<PAGE> 1
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission file number 333-57925
---------------
The Restaurant Company
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 62-1254388
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1 Pierce Place, Suite 100 East, Itasca, Illinois 60341
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(901) 766-6400
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by X whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X} No [ ]
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Food sales $ 77,351 $ 72,798 $ 219,546 $ 203,980
Franchise revenues and other 5,738 5,988 16,432 16,628
-------- -------- --------- ---------
Total Revenues 83,089 78,786 235,978 220,608
-------- -------- --------- ---------
COSTS AND EXPENSES:
Cost of sales:
Food cost 21,368 20,251 60,680 57,607
Labor and benefits 26,482 25,553 76,895 70,974
Operating expenses 14,719 14,440 42,886 40,855
General and administrative 7,725 7,562 22,780 21,626
Depreciation and amortization 5,364 5,072 15,577 14,750
Interest, net 4,316 4,352 12,839 11,990
(Gain)/Loss on disposition of assets, net -- -- (427) 400
Asset write-down -- -- 420 500
Other, net (352) (350) (1,212) (1,028)
-------- -------- --------- ---------
Total Costs and Expenses 79,622 76,880 230,438 217,674
-------- -------- --------- ---------
Income from operations before income taxes and
cumulative effect of change in accounting principle 3,467 1,906 5,540 2,934
Provision for income taxes (1,150) (633) (1,865) (986)
-------- -------- --------- ---------
Income from operations before cumulative effect
of change in accounting principle 2,317 1,273 3,675 1,948
Cumulative effect of change in accounting
principle, net of income tax benefit of $188 -- -- (340) --
-------- -------- --------- ---------
NET INCOME $ 2,317 $ 1,273 $ 3,335 $ 1,948
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 3
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,706 $ 3,150
Receivables, less allowance for
doubtful accounts of $869 and $495 7,882 7,178
Inventories, at the lower of first-
in, first-out cost or market 5,493 5,375
Prepaid expenses and other current assets 1,728 1,999
Deferred income taxes 209 209
-------- --------
Total current assets 18,018 17,911
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 133,173 131,283
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $31,660 and $30,147 47,159 46,444
-------- --------
$198,350 $195,638
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 4
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 1,044 $ 1,229
Accounts payable 12,714 11,568
Accrued expenses 23,899 23,228
--------- ---------
Total current liabilities 37,657 36,025
--------- ---------
CAPITAL LEASE OBLIGATIONS, less
current maturities 4,443 5,767
LONG-TERM DEBT 152,575 153,334
DEFERRED INCOME TAXES AND OTHER 4,445 4,616
STOCKHOLDERS' INVESTMENT:
Common stock $.01 par value, 100,000 shares authorized,
11,640 issued and outstanding 1 1
Additional paid-in capital 969 969
Accumulated deficit (1,740) (5,074)
--------- ---------
Total stockholders' deficit (770) (4,104)
--------- ---------
$ 198,350 $ 195,638
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
<PAGE> 5
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,317 $ 1,273 $ 3,335 $ 1,948
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,364 5,072 15,577 14,750
Change in accounting principle -- -- 340 --
(Gain)/Loss on disposition of assets, net -- -- (427) 400
Asset write-down -- -- 420 500
Other noncash income and expense items 181 (370) 495 (876)
Net changes in other operating assets and liabilities 2,665 2,625 (663) 1,193
-------- ------- -------- --------
Total adjustments 8,210 7,327 15,742 15,967
-------- ------- -------- --------
Net cash provided by operating activities 10,527 8,600 19,077 17,915
-------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (5,906) (6,488) (15,861) (18,260)
Proceeds from sale of property and equipment -- 8 -- 20
Payments on notes receivable 66 218 190 427
Distribution from/(Investment in) joint venture 200 -- 200 (110)
-------- -------- -------- --------
Net cash used in investing activities (5,640) (6,262) (15,471) (17,923)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- -- 18,009
Net borrowings under (payments on) line of credit (4,500) (3,500) (2,500) 4,000
Principal payments under capital lease obligations (311) (322) (1,508) (1,010)
Repurchase of common stock -- -- -- (17,282)
Purchase of minority interest (10) (55) (42) (16,296)
Deferred financing costs -- (118) -- (1,141)
-------- -------- -------- --------
Net cash used in financing activities (4,821) (3,995) (4,050) (13,720)
-------- ------- -------- --------
Net increase (decrease) in cash and cash equivalents 66 (1,657) (444) (13,728)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 2,640 3,956 3,150 16,027
-------- ------- -------- --------
Balance, end of period $ 2,706 $ 2,299 $ 2,706 $ 2,299
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
THE RESTAURANT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Organization
The Restaurant Company ("TRC" or the "Company") is a holding company whose
primary subsidiary is Perkins Family Restaurants, L.P. ("PFR"), which is
indirectly wholly-owned by TRC. TRC is the sole stockholder of Perkins
Restaurants, Inc. ("PRI"), which is a limited partner and the indirect owner of
100% of PFR and the parent corporation of PFR's general partner, Perkins
Management Company ("PMC"). TRC is also the sole stockholder of TRC Realty Co.
TRC has no significant assets other than its direct and indirect equity
interests in its subsidiaries. Except as the context otherwise requires,
references to the "Company" refer to TRC together with its subsidiaries,
including, without limitation, PFR.
Basis of Presentation
The accompanying unaudited consolidated financial statements of TRC have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for complete financial statements in
conformity with generally accepted accounting principles. The results for the
periods indicated are unaudited but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of the operating results. Results of operations for the interim
periods are not necessarily indicative of a full year of operations. The notes
to the financial statements contained in the 1998 Annual Report on Form 10-K
should be read in conjunction with these statements.
Certain prior year amounts have been reclassified to conform to current year
presentation.
Going Private Transaction
Prior to December 22, 1997, PFR was a limited partnership 48.6% indirectly owned
(including its general partner's interest) by TRC. The remainder of the limited
partnership units ("Units") were traded on the New York Stock Exchange under the
symbol "PFR". The Company's business was conducted through Perkins Restaurants
Operating Company, L.P. ("PROC"), a Delaware limited partnership. PFR was the
sole limited partner and owned 99% of PROC, and PMC was the sole general partner
and owned the remaining 1% of PROC. Upon a majority vote of the holders of the
publicly traded Units, 5.44 million Units held by persons other than TRC and its
subsidiaries were converted into the right to receive $14.00 in cash per Unit
(the "Going Private Transaction"). Additionally, PROC was merged into PFR, and
PMC's 1% general partnership interest in PROC was converted into a limited
partnership interest in PFR. Upon consummation of the Going Private Transaction
on December 22, 1997, PFR became an indirect wholly-owned subsidiary of TRC.
The Reorganization
On May 18, 1998, TRC redeemed 100% of Harrah's Entertainment, Inc. ("Harrah's")
interest in the Company ("the Reorganization"). As a result of the
Reorganization, TRC's common stock is owned 50.0% by Donald N. Smith, the
Company's Chairman and Chief Executive Officer, 42.3% by The Equitable Life
Assurance Society of the United States and 7.7% by others.
6
<PAGE> 7
Loss of a Significant Franchisee
On February 4, 1999, Denny's (a subsidiary of Advantica Restaurant Group) was
the prevailing bidder in the court-supervised auction sale of 30 restaurants of
Perk Development Corporation ("Perk"), the Company's upstate New York
franchisee. These restaurants ceased operating as Perkins Family Restaurants on
February 28, 1999. The Company received approximately $1,783,000 in royalties
from Perk during 1998. The Company continues to recruit new franchise
restaurants with higher average sales volumes to replace this revenue stream.
Contingencies
The Company is a party to various legal proceedings in the ordinary course of
business. Management does not believe it is likely that these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's financial position or results of operations.
A franchisee of the Company which operated 20 restaurants as of September 30,
1999, filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Ohio on October 27, 1999. Management believes it is likely that the majority
of these restaurants will remain in the Perkins system either by successful
restructure of the franchisee's obligations or acquisition of the franchisee's
operations by the Company or a third party. During 1998, the Company earned
royalties from those restaurants totaling approximately $948,000. As of
September 30, 1999, the franchisee was delinquent in its royalty obligations in
the amount of approximately $238,000. Although these delinquencies are
personally guaranteed by three principals of the franchisee, collection under
the guarantees is uncertain and the obligations are fully reserved.
In the past, the Company has sponsored financing programs offered by certain
lending institutions to assist its franchisees in procuring funds for the
construction of new franchised restaurants and to purchase and install in-store
bakeries. The Company provides a limited guaranty of the funds borrowed. At
September 30, 1999, there were approximately $2,795,000 in borrowings
outstanding under these programs. The Company has guaranteed $824,000 of these
borrowings. No additional borrowings are available under these programs. The
Company has also entered into a separate two year limited guaranty, which
expires on February 26, 2000, of $1,200,000 in borrowings of a franchisee which
were used to construct a new franchise restaurant. As of September 30, 1999, the
outstanding balance on the loan was $1,200,000.
The Company entered into an agreement to loan up to $775,000 to a franchisee to
be used in remodeling and upgrading existing restaurants. These funds are
primarily being used for improvements to sites owned or leased by the Company
which are being leased to the franchisee. The principal and interest will be
paid by the franchisee over a five year period beginning upon completion of the
remodels and equipment upgrades. As of September 30, 1999, there was $706,000
outstanding under the loan agreement.
TRC is a holding company which has no significant assets other than its direct
and indirect equity interest in its subsidiaries. Accordingly, TRC must rely
entirely upon distributions from its subsidiaries to generate the funds
necessary to meet its obligations. The ability of PFR to distribute funds to TRC
is restricted by PFR's Senior Notes Indenture and revolving credit agreement.
7
<PAGE> 8
Supplemental Cash Flow Information
The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities for the three and nine months ended September
30, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Increase) Decrease in:
Receivables $ (975) $ (681) $(2,019) $(1,555)
Inventories (172) (352) (118) (763)
Prepaid expenses and
other current assets (21) 111 (269) (275)
Other assets (97) 80 (2,316) (23)
Increase (Decrease) in:
Accounts payable 1,276 810 1,149 873
Accrued expenses 3,449 3,095 1,266 2,893
Other liabilities (795) (438) 1,644 43
------- ------- ------- -------
$ 2,665 $ 2,625 $ (663) $ 1,193
======= ======= ======= =======
</TABLE>
Other supplemental cash flow information was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Cash paid for interest $ 194 $ 361 $7,449 $7,249
Income taxes paid 3,013 1,385 3,355 2,250
Income tax refunds received 21 -- 103 690
</TABLE>
8
<PAGE> 9
Segment Reporting
The following presents revenues and other financial information by business
segment for the periods ended September 30 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended:
September 30, 1999:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 69,221 $ 5,625 $ 8,028 $ 215 $ 83,089
Intersegment revenues -- -- 2,352 -- 2,352
Segment profit (loss) 8,613 4,932 1,765 (12,993) 2,317
<CAPTION>
September 30, 1998:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 65,468 $ 5,817 $ 7,127 $ 374 $ 78,786
Intersegment revenues -- -- 2,133 -- 2,133
Segment profit (loss) 7,484 5,016 1,361 (12,588) 1,273
<CAPTION>
Nine Months Ended:
September 30, 1999:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $198,280 $16,005 $20,847 $ 846 $235,978
Intersegment revenues -- -- 6,774 -- 6,774
Segment profit (loss) 22,690 13,879 4,313 (37,547) 3,335
<CAPTION>
September 30, 1998:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $184,325 $16,097 $18,890 $ 1,296 $220,608
Intersegment revenues -- -- 5,719 -- 5,719
Segment profit (loss) 20,027 14,107 3,796 (35,982) 1,948
</TABLE>
9
<PAGE> 10
A reconciliation of other segment loss is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
General and administrative expenses $ 6,562 $ 6,528 $ 19,725 $ 18,838
Depreciation and amortization expenses 1,485 1,564 4,431 4,743
Interest expense 4,316 4,352 12,839 11,990
Change in accounting principle -- -- 340 --
(Gain)/Loss on disposition of assets -- -- (427) 400
Asset write-down -- -- 420 500
Provision for income taxes 1,150 633 1,865 986
Other (520) (489) (1,646) (1,475)
-------- -------- -------- --------
$ 12,993 $ 12,588 $ 37,547 $ 35,982
======== ======== ======== ========
</TABLE>
Preopening Expenses
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which the Company adopted in 1999. SOP 98-5 requires the costs of
start-up activities to be expensed as incurred. Upon adoption of SOP 98-5, the
Company recorded a cumulative effect of a change in accounting principle of
$340,000 net of income taxes of $188,000. Prior to 1999, the Company capitalized
new store opening costs and expensed these costs over the 12 months following
the opening of the restaurant.
Deferred Compensation
Effective January 1, 1999, the Company established a Deferred Compensation Plan
under which officers and key employees of the Company may defer specified
percentages of their salaries, annual incentives and long-term compensation
payments. The Company also makes matching contributions of the lesser of 3% of
eligible compensation or $4,800. Amounts deferred are excluded from the
participant's taxable income and are held in trust with a bank, where the funds
are invested at the direction of the participant. The total amount held in trust
as of September 30, 1999 was $1,623,000 and is included in other assets and
other liabilities in the accompanying balance sheets of the Company.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
Overview:
The Company through its primary subsidiary, PFR, is a leading operator and
franchisor of full-service mid-scale restaurants located in 35 states and 5
Canadian provinces. As of September 30, 1999, the Company owned and operated 140
full-service restaurants and franchised 331 full-service restaurants. The
Company also manufactures and distributes bakery products which are sold to
Company-operated restaurants, franchisees, third-party bakers and food
distributors. The business of Perkins was founded in 1958, and since then
Perkins has continued to adapt its menus, product offerings, building designs
and decor to meet changing consumer preferences. Perkins is a highly recognized
brand in the geographic areas it serves.
The Company's revenues are derived primarily from the operation of full-service
restaurants, the sale of bakery products produced by its manufacturing division,
Foxtail Foods ("Foxtail"), and franchise fees. Foxtail offers cookie dough,
muffin batters, pancake mixes, pies and other food products to Company-operated
and franchised restaurants through food service distributors in order to ensure
consistency and availability of Perkins' proprietary products to each unit in
the system. Additionally, Foxtail manufactures certain proprietary and
non-proprietary products for sale to non-Perkins operations. Sales to
Company-operated restaurants are eliminated in the accompanying statements of
operations. In the nine months ended September 30, 1999, revenues from
Company-operated restaurants, Foxtail, and franchise fees and other accounted
for 84.2%, 8.8% and 7.0% of total revenues, respectively.
TRC leases an executive aircraft through TRC Realty Co. The aircraft is operated
for the benefit of, and all operating costs are reimbursed by, PFR and Friendly
Ice Cream Corporation.
11
<PAGE> 12
A summary of the Company's results for the third quarter and nine months ended
September 30 are presented in the following table. All revenues, costs and
expenses are expressed as a percentage of total revenues. Certain prior year
amounts have been reclassified to conform to current year presentation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1999 1998 1999 1998
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Food sales 93.1% 92.4% 93.0% 92.5%
Franchise revenues 6.9 7.6 7.0 7.5
----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and Expenses:
Cost of sales:
Food cost 25.7 25.7 25.7 26.2
Labor and benefits 31.9 32.5 32.6 32.2
Operating expenses 17.7 18.3 18.2 18.5
General and administrative 9.3 9.6 9.7 9.8
Depreciation and amortization 6.4 6.4 6.6 6.7
Interest, net 5.2 5.5 5.4 5.4
(Gain)/Loss on disposition of assets, net -- -- (0.2) 0.2
Asset write-down -- -- 0.2 0.2
Other, net (0.4) (0.4) (0.5) (0.5)
----- ----- ----- -----
Total Costs and Expenses 95.8 97.6 97.7 98.7
----- ----- ----- -----
Income from operations before income taxes and
cumulative effect of change in accounting principle 4.2 2.4 2.3 1.3
Provision for income taxes (1.4) (0.8) (0.8) (0.4)
----- ----- ----- -----
Income from operations before cumulative effect
of change in accounting principle 2.8 1.6 1.5 0.9
Cumulative effect of change in accounting
principle, net of income taxes -- -- (0.1) --
----- ----- ----- -----
Net Income 2.8 % 1.6 % 1.4 % 0.9 %
===== ===== ===== =====
</TABLE>
Net income for the third quarter of 1999 was $2,317,000 versus net income of
$1,273,000 for the same period in 1998. For the nine months ended September 30,
1999 net income was $3,335,000 compared to $1,948,000 in the prior year.
12
<PAGE> 13
Revenues:
Total revenues for the third quarter and first nine months of 1999 increased
5.5% and 7.0% over the same periods last year due primarily to higher comparable
restaurant sales, sales from stores which were not open during 1998, and
increased Foxtail sales.
The increase in restaurant revenue is primarily due to same store comparable
sales increases of 4.9% and 4.8% over the third quarter and first nine months of
1998, respectively. Additionally, six new Company-operated restaurants added in
1998 and three restaurants added in the first nine months of 1999 contributed to
the increase. Same store comparable sales increased due to selective menu price
increases in 1998 and guest trends toward higher-priced entrees. For the
quarter, a 0.5% increase in comparable customer counts contributed to the
increase in comparable sales. Year to date comparable guest counts decreased
0.7%. The shift in customer preference to higher-priced entrees can be
attributed to the Company's development and promotion of higher-priced menu
items. These increases were partially offset by the closing of two
Company-operated restaurants during 1998 and three stores during 1999.
Revenues from Foxtail increased approximately 12.6% and 10.4% over the three and
nine months ended September 30, 1998, and constituted approximately 9.7% and
8.8%, respectively, of the Company's revenues. The increase for the quarter is
due to bakery promotions throughout the Perkins system. The year to date
increase is due to additional sales of non-Perkins products combined with bakery
promotions throughout the system. The company continues to focus on developing
sales outside the Perkins system in order to maximize plant utilization.
Franchise revenues, which consist primarily of franchise royalties and sales
fees, decreased 3.7% over the third quarter of 1998 and 0.6% over the first nine
months of 1998. The decrease in revenue is due to fewer franchise openings in
1999, reducing the amount of revenue recognized for initial franchise fees.
Three franchise units opened in the third quarter of 1999 versus nine in 1998.
Fourteen franchise units opened in the first nine months of 1999 versus
twenty-five in the first nine months of 1998. The decrease in initial franchise
fees was partially offset by increased royalty revenue. The loss of royalties
from thirty-nine restaurants closed since January 1, 1999 has been replaced by
new restaurants with higher average sales generating higher royalties per store.
Costs and Expenses:
Food cost:
In terms of total revenues, food cost for the three months ended September 30,
1999 was equal to food cost for the same period in the prior year. Food cost for
first nine months decreased 0.5 percentage points over the 1998 period.
Food cost for the quarter was impacted favorably by lower commodity costs for
certain menu items and increased menu prices. Increased food cost related to
changes in menu items sold and bakery promotions offset these positive
variances. For the year, food cost decreased due to selective menu price
increases in 1998 and lower commodity costs. The decreases were partially offset
by the increased costs associated with product upgrades on certain key items.
Additionally, as Foxtail's revenues have increased as a percent of total
revenues, the relatively higher food cost percentages on Foxtail products has
impacted the Company's food cost percentages.
13
<PAGE> 14
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, decreased 0.6 and
increased 0.4 percentage points for the third quarter and nine months ended
September 30, 1999, respectively. The impact of an increased average guest check
on labor and increased productivity in the company's restaurants combined with
improved productivity at Foxtail more than offset average wage rate increases in
the quarter.
Year to date, increases in group health insurance costs, lower productivity and
an increase in average wage rates drove the negative variance versus prior year.
The Company made significant changes to its group health insurance plan in July
1999, which the Company believes will mitigate future increases in certain
employee insurance costs.
The wage rates of the Company's hourly employees are impacted by Federal and
state minimum wage laws. Certain states do not allow tip credits for servers
which results in higher payroll costs as well as greater exposure to increases
in minimum wage rates. In the past, the Company has been able to offset
increases in labor costs through selective menu price increases and improvements
in labor productivity. The Company anticipates that it can offset future
increases in the Federal minimum wage rate through selective menu price
increases. However, there is no assurance that future increases can be mitigated
through raising menu prices.
Operating expenses:
Operating expenses, expressed as a percentage of total revenues, decreased 0.6
and 0.3 percentage points compared to the three and nine months ended September
30, 1998. The elimination of certain outside service expenses and the impact of
an increased guest check average on fixed expenses were the primary reasons for
the decreases from 1998 periods. The decreases were partially offset by
increases in Foxtail distribution costs and increased franchise operating costs.
General and administrative:
General and administrative expenses increased 2.2% and 5.3% over the three and
nine months ended September 30, 1999. This increase is due to higher incentive
costs associated with continued growth in Company performance and the higher
cost of administrative support.
Depreciation and amortization:
Depreciation and amortization expense for the three and nine months ended
September 30, 1999 increased 5.8% and 5.6% over the same periods last year due
primarily to the addition of new Company-operated restaurants and the upgrade
and maintenance of existing restaurants.
Interest, net:
Interest expense for the three and nine months ended September 30, 1999,
decreased 0.8% and increased 7.1%, respectively, over the same periods last
year. Decreased interest expense related to capital leases and lower average
borrowings and lower interest rates on the Company's revolving line of credit
facility contributed to the decrease for the quarter. Interest expense increased
for the nine month period primarily as the result of debt incurred in May 1998
which was used to consummate the Reorganization.
14
<PAGE> 15
Other:
The Company recognized a gain in the second quarter of 1999 totaling $427,000
related to the early termination of a lease obligation. Losses for asset
write-downs totaled $420,000. This loss primarily relates to a property for
which the lease expired in September 1999 for which the Company did not exercise
an available lease option. As a result, the related leasehold improvements were
written off when the decision was made not to renew the lease. In addition,
development of two prospective restaurant sites was discontinued.
Results of operations for the nine months ended September 30, 1999 reflect a
$340,000 cumulative effect of change in accounting principle charge against
earnings, net of income taxes, related to the adoption of SOP 98-5 "Reporting on
the Costs of Start-Up Activities," which requires the costs of start-up
activities to be expensed as incurred. Prior to 1999, the Company deferred new
store preopening costs and amortized them over the twelve months following the
opening of the restaurant.
Results of operations for the nine months ended September 30, 1998 reflect a
$500,000 non-cash charge against earnings related to the write-down of certain
assets impaired under SFAS No. 121. In addition, the Company recorded a net loss
in the prior year of $400,000 related to the disposition of assets; this amount
included a loss of approximately $845,000 on the disposal of two properties and
the recognition of a previously deferred gain of approximately $445,000 under
SFAS No. 66, "Accounting for Sales of Real Estate," related to the sale of
property in 1994.
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the third quarter and first nine months ended
September 30, 1999, were capital expenditures and net payments on the Company's
revolving line of credit. Capital expenditures consisted primarily of
development costs for new Company-operated restaurants and costs related to
remodels and maintenance of existing restaurants. One new restaurant was opened
in the third quarter of 1999 and four sites were under development as of
September 30, 1999, three of which are expected to open before December 31,
1999. The Company's primary source of funding was cash provided by operations.
The following table summarizes capital expenditures for each of the years in the
three-year period ended December 31, 1998 and the nine months ended September
30, 1999 and 1998, respectively (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
--------------------------------- --------------------
1998 1997 1996 1999 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Maintenance $ 4,141 $ 3,453 $ 2,987 $ 3,492 $ 2,590
New sites 12,845 6,193 1,947 6,667 8,805
Manufacturing 1,152 714 651 699 980
Remodeling and Reimaging 4,144 2,790 4,064 3,316 2,785
Other 2,864 1,952 2,212 1,687 3,100
------- ------- ------- ------- -------
Total Capital Expenditures $25,146 $15,102 $11,861 $15,861 $18,260
======= ======= ======= ======= =======
</TABLE>
15
<PAGE> 16
The Company's capital budget for 1999 is $28.0 million. The Company plans to add
up to three additional Company-operated restaurants during the fourth quarter of
1999. The remaining capital budget will be primarily applied to remodels of
existing restaurants, restaurant maintenance, and improvements to the Company's
infrastructure equipment. The primary source of funding for these projects is
expected to be cash provided by operations and borrowings under the Company's
revolving credit facility. Capital spending could vary significantly from
estimated amounts as certain of these expenditures are discretionary in nature.
On December 22, 1997, PFR issued $130,000,000 of 10.125% Unsecured Senior Notes
(the "Notes") due December 15, 2007. The proceeds were used to repay outstanding
senior notes and borrowings under PFR's revolving line of credit, purchase Units
from the public and pay expenses relative to PFR's Going Private Transaction.
PFR maintains a secured $50,000,000 revolving line of credit facility (the
"Credit Facility") with a sublimit for up to $5,000,000 of letters of credit.
The Credit Facility is guaranteed by TRC, PRI, PMC and Perkins Finance Corp., a
wholly-owned subsidiary of PFR, and matures on January 1, 2003, at which time
all amounts become payable. All amounts under the facility bear interest at
floating rates based on the agent's base rate or Eurodollar rates as defined in
the agreement. All indebtedness under the Credit Facility is secured by a first
priority lien on substantially all of the assets of PFR. As of September 30,
1999, $1,500,000 in borrowings and $1,573,000 of letters of credit were
outstanding under the facility.
On May 18, 1998, TRC issued $31,100,000 of 11.25% Senior Discount Notes (the
"TRC Notes") maturing on May 15, 2008. The TRC Notes were issued at a discount
to their principal amount at maturity and generated gross proceeds to TRC of
approximately $18,009,000. The proceeds were used to purchase the shares of TRC
owned by Harrah's and pay expenses relative to the Reorganization.
Cash interest will not accrue or be payable on the TRC Notes prior to May 15,
2003, provided that on any semi-annual accrual date prior to May 15, 2003, TRC
may elect to begin accruing cash interest on the TRC Notes (the "Cash Interest
Election"). Cash interest on the TRC Notes will accrue at a rate of 11.25% per
annum from the earlier of May 15, 2003 or the semi-annual accrual date with
respect to which the Cash Interest Election is made, and will be payable
thereafter on each May 15 and November 15.
Prior to the earlier of May 15, 2003 or the semi-annual accrual date with
respect to which the Cash Interest Election is made, interest on the TRC Notes
will accrue at a rate of 11.25% per annum on each semi-annual accrual date and
the principal amount of each TRC Note will accrete by the amount of such accrued
interest (the "Accreted Value"). On May 15, 2003, TRC will be required to pay
all accrued but unpaid interest on the TRC Notes by redeeming an amount per note
equal to the Accreted Value of such TRC Note on May 15, 2003, less the issue
price of such TRC Note at a redemption price of 105.625% of the amount redeemed.
Assuming TRC does not make the Cash Interest Election, the aggregate Accreted
Value of the TRC Notes on May 15, 2003 will be $31,100,000 and the amount
required to be redeemed will be approximately $13,091,000.
Prior to the consummation of the Going Private Transaction, PFR had paid regular
quarterly cash distributions to its holders of units of limited partnership
interest. PFR expects to pay distributions to its general partner and limited
partners sufficient to satisfy estimated tax liabilities of its partners arising
out of the allocation of taxable income or gain from PFR and to pay interest on
the TRC Notes.
16
<PAGE> 17
The Notes and the Credit Facility restrict the ability of PFR to pay dividends
or distributions to its equity holders. For the three and nine months ended
September 30, 1999, PFR made Tax Distributions totaling approximately $1,667,000
and $3,761,000, respectively, to its equity holders, all of whom are direct or
indirect wholly-owned subsidiaries of TRC.
The TRC Notes restrict the ability of TRC to pay dividends or distributions to
its equity holders as well.
TRC's and PFR's ability to make scheduled payments of principal of, or to pay
the interest or liquidated damages, if any, on, or to refinance, their
respective indebtedness, or to fund planned capital expenditures will depend on
the Company's future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond their control. Based upon the current level of
operations, management believes that cash flow from operations and available
cash, together with available borrowings under the Credit Facility, will be
adequate to meet the Company's liquidity needs for the foreseeable future. PFR
and TRC may, however, need to refinance all or a portion of the principal of the
TRC Notes and the Notes on or prior to maturity. There can be no assurance that
the Company will generate sufficient cash flow from operations, or that future
borrowings will be available under the Credit Facility in an amount sufficient
to enable TRC and PFR to service their respective indebtedness or to fund their
other liquidity needs. In addition, there can be no assurance that TRC and PFR
will be able to effect any such refinancing on commercially reasonable terms or
at all.
All significant operations of TRC are conducted through PFR. TRC's ability to
meet its obligations as they mature is primarily dependent on PFR's ability to
make distributions to TRC. Management currently believes that the distributions
allowed under the Credit Facility and the 10.125% Senior Note Indenture will be
adequate to allow TRC to meet its obligations for the foreseeable future.
However, there can be no assurance that PFR's future income will be sufficient
to allow for distributions in an amount required to meet all future obligations
of TRC.
The Company is exploring the possibility of acquiring all of the outstanding
stock of the Company not owned by Donald N. Smith for approximately $47.2
million. Any such transaction would be subject to the Company's ability to
finance the transaction which it would do through a combination of the issuance
of additional equity securities and debt. Any such transaction also would be
subject to the terms of the Credit Facility and bond indentures of PFR and TRC.
YEAR 2000
The Year 2000 presents a critical business issue due to the possibility that
many computerized systems will not be able to process information including
dates beginning in the Year 2000. In recent years, the Company has upgraded
computer hardware and software in the normal course of business to Year 2000
compliant technology. A review of computer systems and software, including
non-information technology systems, has been completed. No material costs
associated with achieving Year 2000 compliance internally have been experienced
or are anticipated based on this review.
17
<PAGE> 18
The nature of the Company's business is such that the ability of outside vendors
to supply the Company's restaurants with food and related products and
preparedness of the Company's franchisees to appropriately assess and address
Year 2000 business risks represent the primary risks to the Company from third
parties. In response to these risks, questionnaires have been sent to all of the
Company's primary vendors to obtain reasonable assurances that adequate plans
have been developed to address the Year 2000 issue. The returned questionnaires
have been assessed by the Company. Based on these responses, the Company has no
reason to believe that significant business risks exist; however, the responses
do not provide any guarantees that unidentified failures by critical vendors
will not occur.
The Company's franchisees have been provided with information regarding the
potential business risks associated with the Year 2000 issue. The Year 2000
readiness of significant franchisees has been assessed and, although the Company
cannot provide assurance as to their readiness, no significant risks have been
identified. However, failures by significant franchisees could result in a
material adverse effect on the Company's operations. To mitigate exposure for
both Company-owned and franchised restaurants, the Company is developing
contingency plans to assist restaurant personnel in providing for quick response
and, if necessary, limited service in those restaurants that do experience
interruptions of service from critical vendors.
Unless public suppliers of water, electricity and natural gas are disrupted for
a substantial period of time (in which case the Company's business will be
materially adversely affected), based on information currently available,
management believes the most reasonably likely worst case scenario related to
Year 2000 compliance would not have a material impact on its financial position
or results of operations. However, unanticipated failures by critical vendors or
franchisees, as well as unidentified internal failures, could result in a
material adverse effect on the Company's operations. As a result, management
cannot reasonably predict what impact, if any, Year 2000 issues will have on the
Company.
SEASONALITY
Company revenues are subject to seasonal fluctuations. Customer traffic, and
consequently revenues, are highest in the summer months and lowest during the
winter months because of the high proportion of restaurants located in states
where inclement weather adversely affects guest visits.
Forward-Looking Statements
This discussion and the discussion following contain forward-looking statements
within the meaning of The Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations that are subject to
known and unknown risks, uncertainties and other factors that could cause actual
results to differ materially from those contemplated by the forward-looking
statements. Such factors include, but are not limited to, the following: general
economic conditions, competitive factors, consumer taste and preferences,
adverse weather conditions, group health insurance costs, minimum wage rate
increases, availability and costs of commodities, interest rates and credit
availability. The Company does not undertake to publicly update or revise the
forward-looking statements even if experience or future changes make it clear
that the projected results expressed or implied therein will not be realized.
18
<PAGE> 19
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company currently has market risk sensitive instruments related to interest
rates. The Company is not subject to significant exposure for changing interest
rates on the Notes or the TRC Notes because the interest rates are fixed. PFR
has in place a $50,000,000 line of credit facility which matures on January 1,
2003. All borrowings under the facility bear interest at floating rates based on
the agent's base rate or Eurodollar rates. PFR had $1,500,000 outstanding under
the line of credit facility at September 30, 1999. While changes in market
interest rates would affect the cost of funds borrowed in the future, the
Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's consolidated financial position,
results of operations or cash flows would not be material.
Commodity Price Risk
Many of the food products purchased by the Company are affected by commodity
pricing and are therefore subject to price volatility caused by weather,
production problems, delivery difficulties and other factors which are outside
the control of the Company. The majority of the Company's supplies and raw
materials are available from several sources and the Company is not dependent
upon any single source for these items. If any existing suppliers fail, or are
unable to deliver in quantities required by the Company, the Company believes
that there are sufficient other quality suppliers in the marketplace that its
sources of supply can be replaced as necessary. At times, the Company enters
into purchase contracts of one year or less or purchases bulk quantities for
future use of certain items in order to control commodity pricing risks. Certain
significant items that could be subject to price fluctuations are beef, pork,
coffee, eggs, vegetable oils, wheat products and corn products. The Company
believes it will be able to pass through increased commodity costs by adjusting
menu pricing in most cases. Additionally, the Company's product offerings and
marketing events are relatively diverse. Therefore the company has the
flexibility to adjust its product mix to take advantage of or limit exposure to
commodity cost fluctuations. The Company believes that any reasonably possible
near-term changes in commodity pricing which cannot be offset by changes in menu
pricing, or other product delivery strategies, would not be material.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 5. Other Information
In October 1999, TRC Realty terminated its lease for an aircraft with GE Capital
Corporation which originally expired in May 2004. In November 1999, TRC Realty
entered into a lease with GE Capital Corporation for a new aircraft expiring in
November 2009.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Reference is made to the Index of Exhibits attached hereto as
page 21 and made a part hereof.
(b) Reports on Form 8-K - None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RESTAURANT COMPANY
DATE: November 15, 1999 BY: /s/ Steven R. McClellan
---------------------- -----------------------------------
Steven R. McClellan
Vice President,
Chief Financial Officer
20
<PAGE> 21
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Airplane lease between TRC Realty and
GE Capital Corporation
27 Financial Data Schedule
</TABLE>
21
<PAGE> 1
EXHIBIT 10.1
AIRCRAFT LEASE AGREEMENT
dated as of NOVEMBER 9, 1999 ("AGREEMENT")
This Agreement (together with all supplements, annexes, exhibits and schedules
hereto hereinafter referred to as the "LEASE") is between GENERAL ELECTRIC
CAPITAL CORPORATION, with an office at 44 OLD RIDGEBURY ROAD, DANBURY, CT
06810-5105 (together with its successors and assigns, if any "LESSOR") and TRC
REALTY CO., a corporation organized and existing under the laws of the State of
Vermont with its mailing address and chief place of business at 6075 POPLAR
AVENUE, SUITE 800, MEMPHIS, TN 38119 4709 (hereinafter called "LESSEE").
1. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft, including
the airframe, engines and all appurtenant equipment (together hereinafter the
"AIRCRAFT") described in Annex A.
(b) Lessor shall purchase the Aircraft from the manufacturer or supplier
thereof ("SUPPLIER") and lease it to Lessee if on or before the Last Delivery
Date (specified in Annex B) Lessor receives each of the following documents in
form and substance satisfactory to Lessor: (i) a copy of this Lease executed by
Lessee, (ii) unless Lessor shall have delivered its purchase order for the
Aircraft or received a bill of sale for the Aircraft in the name of Lessor (and
in form and substance satisfactory to Lessor), the Purchase Document(s)
Assignment and Consent in the form of Annex C, with copies of the purchase order
or other purchase documents attached thereto; (iii) copies of insurance policies
or, at Lessor's option, such other evidence of insurance which complies with the
requirements of Section 10, (iv) evidence of an N number for the Aircraft
together with an assignment of the rights thereto to Lessor; (v) evidence that
the Aircraft has been duly certified as to type and airworthiness by the Federal
Aviation Administration ("FAA"); (vi) evidence that Lessor's designated FAA
escrow agent (which may be FAA counsel) has received in escrow the executed bill
of sale and AC Form 8050-1 Aircraft Registration Form (except for the pink copy
which shall be available to be placed on the Aircraft upon acceptance thereof),
and an executed duplicate of this Lease all in proper form for filing with the
FAA; (vii) resolution of Lessee authorizing this Lease in the form of Annex D;
(viii) a completed inspection and/or survey with respect to the Aircraft in
accordance with the requirements set forth in the Certificate of Acceptance; and
(ix) such other documents as Lessor may reasonably request. Lessor's obligation
to lease the Aircraft hereunder is further conditioned upon (1) the cost to
Lessor of the acquisition of the Aircraft not exceeding the Capitalized Lessor's
Cost stated on Annex A; (2) upon delivery of the Aircraft, Lessee's execution
and delivery to Lessor of a Certificate of Acceptance in the form of Annex E;
and (3) filing of all necessary documents with, and the acceptance thereof by,
the FAA.
(c) Lessor hereby appoints Lessee its agent for inspection and acceptance
of the Aircraft from the Supplier. Once the Certificate of Acceptance has been
signed, Lessee may not cancel this Lease.
2. TERM, RENT AND PAYMENT:
(a) The rent ("RENT") payable for the Aircraft and Lessee's right to use
the Aircraft begins on the date Lessee signs the Certificate of Acceptance
("COMMENCEMENT DATE"). The term ("TERM") of this Lease shall commence on the
Commencement Date and shall continue, unless earlier terminated pursuant to the
provisions of this Lease, until and including the Expiration Date stated in
Annex B. If any Term is extended or renewed, the word "TERM" shall be deemed to
refer to all extended or renewal Terms, and all provisions of this Lease shall
apply during any such extension or renewal Terms, except as may be otherwise
specifically provided in writing.
(b) Lessee shall pay rent to Lessor at its address stated above, except as
otherwise directed by Lessor. Rent payments shall be in the amount, payable at
such intervals and due in accordance with the provisions of Annex B. (Each
payment of Rent is hereinafter referred to as a "RENT PAYMENT".) If one or more
Advance Rent is payable, such Advance Rent shall be (i) set forth on Annex B and
due in accordance with the provisions of Annex B, and (ii) when received by
Lessor, applied to the first Basic Term for Rent Payment as set forth on Annex B
and the balance, if any, to the final Rent Payment(s), in inverse order of
maturity. In no event shall any Advance Rent or any other Rent Payment be
refunded to Lessee. If Rent is not paid within fifteen (15) days of its due
date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and
in addition to, the amount of such Rent but not exceeding the lawful maximum, if
any.
3. RENT ADJUSTMENT:
(a) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986, as amended, ("CODE")), the maximum
effective corporate income tax rate (exclusive of any minimum tax rate) for
calendar-year taxpayers ("EFFECTIVE RATE") is higher than thirty-five percent
(35%) for any year during the Term of this Lease, then Lessor shall have the
right to increase such rent payments by requiring payment of a single additional
sum. The additional sum shall be equal to the product of (i) the Effective Rate
(expressed as a decimal) for such year less .35 (or, in the event that any
adjustment has been made hereunder for any previous year, the Effective Rate
(expressed as a decimal) used in calculating the next previous adjustment) times
(ii) the adjusted Termination Value (defined below) divided by (iii) the
difference between the new Effective Rate (expressed as a decimal) and one (1).
The adjusted Termination Value shall be the Termination Value (calculated as of
the first rental due in the year for which such adjustment is being made) minus
the Tax Benefits that would be allowable under Section 168 of the Code (as of
the first day of the year for which such adjustment is being made and all future
years of the lease term). The Termination Values are defined on Annex F and the
Tax Benefits are defined on Annex B. Lessee shall pay to Lessor the full amount
of the additional rent payment on the later of (i) receipt of notice or (ii) the
first day of the year for which such adjustment is being made.
(b) Lessee's obligations under this Section 3 shall survive any expiration
or termination of this Agreement.
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<PAGE> 2
4. TAXES AND FEES: If permitted by law, Lessee shall report and pay promptly all
taxes, fees and assessments due, imposed, assessed or levied against the
Aircraft (or purchase, ownership, delivery, leasing, possession, use or
operation thereof), this Agreement (or any rents or receipts hereunder), any
Schedule, Lessor or Lessee, by any domestic or foreign governmental entity or
taxing authority during or related to the term of this Agreement, including,
without limitation, all license and registration fees, and all sales, use,
personal property, excise, gross receipts, franchise, stamp, value added, custom
duties, landing fees, airport charges, navigation service charges, route
navigation charges or other taxes, imposts, duties and charges, together with
any penalties, fines or interest thereon (collectively "TAXES"). Lessee shall
have no liability for Taxes imposed by the United States of America or any state
or political subdivision thereof which are on or measured by the net income of
Lessor except as provided in Sections 3 and 14(c). Lessee shall promptly
reimburse (on an after tax basis) Lessor for any Taxes charged to or assessed
against Lessor. Lessee shall show Lessor as the owner of the Aircraft on all tax
reports or returns, and send Lessor a copy of each report or return and evidence
of Lessees payment of Taxes upon request.
5. REPORTS: Lessee will provide Lessor with the following in writing within the
time periods specified: (a) notice of any tax or other lien which attaches to
the Aircraft and the full particulars of the tax or lien, within ten (10) days
after Lessee becomes aware of the tax or lien, (b) complete financial statements
of The Restaurant Company and subsidiaries ("TRC"), certified by a recognized
firm of certified public accountants, within ninety (90) days of the close of
each fiscal year of TRC, and any further financial information or reports, upon
request; (c) notice to Lessor of the Aircraft's location, and the location of
all information, logs, documents and records relating to the Aircraft and its
use, maintenance and/or condition, immediately upon request; (d) notice to
Lessor of the relocation of the Aircraft's primary hangar location, ten (10)
days prior to any relocation; (e) notice of loss or damage to the Aircraft which
would cost more than the lesser of (i) ten percent (10%) of the original
Capitalized Lessor's Cost or (ii) two hundred fifty thousand Dollars
($250,000.00) to repair or replace, within ten (10) days of such loss or damage;
(f) notice of any accident involving the Aircraft causing personal injury or
property damage, within ten (10) days of such accident; (g) copies of the
insurance policies or other evidence of insurance required by the terms hereof,
promptly upon request by Lessor; (h) copies of all information, logs, documents
and records relating to the Aircraft and its use, maintenance and/or condition,
within ten (10) days of such request; (i) on each annual anniversary of the
Commencement Date of this Lease, a certificate of the authorized officer of
Lessee stating that he has reviewed the activities of Lessee and that, to the
best of his knowledge, there exists no Event of Default or event which with
notice or lapse of time (or both) would become an Event of Default; (j) such
information as may be required to enable Lessor to file any reports required by
any governmental authority as a result of Lessor's ownership of the Aircraft,
promptly upon request of Lessor; (k) copies of any manufacturer's maintenance
service program contract for the airframe or engines, promptly upon request by
Lessor; (l) evidence of Lessee's compliance with FAA airworthiness directives
and advisory circulars and of compliance with other maintenance provisions of
Section 7 hereof and the return provisions of Section 11, promptly upon request
of Lessor; and (m) such other reports as Lessor may reasonably request.
6. DELIVERY, REGISTRATION, USE AND OPERATION:
(a) The Aircraft shall be delivered directly from the Supplier to Lessee
unless the Aircraft is being leased pursuant to a sale leaseback transaction in
which case Lessee acknowledges that it is in possession of the Aircraft as of
the Lease Commencement Date.
(b) Lessee, at its own cost and expense, shall cause the Aircraft to be
duly registered in the name of Lessor under the Title 49, Subtitle VII of the
United States Code, as amended (the "FAA ACT"), and shall not register the
Aircraft under the laws of any other country.
(c) The possession, use and operation of the Aircraft shall be at the sole
risk and expense of Lessee. Lessee acknowledges that it accepts full operational
control of the Aircraft. Lessee agrees that the Aircraft will be used and
operated in compliance with any and all statutes, laws, ordinances, regulations
and standards or directives issued by any governmental agency applicable to the
use or operation thereof, in compliance with any airworthiness certificate,
license or registration relating to the Aircraft issued by any agency and in a
manner that does not modify or impair any existing warranties on the Aircraft or
any part thereof. Lessee will operate the Aircraft predominantly in the conduct
of its business and will not use or operate, or permit the Aircraft to be used
or operated, (i) in violation of any United States export control law, (ii) in a
manner wherein the predominant use during any twelve month period is for a
purpose other than transportation for Lessee, or in a manner, for any time
period, such that Lessor or a third party shall be deemed to have "operational
control" of the Aircraft, or (iii) for the carriage of persons or property for
hire or the transport of mail or contraband. The Aircraft will, at all times be
operated by duly qualified pilots holding at least a valid commercial pilot
certificate and instrument rating and any other certificate, rating, type rating
or endorsement appropriate to the Aircraft, purpose of flight, condition of
flight or as otherwise required by the Federal Aviation Regulations ("FAR"). The
Aircraft's pilots shall be employed and/or paid and contracted for by Lessee,
shall meet all recency of flight requirements and shall meet the requirements
established and specified by the insurance policies required under this Lease
and the FAA. The primary hangar location of the Aircraft shall be as stated in
Annex B. Lessee shall not relocate the primary hangar location to a hangar
location outside the United States. Lessor may examine and inspect the Aircraft,
wherever located, on land and in flight, after giving Lessee reasonable prior
notice.
(d) AT ALL TIMES DURING THE TERM OF THE LEASE, THE AIRCRAFT WILL BE
LOCATED AND USED SOLELY WITHIN THE CONTINENT OF NORTH AMERICA AND THE CARIBBEAN.
(i) AT ALL TIMES DURING THE TERM OF THE LEASE, LESSEE AGREES NOT TO
OPERATE OR LOCATE THE AIRCRAFT, OR ALLOW THE AIRCRAFT TO BE OPERATED OR LOCATED,
IN OR OVER ANY AREA OF HOSTILITIES, ANY GEOGRAPHIC AREA WHICH IS NOT COVERED BY
THE INSURANCE POLICIES REQUIRED BY THIS LEASE, OR ANY COUNTRY OR JURISDICTION
FOR WHICH EXPORTS OR TRANSACTIONS ARE SUBJECT TO SPECIFIC RESTRICTIONS UNDER ANY
UNITED STATES EXPORT OR OTHER LAW OR UNITED NATIONS SECURITY COUNCIL DIRECTIVE,
INCLUDING WITHOUT LIMITATION, THE TRADING WITH THE ENEMY ACT, 50 U.S.C. APP.
SECTIONS 1 ET SEQ., THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT, 50 U.S.C.
APP. SECTIONS 1701 ET SEQ., AND THE EXPORT ADMINISTRATION ACT, 50 U.S.C. APP.
SECTIONS 2401 ET SEQ. OR TO OTHERWISE VIOLATE, OR PERMIT THE VIOLATION OF, SUCH
LAWS OR DIRECTIVES. LESSEE ALSO AGREES TO PROHIBIT ANY NATIONAL OF SUCH
RESTRICTED NATIONS FROM OPERATING THE AIRCRAFT.
(ii) Lessee represents and warrants that it does not on this date hold
a contract or other obligation to operate the Aircraft in any of the following
countries: Cuba, Iraq, Libya, Myanmar, North Korea, and the Federal Republic of
Yugoslavia (Serbia and Montenegro).
(iii) The engines set forth on Annex A shall be used only on the
airframe described in Annex A and shall only be removed for maintenance in
accordance with the provisions of this Lease.
(e) Lessor shall not disturb Lessees quiet enjoyment of the Aircraft
during the Term of this Lease unless an Event of Default has occurred and is
continuing under this Lease.
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<PAGE> 3
7. MAINTENANCE:
(a) Lessee agrees that the Aircraft will be maintained in compliance with
any and all statutes, laws, ordinances, regulations and standards or directives
issued by any governmental agency applicable to the maintenance thereof, in
compliance with any airworthiness certificate, license or registration relating
to the Aircraft issued by any agency and in a manner that does not modify or
impair any existing warranties on the Aircraft or any part thereof.
(b) Lessee shall maintain, inspect, service, repair, overhaul and test the
Aircraft (including each engine) in accordance with (i) all maintenance manuals
initially furnished with the Aircraft, including any subsequent amendments or
supplements to such manuals issued by the manufacturer from time to time, (ii)
all mandatory or otherwise required "SERVICE BULLETINS" issued, supplied, or
available by or through the manufacturer and/or the manufacturer of any engine
or part with respect to the Aircraft, (iii) all airworthiness directives
applicable to the Aircraft issued by the FAA or similar regulatory agency having
jurisdictional authority, and causing compliance to such directives to be
completed through corrective modification in lieu of operating manual
restrictions, and (iv) all maintenance requirements set forth in Annex G hereto.
Lessee shall maintain all records, logs and other materials required by the
manufacturer for enforcement of any warranties or by the FAA. All maintenance
procedures required hereby shall be undertaken and completed in accordance with
the manufacturer's recommended procedures, and by properly trained, licensed,
and certificated maintenance sources and maintenance personnel, so as to keep
the Aircraft and each engine in as good operating condition as when delivered to
Lessee hereunder, ordinary wear and tear excepted, and so as to keep the
Aircraft in such operating condition as may be necessary to enable the
airworthiness certification of such Aircraft to be maintained in good standing
at all times under the FAA Act.
(c) Lessee agrees, at its own cost and expense, to (i) cause the Aircraft
and each engine thereon to be kept numbered with the identification in serial
number therefor as specified in Annex A; (ii) prominently display on the
Aircraft that N number, and only that N number, specified in Annex A; and (iii)
notify Lessor in writing thirty (30) days prior to making any change in the
configuration (other than changes in configuration mandated by the FAA),
appearance and coloring of the Aircraft from that in effect at the time the
Aircraft is accepted by Lessee hereunder, and in the event of such change or
modification of configuration, coloring or appearance, to restore, upon request
of Lessor, the Aircraft to the configuration, coloring or appearance in effect
on the Commencement Date or, at Lessor's option to pay to Lessor an amount equal
to the reasonable cost of such restoration. Lessee will not place the Aircraft
in operation or exercise any control or dominion over the same until such
Aircraft marking has been placed thereon. Lessee will replace promptly any such
Aircraft marking which may be removed, defaced or destroyed.
(d) Lessee shall be entitled from time to time during the Term of this
Lease to acquire and install on the Aircraft at Lessee's expense, any additional
accessory, device or equipment as Lessee may desire (each such accessory, device
or equipment, an "ADDITION"), but only so long as such Addition (i) is ancillary
to the Aircraft; (ii) is not required to render the Aircraft complete for its
intended use by Lessee; (iii) does not alter or impair the originally intended
function or use of the Aircraft; and (iv) can be readily removed without causing
material damage. Title to each Addition which is not removed by Lessee prior to
the return of the Aircraft to Lessor shall vest in Lessor upon such return.
Lessee shall repair all damage to the Aircraft resulting from the installation
or removal of any Addition so as to restore the Aircraft to its condition prior
to installation, ordinary wear and tear excepted.
(e) Any alteration or modification (each an "ALTERATION") with respect to
the Aircraft that may at any time during the Term of this Lease be required to
comply with any applicable law or any governmental rule or regulation shall be
made at the expense of Lessee. Any repair made by Lessee of or upon the Aircraft
or replacement parts, including any replacement engine, installed thereon in the
course of repairing or maintaining the Aircraft, or any Alteration required by
law or any governmental rule or regulation, shall be deemed an accession, and
title thereto shall be immediately vested in Lessor without cost or expense to
Lessor.
(f) Except as permitted under this Section 7, Lessee will not modify the
Aircraft or affix or remove any accessory to the Aircraft leased hereunder.
(g) If the Aircraft is to be operated at any time under Part 135 with the
prior written consent of Lessor, then the Aircraft shall be maintained and
operated in accordance with the applicable Part 135 standards.
8. LIENS, SUBLEASE AND ASSIGNMENT:
(a) LESSEE SHALL NOT SELL, TRANSFER, ASSIGN OR ENCUMBER THE AIRCRAFT, ANY
ENGINE OR ANY PART THEREOF, LESSOR'S TITLE OR ITS RIGHTS UNDER THIS LEASE.
LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUBLET, CHARTER
OR PART WITH POSSESSION OF THE AIRCRAFT OR ANY ENGINE OR PART THEREOF OR ENTER
INTO ANY INTERCHANGE AGREEMENT WITHOUT THE WRITTEN CONSENT OF LESSOR WHICH WILL
NOT BE UNREASONABLY WITHHELD; PROVIDED, HOWEVER, THAT LESSEE MAY ASSIGN ITS
RIGHTS IN THE AIRCRAFT AND THIS LEASE TO THE RESTAURANT COMPANY OR ANY OF ITS
SUBSIDIARIES UPON GIVING LESSOR NOT LESS THAN FORTY FIVE (45) DAYS PRIOR WRITTEN
NOTICE OF SUCH ASSIGNMENT, AND IN SUCH EVENT LESSEE AND THE RESTAURANT COMPANY
WILL SIGN SUCH ASSIGNMENT DOCUMENTATION AS LESSOR MAY REASONABLY REQUEST,
INCLUDING WITHOUT LIMITATION ANY GUARANTIES OR REAFFIRMATIONS THEREOF. Lessee
shall not permit any engine to be used on any other Aircraft. Lessee shall keep
the Aircraft each engine and any part thereof free and clear of all liens and
encumbrances other than those which result from (i) the respective rights of
Lessor and Lessee as herein provided; (ii) liens arising from the acts of
Lessor; (iii) liens for taxes not yet due; and (iv) inchoate materialmen's,
mechanics', workmen's, repairmen's, employees' or other like liens arising in
the ordinary course of business of Lessee for sums not yet delinquent or being
contested in good faith (and for the payment of which adequate assurances in
Lessor's judgment have been provided Lessor).
(b) Lessor and any assignee of Lessor may assign this Lease, or any part
hereof and/or the Aircraft. Lessee hereby waives and agrees not to assert
against any such assignee, or assignee's assigns, any defense, set-off,
recoupment claim or counterclaim which Lessee has or may at any time have
against Lessor for any reason whatsoever.
9. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and shall bear
the entire risk of any loss, theft, confiscation, expropriation, requisition,
damage to, or destruction of, the Aircraft, any engine or part thereof from any
cause whatsoever. If for any reason the Aircraft, or any engine thereto becomes
worn out, lost, stolen, confiscated, expropriated, requisitioned, destroyed,
irreparably damaged, or unusable ("CASUALTY OCCURRENCES") Lessee shall promptly
and fully notify Lessor in writing. If, in the opinion of Lessor, a Casualty
Occurrence has occurred which affects only the engine(s) of the Aircraft, then
Lessee, at its own cost and expense, shall replace such engine(s) with an
engine(s) acceptable to Lessor and shall cause title to such engine(s) to be
transferred to Lessor for lease to Lessee under this Lease. Upon transfer of
title to Lessor of such engine(s), such engine(s) shall be subject to the terms
and conditions of this Lease, and Lessee shall execute whatever documents or
filings Lessor deems necessary and appropriate in connection with the
substitution of such replacement engine(s) for
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the original engine(s). If, in the opinion of Lessor, a Casualty Occurrence has
occurred with respect to the Aircraft in its entirety, on the next Rent Payment
Date after a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor
the sum of (i) the Stipulated Loss Value as set forth in Annex F calculated as
of the Rent Payment Date prior to such Casualty Occurrence; and (ii) all Rent
and other amounts which are due under this Lease as of the Payment Date. Upon
payment of all sums due hereunder, the Term of this Lease as to the Aircraft
shall terminate.
10. INSURANCE: Lessee shall secure and maintain in effect at its own expense
throughout the Term of the Lease insurance against such hazards and for such
risks as Lessor may require. All such insurance shall be with companies
satisfactory to Lessor. Without limiting the generality of the foregoing, Lessee
shall maintain (i) liability insurance covering public liability and property,
cargo and environmental damage (against hazards and risks as is generally
available in the industry with respect to like Aircraft), in amounts not less
than fifty (50) million U.S. dollars for any single occurrence, (ii) all-risk
aircraft hull and engine insurance (including, without limitation, foreign
object damage insurance) in an amount which is not less than the then Stipulated
Loss Value, and (iii) confiscation, expropriation and war risk insurance. All
insurance shall: (1) name Lessor as owner of the Aircraft and as loss payee and
additional insured (without responsibility for premiums), (2) provide that any
cancellation or substantial change in coverage shall not be effective as to the
Lessor for thirty (30) days after receipt by Lessor of written notice from the
insurer of such cancellation or change, (3) insure Lessor's interest regardless
of any breach of warranty or other act or omission of Lessee, (4) include a
severability of interest clause providing that such policy shall operate in the
same manner as if there were a separate policy covering each insured, (5) waive
any right of set-off against Lessee or Lessor, and any rights of subrogation
against Lessor, and (6) be primary and not be subject to any offset by any other
insurance carried by Lessor or Lessee. Upon the occurrence of an Event of
Default, Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make
proof of loss and claim for and to receive payment of and to execute or endorse
all documents, checks or drafts in connection with all policies of insurance in
respect of the Aircraft. Lessor shall not act as Lessees attorney-in-fact unless
Lessee is in default. Lessee shall pay any reasonable expenses of Lessor in
adjusting or collecting insurance proceeds. Lessor may, at its option, apply
proceeds of insurance, in whole or in part, to (A) repair the Aircraft, or
repair or replace any part thereof, or (B) satisfy any obligation of Lessee to
Lessor under this Lease.
11. RETURN OF AIRCRAFT:
(a) At expiration or termination of this Lease (the "RETURN DATE"), Lessee
shall return the Aircraft to Lessor, at a location within the continental United
States as Lessor shall direct. Lessee shall also return all logs, loose
equipment, manuals and data associated with the Aircraft, including without
limitation, inspection, modification and overhaul records required to be
maintained with respect to the Aircraft under this Lease or under the applicable
rules and regulations of the FAA or the manufacturer's recommended maintenance
program, along with a currently effective FAA airworthiness certificate. Lessee
shall, upon request, assign to Lessor its rights under any manufacturer's
maintenance service contract or extended warranty for the Aircraft, any engine
or part thereof. The Aircraft shall be returned in the condition in which the
Aircraft is required to be maintained pursuant to Section 7, but with all logos
or other identifying marks of Lessee removed. Additionally, Lessee shall ensure
that the Aircraft complies with all requirements and conditions set forth on
Annex G hereto. Lessee shall pay for all costs to comply with this Section
11(a).
(b) Lessor shall arrange for the inspection of the Aircraft on the Return
Date to determine if the Aircraft has been maintained and returned in accordance
with the provisions of this Lease. Lessee shall be responsible for the cost of
such inspection and shall pay Lessor such amount as additional Rent within ten
(10) days of demand. If the results of such inspection indicate that the
Aircraft, any engine thereto or part thereof, has not been maintained or
returned in accordance with the provisions of this Lease, Lessee shall pay to
Lessor within ten (10) days of demand, as liquidated damages, the estimated cost
("ESTIMATED COST") of servicing or repairing the Aircraft, engine or part. The
Estimated Cost shall be determined by Lessor by obtaining two quotes for such
service or repair work and taking their average. Lessee shall bear the cost, if
any, incurred by Lessor in obtaining such quotes.
(c) If Lessee fails to return the Aircraft on the Return Date, Lessor
shall be entitled to damages equal to the higher of (i) the Rent for the
Aircraft, pro-rated on a per diem basis, for each day the Aircraft is retained
beyond the Return Date; or (ii) the daily fair market rental for the Aircraft at
the Return Date. Such damages for retention of the Aircraft after the Return
Date shall not be interpreted as an extension or reinstatement of the Term.
(d) All of Lessor's rights contained in this Section shall survive the
expiration or other termination of this Lease.
12. EVENTS OF DEFAULT AND REMEDIES:
(a) The term "Event of Default", wherever used herein, shall mean any of
the following events under this Lease: (i) Lessee breaches its obligation to pay
Rent or any other sum when due and fails to cure the breach within ten (10) days
after receiving written notice from Lessor; or (ii) Lessee breaches any of its
insurance obligations under Section 10; or (iii) Lessee breaches any of its
other obligations and fails to cure that breach within thirty (30) days after
written notice from Lessor to Lessee; or (iv) any representation or warranty
made by Lessee in connection with this Lease shall be false or misleading in any
material respect; or (v) Lessee or any guarantor or other obligor for any of the
obligations hereunder (collectively "GUARANTOR") becomes insolvent or ceases to
do business as a going concern; or (vi) a petition is filed by or against Lessee
or any Guarantor under any bankruptcy, insolvency or similar laws and in the
event of an involuntary petition, the petition is not dismissed within
forty-five (45) days of the filing date; or (vii) if Lessee or any Guarantor is
a natural person, any death or incompetency of Lessee or such Guarantor; or
(viii) Lessee breaches or is in default under any other agreement by and between
Lessor and Lessee.
(b) Upon the occurrence of any Event of Default and so long as the same
shall be continuing, Lessor may, at its option, at any time thereafter, exercise
one or more of the following remedies, as Lessor in its sole discretion shall
lawfully elect: (i) demand that Lessee immediately pay as liquidated damages,
for loss of a bargain and not as a penalty, an amount equal to the Stipulated
Loss Value of the Aircraft, computed as of the Basic Term Rent Date prior to
such demand together with all Rent and other amounts due and payable for all
periods up to and including the Basic Term Rent Date following such demand; (ii)
demand that Lessee pay all amounts due for failure to maintain or return the
Aircraft as provided herein and cause Lessee to assign to Lessor Lessee's rights
under any manufacturer's service program contract or any extended warranty
contract in force for the Aircraft; (iii) proceed by appropriate court action,
either at law or in equity, to enforce the performance by Lessee of the
applicable covenants of this Lease or to recover damages for breach hereof; (iv)
by notice in writing terminate this Lease, whereupon all rights of Lessee to use
of the Aircraft or any part thereof shall absolutely cease and terminate, and
Lessee shall immediately return the Aircraft in accordance with Section 11, but
Lessee shall remain liable as provided in Section 11; (v) request Lessee to
return the Aircraft to a designated location in accordance with Section 11; (vi)
peacefully enter the premises where the Aircraft may be and take possession of
the Aircraft; (vii) sell or otherwise dispose of the Aircraft at private or
public sale, in bulk or in parcels, with or without notice, and without having
the Aircraft present at the place of sale; (viii) lease or keep idle all or part
of the Aircraft; (ix) use
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Lessee's premises for storage pending lease or sale or for holding a sale
without liability for rent or costs; (x) collect from Lessee all costs, charges
and expenses, including reasonable legal fees and disbursements, incurred by
Lessor by reason of the occurrence of any Event of Default or the exercise of
Lessor's remedies with respect thereto; and/or (xi) declare any Event of Default
under the terms of this Lease to be a default under any other agreement between
Lessor and Lessee.
(c) Lessor shall have the right to any proceeds of sale, lease or other
disposition of the Aircraft, if any, and shall have the right to apply same in
the following order of priorities: (i) to pay all of Lessor's costs, charges and
expenses incurred in enforcing its rights under this Lease or in taking,
removing, holding, repairing, selling, leasing or otherwise disposing of the
Aircraft; then, (ii) to the extent not previously paid by Lessee, to pay Lessor
all sums due from Lessee under this Lease; then (iii) to reimburse to Lessee any
sums previously paid by Lessee as liquidated damages; and (iv) any surplus shall
be retained by Lessor. Lessee shall pay any deficiency in (i) and (ii)
immediately.
(d) The foregoing remedies are cumulative, and any or all thereof may be
exercised instead of or in addition to each other or any remedies at law, in
equity, or under statute Waiver of any Event of Default shall not be a waiver of
any other or subsequent Event of Default.
13. NET LEASE:
Lessee is unconditionally obligated to pay all rent and other amounts due
for the entire Term of this Lease no matter what happens, even if the Aircraft
is damaged or destroyed, if it is defective or if Lessee no longer can use it.
Lessee is not entitled to reduce or set-off against rent or other amounts due to
Lessor or to anyone to whom Lessor assigns this Lease whether Lessee's claim
arises out of this Lease, any statement by Lessor, Lessor's liability or any
manufacturers liability, strict liability, negligence or otherwise.
14. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify Lessor, its agents, employees,
successors and assigns (on an after tax basis) from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature arising out of or relating to the
Aircraft or this Lease, except to the extent the losses, damages, penalties,
injuries, claims, actions, suits or expenses result from Lessor's gross
negligence or willful misconduct ("CLAIMS"). This indemnity shall include, but
is not limited to, Lessor's strict liability in tort and Claims arising out of
(i) the selection, manufacture, purchase, acceptance or rejection of Aircraft,
the ownership of the Aircraft during the term of this Lease, and the delivery,
lease, possession, maintenance, uses, condition, return or operation of the
Aircraft (including, without limitation, latent and other defects, whether or
not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of the
Aircraft sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing.
(b) Lessee hereby represents, warrants and covenants that (i) on the
Commencement Date, the Aircraft will qualify for all of the items of deduction
and credit specified in Annex B ("TAX BENEFITS") in the hands of Lessor, and
(ii) at no time during the Term of this Lease will Lessee take or omit to take,
nor will it permit any sublessee or assignee to take or omit to take, any action
(whether or not such act or omission is otherwise permitted by Lessor or by this
Lease), which will result in the disqualification of the Aircraft for, or
recapture of, all or any portion of such Tax Benefits.
(c) If as a result of a breach of any representation, warranty or covenant
of the Lessee contained in this Lease (i) tax counsel of Lessor shall determine
that Lessor is not entitled to claim on its Federal income tax return all or any
portion of the Tax Benefits with respect to the Aircraft, or (ii) any Tax
Benefit claimed on the Federal income tax return of Lessor is disallowed or
adjusted by the Internal Revenue Service, or (iii) any Tax Benefit is
recalculated or recaptured (any determination, disallowance, adjustment,
recalculation or recapture being a "LOSS"), then Lessee shall pay to Lessor, as
an indemnity and as additional rent, an amount that shall, in the reasonable
opinion of Lessor, cause Lessor's after-tax economic yields and cash flows to
equal the Net Economic Return that would have been realized by Lessor if such
Loss had not occurred. Such amount shall be payable upon demand accompanied by a
statement describing in reasonable detail such Loss and the computation of such
amount. The economic yields and cash flows shall be computed on the same
assumptions, including tax rates as were used by Lessor in originally evaluating
the transaction ("NET ECONOMIC RETURN"). If an adjustment has been made under
Section 3 then the Effective Rate used in the next preceding adjustment shall be
substituted.
(d) Lessee hereby further represents, warrants and covenants that all
amounts includible in the gross income of Lessor with respect to the Aircraft,
and all deductions or credits allowable to Lessor with respect to the Aircraft,
will be treated as derived from or allocable to sources within the United States
in each and every year taxable year of Lessor throughout the entire term of this
Lease. If as a result of any breach of the representation, warranty and covenant
contained in the immediately preceding sentence, any item of income, credit or
deduction with respect to the Aircraft shall not be treated as derived from or
allocable to, sources within the United States for any taxable year of Lessor
(any such event hereinafter referred to as a "FOREIGN LOSS"), then Lessee shall
pay to Lessor as an indemnity, on the next succeeding rental payment date, or in
any event within 30 days after written demand to Lessee by Lessor, such amount
as, after deduction of all taxes required to be paid by Lessor in respect of the
receipt of such amounts under the laws of any federal, state or local government
or taxing authority of the United States, shall equal the sum of: (i) the excess
of (x) the foreign tax credits which Lessor would have been entitled to for such
year had no such Foreign Loss occurred over (y) the foreign tax credits to which
Lessor was limited as a result of such Foreign Loss and (ii) the amount of any
interest, penalties or additions to tax payable as a result of such Foreign
Loss.
(e) All references to Lessor in this Section 14 include Lessor and the
consolidated taxpayer group of which Lessor is a member. All of Lessor's rights,
privileges and indemnities contained in this Section 14 shall survive the
expiration or other termination of this Lease, The rights, privileges and
indemnities contained herein are expressly made for the benefit of, and shall be
enforceable by Lessor, its successors and assigns.
15. DISCLAIMER:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT WITHOUT ANY
ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT LESSOR IS LEASING THE
AIRCRAFT IN AN "AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL
BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS
OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED UNDER THIS
LEASE OR ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN,
COMPLIANCE WITH SPECIFICATIONS,
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QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.
All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without
limiting the foregoing, Lessor shall have no responsibility or liability to
Lessee or any other person with respect to any of the following: (i) any
liability, loss or damage caused or alleged to be caused directly or indirectly
by the Aircraft, any inadequacy thereof, any deficiency or defect (latent or
otherwise) of the Aircraft, or any other circumstance in connection with the
Aircraft; (ii) the use, operation or performance of the Aircraft or any risks
relating to it; (iii) any interruption of service, loss of business or
anticipated profits or consequential damages; or (iv) the delivery, operation,
servicing, maintenance, repair, improvement or replacement of the Aircraft. If,
and so long as, no default exists under this Lease, Lessee shall be, and hereby
is, authorized during the Term of this Lease to assert and enforce, at Lessee's
sole cost and expense, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor may
have against any Supplier of the Aircraft.
16. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee hereby represents and warrants to Lessor that on the date of this
Lease and at all times during the Term of this Lease:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Lease and all related documents (together, the "DOCUMENTS") and is
duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Aircraft is or
is to have its primary hangar location.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies may be limited under applicable bankruptcy and insolvency laws.
(c) No approval, consent or withholding of objections is required from any
governmental authority or entity with respect to the entry into or performance
by Lessee of the Documents except such as have already been obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in
any breach of, constitute a default under or result in the creation of any lien,
charge, security interest or other encumbrance upon any Aircraft pursuant to any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Lease) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Lessee, which will have a material adverse effect on the ability of Lessee to
fulfill its obligations under this Lease.
(f) Each financial statement delivered to Lessor has been prepared in
accordance with generally accepted accounting principles consistently applied,
and since the date of the most recent financial statement, there has been no
material adverse change.
(g) Lessee is and will be at all times validly existing and in good
standing under the laws of the State of its incorporation (specified in the
first sentence of this Lease) and Lessee is and will continue to be a "CITIZEN
OF THE UNITED STATES" within the meaning of Section 40102(15) of the FAA Act.
Unless Lessor has consented in writing, Lessee shall not consolidate, reorganize
or merge with any other corporation or entity or sell, convey, transfer or lease
all or substantially all of its property during the Term of this Lease, provided
that Lessee may merge or consolidate with or into The Restaurant Company or any
of its subsidiaries or assign its interest in the Aircraft and this Lease to The
Restaurant Company or any of its subsidiaries upon giving Lessor not less than
forty five (45) days prior written notice thereof and in such event Lessee and
The Restaurant Company will sign such assignment documents as Lessor may
reasonably request, including without limitation any Guaranties or reaffirmation
thereof.
(h) The chief executive office or chief place of business (as either of
such terms is used in Article 9 of the Uniform Commercial Code) of Lessee is
located at the address set forth above, and Lessee agrees to give Lessor prior
written notice of any relocation of said chief executive office or chief place
of business from its present location.
(i) A copy of this Lease, and a current and valid AC Form 8050-l will be
kept on the Aircraft at all times during the Term of this Lease.
(j) Lessee has selected the Aircraft, manufacturer and vendor thereof, and
all maintenance facilities required hereby.
(k) Lessee shall maintain all logs, books and records (including any
computerized maintenance records) pertaining to the Aircraft and engines and
their maintenance during the Term in accordance with FAA rules and regulations.
(l) Lessee shall not operate the Aircraft under Part 135 of the Federal
Aviation Regulations without the prior written approval of Lessor.
(m) Lessee shall notify the local Flight Standards District Office of the
FAA forty-eight (48) hours prior to the first flight of the Aircraft under this
Lease.
(n) Throughout the Term of this Lease, Lessee will not use or operate and
will not permit the Aircraft to be used or operated "predominately" outside the
United States as that phrase is used in Section 168(g)(1)(A) of the Code.
17. EARLY TERMINATION:
(a) On or after the First Termination Date (specified in Annex B), Lessee
may, so long as no default exists under this Lease, terminate this Lease as of a
Rent Payment Date ("TERMINATION DATE"). Lessee must give Lessor at least ninety
(90) days prior written notice of the termination.
(b) Lessee shall, and Lessor may, solicit cash bids for the Aircraft on an
AS IS, WHERE IS basis without recourse to or warranty from Lessor, express or
implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall, (i)
certify to Lessor any bids received by Lessee; and (ii) pay to Lessor, (a) the
Termination
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Value (calculated as of the Termination Date) for the Aircraft; and (b) all Rent
and other sums due and unpaid as of the Termination Date. Neither Lessee nor its
agents shall be permitted to bid.
(c) If all amounts due hereunder have been paid on the Termination Date,
Lessor shall (i) sell the Aircraft on an AS IS BASIS for cash to the highest
bidder; and (ii) refund the proceeds of such sale (net of any related expenses)
to Lessee up to the amount of the Termination Value paid by Lessee. If such sale
is not consummated, no termination shall occur and Lessor shall refund the
Termination Value (less any expenses incurred by Lessor) to Lessee, but Lessee
may solicit new bids at Lessee's election, until the Aircraft is sold.
(d) Notwithstanding the foregoing, Lessor may elect by written notice, at
any time prior to the Termination Date, not to sell the Aircraft. In that event,
on the Termination Date Lessee shall: (i) return the Aircraft (in accordance
with Section 11); and (ii) pay to Lessor all amounts required under Section
17(b) less the amount of the highest bid certified by Lessee to Lessor.
18. EARLY PURCHASE OPTION:
(a) On the Early Purchase Option Date (specified in Annex B), Lessee may,
so long as no default exists hereunder and this Lease has not been earlier
terminated, purchase the Aircraft on an AS IS BASIS for cash equal to the Early
Purchase Option Price (specified on Annex B), plus all applicable sales taxes.
Lessee must give Lessor at least thirty (30) days, but not more than ninety (90)
days, prior written notice of the purchase. Lessor and Lessee agree that the
Option Price is a reasonable prediction of the price that a willing buyer (who
is neither a lessee in possession or a used aircraft dealer) would pay for the
Aircraft on the Early Purchase Option Date in an arm's length transaction to a
willing seller under no compulsion to sell.
(b) If Lessee has elected to purchase the Aircraft, then on the Early
Purchase Option Date Lessee shall pay to Lessor the Early Purchase Option Price
(plus all applicable sales taxes) together with any rent and other sums due and
unpaid on the Early Purchase Option Date.
19. END OF LEASE PURCHASE OPTION:
(a) On the Expiration Date (specified in Annex B), Lessee may, so long as
no default exists hereunder and this Lease has not been earlier terminated,
purchase the Aircraft on an AS IS BASIS for cash equal to its then Fair Market
Value (plus all applicable sales taxes). Lessee must give Lessor at least ninety
(90) days, but not more than one hundred eighty (180) days, prior written notice
of its intent to purchase.
(b) "FAIR MARKET VALUE" shall mean the price which a willing buyer (who is
neither a lessee in possession nor a used equipment dealer) would pay for the
Aircraft in an arm's-length transaction to a willing seller under no compulsion
to sell. In determining the Fair Market Value: (i) the Aircraft shall be assumed
to be in the condition in which it is required to be maintained and returned
under this Lease, (ii) any installed additions to the Aircraft shall be valued
on an installed basis; and (iii) costs of removal of the Aircraft from the
current location shall not be a deduction from the value of the Aircraft. If
Lessor and Lessee are unable to agree on the Fair Market Value at least sixty
(60) days before Lease expiration, Lessor shall appoint an independent appraiser
(reasonably acceptable to Lessee) to determine Fair Market Value. The
independent appraisers determination shall be final, binding and conclusive.
Lessee shall bear all costs associated with any such appraisal.
(c) Lessee shall be deemed to have waived this purchase option unless it
provides Lessor with written notice of its irrevocable election to exercise the
option within fifteen (15) days after the Fair Market Value is told to Lessee.
20. MISCELLANEOUS:
(a) LESSEE AND LESSOR HEREBY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS LEASE,
ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO
THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE
RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY
RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. THIS LEASE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
(b) The Aircraft shall remain Lessors property unless Lessee purchases the
Aircraft from Lessor, and until such time Lessee shall only have the right to
use the Aircraft as a lessee. Any cancellation or termination by Lessor of this
Lease, pursuant to the provisions of this Lease, shall not release Lessee from
any then outstanding obligations to Lessor hereunder.
(c) Time is of the essence of this Lease. Lessee agrees, upon Lessor's
request, to execute any instrument necessary or expedient for filing, recording
or perfecting the interest of Lessor. All notices required to be given hereunder
shall be deemed adequately given if delivered by hand or sent by registered or
certified mail to the addressee at its address stated herein, or at such other
place as such addressee may have designated in writing. This Lease and any
Annexes hereto constitute the entire agreement of the parties with respect to
the subject matter hereof, and all Annexes referenced herein are incorporated
herein by reference. NO VARIATION OR MODIFICATION OF THIS LEASE OR ANY WAIVER OF
ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED
BY AN AUTHORIZED REPRESENTATIVE OF EACH PARTY TO THIS LEASE.
(d) If Lessee does not comply with any provision of this Agreement, Lessor
shall have the right, but shall not be obligated, to effect such compliance, in
whole or in part. All reasonable amounts spent and obligations incurred or
assumed by Lessor in effecting such compliance shall constitute additional Rent
due to Lessor. Lessee shall pay the additional Rent within five day after the
date Lessor sends notice to Lessee requesting payment. Lessors effecting such
compliance shall not be a waiver of any Event of Default.
7 of 10
<PAGE> 8
(e) After default, any Rent or other amount not paid to Lessor when due
shall bear interest from the due date until paid, at the lesser of eighteen
percent (18%) per annum or the maximum rate allowed by law. Any provisions in
this Lease which are in conflict with any statute, law or applicable rule shall
be deemed omitted, modified or altered to conform thereto.
(f) THIS LEASE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE AIRCRAFT.
21. TRUTH-IN-LEASING:
(a) LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS
SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN
MAINTAINED AND INSPECTED UNDER PART 14 CFR 91.409(f) OF THE FEDERAL AVIATION
REGULATIONS. LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE
APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 14 CFR 91.409(f) OF
THE FEDERAL AVIATION REGULATIONS.
(b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF.
LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR
COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
(c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED
UNDER PART 14 CFR 91.409(f) OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS
TO BE CONDUCTED UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF
FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION
REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT
OFFICE, GENERAL AVIATION DISTRICT OFFICE, OR AIR CARRIER DISTRICT OFFICE.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION TRC REALTY CO.
By:__________________________________ By: _________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
(8/94-R092398) Annex B (Aircraft/Fixed)
8 of 10
<PAGE> 9
ANNEX B
DATED THIS NOVEMBER 9, 1999
TO AIRCRAFT LEASE AGREEMENT
DATED AS OF NOVEMBER 9, 1999
Lessor & Mailing Address: Lessee & Mailing Address:
GENERAL ELECTRIC CAPITAL CORPORATION TRC REALTY CO.
44 OLD RIDGEBURY ROAD 7 BURLINGTON SQ. 6TH FLOOR
DANBURY, CT 06810-5105 BURLINGTON, VT 05401
Capitalized terms not defined herein shall have the meanings assigned to them
in the Aircraft Lease Agreement identified above.
A. AIRCRAFT.
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease
to Lessee the Aircraft described on Annex A to the Lease.
B. FINANCIAL TERMS.
<TABLE>
<S> <C>
1. Advance Rent (if any): (A) AMOUNT: $ 69,444.87.
(B) DUE DATE:NOVEMBER 9, 1999
2. Capitalized Lessor's Cost: $
3. Basic Term Commencement Date: NOVEMBER 9, 1999
4. Basic Term: 123 MONTHS.
5. First Basic Term Rent Date: NOVEMBER 9, 1999
6. Basic Term Rent Dates: ______________________________.
7. First Termination Date: (36) MONTHS AFTER THE BASIC TERM COMMENCEMENT DATE.
8. Last Basic Term Rent Date: JANUARY 9, 2010.
9. Last Delivery Date: NOVEMBER 9, 1999.
10. Primary Hangar Location: PALWAUKEE MUNICIPAL AIRPORT, WHEELING, IL 60090
11. Supplier: LEARJET INC..
12. Lessee Federal Tax ID No.: 030340232.
13. Early Purchase Option: Option Date:
Option Price:
14. Expiration Date: FEBRUARY 9, 2010
15. Daily Lease Rate Factor:
16. Basic Term Lease Rate Factor:
FACTOR RENTAL NO.
------ ----------
1 THROUGH 123
</TABLE>
C. TAX BENEFITS.
Depreciation Deductions:
a. Depreciation Method: 200% declining balance method, switching to
straight line method for the 1st taxable year for which using the
straight line method with respect to the adjusted basis as of the
beginning of such year will yield a larger allowance.
b. Recovery Period: 5 YEARS
c. Basis: 100% of Capitalized Lessor's Cost.
D. TERM AND RENT.
1. Interim Rent. For the period from and including the Commencement
Date to the Basic Term Commencement Date ("INTERIM PERIOD"),
Lessee shall pay as Rent ("INTERIM RENT") for each unit of
Aircraft, the product of the Daily Lease Rate Factor times the
Capitalized Lessor's Cost of such unit times the number of days
in the Interim Period. Interim Rent shall be due on
___________________.
2. Basic Term Rent. Commencing on NOVEMBER 9, 1999 and on the same
day of each month thereafter (each, a "RENT PAYMENT DATE") during
the Basic Term, Lessee shall pay as Rent ("BASIC TERM RENT") the
product of the Basic Term Lease Rate Factor times the Capitalized
Lessor's Cost of the Aircraft on this Annex B.
9 of 10
<PAGE> 10
E. INSURANCE.
1. Public Liability: $ 50,000,000.00 total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of
the Stipulated Loss Value or the full replacement cost of the
Aircraft.
Except as expressly modified hereby, all terms and provisions of the Lease shall
remain in full force and effect. This Annex B is not binding or effective with
respect to the Lease or Aircraft until executed on behalf of Lessor and Lessee
by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Annex B to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION TRC REALTY CO.
By:_________________________________ By: _______________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
ATTEST
By:________________________________
Name: _____________________________
10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,706
<SECURITIES> 0
<RECEIVABLES> 10,383
<ALLOWANCES> 1,033
<INVENTORY> 5,439
<CURRENT-ASSETS> 18,018
<PP&E> 256,656
<DEPRECIATION> 123,483
<TOTAL-ASSETS> 198,350
<CURRENT-LIABILITIES> 37,657
<BONDS> 157,018
0
0
<COMMON> 1
<OTHER-SE> (771)
<TOTAL-LIABILITY-AND-EQUITY> 198,350
<SALES> 219,546
<TOTAL-REVENUES> 235,978
<CGS> 60,680
<TOTAL-COSTS> 180,461
<OTHER-EXPENSES> 49,977
<LOSS-PROVISION> 488<F1>
<INTEREST-EXPENSE> 12,839
<INCOME-PRETAX> 5,540
<INCOME-TAX> (1,865)
<INCOME-CONTINUING> 3,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (340)
<NET-INCOME> 3,335
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>The provision for doubtful accounts and notes is presented within operating
expenses in the accompanying consolidated financial statements and is included
in total costs above.
</FN>
</TABLE>
