of
outstanding Notes to participate in the exchange offer;
o any holder of outstanding Notes that participates in the exchange offer
does not receive freely transferable exchange Notes in exchange for
tendered outstanding Notes; or
o the Issuer so elects,
then the Issuer and the guarantors will file with the Commission a shelf
registration statement to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement. For purposes of
the foregoing, "Transfer Restricted Securities" means each outstanding Note
until:
o the date on which such outstanding Note has been exchanged for a freely
transferable exchange Note in the exchange offer;
o the date on which such outstanding Note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
o the date on which such outstanding Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to
Rule 144(k) under the Securities Act.
The Issuer and each of the guarantors will use their reasonable best
efforts to have the exchange offer registration statement or, if applicable, the
shelf registration statement declared effective by the Commission as promptly as
practicable after the filing thereof. Unless the exchange
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offer would not be permitted by a policy of the Commission, the Issuer will
commence the exchange offer and will use its reasonable best efforts to
consummate the exchange offer as promptly as practicable, but in any event prior
to 210 days after the issuance of the outstanding Notes. If applicable, the
Issuer and each of the guarantors will their reasonable best efforts to keep the
shelf registration statement effective for a period of two years after the
issuance of the outstanding Notes or such shorter period when all outstanding
Notes covered by the shelf registration statement have been sold in the manner
set forth and as contemplated in the shelf registration statement, or when the
outstanding Notes become eligible for resale pursuant to Rule 144A under the
Securities Act without volume restrictions, if any.
If:
o the applicable registration statement is not filed with the Commission on
or prior to 90 days after the issuance of the outstanding Notes (or in
the case of a shelf registration statement required to be filed in
response to a change in law or applicable interpretations of the
Commission's staff, if later, within 60 days after publication of the
change in law or interpretations, but in no event before 90 days after
the issuance of the outstanding Notes);
o the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 180 days
after the issuance of the outstanding Notes (or in the case of a shelf
registration statement required to be filed in response to a change in
law or applicable interpretations of the Commission's staff, if later,
within 60 days after publication of the change in law or interpretations,
but in no event before 180 days after the issuance of the outstanding
Notes);
o the exchange offer is not consummated on or prior to 210 days after the
issuance of the outstanding Notes (other than in the event the Issuer
files a shelf registration statement); or
o the shelf registration statement is filed and declared effective within
180 days after the issuance of the outstanding Notes (or in the case of a
shelf registration statement required to be filed in response to a change
in law or applicable interpretations of the Commission's staff, if later,
within 60 days after publication of the change in law or interpretations,
but in no event before 180 days after the issuance of the outstanding
Notes) but will thereafter cease to be effective (at any time that the
Issuer and the guarantors are obligated to maintain the effectiveness
thereof) without being succeeded within 90 days by an additional
registration statement filed and declared effective;
(each such event referred to above, a "Registration Default"), the Issuer and
the guarantors will be obligated to pay liquidated damages to each holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the outstanding Notes constituting Transfer Restricted
Securities held by such holders until the applicable registration statement is
filed, the exchange offer registration statement is declared effective and the
exchange offer is consummated or the shelf registration statement is declared
effective or again becomes effective, as the case may be. All accrued liquidated
damages will be paid to holders in the same manner as interest payments on the
outstanding Notes on semi-annual payment dates which correspond to interest
payment dates for the outstanding Notes. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
Notwithstanding the foregoing, the Issuer and the guarantors may issue a
notice that the shelf registration statement is unusable pending the
announcement of a material corporate transaction and may issue any notice
suspending use of the shelf registration statement required under applicable
securities laws to be issued and, in the event that the aggregate number of days
in any consecutive twelve-month period for which all notices are issued and
effective exceeds 60 days in the aggregate, then the Issuer will be obligated to
pay liquidated damages to each holder of Transfer Restricted Securities in an
amount equal to $0.192 per week per $1,000 principal amount of securities
constituting Transfer Restricted Securities held by such holder. Upon the Issuer
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declaring that the shelf registration statement is usable after the period of
time described in the preceding sentence, accrual of liquidated damages shall
cease; provided, however, that if after any such cessation of the accrual of
liquidated damages the shelf registration statement again ceases to be usable
beyond the period permitted above, liquidated damages will again accrue.
The exchange and registration rights agreement also provides that the
Issuer and the guarantors:
o shall make available for a period of 180 days after the consummation of
the exchange offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale
of any such exchange Notes; and
o shall pay all expenses incident to the exchange offer (including the
expense of one counsel to the holders of the Notes) and will jointly and
severally indemnify certain holders of the Notes (including any
broker-dealer) against certain liabilities, including liabilities under
the Securities Act.
A broker-dealer which delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
exchange and registration rights agreement (including certain indemnification
rights and obligations).
Each holder of outstanding Notes who wishes to exchange such Notes for
exchange Notes in the exchange offer will be required to make certain
representations, including representations that:
o any exchange Notes to be received by it will be acquired in the ordinary
course of its business;
o it has no arrangement or understanding with any person to participate in
the distribution of the exchange Notes; and
o it is not an "affiliate" (as defined in Rule 405 under the Securities
Act) of the Issuer, or if it is an affiliate, that it will comply with
the registration and prospectus delivery requirements of the Securities
Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange Notes. If the holder is a broker-dealer that will receive exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange Notes.
Holders of outstanding Notes will be required to make certain
representations to the Issuer (as described above) in order to participate in
the exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement in order to have their
outstanding Notes included in the shelf registration statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells Notes pursuant to the shelf registration
statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the exchange
and registration rights agreement which are applicable to such a holder
(including certain indemnification obligations).
For so long as the Notes are outstanding, the Issuer and the guarantors
will continue to provide to holders of the Notes the information required by
Rule 144A(d)(4) under the Securities Act.
The foregoing description of the exchange and registration rights agreement
is a summary only. It is qualified by reference to all provisions of the
exchange and registration rights agreement. The Issuer will provide a copy of
the exchange and registration rights agreement to holders of outstanding Notes
identified to the Issuer by the initial purchasers upon request.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange Notes will initially be represented by one or more permanent
global notes in definitive, fully registered book-entry form, without interest
coupons (referred to as the "Global Notes") that will be deposited with, or on
behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC, on
behalf of the acquirors of exchange Notes represented thereby for credit to the
respective accounts of the acquirors (or to such other accounts as they may
direct) at DTC, or Morgan Guaranty Trust Company of New York; Brussels Office,
as operator of the Euroclear System, or Cedel Bank, societe anonyme. See "The
Exchange Offer--Book Entry Transfer."
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in physical, certificated form (referred to as "Certificated Notes")
except in the limited circumstances described below.
All interests in the Global Notes, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear of Cedel may also be subject to the procedures
and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
the Issuer nor the initial purchasers take any responsibility for these
operations or procedures, and investors are urged to contact the relevant system
or its participants directly to discuss these matters.
DTC has advised the Issuer that it is:
o a limited purpose trust company organized under the laws of the State of
New York;
o a "banking organization" within the meaning of the New York Banking Law;
o a member of the Federal Reserve System;
o "clearing corporation" within the meaning of the Uniform Commercial Code,
as amended; and
o a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively
referred to as the "Participants") and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. DTC's Participants include
securities brokers and dealers (including the initial purchasers), banks and
trust companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively referred to as the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Issuer expects that pursuant to procedures established by DTC ownership
of the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of Participants) and the records of Participants and the Indirect Participants
(with respect to the interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
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only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the indenture or
such Global Note. The Issuer understands that under existing industry practice,
in the event that the Issuer requests any action of holders of Notes, or a
holder that is an owner of a beneficial interest in a Global Note desires to
take any action that DTC, as the holder of such Global Note, is entitled to
take, DTC would authorize the Participants to take such action and the
Participants would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Issuer nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the indenture. Under the terms of the indenture, the Issuer and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Accordingly, neither the
Issuer nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to owners of beneficial interests in a Global Note
(including principal, premium, if any, Liquidated Damages, if any, and
interest). Payments by the Participants and the Indirect Participants to the
owners of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositaries for Euroclear or Cedel.
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Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a Global Security by or through a Euroclear or Cedel participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Cedel cash account only
as of the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform such procedures, and such procedures may be discontinued at any time.
Neither the Issuer nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If:
o the Issuer notifies the Trustee in writing that DTC is no longer willing
or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation;
o the Issuer, at its option, notifies the Trustee in writing that it elects
to cause the issuance of Notes in definitive form under the indenture; or
o upon the occurrence of certain other events as provided in the indenture,
then, upon surrender by DTC of the Global Notes, Certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the Notes
represented by the Global Notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither the Issuer nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
YEAR 2000
DTC management is aware that some computer applications, systems, and the
like for processing data (referred to as "Systems") that are dependant upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "year 2000 problems." DTC has informed its Participants and other
members of the financial community (referred to as the "industry") that it has
developed and is implementing a program so that its Systems, as the same relate
to the timely payment of distributions (including principal and income payments)
to securityholders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among
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others. DTC has informed the industry that it is contacting (and will continue
to contact) third party vendors from whom DTC acquires services to:
o impress upon them the importance of such services being year 2000
compliant; and
o determine the extent of their efforts for year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the
process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
EXCHANGE OF NOTES
The exchange of outstanding Notes for exchange Notes in the exchange offer
will not constitute a taxable event to holders. Consequently, no gain or loss
will be recognized by a holder upon receipt of an exchange Note, the holding
period of the exchange Note will include the holding period of the outstanding
Note and the basis of the exchange Note will be the same as the basis of the
outstanding Note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
CERTAIN UNITED STATES TAX CONSEQUENCES TO FOREIGN HOLDERS
The following summary describes the material United States federal income
and estate tax consequences of the ownership of Notes as of the date hereof. It
deals only with Notes held as capital assets by Non-United States Holders. As
used in this prospectus, the term "Non-United States Holder" means a beneficial
owner of a Note that is not (1) a citizen or resident of the United States,
(2) a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof, (3) an estate the income
of which is subject to U.S. federal income taxation regardless of its source and
(4) a trust which is (x) subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
section 7701(a)(30) and (y) that has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person.
THE DISCUSSION SET FORTH BELOW IS BASED UPON THE PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND REGULATIONS, RULINGS AND
JUDICIAL DECISIONS THEREUNDER AS OF THE DATE HEREOF. SUCH AUTHORITIES MAY BE
REPEALED, REVOKED OR MODIFIED SO AS TO RESULT IN FEDERAL INCOME TAX CONSEQUENCES
DIFFERENT FROM THOSE DISCUSSED BELOW. FURTHERMORE, THIS SUMMARY DOES NOT DISCUSS
ANY ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
NON-UNITED STATES HOLDERS
Under present United States federal and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Issuer or any paying agent of
principal or interest on a Note owned by a Non-United States Holder,
provided (1) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Issuer entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder, (2) the beneficial owner is not a
controlled foreign corporation that is related to the Issuer through stock
ownership, (3) the beneficial owner is not a bank whose receipt of interest
on a Note is described in section 881(c)(3)(A) of the Code and (4) the
beneficial owner satisfies the statement requirement (described generally
below) set forth in section 871(h) and section 881(c) of the Code and the
regulations thereunder; and
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(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange, retirement or other disposition of a Note;
and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Issuer entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.
To satisfy the requirement referred to in (a)(4) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Issuer with a statement to the effect that the beneficial owner is
not a United States person. Currently, these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a United States person (which certification may be
made on an Internal Revenue Service ("IRS") Form W-8 (or successor form)) or
(2) a financial institution holding the Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement requirement
referred to in (a)(4) above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect to
an offshore account or through certain foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of interest made
to such Non-United States Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Issuer or its paying agent, as the
case may be, with a properly executed (1) IRS Form 1001 (or successor form)
claiming an exemption from or reduction of withholding under the benefit of a
tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, Non-United States Holders will
generally be required to provide IRS Form W-8 in lieu of the IRS Form 1001 and
IRS Form 4224, although alternative documentation may be applicable in certain
situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Note is effectively connected with the conduct
of such trade or business, the Non-United States Holder, although exempt from
the withholding tax discussed above (provided the Non-United States Holder files
the appropriate certification with the Issuer or its agent), will be subject to
United States federal income tax on such interest on a net income basis in the
same manner as if it were a United States person. In addition, if such holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose interest on a Note will be included in such
foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to United States federal
income tax unless (1) such gain or income is effectively connected with a trade
or business in the United States of the Non-United States Holder, or (2) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
Special rules may apply to certain Non-United States Holders, such as
controlled foreign corporations, passive foreign investment companies and
foreign personal holding companies, that
143
<PAGE>
are subject to special treatment under the Code. Such entities should consult
their own tax advisors to determine the United States federal, state, local and
other tax consequences that may be relevant to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding tax (which is a withholding
tax imposed at the rate of 31% on certain payments to persons who fail to
furnish the information required under United States information reporting
requirements) will be required with respect to payments made by the Issuer or
any paying agent to Non-United States Holders if a statement described in
(a)(4) under "Non-United States Holders" has been received and the payor does
not have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting generally will
not apply if payments of the principal or interest on a Note are paid by a
foreign office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such Note, or if a foreign office of a broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of a Note to the
owner thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a United States person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or, for taxable years beginning after December 31, 1999, a foreign
partnership, in which one or more United States persons, in the aggregate, own
more than 50% of the income or capital interests in the partnership or which is
engaged in a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States Holder and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption.
Payments of principal or interest on a Note paid to the beneficial owner of
a Note by a United States office of a custodian, nominee or agent, or the
payment by the United States office of a broker of the proceeds of sale of a
Note will be subject to both backup withholding and information reporting unless
the beneficial owner provides the statement referred to in (a)(4) above and the
payor does not have actual knowledge that the beneficial owner is a United
States Holder or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
144
<PAGE>
PLAN OF DISTRIBUTION
Until , 1999 90 (days after the date of this prospectus),
all dealers effecting transactions in the exchange Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Each broker-dealer that receives exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange Notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange Notes received in
exchange for outstanding Notes only where such outstanding Notes were acquired
as a result of market-making activities or other trading activities. The Issuer
has agreed that it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale for a
period of 180 days from the date on which the exchange offer is consummated, or
such shorter period as will terminate when all outstanding Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for exchange Notes and such
exchange Notes have been resold by such broker-dealers.
The Issuer will not receive any proceeds from any sale of exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any exchange Notes. Any broker-dealer that
resells exchange Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of exchange Notes, and
any commissions or concessions received by any such persons, may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange Notes
and such exchange Notes have been resold by such broker-dealers, the Issuer will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Issuer has agreed to pay all expenses incident
to the exchange offer other than commissions or concessions of any brokers or
dealers and the fees of any counsel or other advisors or experts retained by the
holders of outstanding Notes, except as expressly set forth in the exchange and
registration rights agreement, and will indemnify the holders of outstanding
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
145
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the exchange Notes
will be passed upon for the Issuer by Simpson Thacher & Bartlett, New York, New
York.
EXPERTS
The consolidated financial statements of Volume Holdings for the fiscal
years ended December 28, 1996, December 27, 1997 and December 29, 1998 included
in this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing elsewhere in this prospectus, and
are included in reliance upon that report, of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Service America as of December 27,
1997 and December 28, 1996, and for the fifty-two week period ended December 27,
1997, the thirty-nine week period ended December 28, 1996 and the fifty-three
week period ended March 30, 1996, included in this prospectus have been included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants. This report has been given on the authority of
PricewaterhouseCoopers LLP as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-4
under the Securities Act with respect to the exchange Notes. This prospectus,
which forms a part of the registration statement, does not contain all of the
information in the registration statement. You should refer to the registration
statement for further information. Statements contained in this prospectus about
the contents of any contract or other document are not necessarily complete,
and, where a contract or other document is an exhibit to the registration
statement, each of these statements is qualified by the provision in the exhibit
to which the statement relates.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. As a result of this offering, we will become
subject to the informational requirements of the Securities Exchange Act of
1934. Accordingly, we will file reports and other information with the
Commission unless and until we obtain an exemption from the requirement to do
so. The registration statement and other reports or information can be inspected
and copied at the Public Reference Section of the Securities and Exchange
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional public reference facilities
maintained by the Securities and Exchange Commission located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of this material,
including copies of all or any portion of the registration statement, can be
obtained from the Public Reference Section of the Securities and Exchange
Commission at prescribed rates. This material may be accessed electronically by
means of the Commission's home page on the Internet (http://www.sec.gov).
Furthermore, we agree that, even if we are not required to file periodic
reports and information with the Commission, for so long as any exchange Note
remains outstanding we will furnish to you the information that would be
required to be furnished by us under Section 13 of the Securities Exchange Act
of 1934.
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
VOLUME SERVICES AMERICA HOLDINGS, INC.
Independent Auditors' Report.............................................................................. F-2
Consolidated Balance Sheets--As of December 30, 1997 and December 29, 1998................................ F-3
Consolidated Statements of Operations and Comprehensive Loss--For the years ended December 31, 1996,
December 30, 1997 and December 29, 1998................................................................. F-4
Consolidated Statements of Stockholders' Equity--For the years ended December 31, 1996, December 30, 1997
and December 29, 1998................................................................................... F-5
Consolidated Statements of Cash Flows--For the years ended December 31, 1996, December 30, 1997 and
December 29, 1998....................................................................................... F-6
Notes to Consolidated Financial Statements--For the years ended December 31, 1996, December 30, 1997 and
December 29, 1998....................................................................................... F-8
Consolidating Balance Sheet--December 29, 1998.......................................................... F-22
Consolidating Statement of Operations and Comprehensive Loss--For the year ended
December 29, 1998.................................................................................... F-23
Consolidating Condensed Statement of Cash Flows--For the year ended December 29, 1998................... F-24
Consolidated Balance Sheets (Unaudited)--December 29, 1998 and March 30, 1999........................... F-25
Consolidated Statements of Operations and Comprehensive Losses (Unaudited)--For the thirteen week
periods ended March 31, 1998 and March 30, 1999...................................................... F-26
Consolidated Statements of Stockholders' Equity (Deficit)(Unaudited)--December 29, 1998 and March 30,
1999................................................................................................. F-27
Consolidated Statements of Cash Flows (Unaudited)--For the thirteen week periods ended March 31, 1998
and March 30, 1999................................................................................... F-28
Notes to Consolidated Financial Statements (Unaudited)--For the thirteen week periods ended March 30,
1999 and March 31, 1998.............................................................................. F-29
Consolidating Balance Sheet--As of March 30, 1999....................................................... F-32
Consolidating Condensed Statement of Operations and Comprehensive Loss--For the year ended March 30,
1999................................................................................................. F-33
Consolidating Condensed Statement of Cash Flows--For the year ended March 30, 1999...................... F-34
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................................................................... F-36
Consolidated Balance Sheets--As of December 27, 1997 and December 28, 1996................................ F-37
Consolidated Statements of Operations and Comprehensive (Loss) Income--For the fifty-two week period ended
December 27, 1997, the thirty-nine week period ended December 28, 1996 and the fifty-three week period
ended March 30, 1996.................................................................................... F-38
Consolidated Statements of Stockholders' Equity (Deficit)--For the fifty-two week period ended
December 27, 1997, the thirty-nine week period ended December 28, 1996 and the fifty-three week period
ended March 30, 1996.................................................................................... F-39
Consolidated Statements of Cash Flows--For the fifty-two week period ended December 27, 1997, the
thirty-nine week period ended December 28, 1996 and the fifty-three week period ended March 30, 1996.... F-40
Notes to Consolidated Financial Statements................................................................ F-41
Unaudited:
Condensed Consolidated Balance Sheet--As of June 27, 1998............................................... F-68
Condensed Consolidated Statements of Operations and Comprehensive Loss--For the twenty-six week periods
ended June 27, 1998 and June 28, 1997................................................................ F-69
Condensed Consolidated Statements of Cash Flows--For the twenty-six week periods ended June 27, 1998 and
June 28, 1997........................................................................................ F-70
Notes to Condensed Consolidated Financial Statements.................................................... F-71
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Volume Services America Holdings,
Inc.:
We have audited the accompanying consolidated balance sheets of Volume Services
America Holdings, Inc. and subsidiaries (the "Company") as of December 30, 1997
and December 29, 1998, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity, and cash flows for each of the three
years in the period ended December 29, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 30, 1997
and December 29, 1998, and the results of operations and cash flows for each of
the three years in the period ended December 29, 1998, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 18, 1999
F-2
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 5,426 $ 8,828
Accounts receivable, less allowance for doubtful accounts of $64 and $963 at
December 30, 1997 and December 29, 1998, respectively......................... 8,229 17,790
Merchandise inventories......................................................... 5,135 9,585
Prepaid expenses................................................................ 1,270 3,975
Deferred tax asset.............................................................. -- 2,082
Assets held for sale............................................................ 11,991 --
-------- --------
Total current assets..................................................... 32,051 42,260
-------- --------
PROPERTY AND EQUIPMENT:
Leasehold improvements.......................................................... 27,380 40,048
Merchandising equipment......................................................... 16,369 37,197
Vehicles and other equipment.................................................... 3,411 5,702
Construction in process......................................................... 5,578 262
-------- --------
Total.................................................................... 52,738 83,209
Less accumulated depreciation and amortization.................................. (10,564) (12,226)
-------- --------
Property and equipment, net.............................................. 42,174 70,983
-------- --------
OTHER ASSETS:
Contract rights, net............................................................ 36,803 72,935
Cost in excess of net assets acquired, net...................................... 8,136 50,585
Deferred financing costs, net................................................... 2,974 7,783
Trademarks, net................................................................. 13,051 19,108
Other........................................................................... 2,619 3,530
-------- --------
Total other assets....................................................... 63,583 153,941
-------- --------
TOTAL ASSETS...................................................................... $137,808 $267,184
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................................ $ 300 $ 4,200
Current maturities of capital lease obligation.................................. -- 189
Accounts payable................................................................ 12,017 16,410
Accrued salaries and vacations.................................................. 4,260 8,336
GE capital note payable......................................................... -- 500
Liability for self-insured claims............................................... 2,130 2,216
Accrued taxes, other than income taxes.......................................... 1,056 3,214
Accrued income taxes............................................................ 293 170
Accrued commissions and royalties............................................... 9,912 8,603
Accrued interest................................................................ 195 1,156
Other........................................................................... 1,378 3,664
-------- --------
Total current liabilities................................................ 31,541 48,658
-------- --------
LONG-TERM DEBT.................................................................... 78,700 155,800
CAPITAL LEASE OBLIGATION.......................................................... -- 622
DEFERRED INCOME TAX............................................................... -- 6,684
LIABILITY FOR SELF-INSURED CLAIMS................................................. 2,302 2,949
OTHER LIABILITIES................................................................. 84 2,594
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value; 1,000 shares authorized; 339 and 526 shares issued
and outstanding at December 30, 1997 and December 29, 1998, respectively)..... -- --
Additional paid-in capital...................................................... 33,857 66,474
Accumulated deficit............................................................. (7,358) (12,595)
Accumulated other comprehensive loss............................................ -- (67)
Investors' notes receivable..................................................... (1,318) (3,935)
-------- --------
Total stockholders' equity............................................... 25,181 49,877
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ $137,808 $267,184
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................................... $190,417 $196,032 $283,441
-------- -------- --------
Cost of sales..................................................... 155,726 156,965 222,533
Selling, general, and administrative.............................. 19,209 21,379 30,887
Depreciation and amortization..................................... 12,624 12,895 18,197
Transaction fees and expenses..................................... -- -- 3,081
-------- -------- --------
Operating profit.................................................. 2,858 4,793 8,743
Interest expense.................................................. 7,256 7,916 11,322
Other income, net................................................. (530) (336) (359)
-------- -------- --------
Loss before income taxes.......................................... (3,868) (2,787) (2,220)
Income tax provision.............................................. 10 319 1,518
-------- -------- --------
Loss before extraordinary item.................................... (3,878) (3,106) (3,738)
Extraordinary loss on debt extinguishment, net of taxes .......... -- -- 1,499
-------- -------- --------
Net loss.......................................................... (3,878) (3,106) (5,237)
Other comprehensive loss--foreign currency translation
adjustment...................................................... -- -- (67)
-------- -------- --------
Comprehensive loss................................................ $ (3,878) $ (3,106) $ (5,304)
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE INVESTORS'
SHARES STOCK CAPITAL DEFICIT LOSS RECEIVABLES TOTAL
------ ------ ---------- ----------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 2, 1996........... 270 $ 3 $ 26,997 $ (374) $ -- $ (857) $25,769
Net loss.................... -- -- -- (3,878) -- -- (3,878)
---- ---- -------- --------- ----- ------- -------
Balance,
December 31, 1996......... 270 3 26,997 (4,252) -- (857) 21,891
Capital investment.......... 69 -- 6,857 -- -- (457) 6,400
Loan to shareholders........ -- -- -- -- -- (4) (4)
Reverse stock split......... -- (3) 3 -- -- -- --
Net loss.................... -- -- -- (3,106) -- -- (3,106)
---- ---- -------- --------- ----- ------- -------
Balance,
December 30, 1997......... 339 -- 33,857 (7,358) -- (1,318) 25,181
Capital investment.......... 37 -- 3,750 -- -- (250) 3,500
Shares issued in
acquisition............... 150 -- 28,867 -- -- (3,381) 25,486
Payment of investors'
receivables............... -- -- -- -- -- 1,014 1,014
Foreign currency
translation............... -- -- -- -- (67) -- (67)
Net loss.................... -- -- -- (5,237) -- -- (5,237)
---- ---- -------- --------- ----- ------- -------
Balance,
December 29, 1998......... 526 $ -- $ 66,474 $ (12,595) $ (67) $(3,935) $49,877
---- ---- -------- --------- ----- ------- -------
---- ---- -------- --------- ----- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net loss............................................................. $ (3,878) $ (3,106) $ (5,237)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................... 12,624 12,895 18,197
Amortization of deferred financing costs........................... 478 354 551
Extraordinary item................................................. -- -- 1,499
(Gain) loss on disposition of assets............................... 14 (208) (15)
Loss from termination of contract.................................. -- 2,505 1,423
Deferred tax expense............................................... -- -- 1,159
Other.............................................................. -- -- 242
Changes in assets and liabilities, net of effect of acquisition:
Decrease (increase) in assets:
Accounts and notes receivable................................. 1,664 (1,232) (2,361)
Merchandise inventories....................................... (743) (36) 15
Prepaid expenses.............................................. (9) (423) (470)
Other assets.................................................. (215) (2,009) (2,496)
Increase (decrease) in liabilities:
Accounts payable.............................................. 1,257 3,694 (4,459)
Accrued salaries and vacations................................ 97 1,785 453
Liabilities for self-insurance................................ (176) 718 733
Other liabilities............................................. (137) 411 (7,799)
---------- ---------- ----------
Net cash provided by operating activities.............................. 10,976 15,348 1,435
---------- ---------- ----------
Cash flows used in investing activities:
Decrease in restricted cash.......................................... 7,073 5,939 2
Cash purchased in acquisition of Service America..................... -- -- 1,587
Payment of acquisition costs......................................... -- -- (2,820)
Purchase of minority interest stock of Service America............... -- -- (631)
Purchase of property, plant and equipment............................ (15,616) (25,987) (12,635)
Proceeds from sale of property, plant and equipment.................. 91 639 3,349
Proceeds from assets held for sale................................... -- -- 12,575
Additions to assets held for sale.................................... -- -- (607)
Purchase of contract rights.......................................... (5,034) (11,599) (6,169)
---------- ---------- ----------
Net cash used in investing activities.................................. (13,486) (31,008) (5,349)
---------- ---------- ----------
</TABLE>
F-6
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by financing activities:
Principal payments on long-term debt................................. $ (300) $ (6,800) $ (154,291)
Net borrowings--revolving loans...................................... -- 16,100 6,897
Proceeds from long-term debt......................................... -- -- 160,000
Payments of financing costs.......................................... -- -- (7,859)
Principal payments on capital lease obligation....................... -- -- (103)
Increase (decrease) in bank overdrafts............................... (89) 185 (1,842)
Net increase (decrease) in investor's notes receivable............... -- (4) 1,014
Capital contribution................................................. -- 6,400 3,500
---------- ---------- ----------
Net cash (used in) provided by financing activities.................... (389) 15,881 7,316
---------- ---------- ----------
Increase (decrease) in cash............................................ (2,899) 221 3,402
Cash and cash equivalents--beginning of period......................... 8,104 5,205 5,426
---------- ---------- ----------
Cash and cash equivalents--end of period............................... $ 5,205 $ 5,426 $ 8,828
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Interest paid........................................................ $ 6,349 $ 6,968 $ 5,892
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid.................................................... $ 10 $ 43 $ 449
---------- ---------- ----------
---------- ---------- ----------
Noncash activities:
Issuance of investors' notes receivable relating to capital
contribution.................................................... $ -- $ 457 $ 250
---------- ---------- ----------
---------- ---------- ----------
Capital lease obligation........................................... $ -- $ -- $ 914
---------- ---------- ----------
---------- ---------- ----------
Purchase of Service America for stock.............................. $ -- $ -- $ 28,867
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
1. GENERAL
Volume Services America Holdings, Inc. ("Volume Holdings," and together
with its subsidiaries, the "Company"), formerly VSI Acquisition II Corporation
and subsidiaries ("VSI"), is a holding company, the principal assets of which
are the capital stock of its subsidiary, Volume Services America, Inc. ("Volume
Services America"). Volume Services America is also a holding company, the
principal assets of which are the capital stock of its subsidiaries, Volume
Services, Inc. ("Volume Services") and Service America Corporation ("Service
America"). The Company is controlled by its senior management, Blackstone
Capital Partners II Merchant Banking Fund, L.P. ("BCP II"), and General Electric
Capital Corporation ("GE Capital"). GE Capital, which as of December 29, 1998
controlled 28.5% of the Company through its controlling interest in Recreational
Services LLC, was the majority stockholder (on a fully diluted basis) of Service
America prior to the acquisition of Service America by Volume Holdings on August
24, 1998. As of December 29, 1998, the remainder of the Company's capital stock
was owned by limited partnerships controlled by BCP Volume L.P. and BCP Offshore
Volume L.P. ("Blackstone") (66.7%) and by current and former management
employees of Volume Services (4.8%).
The accompanying consolidated financial statements as of December 29, 1998
include the balance sheet of the Company and the results of operations of Volume
Services through the thirty-four week period ended August 24, 1998 (date of
acquisition of Service America) and of the Company from August 25, 1998 through
December 29, 1998 (eighteen-week period). The accompanying consolidated balance
sheet as of December 30, 1997 is for VSI. The accompanying statement of
operations, stockholder's equity, and cash flows as of December 31, 1996 and
December 30, 1997 are for VSI for the periods then ended.
At December 29, 1998, the Company had approximately 118 contracts to
provide specified concession services, including catering and novelty
merchandise items at stadiums, sports arenas and convention centers at various
locations in the United States. Contracts to provide these services were
obtained through competitive bids. In most instances, the Company has the rights
to provide these services in a particular location for a period of several
years, with the duration of time often a function of the required investment in
facilities or other financial considerations. The contracts vary in length
generally from one to twenty years. Certain of the contracts contain renewal
clauses.
The Company's contracts include concession agreements to provide food and
beverage service and team merchandise to nine National Football League team
stadiums, six major league baseball stadiums, numerous minor league baseball
parks and spring training facilities along with numerous convention centers and
other entertainment and sports venues. For the fiscal year ended December 30,
1997 and December 29, 1998, the Company had one customer that accounted for
approximately 16.4% and 15.8% of operating revenues, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company, and its wholly owned subsidiaries, Volume Services
and Service America. All significant intercompany transactions have been
eliminated.
FISCAL YEAR--The Company has adopted a 52-53 week period ending on the
Tuesday closest to December 31 as its fiscal year end.
REVENUE RECOGNITION--Sales from food and beverage concessions and catering
contract food services are recognized as the services are provided. If a
specific contract provides the Company
F-8
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
with a fixed fee or a fixed fee plus an incentive fee and the Company bears no
profit or loss risk, then only the amount of the fees received are included in
net sales. For all other contracts, the total revenues received by the Company
from the end users of the products are included in net sales. The total revenue
received by the Company from the end users of the products without regard to the
type of contract is defined as "managed revenues". The Company's total managed
revenues for fiscal 1996, 1997 and 1998 were approximately $226,425,000,
$234,783,000 and $315,728,000, respectively.
MERCHANDISE INVENTORIES--Merchandise Inventories consist of food, beverage,
and team and other merchandise, and are valued primarily at the lower of cost,
determined on the first-in, first-out basis, or market.
DEPRECIATION--Property and equipment are depreciated on the straight-line
method over the lesser of the estimated useful life of the asset and the term of
the contract at the site where such property and equipment is located. Following
are the estimated useful lives of the property and equipment:
o Leasehold improvements--estimated useful life limited by the lease term
(contract term)
o Merchandising equipment--five to ten years limited by the contract term
o Vehicles and other equipment--two to ten years limited by the contract
term
CONTRACT RIGHTS--Contract rights, net of accumulated amortization, of
approximately $36,803,000 at December 30, 1997 and $72,935,000 at December 29,
1998 consist primarily of certain directly attributable costs (actual contract
costs and fair value adjustments related to acquisition of Service America)
incurred by the Company in obtaining or renewing contracts with clients. These
costs for the Company are amortized over the contract life of each such
contract, including optional renewal periods where the option to renew rests
solely with the Company. Accumulated amortization was approximately $6,897,000
at December 30, 1997 and $12,947,000 at December 29, 1998. The carrying value of
the asset would be reduced to its estimated fair value if management's best
estimate of future cash flows from related operations, on an undiscounted basis,
will be less than the carrying amount of the asset over the remaining
amortization period.
COST IN EXCESS OF NET ASSETS ACQUIRED--Cost in excess of net assets
acquired (goodwill) is being amortized on the straight-line basis over 30 years.
Amortization was approximately $297,000 in fiscal 1996 and $291,000 in fiscal
1997 and $790,000 in fiscal 1998. Accumulated amortization was approximately
$600,000 at December 30, 1997 and $1,389,000 at December 29, 1998.
TRADEMARKS--Trademarks consist of the net book value of the trademarks of
the Company of $13,051,000 at December 30, 1997 and $19,108,000 at December 29,
1998 and are being amortized on a straight-line basis over 30 years. Accumulated
amortization was approximately $949,000 at December 30, 1997 and $1,492,000 at
December 29, 1998.
DEFERRED FINANCING COSTS--The net book value of deferred financing costs of
$2,974,000 at December 30, 1997 and $7,783,000 at December 29, 1998 are being
amortized as interest expense over the life of the respective debt using the
interest method. Accumulated amortization was approximately $987,000 at
December 30, 1997 and $76,000 at December 29, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews its long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing a review for recoverability,
F-9
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the Company estimates the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss for long-lived
assets and identifiable intangibles is based on the estimated fair value of the
asset. No impairment of long-lived assets existed at December 29, 1998.
DERIVATIVE FINANCIAL INSTRUMENTS--The Company is party to an interest rate
swap agreement under which it receives or pays an amount every three months
which effectively fixes the interest rate on $80,000,000 of its floating rate
debt (see Note 5). The Company recognizes such income or expense as a component
of interest expense at the settlement date.
PREOPENING COSTS--The Company capitalizes certain direct incremental costs
incurred in conjunction with the opening of new contract locations and such
costs are amortized over 12 months. Preopening costs, net of amortization, were
$820,000 at December 30, 1997 and $426,000 at December 29, 1998 (see NEW
ACCOUNTING STANDARDS).
INSURANCE--The Company is primarily self-insured for general liability,
automobile liability, and workers' compensation risks, supplemented by stop-loss
type insurance policies. The liabilities for estimated incurred losses were
discounted using rates between 5.35% and 5.94% at December 30, 1997 and 4.51%
and 4.68% at December 29, 1998, to their present value based on expected loss
payment patterns determined by experience. The total discounted self-insurance
liability recorded by the Company at December 30, 1997 and December 29, 1998 was
$4,500,000 and $5,390,000, respectively. The related undiscounted amount was
$4,900,000 and $5,803,000, respectively.
CASH OVERDRAFTS--The Company has included in accounts payable on the
accompanying consolidated balance sheets cash overdrafts totaling $5,580,000 and
$3,857,000 at December 30, 1997 and December 29, 1998, respectively.
FOREIGN CURRENCY--The balance sheet and results of operations of the
Company's indirect Canadian subsidiary (a subsidiary of Service America) are
measured using the local currency as the functional currency. Assets and
liabilities have been translated into United States dollars at the rates of
exchange at the balance sheet date. Revenues and expenses are translated into
United States dollars at the average rate during the period. The exchange gains
and losses arising on transactions are charged to income as incurred.
Translation gains and losses arising from the use of differing exchange rates
from year to year are included in accumulated other comprehensive loss.
TRANSACTION FEES AND EXPENSES--Transaction fees and expenses primarily
include severance expense associated with Volume Services America employees
severed as a result of the acquisition of Service America (see Note 4).
INCOME TAXES--The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance is established for deferred tax assets when it is more likely than not
that the benefits of such assets will not be realized.
RECLASSIFICATIONS--Certain amounts in 1996 and 1997 have been reclassified,
where applicable, to conform to the financial statement presentation used in
1998.
ADOPTION OF NEW ACCOUNTING STANDARDS--The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income,
in 1998. SFAS No. 130 specifies that components of comprehensive income be
reported in a financial statement that is
F-10
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
displayed with the same prominence as other financial statements. Comprehensive
income is included in the accompanying statements of operations and
comprehensive loss. Prior year disclosures have been reclassified to conform to
the SFAS No. 130 requirements.
The Company also adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, in 1998. SFAS No. 131 establishes standards
for reporting selected information about operating segments determined using
quantitative thresholds and a "management approach", which reflects how the
chief operating decision maker evaluates segment performance and allocates
resources. The combined operations of the Company's contracts comprises one
operating segment, as such, adoption of SFAS No. 131 has not changed the
Company's disclosures.
NEW ACCOUNTING STANDARDS--In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities, which provides additional guidance on the
financial reporting of start-up costs, requiring costs of start-up activities to
be expensed as incurred. As a result, the Company wrote-off its unamortized
preopening costs of $426,000 as of December 30, 1998 as a cumulative effect of a
change in accounting principle.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measures
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative. The statement is effective for the Company's fiscal year 2000
financial statements and may not be applied retroactively. The Company has not
yet completed its analysis of the effects of this new standard on its results of
operations or financial position.
3. SIGNIFICANT RISKS AND UNCERTAINTIES
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company's most significant financial statement
estimates include the estimate of the allowance for doubtful accounts and the
liability for self-insured claims. Management determines its estimate of the
allowance for doubtful accounts considering a number of factors, including
historical experience, aging of the accounts and the current creditworthiness of
its customers. The Company self-insures, with various insured stop-loss
limitations, its workers' compensation, general liability and automobile
liability. Management determines its estimate of the reserve for self-insurance
considering a number of factors, including historical experience and actuarial
assessment of the liabilities for reported claims and claims incurred but not
reported. Management believes that its estimates provided in the financial
statements, including those for the above-described items, are reasonable and
adequate. However, actual results could differ from those estimates.
CERTAIN RISK CONCENTRATIONS--The Company's contracts include concession
agreements to provide food service and team merchandise to nine National
Football League stadiums, six major league baseball stadiums, and numerous minor
league baseball parks and spring training facilities.
F-11
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
3. SIGNIFICANT RISKS AND UNCERTAINTIES--(CONTINUED)
The Company's revenues and earnings are dependent on various factors such as
attendance levels and the number of games played by the professional football
and baseball teams which are tenants at facilities serviced by the Company,
which can be favorably impacted if the teams qualify for post-season play, or
adversely affected if the teams are on strike.
4. ACQUISITION
On August 24, 1998, Volume Holdings, BCP Volume L.P., BCP Offshore Volume
L.P. and VSI Management Direct L.P. ("VSI Management"), together with GE Capital
and certain management shareholders of Service America entered into a Share
Exchange Agreement, pursuant to which the Company agreed to purchase
substantially all of the capital stock of Service America (the "Acquisition").
The consideration paid was (a) $1,000 in cash and 150 newly issued shares of the
Volume Holdings Common Stock representing approximately 28.5% of the outstanding
common stock of Volume Holdings on a fully diluted basis after giving effect to
such issuance and (b) the issuance to GE Capital of a 6.0% per annum senior
subordinated promissory note, due on December 31, 1999, in an aggregate
principal amount of $500,000. By December 1998, the Company had purchased the
remainder of Service America capital stock and contributed all of the Service
America capital stock to Volume Services America. The acquisition was accounted
for using the purchase method of accounting.
The balance sheet effect of this transaction was recorded on August 24,
1998. The purchase price allocation and related purchase accounting adjustments
recorded are as follows (in thousands):
<TABLE>
<CAPTION>
PURCHASE COST
- ----------------------------------------------------------------------------------
<S> <C>
Cash and stock.................................................................... $ 30,000
Estimated fees and expenses....................................................... 2,820
----------
Total purchase cost.......................................................... 32,820
----------
Adjusted book value of net liabilities assumed:
Liability for preferred stock, restricted stock and warrants.................... 28,810
Accumulated deficit of Service America at August 24, 1998....................... (65,640)
----------
Adjusted book value of net liabilities assumed (includes $1,587 of cash
acquired).................................................................... (36,830)
----------
Excess of purchase cost over adjusted book value of net assets acquired........... 69,650
Preliminary allocation of purchase cost:
Increase contract rights to estimated value..................................... 25,683
Increase trademarks to estimated fair value..................................... 6,600
Increase in deferred taxes...................................................... (4,442)
Increase in accrued expenses.................................................... (1,429)
----------
Total preliminary allocation of purchase cost................................ 26,412
----------
Cost in excess of net assets acquired............................................. $ 43,238
----------
----------
</TABLE>
The allocation of the total purchase cost reflected in the Company's
balance sheet is preliminary. The actual purchase accounting adjustment to
reflect the fair value of the assets acquired and liabilities assumed will be
based upon appraisals currently in process. However, based on current
information, Company management does not expect the final allocation of the
F-12
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
4. ACQUISITION--(CONTINUED)
purchase price to materially differ from that used in the accompanying balance
sheet. The contract rights are being amortized over a weighted average useful
life of 4.5 years. The trademarks and costs in excess of net assets acquired are
amortized over their useful lives, not to exceed 30 years.
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the Service America acquisition had
occurred as of January 1, 1997, after giving effect to certain adjustments,
including amortization of goodwill, interest expense on acquisition debt and
related income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made on that date, nor are they necessarily
indicative of results which may occur in the future.
<TABLE>
<CAPTION>
PRO FORMA
(IN THOUSANDS)
YEAR ENDED
--------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales........................................................... $368,900 $405,900
Loss before extraordinary item...................................... (12,500) (9,900)
Net loss............................................................ (14,300) (11,900)
</TABLE>
5. DEBT
Long-term debt at December 30, 1997 and December 29, 1998 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Term A Borrowings.................................................... $ -- $ 40,000
Term B Borrowings.................................................... 49,572 120,000
Term C Borrowings.................................................... 19,828 --
Revolving Loans--Acquisition Portion................................. 9,600 --
------- --------
79,000 160,000
Less current portion of long-term debt............................... 300 4,200
------- --------
Total long-term debt................................................. $78,700 $155,800
------- --------
------- --------
</TABLE>
On December 3, 1998, Volume Holdings and Volume Services America, Inc. (the
"Borrower") entered into the Credit Agreement, which provides for $160,000,000
in term loans, consisting of $40,000,000 of Tranche A term loans ("Term Loan A")
and $120,000,000 of Tranche B term loans ("Term Loan B" and together with Term
Loan A, the "Term Loans") and a $75,000,000 revolving credit facility (the
"Revolving Credit Facility"). Borrowings under the Term Loans were used to repay
in full all outstanding indebtedness of Volume Services and Service America
under their then existing credit agreements and to pay fees and expenses
incurred in connection with the acquisition of Service America and the Credit
Agreement. The commitments under the Revolving Credit Facility are available to
fund capital investment requirements, working capital and general corporate
needs of the Company.
Installments of Term Loan A are due in consecutive quarterly installments
on the last day of each fiscal quarter beginning on March 30, 1999, with 25% of
the following annual amounts being paid on each installment date: $3,000,000 in
1999, $4,000,000 in 2000, $5,000,000 in 2001, and $7,000,000 in the years 2002
through 2005.
F-13
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
5. DEBT--(CONTINUED)
Installments of Term Loan B are due in consecutive quarterly installments
on the last day of each fiscal quarter beginning on March 30, 1999, with 25% of
the following annual amounts being paid on each installment date: $1,200,000 in
each year from 1999 through 2005, and $111,600,000 in 2006.
The Revolving Credit Facility allows the issuer to borrow up to an
additional $75,000,000 and includes a sub-limit of $35,000,000 for letters of
credit which reduce availability under the Revolving Credit Facility and a
sublimit of $5,000,000 for swingline loans. The Revolving Credit Facility will
mature on December 3, 2004. No amounts were outstanding under the Revolving
Credit Facility at December 29, 1998; however, $20,685,000 of letters of credit
were outstanding but undrawn.
The interest rates for the Term Loans and revolving loans vary depending on
which interest payment method the Borrower elects. The Borrower may elect that
these loans bear interest at a rate equal to the alternate base rate plus the
applicable margin or the adjusted LIBO rate plus the applicable margin. All
swingline loans bear interest based upon the alternate base rates. The alternate
base rate is the higher of the prime rate of interest publicly announced by
Chase Manhattan Bank and the federal funds rate plus 0.5%. The adjusted LIBO
rate is the rate at which Eurodollar deposits for one, two, three or six months
(as selected by the Borrower) are offered in the interbank Eurodollar market.
The applicable margin for Term Loan A and revolving loans that bear
interest at a rate determined by reference to the alternate base rate and for
swingline loans is 2% per annum until the date of delivery of financial
statements for the period ending June 29, 1999, and the applicable margin for
these loans after such date will fluctuate, depending on a calculation of the
Borrower's leverage ratio, between 1.25% and 2%. The applicable margin for
revolving loans and term loan A that bear interest at a rate determined by
reference to the adjusted LIBO rate is 3% per annum until the date of delivery
of financial statements for the period ending June 29, 1999, and the applicable
margin for these loans after such date will fluctuate, depending on the leverage
ratio, between 2.25% and 3%. The issuer may elect that Term Loan B bear interest
at a rate per annum equal to the alternate base rate plus 2.75% or the adjusted
LIBO rate plus 3.75%.
The principal outstanding at December 29, 1998 was $40,000,000 for Term
Loan A and $120,000,000 for Term Loan B. The interest rates at December 29, 1998
were 8.25% for Term Loan A and 9.00% for Term Loan B.
The Credit Agreement calls for mandatory prepayment of the loans under
certain circumstances and optional prepayment without penalty. The Credit
Agreement contains covenants that, subject to certain exceptions, restrict the
ability of Volume Holdings, the Borrower and its subsidiaries to, among other
things, (1) incur indebtedness and guarantees, (2) incur liens, (3) make loans
and investments, (4) engage in mergers, consolidations, acquisitions and asset
sales, (5) pay dividends and make distributions on, or repurchase or redeem,
capital stock (maximum dividend at December 29, 1998 was $49,500,000),
(6) enter into transactions with affiliates and sale leaseback transactions,
(7) make changes in their line of business, (8) amend certain material
agreements and (9) sell capital stock of Borrower's subsidiaries. The Borrower
will also be required to comply with certain financial covenants, including a
maximum net leverage ratio, an interest coverage ratio and a minimum
consolidated cash net worth test. The Credit Agreement contains affirmative
covenants, including entry by Volume Holdings, the Borrower and its subsidiaries
into interest rate protection agreements, and customary representations and
warranties.
F-14
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
5. DEBT--(CONTINUED)
The transaction cost of the Credit Agreement amounted to $7,859,000 and was
capitalized at December 29, 1998. These deferred costs will be amortized over
7 years for Term Loan A, 8 years for Term Loan B and 6 years for the Revolving
Credit Facility. The Borrower recognized an extraordinary loss of $1,499,000,
net of taxes (approximately $999,000) on its statement of operations and
comprehensive losses, for the early extinguishment of its previous debt.
Aggregate annual maturities of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1999......................................................... $ 4,200
2000......................................................... 5,200
2001......................................................... 6,200
2002......................................................... 8,200
2003......................................................... 8,200
Thereafter................................................... 128,000
--------
Total........................................................ $160,000
--------
--------
</TABLE>
See Note 16 for subsequent information regarding the Company's debt.
6. CAPITAL LEASE OBLIGATION
The Company is obligated to make minimum lease payments under a capital
lease agreement. The following is a schedule of future minimum lease payments
under the capital lease together with the present value of the net minimum lease
payments as of December 29, 1998 (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------------------------------------------------------------
<S> <C>
1999............................................................. $ 250
2000............................................................. 250
2001............................................................. 250
2002............................................................. 195
---------
Total minimum lease payments..................................... 945
Less: Amount representing interest............................... (134)
---------
Present value of minimum lease payments.......................... 811
Less current portion of capital lease obligation................. (189)
---------
Total long-term capital lease obligation......................... $ 622
---------
---------
</TABLE>
Under the terms of the lease agreement, certain equipment is pledged to
secure performance as follows (in thousands):
<TABLE>
<S> <C>
Equipment......................................................... $ 914
Accumulated depreciation.......................................... (69)
---------
Total............................................................. $ 845
---------
---------
</TABLE>
F-15
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
7. INCOME TAXES
The components of deferred taxes are (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred tax liabilities:
Intangibles (goodwill, contract rights and trademarks).............. $(2,409) $(13,648)
Other prepaid assets................................................ (215) (1,265)
------- --------
(2,624) (14,913)
------- --------
Deferred tax assets:
Difference between book and tax basis of property................... 3,127 1,764
Bad debt reserves................................................... 27 385
Inventory reserves.................................................. 67 79
Other reserves and accrued liabilities.............................. 2,478 4,617
General business credit carryforwards............................... -- 978
Accrued compensation and vacation................................... 445 781
Net operating loss carryforward..................................... 1,857 1,707
Alternative Minimum Tax ("AMT") Credit carryforward................. 146 --
------- --------
Gross deferred tax assets............................................. 8,147 10,311
------- --------
Valuation allowance................................................... (5,523) --
------- --------
Net deferred tax liabilities.......................................... $ -- $ (4,602)
------- --------
------- --------
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Net deferred tax liability is recognized as follows in the
accompanying 1997 and 1998 consolidated balance sheets:
Current deferred tax asset.......................................... $ -- $ 2,082
Noncurrent deferred tax liability................................... -- (6,684)
------- --------
Net deferred tax liability............................................ $ -- $ (4,602)
------- --------
------- --------
</TABLE>
As of December 29, 1998, the Company had available net operating loss
carryforwards of approximately $22,511,000. The Company's future ability to
utilize the net operating loss carryforward of its subsidiary, Service America,
is limited by section 382 of the Internal Revenue Code of 1986, as amended.
These carryforwards begin to expire in years 2005 through 2012. Of the general
business credit, $900,000 begins to expire in 2005, with the remaining expiring
in year 2017.
For the year ended 1997, the Company recorded a valuation allowance for the
total amount of the gross deferred tax asset because, based on management's
assessment, it was uncertain whether the deferred tax assets would be realized.
As a result of the 1998 acquisition of Service America Corporation, the
Company's valuation allowance was reduced for pre-acquisition tax benefits that
management considers more likely than not to be realized at the date of
acquisition. This valuation allowance reduction was recognized as part of
purchase price adjustments and is not reflected in the tax provision-for the
year.
F-16
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
7. INCOME TAXES--(CONTINUED)
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current expense......................................... $ 10 $ 319 $ 359
------ ------ ------
Deferred provision (benefit):
Changes in temporary differences...................... 1,443 1,125 1,159
Increase (decrease) in valuation allowance............ (1,443) (1,125) --
------ ------ ------
Total deferred provision........................... -- -- 1,159
------ ------ ------
Total provision for income taxes........................ $ 10 $ 319 $1,518
------ ------ ------
------ ------ ------
</TABLE>
The difference between the statutory federal income tax rate and the
effective tax rate on net loss is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Statutory rate.......................................... (34)% (34)% (34)%
Differences:
State income taxes.................................... -- 4 33
Non-deductible expenses (meals and entertainment)..... -- 1 2
Adjustment to valuation allowance..................... 37 40 58
Goodwill.............................................. -- -- 8
Other................................................. (3) -- 1
------ ------ ------
Total provision for income taxes........................ 0% 11% 68%
------ ------ ------
------ ------ ------
</TABLE>
8. SALE OF STOCK
During 1998, the Company issued 37.5 shares of common stock at $100,000 per
share. A total of $3,500,000 was received by the Company in cash and the
remaining $250,000 was financed by the Company in the form of investors' notes.
9. INTEREST RATE SWAP
On January 26, 1998, the Company entered into an interest rate swap
transaction with a financial institution in order to limit its exposure to
future fluctuations in the LIBOR interest rate related to all debt instruments
discussed in Note 4. The agreement provides for a fixed rate of interest of
5.39% for a period ending January 12, 1999 on a notional amount of $80,000,000.
On December 9, 1998, the Company terminated this transaction effective
January 12, 1999 and entered into a new interest rate swap transaction providing
a fixed interest rate of 5.06% for a two-year period on a nominal amount of
$80,000,000.
On March 15, 1999, the Company terminated the interest rate swap effective
April 12, 1999. The notional amount represents the amount of the underlying debt
to which the swap applies, not future cash requirements. Amounts to be paid or
received under the swap agreement are
F-17
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
9. INTEREST RATE SWAP--(CONTINUED)
recognized as interest expense or a reduction of interest expense in the periods
in which they accrue.
The counterparty to the Company's interest rate exchange agreement is a
major financial institution which participates in the Company's bank credit
facilities. Such financial institution is a leading market-maker in the
financial derivatives markets and is expected to fully perform under the terms
of such exchange agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments and related underlying
assumptions are as follows:
LONG-TERM DEBT--The Company estimates that the carrying value at
December 29, 1998 approximates the fair value of debt based upon the floating
rate of interest and the recent origination of the debt related to the Credit
Agreement.
INTEREST RATE SWAP--At December 30, 1997 and December 29, 1998, the fair
value of the interest rate swap agreement was an asset of approximately $252,000
and $431,000, respectively. This represents the estimated amount the Company
would receive to terminate the swap agreement, as quoted by the financial
institution.
11. COMMITMENTS AND CONTINGENCIES
LEASES AND CLIENT CONTRACTS--The Company operates primarily at its clients'
premises pursuant to written contracts. The length of a contract generally
ranges from one to twenty years. Certain of these client contracts provide for
both fixed and variable commissions and royalties. Aggregate commission and
royalty expense under these agreements was $59,989,000 (base of approximately
$2,100,000) for fiscal 1996 and $60,402,000 (base of approximately $4,500,000)
for fiscal 1997 and $86,489,000 (base of approximately $3,634,000) for fiscal
1998.
The Company leases a number of real properties and other equipment under
varying lease terms which are noncancelable and expire at various dates through
1999. Rent expense for all operating leases was approximately $164,000, $255,000
and $1,317,000 in fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
Future minimum commitments for all operating leases and base commissions
and royalties due under client contracts are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- --------------------------------------------------------------
<S> <C>
1999.......................................................... $ 10,435
2000.......................................................... 9,612
2001.......................................................... 7,843
2002.......................................................... 5,504
2003.......................................................... 4,570
Thereafter.................................................... 29,291
----------
Total......................................................... $ 67,255
----------
----------
</TABLE>
EMPLOYMENT CONTRACTS--The Company has employment agreements and
arrangements with its executive officers and certain management personnel. The
agreements generally continue until terminated by the executive or the Company,
and provide for severance payments under certain
F-18
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
circumstances. The agreements include a covenant against competition with the
Company, which extends for a period of time after termination for any reason. As
of December 29, 1998, if all of the employees under contract were to be
terminated by the Company without good cause (as defined) under these contracts,
the Company's liability would be approximately $5.6 million.
COMMITMENTS--Pursuant to its contracts with various clients, the Company is
committed to spend approximately $15,300,000 during 1999 and $1,200,000 during
2000 for equipment improvements and location contract rights. In addition, the
Company currently is engaged in negotiations pursuant to which it expects to
enter into three new contracts which will require the Company to fund additional
future capital investments of approximately $10.4 million, all of which would be
invested in 1999. The Company has $8,485,000 of letters of credit
collateralizing the Company's performance and other bonds, and $5,200,000 in
letters of credit collateralizing the self-insurance reserves of the Company,
and $7,000,000 in other letters of credit.
LITIGATION--There are various claims and pending legal actions against or
indirectly involving the Company. It is the opinion of management, after
considering a number of factors, including, but not limited to, the current
status of the litigation (including any settlement discussions), views of
retained counsel, the nature of the litigation, the prior experience of the
Company, and the amounts which the Company has accrued for known contingencies,
that the ultimate disposition of these matters will not materially affect the
financial position or future results of operations of the Company.
12. RELATED PARTY
MANAGEMENT FEES--Certain administrative and management functions were
provided to VSI by the Blackstone Group through a monitoring agreement. VSI paid
Blackstone Management Partners II L.P., an affiliate of Blackstone, management
fees of approximately $250,000 each year for fiscal 1998, 1997 and 1996. Such
amounts are included in selling, general and administrative expenses.
As part of the Acquisition (see Note 4), the Company agreed to pay
management fees to Blackstone and GE Capital of $250,000 and $167,000,
respectively, for consulting, monitoring and financial advisory services
provided to the Company. The fee of $250,000 paid to Blackstone Management
Partners II L.P. is consistent with the amount paid by the Company in previous
years. The Company paid GE Capital management fees of approximately $42,000 for
fiscal 1998. Such amounts are included in selling, general and administrative
expenses.
The Company also paid fees of $125,000 in July 1998 and $2,275,000 in
December 1998 to the Blackstone Group in connection with the Acquisition, in
accordance with the terms of an arrangement entered into in May 1998. Such
amounts were included in the calculation of goodwill.
INVESTORS' NOTES RECEIVABLE--At December 30, 1997 and December 29, 1998,
the Company had approximately $1,318,000 and $3,935,000, respectively, due from
various investors. These nonrecourse notes are due if the Company should undergo
a recapitalization as defined by the note agreements. Because the proceeds of
the notes were used to buy Company stock, the notes have been reflected as a
reduction of stockholders' equity.
MANAGEMENT INCENTIVE AGREEMENT--During 1997, the Company introduced a
discretionary incentive plan whereby general managers and senior management
personnel qualify for incentive payments in the event that the Company has
exceeded certain financial performance targets. The Company has accrued
approximately $750,000 and $373,000 in accrued salaries and vacations in
F-19
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
12. RELATED PARTY--(CONTINUED)
the accompanying balance sheets at December 30, 1997 and December 29, 1998,
respectively, for such incentives payable to certain general managers and senior
management personnel.
GE Capital and its affiliates provide leasing and other financing services
to Service America. Payments to GE Capital and its affiliates for fiscal year
1998 for such services, net of discounts earned, were approximately $1,900,000
and are included in selling, general and administrative expense on the statement
of operations and comprehensive loss.
13. RETIREMENT PLAN
Volume Services has a 40l(k) defined contribution plan which covers
substantially all Volume Services employees. Employees may contribute up to 15%
of their eligible earnings and the Company will match 25% of employee
contributions up to the first 6% of employee compensation. Contributions to the
plan were approximately $49,000 for 1996, $203,000 for fiscal 1997 and $185,000
for fiscal 1998.
Service America has a 401(k) defined contribution plan which covers
substantially all Service America employees. Employees may contribute up to 16%
of their eligible earnings. The Company's contribution is discretionary. No
amounts were contributed to the plan during fiscal 1998 as the Company at its
discretion made no contributions.
MULTI-EMPLOYER PENSION PLANS--Certain of the Company's union employees are
covered by multi-employer defined benefit pension plans administered by unions.
Under the Employee Retirement Income Security Act ("ERISA"), as amended, an
employer upon withdrawal from a multi-employer pension plan is required to
continue funding its proportionate share of the plan's unfunded vested benefits.
The Company may incur a withdrawal liability if a recreational services contract
is terminated or not renewed.
Amounts charged to expense and contributed to the plans were not material
for the periods presented.
14. CONTRACT TERMINATION
In March 1998, the Company terminated a concession contract with one of its
clients. The Company recognized a loss from this termination of approximately
$2,505,000 during fiscal 1997 (included in selling, general and administrative
in the accompanying consolidated statement of operations and comprehensive
loss), which includes a $1,100,000 write-down on assets held for sale to their
estimated realizable value for the year ended December 30, 1997. As part of the
settlement, the Company sold certain assets to the former client. The net book
value of these assets of $11,991,000 were classified as assets held for sale in
the accompanying consolidated balance sheet at December 30, 1997. Net proceeds
of the sale of these assets totaled $12,575,000 in fiscal 1998.
The Company terminated three additional concession contracts in fiscal
1998. The Company recognized a loss of approximately $1,423,000 (included in
selling, general and administrative expenses in the accompanying consolidated
statement of operations and comprehensive income) for the year ended
December 29, 1998, which relates to the write off of assets relating to the
contracts.
F-20
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, DECEMBER 30, 1997 AND DECEMBER 29, 1998
15. SEVERANCE AGREEMENT
In October 1998, the Company entered into a severance agreement with an
executive officer of Volume Services. Under the agreement, the executive officer
received $500,000 upon signing the agreement and an additional $700,000 on
March 31, 1999. Until March 31, 1999, the executive officer continued to receive
amounts due under his annual base salary of $300,000. The agreement also
contains a grant by the executive officer of an irrevocable option to the
Company, exercisable at any time within 5 years from the agreement to purchase
and a grant by the Company to the executive officer of an option exercisable
upon the occurrence of certain events to oblige the Company to purchase all of
the executive officer's equity interest in VSI Management and
VSI Management II L.P. ("Management II") for $1,500,000 plus interest, if any,
which will begin accruing from October 13, 2000.
16. SUBSEQUENT EVENTS
Effective February 25, 1999, Volume Service America issued $100 million in
senior subordinated notes at an interest rate of 11 1/4% through a Rule 144A
private placement offering (the "Offering"). The notes will mature on March 1,
2009 and interest on the notes is payable on March 1 and September 1 of each
year, beginning on September 1, 1999. Such notes are unsecured, are subordinated
to all the existing debt and any future debt of Volume Service America, rank
equally with all of the other senior subordinated debt of Volume Service
America, and rank senior to all the Volume Service America's existing and senior
subordinated debt. Furthermore, the debt is jointly and severally, irrevocably
and fully and unconditionally guaranteed by the Company and its wholly owned
subsidiaries, Volume Services and Service America.
The proceeds of the Offering were used to (1) repay $45,000,000 of the
outstanding Term Loans, (2) fund the repurchase by Volume Holdings of Volume
Holdings common stock of $49,500,000 and the repayment by Volume Holdings of the
GE Capital Note of $500,000 and (3) pay fees and expenses incurred in connection
with the Offering and the consents from lenders to an amendment to the Credit
Agreement.
The Notes contain covenants that restrict among other things (1) the
incurrence of additional indebtedness and the issuance of Disqualified Stock and
Preferred Stock, (2) the payment of dividends on, and redemptions of, capital
stock and the redemption of indebtedness that is subordinate in right of payment
to the Notes, (3) certain other restricted payments including, without
limitation to, investments, (4) certain sales of assets, (5) certain
transactions with affiliates, (6) the creation of certain liens and
(7) consolidations, mergers and transfers of all or substantially all of the
Company's assets.
The senior subordinated notes will be fully and unconditionally guaranteed
by the Company and all of the subsidiaries of Volume Service America, except for
certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary. The
following table sets forth the condensed consolidated financial statements of
the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries. No
information is provided for any period prior to December 29, 1998, as the
non-guarantor subsidiaries are subsidiaries of Service America and were acquired
in the acquisition of Service America.
F-21
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 8,692 $ 136 $ 8,828
Accounts receivable.................. 16,958 832 17,790
Other current assets................. 23,190 1,217 $ (8,765) 15,642
-------- ------- -------- --------
Total current assets................... 48,840 2,185 (8,765) 42,260
Property, plant and equipment.......... 67,601 3,382 -- 70,983
Contract rights, net................... 69,407 3,528 -- 72,935
Cost in excess of net assets acquired,
net.................................. 50,585 -- -- 50,585
Investment in subsidiaries............. $ 49,877 -- -- (49,877) --
Other assets........................... -- 30,421 -- -- 30,421
-------- -------- ------- -------- --------
Total assets........................... $ 49,877 $266,854 $ 9,095 $(58,642) $267,184
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Intercompany liabilities............. $ 212 $ 8,553 $ (8,765)
Other current liabilities............ 46,991 1,667 -- $ 48,658
-------- ------- -------- --------
Total current liabilities.............. 47,203 10,220 (8,765) 48,658
Long-term debt......................... 155,800 -- -- 155,800
Other liabilities...................... 12,849 -- -- 12,849
-------- ------- -------- --------
Total liabilities...................... 215,852 10,220 (8,765) 217,307
-------- ------- -------- --------
Stockholders' equity (deficit):
Common stock......................... $ -- -- -- -- --
Additional paid-in capital........... 66,474 67,161 (687) (66,474) 66,474
Accumulated deficit.................. (12,595) (12,224) (371) 12,595 (12,595)
Other................................ (4,002) (3,935) (67) 4,002 (4,002)
-------- -------- ------- -------- --------
Total stockholders' equity (deficit)... 49,877 51,002 (1,125) (49,877) 49,877
-------- -------- ------- -------- --------
Total liabilities and stockholders'
equity (deficit)..................... $ 49,877 $266,854 $ 9,095 $(58,642) $267,184
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
YEAR ENDED DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $273,482 $ 9,959 $283,441
-------- ------- --------
Cost of sales........................... 214,776 7,757 222,533
Selling, general and administrative..... 29,178 1,709 30,887
Depreciation and amortization........... 17,333 864 18,197
Transaction fees and expenses........... 3,081 -- 3,081
-------- ------- --------
Operating profit........................ 9,114 (371) 8,743
Interest expense........................ 11,322 -- 11,322
Other income, net....................... (359) -- (359)
-------- ------- --------
Loss before income taxes................ (1,849) (371) (2,220)
Income tax provision.................... 1,518 -- 1,518
-------- ------- --------
Loss before extraordinary item.......... (3,367) (371) (3,738)
Extraordinary loss...................... 1,499 -- 1,499
Equity in earnings of subsidiaries...... $(5,237) -- -- $5,237 --
------- -------- ------- ------ --------
Net loss................................ (5,237) (4,866) (371) 5,237 (5,237)
Other comprehensive loss................ -- -- (67) -- (67)
------- -------- ------- ------ --------
Comprehensive loss...................... $(5,237) $ (4,866) $ (438) $5,237 $ (5,304)
------- -------- ------- ------ --------
------- -------- ------- ------ --------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating
Activities............................................. $ (49) $ 1,918 $(434) $ 1,435
------- ---------- ----- --------
Cash Flows Provided by Investing Activities:
Decrease in restricted cash............................ -- 2 -- 2
Cash purchased in acquisition of Service America....... -- 1,587 -- 1,587
Payment of acquisition costs........................... (2,820) -- -- (2,820)
Purchase of minority interest stock of Service
America.............................................. (631) -- -- (631)
Purchase of property, plant and equipment.............. -- (12,313) (322) (12,635)
Proceeds from sale of property, plant and
equipment............................................ -- 3,349 -- 3,349
Proceeds from assets held for sale..................... -- 12,575 -- 12,575
Additions to assets held for sale...................... -- (607) -- (607)
Purchase of contract rights............................ -- (6,164) (5) (6,169)
------- ---------- ----- --------
Net cash used in investing activities........... (3,451) (1,571) (327) (5,349)
------- ---------- ----- --------
Cash Flows Provided by Financing Activities:
Principal payments on long-term debt................... -- (154,291) -- (154,291)
Net borrowings--revolving loans........................ -- 6,897 -- 6,897
Proceeds from long-term debt........................... -- 160,000 -- 160,000
Payments of financing costs............................ -- (7,859) -- (7,859)
Principal payments on capital lease obligations........ -- (103) -- (103)
Decrease in bank overdrafts............................ -- (2,555) 713 (1,842)
Increase in investors' notes receivable................ -- 1,014 -- 1,014
Capital contributions.................................. 3,500 -- -- 3,500
------- ---------- ----- --------
Net cash provided by financing activities....... 3,500 3,103 713 7,316
------- ---------- ----- --------
Increase (decrease) in cash.............................. -- 3,450 (48) 3,402
Cash and cash equivalent--beginning of period............ -- 5,242 184 5,426
------- ---------- ----- --------
Cash and cash equivalents--end of period................. $ -- $ 8,692 $ 136 $ 8,828
------- ---------- ----- --------
------- ---------- ----- --------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 30,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 8,828 $ 8,960
Accounts receivable, less allowance for doubtful accounts of $963 and $987 at
December 29, 1998 and March 30, 1999, respectively................................ 17,790 18,682
Merchandise inventories............................................................. 9,585 10,818
Prepaid expenses.................................................................... 3,975 4,456
Deferred tax asset.................................................................. 2,082 2,082
-------- ---------
Total current assets.................................................................. 42,260 44,998
-------- ---------
Property and equipment:
Leasehold improvements.............................................................. 40,048 41,229
Merchandising equipment............................................................. 37,197 38,794
Vehicles and other equipment........................................................ 5,702 5,812
Construction in process............................................................. 262 1,053
-------- ---------
Total................................................................................. 83,209 86,888
Less accumulated depreciation and amortization...................................... (12,226) (16,550)
-------- ---------
Property and equipment, net........................................................... 70,983 70,338
-------- ---------
Other assets:
Contract rights, net................................................................ 72,935 68,348
Cost in excess of net assets acquired, net.......................................... 50,585 50,220
Deferred financing costs, net....................................................... 7,783 11,606
Trademarks, net..................................................................... 19,108 18,937
Other............................................................................... 3,530 4,352
-------- ---------
Total other assets.................................................................... 153,941 153,463
-------- ---------
Total assets.......................................................................... $267,184 $ 268,799
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................................................ $ 4,200 $ 1,150
Current maturities of capital lease obligation...................................... 189 193
Revolving loans..................................................................... 4,500
Accounts payable.................................................................... 16,410 19,706
Accrued salaries and vacations...................................................... 8,336 7,827
GE Capital Note..................................................................... 500 --
Liability for self-insured claims................................................... 2,216 2,592
Accrued taxes, other than income taxes.............................................. 3,214 3,319
Accrued commissions and royalties................................................... 8,603 9,499
Accrued interest.................................................................... 1,156 2,007
Other............................................................................... 3,834 2,737
-------- ---------
Total current liabilities............................................................. 48,658 53,530
-------- ---------
Long term liabilities:
Long term debt...................................................................... 155,800 213,563
Capital lease obligation............................................................ 622 572
Deferred income tax................................................................. 6,684 3,255
Liability for self-insured claims................................................... 2,949 2,099
Other long term liabilities......................................................... 2,594 2,619
-------- ---------
Total long term liabilities........................................................... 168,649 222,108
-------- ---------
Stockholders' equity (deficit):
Common stock ($.01 par value; 1,000 shares authorized; 526 and 332 shares issued and
outstanding at December 29, 1998 and March 30, 1999, respectively)................ -- --
Additional paid-in capital.......................................................... 66,474 16,974
Accumulated deficit................................................................. (12,595) (20,418)
Accumulated other comprehensive loss................................................ (67) (87)
Investors' notes receivable......................................................... (3,935) (3,308)
-------- ---------
Total stockholders' equity (deficit).................................................. 49,877 (6,839)
-------- ---------
Total liabilities and stockholders' equity (deficit).................................. $267,184 $ 268,799
-------- ---------
-------- ---------
</TABLE>
See notes to consolidated financial statements
F-25
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEK
PERIOD ENDED
----------------------
MARCH 31, MARCH 30,
1998 1999
--------- ---------
<S> <C> <C>
Net sales................................................................................. $27,294 $66,290
------- -------
Cost of sales............................................................................. 22,422 54,314
Selling, general, and administrative...................................................... 4,460 9,444
Depreciation and amortization............................................................. 2,907 6,347
Transaction fees and expenses............................................................. -- 1,018
------- -------
Operating loss............................................................................ (2,495) (4,833)
Interest expense, net..................................................................... 2,287 4,632
Other (income) expense, net............................................................... (33) (101)
------- -------
Loss before income taxes.................................................................. (4,749) (9,364)
Income tax provision (benefit)............................................................ 19 (2,670)
------- -------
Net loss before extraordinary item and cumulative effect of change in accounting
principles.............................................................................. (4,768) (6,694)
Extraordinary item, net--early extinguishment of debt..................................... -- 873
Cumulative effect of change in accounting principles, net................................. -- 256
------- -------
Net loss.................................................................................. (4,768) (7,823)
------- -------
Other comprehensive loss:
Foreign currency translation adjustments.................................................. -- (20)
------- -------
Total other comprehensive loss............................................................ -- (20)
------- -------
Comprehensive loss........................................................................ $(4,768) $(7,843)
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIT
DECEMBER 29, 1998 AND MARCH 30, 1999
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER INVESTORS'
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE NOTES
SHARES STOCK CAPITAL DEFICIT INCOME RECEIVABLE TOTAL
------ ------ ---------- ----------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1998........ 526 $ -- $ 66,474 $ (12,595) $ (67) $(3,935) $49,877
Stock redemption................ (194) -- (49,500) -- -- (49,500)
Change in investors' notes
receivable.................... -- -- -- -- 627 627
Foreign currency translation.... -- -- -- (20) -- (20)
Net Loss........................ -- -- -- (7,823) -- -- (7,823)
---- ---- -------- --------- ----- ------- -------
Balance, March 30, 1999........... 332 $ -- $ 16,974 $ (20,418) $ (87) $(3,308) $(6,839)
---- ---- -------- --------- ----- ------- -------
---- ---- -------- --------- ----- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEK
PERIOD ENDED
----------------------
MARCH 31, MARCH 30,
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss............................................................................... $(4,768) $ (7,823)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 2,907 6,347
Amortization of deferred financing costs............................................ 130 304
Gain on asset sales................................................................. (68) --
Extraordinary item.................................................................. -- 873
Cumulative effect of change in accounting principles................................ -- 256
Deferred income tax expense......................................................... -- (2,682)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable and notes receivable....................................... 1,306 (892)
Merchandise inventories........................................................ (1,109) (1,233)
Prepaid expenses............................................................... (295) (481)
Other assets................................................................... (948) (583)
Assets held for sale........................................................... (695) --
Increase (decrease) in liabilities: -- --
Accounts payable............................................................... (1,207) 186
Accrued salaries and vacations................................................. (958) (509)
Liability for self-insured claims.............................................. 338 (474)
Other liabilities.............................................................. (3,734) 764
------- ---------
Net cash used in operating activities........................................ (9,101) (5,947)
------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Increase in restricted cash............................................................ (4,862) --
Purchase of property, plant and equipment.............................................. (5,762) (1,224)
Proceeds from sale of property, plant and equipment.................................... 150 --
Proceeds from sale of assets held for sale............................................. 10,000 --
Purchase of contract rights............................................................ -- (25)
------- ---------
Net cash used in investing activities........................................ (474) (1,249)
------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Principal payments on long-term debt................................................... $ (75) $ (45,788)
Redemption of stock.................................................................... -- (49,500)
Deferred financing costs............................................................... -- (5,575)
Net borrowings--revolving loans........................................................ 14,250 4,500
Net increase in investors' notes receivable............................................ 627
Proceeds from long-term debt........................................................... 100,000
Principal payments on capital lease obligations........................................ 663 (46)
Net increase (decrease)bank overdraft.................................................. (2,075) 3,110
Capital contribution................................................................... 3,500 --
------- ---------
Net cash provided by financing activities.................................... 16,263 7,328
------- ---------
INCREASE IN CASH......................................................................... 6,688 132
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............................................ 5,426 8,828
------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD.................................................. $12,114 $ 8,960
------- ---------
------- ---------
</TABLE>
See notes to consolidated financial statements
F-28
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEK PERIODS ENDED MARCH 31, 1998 AND MARCH 30, 1999
(UNAUDITED)
1. GENERAL
Volume Services America Holdings, Inc. ("Volume Holdings," and together
with its subsidiaries, the "Company"), formerly VSI Acquisition II Corporation
and Subsidiaries ("VSI"), is a holding company, the principal assets of which
are the capital stock of its subsidiary, Volume Services America, Inc. ("Volume
Services America"). Volume Services America is also a holding company, the
principal assets of which are the capital stock of its subsidiaries, Volume
Services, Inc. ("Volume Services") and Service America Corporation ("Service
America"). The Company is controlled by its senior management, Blackstone
Capital Partners II Merchant Banking Fund, L.P. ("BCP II"), and General Electric
Capital Corporation ("GE Capital"). GE Capital, which as of March 30, 1999
controlled 36.4% of the Company through its controlling interest in Recreational
Services, LLC, was the majority stockholder (on a fully diluted basis) of
Service America prior to the Acquisition of Service America by Volume Holdings
on August 24, 1998. As of March 30, 1999, the remainder of the Company's capital
stock was owned by limited partnerships controlled by BCP Volume L.P., BCP
Offshore Volume L.P. ("Blackstone") (59.4%), and by current and former
management employees of Volume Services (4.2%).
The accompanying financial statements of Volume Holdings have been prepared
pursuant to the rules and regulations of the Security and Exchange Commission
for interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair statement of results for the
interim periods.
The results of operations for the thirteen-week period ended March 30, 1999
are not necessarily indicative of the results to be expected for the year ending
December 28, 1999 due to the seasonal aspects of the business. The consolidated
financial statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 29,
1998.
2. DEBT
On March 4, 1999, Volume Services America issued $100 million in Senior
Subordinated Notes at an interest rate of 11 1/4% through a private placement
offering (the "Offering"). The Notes (the "Notes") mature on March 1, 2009 and
interest is payable on March 1 and September 1 of each year, beginning on
September 1, 1999. Such Notes are unsecured, are subordinated to all the
existing debt and any future debt of Volume Services America, rank equally with
all of the other Senior Subordinated of Volume Services America, and senior to
all of Volume Services America's existing and Senior Subordinated debt.
Furthermore, the debt is guaranteed by the Company and Volume Service America's
wholly owned subsidiaries, Volume Services and Service America.
The proceeds of the $100 million Offering were used to (i) repay
$40,000,000 of Term A Borrowings and $5,000,000 of Term B Borrowings, (ii) fund
the repurchase by Volume Holdings of 194 shares of Volume Holdings common stock
for $49,500,000 and the repayment by Volume Holdings of a $500,000 note in favor
of GE Capital and (iii) pay fees and expenses incurred in connection with the
Offering and the consent from lenders to an amendment to the Credit Agreement.
In conjunction with the Offering, Volume Services America recognized an
extraordinary loss of $873,000, net of taxes (approximately $577,000) on its
statement of operations for the early extinquishment of $45,000,000 of Term
Loans.
F-29
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THIRTEEN WEEK PERIODS ENDED MARCH 31, 1998 AND MARCH 30, 1999
(UNAUDITED)
2. DEBT--(CONTINUED)
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 30,
1998 1999
------------ ---------
<S> <C> <C>
Term A Borrowings...................................... $ 40,000
Term B Borrowings...................................... 120,000 $ 114,713
Revolving Loans........................................ 4,500
Senior Subordinated Notes.............................. 100,000
-------- ---------
160,000 219,213
Less current maturities of long-term debt.............. (4,200) (5,650)
-------- ---------
Total long-term debt................................... $155,800 $ 213,563
-------- ---------
-------- ---------
</TABLE>
Aggregate annual maturities of long-term debt are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------
<S> <C>
1999......................................................... $ 863
2000......................................................... 1,150
2001......................................................... 1,150
2002......................................................... 1,150
2003......................................................... 1,150
Thereafter................................................... 213,750
-----------
Total........................................................ $ 219,213
-----------
-----------
</TABLE>
The notes contain covenants that restrict among other things (i) the
incurrence of additional indebtedness and the issuance of Disqualified Stock and
Preferred Stock, (ii) the payment of dividends on, and redemptions of, capital
stock and the redemption of indebtedness that is subordinate in right of payment
to the Notes, (iii) certain other restricted payments including, without
limitation to, investments, (iv) certain sales of assets, (v) certain
transactions with affiliates, (vi) the creation of certain liens and
(vii) consolidations, mergers and transfer of all or substantially all of the
Company's assets.
3. STOCK REDEMPTION
In conjunction with the Offering, Volume Services America paid a
$50,000,000 dividend to Volume Holdings. Volume Holdings used the proceeds to
redeem 194 shares of its common stock (the "Stock Redemption") and to repay a
$500,000 note in favor of GE Capital.
4. RELATED PARTIES
Management Fees--Certain administrative and management functions were
provided to VSI by the Blackstone Group through a monitoring agreement. Volume
Services paid Blackstone Management Partners II L.P. approximately $62,500 in
each of the thirteen week periods ended March 31, 1998 and March 30, 1999. As
part of the August 24, 1998 acquisition of Service America, the Company agreed
to pay to GE Capital, an annual monitoring fee of $167,000. In the thirteen week
period ended March 30, 1999, $41,750 was paid to GE Capital. Such amounts are
included in selling, general and administrative expenses.
Investors' Notes Receivable--The Company had $3,935,000 and $3,308,000 in
receivables due from various investors at December 29, 1998 and March 30, 1999,
respectively.
F-30
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THIRTEEN WEEK PERIODS ENDED MARCH 31, 1998 AND MARCH 30, 1999
(UNAUDITED)
5. INTEREST RATE SWAP
On March 15, 1999, the Company terminated an interest rate swap effective
April 12, 1999 and received $180,000 which will be used as a reduction to
interest expense during fiscal year 1999.
6. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1999, the Company adopted the provisions of the
American Institute of Certified Public Accountants Statement of Position 98-5,
Reporting on the Costs of Start-up Activities, which requires that costs of
start-up activities be expensed as incurred. As a result, the Company recorded a
charge of $256,000 net of tax (approximately $170,000) reflecting the effect of
the change in accounting principle.
7. SERVICE AMERICA ACQUISITION
As described in Note 1, Volume Services America, a wholly owned subsidiary
of Volume Holdings, acquired Service America on August 24, 1998. The Service
America Acquisition was accounted for using the purchase method in accordance
with APB No. 16. The results of operations after the acquisition date are
included in Volume Holdings consolidated statements of income. The allocation of
the total purchase price reflected in the Volume Holdings balance sheet is
preliminary. The actual purchase accounting adjustment to reflect the fair value
of the assets acquired and liabilities assumed will be based upon appraisals
currently in process. However, based on current information, management does not
expect the final allocation of the purchase price to materially differ from that
used in the accompanying balance sheet.
The following unaudited pro forma financial presents a summary of
consolidated results of operations as if the Service America Acquisition had
occurred as of December 31, 1997, after giving effect to certain adjustments,
including amortization of goodwill, interest expense on acquisition debt and
related income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made on that date, nor are they necessarily
indicative of results which may occur in the future.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Net Sales................................................ $ 68,165
Loss before extraordinary item........................... (6,650)
Net Loss................................................. (8,434)
</TABLE>
8. PAYMENT OF VOLUME SERVICES AMERICA SENIOR SUBORDINATED NOTES
The senior subordinated notes of Volume Services America will be jointly
and severally, irrevocably and fully and unconditionally guaranteed by Volume
Holdings and all of the subsidiaries of Volume Services America, except for
certain non-wholly owned U.S. subsidiaries and one non-U.S. subsidiary. The
following table sets forth the condensed consolidating financial statements of
the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of
and for the period ended March 30, 1999. No information as of March 29, 1998 is
provided as the non-guarantor subsidiaries are subsidiaries of Service America
and were acquired in the acquisition of Service America.
F-31
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
MARCH 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 8,780 $ 180 $ 8,960
Accounts receivable...................... 15,527 3,155 18,682
Other current assets..................... 28,117 1,109 (11,870) 17,356
-------- ------- -------- --------
Total current assets....................... 52,424 4,444 (11,870) 44,998
Property, plant and equipment............ 66,609 3,729 -- 70,338
Contract rights, net..................... 65,164 3,184 -- 68,348
Cost in excess of net assets acquired,
net................................... 50,220 -- -- 50,220
Investment in subsidiaries............... $(6,839) -- -- 6,839 --
Other assets............................... -- 34,867 28 -- 34,895
------- -------- ------- -------- --------
Total Assets............................... $(6,839) $269,284 $11,385 $ (5,031) $268,799
------- -------- ------- -------- --------
------- -------- ------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Intercompany liabilities................. $ $11,870 $(11,870)
Other current liabilities................ 52,332 1,198 -- 53,530
-------- ------- -------- --------
Total current liabilities.................. 52,332 13,068 (11,870) 53,530
Long-term debt........................... 213,563 -- -- 213,563
Other liabilities........................ 8,545 -- -- 8,545
-------- ------- -------- --------
Total liabilities.......................... 274,440 13,068 (11,870) 275,638
-------- ------- -------- --------
Stockholders' equity:
Common stock............................. $
Additional paid-in capital............... 16,974 17,661 (687) (16,974) 16,974
Accumulated deficit...................... (20,418) (19,509) (909) 20,418 (20,418)
Other.................................... (3,395) (3,308) (87) 3,395 (3,395)
------- -------- ------- -------- --------
Total stockholders' equity................. (6,839) (5,156) (1,683) 6,839 (6,839)
------- -------- ------- -------- --------
Total liabilities and stockholders'
equity................................... $(6,839) $269,284 $11,385 $ (5,031) $268,799
------- -------- ------- -------- --------
------- -------- ------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 59,252 $ 7,038 $ 66,290
Cost of sales........................... 48,280 6,034 54,314
Selling, general and administrative..... 8,599 845 9,444
Depreciation and amortization........... 5,687 660 6,347
Transaction fees and expenses........... 1,018 -- 1,018
-------- ------- --------
Operating profit........................ (4,332) (501) (4,833)
Interest expense........................ 4,632 -- 4,632
Other income, net....................... (101) -- (101)
-------- ------- --------
Loss before income taxes................ (8,863) (501) (9,364)
Income tax provision (Benefit).......... (2,670) -- (2,670)
-------- ------- --------
Loss before extraordinary item.......... (6,193) (501) (6,694)
Extraordinary item net.................. 873 -- 873
Cumulative effect on Change in
Accounting Principles................. 256 -- 256
Equity in earnings of subsidiaries...... $(7,823) -- $7,823 --
------- -------- ------- ------ --------
Net loss................................ (7,823) (7,322) (501) 7,823 (7,823)
Other comprehensive loss................ -- -- (20) (20)
------- -------- ------- ------ --------
Comprehensive loss...................... $(7,823) $ (7,322) $ (521) $7,823 $ (7,843)
------- -------- ------- ------ --------
------- -------- ------- ------ --------
</TABLE>
F-33
<PAGE>
VOLUME SERVICES AMERICA HOLDINGS, INC.
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THIRTEEN WEEK PERIOD ENDED MARCH 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities.... $ -- $ (7,706) $ 1,759 $ (5,947)
------- -------- ------- --------
Cash Flows Provided by Investing Activities:
Decrease in restricted cash............................ -- -- -- --
Cash purchased in acquisition of Service America....... -- -- -- --
Payment of acquisition costs........................... -- -- -- --
Purchase of minority interest stock of Service
America............................................. -- -- -- --
Purchase of property, plant and equipment.............. -- (813) (411) (1,224)
Proceeds from sale of property, plant and Equipment.... -- -- -- --
Proceeds from assets held for sale..................... -- -- -- --
Additions to assets held for sale...................... -- -- -- --
Purchase of contract rights............................ -- (25) -- (25)
------- -------- ------- --------
Net cash used in investing activities............... -- (838) (411) (1,249)
------- -------- ------- --------
Cash Flows Provided by Financing Activities:
Principal payments on long-term debt................... -- (45,788) -- (45,788)
Net borrowings--revolving loans........................ -- 4,500 -- 4,500
Proceeds from long-term debt........................... -- 100,000 -- 100,000
Payments of financing costs............................ -- (5,575) -- (5,575)
Principal payments on capital lease obligations........ -- (46) -- (46)
Increase in bank overdrafts............................ -- 4,412 (1,302) 3,110
Increase in investors' notes receivable................ -- 627 -- 627
Redemption of Stock.................................... -- (49,500) -- (49,500)
------- -------- ------- --------
Net cash provided by financing activities........... -- 8,630 (1,302) 7,328
------- -------- ------- --------
Increase (decrease) in cash.............................. -- 86 46 132
Cash and cash equivalents--beginning of period -- 8,692 136 8,828
------- -------- ------- --------
Cash and cash equivalents--end of period................. $ -- $ 8,778 $ 182 $ 8,960
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
9. SUBSEQUENT EVENTS
On June 24, 1999, Odgen Entertainment Inc., a subsidiary of Ogden
Corporation, referred to as "Ogden", entered into an agreement with Blackstone,
VSI Management Direct and Recreational Services, collectively referred to as the
"Sellers", to purchase all of the outstanding common stock of Volume Holdings
for $127 million in cash. The closing of this transaction is expected to occur
sometime in the fall of 1999 and is subject to a number of customary conditions,
as well as Ogden's determination that the transaction is not reasonably likely
to have a material adverse effect on Ogden and its subsidiaries or Ogden's
ability to effect its planned recapitalization. Following the closing of this
transaction, Ogden plans to combine the operations of Volume Services America
with its entertainment business. Prior to closing this transaction, Volume
Services America will either need to obtain the consent of lenders under its
senior credit facilities to the proposed change of control, or these senior
credit facilities must be refinanced.
F-34
<PAGE>
The closing of this transaction would also constitute a change of control
under the terms of the notes. As a result of this change of control:
o Volume Services America will have the right to repurchase the notes
at a price equal to 100% of the principal amount, plus any premium which
may be payable, together with accrued and unpaid interest, if any, to
the date of repurchase; and
o holders of the notes will have the right to require Volume Services
America to repurchase the notes at a price equal to 101% of the
principal amount together with accrued and unpaid interest, if any, to
the date of repurchase.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
of Service America Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive (loss) income,
of cash flows and of changes in stockholders' equity (deficit) present fairly,
in all material respects, the financial position of Service America Corporation
and its subsidiaries at December 27, 1997 and December 28, 1996, and the results
of their operations and their cash flows for the fifty-two weeks ended December
27, 1997, the thirty-nine weeks ended December 28, 1996 and the fifty-three
weeks ended March 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
June 2, 1998,
except for Notes 3, 8,13, and 14,
as to which the date is July 10, 1998,
Note 21, as to which the date is May 27,
1999 and Note 22, as to which the date
is July 16, 1999
F-36
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash at locations...................................................................... $ 1,335 $ 1,272
Accounts receivable (net of allowance for doubtful accounts of $803 and $786).......... 8,263 8,394
Inventories............................................................................ 4,376 3,975
Prepaid expenses and other current assets.............................................. 3,122 4,608
Due from GE Capital.................................................................... 534 34,577
Deferred income taxes.................................................................. -- 1,576
-------- --------
Total current assets............................................................ 17,630 54,402
Property, fixtures and equipment, net.................................................. 24,770 15,585
Other assets........................................................................... 15,084 14,042
Deferred income taxes.................................................................. -- 5,424
-------- --------
Total assets.................................................................... $ 57,484 $ 89,453
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable....................................................................... $ 11,382 $ 9,674
Accrued expenses and other current liabilities......................................... 10,546 29,065
Income taxes payable................................................................... -- 221
-------- --------
Total current liabilities....................................................... 21,928 38,960
Long-term debt......................................................................... 68,167 14,336
Other liabilities...................................................................... 3,834 4,423
-------- --------
Total liabilities............................................................... 93,929 57,719
-------- --------
Commitments and contingencies (Note 12)
10% Class A Preferred Stock: Series A, $1.00 par value; 40,000 shares
authorized; 30,000 shares issued and outstanding; aggregate liquidation
preference of $3,000 plus any unpaid dividends......................................... 2,549 --
10% Class A Preferred Stock: Series B, $1.00 par value; 260,000 shares
authorized; 200,000 shares issued and outstanding; aggregate liquidation
preference of $20,000 plus any unpaid dividends........................................ 18,601 --
Warrant (exercisable for 711,538 shares of Common Stock, $0.01 par value)................ 6,112 --
Restricted Common Stock: $0.01 par value; 50,607 shares authorized;
46,800 shares issued, net of unearned compensation of $96.............................. 156 --
Stockholders' (deficit) equity:
Redeemable Preferred Stock: Series A through E, $0.01 par value; 200,000
shares of each series authorized, issued and outstanding; aggregate
liquidation preference of $25,000 plus any unpaid dividends.......................... -- 21,132
Common Stock: $0.01 par value, 1,200,000 shares authorized; 250,000 shares
issued and outstanding (1996: 5,000 shares authorized, issued and
outstanding)......................................................................... 3 --
Capital in excess of par value......................................................... 77,276 139,848
Due from GE Capital.................................................................... (4,285) (6,292)
Accumulated deficit.................................................................... (137,078) (122,806)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment.............................................. 221 (148)
-------- --------
Total stockholders' (deficit) equity............................................ (63,863) 31,734
-------- --------
Total liabilities and stockholders' (deficit) equity............................ $ 57,484 $ 89,453
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-THREE
WEEK PERIOD
FIFTY-TWO WEEK THIRTY-NINE WEEK ENDED
PERIOD ENDED PERIOD ENDED MARCH 30,
DECEMBER 27, 1997 DECEMBER 28, 1996 1996
----------------- ----------------- ------------
<S> <C> <C> <C>
Net sales................................................. $ 172,859 $ 124,808 $138,054
Cost of sales............................................. 136,144 96,941 107,838
--------- --------- --------
Gross profit............................................ 36,715 27,867 30,216
Depreciation and amortization expense..................... 6,927 7,535 12,393
Selling, general and administrative expense............... 24,711 17,355 20,201
Compensation expense...................................... 3,730 -- --
Transaction fees and costs................................ 2,642 722 --
Impairment of long-lived assets........................... 192 1,745 --
--------- --------- --------
(Loss) income from continuing operations before interest
expense and income taxes............................. (1,487) 510 (2,378)
Interest expense.......................................... 5,483 459 1,230
--------- --------- --------
(Loss) income from continuing operations before income
taxes................................................ (6,970) 51 (3,608)
Income tax (provision) benefit............................ (7,302) 164 5,017
--------- --------- --------
(Loss) income from continuing operations................ (14,272) 215 1,409
Income (loss) from discontinued operations, net... ........ -- 9,030 (12,878)
--------- --------- --------
Net (loss) income....................................... (14,272) 9,245 (11,469)
--------- --------- --------
Other comprehensive income (loss):
Foreign currency translation adjustment................. 369 3 (32)
--------- --------- --------
Total other comprehensive income (loss)................... 369 3 (32)
--------- --------- --------
Comprehensive (loss) income............................... $ (13,903) $ 9,248 $(11,501)
--------- --------- --------
--------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
REDEEMABLE ACCUMULATED
PREFERRED STOCK COMMON STOCK CAPITAL IN OTHER
--------------------- ------------------ EXCESS OF DUE FROM ACCUMULATED COMPREHENSIVE
SHARES PAR VALUE SHARES PAR VALUE PAR VALUE GE CAPITAL DEFICIT (LOSS) INCOME
---------- --------- ------- --------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 25, 1995... 1,000,000 $ 21,132 5,000 $ -- $ 191,180 $ -- $(120,582) $(119)
Dividends declared........ -- -- -- -- (2,230) -- -- --
Net loss.................. -- -- -- -- -- -- (11,469) --
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- -- (32)
---------- --------- ------- ----- ---------- -------- --------- -----
Balance, March 30, 1996... 1,000,000 21,132 5,000 -- 188,950 -- (132,051) (151)
Dividends declared........ -- -- -- -- (1,551) -- -- --
Assignment of proceeds
from the sale of the
remaining assets of the
institutional vending
and dining businesses... -- -- -- -- (108,354) -- -- --
Assumption of certain
assets and liabilities
by GE Capital........... -- -- -- -- 39,114 -- -- --
Contribution of debt,
accrued interest and
dividends to capital by
GE Capital -- -- -- -- 21,689 -- -- --
Due from GE Capital for
liabilities assumed..... -- -- -- -- -- (6,292) -- --
Net income................ -- -- -- -- -- -- 9,245 --
---------- --------- ------- ----- ---------- -------- --------- -----
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- -- 3
---------- --------- ------- ----- ---------- -------- --------- -----
Balance, December 28,
1996.................... 1,000,000 21,132 5,000 -- 139,848 (6,292) (122,806) (148)
Cancellation of existing
share capital at time of
recapitalization ....... (1,000,000) (21,132) (5,000) -- 21,132 -- -- --
Dividends declared........ -- -- -- -- (82,582) -- -- --
Accretion of Preferred
Stock................... -- -- -- -- (385) -- -- --
Dividends accrued on
Preferred Stock......... -- -- -- -- (2,165) -- -- --
New Common Stock issued... -- -- 250,000 3 1,428 -- -- --
Change in amount due from
GE Capital.............. -- -- -- -- -- 2,007 -- --
Net loss.................. -- -- -- -- -- -- (14,272) --
Foreign currency
translation
adjustment.............. -- -- -- -- -- -- -- 369
---------- --------- ------- ----- ---------- -------- --------- -----
Balance, December 27,
1997.................... -- $ -- 250,000 $ 3 $ 77,276 $ (4,285) $(137,078) $ 221
---------- --------- ------- ----- ---------- -------- --------- -----
---------- --------- ------- ----- ---------- -------- --------- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-TWO THIRTY-NINE FIFTY-THREE
WEEK PERIOD WEEK PERIOD WEEK PERIOD
ENDED ENDED ENDED
DECEMBER 27, DECEMBER 28, MARCH 30,
1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income............................................... $(14,272) $ 9,245 $(11,469)
Adjustments to reconcile net (loss) income to cash used in
operating activities:
Depreciation.................................................. 3,754 13,917 29,666
Amortization of intangibles and other assets.................. 3,365 6,479 8,740
Compensation expense.......................................... 3,730 -- --
Loss (gain) on sales of net assets............................ 72 (20,324) (8,822)
Gain on settlement of insurance and other liabilities......... -- (6,271) --
Deferred income taxes......................................... 7,000 1,600 (2,662)
Bad debt expense.............................................. 139 262 --
Other......................................................... 101 450 620
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable.............. (8) (2,375) 818
(Increase) decrease in inventories............................ (401) 309 (1,016)
Decrease (increase) in prepaid expenses and other current
assets..................................................... 1,486 942 (375)
Decrease (increase) in other assets........................... 101 202 (1,877)
Increase (decrease) in accounts payable....................... 1,553 (558) (7,396)
Decrease in accrued expenses and other current liabilities.... (18,519) (9,376) (2,516)
Decrease in income taxes payable.............................. (221) (160) (1,408)
(Decrease) Increase in other liabilities...................... (589) 483 (1,256)
-------- -------- --------
Net cash (used in) provided by operating activities......... (12,709) (5,175) 1,047
-------- -------- --------
Cash flows from investing activities:
Purchases of property, fixtures and equipment and investments in
contracts..................................................... (17,564) (7,206) (23,180)
Net proceeds from sales of net assets........................... 200 8,233 20,167
-------- -------- --------
Net cash (used in) provided by investing activities......... (17,364) 1,027 (3,013)
-------- -------- --------
Cash flows from financing activities:
Proceeds from the new term loan................................. 55,000 -- --
Proceeds from the assumption of certain liabilities by GE
Capital....................................................... 36,050 -- --
Proceeds from the sale of common and preferred stock and warrant
to purchase common stock...................................... 20,100 -- --
Dividend to shareholder as part of recapitalization............. (80,000) -- --
Repayments of debt.............................................. -- (25) (59)
(Repayments) borrowings on revolving credit facility, net....... (1,169) 3,660 1,091
Increase (decrease) in book overdrafts.......................... 155 (5,753) 653
-------- -------- --------
Net cash provided by (used in) financing activities......... 30,136 (2,118) 1,685
-------- -------- --------
Increase (decrease) in cash at locations.................... 63 (6,266) (281)
Cash at locations at beginning of period.......................... 1,272 7,538 7,819
-------- -------- --------
Cash at locations at end of period.......................... $ 1,335 $ 1,272 $ 7,538
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 5,019 $ 1,689 $ 4,055
Income taxes.................................................. $ 226 $ 397 $ 778
Noncash investing and financing activities (Note 20)
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND THE COMPANY
Service America Corporation and Subsidiaries (the "Company") is a provider
of food services to recreational facilities, primarily convention centers,
stadiums and arenas. The Company was a wholly-owned subsidiary of Servam
Corporation ("Servam") until January 17, 1997. Servam, a holding company with no
operations of its own, was a wholly-owned subsidiary of General Electric Capital
Corporation ("GE Capital") (see below). The Company currently operates in
approximately 20 states and in Canada, where it generally holds multi-year
contracts to provide concession sales of food and beverages, merchandise,
catering and other services. Many of the Company's contracts allow it to act as
the exclusive food service provider at these facilities.
In December 1987, all of the outstanding common stock of the Company was
acquired by Servam (the "Acquisition"). On June 27, 1993, in connection with the
Company's emergence from bankruptcy (the "Reorganization"), the Company adopted
the "Fresh Start" provisions of Statement of Position 90-7, "Financial Reporting
By Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), issued by
the American Institute of Certified Public Accountants. Upon Servam's and the
Company's emergence from bankruptcy, GE Capital, which was the Company's senior
lender in the Acquisition, controlled 70% of the voting power of Servam. On
March 26, 1994, the Company was in default under certain financial covenants of
its loan agreement with GE Capital and determined that the amount available
under the loan agreement was insufficient to fund its operations, capital
expenditures and debt service. As a result, a restructuring was completed on
June 24, 1994 under which Servam became 100% owned by GE Capital.
Prior to September 27, 1996, the Company provided contract food service
through its institutional vending and dining businesses, in addition to its
recreational food service operations, at business, industrial, and other
locations throughout the United States and in Canada. Effective September 27,
1996, the Company sold the remaining assets of its institutional vending and
dining businesses (the "Sale of Vending and Dining") to Compass Group PLC
("Compass") for cash, promissory notes, and Compass common stock totaling
approximately $120.1 million, plus the assumption of certain liabilities
amounting to approximately $27.6 million. The promissory notes and Compass
common stock were assigned to GE Capital (see Note 3).
On January 17, 1997, the Company was merged with Servam Acquisition
Corporation, a corporation controlled by GE Capital and four members of senior
management (the "Management Stockholders"), with the Company being the surviving
entity. Further details of this transaction, which has been accounted for as a
recapitalization, are provided in Note 14. In summary, the capital structure of
Servam Acquisition Corporation became the new capital structure of the Company
as the surviving entity and the capital structure of the Company as of
December 28, 1996 ceased to exist after the merger with Servam Acquisition
Corporation was consummated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation. The results of operations of
the institutional vending and dining businesses have been accounted for as
discontinued operations (see Note 4) in the consolidated statements of
operations for the thirty-nine week period ended December 28, 1996 and the
fifty-three week period ended March 30, 1996. Unless otherwise stated,
disclosures related to this consolidated statement of operations in the
accompanying notes are presented for continuing operations only.
Effective March 31, 1996, the Company changed its fiscal year end from the
last Saturday in March to the last Saturday in December. The first three
quarters of each fiscal year consist of
F-41
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
consecutive thirteen week periods with the fourth quarter ending on the last
Saturday of the respective month.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Revenue Recognition and Cost of Sales
The Company enters into two types of arrangements: profit and loss
contracts and incentive bonus contracts.
Under profit and loss contracts, the Company recognizes all food and
beverage revenues and expenses, including commissions to the clients, in the
statement of operations. Food and beverage revenues are recognized as they are
sold to the ultimate customer. The Company bears all the risks associated with
providing food and beverage services under profit and loss contracts. The
Company's business consists primarily of profit and loss contracts.
Under incentive bonus contracts, the Company retains a fee with an
incentive bonus for its role in managing the food service operation at the
client facility. The Company recognizes incentive bonus contract income on a
monthly basis as earned. Under this type of contract, the Company records all
food and beverage revenues generated at the facility in net sales and all costs
in their respective statement of operations accounts. In addition, and unlike
profit and loss contracts, profit payments are made to clients, which are
included in cost of sales. For the fifty-two weeks ended December 27, 1997, the
thirty-nine weeks ended December 28, 1996 and fifty-three weeks ended March 30,
1996, the Company recorded in net sales, revenues of $19.1 million, $13.4
million and $16.8 million, respectively and recognized pre-tax fee income of
$1.1 million, $0.8 million and $1.2 million, respectively, from incentive bonus
contracts. The risks associated with providing food and beverage operations
under incentive bonus contracts are generally not borne by the Company.
Foreign Currency
The balance sheet and results of operations of the Company's Canadian
subsidiary are measured using the local currency as the functional currency.
Assets and liabilities have been translated into United States dollars at the
rates of exchange at the balance sheet date. Revenues and expenses are
translated into United States dollars at the average rate during the period.
Translation gains and losses arising from the use of differing exchange rates
from year to year are included in the cumulative translation adjustment on the
balance sheet.
Income Taxes
In the period ended December 28, 1996 and prior years, the Company was
included in the consolidated federal income tax return of General Electric
Company ("GE"), the parent company of GE Capital. The Company prepared its tax
provision on a stand alone basis as required under
F-42
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes". Effective January 17, 1997 (see Note 14), the Company prepares
income tax returns on a stand-alone basis.
Under the liability method of accounting for income taxes, the Company
recognizes deferred tax assets and deferred tax liabilities which are determined
based on the difference between the financial statement and tax basis of assets
and liabilities, using the enacted tax rate in effect for the year in which the
differences are expected to reverse.
In accordance with SOP 90-7, income tax benefits recognized from
pre-bankruptcy net operating loss carryforwards and other tax assets are used
first to reduce the Reorganization value in excess of amounts allocable to
identifiable assets and other intangibles established at the Reorganization date
until reduced to zero and then to increase capital in excess of par value.
A valuation allowance against deferred tax assets is required if, based on
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Cash and Cash at Locations
The Company maintains a zero-based cash management system for its U.S.
operations under which all daily collections are applied to the outstanding
balance of the Revolving Credit Facility (see Note 8) and amounts required to
fund the Company's disbursement accounts are drawn down on the Revolving Credit
Facility. At December 27, 1997 and December 28, 1996, net book overdrafts of
$1.5 million and $1.3 million, respectively, are included in accounts payable.
The Company maintains minimum cash balances at recreational services
locations to meet operating requirements. As cash balances at these locations
exceed the minimum balances, funds are deposited into the cash management
system.
Inventories
Substantially all inventories are finished goods and are stated at the
lower of cost or market. Cost is determined using the first-in, first out
method.
Property, Fixtures and Equipment
Property, fixtures and equipment were stated at fair market value as of the
Reorganization date. Additions and major replacements or improvements subsequent
to June 26, 1993 are stated at cost. Depreciation is provided for using the
straight-line method over the estimated useful lives of the respective assets.
When assets are sold or retired, the cost and related accumulated depreciation
are removed from the accounts and the resulting gain or loss is included in the
statement of operations. Leasehold improvements are amortized over the terms of
the respective leases or the service lives of the assets, whichever is shorter.
The Company invests in fixtures and equipment at various recreational
services facilities. If a contract is terminated prior to its expiration date
for any reason other than default by the Company, the client is typically
contractually obligated to purchase the Company's fixtures and equipment at
their net carrying value.
Recreational Services Contract Rights
Recreational services contract rights represent fair values assigned to
such contracts at the Reorganization date and are amortized on a straight-line
basis over the lives of the respective contracts, ranging from one to twenty
years.
F-43
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Investments in Contracts
Investments in contracts, primarily direct payments to clients, are used by
the facility owner to construct and install food service fixtures and equipment,
make leasehold improvements and for certain other types of expenditures. These
costs are amortized on a straight line basis over the life of the related
contract, ranging from one to twenty years, without consideration for future
renewals. If a contract is terminated prior to its expiration date for any
reason other than default by the Company, the client is typically contractually
obligated to reimburse the Company for the unamortized portion of the
investment.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
was being amortized on a straight-line basis over a 10 year period. In January
1996, the remaining reorganization value in excess of amounts allocable to
identifiable assets was charged against the gain realized on the sale of the
Company's corrections dining business (see Note 4).
Long-Lived Assets
In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" the Company
reviews its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing a review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of an impairment loss for
long-lived assets and identifiable intangibles is based on the estimated fair
value of the asset.
For the periods ended December 27, 1997 and December 28, 1996, the Company
recorded impairment losses of approximately $0.2 million and $1.7 million,
respectively, related to recreational services contract rights, fixtures and
equipment, and investment in contracts. In measuring the impairment loss, fair
value was determined using the present value of estimated future cash flows from
the respective underlying recreational services contracts.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk are cash and accounts receivable. The Company
maintains its cash and cash at locations with various high quality banks. The
Company's accounts receivable balances are from various groups who hold
industrial and trade shows, company meetings, banquets, receptions, and consumer
exhibitions at the facilities serviced by the Company. To reduce credit risk,
the Company performs ongoing credit reviews and evaluations of its customers'
financial condition and in certain circumstances requires advance payments.
Fair Value of Financial Instruments
As of December 27, 1997, and December 28, 1996, the carrying value of the
Company's debt obligations approximated fair value based on quoted market prices
for the same or similar debt instruments.
F-44
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SALE OF VENDING AND DINING BUSINESSES AND ASSIGNMENT AND ASSUMPTION AGREEMENT
On September 27, 1996 (the "Closing Date"), the Company sold the remaining
assets of its institutional vending and dining businesses to Compass for
approximately $120.1 million, plus the assumption of certain liabilities
aggregating approximately $27.6 million. The proceeds from the Sale of Vending
and Dining included cash, a share delivery agreement (the "Share Agreement"), a
supplemental share delivery agreement (the "Supplemental Share Agreement"), and
two promissory notes.
The Share Agreement and the Supplemental Share Agreement required Compass
to deliver to the Company, or its designees, certificates representing
12,025,920 Compass shares in four consecutive semi-annual installments of
3,006,480 shares each, beginning on March 31, 1997. In conjunction with the
Share Agreement and the Supplemental Share Agreement, Compass issued to the
Company four irrevocable letters of credit aggregating $117.1 million supporting
the performance of the Share Agreement and Supplemental Share Agreement.
An independent valuation was obtained to value the Share Agreement and the
Supplemental Share Agreement as of the Closing Date, since the shares had not
been delivered and were therefore not readily tradable. The fair market value of
the shares was determined to be $88.4 million.
The Company received two promissory notes each with a principal amount of
$10 million. One promissory note was payable one year and one day after the
Closing Date (September 28, 1997) and a second promissory note is payable two
years and one day after the Closing Date (September 28, 1998). The promissory
notes bear interest at a rate of 6.5% until maturity, payable at maturity.
The Company received cash proceeds of approximately $11.7 million for the
remainder of the purchase price and a payment of $0.7 million for a one year
sublease of office space. The cash proceeds were used to make a partial
repayment on the Company's Revolving Credit Facility with GE Capital.
On October 1, 1996, the Company entered into an Assignment and Assumption
Agreement (the "Assignment and Assumption Agreement") with GE Capital. Pursuant
to the Assignment and Assumption Agreement, the Company assigned its rights to
the Share Agreement, the Supplemental Share Agreement, and the promissory notes
to GE Capital. The assignment of $108.4 million was accounted for as a reduction
of capital in excess of par value in the statement of stockholder's equity.
As part of the Assignment and Assumption Agreement, certain designated net
liabilities of the institutional vending and dining businesses and a percentage
of certain categories of liabilities recorded on the Company's corporate balance
sheet as of September 27, 1996, were assumed by GE Capital. The percentages used
for the corporate liabilities principally represent an approximation of the
amount of each liability attributable to the institutional vending and dining
businesses.
GE Capital appointed the Company as its agent for the purposes of
collecting the remaining assigned assets and for paying and discharging all of
the assumed liabilities. As of December 28, 1996, the Company recorded a
receivable from GE Capital for $40.9 million, including $11.0 million owed as a
result of the Insurance Settlement (see Note 12) with a corresponding
contribution of $39.1 million to capital in excess of par value for the net
liabilities assumed.
During the fifty-two week period ended December 27, 1997, GE Capital
reimbursed the Company $36.1 million in respect of liabilities settled by the
Company on behalf of GE Capital. As of December 27, 1997, the Company has
recorded a receivable of $4.8 million which represents
F-45
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SALE OF VENDING AND DINING BUSINESSES AND ASSIGNMENT AND ASSUMPTION
AGREEMENT--(CONTINUED)
the remaining net liabilities assumed. Of the receivable from GE Capital,
$4.3 million and $6.3 million was reclassified to stockholder's equity, as of
December 27, 1997 and December 28, 1996, respectively, representing the amount
of the assumed liabilities which remained unpaid as of July 10, 1998 and
June 28, 1997, respectively. The receivable from GE Capital is non-interest
bearing.
Certain of the above liabilities that GE Capital agreed to pay and
discharge are subject to an aggregate maximum of $16.3 million (the "Aggregate
Amount"), without regard to the individual amount of such liabilities. As of
December 27, 1997, GE Capital has assumed accrued liabilities of $15.6 million
for liabilities subject to the Aggregate Amount and $25.3 million for
liabilities not subject to the Aggregate Amount. Management does not believe
that the liabilities subject to the Aggregate Amount will exceed such limit.
Contingent liabilities which are asserted or arise after the balance sheet
date which are determined to have arisen from the operation of the institutional
vending and dining businesses will be recorded as an expense to the Company in
the period the liability is probable of assertion and is estimable. The
contingent liability will be assumed and discharged by GE Capital and recorded
as a contribution to capital in excess of par value at that time.
The Assignment and Assumption Agreement was due to terminate on October 1,
1997, except for certain taxes, for which GE Capital's assumption of such
liability will remain in effect until the statue of limitation expires in the
applicable state. GE Capital has subsequently agreed to extend the Assignment
and Assumption Agreement on three occasions and it is now due to terminate on
August 31, 1998 (the "Termination Date"). On the Termination Date, the Company
shall provide to GE Capital a list of claims that remain unpaid as of the
Termination Date and are expected to be paid in the future. If within 30 days
following the delivery of such list, GE Capital has not given the Company notice
of its objection thereto, the list shall be conclusive and binding and GE
Capital will be responsible to pay all the liabilities as listed. Liabilities
incurred in excess of amounts listed or liabilities incurred but not included on
such list, if any, will be the responsibility of the Company.
Also, as part of the Assignment and Assumption Agreement, GE Capital
forgave $17.9 million of debt and accrued interest owed under the Revolving
Credit Facility and forgave $3.8 million in accrued dividends due on the Old
Redeemable Preferred Stock (see Note 9). The forgiveness of these amounts was
accounted for as a contribution of $21.7 million to capital in excess of par
value in the consolidated statement of stockholder's equity.
4. DISCONTINUED OPERATIONS
In connection with the Sale of Vending and Dining, the results of
operations of the institutional vending and dining businesses were reclassified
to identify them as discontinued operations on the
F-46
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DISCONTINUED OPERATIONS--(CONTINUED)
consolidated statement of operations. The summarized data for the institutional
vending and dining businesses was as follows:
<TABLE>
<CAPTION>
FIFTY-THREE
THIRTY-NINE WEEK WEEK PERIOD
PERIOD ENDED ENDED
DECEMBER 28, 1996 MARCH 30, 1996
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Results of discontinued operations:
Net sales............................................. $ 240,282 $576,861
--------- --------
Loss from operations:
Loss before income taxes........................... (5,853) (21,146)
Income tax benefit................................. 2,372 3,935
--------- --------
Loss from operations.................................. (3,481) (17,211)
--------- --------
Gain on disposal of operations:
Gain on disposal................................... 15,625 8,822
Income tax expense................................. (3,114) (4,489)
--------- --------
Gain on disposal, net................................. 12,511 4,333
--------- --------
Income (loss) from discontinued operations, net....... $ 9,030 $(12,878)
--------- --------
--------- --------
</TABLE>
In January 1996, the Company sold the net assets of its corrections dining
business for $13.8 million and in February 1996, sold the net assets of its
institutional vending and dining businesses in the states of Washington and
Oregon for cash proceeds of $4.5 million and a long term note of $0.4 million.
These transactions resulted in a combined gain of $8.5 million. In addition,
during the year ended March 30, 1996, the Company had other net asset sales of
institutional vending and dining businesses, resulting in proceeds of $1.9
million and a gain of $0.3 million.
Included in the gain on disposal of the remaining institutional vending and
dining businesses of $15.6 million in the thirty-nine weeks ended December 28,
1996 were transaction costs of approximately $5.1 million and other asset sales
which resulted in a loss of $0.4 million.
Recorded in loss from operations before income taxes, for the fifty-three
weeks ended March 30, 1996 and the thirty-nine weeks ended December 28, 1996,
was interest expense of $3.2 million and $1.2 million, respectively. Interest
expense was allocated to discontinued operations based on the ratio of net
assets sold to the sum of total consolidated net assets plus consolidated debt.
5. PROPERTY, FIXTURES AND EQUIPMENT
Property, fixtures and equipment consist of the following at December 27,
1997 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Food service equipment............................................... $ 18,601 $ 13,051
Other equipment...................................................... 25,335 15,683
-------- --------
43,936 28,734
Less, Accumulated depreciation and amortization.................... (19,166) (13,149)
-------- --------
Property, fixtures and equipment, net................................ $ 24,770 $ 15,585
-------- --------
-------- --------
</TABLE>
F-47
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. OTHER ASSETS
Other assets consist of the following at December 27, 1997 and December 28,
1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Recreational services contract rights................................ $ 24,022 $ 24,022
Investment in contracts.............................................. 26,545 21,288
Other................................................................ 657 176
-------- --------
51,244 45,486
Less, Accumulated amortization..................................... (36,140) (31,444)
-------- --------
Other assets, net.................................................... $ 15,084 $ 14,042
-------- --------
-------- --------
</TABLE>
On December 28, 1996, the Company recognized $8.6 million of deferred tax
assets relating to certain pre-bankruptcy net operating losses resulting in a
corresponding increase in accumulated amortization related to recreational
services contract rights (see Note 11).
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 27, 1997 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages................................................... $ 1,535 $ 1,734
Commissions.......................................................... 1,141 1,043
Insurance............................................................ 549 15,071
Taxes other than income.............................................. 4,070 5,561
Other................................................................ 3,251 5,656
-------- --------
$ 10,546 $ 29,065
-------- --------
-------- --------
</TABLE>
As of December 27, 1997 and December 28, 1996, included in accrued expenses
and other current liabilities are $2.3 million and $20.0 million of liabilities,
respectively, assumed by GE Capital, but unpaid by the Company as of the balance
sheet date (see Note 3).
8. LONG-TERM DEBT
Long-term debt consists of the following at December 27, 1997 and December
28, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Term loan............................................................ $ 55,000 $ --
Revolving credit facility............................................ 13,167 14,336
-------- --------
Long-term debt..................................................... $ 68,167 $ 14,336
-------- --------
-------- --------
</TABLE>
On July 30, 1993, the Company entered into the Second Amended and Restated
Loan Agreement with GE Capital (the "Old Loan Agreement"). The Old Loan
Agreement provided for (i) a term loan (the "Old Term Loan") in an aggregate
principal amount of $151 million and (ii) a $70 million Revolving Credit
Facility (the "Old Revolving Credit Facility"). Amounts outstanding under the
facility were collateralized by substantially all of the Company's assets. The
Old Term Loan and the Old Revolving Credit Facility bore interest at a per annum
rate equal to, at the Company's option, 1.75% plus the average month-end prime
(or equivalent) rates of four major New York banks or LIBOR plus 4.50%. The
Company was required to make monthly interest
F-48
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
payments in cash on the Old Term Loan and the amounts outstanding under the Old
Revolving Credit Facility.
Amounts outstanding under the Old Revolving Credit Facility were due in
2000. The Old Loan Agreement contained covenants which, among other things,
required the Company to maintain certain amounts of operating income (as
defined), as well as certain financial ratios, and generally restricted or
limited the Company with respect to capital expenditures, dispositions of
assets, incurrence of debt, mergers and the making of investments. The Company
also could not declare, pay or set aside dividends with respect to its common
stock.
Certain of the Company's recreational services contracts require that
performance bonds or letters of credit be executed in favor of the client to
ensure that the Company abides by the provisions of the contract. These
performance bonds and letters of credit, which are issued by a surety company
and GE Capital, respectively, generally provide that the client be reimbursed
for losses it may incur should the Company not comply with the food service
contract up to the amount of the bond or the letter of credit. The surety
Company will only issue such performance bonds if it is indemnified by a third
party for any loses it may sustain. The Company has arrangements with GE Capital
and with another third party to provide such indemnification. To the extent that
GE Capital provided such indemnification, the amount available to be borrowed
under the Old Revolving Credit Facility was reduced on a dollar for dollar
basis. The amount available under the Old Revolving Credit Facility was also
reduced by the principal amount of any outstanding letters of credit which GE
Capital had guaranteed for the Company.
On March 25, 1995, GE Capital contributed to capital all debt outstanding;
$143.6 million under the Term Loan, $15.0 million under the Revolving Credit
Facility (without cancellation of the facility or reduction of the available
credit granted previously under the facility) and $13.8 million of accrued but
unpaid interest. This contribution resulted in a credit of $172.4 million to
capital in excess of par value. In addition, GE Capital changed the calculation
of the amount by which availability is reduced for outstanding performance bonds
and letters of credit to 67% of the amounts indemnified or guaranteed rather
than 100%.
In February 1996, in connection with the sale of the Company's corrections
dining business (see Note 4) and other smaller institutional vending and dining
operations, the amount of the Old Revolving Credit Facility was reduced from $70
million to $55 million.
In October 1996, as stated in Note 3, GE Capital contributed to capital
$21.7 million of debt and accrued interest outstanding under the Old Revolving
Credit Facility (without cancellation or modification of the facility or
reduction of the available credit granted previously under the facility). The
forgiveness of these liabilities was recorded as a contribution to capital in
excess of par value in stockholder's equity as of December 28, 1996.
The Company, acting as the agent of GE Capital, in accordance with the
terms of the Assignment and Assumption Agreement, borrowed under the Old
Revolving Credit Facility to pay certain of the liabilities assumed by GE
Capital as they came due. The Company was not assessed interest on the
borrowings made on GE Capital's behalf between October 1, 1996 and December 28,
1996. As of December 28, 1996, the principal amount of the loan outstanding
under the facility was $14.3 million. Additionally, letters of credit
aggregating approximately $12.1 million and bond indemnifications aggregating
approximately $3.3 million had been obtained. Including the aforementioned 67%
of bonds and letters of credit, the Company had $30.3 million available for
borrowings at December 28, 1996.
On January 17, 1997, the Company repaid the outstanding balance owed under
the Old Revolving Credit Facility and entered into a new loan agreement (the
"New Loan Agreement") with
F-49
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
GE Capital which provided the Company with a new term loan (the "New Term Loan")
with a principal amount of $55.0 million and a new revolving credit facility
(the "New Revolving Credit Facility") of $20.0 million. The New Loan Agreement
also gives the Company the right to request GE Capital to incur, or purchase
participations in letter of credit obligations and bond indemnification
obligations, in respect of the Company, up to a maximum of $13.0 million, (the
"Letter of Credit and Performance Bond Indemnification Facility"), reduced by
$1.0 million beginning January 17, 1999, and each year thereafter. Outstanding
letters of credit are subject to a sub-limit of $5.0 million and reduce
availability under the New Revolving Credit Facility on a dollar for dollar
basis. Outstanding performance bonds do not reduce availability under the New
Revolving Credit Facility.
As of December 27, 1997, the Company had outstanding letter of credit and
performance bond obligations of $8.3 million and $9.2 million, respectively. The
Company received a waiver from GE Capital which deems letter of credit
obligations to be zero until June 30, 1998 and thereafter to be 25% of the
aggregate face amounts of outstanding letters of credit, which will be applied
against the New Revolving Credit Facility. Accordingly, there is still
$3.8 million of the Letter of Credit and Bond Indemnification Facility
available. In addition, the Company also has $6.8 million available for
borrowings under the New Revolving Credit Facility at December 27, 1997.
The proceeds of the New Term Loan and the New Revolving Credit Facility
were used to finance the Recapitalization (see Note 14). Borrowings under the
New Revolving Credit Facility subsequent to January 17, 1997 have been used to
provide working capital financing. Indebtedness under the New Loan Agreement is
collateralized by substantially all of the assets of the Company. The Management
Stockholders have agreed to guarantee, on a limited recourse basis, all
indebtedness under the New Loan Agreement and have pledged their Common Stock as
collateral under the New Loan Agreement.
Both the New Term Loan and the New Revolving Credit Facility become due on
January 17, 2002. The Company is required to repay the principal on the New Term
Loan in eleven consecutive quarterly payments of $1.4 million commencing
April 1, 1999, with the final payment of $39.9 million due on January 17, 2002.
Any prepayments made under the New Loan Agreement are applied to the New Term
Loan in inverse order of maturity and then to the New Revolving Credit Facility.
Borrowings under the New Term Loan and the New Revolving Credit Facility
bear interest at a per annum rate equal to, at the Company's option, the Index
Rate plus 1.50% or LIBOR plus 3.375%. The Index Rate is defined as the greater
of the Federal funds rate plus 0.50% or the prime rate. The Company also pays
certain fees under the New Loan Agreement for unused loan availability,
outstanding letters of credit and performance bond obligations.
As of December 27, 1997, the interest rate on the outstanding indebtedness
under the New Term Loan and the New Revolving Credit Facility were 9.4% and
10.0%, respectively.
The New Loan Agreement contains covenants which, among other things,
require the Company to maintain certain amounts of earnings before interest and
income taxes, depreciation and amortization (as defined) as well as certain
financial ratios. The agreement also restricts or limits the Company with
respect to the payment of dividends, capital expenditures, disposition of
assets, incurrence of debt, mergers and the making of investments. As of
December 27, 1997, the Company was not in compliance with certain financial
covenants. GE Capital unconditionally waived existing defaults under the New
Loan Agreement and provided the Company with an unconditional waiver in respect
of projected future covenant violations based on management's forecast of the
Company's operating performance in the coming year.
F-50
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. OLD REDEEMABLE PREFERRED STOCK
On March 25, 1995, Servam authorized and issued Redeemable Preferred Stock
Series A through E, 200,000 shares of each series, to GE Capital (the "Old
Redeemable Preferred Stock") in exchange for the Increasing Rate Redeemable
Preferred Stock, previously issued to GE Capital in the Reorganization. The Old
Redeemable Preferred Stock, which was recorded at its fair value of $21.1
million, had a par value of $0.01 and a liquidation value of $25 per share plus
any unpaid dividends. Servam could at its option have redeemed at any time all
or a portion of the shares of preferred stock then outstanding at the optional
redemption price of $25 per share plus for each share an amount equal to
dividends unpaid and accrued thereon, whether or not declared. Dividends were
paid at the index rate defined as the average of the month-end prime rate of
interest in effect at March 26, 1995 (and announced from time to time
thereafter) of four major banks. Holders of the Old Redeemable Preferred Stock
were entitled to receive dividends when, and if declared by the Board of
Directors, each day from and after March 26, 1995 payable quarterly on the first
day of each July, October, January and April, commencing July 1, 1995. Each
quarterly dividend began to accrue (whether or not declared) and was fully
cumulative from the first day of the quarter end of which such dividend was
payable.
During the thirty-nine weeks ended December 28, 1996, the Company
declared $1.6 million ($1.55 per share) of dividends which remained unpaid.
Pursuant to the terms of the Assignment and Assumption Agreement, GE Capital
forgave approximately $3.8 million in accrued dividends as of December 28,
1996 (see Note 3).
The Old Redeemable Preferred Stock, which was the obligation of Servam, was
reflected in the financial statements of the Company, since Servam was dependent
on the Company's cash flows to service the principal amount of the Old
Redeemable Preferred Stock and any dividends.
On January 17, 1997, GE Capital and the Management Stockholders consummated
a recapitalization of the Company and Servam was subsequently liquidated and the
Old Redeemable Preferred Stock was canceled (see Note 14).
10. EMPLOYEE BENEFITS
Defined Contribution Plan
The Company maintains a defined contribution plan (the "401(k) plan") which
covers substantially all salaried employees. The 401(k) plan provides for
employees to contribute a specified percentage of their compensation to the
plan.
Effective with the Sale of Vending and Dining, those employees working in
the institutional vending and dining businesses who were transferred to Compass
(the "Transferred Employees"), became fully vested in their 401(k) plan account
balances as of September 27, 1996. On January 12, 1997, the 401(k) plan account
balances of the Transferred Employees were transferred by a designated trustee
to a qualified plan maintained by Compass.
$113,000 was charged to expense for the 401(k) plan for both continuing and
discontinued operations, for the fifty-three week period ended March 30, 1996.
No amounts were charged to expense for the fifty-two weeks ended December 27,
1997 and the thirty-nine weeks ended December 28, 1996, as the Company at its
discretion made no contributions.
Multi-Employer Pension Plans
Certain of the Company's union employees are covered by multi-employer
defined benefit pension plans administered by unions. Under the Employee
Retirement Income Security Act ("ERISA"), as amended, an employer upon
withdrawal from a multi-employer pension plan is
F-51
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFITS--(CONTINUED)
required to continue funding its proportionate share of the plan's unfunded
vested benefits. The Company may incur a withdrawal liability if a recreational
services contract is terminated or not renewed.
The Sale of Vending and Dining did not result in a complete or partial
withdrawal from any of the multi-employer plans relating to the institutional
vending and dining facilities sold to Compass, as Compass will continue to
contribute to such plans. If Compass withdraws from any of the multi-employer
plans, with respect to any such operations, before the end of five plan year
periods, the Company may be secondarily liable for any withdrawal liability if
Compass fails to pay such liability.
Amounts charged to expense and contributed to the plans were not material
for the periods presented.
11. INCOME TAXES
Income tax (provision) benefit from continuing operations consists of the
following:
<TABLE>
<CAPTION>
FIFTY-THREE
FIFTY-TWO WEEK THIRTY-NINE WEEK WEEK PERIOD
PERIOD ENDED PERIOD ENDED ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996 MARCH 30, 1996
----------------- ----------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................... $ (650) $(275) $2,371
State........................... (137) (33) (40)
Foreign......................... 485 (14) --
------- ----- ------
(302) (322) 2,331
Deferred.......................... (7,000) 486 2,686
------- ----- ------
$(7,302) $ 164 $5,017
------- ----- ------
------- ----- ------
</TABLE>
Deferred tax assets and liabilities are comprised of the following at
December 27, 1997 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Expenses deductible for financial reporting before tax............. $ 2,882 $ 3,705
Net operating losses and credits................................... 6,030 14,300
-------- --------
Total deferred tax assets..................................... 8,912 18,005
-------- --------
Deferred tax liabilities:
Basis differences in:
Land, buildings and equipment................................... (333) (683)
Recreational services contract rights........................... (199) (291)
Other........................................................... (744) (822)
-------- --------
Total deferred tax liabilities................................ (1,276) (1,796)
-------- --------
Valuation allowance.................................................. (7,636) (9,209)
-------- --------
Net deferred tax assets....................................... $ -- $ 7,000
-------- --------
-------- --------
</TABLE>
As of December 28, 1996, the Company increased the valuation allowance
related to certain tax assets by $4.6 million. The increase reflected the
Company's revision of its estimate of the amount of net operating losses
available to it and its belief that it was more likely than not that there
F-52
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
were sufficient future reversals of existing deferred tax liabilities and
projected future taxable income to allow the recognition of deferred tax assets
including the utilization of pre-bankruptcy net operating loss carryforwards. In
accordance with SOP 90-7, income tax benefits recognized from pre-bankruptcy net
operating loss carryforwards and other tax assets are used first to reduce the
reorganization value in excess of amounts allocable to identifiable assets and
other intangibles established at the reorganization date until reduced to zero
and then to increase capital in excess of par value. As of December 28, 1996,
the Company recognized $8.6 million in deferred tax assets associated with
pre-bankruptcy net operating losses totaling approximately $22.0 million,
resulting in a $8.6 million reduction in recreational services contract rights
(see Note 6). Approximately $4.0 million of net operating losses or $1.6 million
of deferred tax assets were utilized by the Company in the GE 1996 consolidated
federal income tax return to offset taxable income related to the gain on the
sale of the remaining institutional vending and dining businesses.
As of December 27, 1997, the Company decreased the valuation allowance
related to certain tax assets by $1.6 million. The decrease reflects the
reversal of temporary differences and a reduction of the deferred tax asset for
net operating losses. The reduction in net operating losses reflects a change in
estimate of the amount of losses reattributed to GE Capital and the Company's
belief that it is more likely than not that there will not be sufficient future
reversals of existing deferred tax liabilities and projected future taxable
income to allow the recognition of all of the Company's deferred tax assets,
including pre-bankruptcy net operating loss carryforwards. The Company has
revised its estimate of net operating losses available to it primarily because
the amount of losses reattributed to GE Capital (see Note 14) was $81.3 million
rather than $58.0 million as originally estimated.
The Company has regular and alternative minimum tax net operating loss
carryforwards of approximately $11.3 million and $11.8 million, respectively,
and credits of $0.9 million which expire through the year 2005 and which may be
subject to an annual limitation. Under Section 382 of the Internal Revenue Code
of 1986, as amended ("Section 382"), certain changes in stock ownership result
in a limitation of the amount of net operating loss carryforwards that can be
utilized each year after a change in ownership. The Company has been advised by
legal counsel that the determination of whether it underwent an ownership change
upon emergence from bankruptcy or subsequent thereto involves the resolution of
certain technical tax issues which are not fully determinable at this time. In
particular, the regulations under Section 382 are complex and in many instances
there is a lack of administrative guidance or case law interpreting these
provisions.
The determination of the ultimate amount of pre-bankruptcy tax net
operating losses is dependent upon a variety of factors including the potential
examination by the Internal Revenue Service of the loss carryforwards in the tax
years in which those losses are utilized.
The actual tax (provision) benefit from continuing operations for each
period is different from the amount that would have been determined by applying
the statutory 35% federal income tax rate to the loss (income) before income
taxes. The reconciliation of these differences is set out below:
F-53
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
FIFTY-THREE
FIFTY-TWO WEEK THIRTY-NINE WEEK WEEK PERIOD
PERIOD ENDED PERIOD ENDED ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996 MARCH 30, 1996
----------------- ----------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected tax benefit
(provision)..................... $ 2,440 $ (18) $1,263
State income taxes, net of federal
income tax effect............... (50) (21) (26)
Compensation expense.............. (1,306) -- --
Adjustment of deferred tax asset
and valuation allowance......... (7,000) -- --
(Increase) decrease in reserves
for tax audits.................. (648) 248 2,371
Effect of limitations on
utilization of operating
losses.......................... -- 576 2,017
Nondeductible expenses............ (738) (621) (608)
------- ----- ------
Actual tax (provision) benefit.... $(7,302) $ 164 $5,017
------- ----- ------
------- ----- ------
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Commitments
Future minimum rental commitments as of December 27, 1997 for all
noncancelable operating leases, relating principally to computer and other
office equipment, are as follows:
<TABLE>
<CAPTION>
YEAR 1997
- ---------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1998...................................................... $1,550
1999...................................................... 501
2000...................................................... 450
2001...................................................... 379
2002...................................................... 329
------
$3,209
------
------
</TABLE>
The Company has entered into several agreements whereby certain equipment
under the above leases was transferred to third parties for which the Company
will receive reimbursement aggregating $1.0 million in 1998.
Total rent expense included in continuing operations was $2.3 million, $1.2
million and $1.7 million for the fifty-two weeks ended December 27, 1997, the
thirty-nine weeks ended December 28, 1996 and the fifty-three weeks ended March
30, 1996, respectively.
Pursuant to its client contracts, the Company is committed to spend certain
amounts at its clients' facilities. The commitment amount is generally used by
the Company or the facility owner to construct and install food service fixtures
and equipment, make leasehold improvements and for certain other agreed upon
expenditures. As of December 27, 1997, the Company has commitments to spend
approximately $18.9 million through 2000. Subsequent to the balance sheet date,
the Company renewed existing contracts and entered into new contracts which
contain additional commitments to spend $1.5 million through 2000. The contracts
generally require the Company to
F-54
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
obtain performance bonds or letters of credit to ensure performance under these
commitments (see Note 8).
Contingencies
Prior to September 27, 1996, the Company maintained self-insurance programs
for workers' compensation, liability and group medical insurance costs. Claims
incurred above limits retained by the Company were covered by indemnity
insurance. Self-insurance costs were accrued based upon the aggregate of the
estimated liability for reported claims and an actuarially determined estimated
liability for claims incurred but not reported.
The Company entered into an agreement (the "Insurance Agreement") as of
December 28, 1996, with two insurance carriers to settle all self-insured claims
(excluding group medical insurance claims), including those incurred but not
reported, between December 31, 1989 and September 27, 1996, up to a cap of
$37.5 million, for a payment of $24.8 million (including $12.0 million in
premium deposits held by the insurance carrier). GE Capital agreed to provide
the Company with approximately $11.0 million of the above payment. Management
believes that the cap of $37.5 million is sufficient to cover liabilities
incurred during such time periods. As of December 28, 1996, the Company recorded
a receivable from GE Capital and corresponding contribution to capital in excess
of par value of $11.0 million. In January 1997, the Company made the final
payment to the insurance carrier and was reimbursed by GE Capital. Stand-by
letters of credit in the amount of $11.0 million were canceled when the final
payment under the Insurance Agreement was made in January 1997.
As a result of the Insurance Agreement, the Company recorded a gain of
$5.6 million in the thirty-nine weeks ended December 28, 1996 in settlement of
the above self-insurance claims liabilities. Of this amount, $1.2 million was
recorded as a reduction of cost of sales from continuing operations and $4.4
million as a component of income from discontinued operations.
Subsequent to September 27, 1996, the Company is no longer self-insured
under any of its insurance programs, except for workers' compensation coverage,
which is self-insured up to a maximum of approximately $1.0 million per year.
The Company is party to legal proceedings that are considered to be
ordinary and routine litigation incidental to its business. Management does not
believe that the outcome of these lawsuits will have a material adverse effect
on the Company's financial position or results of operations.
13. RELATED PARTY TRANSACTIONS
GE Capital and its affiliates provide leasing and other financing services
to the Company. Payments to GE Capital and its affiliates during the fifty-two
weeks ended December 27, 1997, the thirty-nine weeks ended December 28, 1996 and
the fifty-three weeks ended March 30, 1996, for such services, net of discounts
earned, were approximately $5.1 million, $1.7 million and $3.6 million,
respectively. The related amount due to GE Capital and its affiliates at
December 27, 1997 was $0.5 million. Effective September 27, 1996, the Company's
responsibilities under certain of these leases and agreements were transferred
to Compass.
In July 1996, the Company entered into a long-term financial advisory
agreement with a financial consulting firm for a fee of $0.8 million, payable in
installments, of which $0.4 million (1996: $0.4 million) was expensed in the
fifty-two weeks ended December 27, 1997. Effective with the Recapitalization
(see Note 14), a principal of the financial consulting firm became a member of
the Company's board of directors.
F-55
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
During the thirty-nine weeks ended December 28, 1996 and the fifty-three
weeks ended March 30, 1996, the Company, through its discontinued institutional
vending and dining businesses, recorded revenues of $6.2 million and $12.6
million, from providing institutional vending and dining food service at the
corporate offices and other locations of GE Capital and its affiliates. As of
December 28, 1996, all trade accounts receivable due to the Company from GE
Capital had been collected.
On July 10, 1998, the Company received a letter from GE Capital
confirming that it would provide financial support to the Company.
14. RECAPITALIZATION
On January 17, 1997, the Company was merged with Servam Acquisition
Corporation, a corporation controlled by GE Capital and the Management
Stockholders with the Company being the surviving entity. The transaction has
been accounted for as a recapitalization (the "Recapitalization") of the
Company.
The capital structure of Servam Acquisition Corporation became the new
capital structure of the Company, as the surviving entity. The capital structure
of the Company as of December 28, 1996 ceased to exist after the merger with
Servam Acquisition Corporation was consummated. Legal and consulting fees of
approximately $0.7 million were incurred as a result of the Recapitalization of
the Company.
The Company's new capital structure (the "New Capital Structure") includes
the following: (1) senior term loan debt of $55.0 million (the "New Term Loan")
and revolving debt of $5.0 million (the "New Revolving Credit Facility") loaned
by GE Capital under a new credit facility dated January 17, 1997 (see Note 8),
(2) 200,000 shares of 10% Class A Preferred Stock Series B (the "Series B
Preferred Stock") (see Note 15), with a liquidation preference of $20 million in
the aggregate, and a warrant issued to GE Capital (the "GE Warrant") (see
Note 16), exercisable for 711,538 shares of Common Stock or approximately 70% of
the Common Stock of the Company on a fully diluted basis, for an exercise price
of $0.01 per share, both purchased by GE Capital for an aggregate of
$20.0 million, and (3) 30,000 shares of 10% Class A Preferred Stock Series A
("Series A Preferred Stock") (see Note 15), with a liquidation preference of
$3.0 million in the aggregate, which is junior to the Series B Preferred Stock,
and 250,000 shares of Common Stock, constituting all of the outstanding Common
Stock of the Company (30% on a fully diluted basis), both purchased by the
Management Stockholders for $0.1 million.
In order to determine the fair value of each component of the New Capital
Structure, the Company obtained an independent valuation (the "Valuation") as of
January 17, 1997. The fair value of the New Capital Structure was determined to
be $86.1 million. The fair value of the individual components of the New Capital
Structure were determined to be the following: (1) the New Term Loan and New
Revolving Credit Facility were issued at fair value, approximately
$60.0 million; (2) the Series B Preferred Stock was valued at $16.4 million;
(3) the GE Warrant was valued at $6.1 million; (4) the Series A Preferred Stock
was valued at $2.2 million; and (5) the Common Stock purchased by the Management
Stockholders was valued at $1.4 million.
Compensation expense of approximately $3.5 million was recorded as of
January 17, 1997, calculated as the difference between the fair value of the
250,000 shares of Common Stock and the Series A Preferred Stock issued to the
Management Stockholders and the $0.1 million paid to the Company by the
Management Stockholders.
F-56
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. RECAPITALIZATION--(CONTINUED)
A dividend to GE Capital was recorded equal to the fair value of the
components of the New Capital Structure issued to GE Capital, which aggregated
approximately $82.5 million. This dividend was recorded as a reduction to
capital in excess of par value as of January 17, 1997.
In connection with the Recapitalization of the Company, on January 17,
1997, the Company received $16.9 million from GE Capital as partial payment for
the liabilities assumed pursuant to the Assignment and Assumption Agreement (see
Note 3). Contemporaneously with this receipt, the Company repaid the outstanding
balance of $16.9 million due under the Revolving Credit Facility.
The Company also entered into a tax indemnity agreement (the "Agreement")
with GE Capital. The Agreement provides that GE Capital and its successors shall
indemnify and hold harmless the Company and its successors from and against all
liabilities for federal income taxes attributable to taxable periods ending on
or before the effective date of the Recapitalization and state and local income
taxes where the Company filed on a combined or unitary basis with GE Capital. In
addition, in accordance with Treasury Regulations governing the filing of
consolidated federal income tax returns under the Agreement, the Company has
agreed to re-attribute to GE, $81.3 million of its net operating loss
carryforwards incurred prior to January 17, 1997.
15. SERIES A AND SERIES B PREFERRED STOCK
On January 17, 1997, Servam Acquisition Corporation established two series
of authorized, cumulative preferred stock, par value $1.00 per share, designated
as 10% Class A Senior Preferred, Series A, 40,000 authorized shares and 10%
Class A Senior Preferred Stock, Series B, 260,000 authorized shares
(collectively referred to as the "Preferred Stock"). The Series A Preferred
Stock ranks subordinate to the Series B Preferred Stock.
In connection with the Recapitalization (see Note 14), Servam Acquisition
Corporation issued 30,000 shares of the Series A Preferred Stock, liquidation
preference $3.0 million, purchased by the Management Stockholders and 200,000
shares of the Series B Preferred Stock, liquidation preference $20.0 million,
issued to GE Capital contemporaneously with the issuance of the GE Warrant
exercisable for 711,538 shares of Common Stock (see Note 16).
Dividends are payable at the rate of 10% per annum of the liquidation
preference for each respective series of Preferred Stock, payable in arrears
beginning January 1, 1998 and March 31, 1997 and quarterly thereafter for the
Series A Preferred Stock and the Series B Preferred Stock, respectively.
Dividends accrued prior to December 31, 1997 may be settled in shares of
preferred stock. Dividends paid subsequent to that date are payable solely in
cash. Dividends accrued as of December 27, 1997 on the Series A Preferred Stock
and the Series B Preferred Stock aggregated $0.3 million and $1.9 million,
respectively.
The Company is required to redeem all shares of the respective series of
Preferred Stock upon the occurrence of certain events, as defined. The Company
has the option to redeem the Series A Preferred Stock at any time, however, only
after such time that the Series B Preferred Stock is redeemed and amounts
outstanding under the loan agreement with GE Capital are repaid (see Note 8). In
any event, the Series B Preferred Stock is subject to a mandatory redemption
requirement by the Company on January 21, 2007, at its liquidation preference of
$20.0 million plus all accrued and unpaid dividends. As a result of this
redemption provision, the Company has classified the Preferred Stock outside of
Stockholders' Equity. The Series A Preferred Stock is also redeemable for the
liquidation preference plus all accrued and unpaid dividends at such time.
Holders of the Preferred Stock are not entitled to any voting rights except
upon the occurrence of certain events as defined.
F-57
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SERIES A AND SERIES B PREFERRED STOCK--(CONTINUED)
On January 17, 1997, the Preferred Stock was recorded at its fair value
based on the Valuation. The Company has recorded a charge to accrete each series
of Preferred Stock to its redemption value over a ten-year period amounting to
$0.1 million and $0.3 million for the period from January 17, 1997 through
December 27, 1997 for the Series A Preferred Stock and the Series B Preferred
Stock, respectively. The accretion charge is recorded as an increase to the
carrying value of the Preferred Stock and a reduction to capital in excess of
par value.
16. GE WARRANT
The GE Warrant, issued contemporaneously with the issuance of the Series B
Preferred Stock, entitles GE Capital to acquire an aggregate of 711,538 shares
of Common Stock at an exercise price of $0.01 per share.
The Company is obligated to repurchase the GE Warrant (the "Put Feature")
at any time upon the occurrence of certain events, as defined, but no later than
January 21, 2002, for an amount equal to the fair, or appraised, value of the
Company's Common Stock, less the warrant exercise price. Because the Put Feature
of the GE Warrant is outside the control of the Company, the GE warrant is
classified outside of Stockholders' Equity.
GE Capital may exercise the GE Warrant for all or a portion of the shares
under the warrant. The fair value of the GE Warrant, approximating $6.1 million
as of January 17, 1997, is adjusted to its fair value at each measurement date,
and such changes in fair value would be recorded as an increase in the carrying
value of the GE Warrant and a reduction to capital in excess of par value. As of
December 27, 1997, there was no change in the carrying value of the warrants and
no warrants were exercised.
17. RESTRICTED STOCK PLAN
Effective March 17, 1997, the Company adopted the Service America
Corporation 1997 Stock Plan (the "Plan"). Under the Plan, the Company may issue
to eligible employees, excluding Management Stockholders, authorized but
unissued Common Stock or treasury stock of the Company. Up to 50,607 shares of
Common Stock are authorized for issuance, of which no more than 5,000 shares of
Common Stock may be awarded as restricted stock to any eligible employee during
the term of the Plan.
The Company granted 37,600 shares of restricted stock to certain employees
on March 17, 1997, which vest as follows: 16,200 shares vested immediately upon
grant, 10,700 shares vest one year after grant and 10,700 shares vest two years
after grant. On June 16, 1997, the Company granted an additional 7,200 shares,
which vest as follows: 2,398 shares vested immediately upon grant, 2,403 shares
vest one year after grant and 2,399 shares vest two years after grant. On
August 8, 1997, the Company granted an additional 2,000 shares, which vest as
follows: 667 shares vested immediately upon grant, 666 shares vest one year
after grant and 667 shares vest two years after grant. Shares available for
grant at December 27, 1997 were 3,807.
Under the provisions of the Plan, an employee is required to sell to the
Company vested shares at fair value, within one year after such employee's
services are terminated. Common Stock under the Plan which has not yet vested is
subject to forfeiture. As a result of such provision, the Plan is a variable
plan, which requires the Company to revalue the restricted stock at each
measurement date for changes in the fair value of the Company's Common Stock.
Compensation expense for the fifty-two weeks ended December 27, 1997 was $0.2
million. At December 27, 1997, there was no change in the carrying value of the
restricted stock.
F-58
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. COMMON STOCK
The Management Stockholders purchased 250,000 shares of the Company's
1,200,000 shares of authorized Common Stock, par value $0.01 per share, in
connection with the Recapitalization (see Note 14). Compensation expense was
recorded by the Company in the amount of $1.4 million, the fair value of the
Common Stock as of January 17, 1997, in connection with issuing these shares to
the Management Stockholders.
Upon the occurence of certain events, as defined, the Corporation has the
right to purchase all of the shares held by the Management Stockholders, at fair
value. As a result of such provision, there would be an adjustment to
compensation expense at each measurement date for changes in the fair value of
the Common Stock. As of December 27, 1997, there was no change in the carrying
value of the Common Stock.
19. CONCENTRATION OF REVENUES AND OTHER COSTS
The Company is dependent to a significant extent on contract revenue from
key client facilities. The Company's largest contract accounted for
approximately 11.2%, 15.9% and 10.6% of the Company's net sales from continuing
operations for the fifty-two weeks ended December 27, 1997, thirty-nine weeks
ended December 28, 1996 and the fifty-three weeks ended March 30, 1996,
respectively. Contract terms vary depending on the type of facility and
financial investment required. Contracts representing approximately 15.3% of net
sales from continuing operations for the fifty-two weeks ended December 27,
1997, are currently scheduled to expire in 1998 or 1999.
The Company generally seeks to extend the terms of a desirable contract
several months, and in some cases years, prior to the scheduled expiration date.
In some instances, a governmental authority is required by law to put contracts
out for bid prior to entering into a renewal with the Company. The Company
expects to continue to be dependent upon the revenue from key clients, and the
loss of one or more contracts could have a material adverse effect on the
Company's business, results of operations and financial condition.
During the fifty-two weeks ended December 27, 1997, the Company incurred
transaction fees and costs of approximately $2.6 million related to certain
financing transactions which did not proceed.
20. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ITEMS
During the fifty-three weeks ended March 30, 1996 the Company declared, but
did not pay dividends of approximately $2.2 million on the Old Redeemable
Preferred Stock Series A through E. Also during the fifty-three weeks ended
March 30, 1996, the Company issued a note receivalbe of $0.4 million as partial
payment for assets sold.
On September 27, 1996, as partial consideration for the Sale of Vending and
Dining, the Company received from Compass noncash proceeds of $108.4 million
consisting of the Share Agreement, the Supplemental Share Agreement and
promissory notes. The Company recorded a distribution of $108.4 million from
capital in excess of par value for the assignment of its rights to the proceeds
to GE Capital.
The Company recorded a receivable of $40.9 million upon the assumption of
certain liabilities of the Company by GE Capital and distributed certain
assigned assets aggregating $1.8 million to GE Capital. The Company recorded a
corresponding net contribution to capital in excess of par value of
$39.1 million.
During the thirty-nine weeks ended December 28, 1996, the Company declared,
but did not pay, dividends of approximately $1.6 million on the Old Redeemable
Preferred Stock Series A through E.
F-59
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ITEMS--(CONTINUED)
Under the Assignment and Assumption Agreement, GE Capital contributed to
capital in excess of par value $17.9 million of debt and accrued interest and
$3.8 million in accrued dividends on the Redeemable Preferred Stock Series A
through E, in the thirty-nine weeks ended December 28, 1996.
Prior to the Closing Date in 1996, the Company sold, in several
transactions, certain institutional vending and dining assets for approximately
$2.5 million and a long-term note of $0.5 million.
During the fifty-two weeks ended December 27, 1997, the Company recorded a
noncash dividend of approximately $2.6 million to GE Capital as part of the
Recapitalization. The dividend represents the excess of the fair value of Series
B Preferred Stock and the GE Warrant over the proceeds received.
In addition, as part of the Recapitalization, the Company canceled the Old
Redeemable Preferred Stock which resulted in an increase of $21.1 million to
capital in excess of par value.
The Company recorded accretion of approximately $0.4 million and declared,
but did not pay, dividends of approximately $2.2 million on the Series A and B
Preferred Stock. The accretion and dividends were recorded as increases in the
carrying value of the Preferred Stock and a corresponding reduction to capital
in excess of par value.
21. COMPREHENSIVE INCOME (LOSS)
During fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income is comprised of net income and other comprehensive income
items such as revenues, expenses, gains and losses that under generally accepted
accounting principles are excluded from net income and reflected as a component
of equity. As a result of the adoption of this statement, the Company reported
"other comprehensive income (loss)" of $369,000, $3,000 and ($32,000) in the
consolidated statement of operations and comprehensive (loss) income for the
fifty-two week period ended December 27, 1997, the thirty-nine week period ended
December 28, 1996 and the fifty-three week period ended March 30, 1996,
respectively. In addition, the Company has reclassified, within its
stockholders' equity, a cumulative foreign currency translation gain (loss) of
$221,000 and $(148,000) to "accumulated other comprehensive income (loss)" as of
December 27, 1997 and December 28, 1996, respectively.
22. SUBSEQUENT EVENTS
On August 24, 1998, GE Capital and the Management Stockholders (the
"Sellers"), together with Volume Services America Holdings, Inc. ("Volume
Holdings"), BCP Volume L.P., BCP Offshore L.P. and VSI Management Direct L.P.,
entered into a Share Exchange Agreement (the "Share Exchange Agreement"),
pursuant to which Volume Holdings agreed to purchase all of the capital stock of
the Company owned by the Sellers (approximately 99% of the Company's capital
stock). By December 1998, Volume Holdings had purchased the remainder of the
Company's capital stock and contributed all of the capital stock to Volume
Services America, Inc. ("Volume Services America"), thereby making the Company a
wholly owned subsidiary of Volume Services America.
On December 3, 1998, Volume Services America entered into a credit
agreement (the "Volume Services America Credit Agreement") among Volume
Holdings, Volume Services America, Goldman Sachs Credit Partners L.P., as joint
lead arranger and syndication agent, The Chase Manhattan
F-60
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. SUBSEQUENT EVENTS--(CONTINUED)
Bank, as joint lead arranger, swingline agent and administrative agent, Chase
Manhattan Bank Delaware, as the fronting bank, and the other financial
institutions named therein as lenders. The Volume Services America Credit
Agreement provides for a $75.0 million revolving credit facility, which includes
a sublimit of $35.0 million for letters of credit and a sublimit of
$5.0 million for swingline loans, and $160.0 million in term loans (the "Volume
Services America Term Loans").
The Volume Services America Term Loans were borrowed in full on December 3,
1998 and a portion of the proceeds was lent to the Company by Volume Services
America. The Company used the proceeds of this loan to repay in full its
outstanding indebtedness to GE Capital (see Note 8 for further details).
Effective February 25, 1999, Volume Services America issued $100 million in
senior subordinated notes (the "Volume Services America Subordinated Notes") at
an interest rate of 11 1/4% through a Rule 144A offering (the "Offering"). The
proceeds of the Offering were used to (1) repay $45,000,000 of the Volume
Services America Term Loans, (2) fund the repurchase by Volume Holdings of
Volume Holdings common stock of $49,5000,000 and the repayment by Volume
Holdings of a $500,000 promissory note issued to GE Capital pursuant to the
Share Exchange Agreement, and (3) pay fees and expenses incurred in connection
with the Offering and the consents from lenders to an amendment to the Volume
Services America Credit Agreement.
In light of the above, the Company has obtained a letter from Volume
Holdings confirming that it will provide financial support to the Company.
Concurrent with the reissuance of these financial statements, Volume
Services America is in the process of exchanging the Volume Services America
Subordinated Notes for $100 million of 11 1/4% senior subordinated notes, which
will be registered under the Securities Act of 1933 (the "New Volume Services
America Subordinated Notes"). The New Volume Services America Subordinated Notes
will be fully and unconditionally guaranteed by Volume Holdings and all of the
subsidiaries of Volume Services America, except for the Company's non-wholly
owned interests and one non-U.S. subsidiary (the "Non-Guarantor Subsidiaries").
Volume Services America conducts all of its business through and derives
virtually all of its income from its subsidiaries. Therefore Volume Services
America's ability to make required payments with respect to its indebtedness
(including the New Volume Services America Subordinated Notes) and other
obligations depends on the financial results and condition of its subsidiaries
and its ability to receive funds from its subsidiaries. There are no
restrictions on the ability of the Company, or any of its subsidiaries, to
transfer funds to Volume Services America, except as provided by appropriate
law.
Pursuant to Rule 3-10 of Regulations S-X, the following summarized
consolidating information is for the Company excluding the Non-Guarantor
Subsidiaries (the "Parent Company and Combined Guarantor Subsidiaries"), and the
Non-Guarantor Subsidiaries with respect to the New Volume Services America
Subordinated Notes. This summarized information has been prepared from the books
and records maintained by the Company. The summarized financial information may
not necessarily be indicative of results of operations or financial position had
the Parent Company and Combined Guarantor Subsidiaries or the combined
Non-Guarantor Subsidiaries operated as independent entities.
The summarized consolidating information for the fifty-three weeks ended
March 30, 1996 is not readily available and would need to be gathered
manually from the archives of the Company. This information would be extremely
difficult and time consuming to compile and consequently it has been excluded
from the summarized consolidating information presented below.
F-61
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash at locations....................... $ 1,143 $ 192 $ 1,335
Accounts receivable.............................. 6,096 2,167 8,263
Inventories...................................... 3,607 769 4,376
Prepaid expenses and other current assets........ 2,853 269 3,122
Due from GE Capital.............................. 534 -- 534
Intercompany receivables......................... 1,911 4,313 (6,224) --
---------- ------- --------- ----------
Total current assets...................... 16,144 7,710 (6,224) 17,630
Property, fixtures and equipment, net.............. 22,834 1,936 24,770
Other assets....................................... 13,881 1,203 15,084
Investment in non-guarantor subsidiaries........... 7,490 -- (7,490) --
---------- ------- --------- ----------
Total assets.............................. 60,349 10,849 (13,714) 57,484
---------- ------- --------- ----------
---------- ------- --------- ----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable................................. 11,191 191 11,382
Accrued expenses and other current liabilities... 9,510 1,036 10,546
Intercompany payables............................ 4,313 1,911 (6,224) --
---------- ------- --------- ----------
Total current liabilities................. 25,014 3,138 (6,224) 21,928
Long-term debt..................................... 68,167 -- 68,167
Other liabilities.................................. 3,834 -- 3,834
---------- ------- --------- ----------
Total liabilities......................... 97,015 3,138 (6,224) 93,929
---------- ------- --------- ----------
10% Class A Preferred Stock: Series A, $1.00 par
value; 40,000 shares authorized; 30,000 shares
issues and outstanding; aggregate liquidation
preference of $3,000 plus any unpaid dividends... 2,549 -- 2,549
10% Class B Preferred Stock: Series A, $1.00 par
value; 260,000 shares authorized; 200,000 shares
issues and outstanding; aggregate liquidation
preference of $20,000 plus any unpaid
dividends........................................ 18,601 -- 18,601
Warrant (exercisable for 711,538 shares of Common
Stock, $0.01 par value).......................... 6,112 -- 6,112
Restricted Stock: $0.01par value; 50,607 shares
authorized; 46,800 shares issued, net of unearned
compensation of $96.............................. 156 -- 156
Stockholders' (Deficit) Equity
Common Stock: $0.01 par value; 1,200,000 shares
authorized; 250,000 shares issued and
outstanding.................................... 3 -- 3
Common Stock: No par value; 1,000 shares
authorized, 850 shares issued and
outstanding.................................... -- -- -- --
Preferred Stock: $100.00 par value; 950 shares
authorized; 136 shares issued and
outstanding.................................... -- 14 (14) --
Capital in excess of par value................... 77,276 114 (114) 77,276
Due from GE Capital.............................. (4,285) -- (4,285)
Accumulated (deficit) earnings................... (137,078) 7,362 (7,362) (137,078)
Accumulated other comprehensive income:
Foreign currency translation adjustment........ -- 221 221
---------- ------- --------- ----------
Total stockholders' (deficit) equity...... (64,084) 7,711 (7,490) (63,863)
---------- ------- --------- ----------
Total liabilities and stockholders'
(deficit) equity........................ $ 60,349 $10,849 $ (13,714) $ 57,484
---------- ------- --------- ----------
---------- ------- --------- ----------
</TABLE>
F-62
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash at locations....................... $ 1,133 $ 139 $ 1,272
Accounts receivable.............................. 6,073 2,321 8,394
Inventories...................................... 3,675 300 3,975
Prepaid expenses and other current assets........ 4,567 41 4,608
Due from GE Capital.............................. 34,577 -- 34,577
Intercompany receivables......................... 2,356 6,467 (8,823) --
Deferred income taxes............................ 1,576 -- 1,576
---------- ------- --------- ----------
Total current assets...................... 53,957 9,268 (8,823) 54,402
Property, fixtures and equipment, net.............. 15,450 135 15,585
Other assets....................................... 13,155 887 14,042
Investment in non-guarantor subsidiaries........... 6,929 -- (6,929) --
Deferred income taxes.............................. 5,424 -- 5,424
---------- ------- --------- ----------
Total assets.............................. 94,915 10,290 (15,752) 89,453
---------- ------- --------- ----------
---------- ------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................. 9,100 574 9,674
Accrued expenses and other current liabilities... 28,486 579 29,065
Income taxes payable............................. 221 -- 221
Intercompany payables............................ 6,467 2,356 (8,823) --
---------- ------- --------- ----------
Total current liabilities................. 44,274 3,509 (8,823) 38,960
Long-term debt..................................... 14,336 -- 14,336
Other liabilities.................................. 4,423 -- 4,423
---------- ------- --------- ----------
Total liabilities......................... 63,033 3,509 (8,823) 57,719
---------- ------- --------- ----------
Stockholders' Equity
Redeemable Preferred Stock: Series A through E,
$0.01 par value; 200,000 shares of each series
authorized, issued and outstanding; aggregate
liquidation preference of $25,000 plus any
unpaid dividends............................... 21,132 -- 21,132
Common Stock: $0.01 par value, 5,000 shares
authorized, issued and outstanding............. -- -- --
Common Stock: No par value; 1,000 shares
authorized, 850 shares issued and outstanding.. -- -- -- --
Preferred Stock: $100.00 par value; 950 shares
authorized; 136 shares issued and
outstanding.................................... -- 14 (14) --
Capital in excess of par value................... 139,848 114 (114) 139,848
Due from GE Capital.............................. (6,292) -- (6,292)
Accumulated (deficit) earnings................... (122,806) 6,801 (6,801) (122,806)
Accumulated other comprehensive loss:
Foreign currency translation adjustment........ -- (148) (148)
---------- ------- --------- ----------
Total stockholders' equity................ 31,882 6,781 (6,929) 31,734
---------- ------- --------- ----------
Total liabilities and stockholders'
equity.................................. $ 94,915 $10,290 $ (15,752) $ 89,453
---------- ------- --------- ----------
---------- ------- --------- ----------
</TABLE>
F-63
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
FIFTY-TWO WEEK PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales............................................. $151,454 $21,405 $172,859
Cost of sales......................................... 119,573 16,571 136,144
-------- ------- --------
Gross profit........................................ 31,881 4,834 36,715
Depreciation and amortization......................... 6,029 898 6,927
Selling, general and administrative expense........... 21,319 3,392 24,711
Compensation expense.................................. 3,730 -- 3,730
Transaction fees and costs............................ 2,642 -- 2,642
Impairment of long-lived assets....................... 192 -- 192
-------- ------- --------
(Loss) income from operations before interest
expense and income taxes......................... (2,031) 544 (1,487)
Interest expense...................................... 5,483 -- 5,483
-------- ------- --------
(Loss) income from operations before income taxes... (7,514) 544 (6,970)
Income tax provision.................................. (7,302) -- (7,302)
-------- ------- --------
(14,816) 544 (14,272)
Equity in earnings of non-guarantor subsidiaries...... 544 -- (544) --
-------- ------- --------- --------
Net (loss) income................................... $(14,272) $ 544 $ (544) $(14,272)
-------- ------- --------- --------
-------- ------- --------- --------
</TABLE>
F-64
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
THIRTY-NINE WEEK PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.......................................... $113,127 $11,681 $124,808
Cost of sales...................................... 88,094 8,847 96,941
-------- ------- --------
Gross profit..................................... 25,033 2,834 27,867
Depreciation and amortization...................... 6,675 860 7,535
Selling, general and administrative expense........ 15,559 1,796 17,355
Transaction fees and costs......................... 722 -- 722
Impairment of long-lived assets.................... 1,745 -- 1,745
-------- ------- --------
Income from continuing operations before interest
expense and income taxes...................... 332 178 510
Interest expense................................... 459 -- 459
-------- ------- --------
(Loss) income from continuing operations before
income taxes.................................. (127) 178 51
Income tax provision............................... 164 -- 164
-------- ------- --------
Income from continuing operations................ 37 178 215
Income from discontinued operations................ 9,030 -- 9,030
Equity in earnings of non-guarantor subsidiaries... 178 -- (178) --
-------- ------- --------- --------
Net income....................................... $ 9,245 $ 178 $ (178) $ 9,245
-------- ------- --------- --------
-------- ------- --------- --------
</TABLE>
F-65
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FIFTY-TWO WEEK PERIOD ENDED DECEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net (loss) income.................................. $(14,272) $ 544 $ (544) $(14,272)
Adjustments to reconcile net income to cash (used
in) provided by operating activities:
Equity in earnings of non-guarantor
subsidiaries................................... (544) -- 544 --
Depreciation..................................... 3,639 115 3,754
Amortization of intangibles and other assets..... 2,561 804 3,365
Compensation expense............................. 3,730 -- 3,730
Loss on sale of net assets....................... 72 -- 72
Deferred income taxes............................ 7,000 -- 7,000
Bad debt expense................................. 139 -- 139
Other............................................ (305) 406 101
Change in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable..................................... (108) 100 (8)
Decrease (increase) in inventories............... 67 (468) (401)
Decrease (increase) in prepaid expenses and
other.......................................... 1,715 (229) 1,486
Decrease in intercompany receivables............. 445 2,173 (2,618) --
Decrease in other assets......................... 101 -- 101
Increase in accounts payable..................... 1,470 83 1,553
(Decrease) increase in accrued expenses and other
current liabilities............................ (18,976) 457 (18,519)
Decrease in income taxes payable................. (221) -- (221)
Decrease in intercompany payables................ (2,173) (445) 2,618 --
Decrease in other liabilities.................... (589) -- (589)
-------- ------- ------- --------
Net cash (used in) provided by operating
activities.................................. (16,249) 3,540 -- (12,709)
-------- ------- ------- --------
Cash flows from investing activities:
Purchases of property fixtures and equipment and
investments in contracts....................... (14,543) (3,021) (17,564)
Net proceeds from sales of net assets............ 200 -- 200
-------- ------- --------
Net cash used in investing activities.......... (14,343) (3,021) (17,364)
-------- ------- --------
Cash flows from financing activities:
Proceeds from new term loan...................... 55,000 -- 55,000
Proceeds from the assumption of certain
liabilities by GE Capital...................... 36,050 -- 36,050
Proceeds from the sale of common and preferred
stock and warrant to purchase common stock..... 20,100 -- 20,100
Dividend to shareholder as part of
recapitalization............................... (80,000) -- (80,000)
Repayments on revolving credit facility, net..... (1,169) -- (1,169)
Increase (decrease) in book overdrafts........... 621 (466) 155
-------- ------- --------
Net cash provided by (used in) financing
activities.................................. 30,602 (466) 30,136
-------- ------- ------- --------
Increase in cash at locations.................. 10 53 -- 63
Cash at locations at the beginning of the period... 1,133 139 1,272
-------- ------- ------- --------
Cash at locations at the end of the period..... $ 1,143 $ 192 $ -- $ 1,335
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
F-66
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
THIRTY-NINE WEEK PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net income......................................... $ 9,245 $ 178 $ (178) $ 9,245
Adjustments to reconcile net income to cash (used
in) provided by operating activities:
Equity in earnings of non-guarantor
subsidiaries................................... (178) -- $ (178) --
Depreciation..................................... 13,761 156 13,917
Amortization of intangibles and other assets..... 5,831 648 6,479
Gain on sale of net assets....................... (20,324) -- (20,324)
Gain on settlement of insurance and other
liabilities.................................... (6,271) -- (6,271)
Deferred income taxes............................ 1,600 -- 1,600
Bad debt expense................................. 262 -- 262
Other............................................ 717 (267) 450
Change in operating assets and liabilities:
Increase in trade accounts receivable............ (2,246) (129) (2,375)
Decrease (increase) in inventories............... 398 (89) 309
Decrease in prepaid expenses and other........... 900 42 942
Increase in intercompany receivables............. (799) (320) 1,119 --
Decrease in other assets......................... 202 -- 202
(Decrease) increase in accounts payable.......... (645) 87 (558)
Decrease in accrued expenses and other current
liabilities.................................... (8,384) (992) (9,376)
Decrease in income taxes payable................. (160) -- (160)
Increase in intercompany payables................ 320 799 (1,119) --
Increase in other liabilities.................... 483 -- 483
-------- ----- ------- --------
Net cash (used in) provided by operating
activities.................................. (5,288) 113 -- (5,175)
-------- ----- ------- --------
Cash flows from investing activities:
Purchases of property fixtures and equipment and
investments in contracts....................... (7,109) (97) (7,206)
Net proceeds from sales of net assets............ 8,233 -- 8,233
-------- ----- --------
Net cash provided by (used in) investing
activities.................................. 1,124 (97) 1,027
-------- ----- --------
Cash flows from financing activities:
Repayments of debt............................... (25) -- (25)
Borrowings on revolving credit facility, net..... 3,660 -- 3,660
(Decrease) increase in book overdrafts........... (5,817) 64 (5,753)
-------- ----- --------
Net cash (used in) provided by financing
activities.................................. (2,182) 64 (2,118)
-------- ----- ------- --------
(Decrease) increase in cash at locations....... (6,346) 80 -- (6,266)
Cash at locations at the beginning of the period... 7,479 59 7,538
-------- ----- ------- --------
Cash at locations at the end of the period..... $ 1,133 $ 139 $ -- $ 1,272
-------- ----- ------- --------
-------- ----- ------- --------
</TABLE>
F-67
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 27,
1998
---------
<S> <C>
ASSETS
Current assets:
Cash and cash at locations........................................................................ $ 1,765
Accounts receivable (net of allowance for doubtful accounts of $736).............................. 7,012
Inventories....................................................................................... 4,267
Prepaid expenses and other current assets......................................................... 3,778
Due from GE Capital............................................................................... 188
---------
Total current assets......................................................................... 17,010
Property, fixtures and equipment, net............................................................... 26,594
Other assets........................................................................................ 14,431
---------
Total assets................................................................................. $ 58,035
---------
---------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable.................................................................................. $ 10,667
Accrued expenses and other current liabilities.................................................... 11,983
---------
Total current liabilities.................................................................... 22,650
Long-term debt...................................................................................... 71,257
Other liabilities................................................................................... 3,004
---------
Total liabilities............................................................................ 96,911
---------
Contingencies (Note 4)
10% Class A Preferred Stock--Series A, $1.00 par value; 40,000 shares authorized, 30,000 shares
issued and outstanding; aggregate liquidation preference of $3,000 plus any unpaid dividends...... 2,735
10% Class A Preferred Stock--Series B, $1.00 par value; 260,000 shares authorized, 200,000 shares
issued and outstanding; aggregate liquidation preference of $20,000 plus any unpaid dividends..... 19,769
Warrant (exercisable for 711,538 shares of Common Stock, $0.01 par value)........................... 6,112
Restricted common stock: $0.01 par value; 50,607 shares authorized; 43,600 shares issued, net of
unearned compensation of $55...................................................................... 210
Stockholders' deficit:
Common stock, $0.01 par value, 1,200,000 shares authorized, 250,000 shares issued and
outstanding.................................................................................... 3
Capital in excess of par value.................................................................... 75,922
Due from GE Capital............................................................................... (4,056)
Accumulated deficit............................................................................... (139,095)
Less: Treasury stock at cost (2,500 shares of common stock)....................................... (16)
Accumulated other comprehensive loss:
Foreign currency translation adjustment........................................................ (460)
---------
Total stockholders' deficit.................................................................. (67,702)
---------
Total liabilities and stockholders' deficit.................................................. $ 58,035
---------
---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-68
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 27, 1998 JUNE 28, 1997
----------------- -----------------
<S> <C> <C>
Net sales.............................................................. $88,115 $77,827
Cost of sales.......................................................... 70,241 59,908
------- -------
Gross profit......................................................... 17,874 17,919
Depreciation and amortization expense.................................. 4,213 3,131
Selling, general and administrative expense............................ 12,182 11,995
Compensation expense on stock issuance................................. 38 3,634
------- -------
Income (loss) from operations before interest expense................ 1,441 (841)
Interest expense....................................................... 3,408 2,471
------- -------
Loss from operations before income taxes............................. (1,967) (3,312)
Income tax provision................................................... (50) (75)
------- -------
Net loss............................................................. (2,017) (3,387)
------- -------
Other comprehensive loss:
Foreign currency translation adjustment.............................. (681) (18)
------- -------
Total other comprehensive loss......................................... (681) (18)
------- -------
Comprehensive loss..................................................... $(2,698) $(3,405)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-69
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 27, 1998 JUNE 28, 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net cash flow provided by (used in) operating activities........................ $ 1,822 $ (15,826)
------- ---------
Cash flows from investing activities:
Purchases of property, fixtures and equipment and investment in contracts....... (5,310) (9,575)
Proceeds from sales of net assets............................................... -- 148
------- ---------
Net cash (used in) investing activities...................................... (5,310) (9,427)
------- ---------
Cash flows from financing activities:
Borrowings (repayments) on revolving credit facilities, net..................... 3,565 (5,793)
Proceeds from the new term loan................................................. -- 55,000
(Decrease) Increase in book overdrafts.......................................... (222) 2,006
Proceeds from the assumption of certain liabilities by GE Capital............... 575 34,041
Proceeds from the sale of common and preferred stock and warrant to purchase
common stock................................................................. -- 20,100
Dividend to shareholder as part of Recapitalization............................. -- (80,000)
------- ---------
Net cash provided by financing activities.................................... 3,918 25,354
------- ---------
Increase in cash at locations..................................................... 430 101
Cash at locations at beginning of period.......................................... 1,335 1,272
------- ---------
Cash at locations at end of period................................................ $ 1,765 $ 1,373
------- ---------
------- ---------
Supplemental disclosures of cash flow information:
Noncash investing and financing activities: (Note 6)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-70
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Service America Corporation and Subsidiaries (the "Company") is a provider
of food services to recreational facilities, primarily convention centers,
stadiums and arenas. The Company currently operates in approximately 20 states
and in Canada, where it generally holds multi-year contracts to provide
concession sales of food and beverages, merchandise, catering and other
services. Many of the Company's contracts allow it to act as the exclusive food
service provider at these facilities.
The accompanying unaudited condensed consolidated financial statements as
of June 27, 1998, and for the twenty-six weeks ended June 28, 1997 and for the
twenty-six weeks ended June 27, 1998 have been prepared by management from the
books and records of the Company. Accordingly, the unaudited condensed
consolidated financial statements as of June 27, 1998, and for the twenty-six
weeks ended June 28, 1997 and for the twenty-six weeks June 27, 1998 do not
include all of the information and footnotes required in accordance with
generally accepted accounting principles. The unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements of the Company and notes thereto as of December 27, 1997,
and for the fifty-two weeks ended December 27, 1997. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
(except for entries relating to the Recapitalization), necessary for a fair
presentation of the consolidated financial position and the consolidated results
of their operations and their cash flows for the periods noted above have been
included. The results of operations for the twenty-six weeks ended June 28, 1997
and the twenty-six weeks ended June 27, 1998 are not necessarily indicative of
the results for the entire year.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accouting Standards Board issued Statement No.
131 ("SFAS No. 131"), "Disclosure about the Segments of an Enterprise and
Related Information." SFAS 131 establishes standards for the way in which public
companies report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes the standards for related disclosure about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company does
not expect the implementation of this standard to have a material effect on the
disclosures included in its financial statements.
3. INCOME TAXES
The provision for income taxes for the twenty-six weeks ended June 28,
1997, is principally comprised of state and local taxes based on minimum income
and franchise taxes due.
For the twenty-six weeks ended June 27, 1998, based on expected results,
the Company does not anticipate recording a current Federal Income tax
provision, and will record a state provision-based on minimum income and
franchise taxes due.
4. CONTINGENCIES
The Company is party to legal proceedings that are considered to be
ordinary and routine litigation incidental to its business. Management does not
believe that the outcome of these lawsuits will have a material adverse effect
on the Company's financial position or results of operations.
F-71
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
5. ASSIGNMENT AND ASSUMPTION AGREEMENT
The Assignment and Assumption Agreement was due to terminate on August 31,
1998. However, pursuant to the Share Exchange Agreement (see note 7), the
Assignment and Assumption Agreement has been amended and the termination date is
now 18 months from the closing date of the Share Exchange Agreement.
6. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ITEMS
During the twenty-six weeks ended June 27, 1998 the Company recorded
accretion of approximately $0.2 million and declared, but did not pay, dividends
of approximately $1.2 million on the Series A and B Preferred Stock. The
accretion and dividends were recorded as increases in the carrying value of the
Preferred Stock.
7. SUBSEQUENT EVENTS
On August 24, 1998, GE Capital and the Management Stockholders (the
"Sellers"), together with Volume Services America Holdings, Inc. ("Volume
Holdings"), BCP Volume L.P., BCP Offshore L.P. and VSI Management Direct L.P.,
entered into a Share Exchange Agreement (the "Share Exchange Agreement"),
pursuant to which Volume Holdings agreed to purchase all of the capital stock of
the Company owned by the Sellers (approximately 99% of the Company's capital
stock). By December 1998, Volume Holdings had purchased the remainder of the
Company's capital stock and contributed all of the capital stock to Volume
Services America, Inc. ("Volume Services America"), thereby making the Company a
wholly owned subsidiary of Volume Services America.
Concurrent with the reissuance of these financial statements, Volume
Services America is in the process of exchanging the Volume Services America
Subordinated Notes for $100 million of 11 1/4% senior subordinated notes, which
will be registered under the Securities Act of 1933 (the "New Volume Services
America Subordinated Notes"). The New Volume Services America Subordinated Notes
will be fully and unconditionally guaranteed by Volume Holdings and all of the
subsidiaries of Volume Services America, except for the Company's non-wholly
owned interests and one non-U.S. subsidiary (the "Non-Guarantor Subsidiaries").
Volume Services America conducts all of its business through and derives
virtually all of its income from its subsidiaries. Therefore Volume Services
America's ability to make required payments with respect to its indebtedness
(including the New Volume Services America Subordinated Notes) and other
obligations depends on the financial results and condition of its subsidiaries
and its ability to receive funds from its subsidiaries. There are no
restrictions on the ability of the Company, or any of its subsidiaries, to
transfer funds to Volume Services America, except as provided by appropriate
law.
Pursuant to Rule 3-10 of Regulations S-X, the following summarized
consolidating information is for the Company excluding the Non-Guarantor
Subsidiaries (the "Parent Company and Combined Guarantor Subsidiaries"), and the
Non-Guarantor Subsidiaries with respect to the New Volume Services America
Subordinated Notes. This summarized information has been prepared from the books
and records maintained by the Company. The summarized financial information may
not necessarily be indicative of results of operations or financial position had
the Parent Company and Combined Guarantor Subidiaries or the combined
Non-Guarantor Subsidiaries operated as independent entities.
F-72
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 27, 1998
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash at locations..................... $ 1,523 $ 242 $ 1,765
Accounts receivable............................ 5,624 1,388 7,012
Inventories.................................... 3,566 701 4,267
Prepaid expenses and other current assets...... 3,410 368 3,778
Due from GE Capital............................ 188 -- 188
Intercompany receivables....................... 2,076 3,652 (5,728) --
-------- -------- -------- ---------
Total current assets..................... 16,387 6,351 (5,728) 17,010
Property, fixtures and equipment, net............ 23,209 3,385 26,594
Other assets..................................... 13,003 1,428 14,431
Investment in non-guarantor subsidiaries......... 7,658 -- (7,658) --
-------- -------- -------- ---------
Total assets............................. 60,257 11,164 (13,386) 58,035
-------- -------- -------- ---------
-------- -------- -------- ---------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable............................... 9,795 872 10,667
Accrued expenses and other current
liabilities.................................. 10,965 1,018 11,983
Intercompany payables.......................... 3,652 2,076 (5,728) --
-------- -------- -------- ---------
Total current liabilities................ 24,412 3,966 (5,728) 22,650
Long-term debt................................... 71,257 -- 71,257
Other liabilities................................ 3,004 -- 3,004
-------- -------- -------- ---------
Total liabilities........................ 98,673 3,966 (5,728) 96,911
-------- -------- -------- ---------
10% Class A Preferred Stock: Series A, $1.00 par
value; 40,000 shares authorized; 30,000 shares
issues and outstanding; aggregate liquidation
preference of $3,000 plus any unpaid
dividends...................................... 2,735 -- 2,735
10% Class B Preferred Stock: Series A, $1.00 par
value; 260,000 shares authorized; 200,000
shares issues and outstanding; aggregate
liquidation preference of $20,000 plus any
unpaid dividends............................... 19,769 -- 19,769
Warrant (exercisable for 711,538 shares of Common
Stock, $0.01 par value)........................ 6,112 -- 6,112
Restricted Stock: $0.01par value; 50,607 shares
authorized; 46,800 shares issued, net of
unearned compensation of Stockholders'
(Deficit) Equity:.............................. 210 -- 210
Common Stock: $0.01 par value; 1,200,000 shares
authorized; 250,000 shares issued
and outstanding.............................. 3 -- 3
Common Stock: No par value; 1,000 shares
authorized; 850 shares issued and
outstanding.................................. -- -- -- --
Preferred Stock: $100.00 par value; 950 shares
authorized; 136 shares issued and
outstanding.................................. -- 14 (14) --
Capital in excess of par value................. 75,922 114 (114) 75,922
Due from GE Capital............................ (4,056) -- (4,056)
Accumulated (deficit) earnings................. (139,095) 7,530 (7,530) (139,095)
Less: Treasury stock at cost (2,500 shares of
common stock)................................ (16) -- (16)
Accumulated other comprehensive loss:
Foreign currency translation adjustment...... -- (460) (460)
-------- -------- -------- ---------
Total stockholders'
(deficit) equity....................... (67,242) 7,198 (7,658) (67,702)
-------- -------- -------- ---------
Total liabilities and stockholders'
(deficit) equity....................... $ 60,257 $ 11,164 $(13,386) $ 58,035
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
F-73
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEK PERIOD ENDED JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 73,672 $ 14,443 $ 88,115
Cost of sales...................................... 58,507 11,734 70,241
-------- --------- --------
Gross profit..................................... 15,165 2,709 17,874
Depreciation and amortization...................... 3,443 770 4,213
Selling, general and administrative expense........ 10,428 1,754 12,182
Compensation expense............................... 38 -- 38
-------- --------- --------
Income from operations before interest expense
and income taxes.............................. 1,256 185 1,441
Interest expense................................... 3,408 -- 3,408
-------- --------- --------
(Loss) income from operations before income
taxes......................................... (2,152) 185 (1,967)
Income tax provision............................... (50) -- (50)
-------- --------- --------
(2,202) 185 (2,017)
Equity in earnings of non-guarantor subsidiaries... 185 -- (185) --
-------- --------- --------- --------
Net (loss) income................................ $ (2,017) $ 185 $ (185) $ (2,017)
-------- --------- --------- --------
-------- --------- --------- --------
</TABLE>
F-74
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 69,124 $ 8,703 $ 77,827
Cost of sales...................................... 53,110 6,798 59,908
-------- --------- --------
Gross profit..................................... 16,014 1,905 17,919
Depreciation and amortization...................... 2,838 293 3,131
Selling, general and administrative expense........ 10,579 1,416 11,995
Compensation expense............................... 3,634 -- 3,634
-------- --------- --------
(Loss) income from operations before interest
expense and income taxes...................... (1,037) 196 (841)
Interest expense................................... 2,471 -- 2,471
-------- --------- --------
(Loss) income from operations before income
taxes......................................... (3,508) 196 (3,312)
Income tax provision............................... (75) -- (75)
-------- --------- --------
(3,583) 196 (3,387)
Equity in earnings of non-guarantor subsidiaries... 196 -- (196) --
-------- --------- ----- --------
Net (loss) income................................ $ (3,387) $ 196 $(196) $ (3,387)
-------- --------- ----- --------
-------- --------- ----- --------
</TABLE>
F-75
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEK PERIOD ENDED JUNE 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities.............. $ 475 $ 1,347 $ 1,822
--------- --------- --------
Cash flows from investing activities:
Purchases of property fixtures and equipment and
investments in contracts............................ (2,870) (2,440) (5,310)
--------- --------- --------
Net cash used in investing activities............... (2,870) (2,440) (5,310)
--------- --------- --------
Cash flows from financing activities:
Borrowings on revolving credit facility, net........... 3,565 -- 3,565
(Decrease) increase in book overdrafts................. (1,365) 1,143 (222)
Proceeds from the assumption of certain liabilities by
GE Capital.......................................... 575 -- 575
--------- --------- --------
Net cash provided by financing activities........... 2,775 1,143 3,918
--------- --------- --------
Increase in cash at locations....................... 380 50 430
Cash at locations at the beginning of the period......... 1,143 192 1,335
--------- --------- --------
Cash at locations at the end of the period............... $ 1,523 $ 242 $ 1,765
--------- --------- --------
--------- --------- --------
</TABLE>
F-76
<PAGE>
SERVICE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEK PERIOD ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY
AND COMBINED COMBINED
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating activities............ $(16,568) $ 742 $(15,826)
-------- --------- --------
Cash flows from investing activities:
Purchases of property fixtures and equipment and investments in
contracts................................................... (8,939) (636) (9,575)
Net proceeds from sales of net assets.......................... 148 -- 148
-------- --------- --------
Net cash used in investing activities....................... (8,791) (636) (9,427)
-------- --------- --------
Cash flows from financing activities:
Repayments on revolving credit facility, net................... (5,793) -- (5,793)
Proceeds from new term loan.................................... 55,000 -- 55,000
Increase (decrease) in book overdrafts......................... 2,125 (119) 2,006
Proceeds from the assumption of certain liabilities by
GE Capital.................................................. 34,041 -- 34,041
Proceeds from the sale of common and preferred stock and
warrant to purchase common stock............................ 20,100 -- 20,100
Dividend to shareholder as part of recapitalization............ (80,000) -- (80,000)
-------- --------- --------
Net cash provided by (used in) financing activities......... 25,473 (119) 25,354
-------- --------- --------
Increase (decrease) in cash at locations.................... 114 (13) 101
Cash at locations at the beginning of the period................. 1,133 139 1,272
-------- --------- --------
Cash at locations at the end of the period....................... $ 1,247 $ 126 $ 1,373
-------- --------- --------
-------- --------- --------
</TABLE>
F-77
<PAGE>
$100,000,000
[LOGO]
VOLUME SERVICES AMERICA, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 11 1/4% SENIOR SUBORDINATED
NOTES DUE 2009 FOR 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
the company's board of directors to indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action (except settlements or judgments in
derivative suits), suit or proceeding in which such person is made a party by
reason of his or her being or having been a director, officer, employee or agent
of the company, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The statute provides that indemnification pursuant to its provision-s is
not exclusive of other rights of indemnification to which a person may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
The company's by-laws provide for the mandatory indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the DGCL, and the company has entered into agreements with certain of its
officers, directors and key employees implementing such indemnification.
As permitted by sections 102 and 145 of the DGCL the company's certificate
of incorporation eliminates a director's personal liability for monetary damages
to the company and its stockholders arising from a breach of a director's
fiduciary duty, except as otherwise provided under the DGCL.
The directors and officers of the company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capabilities
and against which they cannot be indemnified by the company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*1 -- Purchase Agreement, dated February 25, 1999, between Volume Services America, Inc., Chase Securities
Inc. and Goldman, Sachs & Co.
*3.1 -- Restated Certificate of Incorporation of Volume Services America, Inc.
**3.2 -- By-laws of Volume Services America, Inc.
*3.3 -- Restated Certificate of Incorporation of Volume Services America Holdings, Inc.
*3.4 -- By-laws of Volume Services America Holdings, Inc.
*3.5 -- Restated Certificate of Incorporation of Volume Services, Inc.
*3.6 -- By-laws of Volume Services, Inc.
*3.7 -- Restated Certificate of Incorporation of Service America Corporation
*3.8 -- By-laws of Service America Corporation
*3.9 -- Articles of Incorporation of Events Center Catering, Inc.
**3.10 -- Articles of Incorporation of Service America Concessions Corporation
*3.11 -- By-laws of Service America Concessions Corporation
**3.12 -- Articles of Incorporation of Service America Corporation of Wisconsin
*3.13 -- By-laws of Service America Corporation of Wisconsin
**3.14 -- Articles of Incorporation of Servo-Kansas, Inc.
*3.15 -- By-laws of Servo-Kansas, Inc.
**3.16 -- Articles of Incorporation of Servomation Duchess, Inc.
*3.17 -- By-laws of Servomation Duchess, Inc.
**3.18 -- Articles of Incorporation of SVM of Texas, Inc.
*3.19 -- By-laws of SVM of Texas, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*3.20 -- Certificate of Incorporation of Volume Services, Inc.
*3.21 -- By-laws of Volume Services, Inc.
*4.1 -- Indenture, dated as of March 4, 1999, between Volume Services America, Inc. and Norwest Bank
Minnesota, National Association.
*4.2 -- Exchange and Registration Rights Agreement, dated March 4, 1999, between Volume Services America,
Inc., Chase Securities Inc. and Goldman, Sachs & Co.
**5 -- Opinion of Simpson Thacher & Bartlett
*10.1 -- Share Exchange Agreement, dated as of July 27, 1998, among VSI Acquisition II Corporation, as Buyer,
the Stockholders of the Buyer and the Sellers specified therein
*10.2 -- Amended and Restated Stockholders' Agreement, dated as of August 24, 1998, among VSI Acquisition II
Corporation, BCP Volume L.P., BCP Offshore Volume L.P., VSI Management Direct L.P., General Electric
Capital Corporation and Recreational Services L.L.C.
*10.3 -- Credit Agreement, dated as of December 3, 1998, among Volume Services America, Inc., Volume Services
America Holdings, Inc., Certain Financial Institutions as the Lenders, Goldman Sachs Credit Partners
L.P., Chase Securities Inc., Chase Manhattan Bank Delaware and The Chase Manhattan Bank
*10.4 -- Volume Services, Inc., Deferred Compensation Plan, Enrollment Information and Forms.
*10.5 -- Volume Services America, 1999 Bonus Plan
*10.6 -- Service America Corporation, Deferred Compensation Plan, effective as of February 9, 1999
*10.7 -- Employment Agreement dated as of August 24, 1998, by and between USI Acquisition II Corporation, a
Delaware corporation, and John T. Dee.
*10.8 -- Employment Agreement dated as of November 17, 1998, by and between Volume Services, Inc., a Delaware
corporation, together with its successors and assigns, and Kenneth R. Frick, together with his heirs
and assigns
*10.9 -- Employment Agreement, dated as of August 24, 1998, by and between Service America Corporation, a
Delaware corporation, and Michael J. Higgins
*10.10 -- Employment Agreement, dated as of September 29, 1998, by and between VSI Acquisition Corporation, a
Delaware corporation, and Janet L. Steinmayer
*12 -- Computation of Ratio of Earnings to Fixed Charges
**21 -- List of Subsidiaries
**23.1 -- Consent of Deloitte & Touche LLP
**23.2 -- Consent of PricewaterhouseCoopers LLP
**23.3 -- Consent of Simpson Thacher & Bartlett (included in Exhibit 5)
*24 -- Powers of Attorney (included on pages II-4 through II-14)
**25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota,
National Association, as trustee
*27.1 -- Financial Data Schedule for period ending March 29, 1999
*27.2 -- Financial Data Schedule for period ending December 29, 1998
**99.1 -- Form of Letter of Transmittal
**99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------
*Previously filed
**Filed herewith
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" Table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
VOLUME SERVICES AMERICA, INC.
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President and Chief Financial Officer July 19, 1999
- ------------------------------------------ (Principal Financial and Accounting
Kenneth R. Frick Officer)
* Director July 19, 1999
- ------------------------------------------
Howard A. Lipson
* Director July 19, 1999
- ------------------------------------------
David Blitzer
* Director July 19, 1999
- ------------------------------------------
Caleb S. Everett
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
VOLUME SERVICES AMERICA HOLDINGS, INC.
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President and Chief Financial Officer July 19, 1999
- ------------------------------------------ (Principal Financial and Accounting
Kenneth R. Frick Officer)
* Director July 19, 1999
- ------------------------------------------
Howard A. Lipson
* Director July 19, 1999
- ------------------------------------------
David Blitzer
* Director July 19, 1999
- ------------------------------------------
Caleb S. Everett
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
VOLUME SERVICES, INC.
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President and Chief Financial Officer July 19, 1999
- ------------------------------------------ (Principal Financial and Accounting
Kenneth R. Frick Officer)
* Director July 19, 1999
- ------------------------------------------
Howard A. Lipson
* Director July 19, 1999
- ------------------------------------------
David Blitzer
* Director July 19, 1999
- ------------------------------------------
Caleb S. Everett
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SERVICE AMERICA CORPORATION
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President and Chief Financial Officer July 19, 1999
- ------------------------------------------ (Principal Financial and Accounting
Kenneth R. Frick Officer)
* Executive Vice President July 19, 1999
- ------------------------------------------
Michael J. Higgins
* Director July 19, 1999
- ------------------------------------------
Howard A. Lipson
* Director July 19, 1999
- ------------------------------------------
David Blitzer
* Director July 19, 1999
- ------------------------------------------
Caleb S. Everett
* Corporate Vice President and Controller July 19, 1999
- ------------------------------------------
Robert A. Paoletti
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
EVENTS CENTER CATERING, INC.
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SERVICE AMERICA CONCESSIONS
CORPORATION
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SERVICE AMERICA CORPORATION OF
WISCONSIN
By: /s/ KENNETH R. FRICK
-----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SERVO-KANSAS, INC.
By: /s/ KENNETH R. FRICK
----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SERVOMATION DUCHESS, INC.
By: /s/ KENNETH R. FRICK
-----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
SVM OF TEXAS, INC.
By: /s/ KENNETH R. FRICK
-----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON JULY 19, 1999.
VOLUME SERVICES, INC.
By: /s/ KENNETH R. FRICK
-----------------------------------
Kenneth R. Frick
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Chairman of the July 19, 1999
- ------------------------------------------ Board of Directors (Principal Executive
John T. Dee Officer)
/S/ KENNETH R. FRICK Vice President, Chief Financial Officer and July 19, 1999
- ------------------------------------------ Director (Principal Financial and
Kenneth R. Frick Accounting Officer)
*By: /S/ KENNETH R. FRICK
--------------------------------------
Kenneth R. Frick
Attorney-in-fact
</TABLE>
II-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*1 -- Purchase Agreement, dated February 25, 1999, between Volume Services America, Inc., Chase Securities
Inc. and Goldman, Sachs & Co.
*3.1 -- Restated Certificate of Incorporation of Volume Services America, Inc.
**3.2 -- By-laws of Volume Services America, Inc.
*3.3 -- Restated Certificate of Incorporation of Volume Services America Holdings, Inc.
*3.4 -- By-laws of Volume Services America Holdings, Inc.
*3.5 -- Restated Certificate of Incorporation of Volume Services, Inc.
*3.6 -- By-laws of Volume Services, Inc.
*3.7 -- Restated Certificate of Incorporation of Service America Corporation
*3.8 -- By-laws of Service America Corporation
*3.9 -- Articles of Incorporation of Events Center Catering, Inc.
**3.10 -- Articles of Incorporation of Service America Concessions Corporation
*3.11 -- By-laws of Service America Concessions Corporation
**3.12 -- Articles of Incorporation of Service America Corporation of Wisconsin
*3.13 -- By-laws of Service America Corporation of Wisconsin
**3.14 -- Articles of Incorporation of Servo-Kansas, Inc.
*3.15 -- By-laws of Servo-Kansas, Inc.
**3.16 -- Articles of Incorporation of Servomation Duchess, Inc.
*3.17 -- By-laws of Servomation Duchess, Inc.
**3.18 -- Articles of Incorporation of SVM of Texas, Inc.
*3.19 -- By-laws of SVM of Texas, Inc.
*3.20 -- Certificate of Incorporation of Volume Services, Inc.
*3.21 -- By-laws of Volume Services, Inc.
*4.1 -- Indenture, dated as of March 4, 1999, between Volume Services America, Inc. and Norwest Bank
Minnesota, National Association.
*4.2 -- Exchange and Registration Rights Agreement, dated March 4, 1999, between Volume Services America,
Inc., Chase Securities Inc. and Goldman, Sachs & Co.
**5 -- Opinion of Simpson Thacher & Bartlett
*10.1 -- Share Exchange Agreement, dated as of July 27, 1998, among VSI Acquisition II Corporation, as Buyer,
the Stockholders of the Buyer and the Sellers specified therein
*10.2 -- Amended and Restated Stockholders' Agreement, dated as of August 24, 1998, among VSI Acquisition II
Corporation, BCP Volume L.P., BCP Offshore Volume L.P., VSI Management Direct L.P., General Electric
Capital Corporation and Recreational Services L.L.C.
*10.3 -- Credit Agreement, dated as of December 3, 1998, among Volume Services America, Inc., Volume Services
America Holdings, Inc., Certain Financial Institutions as the Lenders, Goldman Sachs Credit Partners
L.P., Chase Securities Inc., Chase Manhattan Bank Delaware and The Chase Manhattan Bank
*10.4 -- Volume Services, Inc., Deferred Compensation Plan, Enrollment Information and Forms.
*10.5 -- Volume Services America, 1999 Bonus Plan
*10.6 -- Service America Corporation, Deferred Compensation Plan, effective as of February 9, 1999
*10.7 -- Employment Agreement dated as of August 24, 1998, by and between USI Acquisition II Corporation, a
Delaware corporation, and John T. Dee.
*10.8 -- Employment Agreement dated as of November 17, 1998, by and between Volume Services, Inc., a Delaware
corporation, together with its successors and assigns, and Kenneth R. Frick, together with his heirs
and assigns
*10.9 -- Employment Agreement, dated as of August 24, 1998, by and between Service America Corporation, a
Delaware corporation, and Michael J. Higgins
*10.10 -- Employment Agreement, dated as of September 29, 1998, by and between VSI Acquisition Corporation, a
Delaware corporation, and Janet L. Steinmayer
*12 -- Computation of Ratio of Earnings to Fixed Charges
**21 -- List of Subsidiaries
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
**23.1 -- Consent of Deloitte & Touche LLP
**23.2 -- Consent of PricewaterhouseCoopers LLP
**23.3 -- Consent of Simpson Thacher & Bartlett (included in Exhibit 5)
*24 -- Powers of Attorney (included on pages II-4 through II-14)
**25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Norwest Bank Minnesota,
National Association, as trustee
*27.1 -- Financial Data Schedule for period ending March 29, 1999
*27.2 -- Financial Data Schedule for period ending December 29, 1998
**99.1 -- Form of Letter of Transmittal
**99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------
*Previously filed
**Filed herewith
<PAGE>
VOLUME SERVICES AMERICA, INC.
AMENDED AND RESTATED BY-LAWS
Adopted by the Unanimous Written Consent dated October 21, 1998 of
the sole Stockholder of this Corporation upon the repeal of all
previous by-laws of the Corporation.
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders, written
notice of the time, date and place of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a quorum
is present.
Section 5. Voting. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors shall not be
less than one or more than fifteen. The first Board of Directors shall consist
of four Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Committee. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
committees, including, without limitation, an Executive Committee, to have and
exercise such power and authority as the Board of Directors shall specify. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another Director
to act at the absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President,
a Vice President, a Secretary, a Treasurer, an Assistant Secretary and an
Assistant Treasurer, and such other additional officers with such titles as the
Board of Directors shall determine, all of which shall be chosen by and shall
serve at the pleasure of the Board of Directors. Such officers shall have the
usual powers and shall perform all the usual duties incident to their respective
offices. All officers shall be subject to the supervision and direction of the
Board of Directors. The authority, duties or responsibilities of any officer of
the Corporation may be suspended by the President
<PAGE>
3
with or without cause. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, the corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party by reason of his current
or former position with the Corporation or by reason of the fact that he is or
was serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.
<PAGE>
SERVICE AMERICA CONCESSIONS CORPORATION
ARTICLES OF RESTATEMENT
------------------
FIRST: Service America Concessions Corporation, a Maryland
corporation (the "Corporation"), desires to restate its charter as currently in
effect.
SECOND: The following provisions are all the provisions of the
charter currently in effect:
"FIRST (1) The name of the incorporator is J. A. Kent.
(2) The said incorporator's address, including the
street and number, if any, including the county or municipal area, and including
the state or country, is 229 South State Street, Dover, Delaware 19901.
(3) The said incorporator is at least eighteen years of
age.
(4) The said incorporator is forming the corporation
named in these Articles of Incorporation under the general laws of the State of
Maryland, to wit, the Maryland General Corporation Law.
SECOND: The name of the corporation (hereinafter called the
"corporation") is SERVICE AMERICA CONCESSIONS CORPORATION.
THIRD: The corporation is formed for the following purpose or
purposes:
To participate in a joint venture to operate concession
services and to perform other related functions at various facilities
in the area.
To engage in any lawful act or activity for which corporations
may be organized under the provisions of the Maryland General
Corporation Law.
FOURTH: The address, including street and number, if any, and
the county or municipal area, of the principal office of the corporation within
the State of Maryland, is 32 South Street, Baltimore, MD 21202.
FIFTH: The name and the address, including street and number,
if any, and the county or municipal area, of the resident agent of the
corporation within the State of Maryland,
<PAGE>
2
is The Corporation Trust Incorporated, 32 South Street, Baltimore, MD 21202.
SIXTH: (1) The total number of shares of stock which the
corporation has authority to issue is One Thousand (1,000), all of which are
without par value and are designated as Common Stock.
(2) The Board of Directors of the corporation is
authorized, from time to time, to issue any additional stock or convertible
securities of the corporation without the approval of the holders of outstanding
stock.
(3) The board of directors of the corporation is
authorized, from time to time, to classify or to reclassify, as the case may be,
any unissued shares of stock of the corporation.
(4) Provisions, if any, governing the restriction on
the transferability of any of the shares of stock of the corporation may be set
forth in the bylaws of the corporation or in any agreement or agreements duly
entered into.
(5) Notwithstanding any provision of the Maryland
General Corporation Law requiring a greater proportion than a majority of the
votes entitled to be cast in order to take or authorize any action, any such
action may be taken or authorized upon the concurrence of at least a majority of
the aggregate number of votes entitled to be cast thereon.
(6) No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any shares of any class of the corporation which the
corporation proposes to issue or any rights or options which the corporation
proposes to grant for the purchase of shares of any class of the corporation or
for the purchase of any shares, bonds, securities, or obligations of the
corporation which are convertible into or exchangeable for, or which carry any
rights, to subscribe for, purchase, or otherwise acquire shares of any class of
the corporation; and any and all of such shares, bonds, securities or
obligations of the corporation, whether now or hereafter authorized or created,
may be issued, or may be reissued or transferred if the same have been
reacquired and have treasury status, and any and all of such rights and options
may be granted by the Board of Directors to such persons, firms, corporations
and associations, and for such lawful consideration, and on such terms, as the
Board of Directors in its discretion may determine, without first offering the
same, or any thereof, to any said holder.
SEVENTH: (1) The number of directors of the corporation, until
such number shall be changed by the Bylaws of the corporation, is three.
<PAGE>
3
(2) the names of the persons who serve as Directors of
the corporation are as follows:
John T. Dee
Kenneth R. Frick
Janet L. Steinmayer
(3) The initial Bylaws of the corporation shall be
adopted by the initial directors. Thereafter, the power to adopt, alter, and
repeal the Bylaws of the corporation shall be vested in the Board of directors
of the corporation.
(4) The corporation shall, to the fullest extent
permitted by the Maryland General Corporation Law, as the same may be amended
and supplemented, and, without limiting the generality of the foregoing, in
accordance with Section 2-418 of said Maryland General Corporation Law,
indemnify any and all persons whom it shall have power to indemnify under said
law from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said Maryland General Corporation Law.
EIGHTH: From time to time any of the provisions of these
Articles of Incorporation may be amended, altered or repealed, and other
provisions authorized by the Maryland General Corporation Law at the time in
force may be added or inserted in the manner and at the time prescribed by said
laws, and any contract rights at any time conferred upon the stockholders of the
corporation by these Articles of Incorporation are granted subject to the
provisions of this Article.
NINTH: The corporation shall not issue nonvoting equity
securities."
THIRD: The foregoing restatement of the charter has been
approved by a majority of the entire board of directors.
FOURTH: The charter is not amended by these Articles of
Restatement.
FIFTH: The current address of the principal office of the
Corporation is set forth in Article IV of the foregoing restatement of the
charter.
SIXTH: The name and address of the Corporation's current
resident agent is set forth in Article V of the foregoing restatement of the
charter.
SEVENTH: The number of directors of the Corporation and the
names of those currently in office are set forth in Article VII of the foregoing
restatement of the charter.
<PAGE>
4
EIGHTH: The undersigned Chief Executive Officer and Chairman
of the Board of Directors acknowledges these Articles of Restatement to be the
corporate act of the corporation and as to all matters or facts required to be
verified under oath, the undersigned Chief Executive Officer acknowledges to the
best of his knowledge, information and belief, these matters and facts are true
in all material respects and that this statement is made under the penalties for
perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles
to be signed in its name and on its behalf by its Chief Executive Officer and
attested to by its Secretary on this 14th day of July, 1999.
SERVICE AMERICA CONCESSIONS CORPORATION
/s/ John T. Dee
- ---------------------------- (SEAL)
By: John T. Dee
Chief Executive Officer and Chairman of the Board of Directors
Dated:
ATTEST:
/s/ Janet L. Steinmayer
- ----------------------------
Janet L. Steinmayer
Secretary
Dated: July 14, 1999
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SERVICE AMERICA CORPORATION OF WISCONSIN
These restated articles of incorporation consist of the
articles of incorporation as to date. The restated articles of incorporation
were duly adopted in accordance with the provision of the Wisconsin Business
Corporation Law ss. 180.1007. These restated articles of incorporation supersede
and take the place of the existing articles of incorporation and any amendments
to the articles of incorporation.
ARTICLE I
Name
The name of the corporation is Service America Corporation of
Wisconsin.
ARTICLE II
Purposes
The purposes for which the corporation is organized are to
engage in any lawful activity within the purposes for which a corporation may be
organized under the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes.
ARTICLE III
Capital Stock
The aggregate number of shares which the corporation shall
have authority to issue is Fifty-six Thousand (56,000) shares, consisting of one
class only, designated as "Common Stock," of the par value of One Dollar ($1.00)
per share.
ARTICLE IV
Preemptive Rights
No holder of any stock of the corporation shall have any
preemptive right to purchase, subscribe for, or otherwise acquire any shares of
stock of the corporation of any class now or hereafter authorized, or any
securities exchangeable for or convertible into such shares.
<PAGE>
2
ARTICLE V
Directors
The number of directors shall be fixed by, or in the manner
provided in, the Bylaws.
ARTICLE VI
Right to Purchase Own Shares
and Partial Liquidation
The corporation shall have the right to acquire its own shares
from time to time, upon such terms and conditions as the Board of Directors
shall fix. The Board of Directors of the corporation may, from time to time,
distribute to shareholders in partial liquidation out of stated capital or net
capital surplus a portion of its assets in cash or property as further provided
by law.
ARTICLE VII
Registered Office and Agent
The address of the initial registered office of the
corporation is 222 West Washington Avenue, Madison, Dane County, Wisconsin 53703
and the name of its initial registered agent at such address is CT Corporation
System.
ARTICLE VIII
Incorporator
The name and address of the incorporator is Norrie J. Daroga,
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
ARTICLE IX
The corporation shall not issue nonvoting equity securities.
Executed this 14th day of July, 1999.
By: /s/ Janet L. Steinmayer
--------------------------
Janet L. Steinmayer
Secretary
<PAGE>
3
Certificate
This is to certify that the Foregoing Restated Articles of Incorporation do not
contain any amendment requiring shareholder approval, and were adopted on
July 14, 1999 by the board of directors or incorporators.
<PAGE>
FOR PROFIT 157-728-7
D- Restated Articles of Incorporation
-------------
The following are restated articles of incorporation for SERVO-KANSAS,
INC., a corporation FOR profit under the laws of the State of Kansas. The
original articles of incorporation were filed with the secretary of state on the
third day of April, A.D. 1987. These restated articles of incorporation were
duly adopted by the directors in accordance with the provisions of K.S.A.
section 17-6605, and amendments thereto. These restated articles of
incorporation only restate and integrate and do not further amend the provisions
of the corporation's articles of incorporation as theretofore amended or
supplemented and there is no discrepancy between those provisions and the
provisions of the restated articles.
ARTICLE ONE: The name of the corporation is SERVO-KANSAS, INC.
ARTICLE TWO: The address of its registered office in Kansas is Bank IV
Tower, 534 South Kansas Avenue, in the city of Topeka, county of Shawnee, 66603
and the name of the resident agent in charge thereof at the above address is The
Corporation Company, Inc., Bank IV Tower, 534 South Kansas Avenue, Topeka, KS
66603.
ARTICLE THREE: This corporation is organized FOR profit and the nature
of its business or purposes to be conducted or promoted is: To provide food and
beverage service and to engage in any other lawful act or activity for which
corporations may be organized under the Kansas General Corporation Code.
ARTICLE FOUR: The total number of shares which this corporation shall
be authorized to issue is as follows: (Describe fully the class or classes of
stock and the value of each.)
<TABLE>
<CAPTION>
<S> <C>
1000 shares of common stock, class A par value of One dollar each
- ------------------ ------------------------ ---- ------
shares of stock, class par value of dollars each
- ------------------ ------------------------ ---- ------
shares of stock, class without nominal or par value
- ------------------ ------------------------ ----
shares of stock, class without nominal or par value
- ------------------ ------------------------ ----
</TABLE>
State the designations, powers, preferences, rights, qualifications,
limitations or restrictions applicable to any class of stock, if any: As
provided by Bylaws.
Statement of Grant of Authority to be given to the Board of Directors,
if any: As provided by Bylaws.
ARTICLE FIVE: The number of directors shall be one to five more and the
term of office of such directors as provided by Bylaws.
ARTICLE SIX: Is this corporation to exist perpetually? YES /X/ NO / /
If no, the term for which this corporation is to exist is .
--------------------
ARTICLE SEVEN: The corporation's annual fiscal year closing date is (if
known) December 31.
ARTICLE EIGHT: Notwithstanding anything to the contrary contained in
the bylaws of the corporation, the corporation shall not issue nonvoting equity
securities.
In Testimony Whereof, I have hereunto subscribed my name this 14th day
of July, A.D. 1999.
/s/ Kenneth R. Frick
- ----------------------------------
Kenneth R. Frick
Vice-President and Chief Financial Officer
<PAGE>
2
Having hereby attested, I have hereunto subscribed my name this 14th
day of July, A.D. 1999.
/s/ Janet L. Steinmayer
- ----------------------------------
Janet L. Steinmayer
Corporate Vice President, General Counsel and Secretary
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SERVOMATION DUCHESS, INC.,
a California corporation
John T. Dee and Kenneth R. Frick certify that:
1. They are the duly elected and acting Chief Executive Officer and
Chief Financial Officer, respectively of the corporation named above.
2. The Articles of Incorporation of the corporation as amended to the
date of filing of this certificate are as follows:
I. The name of said corporation is:
SERVOMATION DUCHESS, INC.
II. The purpose for which this corporation is formed is:
To engage in a general restaurant, drive-in, bakery and
tavern business, and to do all things deemed desirable in connection therewith.
III. The primary business in which the corporation is intended to
initially engage is: The general restaurant, drive-in, bakery and tavern
business.
IV. The principal office for the transaction of business of this
corporation is to be located in the County of San Diego, State of California.
V. This corporation is authorized to issue only one class of
stock; the total number of such shares is one thousand (1,000) and all such
shares of stock are to be without par value.
VI. (a) The number of the directors of this corporation shall be
three (3).
<PAGE>
2
VII. The corporation shall not issue nonvoting equity securities.
3. This certificate does not itself alter or amend the Articles of
Incorporation of the corporation in any respect and has been approved by its
Board of Directors.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge. Executed at Stamford, Connecticut on July 14,
1999.
/s/ John T. Dee
-----------------------
John T. Dee
Chief Executive Officer and
Chairman of the Board of Directors
/s/ Kenneth R. Frick
------------------------
Kenneth R. Frick
Vice President, Chief Financial
Officer and Director
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
of
SVM OF TEXAS, INC.
This instrument accurately copies the articles of
incorporation and all amendments thereto that are in effect to date and contains
no change in the provision thereof. These restated articles of incorporation
were duly adopted by the directors in accordance with the provisions of the
Texas Business Corporation Act ss. 4.07. The number of directors currently
constituting the board of directors and the names and addresses of the persons
serving as directors have been inserted in lieu of similar information
concerning the initial board of directors. The name and address of each
incorporator has been omitted.
ARTICLE ONE
The name of the corporation is SVM of Texas, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized
are: To engage _________ in the transaction of any or all
lawful business for ________ which corporations may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the corporation shall
have authority to issue is one thousand (1,000) of the par
value of One Dollar ($1.00) each.
ARTICLE FIVE
The corporation will not commence business until it has
received for the issuance of its shares consideration of the
value of One Thousand Dollars ($1,000.00)
<PAGE>
2
consisting of money, labor done or property actually received,
which sum is not less than One Thousand Dollars ($1,000.00).
ARTICLE SIX
The street address of its initial registered office is
Republic National Bank Building, c/o C T Corporation System,
Dallas, Texas 75201, and the name of its initial registered
agent at such address is C T Corporation System.
ARTICLE SEVEN
The number of directors of the corporation may be fixed by the
by-laws. The number of directors constituting the board of
directors is three (3), and the name and address of each
person who serves as director are:
NAME ADDRESS
---- -------
John T. Dee 209 Micmac Lane
Jupiter, Florida 33458
Kenneth R. Frick 2 Laurel Lane
Campabello, SC 29322
Janet L. Steinmayer 7 Nawthorne Road
Old Greenwich, CT 06870
ARTICLE EIGHT
The shareholders shall not have preemptive rights.
ARTICLE NINE
The shareholders shall not have the right of cumulative
voting.
ARTICLE TEN
The corporation shall not issue nonvoting equity securities.
<PAGE>
3
IN WITNESS WHEREOF, I have signed this instrument at
Stamford, Connecticut as of the 14th day of July, 1999.
/s/ John T. Dee
---------------------------
John T. Dee
Chairman of the Board of
Directors
<PAGE>
July 19, 1999
Volume Services America, Inc.
300 First Stamford Place
P.O. Box 10203
Stamford, CT 06904-2203
Ladies and Gentlemen:
We have acted as counsel to Volume Services America, Inc., a
Delaware corporation (the "Company"), Volume Services America Holdings, Inc., a
Delaware Corporation ("Volume Holdings"), and the subsidiaries of the Company
named in Schedules I and II hereto (the "Subsidiaries", and together with Volume
Holdings, the "Guarantors"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company and the Guarantors
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, relating to the issuance by the Company of
$100,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due
2009 (the "Exchange Securities") and the issuance by the Guarantors of
guarantees (the "Guarantees"), with respect to the Exchange Securities. The
Exchange Securities and the Guarantees will be issued under an indenture (the
"Indenture") dated as of March 4, 1999 among the Company, the Guarantors and
Norwest Bank Minnesota, National Association, as
<PAGE>
Volume Services America, Inc. -2- July 19, 1999
Trustee. The Exchange Securities will be offered by the Company in exchange for
$100,000,000 aggregate principal amount of its outstanding 11 1/4 Senior
Subordinate Notes due 2009 (the "Securities").
We have examined the Registration Statement and the Indenture,
which has been filed with the Commission as an exhibit to the Registration
Statement. We also have examined the originals, or duplicates or certified or
conformed copies, of such records, agreements, instruments and other documents
and have made such other and further investigations as we have deemed relevant
and necessary in connection with the opinions expressed herein. As to questions
of fact material to this opinion, we have relied upon certificates of public
officials and of officers and representatives of the Company and the Guarantors.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as duplicates or certified
or conformed copies, and the authenticity of the originals of such latter
documents. We also have assumed that the Indenture is the valid and legally
binding obligation of the Trustee.
We have assumed further that (1) the Subsidiaries listed in
Schedule II hereto (the "Non-Delaware Guarantors") have duly authorized,
executed and delivered the Indenture, (2) execution, delivery and performance by
the Non-Delaware Guarantors of the Indenture and the Securities and the
Guarantees do not and will not violate the laws of the
<PAGE>
Volume Services America, Inc. -3- July 19, 1999
respective jurisdictions in which such Non-Delaware Guarantors are organized (as
set forth opposite the name of each Non-Delaware Guarantor in Schedule II
hereto) or any other applicable laws (excepting the laws of the State of New
York and the Federal laws of the United States).
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. When the Exchange Securities have been duly executed, authenticated,
issued and delivered in accordance with the provisions of the Indenture upon the
exchange, the Exchange Securities will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms.
2. When (a) the Exchange Securities have been duly executed,
authenticated, issued and delivered in accordance with the provisions of the
Indenture upon the exchange and (b) the Guarantees have been duly issued, the
Guarantees will constitute valid and legally binding obligations of the
Guarantors enforceable against the Guarantors in accordance with their terms.
Our opinions set forth above are subject to the effects of (1)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, (2)
general equitable principles (whether considered in a proceeding in equity or at
law) and (3) an implied covenant of good faith and fair dealing.
<PAGE>
Volume Services America, Inc. -4- July 19, 1999
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the law of the State of
New York, the Federal law of the United States and the Delaware General
Corporation Law.
We hereby consent to the filing of this opinion letter as Exhibit
5 to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
List of Subsidiaries
- --------------------
Volume Services, Inc.
Service America Corporation
Service America Concessions Corporation
Service America of Texas, Inc.
Service America Corporation of Wisconsin
Servo-Kansas, Inc.
Servomation Duchess, Inc.
Servomation Inc.
SVM of Texas, Inc.
Volume Services, Inc. (Kansas)
Events Center Catering, Inc.
VSI of Maryland, Inc.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amentment No. 1 to Registration Statement No.
333-79419 of Volume Services America, Inc. of our report dated March 18, 1999
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the headings "Summary Historical and Pro Forma
Financial Information of Volume Holdings; "Selected Historical Financial
Information of Volume Holdings" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Greenville, South Carolina
July 16, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Volume Services America, Inc. of our report dated June 2, 1998, except for
Notes 3, 8, 13 and 14, as to which the date is July 10, 1998, Note 21 as to
which the date is May 27, 1999, and Note 22 as to which the date is July 16,
1999, relating to the consolidated financial statements of Service America
Corporation, which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
July 16, 1999
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
__ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue 55479
Minneapolis, Minnesota (Zip code)
(Address of principal executive offices)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
VOLUME SERVICES AMERICA, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 57-0969174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 1st Stamford Place
Po Box 10203
Stamford, Connecticut 06904-2203
(Address of principal executive offices) (Zip code)
-----------------------------
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-I because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-I the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
C. A copy of the certificate of the Acting Comptroller
of the Currency DATED JANUARY 12, 1943, AS TO
change of corporate title of Northwestern National
Bank and Trust Company of Minneapolis to
Northwestern National Bank of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of
<PAGE>
name change effective May 1, 1983 from Northwestern
National Bank of Minneapolis to Norwest Bank
Minneapolis, National Association.*
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller
of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*
Exhibit 4. ________ Copy of By-laws of the trustee as now in effect.*
Exhibit 5. ________ Not applicable.
Exhibit 6. ________ The consent of the trustee required by Section 3 2 1
(b) of the Act.
Exhibit 7. ________ A copy of the latest report of condition of the
trustee published pursuant to law or the requirements of its
supervising or examining authon*ty.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement Number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-25233.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 9th day of April 1999.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
-------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
April 9, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
----------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
LETTER OF TRANSMITTAL
FOR
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
VOLUME SERVICES AMERICA, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M. , NEW
YORK CITY TIME, ON (THE "EXPIRATION DATE") UNLESS
EXTENDED BY VOLUME SERVICES AMERICA, INC.
The Exchange Agent is:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
For Delivery by Registered or Certified Mail: For Overnight Delivery Only or by Hand:
Norwest Bank Minnesota, NA Norwest Bank Minnesota, NA
Sixth Street and Marquette Avenue 608 Second Avenue
Minneapolis, MN 55479-0069 NorStar East Building
Attention: Corporate Trust Department 12th Floor
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only)
(612) 667-9825
Attention: Corporate Trust Department
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
, 1999 (the "Prospectus") of Volume Services America, Inc.
(the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together describe the Company's offer (the "Exchange Offer") to exchange
its 11 1/4% Senior Subordinated Notes due 2009, which have been registered under
the Securities Act of 1933, as amended (the "Securities Act") (the "Exchange
Notes") for each of its outstanding 11 1/4% Senior Subordinated Notes due 2009
(the "Outstanding Notes" and, together with the Exchange Notes, the "Notes")
from the holders thereof.
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Outstanding Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are freely transferable by holders thereof
(except as provided herein or in the Prospectus).
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE>
PLEASE READ THE ENTIRE
LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
aggregate principal amounts should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OUTSTANDING NOTES TENDERED HEREWITH
AGGREGATE
PRINCIPAL
AMOUNT
NAME(S) AND ADDRESS(ES) OF REPRESENTED BY PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE OUTSTANDING AMOUNT
(PLEASE FILL IN) NUMBER(S)* NOTES* TENDERED**
<S> <C> <C> <C>
TOTAL
</TABLE>
* NEED NOT BE COMPLETED BY BOOK-ENTRY HOLDERS.
** UNLESS OTHERWISE INDICATED, THE HOLDER WILL BE DEEMED TO HAVE TENDERED THE
FULL AGGREGATE PRINCIPAL AMOUNT REPRESENTED BY SUCH OUTSTANDING NOTES. SEE
INSTRUCTION 2.
Holders of Outstanding Notes whose Outstanding Notes are not immediately
available or who cannot deliver all other required documents to the Exchange
Agent on or prior to the Expiration Date or who cannot complete the procedures
for book-entry transfer on a timely basis, must tender their Outstanding Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
Unless the context otherwise requires, the term "holder" for purposes of
this Letter of Transmittal means any person in whose name Outstanding Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder or any person whose Outstanding Notes are held of
record by The Depository Trust Company ("DTC").
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): __________________________________________________
Name of Eligible Institution that Guaranteed Delivery: _________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
If Delivered by Book-Entry Transfer:
Name of Tendering Institution: _________________________________________________
Account Number: ________________________________________________________________
Transaction Code Number: _______________________________________________________
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN
PERSON SIGNING THIS LETTER OF TRANSMITTAL:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
<PAGE>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Outstanding Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may not
participate in the Exchange Offer with respect to Outstanding Notes acquired
other than as a result of market-making activities or other trading activities.
Any holder who is an "affiliate" of the Company or who has an arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who purchased
Outstanding Notes from the Company to resell pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act must
comply with the registration and prospectus delivery requirements under the
Securities Act.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of all or any portion of the Outstanding Notes tendered
herewith in accordance with the terms and conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Outstanding Notes as are being tendered
herewith. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the agent
of the Company, in connection with the Exchange Offer) to cause the Outstanding
Notes to be assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and authority
to tender, exchange, assign and transfer the Outstanding Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Outstanding Notes,
and that, when the same are accepted for exchange, the Company will acquire good
and unencumbered title to the tendered Outstanding Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
the tendered Outstanding Notes or transfer ownership of such Outstanding Notes
on the account books maintained by the book-entry transfer facility. The
undersigned further agrees that acceptance of any and all validly tendered
Outstanding Notes by the Company and the issuance of Exchange Notes in exchange
therefor shall constitute performance in full by the Company of its obligations
under the Exchange and Registration Rights Agreement dated February 25, 1999,
among the Company, Chase Securities Inc., and Goldman Sachs & Co. (the
"Registration Rights Agreement"), and that the Company shall have no further
obligations or liabilities thereunder except as provided in the first
paragraph of Section 2 of such agreement. The undersigned will comply with its
obligations under the Registration Rights Agreement. The undersigned has read
and agrees to all terms of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Outstanding Notes tendered hereby and, in such event, the Outstanding Notes
not exchanged will be returned to the undersigned at the address shown above,
promptly following the expiration or termination of the Exchange Offer. In
addition, the Company may amend the Exchange Offer at any time prior to the
Expiration Date if any of the conditions set forth under "The Exchange
Offer--Certain Conditions to the Exchange Offer" occur.
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in the Prospectus and in the instructions
attached hereto will, upon the Company's acceptance for exchange of such
tendered Outstanding Notes, constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned recognizes that, under circumstances set forth
in the Prospectus, the Company may not be required to accept for exchange any of
the Outstanding Notes.
By tendering shares of Outstanding Notes and executing this Letter of
Transmittal, the undersigned represents that Exchange Notes acquired in the
exchange will be obtained in the ordinary course of business of the undersigned,
that the undersigned has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of such
Exchange Notes, that the undersigned is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that if the undersigned or
the person receiving such Exchange Notes, whether or not such person is the
undersigned, is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of Exchange Notes.
If the undersigned or the person receiving such Exchange Notes, whether or not
such person is the undersigned, is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Outstanding Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. If the undersigned is a
person in the United Kingdom, the undersigned represents that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of its business.
Any holder of Outstanding Notes using the Exchange Offer to participate in a
distribution of the Exchange Notes (i) cannot rely on the position of the staff
of the Securities and Exchange Commission enunciated in its interpretive letter
with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar interpretive letters and (ii) must comply with the registration and
prospectus requirements of the Securities Act in connection with a secondary
resale transaction.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Outstanding Notes may be withdrawn at
any time prior to the Expiration Date in accordance with the terms of this
Letter of Transmittal. Except as stated in the Prospectus, this tender is
irrevocable.
Certificates for all Exchange Notes delivered in exchange for tendered
Outstanding Notes and any Outstanding Notes delivered herewith but not
exchanged, and registered in the name of the undersigned, shall be delivered to
the undersigned at the address shown below the signature of the undersigned.
The undersigned, by completing the box entitled "Description of Outstanding
Notes Tendered Herewith" above and signing this letter, will be deemed to have
tendered the Outstanding Notes as set forth in such box.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Notes or Outstanding Notes not tendered are to
be issued in the name of someone other than the registered holder of the
Outstanding Notes whose name(s) appear(s) above.
Issue
/ / Outstanding Nots not tendered to:
/ / Exchange Notes to:
Name ___________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Daytime Area Code and Telephone No. ____________________________________________
________________________________________________________________________________
Tax Identification No. _________________________________________________________
________________________________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Notes or Outstanding Notes not tendered are to
be sent to someone other than the registered holder of the Outstanding Notes
whose name(s) appear(s) above, or such registered holder(s) at an address other
than that shown above.
Mail
/ / Outstanding Notes not tendered to:
/ / Exchange Notes to:
Name ___________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Daytime Area Code and Telephone No. ____________________________________________
________________________________________________________________________________
Tax Identification No. _________________________________________________________
________________________________________________________________________________
<PAGE>
TENDERING HOLDER(S) SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Outstanding Notes hereby tendered or in whose name
Outstanding Notes are registered on the books of DTC or one of its participants,
or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set forth
the full title of such person. See Instruction 3.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
DATE: __________________ , 1998
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
(INCLUDING ZIP CODE)
Daytime Area Code and Telephone No.:____________________________________________
Taxpayer Identification No.:____________________________________________________
GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature:___________________________________________________________
Dated:__________________________________________________________________________
Name:___________________________________________________________________________
(PLEASE PRINT)
Title:__________________________________________________________________________
Name of Firm:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. A holder of Outstanding Notes may tender the same by (i)
properly completing and signing this Letter of Transmittal or a facsimile hereof
(all references in the Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates, if applicable, representing the Outstanding Notes
being tendered and any required signature guarantees and any other documents
required by this Letter of Transmittal, to the Exchange Agent at its address set
forth above on or prior to the Expiration Date, or (ii) complying with the
procedure for book-entry transfer described below, or (iii) complying with the
guaranteed delivery procedures described below.
Holders of Outstanding Notes may tender Outstanding Notes by book-entry
transfer by crediting the Outstanding Notes to the Exchange Agent's account at
DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by
complying with applicable ATOP procedures with respect to the Exchange Offer.
DTC participants that are accepting the Exchange Offer should transmit their
acceptance to DTC, which will edit and verify the acceptance and execute a
book-entry delivery to the Exchange Agent's account at DTC. DTC will then send a
computer-generated message (an "Agent's Message") to the Exchange Agent for its
acceptance in which the holder of the Outstanding Notes acknowledges and agrees
to be bound by the terms of, and makes the representations and warranties
contained in, this Letter of Transmittal, the DTC participant confirms on behalf
of itself and the beneficial owners of such Outstanding Notes all provisions of
this Letter of Transmittal (including any representations and warranties)
applicable to it and such beneficial owner as fully as if it had completed the
information required herein and executed and transmitted this Letter of
Transmittal to the Exchange Agent. Delivery of the Agent's Message by DTC will
satisfy the terms of the Exchange Offer as to execution and delivery of a Letter
of Transmittal by the participant identified in the Agent's Message. DTC
participants may also accept the Exchange Offer by submitting a Notice of
Guaranteed Delivery through ATOP.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY
MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO
PERMIT TIMELY DELIVERY. NO OUTSTANDING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE
SENT TO THE COMPANY.
Holders whose Outstanding Notes are not immediately available or who cannot
deliver their Outstanding Notes and all other required documents to the Exchange
Agent on or prior to the Expiration Date or comply with book-entry transfer
procedures on a timely basis must tender their Outstanding Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) on or prior to the Expiration Date, the Exchange Agent
must have received from such Eligible Institution a letter, telegram or
facsimile transmission (receipt confirmed by telephone and an original delivered
by guaranteed overnight courier) setting forth the name and address of the
tendering holder, the names in which such Outstanding Notes are registered, and,
if applicable, the certificate numbers of the Outstanding Notes to be tendered;
and (iii) all tendered Outstanding Notes (or a confirmation of any book-entry
transfer of such Outstanding Notes into the Exchange Agent's account at a
book-entry transfer facility) as well as this Letter of Transmittal and all
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such letter, telegram or facsimile transmission, all as provided
in the Prospectus.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Outstanding Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of Outstanding Notes evidenced by a submitted certificate is tendered, the
tendering holder must fill in the aggregate principal amount of Outstanding
Notes tendered in the box entitled "Description of Outstanding Notes Tendered
Herewith." A newly issued certificate for the Outstanding Notes submitted but
not tendered will be sent to such holder as soon as practicable after the
Expiration Date. All Outstanding Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise clearly indicated.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date.
To be effective with respect to the tender of Outstanding Notes, a written
notice of withdrawal must: (i) be received by the Exchange Agent at one of the
addresses for the Exchange Agent set forth above before the Company notifies the
Exchange Agent that it has accepted the tender of Outstanding Notes pursuant to
the Exchange Offer; (ii) specify the name of the person who tendered the
Outstanding Notes to be withdrawn; (iii) identify the Outstanding Notes to be
withdrawn (including the principal amount of such Outstanding Notes, or, if
applicable, the certificate numbers shown on the particular certificates
evidencing such Outstanding Notes and the principal amount of Outstanding Notes
represented by such certificates); (iv) include a statement that such holder is
withdrawing its election to have such Outstanding Notes exchanged; and (v) be
signed by the holder in the same manner as the original signature on this Letter
of Transmittal (including any required signature guarantee). The Exchange Agent
will return the properly withdrawn Outstanding Notes promptly following receipt
of notice of withdrawal. If Outstanding Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Outstanding Notes or otherwise comply with the
book-entry transfer facility's procedures. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Any Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Outstanding Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Outstanding Notes tendered by book-entry transfer into the Exchange
Agent's account at the book entry transfer facility pursuant to the book-entry
transfer procedures described above, such Outstanding Notes will be credited to
an account with such book-entry transfer facility specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Outstanding Notes
<PAGE>
may be retendered by following one of the procedures described under the caption
"The Exchange Offer--Procedures for Tendering" in the Prospectus at any time
prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Outstanding Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificates without alteration, enlargement or any change whatsoever.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Outstanding Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Outstanding Notes) of Outstanding Notes listed and tendered hereby,
no endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Outstanding Notes listed, such Outstanding
Notes must be endorsed or accompanied by separate written instruments of
transfer or exchange in form satisfactory to the Company and duly executed by
the registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Outstanding Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution, unless Outstanding Notes are tendered: (i) by a holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter of Transmittal; or (ii) for the account of an
Eligible Institution (as defined below). In the event that the signatures in
this Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by an eligible guarantor
institution which is a member of a firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"). If Outstanding Notes are registered in the name of a person other
than the signer of this Letter of Transmittal, the Outstanding Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company, in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, as applicable, the name and address to which the Exchange Notes or
certificates for Outstanding Notes not exchanged are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Outstanding
Notes by book-entry transfer may request that Outstanding Notes not exchanged be
credited to such account maintained at the book-entry transfer facility as such
holder may designate.
5. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Outstanding Notes to it or its order
pursuant to the Exchange Offer. If a transfer tax is imposed for any reason
other than the transfer and exchange of Outstanding Notes to the Company or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exception therefrom is not submitted herewith the amount of such transfer taxes
will be billed directly to such tendering holder.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
in whole or in part, any of the conditions to the Exchange Offer set forth in
the Prospectus.
7. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES. Any holder whose
Outstanding Notes have been mutilated, lost, stolen or destroyed, should contact
the Exchange Agent at the address indicated below for further instructions.
8. SUBSTITUTE FORM W-9 Each holder of Outstanding Notes whose Outstanding
Notes are accepted for exchange (or other payee) is required to provide a
correct taxpayer identification number ("TIN"), generally the holder's Social
Security or federal employer identification number, and certain other
information, on Substitute Form W-9, which is provided under "Important Tax
Information" below, and to certify that the holder (or other payee) is not
subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty
imposed by the Internal Revenue Service and 31% federal income tax backup
withholding on payments made in connection with the Outstanding Notes. The box
in Part 3 of the Substitute Form W-9 may be checked if the holder (or other
payee) has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked and a TIN is not
provided by the time any payment is made in connection with the Outstanding
Notes, 31% of all such payments will be withheld until a TIN is provided.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number set forth above. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Exchange Agent at the address and telephone number indicated above.
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF
(TOGETHER WITH CERTIFICATES OF OUTSTANDING NOTES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Outstanding Notes whose
Outstanding Notes are accepted for exchange may be subject to backup withholding
unless the holder provides The Bank of New York, as Paying Agent (the "Paying
Agent"), through the Exchange Agent, with either (i) such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
holder of Outstanding Notes is awaiting a TIN) and that (A) the holder of
Outstanding Notes has not been notified by the Internal Revenue Service that he
or she is subject to backup withholding as a result of a failure to report all
interest or dividends or (B) the Internal Revenue Service has notified the
holder of Outstanding Notes that he or she is no longer subject to backup
withholding; or (ii) an adequate basis for exemption from backup withholding. If
such holder of Outstanding Notes is an individual, the TIN is such holder's
social security number. If the Paying Agent is not provided with the correct
TIN, the holder of Outstanding Notes may be subject to certain penalties imposed
by the Internal Revenue Service.
Certain holders of Outstanding Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. However, exempt holders of Outstanding
Notes should indicate their exempt status on Substitute Form W-9. For example, a
corporation must complete the Substitute Form W-9, providing its TIN and
indicating that it is exempt from backup withholding. In order for a foreign
individual to qualify as an exempt recipient, the holder must submit a Form W-8,
signed under penalties of perjury, attesting to that individual's exempt status.
A Form W-8 can be obtained from the Paying Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Outstanding Notes or other payee.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Outstanding Notes has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the box
in Part 3 is checked, the holder of Outstanding Notes or other payee must also
complete the Certificate of Awaiting Taxpayer Identification Number below in
order to avoid backup withholding. Notwithstanding that the box in Part 3 is
checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Paying Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the Paying Agent.
The holder of Outstanding Notes is required to give the Paying Agent the
TIN (e.g., social security number or employer identification number) of the
record owner of the Outstanding Notes. If the Outstanding Notes are in more than
one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME:
<S> <C>
PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ______________________________
CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
OR
______________________________
Employer Identification Number
PART 2--Certification -- Under penalties of perjury, I PART 3--
certify that: / / Awaiting TIN
(1) The number shown on this form is my correct Taxpayer
Identification Number (TIN) Identification Number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the
IRS that you are currently subject to backup withholding because of under-reporting interest
or dividends on your tax return. However, if after being notified by the IRS that you were
subject to backup withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out such item (2).
SIGNATURE______________________________________________________________________
DATE___________________________________________________________________________
</TABLE>
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER (TIN)
SIGN HERE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld.
SIGNATURE __________________________ DATE ______________________________, 1998
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
NEW 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
VOLUME SERVICES AMERICA, INC.
Registered holders of outstanding 11 1/4% Senior Subordinated Notes due 2009
(the "Outstanding Notes") who wish to tender their Outstanding Notes in exchange
for a like principal amount of new 11 1/4% Senior Subordinated Notes due 2009
(the "Exchange Notes") and whose Outstanding Notes are not immediately available
or who cannot deliver their Outstanding Notes and Letter of Transmittal (and any
other documents required by the Letter of Transmittal) to The Bank of New York
(the "Exchange Agent") prior to the Expiration Date, may use this Notice of
Guaranteed Delivery or one substantially equivalent hereto. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) or mail to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
For Delivery by Registered or Certified Mail: For Overnight Delivery Only or by Hand:
Norwest Bank Minnesota, NA Norwest Bank Minnesota, NA
Sixth Street 608 Second Avenue
and Marquette Avenue NorStar East Building--12th floor
Minneapolis, MN 55479-0069 Minneapolis, MN 55479-0069
Attention: Corporate Trust Department Attention: Corporate Trust Department
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only)
(612) 667-9825
Attention: Corporate Trust Department
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an eligible institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Outstanding Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated , 1999 of Volume Services America, Inc. (the
"Prospectus"), receipt of which is hereby acknowledged.
<TABLE>
<CAPTION>
DESCRIPTION OF OUTSTANDING NOTES TENDERED
NAME AND CERTIFICATE
ADDRESS OF NUMBER(S) OF
REGISTERED OUTSTANDING
HOLDER AS IT NOTES TENDERED
APPEARS ON THE (OR ACCOUNT PRINCIPAL
NAME OF OUTSTANDING NUMBER AT AMOUNT
TENDERING NOTES BOOK-ENTRY OUTSTANDING
HOLDER (PLEASE PRINT) FACILITY) NOTES TENDERED
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C>
</TABLE>
SIGN HERE
Name of Registered or Acting Holder:__________________________________________
Signature(s):_________________________________________________________________
Name(s) (Please Print):_______________________________________________________
Address:______________________________________________________________________
______________________________________________________________________________
Telephone number:_____________________________________________________________
Date:_________________________________________________________________________
IF SHARES OF OUTSTANDING NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER,
PROVIDE THE FOLLOWING INFORMATION:
DTC Account Number:___________________________________________________________
Date:_________________________________________________________________________
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth on the reverse hereof, the certificates representing the
Outstanding Notes (or a confirmation of book-entry transfer of such Outstanding
Notes into the Exchange Agent's account at the book-entry transfer facility),
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, and any other
documents required by the Letter of Transmittal within three New York Stock
Exchange trading days after the Expiration Date (as defined in the Letter of
Transmittal).
<TABLE>
<S> <C>
Name of
Firm: ______________________________________________________ ______________________________________________________
Address: ___________________________________________________ AUTHORIZED SIGNATURE
____________________________________________________________ Title:________________________________________________
(ZIP CODE) Name:_________________________________________________
Area Code and (PLEASE TYPE OR PRINT)
Telephone No.:______________________________________________
Date: ________________________________________________
</TABLE>
NOTE: DO NOT SEND OUTSTANDING NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
OUTSTANDING NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
