<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 11, 1998
REGISTRATION NO. 333-62615
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROMACORP, INC.
ROMA SYSTEMS, INC.
ROMA DINING LP
ROMA HOLDINGS, INC.
ROMA HUNTINGTON BEACH, INC.
ROMA BAR MANAGEMENT CORPORATION
ROMA FORT WORTH, INC.
ROMA FRANCHISE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5812 13-4010466
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL 75-2405064
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) 75-2682212
48-1192853
75-2099681
75-1929174
75-1971248
75-2402837
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</TABLE>
9304 FOREST LANE
SUITE 200
DALLAS, TEXAS 75243
TELEPHONE: (214) 343-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID G. SHORT
9304 FOREST LANE
SUITE 200
DALLAS, TEXAS 75243
TELEPHONE: (214) 343-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
FREDERICK TANNE, ESQ.
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price(1) Fee(2)
- --------------------------------------------------------------------------------------------------------------------------------
Romacorp, Inc.'s 12% Senior Notes due 2006...... $75,000,000 $1,000 $75,000,000 $22,125
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</TABLE>
* Not Applicable.
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 11, 1998
ROMACORP, INC.
ROMA SYSTEMS, INC.
ROMA DINING LP
ROMA HOLDINGS, INC.
ROMA HUNTINGTON BEACH, INC.
ROMA BAR MANAGEMENT CORPORATION
ROMA FORT WORTH, INC.
ROMA FRANCHISE CORPORATION
OFFER TO EXCHANGE SERIES B 12% SENIOR NOTES
DUE 2006 FOR ANY AND ALL OUTSTANDING SERIES A
TONY ROMA LOGO 12% SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Romacorp, Inc., a Delaware corporation ("Romacorp" or the "Company"), which
is not a Guarantor (as defined), and Roma Systems, Inc., a Delaware corporation,
Roma Dining LP, a Delaware limited partnership, Roma Holdings, Inc., a Delaware
corporation, Roma Huntington Beach, Inc., a Delaware corporation, Roma Bar
Management Corporation, a Texas corporation, Roma Fort Worth, Inc., a Texas
corporation and Roma Franchise Corporation, a Delaware corporation (each a
wholly-owned subsidiary of the Company and each a "Guarantor" and collectively,
the "Guarantors") (the Guarantors, together with the Company, the "Issuers")
hereby offer (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of Series B
12% Senior Notes due 2006 (the "Exchange Notes"), which will have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
pursuant to a Registration Statement of which this Prospectus is a part, for
each $1,000 principal amount of outstanding Series A 12% Senior Notes due 2006
(the "Notes" and together with the Exchange Notes, the "Senior Notes"), of which
$75,000,000 principal amount is outstanding. The form and terms of the Exchange
Notes are the same as the form and term of the Notes (which they replace) except
that the Exchange Notes will bear a Series B designation and will have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain certain provisions relating to
an increase in the interest rate which were included in the terms of the Notes
in certain circumstances relating to the timing of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Notes (which they replace) and
will be issued under and be entitled to the benefits of the Indenture dated July
1, 1998 among Romacorp, the Guarantors, and United States Trust Company of New
York (the "Indenture") governing the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
The Exchange Notes will be general unsecured obligations of the Issuers and
will rank pari passu in right of payment with any future senior indebtedness of
the Company, including borrowings under the New Revolving Credit Facility (as
defined). However, all borrowings under the New Revolving Credit Facility will
be secured by a first priority lien on substantially all of the assets of the
Company. As of July 1, 1998, the outstanding consolidated indebtedness of the
Company was approximately $80.0 million. The Exchange Notes are fully and
unconditionally guaranteed on a senior joint and several basis (the
"Guarantees") by the Guarantors and certain Subsidiaries of the Company acquired
or formed after the Issue Date.
The Issuers will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by the Issuers in their sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Issuers will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by Romacorp on July 1, 1998 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. Accordingly, the Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of Romacorp
under the Registration Rights Agreement entered into by the Issuers in
connection with the offering of the Notes. See "The Exchange Offer."
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, Romacorp believes the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "The Exchange Offer -- Resales of the Exchange Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. However, any Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Issuers have agreed that to make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
If any holder of Notes is an affiliate of the Issuers, is engaged in or
intends to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) cannot rely on the applicable interpretations of
the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. The Issuers will pay all
the expenses incurred by them incident to the Exchange Offer. See "The Exchange
Offer."
------------------------------
SEE "RISK FACTORS" ON PAGE 13 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
There has not previously been any public market for the Notes or the
Exchange Notes. The Issuers do not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes could
be adversely affected.
The Exchange Notes will be available initially only in book-entry form. The
Issuers expect that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Exchange Notes in
certified form will be issued in exchange for the Global Certificate only on the
terms set forth in the Indenture. See "Description of Exchange Notes."
Roma Restaurant Holdings, Inc. (the "Parent") is a holding company having
no substantial assets, liabilities or operations, other than its investment in
Romacorp, Inc., its wholly-owned subsidiary. As a result, the separate financial
statements of the Parent have not been provided because the Company does not
believe them to be material to investors. The Company also believes that the
separate financial statements of the subsidiaries of Romacorp, Inc. are not
material to investors and, accordingly, such financial statements have not been
provided.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus includes a discussion of all
material elements of the Exchange Offer Registration Statement, but does not
contain all of the information set forth therein. For further information with
respect to the Issuers and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549, at the Regional Offices of the Commission at 7 World Trade
Center, Suite 1300, New York, NY 10048 and at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. Additionally,
the Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Issuers to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company other than the fiscal year in which
the Exchange Offer Registration Statement is declared effective. The Issuers
will nevertheless be required to continue to file reports with the Commission if
the Exchange Notes are listed on a national securities exchange. In the event
the Issuers cease to be subject to the informational requirements of the
Exchange Act, the Issuers will be
i
<PAGE> 4
required under the Indenture to continue to file with the Commission the annual
and quarterly reports, information, documents or other reports, including,
without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required
pursuant to the informational requirements of the Exchange Act. Under the
Indenture, the Issuers shall file with the Trustee such annual, quarterly and
other reports. Further, to the extent that annual, quarterly or other financial
reports are furnished by the Issuers to stockholders or partners, as the case
may be, generally they will mail such reports to holders of Exchange Notes. The
Issuers will furnish annual and quarterly financial reports to stockholders or
partners, as the case may be, of the Issuers and will mail such reports to
holders of Exchange Notes pursuant to the Indenture, thus holders of Exchange
Notes will receive financial reports every quarter. Annual reports delivered to
the Trustee and the holders of Exchange Notes will contain financial information
that has been examined and reported upon, with an opinion expressed by an
independent public or certified public accountant. The Issuers will also furnish
such other reports as may be required by law.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
OFFERING MEMORANDUM, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "RISK FACTORS," THE COMPANY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND
LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S OPERATIONS, FINANCIAL POSITION
AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. IN ADDITION,
FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND,"
"ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR
VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT
THIS TIME, THEY CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
TRADEMARKS AND TRADENAMES
The following items referred to in this document are trademarks which are
federally registered in the United States and abroad pursuant to applicable
intellectual property laws and are the property of the Company: Tony Roma's,
Tony Roma's Famous for Ribs and Tony Roma's A Place for Ribs.
The following items referred to in this document are claimed as trademarks
and are the property of the Company: Tony Roma's Blue Ridge Smokies, Tony Roma's
Carolina Honeys, Tony Roma's Original and Tony Roma's Red Hots.
------------------------
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Holders of
the Notes should carefully consider the matters set forth under the heading
"Risk Factors." Unless the context otherwise requires, all references herein to
"Romacorp" or the "Company" with respect to periods prior to the
Recapitalization, refer to the business historically conducted by Roma
Restaurant Holdings, Inc. ("Holdings") (which has served as the operating entity
for the business prior to the Recapitalization), together with its subsidiaries,
and, with respect to periods subsequent to the Recapitalization, refer to
Holdings and its subsidiaries. References to fiscal 1994, 1995, 1996, 1997, 1998
and 1999 with respect to financial information for the Company refer to the
fiscal year ending on the Sunday preceding the last Tuesday in March for such
year. Although the data for fiscal 1994 includes 52 weeks of activity, the
Company was only owned, operated, and accounted for by NPC International, Inc.,
its Parent, for the last 42 weeks of the 52-week period. All fiscal years were
52 weeks except 1998 which was 53 weeks.
THE COMPANY
Romacorp is the operator and franchisor of the largest national casual
dining chain specializing in ribs with 194 restaurants located in 25 states in
the United States and in over 15 foreign countries. Founded in Miami in 1972,
the Company's restaurants are primarily located in Florida, Texas and
California. Both the Tony Roma's name and its "Famous for Ribs" and "A Place for
Ribs" slogans are well-recognized throughout the United States. The restaurants
offer a full and varied menu, including ribs, chicken, steaks, seafood, salads
and other menu items in a casual atmosphere which is suitable for the entire
family. Since the inception of Tony Roma's, its baby-back ribs have won numerous
consumer and industry awards in over 25 markets. In addition to its
award-winning ribs, the menu features its signature deep fried onion ring loaf.
The Tony Roma's concept is designed to serve a demographically and
geographically diverse customer base, with high quality food at moderate prices.
Tony Roma's restaurants are generally located in free-standing buildings with
approximately 200 seats and separate bar areas. The restaurants have a fun,
comfortable atmosphere with distinctive and varied decor and provide consumers
with high quality, friendly service. The Tony Roma's concept is appropriate for
a wide variety of casual dining occasions including family dinners and business
lunches.
As of March 29, 1998, the Company operated 45 Company-owned and two
joint-venture restaurants in 11 states and through its subsidiaries, franchised
94 restaurants in 19 states and 53 restaurants in international locations. For
fiscal 1998, system-wide sales, Company revenues (including net franchise
revenues) and Company EBITDA (as defined) were $350.8 million, $94.9 million and
$16.1 million, respectively. Company-owned restaurants have generated positive
comparable restaurant sales growth in 13 of the last 14 quarters. The Company
intends to continue to focus on increasing the number of Company-owned
restaurants as well as the number of franchised restaurants.
From fiscal 1995 to fiscal 1998, the Company experienced the following
growth.
<TABLE>
<CAPTION>
1995 1996 1997 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Average annual revenue per
store..................... $1.8 million $1.9 million $2.0 million $2.0 million
Number of Company-owned
restaurants............... 23 33 40 45
Average annual royalties per
franchised store, net of
reserve for doubtful
accounts.................. $54,900 $56,500 $60,300 $61,600
Number of franchised
restaurants............... 143 142 140 147
EBITDA...................... $7.1 million $9.3 million $12.5 million $16.1 million
</TABLE>
With efforts beginning in fiscal 1995, the Company's current management,
led by its President, Robert B. Page, has continued to strategically reposition
the Tony Roma's concept by: (i) improving operations;
1
<PAGE> 6
(ii) upgrading menu quality and selection; (iii) updating building designs and
decor; (iv) broadening its customer base; and (v) rationalizing its franchise
base. As part of such initiative, over 70% of Company-owned restaurants were
either built or significantly renovated within the last three years to meet
consumer preferences. In addition, management has improved the support provided
to its franchisees, eliminated certain underperforming franchisees and
strengthened its franchise base. The Company believes as a result of such
efforts, the Company's revenues and EBITDA grew at a compound annual growth rate
of 24% and 31%, respectively, from fiscal 1995 to fiscal 1998.
COMPETITIVE STRENGTHS
Leader in Rib Category. Tony Roma's is the largest national casual dining
restaurant chain specializing in ribs in the United States. Since its inception,
Tony Roma's has won numerous consumer and industry awards for its rib recipe,
including first place in the National Rib Cook-Off and "best ribs" awards in
over 25 markets. Although several of its national competitors offer ribs as a
menu selection, the Company believes that Tony Roma's well-established and
recognized brand name makes it the leader in the rib category with a reputation
for high quality food.
Established, Internationally Recognized Restaurant Brand. With 141 U.S.
and 53 international restaurants, Tony Roma's is a well-established and
recognized brand in the United States and abroad. Operating under the slogans,
"Famous for Ribs" and "A Place for Ribs", the Company believes that the majority
of consumers in the United States identify the Tony Roma's brand with ribs. In
addition, the Company believes that international consumers are drawn to Tony
Roma's distinctly "American" dining experience and its "Best Ribs in America"
slogan. The Company has achieved strong consumer awareness levels without
substantial television advertising. Its marketing programs primarily rely on
radio, outdoor, newspaper, direct mail, yellow pages and word of mouth
advertising. The Company believes that its strong brand identity enhances its
competitive position compared to other casual dining chains.
Strong Franchise Network. The Company has 47 franchisees, most of which
own and operate two or more restaurants and the largest of which operates 24
restaurants. The Company's franchisees operate 147 restaurants in 19 states and
over 15 foreign countries (including ten restaurants in Canada and 26
restaurants in the Asia Pacific region). In addition to providing the Company
with substantial royalty revenues ($9.1 million for fiscal 1998), the franchise
network allows the Company to expand the Tony Roma's system without substantial
capital investment by the Company. From fiscal 1995 to fiscal 1998, 51 new
franchise restaurants were opened and 37 franchise restaurants, most of which
were not performing their obligations under their franchise agreements, were
closed. The Company anticipates that franchisees will open approximately 45
additional restaurants by 2001.
Broadly Appealing, High Quality Menu. The Company's restaurants offer
customers a full and varied menu, including ribs, chicken, steaks, seafood,
salads and other menu items. The items are moderately priced with entrees
typically ranging in price from $3.99 to $11.99 for lunch and $4.99 to $16.49
for dinner. Dessert selections range in price from $1.99 to $3.99. The Company
believes that the combination of its diverse and full menu selection and casual
dining ambiance appeals to a wide geographic and demographic mix of customers.
Management believes that Tony Roma's has significant expansion potential in all
50 United States as well as in most regions of the world.
Updated, Modern Restaurant Base. In fiscal 1995, the Company introduced a
new prototype which is designed to attract a broader segment of consumers. The
prototype features new lighting and light color decor packages which the Company
believes enhance the appeal of its restaurants for family dining, business
lunches and other casual dining occasions. Within the last three years, over 70%
of the Company-owned restaurants were either built or significantly renovated to
conform to the new prototype. The Company continually seeks to maintain unique
interior and exterior facility design and decor to meet consumer preferences. In
addition, the Company encourages, and if necessary can require, its franchisees
to remodel their restaurants.
Experienced and Proven Management Team. The Company's senior management
team has an average of 20 years of experience in the restaurant industry, four
of which are with Tony Roma's. Since fiscal 1995, the
2
<PAGE> 7
current management team, led by Robert Page, has focused on repositioning the
Tony Roma's concept by implementing initiatives to improve operations and
broaden consumer appeal.
GROWTH STRATEGY
The Company intends to continue the programs and initiatives that it has
put in place over the last three years to support and increase the revenues and
operating performance of its existing Company-owned and franchised restaurants.
In addition, the Company plans to achieve growth by developing new Company-owned
restaurants and increasing franchise revenues.
Develop New Company-Owned Restaurants. Management has demonstrated its
ability to open and operate new restaurants, expanding the number of
Company-owned restaurants to 45 at the end of fiscal 1998 from 23 in fiscal
1995. The Company believes that the development of successful Company-owned
restaurants strengthens the Tony Roma's concept and the Company's growth
potential. The Company intends to develop and operate new restaurants and plans
to open between six to eight additional Company-owned restaurants in fiscal
1999. The cost to develop a new restaurant without land is approximately $1.2
million to $1.6 million. To finance the development of new Company-owned
restaurants, the Company expects to selectively use operating lease financing
facilities thereby reducing the average capital expenditure required per
restaurant.
Increase Franchise Revenues. The Company plans to continue to strengthen
its franchise base by adding franchised restaurants in existing and new
geographic areas, both domestically and internationally. In expanding the number
of franchised restaurants, the Company focuses on its existing franchisees which
it anticipates will open the majority of the Company's franchise restaurants in
the foreseeable future. In addition, the Company targets new franchisees that
are experienced multi-unit restaurant operators with significant financial
resources. Management continually re-evaluates and upgrades the support that it
provides to franchisees. The Company believes that existing franchisees have
significant restaurant operating experience and adequate access to capital to
support the Company's growth strategy.
THE RECAPITALIZATION
The Recapitalization was effected pursuant to a Recapitalization Agreement
dated as of April 24, 1998, as amended (the "Recapitalization Agreement") by and
among NPC Restaurant Holdings, Inc. ("NPC Holdings"), NPC International, Inc.
(together with its subsidiaries, "NPC"), Sentinel Capital Partners, L.P.
("Sentinel") and Holdings. Pursuant to the Recapitalization, Holdings exchanged
a portion of its existing shares of common stock, par value $0.10 per share (the
"Old Common Stock") held by NPC Holdings for consideration consisting of a
series of Preferred Stock (the "Preferred Stock") and common stock representing
approximately 20% of the voting equity securities on a fully diluted basis
before issuance of options to management. The remaining shares of Old Common
Stock held by NPC Holdings were redeemed for cash. In addition, Sentinel and
certain other investors (the "Sentinel Investors") purchased shares of Holdings'
common stock and Preferred Stock representing approximately 80% of Holdings'
fully-diluted Common Stock immediately after giving effect to the Transactions
but before issuance of options to management. The Sentinel Investors and NPC
Holdings own securities representing approximately 80% and 20%, respectively, of
the voting power of Holdings' outstanding capital stock before issuance of
options to management.
Approximately $113.8 million was used to complete the Recapitalization,
including $101.0 million paid to NPC, the repayment of approximately $1.3
million of existing indebtedness and the payment of related estimated fees and
expenses of approximately $4.7 million. In order to finance the
Recapitalization: (i) the Company issued $75.0 million in aggregate principal
amount of Notes in the Offering; (ii) Holdings received an equity contribution
of $27.0 million in cash from the Sentinel Investors (the "Equity
Contribution"); (iii) NPC Holdings retained equity of Holdings having an implied
value of $6.8 million (the "Retained Equity") and (iv) the Company entered into
a $15.0 million revolving credit facility (the "New Revolving Credit Facility")
with The Provident Bank, of which $5.0 million was drawn at closing. The
Recapitalization consideration was subject to certain post-closing adjustments
based on the Company's working capital at closing and performance-based payments
with respect to certain Company-owned and franchised restaurants.
3
<PAGE> 8
The Offering was contingent upon the concurrent consummation of the
Recapitalization. The foregoing transactions are collectively referred to herein
as the "Transactions."
The Company entered into a Transitional Financial and Accounting Services
Agreement (the "Transition Services Agreement") whereby NPC will continue to
provide administrative services to the Company for a negotiated fee for a period
of up to one year. Services provided will include accounting services, payroll
services and use of NPC's proprietary restaurant technology system software (the
"POS System"). As part of the Transition Services Agreement, the Company was
granted a perpetual license to use the POS System. See "Certain Relationships
and Related Transactions."
The following table illustrates the estimated sources and uses of funds in
connection with the consummation of the Transactions.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
SOURCES OF FUNDS
Notes....................................................... $ 75,000
New Revolving Credit Facility............................... 5,000
Equity Contribution and Retained Equity(1).................. 33,750
--------
Total sources of funds................................. $113,750
========
USES OF FUNDS
Recapitalization consideration(2)........................... $101,000
Equity interest retained by NPC Holdings.................... 6,750
Repayment of existing indebtedness.......................... 1,333
Estimated fees and expenses................................. 4,667
--------
Total uses of funds.................................... $113,750
========
</TABLE>
- ---------------
(1) Includes a $27.0 million equity investment made by the Sentinel Investors
and a $6.8 million retained equity interest of NPC Holdings.
(2) The Recapitalization consideration of $101.0 million was paid to NPC and was
subject to certain post-closing adjustments based on the Company's working
capital at closing and performance-based payments with respect to certain
Company-owned and franchised restaurants.
---------------
The executive offices of the Company are located at 9304 Forest Lane, Suite
200, Dallas, Texas 75243, and its telephone number is (214) 343-7800.
4
<PAGE> 9
THE OFFERING
NOTES......................... The Notes were sold by the Company on June 26,
1998 to Salomon Brothers Inc and Schroder & Co.
Inc. (the "Initial Purchasers") pursuant to a
Purchase Agreement dated March 3, 1998 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Notes to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act and to a limited
number of institutional accredited investors
that agreed to comply with certain transfer
restrictions and other conditions.
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT.............. Pursuant to the Purchase Agreement, the Issuers
and the Initial Purchasers entered into a
Registration Rights Agreement dated July 1,
1998, which grants the holder of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED............ $75,000,000 aggregate principal amount of
Series B 12% Senior Notes due 2006.
THE EXCHANGE OFFER............ $1,000 principal amount of the Exchange Notes
in exchange for each $1,000 principal amount of
Notes. As of the date hereof, $75,000,000
aggregate principal amount of Notes are
outstanding. The Issuers will issue the
Exchange Notes to holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Issuers believe
that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of the
Issuers within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has
no arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
5
<PAGE> 10
were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Issuers have agreed that they will make this
Prospectus available to any Participating
Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Issuers.
EXPIRATION DATE............... 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
NOTES....................... Each Exchange Note will bear interest from its
issuance date. Holders of Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Issuers. See "The Exchange Offer --
Conditions."
PROCEDURES FOR TENDERING
NOTES......................... Each holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required documentation
to the Exchange Agent (as defined) at the
address set forth herein. By executing the
Letter of Transmittal, each holder will
represent to the Issuers that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Company. See "The Exchange
Offer -- Purpose and Effect of the Exchange
Offer" and "-- Procedures for Tendering."
UNTENDERED NOTES.............. Following the consummation of the Exchange
Offer, holders of Notes eligible to participate
but who do not tender their Notes will
6
<PAGE> 11
not have any further exchange rights and such
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be
adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE.................... The Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Notes may be
resold only: (i) to the Issuers; (ii) pursuant
to Rule 144A or Rule 144 under the Securities
Act or pursuant to some other exemption under
the Securities Act; (iii) outside the United
States to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act; or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer -- Consequences of
Failure to Exchange."
SHELF REGISTRATION
STATEMENT..................... If any holder of the Notes (other than any such
holder which is an "affiliate" of the Issuers
within the meaning of Rule 405 under the
Securities Act) is not eligible under
applicable securities laws to participate in
the Exchange Offer, and such holder has
provided information regarding such holder and
the distribution of such holder's Notes to the
Issuers for use therein, the Issuers have
agreed to register the Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause
it to be declared effective by the Commission
as promptly as practicable on or after the
consummation of the Exchange Offer. The Issuers
have agreed to maintain the continuous
effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the
Notes held by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable
time. The Issuers will keep the Exchange Offer
open for not less than twenty days in order to
provide for the transfer of registered
ownership.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Notes who wish to tender their Notes
and whose Notes are not immediately available
or who cannot deliver their Notes, the Letter
of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
7
<PAGE> 12
WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE NOTES.... The Issuers will accept for exchange any and
all Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
USE OF PROCEEDS............... There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange
Offer.
EXCHANGE AGENT................ United States Trust Company of New York
THE EXCHANGE NOTES
GENERAL....................... The form and terms of the Exchange Notes are
the same as the form and terms of the Notes
(which they replace) except that: (i) the
Exchange Notes bear a Series B designation;
(ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will
not bear legends restricting the transfer
thereof; and (iii) the holders of Exchange
Notes will not be entitled to certain rights
under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See
"The Exchange Offer -- Purpose and Effect of
the Exchange Offer." The Exchange Notes will
evidence the same debt as the Notes and will be
entitled to the benefits of the Indenture. See
"Description of Exchange Notes." The Notes and
the Exchange Notes are referred to herein
collectively as the "Senior Notes."
SECURITIES OFFERED............ $75,000,000 aggregate principal amount of
Series B 12% Senior Notes due 2006.
MATURITY DATE................. July 1, 2006.
MATURITY RATE AND PAYMENT
DATES......................... Interest on the Exchange Notes will accrue from
the date of original issuance and is payable
semi-annually on each January 1 and July 1,
commencing January 1, 1999.
RANKING....................... The Exchange Notes will rank pari passu in
right of payment with any future senior
indebtedness of the Company, including
borrowings under the New Revolving Credit
Facility. However, all borrowings under the New
Revolving Credit Facility will be secured by a
first priority lien on substantially all of the
assets of the Company.
GUARANTEES.................... The Exchange Notes will be fully and
unconditionally guaranteed on a senior joint
and several basis by each of the Guarantors and
all of the Company's Subsidiaries acquired or
formed as of the Issue Date.
8
<PAGE> 13
OPTIONAL REDEMPTION........... The Exchange Notes will be redeemable, in whole
or in part, at the option of the Company on or
after July 1, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any
time on or prior to July 1, 2001, the Company,
at its option, may redeem up to 35% of the
aggregate principal amount of the Senior Notes
originally issued with the net cash proceeds of
one or more Public Equity Offerings (as
defined) or Strategic Equity Investments (as
defined), at the redemption price set forth
herein, plus accrued interest to the date of
redemption; provided that at least 65% of the
aggregate principal amount of Senior Notes
issued remains outstanding immediately
following such redemption.
CHANGE OF CONTROL............. Upon a Change of Control, each holder of the
Exchange Notes will have the right to require
the Company to repurchase such holder's
Exchange Notes at a price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest to the date of repurchase.
There can be no assurance that the Company will
have sufficient funds to purchase all of the
Exchange Notes in the event of a Change of
Control or that the Company would be able to
obtain financing for such purpose on favorable
terms, if at all.
CERTAIN COVENANTS............. The Indenture governing the Exchange Notes (the
"Indenture") contains certain covenants that,
among other things, limit the ability of the
Company and its subsidiaries to incur
additional indebtedness, pay dividends or make
investments and certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates,
incur liens, impose restrictions on the ability
of a subsidiary to pay dividends or make
certain payments to the Company and its
subsidiaries, or merge or consolidate with any
other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or
substantially all of the assets of the Company.
For additional information regarding the Exchange Notes, see "Description
of Exchange Notes."
EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") entered into on July 1, 1998 among the Company, the Guarantors and
the Initial Purchasers, the Company agreed (i) to file a registration statement
(the "Exchange Offer Registration Statement") with respect to an offer to
exchange (the "Exchange Offer") the Notes for new notes (the "Exchange Notes")
of the Company, which Exchange Notes will have terms substantially identical in
all material respects to the Notes (except that the Exchange Notes will not
contain terms with respect to transfer restrictions), within 60 days after the
Issue Date, (ii) to use its best efforts to cause such registration statement to
become effective under the Securities Act within 150 days after the Issue Date
and (iii) upon the Exchange Offer Registration Statement being declared
effective, to offer the Exchange Notes in exchange for surrender of the Notes.
In the event that applicable law or interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, or if for any
other reason the Exchange Offer is not consummated, or if certain holders of the
Notes are not permitted to participate in, or do not receive the benefit of, the
Exchange Offer, the Company will use its best efforts to cause to become
effective a shelf registration statement with respect to the resale of the Notes
and to keep such shelf registration statement effective until two years after
the Issue Date or such shorter period
9
<PAGE> 14
ending when all the Notes have been sold thereunder. The interest rate on the
Notes is subject to increase under certain circumstances if the Company is not
in compliance with its obligations under the Registration Rights Agreement. See
"Exchange Offer; Registration Rights."
RISK FACTORS
Holders of the Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included in
this Offering Memorandum prior to tendering their Notes in the Exchange Offer.
10
<PAGE> 15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OPERATING DATA
The following unaudited table sets forth: (i) summary historical financial
data of the Company for the fiscal years ended March 24, 1996, March 23, 1997,
March 29, 1998 and the twenty-six weeks ended September 21, 1997 and September
27, 1998; (ii) summary historical balance sheet data as of September 27, 1998,
(iii) summary pro forma financial data for the fiscal year ended March 29, 1998
and the twenty-six weeks ended September 27, 1998. A pro forma balance sheet has
not been presented as the Transactions are reflected in the September 27, 1998
historical balance sheet included elsewhere in this Prospectus. The summary
historical financial data for fiscal 1996, 1997 and 1998 were derived from the
audited consolidated financial statements of the Company which are included
elsewhere herein, together with the report of Ernst & Young LLP, independent
auditors. The summary historical financial information for the twenty-six weeks
ended September 21, 1997 and September 27, 1998 and as of September 27, 1998 has
been derived from, and is qualified by reference to, the unaudited financial
statements of the Company included elsewhere herein. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information included therein. Operating results for the
twenty-six weeks ended September 27, 1998 are not necessarily indicative of the
results that may be expected for the entire year ended March 28, 1999. The
summary unaudited pro forma financial data for fiscal 1998 gives effect to the
Transactions as if each had occurred on March 24, 1997. The summary of unaudited
pro forma financial data is intended for informational purposes and should not
be considered indicative of either future results of operations or the results
that might have occurred if the Transactions had been consummated on the
indicated date or had been in effect for the period indicated. The following
table should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements and the notes
related thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
FISCAL YEAR ------------------------------
----------------------------- SEPTEMBER 21, SEPTEMBER 27,
1996 1997 1998 1997 1998
------- ------- ------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Net restaurant sales............... $51,499 $68,778 $86,408 $40,746 $44,931
Net franchise revenues............. 7,570 8,526 8,482 4,145 4,253
------- ------- ------- ------- -------
Total revenues................ 59,069 77,304 94,890 44,891 49,184
Depreciation and amortization........ 3,993 5,425 7,197 3,648 3,305
Operating income(1).................. 2,029 7,001 8,883 4,014 4,422
Net interest expense................. 876 1,550 2,412 1,040 3,101
Income taxes......................... 545 2,017 2,315 1,042 540
Net income........................... $ 351 $ 3,476 $ 4,165 $ 1,933 $ 998
OTHER FINANCIAL DATA:
Cash flows from:
Operating activities................. $ 5,355 $ 9,416 $ 9,874 $ 6,133 $ 4,689
Investing activities................. (16,491) (24,758) (10,686) (7,668) (4,291)
Financing activities................. 10,909 15,342 812 1,535 (398)
EBITDA(2)(4)........................... $ 5,765 $12,468 $16,089 $ 7,663 $ 7,944
EBITDA Margin(2)(3).................... 9.8% 16.1% 17.0% 17.1% 16.2%
Capital expenditures:
Routine expenditures -- existing
restaurants........................ $ 345 $ 246 $ 478 $ 105 $ 298
Renovation........................... 324 438 653 30 --
New restaurant development........... 14,190 23,151 9,479 7,480 4,048
------- ------- ------- ------- -------
Total capital expenditures.... $14,859 $23,835 $10,610 $ 7,615 $ 4,346
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
TWENTY-SIX
WEEKS ENDED
FISCAL 1998 SEPTEMBER 27, 1998
----------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PRO FORMA FINANCIAL DATA:(5)
Interest expense.......................................... $ 9,528 $4,903
Net income (loss)......................................... (618) (414)
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
TWENTY-SIX
WEEKS ENDED
FISCAL 1998 SEPTEMBER 27, 1998
----------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER PRO FORMA DATA:
EBITDA (2)(6)............................................. $15,789 $7,794
Ratio of EBITDA to interest expense(2).................... 1.6x 1.6x
Ratio of total debt to EBITDA(2) (N/M -- not
meaningful)............................................. 5.1x N/M
Ratio of earnings to fixed charges(7)..................... -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 27, 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Facilities and equipment, net............................. $54,344
Total assets.............................................. 81,089
Total debt................................................ 80,226
Shareholders' equity (deficit)............................ (9,146)
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
FISCAL YEAR -----------------------------
------------------------------ SEPTEMBER 21, SEPTEMBER 27,
1996 1997 1998 1997 1998
-------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESTAURANT OPERATING DATA:
Restaurant sales:
Company-owned........................... $ 51,499 $ 68,778 $ 86,408 $ 40,746 $ 44,931
Joint Venture........................... 3,122 3,229 3,281 1,606 1,654
Franchised.............................. 241,691 248,891 261,165 128,668 127,743
-------- -------- -------- -------- --------
Total system-wide sales............ $296,312 $320,898 $350,854 $171,020 $174,328
======== ======== ======== ======== ========
Restaurants open (at period end):
Company-owned........................... 33 40 45 44 46
Joint Venture........................... 2 2 2 2 2
Franchised
Domestic........................... 100 91 94 93 96
International...................... 42 49 53 51 56
-------- -------- -------- -------- --------
Total Franchised................. 142 140 147 144 152
-------- -------- -------- -------- --------
Total......................... 177 182 194 190 200
======== ======== ======== ======== ========
Comparable restaurant sales increase(8)... 2.6% 2.2% 0.9% 1.5% 1.8%
Average royalties per franchised
restaurant.............................. $ 56.5 $ 60.3 $ 61.6 $ 31.0 $ 29.5
</TABLE>
- ---------------
(1) For fiscal 1996, operating income includes an impairment and loss provision
for underperforming assets of $3.5 million. Without this provision,
operating income would have been $5.5 million.
(2) As used herein, "EBITDA" represents net income plus: (i) net interest; (ii)
income taxes; and (iii) depreciation and amortization including
amortization of start-up costs. The Company has included information
concerning EBITDA in this Prospectus because it believes that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt. EBITDA is not a measure determined in
accordance with generally accepted accounting principles ("GAAP") and
should not be considered as an alternative to, or more meaningful than,
earnings from operations or other traditional indications of an issuer's
operating performance. EBITDA as presented may not be comparable to EBITDA
or other similarly titled measures defined and presented by other
companies.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) For fiscal 1996, earnings include the impairment and loss provisions for
underperforming assets of $3.5 million. Without this provision, EBITDA
would have been $9.3 million.
(5) Pro forma financial data gives effect to the Offering; as if each occurred
on March 24, 1997.
(6) Pro Forma EBITDA reflects the effect of an annual management fee of
$300,000.
(7) For purposes of computing this ratio, earnings consist of income before
taxes plus fixed charges. Fixed charges consist of interest expense on all
indebtedness and the estimated interest portion of rental expense. For
fiscal 1998, on a pro forma basis giving effect to the Transactions, the
Company's earnings would have been insufficient to cover fixed charges by
$604,000. For the twenty-six weeks ended on a pro forma basis giving effect
to the Transactions, the Company's earnings would have been insufficient to
cover fixed charges by $373,000.
(8) Comparable restaurant sales increase for each period is calculated using
sales of Company-owned restaurants that have been open for at least 18
months.
12
<PAGE> 17
RISK FACTORS
Holders of the Notes should consider carefully the following factors as
well as the other information included in this Prospectus prior to tendering
their Notes in the Exchange Offer.
RISK FACTORS ASSOCIATED WITH THE BUSINESS
High Level of Indebtedness; Ability to Service Indebtedness
The Company is highly leveraged. As of September 27, 1998, the Company has
approximately $80.2 million of total consolidated indebtedness outstanding and
had total stockholder's deficit of $9.1 million. Subject to certain restrictions
in the Indenture and the New Revolving Credit Facility, the Company may incur
additional indebtedness from time to time to provide for working capital or
capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Exchange Notes, including, but not limited to, the following:
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to debt service, approximately $9.0 million a year in interest
payments to Noteholders until 2006 at which time the Notes become due, and will
not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future, as needed, may be limited; (iii) the
Company's leveraged position and covenants contained in the Indenture may limit
its ability to grow and make capital improvements and acquisitions; (iv) the
Company's level of indebtedness may make it more vulnerable to economic
downturns; and (v) the Company may be at a competitive disadvantage because some
of the Company competitors are less leveraged, resulting in greater operational
and financial flexibility for such competitors.
The Company currently anticipates that its operating cash flow will be
sufficient to meet its operating expenses and to service its debt requirements
as they become due. However, the ability of the Company to satisfy its debt
obligations, including the Exchange Notes, will be primarily dependent upon the
future financial and operating performance of the Company. Such performance is
dependent upon financial, business and other general economic factors, many of
which are beyond the control of the Company. If the Company is unable to
generate sufficient cash flow to meet the debt service obligations of the
Company or provide adequate long-term liquidity, the Company will have to pursue
one or more alternatives, such as reducing or delaying capital expenditures,
refinancing debt, selling assets or raising equity capital. There can be no
assurance that such alternatives could be accomplished on satisfactory terms, if
at all, or in a timely manner.
The Exchange Notes will effectively be subordinated to all secured debt of
the Company and the Guarantors, including indebtedness under the $15.0 million
New Revolving Credit Facility, of which $5.0 million is outstanding. The
Indenture permits the Company or the Guarantors to incur additional secured
indebtedness. See "Description of Exchange Notes."
Risks Associated with the Food Service Industry
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
products and the type, number and location of competing restaurants. The Company
could also be substantially adversely affected by publicity resulting from food
quality, illness, injury or other health concerns or alleged discrimination or
other operating issues stemming from one location or a limited number of
locations, whether or not the Company is liable. In addition, factors such as
increased costs of goods, regional weather conditions and the availability of
experienced management and hourly employees may also adversely affect the food
service industry in general and the Company's business, financial condition and
results of operations.
Competition
The Company's business and the restaurant industry in general are highly
competitive and are often affected by changes in consumer tastes and eating
habits, national, regional and local economic conditions,
13
<PAGE> 18
population and demographic trends, traffic patterns and the location and number
of, and type of food served by, competing restaurants. The Company competes
directly and indirectly with all restaurants, from national and regional chains
to local establishments, including national and small rib chains and local
independent rib restaurants. The Company competes primarily on the basis of
quality of food and service, ambiance, location and price-value relationship.
Many of the Company's competitors are well-established in the mid-priced casual
dining segment and have access to greater financial, marketing and other
resources than the Company.
Rib Pricing Risks.
Baby-back ribs represent approximately 25% of the Company's cost of sales.
Because ribs are a by-product of pork processing, their price is influenced
largely by the demand for boneless pork. Historically, the cost of baby-back
ribs has been volatile. Significant changes in the prices of ribs could
significantly increase the Company's cost of sales and adversely effect the
business, results of operations and financial condition of the Company. The
Company actively manages its rib costs through supply commitments in advance of
a specific need; however, the arrangements are terminable at will at the option
of either party without prior notice. Therefore, there can be no assurance that
any of the supply commitments will not be terminated in the future. As a result,
the Company is subject to the risk of substantial and sudden price increases,
shortages or interruptions in supply of such items, which could have a material
adverse effect its the business, financial condition and results of operations.
Ability to Locate and Secure Acceptable Restaurant Sites
The success of restaurants is significantly influenced by location. There
can be no assurance that current locations will continue to be attractive or
that additional locations can be located and secured at reasonable costs, as
demographic patterns change. It is possible that the current locations or
economic conditions where restaurants are located could decline in the future,
resulting in potentially reduced sales in those locations. There is also no
assurance that new sites will produce the same results as past sites.
Regulation
All of the Company's operations are subject to various federal, state and
local laws that affect its business, including laws and regulations relating to
employment, health, sanitation, alcoholic beverage control and safety standards.
To date, federal and state environmental regulations have not had a material
effect on the Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, building codes, land use
and environmental factors have in the past increased, and can be expected in the
future to increase, the cost of, and the time required for opening new
restaurants. Difficulties or failures in obtaining required licenses or
approvals could delay or prohibit the opening of new restaurants. In some
instances, the Company may have to obtain zoning variances and land use permits
for its new restaurants. The Company believes it is operating in compliance with
all material laws and regulations governing its operations.
Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county or
municipal authorities for a license to sell alcoholic beverages. Generally, the
Company's licenses to sell alcoholic beverages must be renewed annually and may
be suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing and inventory control. In addition,
each restaurant requires food service licenses from local health authorities,
and the development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Difficulty or failure in obtaining or retaining the required licenses or
approvals could have a material adverse effect on the business, financial
condition and results of operations of the Company, including the delay or
prevention of the opening of a new restaurant in a particular location or the
termination of the franchise agreement pertaining to such restaurant.
The Company may be subject in certain states to "dram-shop" statutes which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served
14
<PAGE> 19
alcoholic beverages to such intoxicated person. The Company carries liquor
liability insurance as part of its existing comprehensive general liability
insurance and is not a defendant in any lawsuit or claim involving "dram-shop"
statutes.
The Company is also subject to a number of federal and state laws
regulating franchise offers, sales and the franchise relationship. Such laws
generally impose certain registration and disclosure requirements on franchisors
in the offer and sale of franchises and, in certain cases, also apply
substantive standards to the relationship between franchisor and franchisee. The
Company must also adhere to Federal Trade Commission regulations governing
disclosures in the sale of franchises.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions and other
employment laws and regulations. A substantial majority of the Company's food
service personnel are paid at rates related to the minimum wage and,
accordingly, increases in the minimum wage result in higher labor costs. In
addition, legislation mandating health coverage for all employees, if passed,
will increase benefit costs since most hourly restaurant employees are not
currently covered under Company plans. The Company cannot always effect
immediate price increases to offset higher costs, and no assurance can be given
that the Company will be able to do so in the future.
Reliance on Franchisees
The continued growth of the Company is, in part, dependent upon its ability
to attract and retain qualified franchisees and the ability of its franchisees
to maximize penetration of their designated markets and to operate their
restaurants successfully. Although the Company has established criteria to
evaluate prospective franchisees, there can be no assurance that the Company's
existing or future franchisees will have the business abilities or access to
financial resources necessary to open Tony Roma's restaurants or that they will
successfully develop or operate these restaurants in their franchise areas in a
manner consistent with the Company's standards.
Financial difficulties of franchisees may also from time to time require
the Company to stop accruing franchise fees, to establish reserves with respect
to amounts due, or both. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
While the Company intends to continue its efforts to franchise restaurants,
there can be no assurance that the Company will be able to attract qualified
franchisees or that such franchisees will be able to open and operate Tony
Roma's restaurants successfully. See "Business -- Franchise Operations."
Reliance on Trademarks and Other Intellectual Property
Management believes the Company's United States and foreign trademarks have
significant value and are important in the marketing of its restaurants.
The Company's ability to compete effectively depends, to a significant
extent, on its ability to maintain the proprietary nature of its owned and
licensed intellectual property. Although the Company's trademarks are currently
registered with the United States Patent and Trademark Office and are registered
in certain foreign countries, there can be no assurance that the Company's
trademarks cannot be circumvented, do not or will not violate the proprietary
rights of others or that the Company would not be prevented from using its
trademarks if challenged. The Company's trademarks have in the past been
circumvented in certain foreign markets. If the Company were unable to maintain
the proprietary nature of its intellectual property, such loss could have a
material adverse effect on the business, financial condition and results of
operations of the Issuers. See "Business -- Trademarks and Other Intellectual
Property."
RISK FACTORS ASSOCIATED WITH FINANCIAL LEVERAGE AND THE EXCHANGE NOTES
Possible Effects of Fraudulent Conveyance Laws
The Company believes that the indebtedness represented by the Exchange
Notes was incurred for proper purposes and in good faith, and that, based on
present forecasts and other financial information, the Company
15
<PAGE> 20
will have sufficient capital for carrying on its businesses and will be able to
pay its debts as they mature and become due. Notwithstanding management's
belief, if a court of competent jurisdiction in a suit by an unpaid creditor or
a representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time the Company consummated the
Transactions, the Company or a Guarantor (i) intended to hinder, delay or
defraud any existing or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (ii) did not receive fair consideration or reasonably equivalent value for
issuing the Notes or Guarantees and the Company or Guarantor (a) was insolvent,
(b) was rendered insolvent by reason of the Transactions, (c) was engaged or
about to engage in a business or transaction for which its remaining assets
constituted unreasonably small capital to carry on its business or (d) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court could avoid such Notes or Guarantees. A
possible consequence of such avoidance would be that a court could void the
Company's or Guarantor's obligations under the Exchange Notes or Guarantees or
alternatively subordinate the indebtedness represented by the Exchange Notes or
Guarantees to claims of other creditors of the Company or Guarantor.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, a company would
be considered insolvent for purposes of the foregoing if the present fair
saleable value of such company's assets is less than the amount that will be
required to pay its probable liability on existing debts as they become absolute
and mature. In rendering its opinion on the validity of the Notes and the
Guarantees counsel for each of the Company and the Initial Purchasers will
express no opinion as to federal or state laws relating to fraudulent transfers.
Change of Control
Upon the occurrence of a Change of Control, the Company will, subject to
certain conditions, be required to offer to purchase all of the Senior Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the purchase date. See "Description
of Exchange Notes -- Change of Control." If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient funds to pay
the purchase price for all of the Senior Notes that it might be required to
purchase. The exercise by the respective holders of the Exchange Notes of their
right to require the Company, to repurchase the Exchange Notes upon the
occurrence of a Change of Control could also cause a default under other
indebtedness of the Company, even if the Change of Control itself does not,
because of the financial effect of such repurchase on the Company. Additionally,
there can be no assurance that, in the event of a Change of Control, the Company
will be contractually permitted under the terms of other outstanding
indebtedness and obligations to pay the required purchase price for all of the
Exchange Notes tendered by holders thereof upon the occurrence of a Change of
Control.
Restrictions Imposed by Terms of Indebtedness
The Indenture and the New Revolving Credit Facility contain certain
covenants that restrict, among other things, the ability of the Company to incur
additional indebtedness, issue preferred stock, incur liens, pay dividends or
make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company and its subsidiaries. In
addition, the New Revolving Credit Facility requires the Company to maintain
certain specified financial ratios and tests. The ability of the Company to
comply with such financial ratios and tests may be affected by events beyond the
Company's control, and there can be no assurance that the Company will meet
those tests. If the Company fails to meet such financial ratios or tests or to
comply with the other provisions of the New Revolving Credit Facility, future
borrowing under the New Revolving Credit Facility may be prohibited and the
amount outstanding under the New Revolving Credit Facility and/or the Exchange
Notes could become immediately due and payable unless the lenders party to the
New Revolving Credit Facility or the holders of the Exchange Notes agree to
modify or waive such provisions. In the event of a default under the New
Revolving Credit Facility, the lenders thereunder could elect to declare all
amounts borrowed thereunder to be immediately due and payable, terminate
commitments to lend and proceed against the collateral securing the New
Revolving Credit Facility. See "Description of Exchange Notes--Certain
Covenants."
16
<PAGE> 21
Upon an event of default under the Indenture, the lenders thereunder could
elect to declare all amounts outstanding thereunder, together with accrued
interest, to be immediately due and payable.
Absence of Public Market
Prior to the Exchange Offer, there has been no public market for the Notes.
The Notes have not been registered under the Securities Act and will be subject
to restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Notes (other than any such holder that is an "affiliate"
of the Issuers within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Issuers are required to file a Shelf Registration
Statement with respect to such Notes. The Exchange Notes are new securities for
which there currently is no market. The Exchange Notes are eligible for trading
by qualified buyers in the Private Offerings, Resale and Trading though
Automated Linkages (PORTAL) market. The Issuers do not intend to apply for
listing of the Exchange Notes, on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System. Although the Exchange Notes are eligible for trading through PORTAL, the
Exchange Notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, the
Company's performance and other factors. The Issuers have been advised by the
Initial Purchasers that they currently intend to make a market in the Exchange
Notes as permitted by applicable law and regulations; however, the Initial
Purchasers are not obligated to do so and any such market-making activities, if
commenced, may be discontinued at any time without notice. In addition, such
market-making activities may be limited during the Exchange Offer and pendency
of the Shelf Registration Statement. Therefore, there can be no assurance that
an active market for any of the Exchange Notes will develop, either prior to or
after the Issuers' performance of their obligations under the Registration
Rights Agreement. See "Description of Exchange Notes."
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Description of
Exchange Notes") by each holder without the requirement of further registration.
The Exchange Notes, however, will also constitute a new issue of securities with
no established trading market. The Exchange Offer will not be conditioned upon
any minimum or maximum aggregate principal amount of Notes being tendered for
exchange. No assurance can be given as to the liquidity of the trading market
for the Exchange Notes, or, in the case of non-exchanging holders of Notes, the
trading market for the Notes following the Exchange Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independently of the financial performance of, and prospects
for, the Company.
Exchange Offer Procedures
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Issuers of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Issuers are under no duty to give notification of defects
or irregularities with respect to the tenders of Notes for exchange. Notes that
are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange Offer,
certain registration rights under the Exchange and Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a
17
<PAGE> 22
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Notes could be adversely affected. See "The Exchange Offer."
Geographic Concentration
The Company's restaurants are concentrated in Florida, Texas and
California. As a result, a severe or prolonged economic recession or changes in
demographic mix, employment levels, population density, weather, real estate
market conditions or other factors unique to these geographic regions may
adversely affect the Company more than certain of its competitors which are more
geographically diverse.
International Franchise Operations
The Company intends to selectively evaluate international franchise
expansion opportunities. The Company receives franchise royalty fees from
international franchisees as a percentage of each restaurant's gross sales.
Therefore, the Company may be affected by economic and political conditions in
each of the foreign countries in which its franchisees operate and certain other
risks of doing business abroad, including fluctuations in the value of
currencies, possible restrictions on the transfer of funds, greater difficulty
in collecting franchise royalty fees, and the burdens, cost and risk of
compliance with a variety of foreign laws. Changes in policies by the United
States or foreign governments could result in, for example, currency conversion
limitations which could have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business -- Franchise Operations."
Year 2000 Issue
The Company is in the process of evaluating and modifying its computer
systems and applications for Year 2000 compliance. Management believes that all
significant systems will be Year 2000 compliant prior to the end of the 1999
calendar year.
As the Company has entered into a Transition Services Agreement, providing
for accounting services, payroll services and use of NPC's proprietary POS
System, part of the evaluation is a review of NPC's systems and programs.
Management has reviewed NPC's plans for Year 2000 compliance and NPC plans to
complete all modifications and testing by December 31, 1998, including the POS
System. NPC will incur the costs for the Year 2000 compliance efforts related to
the Transition Services Agreement.
In addition to a review of NPC's systems, the Company is in the process of
evaluating third party vendors for Year 2000 readiness. This includes verbal as
well as written inquiries to substantially all of the Company's vendors. These
responses will be assessed and prioritized in order of significance to the
business. To the extent that responses are not satisfactory, contingency plans
will be developed. Furthermore, the Company plans to provide all franchisees
with information related to the risks associated with the Year 2000 issue by
December 31, 1998.
Additionally, the Company is in the process of reviewing non-information
technology equipment and anticipates completion of this effort by March 31,
1999. It is believed that any necessary upgrades or replacements will be minimal
and will be funded out of existing cash flows from operations.
Since the majority of the systems work is being performed by NPC, the
Company will incur minimal costs related to the Year 2000 issue. Any work
performed to remedy any Year 2000 issues will be performed by existing Company
staff and any effect on the financial condition and results of operations due to
the diversion of resources will be insignificant.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. Unanticipated failures by critical vendors as well as the failure
by the Company to execute its own remediation efforts could have a material
adverse effect on the
18
<PAGE> 23
cost of the project and its completion date. As a result, there can be no
assurance that these forward-looking estimates will be achieved and the actual
cost and vendor compliance could differ materially from those plans, resulting
in material financial risk.
Concentration of Ownership
The Sentinel Investors beneficially own in the aggregate approximately 80%
of the outstanding capital stock of Holdings. The interests of the Sentinel
Investors may, in certain circumstances, differ from the interests of holders of
the Exchange Notes. See "Management" and "Security Ownership."
19
<PAGE> 24
THE COMPANY
The Company is the operator and franchisor of the largest national casual
dining chain specializing in ribs, as described under "Business." The first Tony
Roma's restaurant, called Tony Roma's Place, was opened by Tony Roma in North
Miami, Florida on January 20, 1972. The restaurant featured a casual decor and
comfortable ambiance, and baby-back ribs emerged as the house specialty. Tony
Roma's Place became one of Miami's most popular and successful restaurants and
firmly established its niche in the marketplace.
In 1976, Clint Murchison Jr., a Texas financier and owner of the Dallas
Cowboys, purchased the majority of the U.S. franchise rights from Tony Roma and
established Roma Corporation, a company jointly owned with Tony Roma, to fund
aggressive, strategic expansion.
Tony Roma opened his second restaurant in Broward County, Florida, in 1976
and by December 1976, a West Coast presence was established with the development
of a Beverly Hills location. During the next five years, additional Tony Roma's
restaurants were opened in Florida and California, and the concept was expanded
with restaurant locations in Hawaii, Nevada, New York, Tennessee, Texas and
Japan. The Company began to offer franchises for Tony Roma's restaurants in May
1979, and the first franchised restaurant opened in August 1980.
In 1983 Tony Roma relinquished his rights to restaurant operations to the
Company. The following year, Clint Murchison Jr. sold his interest in the
Company to his four adult children. Ken Reimer took over as President of Roma
Corporation in December 1983, relocated the corporate headquarters to Dallas,
Texas, assembled a professional management team, and established a strategic
growth plan.
In December 1991, Romacorp, Inc., successor by merger to Roma Corporation,
was created as a part of an overall reorganization of the Roma companies.
In June 1993, all the outstanding stock of NRH Corporation, then the
ultimate parent of Romacorp, was acquired by NPC International, Inc., a Kansas
corporation, headquartered in Pittsburgh, Kansas (NASDAQ: NPCI). NPC is the
largest franchisee of Pizza Hut, Inc., operating 680 Pizza Hut restaurants in 26
states as of March 31, 1998.
Following the acquisition, a new management team was installed led by the
Company's President, Robert B. Page. Since the acquisition, management has
focused on strategically repositioning the Tony Roma's concept by: (i) improving
operations; (ii) upgrading menu quality and selection; (iii) updating building
design and decor; (iv) broadening its customer base; and (v) rationalizing its
franchise base.
On April 24, 1998, NPC Holdings, NPC, Sentinel and Holdings entered into
the Recapitalization Agreement. Pursuant to the Recapitalization, Holdings
exchanged a portion of Holdings' Old Common Stock held by NPC Holdings for
consideration consisting of a series of Preferred Stock and common stock
representing approximately 20% of the voting equity securities on a fully
diluted basis before issuance of options to management. The remaining shares of
Old Common Stock held by NPC Holdings were redeemed for cash. In addition, the
Sentinel Investors purchased shares of Holdings' common stock and Preferred
Stock representing approximately 80% of Holdings' fully-diluted Common Stock
before issuance of options to management. Following the Recapitalization, the
Sentinel Investors and NPC Holdings own securities representing approximately
80% and 20%, respectively, of the voting power of Holdings' outstanding capital
stock before issuance of options to management.
20
<PAGE> 25
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Issuers'
obligations under the Registration Rights Agreement. The Issuers will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The following table sets forth estimated sources and uses of
funds to consummate the Recapitalization.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
SOURCES OF FUNDS
Notes....................................................... $ 75,000
New Revolving Credit Facility............................... 5,000
Equity Contribution and Retained Equity(1).................. 33,750
--------
Total sources of funds................................. $113,750
========
USES OF FUNDS
Recapitalization consideration(2)........................... $101,000
Equity interest retained by NPC Holdings.................... 6,750
Repayment of existing indebtedness.......................... 1,333
Estimated fees and expenses................................. 4,667
--------
Total uses of funds.................................... $113,750
========
</TABLE>
- ---------------
(1) Includes a $27.0 million equity investment made by the Sentinel Investors
and a $6.8 million retained equity interest of NPC Holdings.
(2) The Recapitalization consideration was subject to certain post-closing
adjustments based on the Company's working capital at closing and
performance-based payments with respect to certain Company-owned and
franchised restaurants.
21
<PAGE> 26
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of September 27, 1998 which reflects the Transactions. This table should be
read in conjunction with the "Selected Historical Financial Data" and the
historical consolidated financial statements of the Company and notes related
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1998
----------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C>
Debt:
New Revolving Credit Facility(1).......................... $ 5,226
12% Senior Notes due 2006................................. 75,000
Total debt........................................ 80,226
Shareholders' equity (deficit)(2)........................... (9,146)
-------
Total capitalization.............................. $71,080
=======
</TABLE>
- ---------------
(1) In connection with the Recapitalization, the Company entered into a $15
million revolving credit facility. See "Prospectus Summary -- The
Recapitalization" and "Description of New Revolving Credit Facility."
(2) Shareholders' deficit reflects: (i) The contribution of capital from
Holdings to the Company of $32.7 million; (ii) payables to affiliate of
$33.9 million contributed to capital; (iii) net loss of $.4 million from
June 29, 1998 through September 27, 1998; and (iv) dividend of $75.3 million
from the Company paid to Holdings for the purposes of effecting the
recapitalization.
22
<PAGE> 27
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for the fiscal years ended March 29, 1994, March 28, 1995, March 24,
1996, March 23, 1997, March 29, 1998 and the twenty-six weeks ended September
21, 1997 and September 27, 1998. The selected historical income statement data
for fiscal 1994 and balance sheet data for fiscal 1994 and 1995 were derived
from unaudited financial statements of the Company. Although the data for fiscal
1994 includes 52 weeks of activity, the Company was only owned, operated, and
accounted for by NPC International, Inc., its Parent, for the last 42 weeks of
the 52-week period. The selected historical income statement data for fiscal
1995, 1996, 1997 and 1998 were derived from the audited consolidated financial
statements of the Company which for fiscal 1996, 1997 and 1998 are included
elsewhere in this Prospectus, together with the report thereon of Ernst & Young
LLP, independent auditors. The selected historical financial data of the Company
for the twenty-six weeks ended September 21, 1997 and September 27, 1998 has
been derived from, and is qualified by reference to, the unaudited financial
statements of Romacorp, Inc. included elsewhere herein. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information included therein. Operating results
for the twenty-six weeks ended September 27, 1998 are not necessarily indicative
of the results that may be expected for the entire year ended March 28, 1999.
The following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical consolidated financial statements and the notes related thereto of
the Company included elsewhere in this Prospectus.
23
<PAGE> 28
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
FISCAL YEAR -----------------------------
-------------------------------------------------- SEPTEMBER 21, SEPTEMBER 27,
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Net restaurant sales........ $41,676 $42,137 $ 51,499 $ 68,778 $ 86,408 $40,746 $44,931
Net franchise revenues...... 6,594 7,291 7,570 8,526 8,482 4,145 4,253
------- ------- -------- -------- -------- ------- -------
Total revenues......... 48,270 49,428 59,069 77,304 94,890 44,891 49,184
Depreciation and
amortization................ 3,374 3,829 3,993 5,425 7,197 3,648 3,305
Operating income(1)........... 817 3,259 2,029 7,001 8,883 4,014 4,422
Net interest expense.......... 454 335 876 1,550 2,412 1,040 3,101
Income taxes.................. 124 1,203 545 2,017 2,315 1,042 540
Net income.................... $ 370 $ 1,691 $ 351 $ 3,476 $ 4,165 $ 1,933 $ 998
OTHER FINANCIAL DATA:
Cash flows from:
Operating activities.......... $ 5,228 $ 5,355 $ 9,416 $ 9,874 $ 6,133 $ 4,689
Investing activities.......... (6,178) (16,491) (24,758) (10,686) (7,688) (4,291)
Financing activities.......... (483) 10,909 15,342 812 1,535 (398)
EBITDA(2)(4).................. $ 4,322 $ 7,058 $ 5,765 $ 12,468 $ 16,089 $ 7,663 $ 7,944
EBITDA Margin(2)(3)........... 8.9% 14.3% 9.8% 16.1% 17.0% 17.1% 16.2%
Capital expenditures:
Routine expenditures --
existing restaurants...... $ 210 $ 328 $ 345 $ 246 $ 478 $ 105 $ 298
Renovation.................. 588 141 324 438 653 30 --
New restaurant
development............... 59 5,090 14,190 23,151 9,479 7,480 4,048
------- ------- -------- -------- -------- ------- -------
Total capital
expenditures......... $ 857 $ 5,559 $ 14,859 $ 23,835 $ 10,610 $ 7,615 $ 4,346
======= ======= ======== ======== ======== ======= =======
Ratio of earnings to total
fixed charges(5)............ 1.4x 3.4x 1.5x 2.9x 2.7x 1.5x
BALANCE SHEET DATA:
Facilities and equipment,
net......................... $11,163 $15,659 $ 25,755 $ 46,516 $ 52,600 $54,344
Total assets.................. 36,417 36,196 50,104 68,724 74,747 81,089
Total long-term debt and
payables to affiliate(6).... 8,714 7,086 19,574 34,611 35,717 80,226
Shareholder's equity.......... 21,609 23,301 23,651 27,127 31,292 (9,146)
</TABLE>
- ---------------
(1) For fiscal 1996, operating income includes an impairment and loss provision
for underperforming assets of $3.5 million. Without this provision,
operating income would have been $5.5 million.
(2) As used herein, "EBITDA" represents net income plus: (i) net interest; (ii)
income taxes; and (iii) depreciation and amortization including amortization
of start-up costs. The Company has included information concerning EBITDA in
this Prospectus because it believes that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not a measure determined in accordance with GAAP and should not be
considered as an alternative to, or more meaningful than, earnings from
operations or other traditional indications of an issuer's operating
performance. EBITDA as presented may not be comparable to EBITDA or other
similarly titled measures defined and presented by other companies.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) For fiscal 1996, earnings include the impairment and loss provisions for
underperforming assets of $3.5 million. Without this provision, EBITDA would
have been $9.3 million.
(5) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
on all indebtedness and the estimated interest portion of rental expense.
Absent the $3.5 million charge during fiscal 1996, the ratio of earnings to
total fixed charges would have been 3.3x.
(6) Includes current portion of long-term debt.
24
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See "Prospectus Summary -- The Recapitalization," "Capitalization,"
"Selected Historical Financial Data," "Description of New Revolving Credit
Facility" and the historical consolidated financial statements and notes related
thereto included elsewhere in this Prospectus.
FORWARD LOOKING COMMENTS
The statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other statements which are not
historical facts contained herein are forward looking statements that involve
estimates, risks and uncertainties, including but not limited to: consumer
demand and market acceptance risk; the level of and the effectiveness of
marketing campaigns by the Company, training and retention of skilled management
and other restaurant personnel; the Company's ability to locate and secure
acceptable restaurant sites; the effect of economic conditions, including
interest rate fluctuations, the impact of competing restaurants and concepts,
new product introductions, product mix and pricing, the cost of commodities and
other food products, labor shortages and costs and other risks detailed in this
Registration Statement.
OVERVIEW
Romacorp is the operator and franchisor of the largest national casual
dining chain specializing in ribs with 194 restaurants located in 25 states in
the United States and in over 15 foreign countries. Founded in Miami in 1972,
the Company's restaurants are primarily located in Florida, Texas and
California. Both the Tony Roma's name and its "Famous for Ribs" and "Tony Roma's
A Place for Ribs" slogans are well-recognized throughout the United States. The
restaurants offer a full and varied menu, including ribs, chicken, steaks,
seafood, salads and other menu items in a casual atmosphere which is suitable
for the entire family. Since the inception of Tony Roma's, its baby-back ribs
have won numerous consumer and industry awards in over 25 markets. In addition
to its award-winning ribs, the menu features its signature deep fried onion ring
loaf. The Tony Roma's concept is designed to serve a demographically and
geographically diverse customer base, with high quality food at moderate prices.
The Company's revenues are generated from two primary sources:
Company-owned restaurant sales (food and beverage sales) and franchise income
consisting of franchise restaurant royalties (generally 4% of each domestic
franchise restaurant monthly gross sales and 3% of each international franchise
restaurant's gross sales) and franchise fees (which are typically $50,000 per
domestic restaurant opened and $30,000 per international restaurant opened).
As of March 29, 1998, the Company operated 45 Company-owned and two
joint-venture restaurants in 11 states and through its subsidiaries, franchised
94 restaurants in 19 states and 53 restaurants in international locations. For
fiscal 1998, system-wide sales, Company revenues (including net franchise
revenues) and Company EBITDA were $350.8 million, $94.9 million and $16.1
million, respectively. Company-owned restaurants have generated positive
comparable restaurant sales growth in 13 of the last 14 quarters. The Company
intends to continue to focus on increasing the number of Company-owned
restaurants as well as the number of franchised restaurants, which provide
higher margins than Company-owned restaurants without any required capital
investment by the Company.
From fiscal 1995 to fiscal 1998, the average annual revenue per
Company-owned restaurant increased from approximately $1.8 million to $2.0
million and the number of Company-owned restaurants increased from 23 to 45.
Over the same period, average annual royalties per franchised restaurant, net of
reserve for doubtful accounts, increased from approximately $54,900 to $61,600
and the net number of franchised restaurants increased from 143 to 147.
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<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth the Company's historical consolidated
revenues for fiscal 1996, 1997, 1998 and the twenty-six weeks ended September
21, 1997 and September 27, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY-SIX WEEKS ENDED
----------------------- ----------------------------------------
1996 1997 1998 SEPTEMBER 21, 1997 SEPTEMBER 27, 1998
----- ----- ----- ------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Net restaurant
sales........... $51.5 $68.8 $86.4 $40.8 $44.9
Net franchise
revenues........ 7.6 8.5 8.5 4.1 4.3
----- ----- ----- ----- -----
Total
revenues.. $59.1 $77.3 $94.9 $44.9 $49.2
===== ===== ===== ===== =====
</TABLE>
The following table sets forth certain consolidated historical financial
data for the Company expressed as a percentage of net restaurant sales for
fiscal 1996, 1997, 1998 and the twenty-six weeks ended September 21, 1997 and
September 27, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY-SIX WEEKS ENDED
----------------------- ----------------------------------------
1996 1997 1998 SEPTEMBER 21, 1997 SEPTEMBER 27, 1998
----- ----- ----- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Net restaurant sales............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 34.1% 33.3% 33.6% 32.5% 35.1%
Direct labor..................... 30.6% 31.2% 30.9% 31.8% 30.8%
Other(1)......................... 25.9% 24.2% 24.3% 24.7% 24.1%
----- ----- ----- ----- -----
Total operating expenses......... 90.6% 88.7% 88.8% 89.0% 90.0%
----- ----- ----- ----- -----
Income from Company-owned
restaurant operations.......... 9.4% 11.3% 11.2% 11.0% 10.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Other operating expenses include rent, depreciation and amortization,
advertising, utilities, supplies, and insurance among other costs directly
associated with operation of restaurant facilities.
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED
SEPTEMBER 21, 1997
Net restaurant sales. Net restaurant sales for the twenty-six weeks ended
September 27, 1998 increased $4.2 million to $44.9 million, or 10.3% due to a
net increase in the number of stores and an increase in comparable store sales
of 1.8%. There were 46 stores open as of September 27, 1998 versus 44 stores
open as of September 21, 1997. In addition, a new menu was introduced in the
latter part of the third quarter of fiscal 1998 which repositioned baby-back
ribs as the premier rib offering, introduced new menu items, increased portion
sizes and increased prices on selected items. This strategy resulted in an
approximate 2% weighted average price increase to offset the increased product
cost associated with the new and higher quality items as well as increased
baby-back ribs costs.
Net franchise revenues. Net franchise revenues increased for the
year-to-date 2.6% to $4.3 million, respectively, due to an increase in franchise
fees, partly offset by a decrease in royalty income resulting from the
devaluation of Asian currencies. In addition, year-to-date bad debt expense
decreased. The net number of franchise stores increased from 144 as of September
21, 1997 to 152 as of September 27, 1998.
Cost of sales. Cost of sales as a percentage of net restaurant sales
increased to 35.1% from 32.5% for the year-to-date, primarily due to an increase
in the average price of baby-back ribs of 16%.
Direct labor. Direct labor as a percentage of net restaurant sales for the
year-to-date decreased to 30.8% from 31.8% due largely to leverage obtained from
increases in comparable sales volumes. Also affecting the positive change was
the opening of two new stores versus five new store openings a year ago. Usually
high
26
<PAGE> 31
labor costs are incurred with store openings due to increased training and
staffing levels to ensure the customer's initial experience is favorable. In
addition, workers compensation insurance declined.
Other. Other operating expenses decreased as a percentage of sales from
24.7% to 24.1% for the year-to-date due to a revised estimate of real estate
taxes and increased leverage obtained from increases in comparable sales.
General and administrative expenses. General and administrative expenses
for the twenty-six weeks ended September 27, 1998 decreased $277,000 due to
lower pre-opening and profit sharing expenses partly offset by increases in the
number of management trainees, field supervision salaries, management fees and
fees paid to the Company's former parent under the transitional services
agreement, as well as a decrease in costs capitalized for new restaurants.
Interest expense. Interest expense increased $2.1 million for the
year-to-date due to interest related to the notes and to decreased capitalized
interest expense which resulted from fewer restaurants under construction in the
current year.
Miscellaneous. Miscellaneous income for the twenty-six weeks ended
September 27, 1998 includes $169,000 for business interruption insurance
proceeds related to a restaurant destroyed by fire.
Tax Provision. Income taxes for the twenty-six weeks ended September 27,
1998 were consistent with the prior year at approximately 35% of pretax income.
FISCAL 1998 COMPARED TO FISCAL 1997
Net restaurant sales. Net restaurant sales for fiscal 1998 increased $17.6
million, or 25.6%, to $86.4 million from $68.8 million in fiscal 1997. This
increase was due largely to the addition of five restaurants in fiscal 1998, 13
restaurants in fiscal 1997, and 0.9% comparable sales growth for restaurants
open for more than 18 months. In addition, as discussed above, a new menu was
introduced resulting in an approximate 2% weighted average price increase.
Net franchise revenues. Net franchise revenues for fiscal 1998 decreased
slightly primarily due to lower revenues from sales of international franchise
rights in fiscal 1998 than in fiscal 1997. This decrease was partially offset by
an increase in royalty revenue of 7% due to growth of the franchise system.
Cost of sales. Cost of sales as a percentage of net restaurant sales
increased to 33.6% for fiscal 1998 from 33.3% for fiscal 1997 due to an increase
in the average price of baby-back ribs of 17% for the year. This increase was
partially offset by menu enhancements implemented in fiscal 1998 and fiscal 1997
which caused favorable sales mix changes and included price increases on select
items.
Direct labor. Direct labor as a percentage of net restaurant sales
decreased to 30.9% for fiscal 1998 from 31.2% for fiscal 1997. This decrease was
primarily due to fewer new restaurant openings with six restaurants opened in
fiscal 1998 compared to 14 restaurants in fiscal 1997. The higher labor costs in
fiscal 1997 were due to training and increased staffing levels which typically
accompany restaurant openings to ensure a favorable dining experience for first
visit customers. This decrease was partially offset by the increase in the
federal minimum wage in September 1997.
Other. Other operating expenses for fiscal 1998 were relatively flat as a
percentage of restaurant sales compared to fiscal 1997.
General and administrative expenses. General and administrative expenses
were relatively flat at approximately $9.3 million in both fiscal 1998 and 1997.
General and administrative expenses as a percentage of total revenues decreased
to 9.8% in fiscal 1998 from 12% in fiscal 1997, reflecting the leverage from
year-to-year revenue growth. General and administrative expenses include the
amortization of goodwill and pre-opening costs. These costs increased over
fiscal 1997 due to the amortization of pre-opening costs, which occurs over the
twelve months following a restaurant opening.
Interest expense. Interest expense grew consistently during fiscal 1998 as
restaurant growth and development was financed through the Company's borrowings
from NPC.
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<PAGE> 32
Tax provision. The Company's tax provision for fiscal 1998 resulted in an
effective tax rate of 35.7% compared to 36.7% for fiscal 1997. See Note 5 of the
Notes to Consolidated Financial Statements for a discussion of the differences
which cause the effective tax rate to vary from the statutory federal income tax
rate of 35%.
FISCAL 1997 COMPARED TO FISCAL 1996
Net restaurant sales. Net restaurant sales for fiscal 1997 increased $17.3
million, or 33.6%, to $68.8 million from $51.5 million in fiscal 1996. This
increase was due largely to the addition of 13 restaurants in fiscal 1997, six
restaurants in fiscal 1996, and 2.2% comparable restaurant sales growth for
restaurants open for more than 18 months. These increases were partially offset
by the closing of six restaurants throughout fiscal 1997 and one restaurant
during the last week of fiscal 1996. This closure strategy was implemented in
the fourth quarter of fiscal 1996 and targeted low volume stores with poor
economic performance. In addition, in order to mitigate the impact of an
increase in the federal minimum wage in October 1996, a weighted average price
increase of approximately 2% was implemented in the third quarter of fiscal
1997.
Net franchise revenues. Net franchises revenue for fiscal 1997 increased
$1.0 million, or 12.6%, to $8.5 million from $7.6 million in fiscal 1996. This
increase was primarily due to higher revenues from sales of international
franchise rights in fiscal 1997 than in fiscal 1996. In addition, 12 franchise
restaurants were developed in fiscal 1996 while 13 were closed or sold, as the
Company aggressively rationalized nonperforming franchisees from the franchise
system.
Cost of sales. Cost of sales as a percentage of net restaurant sales
decreased to 33.3% from 34.1% in fiscal 1996, despite an increase in the average
price of baby-back ribs of 8% for the year, due to menu enhancements which
caused favorable changes in sales mix and price increases on select items during
fiscal 1996 and fiscal 1997.
Direct labor. Direct labor as a percentage of net restaurant sales
increased to 31.2% for fiscal 1997 from 30.6% for fiscal 1996 primarily due to
added expenses associated with the opening of 14 restaurants during the year.
These incremental labor costs are due to training expenses and increased
staffing levels which typically accompany restaurant openings to ensure a
favorable dining experience for first visit customers. The federal minimum wage
increase, effective in October 1996, also impacted the labor percentage, but was
partially offset by price increases.
Other. Other operating expenses as a percentage of net restaurant sales
for fiscal 1997 decreased from 25.9% for fiscal 1996 to 24.2% for fiscal 1997
largely due to the opening of higher volume prototype facilities and the closure
of seven older, underperforming restaurants during fiscal 1997.
General and administrative expenses. General and administrative expense
for fiscal 1997 increased $2.4 million, or 34.3%, to $9.3 million from $6.9
million in fiscal 1996. This increase was largely due to employee related
expenses as the management infrastructure was being developed to support the
Company's growth initiative that began in fiscal 1996. Training and travel cost
also increased due to store openings, and professional fees increased modestly
over the prior year. In addition, amortization of pre-opening expenses also
increased due to the acceleration of new restaurant development.
Impairment and loss provision for underperforming assets. The Company
recorded a pre-tax provision of $3.5 million in fiscal 1996 related to the
disposition of six underperforming Tony Roma's restaurants and the relocation of
two others.
Interest expense. Interest expense grew consistently during fiscal 1997 as
restaurant growth and development was financed through the Company's borrowings
from NPC.
Tax provision. The Company's tax provision for fiscal 1997 resulted in an
effective tax rate of 36.7% compared to 60.8% for fiscal 1996. See Note 5 of the
Notes to Consolidated Financial Statements for a discussion of the differences
which cause the effective tax rate to vary from the statutory federal income tax
rate of 35%.
28
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
Post-Transactions
The Company believes cash flow from operations and working capital are
principal indicators of its liquidity condition. The Company's principal sources
of liquidity on both a long-term and short-term basis are cash flow generated
from operations and borrowings under the New Revolving Credit Facility. The
Company's principal uses of liquidity will be to meet debt service requirements,
finance the Company's capital expenditures and provide working capital. The
Company expects that capital expenditures in fiscal 1999 will not exceed $10.0
million. The Company incurred substantial indebtedness in connection with the
Transactions. The Company has approximately $80.0 million of indebtedness
outstanding. The Company's debt service obligations could have important
consequences to holders of the Exchange Notes. See "Risk Factors -- Risk Factors
Associated with Financial Leverage and the Exchange Notes -- High Level of
Indebtedness; Ability to Service Indebtedness."
Concurrently with the consummation of the Transactions, the Company entered
into the New Revolving Credit Facility. The New Revolving Credit Facility
provides for borrowings in an aggregate principal amount of up to $15 million
which is a five-year facility and bears interest at a rate per annum equal (at
the Company's option) to: (i) a floating rate per annum equal to the Prime Rate
(as defined in the New Revolving Credit Facility); or (ii) a floating rate per
annum equal to 2.25% in excess of the LIBOR Rate (as defined in the New
Revolving Credit Facility). Obligations of the Company under the New Revolving
Credit Facility not paid when due shall bear interest at a default rate equal to
2% in excess of the non-default interest rate. The Company is required to pay
The Provident Bank, commitment and other similar fees. The New Revolving Credit
Facility will provide financing for future working capital and other general
corporate purposes. See "Description of New Revolving Credit Facility."
During September, the Company obtained two commitments from a financial
group. One is a commitment to purchase 11 restaurants to be developed not to
exceed $1.75 million each or $19.5 million in the aggregate and to subsequently
enter into a lease agreement with the Company as lessee. The lease agreement
provides for minimum annual rent of 10% of the purchase price which will
increase 6% on the third anniversary of the lease and 6% every three years
thereafter. Payments are to be made monthly. The lease term will be for 15 years
with two five year renewal options of five years each. The minimum annual rent
for the renewal option periods will be set at fair market value. The second
commitment, a Leasehold Mortgage Loan Commitment, provides for the funding of
the construction of 11 restaurants on leased land at a rate of 350 basis points
over the then existing rate of 15-year United States Treasuries with an
amortization period of 15 years and payments to be made monthly. Both
commitments expire June 30, 2000.
Historical
Historically, the Company's principal sources of funds have been operations
and borrowings under a credit facility with NPC. The Company's principal uses of
funds have been capital expenditures and payments on a note payable related to
the acquisition of a franchisee's restaurants.
Cash provided by operating activities has consistently increased largely
due to leverage gained from the growth in restaurant count and improved
operating results. Cash was used for normal maintenance capital expenditures and
to fund the development of six, fourteen, six, five and two restaurants in
fiscal 1996, 1997, 1998 and the twenty-six weeks ended September 21, 1997 and
September 27, 1998, respectively. Capital expenditures were made under approval
of NPC. Cash was used to purchase restaurants from franchisees in fiscal 1996.
Capital Expenditures
The Company's capital expenditures in fiscal 1996, 1997, 1998 and the
twenty-six weeks ended September 21, 1997 and September 27, 1998 were
approximately $14.9 million, $23.8 million, $10.6 million, $7.6 million and $4.3
million, respectively. Such expenditures were used primarily to fund the
maintenance, renovation and new development of Company-owned restaurants. During
fiscal 1999, the Company estimates total capital expenditures including ongoing
capitalized maintenance to be approximately $13.0 million. The
29
<PAGE> 34
Company plans to open six restaurants and fund all six restaurants through the
financing program described above. After funding, net capital expenditures will
be approximately $8 million.
SEASONALITY
Tony Roma's sales are traditionally higher from January to March due to an
increase in vacation and part-time residence activity in warm weather climates
and resort locations where a significant number of the Company's restaurants are
located.
RIB PRICING
Baby-back ribs represent approximately 25% of the Company's cost of sales.
Because ribs are a by-product of pork processing, their price is influenced
largely by the demand for boneless pork. Historically, the cost of baby-back
ribs has been volatile. Significant changes in the prices of ribs could
significantly increase the Company's cost of sales and adversely effect the
business, results of operations and financial condition of the Company.
EFFECTS OF INFLATION
Inflationary factors such as increases in food and labor costs directly
affect the Company's operations. Because many of the Company's restaurant
employees are paid on an hourly basis, changes in rates related to federal and
state minimum wage and tip credit laws will effect the Company's labor costs.
The Company cannot always effect immediate price increases to offset higher
costs and no assurance can be given that the Company will be able to do so in
the future.
YEAR 2000 ISSUE
The Company is in the process of evaluating and modifying its computer
systems and applications for Year 2000 compliance. Management believes that all
significant systems will be Year 2000 compliant prior to the end of the 1999
calendar year.
As the Company has entered into a Transition Services Agreement, providing
for accounting services, payroll services and use of NPC's proprietary POS
System, part of the evaluation is a review of NPC's systems and programs.
Management has reviewed NPC's plans for Year 2000 compliance and NPC plans to
complete all modifications and testing by December 31, 1998, including the POS
System. NPC will incur the costs for the Year 2000 compliance efforts related to
the Transition Services Agreement.
In addition to a review of NPC's systems, the Company is in the process of
evaluating third party vendors for Year 2000 readiness. This includes verbal as
well as written inquiries to substantially all of the Company's vendors. These
responses will be assessed and prioritized in order of significance to the
business. To the extent that responses are not satisfactory, contingency plans
will be developed. Furthermore, the Company plans to provide all franchises with
information related to the risks associated with the Year 2000 issue by December
31, 1998.
Additionally, the Company is in the process of reviewing non-information
technology equipment and anticipates completion of this effort by March 31,
1999. It is believed that any necessary upgrades or replacements will be minimal
and will be funded out of existing cash flows from operations.
Since the majority of the systems work is being performed by NPC, the
Company will incur minimal costs related to the Year 2000 issue. Any work
performed to remedy any Year 2000 issues will be performed by existing Company
staff and any effect on the financial condition and results of operations due to
the diversion of resources will be insignificant.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain
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<PAGE> 35
resources, third party modification plans and other factors. Unanticipated
failures by critical vendors as well as the failure by the Company to execute
its own remediation efforts could have a material adverse effect on the cost of
the project and its completion date. As a result, there can be no assurance that
these forward-looking estimates will be achieved and the actual cost and vendor
compliance could differ materially from those plans, resulting in material
financial risk.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, Statement of Position ("SOP") 98-5 Accounting for Costs of
Start-up Activities was issued. The SOP requires the Company to expense
pre-opening costs as incurred and to report the initial adoption as a cumulative
effect of a change in accounting principles as described in APB No. 20,
Accounting Changes, during the first quarter of its fiscal year 2000. The
cumulative effect upon adoption will result in a one-time charge to income in an
amount equal to the net book value of the Company's pre-opening costs. This
change will also result in the discontinuation of amortization of pre-opening
cost expense in subsequent periods. At March 29, 1998, the balance of
pre-opening costs was $466,000.
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<PAGE> 36
BUSINESS
Romacorp is the operator and franchisor of the largest national casual
dining chain specializing in ribs with 194 restaurants located in 25 states in
the United States and in over 15 foreign countries. Founded in Miami in 1972,
the Company's restaurants are primarily located in Florida, Texas and
California. Both the Tony Roma's name and its "Famous for Ribs" and "Tony Roma's
A Place for Ribs" slogans are well-recognized throughout the United States. The
restaurants offer a full and varied menu, including ribs, chicken, steaks,
seafood, salads and other menu items in a casual atmosphere which is suitable
for the entire family. Since the inception of Tony Roma's, its baby-back ribs
have won numerous consumer and industry awards in over 25 markets. In addition
to its award-winning ribs, the menu features its signature deep fried onion ring
loaf.
The Tony Roma's concept is designed to serve a demographically and
geographically diverse customer base, with high quality food at moderate prices.
Tony Roma's restaurants are generally located in free-standing buildings with
approximately 200 seats and separate bar areas. The restaurants have a fun,
comfortable atmosphere with distinctive and varied decor and provide consumers
with high quality, friendly service. The Tony Roma's concept is appropriate for
a wide variety of casual dining occasions including family dinners and business
lunches.
As of March 29, 1998, the Company operated 45 Company-owned and two
joint-venture restaurants in 11 states and through its subsidiaries, franchised
94 restaurants in 19 states and 53 restaurants in international locations. For
fiscal 1998, system-wide sales, Company revenues (including net franchise
revenues) and Company EBITDA were $350.8 million, $94.9 million and $16.1
million, respectively. Company-owned restaurants have generated positive
comparable restaurant sales growth in 13 of the last 14 quarters. The Company
intends to continue to focus on increasing the number of Company-owned
restaurants as well as the number of franchised restaurants.
From fiscal 1995 to fiscal 1998, the average annual revenue per
Company-owned restaurant increased from approximately $1.8 million to $2.0
million, and the number of Company-owned restaurants increased from 23 to 45.
Over the same period, average annual royalties per franchised restaurant net of
reserve for doubtful accounts, increased from approximately $54,900 to $61,600,
and the net number of franchised restaurants increased from 143 to 147.
With efforts beginning in fiscal 1995, the Company's current management,
led by its President, Robert B. Page, has continued to strategically reposition
the Tony Roma's concept by: (i) improving operations; (ii) upgrading menu
quality and selection; (iii) updating building designs and decor; (iv)
broadening its customer base; and (v) rationalizing its franchise base. As part
of such initiative, over 70% of Company-owned restaurants were either built or
significantly renovated within the last three years to meet consumer
preferences. In addition, management has improved the support provided to its
franchisees, eliminated certain underperforming franchisees and strengthened its
franchise base. The Company believes as a result of such efforts, the Company's
revenues and EBITDA grew at a compound annual growth rate of 24% and 31%,
respectively, from fiscal 1995 to fiscal 1998.
COMPETITIVE STRENGTHS
Leader in Rib Category. Tony Roma's is the largest national casual dining
restaurant chain specializing in ribs in the United States. Since its inception,
Tony Roma's has won numerous consumer and industry awards for its rib recipe,
including first place in the National Rib Cook-Off and "best ribs" awards in
over 25 markets. Although several of its national competitors offer ribs as a
menu selection, the Company believes that Tony Roma's well-established and
recognized brand name makes it the leader in the rib category with a reputation
for high quality food.
Established, Internationally Recognized Restaurant Brand. With 141 U.S.
and 53 international restaurants, Tony Roma's is a well-established and
recognized brand in the United States and abroad. Operating under the slogans,
"Famous for Ribs" and "A Place for Ribs", the Company believes that the majority
of consumers in the United States identify the Tony Roma's brand with ribs. The
Company has achieved strong
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<PAGE> 37
consumer awareness levels without substantial television advertising. Its
marketing programs primarily rely on radio, outdoor, newspaper, direct mail,
yellow pages and word of mouth advertising. The Company believes that its strong
brand identity enhances its competitive position compared to other casual dining
chains.
Strong Franchise Network. The Company has 47 franchisees, most of which
own and operate two or more restaurants and the largest of which operates 24
restaurants. The Company's franchisees operate 147 restaurants in 19 states and
over 15 foreign countries (including ten restaurants in Canada and 26
restaurants in the Asia Pacific region). In addition to providing the Company
with substantial royalty revenues ($9.1 million for fiscal 1998), the franchise
network allows the Company to expand the Tony Roma's system without substantial
capital investment by the Company. From fiscal 1995 to fiscal 1998, 51 new
franchise restaurants were opened and 37 franchise restaurants, most of which
were not performing their obligations under their franchise agreements, were
closed. The Company anticipates that franchisees will open approximately 45
additional restaurants by 2001.
Broadly Appealing, High Quality Menu. The Company's restaurants offer
customers a full and varied menu, including ribs, chicken, steaks, seafood,
salads and other menu items. The items are moderately priced with entrees
typically ranging in price from $3.99 to $11.99 for lunch and $4.99 to $16.49
for dinner. Dessert selections range in price from $1.99 to $3.99. The Company
believes that the combination of its diverse and full menu selection and casual
dining ambiance appeals to a wide geographic and demographic mix of customers.
Management believes that Tony Roma's has significant expansion potential in all
50 United States as well as in most regions of the world.
Updated, Modern Restaurant Base. In fiscal 1995, the Company introduced a
new prototype which is designed to attract a broader segment of consumers. The
prototype features new lighting and light color decor packages which the Company
believes enhance the appeal of its restaurants for family dining, business
lunches and other casual dining occasions. Within the last three years, over 70%
of the Company-owned restaurants were either built or significantly renovated to
conform to the new prototype. The Company continually seeks to maintain unique
interior and exterior facility design and decor to meet consumer preferences. In
addition, the Company encourages, and if necessary can require, its franchisees
to remodel their restaurants.
Experienced and Proven Management Team. The Company's senior management
team has an average of 20 years of experience in the restaurant industry, four
of which are with Tony Roma's. Since fiscal 1995, the current management team,
led by Robert Page, has focused on repositioning the Tony Roma's concept by
implementing initiatives to improve operations and broaden consumer appeal.
GROWTH STRATEGY
The Company intends to continue the programs and initiatives that it has
put in place over the last three years to support and increase the revenues and
operating performance of its existing Company-owned and franchised restaurants.
In addition, the Company plans to achieve growth by developing new Company-owned
restaurants and increasing franchise revenues.
Develop New Company-Owned Restaurants. Management has demonstrated its
ability to open and operate new restaurants, expanding the number of
Company-owned restaurants to 45 at the end of fiscal 1998 from 23 in fiscal
1995. The Company believes that the development of successful Company-owned
restaurants strengthens the Tony Roma's concept and the Company's growth
potential. The Company intends to develop and operate new restaurants and plans
to open six to eight additional Company-owned restaurants in fiscal 1999. To
finance the development of new Company-owned restaurants, the Company expects to
selectively use operating lease financing facilities thereby reducing the
average capital expenditure required per restaurant.
Increase Franchise Revenues. The Company plans to continue to strengthen
its franchise base by adding franchised restaurants in existing and new
geographic areas, both domestically and internationally. In expanding the number
of franchised restaurants, the Company focuses on its existing franchisees which
it anticipates will open the majority of the Company's franchise restaurants in
the foreseeable future. In addition, the Company targets new franchisees that
are experienced multi-unit restaurant operators with
33
<PAGE> 38
significant financial resources. Management continually re-evaluates and
upgrades the support that it provides to franchisees. The Company believes that
existing franchisees have significant restaurant operating experience and
adequate access to capital to support the Company's growth strategy.
CONCEPT
The Tony Roma's concept is designed to offer a high quality, full and
varied menu at moderate prices in a casual but attractive dining atmosphere to a
demographically and geographically diverse customer base. Tony Roma's appeals to
a broad segment of the population and provides a casual dining experience that
features the concept's internationally renowned and award-winning baby-back ribs
and its signature deep fried onion ring loaf.
Menu. Each of the Company's restaurants offers a full and varied menu of
high quality, moderately priced food and beverage items, including ribs, steaks,
seafood, chicken, salads and other menu items. Each restaurant offers customers
certain core menu items, providing consistency among restaurants and support of
the Tony Roma's concept. Additional approved menu items may be offered by each
restaurant in order to meet regional preferences. All entrees served at Tony
Roma's restaurants are prepared to order. Menu items must be approved by the
Company's product research and development department, and menu offerings are
reviewed for concept integrity and tailored to meet changing consumer tastes.
The Tony Roma's menu currently features over 85 items which include a wide
variety of appetizers, lunch and dinner entrees, desserts and beverages.
Appetizers range in price from $3.99 to $7.99, entrees range in price from $3.99
to $11.99 for lunch and $4.99 to $16.49 for dinner, and dessert selections range
in price from $1.99 to $3.99. While menu prices of franchised restaurants
generally follow those of Company-owned restaurants, franchisees have the
ability to set their own menu prices, and there are regional variations. Each
restaurant serves coffee, iced tea and soft drinks with complimentary refills as
well as a broad offering of beer, wine and specialty alcoholic beverages.
Restaurant Design. In fiscal 1995, as part of an initiative to attract a
broader customer base, the Company implemented a major prototype redesign which
features a new interior decor package with improved lighting, color schemes and
decor. In addition, the Company has developed an exterior design which updates
its restaurants while maintaining an identifiable Tony Roma's image.
Restaurant Operations and Training. All Tony Roma's are operated according
to uniform operating standards and procedures relating to selection of menu
items, the quality and preparation of menu items, maintenance, cleanliness and
presentation of facilities and employee conduct. Company-owned restaurants are
typically run by one general manager, two to three assistant managers and a
kitchen manager. All of the Tony Roma's restaurant managers have completed a
comprehensive management training program which consists of an extensive
eight-week program conducted at certified training restaurants by regional
training managers. In addition, restaurant management development is continued
through periodic workshops and seminars sponsored by the Company. Detailed
operations manuals reflecting current operations and control procedures are
provided to each restaurant and district manager as well as others in the
organization.
Quality Control. The Company maintains a high level of quality standards
and emphasizes the importance of these standards in all aspects of its
purchasing, food preparation and service, training and management development
systems. These standards are promoted not only within Company-owned restaurants
but also throughout the franchise system. The quality standards of the Company's
food service are monitored by the Company's research and development quality
assurance staff and by unannounced visits by unidentified guests who have been
sent by the Company to evaluate a particular restaurant's food, service and
overall quality standards.
Advertising and Marketing. The Company advertises on a regional and local
basis, relying primarily on radio advertising to communicate its core message.
Historically, the Company has spent approximately 3% of net sales on advertising
expenditures. In fiscal 1998, advertising expenditures were distributed as
follows: radio (37%), television (36%), outdoor media (12%), newspaper (9%) and
other (6%). The production of marketing materials is funded through a joint
marketing account to which the Company, domestic franchisees,
34
<PAGE> 39
and international franchisees contribute 0.5%, 0.5% and 0.25%, respectively, of
their annual gross sales (the "Joint Marketing Account"). The focus of external
marketing is the core ribs concept, while internal point-of-purchase advertising
focuses on add-ons and non-core menu items including appetizers, combination
platters, desserts and beverages.
Average Check. For fiscal 1998, the average guest check for Company-owned
restaurants was approximately $12.50.
UNIT ECONOMICS
The Company's management team focuses on selecting locations with the
potential of producing significant revenues while controlling capital
expenditures and occupancy costs as a percent of sales. The Company has opened
23 new prototype restaurants since the beginning of fiscal 1995 under the
ownership of NPC. Such 23 restaurants, which had an average of approximately 200
seats, generated average annualized revenue per restaurant of $2.1 million,
average annualized operating income of $246,000 and average annualized
restaurant cash flow of $364,000 during the fiscal year ended March 29, 1998.
Eleven of these 23 restaurants had been operating for at least 18 months as of
March 29, 1998. These 11 restaurants generated average revenue per restaurant of
$2.1 million, average operating income of $250,108 and average restaurant cash
flow of $361,135 during the fiscal year ended March 29, 1998. Average cash flow
represents operating income before depreciation and amortization. The average
cash investment, excluding pre-opening expenses, to open such 11 restaurants was
approximately $1.7 million. Pre-opening expenses were approximately $131,982 per
restaurant. Prior to the Recapitalization, the Company's practice was to own the
land and buildings for a significant number of the Company-owned restaurants. In
the future, the Company expects to selectively use operating lease financing
facilities, thereby reducing the average capital expenditure required per
restaurant.
FRANCHISE OPERATIONS
Franchising became a key element of Tony Roma's growth strategy in 1984.
The Company currently has franchise arrangements with approximately 47
franchisees, including nine international franchisees, most of which are
multi-restaurant operators and the largest of which operates 24 restaurants. The
Company has generally selected franchisees that are experienced, successful,
multi-restaurant operators who have been involved with other restaurant
concepts. Although there are some single restaurant franchisees in the system,
the Company targets franchisees who can develop several restaurants.
As of March 29, 1998, the Company's franchisees operated 147 Tony Roma's
restaurants in 19 states and over 15 foreign countries (including ten
restaurants in Canada and 26 restaurants in the Asia Pacific region). The
Company estimates that franchisees will open a minimum of 15 restaurants in
fiscal 1999.
The Company's largest franchisee is WDI Systems, Inc. ("WDI") headquartered
in Tokyo, Japan. As of March 29, 1998, WDI, through its subsidiaries and
affiliates, operated 24 Tony Roma's restaurants. The largest domestic franchisee
is Cimms, Inc. which currently operates ten Tony Roma's restaurants in
California.
Domestic Franchise Arrangements. Each Tony Roma's franchise arrangement
consists of a development agreement and one or more separate franchise
agreements, one for each location. Development agreements grant the exclusive
right to develop a number of restaurants in a designated geographical area. The
term of a domestic development agreement varies depending on the number of
restaurants to be developed and generally ranges from one to five years. A
separate franchise agreement relating to the operation of each restaurant is
entered into by the franchisee and typically has a term of 20 years. Franchise
agreements generally permit renewal for a term of up to 20 years. On renewal,
the franchisee may be required, at the option of the Company, to sign the then
current form of franchise agreement (including the then current royalty rates
and advertising fees).
For each restaurant operated, a franchisee is currently obligated to pay to
the Company a royalty fee equal to 4% of the restaurant's monthly gross sales.
In addition, franchisees are required to contribute 0.5% of gross sales to the
Joint Marketing Account and may be required to participate in local market
advertising
35
<PAGE> 40
cooperatives. The Company's current form of development agreement requires an
initial franchise fee of $50,000 for each restaurant developed during its term.
The terms, royalties and advertising fees under a limited number of franchise
agreements and the franchise fees under older development agreements vary from
the currently offered franchise arrangements. Each franchisee must meet certain
operational, financial and business requirements.
Restaurant Design and Construction. The Company makes available to
franchisees the plans and specifications for a typical restaurant, retaining the
right to prohibit or modify the use of any plan. Each franchisee, with
assistance from the Company, is responsible for selecting the site for each
restaurant within its territory, subject to the Company's approval.
Advertising. Domestic franchisees are required to spend at least 2% of
annual gross sales on local advertising and promotional activities. In addition,
franchisees are required to contribute 0.5% of their annual gross sales to the
Joint Marketing Account which is used generally for the design and production of
marketing materials. Under certain circumstances, the Company has the right to
form a marketing cooperative in which all cooperative members are required to
contribute up to 2% of annual gross sales to the cooperative for the purpose of
media advertising. The contributions to the cooperative are in lieu of
expenditures by individual members for local restaurant marketing.
Training and Support. The Company provides ongoing advice and assistance
to franchisees in connection with the operation and management of Tony Roma's
restaurants through training, meetings, seminars, on-premise visits, and by
written or other informational material. Such advice and assistance relates to
revisions to operating manual policies and procedures, and new developments,
techniques, and improvements in restaurant management, food and beverage
preparation, sales promotion, and service concepts.
Concept Integrity. The Company periodically monitors franchisee operations
and inspects restaurants, principally through franchise business managers who
report to the Company's Director of Franchise Operations. The Company makes both
scheduled and unannounced inspections of restaurants to ensure that only
approved products are in use and that Company prescribed practices and
procedures are followed. A minimum of three planned visits are made each year,
during which a representative of the Company conducts an inspection and
consultation at each restaurant. Franchisees must comply with the Company's high
standards of quality, service and cleanliness. The Company has the right to
terminate a franchise if a franchisee does not operate and maintain a Tony
Roma's restaurant in accordance with the Company's standards.
International Franchise Agreements. The Company franchises the Tony Roma's
concept internationally. The Company seeks highly qualified franchisees with the
resources to open multiple restaurants in each territory and familiarity with
the local business environment. The Company believes that the success of further
international expansion will depend upon, among other things, its ability to
attract qualified franchisees and operating personnel, to comply with the
regulatory requirements of foreign jurisdictions, and to supervise international
franchisee operations effectively. International franchisees pay an initial
franchise fee of $30,000 per restaurant, a royalty fee equal to 3% of gross
sales and 0.25% of gross sales to the Joint Marketing Account. In addition,
costs associated with visits to international locations by the Company's
personnel are borne by the franchisee.
Reporting and Royalty Collection. Franchisees are required to report
weekly sales by facsimile or telephone to the Company. In addition, franchisees
are required to report marketing expenditures to the Company. Franchisees are
required to make royalty payments and payments to the Joint Marketing Account
based upon gross sales for the previous month.
MANAGEMENT INFORMATION SYSTEMS
The POS System is installed in all Company-owned restaurants and is an
effective means of communication between each restaurant's servers and kitchen,
allowing employees to serve the customers in a quick and consistent manner while
maintaining a high level of control. In addition, the POS System is a source of
data for the Company's back office systems and provides support for inventory,
payroll, accounts payable and cash
36
<PAGE> 41
management. The back office system provides management reporting and a
communications interface to the Company's corporate systems which enables the
Company to supply on a daily basis, store level sales, key operating statistics
and trend data to each restaurant generally less than ten hours after the close
of business. Quick access to operating data allows the Company to deal with
situations in a timely manner and assists in the monitoring of quality
assurance. As part of the Transition Services Agreement, the Company was granted
a perpetual license to use the POS System.
PURCHASING
To assure consistent product quality and to obtain optimum pricing,
purchases of food and restaurant equipment for Company-owned restaurants are
made through a centralized purchasing function in its corporate office in
Dallas, Texas. The Company negotiates directly with meat processors for its rib
inventory, which is principally maintained in various independent warehouses.
Inventory is then shipped to restaurants via commercial distributors. Produce
and dairy products are obtained locally. The Company is generally not dependent
upon any one supplier for availability of its products, and its food and other
products are generally available from a number of acceptable sources. The
Company has a policy of maintaining alternate suppliers for most of its baseline
products. The Company customarily obtains its food supplies through purchase
orders which are terminable at the option of either party without notice. The
Company does not manufacture any products nor act as a middleman. From time to
time, the Company engages in forward buying and may consider other strategies
with regard to rib costs in order to minimize the impact of potential
fluctuations in prices. This practice could help stabilize the Company's food
costs during times of fluctuating prices.
TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The registered trademarks "Tony Roma's," "Tony Roma's Famous for Ribs,"
"Tony Roma's A Place for Ribs," and all other trademarks, service marks,
symbols, slogans, emblems, logos, and designs used in the Company's restaurant
system are of material importance to its business. All trademark and franchise
rights are owned by the Company. The use of these marks is licensed to
franchisees under franchise agreements for use with respect to the operation and
promotion of their Tony Roma's restaurants.
COMPETITION
The Company's business and the restaurant industry in general are highly
competitive and are often affected by changes in consumer tastes and eating
habits, national, regional and local economic conditions, population and
demographic trends, traffic patterns and the location and number of, and type of
food served by, competing restaurants. The Company competes directly and
indirectly with all restaurants, from national and regional chains to local
establishments, including national and small rib chains and local independent
rib restaurants. The Company competes primarily on the basis of quality of food
and service, ambiance, location and price-value relationship. Many of the
Company's competitors are well-established in the mid-priced casual dining
segment and have access to greater financial, marketing and other resources than
the Company.
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<PAGE> 42
PROPERTIES
The following table lists the U.S. locations of each of the
Company-operated, joint venture and franchised restaurants as of September 27,
1998:
<TABLE>
<CAPTION>
COMPANY
STATE OWNED/JV FRANCHISED TOTAL
----- -------- ---------- -----
<S> <C> <C> <C>
Alabama................................................ 2 0 2
Alaska................................................. 0 1 1
Arizona................................................ 0 6 6
Arkansas............................................... 1 0 1
California(1).......................................... 5 33 38
Colorado............................................... 0 5 5
Florida................................................ 19 2 21
Hawaii................................................. 0 4 4
Kentucky............................................... 0 2 2
Maine.................................................. 0 1 1
Minnesota.............................................. 0 2 2
Missouri............................................... 1 0 1
Nebraska............................................... 0 1 1
Nevada................................................. 3 3 6
New York............................................... 0 1 1
North Carolina......................................... 1 0 1
Ohio................................................... 0 3 3
Oklahoma............................................... 1 0 1
Oregon................................................. 0 3 3
South Carolina......................................... 1 2 3
Tennessee.............................................. 1 0 1
Texas(1)............................................... 13 4 17
Utah................................................... 0 7 7
Washington............................................. 0 13 13
Wisconsin.............................................. 0 3 3
-- -- ---
Total U.S. .................................. 48 96 144
</TABLE>
- ---------------
(1) Includes one joint venture restaurant.
The Company owns the land and buildings for 17 restaurants and leases the
land and buildings for 20 restaurants. The Company owns the buildings and leases
the land for eight restaurants. In addition, the Company leases its headquarters
and various storage facilities.
The following table lists the international locations of each of the
franchised restaurants as of September 27, 1998:
<TABLE>
<CAPTION>
TOTAL
LOCATION FRANCHISED
-------- ----------
<S> <C>
Aruba............................................. 1
Bahamas........................................... 1
Canada............................................ 11
China............................................. 1
El Salvador....................................... 1
Guam.............................................. 2
Hong Kong......................................... 3
Indonesia......................................... 2
</TABLE>
38
<PAGE> 43
<TABLE>
<CAPTION>
TOTAL
LOCATION FRANCHISED
-------- ----------
<S> <C>
Japan............................................. 9
Korea............................................. 3
Mexico............................................ 6
Peru.............................................. 1
Philippines....................................... 1
Puerto Rico....................................... 2
Saipan............................................ 1
Singapore......................................... 2
Spain............................................. 7
Taiwan............................................ 1
Thailand.......................................... 1
--
Total International..................... 56
</TABLE>
EMPLOYEES
As of March 29, 1998, the Company had approximately 2,760 employees (of
whom approximately 58% are part-time) including 48 headquarters and 221
management-level employees. The Company is not a party to any collective
bargaining agreements and believes its employee relations to be satisfactory.
GOVERNMENT REGULATION
All of the Company's operations are subject to various federal, state and
local laws that affect its business, including laws and regulations relating to
employment, health, sanitation, alcoholic beverage control and safety standards.
To date, federal and state environmental regulations have not had a material
effect on the Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, building codes, land use
and environmental factors have in the past increased, and can be expected in the
future to increase, the cost of, and the time required for opening new
restaurants. Difficulties or failures in obtaining required licenses or
approvals could delay or prohibit the opening of new restaurants. In some
instances, the Company may have to obtain zoning variances and land use permits
for its new restaurants. The Company believes it is operating in compliance with
all material laws and regulations governing its operations.
Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county or
municipal authorities for a license to sell alcoholic beverages. Generally, the
Company's licenses to sell alcoholic beverages must be renewed annually and may
be suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing and inventory control. In addition,
each restaurant requires food service licenses from local health authorities,
and the development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Difficulty or failure in obtaining or retaining the required licenses or
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations, including the delay or prevention
of the opening of a new restaurant in a particular location or the termination
of the franchise agreement pertaining to such restaurant.
The Company may be subject in certain states to "dram-shop" statutes which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to such
intoxicated person. The Company carries liquor liability insurance as part of
its existing comprehensive general liability insurance and is not as a defendant
in any lawsuit or claim involving "dram-shop" statutes.
The Company is also subject to a number of federal and state laws
regulating franchise offers, sales and the franchise relationship. Such laws
generally impose certain registration and disclosure requirements on franchisors
in the offer and sale of franchises and, in certain cases, also apply
substantive standards to the
39
<PAGE> 44
relationship between franchisor and franchisee. The Company must also adhere to
Federal Trade Commission regulations governing disclosures in the sale of
franchises.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions and other
employment laws and regulations. A substantial majority of the Company's food
service personnel are paid at rates related to the minimum wage and,
accordingly, increases in the minimum wage result in higher labor costs. In
addition, legislation mandating health coverage for all employees, if passed,
will increase benefit costs since most hourly restaurant employees are not
currently covered under Company plans. The Company cannot always effect
immediate price increases to offset higher costs, and no assurance can be given
that the Company will be able to do so in the future.
LEGAL PROCEEDINGS
The Company had a case pending in the Court of Appeals, 2nd District of
Texas (the "Court of Appeals") arising out of a previous judgment against the
Company related to a cessation of lease payments. The Company posted a
supersedeas bond in the amount of $530,654 pending the appeals process. The case
was argued December 10, 1997, and on appeal, the Court of Appeals affirmed in
part, the judgment of the trial court and awarded the plaintiff additional
damages in the amount of $50,000. The Company is currently considering its
alternatives in the matter, but expects to file a Motion for Rehearing as to
certain damage issues in the Court of Appeals. Pursuant to the Recapitalization
Agreement, NPC has agreed to indemnify and hold the Company harmless for
liabilities and costs associated with this litigation, and the Company believes
that the outcome of the matter will not have a material adverse effect on the
Company's business, financial condition or results of operations.
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of its business. While the Company cannot predict
the outcome of these matters, management does not expect that these matters will
have a material adverse effect on the Company's business, financial condition or
results of operations.
40
<PAGE> 45
MANAGEMENT
THE SPONSOR
Sentinel is a private equity fund that specializes in buying and building
middle market companies, primarily in the consumer sector. Sentinel's strategy
is to acquire businesses in partnership with management teams and to work
closely with its management partners to improve the long-term value of its
portfolio companies. Sentinel was formed in 1995 by two former principals of
First Century Partners, a venture capital affiliate of Salomon Smith Barney.
During the past 17 years, Sentinel's principals have invested in 24 companies,
seven of which have undertaken public offerings.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and Holdings are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Robert B. Page......................... 39 Chief Executive Officer, Director
Susan R. Holland....................... 42 Vice President, Finance -- Chief Financial
Officer
Jeffrey Hunter......................... 35 Vice President, Marketing
Scott A. Knode......................... 41 Vice President, Real Estate and Development
Paul Lyford............................ 50 Vice President, Training & Human Resources
David G. Short......................... 59 Vice President, Legal, Secretary and General
Counsel
Jeff Waldrop........................... 39 Vice President, Operations
Eric D. Bommer......................... 29 Director
David S. Lobel......................... 45 Director
John F. McCormack...................... 38 Director
Michael J. Myers....................... 57 Director
James K. Schwartz...................... 36 Director
</TABLE>
Robert B. Page has been President since June 1994. He serves as Chief
Executive Officer of the Company and as a director of the Company and Holdings.
Mr. Page joined the Company in October 1993 as Senior Vice President of
Operations and Chief Operations Officer until he became President. From August
1988 to October 1993, Mr. Page was Senior Vice President of Operations for the
Pizza Division of NPC International, Inc.
Susan R. Holland was with El Chico Restaurants, Inc. from 1985 until
joining the Company in August 1998. She last served as Acting Chief Financial
Officer and was a Vice President, Treasurer, Controller and Corporate Secretary.
Ms. Holland is a Certified Public Accountant.
Jeffrey Hunter joined the Company as Vice President, Marketing in August
1998. From 1993 to 1998, Mr. Hunter was Director of Marketing for the Captain
D's Seafood division of Shoney's, Inc. Prior to that, Mr. Hunter held positions
as Production Manager and Account Supervisor in the restaurant group of an
advertising agency.
Paul Lyford has been Vice President, Training & Human Resources since
November 1996. From January 1994 to October 1996, Mr. Lyford was a consultant at
Flock & Associates. From August 1986 to October 1993, Mr. Lyford was Vice
President, Human Resources of the Company.
Scott A. Knode joined the Company as Vice President, Real Estate and
Development in September 1998. Since 1995, Mr. Knode has been an independent
broker for the Company, locating and negotiating real estate acquisitions and
leases on behalf of the Company. From 1993 to 1995, Mr. Knode was a Vice
President with Cornerstone Commercial Real Estate Ltd.
David G. Short has been Vice President-Legal, General Counsel and Secretary
since September 1990. From 1986 to 1990, Mr. Short was Vice President, Legal and
General Counsel of TGI Friday's, Inc. Mr. Short also serves as Vice President of
NPC International, Inc. and certain of its affiliates.
41
<PAGE> 46
Jeff Waldrop has been Vice President, Operations since September 1998.
Prior to that, Mr. Waldrop served in various positions with the Fruit of the
Loom Company since 1981, most recently as a National Account Manager from May
1997 until he joined the Company.
Eric D. Bommer serves as a director of the Company and Holdings. Mr. Bommer
joined Sentinel in March 1997 and serves as a Vice President. Prior to joining
Sentinel, he was an associate at Gefinor Acquisition Partners, L.P., a private
equity investment partnership. From 1993 to 1995, he worked in the Investment
Banking Division of CS First Boston. From 1992 to 1993, Mr. Bommer worked at
LaSalle Partners. Mr. Bommer serves on the boards of various private companies.
David S. Lobel serves as a director of the Company and Holdings. Mr. Lobel
founded Sentinel in 1995 and presently serves as Managing Partner. From 1981 to
1995, Mr. Lobel was employed by First Century Partners, a venture capital
affiliate of Salomon Smith Barney, and served as a general partner of funds
managed by First Century from 1983 to 1995. Mr. Lobel serves on the boards of
various private companies.
John F. McCormack serves as a director of the Company and Holdings. Mr.
McCormack co-founded Sentinel in 1995 and presently serves as a Partner. From
1990 to 1995 Mr. McCormack served as a Vice President at First Century Partners.
From 1983 to 1990, Mr. McCormack was employed by Coopers & Lybrand, most
recently as a Manager. Mr. McCormack serves on the boards of various private
companies.
Michael J. Myers serves as a director of the Company and Holdings. Mr.
Myers is the President of First Century Partners and has been a senior advisory
partner to Sentinel since 1995. Mr. Myers co-founded First Century Partners in
1972 and has served as its President since 1976. Mr. Myers is a director of
Office Depot and various private companies.
James K. Schwartz serves as a director of the Company and Holdings. He has
served as President and Chief Operating Officer of NPC International, Inc. since
February 1995 and as a director since July 1996. From January 1993 to February
1995 Mr. Schwartz served as Vice President and Chief Financial Officer of NPC
International, Inc. From 1984 to 1991, he worked for Ernst & Young LLP.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for fiscal
1998 of those persons who served as (i) the chief executive officer during
fiscal 1997 and (ii) the other four most highly compensated executive officers
of the Company for fiscal 1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER
ANNUAL TOTAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
- --------------------------- -------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Robert B. Page.......................... $160,000 $23,207 $ 9,760 $192,967
Larry D. Zimmerman(2)................... 117,420 0 10,354 127,774
David T. Bellessa(2).................... 107,120 0 8,017 115,137
David G. Short.......................... 132,500 0 9,147 141,647
</TABLE>
- ---------------
(1) Includes profit sharing contributions, car allowance and insurance.
(2) Messrs. Zimmerman and Bellessa are no longer employees of the Company.
42
<PAGE> 47
No options were granted to the Named Executive Officers. The following
table sets forth the aggregate number of options exercised by each of the Named
Executive Officers during fiscal 1997 as well as the value of unexercised
options held by them at the end of fiscal 1997:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR-END(#) FISCAL YEAR-END(3)
NAME EXERCISE(#)(1) REALIZED(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert B. Page............. 17,500 $67,188 75,000/45,000 $516,250/$273,125
Larry D. Zimmerman(4)...... 3,750 22,500 8,500/4,750 60,455/32,018
David T. Bellessa(4)....... -- -- 6,750/4,250 51,628/32,253
David G. Short............. -- -- 11,250/3,750 81,263/25,638
</TABLE>
- ---------------
(1) Represents shares of common stock of NPC.
(2) Represents the difference between the aggregate exercise price and the
closing price of NPC Common Stock on the dates of exercise.
(3) Represents the difference between the exercise price and $13.25, the mean
price of NPC Common Stock on March 31, 1998.
(4) Messrs. Zimmerman and Bellessa are no longer employees of the Company.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, the Company entered into an
employment agreement with Mr. Page. Such agreement provides for: (i) a three
year employment term; (ii) severance benefits and noncompetition,
nonsolicitation and confidentiality agreements in certain situations; (iii) the
vesting of certain stock options in Holdings; and other terms and conditions of
Mr. Page's employment.
STOCK OPTION PLAN
Holdings adopted a stock option plan (the "Stock Plan"), which provides for
the grant to certain key employees and/or directors of the Company of stock
options that are non-qualified options for federal income tax purposes. The
Stock Plan will be administered by the Board of Directors of Holdings or a
committee thereof. The Board of Directors of Holdings or a committee thereof
have broad powers under the Stock Plan, including exclusive authority (except as
otherwise provided in the Stock Plan) to determine (i) who will receive awards,
(ii) the type, size and terms of awards, (iii) the time when awards will be
granted, and (iv) vesting criteria, if any, of the awards.
401(k) PLAN
The Company expects to establish a 401(k) plan (the "401(k) Plan") in which
substantially all employees of the Company will be eligible to participate. It
is anticipated that pursuant to the 401(k) Plan, the Company will match a
percentage of an employee's contributions up to a maximum percentage of the
employee's annual salary. In addition, the Company will be able to make
additional contributions determined at the discretion of the Company's Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Lobel, McCormack and Myers comprise the members of the Compensation
Committee.
COMPENSATION OF DIRECTORS
The Company reimburses directors for any out-of-pocket expenses incurred by
them in connection with services provided in such capacity. In addition, the
Company may compensate directors for services provided in such capacity.
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SECURITY OWNERSHIP
All of the Company's issued and outstanding capital stock is owned by
Holdings; and the Sentinel Investors and NPC Holdings own securities
representing approximately 80% and 20%, respectively, of the voting power of
Holdings' fully-diluted Common Stock (before giving effect to options to be
issued to management).
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the conduct
of the business prior to the closing date of the Recapitalization and various
closing conditions, including the execution of a transitional services
agreement, registration rights agreement and stockholders agreement, the
obtaining of financing, the expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the continued accuracy of the representations and warranties.
Pursuant to the Recapitalization Agreement, NPC Holdings and NPC will
indemnify Sentinel against any and all damages resulting from any
misrepresentation or breach of warranty of NPC Holdings, NPC or the Company
contained in the Recapitalization Agreement, a claim for which is made (in most
cases) no later than one year after the closing date of the Recapitalization.
The indemnification obligations of NPC Holdings and NPC under the
Recapitalization Agreement are generally subject to a minimum aggregate
threshold amount and limited to a maximum aggregate amount.
STOCKHOLDERS AGREEMENT
Upon the consummation of the Recapitalization, Holdings and all of its
stockholders, including the Sentinel Investors and NPC Holdings (collectively,
the "Stockholders") entered into a stockholders agreement (the "Stockholders
Agreement"). The Stockholders Agreement: (i) requires that each of the parties
thereto vote all of its voting securities of Holdings and take all other
necessary or desirable actions to (y) cause the size of the Board of Directors
of Holdings and the Company to consist of five to 11 members and (z) cause up to
ten designees of Sentinel and up to one designee of NPC Holdings to be elected
to the Board of Directors of Holdings and the Company; (ii) grants Holdings,
Sentinel, and in certain circumstances the other Stockholders, a right of first
refusal on any proposed transfer of shares of capital stock of Holdings held by
NPC Holdings and any of the other Stockholders; (iii) grants tag-along rights on
certain transfers by Sentinel and Sentinel Capital Partners II, L.P. of shares
of capital stock of Holdings; (iv) requires the Stockholders to consent to a
sale of the Company to an independent third party if such sale is approved by
certain holders of the then outstanding shares of voting common stock of
Holdings; and (v) except in certain instances, prohibits any stockholder from
transferring any shares of capital stock of Holdings until the first anniversary
of the date of the consummation of the Recapitalization. Certain of the
foregoing provisions of the Stockholders Agreement will terminate upon the
consummation of Public Sale, a Qualified Public Offering or an Approved Sale (as
each is defined in the Stockholders Agreement).
EQUITY REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the Recapitalization, Holdings and all of its
stockholders, including the Sentinel Investors and NPC Holdings, entered into a
registration rights agreement (the "Equity Registration Rights Agreement").
Under the Equity Registration Rights Agreement, the holders of a majority of the
Sentinel Registrable Securities (as defined in the Equity Registration Rights
Agreement) or NPC Holdings has the right, subject to certain conditions, to
require Holdings to register any or all of their shares of common stock of
Holdings under the Securities Act at Holdings' expense. In addition, all holders
of Registrable Securities (as defined in the Equity Registration Rights
Agreement) are entitled to request the inclusion of any shares of common stock
of Holdings subject to the Equity Registration Rights Agreement in any
registration statement at Holdings' expense whenever Holdings proposes to
register any of its common stock under the Securities Act. In connection with
all such registrations, Holdings agrees to indemnify all holders of Registrable
Securities against certain liabilities, including liabilities under the
Securities Act.
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<PAGE> 50
TRANSITION SERVICES AGREEMENT
Pursuant to the Transitional Financial and Accounting Services Agreement,
NPC will continue to provide administrative services to the Company for $16,000
per week for a period of up to one year. Services provided will include
accounting services, payroll services and use of NPC's proprietary restaurant
technology system software. As part of the agreement, the Company was granted a
perpetual license to use the POS System.
PAYMENT OF CERTAIN FEES AND EXPENSES
The Company reimbursed Sentinel for all out-of-pocket expenses incurred in
connection with the Recapitalization. In addition, pursuant to a management
agreement, Sentinel will receive a management fee equal to $300,000 per annum
for the first two years of the term of the management agreement and $500,000 per
annum thereafter, and will be reimbursed for certain out-of-pocket expenses.
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DESCRIPTION OF NEW REVOLVING CREDIT FACILITY
Concurrently with the consummation of the Transactions, the Company entered
into an agreement with The Provident Bank to provide for a Revolving Credit
Facility (the "New Revolving Credit Facility"). The New Revolving Credit
Facility provides for borrowings in an aggregate principal amount of up to $15
million. The following summary of the New Revolving Credit Facility does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the New Revolving Credit Facility.
Interest. The New Revolving Credit Facility is a five-year facility and
bears interest at a rate per annum equal (at the Company's option) to: (i) a
floating rate per annum equal to the Prime Rate (as defined in the New Revolving
Credit Facility); or (ii) a floating rate per annum equal to 2.25% in excess of
the LIBOR Rate (as defined in the New Revolving Credit Facility). Obligations of
the Company under the New Revolving Credit Facility not paid when due shall bear
interest at a default rate equal to 2% in excess of the non-default interest
rate. The Company is required to pay The Provident Bank, commitment and other
similar fees.
Security. The obligations of the Company under the New Revolving Credit
Facility are secured by substantially all of the assets of the Company.
Prepayments. Voluntary prepayments of borrowings under the New Revolving
Credit Facility and voluntary reductions of the unutilized portions of the New
Revolving Credit Facility are permitted. Prepayments during the first year are,
in connection with an early termination of the agreement, subject to a 1%
premium, other than certain mandatory prepayments.
Covenants. The New Revolving Credit Facility contains a number of
covenants that, among other things, restricts the ability of the Company and its
subsidiaries, subject to certain exceptions, to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay other indebtedness
or amend other debt instruments, make distributions or pay dividends on
partnership interests or capital stock, redeem and repurchase partnership
interests or capital stock, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain business activities. In addition, the Company is
required to maintain compliance with minimum interest coverage ratio and maximum
leverage ratio.
The New Revolving Credit Facility also contains provisions that will
prohibit any modification of the Indentures without the consent of The Provident
Bank.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated as of July 1, 1998 by and among the Company, the Guarantors, Holdings, and
United States Trust Company of New York, as trustee (the "Trustee"). The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. A copy of the Indenture may be obtained
from the Company. The definitions of certain capitalized terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this section, references to the "Company" include only Romacorp,
Inc. and not its Subsidiaries.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Exchange Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Exchange Notes at the Trustee's corporate office in
New York, New York. At the Company's option, interest may be paid at the
Trustee's corporate trust office or by check mailed to the registered address of
Holders. Any Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $100.0
million, of which $75.0 million was issued on the Issue Date, and will mature on
July 1, 2006. Interest on the Senior Notes will accrue at a rate of 12% per
annum and, will be payable semiannually in cash on each January 1 and July 1,
commencing on January 1, 1999, for the period commencing on and including the
immediately preceding Interest Payment Date and ending on and including the day
next preceding the Interest Payment Date (an "Interest Period"). Interest is
payable to the persons who are registered Holders at the close of business on
the December 15 and June 15 immediately preceding the applicable Interest
Payment Date.
REDEMPTION
Optional Redemption. The Senior Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after July 1,
2003, upon not less than 30 nor more than 60 days notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve month period commencing July 1 on of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 106.000%
2004...................................................... 104.000%
2005 and thereafter....................................... 102.000%
</TABLE>
Optional Redemption upon Public Equity Offerings and Strategic Equity
Investments. At any time, or from time to time, on or prior to July 1, 2001,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings or Strategic Equity Investments (each as defined below) to
redeem the Senior Notes at a redemption price equal to 112.00% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided that at least 65% of the principal amount of Senior Notes
originally issued remains outstanding immediately after any such redemption. In
order to effect the foregoing redemption with the proceeds of any Public Equity
Offering or Strategic Equity Investments, the Company shall make such redemption
not more than 120 days after the consummation of any such Public Equity
Offering.
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As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company or of
Holdings pursuant to a registration statement filed with the Commission in
accordance with the Securities Act; provided that in the event of a Public
Equity Offering by Holdings, Holdings contributes to the common equity capital
of the Company (other than Disqualified Capital Stock of the Company) the
portion of the net cash proceeds of such Public Equity Offering necessary to pay
the aggregate redemption price (plus accrued and unpaid interest and Additional
Interest, if any, thereon to the redemption date) of the Senior Notes to be so
redeemed.
As used in the preceding paragraph, "Strategic Equity Investment" means an
Investment in Qualified Capital Stock of the Company or Holdings with cash
proceeds to the Company or Holdings, as the case may be, of at least $30.0
million by a Strategic Investor (as defined); provided that in the case of a
Strategic Equity Investment in Holdings, Holdings contributes to the common
equity capital of the Company (other than Disqualified Capital Stock of the
Company) the portion of the net cash proceeds of such Strategic Equity
Investment necessary to pay the aggregate redemption price (plus accrued and
unpaid interest and Additional Interest, if any, thereon to the redemption date)
of the Senior Notes to be redeemed. "Strategic Investors" means a Person which,
prior to the making of a Strategic Equity Investment, (i) is (or a Subsidiary of
which is, or is a Subsidiary of a Person which, or a Subsidiary of which, is)
engaged in a business which would be permitted to be conducted by the Company
pursuant to the covenant "Conduct of Business" and (ii) has (or is a Subsidiary
of a Person which has) a common equity market capitalization of at least $2.0
billion.
The Senior Notes will not be entitled to the benefit of any mandatory
sinking fund.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Senior Notes are to be redeemed at
any time, selection of such Senior Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Senior Notes are listed or, if such Senior Notes
are not then listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Senior Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Senior Notes or
portions thereof for redemption shall be made by the Senior Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
DTC procedures), unless such method is otherwise prohibited. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of Senior Notes to be redeemed at
its registered address. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in a principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Senior Note. On and after the
redemption date, interest will cease to accrue on Senior Notes or portions
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
SUBSIDIARY GUARANTEES
The Exchange Notes will be fully and unconditionally guaranteed by each of
the Guarantors on a senior joint and general basis on the Issue Date and by
certain of the Company's Restricted Subsidiaries formed or acquired after the
Issue Date. See "Certain Covenants -- Issuance of Subsidiary Guarantees." In the
event all of the Capital Stock of a Guarantor owned by the Company and the
Restricted Subsidiaries is sold by the Company and/or one or more Restricted
Subsidiaries or all or substantially all of the assets of a Guarantor are sold
by such Guarantor and the sale complies with the provisions set forth under
"Certain Covenants -- Limitation on Asset Sales," such Guarantor's Guarantee
will be released.
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<PAGE> 54
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Senior Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Senior Note purchased pursuant to a
Change of Control Offer will be required to surrender the Senior Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third business day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Senior Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Senior Notes pursuant to a Change of Control
Offer, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Senior
Notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management of
the Company. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Senior Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Change of Control" provisions of the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and
Restricted Subsidiaries of the Company which are not Guarantors
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<PAGE> 55
may incur Acquired Indebtedness, in each case if on the date of the incurrence
of such Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0.
The Indenture also provides that the Company will not, and will not permit
any Guarantor to, incur any Indebtedness that is contractually subordinated in
right of payment to any other Indebtedness of the Company or a Guarantor, as the
case may be, unless such Indebtedness is also contractually subordinated in
right of payment to the Senior Notes or the Guarantee of such Guarantor, as the
case may be, on substantially identical terms; provided, however, that no
Indebtedness of the Company or a Guarantor shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company or
such Guarantor, as the case may be, solely by virtue of being unsecured.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any required payment, any Indebtedness of the Company or a
Guarantor that is subordinate or junior in right of payment to the Notes or the
Guarantee of such Guarantor or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default shall have occurred and be continuing or (ii) the Company is
not able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to March 29, 1998 and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net proceeds (including the fair market
value of property other than cash (determined in good faith by the Board of
Directors)) received by the Company from any Person (other than a Subsidiary of
the Company) as a contribution to the common equity capital of the Company or
from the issuance and sale of Qualified Capital Stock of the Company or from the
issue or sale of Disqualified Capital Stock of the Company or Indebtedness of
the Company that has been converted into Qualified Capital Stock of the Company,
in each case subsequent to the Issue Date and on or prior to the Reference Date;
plus (y) without duplication of any amounts included in clause (iii)(x) above,
100% of the aggregate net proceeds (including the fair market value of property
other than cash (determined in good faith by the Board of Directors)) of any
equity contribution received by the Company from a holder of the Company's
Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash
proceeds from a Public Equity Offering or Strategic Equity Investment to the
extent used to redeem the Senior Notes in accordance with the provisions under
the caption entitled "Redemption -- Optional Redemption upon Public Equity
Offerings and Strategic Equity Investments"); plus (z) without duplication, the
sum of (1) the aggregate amount returned (including the fair market value of
property other than cash (determined in good faith by the Board of Directors))
on or with respect to Investments (other than Permitted Investments) made
subsequent to the Issue Date whether through interest payments, principal
payments, dividends or other distributions or payments, (2) the net cash
proceeds received by the Company or any of its Restricted Subsidiaries from the
disposition of all or any portion of such Investments (other than to a
Subsidiary of the Company) and (3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;
provided, however, that the sum of clauses (1), (2) and (3) above shall not
exceed the aggregate amount of all such Investments made subsequent to the Issue
Date.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or the
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Senior Notes or a Guarantee either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; (4) payments for the
purpose of and in an amount equal to the amount required to permit the Company
to redeem or repurchase its equity or options in respect thereof, in each case
in connection with the terms of any employee stock option or stock purchase
agreements or other agreements to compensate management or other employees;
provided that such redemptions or repurchases pursuant to this clause (4) shall
not exceed $5.0 million (which amount shall be increased by the amount of any
net cash proceeds to the Company from (x) sales of Capital Stock of the Company
to management or other employees subsequent to the Issue Date to the extent such
amounts have not been included in clause (iii) in the foregoing paragraph and
(y) any "key-man" life insurance policies which are used to make such
redemptions or repurchases) in the aggregate; provided, further, that the
cancellation of Indebtedness owing to the Company from management or other
employees of the Company or any of its Restricted Subsidiaries in connection
with a repurchase of Capital Stock of the Company will not be deemed to
constitute a Restricted Payment under the Indenture; (5) repurchases of Capital
Stock deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (6) so long as no Default or
Event of Default shall have occurred and be continuing, payments not to exceed
$500,000 in the aggregate to enable the Company to make payments to holders of
its Capital Stock in lieu of issuance of fractional shares of its Capital Stock;
(7) payments or other distributions made in connection with the
Recapitalization; (8) the payment of any dividend by a Restricted Subsidiary of
the Company to the holders of its Common Stock on a pro rata basis; (9) the
making of distributions, loans or advances to Holdings in an amount not to
exceed $300,000 per annum in order to permit Holdings to pay required and
ordinary operating expenses of Holdings (including, without limitation,
directors' fees, indemnification obligations, professional fees and expenses);
(10) distributions to Holdings to fund the required tax obligations of Holdings
related to income generated by the Company and its Restricted Subsidiaries and
taxable to Holdings; (11) if no Default or Event of Default shall have occurred
and be continuing, other Restricted Payments in an aggregate amount not to
exceed $3.0 million. In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (iii) of the
immediately preceding paragraph, (a) amounts expended pursuant to clauses (1),
(2), 3(i), 3(ii)(A), (4), (8) and (11) shall be included in such calculation;
provided that such expenditures pursuant to clause (4) shall not be included to
the extent of cash proceeds received by the Company from any "key-man" life
insurance policies and (b) amounts expended pursuant to clauses (3)(ii)(B), (5),
(6), (7), (9) and (10) shall be excluded from such calculation.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition provided that the amount of (x) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Senior
Notes or any Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the
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Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision; and (iii)
upon the consummation of an Asset Sale, the Company shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 365 days of receipt thereof either (A) to prepay any Indebtedness
secured by assets subject to such Asset Sale (and, in the case of any such
Indebtedness under any revolving credit facility, including the New Revolving
Credit Facility, effect a permanent reduction in the availability under such
revolving credit facility), (B) to make an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets of a kind used or usable in the business of the
Company and its Restricted Subsidiaries as conducted in accordance with the
"Conduct of Business" covenant or to acquire Capital Stock of any Person which
upon such acquisition becomes a Restricted Subsidiary and which conducts
business in accordance with the "Conduct of Business" covenant ("Replacement
Assets"), or (C) a combination of prepayment and investment permitted by the
foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or
such earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the
next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 60 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
amount of Senior Notes equal to the Net Proceeds Offer Amount at a price equal
to 100% of the principal amount of the Senior Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; provided,
however, that if at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5.0
million, shall be applied as required pursuant to this paragraph) and, upon such
application, the Net Proceeds Offer Amount shall be reset at zero.
Notwithstanding the immediately preceding paragraph, the Company and the
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with the prior paragraph if (i) the Company or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets or other
property sold, issued or otherwise disposed of (as evidenced by a resolution of
the Company's Board of Directors) and (ii) at least 75% of the consideration for
such Asset Sale constitutes Capital Stock of a Person which, upon acquisition,
becomes a Restricted Subsidiary and which is in a business of the type described
in the "Conduct of Business" covenant, long-term assets used or useful in such
business and/or cash or Cash Equivalents; provided that any cash or Cash
Equivalents received by the Company or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated under this paragraph
shall be added to the Net Proceeds Offer Amount.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
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Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date (or if the Net Proceeds Offer has been deferred as described in the first
paragraph of this covenant, the date that the aggregate unutilized Net Proceeds
Offer Amount equals or exceeds $5.0 million), with a copy to the Trustee, and
shall comply with the procedures set forth in the Indenture. Upon receiving
notice of the Net Proceeds Offer, Holders may elect to tender their Senior Notes
in whole or in part in integral multiples of $1,000 in exchange for cash. To the
extent Holders properly tender Senior Notes in an amount exceeding the Net
Proceeds Offer Amount, Senior Notes of tendering Holders will be purchased on a
pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain
open for a period of at least 20 and not more than 30 business days or such
longer period as may be required by law. To the extent that the aggregate amount
of Senior Notes tendered pursuant to a Net Proceeds Offer is less than the Net
Proceeds Offer Amount, the Company may use any remaining Net Proceeds Offer
Amount for general corporate purposes. Upon completion of any such Net Proceeds
Offer, the Net Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Senior Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture, the Senior Notes and the New
Revolving Credit Facility; (3) non-assignment provisions of any contract or any
lease; (4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired; (5) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (6) restrictions on the
transfer of assets subject to any Lien permitted under the Indenture imposed by
the holder of such Lien; (7) restrictions imposed by any agreement to sell
assets or Capital Stock permitted under the Indenture to any Person pending the
closing of such sale; (8) any agreement or instrument governing Capital Stock of
any Person that is acquired; (9) other Indebtedness permitted to be incurred
subsequent to the Issue Date pursuant to the provisions of the covenant
described under "Limitation on Incurrence of Additional Indebtedness"; provided
that any such restrictions are ordinary and customary with respect to the type
of Indebtedness being incurred (under the relevant circumstances); and provided,
further that after giving effect to any such encumbrance or restriction, the
Company would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the covenant described under "Limitation on
Incurrence of Additional Indebtedness"; (10) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business; (11) Purchase Money Indebtedness for property
acquired that impose restrictions of the nature described in clause (c) above on
the property so acquired; (12) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business; and (13) any
encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in clauses
(2) through (12) above; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Company's Board of
Directors, no more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment restrictions
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prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries (other than Guarantors) to issue
any preferred stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of
any Restricted Subsidiary of the Company which is not a Guarantor.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Senior Notes or a
Guarantee, the Senior Notes or such Guarantee, as the case may be, are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Liens and (ii) in all other cases, the Senior Notes are equally and ratably
secured, except for (A) Liens existing as of the Issue Date and any extensions,
renewals or replacements thereof, (B) Liens of the Company or a Wholly Owned
Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of
the Company; (C) Liens securing the Senior Notes or a Guarantee; (D) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens (i) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (ii) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (E) Permitted
Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of the Company and of
the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Senior Notes and the performance of every covenant of the
Senior Notes, the Indenture and the Registration Rights Agreement on the part of
the Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional
Indebtedness" covenant; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (iv) the Company or
the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply
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with the applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
Notwithstanding clause (ii) of the preceding sentence, (a) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (b) the Company may merge
with an Affiliate incorporated solely for the purpose of reincorporating the
Company in another jurisdiction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Senior Notes with the same effect as if
such surviving entity had been named as such.
No Guarantor (other than any Guarantor whose Guarantee is to be released in
accordance with the terms of the Guarantee and Indenture in connection with any
transaction complying with the provisions of the covenant described under
" -- Limitation on Asset Sales") will, and the Company will not cause or permit
any Guarantor to, consolidate with or merge with or into any Person other than
the Company or any other Guarantor unless: (i) the entity formed by or surviving
any such consolidation or merger (if other than the Guarantor) is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor under the Indenture, such Guarantor's
Guarantee and the Registration Rights Agreement; (iii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; (iv) immediately after giving effect to such transaction and
the use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant;
and (v) the Company shall have delivered to the Trustee an officers' certificate
and opinion of counsel, each stating that such consolidation or merger and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are not materially less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1.0 million
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $10.0 million, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
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(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Restricted Subsidiaries or exclusively between or
among such Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; (iii) any agreement as in effect as of the Issue
Date or any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so long
as any such amendment or replacement agreement is not more disadvantageous to
the Holders in any material respect than the original agreement as in effect on
the Issue Date; (iv) Restricted Payments permitted by the Indenture; (v) the
existence of, or the performance by the Company or any of its Restricted
Subsidiaries of, its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issue Date and any similar agreements
which it may enter into thereafter, provided, however, that the existence of, or
the performance by the Company or any of its Restricted Subsidiaries of
obligations under, any future amendment to any such existing agreement or under
any similar agreement entered into after the Issue Date shall only be permitted
by this clause (v) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Holders of the Senior Notes
in any material respect; (vi) transactions permitted by, and complying with, the
provisions of the covenant described under " -- Merger, Consolidation and Sale
of Assets"; (vii) the Recapitalization and the transactions contemplated by the
Recapitalization Agreement; (viii) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary; and (ix) transactions with customers, franchisees, clients,
suppliers, joint venture partners or purchasers or sellers of goods or services,
in each case in the ordinary course of business (including, without limitation,
pursuant to joint venture agreements) and otherwise in compliance with the terms
of the Indenture, which are fair to the Company or its Restricted Subsidiaries,
in the reasonable determination of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
Issuance of Subsidiary Guarantees. If (a) any Domestic Wholly Owned
Restricted Subsidiary incurs any Indebtedness (other than Indebtedness owing to
the Company or a Restricted Subsidiary) or (b) any Restricted Subsidiary
(whether or not a Domestic Wholly Owned Restricted Subsidiary) guarantees any
Indebtedness (other than Indebtedness owing to the Company or a Restricted
Subsidiary) of the Company or any Restricted Subsidiary then, in either case,
the Company shall cause such Domestic Wholly Owned Restricted Subsidiary or
Restricted Subsidiary, as the case may be, to (i) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Domestic Wholly Owned Restricted Subsidiary or Restricted
Subsidiary, as the case may be, shall unconditionally guarantee (each, a
"Guarantee") all of the Company's obligations under the Senior Notes and the
Indenture on the terms set forth in the Indenture and (ii) deliver to the
Trustee an opinion of counsel (which may contain customary exceptions) that such
supplemental indenture has been duly authorized, executed and delivered by such
Domestic Wholly Owned Restricted Subsidiary or Restricted Subsidiary, as the
case may be, and constitutes a legal, valid, binding and enforceable obligation
of such Domestic Wholly Owned Restricted Subsidiary or Restricted Subsidiary, as
the case may be. Thereafter, such Domestic Wholly Owned Restricted Subsidiary or
Restricted Subsidiary, as the case may be, shall be a Guarantor for all purposes
of the Indenture. The Company may cause any other Restricted Subsidiary of the
Company to issue a Guarantee and become a Guarantor.
Payments for Consent. The Company will not, and will not cause or permit
any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture, the Senior Notes or the
Guarantees unless such consideration is offered to be paid to all Holders of the
Senior Notes who so consent, waive or agree to amend in the time frame set forth
in solicitation documents relating to such consent, waiver or agreement.
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Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, reasonably related,
ancillary or complementary to the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, following the
effectiveness of the Exchange Offer Registration Statement, the Company will
file with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15 (d) of the Exchange Act. The Company
will also comply with the other provisions of TIA sec. 314(a). Prior to the
effectiveness of the Exchange Offer Registration Statement, the Company will
provide upon request from Holders of the Senior Notes or prospective holders the
information required by Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Senior Notes when the same
becomes due and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Senior Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Senior Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Senior Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness for borrowed money of the Company or any Restricted
Subsidiary of the Company and such failure continues for a period of 20
days or more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or otherwise
cured within 20 days of receipt by the Company or such Restricted
Subsidiary of notice of any such acceleration) if the aggregate principal
amount of such Indebtedness, together with the principal amount of any
other such Indebtedness in default for failure to pay principal at final
stated maturity or which has been accelerated, in each case with respect to
which the 20-day period described above has passed, aggregates $5.0 million
or more at any time;
(v) one or more judgments for the payment of money in an aggregate
amount in excess of $5.0 million shall have been rendered against the
Company or any of its Restricted Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and nonappealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any Guarantee ceases to be in full force and effect or any
Guarantee declared to be null and void and unenforceable or any Guarantee
is found to be invalid or any of the Guarantors denies its liability under
its Guarantee (other than by reason of release of a Guarantor in accordance
with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of
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outstanding Senior Notes may declare the principal of and accrued interest on
all the Senior Notes to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration", and the same shall become immediately due and payable.
If an Event of Default specified in clause (vi) above occurs with respect to the
Company and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the outstanding Senior Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Senior Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the outstanding
Senior Notes may, on behalf of the Holders of all of the Senior Notes, rescind
and cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Senior Notes may waive
any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Senior Notes.
Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Senior Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Senior Notes, except for (i) the rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on the Senior Notes
when such payments are due, (ii) the Company's obligations with respect to the
Senior Notes concerning issuing temporary Senior Notes, registration of Senior
Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of
an office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorgani-
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zation and insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Senior Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default under the
Indenture resulting from the incurrence of Indebtedness, all or a portion of
which will be used to defease the Senior Notes concurrently with such
incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that assuming no
intervening bankruptcy or insolvency of the Company between the date of deposit
and the 91st day following the date of deposit and that no Holder is an insider
of the Company, after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (ix)
certain other customary conditions precedent are satisfied. Notwithstanding the
foregoing, the Opinion of Counsel required by clause (ii) above with respect to
a Legal Defeasance need not be delivered if all Senior Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable on the maturity date within one year or (z) are to
be called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Senior Notes, as expressly provided for in the Indenture) as to all outstanding
Senior Notes when (i) either (a) all the Senior Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Senior Notes which have been
replaced or paid and Senior Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) all Senior Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Senior
Notes not theretofore
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delivered to the Trustee for cancellation, for principal of, premium, if any,
and interest on the Senior Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes issued under
the Indenture, except that, without the consent of each Holder affected thereby,
no amendment may: (i) reduce the amount of Senior Notes whose Holders must
consent, to an amendment; (ii) reduce the rate of or change or have the effect
of changing the time for payment of interest, including defaulted interest, on
any Senior Notes; (iii) reduce the principal of or change or have the effect of
changing the fixed maturity of any Senior Notes, or change the date on which any
Senior Notes may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor, (iv) make any Senior Notes payable in
money other than that stated in the Senior Notes; (v) make any change in
provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Senior Note on or after the due
date thereof or to bring suit to enforce such payment, or permitting Holders of
a majority in principal amount of Senior Notes to waive Defaults or Events of
Default; (vi) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto after a Change of Control has occurred or the
subject Asset Sale has been consummated; (vii) modify or change any provision of
the Indenture or the related definitions affecting the ranking of the Senior
Notes or a Guarantee in a manner which adversely affects the Holders in any
material respect; (viii) release any Guarantor from any of its obligations under
its Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture; or (ix) modify the provisions of "Certain Covenants -- Payments
for Consent" in any manner adverse to a Holder of Senior Notes.
GOVERNING LAW
The Indenture provides that it and the Senior Notes, Guarantees and the
Holdings Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York but without giving effect to applicable principles
of conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the applicable document for the full definition
of all such terms, as well as any other terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprise any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of the Company of
(a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any
other property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; provided, however, that
Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $1.0 million, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under "Merger, Consolidation and Sale of
Assets" or any disposition that constitutes a Change of Control, (iii) the
licensing of intellectual property, (iv) disposals or replacements of obsolete,
uneconomical, negligible, surplus or worn out property, (v) the sale, lease,
conveyance, disposition or other transfer by the Company or any Restricted
Subsidiary of the Company of assets or property in connection with Restricted
Payments permitted under the "Limitation on Restricted Payments" covenant; and
(vi) any disposition of up to three restaurants owned by the Company as of the
Issue Date pursuant to a Sale and Lease Back Transaction involving such
properties.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock,
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including each class of Common Stock and preferred stock of such Person and (ii)
with respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) the sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture) other than
to the Permitted Holders; (ii) the approval by the holders of Capital Stock of
the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (iii) any Person or Group (other than the Permitted Holders) shall
become the owner, directly or indirectly, beneficially, of shares representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding Capital Stock of the Company or Holdings; or (iv) the first day
on which a majority of the members of the Board of Directors of the Company or
Holdings during the two year period immediately preceding such date are not
Continuing Directors. Notwithstanding anything to the contrary contained in the
foregoing, a "Change of Control" shall not be deemed to occur upon consummation
of (A) the Recapitalization, (B) the merger of the Company with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction or (C) any transaction described in clause (i) of the immediately
preceding sentence if, after giving effect to such transaction, no Person or
Group (other than the Permitted Holders) shall beneficially own, directly or
indirectly, shares of Capital Stock representing 50% or more of the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock of
the Company or Holdings, as the case may be.
Clause (i) of the definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the assets of the Company and its Restricted
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Senior Notes to require the Company to repurchase such Senior Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its Restricted Subsidiaries taken as a
whole to another Person or group may be uncertain.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been
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reduced thereby, (A) all income taxes and foreign withholding taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period, (B) Consolidated Interest Expense, (C) Consolidated Non-cash
Charges, (D) an amount equal to any extraordinary loss or loss realized in
connection with an asset sale and (E) for any fiscal year of the Company
commencing on or after 2000; pre-opening expenses relating to the opening of
restaurants not to exceed $3.0 million in any one fiscal year less, to the
extent Consolidated Net Income has been increased thereby, any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the amount of all dividend payments on any series of preferred stock of
such Person (other than dividends paid in Qualified Capital Stock paid, accrued
or scheduled to be paid or accrued during such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount and (b) the net costs under
Interest Swap Obligations; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance
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with GAAP but, in each case of clauses (i) and (ii) excluding any amortization
or write-off of deferred financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
and losses from Asset Sales (without giving effect to the proviso therein) or
abandonments or reserves relating thereto, (b) after-tax items classified as
extraordinary or nonrecurring gains and losses, (c) the net income or loss of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net loss of any Person
other than a Restricted Subsidiary of the Company, (f) the net income of any
Person, other than a Restricted Subsidiary of the referent Person, except to the
extent of cash dividends or distributions paid to the referent Person or to a
Wholly Owned Restricted Subsidiary of the referent Person by such Person, (g)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued), (h) in the case of a successor to
the referent Person by consolidation or merger or as a transferee of the
referent Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets, (i) non-cash, non-recurring
charges reducing Consolidated Net Income (excluding any such non-cash charge to
the extent it represents an accrual of or reserve for cash charges in any future
period or amortization of prepaid cash expense that was paid in a prior period
not included in the calculation), (j) non-cash compensation charges, including
any arising from stock options, (k) gains and losses due solely to fluctuations
in currency values and the related tax effects according to GAAP, (l) expenses
related to the Recapitalization, (m) any expense resulting from any amortization
or write-off of deferred financing costs and (n) expenses related to
amortization of goodwill resulting from purchase accounting not to exceed $1.0
million in any four fiscal quarter period.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Consolidated Tangible Assets" means, with respect to any Person, as of any
date of determination, the total assets, less goodwill, deferred financing costs
and other intangibles and less accumulated amortization, shown on the most
recent balance sheet of such Person, determined on a consolidated basis in
accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or Holdings, as the case may be, who
(i) was a member of such Board of Directors on the first day of the two-year
period immediately preceding such date of determination or (ii) was nominated
for election or elected to such Board of Directors with, or whose election to
such Board of Directors was approved by, the affirmative vote of a majority of
the Continuing Directors who were members of such Board of Directors at the time
of such nomination or election or (iii) is any designee of the Principal or its
Affiliates or was nominated by the Principal or its Affiliates or any designees
of the Principal or its Affiliates on the Board of Directors.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
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"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable (other than upon the occurrence of a Change of Control),
pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder thereof on or prior to the final maturity date of the
Senior Notes.
"Domestic Wholly Owned Restricted Subsidiary" means a wholly owned
Restricted Subsidiary incorporated or otherwise organized under the laws of the
United States, any state thereof or any territory or possession of the United
States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
Except as otherwise set forth herein, all ratios and computations based on GAAP
contained in the Senior Indenture shall be computed in conformity with GAAP
applied on a consistent basis.
"Holdings" means Romacorp Restaurant Holdings, Inc.
"Indebtedness" means with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations of such Person in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the obligation so secured, (viii) all obligations under
currency agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic
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payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall be included in Consolidated Net Income
to the extent such amounts have so reduced the amount of any Investment. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, 100% of the outstanding Common
Stock of such Restricted Subsidiary, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Senior Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) out-of-pocket expenses and fees relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, postclosing
adjustments, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"New Revolving Credit Facility" means the Credit Agreement dated as of the
Issue Date, among the Company, Holdings, the lenders party thereto in their
capacities as lenders thereunder and The Provident Bank, as agent, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without
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limitation, increasing the amount of available borrowings thereunder or adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means (i) the Principal, (ii) Eric D. Bommer, David S.
Lobel and John F. McCormack and (iii) any Person, a majority of the voting power
represented by the issued and outstanding Capital Stock of which is beneficially
owned, directly or indirectly, by one or more Persons identified in clauses (i)
and (ii) of this definition.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes issued in the Offering and the
Exchange Notes issued in exchange therefor;
(ii) Indebtedness incurred pursuant to the New Revolving Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $20.0 million;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or any of its Restricted
Subsidiaries; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no Lien
(other than Liens permitted under the Senior Indenture) held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary of the
Company; provided that if as of any date any Person other than the Company
or a Wholly Owned Restricted Subsidiary of the Company owns or holds any
such Indebtedness or holds a Lien (other than Liens permitted under the
Senior Indenture) in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company: provided that (a) any
Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of
the Company is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Indenture and the Senior Notes and
(b) if as of any date any Person other than a Wholly Owned Restricted
Subsidiary of the Company owns or holds any such Indebtedness or any Person
holds a Lien (other than Liens permitted under the Indenture) in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against
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insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within five business days of
incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
not to exceed the greater of $10.0 million and 5% of Consolidated Tangible
Assets of the Company at any one time outstanding;
(xi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Company in a principal
amount not to exceed the gross proceeds actually received by the Company or
any of its Restricted Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(xiii) guarantees by the Company and the Guarantors of each other's
Indebtedness; provided that such Indebtedness is permitted to be incurred
under the Indenture;
(xiv) Refinancing Indebtedness; and
(xv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $7.0 million at
any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; provided that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Senior Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1.0 million
at any one time outstanding; (v) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (vi) Investments not to exceed $5.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (viii)
Investments made by the Company or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Asset Sales" covenant; (ix) accounts receivable created or
acquired in the ordinary course of business; (x) guarantees by the Company of
Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of
the Company under the Indenture; and (xi) Investments the payment for which
consists exclusively of Qualified Capital Stock of the Company.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for
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sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of the real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(vi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(vii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(viii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(ix) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(x) Liens securing (a) Capitalized Lease Obligations permitted
pursuant to clause (x) of the definition of "Permitted Indebtedness" and
(b) Liens securing Purchase Money Indebtedness (including by means of a
Capitalized Lease Obligation) incurred in accordance with the Indenture;
provided, however, that in the case of Purchase Money Indebtedness (A) the
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired or
constructed and (B) the Lien securing such Indebtedness shall be created
within 180 days of such acquisition or construction or, in the case of a
refinancing of any Purchase Money Indebtedness, within 180 days of such
refinancing;
(xi) Liens securing Indebtedness under Currency Agreements;
(xii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company;
(xiii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not in the aggregate exceed $3.0 million at any one
time outstanding;
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(xiv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xv) Liens arising from filing Uniform Commercial Code financing
statements regarding leases (other than Capitalized Lease Obligations);
(xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(xvii) Liens existing on the Issue Date, together with any Liens
securing Refinancing Indebtedness incurred in order to refinance the
Indebtedness secured by Liens existing on the Issue Date; provided that the
Liens securing the Refinancing Indebtedness shall not extend to property
other than that pledged under the Liens securing the Indebtedness being
refinanced;
(xviii) Liens securing Indebtedness incurred pursuant to a Sale and
Leaseback Transaction involving up to three restaurants owned by the
Company as of the Issue Date; and
(xix) Liens securing Indebtedness under the New Revolving Credit
Facility.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"preferred stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principal" means Sentinel Inc.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the purchase price, or the cost of installation, construction or improvement, of
property (real or personal) or equipment (whether through the direct purchase of
assets or the Capital Stock of any Person owning such assets).
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of (A) for purposes of clause (xv) of the
definition of Permitted Indebtedness, Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii),
(xiii), or (xv) of the definition of Permitted Indebtedness) or (B) for any
other purpose, Indebtedness issued in accordance with the "Limitation on
Incurrence of Additional Indebtedness" covenant, in each case that does not (1)
result in an increase in the aggregate principal amount of Indebtedness of such
Person as of the date of such proposed Refinancing (plus the amount of any
premium required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) except to the extent such increase is
otherwise permitted to be incurred under the Indenture or (2) create
Indebtedness with a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced; provided
that (x) if such Indebtedness being Refinanced is Indebtedness solely of the
Company or a Guarantor, then such Refinancing Indebtedness shall be Indebtedness
solely of the Company and/or one or more Guarantors and (y) if such Indebtedness
being Refinanced is subordinate or junior to the Senior Notes or a Guarantee,
then such Refinancing Indebtedness shall be subordinate or junior to the Senior
Notes or such Guarantee at least to the same extent and in the same manner as
the Indebtedness being Refinanced.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
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"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Senior Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on June 26, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Registration Rights Agreement with the Initial Purchasers
pursuant to which the Company has agreed to: (i) within 60 days after the Issue
Date (the "Filing Date"), file a registration statement ("the Exchange Offer
Registration Statement") with respect to registered offers (the "Exchange
Offer") to exchange the Notes for the Exchange Notes, which Exchange Notes will
have terms substantially identical in all material respects to the Notes,
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the Issue Date. Upon the Exchange Offer Registration Statement
being declared effective, the Company will offer the Exchange Notes in exchange
for surrender of the Notes. The Company will keep the Exchange Offer open for
not less than 20 business days (or longer if required by applicable law) after
the date notice of the Exchange Offer is mailed to the Holders. For each of the
Notes surrendered to the Company pursuant to the Exchange Offer, the Holder who
surrendered such Notes will receive the Exchange Notes having a principal amount
equal to that of the surrendered Notes. Interest on each Exchange Note will
accrue (A) from the later of (i) the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor, or (ii) if the
Note is surrendered for exchange on a date in a period which includes the record
date for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date or
(B) if no interest has been paid on the Notes, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the Exchange Notes will be freely
transferable by holders thereof (other than affiliates of the Issuers) after the
Exchange Offer without further registration under the Securities Act; provided,
however, that each Holder that wishes to exchange its Notes for Exchange Notes
will be required to represent (i) that any Exchange Notes to be received by it
will be acquired in the ordinary course of its business, (ii) that at the time
of the commencement of the Exchange Offer it has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the Securities Act, (iii)
that it is not an "affiliate" (as defined in Rule 405 promulgated under the
Securities Act) of the Issuers, (iv) if such Holder is not a broker-dealer, that
it is not engaged in, and does not intend to engage in, the distribution of
Exchange Notes and (v) if such Holder is a broker-dealer (a "Participating
Broker-Dealer") that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any resale of
such Exchange Notes. Upon written notice within 30 days following the completion
of the Exchange Offers that a Participating Broker-Dealer has received Exchange
Notes in the Exchange Offer, the Issuers will agree to make available, during
the period required by the Securities Act, a prospectus meeting the requirements
of the Securities Act for use by Participating Broker-Dealers and other persons,
if any, with similar prospectus delivery requirements for use in connection with
any resale of Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 210
days of the Issue Date, (iii) in certain circumstances, certain holders of
unregistered Exchange Notes so request, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such Holder as
an affiliate of the Company within the meaning of the Securities Act), then in
each case, the Issuers will (x) promptly deliver to the Holders and the Trustee
written notice thereof and (y) at their sole expense, (a) as promptly as
practicable, file shelf registration statements covering resales of the Notes
(the "Shelf Registration State-
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ments"), (b) use their best efforts to cause the Shelf Registration Statements
to be declared effective under the Securities Act and (c) use their best efforts
to keep effective the Shelf Registration Statements until the earlier of two
years after the Issue Date or such time as all of the applicable Notes have been
sold thereunder. The Issuers will, in the event that Shelf Registration
Statements are filed, provide to each Holder copies of the prospectus that is a
part of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Notes. A Holder
that sells Notes pursuant to the Shelf Registration Statement will be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a Holder (including certain indemnification rights and
obligations).
If the Issuers fail to comply with the above provisions or if the Exchange
Offer Registration Statement or the Shelf Registration Statement fails to become
effective, then, as liquidated damages, additional interest (the "Additional
Interest") pursuant to provisions of the Notes, shall become payable in respect
of the Notes as follows:
if (a) neither an Exchange Offer Registration Statement nor a Shelf
Registration Statement is filed with the Commission on or prior to 60 days
after the Issue Date or (b) notwithstanding that the Issuers have
consummated or will consummate an Exchange Offer, the Issuers are required
to file a Shelf Registration Statement and such Shelf Registration
Statement is not filed on or prior to the date required by the Registration
Rights Agreement, then commencing on the day after either such required
filing date, Additional Interest shall accrue on the principal amount of
the Notes at a rate of .25% per annum for the first 90 days immediately
following each such filing date, such Additional Interest increasing by an
additional .25% per annum at the beginning of each subsequent 90-day
period; or
if (a) neither an Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 150 days after the Issue Date or (b) notwithstanding that the Issuers
have consummated or will consummate an Exchange Offer, the Issuers are
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
90th day following the date such Shelf Registration Statement was filed,
then, commencing on the day after the 150th day in the case of (a) above,
or the day after the 90th day in the case of (b) above, Additional Interest
shall accrue on the principal amount of the Notes at a rate of .25% per
annum for the first 90 days immediately following each such filing date,
such Additional Interest increasing by an additional .25% per annum at the
beginning of each subsequent 90-day period; or
if (a) the Issuers have not exchanged the applicable Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 45th day after the date on which the Exchange Offer
Registration Statement was declared effective or (b) if applicable, a Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date (other than after such time as all of
the applicable Notes have been disposed of thereunder), then Additional
Interest shall accrue on the principal amount of the Notes at a rate of
.25% per annum for the first 90 days commencing on (x) the 46th day after
such effective date, in the case of (a) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (b) above,
such Additional Interest increasing by an additional .25% per annum at the
beginning of each subsequent 90-day period;
provided, however, that the rate of Additional Interest that shall accrue on the
Notes may not exceed in the aggregate 1.0% per annum; provided, further,
however, that (1) upon the filing of the applicable Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the applicable Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (ii) above),
or (3) upon the exchange of applicable Exchange Notes for all applicable Notes
tendered (in the case of clause (iii) (a) above), or upon the effectiveness of a
Shelf Registration Statement which had ceased to remain effective (in the case
of clause (iii) (b) above), Additional Interest on
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the applicable Notes as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue or accumulate, as the case
may be.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Additional Interest will be determined by
multiplying the applicable rate of Additional Interest by the principal amount
of the Senior Notes multiplied by a fraction, the numerator of which is the
number of days such rate of Additional Interest was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
The Issuers (i) shall make available a prospectus meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any resale
of any such Exchange Notes and (ii) shall pay all expenses incident to the
Exchange Offer (including the expense of one counsel to the Holders covered
thereby) and will indemnify certain holders of the Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer will be required to make representations in the Letter of
Transmittal that (a) it is not an "affiliate" of the Issuers (within the meaning
of Rule 405 of the Securities Act); (b) it is not engaged in and does not intend
to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes to be issued in the
Exchange Offer; (c) it is acquiring the Exchange Notes in its ordinary course of
business; and (d) if it is a Participating Broker-Dealer holding Notes acquired
for its own account as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes received in respect of such Exchange Notes pursuant to the Exchange Offer.
The Commission has taken the position and the Issuers believe that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Exchange and Registration Rights Agreement,
the Issuers are required to allow Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
If the holder is a Participating Broker-Dealer, it will be required to
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Exchange Offer that such Participating
Broker-Dealer has not entered into any arrangement or understanding with the
Company or any affiliate of the Issuers to distribute the Exchange Notes.
Holders of the Notes will be required to make certain representations to
the Issuers (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Notes pursuant
to the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Issuers will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Registration Rights Agreement contains a
discussion of all material elements thereof, but does not purport to be complete
and is qualified in its entirety by reference to all
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provisions of the Registration Rights Agreement. The Issuers will provide a copy
of the Registration Rights Agreement to holders of Notes identified to the
Issuers by an Initial Purchaser upon request.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that: (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes; (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof; and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The Exchange Notes
will evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $75,000,000 aggregate principal amount
of Notes were outstanding. The Issuers have fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
The Issuers intend to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Notes when,
as and if the Issuers have given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Issuers.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Issuers will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Issuers, in their sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Issuers will not extend the Expiration Date beyond ,
1998.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any
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such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
January 1, 1999. Interest on the Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each January 1
and July 1, commencing on January 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Issuers the representations set forth above in the eighth paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
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If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Notes to the Depositary in accordance with DTC's ATOP
procedures for transfer. DTC will then send an Agent's Message to the
Depositary.
The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Issuers may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Depositary, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC participant
using ATOP must also properly complete and duly execute the applicable Letter of
Transmittal and deliver it to the Depositary. Pursuant to authority granted by
DTC, any DTC participant which has Notes credited to its DTC account at any time
(and thereby held of record by DTC's nominee) may directly provide a tender as
though it were the registered holder by so completing, executing and delivering
the applicable Letter of Transmittal to the Depositary. DELIVERY OF DOCUMENTS TO
DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Issuers in their sole discretion, which determination will be
final and binding. The Issuers reserve the absolute right to reject any and all
Notes not properly tendered or any Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve
the right in their sole discretion to waive any defects, irregularities or
conditions of tender as to particular Notes. The Issuers' interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Notes must be
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cured within such time as the Issuers shall determine. Although the Issuers
intend, to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Issuers, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Issuers, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination
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of the Exchange Offer. Properly withdrawn Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Issuers, might materially impair the ability of the Issuers
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval
the Issuers shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their sole discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Notes and
return all tendered Notes to the tendering holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and its affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
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ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only: (i) to the Issuers (upon redemption thereof or otherwise); (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Issuers); (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act; or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with person to participate, in the distribution
of the Exchange Notes, will be allowed to resell the Exchange Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Issuers in the Letter of Transmittal that (a) it is not an "affiliate" of
the Issuers (within the meaning of Rule 405 of the Securities Act); (b) it is
not engaged in and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes to be issued in the Exchange Offer; (c) it is acquiring the Exchange Notes
in its ordinary course of business; and (d) if it is a Participating
Broker-Dealer holding Notes acquired for its own account as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such
Exchange Notes pursuant to the Exchange Offer. As indicated above, each
Participating Broker-Dealer that receives an Exchange Note for its own account
in exchange for Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
81
<PAGE> 86
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Issuers recommend that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Issuers, has advised the Issuers
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Notes. Rather, the Exchange Notes received by a
holder will be treated as a continuation of the Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of Exchange Notes received in respect of such Notes pursuant to the
Exchange Offer. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Notes where such Notes were acquired
as a result of market-making activities or other trading activities. The Issuers
have agreed that to make this Prospectus, as amended or supplemented, available
to any Participating Broker-Dealer for use in connection with any such resale.
In addition, until , 1998, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Issuers believe that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and
82
<PAGE> 87
has no arrangement or understanding with person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction and such a secondary resale transaction
should be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Issuers
have agreed to make this Prospectus available to any Participating Broker-Dealer
for use in connection with any such resale.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
EXPERTS
The consolidated financial statements of the Company at March 23, 1997 and
March 29, 1998 and for each of the three fiscal years in the period ended March
29, 1998, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
83
<PAGE> 88
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Audited Consolidated Financial Statements:
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- Assets As of March 23, 1997
and March 29, 1998........................................ F-3
Consolidated Balance Sheets -- Liabilities and Stockholder's
Equity As of March 23, 1997 and March 29, 1998............ F-4
Consolidated Statements of Income and Retained Earnings For
the fiscal years ended March 24, 1996, March 23, 1997 and
March 29, 1998............................................ F-5
Consolidated Statements of Cash Flows For the fiscal years
ended March 24, 1996, March 23, 1997 and March 29, 1998... F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets -- Assets As of March 29, 1998
and September 27, 1998.................................... F-14
Consolidated Balance Sheets -- Liabilities and Stockholder's
Equity As of March 29, 1998 and September 27, 1998........ F-15
Consolidated Statements of Earnings For the twenty-six weeks
ended September 21, 1997 and September 27, 1998........... F-16
Consolidated Statements of Cash Flows For the twenty-six
weeks ended September 21, 1997 and September 27, 1998..... F-17
Notes to Consolidated Financial Statements.................. F-18
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Romacorp, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Romacorp, Inc. and
Subsidiaries (the Company), a wholly-owned subsidiary of NPC International,
Inc., as of March 23, 1997 and March 29, 1998 and the related statements of
income and retained earnings, and cash flows for each of the three fiscal years
in the period ended March 29, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Romacorp, Inc. and
Subsidiaries at March 23, 1997 and March 29, 1998 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 29, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in the fiscal year
ended March 24, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
Ernst & Young LLP
Kansas City, Missouri
April 30, 1998
F-2
<PAGE> 90
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 23, MARCH 29,
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, net.................................. 1,473 1,351
Inventories of food and supplies.......................... 661 1,509
Deferred income tax asset................................. 318 583
Prepaid expenses.......................................... 519 583
Preopening costs.......................................... 1,196 466
Other current assets...................................... 16 22
------- -------
Total current assets................................... 4,183 4,514
Facilities and equipment, net............................... 46,516 52,600
Notes receivable, net....................................... 814 757
Goodwill, net of accumulated amortization of $3,716 and
$4,450, respectively...................................... 15,260 14,526
Deferred income tax asset................................... 865 1,423
Other assets................................................ 1,086 927
------- -------
Total assets................................................ $68,724 $74,747
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 91
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
MARCH 23, MARCH 29,
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Liabilities:
Accounts payable.......................................... $ 855 $ 1,094
Payroll taxes............................................. 512 120
Accrued interest.......................................... 46 28
Accrued payroll........................................... 653 1,317
Current portion of closure reserve........................ 200 100
Insurance reserves........................................ 871 1,161
Checks written in excess of cash.......................... 407 113
Accrued sales tax......................................... 118 485
Accrued real estate tax................................... 214 368
Other accrued liabilities................................. 1,546 1,109
Current portion of long-term debt......................... 444 444
------- -------
Total current liabilities.............................. 5,866 6,339
Long-term debt.............................................. 1,333 889
Closure reserve............................................. 541 443
Payable to affiliate........................................ 32,834 34,384
Long-term insurance reserves................................ 1,023 1,400
Stockholder's Equity:
Common stock, 2,000 shares authorized, 100 shares issued and
outstanding............................................... -- --
Paid-in capital............................................. 17,444 17,444
Retained earnings........................................... 9,683 13,848
------- -------
Total stockholder's equity............................. 27,127 31,292
------- -------
Total liabilities and stockholder's equity................ $68,724 $74,747
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 92
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 24, MARCH 23, MARCH 29,
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net restaurant sales........................................ $51,499 $68,778 $86,408
Net franchise revenues...................................... 7,570 8,526 8,482
------- ------- -------
Total revenues......................................... 59,069 77,304 94,890
------- ------- -------
Cost of sales............................................... 17,541 22,921 29,011
Direct labor................................................ 15,738 21,461 26,694
Other....................................................... 13,355 16,645 21,038
General and administrative expenses......................... 6,906 9,276 9,264
Impairment and loss provision for underperforming assets.... 3,500 -- --
------- ------- -------
Total operating expenses............................... 57,040 70,303 86,007
------- ------- -------
Operating income............................................ 2,029 7,001 8,883
Other income (expense)......................................
Interest expense.......................................... (876) (1,550) (2,412)
Miscellaneous............................................. (257) 42 9
------- ------- -------
Income before income taxes............................. 896 5,493 6,480
Provision (benefit) for income taxes........................
Current................................................... 2,172 731 3,138
Deferred.................................................. (1,627) 1,286 (823)
------- ------- -------
545 2,017 2,315
------- ------- -------
Net income.................................................. 351 3,476 4,165
Beginning retained earnings................................. 5,856 6,207 9,683
------- ------- -------
Ending retained earnings.................................... $ 6,207 $ 9,683 $13,848
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 93
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 24, MARCH 23, MARCH 29,
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 351 $ 3,476 $ 4,165
Non-cash items included in net income:
Depreciation and amortization............................ 3,320 3,808 5,260
Amortization of start-up costs........................... 673 1,617 1,937
Deferred income taxes.................................... (1,627) 1,286 (823)
Non-cash portion of impairment and loss provision........ 3,500 -- --
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net................................. (31) (559) 122
Notes receivable, net.................................... 24 27 57
Inventories of food and supplies......................... (887) 1,435 (848)
Pre-opening costs........................................ (856) (2,095) (1,169)
Other current assets..................................... (260) (140) (71)
Accounts payable......................................... 339 139 239
Payroll taxes............................................ 123 90 (392)
Accrued interest......................................... (151) (18) (18)
Accrued payroll.......................................... 111 175 664
Health and workers compensation insurance reserves....... 414 623 667
Other accrued liabilities................................ 312 (448) 84
-------- -------- --------
Net cash flows provided by operating activities.......... 5,355 9,416 9,874
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures, net.................................. (14,859) (23,835) (10,610)
Acquisition of business assets, net of cash................ (1,750) -- --
Changes in other assets, net............................... 118 (923) (76)
-------- -------- --------
Net cash flows used by investing activities.............. (16,491) (24,758) (10,686)
-------- -------- --------
FINANCING ACTIVITIES:
Payments of long-term debt................................. (904) (711) (444)
Change in checks written in excess of cash................. 102 305 (294)
Net change in payable to affiliate......................... 11,711 15,748 1,550
-------- -------- --------
Net cash flows provided by financing activities.......... 10,909 15,342 812
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... (227) -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 227 -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ -- $ -- $ --
======== ======== ========
</TABLE>
Cash paid for interest was approximately $278,000, $178,000, and $131,000,
for the fiscal year 1996, 1997, and 1998, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 94
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, OPERATION AND BASIS OF PRESENTATION
Romacorp, Inc. and Subsidiaries (the Company) was acquired in June 1993, by
NPC International, Inc. which currently owns all outstanding shares of Romacorp,
Inc. These financial statements reflect the Company's operation of its own
restaurants and franchise revenue from franchisees' use of trademarks and other
proprietary information in the operation of Tony Roma's restaurants. The Company
maintains its corporate office in Dallas, Texas, and through its subsidiaries
provides menu development, training, marketing and other administrative services
related to the operation of the Roma Concept. NPC International, Inc., through
its affiliates, has provided accounting and management information services for
which the Company has been charged fees based on various factors, which have
approximated 1.0% of net sales for each period presented. The Company's
management believes these charges approximate fair value of the services
provided and actual cost to the Company would not be significantly different if
operated as an unaffiliated entity, except as disclosed in these footnotes. All
intercompany transactions between Romacorp, Inc. and its subsidiaries have been
eliminated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR -- The Company operates on a 52 or 53 week fiscal year ending
on the last Sunday before the last Tuesday in March. The fiscal years ended
March 24, 1996, and March 23, 1997 each contained 52 weeks. The fiscal year
ended March 29, 1998 contained 53 weeks.
CASH EQUIVALENTS -- For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. For each period
presented, substantially all cash was in the form of depository accounts.
INVENTORIES -- Inventories of food and supplies are valued at the lower of
cost (first-in, first-out method) or market.
PRE-OPENING COSTS -- The Company amortizes pre-opening costs, which
principally represent the cost of hiring and training new personnel, over a
period of one year commencing with the restaurant's opening.
FACILITIES AND EQUIPMENT -- Facilities and equipment are recorded at cost.
Depreciation is charged on the straight-line basis for buildings, furniture and
equipment. Leasehold improvements are amortized on the straight-line method over
the life of the lease or the life of the improvements whichever is shorter.
LONG-LIVED ASSETS -- Effective in fiscal 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of. The
majority of the Company's long-lived assets held for continuing use are
evaluated for potential impairment on a store-by-store basis. Assets held for
sale are stated at estimated fair value.
GOODWILL -- Goodwill represents the excess of cost over the identifiable
net assets acquired and is amortized on the straight-line method over periods
ranging from 25 to 40 years.
FRANCHISE REVENUE -- The franchise agreements for Tony Roma's restaurants
provide for an initial fee and continuing royalty payments based upon gross
sales, in return for operational support, product development, marketing
programs and various administrative services. Royalty revenue is recognized on
the accrual basis, although initial fees are not recognized until the
franchisee's restaurant is opened. Fees for granting exclusive development
rights to specific geographic areas are recognized when the right has been
granted and cash received is non-refundable. Net franchise revenue is presented
net of direct expenses, which include labor, travel and related costs of
Franchise Business Managers, who operate as liaisons between the franchise
community and the franchisor. Direct costs also include bad debt expense, and
opening costs consisting primarily of training expenses. Franchisees also
participate in national and local marketing programs, which are managed by the
Company; the related funding for which is separate and not included in the
accompanying financial statements.
F-7
<PAGE> 95
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS -- As of March 23, 1997 and March 29,
1998, the fair value of the Company's financial instruments, including cash
equivalents, approximates their carrying value.
INCOME TAXES -- The Company's results are included in the consolidated
federal income tax return of NPC International, Inc. The provisions for income
taxes, reflected in the accompanying statements, were calculated for the Company
on a separate return basis. The provisions for income taxes include taxes that
are deferred because of temporary differences between the financial statements
and tax bases of assets and liabilities. Deferred taxes arise principally from
the use of different depreciation methods and lives for tax purposes, and the
deferral of tax deductions for the insurance and closure reserves accrued for
financial statement purposes.
INSURANCE RESERVES -- The Company, along with NPC International, Inc. and
affiliates, is self-insured for certain risks and is covered by insurance
policies for other risks. The Company maintains reserves on a separate company
basis for their policy deductibles and other program expenses using case basis
evaluations and other analyses. The reserves include estimates of future trends
in claim severity and frequency, and other factors, which could vary as claims,
are ultimately settled. Reserve estimates are continually reviewed and
adjustments are reflected in current operations. Changes in deductible amounts
could impact both the establishment of future reserves and/or the rate of
premiums incurred.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS -- Advertising costs are expensed as incurred. The
Company incurred $1,562,000, $2,138,000, and $2,668,000 of such costs in fiscal
1996, fiscal 1997 and fiscal 1998, respectively.
YEAR 2000 COMPLIANCE (UNAUDITED) -- In order to address the Year 2000
Issue, NPC International, Inc. has developed a plan to modify its systems, which
are used by the Company, and has begun implementation of this plan. The
management of NPC International, Inc. has not developed a plan and/or cost
estimates that consider the Company on a stand-alone basis. NPC International,
Inc. is evaluating the extent to which its computer operating systems will be
disrupted upon the turn of the century as a result of the Year 2000 Issue. NPC
presently believes that by modifying existing software and converting new
software, the Year 2000 Issue will not pose significant operational problems for
its information systems. However, if such modifications and conversions are not
timely or are not properly implemented, the Year 2000 Issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In April 1998, Statement of
Position (SOP) 98-5 Accounting for Costs of Start-up Activities was issued. The
SOP requires the Company to expense pre-opening costs as incurred and to report
the initial adoption as a cumulative effect of a change in accounting principle
as described in APB No. 20, Accounting Changes, during the first quarter of its
fiscal year 2000. The cumulative effect upon adoption will result in a one-time
charge to income in an amount equal to the net book value of the Company's
pre-opening costs. This change will also result in the discontinued amortization
of pre-opening cost expense in subsequent periods. At March 29, 1998, the
balance of pre-opening costs was $466,000.
F-8
<PAGE> 96
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 23, MARCH 29,
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Franchise receivables....................................... $1,019 $1,324
Other receivables........................................... 650 299
------ ------
1,669 1,623
Allowances for doubtful accounts............................ (196) (272)
------ ------
Net receivables........................................ $1,473 $1,351
====== ======
</TABLE>
Franchise receivables represent royalties due based on a percent of sales
at the franchisees' Tony Roma's restaurants, and for other services provided,
and fees assessed in accordance with the franchise agreement. Other receivables
include amounts due for the sale of raw materials, principally ribs, which the
Company has sold from its supply to franchisees. Other receivables also includes
"banquet" sales to significant individual customers and other miscellaneous
items.
The Company generally does not require collateral on the accounts, but has
the right to terminate the franchise agreement in the event the royalties
becomes uncollectable.
(4) FACILITIES AND EQUIPMENT
Facilities and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 23, MARCH 29,
USEFUL LIFE 1997 1998
------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land............................................ $ 11,200 $ 12,057
Buildings....................................... 15-30 years 15,992 26,790
Leasehold improvements.......................... 5-20 years 10,128 11,785
Furniture and equipment......................... 3-10 years 13,150 14,898
Construction in progress........................ 7,378 1,472
-------- --------
57,848 67,002
Less accumulated depreciation and
amortization.................................. (11,332) (14,402)
-------- --------
Net facilities and equipment.................... $ 46,516 $ 52,600
======== ========
</TABLE>
F-9
<PAGE> 97
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 24, MARCH 23, MARCH 29,
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $ 1,816 $ 330 $2,755
State............................................... 164 49 99
Foreign............................................. 192 352 284
------- ------ ------
2,172 731 3,138
------- ------ ------
Deferred:
Federal............................................. (1,360) 581 (723)
State............................................... (123) 86 (26)
Foreign............................................. (144) 619 (74)
------- ------ ------
(1,627) 1,286 (823)
------- ------ ------
Provision for income taxes............................ $ 545 $2,017 $2,315
======= ====== ======
</TABLE>
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
MARCH 24, MARCH 23, MARCH 29,
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax computed at statutory rate........................ $ 314 $1,923 $2,268
Goodwill amortization................................. 274 242 249
Tax credits........................................... (189) (309) (372)
State taxes, net of federal effect, and other......... 146 161 170
------ ------ ------
Provision for income taxes............................ $ 545 $2,017 $2,315
====== ====== ======
</TABLE>
F-10
<PAGE> 98
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal and state income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
MARCH 23, MARCH 29,
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Insurance reserves........................................ $ 595 $ 926
Closure reserves.......................................... 316 192
Accrued vacation.......................................... 166 245
Depreciation.............................................. 162 507
Allowance for doubtful accounts........................... 71 97
Other, net................................................ 297 204
------ ------
Total deferred tax assets.............................. 1,607 2,171
------ ------
Deferred tax liabilities:
Pre-opening expenses...................................... 424 165
Other, net................................................ -- --
------ ------
Total deferred tax liabilities......................... 424 165
------ ------
Net deferred tax assets..................................... 1,183 2,006
Current................................................... 318 583
------ ------
Non-current............................................... $ 865 $1,423
====== ======
</TABLE>
A valuation allowance against deferred tax assets is required if, based on
the weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. The Company believes, based on the
expected timing of the reversal of the future taxable temporary differences and
inclusion in the NPC International, Inc. consolidated tax return, that no
valuation allowance is necessary.
(6) LONG-TERM DEBT AND PAYABLE TO AFFILIATE
Long-term debt consists of a note payable to a former franchisee related to
the acquisition of facilities, equipment and inventory. Principal payments on
the note in the amount of $444,000, are due annually. Interest is paid quarterly
based on the prime rate at First Union Bank of New Jersey as adjusted. The note
is collateralized by the facilities.
The Company's primary credit facility is an intercompany agreement with NPC
Management, Inc., a subsidiary of NPC International, Inc. The facility functions
similar to a line of credit arrangement. Weekly cash is swept, as payment on the
facility, from each store's depository account and the lock box account
maintained by the Company to collect royalty and other payments from third
parties. As checks are presented for payment on the Company's disbursement
accounts amounts are advanced under terms of the facility. Interest is accrued
monthly based on the previous month's average borrowings. The interest rate is
adjusted monthly and equals the average borrowing rate for NPC Management, Inc.
plus 75 basis points. The agreement has annual renewal provisions and
accordingly, the borrowings are classified as long-term.
Interest expense incurred related to the borrowings from NPC was $612,000
in fiscal 1996, $1,430,000 in fiscal 1997, and $2,696,000 in fiscal 1998. These
amounts are net of $75,000, $339,000, and $332,000 capitalized during the years
ended March 24, 1996, March 23, 1997, and March 29, 1998, respectively.
F-11
<PAGE> 99
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS
The Company leases certain restaurant equipment and buildings under
operating leases. Rent expense for the fiscal years 1996, 1997, and 1998 was
$3,008,000, $3,412,000, and $3,879,000 respectively, including additional
rentals of approximately $697,000 in 1996, $687,000 in 1997, and $712,000 during
1998. The additional rentals are based upon a percentage of sales in excess of a
base amount as specified in the lease. The majority of the Company's leases
contain renewal option(s) for 5 to 10 years. Renewal of the remaining leases is
dependent on mutually acceptable negotiations.
At March 29, 1998, minimum rental commitments under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------- (DOLLARS IN THOUSANDS)
<S> <C>
1999..................................... $ 2,518
2000..................................... 2,115
2001..................................... 1,878
2002..................................... 1,787
2003..................................... 1,671
Thereafter............................... 10,626
-------
$20,595
=======
</TABLE>
In March 1998, NPC International, Inc. purchased two parcels of land for
approximately $1.6 million, which the Company is committed to buy at cost,
subsequent to the end of the fiscal year.
(8) PROFIT SHARING PLAN
The Company participates in the NPC International, Inc. Profit Sharing Plan
which was instituted on July 1, 1992. To qualify, employees must generally have
two years of service, attain the age of 21 and be employed on the last day of
the plan year. The contribution to the plan is at the discretion of the NPC
International, Inc. Board of Directors, based upon the earnings of the Company.
NPC International, Inc. contributed $184,267 on the Company's behalf for the
calendar year 1995. The 1995 amount is not included in the Company's statement
of income. The Company contributed $191,092 and $221,587 for the calendar years
1996 and 1997, respectively.
(9) STOCK OPTION PLAN
Employees of the Company participate in a non-qualified stock option plan
sponsored by NPC International, Inc. The options allow the employee to purchase
shares of NPC International, Inc. at a price equal to fair market value of the
stock at the time the options were awarded. The options generally become
exercisable over a four year period in equal amounts.
The Company's accounting method for the issuance of stock options is in
accordance with APB No. 25, and because the exercise price of the option equals
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
The Company has considered Statement of Financial Accounting Standards No.
123 Accounting for Stock Based Compensation (Statement 123) and determined that
the impact of this statement on pro-forma disclosures would be immaterial.
Statement 123 requires certain disclosures about the outstanding and
exercisable options, option activity, weighted average exercise price per option
and option exercise price range for each income statement period.
F-12
<PAGE> 100
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Since the option activity relates only to NPC International, Inc.'s.
stockholders' equity, this information is not presented for the Company.
(10) IMPAIRMENT AND LOSS PROVISION FOR UNDERPERFORMING ASSETS
The Company recorded a pre-tax provision of $3,500,000 in fiscal 1996
related to the disposition of six underperforming Tony Roma's units and the
relocation of two others to be completed in the next year. The assets to be
disposed of consisted of buildings, leasehold improvements, and furniture and
equipment, which had a carrying value of approximately $2,800,000. The six units
to be disposed of generated sales of approximately $7,600,000 and losses from
restaurant operations of approximately $340,000 in fiscal 1996.
(11) CONTINGENCIES
The Company currently has a case pending in the Courts of Appeals, 2nd
District of Texas arising out of a previous judgement against the Company
related to a cessation of lease payments. The Company has posted a supersedeas
bond in the amount of $530,654 pending the appeals process. The case was argued
December 10, 1997, and no decision has been rendered. These financial statements
do not include a provision for an adverse outcome of this case. The Company is
involved in other legal actions arising in the normal course of business.
Management believes the outcome of these actions will not have material adverse
effects on the financial position or results of operations of the Company.
Pursuant to the Recapitalization Agreement, NPC has agreed to indemnify and hold
Holdings and the Company harmless for liabilities and costs associated with the
litigation.
(12) SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for Romancorp Inc., excluding the assets,
liabilities, and operations of its wholly-owned subsidiaries, is as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------------------------
MARCH 24, 1996 MARCH 23, 1997 MARCH 29, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Total revenues................................... $51,499 $68,778 $86,408
Total operating expenses......................... 54,625 67,829 86,496
Operating income (loss).......................... (3,126) 949 (88)
Loss before income taxes......................... 4,339 1,040 3,147
Net loss......................................... 3,052 771 2,093
</TABLE>
<TABLE>
<CAPTION>
MARCH 23, 1997 MARCH 29, 1998
-------------- --------------
<S> <C> <C> <C>
Current assets................................... $ 3,348 $ 3,275
Noncurrent assets................................ 64,654 74,957
Current liabilities.............................. 5,812 1,640
Noncurrent liabilities........................... 51,448 45,299
</TABLE>
(13) SUBSEQUENT EVENT
On April 24, 1998, NPC International, Inc. and Sentinel Capital Partners,
L.P. executed a recapitalization agreement related to Romacorp, Inc. and
subsidiaries. The transaction is contingent upon financing and customary
conditions and approval. The transaction is expected to close in June 1998.
F-13
<PAGE> 101
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 29, SEPTEMBER 27,
1998 1998
--------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, net.................................. 1,351 1,390
Inventories of food and supplies.......................... 1,509 2,554
Deferred income tax asset................................. 583 404
Prepaid expenses.......................................... 583 1,002
Preopening expenses....................................... 466 403
Other current assets...................................... 22 19
------- -------
Total current assets................................... 4,514 5,772
Facilities and equipment, net............................... 52,600 54,344
Notes receivable, net....................................... 757 737
Goodwill, net of accumulated amortization of $4,450 and
$4,878, respectively...................................... 14,526 14,159
Deferred income tax asset................................... 1,423 1,888
Other assets................................................ 927 854
Debt issuance costs......................................... -- 3,335
------- -------
Total assets................................................ $74,747 $81,089
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 102
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
MARCH 29, SEPTEMBER 27,
1998 1998
--------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current Liabilities
Accounts payable.......................................... $ 1,094 $ 917
Payroll taxes............................................. 120 102
Accrued interest.......................................... 28 2,258
Accrued payroll........................................... 1,317 1,289
Current portion of closure reserve........................ 100 100
Insurance reserves........................................ 1,161 1,366
Checks written in excess of cash.......................... 113 87
Accrued sales tax......................................... 485 321
Accrued real estate tax................................... 368 479
Other accrued liabilities................................. 1,109 1,487
Current portion of long-term debt......................... 444 --
------- --------
Total current liabilities.............................. 6,339 8,406
Senior notes................................................ -- 75,000
Long-term debt.............................................. 889 5,226
Closure reserve............................................. 443 403
Payable to affiliate........................................ 34,384 --
Long-term insurance reserves................................ 1,400 1,200
Stockholder's Equity (Deficit):
Common stock, 2,000 shares authorized, 100 shares issued and
outstanding............................................... -- --
Paid-in capital............................................. 17,444 66,639
Retained earnings (deficit):
Dividend to Holdings...................................... (75,337)
Other..................................................... 13,848 (448)
------- --------
Total.................................................. 13,848 (75,785)
------- --------
Total stockholder's equity (deficit)................... 31,292 (9,146)
------- --------
Total liabilities and stockholder's equity (deficit)...... $74,747 $ 81,089
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-15
<PAGE> 103
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------------
SEPTEMBER 21, SEPTEMBER 27,
1997 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net restaurant sales........................................ $40,746 $544,931
Net franchise revenues...................................... 4,145 4,253
------- -------
Total revenues......................................... 44,891 49,184
------- -------
Cost of sales............................................... 13,244 15,756
Direct labor................................................ 12,954 13,838
Other....................................................... 10,045 10,811
------- -------
General and administrative expenses......................... 4,634 4,357
------- -------
Total operating expenses............................... 40,877 44,762
------- -------
Operating income............................................ 4,014 4,422
Other income (expense)
Interest expense.......................................... (1,040) (3,101)
Miscellaneous............................................. 1 217
------- -------
Income before income taxes............................. 2,975 1,538
Income tax provision........................................ 1,042 540
------- -------
Net income.................................................. $ 1,933 $ 998
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-16
<PAGE> 104
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------------------------
SEPTEMBER 21, 1997 SEPTEMBER 27, 1998
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 1,933 $ 998
Non-cash items included in net income:
Depreciation and amortization............................ 2,528 2,837
Amortization of start-up costs........................... 1,120 468
Amortization of debt issuance costs...................... -- 110
Deferred income taxes.................................... (76) (286)
Change in assets and liabilities:
Accounts receivable, net................................. 502 (39)
Notes receivable, net.................................... 6 20
Inventories of food and supplies......................... (276) (1,045)
Pre-opening costs........................................ (884) (405)
Other current assets..................................... 128 (416)
Accounts payable......................................... (18) (177)
Payroll taxes............................................ (129) (18)
Accrued interest......................................... (8) 2,230
Accrued payroll.......................................... 152 (28)
Health and workers compensation reserves................. 346 155
Other accrued liabilities................................ 54 325
Federal taxes payable.................................... 755 --
Other.................................................... -- (40)
------- ---------
Net cash flows provided by operating activities.......... 6,133 4,689
------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net.................................. (7,615) (4,346)
Changes in other assets, net............................... (53) 55
------- ---------
Net cash flows used by investing activities.............. (7,668) (4,291)
------- ---------
FINANCING ACTIVITIES:
Senior Notes............................................. -- 75,000
Dividend to Holdings..................................... (75,337)
Net borrowings under line-of-credit agreement............ -- 5,226
Debt issuance costs...................................... -- (3,445)
Payments of debt......................................... (444) (1,333)
Net change in payable to affiliate......................... 2,105 (483)
Change in checks written in excess of cash................. (126) (26)
------- ---------
Net cash flows provided by (used in) financing
activities............................................ 1,535 (398)
------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... -- --
------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ -- $ --
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 105
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements reflect the financial information of
Romacorp, Inc. and subsidiaries through June 28, 1998, the effective date of the
recapitalization (See Note 2). On that date, Romacorp, Inc. was renamed Roma
Restaurant Holdings, Inc. (Holdings) and the assets, liabilities and operations
of Holdings were contributed to its newly-created, wholly-owned subsidiary,
Romacorp, Inc. Subsequent to June 28, 1998, the consolidated financial
statements reflect the financial information of the newly-created Romacorp, Inc.
and subsidiaries (the Company).
The consolidated financial statements and information included herein are
unaudited; however, they reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of Management, necessary for a fair
statement of the results of operations and to cash flows for the interim periods
ended September 27, 1998 and September 21, 1997 and the financial position as of
September 27, 1998. Results for the period ended September 27, 1998 are not
necessarily indicative of the results that may be expected for the entire fiscal
year. The notes to the audited consolidated financial statements contained in
the Form S-4 Registration Statement should be read in conjunction with these
unaudited consolidated statements.
NOTE 2 -- RECAPITALIZATION
On April 24, 1998, NPC International, Inc. and subsidiaries (NPC) and
Sentinel Capital Partners, L.P. and certain of its affiliates (Sentinel)
executed a recapitalization agreement effective June 28, 1998 related to
Holdings. Prior to the recapitalization, Holdings was a wholly-owned subsidiary
of NPC. Holdings redeemed stock held by NPC so that NPC held 20% of the equity
of Holdings following the transaction. Sentinel became the majority equity owner
of Holdings following the transaction. In conjunction with this transaction,
$75,000,000 of 12% Senior Notes were issued by the Company. Interest on the
notes will accrue from the date of issuance and will be payable in arrears on
January 1 and July 1 of each year commencing January 1, 1999, at the rate of 12%
per annum. The notes will mature on July 1, 2006. The Company paid Holdings a
dividend of $75.3 million, consisting primarily of the proceeds from the 12%
Senior Notes, which was used by Holdings, along with Sentinel's equity
contribution, to effect the recapitalization.
NOTE 3 -- LONG-TERM DEBT AND PAYABLE TO AFFILIATE
Long-term debt as of March 29, 1998 consisted of a note payable to a former
franchisee. As part of the recapitalization transaction, this note was paid in
full. In addition, in conjunction with the recapitalization, $33,887,000 in
payable to affiliate was contributed to capital.
NOTE 4 -- CREDIT FACILITIES
Effective July 1, 1998, the Company entered into an agreement with a bank
for a Revolving Credit Facility which will provide borrowings up to $15 million,
is secured by substantially all of the assets of the Company, and bears interest
at the Company's option of prime rate or up to six-month LIBOR plus 2.25%. Both
rates are subject to maintaining certain financial covenants, and interest is
payable upon maturity of the LIBOR or monthly for prime rate advances. In
addition, a commitment fee of .375% is payable monthly on all unused
commitments. On July 1, 1998, the Company borrowed $5 million.
During September, the Company obtained two commitments from a financial
group. One is a commitment to purchase 11 restaurants not to exceed $1.75
million each or $19.3 million in aggregate and subsequently enter into a lease
agreement with the Company as lessee. The lease agreement provides for minimum
annual rent of 10% of the purchase price which will increase 6% on the third
anniversary of the lease and 6% every three years thereafter. Payments are to be
made monthly. The lease term will be for 15 years with two five year renewal
options of five years each. The minimum annual rent for the renewal option
periods will be set at fair market value. The second commitment, a Leasehold
Mortgage Loan Commitment provides for the funding of the construction of 11
restaurants on leased land, not to exceed $1.0 million each or $11.0 million in
aggregate, at a rate of 450 basis points over the then existing rate of fifteen
year United States
F-18
<PAGE> 106
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Treasuries with an amortization period of 15 years and payments to be made
monthly. Both commitments expire June 30, 2000.
NOTE 5 -- STOCK OPTION PLAN
The Company adopted a stock option plan (the "Stock Plan"), which provides
for the grant to certain key employees and/or directors of the Company of stock
options that are non-qualified options for federal income tax purposes. The
Stock Plan will be administered by the Board of Directors or a committee
thereof.
NOTE 6 -- INCOME TAXES
Prior to the recapitalization the Company's results were included in the
consolidated federal income tax return of NPC International, Inc. Following the
recapitalization, the Company will file its federal income tax return on a stand
alone basis.
NOTE 7 -- SUMMARIZED FINANCIAL INFORMATION
The Exchange Notes will be fully and unconditionally guaranteed on a senior
joint and several basis by each of the Guarantors and all of the Company's
Subsidiaries acquired or formed as of the Issue Date. Summarized financial
information for Romacorp Inc., excluding the assets, liabilities and operations
of certain wholly-owned subsidiaries which are Guarantors of the 12% Senior
Notes, is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX WEEKS ENDED
----------------------------------------
SEPTEMBER 21, 1997 SEPTEMBER 27, 1998
------------------ ------------------
<S> <C> <C>
Total revenues............................................. $40,746 $44,931
Total operating expenses................................... 41,015 45,135
------- -------
Operating loss............................................. 269 204
Loss before income taxes................................... 1,518 3,735
Net loss................................................... 988 2,427
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1998 SEPTEMBER 27, 1998
-------------- ------------------
<S> <C> <C>
Current assets.............................................. $ 3,275 $ 4,341
Noncurrent assets........................................... 74,957 84,279
Current liabilities......................................... 1,640 2,940
Noncurrent liabilities...................................... 45,299 94,823
</TABLE>
NOTE 8 -- YEAR 2000 ISSUE
The Company is in the process of evaluating and modifying its computer
systems and applications for Year 2000 compliance. Management believes that all
significant systems will be Year 2000 compliance prior to the end of the 1999
calendar year.
As the Company has entered into a Transition Services Agreement, providing
for accounting services, payroll services and use of NPC's proprietary POS
System, part of the evaluation is a review of NPC's systems and programs.
Management has reviewed NPC's plans for Year 2000 compliance and NPC plans to
complete all modifications and testing by December 31, 1998, including the POS
System. NPC will incur the costs for the Year 2000 compliance efforts related to
the Transition Services Agreement.
In addition to a review of NPC's systems, the Company is in the process of
evaluating third party vendors for Year 2000 readiness. This includes verbal as
well as written inquiries to substantially all of the Company's vendors. These
responses will be assessed and prioritized in order of significance to the
business. To the extent that responses are not satisfactory, contingency plans
will be developed. Furthermore, the Company plans to
F-19
<PAGE> 107
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
provide all franchises with information related to the risks associated with the
Year 2000 issue by December 31, 1998.
Additionally, the Company is in the process of reviewing non-information
technology equipment and anticipates completion of this effort by March 31,
1999. It is believed that any necessary upgrades or replacements will be minimal
and will be funded out of existing cash flows from operations.
Since the majority of the systems work is being performed by NPC, the
Company will incur minimal costs related to the Year 2000 issue. Any work
performed to remedy any Year 2000 issues will be performed by existing Company
staff and any effect on the financial condition and results of operations due to
the diversion of resources will be insignificant.
The Company does not believe the costs related to the Year 2000 compliance
project will be material to its financial position or results of operations.
However, the cost of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. Unanticipated failures by critical vendors as well as the failure
by the Company to execute its own remediation efforts could have a material
adverse effect on the cost of the project and its completion date. As a result,
there can be no assurance that these forward-looking estimates will be achieved
and the actual cost and vendor compliance could differ materially from those
plans, resulting in material financial risk.
F-20
<PAGE> 108
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 13
The Company................................ 20
Use of Proceeds............................ 21
Capitalization............................. 22
Selected Historical Financial Data......... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 25
Business................................... 32
Management................................. 41
Security Ownership......................... 44
Certain Relationships and Related
Transactions............................. 45
Description of New Revolving Credit
Facility................................. 47
Description of Exchange Notes.............. 48
The Exchange Offer......................... 73
Plan of Distribution....................... 82
Legal Matters.............................. 83
Experts.................................... 83
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
ROMACORP, INC.
OFFER TO EXCHANGE
SERIES B 12% SENIOR NOTES
DUE 2006 FOR SERIES A
12% SENIOR NOTES DUE 2006
TONY ROMA LOGO
---------------
PROSPECTUS
, 1998
---------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of the Company, the Parent, Roma Systems, Inc. and Roma Huntington
Beach, Inc. (the "Delaware Companies") is incorporated under the laws of the
State of Delaware. Section 145 of the General Corporation Law of the State of
Delaware, inter alia, ("Section 145") provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Certificate of Incorporation of each of the Delaware Companies provides
for the indemnification of directors and officers to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as it
currently exists or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Delaware Companies maintain and have in effect insurance policies
covering all of their respective directors and officers against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
Roma Fort Worth, Inc. and Roma Bar Management Corporation (the "Texas
Companies") are incorporated under the laws of the State of Texas, Section
2.02-1 of the Texas Business Corporation Act, inter alia, ("Section 2.02-1")
provides that a Texas corporation may indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was an officer or director only if it is determined that the
person: (1) conducted himself in good faith; (2) reasonably believed: (a) in the
case of conduct in his official capacity as a director of the corporation, that
his conduct was in the corporation's best interests; and (b) in all other cases
that his conduct was at least not opposed to the corporation's best interests;
and (3) in the case of any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful. The indemnity may include judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses actually incurred by the person in connection with the proceeding, but
if the person is found liable to the corporation or is found liable on the basis
that personal benefit was improperly received by the person, the indemnification
(1) is limited to reasonable expenses
II-1
<PAGE> 110
actually incurred by the person in connection with the proceeding and (2) shall
not be made in respect of any proceeding in which the person shall have been
found liable for willful or intentional misconduct in the performance of his
duty to the corporation. The Texas Companies may indemnify and advance expenses
to persons who are not or were not officers, employees, or agents of the
corporation but who are or were serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, employee benefit
plan, other enterprise, or other entity to the same extent that it may indemnify
and advance expenses to directors under Section 2.02-1. The indemnity may
include judgments, penalties (including excise and similar taxes), fines,
settlements, and reasonable expenses actually incurred by the person in
connection with the proceeding, but if the person is found liable to the
corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification (1) is limited to reasonable
expenses actually incurred by the person in connection with the proceeding and
(2) shall not be made in respect of any proceeding in which the person shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the corporation. Where an officer, director, employee or agent is
wholly successful, on the merits or otherwise, in connection with a proceeding
in which he is named defendant or respondent because he is or was a director,
the corporation must indemnify him against the reasonable expenses which such
officer or director, employee or agent has actually and reasonably incurred.
The Certificates of Incorporation of the Texas Companies provide for the
indemnification of their directors and officers to the fullest extent permitted
by the Texas Business Corporation Act.
Section 2.02-1 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, employee benefit plan, other enterprise, or other entity, against
any liability asserted against him and incurred by him in such a capacity or
arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 2.02-1.
The Texas Companies maintain and have in effect insurance policies covering
all of their respective directors and officers against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
Roma Dining LP ("Dining") is a limited partnership under the laws of the
State of Delaware, including the Delaware Revised Uniform Limited Partnership
Act. Section 17-108 of the Delaware Limited Liability Company Act, inter alia,
("Section 17-108") provides that subject to such standards and restrictions, if
any, as are set forth in its limited liability company agreement, a Delaware
limited liability company may, and shall have the power to, indemnify and hold
harmless any member or manager or other person from and against any and all
claims and demands whatsoever.
Dining's limited partnership agreement provides for the indemnification of
any and all of its partners, agents or employees or any person who may have
served at Dining's request as an officer of any corporation, partnership, joint
venture, trust or other enterprise of Dining to the fullest extent permitted by
the Delaware Revised Uniform Limited Partnership Act, as it currently exists or
may hereafter be amended.
Section 17-108 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 17-108.
II-2
<PAGE> 111
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
+2.1 Recapitalization Agreement dated April 24, 1998 by and among
the Company, NPC International, Inc., NPC Restaurant
Holdings, Inc. and Sentinel Capital Partners, L.P.
+2.2 Assignment Agreement dated July 1, 1998 by and among
Sentinel, Sentinel Capital partners II, L.P. ("Sentinel
II"), Omega Partners, L.P. ("Omega"), Provident Financial
Group, Inc. ("Provident"), Travelers Casualty and Surety
Company ("Travelers I"), The Travelers Insurance Company
("Travelers II"), The Travelers Life and Annuity Company
("Travelers III") and the Phoenix Insurance Company
("Phoenix", and together with Sentinel II, Omega, Provident,
Travelers I, Travelers II, and Travelers III, the
"Assignees")
+3.1 Certificate of Incorporation of the Company
+3.2 Certificate of Incorporation of Roma Systems, Inc.
+3.3 Certificate of Incorporation of Roma Holdings, Inc.
+3.4 Certificate of Incorporation of Roma Huntington Beach, Inc.
+3.5 Articles of Incorporation of Roma Bar Management Corporation
+3.6 Articles of Incorporation of Roma Fort Worth, Inc.
+3.7 Certificate of Incorporation of Roma Franchise Corporation
+3.8 Certificate of Limited Partnership of Roma Dining LP
+3.9 By-laws of the Company
+3.10 By-laws of Roma Systems, Inc.
+3.11 By-laws of Roma Holdings, Inc.
+3.12 By-laws of Roma Huntington Beach Inc.
+3.13 Amended and Restated By-laws of Roma Bar Management
Corporation
+3.14 By-laws of Roma Fort Worth, Inc.
+3.15 By-laws of Roma Franchise Corporation
+3.16 Agreement of Limited Partnership of Roma Dining LP
+4.1 Indenture dated as of July 1, 1998 between the Company, the
Guarantors named therein and United States Trust Company of
New York
+4.2 Purchase Agreement dated as of June 26, 1998 among the
Company, Salomon Brothers Inc and Schroder & Co. Inc.
+4.3 Registration Rights Agreement dated as of July 1, 1998 among
the Company, the Guarantors named therein, Salomon Brothers
Inc and Schroder & Co. Inc.
+5.1 Opinion and consent of Kirkland & Ellis.
+10.1 Stockholders Agreement dated as of July 1, 1998 by and among
the Company, the Assignees and Holdings
+10.2 Registration Rights Agreement dated as of July 1, 1998 by
and among the Company, NPC Restaurant Holdings, Inc.,
Sentinel Capital Partners, L.P., Sentinel Capital Partners
II, L.P., Omega Partners, L.P., Provident Financial Group,
Inc., Travelers Casualty and Surety Company, Travelers
Insurance Company, The Travelers Life and Annuity Company
and The Phoenix Insurance Company
+10.3 Transitional Financial and Accounting Services Agreement
dated as of July 1, 1998 by and among NPC Management, Inc.
and the Company
+10.4 Management Services Agreement dated as of July 1, 1998 by
and among the Company and Sentinel
+10.5 Management Agreement dated as of July 1, 1998 by and among
the Company and Robert B. Page.
+10.6 Credit Agreement dated as of July 1, 1998 by and among the
Company, Roma Systems, Inc., Roma Franchise Corporation,
Roma Holdings, Inc., Roma Dining LP, The Provident Bank and
various lenders described therein
</TABLE>
II-3
<PAGE> 112
<TABLE>
<C> <S>
+12.1 Statement of Ratio of Earnings to Fixed Charges.
+21.1 Subsidiaries of the Issuer.
23.1 Consent of Ernst & Young LLP.
+23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
+24.1 Powers of Attorney (included in signature page).
+25.1 Statement of Eligibility of Trustee on Form T-1.
+27.1 Financial Data Schedule.
+99.1 Form of Letter of Transmittal.
+99.2 Form of Notice of Guaranteed Delivery.
+99.3 Form of Tender Instructions.
</TABLE>
- ---------------
+ Previously filed.
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of the chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(1) Each undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by
II-4
<PAGE> 113
the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Each undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Each undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Each undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Romacorp, Inc.
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
Eric D. Bommer
* Director
- --------------------------------------------------------
David S. Lobel
* Director
- --------------------------------------------------------
John F. McCormack
* Director
- --------------------------------------------------------
Michael J. Myers
* Director
- --------------------------------------------------------
James K. Schwartz
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-6
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Systems, Inc.
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
David G. Short
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page as
attorney-in-fact
</TABLE>
II-7
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Dining LP
By: Romacorp, Inc.
its general partner
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
Eric D. Bommer
* Director
- --------------------------------------------------------
David S. Lobel
* Director
- --------------------------------------------------------
John F. McCormack
* Director
- --------------------------------------------------------
Michael J. Myers
* Director
- --------------------------------------------------------
James K. Schwartz
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-8
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Holdings, Inc.
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
David G. Short
</TABLE>
*By: /s/ ROBERT B. PAGE
---------------------------------
Robert B. Page
as attorney-in-fact
II-9
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Huntington Beach, Inc.
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
David G. Short
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-10
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Bar Management Corporation
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
David G. Short
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-11
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Fort Worth, Inc.
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on December 11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
David G. Short
*By: /s/ ROBERT B. PAGE
---------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-12
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on December 11, 1998.
Roma Franchise Corporation
By: /s/ ROBERT B. PAGE
------------------------------------
Name: Robert B. Page
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement and power of attorney have been signed by
the following persons in the capacities and on the dates indicated on December
11, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROBERT B. PAGE Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Robert B. Page
* Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Susan R. Holland accounting officer)
* Director
- --------------------------------------------------------
Eric D. Bommer
* Director
- --------------------------------------------------------
David S. Lobel
* Director
- --------------------------------------------------------
John F. McCormack
* Director
- --------------------------------------------------------
Michael J. Myers
* Director
- --------------------------------------------------------
James K. Schwartz
*By: /s/ ROBERT B. PAGE
----------------------------------------------------
Robert B. Page
as Attorney-in-fact
</TABLE>
II-13
<PAGE> 122
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
+2.1 Recapitalization Agreement dated April 24, 1998 by and among
the Company, NPC International, Inc., NPC Restaurant
Holdings, Inc. and Sentinel Capital Partners, L.P...........
+2.2 Assignment Agreement dated July 1, 1998 by and among
Sentinel, Sentinel Capital partners II, L.P. ("Sentinel
II"), Omega Partners, L.P. ("Omega"), Provident Financial
Group, Inc. ("Provident"), Travelers Casualty and Surety
Company ("Travelers I"), The Travelers Insurance Company
("Travelers II"), The Travelers Life and Annuity Company
("Travelers III") and the Phoenix Insurance Company
("Phoenix", and together with Sentinel II, Omega, Provident,
Travelers I, Travelers II, and Travelers III, the
"Assignees")................................................
+3.1 Certificate of Incorporation of the Company.................
+3.2 Certificate of Incorporation of Roma Systems, Inc. .........
+3.3 Certificate of Incorporation of Roma Holdings, Inc. ........
+3.4 Certificate of Incorporation of Roma Huntington Beach,
Inc. .......................................................
+3.5 Articles of Incorporation of Roma Bar Management
Corporation.................................................
+3.6 Articles of Incorporation of Roma Fort Worth, Inc. .........
+3.7 Certificate of Incorporation of Roma Franchise
Corporation.................................................
+3.8 Certificate of Limited Partnership of Roma Dining LP........
+3.9 By-laws of the Company......................................
+3.10 By-laws of Roma Systems, Inc. ..............................
+3.11 By-laws of Roma Holdings, Inc. .............................
+3.12 By-laws of Roma Huntington Beach Inc. ......................
+3.13 Amended and Restated By-laws of Roma Bar Management
Corporation.................................................
+3.14 By-laws of Roma Fort Worth, Inc. ...........................
+3.15 By-laws of Roma Franchise Corporation.......................
+3.16 Agreement of Limited Partnership of Roma Dining LP..........
+4.1 Indenture dated as of July 1, 1998 between the Company, the
Guarantors named therein and United States Trust Company of
New York....................................................
+4.2 Purchase Agreement dated as of June 26, 1998 among the
Company, Salomon Brothers Inc and Schroder & Co. Inc. ......
+4.3 Registration Rights Agreement dated as of July 1, 1998 among
the Company, the Guarantors named therein, Salomon Brothers
Inc and Schroder & Co. Inc. ................................
+5.1 Opinion and consent of Kirkland & Ellis. ...................
+10.1 Stockholders Agreement dated as of July 1, 1998 by and among
the Company, the Assignees and Holdings.....................
+10.2 Registration Rights Agreement dated as of July 1, 1998 by
and among the Company, NPC Restaurant Holdings, Inc.,
Sentinel Capital Partners, L.P., Sentinel Capital Partners
II, L.P., Omega Partners, L.P., Provident Financial Group,
Inc., Travelers Casualty and Surety Company, Travelers
Insurance Company, The Travelers Life and Annuity Company
and The Phoenix Insurance Company...........................
+10.3 Transitional Financial and Accounting Services Agreement
dated as of July 1, 1998 by and among NPC Management, Inc.
and the Company.............................................
+10.4 Management Services Agreement dated as of July 1, 1998 by
and among the Company and Sentinel .........................
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
+10.5 Management Agreement dated as of July 1, 1998 by and among
the Company and Robert B. Page..............................
+10.6 Credit Agreement dated as of July 1, 1998 by and among the
Company, Roma Systems, Inc., Roma Franchise Corporation,
Roma Holdings, Inc., Roma Dining LP, The Provident Bank and
various lenders described therein...........................
+12.1 Statement of Computation of Ratios..........................
+21.1 Subsidiaries of the Issuer..................................
23.1 Consent of Ernst & Young LLP................................
+23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).......
+24.1 Powers of Attorney (included in signature page).............
+25.1 Statement of Eligibility of Trustee on Form T-1.............
+27.1 Financial Data Schedule.....................................
+99.1 Form of Letter of Transmittal...............................
+99.2 Form of Notice of Guaranteed Delivery.......................
+99.3 Form of Tender Instructions.................................
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Prospectus Summary
- -- Summary Historical and Unaudited Pro Forma and Operating Data," "Selected
Historical Financial Data" and "Experts" and to the use of our report dated
April 30, 1998, in Amendment No. 4 to the Registration Statement (Form S-4) and
related Prospectus of Romacorp, Inc. for the registration of $75,000,000 of 12%
Senior Notes due 2006.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
December 11, 1998
