<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 333-74797
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DOMINO'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 5812 38-3025165
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or
organization)
---------------
30 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48106
(734) 930-3030
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------
Harry J. Silverman
Domino's, Inc.
30 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48106
(734) 930-3030
(Address, including zip code, and telephone number,
including area code, of agent for service)
---------------
copy to:
Mary E. Weber, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONTINUED FROM PREVIOUS PAGE
DOMINO'S PIZZA, INC.
(Exact name of registrant as specified in its charter)
Michigan 5812 38-1741243
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction Classification Code
of incorporation or Number)
organization)
DOMINO'S FRANCHISE HOLDING CO.
(Exact name of registrant as specified in its charter)
Michigan 5812 38-3401169
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction Classification Code
of incorporation or Number)
organization)
METRO DETROIT PIZZA, INC.
(Exact name of registrant as specified in its charter)
Michigan 5812 38-3068735
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction Classification Code
of incorporation or Number)
organization)
DOMINO'S PIZZA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 5812 52-1291464
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction Classification Code
of incorporation or Number)
organization)
DOMINO'S PIZZA INTERNATIONAL PAYROLL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Florida 5812 38-2978908
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction Classification Code
of incorporation or Number)
organization)
DOMINO'S PIZZA--GOVERNMENT SERVICES DIVISION, INC.
(Exact name of registrant as specified in its charter)
Texas 5812 38-3105323
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
<PAGE>
PROSPECTUS [LOGO]
Domino's, Inc.
Offer to Exchange All Outstanding
10 3/8% Senior Subordinated Notes Due 2009
($275,000,000 Aggregate Principal Amount Outstanding)
for
10 3/8% Series B Senior Subordinated Notes Due 2009
We are offering to exchange $1,000 principal amount of our 10 3/8% Series B
Senior Subordinated Notes due 2009, or exchange notes, for each $1,000
principal amount of our outstanding 10 3/8% Senior Subordinated Notes due 2009,
or notes. We are making this offer on the terms and conditions set forth in
this prospectus and the accompanying letter of transmittal. The exchange notes
have been registered under the Securities Act of 1933 while the notes have not
been registered. An aggregate principal amount of $275,000,000 of the notes is
outstanding. The form and terms of the exchange notes and the notes are
identical in all material respects, except for certain transfer restrictions
and registration rights relating to the notes.
We will accept for exchange any and all outstanding notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on June , 1999, unless
we decide to extend the time for tendering the notes. You may withdraw the
tender of your notes at any time prior to such date and time. Although our
offer is subject to certain customary conditions, it is not conditioned upon
any minimum principal amount of notes being tendered for exchange.
Neither we nor our subsidiary guarantors will receive any proceeds from the
issuance of the exchange notes. We will pay all the expenses incurred by us or
our subsidiary guarantors in connection with the offer and issuance of the
exchange notes.
See "Risk Factors" beginning on page 13 for a discussion of certain matters
that should be considered in connection with our offer and an investment in the
exchange notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our offer or the exchange notes or
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is , 1999
<PAGE>
Summary
The following summary contains basic information about Domino's, Inc. and this
offer. It may not contain all the information that may be important to you. You
should read this entire prospectus, including the financial data and related
notes, and the documents to which we have referred you before making an
investment decision. The terms "the Company," "Domino's," "we," "our," and
"us," as used in this prospectus refer to Domino's, Inc. and its subsidiaries
as a combined entity, except where it is clear that such terms mean only
Domino's, Inc. The term "TISM" refers to our parent TISM, Inc. All references
to "system-wide" sales in this prospectus mean the net retail sales of our
corporate-owned and franchise stores. Unless otherwise indicated, all
information set forth in this prospectus is as of January 3, 1999.
Company Overview
Domino's is the leading pizza delivery company in the United States. We operate
through a world-wide network of over 6,200 franchise and corporate-owned stores
which generated system-wide sales of $3.2 billion for the fiscal year ended
January 3, 1999. System-wide sales by our domestic franchise and corporate-
owned stores accounted for approximately 30% of the United States pizza
delivery market in 1997. This market leadership position was nearly one and a
half times the market share of our nearest competitor.
Domino's offers a focused menu of high quality, value-priced pizza with three
types of crust, including Hand-Tossed, Thin Crust and Deep Dish. We also offer
buffalo wings, cheesy bread and bread sticks. Our original pizza is made from
fresh dough produced in our regional distribution centers. We prepare every
pizza using real mozzarella cheese, pizza sauce made from fresh tomatoes and a
choice of high quality meat and vegetable toppings in generous portions. Our
focused menu and use of premium ingredients enables us to consistently and
efficiently produce high quality pizza.
Over the 38 years since our founding, we have developed a simple, cost-
efficient model. In addition to offering a limited menu, our stores are
designed for delivery and do not offer eat-in service. As a result, our stores
require relatively small, low rent locations and limited capital expenditures.
Our simple operating model helps to ensure consistent, quality product and to
reduce store expenses and capital commitments.
The Domino's brand is widely recognized and identified by consumers in the
United States as the leader in pizza delivery. We have built this successful
brand image and recognition through extensive national and local television,
print and direct mail campaigns. Over the past four years, Domino's and its
franchisees have invested an estimated $750 million on national, cooperative
and local advertising in the United States. The Domino's brand name is one of
Ad Age's "100 Megabrands," a list which includes other prominent brands such as
Coke(R), Campbell's(R), Kodak(R) and Wrigley(R).
Domino's operates through three business segments:
. Domestic Stores, consisting of:
. Corporate, which operates our domestic network of 642 corporate-owned
stores;
. Franchise, which oversees our domestic network of 3,847 franchise
stores;
. Distribution, which operates our eighteen regional distribution centers
and one equipment distribution center that sell food, equipment and
supplies to our domestic corporate-owned and franchise stores and
equipment to international stores; and
. International, which oversees our network of 1,730 franchise stores in
64 international and off-shore markets, including Alaska, Hawaii, Puerto
Rico, the U.S. Virgin Islands and Guam, and distributes food to stores
in Alaska, Hawaii and Canada.
Our principal executive offices are located at 30 Frank Lloyd Wright Drive, Ann
Arbor, MI 48106 (Telephone: 734-930-3030).
1
<PAGE>
Recent Developments
Thomas Monaghan founded Domino's in 1960. Prior to the recapitalization
described below, Mr. Monaghan and certain members of his immediate family
directly or indirectly owned all of the outstanding capital stock of TISM.
Domino's historically was an indirect wholly owned subsidiary of Domino's
Pizza, Inc. During December, 1998 and prior to the recapitalization, Domino's
Pizza distributed its ownership interest in Domino's to TISM, the current
parent corporation of Domino's. TISM then contributed its ownership interest in
Domino's Pizza, which had been a wholly owned subsidiary of TISM, to Domino's,
effectively converting Domino's from a subsidiary of Domino's Pizza into
Domino's Pizza's parent.
On December 21, 1998, investors, including funds associated with Bain Capital,
Chase Equity Associates, L.P., CIBC WG Argosy Merchant Fund 2, LLC, Caravelle
Investment Fund, LLC and J.P. Morgan Capital, and management acquired a
controlling interest in Domino's through a series of transactions, including a
merger of a special purpose corporation organized by Bain Capital into TISM.
Specifically:
. these investors invested $229.7 million to acquire common stock of TISM,
which represented approximately 93% of its outstanding common stock
immediately following the recapitalization, and $101.1 million to
acquire cumulative preferred stock of TISM; and
. the prior stockholders of TISM retained a portion of their voting common
stock in TISM equal to $17.5 million, or approximately 7% of the
outstanding common stock of TISM immediately following the
recapitalization, and in the merger received $903.2 million for their
remaining common stock and TISM contingent notes payable for up to an
aggregate of $15 million in certain circumstances upon the sale or
transfer to non-affiliates by the Bain Capital funds of more than 50% of
their initial common stock ownership in TISM.
The merger was structured to be accounted for as a recapitalization. You should
refer to the information in "Principal Stockholders" for a description of the
beneficial ownership of the outstanding voting securities of TISM after the
recapitalization.
The recapitalization and related expenses were financed in part through the
sale of the equity securities and the retention of the common stock discussed
above. The remaining financing was obtained through:
. borrowings under our new senior credit facilities in the aggregate
principal amount of $447.1 million, consisting of $445 million in term
loans and $2.1 million of our revolving credit facility, which permits
borrowings of up to $100 million, and
. the sale of the notes.
In connection with the sale of the notes, we agreed to register the exchange
notes under the Securities Act and offer them in exchange for the notes.
Bain Capital
Bain Capital, Inc., the financial sponsor of the recapitalization, is one of
the most experienced and successful private equity investors in the United
States. Bain Capital's principals have extensive experience working with
companies on a wide range of strategic and operational challenges across many
industries. Their investment strategy is to seek to acquire businesses in
partnership with exceptional management teams and improve the long-term value
of those businesses. The firm typically seeks to identify companies with strong
strategic positions and significant opportunities for growth. Bain Capital
manages more than $4 billion of capital and has invested in more than 120
companies. Examples of prior investments include Staples, Sealy Mattress Co.,
The Sports Authority, The Learning Company, Brookstone and totes/Isotoner.
2
<PAGE>
Sources and Uses
The following table sets forth the sources and uses of funds in connection with
the recapitalization as of December 21, 1998.
<TABLE>
<CAPTION>
Dollars in Millions
Sources: ---------
<S> <C>
Senior Credit Facilities
Revolving Credit Facility.......................................... $ 2.1
Term Loan Facilities(1)............................................ 445.0
Notes................................................................ 275.0
Equity Investment in TISM(2)......................................... 330.8
Rollover of Equity by Existing Stockholders.......................... 17.5
---------
Total Sources.................................................... $ 1,070.4
=========
Uses:
Redemption of Capital Stock of TISM(3)............................... $ 903.2
Repayment of Existing Liabilities(4)................................. 49.9
Rollover of Equity by Existing Stockholders.......................... 17.5
Noncompete Agreement................................................. 50.0
Transaction Fees and Expenses(5)..................................... 49.8
---------
Total Uses....................................................... $ 1,070.4
=========
</TABLE>
- ---------
(1) Includes a syndicated senior secured tranche A term loan facility of $175
million, a syndicated senior secured tranche B term loan facility of $135
million and a syndicated senior secured tranche C term loan facility of
$135 million. See "Description of Senior Credit Facilities".
(2) Includes investments of $229.7 million in the common stock of TISM and of
$101.1 million in cumulative preferred stock of TISM. The cumulative
preferred stock has a liquidation preference of $104.8 million.
(3) Excludes contingent notes of TISM.
(4) Includes the repayment of bank indebtedness as well as other obligations
paid in connection with the recapitalization.
(5) Includes commitment, placement, financial advisory and other fees, and
legal, accounting and other professional fees. See "Certain Relationships
and Related Transactions."
3
<PAGE>
The Exchange Offer
The exchange offer relates to the exchange of up to $275,000,000 aggregate
principal amount of our outstanding 10 3/8% Senior Subordinated Notes due 2009
for an equal aggregate principal amount of our new 10 3/8% Series B Senior
Subordinated Notes due 2009. The exchange notes will be obligations of Domino's
entitled to the benefits of the indenture governing the outstanding notes.
Registration Rights Agreement......
You are entitled to exchange your
outstanding notes for registered notes
with terms that are identical in all
material respects. This offer is intended
to satisfy these rights. After this offer
is complete, you will no longer be
entitled to the benefits of the exchange
or registration rights granted under the
registration rights agreement which we
entered into as part of the offering of
the notes.
The Exchange Offer.................
We are offering to exchange $1,000
principal amount of 10 3/8% Series B
Senior Subordinated Notes due 2009 which
have been registered under the Securities
Act for each $1,000 principal amount of
our outstanding 10 3/8% Senior
Subordinated Notes due 2009 which were
issued on December 21, 1998 in a
transaction exempt from registration
under the Securities Act in accordance
with Rule 144A. Your outstanding notes
must be properly tendered and accepted in
order to be exchanged. All outstanding
notes that are validly tendered and not
validly withdrawn will be exchanged.
As of this date, there are $275,000,000
in aggregate principal amount of our
notes outstanding.
We will issue the exchange notes, which
have been registered under the Securities
Act, on or promptly after the expiration
of this offer.
Expiration Date....................
This offer will expire at 5:00 p.m., New
York City time, on June , 1999, unless
we decide to extend the expiration date.
Conditions to the Offer............
This offer is subject to the condition
that it does not violate applicable law
or staff interpretations of the
Commission. If we determine that this
offer is not permitted by applicable
federal law, we may terminate the offer.
This offer is not conditioned upon any
minimum principal amount of our
outstanding notes being tendered. The
holders of our outstanding notes have
certain rights against us under the
registration rights agreement should we
fail to consummate this offer.
Resale of the Exchange Notes....... Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, we
believe that the exchange notes issued
pursuant to this offer in exchange for
our outstanding notes may be offered for
resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided, however, that:
. you are acquiring the exchange notes
in the ordinary course of business;
4
<PAGE>
. you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate, in the
distribution of the exchange notes
issued to you pursuant to this offer;
. you are not a broker-dealer who
purchased your outstanding notes
directly from us for resale pursuant
to Rule 144A or any other available
exemption under the Securities Act;
and
. you are not an "affiliate" of ours
within the meaning of Rule 405 under
the Securities Act.
If our belief is inaccurate and you
transfer any exchange note issued to you
in pursuant to this offer in violation of
the prospectus delivery provisions of the
Securities Act or without an exemption
from registration thereunder, you may
incur liability under the Securities Act.
We do not assume or indemnify you against
any such liability.
Each broker-dealer that is issued
exchange notes pursuant to this offer for
its own account in exchange for
outstanding notes which were acquired by
such broker-dealer as a result of market-
making or other trading activities 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 a broker-
dealer who makes this acknowledgement and
delivers such a prospectus will not be
deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may use
this prospectus for an offer to resell,
resale or other transfer of the exchange
notes issued to it pursuant to this
offer. We have agreed that, for a period
of 180 days after the date this offer is
completed, we will make this prospectus
and any amendment or supplement to this
prospectus available to any such broker-
dealer for use in connection with any
such resales. We believe that no
registered holder of the outstanding
notes is an affiliate of Domino's within
the meaning of Rule 405 under Securities
Act.
This offer is not being made to, nor will
we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this offer or its
acceptance would not comply with the
securities or blue sky laws of such
jurisdiction. Furthermore, persons who
acquire the exchange notes are
responsible for compliance with these
securities or blue sky laws regarding
resales. We assume no responsibility for
compliance with these requirements.
Accrued Interest on the Exchange
Notes and the Outstanding Notes...
Each exchange note will bear interest
from its issuance date. The holders of
notes that are accepted for exchange will
receive, in cash, accrued interest on
such notes 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.
5
<PAGE>
Consequently, those holders who exchange
their outstanding notes for exchange
notes will receive the same interest
payment on July 15, 1999, which is the
first interest payment date with respect
to the outstanding notes and the exchange
notes to be issued pursuant to this
offer, that they would have received had
they not accepted this offer.
Procedures for Tendering Notes..... If you wish to tender your notes for
exchange pursuant to this offer, you must
transmit to IBJ Whitehall Bank & Trust
Company, as exchange agent, on or prior
to the expiration date either:
. a properly completed and duly
executed copy of the letter of
transmittal accompanying this
prospectus, or a facsimile of such
letter of transmittal, together with
your outstanding notes and any other
documentation required by such letter
of transmittal, at the address set
forth on the cover page of the letter
of transmittal; or
. if you are effecting delivery by
book-entry transfer, a computer-
generated message transmitted by
means of the Automated Tender Offer
Program System of the Depository
Trust Company in which you
acknowledge and agree to be bound by
the terms of the letter of
transmittal and which, when received
by the exchange agent, forms a part
of a confirmation of book-entry
transfer.
In addition, you must deliver to the
exchange agent on or prior to the
expiration date:
. if you are effecting delivery by
book-entry transfer, a timely
confirmation of book-entry transfer
of your outstanding notes into the
account of the exchange agent at the
Depository Trust Company pursuant to
the procedures for book-entry
transfers described in this
prospectus under the heading "The
Exchange Offer--Procedures for
Tendering;" or
. if necessary, the documents required
for compliance with the guaranteed
delivery procedures described in this
prospectus under the heading "The
Exchange Offer--Guaranteed Delivery
Procedures."
By executing and delivering the
accompanying letter of transmittal or
effecting delivery by book-entry
transfer, you are representing to us
that, among other things:
. the person receiving the exchange
notes pursuant to this offer, whether
or not such person is the holder, is
receiving them in the ordinary course
of business;
. neither the holder nor any such other
person has an arrangement or
understanding with any person to
participate in the distribution of
such exchange notes and that such
holder is not engaged in, and does
not intend to engage in, a
distribution of the exchange notes;
and
. neither the holder nor any such other
person is an "affiliate" of ours
within the meaning of Rule 405 under
the Securities Act.
6
<PAGE>
Special Procedures for Beneficial
Owners............................ If you are a beneficial owner of the
notes and your name does not appear on a
security position listing of the
Depository Trust Company as the holder of
such notes or if you are a beneficial
owner of notes that are registered in the
name of a broker, dealer, commercial
bank, trust company or other nominee and
you wish to tender such notes in this
offer, you should promptly contact the
person in whose name your notes are
registered and instruct such person to
tender on your behalf. If you, as a
beneficial holder, wish to tender on your
own behalf you must, prior to completing
and executing the letter of transmittal
and delivering your outstanding notes,
either make appropriate arrangements to
register ownership of the outstanding
notes in your name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership
may take considerable time.
Guaranteed Delivery Procedures.....
If you wish to tender your outstanding
notes and time will not permit the letter
of transmittal or any of the documents
required by the letter of transmittal to
reach the exchange agent by the
expiration date, or the procedure for
book-entry transfer cannot be completed
on time or certificates for your notes
cannot be delivered on time, you may
tender your notes pursuant to the
guaranteed delivery procedures described
in this prospectus under the heading "The
Exchange Offer--Guaranteed Delivery
Procedures."
Shelf Registration Statement.......
If any changes in law or of the
applicable interpretation of the staff of
the Commission do not permit us to effect
this offer or upon the request of any
holder of our outstanding notes under
certain circumstances, we have agreed to
register the notes on a shelf
registration statement and use our best
efforts to cause such shelf registration
statement to be declared effective by
the Commission. We have agreed to
maintain the effectiveness of the shelf
registration statement for, under certain
circumstances, at least two years from
the date of the original issuance of the
outstanding notes to cover resales of
such notes held by such holders.
Withdrawal Rights..................
You may withdraw the tender of your
outstanding notes at any time prior to
5:00 p.m., New York City time, on the
expiration date.
Acceptance of Outstanding Notes
and Delivery of Exchange Notes....
Subject to certain conditions, we will
accept for exchange any and all
outstanding notes which are properly
tendered and not validly withdrawn prior
to 5:00 p.m., New York City time, on the
expiration date. The exchange notes
issued pursuant to this offer will be
delivered promptly following the
expiration date.
Certain U.S. Federal Income Tax
Consequences...................... The exchange of your outstanding notes
for the exchange notes will not be a
taxable exchange for United States
federal income tax purposes. See "Certain
Federal Tax Considerations."
Use of Proceeds....................
We will not receive any proceeds from the
issuance of the exchange notes pursuant
to this offer. We will pay all of our and
our subsidiary guarantors' expenses
relating to this offer.
7
<PAGE>
Exchange Agent.....................
IBJ Whitehall Bank & Trust Company is
serving as exchange agent in connection
with this offer. The exchange agent can
be reached at One State Street, New York,
New York 10004. For more information with
respect to this offer, please contact the
exchange agent at (212) 858-2103 or send
your questions by facsimile to the
exchange agent at (212) 858-2611.
8
<PAGE>
The Exchange Notes
General............................
The form and terms of the exchange notes
are identical in all material respects to
the form and terms of the outstanding
notes except that:
. the exchange notes will bear a Series
B designation;
. the exchange notes have been
registered under the Securities Act
and, therefore, will generally not
bear legends restricting their
transfer; and
. the holders of exchange notes will
not be entitled to rights under the
registration rights agreement.
The exchange notes will evidence the same
debt as the outstanding notes and will be
entitled to the benefits of the indenture
under which the notes were issued.
Issuer............................. Domino's, Inc.
Securities Offered................. $275,000,000 in aggregate principal
amount of 10 3/8% Series B Senior
Subordinated Notes due 2009.
Maturity........................... January 15, 2009.
Interest........................... Annual fixed rate of 10 3/8%, payable
every six months, beginning July 15,
1999.
Subsidiary Guarantors..............
Each of our domestic subsidiaries will,
jointly and severally, unconditionally
guarantee on a senior subordinated basis
our obligations under the exchange notes.
Our foreign subsidiaries are not
guarantors of the exchange notes. If we
cannot make payments on the exchange
notes when they are due, our guarantor
subsidiaries must make them instead.
Ranking............................
The exchange notes and the subsidiary
guarantees are senior subordinated debts.
They rank behind substantially all
current and future indebtedness of
Domino's and its guarantor subsidiaries,
except for trade payables and
indebtedness that expressly provides that
it is not senior to the exchange notes
and the subsidiary guarantees. They also
effectively rank behind all current and
future indebtedness of our foreign
subsidiaries. As of January 3, 1999, the
exchange notes and the subsidiary
guarantees would have been subordinated
to $446.7 million of senior debt.
Optional Redemption................
We may redeem some or all of the exchange
notes at any time after January 15, 2004,
at the redemption prices listed in the
section entitled "Description of Exchange
Notes" under the heading "Optional
Redemption."
Before January 15, 2002, we may redeem up
to 35% of the exchange notes with the
proceeds of certain offerings of equity
of Domino's or TISM at the price listed
in the section entitled "Description of
Exchange Notes" under the heading
"Optional Redemption."
In addition, before January 15, 2004, if
we experience specific kinds of changes
in control, we may also redeem all, but
not part, of the exchange notes at the
redemption prices listed in the section
entitled "Description of Exchange Notes"
under the heading "Optional Redemption."
9
<PAGE>
Mandatory Offer to Repurchase......
If we sell certain assets or experience
specific kinds of changes of control, we
must offer to repurchase the exchange
notes at the price listed in the section
entitled "Description of Exchange Notes."
It is possible, however, that we will not
have sufficient funds at the time of the
change of control to make the required
repurchase of the exchange notes or that
restrictions in our senior credit
facilities will not allow such
repurchases. See the caption under "Risk
Factors" entitled "We may not have the
ability to raise the funds necessary to
finance the change of control offer
required by our indenture."
Basic Covenants of Indenture....... We will issue the exchange notes under
the indenture with IBJ Whitehall Bank &
Trust Company. The indenture restricts,
among other things, our ability and the
ability of our subsidiaries to:
.borrow money;
. pay dividends on, redeem or
repurchase our capital stock;
.make investments;
.use assets as security in other
transactions; and
. sell certain assets or merge with or
into other companies.
These covenants are subject to important
exceptions and qualifications which are
described in the section entitled
"Description of Exchange Notes" under the
heading "Certain Covenants."
10
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
Set forth below are summary historical and pro forma consolidated financial
data of Domino's at the dates and for the periods indicated. The summary
historical consolidated statements of income data for the fiscal years ended
December 29, 1996, December 28, 1997 and January 3, 1999 and the summary
historical balance sheet data as of December 28, 1997 and January 3, 1999 were
derived from historical financial statements that were audited by Arthur
Andersen LLP, whose report appears elsewhere in this prospectus. The summary
historical balance sheet data as of December 29, 1996 was derived from
unaudited consolidated financial statements which, in the opinion of
management, include all adjustments necessary for a fair presentation. The
summary unaudited pro forma consolidated financial data set forth below give
effect, in the manner described under "Unaudited Pro Forma Consolidated
Financial Data" and the notes thereto, to the recapitalization as if it
occurred on December 29, 1997. The unaudited pro forma consolidated statements
of income do not purport to represent what our results of operations would have
been if the recapitalization had occurred as of the date indicated or what such
results will be for future periods. The information presented below should be
read in conjunction with, and is qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Consolidated Financial Data" and the audited consolidated financial statements
and accompanying notes thereto included elsewhere in this prospectus. Our
fiscal year generally consists of thirteen four-week periods and ends on the
Sunday closest to December 31. Fiscal year 1998 included 53 weeks and ended on
January 3, 1999.
<TABLE>
<CAPTION>
---------------------------------------------
Fiscal Year Pro Forma
--------------------------------- ---------
1996 1997 1998 1998
Dollars in Millions --------- --------- --------- ---------
<S> <C> <C> <C> <C>
System-wide Sales:
Domestic....................... $ 2,110.3 $ 2,294.2 $ 2,506.0 $ 2,498.8
International.................. 524.5 633.9 717.7 717.7
--------- --------- --------- ---------
Total.......................... $ 2,634.8 $ 2,928.1 $ 3,223.7 $ 3,216.5
========= ========= ========= =========
Statement of Income Data:
Corporate stores............... $ 336.6 $ 376.8 $ 409.4 $ 369.7
Domestic franchise royalties... 93.4 102.4 112.3 113.6
Domestic distribution.......... 494.2 513.1 599.1 599.1
International.................. 45.7 52.5 56.0 56.0
--------- --------- --------- ---------
Revenues....................... 969.9 1,044.8 1,176.8 1,138.4
Cost of sales.................. 717.2 757.6 858.4 826.1
--------- --------- --------- ---------
Gross profit................... 252.7 287.2 318.4 312.3
General and administrative..... 196.2 222.2 248.1 237.4
--------- --------- --------- ---------
Income from operations......... 56.5 65.0 70.3 74.9
Interest income................ (0.4) (0.4) (0.7) (0.7)
Interest expense............... 6.3 3.9 7.0 72.6
--------- --------- --------- ---------
Income before provision
(benefit) for income taxes.... 50.6 61.5 64.0 3.0
Provision (benefit) for income
taxes(a)...................... 30.9 0.4 (12.9) 1.2
--------- --------- --------- ---------
Net income..................... $ 19.7 $ 61.1 $ 76.9 $ 1.8
========= ========= ========= =========
Balance Sheet Data:
Total assets................... $ 155.5 $ 213.0 $ 387.9
Long-term debt................. 46.2 36.4 720.5
Total debt..................... 70.1 44.4 728.1
Stockholder's equity (deficit). (34.9) 26.1 (483.8)
Other Financial Data:
EBITDA(b)...................... $ 72.3 $ 83.1 $ 95.0 $ 130.6
Net cash provided by operating
activities.................... 53.2 73.1 64.3 --
Net cash used in investing
activities.................... (15.0) (46.5) (38.8) --
Net cash used in financing
activities.................... (40.4) (26.5) (25.6) --
Depreciation and other non-cash
items......................... 15.8 18.1 24.7 55.7
Capital expenditures........... 19.9 45.4 50.0 50.0
Ratio of earnings to fixed
charges(c).................... 4.3x 5.7x 4.9x 1.0x
Ratio of Pro Forma EBITDA to
cash interest expense......... -- -- -- 2.0x
Store Operating Data:
Same Store Sales Growth:
Corporate.................... 2.6% 4.5% 4.0%
Franchise.................... 7.6 7.3 4.6
International(d)............. 5.2 11.1 3.4
Stores (end of period):
Corporate.................... 704 767 642
Franchise.................... 3,612 3,664 3,847
International................ 1,250 1,520 1,730
</TABLE>
See Notes to Summary Historical Consolidated Financial Data
11
<PAGE>
Notes to Summary Historical and Pro Forma Consolidated Financial Data
(a) Subsequent to December 1996, Domino's elected to be an "S" Corporation for
federal income tax purposes. Domino's reverted to "C" Corporation status on
December 21, 1998. On a pro forma basis, had Domino's been a "C" Corporation
throughout this period, income tax expense would have been higher by the
following amounts: (1) fiscal year ended December 28, 1997--$18 million; and
(2) fiscal year ended January 3, 1999--$18.9 million.
(b) EBITDA represents earnings before interest, taxes, depreciation,
amortization, and loss on sale of assets (net). EBITDA is presented because
we believe it is frequently used by security analysts in the evaluation of
companies and is an important financial measure in our indenture and credit
agreements. However, EBITDA should not be considered as an alternative to
cash flow from operating activities as a measure of liquidity or as an
alternative to net income as an indicator of our operating performance or
any other measure of performance in accordance with generally accepted
accounting principles.
The following table sets forth a reconciliation of Historical EBITDA to Pro
Forma EBITDA:
<TABLE>
<CAPTION>
---------------
Year Ended
January 3, 1999
---------------
<S> <C>
Dollars in Millions
Historical EBITDA........................................... $ 95.0
Related party transactions.................................. 20.9(1)
Store rationalization program............................... 4.0
Recapitalization-related non-recurring charges ............. 12.6
Shareholder advisory fee.................................... (1.9)
--------
Pro Forma EBITDA............................................ $ 130.6
========
</TABLE>
(1) Reflects the elimination of income and expenses related to the
following transactions between related parties and reflects the accounting
on an ongoing basis: Domino's Farm Office Park ($8.6 million); Mater
Christi Foundation ($8.2 million); CEO Retirement ($2.8 million); Domino's
Land Development Limited Partnership ($1.0 million); Advisory Boards ($0.2
million); and Food Distribution Center Acquisitions ($0.1 million).
See Notes to "Unaudited Pro Forma Consolidated Statement of Income" for
additional detail.
(c) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes, plus fixed charges. Fixed
charges consist of interest expense, including amortization of financing
costs and the portion of operating rental expense which management believes
is representative of the interest component of rent expense.
(d) Based on constant dollar. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12
<PAGE>
Risk Factors
You should carefully consider the following factors in addition to the other
information set forth in this prospectus before making an investment in the
exchange notes.
Our substantial indebtedness could adversely affect our financial health and
severely limit our ability to plan for or respond to changes in our business.
In addition, we are permitted to incur substantially more debt in the future,
which could aggravate these risks.
To finance the recapitalization, we have incurred a significant amount of
indebtedness, including the notes. As of January 3, 1999, our consolidated
indebtedness was $728.1 million, of which $446.7 million was senior
indebtedness. After giving pro forma effect to the recapitalization as if it
had been completed on December 29, 1997, our debt service obligations and ratio
of earnings to fixed charges for the fiscal year ended January 3, 1999 would
have been approximately $68.7 million and 1.0. Further, the terms of the
indenture permit us to incur substantial indebtedness in the future, including
up to an additional $98.3 million under our new revolving credit facility.
Our substantial indebtedness could have important consequences to you. For
example:
.it could make it more difficult for us to satisfy our obligations with
respect to the exchange notes;
.it could increase our vulnerability to general adverse economic and
industry conditions;
. it will require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby reducing the
availability of our cash flow for other purposes;
. it will limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate, thereby placing us
at a competitive disadvantage compared to our competitors that may have
less debt;
. it will limit, by the financial and other restrictive covenants in the
exchange notes and the outstanding notes, together with those in the
senior credit facilities, among other things, our ability to borrow
additional funds; and
. it will have a material adverse effect on us if we fail to comply with
the covenants in the exchange notes, the outstanding notes and senior
credit facilities, because such failure could result in an event of
default which, if not cured or waived, could result in a substantial
amount of our indebtedness becoming immediately due and payable.
If we incur additional indebtedness, the risks that we now face could increase.
See "Description of Senior Credit Facilities" and "Description of Exchange
Notes."
We may not generate the significant amount of cash needed to service our
indebtedness as our ability to generate cash depends on many factors that are
beyond our control.
There can be no assurance that we will be able to meet our debt service
obligations, including our obligations under the exchange notes. Our ability to
make payments on and to refinance our indebtedness, including the exchange
notes, will depend on our ability to generate cash in the future. This, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on
our current level of operations and anticipated cost savings and operating
improvements, we believe our cash flow from operations and available borrowings
under our new revolving credit facility will be adequate to meet our liquidity
needs over the next several years.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule, in the amounts projected or at all,
or that future borrowings will be available to us under our new revolving
credit facility in amounts sufficient to enable us to pay our indebtedness,
including the exchange notes, or to fund our other liquidity needs. If we
cannot generate sufficient cash flow from operations or borrow sufficient funds
under our new revolving credit facility to make scheduled payments on the
exchange notes in the future, we may need to refinance all or a portion of our
indebtedness, including the exchange notes, on or before maturity, sell assets,
delay capital expenditures, or seek additional equity. We cannot assure you
that we will be able to refinance any of our indebtedness, including the
exchange notes, on commercially reasonable terms or at all or that any other
action can be effected on satisfactory terms, if at all. If we fail to
refinance our indebtedness or successfully take such other action when cash
flow from operations or other alternative sources are insufficient for us to
make scheduled payments on our indebtedness, such failure would likely lead to
an event of default under the terms of our indebtedness, including the exchange
notes and senior credit facilities, which, if not cured or waived, could result
in a substantial amount of indebtedness becoming immediately due and payable.
13
<PAGE>
Your right to receive payments on the exchange notes will be junior to our
existing indebtedness and possibly all of our future borrowings. The guarantees
of the exchange notes will also be junior to all of our and our subsidiary
guarantors' existing indebtedness and possibly to all of our and their future
borrowings.
The exchange notes and the subsidiary guarantees rank behind substantially all
of our and our subsidiary guarantors' existing indebtedness and all of our and
their future borrowings, except for trade payables and any future indebtedness
that expressly provides that it ranks equal with, or is subordinated in right
of payment to, the exchange notes and the subsidiary guarantees. Further, any
notes that are not exchanged will rank equal with the exchange notes. As a
result, upon any distribution to our creditors or the creditors of our
subsidiary guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or our subsidiaries or our or their property, the
holders of our and our subsidiary guarantors' senior debt will be entitled to
be paid in full in cash before any payment may be made with respect to the
exchange notes or the subsidiary guarantees. As of January 3, 1999, the
exchange notes and the subsidiary guarantees would have been subordinated to
approximately $446.7 million of senior debt. Up to $98.3 million was available
for borrowing as additional senior debt under our new revolving credit
facility. All payments on the exchange notes and the guarantees will be blocked
in the event of a payment default on our or our subsidiary guarantors' senior
debt and may be blocked for up to 179 of 360 consecutive days in the event of
certain non-payment defaults on such senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or our subsidiary guarantors, the holders of the
exchange notes will participate with trade creditors and all other holders of
subordinated indebtedness of us and of our subsidiary guarantors in the assets
remaining after we and the subsidiary guarantors have paid all of the senior
debt. Because the indenture requires that amounts otherwise payable to holders
of the exchange notes in a bankruptcy or similar proceeding be paid to holders
of senior debt instead, holders of the exchange notes may receive less,
ratably, than holders of trade payables in any such proceeding. In any of these
cases, we and our subsidiary guarantors may not have sufficient assets or funds
to pay all of our creditors and holders of exchange notes may receive less,
ratably, than the holders of senior debt.
Our foreign subsidiaries will not guarantee the exchange notes. In the event of
a bankruptcy, liquidation or reorganization of any of our non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will be
entitled to payment of their claims from the assets of those subsidiaries
before any assets are made available for distribution to us. The non-guarantor
subsidiaries generated less than 1% of our consolidated revenues for the fiscal
year ended January 3, 1999 and held less than 1% of our consolidated assets as
of January 3, 1999.
The exchange notes will not be secured by any of our assets or those of our
subsidiaries. We have granted a security interest to the senior credit
facilities lenders in all of the capital stock of our domestic subsidiaries and
in 65% of the capital stock of our foreign subsidiaries, as well as in all of
our tangible and intangible assets and those of our domestic subsidiaries. If
we become insolvent or are liquidated, or if the senior credit facilities
lenders accelerate payment under any of the senior credit facilities, they will
have a prior claim with respect to these assets.
The pizza delivery market is highly competitive, and increased competition
could adversely affect our operating results.
We believe we compete on the basis of product quality, delivery time, service
and price. We compete in the United States against three national chains, Pizza
Hut, Papa John's and, to a lesser extent, Little Caesar's, along with regional
and local concerns. Although we believe we are well positioned to compete
because of our leading market position, focus and expertise in the pizza
delivery business and strong national brand name recognition, we could
experience increased competition from existing or new companies and loss of
market share, which could have an adverse effect on our operating results.
We also compete on a broader scale with other international, national, regional
and local restaurants and quick-service eating establishments. No reasonable
estimate can be made of the number of competitors on this scale. The overall
food service industry and the quick service eating establishment segment are
intensely competitive with respect to food quality, price, service, convenience
and concept, and are often affected by changes in: consumer tastes; national,
regional or local economic conditions; currency fluctuations to the extent
international operations are involved; demographic trends; and disposable
purchasing power. We compete within the food service industry and the quick
service eating establishment segment not only for customers, but also for
management and hourly personnel, suitable real estate sites and qualified
franchisees.
14
<PAGE>
We do not have written contracts with most of our suppliers, and as a result
they could seek to significantly increase prices or fail to deliver as
required.
We have historically had long-lasting relationships with our suppliers. More
than half of our major suppliers have been with us for over 14 years. As a
result, we typically rely on oral rather than written contracts with our
suppliers. In the case of cheese, where we have only one supplier, we have a
written agreement. Although we have not experienced significant problems with
our suppliers, there can be no assurance that our suppliers will not implement
significant price increases or that suppliers will meet our requirements in a
timely fashion, if at all. Although we believe there are other cheese suppliers
which could satisfy our requirement for cheese, there can be no assurance that
we would be able to purchase from these suppliers on commercially reasonable
terms, if at all. Failure to obtain timely supply at reasonable prices could
have a material adverse effect on our operating results.
Increases in food, labor and other costs could adversely affect our
profitability and operating results.
An increase in our operating costs could adversely affect our profitability.
Factors such as inflation, increased food costs, increased labor and employee
benefit costs and the availability of qualified management and hourly employees
may adversely affect our operating costs. Most of the factors affecting costs
are beyond our control. Most products used in our pizza, particularly cheese,
are subject to price fluctuations, seasonality, weather, demand and other
factors. Labor costs are primarily a function of minimum wage and availability
of labor. Cheese and labor costs of a typical store represent 9.0% and 30.2% of
store sales, although we only bear such costs at our corporate-owned stores.
If we fail to successfully implement our growth strategy, our ability to
increase our revenues and operating profit could be adversely affected.
We have grown rapidly in recent periods. We intend to continue our growth
strategy primarily by increasing the number of our domestic and international
stores. We and our franchisees face many challenges in opening new stores,
including, among others:
. selection and availability of suitable store locations;
. negotiation of acceptable lease or financing terms;
. securing of required domestic or foreign governmental permits and
approvals; and
. employment and training of qualified personnel.
The opening of additional franchises also depends, in part, upon the
availability of prospective franchisees who meet our criteria. Our failure to
add a significant number of new stores would adversely effect our ability to
increase revenue and operating income. In addition, although we have
successfully tested the Delivery Express concept, we have not yet opened a
significant number of Delivery Express stores and cannot predict with certainty
the success of the concept on a widespread basis.
A third party has filed a patent infringement claim against us relating to the
Domino's HeatWave Hot Bag. If this claim is determined adversely to us, we may
have to cease using the HeatWave Hot Bag or pay license fees for our past and
future use, which could adversely affect our business results.
We have been sued by parties who assert that the heat retention cores inside
the Domino's HeatWave Hot Bag infringe a patent they own. We have a license
from another party that gives us exclusive marketing, sales, use and
distribution rights in the pizza delivery market to the heat retention cores
inside the Domino's HeatWave Hot Bag. In addition to damages, the plaintiffs
are seeking an injunction to enjoin the manufacture, sale or use of the heat
retention cores inside the Domino's HeatWave Hot Bag. Although we intend to
vigorously defend against the claim, we cannot predict the ultimate outcome of
the claim. If it is determined adversely to us, we may have to cease using the
HeatWave Hot Bag or pay license fees for our past and future use, which could
adversely affect our business results.
15
<PAGE>
Our business depends on retention of our current senior executives and key
personnel and the success of our new chief executive officer.
Our success will continue to depend to a significant extent on our executive
team and other key management personnel. We have entered into employment
agreements with certain of our executive officers. There can be no assurance
that we will be able to retain our executive officers and key personnel or
attract additional qualified management. In connection with the completion of
the recapitalization, Mr. Monaghan, our founder and chief executive officer,
retired and became a director. Mr. Brandon has recently joined us as our new
Chief Executive Officer. Although we are pleased to have him assume this role,
we cannot assure you of his success.
Our ability to take major corporate actions is limited by the TISM stockholders
agreement. The TISM stockholders may have interests that differ from the
holders of the exchange notes.
In connection with the recapitalization, all of the stockholders of TISM
entered into a stockholders agreement that provides, among other things, that
the approval of the holders of a majority of the voting stock of TISM subject
to the stockholders agreement will be required for TISM or its subsidiaries,
including Domino's, to take various specified actions, including among others,
major corporate transactions such as a sale or initial public offering,
acquisitions and divestitures, financings, recapitalizations and mergers, as
well as other actions such as hiring and firing senior managers, setting
management compensation and establishing capital and operating budgets and
business plans. Pursuant to the stockholders agreement and the Articles of
Incorporation of TISM, the Bain Capital funds will have the power to block any
such transaction or action and to elect up to half of the Board of Directors of
TISM. The Bain Capital funds may have different interests as equity holders
than those of holders of the exchange notes. See "Certain Relationships and
Related Transactions."
Our business may be adversely affected if our critical computer systems, or
those of our suppliers and vendors, do not properly handle date information in
Year 2000.
Upon completion of the implementation of certain new financial and distribution
supply chain systems, we believe that all of our critical internal information
systems will operate correctly with regard to the import, export, and
processing of date information, including correct handling of leap years, in
connection with the change in the calendar year from 1999 to 2000. We
anticipate the financial systems implementation will be complete no later than
October 31, 1999. The implementation of our new distribution supply chain
systems is currently underway. We are also in the process of a remediation
effort on our legacy supply chain systems to render them Year 2000 compliant.
We anticipate the effort to bring legacy supply chain systems into compliance
with Year 2000 will be completed no later than October 31, 1999. We believe the
completion of this remediation effort will mitigate the risk associated with
not completing the new distribution supply chain implementation prior to
December 31, 1999. We also plan to inventory and address other less critical
equipment and machinery, such as facility equipment, that may contain embedded
technology with Year 2000 compliance problems. We expect to complete this
effort no later than September 30, 1999. We also have material relationships
with franchisees, suppliers and vendors that may not have adequately addressed
the Year 2000 issue with respect to their equipment or information systems.
Although we are attempting to assess the extent of their compliance efforts, we
have received written assurances from only a portion of this group and,
accordingly, cannot determine the risk to our business. In the event that we
are unable to complete planned upgrades, implement replacements systems or
otherwise resolve Year 2000 compliance problems prior to December 31, 1999 or
in the event our franchisees or a significant number of our suppliers and
vendors do not adequately address the Year 2000 issue before such date, we may
experience significant disruption or delays in our operations, which in turn
could have a material adverse effect on our business.
We may not have the ability to raise the funds necessary to finance the change
of control offer required by our indenture.
Upon the occurrence of certain specific kinds of change of control events, we
must offer to repurchase all outstanding exchange notes. It is possible,
however, that we will not have sufficient funds at the time of the change of
control to make the required repurchase of the exchange notes or that
restrictions in our senior credit facilities will not allow such repurchases.
In addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a change of control under the indenture. See "Repurchase at the
Option of Holders" under the heading "Description of Exchange Notes."
The occurrence of certain of the events that would constitute a change of
control under the indenture would also constitute a default under the senior
credit facilities. Our senior indebtedness and the senior indebtedness of our
subsidiaries may also contain prohibitions of certain events that would
constitute a change of control. Moreover, the exercise by the holders of the
exchange notes of their right to require us to repurchase the exchange notes
could cause a default under such senior
16
<PAGE>
indebtedness, even if the change of control itself does not, due to the
financial effect on us of such repurchase. The terms of the senior credit
facilities will, and other senior debt may, prohibit the prepayment of the
exchange notes by us prior to their scheduled maturity. Consequently, if we are
not able to prepay the indebtedness under the senior credit facilities and any
other senior indebtedness containing similar restrictions, we will be unable to
fulfill our repurchase obligations if holders of the exchange notes exercise
their repurchase rights following a change of control, thereby resulting in a
default under the indenture.
Federal and state statutes would allow courts, if they made specific
determinations about our financial condition, to render the exchange notes and
the guarantees unenforceable and to require the holders of such exchange notes
to return payments received from us or our subsidiary guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the exchange notes and the subsidiary guarantees may be
unenforceable, or claims in respect of the exchange notes or the subsidiary
guarantees could be subordinated to all other debts of us or any subsidiary
guarantor, if, among other things, Domino's or any of its subsidiary
guarantors, at the time the indebtedness evidenced by the exchange notes or the
guarantee was incurred:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness;
. was insolvent or rendered insolvent by reason of such incurrence;
. was engaged in a business or transaction for which we or such
guarantor's remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by Domino's or a subsidiary guarantor pursuant to the
exchange notes or any subsidiary guarantee could be voided and required to be
returned to Domino's or such subsidiary guarantor or to a fund for the benefit
of the creditors of Domino's or such subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, we or a subsidiary
guarantor would be considered insolvent if:
. the sum of our or such subsidiary guarantor's debts, including
contingent liabilities, were greater than the fair saleable value of all
of our or such subsidiary's assets;
. the present fair saleable value of our or such subsidiary guarantor's
assets were less than the amount that would be required to pay our or
such subsidiary guarantor's probable liability on existing debts,
including contingent liabilities, as they become absolute and mature; or
. we or any subsidiary guarantor could not pay debts as they become due.
Based on historical financial information, recent operating history and other
factors, neither Domino's nor any of its subsidiary guarantors believes that,
after giving effect to the indebtedness incurred in connection with the
recapitalization, it was insolvent, had unreasonably small capital for the
business in which it is engaged or had incurred debts beyond its ability to pay
such debts as they mature. There can be no assurance, however, as to what
standard a court would apply in making such determinations or that a court
would agree with Domino's or its subsidiary guarantors' conclusions in this
regard.
We cannot assure you that an active trading market for the exchange notes will
develop.
The exchange notes are new securities for which there currently is no market.
Although J.P. Morgan & Co. and Goldman, Sachs & Co., the initial purchasers of
the outstanding notes, have informed us that they intend to make a market in
the exchange notes, they are not obligated to do so and any such market making
may be discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the exchange
notes. The exchange notes are expected to be eligible for trading by qualified
buyers in the PORTAL market. We do not intend to apply for listing of the
exchange notes on any securities exchange or for quotation through The Nasdaq
National Market.
17
<PAGE>
In addition, the liquidity of, and trading market for, the exchange notes also
may be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of our financial performance and prospects.
Your ability to resell your notes will remain restricted if you fail to
exchange them in this offer.
Untendered outstanding notes that are not exchanged for the registered exchange
notes pursuant to this offer will remain restricted securities, subject to the
following restrictions on transfer:
. the notes may be resold only if registered pursuant to the Securities
Act or if an exemption from registration is available;
. the notes will bear a legend restricting transfer in the absence of
registration or an exemption; and
. a holder of the notes who wants to sell or otherwise dispose of all or
any part of its notes under an exemption from registration under the
Securities Act, if requested by us, must deliver to us an opinion of
independent counsel experienced in Securities Act matters, reasonably
satisfactory in form and substance to us, stating that such exemption is
available.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes various forward-looking statements about Domino's that
are subject to risks and uncertainties. Forward-looking statements include
information concerning future results of operations, cost savings and business
strategy. Also, statements that contain words such as "believes," "expects,"
"anticipates," "intends," "estimated" or similar expressions are forward-
looking statements. We have based these forward-looking statements on our
current expectations and projections about future events. While we believe
these expectations and projections are reasonable, such forward-looking
statements are inherently subject to risks, uncertainties and assumptions about
us, including, among other things:
.Our ability to grow and implement cost-saving strategies;
.Increases in our operating costs, including commodity costs and the
minimum wage;
.Our ability to compete domestically and internationally;
.Our ability to retain or replace our executive officers and other key
members of management;
.Our ability to pay principal and interest on our substantial debt;
.Our ability to borrow in the future;
. Our ability and the ability of our franchisees, suppliers and vendors to
implement an effective Year 2000 readiness program;
.Adverse legislation or regulation;
.Our ability to sustain or increase historical revenues and profit margins;
and
.Continuation of certain trends and general economic conditions in our
industry.
Accordingly, actual results may differ materially from those expressed or
implied by such forward-looking statements contained in this prospectus. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
TRADEMARKS
The Domino's(R) trademark referred to in this prospectus is federally
registered in the United States under applicable intellectual property laws and
the Domino's HeatWave(TM) trademark referred to in this prospectus is subject
to a pending application for registration. These trademarks are the property of
Domino's or its parent or subsidiaries. Other registered trademarks used in
this prospectus are the property of their respective owners.
---------------
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the pizza
market and its segments and our competitors from the 1997 NPD Food Service
Information Group's Crest Survey, market research reports, analyst reports and
other publicly available information. Information regarding brand recognition
and market perception is from the Brand Equity Study we commissioned in 1998.
Although we believe this information is reliable, we cannot guarantee the
accuracy and completeness of the information and have not independently
verified it.
19
<PAGE>
Use of Proceeds
There will be no proceeds from the issuance of the exchange notes.
We used gross proceeds of $275 million from the sale of the outstanding notes
and $447.1 million of borrowings under the senior credit facilities to:
(1) repay $49.9 million of our existing indebtedness and accrued liabilities,
including $40.3 million under our existing revolving credit facility, which had
a weighted average interest rate of 6.2% and which was due on November 24,
2003;
(2) pay $50 million in connection with a non-compete agreement with Thomas S.
Monaghan; and
(3) pay approximately $49.8 million in fees and expenses related to the
recapitalization.
We paid out the remainder of the proceeds to TISM. TISM used these proceeds,
together with gross proceeds of $330.8 million from the investment in the
common stock and cumulative preferred stock of TISM, to redeem a portion of the
capital stock of TISM in connection with the recapitalization for an aggregate
of $903.2 million. See "Summary--Sources and Uses" for additional detail on the
use of the proceeds received from the issuance of the outstanding notes.
Capitalization
The following table sets forth cash and cash equivalents and capitalization of
Domino's as of January 3, 1999. The information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the audited consolidated financial statements and
accompanying notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
---------------
January 3, 1999
Dollars in Thousands ---------------
<S> <C>
Cash and cash equivalents....................................... $ 115
============
Long-term debt, including current portion
Revolving Credit Facility(a).................................. 1,700
Senior Term A................................................. 175,000
Senior Term B................................................. 135,000
Senior Term C................................................. 135,000
Notes......................................................... 275,000
Existing debt and other obligations........................... 6,426
============
Total long-term debt, including current portion............. 728,126
------------
Stockholder's deficit........................................... (483,775)
------------
Total capitalization............................................ $ 244,351
============
</TABLE>
- ---------
(a) The revolving credit facility has total availability of $100 million, with
$1.7 million drawn at January 3, 1999 and letters of credit issued for a
total of $10.8 million.
20
<PAGE>
Unaudited Pro Forma Consolidated Financial Data
The unaudited pro forma consolidated financial data are based on the historical
consolidated financial statements of Domino's and adjustments described in the
accompanying notes. See Notes to "Unaudited Pro Forma Consolidated Balance
Sheet."
The following unaudited pro forma consolidated statement of income for the
fiscal year ended January 3, 1999 gives effect to the recapitalization as if it
had occurred on December 29, 1997. The pro forma adjustments are based upon
available data and certain assumptions that our management believes are
reasonable. The unaudited pro forma consolidated statement of income does not
purport to represent what our results of operations would have been if the
recapitalization had occurred as of the date indicated or what such results
will be for any future periods. The unaudited pro forma consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operation" and the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
21
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
For the Fiscal Year Ended January 3, 1999(a)
<TABLE>
<CAPTION>
-------------------------------------
Adjustments
for the
Historical Transactions Pro Forma
Dollars in Thousands ---------- ------------ ---------
<S> <C> <C> <C>
Revenues:
Corporate stores....................... $ 409,413 $(39,750)(c) $369,663
Domestic franchise royalties........... 112,222 (367)(b) 113,582
1,727 (c)
Domestic distribution.................. 599,121 -- 599,121
International.......................... 56,022 -- 56,022
--------- --------- ---------
Revenues............................... 1,176,778 (38,390) 1,138,388
Cost of sales.......................... 858,411 (141)(b) 826,129
(32,141)(c)
--------- --------- ---------
Gross profit........................... 318,367 (6,108) 312,259
General and administrative............. 248,098 (21,089)(b) 237,341
(11,032)(c)
1,923 (d)
32,051 (e)
(12,610)(f)
--------- --------- ---------
Income from operations................. 70,269 4,649 74,918
Interest income........................ (730) -- (730)
Interest expense....................... 7,051 65,518 (g) 72,569
--------- --------- ---------
Income before provision (benefit) for
income taxes.......................... 63,948 (60,869) 3,079
Provision (benefit) for income taxes... (12,928) 14,160 (h) 1,232
--------- --------- ---------
Net income............................. $ 76,876 $ (75,029) $ 1,847
========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Income
22
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
Fiscal Year ended January 3, 1999
(a) Our fiscal year ended January 3, 1999 and consisted of fifty-three weeks.
(b) Reflects the elimination of income and expenses related to the following
transactions between related parties and reflects the accounting on an
ongoing basis.
Domino's Farms Office Park (DFOP)--In connection with the recapitalization,
Domino's entered into a five-year lease agreement with DFOP for warehouse
and office space occupied by Domino's (approximately 185,000 feet).
Historically, Domino's leased the entire complex (approximately 520,000
square feet) from DFOP and subleased unused space to third parties. This
adjustment reflects the exclusion of general and administrative expenses
related to DFOP which historically were borne by us and are now being
replaced by the lease agreement.
Mater Christi Foundation--Reflects the elimination of discretionary
charitable contributions made at the direction of the former principal
stockholder of TISM to the Mater Christi Foundation, a charitable
organization founded and managed by the former principal stockholder of
TISM which will not be part of the ongoing operations, in addition to
certain expenses incurred by us on behalf of the Foundation. Domino's is
under no obligation and does not intend to establish a similar foundation.
CEO Retirement--Reflects the net effect of the retirement of the former
chief executive officer of Domino's ($3,396), who was also the principal
stockholder of TISM from its inception through the completion of the
recapitalization, and the estimated base compensation for a new chief
executive officer ($600).
Domino's Farms Land Development Limited Partnership (DFLD)--Reflects the
elimination of equity income and rent expense related to the investment in
DFLD by Domino's. The DFLD investment was distributed to the former
principal stockholder of TISM in December 1998 and, accordingly, will not
be part of the ongoing operations of Domino's. DFLD owns various properties
in Ann Arbor, Michigan and the surrounding area. Historically, Domino's
leased various parcels of land from DFLD even though such properties were
non-income producing.
Advisory Boards--Reflects the elimination of the estimated net effect of
the termination of the finance and marketing advisory boards ($229) and the
estimated costs necessary to compensate a new board of directors ($50).
Food Distribution Center Acquisitions--Reflects the elimination of
historical rent expense associated with two distribution centers that were
purchased by Domino's in August, 1998 from the former principal stockholder
of TISM and members of his family. This adjustment also records
depreciation expense to reflect the costs of owning the purchased
distribution center facilities.
The following table summarizes the impact on income from operations of the
elimination of transactions between related parties:
<TABLE>
<CAPTION>
----------
Year Ended
January 3,
1999
----------
<S> <C>
Dollars in Thousands
DFOP.............................................................. $ 8,551
Mater Christi Foundation.......................................... 8,204
CEO Retirement.................................................... 2,796
DFLD.............................................................. 992
Advisory Boards................................................... 179
Food Distribution Center Acquisitions............................. 141
----------
Impact on income from operations (includes depreciation).......... 20,863
Depreciation impact included in above adjustments................. 109
----------
Impact excluding depreciation..................................... $ 20,972
==========
</TABLE>
23
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
Fiscal Year ended January 3, 1999
(c) In anticipation of the recapitalization, management instituted the
following formal program:
Store Rationalization Program--Reflects the elimination of net sales, cost
of goods sold and general and administrative expenses related to the store
rationalization program introduced in July, 1998. These adjustments reflect
the impact of the store rationalization program as if it were fully
implemented on December 29, 1997. The store rationalization program
involved the sale of 103 corporate-owned stores to franchisees and the
closure of 39 additional corporate-owned stores. As of January 3, 1999, the
entire program had been completed. The impact of the sale of corporate-
owned stores to franchisees will result in ongoing royalties at the
standard franchise rate from the new franchisees where previously
corporate-owned store revenues and the related costs of operations were
recorded.
The following table summarizes the impact on income from operations of the
store rationalization program:
<TABLE>
<CAPTION>
----------
January 3,
1999
Dollars in Thousands ----------
<S> <C>
Impact on income from operations (includes depreciation)......... $ 5,150
Depreciation impact included in the above adjustment............. (1,142)
----------
Impact excluding depreciation.................................... $ 4,008
==========
</TABLE>
(d) Reflects the net adjustment necessary to reflect the $2,000 shareholder
advisory fee for consulting and financial services provided to Domino's.
See "Certain Relationships and Related Transactions--Management Services
Agreement."
(e) Reflects the amortization expense associated with the non-compete agreement
entered into between TISM and the former principal stockholder of TISM in
conjunction with the recapitalization. The covenant not to compete payment
of $50,000 is being amortized using an accelerated method over the term of
the agreement of three years.
(f) Represents the reduction in general and administrative expenses as a result
of the following non-recurring charges recorded in connection with the
recapitalization: (1) $12.1 million of incentive compensation granted to
certain executives in connection with the recapitalization and (2) $0.5
million of principal stockholder expenses.
(g) The increase in pro forma interest expense as a result of the
recapitalization is as follows:
<TABLE>
<CAPTION>
----------
January 3,
1999
Dollars in Thousands ----------
<S> <C>
Elimination of historical interest expense..................... $ (7,051)
----------
Interest on new borrowings
Cash interest expense at a weighted average interest rate of
9.21% (1)..................................................... 66,476
Amortization of deferred financing costs (2)................... 6,093
----------
Total interest from the debt requirements of the
recapitalization.............................................. 72,569
----------
Net increase in interest expense............................... $ 65,518
==========
</TABLE>
---------
(1) A 0.125% increase or decrease in the assumed weighted average interest
rate on the senior credit facilities would change pro forma interest
expense by $559 for the fiscal year ended January 3, 1999.
(2) Represents annual amortization expense utilizing the effective interest
rate method over the terms of the respective borrowings.
(h) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (1) our historical tax provision using
historical amounts; (2) the tax effects of the reversion to "C" Corporation
status; and (3) the tax effects of the pro forma adjustments described
above at an estimated 40% effective tax rate.
24
<PAGE>
Selected Historical Consolidated Financial Data
Set forth below are selected historical consolidated financial data of Domino's
at the dates and for the periods indicated. The selected historical
consolidated statements of income data of Domino's for the fiscal years ended
December 29, 1996, December 28, 1997 and January 3, 1999 and the selected
historical balance sheet data as of December 28, 1997 and January 3, 1999 were
derived from the historical consolidated financial statements of Domino's, Inc.
and subsidiaries that were audited by Arthur Andersen LLP, whose report appears
elsewhere in this prospectus. The selected historical consolidated financial
data of Domino's as of and for the fiscal years ended January 1, 1995 and
December 31, 1995 and the historical balance sheet data as of January 1, 1995,
December 31, 1995 and December 29, 1996 are derived from unaudited consolidated
financial statements of Domino's which, in the opinion of management, include
all adjustments necessary for a fair presentation. The selected historical
consolidated financial data set forth below should be read in conjunction with,
and is qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements and accompanying notes thereto included elsewhere in this
prospectus. Our fiscal year generally consists of thirteen four-week periods
and ends on the Sunday closest to December 31. Fiscal year 1998 included 53
weeks and ended on January 3, 1999.
-----------------------------------
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------
1994 1995 1996 1997 1998
Dollars in Thousands ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
System-wide Sales:
Domestic................ $1,910,465 $1,952,398 $2,110,324 $2,294,224 $ 2,505,991
International........... 383,758 441,108 524,496 633,857 717,694
---------- ---------- ---------- ---------- -----------
Total................... $2,294,223 $2,393,506 $2,634,820 $2,928,081 $ 3,223,685
========== ========== ========== ========== ===========
Statement of Income Da-
ta:
Corporate stores........ $ 326,890 $ 324,181 $ 336,585 $ 376,837 $ 409,413
Domestic franchise roy-
alties................. 80,333 85,495 93,404 102,360 112,222
Domestic distribution... 423,406 452,151 494,173 513,097 599,121
International........... 44,124 43,392 45,775 52,496 56,022
---------- ---------- ---------- ---------- -----------
Revenues................ 874,753 905,219 969,937 1,044,790 1,176,778
Cost of sales........... 666,066 677,644 717,214 757,604 858,411
---------- ---------- ---------- ---------- -----------
Gross profit............ 208,687 227,575 252,723 287,186 318,367
General and administra-
tive................... 184,325 177,771 196,222 222,182 248,098
---------- ---------- ---------- ---------- -----------
Income from operations.. 24,362 49,804 56,501 65,004 70,269
Interest income......... (999) (606) (411) (447) (730)
Interest expense........ 15,851 13,166 6,301 3,980 7,051
---------- ---------- ---------- ---------- -----------
Income before provision
(benefit) for income
taxes, minority
interest and
extraordinary loss..... 9,510 37,244 50,611 61,471 63,948
Provision (benefit) for
income taxes(a)........ 6,713 9,353 30,884 366 (12,928)
Minority interest in net
loss of subsidiary..... (6) -- -- -- --
---------- ---------- ---------- ---------- -----------
Income before extraordi-
nary loss.............. 2,803 27,891 19,727 61,105 76,876
Extraordinary loss due
to refinancing of debt,
net of applicable in-
come taxes............. 2,661 2,576 -- -- --
---------- ---------- ---------- ---------- -----------
Net income.............. $ 142 $ 25,315 $ 19,727 $ 61,105 $ 76,876
========== ========== ========== ========== ===========
Balance Sheet Data:
Total assets............ $ 169,772 $ 164,041 $ 155,454 $ 212,978 $ 387,891
Long-term debt.......... 114,529 84,146 46,224 36,438 720,480
Total debt.............. 141,836 110,018 70,067 44,408 728,126
Stockholder's equity
(deficit).............. (79,571) (54,199) (34,868) 26,118 (483,775)
Other Financial Data:
EBITDA(b)............... $ 45,187 $ 67,367 $ 72,340 $ 83,140 $ 94,962
Net cash provided by op-
erating activities..... 27,795 37,012 53,225 73,081 64,343
Net cash provided by
(used in) investing ac-
tivities............... 7,681 (5,381) (14,984) (46,506) (38,760)
Net cash used in financ-
ing activities......... (41,749) (34,206) (40,402) (26,488) (25,582)
Depreciation and other
non-cash items......... 20,825 17,563 15,839 18,136 24,693
Capital expenditures.... 13,979 14,770 19,887 45,412 49,976
Ratio of earnings to
fixed charges(c)....... 1.4x 2.6x 4.3x 5.7x 4.9x
</TABLE>
See Notes to Selected Historical Consolidated Financial Data
25
<PAGE>
Notes to Selected Historical Consolidated Financial Data
(a) Subsequent to December 1996, Domino's elected to be an "S" Corporation for
federal income tax purposes. Domino's reverted to "C" Corporation status on
December 21, 1998. On a pro forma basis, had Domino's been a "C"
Corporation throughout this period, income tax expense would have been
higher by the following amounts: (1) fiscal year ended December 28, 1997 --
$18 million; and (2) fiscal year ended January 3, 1999 -- $18.9 million.
(b) EBITDA represents earnings before interest, taxes, depreciation,
amortization and loss on sale of assets (net). EBITDA is presented because
we believe it is frequently used by security analysts in the evaluation of
companies and is an important financial measure in our indenture and credit
agreements. However, EBITDA should not be considered as an alternative to
cash flow from operating activities as a measure of liquidity or as an
alternative to net income as an indicator of our operating performance or
any other measure of performance in accordance with generally accepted
accounting principles.
The following table sets forth a reconciliation of income from operations
to EBITDA:
<TABLE>
<CAPTION>
------------------------------------------
Fiscal Year
------------------------------------------
1994 1995 1996 1997 1998
Dollars in Thousands ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income from operations.......... $24,362 $49,804 $56,501 $65,004 $70,269
Loss on sale of assets (net).... 2,083 104 353 1,197 1,570
Depreciation and amortization... 18,742 17,459 15,486 16,939 23,123
------- ------- ------- ------- -------
EBITDA.......................... 45,187 67,367 72,340 83,140 94,962
======= ======= ======= ======= =======
</TABLE>
(c) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income tax plus fixed charges. Fixed
charges consist of interest expense, including amortization of financing
costs and the portion of operating rental expense which management believes
is representative of the interest component of rent expense.
26
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of
operations relates substantially to periods prior to completion of the
recapitalization. As a result of the recapitalization, Domino's entered into
financing arrangements and, therefore, has a different capital structure.
Accordingly, the results of operations for periods subsequent to the
consummation of the recapitalization will not necessarily be comparable to
prior periods. See "Recent Developments," "Capitalization," "Description of
Senior Credit Facilities," "Selected Historical Consolidated Financial Data,"
"Unaudited Pro Forma Consolidated Financial Data," and the audited consolidated
financial statements and notes thereto included elsewhere in this prospectus.
Overview
Domino's is the leading pizza delivery company in the United States. We operate
through a world-wide network of over 6,200 franchise and corporate-owned
stores. Our Distribution division's eighteen regional food distribution centers
and one equipment distribution center supply food, store equipment and supplies
to corporate-owned and domestic franchise stores and equipment to international
stores.
Year Ended January 3, 1999 Compared to Year Ended December 28, 1997
Revenues
General. Revenues include sales by corporate-owned stores, royalty fees from
domestic and international franchises and sales by our Distribution
commissaries to domestic and international franchises. Total revenues increased
$132.0 million, or 12.6%, to $1,176.8 million for the year ended January 3,
1999 from $1,044.8 million for the year ended December 28, 1997. The increase
in total revenues is principally attributed to increases in domestic and
international same store sales, a net increase in the average number of
domestic and international stores and one additional week in the year ended
January 3, 1999 as compared to the year ended December 28, 1997.
Corporate. Revenues from Corporate Store operations increased $32.6 million, or
8.7%, to $409.4 million for the year ended January 3, 1999 from $376.8 million
for the year ended December 28, 1997. The increase is principally attributed to
$22.6 million relating to a 6.0% increase in average store sales and $7.7
million relating to the additional week in the year ended January 3, 1999 as
compared to the year ended December 28, 1997. Same store sales for the year
ended January 3, 1999 increased 4.0% from the year ended December 28, 1997.
Ending corporate-owned stores, however, decreased by 125 to 642 as of January
3, 1999 from 767 as of December 28, 1997 as a result of significant store
rationalization program activity that occurred between September 1998 and
December 1998.
Franchise. Revenues from Domestic Franchise operations are derived primarily
from royalty income. Revenues from Franchise operations increased $9.8 million,
or 9.6%, to $112.2 million for the year ended January 3, 1999 from
$102.4 million for the year ended December 28, 1997. This increase in revenues
is attributable primarily to $4.1 million relating to a 4.3% increase in
average store sales, $2.7 million related to an increase in the average number
of franchise stores and $1.9 million relating to the additional week in the
year ended January 3, 1999 as compared to the year ended December 28, 1997.
Same store sales for the year ended January 3, 1999 increased 4.6% from the
year ended December 28, 1997. Ending franchise stores increased by 183 to 3,847
as of January 3, 1999 from 3,664 as of December 28, 1997.
Distribution. Revenues from Domestic Distribution operations are derived
primarily from the sale of food, equipment and supplies to domestic franchise
stores and, to a lesser extent, the sale of equipment to international stores,
and excludes sales to corporate-owned stores. Revenues from Distribution
operations increased $86.0 million, or 16.8%, to $599.1 million for the year
ended January 3, 1999 from $513.1 million for the year ended December 28, 1997.
The increase in revenues is principally due to $36 million related to the
increase in franchise stores sales noted above, $44.7 million associated with
an increase in cheese prices, and $8 million from an increase in equipment and
supply sales to franchisees to roll out the Domino's HeatWave Hot Bag
technology in Spring 1998, partially offset by a $3.1 million increase in
Distribution's profit sharing, profit capitation and volume discount programs
which are netted against revenues.
International. Revenues from International operations, which are derived mainly
from food sales to international franchises, master franchise agreement
royalties and, to a lesser extent, franchise and development fees, increased
$3.5 million, or 6.7%, to $56.0 million for the year ended January 3, 1999 from
$52.5 million for the year ended December 28,
27
<PAGE>
1997. The increase was partially driven by $3.1 million relating to the 12.6%
increase in international franchise royalty revenues that was caused by an
increase in the ending number of international franchise stores to 1,730 at
January 3, 1999 from 1,520 at December 28, 1997, partially offset by a $1.2
million decrease relating to a decrease in average store sales caused by
unfavorable changes in foreign currency exchange rates, primarily in Asian
markets and Mexico. On a constant dollar basis, same store sales for the year
ended January 3, 1999 increased 3.4% from the year ended December 28, 1997.
Sales of commissary products to international franchisees increased $1.1
million, or 3.3%, to $34.2 million for the year ended January 3, 1999 from
$33.1 million for the year ended December 28, 1997.
Gross Profit. Gross profit increased $31.2 million, or 10.9%, to $318.4 million
for the year ended January 3, 1999 from $287.2 million for the year ended
December 28, 1997. This increase was driven primarily by the increase in
revenues. As a percentage of revenues, gross profit decreased 0.4% to 27.1% for
the year ended January 3, 1999 from 27.5% for the year ended December 28, 1997.
This decrease resulted primarily from lower margin distribution revenues
growing faster than revenues of other divisions and higher Corporate operations
costs due to increases in the price of cheese and the minimum wage, partially
offset by a $6.7 million credit to insurance expense due to a reduction in the
actuarial calculation of our required insurance reserves.
General and Administrative. General and administrative expenses consist
primarily of regional support offices, corporate administrative functions,
corporate store and distribution facility management costs and advertising and
promotional expenses. General and administrative expenses increased $25.9
million, or 11.7%, to $248.1 million for the year ended January 3, 1999 from
$222.2 million for the year ended December 28, 1997. This increase is due
primarily to a $12.1 million increase in incentive compensation to certain
executives in connection with the recapitalization and an increase in costs
that coincide with increased business volume, including $9.9 million relating
to administrative and corporate store manager compensation, $3.7 million
relating to computer expenses, and $2 million associated with advertising and
professional service fees, partially offset by a decrease of $4.5 million in
bad debt expenses. As a percentage of net revenues, general and administrative
expenses decreased to 21.1% for the year ended January 3, 1999 compared to
21.3% for the year ended December 28, 1997, due primarily to economies of scale
created by an increase in overall business volume and the decrease in bad debt
expenses, partially offset by the recapitalization incentive compensation.
Interest Expense. Interest expense increased $3.1 million, or 77.5%, to $7.1
million for the year ended January 3, 1999 from $4 million for the year ended
December 28, 1997 primarily as a result of a December 1998 increase in debt to
fund the recapitalization.
Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes
decreased to a benefit of $12.9 million for the year ended January 3, 1999 from
a provision of $0.4 million for the year ended December 28, 1997 driven
primarily by establishment of a $27.9 million deferred tax asset upon the
conversion of Domino's to "C" Corporation status from "S" Corporation status
for federal income tax reporting purposes partially offset by the establishment
of $10.0 million of tax reserves during 1998 as compared to the release of tax
reserves of $7.4 million in 1997.
Net Income. Net income increased $15.8 million, or 25.9%, to $76.9 million for
the year ended January 3, 1999 from $61.1 million for the year ended December
28, 1997. This increase was due primarily to the factors described above.
Year Ended December 28, 1997 Compared to Year Ended December 29, 1996
Revenues.
General. Total revenues increased $74.9 million, or 7.7%, to $1,044.8 million
for the year ended December 28, 1997 from $969.9 for the year ended December
29, 1996.
Corporate. Revenues from Corporate Store operations increased $40.2 million, or
11.9%, to $376.8 million for the year ended December 28, 1997 from $336.6
million for the year ended December 29, 1996. The increase is principally
attributed to $20.7 million relating to a 6.2% increase in average store sales
and $19.5 million relating to an increase in the average number of corporate
stores. Same store sales for the year ended December 28, 1997 increased 4.5%
from the year ended December 29, 1996. Ending corporate-owned stores increased
by 63 to 767 as of December 28, 1997 from 704 as of December 29, 1996.
Franchise. Revenues from Domestic Franchise operations increased $9 million, or
9.6%, to $102.4 million for the year ended December 28, 1997 from $93.4 million
for the year ended December 29, 1996. The increase in revenues is
28
<PAGE>
primarily attributed to $6.1 million relating to a 6.9% increase in average
store sales and $1.1 million relating to an increase in the average number of
franchise stores. Same store sales for the year ended December 28, 1997
increased 7.3% from the year ended December 29, 1996. Ending franchise stores
increased by 52 to 3,664 as of December 28, 1997 from 3,612 as of December 29,
1996.
Distribution. Revenues from Domestic Distribution operations increased $18.9
million, or 3.8%, to $513.1 million for the year ended December 28, 1997 from
$494.2 million for the year ended December 29, 1996. The increase in revenues
is principally attributed to $24.8 million from the increase in franchise store
sales noted above and $12.4 million related to an increase in equipment and
supply sales to franchisees, partially offset by a $9.2 million decrease
relating to a decrease in cheese prices during the year ended December 28, 1997
and a $9.4 million increase in profit sharing, profit capitation and volume
discount programs which are netted against revenues.
International. Revenues from International operations increased $6.7 million,
or 14.6%, to $52.5 million for the year ended December 28, 1997 from $45.8
million for the year ended December 29, 1996. The increase was partially driven
by $3 million associated with a 16.6% increase in international franchise
royalty revenues that was caused by an increase in the ending number of
international franchise stores to 1,520 at December 28, 1997 from 1,250 at
December 29, 1996 and a $4.8 million increase in commissary sales, partially
offset by a slight decrease in average store sales caused by unfavorable
changes in foreign currency exchange rates, primarily in Japan and Mexico, and
a $.5 million decrease associated with a decrease in the overall effective
royalty rate due to discounted royalties programs intended to stimulate
franchise store growth. On a constant dollar basis, same store sales for the
year ended December 28, 1997 increased 11.1% from the year ended December 29,
1996.
Gross Profit. Gross profit increased $34.5 million, or 13.7%, to $287.2 million
for the year ended December 28, 1997 from $252.7 million for the year ended
December 29, 1996. This increase was driven primarily by the increase in
revenues. As a percentage of net revenues, gross profit increased 1.4% to 27.5%
for the year ended December 28, 1997 from 26.1% for the year ended December 29,
1996. This increase resulted primarily from decreases in insurance costs and
the price of cheese and lower margin distribution revenues growing at a slower
rate than revenues of other divisions, partially offset by an increase in the
minimum wage.
General and Administrative Expense. General and administrative expenses
increased $26.0 million, or 13.3%, to $222.2 million for the year ended
December 28, 1997 from $196.2 million for the year ended December 29, 1996.
This increase was due primarily to cost increases that coincide with increased
business volume, including $9.2 million of administrative and corporate store
manager compensation, $10.6 million of expenses relating to advertising and
promotional activities, travel, litigation costs, charitable contributions,
awards and incentives, research and development and professional service fees.
As a percentage of net revenues, general and administrative expenses increased
to 21.3% for the year ended December 28, 1997 compared to 20.2% for the year
ended December 29, 1996, due primarily to: (1) an increase in Corporate and
Franchise revenues as a percentage of total revenues which demonstrate
relatively higher general and administrative expenses as a percentage of
revenues than our other divisions; (2) the increase in litigation costs; and
(3) the increase in charitable contributions.
Interest Expense. Interest expense decreased $2.3 million, or 36.5%, to $4
million for the year ended December 28, 1997 from $6.3 million for the year
ended December 29, 1996 as a result of decreased average debt levels.
Net Income. Net income increased $41.4 million, or 210.2%, to $61.1 million for
the year ended December 28, 1997 from $19.7 million for the year ended December
29, 1996. This increase was due primarily to the factors described above and a
$30.5 million decrease in our provision for income taxes to $0.4 million for
the year ended December 28, 1997 from $30.9 million for the year ended December
29, 1996, due mainly to our "S" Corporation election effective December 30,
1996. Also due to our "S" Corporation election, we recorded an $8.2 million
charge to provision for income taxes in 1996 to fully reserve against our
remaining deferred tax asset.
Liquidity and Capital Resources
Historical
We had a negative working capital amount of $18.2 million at January 3, 1999
and a negative working capital amount of $25.0 million at December 28, 1997. We
have generally had negative working capital because our receivable collection
periods and inventory turn rates are faster than the normal payment terms on
our current liabilities. In addition, our sales are not typically seasonal,
which further limits our working capital requirements.
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Net cash provided by operating activities was $64.3 million, $73.1 million and
$53.2 million for the years ended January 3, 1999, December 28, 1997 and
December 29, 1996, respectively. The decrease in cash flows from operations for
the year ended January 3, 1999 was primarily due to the impact of a $27.6
million benefit for deferred federal income taxes, partially offset by an
increase in net income. The improvement in cash flows from operating activities
for the year ended December 28, 1997 was primarily attributable to an increase
in net income, partially offset by a net increase in working capital that
resulted from a $10.2 million increase in the Domino's HeatWave Hot Bag
inventories in anticipation of the domestic roll-out of that product to
franchisees in early 1998.
Net cash used in investing activities consists primarily of capital
expenditures and investments in marketable securities, partially offset by
proceeds from asset sales and collections on notes receivable from franchisees.
Net cash used in investing activities was $38.8 million, $46.5 million and
$15.0 million for the years ended January 3, 1999, December 28, 1997 and
December 29, 1996, respectively. The decrease in cash used in investing
activities for the year ended January 3, 1999 is primarily attributable to
increased proceeds from asset sales that resulted from our store
rationalization program and liquidation of our investments in marketable
securities that had been placed in trusts to fund our executive and managerial
deferred compensation plans, which were terminated in December 1998, partially
offset by an increase in capital expenditures. The increase in cash used in
investing activities for the year ended December 28, 1997 was primarily
attributable to an increase in capital expenditures.
Capital expenditures were $50.0 million, $45.4 million and $19.9 million for
the years ended January 3, 1999, December 28, 1997 and December 29, 1996,
respectively. The higher capital expenditures for the years ended January 3,
1999 and December 28, 1997 as compared to the year ended December 29, 1996 were
primarily attributable to significant acquisitions of franchise stores and
commissary businesses, spending related to store refurbishments and the
Domino's 2000 reimaging and relocation program and purchase and development
costs associated with our new financial and supply chain systems. Capital
expenditures for the year ended January 3, 1999 included $10.5 million of
development costs for our financial and supply chain systems, $10.1 million for
store refurbishments and the Domino's 2000 reimaging and relocation program,
$4.2 million for the acquisition of distribution centers in Georgia and
Northern California and $2.6 million to implement the Domino's HeatWave Hot
Bags in corporate-owned stores. Capital expenditures for the year ended
December 28, 1997 included $13.8 million for acquisitions of franchise store
and commissary businesses, primarily in the Salt Lake City, Utah and Arlington,
Texas areas, $8.8 million for store refurbishments and the Domino's 2000
reimaging and relocation program and $3.3 million for purchase and development
of our financial and supply chain systems modules. Capital expenditures for the
year ended December 29, 1996 included $3.5 million for store refurbishments and
the Domino's 2000 reimaging and relocation program and $4.4 million for
acquisitions of franchise store and commissary businesses.
Net cash used in financing activities was $25.6 million, $26.5 million and
$40.4 million for the years ended January 3, 1999, December 28, 1997 and
December 29, 1996, respectively. Net cash used in financing activities for the
year ended January 3, 1999 included borrowings of $722.1 million to provide
funding for transactions pursuant to the recapitalization, which primarily
included $629.8 million of shareholder distributions pursuant to the
recapitalization, retirement of $39.9 million of debt under our previous credit
facilities and payment of $43.3 million of deferred financing costs. Also
included in cash used in financing activities for the year ended January 3,
1999 was $36.2 million in distributions to pay our stockholders' "S"
Corporation income taxes for both the year ended December 28, 1997 and a
portion of the year ended January 3, 1999. Net cash used in financing
activities for the years ended December 28, 1997 and December 29, 1996 was
comprised mainly of net repayment of long-term debt.
After the Recapitalization
Following the recapitalization, our primary sources of liquidity continue to be
cash flow from operations and borrowings under our new revolving credit
facility. We expect that ongoing requirements for debt service and capital
expenditures will be funded from these sources.
We incurred substantial indebtedness in connection with the recapitalization.
As of January 3, 1999, we had $728.1 million of indebtedness outstanding as
compared to $46.3 million of indebtedness outstanding immediately prior to the
recapitalization. In addition, we have a stockholders' deficit of $483.8
million as of January 3, 1999, as compared to stockholders' equity of $41.8
million immediately prior to the recapitalization. Our significant debt service
obligations following the recapitalization could, under certain circumstances,
have material consequences to our security holders, including holders of the
exchange notes. See "Risk Factors."
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Concurrent with the recapitalization, we issued the notes and entered into the
senior credit facilities. The term loan facilities provide for multiple tranche
term loans in the aggregate principal amount of $445 million. The revolving
credit facility provides revolving loans in an aggregate amount of up to $100
million. Upon closing of the recapitalization, we borrowed the full amount
available under the term loan facilities and approximately $2.1 million under
the revolving credit facility. As of January 3, 1999, borrowings under the
revolving credit facility were $1.7 million and letters of credit issued under
that facility were $10.8 million. The borrowings under the revolving credit
facility are available to fund our working capital requirements, capital
expenditures and other general corporate purposes. Amortization on the term
loans begins on December 31, 1999. The tranche A facility matures in quarterly
installments from March 31, 2000 through 2004. The tranche B facility matures
in quarterly installments from December 31, 1999 through 2006. The tranche C
facility matures in quarterly installments from December 31, 1999 through 2007.
See "Description of Senior Credit Facilities."
We recently implemented a store reimaging and relocation campaign called
Domino's 2000. The reimaging program involves a variety of store improvements
including upgrading store interiors, adding new signage to draw attention to
the store and providing contemporary uniforms for our employees. We believe
that the average per store capital expenditures for the reimaging campaign will
not exceed $30,000. The cost of relocating a corporate store is not expected to
exceed an average of $160,000 per store. Domino's will incur these capital
expenditures on a discretionary basis and only with respect to its corporate-
owned stores. Capital expenditures are expected to be funded from internally
generated cash flows and by borrowings under our revolving credit facility.
Effective February 1, 1999, we terminated the Distribution profit capitation
program. Under this program, our Distribution division had rebated to
participating franchisees all Distribution pre-tax profits in excess of 2% of
gross revenues from sales to corporate-owned and domestic franchise stores. In
addition, at the beginning of fiscal year 1999 corporate-owned stores began
participating in the profit sharing program of our Distribution division. This
profit sharing plan was recently amended to increase rebates to participating
stores from approximately 45% to approximately 50% of their regional
distribution center's pre-tax profits. Although corporate-owned stores had the
right to participate in the program, historically only domestic franchise
stores participated. We agreed that the aggregate funds available for rebate to
participating franchisees in 1999 under the profit sharing plan would be at
least $1 million more than the aggregate payments made to franchisees under the
profit sharing and profit capitation programs in fiscal year 1998. We agreed to
pay any deficiency to participating franchisees on a pro rata basis.
Based upon the current level of operations and anticipated growth, we believe
that cash generated from operations and amounts available under the revolving
credit facility will be adequate to meet our anticipated debt services
requirements, capital expenditures and working capital needs for the next
several years. There can be no assurance, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be
available under the senior credit facilities or otherwise to enable us to
service our indebtedness, including the senior credit facilities and the notes,
to redeem or refinance the cumulative preferred stock when required or to make
anticipated capital expenditures. Our future operating performance and our
ability to service or refinance the notes and to service, extend or refinance
the senior credit facilities will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond our control.
Impact of Inflation
We believe that our results of operations are not dependent upon moderate
changes in the inflation rate. Inflation and changing prices did not have a
material impact on our operations in 1996, 1997 and 1998. Severe increases in
inflation, however, could affect the global and United States economy and could
have an impact on our business, financial condition and results of operations.
Year 2000 Readiness Disclosure
We have recently either replaced or upgraded a majority of our core information
systems, including the franchise royalties system, franchise legal system,
information warehouse system and ULTRA store system, which is the point-of-sale
and operating system for corporate-owned stores. In addition, we are in the
process of implementing a full suite of financial and distribution supply chain
systems. We anticipate the financial systems implementation will be complete no
later than October 31, 1999. The implementation of our new distribution supply
chain systems is currently underway. We are also in the process of a
remediation effort on our legacy supply chain systems to render them Year 2000
compliant. We anticipate the effort to bring legacy supply chain systems into
compliance with Year 2000 will be completed no later than October 31, 1999. We
believe the completion of this remediation effort will mitigate the risk
associated with not completing the new distribution supply chain implementation
prior to December 31, 1999. Upon completion of this project and/or relevant
Year 2000
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remediation efforts, we believe that all of our critical internal information
systems will operate correctly with regard to the import, export, and
processing of date information, including correct handling of leap years, in
connection with the change in the calendar year from 1999 to 2000. Each of
these upgrades were part of our budgeted expenses for upgrading our computer
infrastructure and were not primarily undertaken or accelerated because of the
Year 2000 issue. We have, however, complemented our system upgrades with an
internal compliance team responsible for testing all of our information systems
for Year 2000 compliance.
We are also planning to inventory and address other less critical equipment and
machinery, such as facility equipment, that may contain embedded technology
with Year 2000 compliance problems. We expect to complete this effort no later
than September 30, 1999. We also have material relationships with franchisees,
suppliers and vendors and other significant entities, such as public utilities,
that may not have adequately addressed the Year 2000 issue with respect to
their equipment or information systems. Although we are attempting to assess
the extent of their compliance efforts, we have received written assurances
from only a portion of this group and, accordingly, cannot determine the risk
to our business.
For the fiscal year ended January 3, 1999, we spent approximately $256,000
addressing the Year 2000 issue. For the year ending January 2, 2000, we
estimate we will spend approximately $520,000 addressing the Year 2000 issue.
These amounts do not reflect the cost of our internal compliance team or the
cost of planned replacement systems, such as the financial and distribution
supply chain system software, which may have a positive impact on resolving the
Year 2000 issue. We do not expect that additional costs required to address the
Year 2000 issue will have a significant impact on our business or operating
results. In the event, however, that we are unable to complete planned
upgrades, implement replacement systems or otherwise resolve Year 2000
compliance problems prior to December 31, 1999, or in the event our franchisees
or a significant number of our suppliers and vendors do not adequately address
the Year 2000 issue before such date, we may experience significant disruption
or delays in our operations, which in turn could have a material adverse effect
on our business.
At this time, we are still assessing the likely worst case scenario that may
result from any significant disruptions or delays in our operations due to Year
2000 compliance issues associated with (1) our critical internal information
systems, (2) other less critical facility equipment or machinery, or (3) a
significant number of our franchisees, suppliers and vendors. We expect to
complete this analysis within the next several months. Further, except as
mentioned above, we have no contingency plans in place to address Year 2000
problems. We plan to evaluate the status of our Year 2000 compliance efforts at
the end of June, 1999 to determine whether such contingency plans are
necessary.
Changes in Accounting Principles
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires financial and descriptive information about an enterprise's reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available and evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. As required, we adopted this statement in the fiscal
year ended January 3, 1999. This adoption did not affect our results of
operations or financial position but did affect the disclosure of segment
information.
FASB has also issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. We have not determined the reporting
impact, if any, of the adoption of this statement.
The American Institute of Certified Public Accountants has issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities", which
requires entities to expense the costs of start-up activities, including
organizational costs, when incurred. The Company is required to adopt this
Statement in fiscal year 1999. The adoption of this SOP will not have a
material impact on the Company's financial statements or its operations.
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Business
General
Domino's is the leading pizza delivery company in the United States. We operate
through a world-wide network of over 6,200 franchise and corporate-owned stores
which generated system-wide sales of $3.2 billion for the fiscal year ended
January 3, 1999. System-wide sales by our domestic franchise and corporate-
owned stores accounted for approximately 30% of the United States pizza
delivery market in 1997. This market leadership position was nearly one and a
half times the market share of our nearest competitor.
Domino's offers a focused menu of high quality, value-priced pizza with three
types of crust, including Hand-Tossed, Thin Crust and Deep Dish. We also offer
buffalo wings, cheesy bread and bread sticks. Our original pizza is made from
fresh dough produced in our regional distribution centers. We prepare every
pizza using real mozzarella cheese, pizza sauce made from fresh tomatoes and a
choice of high quality meat and vegetable toppings in generous portions. Our
focused menu and use of premium ingredients enables us to consistently and
efficiently produce high quality pizza.
Over the 38 years since our founding, we have developed a simple, cost-
efficient model. In addition to offering a limited menu, our stores are
designed for delivery and do not offer eat-in service. As a result, our stores
require relatively small, low rent locations and limited capital expenditures.
Our simple operating model helps to ensure consistent, quality product and to
reduce store expenses and capital commitments.
The Domino's brand is widely recognized and identified by consumers in the
United States as the leader in pizza delivery. We have built this successful
brand image and recognition through extensive national and local television,
print and direct mail campaigns. Over the past four years, Domino's and its
franchisees have invested an estimated $750 million on national, cooperative
and local advertising in the United States. The Domino's brand name is one of
Ad Age's "100 Megabrands," a list which includes other prominent brands such as
Coke(R), Campbell's(R), Kodak(R) and Wrigley(R).
Domino's operates through three business segments:
. Domestic Stores, consisting of:
. Corporate, which operates our domestic network of 642 corporate-owned
stores;
. Franchise, which oversees our domestic network of 3,847 franchise
stores;
. Distribution, which operates our eighteen regional distribution centers
and one equipment distribution center that sell food, equipment and
supplies to our domestic corporate-owned and franchise stores and
equipment to international stores; and
. International, which oversees our network of 1,730 franchise stores in
64 international and off-shore markets, including Alaska, Hawaii, Puerto
Rico, the U.S. Virgin Islands and Guam, and distributes food to stores
in Alaska, Hawaii and Canada.
Industry Overview
The United States pizza market had sales of approximately $20.5 billion in
1997. This market has three segments: eat-in, carry-out and delivery. We focus
on the delivery segment, which accounted for approximately $5.9 billion or 29%
of the total United States pizza market in 1997. Pizza delivery has been the
fastest growing segment of this market, with compound annual growth of 8.2%
between 1995 and 1997, as compared to 4.1% for the eat-in segment and 4.3% for
the carry-out segment over the same period.
Domestic pizza delivery sales have not only grown quickly, but have also shown
stable growth. From 1988 through 1997, pizza delivery sales in the United
States grew at a compound annual rate of 6.2%. Even in the recessionary period
during 1990 and 1991, pizza delivery sales in the United States continued to
grow at an annual compound rate of 2.5%.
We believe that growth and stability in the pizza delivery market will persist
as a result of several continuing demographic factors. In particular, we
believe that longer work schedules and the prevalence of dual career families
have led to rapid growth in the demand for delivered food. We believe that
delivered pizza is well positioned to capitalize on these trends as other food
products have difficulty matching pizza's value, consistency and timeliness of
delivery.
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Competitive Strengths
Leading Market Position. Domino's is the leading pizza delivery company in the
United States. System-wide sales by our corporate-owned and domestic franchise
stores accounted for approximately 30% of the United States pizza delivery
market in 1997. This market leadership position represented nearly one and a
half times the market share of our nearest competitor. Through our world-wide
network of over 6,200 franchise and corporate-owned stores, we deliver
consistent, high quality pizza to consumers across the contiguous United States
and in 64 international and off-shore markets, including Alaska, Hawaii, Puerto
Rico, the U.S. Virgin Islands and Guam. Our leadership position and geographic
presence provide significant cost and marketing advantages relative to smaller
delivery competitors.
Strong Brand Equity. Our brand name is widely recognized by consumers in the
United States as the leader in pizza delivery. Over the past four years,
Domino's and its franchisees have invested an estimated $750 million on
national, cooperative and local advertising in the United States. The strength
of our brand is reflected in its selection as one of Ad Age's "100 Megabrands,"
a list which includes other prominent brands such as Coke(R), Campbell's(R),
Kodak(R) and Wrigley(R). We continue to reinforce the strength of our brand
name recognition with extensive advertising through national and local
television, print and direct mail. Our strong brand name in pizza delivery
provides significant marketing strength.
Focused and Cost-efficient Operating System. We have focused on pizza delivery
since our founding in 1960. Over this time, we have developed a simple, cost-
efficient operating system for producing a streamlined menu offering. Our
limited menu, efficient food production process and extensive employee training
program allow us to produce our pizza in approximately ten minutes. The
simplicity and efficiency of our store operations gives us significant
advantages over competitors that also participate significantly in the carry-
out or eat-in segments of the pizza market and, as a result, have more complex
operations. Consequently, we believe these competitors have a difficult time
matching Domino's value, quality and consistency in the delivery segment.
Limited Capital Requirements. We have limited capital expenditure and working
capital requirements. Our capital expenditures are minimal because we focus on
delivery and because our franchisees fund all capital expenditures for their
stores. Since our stores do not offer eat-in service, they do not require
expensive locations, are relatively small, ranging from 1,000 to 1,200 square
feet, and are inexpensive to build and furnish as compared to other fast food
establishments. A new Domino's store typically requires only $125,000 to
$175,000 in initial capital and minimal annual maintenance, far less than
typical establishments of many of our major competitors. Because over 85% of
our domestic stores are franchised, our share of system-wide capital
expenditures is small. In addition, Domino's requires minimal working capital
as we collect approximately 98% of our royalties from domestic franchisees
within three weeks of when the royalty is generated and achieve more than 50
inventory turns per year in our regional distribution centers. We believe these
minimal working capital requirements are advantageous for funding our continued
growth.
Strong Franchise Relationships. We believe our strong relationships with
franchisees are a critical component of our success. We support our franchisees
by providing the training, infrastructure and financial incentives that have
resulted in very low failure rates. We employ an owner-operator model that
results in our franchisees owning an average of three stores, considerably
fewer than most franchise models. We also believe that our franchise owners
enjoy some of the most attractive economics within the fast food industry. The
average payback on a new franchise store investment is less than three years.
Our strong cooperation with our franchisees is demonstrated by an over 96%
voluntary participation rate in our U.S. distribution system and an
approximately 90% franchisee participation in co-operative advertising
programs. Because we experience a contract renewal rate of over 99% and
currently maintain a list of over 120 pending or approved new franchise
applications, we believe our franchise system will continue to be a stable and
growing component of our business.
Efficient National Distribution System. We operate a nationwide network of
eighteen regional distribution centers. Each is generally located within a 300-
mile radius of the stores it serves. Our distribution system takes advantage of
volume purchasing of food and supplies, and provides consistency and
efficiencies of scale in food production. We serve all corporate-owned stores
and over 96% of our domestic franchise stores. We have an on-time accuracy rate
of over 98%, which means that our first delivery of an order is made within 48
hours of receipt of the order and is complete and of satisfactory quality. Our
low-cost distribution system allows our store managers to focus on food
production and customer service.
Experienced Management Team. Domino's is managed by an experienced team that
averages nearly 13 years of service with Domino's. Domino's founder, Thomas
Monaghan, recruited and promoted this team in the mid-1990s. This team
possesses strong leadership skills in marketing, corporate, franchise,
international, distribution, and finance and has driven our strong financial
performance over the past four years. In connection with the recapitalization
of TISM by Bain Capital, Thomas Monaghan retired as Chief Executive Officer and
now serves as a director of TISM and Domino's. David Brandon has recently
joined us as our new Chief Executive Officer.
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Business Strategy
Our business strategy has been to grow revenues and profitability by focusing
on prompt delivery of high quality product, operational excellence and brand
recognition through strong promotional advertising. This strategy has resulted
in our leading market position and track record of profitable growth. We intend
to achieve further growth and strengthen our competitive position through the
continued implementation of this strategy and the following initiatives:
Capitalize on Strong Industry Dynamics. We believe that the pizza delivery
market will continue to show strong growth and stability as a result of several
positive demographic trends. These trends include more dual career families,
longer work weeks and increased consumer emphasis on convenience. In addition,
we believe that the low cost and high value of pizza will support continued
industry growth even during an economic slowdown. Domino's is well positioned
to take advantage of these dynamics, given our market leadership position,
strong brand name and cost-efficient operating model.
Leverage Market Leadership Position and High Brand Awareness. Domino's is the
leading pizza delivery company in the United States. System-wide sales by our
corporate-owned and domestic franchise stores accounted for approximately 30%
of the United States pizza delivery market in 1997. This market leadership
position represented nearly one and a half times the market share of our
nearest competitor. Our market leadership position and strong brand give us
significant marketing strength relative to our smaller competitors. We believe
strong brand recognition is important in the pizza delivery industry because
consumer decisions are strongly influenced by brand awareness. We intend to
continue investments that promote our brand name and enhance our recognition as
the pizza delivery leader.
Improve Corporate Store Profitability. Historically, the profitability of a
typical corporate-owned store has lagged the profitability of a typical
franchise store. We have implemented programs to increase the profitability of
our corporate-owned stores:
. Corporate Store Rationalization. We sold to franchisees or closed 142 of
our under-performing corporate-owned stores prior to December 31, 1998.
. Corporate Store Labor Reductions. We reduced the labor costs at our
corporate-owned stores by improving shift schedules, adjusting incentive
programs and minimizing overtime.
. Distribution Profit Sharing. In early 1999, corporate-owned stores began
participating in the profit sharing program of our Distribution
division. Although corporate-owned stores had the right to participate
in the program, historically only domestic franchise stores
participated.
Expand Store Base. We plan to continue expanding our base of traditional
domestic stores, increase our network of international stores and enter new
markets with non-traditional stores. From 1995 to 1998, we increased our
domestic store base by approximately 1.9% per year. We plan to grow our
traditional domestic store base primarily by franchising new stores to existing
franchisees. We also believe that a significant opportunity exists to open new
franchise stores in under-penetrated international markets. We have also
successfully tested a new venue concept for non-traditional stores called
Domino's Delivery Express which provide both delivery and carry-out services
from locations in convenience stores and are designed for lightly populated
markets.
Operations
General. We believe our operating model is differentiated from other pizza
competitors that are not focused primarily on the delivery business. Our
business model has certain competitive advantages, including production-
oriented store design, efficient and consistent operational processes,
strategic location to minimize delivery time, favorable store economics and a
focused menu. We have also identified a number of cost reduction opportunities
to enhance profitability at our corporate-owned stores.
Production-Oriented Store Design. Our typical store is small, occupying
approximately 1,000 to 1,200 square feet, and is designed with a focus on
efficient and timely production of consistent, high-quality pizza for delivery.
Our stores are production facilities and, accordingly, do not have an eat-in
section.
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Efficient Processes. Each store executes an operational process which includes
order taking, pizza preparation, cooking (via automated, conveyor-driven
ovens), boxing, and delivery. The entire pizza production process is designed
for completion in less than ten minutes to allow sufficient time for safe
delivery within 25 to 30 minutes of ordering. This simple and focused
operational process has been achieved through years of continuous improvement,
resulting in a high level of efficiency.
Strategic Store Locations. We locate our stores strategically to facilitate
quality delivery service to our customers. The majority of our stores are
located in urban areas, suburban areas adjacent to large or mid-size cities, or
on or near college campuses or military bases. The majority of our stores serve
from 5,000 to 15,000 addresses. In order to facilitate expansion into smaller
markets, we have recently developed Delivery Express outlets, which provide
both delivery and carry-out from internal locations at convenience stores and
are designed for markets that are lightly populated.
Favorable Store Economics. Because our stores do not offer eat-in service or
rely heavily on carry-out, the stores typically do not require expensive real
estate, are relatively small, and are inexpensive to build-out and furnish as
compared to other fast food establishments. A new Domino's store typically
requires only $125,000 to $175,000 in initial capital, far less than typical
establishments of many of our major competitors. Our stores also benefit from
lower maintenance costs as store assets are long-lived and updates are not
frequently required.
Focused Menu. We maintain a focused menu that is designed to present an
attractive, high quality offering to customers, while expediting delivery and
avoiding unnecessary errors in the order process. The menu has three simple
components: pizza size, pizza type and pizza toppings. Most stores carry two
sizes of traditional Hand-Tossed, Deep Dish and Thin Crust pizza. The typical
store also offers bread sticks, cheesy bread and buffalo wings. We believe that
our focused menu creates a strong identity among consumers, improves operating
efficiency and maintains food quality and consistency.
Divisional Overview
Corporate. Our network of corporate-owned stores plays an important strategic
role in our predominately franchised system. We utilize our corporate-owned
stores as a forum for training new store managers and prospective franchisees,
and as a test site for new products and store operational improvements. We also
believe that our corporate-owned stores add economies of scale for advertising,
marketing and other fixed costs traditionally borne by franchisees. Corporate
is divided into three geographic regions and is managed through fifteen field
offices in the contiguous United States.
Franchise. Our domestic franchisees own and operate a network of 3,847 stores
in the contiguous United States. Our domestic franchises are operated by highly
qualified entrepreneurs who own and operate an average of three stores. Our
principal sources of revenue from domestic franchise store operations are
royalty payments and, to a much lesser extent, fees for store openings and
transfers. Our domestic franchises are managed through five regional offices
located in Dallas, Texas; Atlanta, Georgia; Santa Ana, California; Linthicum,
Maryland; and Ann Arbor, Michigan. The regional offices provide training,
financial analysis, store development, store operational audits and marketing
strategy services for the franchisees. We maintain a close relationship and
direct link with the franchise stores through regional franchise executive
teams, an array of computer-based training materials that ensure franchise
stores operate in compliance with specified standards, and franchise advisory
groups that facilitate communications between us and our franchisees.
Distribution. Distribution operates one equipment distribution center and
eighteen regional food distribution centers located throughout the United
States that order, receive, store and deliver uniform, high-quality pizza-
related supplies to both domestic franchise and corporate-owned stores. Each
regional food distribution center serves an average of 250 stores, generally
located within a 300-mile radius.
Distribution services all of the corporate-owned stores and over 96% of the
domestic franchise stores, even though we give our domestic franchisees the
option of satisfying their food and equipment needs through approved
independent suppliers. Distribution supplies products ranging from fresh dough
and basic food items to pizza boxes and cleaning supplies. Distribution drivers
also unload supplies and stock store shelves after hours, thereby minimizing
disruption of store operations during the day. We believe that franchisees
choose to obtain supplies from us because we provide the most efficient and
cost-effective alternative.
Our corporate-owned stores and nearly all of our eligible franchisees
participate in the profit sharing program of our Distribution division. We
believe these arrangements strengthen our ties with these franchisees, secure a
stable source of revenue and provide incentives for franchisees to work closely
with us to reduce costs. Corporate-owned stores and participating franchisees
collectively receive 50% of their regional distribution center's pre-tax
profits.
36
<PAGE>
Distribution's information systems are an integral part of its superior
customer service. Distribution employs routing strategies to reduce the
frequency of late deliveries, utilizing software to determine store routes on a
daily basis for optimal efficiency. Through our strategic distribution center
locations and proven routing systems, we have achieved on-time delivery rates
of over 98%. Our food distribution centers currently achieve inventory turns in
excess of 50 per year.
International. International oversees our network of over 1,730 stores in 64
international and off-shore markets, including Alaska, Hawaii, Puerto Rico, the
U.S. Virgin Islands and Guam. We have over 100 franchise stores in each of
Mexico, Canada, Japan, Australia, the United Kingdom, and Taiwan. The principal
sources of revenues from international operations are royalty payments by
franchisees, food sales to franchisees, and fees from master franchise
agreements and store openings.
We grant international franchises through master franchise agreements to well-
capitalized entities who have knowledge of the local market. These master
franchise agreements generally grant the franchisee exclusive rights to develop
or sub-franchise stores in a particular geographic area and contain growth
clauses requiring franchisees to open a minimum number of stores within a
specified period. We also seek to expand internationally by selectively
converting regional and local competitors' stores to Domino's franchises and
have completed such conversions successfully in Australia and the United
Kingdom.
Franchise Program
General. The success of our unique franchise formula, together with the
relatively low initial capital investment required to open a franchise store,
has enabled us to attract a large number of highly motivated entrepreneurs as
franchisees. We consider franchisees to be a vital part of our continued growth
and believe our relationships with franchisees are excellent. The franchise
program consists of a network of domestic and international franchise stores.
As of January 3, 1999, there were 1,308 franchisees operating 3,847 franchise
stores in the contiguous United States and 440 franchisees operating 1,730
stores in 64 international and off-shore markets, including Alaska, Hawaii,
Puerto Rico, the U.S. Virgin Islands and Guam.
Franchisee Selection. We maintain the strength of our franchise store base by
seeking franchisees who are willing to commit themselves full-time to operating
franchise stores and by applying rigorous standards to prospective franchisees.
Specifically, we require all prospective domestic franchisees to manage a store
for at least one year before being granted a franchise. This enables us to
observe the operational and financial performance of domestic franchisees prior
to entering into a long-term contract. We also restrict the ability of domestic
franchisees to become involved in outside business investments, which focuses
the franchisees on operating their franchise stores. We believe these standards
are unique to the franchise industry and result in highly qualified and focused
store operators, while helping to maintain the strength of the Domino's brand.
Standard Domestic Franchise Agreements. We enter into franchise agreements with
domestic franchisees under which the franchisee is granted the right to operate
a store for a term of ten years, with an option to renew for an additional ten
years. We are currently experiencing franchise renewal rates in excess of 99%.
Under the current standard franchise agreement, we assign an exclusive Area of
Primary Responsibility to each franchise store. During the term of the
franchise agreement, the franchisee is generally required to pay a 5.5% royalty
fee, subject in certain instances to lower rates based on area development
agreements, sales initiatives and new store incentives. The current standard
franchise agreement permits us to electronically debit the franchisee's bank
account for the payment of royalty fees and advertising contributions. We have
the contractual right, subject to state law, to terminate a franchise agreement
for a variety of reasons, including a franchisee's failure to make payments
when due or failure to adhere to specified policies and standards.
Standard International Franchise Agreements. We enter into master franchise
agreements with our international franchisees under which the master franchisee
may open and operate a franchise or enter into sub-franchise agreements for a
term of ten to twenty years, with an option to renew for an additional ten year
term. The master franchisee is required to pay an initial, one-time franchisee
fee, as well as a store franchise fee upon the opening of each store. These
fees vary by contract. In addition, the master franchisee is required to pay a
continuing royalty fee as a percentage of sales, which also varies.
Franchisee Store Development. We furnish each domestic franchisee with
assistance in selecting sites, developing stores and conforming to the physical
specifications for typical stores. Each domestic franchisee is responsible for
selecting the location for a store but must obtain approval for store design
and location based on accessibility and visibility of the site and targeted
demographic factors, including population density, income, age and traffic. We
provide design plans, fixtures and equipment for most franchisee locations at
competitive prices.
37
<PAGE>
Franchisee Loan Programs. We have an established financing program to assist
domestic franchisees in opening stores. We generally provide financing of up to
$100,000 for the purpose of opening new stores to domestic franchisees who are
creditworthy and have adequate working capital. The franchisees may use the
funds to purchase equipment, supplies, store fixtures or leasehold
improvements, with the condition that store fixtures and leasehold improvements
cannot exceed $35,000. We have also historically financed the sale of corporate
stores to domestic franchisees and the implementation of new products and
programs, such as the Domino's HeatWave Hot Bag. At January 3, 1999, loans
outstanding under the franchisee loan programs totaled $20.4 million.
Franchise Training and Support. We consider training of our store managers and
employees to be a critical component of our success. We require all domestic
franchisees to complete initial and ongoing training programs that we provide.
In addition, under the current standard domestic franchise agreement, domestic
franchisees are required to implement training programs for their store
employees. We assist our franchisees by providing training services for store
managers and employees, including CD-ROM based training materials,
comprehensive operations manuals and franchise development classes.
Franchise Operations. We maintain strict control over franchise operations to
protect our brand name and image. All franchisees are required to operate their
stores in compliance with written policies, standards and specifications,
including matters such as menu items, ingredients, materials, supplies,
services, fixtures, furnishings, decor and signs. Each franchisee has full
discretion to determine the prices to be charged to its customers. We also
provide support to our franchisees, including training, marketing assistance
and consultation to franchisees who experience financial or operational
difficulties. We have established several advisory boards through which
franchisees can contribute to corporate level initiatives.
Domino's 2000 Campaign
We have implemented a reimaging and relocation campaign called Domino's 2000.
This reimaging program is aimed at increasing store sales through greater brand
awareness and involves a variety of store improvements, including upgrading
store interiors, adding new signage to draw attention to the store and
providing contemporary uniforms for employees. We believe that the average per
store capital expenditures for the reimaging campaign will not exceed $30,000.
The relocation program is also designed to increase store sales by choosing
store sites that are in more accessible locations. The cost of relocating a
corporate-owned store is not expected to exceed an average of $160,000 per
store. We will incur these capital expenditures on a discretionary basis and
only with respect to our corporate-owned stores.
Marketing Operations
We coordinate the domestic advertising and marketing efforts at the national
and cooperative market levels. We require corporate-owned and domestic
franchise stores to contribute 3% of their net sales to fund national marketing
and advertising campaigns. The national advertising fund is used primarily to
purchase television advertising, but also supports market research, field
communications, commercial production, talent payments and other activities
supporting the brand. We can require stores to contribute a minimum of 1% of
net sales to cooperative media campaigns. Store contributions to cooperative
media campaigns currently average 2.4% of net sales in our top 40 markets.
Our management estimates that corporate-owned and domestic franchise stores
also spend an additional 3% to 5% of their net sales on local store marketing,
including targeted database mailings, saturation print mailings to households
in a given area and community involvement through school and civic
organizations. The National Print Program offers subsidized print materials as
an incentive for franchisees to use the marketing material that we recommend,
helping ensure that our national advertising strategy is reflected at the local
level.
By communicating common themes at the national, cooperative and local market
levels, we create a consistent marketing message to our customers. Over the
past four years, we estimate that we and our domestic franchisees have invested
over $750 million in system-wide advertising at the national, cooperative and
local levels.
We also create business plans for new or improved products, price promotions,
and tie-in events with leading brands. For example, we recently entered into a
partnership with General Mills, Inc. whereby coupons for Domino's pizza were
distributed on the back of Cheerios brand cereal packages. We estimate that at
least 20% of the coupon redemptions from this campaign came from new customers.
38
<PAGE>
Suppliers
We believe that the length and quality of our relationships with suppliers
provides us with priority service at competitive prices. We have maintained
active relationships of over 14 years with more than half of our major
suppliers. As a result, we have typically relied on oral rather than written
contracts with our suppliers, except where we maintain only one supplier for a
product, such as cheese. In addition, we believe that two factors have been
critical to maintaining long- lasting relationships and keeping our purchasing
costs low. First, we are one of the largest volume purchasers of pizza-related
products such as flour, cheese, sauce, and pizza boxes, which enables us to
maximize leverage with our suppliers. Second, in four of our five key product
categories we generally retain active purchasing relationships with at least
three suppliers. These four key product categories include meats, dough and
parbaked shells, boxes and sauce. This purchasing strategy allows us to shift
purchases among suppliers based on quality, price and timeliness of delivery.
We maintain only one supplier for cheese, although we believe there are at
least three other national manufacturers, as well as several regional
manufacturers, capable of producing cheese for us. For the year ended January
3, 1999, no single supplier represented more than 10% of cost of sales, except
for our cheese supplier which accounted for 25.7% of cost of sales.
Government Regulation
We are subject to various federal, state and local laws affecting the operation
of our business, as are our franchisees. Each store is subject to licensing and
regulation by a number of governmental authorities, which include zoning,
health, safety, sanitation, building and fire agencies in the jurisdiction in
which the store is located. Difficulties in obtaining, or the failure to
obtain, required licenses or approvals can delay or prevent the opening of a
new store in a particular area. Our commissary and distribution facilities are
licensed and subject to regulation by federal, state and local health and fire
codes. Each store is also subject to federal and state laws governing such
matters as wages, working conditions, citizenship requirements and overtime.
Some states have set minimum wage requirements higher than the federal level.
We are subject to the rules and regulations of the FTC and various state laws
regulating the offer and sale of franchises. The FTC requires that we furnish
to prospective franchisees a franchise offering circular containing prescribed
information. A number of states also regulate the sale of franchises and
require registration of the franchise offering circular with state authorities
and the delivery of the franchise offering circular to prospective franchisees.
We are operating under exemptions from registration in several states based on
our net worth and experience. Substantive state laws that regulate the
franchisor-franchisee relationship presently exist in a substantial number of
states, and bills have been introduced in Congress from time to time which
would provide for federal regulation of the franchisor-franchisee relationship.
The state laws often limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or refuse to
renew a franchise and the ability of a franchisor to designate sources of
supply.
Internationally, our franchise stores are subject to national and local laws
and regulations which are similar to those affecting our domestic stores,
including laws and regulations concerning franchises, labor, health, sanitation
and safety. Our international franchise stores are also subject to tariffs and
regulations on imported commodities and equipment and laws regulating foreign
investment.
Trademarks
Domino's has several trademarks and service marks and believes that many of
these marks have significant value and are materially important to our
business. Our policy is to pursue registration of our important trademarks
whenever possible and to vigorously oppose the infringement of any of our
registered or unregistered trademarks.
Facilities
We lease approximately 185,000 square feet for our executive offices, world
headquarters and Michigan Distribution Center located in Ann Arbor, Michigan
under an operating lease with Domino's Farms Office Park Limited Partnership
for a term of five years commencing December 21, 1998, with options to renew
for two five-year terms.
We own facilities at fourteen corporate stores and five commissaries. We also
own and lease store facilities to seven domestic franchisees. There are no
mortgages on any of these facilities other than mortgages on the commissary
facilities granted in connection with our new senior credit facilities. All
other corporate-owned stores and facilities are leased by us, typically with
five-year leases with one or two five-year renewal options. All franchise
stores are leased directly by the franchisees and we are generally not a party
to the leases, except with respect to the seven facilities that we own and
lease to the franchisees.
39
<PAGE>
Employees
As of January 3, 1999, we had approximately 14,200 employees, excluding
employees of franchise-operated stores. Approximately 10,200 of this total are
store employees that work part-time and are employed on an hourly basis. None
of our domestic employees are represented by unions. We have not experienced
any labor problems resulting in a work stoppage and we believe we have good
relations with our employees.
Insurance
Through December 19, 1998, we self-insured our commercial general liability,
automobile liability, and workers' compensation liability exposures up to
levels ranging from $500,000 to $1 million per occurrence, and maintained
excess and umbrella insurance coverage above those levels up to amounts ranging
from $60 million to $105 million per annum on our commercial general liability
and automobile liability policies and up to statutory limits on our workers'
compensation policies. Effective December 20, 1998, we acquired insurance
coverage from third party providers for all of the above exposures, with total
coverage of $105 million per occurrence on our commercial general liability and
automobile liability policies and up to statutory limits on our workers'
compensation policies. None of these policies has a deductible. Domino's also
partially self insures its health insurance program, which provides coverage
for life, medical, dental and accidental death and dismemberment claims. Self-
insurance limitations for medical and dental per a covered individual's
lifetime are $2 million. The accidental death and dismemberment and life
insurance components of the health insurance program are fully insured by
Domino's through third party insurance carriers. We also maintain commercial
property liability insurance, which provides a variety of coverages and is
subject to various limitations, exclusions and deductibles. There can be no
assurance that such liability limitations will be adequate, that insurance
premiums for such coverage will not increase or that in the future we will be
able to obtain insurance at acceptable rates, if at all. Any such inadequacy of
or inability to obtain insurance coverage could have a material adverse effect
on our business, financial condition and results of operations.
Legal Proceedings
On September 10, 1998, Vesture Corporation and R.G. Barry Corporation, its
corporate parent, brought suit in the United States District Court for the
Middle District of North Carolina against Domino's and Phase Change
Laboratories, Inc., the exclusive supplier of the heat retention cores inside
the Domino's HeatWave Hot Bag, our pizza delivery warming device. The
plaintiffs asserted that the heat retention cores inside the Domino's HeatWave
Hot Bag infringe a patent owned by Vesture. Our agreement with Phase Change
Laboratories gives us exclusive marketing, sales, use and distribution rights
in the pizza delivery market to the heat retention cores inside the Domino's
HeatWave Hot Bag. In addition to damages, the plaintiffs are seeking an
injunction to enjoin the manufacture, sale or use of the heat retention cores
inside the Domino's HeatWave Hot Bag. On November 4, 1998, we filed our answer,
denying the material allegations of the plaintiffs. In addition, we asserted a
counterclaim against Vesture Corporation and R.G. Barry Corporation seeking a
declaratory judgment that we have not infringed Vesture Corporation's patent
and further that Vesture Corporation's patent is invalid and unenforceable. We
also brought a cross-claim against Phase Change Laboratories for
indemnification and for breach of warranty. Phase Change Laboratories filed its
answer and its counterclaim for a declaratory judgment on November 5, 1998.
Although we intend to vigorously defend against the claim, we cannot predict
the ultimate outcome of the claim.
40
<PAGE>
Management
Directors and Executive Officers
The following table sets forth certain information regarding each person who is
a director or executive officer of TISM, Domino's and each of our subsidiary
guarantors.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------------------------------------------
<C> <C> <S>
David A. Brandon 46 Chairman, Chief Executive Officer and Director of
TISM, Domino's and
Domino's Pizza
Harry J. Silverman 40 Chief Financial Officer, Executive Vice President,
Finance and Administration, and Director of Domino's
Pizza; Vice President of TISM and
Domino's; President (other than with respect to
Domino's Pizza) and Director of each of the guarantor
subsidiaries
Cheryl A. Bachelder 42 Executive Vice President, Marketing and Product
Development of
Domino's Pizza
Patrick Kelly 46 Executive Vice President, Corporate of Domino's Pizza
Stuart K. Mathis 43 Executive Vice President, Franchise of Domino's Pizza
Gary M. McCausland 47 Executive Vice President, International of Domino's
Pizza
Michael D. Soignet 39 Executive Vice President, Distribution of Domino's
Pizza
Andrew B. Balson 32 Director of TISM and Domino's
Thomas S. Monaghan 61 Director of TISM and Domino's
Mark E. Nunnelly 40 Director of TISM and Domino's
Jonas L. Steinman 33 Director of TISM and Domino's
Robert F. White 43 Director of TISM and Domino's
</TABLE>
David A. Brandon has served as Chairman, Chief Executive Officer and Director
of TISM, Domino's and Domino's Pizza since March, 1999. Mr. Brandon was
President and Chief Executive Officer of Valassis Communications, Inc., an
organization involved in the sales promotion and couponing industries, from
1991 to June, 1998, and Chairman of the Board of Directors of Valassis
Communications, Inc. from 1997 to December, 1998.
Harry J. Silverman has been Chief Financial Officer and Executive Vice
President of Finance and Administration for Domino's Pizza since 1993. Mr.
Silverman has served as Vice President of TISM and Domino's, as President and
Director of each of the guarantor subsidiaries other than Domino's Pizza, and
as a Director of Domino's Pizza since December, 1998. Mr. Silverman joined
Domino's Pizza in 1985 as Controller for the Chicago Regional Office.
Mr. Silverman was named National Operations Controller in 1988 and later Vice
President of Finance for Domino's Pizza. Prior to joining Domino's Pizza, Mr.
Silverman was employed by Grant Thornton, an international accounting and
consulting firm.
Cheryl A. Bachelder joined Domino's Pizza in May, 1995 as Executive Vice
President of Marketing and Product Development, overseeing all marketing,
public relations, product development and quality assurance programs. Prior to
that time, Ms. Bachelder served as President of Bachelder & Associates, a
management consulting firm founded by Ms. Bachelder in 1992. From 1984 to 1992,
Ms. Bachelder served in various positions with the Nabisco Foods Group of RJR
Nabisco, Inc., including Vice President and General Manager of the LifeSavers
Division from 1991 to 1992. From 1981 to 1984, Ms. Bachelder worked in brand
management at the PaperMate Division of The Gillette Company. From 1978 to
1981, Ms. Bachelder held training and brand management posts at the Procter &
Gamble Company.
Patrick Kelly has served as Executive Vice President of Corporate of Domino's
Pizza since November, 1994. Mr. Kelly joined Domino's Pizza in 1978 as a
manager trainee and has held various positions with Domino's Pizza since that
time, including Vice President of Corporate and Franchise for the United States
Western and Eastern Regions, Vice President of International and Vice President
of Corporate in the Northern Region.
Stuart K. Mathis joined Domino's Pizza in 1985 as Controller for the
Northeastern Regional Office. Mr. Mathis has served as Executive Vice President
of Franchise of Domino's Pizza since August, 1992. Prior to that time, Mr.
Mathis held various positions in Domino's Pizza, including Vice President of
Field Administration. From 1983 to 1985, Mr. Mathis was Controller for Six
Flags Over Mid-America in St. Louis.
41
<PAGE>
Gary M. McCausland has been Executive Vice President of International of
Domino's Pizza since December, 1991, overseeing all store operations and
development outside the contiguous United States. Mr. McCausland previously
served as Vice President of Finance and Administration of Domino's Pizza for
International and Corporate Controller. Prior to joining Domino's Pizza, he
held a number of international management positions with Unisys Corp.,
including Director of Finance to its subsidiary in the United Kingdom. Mr.
McCausland, a Certified Public Accountant, also served six years with Price
Waterhouse LLP.
Michael D. Soignet has been Executive Vice President of Distribution of
Domino's Pizza, overseeing United States and international commissary
operations and the Equipment & Supply Division since 1993. Mr. Soignet joined
Domino's Pizza in 1981 and since then has held various positions, including
Distribution Center General Manager, Assistant to the DNC General Manager,
Region Manager, Distribution Vice President, and most recently Vice President
of Distribution Operations until his appointment to the executive team in 1993.
Andrew B. Balson has served as a Director of TISM and Domino's since March,
1999. Mr. Balson has been a Principal of Bain Capital since June, 1998 and was
an Associate at Bain Capital from 1996 to 1998. From 1994 to 1996, Mr. Balson
was a consultant at Bain & Company. Mr. Balson serves on the Board of Managers
of Anthony Crane Rental, L.P.
Thomas S. Monaghan founded Domino's Pizza in 1960 and served as its President
and Chief Executive Officer through July, 1989 and from December 6, 1991 to
December 21, 1998. Mr. Monaghan now serves as a Director of TISM and Domino's.
Mr. Monaghan has served as a Director of TISM since 1960 and as a Director of
Domino's since February, 1999.
Mark E. Nunnelly has served as a Director of TISM since December 21, 1998 and
as a Director of Domino's since February, 1999. Mr. Nunnelly has been a
Managing Director of Bain Capital since 1990. Prior to that time, Mr. Nunnelly
was a partner at Bain & Company, where he managed several relationships in the
manufacturing sector, and was employed by Procter & Gamble Company Inc. in
product management. Mr. Nunnelly serves on the Board of Directors of several
companies, including Stream International, Inc., The Learning Company and
DoubleClick, Inc.
Jonas L. Steinman has served as a Director of TISM since December 21, 1998 and
as a Director of Domino's since February, 1999. Mr. Steinman has been a
principal of Chase Capital Partners since 1995 and was an associate at Chase
Capital Partners from 1993 to 1995. Chase Capital Partners is a global private
equity organization that provides equity and debt financing for a wide variety
of investment opportunities. Prior to joining Chase Capital Partners, Mr.
Steinman was employed by Anthem Partners, Booz, Allen & Hamilton and Drexel
Burnham Lambert. Mr. Steinman currently serves on the Board of Directors of
Sealy Corporation, C.A. Muer Corporation, Cove Healthcare, UtiliMed, Inc.,
USHealthWorks, Inc. and WPP Holdings, Inc.
Robert F. White has served as a Director of TISM since December 21, 1998 and as
a Director of Domino's since February, 1999. Mr. White joined Bain Capital at
its inception in 1984. He has been a Managing Director since 1985. Mr. White
has served as the Chief Financial Officer and a founder of MediVision, a
medical services company founded and financed by Bain Capital. Prior to joining
Bain Capital, Mr. White was a Manager at Bain & Company and a Senior Accountant
with Price Waterhouse LLP. Mr. White serves on the Board of Directors of Stream
International, Inc., totes/Isotoner Inc., and Brookstone, Inc.
All directors of TISM and Domino's serve until a successor is duly elected and
qualified or until the earlier of his or her death, resignation or removal.
There are no family relationships between any of the directors or executive
officers of TISM or Domino's. The executive officers of TISM and Domino's are
elected by and serve at the discretion of their respective Boards of Directors.
See "Certain Relationships and Related Transactions" for information on the
stockholders agreement which governs composition of the Board of Directors of
TISM.
42
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation for the
fiscal year ended January 3, 1999 of Thomas S. Monaghan, the Chief Executive
Officer and President of TISM through December 21, 1998, and the four other
most highly compensated executive officers of TISM and its consolidated
subsidiaries (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Long Term
Compensation
------------
Annual Compensation
---------------------------------------
Number of
Securities
Other Annual Underlying All Other
Name and Position Salary Bonus(1) Compensation(2) Options(3) Compensation
- ----------------- ---------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas S. Monaghan(4)... $3,334,615 $ -- $2,594 -- $32,397(5)
Chief Executive Officer
and President
Stuart K. Mathis........ 366,588 1,776,597 1,169 116,710 56,333(6)
Executive Vice
President, Franchise
Michael D. Soignet...... 246,496 1,832,497 912 111,111 59,276(6)
Executive Vice
President,
Distribution
Harry J. Silverman...... 268,578 3,076,538 866 111,111 55,656(6)
Chief Financial
Officer, Executive
Vice President,
Finance and
Administration
Cheryl A. Bachelder..... 287,300 1,805,657 1,103 -- 49,173(6)
Executive Vice
President, Marketing
and Product
Development
</TABLE>
- ---------
(1) These amounts include bonuses of $1,637,697 for each of Ms. Bachelder and
Messrs. Mathis and Soignet under bonus agreements entered into with each
such person and $2,851,078 under a bonus agreement entered into with
Mr. Silverman. Ms. Bachelder received her entire bonus at the closing of
the recapitalization. A portion of each other bonus was paid in cash at the
closing of the recapitalization, and the receipt of the remaining portion
of each other bonus was deferred under the Senior Executive Deferred Bonus
Plan. See "Senior Executive Deferred Bonus Plan."
(2) These amounts include reimbursements during the fiscal year for the payment
of taxes related to insurance premiums paid on behalf of the Named
Executive Officers.
(3) The options are options granted in connection with the recapitalization to
purchase shares of common stock of TISM, except Mr. Mathis' options also
include options to purchase 2,064 shares of cumulative preferred stock of
TISM.
(4) Mr. Monaghan served as Chief Executive Officer through December 21, 1998.
(5) This amount represents payments to Mr. Monaghan for the period from
December 22, 1998 through January 3, 1999 pursuant to the consulting
agreement, matching funds contributed by us pursuant to our pre-
recapitalization deferred compensation plan and 401(k) plan and term life
insurance premiums paid by us for the benefit of Mr. Monaghan.
(6) These amounts represent matching funds contributed by us pursuant to our
pre-recapitalization deferred compensation plan and 401(k) plan and term
life insurance premiums paid by us for the benefit of the Named Executive
Officers.
43
<PAGE>
Option Grants in Last Fiscal Year
The table below sets forth information for the Named Executive Officers with
respect to grants of stock options of TISM during the fiscal year ended January
3, 1999.
Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term(5)
--------------------------------- ---------------------
Number of
Securities % of Total Exercise
Underlying Options to Price Expiration
Name Options Employees ($/share) Date 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas S. Monaghan...... -- -- -- -- -- --
Chief Executive Officer
and President
Stuart K. Mathis........ 103,181(1) 16% $ .50 12/21/09 $ 37,145 $ 95,958
Executive Vice
President, Franchise 11,465(2) 2% 40.50 12/21/09 329,848 860,448
2,064(3) 100%(4) 101.33 12/21/09 148,484 386,917
Michael D. Soignet...... 100,000(1) 16% .50 12/21/09 36,000 93,000
Executive Vice
President,
Distribution 11,111(2) 2% 40.50 12/21/09 319,663 833,881
Harry J. Silverman...... 100,000(1) 16% .50 12/21/09 36,000 93,000
Chief Financial
Officer, Executive
Vice 11,111(2) 2% 40.50 12/21/09 319,663 833,881
President, Finance and
Administration
Cheryl A. Bachelder..... -- -- -- -- -- --
Executive Vice
President, Marketing
and Product
Development
</TABLE>
- ---------
(1) These represent options to purchase shares of Class A Common Stock of TISM.
(2)These represent options to purchase shares of Class L Common Stock of TISM.
(3)These represent options to purchase cumulative preferred stock of TISM.
(4) This represents the percentage of total options granted to employees to
purchase cumulative preferred stock of TISM, while the other percentages in
the column represent the percentage of total options granted to purchase
shares of Class A and Class L Common Stock of TISM.
(5) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the common stock or cumulative preferred stock, as the
case may be, on the date of option grant over the term of the options.
These numbers are calculated based on rules promulgated by the Securities
and Exchange Commission and do not reflect our estimate of future stock
price growth. Actual gains, if any, on stock option exercises are dependent
on the timing of such exercise and the future performance of the common
stock or cumulative preferred stock, as the case may be. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
44
<PAGE>
Fiscal Year-End Option Values
The table below sets forth certain information concerning the number and value
of unexercised stock options of TISM held by each of the Named Executive
Officers as of January 3, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
End Fiscal Year End(1)
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) ($) ($)
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas S. Monaghan.......... -- -- -- --
Stuart K. Mathis(2)......... 116,710 -- 0 --
Michael D. Soignet.......... 111,111 -- 0 --
Harry J. Silverman.......... 111,111 -- 0 --
Cheryl A. Bachelder......... -- -- -- --
</TABLE>
- ---------
(1) There was no public trading market for the common stock and cumulative
preferred stock of TISM as of January 3, 1999. Accordingly, these values
have been calculated on the basis of the fair market value of such
securities on January 3, 1999, less the applicable exercise price.
(2)Includes options to purchase 2,064 shares of cumulative preferred stock of
TISM.
Consulting Agreement with Thomas S. Monaghan
In connection with the recapitalization, Mr. Monaghan entered into a consulting
agreement with Domino's Pizza. The consulting agreement has a term of ten
years, is terminable by either Domino's Pizza or Mr. Monaghan upon thirty days
prior written notice, and may be extended or renewed by written agreement.
Under the consulting agreement, Mr. Monaghan may be required to make himself
available to Domino's Pizza on a limited basis. Mr. Monaghan will receive a
retainer of $1 million for the first twelve months of the agreement and $0.5
million per year for the remainder of the term of the agreement. If Domino's
Pizza terminates the agreement for any reason, it is required to remit to
Mr. Monaghan a lump sum payment within thirty days of the termination of the
agreement in the full amount of the retainer payable for the remainder of the
term of the consulting agreement. As a consultant, Mr. Monaghan is entitled to
reimbursement of travel and other expenses incurred in performance of his
duties but is not entitled to participate in any employee benefit plans or
other benefits or conditions of employment.
Employment Agreement with David A. Brandon
Mr. Brandon is employed as Chief Executive Officer and Chairman of the Board of
Directors of TISM, Domino's, and Domino's Pizza pursuant to an employment
agreement. Under the terms of the employment agreement, Mr. Brandon is entitled
to receive an annual salary of $600,000 and is eligible for an annual bonus
based on achievement of performance objectives. If Mr. Brandon is terminated
other than for cause or resigns voluntarily for good reason, he is entitled to
receive his base salary for a period of two years. If Mr. Brandon's employment
is terminated by reason of physical or mental disability, he is entitled to
receive his base salary less the amount of disability income benefits received
by him and continued coverage under group medical plans for a period of
eighteen months. Mr. Brandon is subject to certain non-competition, non-
solicitation and confidentiality provisions.
Deferred Compensation Plan
Domino's Pizza has adopted a Deferred Compensation Plan for the benefit of
certain of its executive and managerial employees, including some of the Named
Executive Officers. Under the Deferred Compensation Plan, eligible employees
are permitted to defer up to 40% of their compensation. Domino's Pizza is
required to match 30% of the amount deferred by a participant under the plan
with respect to the first 15%, 20% or 25% of the participant's compensation,
depending on the employee. Domino's Pizza may be obligated to make a
supplemental contribution, in addition to the matching contribution, of up to
20% of the first 15%, 20% or 25% of the deferred amounts. The amounts under the
plan are required to be paid out upon termination of employment or a change in
control of Domino's Pizza or any direct or indirect parent corporation of
Domino's Pizza.
Senior Executive Deferred Bonus Plan
Prior to the recapitalization, Domino's Pizza entered into bonus agreements
with certain members of management, including the Named Executive Officers. The
bonus agreements, as amended, provided for bonus payments, a portion of
45
<PAGE>
which were payable in cash upon the closing of the recapitalization and a
portion of which were deferred under the Senior Executive Deferred Bonus Plan.
Domino's Pizza adopted the Senior Executive Deferred Bonus Plan effective
December 21, 1998. This plan established deferred bonus accounts for the
benefit of executives, including the Named Executive Officers, other than Ms.
Bachelder. Domino's Pizza must pay the deferred amounts in each account to the
respective executive upon the earlier of:
.a change of control of TISM;
. a qualified public offering of TISM;
. the cancellation or forfeiture of stock options held by such executive;
or
. ten years and 180 days after December 21, 1998.
If the board of directors of Domino's Pizza terminates the plan, it may pay the
amounts in the deferred bonus accounts to the participating executives at that
time or make the payments as if the plan had continued to be in effect.
Severance Agreements
On August 4, 1998, Domino's Pizza entered into severance agreements with
certain members of management, including the Named Executive Officers. Under
the agreements with the Named Executive Officers, Domino's Pizza has agreed to
pay severance benefits to such executives who are terminated without cause or
due to death or disability or who terminate employment for good reason within
two years after the closing of the recapitalization or who resign at or within
30 days after the first anniversary of the closing of the recapitalization for
any reason. The severance benefits include a severance payment that equals
three times the employee's base severance amount if employment terminates prior
to December 21, 1999 or two times such base severance amount if the employee's
employment terminates after December 21, 1999 but prior to December 21, 2000.
In addition, Domino's Pizza is required to make monthly payments for up to
three years, depending upon when employment is terminated, in an amount
sufficient for the executive to purchase health insurance benefits equivalent
to those benefits provided to the executive by Domino's Pizza at the time of
termination. In consideration of the benefits provided under the severance
agreements, the executives agreed to certain non-competition, non-solicitation
and confidentiality provisions.
Compensation of Directors
TISM and Domino's reimburse members of the board of directors for any out-of-
pocket expenses incurred by them in connection with services provided in such
capacity. In addition, TISM and Domino's may compensate independent members of
the board of directors for services provided in such capacity.
46
<PAGE>
Principal Stockholders
All of Domino's issued and outstanding common stock is owned by TISM. The
issued and outstanding capital stock of TISM consists of:
(1) 49,436,819 shares of Class A Common Stock, of which 9,641,874 shares
are of Class A-1 Common Stock, par value $0.001 per share, 9,866,633 shares
are Class A-2 Common Stock, par value $0.001 per share, and 29,928,312
shares are Class A-3 Common Stock, par value $0.001 per share;
(2) 5,492,981 shares of Class L Common Stock, par value $0.001 per share;
and
(3) 997,936 shares of 11.5% cumulative preferred stock.
The three classes of Class A Common Stock have different rights with respect to
the election of members of the Board of Directors. The shares of Class A-1
Common Stock entitle the holder to one vote per share on all matters to be
voted upon by the stockholders of TISM. The shares of Class A-2 Common Stock
and Class A-3 Common Stock are non-voting. The Class L Common Stock is
identical to the Class A Common Stock except that the Class L Common Stock is
nonvoting and is entitled to a preference over the Class A Common Stock, with
respect to any distribution by TISM to holders of its capital stock, equal to
the original cost of such share plus an amount which accrues at a rate of 12%
per annum, compounded quarterly. The Class L Common Stock is convertible upon
an initial public offering, or certain other dispositions, of TISM into Class A
Common Stock upon a vote of the board of directors of TISM. The cumulative
preferred stock has no voting rights except as required by law.
The following table sets forth certain information as of April 1, 1999
regarding the approximate beneficial ownership of: (1) each person known to
TISM to own more than five percent of the outstanding voting securities of TISM
and (2) the voting securities of TISM held by each Director of TISM, each Named
Executive Officer and all of such Directors and Named Executive Officers as a
group. Unless otherwise noted, to our knowledge, each of such stockholders has
sole voting and investment power as to the shares shown. Unless otherwise
indicated, the address of each Director and Named Executive Officer is 30 Frank
Lloyd Wright Drive, Ann Arbor, MI 48106.
<TABLE>
-----------------
<CAPTION>
Percentage of Outstanding
Name and Address Voting Securities
-----------------
<S> <C>
Principal Stockholders:
Bain Capital Funds(1)................................ 49.0%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Directors and Named Executive Officers:
David A. Brandon+.................................... -
Harry J. Silverman*.................................. -
Cheryl A. Bachelder*................................. -
Michael D. Soignet*.................................. -
Stuart K. Mathis*.................................... -
Andrew B. Balson+(2)................................. **
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Thomas S. Monaghan+*(3).............................. 36.3%
Mark E. Nunnelly+(4)................................. 2.6%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Jonas L. Steinman+(5)................................ 4.9%
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Robert F. White+(6).................................. 2.6%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
All Directors and Named Executive
Officers as a Group (10 Persons).................... 44.2%
</TABLE>
47
<PAGE>
- ---------
+ Director
* Named Executive Officer
** Less Than One Percent
(1) Includes: (a) 1,849,036 shares of Class A-1 Common Stock owned by Bain
Capital Fund VI, L.P. ("Fund VI"), whose sole general partner is Bain
Capital Partners VI, L.P., whose sole general partner is Bain Capital
Investors VI, Inc., a Delaware corporation wholly owned by W. Mitt Romney;
(b) 2,104,694 shares of Class A-1 Common Stock owned by Bain Capital VI
Coinvestment Fund ("Coinvest Fund"), whose sole general partner is Bain
Capital Partners VI, L.P., whose sole general partner is Bain Capital
Investors VI, Inc., a Delaware corporation wholly owned by W. Mitt Romney;
(c) 385,675 shares of Class A-1 Common Stock owned by Sankaty High Yield
Asset Partners, L.P. ("Sankaty"), whose sole general partner is Sankaty
High Yield Asset Investors, LLC, whose managing member is Sankaty High
Yield Asset Investors, Ltd., a Bermuda corporation wholly owned by W. Mitt
Romney; (d) 96,419 shares of Class A-1 Common Stock owned by Brookside
Capital Partners Fund, L.P. ("Brookside"), whose sole general partner is
Brookside Capital Investors, L.P., whose sole general partner is Brookside
Capital Investors, Inc., a Delaware corporation wholly owned by W. Mitt
Romney; (e) 6,164 shares of Class A-1 Common Stock owned by PEP Investments
PTY Ltd. ("PEP"), whose controlling persons are Timothy J. Sims, Richard J.
Gardell, Simon D. Pillar and Paul J. McCullagh; (f) 161,215 shares of Class
A-1 Common Stock owned by BCIP Associates II ("BCIP II"), whose managing
partner is Bain Capital, Inc., a Delaware corporation wholly owned by W.
Mitt Romney; (g) 34,702 shares of Class A-1 Common Stock owned by BCIP
Trust Associates II, L.P. ("BCIP Trust II"), whose general partner is Bain
Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (h)
26,043 shares of Class A-1 Common Stock owned by BCIP Associates II-B
("BCIP II-B"), whose managing partner is Bain Capital, Inc., a Delaware
corporation wholly owned by W. Mitt Romney; (i) 10,221 shares of Class A-1
Common Stock owned by BCIP Trust Associates II-B, L.P. ("BCIP Trust II-B"),
whose general partner is Bain Capital, Inc., a Delaware corporation wholly
owned by W. Mitt Romney; and (j) 50,349 shares of Class A-1 Common Stock
owned by BCIP Associates II-C ("BCIP II-C" and, collectively with BCIP II,
BCIP Trust II, BCIP II-B and BCIP Trust II-B, the "BCIPs;" and the BCIPs,
collectively with Fund VI, Coinvest Fund, Sankaty, Brookside and PEP, the
"Bain Capital funds"), whose managing partner is Bain Capital, Inc., a
Delaware corporation wholly owned by W. Mitt Romney.
(2) Includes: (a) 26,043 shares of Class A-1 Common Stock owned by BCIP II-B, a
Delaware general partnership of which Mr. Balson is a general partner; and
(b) 10,221 shares of Class A-1 Common Stock owned by BCIP Trust II-B, a
Delaware limited partnership of which Mr. Balson is a general partner. Mr.
Balson disclaims beneficial ownership of any such shares in which he does
not have a pecuniary interest.
(3) Includes shares of Class A-1 Common Stock owned by Mrs. Monaghan.
(4) Includes: (a) 161,215 shares of Class A-1 Common Stock owned by BCIP II, a
Delaware general partnership of which Mr. Nunnelly is a general partner;
(b) 34,702 shares of Class A-1 Common Stock owned by BCIP Trust II, a
Delaware limited partnership of which Mr. Nunnelly is a general partner;
(c) 50,349 shares of Class A-1 Common Stock owned by BCIP II-C, a Delaware
general partnership of which Mr. Nunnelly is a general partner; and (d)
6,164 shares of Class A-1 Common Stock owned by PEP, a New South Wales
limited company for which Mr. Nunnelly has a power of attorney. Mr.
Nunnelly disclaims beneficial ownership of any such shares in which he does
not have a pecuniary interest.
(5) Mr. Steinman is a principal of Chase Capital Partners, the general partner
of Chase Equity Associates, L.P. Accordingly, Mr. Steinman may be deemed to
beneficially own shares beneficially owned by Chase Capital Partners. Mr.
Steinman disclaims beneficial ownership of any such shares in which he does
not have a pecuniary interest.
(6) Includes: (a) 161,215 shares of Class A-1 Common Stock owned by BCIP II, a
Delaware general partnership of which Mr. White is a general partner; (b)
34,702 shares of Class A-1 Common Stock owned by BCIP Trust II, a Delaware
limited partnership of which Mr. White is a general partner; (c) 50,349
shares of Class A-1 Common Stock owned by BCIP II-C, a Delaware general
partnership of which Mr. White is a general partner; and (d) 6,164 shares
of Class A-1 Common Stock owned by PEP, a New South Wales limited company
for which Mr. White has a power of attorney. Mr. White disclaims beneficial
ownership of any such shares in which he does not have a pecuniary
interest.
48
<PAGE>
Certain Relationships and Related Transactions
Because this is a summary, it does not contain all of the information that may
be important to you. You should read the complete documents before making an
investment decision.
Stockholders Agreement
In connection with the recapitalization, TISM, certain of its subsidiaries,
including Domino's, and all of the equity holders of TISM, including the Bain
Capital funds, entered into a stockholders agreement that provides, among other
things that the approval of the holders of a majority of the voting stock of
TISM subject to the stockholders agreement will be required for TISM, its
subsidiaries, including Domino's, and its stockholders to take various
specified actions, including major corporate transactions such as a sale or
initial public offering, acquisitions, divestitures, financings,
recapitalizations and mergers, as well as other actions such as hiring and
firing senior managers, setting management compensation and establishing
capital and operating budgets and business plans. Pursuant to the stockholders
agreement and TISM's Articles of Incorporation, the Bain Capital funds will
have the power to block any such transaction and to elect up to half of the
Board of Directors of TISM. The stockholders agreement includes customary
indemnification provisions in favor of controlling persons against liabilities
under the Securities Act.
Management Agreement
In connection with the recapitalization, TISM and certain of its direct and
indirect subsidiaries entered into a management agreement with Bain Capital
Partners VI, L.P. Pursuant to the management agreement, Bain Capital Partners
VI, L.P. provides financial, management and operation consulting services. In
exchange for such services, Bain Capital Partners VI, L.P. is entitled to an
annual management fee of $2 million plus the reasonable and out-of-pocket
expenses of Bain Capital Partners VI, L.P. and its affiliates. In addition, in
exchange for assisting Domino's in negotiating the senior financing for any
recapitalization, acquisition or other similar transaction, Bain Capital
Partners VI, L.P. is entitled to a transaction fee equal to 1% of the gross
purchase price, including assumed liabilities, for such transaction,
irrespective of whether such senior financing is actually committed or drawn
upon. In connection with the recapitalization, Bain Capital Partners VI, L.P.
received a fee of $11.75 million. The management agreement will continue in
full force and effect for as long as Bain Capital Partners VI, L.P. continues
to provide such services. The management agreement, however, may be terminated:
. by mutual consent of the parties;
. by either party following a material breach of the management agreement
by the other party and the failure of such other party to cure the
breach within thirty days of written notice of such breach; or
. by Bain Capital Partners VI, L.P. upon sixty days written notice.
The management agreement includes customary indemnification provisions in favor
of Bain Capital Partners VI, L.P. and its affiliates. We believe the management
agreement is on terms no less favorable to Domino's than would have been
obtainable from other private equity firms in similar circumstances.
Lease Agreement
We lease our executive offices, world headquarters and Michigan distribution
center from Domino's Farms Office Park Limited Partnership. The lease provides
for lease payments of $4.3 million in the first year, increasing annually to
approximately $4.7 million in the fifth year. Thomas Monaghan, who is a
director of TISM and Domino's, is the ultimate general partner of Domino's
Farms Office Park Limited Partnership. We believe the terms of the lease
agreement are as favorable to Domino's as those obtainable from unrelated third
parties.
Purchases by Affiliates
Bain Capital funds have purchased: (1) $30 million in aggregate principal
amount of the tranche B and tranche C senior credit facilities at a discount of
2%; (2) $20 million in aggregate principal amount of the notes at a discount of
3%; and (3) $70.2 million of the cumulative preferred stock of TISM at the
liquidation preference less a discount of 3.5%.
49
<PAGE>
Description of Senior Credit Facilities
In connection with the recapitalization, Domino's, Inc. and Domino's Franchise
Holding Co., or the Borrowers entered into an agreement with various banks and
financial institutions, providing for the senior credit facilities, which
consist of:
(1) the tranche A facility of $175 million in term loans;
(2) the tranche B facility of $135 million in term loans;
(3) the tranche C facility of $135 million in term loans; and
(4) the revolving credit facility of up to $100 million in revolving credit
loans and letters of credit.
The Borrowers are jointly and severally obligated with respect to all amounts
owing under the senior credit facilities. In addition, the senior credit
facilities are:
(1) guaranteed by TISM;
(2) jointly and severally guaranteed by each of our domestic subsidiaries;
and
(3) secured by a first priority lien on some real property and
substantially all of the tangible and intangible personal property of the
Borrowers and their domestic subsidiaries and by a pledge of all of the
capital stock of the Borrowers and their domestic subsidiaries and of 65%
of the capital stock of the Borrower's foreign subsidiaries.
The Borrower's future domestic subsidiaries will guarantee the senior credit
facilities and secure that guarantee with certain of their real property and
substantially all of their tangible and intangible personal property.
The senior credit facilities require the Borrowers to meet financial tests,
including without limitation, maximum leverage ratio, minimum interest coverage
and minimum levels of EBITDA. In addition, the senior credit facilities contain
negative covenants limiting, among other things, additional liens,
indebtedness, capital expenditures, transactions with affiliates, mergers and
consolidations, liquidations and dissolutions, sales of assets, dividends,
investments, loans and advances, prepayments and modifications of debt
instruments and other matters customarily restricted in such agreements. The
senior credit facilities contain customary events of default, including payment
defaults, breaches of representations and warranties, covenant defaults,
certain events of bankruptcy and insolvency, failure of any guaranty or
security document supporting the senior credit facilities to be in full force
and effect and change of control of TISM or either of the Borrowers.
The tranche A facility matures in quarterly installments from March 31, 2000
through 2004. The tranche B facility matures in quarterly installments from
December 31, 1999 through 2006. The tranche C facility matures in quarterly
installments from December 31, 1999 through 2007. The revolving credit facility
terminates in 2004.
The borrowings under the senior credit facilities bear interest at a floating
rate and may be maintained as base rate loans or as Eurodollar loans. Base rate
loans bear interest at the base rate plus the applicable margin, as defined in
the senior credit facilities. Base rate is defined as the higher of (1) the
applicable prime lending rate of Morgan Guaranty Trust Company or (2) the
Federal Reserve reported overnight funds rate plus 1/2 of 1%. Eurodollar loans
bear interest at the Eurodollar rate, as described in the senior credit
facilities, plus the applicable margin.
The applicable margin with respect to the revolving credit facility and the
tranche A facility will vary from time to time in accordance with the terms
thereof and an agreed upon pricing grid based on our leverage ratio. The
initial applicable margin with respect to the revolving credit facility and the
tranche A facility is (1) 2.0% in the case of base rate loans and (2) 3.0% in
the case of Eurodollar loans. The applicable margin with respect to the tranche
B facility is (1) 2.50% in the case of base rate loans and (2) 3.50% in the
case of Eurodollar loans. The applicable margin with respect to the tranche C
facility is (1) 2.75% in the case of base rate loans and (2) 3.75% in the case
of Eurodollar loans.
With respect to letters of credit, which may be issued as a part of the
revolving loan commitment, the revolver lenders are entitled to receive a
commission equal to the applicable margin which applies from time to time to
Eurodollar loans under the revolving credit facility. In addition, the issuing
bank is entitled to receive a fronting fee of 0.25% per annum plus its other
standard and customary processing charges. Such commission and fronting fees
are payable quarterly in arrears based on the aggregate undrawn amount of each
letter of credit issued from time to time under the revolver.
50
<PAGE>
An initial commitment fee of 0.50% applies to the unused portion of the
revolving loan commitments. This commitment fee is subject to decrease and will
vary from time to time in accordance with an agreed upon pricing grid based
upon our leverage ratio.
The senior credit facilities prescribe that certain amounts must be used to
prepay the term loan facilities and reduce commitments under the revolving
credit facility, including:
(1) 100% of the net proceeds of any issuance of indebtedness after the
closing date by TISM and its subsidiaries, subject to exceptions for
permitted debt;
(2) 50% of the net proceeds of any issuance of equity by TISM and its
subsidiaries, subject to exceptions;
(3) 100% of the net proceeds of any sale or other disposition by TISM and
its subsidiaries of any assets, subject to exceptions if the aggregate
amount of such net proceeds does not exceed a figure to be agreed upon with
the senior lenders and such proceeds are reinvested in similar replacement
assets;
(4) 75% of excess cash flow, as defined in the senior credit facilities,
for each fiscal year commencing with the fiscal year ending January 2,
2000, provided, that the foregoing percentage will be reduced to 50% upon
satisfaction of financial ratios; and
(5) 100% of the net proceeds of casualty insurance, condemnation awards or
other recoveries, subject to exceptions.
Voluntary prepayments of the senior credit facilities are permitted at any
time.
In general, the mandatory prepayments described above will be applied first to
prepay the term loan facilities and second to reduce commitments under the
revolving credit facility. If the amount of revolving loans then outstanding
exceeds the commitments as so reduced, then that excess amount must be prepaid.
Prepayments of the term loan facilities, optional or mandatory, will be applied
pro rata to the tranche A facility, the tranche B facility and the tranche C
facility, and ratably to the respective installments under such facilities.
51
<PAGE>
Description of Exchange Notes
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the words "we,"
"us," the "company" or "Domino's" refer only to Domino's, Inc. and not to any
of its Subsidiaries.
Domino's will issue the exchange notes pursuant to the indenture dated December
21, 1998 by and among itself, the Guarantors and IBJ Whitehall Bank & Trust
Company, as trustee. The terms of the exchange notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The form and terms of the exchange notes are identical in all material respects
to the form and terms of the outstanding notes except that:
(1) the exchange notes will bear a Series B designation;
(2) the exchange notes have been registered under the Securities Act and,
therefore, will generally not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to certain
rights under the registration rights agreement dated as of December 21,
1998 by and among us, our subsidiary guarantors, J.P. Morgan Securities,
Inc. and Goldman, Sachs & Co., including the provision providing for
liquidated damages in certain circumstances relating to the timing of this
offer.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture. The exchange notes will be
pari passu with the outstanding notes if all of such outstanding notes are not
exchanged pursuant to this offer.
The following description is a summary of the material provisions of the
indenture, which is filed as an exhibit to the registration statement of which
this prospectus forms a part. The description does not restate the indenture in
its entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the exchange notes. Copies of
the indenture are available as set forth below under "Additional Information."
Brief Description of the Exchange Notes and the Subsidiary Guarantees
The Exchange Notes. These exchange notes:
(1) are general unsecured obligations of Domino's;
(2) are subordinated in right of payment to all existing and future Senior
Debt of Domino's; and
(3) are senior in right of payment to any future junior subordinated
Indebtedness of Domino's.
The Subsidiary Guarantees. These exchange notes are guaranteed by each of our
domestic subsidiaries.
These Subsidiary Guarantees:
(1) are general unsecured obligations of each Guarantor;
(2) are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
(3) are senior in right of payment to any future junior subordinated
Indebtedness of each Guarantor.
As of January 3, 1999, Domino's and the Guarantors had total Senior Debt of
approximately $446.7 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the exchange notes and
under the Subsidiary Guarantees will be subordinated to the prior payment in
full in cash or Cash Equivalents (other than cash equivalents of the type
referred to in clauses (3) and (4) of such definition) of all Senior Debt. The
indenture will permit us and the Guarantors to incur additional Senior Debt.
Not all of our "Restricted Subsidiaries" will guarantee these exchange notes
since our Foreign Subsidiaries will not be Guarantors. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, they will pay the holders of their debt and their trade creditors
before they will be able to distribute any of their assets to us. The non-
guarantor subsidiaries generated less than 1% of our consolidated revenues for
the fiscal year ended January 3, 1999 and held less than 1% of our consolidated
assets as of January 3, 1999.
52
<PAGE>
As of the date of the indenture, all of our Subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture. Unrestricted Subsidiaries
will not guarantee these exchange notes.
Principal, Maturity and Interest
The exchange notes will be limited in aggregate principal amount to $400.0
million, of which $275.0 million are expected to be issued in this exchange
offer. We will issue the exchange notes in denominations of $1,000 and integral
multiples of $1,000. The exchange notes will mature on January 15, 2009.
Interest on these exchange notes will accrue at the rate of 10 3/8% per annum
and will be payable semi-annually in arrears on January 15 and July 15,
commencing on July 15, 1999. We will make each interest payment to the holders
of record of these exchange notes on the immediately preceding January 1 and
July 1.
Each exchange note will bear interest from its issuance date. The holders of
the notes that are accepted for exchange will receive, in cash, accrued
interest on the notes 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.
Methods of Receiving Payments on the Exchange Notes
If a holder has given wire transfer instructions to us, we will make all
payments of principal, premium, interest and liquidated damages, in accordance
with those instructions. All other payments on these exchange notes will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless we elect to make such payments by check mailed to
the holders at their address set forth in the register of holders.
Paying Agent and Registrar for the Exchange Notes
The trustee will initially act as paying agent and registrar. We may change the
paying agent or registrar without prior notice to the holders of the exchange
notes, and we or any of our Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange any exchange note in accordance with the
indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents. We may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. We are not required to transfer or exchange any exchange note
selected for redemption. Also, we are not required to transfer or exchange any
exchange note for a period of 15 days before a selection of exchange notes to
be redeemed.
The registered holder of a note will be treated as its owner for all purposes.
Subsidiary Guarantees
The Guarantors will, jointly and severally, unconditionally guarantee on a
senior subordinated basis our obligations under the exchange notes. Each
Subsidiary Guarantee will be subordinated to the prior payment in full in cash
or Cash Equivalents (other than Cash Equivalents of the type referred to in
clauses (3) and (4) of such definition) of all Senior Debt of that Guarantor.
The subordination provisions applicable to the Subsidiary Guarantees will be
substantially similar to the subordination provisions applicable to the
exchange notes as set forth below under "Subordination." The obligations of
each Guarantor under its Subsidiary Guarantee will be limited as necessary to
seek to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law.
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into another Person, whether
or not such Guarantor is the surviving Person, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor pursuant to a supplemental
indenture satisfactory to the trustee; or
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(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor, including by way of
merger or consolidation, if the disposition is to Domino's or another
Guarantor or if Domino's applies the Net Proceeds of that sale or other
disposition in accordance with the applicable provisions of the indenture;
or
(2) in connection with any sale of all of the capital stock of a Guarantor,
if Domino's applies the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture;
(3) if Domino's designates any Restricted Subsidiary that is a Guarantor as
an Unrestricted Subsidiary; or
(4) upon the release or discharge of all guarantees of such Guarantor, and
all pledges of property or assets of such Guarantor securing, all other
Indebtedness of Domino's and the other Guarantors.
See "Repurchase at the Option of Holders--Asset Sales."
Subordination
The payment of principal, premium, interest, liquidated damages, if any, and
any other Obligations on, or relating to, these exchange notes will be
subordinated to the prior payment in full in cash or Cash Equivalents (other
than Cash Equivalents of the type referred to in clauses (3) and (4) of such
definition) of all Senior Debt of Domino's.
The holders of Senior Debt will be entitled to receive payment in full in cash
or Cash Equivalents (other than Cash Equivalents of the type referred to in
clauses (3) and (4) of such definition) of all Obligations due in respect of
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt, whether or not such
interest is an allowable claim) before the holders of the exchange notes will
be entitled to receive any payment or distribution of any kind or character
with respect to any Obligations on, or relating to, the exchange notes (except
that holders of the exchange notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "Legal Defeasance
and Covenant Defeasance" so long as the deposit of amounts therein satisfied
the relevant conditions specified in the indenture at the time of such
deposit), in the event of any distribution to creditors of Domino's:
(1) in a liquidation or dissolution of Domino's;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Domino's or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of assets and liabilities of Domino's.
Domino's also may not make any payment or distribution of any kind or character
with respect to any Obligations on, or with respect to, the exchange notes or
acquire any of the exchange notes for cash or property or otherwise, except in
Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance", if:
(1) a payment default on Designated Senior Debt occurs and is continuing;
or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of such Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from the holders or the Representative of any Designated
Senior Debt.
Payments on the exchange notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, upon the earlier of:
(a) the date on which all nonpayment defaults are cured or waived;
(b) 179 days after the date of delivery of the applicable Payment
Blockage Notice; or
(c) the trustee receives notice from the Representative for such
Designated Senior Debt rescinding the Payment Blockage Notice, unless
the maturity of any Designated Senior Debt has been accelerated.
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No new Payment Blockage Notice may be delivered unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice unless such default shall have been cured
or waived for a period of not less than 90 consecutive days.
Domino's must promptly notify holders of Senior Debt if payment of the exchange
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of Domino's, holders of these
exchange notes may recover less ratably than creditors of Domino's who are
holders of Senior Debt.
Optional Redemption
Before January 15, 2002, Domino's may on any one or more occasions redeem up to
35% of the aggregate principal amount of the exchange notes originally issued
under the indenture at a redemption price equal to 110.375% of the principal
amount, plus accrued and unpaid interest, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings; provided, however, that:
(1) at least 65% of the aggregate principal amount of the exchange notes
issued under the indenture remains outstanding immediately after the
occurrence of such redemption, excluding the exchange notes held by
Domino's and its Subsidiaries; and
(2) the redemption must occur within 120 days of the date of the closing of
the Equity Offering.
Before January 15, 2004, Domino's may also redeem these exchange notes, as a
whole but not in part, upon the occurrence of a Change of Control, upon not
less than 30 nor more than 60 days' prior notice, at a redemption price equal
to 100% of the principal amount plus the Applicable Premium as of, and accrued
and unpaid interest, if any, to, the date of redemption (the "Redemption
Date"). In no event may any such redemption occur more than 90 days after the
occurrence of such Change of Control.
Except pursuant to the preceding paragraphs, the exchange notes will not be
redeemable at the option of Domino's prior to January 15, 2004.
On or after January 15, 2004, we may redeem all or a part of these exchange
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices, expressed as percentages of principal amount, set forth below plus
accrued and unpaid interest, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on January 15 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.............................. 105.1875%
2005.............................. 103.4583%
2006.............................. 101.7292%
2007 and thereafter............... 100.0000%
</TABLE>
Mandatory Redemption
Domino's is not required to make mandatory redemption or sinking fund payments
with respect to the exchange notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of exchange notes will have the
right to require Domino's to repurchase all or any part (equal to $1,000 or an
integral multiple of such amount) of that holder's exchange notes pursuant to
the Change of Control Offer. In the Change of Control Offer, Domino's will
offer a Change of Control Payment in cash equal to 101% of the aggregate
principal amount of exchange notes repurchased plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
Within 30 days following any Change of Control, Domino's will mail a notice to
each holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase the exchange notes on the purchase
date specified in such notice pursuant to the procedures required by the
indenture and described in such notice. The purchase date specified in such
notice must be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, unless otherwise required by law (the "Change of Control
Payment Date").
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Domino's 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 the
exchange notes as a result of a Change of Control. Domino's will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The indenture provides that, prior to the mailing of the notice referred to
above, but in any event within 30 days following any Change of Control,
Domino's covenants to:
(1) repay in full and terminate all commitments under Indebtedness under
the Senior Credit Facilities and all other Senior Debt the terms of which
require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Senior Credit
Facilities and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer; or
(2) obtain the requisite consents under the Senior Credit Facilities and
all other such Senior Debt to permit the repurchase of the exchange notes
as provided below.
Domino's shall first comply with the covenant in the immediately preceding
sentence before it will be required to repurchase exchange notes pursuant to
the provisions described below. Our failure to comply with the covenant
described in the immediately preceding sentence may, with notice and lapse of
time, constitute an Event of Default described in clause (3) but shall not
constitute an Event of Default described in clause (2) under "Events of
Default" below.
On the Change of Control Payment Date, Domino's will, to the extent lawful:
(1) accept for payment all exchange notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all exchange notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the exchange notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of exchange notes or portions thereof being purchased.
The paying agent will promptly mail to each holder of exchange notes so
tendered the Change of Control Payment for such exchange notes, and the trustee
will promptly authenticate and mail, or cause to be transferred by book entry,
to each holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; provided, however, that each
such new exchange note will be in a principal amount of $1,000 or an integral
multiple of such amount.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the exchange notes to require that we
repurchase or redeem the exchange notes in the event of a takeover,
recapitalization or similar transaction.
Our outstanding Senior Debt currently prohibits us from purchasing any exchange
notes, and also provides that certain change of control events would constitute
a default under the agreements governing the Senior Debt. Any future credit
agreements or other agreements relating to Senior Debt to which we become a
party may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when we are prohibited from purchasing exchange notes,
we could seek the consent of our senior lenders to the purchase of exchange
notes or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from purchasing exchange notes. In such case, our
failure to purchase tendered exchange notes would constitute an Event of
Default under the indenture which would, in turn, constitute a default under
such Senior Debt. In such circumstances, the subordination provisions in the
indenture would likely restrict payments to the holders of exchange notes.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Domino's and
purchases all exchange notes validly tendered and not withdrawn under such
Change of Control Offer.
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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 Domino's and its Restricted Subsidiaries taken as a whole.
Although there is a limited 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 exchange notes to
require Domino's to repurchase such exchange notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of Domino's and its Restricted Subsidiaries taken as a whole to another Person
or group may be uncertain.
Asset Sales
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) Domino's or the 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 Equity Interests issued or sold or otherwise
disposed of;
(2) such fair market value is determined by the Board of Directors of
Domino's and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration received by Domino's or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities of Domino's or any Restricted Subsidiary as shown on
the most recent balance sheet of Domino's or such Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their
terms subordinated to the exchange notes or any Subsidiary Guarantee)
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Domino's or such Restricted
Subsidiary from further liability;
(b) any securities, notes or other obligations received by Domino's or
any such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods, converted by
Domino's or such Restricted Subsidiary into cash, to the extent of the
cash received in that conversion; and
(c) any Designated Noncash Consideration received by Domino's or any of
its Restricted Subsidiaries in such Asset Sale having an aggregate fair
market value, taken together with all other Designated Noncash
Consideration received since the date of the indenture pursuant to this
clause (c) that is at that time outstanding, not to exceed 10% of Total
Assets at the time of the receipt of such Designated Noncash
Consideration, with the fair market value of each item of Designated
Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Domino's may apply such Net Proceeds at its option:
(1) to repay Senior Debt and to correspondingly reduce commitments if the
Senior Debt repaid is revolving credit borrowings;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; and/or
(4) to acquire assets that are used or useable in a Permitted Business.
Pending the final application of any such Net Proceeds, Domino's may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $10.0 million, Domino's will make an Asset
Sale Offer, to all holders of exchange notes and all holders of other
Indebtedness that is pari passu with the exchange notes containing provisions
similar to those set forth in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets, to purchase the maximum
principal amount of exchange notes and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of the principal amount plus accrued and unpaid
interest, if any, to the date of purchase, and will be payable in cash. If any
Excess Proceeds remain after consummation of an Asset Sale Offer, Domino's may
use such Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of exchange notes and such other
pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount
of Excess Proceeds, the
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trustee shall select the exchange notes and such other pari passu Indebtedness
to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
Selection and Notice
If less than all of the exchange notes are to be redeemed at any time, the
trustee will select exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the requirements
of the principal national securities exchange on which the exchange notes
are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by lot or
by such method as the trustee shall deem fair and appropriate.
No exchange notes of $1,000 or less shall be redeemed in part. Notices 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 exchange notes to be redeemed
at its registered address. Notices of redemption may not be conditional.
If any exchange note is to be redeemed in part only, the notice of redemption
that relates to that exchange note shall state the portion of the principal
amount thereof to be redeemed. A new exchange note in principal amount equal to
the unredeemed portion of the original exchange note will be issued in the name
of the holder thereof upon cancellation of the original exchange note. Those
exchange notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
exchange notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Equity Interests of Domino's (including, without
limitation, any payment in connection with any merger or consolidation
involving Domino's or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Equity Interests of Domino's in their capacity
as such, other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of Domino's;
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Domino's) any Equity Interests of Domino's or any direct or
indirect parent of Domino's, other than any such Equity Interests owned by
Domino's or any Restricted Subsidiary of Domino's;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the exchange notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) Domino's would, at the time of such Restricted Payment and after giving
pro forma effect to such Restricted Payment as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Domino's and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2), (3), (5), (6), (7) and (8) of the next succeeding paragraph),
is less than the sum, without duplication, of
(a) 50% of the Consolidated Net Income of Domino's for the period, taken
as one accounting period, from the beginning of the first fiscal quarter
commencing after the date of the indenture to the end of the most
recently
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ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds received by Domino's, other
than from a Restricted Subsidiary, since the date of the indenture as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of Domino's (other than Disqualified Stock) or from the
issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of Domino's that have been
converted into or exchanged for such Equity Interests, other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of Domino's, plus
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of Domino's or any Guarantor or of any
Equity Interests of Domino's or any Restricted Subsidiary in exchange for,
or out of the net cash proceeds of the substantially concurrent sale (other
than to a Subsidiary of Domino's) of, Equity Interests of Domino's (other
than Disqualified Stock); provided, however, that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Domino's or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) payments to any direct or indirect parent corporation of Domino's for
the purpose of permitting, and in an amount equal to the amount required to
permit, such direct or indirect parent corporation of Domino's to redeem or
repurchase such direct or indirect parent corporation's common equity or
options in respect thereof, in each case in connection with the repurchase
provisions of employee stock option or stock purchase agreements or other
agreements to compensate management employees; provided, however, that all
such redemptions or repurchases pursuant to this clause (4) shall not
exceed $17.5 million in the aggregate since the date of the indenture
(which amount shall be increased: (a) by the amount of any net cash
proceeds received from the sale since the date of the indenture of Equity
Interests (other than Disqualified Stock) to members of the management team
of Domino's that have not otherwise been applied to the payment of
Restricted Payments pursuant to the terms of clause (3)(b) of the preceding
paragraph; and (b) by the cash proceeds of any "key-man" life insurance
policies that are used to make such redemptions or repurchases); and
provided, further, that the cancellation of Indebtedness owing to Domino's
from members of management of Domino's or any of its Restricted
Subsidiaries in connection with such a repurchase of Capital Stock of any
direct or indirect parent corporation of Domino's will not be deemed to
constitute a Restricted Payment under the indenture;
(5) the making of distributions, loans or advances to any direct or
indirect parent corporation of Domino's in an amount not to exceed $1.5
million per annum in order to permit such direct or indirect parent
corporation of Domino's to pay the ordinary operating expenses of such
direct or indirect parent corporation of Domino's (including, without
limitation, directors' fees, indemnification obligations, professional fees
and expenses);
(6) payments to any direct or indirect parent corporation of Domino's in
respect of:
(a) federal income taxes for the tax periods for which a federal
consolidated return is filed by such direct or indirect parent
corporation of Domino's for a consolidated group of which such direct or
indirect parent corporation of Domino's is the parent and Domino's and
its Subsidiaries are members, in an amount not to exceed the
hypothetical federal income taxes that Domino's would have paid if
Domino's and its Restricted Subsidiaries filed a separate consolidated
return with Domino's as the parent, taking into account carryovers and
carrybacks of tax attributes (including net operating losses) that would
have been allowed if such separate consolidated return had been filed;
(b) state income tax for the tax periods for which a state combined,
consolidated or unitary return is filed by such direct or indirect
parent corporation of Domino's for a combined, consolidated or unitary
group of which such direct or indirect parent corporation of Domino's is
the parent and Domino's and its Subsidiaries are members, in an amount
not to exceed the hypothetical state income taxes that Domino's would
have paid if
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Domino's and its Restricted Subsidiaries had filed a separate combined,
consolidated or unitary return taking into account carryovers and
carrybacks of tax attributes (including net operating losses) that would
have been allowed if such separate combined return had been filed; and
(c) capital stock, net worth, or other similar taxes (but for the
avoidance of doubt, excluding any taxes based on net or gross income)
payable by such direct or indirect parent corporation of Domino's based
on or attributable to its investment in or ownership of Domino's and its
Restricted Subsidiaries;
provided, however, that in no event shall any such tax payment pursuant to
this clause (6) exceed the amount of federal or state, as the case may be,
income tax that is, at the time Domino's makes such tax payments, actually
due and payable by such direct or indirect parent corporation of Domino's
to the relevant taxing authorities or to become due and payable within 30
days of such payment by Domino's; provided, further, that for purposes of
this clause (6), payments made by an Unrestricted Subsidiary to a
Restricted Subsidiary or Domino's which are in turn distributed by such
Restricted Subsidiary or Domino's to any direct or indirect parent
corporation of Domino's shall be disregarded;
(7) if no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence of such action, the declaration and payment
of dividends to holders of any class or series of Designated Preferred
Stock (other than Disqualified Stock) of Domino's or any Restricted
Subsidiary issued after the date of the indenture; provided, however, that,
at the time of such issuance, Domino's, after giving effect to such
issuance on a pro forma basis, would have had a Fixed Charge Coverage Ratio
of at least 2.0 to 1.0 for the most recent Four-Quarter Period;
(8) distributions made by Domino's on the Issue Date that are utilized
solely to consummate the Recapitalization and distributions made subsequent
to the Issue Date in order to make payments pursuant to the Merger
Agreement, as in effect on the Issue Date and as amended or modified from
time to time so long as any such amendment or modification is, in the good
faith judgment of the Board of Directors of Domino's, not more
disadvantageous to the holders of exchange notes in any material respects
than the Merger Agreement as in effect on the Issue Date;
(9) the repurchase, redemption or other acquisition or retirement for value
of subordinated Indebtedness or the Cumulative Preferred Stock with Excess
Proceeds to the extent such Excess Proceeds are permitted to be used for
general corporate purposes under the covenant entitled "Asset Sales;" and
(10) if no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and Domino's would be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Debt) in compliance with the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock,"
other Restricted Payments in an aggregate amount not to exceed $15.0
million since the date of the indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Domino's or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, Domino's shall deliver to the trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt), and
Domino's will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that Domino's and any Guarantor may incur Indebtedness, including
Acquired Debt, or issue Disqualified Stock, and any Guarantor may issue
preferred stock, if in each case the Fixed Charge Coverage Ratio for the most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom and as
otherwise provided in accordance with the provisions contained in the
definition of "Fixed Charge Coverage Ratio"), as if the additional Indebtedness
had been
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incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Domino's and any Guarantor of Indebtedness pursuant
to the Senior Credit Facilities in an aggregate principal amount at any
time outstanding not to exceed $545.0 million less the aggregate amount of
all Net Proceeds of Asset Sales applied by Domino's or any of its
Restricted Subsidiaries to permanently repay Indebtedness under the Senior
Credit Facilities pursuant to the covenant described above under the
caption "--Asset Sales;" provided, however that the amount of Indebtedness
permitted to be incurred pursuant to the Senior Credit Facilities in
accordance with this clause (1) shall be in addition to any Indebtedness
permitted to be incurred pursuant to the Senior Credit Facilities in
reliance on, and in accordance with, clauses (4) and (14) below; and
provided, further, that letters of credit shall be deemed to have a
principal amount equal to the maximum potential liability of Domino's and
its Subsidiaries under such letters of credit;
(2) the incurrence by Domino's and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by Domino's and the Guarantors of Indebtedness
represented by the outstanding notes issued on the date of the indenture,
the Subsidiary Guarantees of such outstanding notes, these exchange notes
issued in exchange for such outstanding notes and the Subsidiary Guarantees
thereof;
(4) the incurrence by Domino's or any of its Restricted Subsidiaries of
Indebtedness (including Capitalized Lease Obligations) to finance the
purchase, lease or improvement of property, real or personal, or equipment,
whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets, within 180 days after such purchase, lease or
improvement in an aggregate principal amount outstanding (which amount may,
but need not, be incurred in whole or in part under the Senior Credit
Facilities) not to exceed the greater of (a) $30.0 million or (b) 7.5% of
Total Assets at the time of any incurrence thereof, including any Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4);
(5) the incurrence by Domino's or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace, Indebtedness, other than
intercompany Indebtedness, that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4) or (14) of this paragraph;
(6) the incurrence by Domino's or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Domino's and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Domino's or any Guarantor is the obligor on such Indebtedness and
the obligee is not Domino's or any Guarantor, such Indebtedness must be
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the exchange notes, in the case of Domino's,
or the Subsidiary Guarantee of such Guarantor, in the case of a
Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Domino's or one of its Restricted Subsidiaries and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either
Domino's or one of its Restricted Subsidiaries, shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by Domino's or
such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (6);
(7) the incurrence by Domino's or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
(a) interest rate risk with respect to any floating or fixed rate
Indebtedness that is permitted by the terms of the indenture to be
outstanding or (b) the value of foreign currencies purchased or received by
Domino's in the ordinary course of business;
(8) the guarantee by Domino's or any of the Guarantors of Indebtedness of
Domino's or a Guarantor that was permitted to be incurred by another
provision of this covenant;
(9) the incurrence of Indebtedness and/or the issuance of preferred stock
by Foreign Subsidiaries of Domino's, which together with the aggregate
principal amount of Indebtedness incurred pursuant to this clause (9) and
the aggregate liquidation value of all preferred stock issued pursuant to
this clause (9), does not exceed $20.0 million at any one time outstanding;
provided, however, that such amount shall increase to $40.0 million upon
the consummation of an Initial Public Offering;
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(10) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, however, in each such case, that the amount
is included in Fixed Charges of Domino's as accrued;
(11) Indebtedness incurred by Domino's or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business including, without
limitation, in respect of workers' compensation claims or self insurance,
or other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims;
(12) Indebtedness arising from agreements of Domino's or a Restricted
Subsidiary of Domino's 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 Domino's, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided, however, that the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by Domino's and its Restricted Subsidiaries in connection
with such disposition;
(13) obligations in respect of performance and surety bonds and completion
guarantees provided by Domino's or any Restricted Subsidiary of Domino's in
the ordinary course of business; and
(14) the incurrence by Domino's or any of its Restricted Subsidiaries of
additional Indebtedness, and/or the issuance by any Guarantor of preferred
stock, in an aggregate principal amount (or accreted value, as applicable)
or aggregate liquidation value, as applicable, at any time outstanding
(which amount may, but need not, be incurred in whole or in part under the
Senior Credit Facilities), including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred or
preferred stock issued pursuant to this clause (14), not to exceed $40.0
million at any one time outstanding; provided that such amount shall
increase to $60.0 million upon the consummation of an Initial Public
Offering.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (14) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, Domino's will be
permitted to classify such item of Indebtedness on the date of its incurrence
in any manner that complies with this covenant. All borrowings outstanding on
the date of the indenture under the Senior Credit Facilities will be deemed to
have been borrowed pursuant to clause (1) of the definition of Permitted Debt.
No Senior Subordinated Debt
Domino's will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Indebtedness of Domino's and senior in any respect in right of payment
to the exchange notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any Indebtedness of such Guarantor and senior
in any respect in right of payment to such Guarantor's Subsidiary Guarantee.
Liens
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness, or trade payables on any asset now owned or
hereafter acquired, except Permitted Liens, unless all payments due under the
indenture and the exchange notes are secured on an equal and ratable basis with
the Indebtedness so secured until such time as such is no longer secured by a
Lien; provided, however, that if such Indebtedness is by its terms expressly
subordinated to the exchange notes or any Subsidiary Guarantee, the Lien
securing such Indebtedness shall be subordinate and junior to the Lien securing
the exchange notes and the Subsidiary Guarantees with the same relative
priority as such subordinate or junior Indebtedness shall have with respect to
the exchange notes and the Subsidiary Guarantees.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Domino's or any of the Restricted Subsidiaries of Domino's, or with respect
to any other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to Domino's or any of the Restricted Subsidiaries
of Domino's;
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(2) make loans or advances to Domino's or any of the Restricted
Subsidiaries of Domino's; or
(3) transfer any of its properties or assets to Domino's or any of the
Restricted Subsidiaries of Domino's.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the indenture and the exchange notes;
(3) the Senior Credit Facilities;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Domino's or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the indenture
to be incurred;
(6) non-assignment provisions in leases, licenses or similar agreements
entered into in the ordinary course of business and consistent with past
practices;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, in the good faith
judgment of the Board of Directors of Domino's, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(10) restrictions on the transfer of assets subject to any Lien permitted
under the indenture imposed by the holder of such Lien;
(11) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limit the right of Domino's or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(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;
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(14) any agreement or instrument governing Indebtedness or preferred stock
(whether or not outstanding) of Foreign Subsidiaries of Domino's that was
permitted by the indenture to be incurred;
(15) Indebtedness incurred after the Issue Date in accordance with the
terms of the indenture; provided, however, that the restrictions contained
in the agreements governing such new Indebtedness are, in the good faith
judgment of the Board of Directors of Domino's, not materially less
favorable, taken as a whole, to the holders of the exchange notes than
those contained in the agreements governing Indebtedness on the Issue Date;
and
(16) 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 (1) through (15) above; provided, however, that such
amendments, modifications restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Board of Directors of Domino's, not materially more restrictive with
respect to such dividend and other payment restrictions than those
contained in the dividends or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
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Merger, Consolidation, or Sale of Assets
Domino's may not, directly or indirectly: (1) consolidate or merge with or into
another Person (whether or not Domino's is the surviving corporation); or (2)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person; unless:
(1) either: (a) Domino's is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger, if other than
Domino's, or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger, if
other than Domino's, or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Domino's under the exchange notes, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Domino's or the Person formed by or surviving any such consolidation or
merger, if other than Domino's, will, on the date of such transaction after
giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock."
In addition, Domino's may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Domino's and any of its Wholly
Owned Restricted Subsidiaries.
Transactions with Affiliates
Domino's will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Domino's or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Domino's or such Restricted
Subsidiary with an unrelated Person; and
(2) Domino's delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the holders of the
exchange notes of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of
national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employee or consultants of Domino's or any
Subsidiary as determined in good faith by the Board of Directors of
Domino's or senior management;
(2) transactions between or among Domino's and/or its Restricted
Subsidiaries;
(3) any agreement or instrument as in effect as of the date of the
indenture or any amendment or replacement thereto or any transaction
contemplated by such agreement or instrument (including pursuant to any
amendment or replacement to such agreement or instrument) so long as any
such amendment or replacement agreement or
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instrument is, in the good faith judgment of the Board of Directors of
Domino's, not more disadvantageous to the holders of exchange notes in any
material respect than the original agreement or instrument as in effect on
the date of the indenture;
(4) the payment of customary management, consulting and advisory fees and
related expenses to the Principals and their Affiliates made pursuant to
any financial advisory, financing, underwriting or placement agreement or
in respect of other investment banking activities, including, without
limitation, in connection with acquisitions or divestitures which are
approved by the Board of Directors of Domino's or such Restricted
Subsidiary in good faith;
(5) payments or loans to employees or consultants that are approved by the
Board of Directors of Domino's in good faith;
(6) the existence of, or the performance by Domino's or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
related purchase agreement, to which it is a party as of the date of the
indenture and any similar agreements which it may enter into after such
date; provided, however, that the existence of, or the performance by
Domino's 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 date of the indenture shall only be
permitted by this clause (6) to the extent that the terms of any such
amendment or new agreement are not disadvantageous to the holders of
exchange notes in any material respect;
(7) transactions with customers, 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 Domino's or its Restricted Subsidiaries, in the
reasonable determination of the Board of Directors of Domino's or the
senior management of Domino's, or are on terms at least as favorable as
might reasonably have been obtained at such time from an unaffiliated
party; and
(8) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments."
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Domino's and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be an Investment made as of the
time of such designation and will reduce the amount available for Restricted
Payments under clause (3)(b) of the second paragraph of the covenant described
above under the caption "--Restricted Payments" or Permitted Investments, as
applicable. All such outstanding Investments will be valued at their fair
market value at the time of such designation. That designation will only be
permitted if such Restricted Payment would be permitted at that time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Limitations on Issuances of Guarantees of Indebtedness
Domino's will not permit any Restricted Subsidiary that is not a Guarantor,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of Domino's or any Guarantor (other than such
Restricted Subsidiary) unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for the Guarantee of
the payment of the exchange notes by such Subsidiary, which Guarantee shall be
senior to or pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness, unless such other Indebtedness is
Senior Debt, in which case the Guarantee of the exchange notes shall be
subordinated to the Guarantee of such Senior Debt to the same extent as the
exchange notes are subordinated to such Senior Debt.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the
exchange notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "--Subsidiary Guarantees." The form of the Subsidiary
Guarantee is attached as an exhibit to the indenture.
Business Activities
Domino's will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses.
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Reports
Whether or not required by the Commission, so long as any exchange notes are
outstanding, Domino's will furnish to the holders of such exchange notes,
within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
Domino's were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the certified independent accountants of Domino's;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Domino's were required to file such reports.
If Domino's has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Domino's
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of Domino's.
In addition, whether or not required by the Commission, Domino's will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. Moreover, Domino's has agreed,
and any Guarantor will agree, that, for so long as any exchange notes remain
outstanding, it will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the exchange
notes, whether or not prohibited by the subordination provisions of the
indenture;
(2) default in payment when due of the principal of or premium, if any, on
the exchange notes, whether or not prohibited by the subordination
provisions of the indenture;
(3) failure by Domino's or any of its Restricted Subsidiaries for 30 days
after specified notice from the trustee or the holders of at least 25% of
the outstanding principal amount of the exchange notes to comply with any
of the other agreements in the indenture or the exchange notes;
(4) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Domino's or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Domino's or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal at the final stated maturity
of such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more;
(5) failure by Domino's or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $15.0 million, which judgments are not
paid, discharged or stayed for a period of 60 consecutive days after such
judgments become final and non-appealable; and
(6) certain events of bankruptcy or insolvency with respect to Domino's or
any of its Significant Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to Domino's, all outstanding exchange notes will become
due and payable immediately without further action or notice. If any other
Event
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of Default specified in the indenture occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of outstanding exchange notes
may declare the principal of and accrued interest on the exchange notes to be
due any payable by notice in writing to Domino's and the trustee specifying the
respective Event of Default and that such notice is a "notice of acceleration"
(the "Acceleration Notice"), and the same:
(1) shall become immediately due and payable; or
(2) if there are any amounts outstanding under the Senior Credit
Facilities, shall become immediately due and payable upon the first to
occur of an acceleration under the Senior Credit Facilities or five
Business Days after receipt by Domino's and the Representative under the
Senior Credit Facilities of such Acceleration Notice but only if such Event
of Default is then continuing.
Holders of the exchange notes may not enforce the indenture or the exchange
notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding exchange
notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from holders of the exchange notes notice of any continuing
Default or Event of Default, except a Default or Event of Default relating to
the payment of principal or interest, if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the exchange notes
then outstanding by notice to the trustee may on behalf of the holders of all
of the exchange notes waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the exchange notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of Domino's with the intention
of avoiding payment of the premium that Domino's would have had to pay if
Domino's then had elected to redeem the exchange notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the exchange notes. If an Event of Default occurs prior to
January 15, 2004, by reason of any willful action taken or not taken by or on
behalf of Domino's with the intention of avoiding the prohibition on redemption
of the exchange notes prior to January 15, 2004, then the premium specified in
the indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the exchange notes.
Domino's is required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default or Event of
Default, Domino's is required to deliver to the trustee a statement specifying
such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Domino's, any
direct or indirect parent corporation of Domino's or any Guarantor, as such,
shall have any liability for any obligations of Domino's or the Guarantors
under the exchange notes, the indenture, the Subsidiary Guarantees or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of exchange notes by accepting an exchange note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the exchange notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
Domino's may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding exchange notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of holders of outstanding exchange notes to receive payments
in respect of the principal of, premium, if any, and interest on such
exchange notes when such payments are due from the trust referred to below;
(2) the obligations of Domino's with respect to the exchange notes
concerning issuing temporary exchange notes, mutilated, destroyed, lost or
stolen exchange notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
the obligations of Domino's in connection with the foregoing; and
(4) the Legal Defeasance provisions of the indenture.
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In addition, Domino's may, at its option and at any time, elect to have the
obligations of Domino's and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the exchange notes. In the event
Covenant Defeasance occurs, certain events (including non-payment of other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events
described under "Events of Default" and the limitations contained in clauses
(3) and (4) of "Merger, Consolidation, or Sale of Assets") will no longer
constitute an Event of Default with respect to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Domino's must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the exchange notes, cash in U.S. dollars, non-
callable Government Securities, 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 outstanding exchange notes on the stated maturity or on
the applicable redemption date, as the case may be, and Domino's must
specify whether the exchange notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, Domino's shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that:
(a) Domino's 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 of the outstanding exchange notes
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;
(3) in the case of Covenant Defeasance, Domino's shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding exchange notes 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;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under the Senior Credit
Facilities or any other material agreement or instrument (other than the
indenture) to which Domino's or any of its Subsidiaries is a party or by
which Domino's or any of its Subsidiaries is bound;
(6) Domino's must have delivered to the trustee an opinion of counsel to
the effect that 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;
(7) Domino's must deliver to the trustee an Officers' Certificate stating
that the deposit was not made by Domino's with the intent of preferring the
holders of exchange notes over the other creditors of Domino's with the
intent of defeating, hindering, delaying or defrauding creditors of
Domino's or others; and
(8) Domino's must deliver to the trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture and the
exchange notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the exchange notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, exchange notes), and any existing default
or compliance with any provision of the indenture or the exchange notes may be
waived
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with the consent of the holders of a majority in principal amount of the then
outstanding exchange notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, exchange
notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any exchange note held by a non-consenting holder):
(1) reduce the principal amount of exchange notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any exchange
note or alter the provisions with respect to the redemption of the exchange
notes (other than provisions relating to the covenants described above
under the caption "Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
exchange note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the exchange notes, except a rescission of
acceleration of the exchange notes by the holders of at least a majority in
aggregate principal amount of the exchange notes and a waiver of the
payment default that resulted from such acceleration;
(5) make any exchange note payable in money other than that stated in the
exchange notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of exchange notes to receive
payments of principal of or premium, if any, or interest on the exchange
notes;
(7) waive a redemption payment with respect to any exchange note, other
than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"; or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the holders of
the exchange notes will require the consent of the holders of at least 75% in
aggregate principal amount of exchange notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of exchange
notes, Domino's, or any Guarantor, with respect to its Subsidiary Guarantee or
the indenture, and the trustee may amend or supplement the indenture or the
exchange notes or any Subsidiary Guarantee:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated exchange notes in addition to or in place
of certificated exchange notes;
(3) to provide for the assumption of Domino's, or any Guarantor's,
obligations to holders of exchange notes in the case of a merger or
consolidation or sale of all or substantially all of Domino's or such
Guarantor's, as the case may be, assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of exchange notes, including providing for additional
Subsidiary Guarantees, or that does not adversely affect the legal rights
under the indenture of any such holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Concerning the Trustee
If the trustee becomes a creditor of Domino's or any Guarantor, the indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding exchange
notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject
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to such provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request of any holder of
exchange notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture without
charge by writing to Domino's Inc., 30 Frank Lloyd Wright Drive, P.O. Box 997,
Ann Arbor, Michigan 48106-0997, Attention: Chief Financial Officer.
Book-Entry, Delivery and Form
The certificates representing the exchange notes will be issued in fully
registered form, without coupons. Except as described below, the exchange notes
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee in the
form of one or more global certificates (the "Global Notes") or will remain in
the custody of the trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the trustee.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to DTC or another nominee of DTC or to a successor of DTC or
its nominee. Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below). See "--Exchange of
Book-Entry Notes for Certificated Notes." In addition, transfers of beneficial
interests in the Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants, including, if
applicable, those of Euroclear and Cedel, which rules and procedures may change
from time to time.
Initially, the trustee will act as paying agent and registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
Depository Procedures
The following description of the operations and procedures of DTC are provided
solely as a matter of convenience. These operations and procedures are solely
within the control of the settlement system of DTC and are subject to changes
by DTC from time to time. Domino's takes no responsibility for these operations
and procedures and urges investors to contact DTC or its participants directly
to discuss these matters.
DTC is a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
Pursuant to procedures established by DTC:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the trustee with portions of the principal
amount of the Global Notes; and
(2) ownership of such interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC, with respect to the Participants, or by the Participants
and the Indirect Participants, with respect to other owners of beneficial
interest in the Global Notes.
All interests in a Global Note may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Note to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
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Except as described below, owners of interest in the Global Notes will not have
exchange notes registered in their names, will not receive physical delivery of
exchange notes in certificated form and will not be considered the registered
owners under the indenture for any purpose.
Payments in respect of the principal of, and premium, if any, and interest on a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered holder under the indenture. Under the terms
of the indenture, Domino's and the trustee will treat the persons in whose
names the exchange notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither Domino's, the trustee nor any
agent of Domino's or the trustee has or will have any responsibility or
liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC's current practice, upon receipt of any payment in respect of securities
such as the exchange notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date.
Payments by the Participants and the Indirect Participants to the beneficial
owners of exchange notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
Domino's. Neither Domino's nor the trustee will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the exchange
notes, and Domino's and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
DTC will take any action permitted to be taken by a holder of exchange notes
only at the direction of one or more Participants to whose account DTC has
credited the interests in the Global Notes and only in respect of such portion
of the aggregate principal amount of the exchange notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the exchange notes, DTC reserves the right to
exchange the Global Notes for exchange notes in certificated form, and to
distribute such exchange notes to its Participants.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
(1) DTC:
(a) notifies Domino's that it is unwilling or unable to continue as
depositary for the Global Notes and Domino's thereupon fails to appoint
a successor depositary; or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
(2) Domino's, at its option, notifies the trustee in writing that it elects
to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the exchange notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
trustee by or on behalf of DTC in accordance with the indenture. In all cases,
Certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC in accordance with its
customary procedures.
Same Day Settlement and Payment
The indenture requires that payments in respect of the exchange notes
represented by the Global Notes, including principal, premium, if any, and
interest, be made by wire transfer of immediately available funds to the
accounts specified by the holder of the Global Note. With respect to exchange
notes in certificated form, Domino's will make all payments of principal,
premium, if any, and interest by wire transfer of immediately available funds
to the accounts specified by the
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holders of such exchange notes or, if no such account is specified, by mailing
a check to each such holder's registered address. The exchange notes
represented by the Global Notes are expected to be eligible to trade in the
PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such exchange notes will,
therefore, be required by DTC to be settled in immediately available funds.
Domino's expects that secondary trading in any Certificated Notes will also be
settled in immediately available funds.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Applicable Premium" means, with respect to any exchange note on any Redemption
Date, the greater of:
(1) 1.0% of the principal amount of such exchange note; or
(2) the excess of (a) the present value at such Redemption Date of (i) the
redemption price of such exchange note at January 15, 2004, such redemption
price being set forth in the table above, plus (ii) all required interest
payments due on such exchange note through January 15, 2004, excluding
accrued but unpaid interest, computed using a discount rate equal to the
Treasury Rate at such Redemption Date plus 50 basis points over (b) the
principal amount of such exchange note, if greater.
"Asset Acquisition" means:
(1) an Investment by Domino's or any Restricted Subsidiary of Domino's in
any other Person if, as a result of such Investment, such Person shall
become a Restricted Subsidiary of Domino's, or shall be merged with or into
Domino's or any Restricted Subsidiary of Domino's; or
(2) the acquisition by Domino's or any Restricted Subsidiary of Domino's of
all or substantially all of the assets of any other Person or any division
or line of business of any other Person.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback),
other than sales or leases in the ordinary course of business; provided,
however, that the sale, conveyance or other disposition of all or
substantially all of the assets of Domino's and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the indenture
described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the Restricted Subsidiaries
of Domino's or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to Domino's and its Subsidiaries of less than
$1.0 million;
(2) disposals or replacements of obsolete equipment in the ordinary course
of business;
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(3) the sale, lease conveyance, disposition or other transfer by Domino's
or any Restricted Subsidiary of assets or property or Equity Interests of
any Restricted Subsidiary to one or more Restricted Subsidiaries in
connection with Investments permitted by the covenant described under the
caption "--Restricted Payments;"
(4) a transfer of assets between or among Domino's and its Wholly Owned
Restricted Subsidiaries,
(5) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
to Domino's or to another Wholly Owned Restricted Subsidiary; and
(6) a Restricted Payment that is permitted by the covenant described above
under the caption "--Restricted Payments."
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however designated,
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than
twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding twelve months and overnight bank deposits, in each
case, with any lender party to the Senior Credit Facilities or, with any
commercial bank having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within twelve months after the date of acquisition; and
(6) money market funds substantially all of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other than
by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Domino's and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is
used in Section 13(d)(3) of the Exchange Act) other than a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
Domino's;
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(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person" (as
defined above), other than the Principals or any Permitted Group, becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the
Voting Stock of Domino's, measured by voting power rather than number of
shares;
(4) the first day on which a majority of the members of the Board of
Directors of Domino's are not Continuing Directors; or
(5) Domino's consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, Domino's, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Domino's is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Domino's outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
immediately after giving effect to such issuance.
"Consolidated Cash Flow" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs, original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; plus
(4) the costs and expenses of Domino's and its Subsidiaries incurred in
connection with the Transactions to the extent that such costs and expenses
were deducted in computing Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than (a) items that were accrued in the ordinary course of business
and (b) the reversal of reserves in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of Domino's shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of Domino's only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to Domino's by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" of Domino's means, for any period, the aggregate net
income or loss of Domino's and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP, provided, however, that
there shall be excluded therefrom:
(1) gains and losses from Asset Sales, without regard to the $1.0 million
limitation set forth in the definition thereof, and the related tax effects
according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and the
related tax effects according to GAAP;
(3) items classified as extraordinary, unusual or nonrecurring gains and
losses, including, without limitation, severance, relocation and other
restructuring costs, and the related tax effects according to GAAP;
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(4) 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
Domino's or is merged or consolidated with Domino's or any Restricted
Subsidiary of Domino's;
(5) the net income of any Restricted Subsidiary of Domino's to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of Domino's of that income is restricted by contract,
operation, operation of law or otherwise;
(6) the net loss of any Person, other than a Restricted Subsidiary of
Domino's;
(7) the net income of any Person, that is not a Restricted Subsidiary of
Domino's, except to the extent of cash dividends or distributions paid to
Domino's or a Restricted Subsidiary of Domino's by such Person; and
(8) one time non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction.
"Consulting Agreement" means that certain consulting agreement by and between
Domino's Pizza, Inc. and Thomas S. Monaghan, dated as of the Issue Date, as in
effect on the Issue Date.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Domino's who:
(1) was a member of such Board of Directors on the date of the indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or election.
"Cumulative Preferred Stock" means the 11.5% cumulative preferred stock of
TISM, Inc.
"Default" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"Designated Noncash Consideration" means any non-cash consideration received by
Domino's or one of its Restricted Subsidiaries in connection with an Asset Sale
that is designated as Designated Noncash Consideration pursuant to an Officers'
Certificate executed by the principal executive officer and the principal
financial officer of Domino's or such Restricted Subsidiary. Such Officers'
Certificate shall state the basis of such valuation, which shall be a report of
a nationally recognized investment banking firm with respect to the receipt in
one or a series of related transactions of Designated Noncash Consideration
with a fair market value in excess of $10.0 million. A particular item of
Designated Noncash Consideration shall no longer be considered to be
outstanding when it has been sold for cash or redeemed or paid in full in the
case of non-cash consideration in the form of promissory notes or equity.
"Designated Preferred Stock" means preferred stock that is designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by
the principal executive officer and the principal financial officer of
Domino's, on the issuance date thereof, the cash proceeds of which are excluded
from the calculation set forth in clause (3)(b) of the second paragraph of the
covenant entitled "Restricted Payments."
"Designated Senior Debt" means:
(1) any Indebtedness under or in respect of the Senior Credit Facilities;
and
(2) any other Senior Debt permitted under the indenture the principal
amount of which is $25 million or more and that has been designated by
Domino's in the instrument or agreement relating to the same as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the exchange notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Domino's to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that Domino's may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "Certain Covenants--Restricted
Payments."
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"Domestic Subsidiary" means, with respect to Domino's, any Restricted
Subsidiary of Domino's that was formed under the laws of the United States of
America or that guarantees or otherwise provides direct credit support for any
Indebtedness of Domino's.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means any offering of Qualified Capital Stock of any direct
or indirect parent corporation of Domino's or Domino's; provided, however,
that, in the event of any Equity Offering by any direct or indirect parent
corporation of Domino's, such direct or indirect parent corporation of Domino's
contributes to the common equity capital of Domino's (other than as
Disqualified Stock) the portion of the net cash proceeds of such Equity
Offering necessary to pay the aggregate redemption price, plus accrued interest
to the redemption date, of the exchange notes to be redeemed pursuant to the
first paragraph under the subheading "Optional Redemption."
"Existing Indebtedness" means Indebtedness of Domino's and its Subsidiaries
(other than Indebtedness under the Senior Credit Facilities, in existence on
the date of the indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations other than any such
interest component in respect of obligations under the Consulting
Agreement, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations, but excluding
amortization or write-off of debt issuance costs; plus
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of:
(a) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries,
other than dividend payments on Equity Interests to the extent paid in
Equity Interests of Domino's (other than Disqualified Stock) or to
Domino's or a Restricted Subsidiary of Domino's; and
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person as of any date,
the ratio of the Consolidated Cash Flow of such Person during the most recent
four full fiscal quarters for which internal financial statements are available
(the "Four-Quarter Period") ending on or prior to such date (the "Transaction
Date") to the Fixed Charges of such Person for the Four-Quarter Period.
In addition to and without limitation of the preceding paragraph, for purposes
of this definition, Consolidated Cash Flow and Fixed Charges shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence of any Indebtedness or the issuance of any preferred
stock of such Person or any of its Restricted Subsidiaries, the application
of the proceeds received from such incurrence or issuance, and any
repayment of other Indebtedness or redemption of other preferred stock
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, repayment, issuance or redemption, as the case
may be, and the application of any proceeds, occurred on the first day of
the Four-Quarter Period; and
(2) 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
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Acquired Debt and also including any Consolidated Cash Flow (including any
Pro Forma Cost Savings) 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
Indebtedness or Acquired Debt) 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 Fixed Charges
for purposes of determining the denominator, but not the numerator, of this
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;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor
of a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four-Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Hedging Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Foreign Subsidiary" means any Subsidiary of Domino's that is not a Domestic
Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) each domestic Subsidiary of Domino's on the Issue Date; and
(2) any other Restricted Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the net obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or the value of foreign currencies.
"Indebtedness" means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect of such letters of
credit);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
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(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) the net amount owing under Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, in the case of any other Indebtedness.
"Initial Public Offering" means the first underwritten public offering of
Qualified Capital Stock by any direct or indirect parent corporation of
Domino's or by Domino's pursuant to a registration statement filed with the
Commission in accordance with the Securities Act for aggregate net cash
proceeds of at least $65.0 million; provided, however, that in the event the
Initial Public Offering is consummated by any direct or indirect parent
corporation of Domino's, such direct or indirect parent corporation of Domino's
contributes to the common equity capital of Domino's at least $65.0 million of
the net cash proceeds of the Initial Public Offering.
"Investments" means, with respect to any Person, all investments by such Person
in other Persons, including Affiliates, in the forms of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Domino's or
any Subsidiary of Domino's sells or otherwise disposes of any Equity Interests
of any direct or indirect Subsidiary of Domino's such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of
Domino's, Domino's 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 Equity
Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "Certain Covenants--Restricted Payments."
"Issue Date" means the closing date for the sale and original issuance of the
outstanding notes under the indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code or equivalent statutes of any jurisdiction.
"Marketable Securities" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued
by a corporation whose debt securities are rated in one of the three highest
rating categories by either S&P or Moody's.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means the aggregate cash proceeds received by Domino's or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case after taking into account any available tax credits or deductions and
any tax sharing arrangements and amounts required to be applied to the
repayment of Indebtedness, other than debt under the Senior Credit Facilities,
secured by a Lien on the asset or assets that were the subject of such
Asset Sale.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Domino's nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the exchange notes) of Domino's or any
of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of Domino's or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees, indemnifications,
expenses, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Permitted Business" means the business conducted by Domino's and its
Restricted Subsidiaries on the Issue Date and businesses which derive a
majority of their revenues from products and activities reasonably related to
such business.
"Permitted Group" means any group of investors if deemed to be a "person" (as
such term is used in Section 13(d)(3) of the Exchange Act) by virtue of the
Stockholders Agreement, as the same may be amended, modified or supplemented
from time to time, provided that:
(1) the Principals are party to such Stockholders Agreement;
(2) the persons party to the Stockholders Agreement as so amended,
supplemented or modified from time to time that were not parties, and are
not Affiliates of persons who were parties, to the Stockholders Agreement
on the Issue Date, together with their respective Affiliates (collectively
the "New Investors") are not the direct or indirect Beneficial Owners
(determined without reference to the Stockholders Agreement) of more than
50% of the Voting Stock owned by all parties to the Stockholders Agreement
as so amended, supplemented of modified; and
(3) the New Investors, individually or in the aggregate, do not, directly
or indirectly, have the right, pursuant to the Stockholders Agreement (as
so amended, supplemented or modified) or otherwise to designate more than
one-half of the directors of the Board of Directors of Domino's or any
direct or indirect parent entity of Domino's.
"Permitted Investments" means:
(1) any Investment in Domino's or in a Restricted Subsidiary of Domino's
that is a Guarantor or a Foreign Subsidiary;
(2) any Investment in Cash Equivalents;
(3) any Investment by Domino's or any Restricted Subsidiary of Domino's in
a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Domino's that is a
Guarantor or a Foreign Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Domino's or a Restricted Subsidiary of Domino's that is
a Guarantor or a Foreign Subsidiary;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "Repurchase
at the Option of Holders--Asset Sales;"
(5) investments existing on the date of the indenture;
(6) loans and advances to employees and officers of Domino's and its
Restricted Subsidiaries in the ordinary course of business;
(7) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of Domino's;
(8) Investments in securities of trade creditors or customers received in
compromise of obligations of such persons incurred in the ordinary course
of business, including pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers;
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(9) Investments in a Permitted Business in an aggregate amount at any time
outstanding not to exceed $10.0 million; and
(10) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (10) that are at the time
outstanding, not to exceed the greater of (a) $35.0 million or (b) 10% of
Total Assets.
"Permitted Junior Securities" means debt or equity securities of Domino's or
any successor corporation issued pursuant to a plan of reorganization or
readjustment of Domino's that are subordinated to the payment of all then
outstanding Senior Debt of Domino's at least to the same extent that the
exchange notes are subordinated to the payment of all Senior Debt of Domino's
on the date of the indenture, so long as:
(1) the effect of the use of this defined term in the subordination
provisions contained in Article 10 of the indenture is not to cause the
exchange notes to be treated as part of:
(a) the same class of claims as the Senior Debt of Domino's; or
(b) any class or claims pari passu with, or senior to, the Senior Debt
of Domino's for any payment or distribution in any case or proceeding or
similar event relating to the liquidation, insolvency, bankruptcy,
dissolution, winding up or reorganization of Domino's; and
(2) to the extent that any Senior Debt of Domino's outstanding on the date
of consummation of any such plan of reorganization or readjustment is not
paid in full in cash on such date, either:
(a) the holders of any such Senior Debt not so paid in full in cash have
consented to the terms of such plan of reorganization or readjustment;
or
(b) such holders receive securities which constitute Senior Debt of
Domino's (which are guaranteed pursuant to guarantees constituting
Senior Debt of each Guarantor) and which have been determined by the
relevant court to constitute satisfaction in full in money or money's
worth of any Senior Debt of Domino's (and any related Senior Debt of the
Guarantors) not paid in full in cash.
"Permitted Liens" means:
(1) Liens on assets of Domino's and any Guarantor securing Indebtedness and
other Obligations under the Senior Credit Facilities that were permitted by
the terms of the indenture to be incurred;
(2) Liens in favor of Domino's or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Domino's or any Subsidiary of
Domino's; provided, however, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Domino's or the Subsidiary;
(4) 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;
(5) judgment Liens not giving rise to an Event of Default;
(6) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of Domino's or any of its
Restricted Subsidiaries;
(7) any interest or title of a lessor under any Capitalized Lease
Obligation;
(8) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptance issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods;
(9) Lien 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;
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(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Domino's or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(11) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of Domino's and its Restricted
Subsidiaries;
(12) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(13) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customer duties in connection with the
importation of goods;
(14) Liens on property existing at the time of acquisition thereof by
Domino's or any Subsidiary of Domino's, provided, however, that such Liens
were in existence prior to the contemplation of such acquisition;
(15) Liens to secure the performance of statutory obligations and Liens
imposed by law, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(16) Liens securing Hedging Obligations which Hedging Obligations relate to
Indebtedness that is otherwise permitted under the indenture;
(17) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only
the assets acquired with such Indebtedness;
(18) Liens existing on the date of the indenture, together with any Liens
securing Indebtedness incurred in reliance on clause (5) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock" in order to refinance the Indebtedness secured by Liens
existing on the date of the indenture; provided, however, that the Liens
securing the refinancing Indebtedness shall not extend to property other
than that pledged under the Liens securing the Indebtedness being
refinanced;
(19) Liens on assets of Domino's and its Restricted Subsidiaries to secure
Senior Debt of Domino's or such Restricted Subsidiary, as the case may be,
that was permitted by the indenture to be incurred;
(20) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(21) Liens incurred in the ordinary course of business of Domino's or any
Restricted Subsidiary of Domino's with respect to obligations that do not
exceed $10.0 million at any one time outstanding; and
(22) Liens securing Indebtedness of foreign Restricted Subsidiaries of
Domino's incurred in accordance with the indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of Domino's or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Domino's or any of its Restricted Subsidiaries, other than
intercompany Indebtedness; provided, however, that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed (a) the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded plus (b) the amount of reasonable costs and expenses incurred in
connection with such activity;
(2) such Permitted Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the exchange
notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the exchange notes on terms at least as favorable to the
holders of exchange notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) such Indebtedness is incurred either by Domino's or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
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"Principals" means Bain Capital, Inc. and any of its Affiliates.
"Pro Forma Cost Savings" means, with respect to any period, the reduction in
costs and related adjustments that occurred during the Four-Quarter Period or
after the end of the Four-Quarter Period and on or prior to the Transaction
Date that were:
(1) directly attributable to an Asset Acquisition or Asset Sale and
calculated on a basis that is consistent with Regulation S-X under the
Securities Act as in effect and applied as of the Issue Date; or
(2) implemented by the business that was the subject of any such Asset
Acquisition or Asset Sale within six months of the date of the Asset
Acquisition or Asset Sale and that are supportable and quantifiable by the
underlying accounting records of such business,
as if, in the case of each of clause (1) and (2), all such reductions in costs
and related adjustments had been effected as of the beginning of such period.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided, however,
that if, and for so long as, any Designated Senior Debt lacks such a
representative, then the Representative for such Designated Senior Debt shall
at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"Senior Credit Facilities" means one or more credit agreements from time to
time in effect, including that certain Credit Agreement, to be dated as of
December 21, 1998, by and among Domino's and Morgan Guaranty Trust Company of
New York, as administrative agent, and the other lenders party to such
agreement, together with the related documents (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreement may be amended (including any amendment and restatement),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings under such agreement,
provided that such increase in borrowings is permitted by the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock", or adding
Restricted Subsidiaries of Domino's as additional borrowers or guarantors under
such agreement) 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.
"Senior Debt" means:
(1) all Indebtedness outstanding under Senior Credit Facilities and all
Hedging Obligations (including guarantees, with respect to such Senior
Credit Facilities of Domino's and the Guarantors, whether outstanding on
the date of the indenture or thereafter incurred;
(2) any other Indebtedness incurred by Domino's and the Guarantors, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
exchange notes or the Subsidiary Guarantees, as the case may be; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2), including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the relevant
documentation, whether or not such interest is an allowed claim under
applicable law.
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing by
Domino's or the Guarantors;
(2) any Indebtedness of Domino's or any Guarantor to any of its
Subsidiaries or other Affiliates;
(3) any trade payables;
(4) any Indebtedness that is incurred in violation of the indenture, but
only to the extent so incurred;
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(5) any Capitalized Lease Obligations; or
(6) notes payable to franchisee captive insurers.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for payment.
"Stockholders Agreement" means that certain stockholders agreement that may be
entered into by and among the Principals, TISM and the other stockholders of
TISM referred to therein, as in effect from time to time.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination of the foregoing).
"Total Assets" means the total consolidated assets of Domino's and its
Restricted Subsidiaries, as set forth on the most recent consolidated balance
sheet of Domino's.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as of
such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to such Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from such Redemption Date to January 15, 2004;
provided, however, that if the period from such Redemption Date to January 15,
2004 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Unrestricted Subsidiary" means any Subsidiary of Domino's that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Domino's or any Restricted Subsidiary of Domino's unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to Domino's or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Domino's;
(3) is a Person with respect to which neither Domino's nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Domino's or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Domino's as an Unrestricted Subsidiary shall
be evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
the caption "Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a
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Restricted Subsidiary of Domino's as of such date and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under
the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
Domino's shall be in default of such covenant. The Board of Directors of
Domino's may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that such designation shall be deemed
to be an incurrence of Indebtedness by a Restricted Subsidiary of Domino's of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (1) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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The Exchange Offer
Purpose and Effect of the Exchange Offer
We originally sold the notes to J.P. Morgan Securities, Inc. and Goldman, Sachs
& Co. (the "initial purchasers") pursuant to the Purchase Agreement dated
December 21, 1998. The initial purchasers subsequently resold the notes to
qualified institutional buyers in reliance on Rule 144A under the Securities
Act. As a condition to the Purchase Agreement, we entered into a registration
rights agreement with the initial purchasers in which we agreed to:
(1) file a registration statement registering the exchange notes with the
Commission within 90 days after the original issuance of the notes;
(2) use our best efforts to have the registration statement relating to the
exchange notes declared effective by the Commission within 150 days after
the original issuance of the notes;
(3) unless the exchange offer would not be permitted by applicable law or
Commission policy, commence the offer and use our best efforts to issue
within 30 business days after the date on which the registration statement
relating to the exchange notes was declared effective by the Commission,
exchange notes in exchange for all notes tendered prior to the expiration
date; and
(4) if obligated to file a shelf registration statement, use our best
efforts to file the shelf registration statement with the Commission within
90 days after such filing obligation arises, to cause the shelf
registration statement to be declared effective by the Commission within
150 days after such obligation arises and to use its best efforts to keep
effective the shelf registration statement for at least two years after the
original issuance of the notes or such shorter period that will terminate
when all securities covered by the shelf registration statement have been
sold pursuant to the shelf registration statement.
We have agreed to keep our offer open for not less than 20 business days, or
longer if required by applicable law, after the date on which notice of the
offer is mailed to the holders of the notes. The registration rights agreement
also requires us to include in the prospectus for the offer information
necessary to allow broker-dealers who hold notes, other than notes purchased
directly from us or one of our affiliates, to exchange such notes pursuant to
the offer and to satisfy the prospectus delivery requirements in connection
with resales of the exchange notes received by such broker-dealers in the
offer.
This prospectus covers the offer and sale of the exchange notes pursuant to
this offer and the resale of exchange notes received in the offer by any
broker-dealer who held notes other than notes purchased directly from us or one
of our affiliates.
For each note surrendered to us pursuant to this offer, the holder of such note
will receive an exchange note having a principal amount equal to that of the
surrendered note. Interest on each exchange note will accrue from the date of
issuance of such exchange note. The holders of notes that are accepted for
exchange will receive, in cash, accrued interest on such notes 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.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, we believe the exchange notes would
in general be freely tradeable after the offer without further registration
under the Securities Act. Any purchaser of the notes, however, who is either an
"affiliate" of Domino's, a broker-dealer who purchased notes directly from us
or one of our affiliates for resale, or who intends to participate in the offer
for the purpose of distributing the exchange notes:
(1) will not be able to rely on the interpretation of the staff of the
Commission;
(2) will not be able to tender its notes in the offer; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
We have has agreed to file with the Commission a shelf registration statement
to cover resales of the notes by holders who satisfy certain conditions
relating to the provision of information in connection with the shelf
registration statement if:
(1) we are not required to file the registration statement for the exchange
offer or permitted to consummate the exchange offer because it is not
permitted by applicable law or Commission policy; or
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(2) any holder of Transfer Restricted Securities notifies us prior to the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating in
such offer;
(b) that it may not resell the exchange notes acquired by it in the offer
to the public without delivering a prospectus and the prospectus
contained in the registration statement relating to the exchange offer is
not appropriate or available for such resales; or
(c) that it is a broker-dealer that purchased notes directly from us or
one of our affiliates for resale.
For purposes of the foregoing, "Transfer Restricted Securities" means each
note until the earliest to occur of:
(1) the date on which such note has been exchanged by a person other than a
broker-dealer for an exchange note;
(2) following the exchange by a broker-dealer in this offer of a note for
an exchange note, the date on which such exchange note is sold to a
purchaser who receives from such broker-dealer before the date of such sale
a copy of the prospectus contained in the registration statement relating
to the exchange offer;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
(4) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
We will pay liquidated damages to each holder of notes if:
(1) we fail to file any of the registration statements on or before the
date specified for such filing;
(2) any of such registration statements is not declared effective by the
Commission before the date specified for such effectiveness (the
"Effectiveness Target Date");
(3) we fail to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the registration statement
relating to the exchange offer ;
(4) the shelf registration statement or the registration statement relating
to the exchange offer is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the registration rights
agreement (each such event referred to in clauses (1) through (4) above a
"Registration Default").
The amount of liquidated damages will be $.05 per week per $1,000 in principal
amount of notes held by each holder, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default.
Liquidated damages will increase by $.05 per week per $1,000 principal amount
of notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages for all
Registration Defaults of $.50 per week per $1,000 principal amount of notes.
We will pay all accrued liquidated damages on each interest payment date in
the manner provided for the payment of interest in the indenture. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
Each holder of notes, other than certain specified holders, who wishes to
exchange notes for exchange notes in the exchange offer will be required to
make certain representations, including that:
(1) it is not an affiliate of Domino's;
(2) any exchange notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the
distribution of the exchange notes.
If the holder is a broker-dealer that will receive exchange notes for its own
account in exchange for notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge
that it will deliver a prospectus in connection with any resale of such
exchange notes.
The Commission has taken the position 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 a prospectus contained in the registration statement relating
to the exchange offer. Under the registration rights agreement, we are
required to allow broker-dealers to use the prospectus contained in the
registration statement relating to this offer in connection with the resale of
such exchange notes.
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We will, in the event of the filing of a shelf registration statement, provide
to each holder of notes eligible to participate in such shelf registration
statement copies of the prospectus which 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 resales of the notes. A holder of notes that sells such 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. In
addition, each such holder will be required to deliver information to be used
in connection with the shelf registration statement and to provide comments on
the shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the
shelf registration statement and to benefit from the provisions regarding
liquidated damages.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and
the accompanying letter of transmittal, we will accept all notes validly
tendered prior to 5:00 p.m., New York City time, on the expiration date. We
will issue $1,000 principal amount of exchange notes in exchange for each
$1,000 principal amount of outstanding notes accepted in the offer. Holders may
tender some or all of their notes pursuant to this offer in integral multiples
of $1,000.
The form and terms of the exchange notes are identical to the notes except for
the following:
(1) the exchange notes bear a Series B designation and a different CUSIP
number from the notes;
(2) the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
(3) 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 offer, all of which rights will
terminate when this offer is terminated.
The exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the indenture under which the notes were issued. As
of the date of this prospectus, $275 million aggregate principal amount of the
notes is outstanding. Solely for reasons of administration and no other reason,
we have fixed the close of business on May , 1999 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. Only a registered
holder of notes, or such holder's legal representative or attorney-in-fact, as
reflected on the records of the trustee under the indenture may participate in
the exchange offer. There will be no fixed record date, however, for
determining registered holders of the notes entitled to participate in the
exchange offer.
The holders of notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the indenture in connection with the
exchange offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated under the Exchange Act.
We shall be deemed to have accepted validly tendered notes when, as and if it
has 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 us.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Those 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. We will
pay all charges and expenses, other than certain applicable taxes, in
connection with the exchange offer. See "--Fees and Expenses."
Expiration Dates; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on May ,
1999 unless we, in our sole discretion, extend this offer, in which case the
term "expiration date" shall mean the latest date to which this offer is
extended. Notwithstanding the foregoing, we will not extend the expiration date
beyond June, 1999.
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We have no current plans to extend the exchange offer. In order to extend the
expiration date, we will notify the exchange agent of any extension by oral or
written notice and will make a public announcement of such extension, in each
case prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion, to:
(1) delay accepting any notes;
(2) extend this offer; or
(3) terminate the offer,
if any of the conditions set forth below under "--Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral or written
notice of such delay, extension or termination to the exchange agent, and to
amend the terms of this offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by a public announcement of such matter. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered holders of the notes and the offer will be
extended for a period of five to ten business days, as required by law,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, assuming the exchange offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which we may choose to make public announcement
of any delay, extension, termination or amendment of its offer, we shall not
have an obligation to publish, advertise, or otherwise communicate any such
public announcement other than by making a timely release of such announcement
to the Dow Jones News Service.
Interest on the Exchange Notes
The exchange notes will bear interest from their date of issuance. Interest is
payable semiannually on January 15 and July 15 of each year commencing on July
15, 1999, at the rate of 10 3/8% per annum. The holders of notes that are
accepted for exchange will receive, in cash, accrued interest on such notes 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. Consequently,
holders who exchange their notes for exchange notes will receive the same
interest payment on July 15, 1999, which is the first interest payment date
with respect to the notes and the exchange notes, that they would have received
had they not accepted the exchange offer. Interest on the notes accepted for
exchange will cease to accrue upon issuance of the exchange notes.
Procedures for Tendering
Only a registered holder of notes may tender such notes in this offer. To
effectively tender in the 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 at the address set
forth below under "--Exchange Agent" for receipt prior to 5:00 p.m., New York
City time, on the expiration date. Delivery of the notes also may be made by
book-entry transfer in accordance with the procedures described below. If you
are effecting delivery by book-entry transfer, then:
(1) confirmation of such book-entry transfer must be received by the
exchange agent prior to the expiration date; and
(2) you must also transmit to the exchange agent on or prior to the
expiration date, a computer-generated message transmitted by means of the
Automated Tender Offer Program System of the Depository Trust Company in
which you acknowledge and agree to be bound by the terms of the letter of
transmittal and which, when received by the exchange agent, forms a part of
the confirmation of book-entry transfer.
By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "--Resale of the Exchange Notes."
The tender by a holder of notes will constitute an agreement between such
holder and us in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes 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
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before the expiration date. No letter of transmittal or notes should be sent to
Domino's. Holders may request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect the above transactions for
such holders.
Only a registered holder of notes may tender such notes in connection with this
offer. The term "holder" with respect to this offer means any person in whose
name notes are registered on the books of Domino's, any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose notes are held of record by DTC who desires to deliver such notes
by book-entry transfer at DTC.
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 promptly contact the person in whose name your notes are
registered and instruct such registered holder to tender on your behalf. If, as
a beneficial owner, you wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering your notes,
either make appropriate arrangements to register ownership of the notes in your
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an Eligible Institution (defined below) unless the notes tendered
are tendered (1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or (2) 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
participant in a recognized signature guarantee medallion program within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
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 powers, signed by such registered holder as such
registered holder's name appears on such notes with the signature on such bond
powers 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, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.
We 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 of DTC for the purpose of facilitating this
exchange offer, and subject to the establishment of these accounts, any
financial institution that is a participant in the book-entry transfer facility
system may make book-entry delivery of notes by causing the transfer of such
notes into the exchange agent's account with respect to the notes in accordance
with DTC'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, unless the holder complies with the procedures
described in the following paragraph 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 before the
expiration date, or the guaranteed delivery procedures described below must be
complied with. The delivery of documents to the book-entry transfer facility
does not constitute delivery to the exchange agent.
The exchange agent and DTC have confirmed that the exchange offer is eligible
for the Automated Tender Offer Program ("ATOP") of DTC. Accordingly, DTC
participants may electronically transmit their acceptance of this offer by
causing DTC to transfer notes to the exchange agent in accordance with the
procedures for transfer established under ATOP. DTC will then send an Agent's
Message to the exchange agent. The term "Agent's Message" means a message
transmitted by DTC, which when received by the exchange agent forms part of the
confirmation of a book-entry transfer, and 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
Domino's 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 exchange agent 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.
All questions as to the validity, form, eligibility, including time of receipt,
acceptance and withdrawal of the tendered notes will be determined by us in our
sole discretion, which determinations will be final and binding. We reserve the
absolute right to reject any and all notes not validly tendered or any notes
the acceptance of which would, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any defects, irregularities or
conditions of tender as to
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particular notes. Our 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 cured within such
time as we shall determine. Although we intend to notify holders of defects or
irregularities with respect to the tenders of notes, neither we, 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 validly tendered and as to which the defects or
irregularities have not been cured or waived, or if notes are submitted in a
principal amount greater than the principal amount of notes being tendered by
such tendering holder, such unaccepted or non-exchanged notes will be returned
by the exchange agent to the tendering holders (or, in the case of notes
tendered by book-entry transfer into the exchange agent's account at the book-
entry transfer facility pursuant to the book-entry transfer procedures
described above, such unaccepted or non-exchanged notes will be credited to an
account maintained with such book-entry transfer facility), unless otherwise
provided in the letter of transmittal designated for such notes, as soon as
practicable following the expiration date.
Guaranteed Delivery Procedures
Those holders who wish to tender their notes and:
(1) whose notes are not immediately available; or
(2) who cannot deliver their notes, the letter of transmittal or any other
required documents to the exchange agent before the expiration date; or
(3) who cannot complete the procedures for book-entry transfer before the
expiration date,
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) before 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 or
numbers of such notes and the principal amount of notes tendered, stating
that the tender is being made thereby, and guaranteeing that, within five
business days after the expiration date, either (a) the letter of
transmittal, or facsimile thereof, together with the certificate(s)
representing the notes and any other documents required by the letter of
transmittal, will be deposited by the Eligible Institution with the
exchange agent or (b) that a confirmation of book-entry transfer of such
notes into the exchange agent's account at DTC, will be delivered to the
exchange agent; and
(3) either (a) such properly completed and executed letter of transmittal,
or facsimile thereof, together with the certificate(s) representing all
tendered notes in proper form for transfer and all other documents required
by the letter of transmittal or (b) if applicable, confirmation of a book-
entry transfer into the exchange agent's account at DTC, are actually
received by the exchange agent within five business 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 effectively withdraw a tender of notes in the exchange offer, the exchange
agent must receive a telegram, telex, letter or facsimile transmission notice
of withdrawal 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:
(1) specify the name of the person having deposited the notes to be
withdrawn;
(2) identify the notes to be withdrawn, including the certificate number or
numbers and the aggregate principal amount of such notes or, in the case of
notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
(3) 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 transfers
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sufficient to permit the trustee with respect to the notes to register the
transfer of such notes into the name of the person withdrawing the tender;
and
(4) specify the name in which any such notes are to be registered, if
different from that of the person depositing the notes.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, and our 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 due to the rejection of the tender due to uncured
defects or the prior termination of the exchange offer, or which have been
validly withdrawn, will be returned to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the 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 of the Exchange Offer
The offer is subject to the condition that the offer, or the making of any
exchange by a holder, does not violate applicable law or any applicable
interpretation of the staff of the Commission. If there has been a change in
policy of the Commission such that in the reasonable opinion of our counsel
there is a substantial question whether the offer is permitted by applicable
federal law, we have agreed to seek a no-action letter or other favorable
decision from the Commission allowing us to consummate the offer.
If we determine that the offer is not permitted by applicable federal law, we
may terminate the offer. In connection such termination we may:
(1) refuse to accept any notes and return any notes that have been tendered
by the holders thereof;
(2) extend the offer and retain all notes tendered prior to the expiration
date, subject to the rights of such holders of tendered notes to withdraw
their tendered notes; or
(3) waive such termination event with respect to the offer and accept all
properly tendered notes that have not been properly withdrawn.
If such waiver constitutes a material change in the offer, we will disclose
such change by means of a supplement to this prospectus that will be
distributed to each registered holder of notes, and we will extend the offer
for a period of five to ten business days, depending upon the significance of
the waiver, if the offer would otherwise expire during such period.
Exchange Agent
IBJ Whitehall Bank & Trust Company, the trustee under the indenture governing
the notes, has been appointed as exchange agent for the offer. Questions and
requests for assistance, requests for additional copies of this prospectus or
the letter of transmittal and requests for the notice of guaranteed delivery
should be directed to the exchange agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail or Hand
Delivery:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Finance Trust Services
Facsimile Transmission:(212) 858-2952
Confirm by Telephone:(212) 858-2657
</TABLE>
Any requests or deliveries to an address or facsimile number other than as
set forth above will not constitute a valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation for
tenders is being made by mail. Additional solicitations, however, may be made
by our officers and regular employees and those of our affiliates in person, by
telegraph or telephone.
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We have not retained any dealer-manager in connection with the offer and will
not make any payments to brokers, dealers or other persons soliciting
acceptances of the offer. We will pay the exchange agent, however, reasonable
and customary fees for its services and will reimburse the exchange agent for
its reasonable out-of-pocket expenses in connection with the offer.
We will pay the cash expenses to be incurred in connection with the offer. Such
expenses include fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the notes
pursuant to the offer. If, however, a transfer tax is imposed for any reason
other than the exchange of the notes pursuant to the offer, then the amount of
any such transfer taxes, whether imposed on the registered holder or any other
persons, will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the notes,
which is face value as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. The expenses of the exchange offer will be amortized over the term of
the exchange notes.
Consequences of Failure to Exchange
The notes that are not exchanged for exchange notes pursuant to this offer will
remain transfer restricted securities. Accordingly, such notes may be resold
only as follows:
(1) to us, upon redemption thereof or otherwise;
(2) (a) 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, (b)
in accordance with Rule 144 under the Securities Act, or (c) pursuant to
another exemption from the registration requirements of the Securities Act
and based upon an opinion of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act.
Resale of the Exchange Notes
Based on no-action letters issued by the staff of the Commission to third
parties, we believe the exchange notes issued pursuant to the offer in exchange
for the notes may be offered for resale, resold and otherwise transferred by
any holder (other than (1) a broker-dealer who purchased such notes directly
from us for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or (2) a person that is an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided, however, that the holder is acquiring the exchange notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
exchange notes. In the event that our belief is inaccurate, holders of exchange
notes who transfer exchange notes in violation of the prospectus delivery
provisions of the Securities Act and without an exemption from registration
thereunder may incur liability under the Securities Act. We do not assume or
indemnify holders against such liability.
If, however, any holder acquires exchange notes in this 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
the referenced 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 the exchange
notes. Although a broker-dealer may be an "underwriter" within the meaning of
the Securities Act, the letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may amended or supplemented from time to time, may be used by
a broker-dealer in connection with resales of exchange notes received in
exchange for notes.
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As contemplated by these no-action letters and the registration rights
agreement, each holder tendering notes in this offer is required to represent
to us in the letter of transmittal, that, among things:
(1) the person receiving the exchange notes pursuant to this offer, whether
or not such person is the holder, is receiving them in the ordinary course
of business;
(2) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
exchange notes and that such holder is not engaged in, and does not intend
to engage in, a distribution of exchange notes;
(3) neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act;
(4) the holder acknowledges and agrees that:
(a) any person participating in this offer for the purpose of
distributing the exchange notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with a secondary resale transaction with respect to the exchange notes
acquired by such person and cannot rely on the position of the staff of
the Commission set forth in no-action letters that are discussed above
and under the heading "--Purpose and Effect of the Exchange Offer;" and
(b) any broker-dealer that receives exchange notes for its own account
in exchange for notes pursuant to this offer must deliver a prospectus
in connection with any resale of such exchange notes, but by so
acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of
the Securities Act; and
(5) the holder understands that a secondary resale transaction described in
clause (4)(a) above should be covered by an effective registration
statement containing the selling securityholder information required by
Item 507 of Regulation S-K of the Commission.
This offer is not being made to, and we will not accept surrenders for exchange
from, holders of the outstanding notes in any jurisdiction in which this offer
or its acceptance would not comply with the securities or blue sky laws of such
jurisdiction.
All resales must be made in compliance with state securities or "blue sky"
laws. Such compliance may require that the exchange notes be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
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Certain Federal Tax Considerations
Scope of Discussion
This general discussion of certain United States federal income and estate tax
consequences applies to you if you acquired outstanding notes at original issue
for cash and you exchange those notes for exchange notes in this offer. This
discussion only applies to you if you hold the exchange notes as a "capital
asset," generally, for investment, under Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). This summary, however, does not consider
state, local or foreign tax laws. In addition, it does not include all of the
rules which may affect the United States tax treatment of your investment in
the exchange notes. For example, special rules not discussed here may apply to
you if you are:
(1) a broker-dealer, a dealer in securities or a financial institution;
(2) an S corporation;
(3) an insurance company;
(4) a tax-exempt organization;
(5) subject to the alternative minimum tax provisions of the Code;
(6) holding the exchange notes as part of a hedge, straddle or other risk
reduction or constructive sale transaction; or
(7) a nonresident alien or foreign corporation subject to net-basis United
States federal income tax on income or gain derived from an exchange note
because such income or gain is effectively connected with the conduct of a
United States trade or business.
This discussion only represents our best attempt to describe certain federal
income tax consequences that may apply to you based on current United States
federal tax law. This discussion may in the end inaccurately describe the
federal income tax consequences which are applicable to you because the law may
change, possibly retroactively, and because the Internal Revenue Service
("IRS") or any court may disagree with this discussion.
This summary may not cover your particular circumstances because it does not
consider foreign, state or local tax rules, disregards certain federal tax
rules, and does not describe future changes in federal tax rules. Please
consult your tax advisor rather than relying on this general description.
United States Holders
If you are a "United States Holder," as defined below, this section applies to
you. Otherwise, the next section, "Non-United States Holders," applies to you.
Definition of United States Holder. You are a "United States Holder" if you
hold the notes and you are:
(1) a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or meets
the "substantial presence" test under Section 7701(b) of the Code;
(2) a corporation or partnership created or organized in the United States
or under the laws of the United States or of any political subdivision;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source; or
(4) a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or if the trust was in
existence on August 20, 1996 and has properly elected to continue to be
treated as a United States person.
Receipt of Exchange Notes. Because the economic terms of the exchange notes and
the notes are identical, your exchange of notes for exchange notes under this
offer will not constitute a taxable exchange of the notes. Even if you received
exchange notes in exchange for notes on which additional interest was paid
because of a registration default, the exchange would not be taxable because
the exchange would occur by operation of the notes' original terms. As a
result:
(1) you will not recognize taxable gain or loss when you receive exchange
notes in exchange for notes;
(2) your holding period in the exchange notes will include your holding
period in the notes; and
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(3) your basis in the exchange notes will equal your basis in the notes.
Taxation of Stated Interest. You must generally pay federal income tax on the
interest on the exchange notes:
(1) when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
(2) when you receive it, if you use the cash method of accounting for
United States federal income tax purposes.
Redemption and Repurchase Rights. As described elsewhere in this prospectus, we
may under certain circumstances be required to repurchase the exchange notes
and we have the option to redeem some or all of the exchange notes under
specific circumstances.
Based on our current expectations, the chance that we will repurchase or redeem
the exchange notes is remote. Accordingly, we intend to take the position that
the payments contingent on the repurchase or redemption of the exchange notes
do not, as of the issue date, cause the exchange notes to have original issue
discount ("OID") and do not affect the yield to maturity or the maturity date
of the exchange notes. You may not take a contrary position unless you disclose
your contrary position in the proper manner to the IRS.
You should consult your tax adviser with respect to the contingent payments
described above. If, contrary to our expectations, we repurchase or redeem the
notes, or if the IRS takes the position that the contingent payments described
were not remote as of the issue date, the amount and timing of interest income
you must include in taxable income may have to be redetermined.
Sale or Other Taxable Disposition of the Exchange Notes. You must recognize
taxable gain or loss on the sale, exchange, redemption, retirement or other
taxable disposition of an exchange note. The amount of your gain or loss equals
the difference between the amount you receive for the exchange note (in cash or
other property, valued at fair market value), minus the amount attributable to
accrued interest on the exchange note, minus your adjusted tax basis in the
exchange note. Your initial tax basis in an exchange note equals the price you
paid for the outstanding note which you exchanged for the exchange note.
Your gain or loss will generally be a long-term capital gain or loss if your
holding period in the exchange note is more than one year. Otherwise, it will
be a short-term capital gain or loss. Payments attributable to accrued interest
which you have not yet included in income will be taxed as ordinary interest
income.
Backup Withholding. You may be subject to a 31% backup withholding tax when you
receive interest payments on the exchange note or proceeds upon the sale or
other disposition of an exchange note. Certain holders, including, among
others, corporations and tax-exempt organizations, are generally not subject to
backup withholding. In addition, the 31% backup withholding tax will not apply
to you if you provide your taxpayer identification number ("TIN") in the
prescribed manner unless:
(1) the IRS notifies us or our agent that the TIN you provided is
incorrect;
(2) you fail to report interest and dividend payments that you receive on
your tax return and the IRS notifies us or our agent that withholding is
required; or
(3) you fail to certify under penalties of perjury that you are not subject
to backup withholding.
If the 31% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide certain information to the IRS.
Non-United States Holders
Definition of Non-United States Holder. A "Non-United States Holder" is any
person other than a United States Holder. If you are subject to United States
federal income tax on a net basis on income or gain with respect to an exchange
note because such income or gain is effectively connected with the conduct of a
United States trade or business, this disclosure does not cover the United
States federal tax rules that apply to you.
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Interest.
Portfolio Interest Exemption. You will generally not have to pay United States
federal income tax on interest (or OID on the exchange notes, if any) paid on
the exchange notes because of the "portfolio interest exemption" if either:
(1) you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us or
our paying agent on a properly executed IRS Form W-8, or a suitable
substitute form, signed under penalties of perjury; or
(2) a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its
business holds the exchange note on your behalf, certifies to us or our
agent under penalties of perjury that it has received IRS Form W-8, or a
suitable substitute, from you or from another qualifying financial
institution intermediary, and provides a copy to us or our agent.
You will not, however, qualify for the portfolio interest exemption described
above if:
(1) you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
(2) you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code; or
(3) you are a bank receiving interest described in Section 881(c)(3)(A) of
the Code.
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not claim,
or do not qualify for, the benefit of the portfolio interest exemption, you may
be subject to 30% withholding tax on interest payments made on the exchange
notes. However, you may be able to claim the benefit of a reduced withholding
tax rate under an applicable income tax treaty. The required information for
claiming treaty benefits is generally submitted under current regulations on
Form 1001. Successor forms will require additional information, as discussed
below. See "Non-United States Holders--New Withholding Regulations."
Reporting. We may report annually to the IRS and to you the amount of interest
paid to, and the tax withheld, if any, with respect to you.
Sale or Other Disposition of the Exchange Notes. You will generally not be
subject to United States federal income tax or withholding tax on gain
recognized on a sale, exchange, redemption, retirement, or other disposition of
an exchange note. You may, however, be subject to tax on such gain if:
(1) you are an individual who was present in the United States for 183 days
or more in the taxable year of the disposition, in which case you may have
to pay a United States federal income tax of 30%, or a reduced treaty rate
if applicable, on such gain, and you may also be subject to withholding
tax; or
(2) you are an individual who is a former citizen or resident of the United
States, your loss of citizenship or residency occurred within the last ten
years (and, if you are a former resident, on or after February 6, 1995),
and you had as one of your principal purposes the avoidance of United
States tax, in which case you will be taxable on the net gain derived from
the sale under the graduated United States federal income tax rates that
are applicable to United States citizens and resident aliens, and you may
be subject to withholding under certain circumstances.
Even if you are an individual described in one of the two paragraphs above, you
will not recognize gain subject to United States federal income tax as a result
of exchanging notes for exchange notes under this offer. See the more complete
discussion above under "United States Holders--Receipt of Exchange Notes."
United States Federal Estate Taxes. If you qualify for the portfolio interest
exemption under the rules described above when you die, the exchange notes will
not be included in your estate for United States federal estate tax purposes.
Back-up Withholding and Information Reporting.
Payments From United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 31% and information reporting.
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With respect to interest payments made on the exchange note, however, back-up
withholding and information reporting will not apply if you certify, generally
on a Form W-8 or substitute form, that you are not a United States person in
the manner described above. See "Non-United States Holders--Interest."
Moreover, with respect to proceeds received on the sale, exchange, redemption,
or other disposition of an exchange note, back-up withholding or information
reporting generally will not apply if you properly provide, generally on Form
W-8 or a substitute form, a statement that you are an "exempt foreign person"
for purposes of the broker reporting rules, and other required information. If
you are not subject to United States federal income or withholding tax on the
sale or other disposition of an exchange note, as described above under the
heading "Non-United States Holders--Sale or Other Disposition of Exchange
Notes," you will generally qualify as an "exempt foreign person" for purposes
of the broker reporting rules.
Payments From Foreign Office. If payments of principal and interest are made to
you outside the United States by or through the foreign office of your foreign
custodian, nominee or other agent, or if you receive the proceeds of the sale
of an exchange note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will, however, be subject
to backup withholding and information reporting if the foreign custodian,
nominee, agent or broker has actual knowledge or reason to know that the payee
is a United States person. You will also be subject to information reporting,
but not backup withholding, if the payment is made by a foreign office of a
custodian, nominee, agent or broker that is a United States person or a
controlled foreign corporation for United States federal income tax purposes,
or that derives 50% or more of its gross income from the conduct of a United
States trade or business for a specified three year period, unless the broker
has in its records documentary evidence that you are a Non-United States Holder
and certain other conditions are met.
Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
New Withholding Regulations. New regulations relating to withholding tax on
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. The New Withholding Regulations modify and, in
general, unify the way in which you establish your status as a non-United
States "beneficial owner" eligible for withholding exemptions including the
portfolio interest exemption, a reduced treaty rate or an exemption from backup
withholding. For example, the new regulations will require new forms, which you
will generally have to provide earlier than you would have had to provide
replacements for expiring existing forms.
The New Withholding Regulations clarify withholding agents' reliance standards.
They also require additional certifications for claiming treaty benefits. For
example, you may be required to provide a TIN, and you may have to certify that
you "derive" the income with respect to which the treaty benefit is claimed
within the meaning of applicable regulations. The New Withholding Regulations
also provide somewhat different procedures for foreign intermediaries and flow-
through entities, such as foreign partnerships, to claim the benefit of
applicable exemptions on behalf of non-United States beneficial owners for
which or for whom they receive payments. The New Withholding Regulations also
amend the foreign broker office definition as it applies to partnerships.
The New Withholding Regulations are complex and this summary does not
completely describe them. Please consult your tax advisor to determine how the
New Withholding Regulations will affect your particular circumstances.
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Plan of Distribution
Each broker-dealer that receives exchange notes for its own account pursuant to
this offer in exchange for outstanding notes which were acquired by such
broker-dealer as a result of market-making or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by any such broker-dealer in connection with resales
of exchange notes received in exchange for outstanding notes. We have agreed
that for a period of 180 days after this offer is completed, we will make this
prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale. All resales must be made in compliance
with state securities or blue sky laws. We assume no responsibility with regard
to compliance with these requirements.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. The exchange notes received by broker-dealers for their own
account pursuant to this 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 the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells the exchange notes that were received by it for its
own account pursuant to this offer and any broker or dealer that participates
in a distribution of such exchange notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
exchange notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after this offer is completed, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal.
We have been advised by J.P. Morgan Securities, Inc. and Goldman, Sachs & Co.,
the initial purchasers of the outstanding notes, that following completion of
this offer they intend to make a market in the exchange notes. Such entities,
however, are under no obligation to do so and any market activities with
respect to the exchange notes may be discontinued at any time.
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AVAILABLE INFORMATION
We and our subsidiary guarantors have filed a Registration Statement on Form S-
4 under the Securities Act with respect to the exchange notes. This prospectus,
which forms a part of the registration statement, does not contain all of the
information included in the registration statement. Certain parts of this
registration statement are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to us, our subsidiary
guarantors and the exchange notes, we refer you to the registration statement.
You should be aware that statements made in this prospectus as to the contents
of any agreement or other document filed as an exhibit to the registration
statement are not necessarily complete. We refer you to the copy of such
documents filed as exhibits to the registration statement. Each such statement
is qualified in all respects by such reference.
We are not currently subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934. We have agreed that,
whether or not we are required to do so by the rules and regulations of the
Commission, for so long as any of the exchange notes remain outstanding, we
will furnish to the holders of the exchange notes and, if permitted, will file
with the Commission:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if we were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on such information by our certified independent accountants; and
(2) all reports that would be required to be filed with the Commission on
Form 8-K if we were required to file such reports, in each case within
the time periods specified in the rules and regulations of the
Commission.
Any reports or documents we file with the Commission, including the
registration statement, may be inspected and copied at the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661. Copies of such reports or
other documents may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a web site that contains reports and other
information that is filed through the Commission's Electronic Data Gathering
Analysis and Retrieval System. The web site can be accessed at
http://www.sec.gov.
Legal Matters
Certain legal matters in connection with the issuance of the exchange notes
will be passed upon for us by Ropes & Gray, Boston, Massachusetts and Honigman
Miller Schwartz and Cohn, Detroit, Michigan.
Independent Public Accountants
The consolidated financial statements and schedule of Domino's Inc. and its
subsidiaries as of January 3, 1999 and December 28, 1997 and for each of the
three years in the period ended January 3, 1999 included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
99
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of January 3, 1999 and December 28, 1997 . F-3
Consolidated Statements of Income for the years ended January 3, 1999,
December 28, 1997 and
December 29, 1996 ...................................................... F-4
Consolidated Statements of Comprehensive Income for the years ended
January 3, 1999, December 28, 1997 and December 29, 1996 ............... F-5
Consolidated Statements of Stockholder's Equity (Deficit) for the years
ended January 3, 1999, December 28, 1997 and December 29, 1996.......... F-6
Consolidated Statements of Cash Flows for the years ended January 3,
1999, December 28, 1997 and
December 29, 1996....................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Schedule II--Valuation and Qualifying Accounts........................... II-4
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To Domino's, Inc.:
We have audited the accompanying consolidated balance sheets of Domino's, Inc.
(a Delaware corporation) and subsidiaries as of December 28, 1997 and January
3, 1999, and the related consolidated statements of income, comprehensive
income, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended January 3, 1999. 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 Domino's, Inc. and
subsidiaries as of December 28, 1997 and January 3, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 3, 1999 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Detroit, Michigan,
February 19, 1999.
F-2
<PAGE>
Domino's, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
------------------------
December 28, January 3,
Dollars in thousands, except share and per share 1997 1999
amounts ------------ ----------
<S> <C> <C>
Assets
Current Assets:
Cash................................................. $ 105 $ 115
Accounts receivable, net of reserves of $3,978 in
1997 and $2,794 in 1998............................. 44,954 48,858
Notes receivable, net of reserves of $235 in 1997 and
$124 in 1998........................................ 3,201 8,271
Inventories........................................... 31,971 20,134
Prepaid expenses and other............................ 6,671 9,656
Deferred tax assets................................... -- 9,811
---------- ----------
Total current assets................................ 86,902 96,845
---------- ----------
Plant and Equipment, at cost:
Land, buildings and improvements..................... 12,709 14,605
Leasehold and other improvements..................... 56,187 52,248
Equipment............................................ 111,605 109,048
Vehicles............................................. 563 469
Construction in progress............................. 4,652 5,486
---------- ----------
185,716 181,856
Less--Accumulated depreciation....................... 131,553 116,890
---------- ----------
Plant and equipment, net............................ 54,163 64,966
---------- ----------
Other Assets:
Notes receivable, net of reserves of $5,473 in 1997
and $3,041 in 1998.................................. 11,688 18,461
Investments in marketable securities, restricted..... 5,597 --
Investment in related party limited partnership...... 16,233 --
Deferred tax assets.................................. -- 71,776
Deferred financing costs, net of accumulated amorti-
zation of $0 in 1997 and $234 in 1998............... 293 43,046
Goodwill, net of accumulated amortization of $6,128
in 1997 and $7,139 in 1998.......................... 17,356 14,179
Covenants not-to-compete, net of accumulated amorti-
zation of $9,781 in 1997 and $10,009 in 1998........ 2,189 50,058
Capitalized software, net of accumulated amortization
of $7,925 in 1997 and $9,932 in 1998................ 11,674 22,593
Other assets, net of accumulated amortization of
$6,186 in 1997 and $6,163 in 1998................... 6,883 5,967
---------- ----------
Total other assets.................................. 71,913 226,080
---------- ----------
$ 212,978 $ 387,891
========== ==========
Liabilities and Stockholder's Equity (Deficit)
Current Liabilities:
Current portion of long-term debt, including related
party debt of $417 in 1997.......................... $ 7,970 $ 7,646
Accounts payable..................................... 46,050 44,596
Insurance reserves................................... 10,202 9,633
Accrued compensation................................. 11,788 16,295
Accrued income taxes................................. 8,414 6,501
Other accrued liabilities............................ 27,431 30,398
---------- ----------
Total current liabilities........................... 111,855 115,069
---------- ----------
Long-term Liabilities:
Long-term debt, less current portion above........... 36,438 720,480
Insurance reserves................................... 27,256 15,132
Other accrued liabilities............................ 11,311 20,985
---------- ----------
Total long-term liabilities......................... 75,005 756,597
---------- ----------
Commitments and Contingencies
Stockholder's Equity (Deficit):
Common stock, par value $0.01 per share; 3,000 shares
authorized; 10 shares issued and outstanding........ -- --
Additional paid-in capital........................... -- 114,737
Retained earnings (deficit).......................... 25,910 (598,209)
Accumulated other comprehensive income............... 208 (303)
---------- ----------
Total stockholder's equity (deficit)................ 26,118 (483,775)
---------- ----------
$ 212,978 $ 387,891
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
Domino's, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
------------------------------------
For the Years Ended
------------------------------------
December 29, December 28, January 3,
1996 1997 1999
Dollars in thousands ------------ ------------ ----------
<S> <C> <C> <C>
Revenues:
Corporate stores........................ $ 336,585 $ 376,837 $ 409,413
Domestic franchise royalties............ 93,404 102,360 112,222
Domestic distribution................... 494,173 513,097 599,121
International........................... 45,775 52,496 56,022
---------- ---------- ----------
Total revenues......................... 969,937 1,044,790 1,176,778
---------- ---------- ----------
Operating Expenses:
Cost of sales........................... 717,214 757,604 858,411
General and administrative.............. 196,222 222,182 248,098
---------- ---------- ----------
Total operating expenses............... 913,436 979,786 1,106,509
---------- ---------- ----------
Income from Operations 56,501 65,004 70,269
Interest Income.......................... 411 447 730
Interest Expense......................... 6,301 3,980 7,051
---------- ---------- ----------
Income Before Provision (benefit) for
Income Taxes............................ 50,611 61,471 63,948
Provision (benefit) for income taxes.... 30,884 366 (12,928)
---------- ---------- ----------
Net Income............................... $ 19,727 $ 61,105 $ 76,876
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
Domino's, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
------------------------------------
For the Years Ended
------------------------------------
December 29, December 28, January 3,
1996 1997 1999
Dollars in thousands ------------ ------------ ----------
<S> <C> <C> <C>
Net Income............................... $ 19,727 $ 61,105 $ 76,876
Other Comprehensive Income, Before Tax:
Currency translation adjustment......... (124) (120) (44)
Unrealized gain (loss) on investments in
marketable securities.................. 57 439 (497)
---------- ---------- ----------
(67) 319 (541)
Tax Attributes of Items of Other
Comprehensive Income: (3) (26) 30
---------- ---------- ----------
Other Comprehensive Income, net of tax... (70) 293 (511)
---------- ---------- ----------
Comprehensive Income..................... $ 19,657 $ 61,398 $ 76,365
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
Domino's, Inc. and Subsidiaries
Consolidated Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
------------------------------------------------------------
Accumulated Other
Comprehensive Income
--------------------------
Unrealized
Gain (Loss)
Additional Retained Currency on Investments
Common Paid-in Earnings Translation in Marketable
Stock Capital (Deficit) Adjustment Securities
Dollars in thousands --------- ---------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ -- $ -- $ (54,510) $ (15) $ --
Net income.............. -- -- 19,727 -- --
Currency translation
adjustment............. -- -- -- (124) --
Unrealized gain on
investments in
marketable securities.. -- -- -- -- 54
--------- --------- --------- --------- ---------
Balance at December 29,
1996................... -- -- (34,783) (139) 54
Net income.............. -- -- 61,105 -- --
Distributions to Parent. -- -- (412) -- --
Currency translation
adjustment............. -- -- -- (120) --
Unrealized gain on
investments in
marketable securities.. -- -- -- -- 413
--------- --------- --------- --------- ---------
Balance at December 28,
1997................... -- -- 25,910 (259) 467
Net income.............. -- -- 76,876 -- --
Capital contributions
from Parent............ 50,430 -- -- --
Distributions to Parent. -- -- (690,688) -- --
Currency translation
adjustment............. -- -- -- (44) --
Unrealized loss on
investments in
marketable securities.. -- -- -- -- (467)
Recognition of deferred
tax assets as part of
Recapitalization....... -- -- 54,000 -- --
Reclassification of S
Corporation
undistributed earnings
upon conversion to C
Corporation............ -- 64,307 (64,307) -- --
--------- --------- --------- --------- ---------
Balance at January 3,
1999................... $ -- $ 114,737 $(598,209) $ (303) $ --
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
Domino's, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
-------------------------------------
For the Years Ended
-------------------------------------
December 29, December 28, January 3,
1996 1997 1999
------------ ------------ ---------
<S> <C> <C> <C>
Dollars in Thousands
Cash Flows from Operating Activities:
Net income............................ $ 19,727 $ 61,105 $ 76,876
Adjustments to reconcile net income to
net cash provided by operating
activities--
Depreciation and amortization....... 15,486 16,939 23,123
Provision (benefit) for losses on
accounts and notes receivable...... 942 1,131 (3,212)
Loss on sale of plant and equipment. 353 1,197 1,570
Provision (benefit) for deferred
Federal income taxes............... 12,204 -- (27,587)
Changes in operating assets and
liabilities--
Increase in accounts receivable.... (4,297) (13,130) (6,254)
(Increase) decrease in inventories
and prepaid expenses and other.... (3,987) (15,512) 4,531
Increase in accounts payable and
accrued liabilities............... 19,495 26,156 7,989
Decrease in insurance reserves..... (6,698) (4,805) (12,693)
--------- --------- ---------
Net cash provided by operating
activities....................... 53,225 73,081 64,343
--------- --------- ---------
Cash Flows from Investing Activities:
(Increase) decrease in other assets... 3,125 (790) 2
Repayments of notes receivable........ 2,340 2,381 414
Proceeds from sale of plant and
equipment............................ 784 52 5,587
Purchases of franchise stores and
commissaries......................... (3,513) (13,692) (1,534)
Purchases of plant and equipment...... (15,472) (31,625) (48,359)
(Purchases) sales of investments in
marketable securities................ (2,248) (2,832) 5,130
--------- --------- ---------
Net cash used in investing
activities....................... (14,984) (46,506) (38,760)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
debt................................. -- 35,800 722,056
Cash paid for financing costs......... -- (293) (43,280)
Distributions to Parent............... -- (412) (666,020)
Repayments of long-term debt.......... (40,402) (61,583) (38,338)
--------- --------- ---------
Net cash used in financing
activities....................... (40,402) (26,488) (25,582)
--------- --------- ---------
Effect of Exchange Rate Changes on
Cash.................................. (19) (214) 9
--------- --------- ---------
Increase (decrease) in Cash............ (2,180) (127) 10
Cash, at beginning of year............. 2,412 232 105
--------- --------- ---------
Cash, at end of year................... $ 232 $ 105 $ 115
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Domino's, Inc. (formerly known as Domino's Pizza International Payroll
Services, Inc.) (Domino's), a Delaware corporation, and its wholly-owned
subsidiaries (collectively, the Company). All significant intercompany accounts
and transactions have been eliminated. Domino's is a wholly-owned subsidiary of
TISM, Inc. (the Parent).
Parent's Recapitalization
On December 21, 1998, the Parent effected a merger with TM Transitory Merger
Corporation (TMTMC) in a leveraged recapitalization transaction whereby TMTMC
was merged with and into the Parent with the Parent being the surviving entity
(the Recapitalization). TMTMC had no operations and was formed solely for the
purpose of effecting the Recapitalization. As part of the Recapitalization, the
Company incurred significant debt and distributed significantly all of the
proceeds to the Parent, which used those proceeds, along with proceeds from the
issuance of two classes of common stock and one class of preferred stock, to
fund the purchase of 93% of the outstanding common stock of the Parent from a
Company Director and certain members of his family.
As part of the Recapitalization, the Company entered into a consulting
agreement under which it is committed to pay a Company Director and former
majority Parent stockholder $1 million in fiscal 1999 and an additional $4.5
million over nine years beginning in fiscal 2000. The entire $5.5 million has
been recorded as a charge to retained earnings as a component of purchase price
for the common stock.
As part of the Recapitalization, certain Company executives received stock
options for the purchase of Parent common stock and preferred stock.
Prior to December 1998, Domino's was an indirectly wholly-owned subsidiary of
Domino's Pizza, Inc. (DPI). During December 1998 and before the
Recapitalization, DPI distributed its ownership interest in Domino's to the
Parent. The Parent then contributed its ownership interest in DPI, which had
been a wholly-owned subsidiary of the Parent, to Domino's, effectively
converting Domino's from a subsidiary of DPI into DPI's parent.
The accompanying consolidated financial statements and these Notes to
Consolidated Financial Statements include the results of operations of DPI and
its wholly-owned subsidiaries (including Domino's) for the periods prior to the
Recapitalization.
Domino's amended its charter in December 1998 to increase the total number of
authorized shares of common stock from 1,000 to 3,000 and decreased the par
value of these shares from $1.00 per share to $0.01 per share. Shares of common
stock issued and outstanding were 10 for the years ended December 29, 1996,
December 28, 1997 and January 3, 1999.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to December 31. The 1996
fiscal year ended December 29, 1996; the 1997 fiscal year ended December 28,
1997; and the 1998 fiscal year ended January 3, 1999. Each of the fiscal years
consists of fifty-two weeks except for fiscal year 1998 which consists of
fifty-three weeks.
F-8
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Inventories
Inventories are valued at the lower of cost (on a first-in, first-out basis) or
market.
Inventories at December 28, 1997 and January 3, 1999 are comprised of the
following (In thousands):
<TABLE>
<CAPTION>
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Equipment and supplies for sale to stores................. $ 20,968 $ 9,947
Food inventory............................................ 11,840 12,039
--------- ---------
32,808 21,986
Less--Inventory reserves.................................. 837 1,852
--------- ---------
Inventories, net.......................................... $ 31,971 $ 20,134
========= =========
</TABLE>
Notes Receivable
During the normal course of business, the Company often provides financing to
franchisees (i) to stimulate new franchise store growth, (ii) to finance the
sale of corporate stores to franchisees and (iii) to facilitate rapid new
equipment rollouts. Substantially all of the related notes receivable require
monthly payments of principal and interest, or monthly payments of interest
only, generally ranging from 8% to 14%, with balloon payments of the remaining
principal due one to ten years from the original issuance date. Such notes are
generally secured by the assets sold. In financing these transactions, the
Company derives benefits other than interest income. Given the nature of these
borrower/lender relationships, the Company, in essence, makes its own market in
these notes. The carrying amounts of these notes approximate fair value.
During 1998, the Company modified certain criteria it uses to determine
allowance for bad debts for notes receivable. As a result of this change, the
Company recognized a benefit for losses on notes receivable of approximately
$3.7 million during fiscal 1998 which is reflected in the accompanying 1998
consolidated statement of income.
Plant and Equipment
Additions to plant and equipment are recorded at cost. Depreciation for
financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the related assets. Such lives are generally
three to seven years for equipment, twenty years for buildings and
improvements, three years for vehicles and five years or the term of the lease
including renewal options, whichever is shorter, for leasehold and other
improvements. Depreciation expense was approximately $11,798,000, $13,358,000
and $16,593,000 in 1996, 1997 and 1998, respectively.
Investments in Marketable Securities
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
As of December 28, 1997, the Company had investments in marketable securities
of $5,597,000, comprised of both debt and equity securities. These investments
were classified as available-for-sale and were stated at aggregate fair value
in the accompanying 1997 consolidated balance sheet. Unrealized gains at
December 28, 1997 were $536,000 and unrealized losses were $69,000, both net of
tax. For purposes of determining realized gains and losses, the cost of
securities sold is based upon the specific identification method.
The Company had placed these investments in "rabbi trusts", whereby the amounts
were irrevocably set aside to fund the Company's obligations under its
nonqualified executive and managerial deferred compensation plans (Note 5).
These plans were terminated during 1998 and all related investments in
marketable securities were sold with the proceeds being paid to the
participants in the plans.
Deferred Financing Costs
Deferred financing costs include debt issuance costs primarily incurred by the
Company as part of the Recapitalization. Amortization is provided using the
effective interest rate method over the terms of the respective debt
instruments to which the costs relate and is included in interest expense in
the accompanying consolidated statements of income.
F-9
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
As part of the Recapitalization, the Company paid financing costs to affiliates
of Parent stockholders of approximately $21.1 million. Approximately $14.4
million of these expenditures were treated by the Company as capitalizable
deferred financing costs while approximately $6.7 million of these expenditures
were made on behalf of the Parent and were treated as distributions to the
Parent.
Goodwill and Covenants Not-to-Compete
Goodwill arising primarily from franchise acquisitions has been recorded at
cost and is being amortized using the straight-line method over periods not
exceeding twenty years. Amortization of goodwill was approximately $901,000,
$1,437,000 and $1,957,000 in 1996, 1997 and 1998, respectively.
Covenants not-to-compete, primarily obtained as a part of the Recapitalization
(Note 7), have been recorded at cost and are being amortized using an
accelerated method over a three year period for the covenant not-to-compete
with a Company Director and former majority Parent stockholder. Other covenants
not-to-compete are being amortized using the straight-line method over periods
not exceeding twenty years. Amortization of covenants not-to-compete was
approximately $668,000, $756,000 and $2,222,000 in 1996, 1997 and 1998,
respectively.
Management reviews the realizability of goodwill and covenants not-to-compete
annually by comparing the future cash flows expected to result from these
assets to the carrying amounts of the related assets.
Capitalized Software
The American Institute of Certified Public Accountants has issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use", which requires entities to capitalize and
amortize certain costs and currently expense certain other costs incurred for
software developed or obtained for internal use. Adoption of this SOP did not
have a significant impact on the accompanying consolidated financial
statements.
Capitalized software is recorded at cost and includes purchased, internally
developed and externally developed software used in the Company's operations.
Amortization for financial reporting purposes is provided using the straight-
line method over the estimated useful lives of the software, which range from
two to seven years. Amortization expense was approximately $1,472,000, $823,000
and $1,978,000 in 1996, 1997 and 1998, respectively.
Other Assets
Other assets primarily include equity investments in international franchisees,
organizational costs, deposits and other intangibles primarily arising from
franchise acquisitions. Amortization of organizational costs and other
intangibles is provided using the straight-line method over the estimated
useful lives of the amortizable assets. Amortization expense was approximately
$647,000, $564,000 and $376,000 in 1996, 1997 and 1998, respectively.
Other Accrued Liabilities
Current and long-term other accrued liabilities primarily include accruals for
sales, income and other taxes, legal reserves, marketing and advertising
expenses, store operating expenses, deferred revenues, deferred compensation
and a consulting fee payable to a Company Director and former majority Parent
stockholder.
Revenue Recognition
Corporate store revenues are comprised of retail sales of food through Company-
owned stores located in the contiguous U.S. and are recognized when the food is
delivered to or carried out by customers.
Domestic franchise royalties are primarily comprised of royalties and fees from
franchisees with operations in the contiguous U.S. and are recognized as
revenue when earned.
Domestic distribution revenues are comprised of sales of food, equipment and
supplies to franchised stores located in the contiguous U.S. and are recognized
as revenue upon shipment of the related products to franchisees.
International revenues are primarily comprised of sales of food and royalties
and fees from foreign, Alaskan and Hawaiian franchisees and are recognized
consistently with the policies applied for revenues generated in the contiguous
U.S.
F-10
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
approximately $38.1 million, $40.5 million and $41.2 million during 1996, 1997
and 1998, respectively, and is included in general and administrative expenses
in the accompanying consolidated statements of income.
Self-Insurance
The Company is partially self-insured for property and health insurance risks
and, for periods up to December 20, 1998, was partially self-insured for
workers' compensation, general liability and owned and non-owned auto programs.
The Company's health insurance program provides coverage for life, medical,
dental and accidental death and dismemberment (AD&D) claims. Self-insurance
limitations for medical and dental per a covered individual's lifetime were
$2.0 million in 1996, 1997 and 1998. The AD&D and life insurance components of
the health insurance program are fully insured by the Company through third-
party insurance carriers.
Effective July 1, 1995 through June 30, 1996, the self-insurance limitations
per occurrence for the workers' compensation, general liability and owned and
non-owned auto programs were $500,000, plus a one-time otherwise recoverable
amount of $500,000 in excess of $500,000 on the combined general liability,
owned and non-owned auto programs and an additional one-time otherwise
recoverable amount of $350,000 in excess of $1.0 million on the combined owned
and non-owned auto programs.
Effective July 1, 1996 through December 19, 1998, the self-insurance
limitations per occurrence for the workers' compensation, general liability and
owned and non-owned auto programs were $500,000, plus a one-time otherwise
recoverable amount of $500,000 in excess of $500,000 on the combined general
liability, owned and non-owned auto programs for each policy year, except for
the period from July 1, 1998 through December 19, 1998 for which there was no
otherwise recoverable amount.
Total excess insurance limits for all periods were $105.0 million per
occurrence under the workers' compensation, general liability and owned and
non-owned auto programs.
Self-insurance reserves are determined using actuarial estimates. These
estimates are based on historical information along with certain assumptions
about future events. Changes in assumptions for such things as medical costs
and legal actions, as well as changes in actual experience, could cause these
estimates to change in the near term. In management's opinion, the accrued
insurance reserves at January 3, 1999 are sufficient to cover potential
aggregate losses.
Paid claims under the Company's self-insurance programs were $23.3 million in
1996, $20.0 million in 1997 and $23.4 million in 1998. Total insurance expense
was approximately $25.3 million, $20.0 million and $15.9 million in 1996, 1997
and 1998, respectively, and is included in cost of sales in the accompanying
consolidated statements of income. During 1998, the Company reduced self-
insurance reserves by $6.7 million due to a reduction in the actuarial
calculations. This reduction in expense is reflected in the 1998 insurance
expense amount above.
As of January 3, 1999, the Company had deposits totaling approximately $1.0
million with the Company's third-party insurance claims administrator. This
amount is included in other assets in the accompanying consolidated balance
sheets.
During December 1998, the Company entered into a guaranteed cost, combined
casualty insurance program that is effective for the period December 20, 1998
to December 20, 2001. The new program covers insurance claims on a first dollar
basis for workers' compensation, general liability and owned and non-owned auto
liability. Total insurance limits under the new program are $106.0 million per
occurrence for general liability and owned and non-owned auto liability and up
to the applicable statutory limits for workers' compensation. Under this
program and as of January 3, 1999, the Company is required to make minimum
premium payments of approximately $9.6 million during the first year of the
policy period.
F-11
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Foreign Currency Translation
The Company's foreign entities use their local currency or the U.S. dollar as
the functional currency, in accordance with the provisions of SFAS No. 52,
"Foreign Currency Translation." Where the functional currency is the local
currency, the Company translates net assets into U.S. dollars at yearend
exchange rates, while income and expense accounts are translated at average
exchange rates. Translation adjustments are included in accumulated other
comprehensive income in the accompanying consolidated statements of
stockholder's equity (deficit) and other foreign currency transaction gains and
losses are included in determining net income.
Financial Derivatives
Subsequent to January 3, 1999, the Company entered into two interest-rate swap
agreements (the 1999 Swap Agreements) to effectively convert the Eurodollar
component of the interest rate on a portion of the Company's debt under Term
Loans A, B and C (Note 2) to a fixed rate of 5.12% beginning in January 1999
and continuing through December 2001, in an effort to reduce the impact of
interest rate changes on income. The total notional amount under the 1999 Swap
Agreements is initially $179 million and decreasing over time to a total
notional amount of $167 million in December 2001.
As a result of generating royalty revenues from franchised operations in Japan,
the Company is exposed to the effect of exchange rate fluctuations between the
Japanese yen and U.S. dollar. During 1995, the Company entered into contracts
to sell 12,200,000 Japanese yen every two weeks, which expired in December
1996. During 1996, the Company entered into contracts to sell 36,000,000
Japanese yen every four weeks, which expired in December 1997. During 1997, the
Company entered into contracts to sell 35,000,000 Japanese yen every four
weeks, which expired in December 1998. During 1998, the Company entered into
contracts to sell 30,000,000 Japanese yen every four weeks, which will expire
in December 1999.
Using foreign currency forward contracts enables management to minimize the
effect of a fluctuating Japanese yen on its reported income. Gains and losses
with respect to these contracts are recognized in income at each balance sheet
date based on the exchange rate in effect at that time. No significant gains or
losses were recognized under these contracts during 1996, 1997 or 1998. The
carrying value of these contracts approximates fair value.
Supplemental Disclosures of Cash Flow Information
The Company paid interest of approximately $6.2 million, $3.9 million and $4.6
million during 1996, 1997 and 1998, respectively. Additionally, cash paid for
Federal income taxes was approximately $10.0 million in 1996 and approximately
$2.7 million in 1998. No cash was paid for Federal income taxes in 1997.
During 1998, the Company made non-cash distributions to the Parent of
approximately $16.6 million representing the Company's investment in a related
party limited partnership and approximately $2.6 million representing various
leaseholds and other assets. The Company also assumed a $5.5 million consulting
agreement liability from the Parent during 1998.
Comprehensive Income
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components in a full set of financial statements. Comprehensive
income is defined as the total of net income and all other non-owner changes in
equity. The Company adopted this Statement in 1997. Adoption of this Statement
only affects the presentation of the consolidated financial statements.
Segment Reporting
The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information", which supercedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise", replacing
the "industry segment" approach of reporting segment information with the
"management" approach. The "management" approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the reportable segments. The Company
adopted this Statement in 1998. Adoption of this Statement only affects the
presentation of these Notes to Consolidated Financial Statements.
F-12
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Accounting for Derivative Instruments and Hedging Activities
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This Statement is effective
for fiscal years beginning after June 15, 1999. Management has not yet
quantified the impact, if any, of adopting this Statement.
Reporting on the Costs of Start-up Activities
The American Institute of Certified Public Accountants has issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities", which
requires entities to expense the costs of start-up activities, including
organizational costs, when incurred. The Company is required to adopt this
Statement in fiscal year 1999. The adoption of this SOP will not have a
material impact on the Company's financial statements or its operations.
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 disclosures 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.
Reclassifications
Certain amounts from fiscal 1996 and 1997 have been reclassified to conform to
the fiscal 1998 presentation.
(2) Long-Term Debt
At December 28, 1997 and January 3, 1999, long-term debt consisted of the
following (In thousands):
<TABLE>
<CAPTION>
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Term Loan A (see below).................................. $ -- $ 175,000
Term Loan B (see below).................................. -- 135,000
Term Loan C (see below).................................. -- 135,000
Revolving credit facility (see below).................... -- 1,700
Notes payable to franchise insurance captive, interest
ranging up to prime plus 1.5%, due on demand, maturing
at varying amounts through September 1999............... 7,350 6,426
Senior subordinated notes, 10 3/8% (see below)........... -- 275,000
Revolving credit notes payable to banks (see below),
repaid during 1998...................................... 35,800 --
Notes payable to related party, repaid during 1998....... 417 --
Other notes, mortgages and long-term contracts payable,
repaid during 1998...................................... 841 --
--------- ---------
44,408 728,126
Less--Current portion.................................... 7,970 7,646
--------- ---------
$ 36,438 $ 720,480
========= =========
</TABLE>
On November 24, 1997, DPI refinanced all obligations remaining under a
previously existing credit facility through a new credit agreement (the 1997
Agreement). The 1997 Agreement provided a $93 million six-year unsecured
revolving credit facility, of which up to $35 million was available for letter
of credit advances. On December 21, 1998, all outstanding borrowings and
accrued interest under the 1997 Agreement were repaid in full and the 1997
Agreement was terminated.
On December 21, 1998, Domino's and a subsidiary entered into a new credit
agreement (the 1998 Agreement) with a consortium of banks primarily to finance
a portion of the Recapitalization, to repay existing indebtedness under the
1997 Agreement and to provide available borrowings for use in the normal course
of business.
The 1998 Agreement provides the following credit facilities: three term loans
(Term Loan A, Term Loan B and Term Loan C) and a revolving credit facility (the
Revolver). The aggregate borrowings available under the 1998 Agreement are
$545 million.
F-13
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
The 1998 Agreement provides for borrowings of $175 million under Term Loan A,
$135 million under Term Loan B and $135 million under Term Loan C. Under the
terms of the 1998 Agreement, the borrowings under Term Loans A, B and C bear
interest, payable at least quarterly, at either (i) the higher of (a) the
specified bank's prime rate (7.75% at January 3, 1999) and (b) 0.5% above the
Federal Reserve reported overnight funds rate, each plus an applicable margin
of between 0.50% to 2.75% or (ii) the Eurodollar rate (5.25% at January 3,
1999) plus an applicable margin of between 1.50% to 3.75%, with margins
determined based upon the Company's ratio of indebtedness to earnings before
interest, taxes, depreciation and amortization (EBITDA), as defined. At January
3, 1999, the Company's effective borrowing rates were 8.25%, 8.75% and 9.00%
for Term Loans A, B and C, respectively. As of January 3, 1999, all borrowings
under Term Loans A, B and C were under Eurodollar contracts with interest
periods of 90 days. Principal payments are required under Term Loans A, B and
C, commencing at varied dates and continuing quarterly thereafter until
maturity. The final scheduled principal payments on the outstanding borrowings
under Term Loans A, B and C are due in December 2004, December 2006 and
December 2007, respectively.
The 1998 Agreement also provides for borrowings of up to $100 million under the
Revolver, of which up to $35.0 million is available for letter of credit
advances and $10.0 million is available for swing-line loans. Borrowings under
the Revolver (excluding the letters of credit and swing-line loans) bear
interest, payable at least quarterly, at either (i) the higher of (a) the
specified bank's prime rate (7.75% at January 3, 1999) and (b) 0.5% above the
Federal Reserve reported overnight funds rate, each plus an applicable margin
of between 0.50% to 2.00% or (ii) the Eurodollar rate (5.25% at January 3,
1999) plus an applicable margin of between 1.50% to 3.00%, with margins
determined based upon the Company's ratio of indebtedness to EBITDA, as
defined. Borrowings under the swing-line portion of the Revolver bear interest,
payable at least quarterly, at the higher of (a) the specified bank's prime
rate (7.75% at January 3, 1999) and (b) 0.5% above the Federal Reserve reported
overnight funds rate, each plus an applicable margin of between 0.50% to 2.00%
based upon the Company's ratio of indebtedness to EBITDA, as defined. At
January 3, 1999, the Company's effective borrowing rate on swing-line loans was
9.75%. The Company also pays a commitment fee on the unused portion of the
Revolver ranging from 0.25% to 0.50%, determined based upon the Company's ratio
of indebtedness to EBITDA, as defined. At January 3, 1999 the commitment fee
for such unused borrowings was 0.50%. The fee for letter of credit amounts
outstanding at January 3, 1999 was 3.25%. As of January 3, 1999 there were
$87.5 in available borrowings under the Revolver, with $10.8 million of letters
of credit and $1.7 million of swing-line borrowings outstanding. The Revolver
expires in December 2004.
The credit facilities included in the 1998 Agreement are (i) guaranteed by the
Parent, (ii) jointly and severally guaranteed by each of Domino's domestic
subsidiaries and (iii) secured by a first priority lien on substantially all of
the assets of the Company.
The 1998 Agreement contains certain financial and non-financial covenants that,
among other things, require the maintenance of minimum interest coverage ratios
and consolidated adjusted EBITDA and maximum leverage ratios, all as defined in
the 1998 Agreement, and restrict the Company's ability to pay dividends on or
redeem or repurchase the Company's capital stock, incur additional
indebtedness, issue preferred stock, make investments, use assets as security
in other transactions and sell certain assets or merge with or into other
companies.
On December 21, 1998, Domino's issued $275 million of 10 3/8% Senior
Subordinated Notes due 2009 (the Notes) requiring semi-annual interest payments
beginning July 15, 1999. Prior to January 15, 2002, the Company may redeem, at
a fixed price, up to 35% of the Notes with the proceeds of equity offerings, if
any, by the Parent or the Company. Before January 15, 2004, Domino's may redeem
all, but not part, of the Notes if a change in control occurs, as defined in
the Notes. Beginning January 15, 2004, Domino's may redeem some or all of the
Notes at fixed redemption prices, ranging from 105.1875% of par in 2004 to 100%
of par in 2007 and thereafter. In the event of a change of control, as defined
in the Notes, Domino's will be obligated to repurchase Notes tendered by the
holders at a fixed price. The Notes are guaranteed by each of Domino's domestic
subsidiaries (non-domestic subsidiaries do not represent a material amount of
revenues and assets) and are subordinated in right of payment to all existing
and future senior debt of the Company.
The indenture related to the Notes restricts Domino's and its restricted
subsidiaries from paying dividends or redeeming equity interests (including
those of the Parent), with certain specified exceptions, unless a minimum fixed
charge coverage ratio is met and such payments are limited to 50% of cumulative
net income of the Company from January 4, 1999 to the payment date plus the net
proceeds from any capital contributions or the sale of equity interests.
F-14
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
The carrying amounts of the Company's debt approximate fair value. The Company
received $30 million under Term Loans B and C from a stockholder of the Parent.
The Company also issued $20 million of the Notes to this stockholder.
As of January 3, 1999, maturities of long-term debt are as follows (In
thousands):
<TABLE>
<CAPTION>
---------
<S> <C>
1999................................................................. $ 7,646
2000................................................................. 12,220
2001................................................................. 15,165
2002................................................................. 35,017
2003................................................................. 50,068
Thereafter........................................................... 608,010
---------
$ 728,126
=========
</TABLE>
(3) Commitments and Contingencies
Lease Commitments
The Company leases various equipment, store and commissary locations and its
corporate headquarters under operating leases with expiration dates through
2009. Rent expenses totaled approximately $26.0 million, $26.9 million and
$27.4 million during 1996, 1997 and 1998, respectively. As of January 3, 1999,
the future minimum rental commitments for all noncancellable leases, which
include approximately $22.3 million in commitments to related parties and is
net of approximately $3.1 million in future minimum rental commitments which
have been assigned to certain franchises, are as follows (In thousands):
<TABLE>
<CAPTION>
-------
<S> <C>
1999.................................................................... $17,269
2000.................................................................... 12,922
2001.................................................................... 10,910
2002.................................................................... 9,615
2003.................................................................... 7,716
Thereafter.............................................................. 8,554
-------
$66,986
=======
</TABLE>
Legal Proceedings and Related Matters
The Company is a party to lawsuits, revenue agent reviews by taxing authorities
and legal proceedings, of which the majority involve workers' compensation,
employment practices liability, general liability, automobile and franchisee
claims arising in the ordinary course of business. In the opinion of the
Company's management, these matters, individually and in the aggregate, will
not have a material adverse effect on the financial condition and results of
operations of the Company, and the established reserves adequately provide for
the estimated resolution of such claims.
(4) Income Taxes
For fiscal year 1996, Domino's and its qualifying subsidiaries filed a
consolidated Federal C Corporation income tax return with the Parent. Under the
terms of a tax-sharing agreement with the Parent, the Company recorded its
Federal income tax provision and liability as if it filed its own consolidated
Federal income tax return. Domino's and its qualifying subsidiaries and the
Parent elected S Corporation status, effective December 30, 1996, whereby the
taxable income of the Company was included in the income tax returns of the
Parent's shareholders. Accordingly, the tax benefit of deferred tax deductions
would not accrue to the Company but rather to the Parent's shareholders. Due to
the S Corporation election, the Company's 1996 provision for income taxes
includes an additional $8.2 million to fully reserve its net deferred tax asset
as of December 29, 1996.
As a result of the Recapitalization, the Parent, Domino's and its qualifying
subsidiaries reverted to C Corporation status effective December 21, 1998 and
will file a consolidated Federal income tax return. The Company recorded its
Federal income tax provision and related liability for the last two weeks of
fiscal year 1998 as if it filed its own consolidated
F-15
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Federal income tax return in accordance with a December 1998 tax-sharing
agreement. As such, the amounts classified as deferred tax assets in the
accompanying 1998 consolidated balance sheet are receivable from the Parent as
the ultimate taxpayer. The Company has recorded its net deferred tax asset
position on the effective date of C Corporation conversion. These amounts are
reflected in the accompanying 1998 consolidated balance sheet and statement of
income.
Just prior to the Recapitalization, certain Domino's subsidiaries sold certain
tangible and intangible assets to another Domino's subsidiary, which had
revoked its S Corporation election. The gain on this transaction, while not
reflected for financial reporting purposes, resulted in a Federal deferred tax
asset to the Company of $54 million due to the difference in book and tax
bases. This amount is reflected in deferred tax assets in the accompanying 1998
consolidated balance sheet and was credited directly to retained earnings in
accordance with EITF 94-10.
The differences between the United States Federal statutory income tax rate of
35% and the consolidated effective income tax rate for fiscal year 1996 and for
fiscal year 1998 (only two weeks of which was a C Corporation period) are
summarized as follows (In thousands):
<TABLE>
<CAPTION>
------------------------
For the Years Ended
------------------------
December 29, January 3,
1996 1999
------------ ----------
<S> <C> <C>
Federal income tax expense based on the statutory
rate................................................ $ 17,714 $ 22,382
State and local taxes, net of related Federal income
taxes............................................... 1,979 1,594
Non-resident withholding and foreign income taxes.... 2,040 2,530
Non-deductible expenses.............................. 580 578
Other, net........................................... 2,556 (322)
Foreign tax and other tax credits.................... (2,169) (2,885)
Tax reserves......................................... -- 10,000
Federal deferred benefit recorded upon conversion to
C Corporation in 1998............................... -- (27,905)
Exclusion of income earned during S Corporation
period in 1998...................................... -- (18,900)
Change in valuation allowance........................ 8,184 --
---------- ----------
$ 30,884 $ (12,928)
========== ==========
</TABLE>
The components of the 1996, 1997 and 1998 provision for income taxes are as
follows (In thousands):
<TABLE>
<CAPTION>
--------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) for Federal income
taxes--
Current provision (benefit)................. $ 13,595 $ (7,419) $ 9,676
Deferred--
Deferred provision (benefit) .............. 4,020 -- (27,587)
Change in valuation allowance.............. 8,184 -- --
--------- --------- ---------
Total provision (benefit) for federal
income taxes............................. 25,799 (7,419) (17,911)
Provision for state and local income taxes... 3,045 5,719 2,453
Provision for non-resident withholding and
foreign taxes............................... 2,040 2,066 2,530
--------- --------- ---------
Provision (benefit) for income taxes......... $ 30,884 $ 366 $ (12,928)
========= ========= =========
</TABLE>
During 1996, deferred income taxes arose from temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
During 1997, the Company reversed certain tax reserves for Federal income tax
exposures it believed no longer exist. The amount of the reserves reversed was
approximately $7.4 million and is included in the accompanying 1997
consolidated statement of income.
F-16
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
During 1998, deferred income taxes arose primarily from the basis difference
created by the intercompany asset sale and the reversion to C Corporation
status referred to above.
Realization of the Company's deferred tax assets is dependent upon many
factors, including, but not limited to, the ability of the Company to generate
sufficient taxable income. Although realization of the Company's deferred tax
assets is not assured, management believes it is more likely than not that the
deferred tax assets will be realized. On an ongoing basis, management will
assess whether it remains more likely than not that the deferred tax assets
will be realized.
As of January 3, 1999, the components of the net deferred tax asset were as
follows (In thousands):
<TABLE>
<CAPTION>
---------
<S> <C>
Deferred Federal income tax assets--
Step-up of basis on subsidiaries sale of certain assets............. $ 52,374
Self-insurance reserves............................................. 8,447
Accruals and other reserves......................................... 8,096
Bad debt reserves................................................... 2,189
Depreciation, amortization and asset basis differences.............. 7,422
Deferred revenue.................................................... 1,595
Other............................................................... 3,501
---------
83,624
---------
Deferred Federal income tax liabilities--
Capitalized development costs....................................... 3,105
Other............................................................... 1,077
---------
4,182
---------
Net deferred Federal income tax asset................................ $ 79,442
=========
Net deferred state tax asset......................................... $ 2,145
=========
</TABLE>
As of January 3, 1999, the classification of the net deferred tax asset is
summarized as follows: (In thousands):
<TABLE>
<CAPTION>
-------------------------------
Current Long-term Total
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets............................ $ 10,830 $ 74,939 $ 85,769
Deferred tax liabilities....................... 1,019 3,163 4,182
--------- --------- ---------
Net deferred tax asset......................... $ 9,811 $ 71,776 $ 81,587
========= ========= =========
</TABLE>
(5) Employee Benefits
The Company has a deferred salary reduction plan which qualifies under Internal
Revenue Code Section 401(k). All full-time salaried and certain hourly
employees of the Company who have completed one year of service and are at
least 21 years of age are eligible to participate in the plan. Such employees
may be able to participate in the plan after only 6 months of service if they
are employed in a position regularly scheduled to work at least 1,000 hours
annually. The plan requires the employer to match 50% of the first 6% of
employee contributions per participant. These matching contributions vest
immediately. The charges to operations for Company contributions to the plan
were $883,000, $1,183,000 and $2,449,000 for 1996, 1997 and 1998, respectively.
Through December 20, 1998, the Company also had a nonqualified executive
deferred compensation plan (the executive plan) available for certain
executives and other key employees and a nonqualified managerial deferred
compensation plan (the managerial plan) available for certain managerial
employees. Under the executive plan, certain eligible executives could defer up
to 25% of their annual compensation, and all other eligible participants could
defer up to 20% of their annual compensation. Under the managerial plan,
certain eligible employees could defer up to 15% of their annual
F-17
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
compensation. Both plans required a Company match of either 30% of employee
contributions per participant or the Company match percentage under the Company
401(k) plan, whichever was less, with additional Company contributions
permitted at the discretion of the Company. Both plans also required the
Company to credit each participant's account monthly at an annualized rate
equal to the prime rate of interest, as defined, plus 2%. The charges to
operations for Company contributions to these plans, including interest, were
$757,000, $1,326,000 and $1,883,000 in 1996, 1997 and 1998, respectively. The
liability under these plans of approximately $6.0 million is included in long-
term liabilities in the accompanying 1997 consolidated balance sheet. The
Company terminated both the executive plan and the managerial plan and paid out
the related liabilities on December 20, 1998.
Effective January 4, 1999, the Company established a nonqualified deferred
compensation plan available for the members of the Company's executive team,
certain other key executives and certain managerial employees. Under this plan,
the participants may defer up to 40% of their annual compensation. The plan
requires the Company to match 30% with respect to the first 15%, 20%, or 25% of
participant salary deferrals, depending on the employee. The plan requires the
Company to credit the participants' accounts following each pay period. The
Company may be required to make supplemental contributions to participants'
accounts depending on the earnings of the Company as defined in the plan. The
participants direct the investment of their deferred compensation within seven
mutual funds.
(6) Financial Instruments with Off-Balance Sheet Risk
The Company is party to stand-by letters of credit with off-balance sheet risk.
The Company's exposure to credit loss for stand-by letters of credit and
financial guarantees is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making conditional
obligations as it does for on-balance sheet instruments. Total conditional
commitments under letters of credit as of January 3, 1999, net of $2.4 million
of a letter of credit for which the Company has recorded a liability on the
accompanying 1998 consolidated balance sheet, are $8.4 million.
(7) Related Party Transactions
Leases
The Company leases its corporate headquarters under a long-term operating lease
agreement with a partnership owned by a Company Director and former majority
Parent stockholder. The current lease, dated December 21, 1998, replaced a
previous lease agreement with the same partnership. The Company also leased two
commissary locations from partnerships owned by this Company Director and
former majority Parent stockholder and his family during 1996, 1997 and until
August 1998 when the Company purchased the commissaries and terminated the
respective leases. Total lease expense for the aforementioned leases was $14.4
million, $13.8 million and $13.6 million for 1996, 1997 and 1998, respectively,
the majority of which is included in general and administrative expenses in the
accompanying consolidated statements of income.
The Company was party to an agreement with an affiliated company which was
owned by a Company Director and former majority Parent stockholder and members
of his family, whereby the Company obtained a 50% limited partner interest in a
real estate partnership which owns certain land surrounding the Company's
corporate headquarters. The Company accounted for this investment using the
equity method, whereby the original investment was recorded at cost and was
adjusted by the Company's share of the partnership's undistributed earnings and
losses, based on a formula defined in the agreement. Under the terms of this
agreement, the Company leased certain of the land owned by the partnership.
Total lease expense was $1.2 million for 1996, $1.3 million for 1997 and $1.4
million for 1998. In December 1998, the Company distributed its investment in
the partnership to the Parent.
Aggregate future commitments under these leases are as follows (In thousands):
<TABLE>
<CAPTION>
-------
<S> <C>
1999.................................................................... $ 4,258
2000.................................................................... 4,371
2001.................................................................... 4,486
2002.................................................................... 4,606
2003.................................................................... 4,544
-------
$22,265
=======
</TABLE>
F-18
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
Charitable Contributions
The Company made contributions of approximately $5.6 million, $6.8 million and
$7.7 million in 1996, 1997 and 1998, respectively, to a charitable foundation
founded and operated by a Company Director and former majority Parent
stockholder. These expenses are included in general and administrative expenses
in the accompanying consolidated statements of income.
Covenant Not-to-Compete
As part of the Recapitalization, the Parent entered into a covenant not-to-
compete with its former majority stockholder and current Company Director. The
Parent contributed this asset to the Company during 1998. The Company has
capitalized the $50 million paid in consideration for the covenant not-to-
compete and is amortizing this amount over the three-year term of the covenant
using an accelerated amortization method. Amortization expense for 1998 was
approximately $1,282,000. The net asset amount is included in covenants not-to-
compete in the accompanying 1998 consolidated balance sheet.
Management Agreement
As part of the Recapitalization, the Parent and its subsidiaries (collectively,
the Group) entered into a management agreement with an affiliate of a
stockholder of the Parent to provide the Group with certain management
services. The Company is committed to pay an amount not to exceed $2.0 million
per year on an ongoing basis for management services as defined in the
management agreement. The Company made a prepayment of $0.5 million in 1998
related to these ongoing managerial services for 1999. Furthermore, the Group
must allow the affiliate to participate in the negotiation and consummation of
future senior financing and pay the affiliate a fixed fee, as defined in the
management agreement.
(8) Segment Data
The Company has three reportable segments as determined by management using the
"management" approach as defined in SFAS No. 131: (1) Domestic Stores, (2)
Domestic Distribution and (3) International. The Company's operations are
organized by management on the combined bases of line of business and
geography. The Domestic Stores segment includes Company operations with respect
to all franchised and Company-owned Domino's Pizza stores throughout the
contiguous United States. The Domestic Distribution segment includes the
distribution of food, equipment and supplies to franchised and Company-owned
Domino's Pizza stores throughout the contiguous United States. The
International segment includes Company operations related to its franchising
business in foreign and non-contiguous United States markets and its food
distribution business in Canada, Puerto Rico, Alaska and Hawaii.
The accounting policies of the reportable segments are the same as those
described in Note 1. The Company evaluates the performance of its segments and
allocates resources to them based on EBITDA.
F-19
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
The tables below summarize the financial information concerning the Company's
reportable segments for fiscal years 1996, 1997 and 1998. Intersegment Revenues
are comprised of sales of food, equipment and supplies from the Domestic
Distribution segment to the Domestic Stores segment. Intersegment sales prices
are market based. The "Other" column as it relates to EBITDA information below
includes charitable contributions, a Company Director's and former majority
Parent Stockholder's salary and other corporate headquarter costs that
management does not allocate to any of the reportable segments. The "Other"
column as it relates to capital expenditures primarily includes capitalized
software and leasehold improvements that management does not allocate to any of
the reportable segments. All amounts presented below are in thousands.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Domestic Domestic Intersegment
Stores Distribution International Revenues Other Total
--------- ------------ ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues--
1998................... $ 521,635 $ 716,802 $ 56,022 $ (117,681) $ -- $1,176,778
1997................... 479,197 617,057 52,496 (103,960) -- 1,044,790
1996................... 429,989 587,080 45,775 (92,907) -- 969,937
EBITDA--
1998................... 121,890 17,972 8,685 -- (53,585) 94,962
1997................... 106,831 15,496 8,617 -- (47,804) 83,140
1996................... 93,700 13,503 6,867 -- (41,730) 72,340
Capital Expenditures--
1998................... 21,795 6,825 249 -- 21,107 49,976
1997................... 26,474 7,322 511 -- 11,105 45,412
1996................... 11,898 1,616 291 -- 6,082 19,887
</TABLE>
The following table reconciles Total EBITDA above to consolidated income before
provision (benefit) for income taxes:
<TABLE>
<CAPTION>
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Total EBITDA............................... $ 72,340 $ 83,140 $ 94,962
Depreciation and amortization.............. (15,486) (16,939) (23,123)
Interest expense........................... (6,301) (3,980) (7,051)
Interest income............................ 411 447 730
Loss on sale of plant and equipment........ (353) (1,197) (1,570)
---------- ---------- ----------
Income before provision (benefit) for
income taxes.............................. $ 50,611 $ 61,471 $ 63,948
========== ========== ==========
</TABLE>
The following table presents the Company's identifiable asset information for
fiscal years 1996, 1997 and 1998 and a reconciliation to total consolidated
assets:
<TABLE>
<CAPTION>
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Domestic Stores.................................. $ 105,069 $ 120,928 $ 113,120
Domestic Distribution............................ 33,831 63,554 60,948
--------- --------- ---------
Contiguous United States......................... 138,900 184,482 174,068
International.................................... 9,290 10,932 17,879
Unallocated Assets............................... 7,264 17,564 195,944
--------- --------- ---------
Total Consolidated Assets........................ $ 155,454 $ 212,978 $ 387,891
========= ========= =========
</TABLE>
Unallocated assets include assets that management does not attribute to
reportable segments above and includes marketable securities, deferred
financing costs, deferred tax assets, the covenant not-to-compete obtained as
part of the Recapitalization and capitalized software.
No customer accounted for more than 10% of total consolidated revenues in the
fiscal years ended 1996, 1997 and 1998.
F-20
<PAGE>
Domino's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
(9) Periodic Financial Data (Unaudited)
The Company's convention with respect to reporting periodic financial data is
such that each of the first three periods consists of twelve weeks while the
last period presented consists of sixteen or seventeen weeks depending on the
number of weeks in the fiscal year (See Note 1).
<TABLE>
<CAPTION>
-----------------------------------------------
Sixteen
Twelve Weeks Ended Weeks Ended
March 23, June 15, September 7, December 28,
1997 1997 1997 1997
Dollars in thousands --------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues................. $ 230,229 $ 235,934 $ 234,085 $ 344,542
========= ========= ========= =========
Income before provision for
income taxes.................. $ 13,928 $ 14,888 $ 12,650 $ 20,005
========= ========= ========= =========
Net income..................... $ 13,240 $ 13,993 $ 11,225 $ 22,647
========= ========= ========= =========
<CAPTION>
-----------------------------------------------
Seventeen
Twelve Weeks Ended Weeks Ended
March 22, June 14, September 6, January 3,
1998 1998 1998 1999
Dollars in thousands --------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues................. $ 255,856 $ 262,302 $ 265,268 $ 393,352
========= ========= ========= =========
Income before provision
(benefit) for income taxes.... $ 13,801 $ 15,517 $ 15,289 $ 19,341
========= ========= ========= =========
Net income..................... $ 12,651 $ 14,381 $ 14,133 $ 35,711
========= ========= ========= =========
</TABLE>
(10) Pro Forma Financial Data (Unaudited)
The following unaudited pro forma financial data is presented to illustrate the
estimated effects on net income if the Company had not elected S Corporation
status for fiscal year 1997 and substantially all of fiscal year 1998.
Management estimates that the provision for income taxes would have increased
and net income would have decreased by approximately $18.0 million in 1997 and
approximately $18.9 million in 1998 had the Company remained a C Corporation
for those periods.
<TABLE>
<CAPTION>
----------------------------------
1997 1997 Pro
Company Forma 1997 Pro
Historical Adjustments Forma
Dollars in thousands ---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.............................. $1,044,790 $ -- $1,044,790
Income before provision for income taxes.... 61,471 -- 61,471
Provision for income taxes.................. 366 18,000 18,366
---------- --------- ----------
Net income.................................. $ 61,105 $ (18,000) $ 43,105
========== ========= ==========
Comprehensive income........................ $ 61,398 $ (18,144) $ 43,254
========== ========= ==========
<CAPTION>
----------------------------------
1998 1998 Pro
Company Forma 1998 Pro
Historical Adjustments Forma
Dollars in thousands ---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.............................. $1,176,778 $ -- $1,176,778
Income before provision (benefit) for income
taxes...................................... 63,948 -- 63,948
Provision (benefit) for income taxes........ (12,928) 18,900 5,972
---------- --------- ----------
Net income.................................. $ 76,876 $ (18,900) $ 57,976
========== ========= ==========
Comprehensive income........................ $ 76,365 $ (18,736) $ 57,629
========== ========= ==========
</TABLE>
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only upon the information contained in this prospectus. We
have not authorized any other person to provide you with different informa-
tion. If anyone provides you with different or inconsistent information, you
should not rely on it. We are not making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate as of the date
on the front cover of this prospectus only. Our business, financial condition,
results of operations and prospects may have changed since that date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................................... 1
Risk Factors............................................................................ 13
Forward-Looking Statements.............................................................. 19
Trademarks.............................................................................. 19
Industry Data........................................................................... 19
Use of Proceeds......................................................................... 20
Capitalization.......................................................................... 20
Unaudited Pro Forma Consolidated Financial Data ........................................ 21
Selected Historical Consolidated Financial Data......................................... 25
Management's Discussion and Analysis of Financial Condition and Results of Operations .. 27
Business................................................................................ 33
Management ............................................................................. 41
Principal Stockholders.................................................................. 47
Certain Relationships and Related Transactions.......................................... 49
Description of Senior Credit Facilities................................................. 50
Description of Exchange Notes........................................................... 52
The Exchange Offer...................................................................... 85
Certain Federal Tax Considerations...................................................... 94
Plan of Distribution ................................................................... 98
Available Information................................................................... 99
Legal Matters........................................................................... 99
Independent Public Accountants.......................................................... 99
Index to Consolidated Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Domino's, Inc.
Exchange Offer
$275,000,000
10 3/8% Series B
Senior Subordinated
Notes due 2009
----------------
PROSPECTUS
----------------
May , 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20 Indemnification of Directors and Officers.
The Certificate of Incorporation, as amended, and by-laws of each of Domino's,
Inc. and Domino's Pizza International, Inc. provide that each corporation shall
indemnify its respective directors and officers to the maximum extent permitted
from time to time by the Delaware General Corporation Law ("DGCL").
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party 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 the
corporation) by reason of the fact that he 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, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided, however, that such provision shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, which relates
to unlawful payment of dividends and unlawful stock purchases and redemptions,
or (iv) for any transaction from which the director derived an improper
personal benefit.
The by-laws of each of Domino's Pizza, Inc., Metro Detroit Pizza, Inc. and
Domino's Franchise Holding Co. provide that each such corporation shall
indemnify its respective directors and officers to the fullest extent
authorized or permitted by the Michigan Business Corporation Act. Section
450.1561 of the Michigan Business Corporation Act permits a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to a threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative or investigative and whether formal or
informal, other than an action by or in the right of the corporation, by reason
of the fact that he or she 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, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit, or
proceeding, if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to a criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful.
Section 450.1562 of the Michigan Business Corporation Act further provides that
a corporation may indemnify any such person serving in such capacity who was or
is a party or is threatened to be made a party to a threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment its favor, against expenses (including attorneys' fees) and amounts
paid in settlement actually and reasonably incurred in connection with the
action or suit if the person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation or
its shareholders, except that no indemnification shall be made for a claim,
issue or matter in which the person has been found liable to the corporation
except to the extent authorized by the court upon application for
indemnification pursuant to Section 450.1564c.
II-1
<PAGE>
The Articles of Incorporation of Domino's Pizza International Payroll Services,
Inc. empowers the corporation to broadly indemnify its directors and officers.
Section 607.0850 of the Florida Business Corporation Act permits a corporation
to indemnify, in a case-by-case determination) any person who is or was a party
to any proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or serving in such a capacity at
the request of the corporation for another corporation, or other specified
business entity, in which such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reason to believe his conduct was unlawful, for the amount of liability
incurred in connection with such proceeding and any appeal thereof.
The directors and officers of Domino's, Domino's Pizza, Inc., Domino's
Franchise Holding Co., Metro Detroit Pizza, Inc., Domino's Pizza International,
Inc., Domino's Pizza International Payroll Services, Inc. and Domino's Pizza-
Government Services Division, Inc. are covered under directors' and officers'
liability insurance policies maintained by TISM, Inc.
Item 21 Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of September 25, 1998.*
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of November
24, 1998.*
2.3 Amendment No. 2 to Agreement and Plan of Merger dated as of November
24, 1998. *
2.4 Amendment No. 3 to Agreement and Plan of Merger dated December 18,
1998.*
3.1 Domino's, Inc. Amended and Restated Certificate of Incorporation.*
3.2 Domino's, Inc. Amended and Restated By-Laws.*
3.3 Domino's Pizza, Inc. Restated Articles of Incorporation.*
3.4 Domino's Pizza, Inc. By-laws.*
3.5 Metro Detroit Pizza, Inc. Restated Articles of Incorporation.*
3.6 Metro Detroit Pizza, Inc. By-Laws.*
3.7 Domino's Franchise Holding Co. Articles of Incorporation.*
3.8 Domino's Franchise Holding Co. By-Laws.*
3.9 Domino's Pizza International, Inc. Amended and Restated Certificate of
Incorporation.*
3.10 Domino's Pizza International, Inc. Amended and Restated By-Laws.*
3.11 Domino's Pizza International Payroll Services, Inc. Articles of
Incorporation.*
3.12 Domino's Pizza International Payroll Services, Inc. By-Laws.*
3.13 Domino's Pizza-Government Services Division, Inc. Articles of
Incorporation.*
3.14 Domino's Pizza-Government Services Division, Inc. By-Laws.*
4.1 Indenture dated as of December 21, 1998 by and among Domino's Inc.,
Domino's Pizza, Inc., Metro Detroit Pizza, Bluefence, Inc., Domino's
Pizza International, Inc., Domino's Pizza International Payroll
Services, Inc., Domino's Pizza--Government Services Division, Inc. and
IBJ Schroder Bank and Trust Company.*
4.2 Registration Rights Agreement dated as of December 21, 1998 by and
among Domino's, Inc., Domino's Pizza, Inc., Metro Detroit Pizza, Inc.,
Bluefence, Inc., Domino's Pizza International, Inc., Domino's Pizza
International Payroll Services, Inc., Domino's Pizza--Government
Services Division, Inc., J.P. Morgan Securities, Inc. and Goldman,
Sachs & Co.*
5.1 Opinion of Ropes & Gray.+
5.2 Opinion of Honigman Miller Schwartz and Cohn.+
10.1 Amended and Restated Purchase Agreement dated December 21, 1998 by and
among Domino's Inc., Domino's Pizza, Inc., Metro Detroit Pizza, Inc.,
Bluefence, Inc., Domino's Pizza International, Inc., Domino's Pizza
International Payroll Services, Inc., Domino's Pizza--Government
Services Division, Inc., J.P. Morgan Securities, Inc. and Goldman,
Sachs & Co.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2 Consulting Agreement dated December 21, 1998 by and between Domino's
Pizza, Inc. and Thomas S. Monaghan.*
10.3 Lease Agreement dated as of December 21, 1998 by and between Domino's
Farms Office Park Limited Partnership and Domino's Pizza, Inc.*
10.4 Management Agreement by and among TISM, Inc., each of its direct and
indirect subsidiaries and Bain Capital Partners VI, L.P.*
10.5 Stockholders Agreement dated as of December 21, 1998 by and among
TISM, Inc., Domino's, Inc., Bain Capital Fund VI, L.P., Bain Capital
VI Coinvestment Fund, L.P., BCIP, PEP Investments PTY Ltd., Sankaty
High Yield Asset Partners, L.P., Brookside Capital Partners Fund,
L.P., RGIP, LLC, DP Investors I, LLC, DP Investors II, LLC, J.P.
Morgan Capital Corporation, Sixty Wall Street Fund, L.P., DP
Transitory Corporation, Thomas S. Monaghan, individually and in his
capacity as trustee, and Marjorie Monaghan, individually and in her
capacity as trustee, Harry J. Silverman, Michael D. Soignet, Stuart K.
Mathis, Patrick Kelly, Gary M. McCausland and Cheryl Bachelder.*
10.6 Senior Executive Deferred Bonus Plan of Domino's, Inc. dated as of
December 21, 1998.*
10.7 Domino's Pizza, Inc. Deferred Compensation Plan adopted effective
January 4, 1999.*
10.8 TISM, Inc. Stock Option Plan.*
10.9 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Stuart Mathis.*
10.10 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Pat Kelly.*
10.11 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Harry J. Silverman.*
10.12 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Gary McCausland.*
10.13 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Cheryl Bachelder.*
10.14 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Michael D. Soignet.*
10.15 Credit Agreement dated as of December 21, 1998 by and among Domino's,
Inc., Bluefence, Inc., J.P. Morgan Securities, Inc., Morgan Guaranty
Trust Company of New York, Bank One and Comerica Bank.*
10.16 Borrower Pledge Agreement dated as of December 21, 1998 by and among
Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust Company of
New York, as Collateral Agent.*
10.17 Subsidiary Pledge Agreement dated as of December 21, 1998 by and among
Domino's Pizza, Inc., Metro Detroit Pizza, Inc., Domino's Pizza
International, Inc., Domino's Pizza International Payroll Services,
Inc., Domino's Pizza--Government Services Division, Inc. and Morgan
Guaranty Trust Company of New York, as Collateral Agent.*
10.18 Borrower Security Agreement dated as of December 21, 1998 by and among
Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust Company of
New York, as Collateral Agent.*
10.19 Subsidiary Security Agreement dated as of December 21, 1998 by and
among Domino's Pizza, Inc., Metro Detroit Pizza, Inc., Domino's Pizza
International, Inc., Domino's Pizza International Payroll Services,
Inc., Domino's Pizza--Government Services Division, Inc. and Morgan
Guaranty Trust Company of New York, as Collateral Agent.*
10.20 Collateral Account Agreement dated as of December 21, 1998 by and
among Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust
Company of New York, as Collateral Agent.*
10.21 Employment Agreement dated as of March 31, 1999 by and among David A.
Brandon and TISM, Inc., Domino's Inc. and Domino's Pizza, Inc.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ropes & Gray (See Exhibit 5.1).+
23.3 Consent of Honigman Miller Schwartz and Cohn (See Exhibit 5.2).+
24.1 Powers of Attorney.*
24.2 Power of Attorney for David A. Brandon.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
24.3 Power of Attorney for Andrew B. Balson.
25.1 Statement of Eligibility on Form T-1 of IBJ Whitehall Bank & Trust
Company as Trustee under the Indenture.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Exchange Agent Agreement.+
</TABLE>
- ---------
* Previously Filed.
+ To Be Filed By Amendment.
(b) The following Consolidated Financial Statement Schedules of Domino's, Inc.
for the Three Years Ended January 3, 1999 are included in this Registration
Statement.
DOMINO'S, INC. and SUBSIDIARIES
SCHEDULE II--VALUATION and QUALIFYING ACCOUNTS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Balance * Additions/ Balance
Beginning Provision Deductions Translation End of
of Year (Benefit) from Reserves Adjustments Year
--------- --------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable
1998.................. 3,978 174 (1,362) 4 2,794
1997.................. 5,223 904 (2,128) (21) 3,978
1996.................. 5,235 1,140 (1,138) (14) 5,223
Allowance for doubtful
notes receivable
1998.................. 5,708 (3,386) 837 6 3,165
1997.................. 5,725 227 (222) (22) 5,708
1996.................. 4,522 (198) 1,397 4 5,725
</TABLE>
- ---------
*Consists primarily of write-offs and recoveries of bad debts
Item 22 Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrants, pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrants hereby undertake:
(1) 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.
(2) 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
II-4
<PAGE>
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's, Inc. has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Ann
Arbor, State of Michigan, on the 28th day of April, 1999.
Domino's, Inc.
/s/ Harry J. Silverman
By: ____________________________
Name: Harry J. Silverman
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Chief Executive Officer and Director
______________________________________ (Principal Executive Officer)
David A. Brandon
/s/ Harry J. Silverman Vice President (Principal Financial
______________________________________ and Accounting Officer)
Harry J. Silverman
* Director
______________________________________
Thomas S. Monaghan
* Director
______________________________________
Mark E. Nunnelly
* Director
______________________________________
Robert F. White
* Director
______________________________________
Jonas L. Steinman
* Director
______________________________________
Andrew B. Balson
</TABLE>
/s/ Harry J. Silverman
*By:_____________________
Harry J. Silverman, Attorney-
In-Fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's Pizza,
Inc. has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Ann Arbor, State of Michigan, on the 28th day of April, 1999.
Domino's Pizza, Inc.
/s/ Harry J. Silverman
By: _________________________________
Name: Harry J. Silverman
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and Vice
______________________________________ President
Harry J. Silverman (Principal
Financial and
Accounting
Officer)
* Chief Executive
______________________________________ Officer and
David A. Brandon Director
(Principal
Executive Officer)
</TABLE>
/s/ Harry J. Silverman
*By:_____________________
Harry J. Silverman, Attorney-
In-Fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Metro Detroit
Pizza, has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Ann Arbor, State of Michigan, on the 28th day of April, 1999.
Metro Detroit Pizza, Inc.
/s/ Harry J. Silverman
By: _________________________________
Name: Harry J. Silverman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and
______________________________________ President
Harry J. Silverman (Principal
Executive,
Financial and
Accounting
Officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's, Franchise
Holding Co. has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Ann Arbor, State of Michigan, on the 28th day of April, 1999.
Domino's Franchise Holding Co.
/s/ Harry J. Silverman
By: _________________________________
Name: Harry J. Silverman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and
______________________________________ President
Harry J. Silverman (Principal
Executive,
Financial and
Accounting
Officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's Pizza
International, Inc. has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Ann Arbor, State of Michigan, on the 28th day of
April, 1999.
Domino's Pizza International, Inc.
/s/ Harry J. Silverman
By: _________________________________
Name: Harry J. Silverman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and
______________________________________ President
Harry J. Silverman (Principal
Executive,
Financial and
Accounting
Officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's Pizza
International Payroll Services, Inc. has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Ann Arbor, State of Michigan, on the
28th day of April, 1999.
Domino's Pizza International Payroll
Services, Inc.
/s/ Harry J. Silverman
By: _________________________________
Name: Harry J. Silverman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and
______________________________________ President
Harry J. Silverman (Principal
Executive,
Financial and
Accounting
Officer)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Domino's Pizza--
Government Services Division, Inc. has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Ann Arbor, State of Michigan, on the 28th day
of April, 1999.
Domino's Pizza--Government Services
Division, Inc.
/s/ Harry J. Silverman
By: _______________________________
Name: Harry J. Silverman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities indicated on the 28th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Harry J. Silverman Director and
______________________________________ President
Harry J. Silverman (Principal
Executive,
Financial and
Accounting
Officer)
</TABLE>
II-12
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of September 25, 1998.*
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of November
24, 1998.*
2.3 Amendment No. 2 to Agreement and Plan of Merger dated as of November
24, 1998. *
2.4 Amendment No. 3 to Agreement and Plan of Merger dated December 18,
1998.*
3.1 Domino's, Inc. Amended and Restated Certificate of Incorporation.*
3.2 Domino's, Inc. Amended and Restated By-Laws.*
3.3 Domino's Pizza, Inc. Restated Articles of Incorporation.*
3.4 Domino's Pizza, Inc. By-laws.*
3.5 Metro Detroit Pizza, Inc. Restated Articles of Incorporation.*
3.6 Metro Detroit Pizza, Inc. By-Laws.*
3.7 Domino's Franchise Holding Co. Articles of Incorporation.*
3.8 Domino's Franchise Holding Co. By-Laws.*
3.9 Domino's Pizza International, Inc. Amended and Restated Certificate of
Incorporation.*
3.10 Domino's Pizza International, Inc. Amended and Restated By-Laws.*
3.11 Domino's Pizza International Payroll Services, Inc. Articles of
Incorporation.*
3.12 Domino's Pizza International Payroll Services, Inc. By-Laws.*
3.13 Domino's Pizza-Government Services Division, Inc. Articles of
Incorporation.*
3.14 Domino's Pizza-Government Services Division, Inc. By-Laws.*
4.1 Indenture dated as of December 21, 1998 by and among Domino's Inc.,
Domino's Pizza, Inc., Metro Detroit Pizza, Bluefence, Inc., Domino's
Pizza International, Inc., Domino's Pizza International Payroll
Services, Inc., Domino's Pizza--Government Services Division, Inc. and
IBJ Schroder Bank and Trust Company.*
4.2 Registration Rights Agreement dated as of December 21, 1998 by and
among Domino's, Inc., Domino's Pizza, Inc., Metro Detroit Pizza, Inc.,
Bluefence, Inc., Domino's Pizza International, Inc., Domino's Pizza
International Payroll Services, Inc., Domino's Pizza--Government
Services Division, Inc., J.P. Morgan Securities, Inc. and Goldman,
Sachs & Co.*
5.1 Opinion of Ropes & Gray.+
5.2 Opinion of Honigman Miller Schwartz and Cohn.+
10.1 Amended and Restated Purchase Agreement dated December 21, 1998 by and
among Domino's Inc., Domino's Pizza, Inc., Metro Detroit Pizza, Inc.,
Bluefence, Inc., Domino's Pizza International, Inc., Domino's Pizza
International Payroll Services, Inc., Domino's Pizza--Government
Services Division, Inc., J.P. Morgan Securities, Inc. and Goldman,
Sachs & Co.*
10.2 Consulting Agreement dated December 21, 1998 by and between Domino's
Pizza, Inc. and Thomas S. Monaghan.*
10.3 Lease Agreement dated as of December 21, 1998 by and between Domino's
Farms Office Park Limited Partnership and Domino's Pizza, Inc.*
10.4 Management Agreement by and among TISM, Inc., each of its direct and
indirect subsidiaries and Bain Capital Partners VI, L.P.*
10.5 Stockholders Agreement dated as of December 21, 1998 by and among
TISM, Inc., Domino's, Inc., Bain Capital Fund VI, L.P., Bain Capital
VI Coinvestment Fund, L.P., BCIP, PEP Investments PTY Ltd., Sankaty
High Yield Asset Partners, L.P., Brookside Capital Partners Fund,
L.P., RGIP, LLC, DP Investors I, LLC, DP Investors II, LLC, J.P.
Morgan Capital Corporation, Sixty Wall Street Fund, L.P., DP
Transitory Corporation, Thomas S. Monaghan, individually and in his
capacity as trustee, and Marjorie Monaghan, individually and in her
capacity as trustee, Harry J. Silverman, Michael D. Soignet, Stuart K.
Mathis, Patrick Kelly, Gary M. McCausland and Cheryl Bachelder.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.6 Senior Executive Deferred Bonus Plan of Domino's, Inc. dated as of
December 21, 1998.*
10.7 Domino's Pizza, Inc. Deferred Compensation Plan adopted effective
January 4, 1999.*
10.8 TISM, Inc. Stock Option Plan.*
10.9 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Stuart Mathis.*
10.10 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Pat Kelly.*
10.11 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Harry J. Silverman.*
10.12 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Gary McCausland.*
10.13 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Cheryl Bachelder.*
10.14 Severance Agreement dated as of August 4, 1998 between Domino's Pizza,
Inc. and Michael D. Soignet.*
10.15 Credit Agreement dated as of December 21, 1998 by and among Domino's,
Inc., Bluefence, Inc., J.P. Morgan Securities, Inc., Morgan Guaranty
Trust Company of New York, Bank One and Comerica Bank.*
10.16 Borrower Pledge Agreement dated as of December 21, 1998 by and among
Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust Company of
New York, as Collateral Agent.*
10.17 Subsidiary Pledge Agreement dated as of December 21, 1998 by and among
Domino's Pizza, Inc., Metro Detroit Pizza, Inc., Domino's Pizza
International, Inc., Domino's Pizza International Payroll Services,
Inc., Domino's Pizza--Government Services Division, Inc. and Morgan
Guaranty Trust Company of New York, as Collateral Agent.*
10.18 Borrower Security Agreement dated as of December 21, 1998 by and among
Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust Company of
New York, as Collateral Agent.*
10.19 Subsidiary Security Agreement dated as of December 21, 1998 by and
among Domino's Pizza, Inc., Metro Detroit Pizza, Inc., Domino's Pizza
International, Inc., Domino's Pizza International Payroll Services,
Inc., Domino's Pizza--Government Services Division, Inc. and Morgan
Guaranty Trust Company of New York, as Collateral Agent.*
10.20 Collateral Account Agreement dated as of December 21, 1998 by and
among Domino's, Inc., Bluefence, Inc. and Morgan Guaranty Trust
Company of New York, as Collateral Agent.*
10.21 Employment Agreement dated as of March 31, 1999 by and among David A.
Brandon and TISM, Inc., Domino's Inc. and Domino's Pizza, Inc.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ropes & Gray (See Exhibit 5.1).+
23.3 Consent of Honigman Miller Schwartz and Cohn (See Exhibit 5.2).+
24.1 Powers of Attorney.*
24.2 Power of Attorney for David A. Brandon.
24.3 Power of Attorney for Andrew B. Balson.
25.1 Statement of Eligibility on Form T-1 of IBJ Whitehall Bank & Trust
Company as Trustee under the Indenture.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Exchange Agent Agreement.+
</TABLE>
- ---------
* Previously Filed.
+ To Be Filed By Amendment.
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of March 31, 1999 by TISM, Inc., a
Michigan corporation (the "Company"), Domino's, Inc., a Delaware corporation and
-------
Domino's Pizza, Inc., a Michigan corporation (together with Domino's, Inc., the
"Principal Subsidiaries") with David A. Brandon (the "Executive").
---------------------- ---------
Recitals
--------
1. The operations of the Company and its Affiliates are a complex matter
requiring direction and leadership in a variety of areas.
2. The Executive has experience and expertise that qualify him to provide
the direction and leadership required by the Company and its Affiliates.
3. Subject to the terms and conditions hereinafter set forth, the Company
therefore wishes to employ the Executive as its Chief Executive Officer and the
Executive wishes to accept such employment.
Agreement
---------
Now, therefore, the parties hereto hereby agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
----------
Agreement, the Company hereby offers and the Executive hereby accepts
employment, effective as of March 15, 1999 (the "Effective Date").
--------------
2. Term. Subject to earlier termination as hereafter provided, the
----
Executive shall be employed hereunder for an original term commencing on the
Effective Date and ending on December 31, 2003, which term shall be
automatically extended thereafter for successive terms of one year each, unless
either party provides notice to the other at least ninety (90) days prior to the
expiration of the original or any extension term that this Agreement is not to
be extended. The term of the Executive's employment under this Agreement, as
from time to time extended, is hereafter referred to as "the term of this
Agreement" or "the term hereof".
3. Capacity and Performance.
------------------------
3.1. Offices. During the term hereof, the Executive shall serve the
-------
Company in the offices of Chairman and Chief Executive Officer. In such
capacity, the Executive will be responsible for the Company's operations
and financial performance and the coordination of the Company's strategic
direction. In addition, for so long as
<PAGE>
the Executive is employed by the Company and without further compensation,
the Executive shall serve as a member of the Company's Board of Directors
(the "Board") and as a director and officer of the Principal Subsidiaries
-----
and of one or more of the Company's other Affiliates if so elected or
appointed from time to time. The Executive shall be subject to the
direction of the Board and shall have such other powers, duties and
responsibilities consistent with the Executive's position as Chairman and
Chief Executive Officer as may from time to time be prescribed by the
Board.
3.2. Performance. During the term hereof, the Executive shall be
-----------
employed by the Company on a full-time basis and shall perform and
discharge, faithfully, diligently and to the best of his ability, his
duties and responsibilities hereunder. During the term hereof, the
Executive shall devote his full business time exclusively to the
advancement of the business and interests of the Company and its Affiliates
and to the discharge of his duties and responsibilities hereunder. The
Executive shall not engage in any other business activity or serve in any
industry, trade, professional, governmental, political, charitable or
academic position during the term of this Agreement, except for such
directorships or other positions which he currently holds and has disclosed
to the Company on Exhibit 3.2 hereof and except as otherwise may be
approved in advance by the Board, which approval shall not be unreasonably
withheld.
4. Compensation and Benefits. As compensation for all services performed
-------------------------
by the Executive under this Agreement and subject to performance of the
Executive's duties and obligations to the Company and its Affiliates, pursuant
to this Agreement or otherwise:
4.1. Base Salary. During the term hereof, the Company shall pay the
-----------
Executive a base salary at the rate of $600,000 per year, payable in
accordance with the payroll practices of the Company for its executives and
subject to increase from time to time by the Board in its sole discretion.
Such base salary, as from time to time increased, is hereafter referred to
as the "Base Salary".
-----------
4.2. Bonus Compensation. During the term hereof, the Company shall
------------------
pay the Executive an annual bonus (the "Bonus") the amount of which shall
-----
be determined by the Board based on the Executive's achievement of
performance objectives for each year, as established by the Board in
consultation with the Executive. The maximum amounts of the Bonus (prior
to any proration) are as follows: for 1999, 150% of Base Salary; for 2000,
160% of Base Salary; for 2001, 170% of Base Salary; for 2002, 180% of Base
Salary; and for 2003, 190% of Base Salary. Whenever any Bonus payable to
the Executive is stated in this Agreement to be prorated for any period of
service less than a full year, such Bonus shall be prorated by multiplying
(x) the amount of the Bonus otherwise payable for the applicable fiscal
year in accordance with this Section 4.2 by (y) a fraction, the denominator
of which shall be 365 and the numerator of which shall be the number of
days during the applicable fiscal year for which the Executive was employed
by the Company. Any compensation paid to the Executive as
-2-
<PAGE>
Bonus shall be in addition to the Base Salary, but shall be in lieu of
participation in any other incentive, stock option, stock purchase, profit
sharing, deferred compensation, bonus compensation or severance program
which the Company or one of the Principal Subsidiaries, as applicable, may
adopt or continue from time to time (other than the Executive's purchased
stock and options in accordance with Section 4.3).
4.3. Stock/Options.
-------------
4.3.1. The Executive shall purchase from the Company the shares
(the "Purchased Shares") of the Company's Class A Common Stock and
----------------
Class L Common Stock set forth on Exhibit A-1 hereto at the purchase
price per share set forth therein. The purchase and sale of such
shares will occur on a date to be specified by the Company upon not
less than two weeks notice to the Executive, which date shall be no
later than June 15, 1999, in accordance with a subscription agreement
(the "Subscription Agreement") in the form of Exhibit A-2 hereto. As
----------------------
of the Effective Date, the outstanding shares of the Company's Class A
Common Stock and Class L Common Stock (collectively, the "Common
------
Stock") and all options to purchase Common Stock are held as set forth
on Exhibit A-3 hereto.
4.3.2. The Company shall grant to the Executive, pursuant to the
Company's stock option plan for management and employees of the
Company and its Affiliates attached hereto as Exhibit A-4, as from
time to time in effect (the "Plan"), options to purchase a total of
----
1,512,516 shares of Class A Common Stock at an exercise price of $0.50
per share (the "Options"). One half of the Options shall be granted
-------
pursuant to the option agreement in the form of Exhibit A-5 hereto and
the other half of the Options shall be granted pursuant to the option
agreement in the form of Exhibit A-6 hereto.
4.3.3. Prior to issuing any shares or options to the Executive,
the Company may require that the Executive provide such
representations regarding the Executive's sophistication and
investment intent and other such matters as the Company may reasonably
request. None of the Company's securities will be registered under
applicable securities laws for the indefinite future and there will be
substantial restrictions on resale imposed by the Company's corporate
charter, the stockholders agreement and applicable law. The Purchased
Shares, the Options and any shares issued upon exercise of the Options
shall be subject to the terms of the stockholders agreement dated as
of December 21, 1998 among the Company and certain of its
stockholders, as from time to time in effect (the "Stockholders
------------
Agreement"), a copy of which is attached hereto as Exhibit A-7.
---------
4.3.4. The Company may, by notice to the Executive and without
any
-3-
<PAGE>
further action by the Company, cause the immediate forfeiture by the
Executive of all Purchased Shares in the event that the Executive runs
for public office or accepts appointment or election to any
governmental or political position without the prior approval of the
Board at any time during the term of the Executive's employment
hereunder or prior to December 31, 2003, whichever is later; provided,
however, that the Board will grant reasonable exceptions for the
Executive's appointment or election to a governmental or political
position that is unpaid and that, in the reasonable judgment of the
Board, will not materially interfere with the Executive's performance
of his duties hereunder. Upon the giving of such notice, all of the
holder's rights in and to the Purchased Shares shall terminate and the
Company may cancel on its books the certificates representing the
Purchased Shares whether or not such certificates have been returned
to the Company. The Executive agrees to notify the Board prior to
running for public office or accepting any such appointment or
election and, upon receipt of notice from the Company as described
above, agrees to deliver to the Company the certificates representing
the Purchased Shares.
4.4. Vacations. During the term hereof, the Executive shall be
---------
entitled to four (4) weeks of vacation per annum, to be taken at such times
and intervals as shall be determined by the Executive, subject to the
reasonable business needs of the Company. The Executive may not accumulate
or carry over from one calendar year to another any unused, accrued
vacation time. The Executive shall not be entitled to compensation for
vacation time not taken.
4.5. Other Benefits. During the term hereof and subject to any
--------------
contribution therefor generally required of executives of the Company or
one of the Principal Subsidiaries, as applicable, the Executive shall be
entitled to participate in all employee benefit plans, including without
limitation any 401(k) plan, from time to time adopted by the Board and in
effect for executives of the Company or one of the Principal Subsidiaries,
as applicable, generally (except to the extent such plans are in a category
of benefit otherwise provided the Executive hereunder and in any event
excluding any incentive, stock option, stock purchase, profit sharing,
deferred compensation, bonus compensation or severance programs). Such
participation shall be subject to (i) the terms of the applicable plan
documents and (ii) generally applicable policies of the Company or one of
the Principal Subsidiaries, as applicable. Any of the Company and the
Principal Subsidiaries may alter, modify, add to or delete their employee
benefit plans at any time as the Board, in its sole judgment, determines to
be appropriate.
4.6. Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable business expenses, including without
limitation the cost of first class air travel, incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to (i) any expense policy of the Company or one of the Principal
Subsidiaries, as applicable, set by the Board from time to time, other than
-4-
<PAGE>
with respect to first class air travel, and (ii) such reasonable
substantiation and documentation requirements as may be specified by the
Board from time to time.
4.7. Miscellaneous. The Company shall pay or reimburse the Executive
-------------
for the Executive's Young Presidents Organization dues and expenses, not to
exceed $15,000 per year unless approved by the Board. The Company will
provide the Executive with directors and officers insurance and personal
liability protection described on Exhibit B. The Company shall pay or
reimburse the Executive for his reasonable legal fees and expenses incurred
in connection with the review of this Agreement and other agreements
referred to herein in an aggregate amount not to exceed $10,000.
5. Termination of Employment and Severance Benefits. Notwithstanding the
------------------------------------------------
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term of this Agreement under the
following circumstances:
5.1. Retirement or Death. In the event of the Executive's retirement
-------------------
or death during the term hereof, the Executive's employment hereunder shall
immediately and automatically terminate. In the event of the Executive's
retirement after the age of sixty-five with the prior consent of the Board
or death during the term hereof, the Company shall pay to the Executive (or
in the case of death, the Executive's designated beneficiary or, if no
beneficiary has been designated by the Executive, to his estate) any Base
Salary earned but unpaid through the date of such retirement or death, any
Bonus for the fiscal year preceding the year in which such retirement or
death occurs that was earned but has not yet been paid and, at the times
the Company pays its executives bonuses in accordance with its general
payroll policies, an amount equal to that portion of any Bonus earned but
unpaid during the fiscal year of such retirement or death (pro-rated in
accordance with Section 4.2).
5.2. Disability.
----------
5.2.1. The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through any
illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for an
aggregate of one hundred twenty (120) days during any period of three
hundred and sixty-five (365) consecutive calendar days.
5.2.2. The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue to
receive the Base Salary in accordance with Section 4.1 and to receive
benefits in accordance with Section 4.5, to the extent permitted by
the then-current terms of
-5-
<PAGE>
the applicable benefit plans, until the Executive becomes eligible for
disability income benefits under any disability income plan maintained
by the Company or one of the Principal Subsidiaries, as applicable, or
until the termination of his employment, whichever shall first occur.
Upon becoming so eligible, or upon such termination, whichever shall
first occur, the Company shall pay to the Executive any Base Salary
earned but unpaid through the date of such eligibility or termination
and any Bonus for the fiscal year preceding the year of such
eligibility or termination that was earned but unpaid. During the
eighteen month period from such date, the Company shall pay the
Executive, at its regular pay periods, an amount equal to the
difference between the Base Salary and the amounts of disability
income benefits that the Executive receives pursuant to the above-
referenced disability income plan in respect of such period. At the
times the Company pays its executives bonuses generally, the Company
shall pay the Executive an amount equal to that portion of any Bonus
earned but unpaid during the fiscal year of such eligibility or
termination (pro-rated in accordance with Section 4.2).
5.2.3. Except as provided in Section 5.2.2, while receiving
disability income payments under any disability income plan maintained
by the Company or one of the Principal Subsidiaries, as applicable,
the Executive shall not be entitled to receive any Base Salary under
Section 4.1 or Bonus payments under Section 4.2 but shall continue to
participate in benefit plans of the Company or one of the Principal
Subsidiaries, as applicable, in accordance with Section 4.5 and the
terms of such plans, until the termination of his employment. During
the eighteen-month period from the date of eligibility or termination,
whichever shall first occur, the Company shall contribute to the cost
of the Executive's participation in group medical plans of the Company
or one of the Principal Subsidiaries, as applicable, provided that the
Executive is entitled to continue such participation under applicable
law and plan terms.
5.2.4. If any question shall arise as to whether during any
period the Executive is disabled through any illness, injury, accident
or condition of either a physical or psychological nature so as to be
unable to perform substantially all of his duties and responsibilities
hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the Company
to whom the Executive or his duly appointed guardian, if any, has no
reasonable objection to determine whether the Executive is so disabled
and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Board's determination of the issue shall be binding on the Executive.
5.3. By the Company for Cause. The Company may terminate the
------------------------
Executive's
-6-
<PAGE>
employment hereunder for Cause at any time upon notice to the Executive
setting forth in reasonable detail the nature of such Cause. The following
events or conditions shall constitute "Cause" for termination: (i) the
Executive's willful failure to perform (other than by reason of
disability), or gross negligence in the performance of, his duties to the
Company or any of its Affiliates and the continuance of such failure or
negligence for a period of ten (10) days after notice to the Executive,
(ii) the commission of fraud, embezzlement or theft by the Executive with
respect to the Company or any of its Affiliates; or (iii) the conviction of
the Executive of, or plea by the Executive of nolo contendere to, any
felony or any other crime involving dishonesty or moral turpitude. Upon the
giving of notice of termination of the Executive's employment hereunder for
Cause, the Company shall have no further obligation or liability to the
Executive hereunder, other than for Base Salary earned but unpaid through
the date of termination. Without limiting the generality of the foregoing,
the Executive shall not be entitled to receive any Bonus amounts which have
not been paid prior to the date of termination.
5.4. By the Company other than for Cause. The Company may terminate
-----------------------------------
the Executive's employment hereunder other than for Cause at any time upon
notice to the Executive. In the event of such termination, then the
Company shall pay the Executive (i) Base Salary earned but unpaid through
the date of termination, plus (ii) twenty-four (24) monthly severance
payments, each in an amount equal to the Executive's monthly base
compensation in effect at the time of such termination (i.e., 1/12th of the
----
Base Salary), plus (iii) any unpaid portion of any Bonus for the fiscal
year preceding the year in which such termination occurs that was earned
but has not been paid, plus (iv) at the times the Company pays its
executives bonuses generally, an amount equal to that portion of any Bonus
earned but unpaid during the fiscal year of such termination (pro-rated in
accordance with Section 4.2).
5.5. By the Executive for Good Reason. The Executive may terminate
--------------------------------
his employment hereunder for Good Reason, upon notice to the Company
setting forth in reasonable detail the nature of such Good Reason. The
following shall constitute "Good Reason" for termination by the Executive:
(i) failure of the Company to continue the Executive in the position of
Chairman and Chief Executive Officer; (ii) material diminution in the
nature and scope of the Executive's responsibilities, duties or authority,
including without limitation the failure to continue the Executive as a
member of the board of directors of the Company or either of the Principal
Subsidiaries; provided, however, that the failure to so continue the
-------- -------
Executive shall not constitute Good Reason if such failure occurs in
connection with the sale or other disposition of the corporation as to
which he has ceased to have board membership; and provided, further, that
-------- -------
the Company's failure to continue the Executive's appointment or election
as a director or officer of any of its Affiliates (exclusive of the
Principal Subsidiaries) and any diminution of the business of the Company
or any of its Affiliates shall not constitute Good Reason; (iii) material
failure of the Company to provide the
-7-
<PAGE>
Executive the Base Salary and benefits in accordance with the terms of
Section 4 hereof; or (iv) relocation of the Executive's office to an area
outside a 50-mile radius of the Company's current headquarters in Ann
Arbor, Michigan. In the event of termination in accordance with this
Section 5.5, then the Company shall pay the Executive the amounts specified
in Section 5.4.
5.6. By the Executive Other than for Good Reason. The Executive may
-------------------------------------------
terminate his employment hereunder at any time upon ninety (90) days'
notice to the Company. In the event of termination of the Executive
pursuant to this Section 5.6, the Board may elect to waive the period of
notice, or any portion thereof. The Company will pay the Executive his
Base Salary for the notice period, except to the extent so waived by the
Board. Upon the giving of notice of termination of the Executive's
employment hereunder pursuant to this Section 5.6, the Company shall have
no further obligation or liability to the Executive, other than (i) payment
to the Executive of his Base Salary for the period (or portion of such
period) indicated above and (ii) at the times the Company pays its
executives bonuses generally, an amount equal to that portion of any Bonus
earned but unpaid during the fiscal year of such termination (pro-rated in
accordance with Section 4.2).
5.7. Post-Agreement Employment. In the event the Executive remains in
-------------------------
the employ of the Company or any of its Affiliates following termination of
this Agreement, by the expiration of the term hereof or otherwise, then
such employment shall be at will.
6. Effect of Termination. The provisions of this Section 6 shall apply in
---------------------
the event of termination due to the expiration of the term, pursuant to Section
5 or otherwise.
6.1. Payment in Full. Payment by the Company of any Base Salary,
---------------
Bonus or other specified amounts that are due the Executive under the
applicable termination provision of Section 5 shall constitute the entire
obligation of the Company and its Affiliates to the Executive, except that
nothing in this Section 6.1 is intended or shall be construed to affect the
rights and obligations of the Company and its Affiliates, on the one hand,
and the Executive, on the other, with respect to any option plans, option
agreements, subscription agreements, stockholders agreements or other
agreements to the extent said rights or obligations survive termination of
employment under the provision of documents relating thereto.
6.2. Termination of Benefits. Except for medical insurance coverage
-----------------------
continued pursuant to Sections 5.2 hereof and any right of continuation of
health coverage at the Executive's cost to the extent provided by Sections
601 through 608 of ERISA, benefits shall terminate pursuant to the terms of
the applicable benefit plans based on the date of termination of the
Executive's employment without regard to any continuation of Base Salary or
other payments to the Executive following termination of his employment.
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<PAGE>
6.3. Survival of Certain Provisions. Provisions of this Agreement
------------------------------
shall survive any termination if so provided herein or if necessary or
desirable fully to accomplish the purpose of other surviving provisions,
including, without limitation, the obligations of the Executive under
Sections 7 and 8 hereof. The obligation of the Company to make payments to
or on behalf of the Executive under Sections 5.2, 5.4 or 5.5 hereof is
expressly conditioned upon the Executive's continued full performance of
obligations under Sections 7 and 8 hereof. The Executive recognizes that,
except as expressly provided in Section 5.2, 5.4 or 5.5, no compensation is
earned after termination of employment.
7. Confidential Information; Intellectual Property.
-----------------------------------------------
7.1. Confidentiality. The Executive acknowledges that the Company and
---------------
its Affiliates continually develop Confidential Information; that the
Executive may develop Confidential Information for the Company or its
Affiliates and that the Executive may learn of Confidential Information
during the course of employment. The Executive will comply with the
policies and procedures of the Company and its Affiliates for protecting
Confidential Information and shall never use or disclose to any Person
(except as required by applicable law or for the proper performance of his
duties and responsibilities to the Company and its Affiliates) any
Confidential Information obtained by the Executive incident to his
employment or other association with the Company or any of its Affiliates.
The Executive understands that this restriction shall continue to apply
after his employment terminates, regardless of the reason for such
termination.
7.2. Return of Documents. All documents, records, tapes and other
-------------------
media of every kind and description relating to the business, present or
otherwise, of the Company or its Affiliates and any copies, in whole or in
part, thereof (the "Documents"), whether or not prepared by the Executive,
---------
shall be the sole and exclusive property of the Company and its Affiliates.
The Executive shall safeguard all Documents and shall surrender to the
Company at the time his employment terminates, or at such earlier time or
times as the Board or its designee may specify, all Documents then in the
Executive's possession or control.
7.3. Assignment of Rights to Intellectual Property. The Executive
---------------------------------------------
shall promptly and fully disclose all Intellectual Property to the Company.
The Executive hereby assigns and agrees to assign to the Company (or as
otherwise directed by the Company) the Executive's full right, title and
interest in and to all Intellectual Property. The Executive agrees to
execute any and all applications for domestic and foreign patents,
copyrights or other proprietary rights and to do such other acts (including
without limitation the execution and delivery of instruments of further
assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce
any patents, copyrights or other
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<PAGE>
proprietary rights to the Intellectual Property. The Executive will not
charge the Company for time spent in complying with these obligations. All
copyrightable works that the Executive creates shall be considered "work
made for hire".
8. Restricted Activities.
---------------------
8.1. Agreement not to Compete with the Company. The Executive agrees
-----------------------------------------
that during the Executive's employment hereunder and for a period of
twenty-four months following the date of termination thereof (the "Non-
---
Competition Period"), he will not, directly or indirectly, own, manage,
------------------
operate, control or participate in any manner in the ownership, management,
operation or control of, or be connected as an officer, employee, partner,
director, principal, consultant, agent or otherwise with, or have any
financial interest in, or aid or assist anyone else in the conduct of, any
business, venture or activity which competes with, any business, venture or
activity being conducted or actively being planned to be conducted by the
Company or being conducted or known by the Executive to be actively being
planned to be conducted by a group or division of the Company or by any of
its Affiliates, at or prior to the date (the "Date of Termination") on
-------------------
which the Executive's employment under this Agreement is terminated, in the
United States or any other geographic area where such business is being
conducted or actively being planned to be conducted at or prior to the Date
of Termination. Notwithstanding the foregoing, ownership of not more than
five percent of any class of equity security of any publicly held
corporation shall not, of itself, constitute a violation of this Section 8.
8.2. Agreement Not to Solicit Employees or Customers of the Company.
--------------------------------------------------------------
The Executive agrees that during employment and during the Non-Competition
Period he will not, directly or indirectly, (a) recruit or hire or
otherwise seek to induce any employees of the Company or any of the
Company's Affiliates to terminate their employment or violate any agreement
with or duty to the Company or any of the Company's Affiliates, or (b)
solicit or encourage any franchisee or vendor of the Company or of any of
the Company's Affiliates to terminate or diminish its relationship with any
of them or to violate any agreement with any of them, or, in the case of a
franchisee, to conduct with any Person any business or activity that such
franchisee conducts or could conduct with the Company or any of the
Company's Affiliates.
9. Enforcement of Covenants. The Executive acknowledges that he has
------------------------
carefully read and considered all the terms and conditions of this Agreement,
including without limitation the restraints imposed upon him pursuant to
Sections 7 and 8 hereof. The Executive agrees that said restraints are
necessary for the reasonable and proper protection of the Company and its
Affiliates and that each and every one of the restraints is reasonable in
respect to subject matter, length of time and geographic area. The Executive
further acknowledges that, were he to breach any of the covenants or agreements
contained in Sections 7 or 8 hereof, the damage to the Company and its
Affiliates could be irreparable. The Executive therefore agrees that the
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<PAGE>
Company and its Affiliates, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any
breach or threatened breach by the Executive of any of said covenants or
agreements. The parties further agree that in the event that any provision of
Section 7 or 8 hereof shall be determined by any Court of competent jurisdiction
to be unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision shall
be deemed to be modified to permit its enforcement to the maximum extent
permitted by law.
10. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which or
by which the Executive is a party or is bound and that the Executive is not now
subject to any covenants against competition or solicitation or similar
covenants or other obligations that would affect the performance of his
obligations hereunder. The Executive will not disclose to or use on behalf of
the Company or any of its Affiliates any proprietary information of a third
party without such party's consent.
11. Definitions. Words or phrases which are initially capitalized or are
-----------
within quotation marks shall have the meanings provided in this Section 11 and
as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
11.1. Affiliates. "Affiliates" shall mean the Principal Subsidiaries
----------
and all other persons and entities controlling, controlled by or under
common control with the Company, where control may be by management
authority or equity interest.
11.2. Confidential Information. "Confidential Information" means any
------------------------
and all information of the Company and its Affiliates that is not generally
known by others with whom they compete or do business, or with whom they
plan to compete or do business, and any and all information the disclosure
of which would otherwise be adverse to the interests of the Company or any
of its Affiliates. Confidential Information includes without limitation
such information relating to (i) the products and services sold or offered
by the Company or any of its Affiliates (including without limitation
recipes, production processes and heating technology), (ii) the costs,
sources of supply, financial performance and strategic plans of the Company
and its Affiliates, (iii) the identity of the suppliers of the Company and
its Affiliates and (iv) the people and organizations with whom the Company
and its Affiliates have business relationships and those relationships.
Confidential Information also includes information that the Company or any
of its Affiliates have received belonging to others with any understanding,
express or implied, that it would not be disclosed.
11.3. ERISA. "ERISA" means the federal Employee Retirement Income
-----
Security Act of 1974 or any successor statute, and the rules and
regulations thereunder, and, in the case of any referenced section thereof,
any successor section thereto, collectively and as from time to time
amended and in effect.
-11-
<PAGE>
11.4. Intellectual Property. "Intellectual Property" means inventions,
---------------------
discoveries, developments, methods, processes, compositions, works,
concepts, recipes and ideas (whether or not patentable or copyrightable or
constituting trade secrets or trade marks or service marks) conceived,
made, created, developed or reduced to practice by the Executive (whether
alone or with others, whether or not during normal business hours or on or
off Company premises) during the Executive's employment that relate to
either the Business or any prospective activity of the Company or any of
its Affiliates.
11.5. Person. "Person" means an individual, a corporation, an
------
association, a partnership, a limited liability company, an estate, a trust
and any other entity or organization.
12. Withholding. All payments made by the Company under this Agreement
-----------
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
13. Miscellaneous.
-------------
13.1. Assignment. Neither the Company nor the Principal Subsidiaries
----------
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent
of the other; provided, however, that the Company or any of the Principal
-------- -------
Subsidiaries may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company or such
Principal Subsidiary shall hereafter affect a reorganization, consolidate
with, or merge into, any other Person or transfer all or substantially all
of its properties or assets to any other Person, in which event such other
Person shall be deemed the "Company" or a "Principal Subsidiary" hereunder,
as applicable, for all purposes of this Agreement; provided, further, that
-------- -------
nothing contained herein shall be construed to place any limitation or
restriction on the transfer of the Company's Common Stock in addition to
any restrictions set forth in any stockholder agreement applicable to the
holders of such shares. This Agreement shall inure to the benefit of and
be binding upon the Company, the Principal Subsidiaries and the Executive,
and their respective successors, executors, administrators, heirs and
permitted assigns.
13.2. Severability. If any portion or provision of this Agreement
------------
shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the application of such provision in such
circumstances shall be deemed modified to permit its enforcement to the
maximum extent permitted by law, and both the application of such portion
or provision in circumstances other than those as to which it is so
declared illegal or unenforceable and the remainder of this Agreement shall
not be affected thereby, and each portion and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
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<PAGE>
13.3. Waiver; Amendment. No waiver of any provision hereof shall be
-----------------
effective unless made in writing and signed by the waiving party. The
failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any breach
of this Agreement, shall not prevent any subsequent enforcement of such
term or obligation or be deemed a waiver of any subsequent breach. This
Agreement may be amended or modified only by a written instrument signed by
the Executive and any expressly authorized representative of the Company
and the Principal Subsidiaries.
13.4. Notices. Any and all notices, requests, demands and other
-------
communications provided for by this Agreement shall be in writing and shall
be effective when delivered in person or deposited in the United States
mail, postage prepaid, registered or certified, and addressed (a) in the
case of the Executive, to:
Mr. David A. Brandon
12028 Hunters Creek Drive
Plymouth, MI 48170
with a copy to:
Mr. Henry Baskin
Clark Hill P.L.C.
255 South Old Woodward Avenue, 3rd Floor
Birmingham, MI 48009
or, (b) in the case of the Company, at its principal place of business and
to the attention of Board of Directors, with a copy to: Ropes & Gray, One
International Place, Boston, MA 02110-1617, Attention: R. Newcomb
Stillwell; or to such other address as either party may specify by notice
to the other actually received.
13.5. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties and supersedes all prior communications,
agreements and understandings, written or oral, with the Company, its
Affiliates or any of their predecessors, with respect to the terms and
conditions of the Executive's employment.
13.6. Headings. The headings and captions in this Agreement are for
--------
convenience only and in no way define or describe the scope or content of
any provision of this Agreement.
13.7. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
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<PAGE>
13.8. Joint and Several Liability. The Company and the Principal
---------------------------
Subsidiaries shall be jointly and severally liable for all payment
obligations of the Company pursuant to this Agreement.
13.9. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic substantive laws of the State of
Michigan without giving effect to any choice or conflict of laws provision
or rule that would cause the application of the domestic substantive laws
of any other jurisdiction.
13.10. Consent to Jurisdiction. Each of the Company and the Executive
-----------------------
by its or his execution hereof, (i) hereby irrevocably submits to the
jurisdiction of the state courts of the State of Michigan for the purpose
of any claim or action arising out of or based upon this Agreement or
relating to the subject matter hereof and (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim
that it or he is not subject personally to the jurisdiction of the above-
named courts, that its or his property is exempt or immune from attachment
or execution, that any such proceeding brought in the above-named courts is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court. Each of the Company and the Executive hereby
consents to service of process in any such proceeding in any manner
permitted by Michigan law, and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified
pursuant to Section 13.4 hereof is reasonably calculated to give actual
notice.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized representative, and by the Executive, as of the date first above
written.
THE COMPANY: TISM, INC.
By: /s/ TISM, Inc.
---------------------------------
Name:
Title:
PRINCIPAL SUBSIDIARIES: DOMINO'S, INC.
By: /s/ Domino's Inc.
---------------------------------
Name:
Title:
DOMINO'S PIZZA, INC.
By: /s/ Domino's Pizza, Inc.
---------------------------------
Name:
Title:
THE EXECUTIVE: /s/ David A. Brandon
------------------------------------
Name: David A. Brandon
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Detroit, Michigan,
April 28, 1999.
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
I, in my capacity as Chief Executive Officer and Director of Domino's, Inc. and
Domino's Pizza, Inc., hereby constitute and appoint Harry J. Silverman, Mark E.
Nunnelly and Robert F. White, and each of them, my true and lawful attorney-in-
fact and agent, with full power of substitution and revocation, for me and in my
name, place and stead, to execute any and all amendments, including any post-
effective amendments and supplements to the Registration Statement on Form S-4
(File No. 333-74797), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ David A. Brandon
-----------------------------
Date: April 28, 1999 David A. Brandon
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
I, in my capacity as Chief Executive Officer and Director of Domino's, Inc. and
Domino's Pizza, Inc., hereby constitute and appoint Harry J. Silverman, Mark E.
Nunnelly and Robert F. White, and each of them, my true and lawful attorney-in-
fact and agent, with full power of substitution and revocation, for me and in my
name, place and stead, to execute any and all amendments, including any post-
effective amendments and supplements to the Registration Statement on Form S-4
(File No. 333-74797), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as I might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Andrew B. Balson
-----------------------------
Date: April 28, 1999 Andrew B. Balson
