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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1999
REGISTRATION NO. 333-71593
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Carrols Corporation Delaware 5800
Carrols Realty Holdings Corp. Delaware 6511
Carrols Realty I Corp. Delaware 6511
Carrols Realty II Corp. Delaware 6511
Carrols J.G. Corp. Delaware 6749
Quanta Advertising Corp. New York 7310
Pollo Franchise, Inc. Florida 5800
Pollo Operations, Inc. Florida 5800
(EXACT NAME OF EACH REGISTRANT AS (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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Carrols Corporation 16-0958146
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Carrols Realty Holdings Corp. 16-1443701
Carrols Realty I Corp. 16-1440018
Carrols Realty II Corp. 16-1440017
Carrols J.G. Corp. 16-1440019
Quanta Advertising Corp. 16-1033405
Pollo Franchise, Inc. 65-0446291
Pollo Operations, Inc. 65-0446289
(EXACT NAME OF EACH REGISTRANT AS (IRS EMPLOYER
SPECIFIED IN ITS CHARTER) IDENTIFICATION NO.)
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968 James Street
Syracuse, New York 13203
(315) 424-0513
(ADDRESS AND TELEPHONE NUMBER OF EACH REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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Joseph A. Zirkman, Esq. Copy to:
Vice President, General Counsel and Secretary David H. Landau, Esq.
Carrols Corporation Rosenman & Colin LLP
968 James Street 575 Madison Avenue
Syracuse, New York 13203 New York, New York 10022
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(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the 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. / / __________
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE.
SUBJECT TO COMPLETION, DATED MARCH 24, 1999
PROSPECTUS
, 1999
CARROLS CORPORATION
OFFER TO EXCHANGE UP TO $170,000,000
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
$170,000,000 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
TERMS OF THE EXCHANGE NOTES
o The exchange notes will mature on December 1, 2008.
o We may redeem the exchange notes at any time on or after December 1, 2003.
Before December 1, 2001, we may redeem up to $59.5 million of the exchange
notes with the proceeds of certain types of public offerings of equity in our
company that we make.
o The exchange notes are identical in all material respects to the outstanding
notes, except for certain transfer restrictions and registration rights
relating to the outstanding notes.
o Interest will be paid:
-- every six months on June 1 and December 1
-- at a fixed annual rate of 9 1/2%.
o If we cannot make payments on the exchange notes when due, our guarantor
subsidiaries must make them instead.
o The exchange notes and subsidiary guarantees are subordinated to all of our
and our guarantor subsidiaries' current and future indebtedness (other than
trade payables), except indebtedness that expressly provides that it is not
senior to the exchange notes and the subsidiary guarantees or that expressly
provides that it is subordinate to any other of our indebtedness.
o No public market currently exists for the exchange notes. We do not intend to
list the exchange notes on any securities exchange, and, therefore, no active
public market is anticipated.
TERMS OF THE EXCHANGE OFFER
o All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
o Expires at 5:00 p.m., New York City time, on [ ], 1999, unless
we extend the offer.
o Subject to customary conditions.
o Tenders may be withdrawn at any time before the expiration of the exchange
offer.
o The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
o We will not receive any proceeds from the exchange offer.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 15 OF THIS
PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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TABLE OF CONTENTS
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Prospectus Summary.......................................................................................... 1
Risk Factors................................................................................................ 15
Use Of Proceeds............................................................................................. 22
Capitalization.............................................................................................. 23
Unaudited Pro Forma Combined Financial Information.......................................................... 24
Selected Historical Financial Information Of Carrols........................................................ 27
Selected Historical Financial Information Of Pollo Tropical................................................. 28
Management's Discussion And Analysis Of Financial Condition And Results Of Operations....................... 29
The Exchange Offer.......................................................................................... 38
Business.................................................................................................... 47
Management.................................................................................................. 60
Principal Stockholders...................................................................................... 72
Certain Relationships And Related Transactions.............................................................. 73
Description Of The Senior Credit Facility................................................................... 74
Description Of The Exchange Notes........................................................................... 75
Book-Entry; Delivery And Form............................................................................... 102
U.S. Federal Income Tax Considerations...................................................................... 105
Plan Of Distribution........................................................................................ 109
Legal Matters............................................................................................... 109
Experts..................................................................................................... 109
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CERTAIN INTRODUCTORY MATTERS
Burger King(Registered) is a registered trademark and service mark and
Whopper(Registered) is a registered trademark of Burger King Brands, Inc., a
wholly-owned subsidiary of Burger King Corporation ("BKC"). Neither BKC nor any
of its subsidiaries, affiliates, officers, directors, agents, employees,
accountants or attorneys are in any way participating in, approving or endorsing
this exchange offer, any of the distribution or accounting procedures used in
this exchange offer, or any representations made in connection with the exchange
offer. BKC's grant of any franchise or other rights to us is not intended as,
and should not be interpreted as, an express or implied approval, endorsement or
adoption of any statement regarding actual or projected financial or other
performance which may be contained in this prospectus. All financial and other
projections have been prepared by us, and are our sole responsibility.
BKC's review of this prospectus or the information included in this
prospectus has been conducted solely for BKC to determine conformance with BKC
internal policies, and not to benefit or protect any other person. As an
investor you should not interpret BKC's review as an internal approval,
endorsement, acceptance or adoption of any representation, warranty, covenant or
projection contained in this prospectus.
The enforcement or waiver of any of our obligations under any agreement
between us and BKC or BKC affiliates is a matter of BKC or BKC affiliates' sole
discretion. As an investor you should not rely on any representation, assumption
or belief that BKC or BKC affiliates will enforce or waive our particular
obligations under such agreements. Pollo Tropical,(Registered)
Tropigrill(Registered) and Tropichops(Registered) are registered trademarks of
ours.
WHERE YOU CAN FIND MORE INFORMATION
We and the subsidiary guarantors have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4 under the Securities
Act of 1933, as amended, covering the exchange notes. This prospectus does not
contain all of the information included in the Registration Statement. Any
statement made in this prospectus concerning the contents of any contract,
agreement or document is not necessarily complete. If we have filed any such
contract, agreement or document as an exhibit to the Registration Statement, you
should read the exhibit for a more complete understanding of the document or
matter involved. Each statement regarding a contract, agreement or other
document is qualified in its entirety by reference to the actual document.
We file periodic reports and other information with the SEC under the
Securities Exchange Act of 1934, as amended. The Indenture provides that even if
we are not subject to the reporting requirements of the Exchange Act, we will
file with the SEC the periodic reports and other information that a reporting
company is required to file. In addition, the Indenture requires us to deliver
to you and to IBJ Whitehall Bank & Trust Company (formerly known as IBJ Schroder
Bank & Trust Company), copies of all reports that we file with the SEC without
any cost to you. We will also furnish such other reports as we may determine or
as the law requires.
You may read and copy the Registration Statement, including the attached
exhibits, and any reports, statements or other information that are on file at
the SEC's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing the SEC, Public
Reference Section, at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings will also be available to the public on
the SEC Internet site (http://www.sec.gov).
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about our financial
condition, results of operations and business. All statements, other than
statements of historical facts included in this prospectus, that address
activities, events or developments that we believe, intend or anticipate will or
may occur in the future are forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Actual results may differ materially from those
expressed or implied by the forward-looking statements for various reasons,
including those discussed under the "Risk Factors" section of this prospectus.
You are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date of this prospectus.
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PROSPECTUS SUMMARY
In this prospectus, the words "we," "ours," "us" and "Carrols" refer to
Carrols Corporation and its subsidiaries both before and after giving effect to
the acquisition of Pollo Tropical, Inc. The following summary highlights
selected information from this prospectus and may not contain all of the
information that is important to you. This prospectus includes specific terms of
the exchange notes, as well as information regarding our business and detailed
financial data. We encourage you to read this prospectus in its entirety.
Carrols and Pollo Tropical each use a 52/53 week fiscal year ending on the
Sunday closest to December 31. For convenience, the dating of the financial
information in this prospectus has been labeled as of, and for the years ended,
December 31, 1994, 1995, 1996, 1997 and 1998, and as of, and for the six months
ended June 30, 1998 for Pollo Tropical, as the case may be, rather than the
actual fiscal year end or fiscal period end dates.
The following is an organizational chart for Carrols Corporation and its
guarantor subsidiaries.
ORGANIZATIONAL CHART FOR CARROLS CORPORATION
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CARROLS CORPORATION
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<S> <C> <C> <C> <C> <C> <C>
POLLO POLLO CARROLS CARROLS CARROLS CARROLS QUANTA
FRANCHISE OPERATIONS REALTY I REALTY REALTY II J.G. CORP. ADVERTISING
INC. INC. CORP. HOLDINGS CORP. (Guarantor) CORP.
(Guarantor) (Guarantor) (Guarantor) CORP. (Guarantor) (Guarantor)
(Guarantor)
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THE EXCHANGE OFFER
On November 24, 1998, we completed the private offering of $170,000,000
aggregate original principal amount of 9 1/2% Senior Subordinated Notes Due
2008. The exchange notes are guaranteed in full, on a joint and several basis,
by all of our existing and future direct and indirect subsidiaries other than
certain subsidiaries which currently do not conduct business operations.
We entered into an Exchange and Registration Rights Agreement with the
initial purchasers of the outstanding notes in the private offering in which we
agreed, among other things, to deliver to you this prospectus and to complete
the exchange offer on or prior to May 24, 1999. You are entitled to exchange in
the exchange offer your notes for registered notes with substantially identical
terms. If the exchange offer is not completed on or prior to May 24, 1999, you
will receive liquidated damages in the amount of $0.192 per week per $1,000 of
notes that you hold until the time that the exchange offer is completed. You
should read the discussion under the heading "Description of the Exchange Notes"
for further information regarding the exchange notes.
We believe that, subject to certain conditions, you may resell the exchange
notes without compliance with the registration and prospectus delivery
provisions of the Securities Act. You should read the discussion under the
heading "The Exchange Offer" for further information regarding the exchange
offer and resale of notes.
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The Exchange Offer........................... We are offering to exchange up to $170,000,000 principal amount of
our 9 1/2% Senior Subordinated Notes Due 2008 which have been
registered under the Securities Act, for $170,000,000 principal
amount of our outstanding 9 1/2% Senior Subordinated Notes Due
2008 which were issued in November 1998 in a private offering.
The terms of the exchange notes are identical in all material
respects to the terms of the outstanding notes, except that the
exchange notes are freely transferable by their holders (other
than as provided in this document), and are not subject to any
covenant regarding registration under the Securities Act. See "The
Exchange Offer."
Minimum Condition............................ The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered for exchange.
Expiration Date; Withdrawal of Tender........ The exchange offer will expire at 5:00 p.m., New York City time,
on [ ], 1999. We do not currently intend to extend
the expiration date. You may withdraw any notes you tender
pursuant to the exchange offer before 5:00 p.m., New York City
time, on [ ], 1999. See "The Exchange
Offer--Expiration Date; Extension; Termination; Amendment" and
"--Withdrawal Rights."
Conditions to the Exchange Offer............. The exchange offer is subject to certain customary conditions,
which we may waive. See "The Exchange Offer--Certain Conditions to
the Exchange Offer."
Resales...................................... We believe that the exchange 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 that:
o the exchange notes are being acquired in the ordinary
course of your business;
o 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; and
o you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any exchange note
without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from the registration of
your notes from such requirements, you may incur liability under
the Securities Act. We do not assume, or indemnify you against,
such liability.
Procedures for Tendering Outstanding
Notes........................................ If you wish to accept the exchange offer, you must complete, sign
and date the accompanying letter of transmittal in accordance with
the instructions, and deliver the accompanying letter of
transmittal, along with your outstanding notes and any other
required documentation, to the exchange agent.
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Special Procedures for Beneficial
Owners....................................... If you beneficially own outstanding notes registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender your notes in the exchange offer,
you should contact the registered holder promptly and instruct it
to tender on your behalf. If you wish to tender on your own
behalf, you must, before completing and executing the letter of
transmittal and delivering your notes, either arrange to have your
notes registered in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered
ownership may take considerable time. See "The Exchange
Offer--Procedures for Tendering Outstanding Notes."
Guaranteed Delivery Procedures............... If you wish to tender your notes and time will not permit your
required documents to reach the exchange agent by
[ ], 1999, or the procedure for book-entry transfer
cannot be completed on time or certificates for registered notes
cannot be delivered on time, you may tender your notes pursuant to
the procedures described in this prospectus under the heading "The
Exchange Offer--Guaranteed Delivery Procedure."
Acceptance of Outstanding Notes and
Delivery of the Exchange Notes............... We will accept for exchange any and all outstanding notes which
are properly tendered (and not withdrawn) in the exchange offer
before 5:00 p.m., New York City time, on [ ], 1999.
The exchange notes issued pursuant to the exchange offer will be
delivered promptly following the expiration date.
Effect on the Holders of Outstanding
Notes........................................ Upon acceptance for exchange of all validly tendered outstanding
notes pursuant to the exchange offer, we and the guarantor
subsidiaries will have fulfilled the covenants contained in the
Registration Rights Agreement. Accordingly, under the Registration
Rights Agreement, the interest rate on the outstanding notes will
not increase, and you will have no further rights under the
Registration Rights Agreement other than those which survive the
exchange offer.
You will continue to hold your notes if you do not tender them. In
addition, you will be entitled to all the rights and subject to
all the applicable limitations under the Indenture, except for any
rights under the Registration Rights Agreement that terminate or
cease to have further effectiveness as a result of the exchange of
all validly tendered outstanding notes in this exchange offer. All
untendered outstanding notes will continue to be subject to the
transfer restrictions provided for in the outstanding notes and
the Indenture. To the extent that the outstanding notes are
tendered and accepted in this exchange offer, the trading market
for untendered outstanding notes could be adversely affected.
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Consequence of Failure to Exchange........... If you are eligible to participate in the exchange offer and you
do not tender your outstanding notes, your notes will continue to
be subject to certain transfer restrictions. We and the guarantor
subsidiaries do not anticipate that we will register under the
Securities Act any outstanding notes and the related guarantees
which are not exchanged in the exchange offer after
[ ], 1999.
Federal Income Tax Consequences.............. The exchange of outstanding notes should not result in gain or
loss to you or us for federal income tax purposes. See "U.S.
Federal Income Tax Considerations."
Use of Proceeds.............................. We will not receive any proceeds from the issuance of the exchange
notes.
Exchange Agent............................... IBJ Whitehall Bank & Trust Company is serving as exchange agent in
connection with the exchange offer. IBJ Whitehall Bank & Trust
Company also serves as the trustee under the Indenture. See "The
Exchange Offer--Exchange Agent."
TERMS OF THE EXCHANGE NOTES
Aggregate Amount of Notes.................... $170,000,000 principal amount of 9 1/2% Senior Subordinated Notes
Due 2008
Issuer....................................... Carrols Corporation
Maturity..................................... December 1, 2008
Interest..................................... Annual rate--9 1/2%
Payment frequency--every six months on June 1 and December 1
First payment--June 1, 1999
Guarantees................................... The exchange notes are unconditionally guaranteed in full, jointly
and severally, on an unsecured senior subordinated basis, by all
of our subsidiaries which conduct business operations.
Ranking...................................... The exchange notes and the subsidiary guarantees are senior
subordinated debts. They rank behind all of our and our guarantor
subsidiaries' current and future indebtedness (other than trade
payables), except indebtedness that expressly provides that it is
not senior to the exchange notes and the subsidiary guarantees or
that expressly provides that it is subordinate to any other of our
indebtedness or that of our subsidiary guarantors.
At December 31, 1998, the exchange notes and the subsidiary
guarantees were subordinated to $88.6 million of indebtedness
(excluding unused commitments of $60.4 million under our credit
facility, assuming that our credit facility was in effect on
December 31, 1998).
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Optional Redemption.......................... On or after December 1, 2003, we may redeem the exchange notes in
cash at our option, in whole or in part, at the redemption prices
described in this prospectus under the heading "Description of the
Exchange Notes," plus accrued and unpaid interest to the date of
redemption. Before December 1, 2001, we may redeem up to
$59.5 million principal amount of the exchange notes with the
proceeds of certain public offerings of equity in our company, at
the redemption prices described in this prospectus, provided that
at least 65% of the originally issued principal amount of the
exchange notes remains outstanding after each such redemption. See
"Description of the Exchange Notes--Optional Redemption."
Change of Control............................ Upon the occurrence of a change of control of us, we will be
required to offer to repurchase your exchange notes at a price
equal to 101% of their principal amount, together with all accrued
and unpaid interest to the date of repurchase. See "Description of
the Exchange Notes--Repurchase at the Option of Holders--Change of
Control."
Restrictive Covenants........................ The Indenture will limit, among other things, our ability and the
ability of our guarantor subsidiaries to:
o incur additional indebtedness;
o make certain payments and redemptions;
o make certain investments;
o sell assets and subsidiary guarantor stock;
o enter into transactions with affiliates; and
o consolidate, merge, transfer or sell all or substantially
all of our assets.
Absence of Public Market..................... There is no established trading market for the exchange notes. We
do not currently intend to list the exchange notes on any
securities exchange or to seek approval for quotation through any
automated quotation system. Accordingly, we cannot assure you of
the development or liquidity of any market for the exchange notes.
The certificates representing the exchange notes will be issued in
fully registered form.
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5
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OUR BUSINESS
OVERVIEW
Who We Are
We are the largest Burger King(Registered) franchisee in the world, and we
have operated Burger King restaurants since 1976. As of December 31, 1998, we
operated 343 Burger King restaurants located in 13 Northeastern, Midwestern and
Southeastern states. We also own and operate the Pollo Tropical restaurant chain
which at December 31, 1998 included 40 company owned restaurants in Florida and
21 franchised restaurants. Over the last five years, we expanded our operations
through the acquisition and construction of additional Burger King restaurants
while also enhancing the quality of operations, the competitive position and
financial performance of our existing restaurants.
As a result of our growth strategy, we increased the total number of Burger
King restaurants we operate by over 55% from 1994 to 1998. From fiscal 1994 to
fiscal 1998, we grew our revenues from $203.9 million to $416.6 million. In July
1998, we completed our purchase of Pollo Tropical for a cash purchase price of
approximately $95 million. Pollo Tropical is a regional quick-service restaurant
chain featuring grilled marinated chicken and authentic "made from scratch" side
dishes. Before we acquired it, for the 12 months ended June 30, 1998, Pollo
Tropical had revenues of $69.6 million. Assuming we had acquired Pollo Tropical
on January 1, 1998, for fiscal 1998 our revenues would have been
$454.7 million.
The Burger King System
Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 10,200 restaurants throughout the U.S. and in
53 foreign countries. In fiscal 1997, BKC reported systemwide sales of
approximately $7.9 billion from its restaurants in the U.S. From 1993 to 1997,
BKC increased its market share of the domestic quick-service hamburger market
from 16.2% to 19.4%. Burger King restaurants are quick-service restaurants of
distinctive design which feature flame-broiled hamburgers and serve several
widely-known, trademarked products, the most popular being the
WHOPPER(Registered) sandwich. Burger King restaurants are generally located in
high traffic areas throughout the U.S. We believe that the primary competitive
advantages of Burger King restaurants are:
o convenience of location;
o speed of service;
o quality; and
o price.
Pollo Tropical
We operate and franchise Pollo Tropical quick-service restaurants featuring
fresh grilled chicken marinated in a proprietary blend of tropical fruit juices
and spices and authentic "made from scratch" side dishes. The menu emphasizes
freshness and quality, with a focus on flavorful chicken served "hot off the
grill." Pollo Tropical restaurants combine high quality, distinctive menu items
and an inviting tropical setting with the convenience and value of quick-service
restaurants.
Pollo Tropical opened its first company-owned restaurant in 1988 in Miami,
and its first international franchised restaurant in 1995 in Puerto Rico. As of
December 31, 1998, we owned and operated 40 Pollo Tropical restaurants, all
located in south and central Florida, and we franchised 21 Pollo Tropical
restaurants located in Puerto Rico, the Dominican Republic, Ecuador, Netherlands
Antilles and Miami. For the fiscal year ended December 31, 1998, Pollo
Tropical's average comparable restaurant sales were approximately $2 million,
which we believe is among the highest in the quick-service restaurant industry.
We believe that our strategic acquisition of Pollo Tropical will allow us to:
o broaden our restaurant concepts;
o expand our geographic presence;
o diversify our revenue base;
o increase our cash flow; and
o enhance our operating margins.
The Industry
The quick-service restaurant industry, which includes hamburgers, pizza,
chicken, various types of sandwiches and Mexican and other ethnic foods, has
experienced consistent growth. The National Restaurant Association estimates
that sales at quick-service restaurants will reach approximately
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$105.7 billion in 1998, compared with approximately $61.4 billion in 1988.
This growth in the quick-service restaurant industry reflects consumers'
increasing desire for a convenient, reasonably priced restaurant experience. In
addition, consumer need for meals and snacks prepared outside the home has
increased as a result of the greater numbers of working women and single parent
families. According to the National Restaurant Association, the percentage of
the average family's food budget spent on meals consumed "away from home" will
have grown from approximately 25% of the food budget in 1955 to a projected 44%
in 1999.
COMPETITIVE STRENGTHS
We attribute our success in the quick-service restaurant industry to the
following competitive strengths:
Largest Burger King Franchisee
We are the largest Burger King franchisee in the world. We believe that our
leadership position, together with our experienced management team, effective
management information systems, an extensive infrastructure and a proven track
record for integrating acquisitions and new restaurants, provide us with
attractive opportunities to build and acquire additional restaurants. In
addition, we believe that these factors enable us to enhance restaurant margins
and overall performance and allow us to operate more efficiently than other
Burger King franchisees.
Strong Brand Names
Since the formation of BKC in 1954, the Burger King brand has become one of
the most recognized brands in the restaurant industry. BKC spends between 4% and
5% of total system sales on advertising per year (approximately $390 million in
1997 and approximately $1.5 billion over the past five years). The strong Burger
King brand, coupled with the quality and value of the food and convenience of
its restaurants has provided the Burger King system with consistent growth.
According to Technomic, Inc., Burger King increased its share of the domestic
quick-service hamburger market from approximately 16.2% to 19.4% from 1992 to
1997.
Our acquisition of Pollo Tropical provides us with one of the most
recognized quick-service restaurant brands in Pollo Tropical's core markets of
south and central Florida. We believe that the following factors have led to the
success of the Pollo Tropical concept:
o strong brand awareness in Pollo Tropical's markets;
o loyalty among our Hispanic customers; and
o positioning of our menu to capitalize on the growing consumer preference
for both healthier and ethnic foods.
Stable Cash Flows
We believe that the stability of our operating cash flow is due to the
proven success of the Burger King concept and our consistent focus on restaurant
operations. During the past five years, our restaurant level EBITDA (EBITDA
before general and administrative expenses) margins for our Burger King
restaurants ranged between 15.4% and 18.2% and averaged 16.8%. In addition, over
the same period, restaurant level EBITDA margins for Pollo Tropical restaurants
ranged between 18.7% and 25.4% and averaged 23.1%. We believe that the strength
of our cash flow provides us with liquidity to pursue our growth strategy.
Diversified Locations and Restaurant
Concepts
Since August 1993, we have increased the number of Burger King restaurants
we own by over 70% and we have increased our geographic presence from nine
states to 13 states. Our acquisition of Pollo Tropical further expands our
geographic presence through the location of Pollo Tropical restaurants in
Florida, the Caribbean and Central and South America. We believe that this
geographic expansion enables us to capitalize on a region with a rapidly growing
population and further reduce our dependence on the economic performance of any
one particular region. In addition, this acquisition enables us to further
diversify our revenue and cash flow base to another concept within the
quick-service restaurant industry.
Experienced Management Team with a
Significant Equity Stake
Our senior management team, headed by Chairman and Chief Executive Officer
Alan Vituli and President and Chief Operating Officer Daniel T. Accordino, has a
long and successful history of developing, acquiring and operating quick-service
7
<PAGE>
restaurants. Under their leadership and direction, we have become the largest
Burger King franchisee. Mr. Vituli and Mr. Accordino lead a team of six regional
operating directors who have an average of 22 years of restaurant industry
experience and 46 district managers who have an average of 16 years of
restaurant management experience in the Burger King system.
We believe that the combination of our existing management team, together
with the continuity of leadership provided by Pollo Tropical's President and
Chief Operating Officer Nicholas A. Castaldo enhances our ability to capitalize
on future growth opportunities in the quick-service restaurant industry. Our
management owns (on a fully diluted basis) approximately 12% of Carrols Holdings
Corporation ("Holdings"), which owns 100% of our stock. Our regional and
district managers also hold options to acquire equity in Holdings.
OWNERSHIP
Carrols Holdings Corporation
Our management, headed by Alan Vituli, owns approximately 12% of Holdings
(on a fully diluted basis). Holdings owns 100% of our stock. Holdings' other
equity investors (who each own approximately 44% of Holdings' fully diluted
capital stock) are BIB Holdings (Bermuda) Ltd., an affiliate of Dilmun
Investments, Inc., and funds managed by Madison Dearborn Partners, Inc.
An indirect wholly-owned subsidiary of Bahrain International Bank, an
international financial institution whose equity investors include members of
the Kuwaiti and Saudi Royal families, owns both BIB Holdings and Dilmun
Investments. Since its formation in 1982, Bahrain International Bank has
invested more than $600 million in U.S. companies, with a particular focus on
companies with strong brand awareness. Madison Dearborn Partners is one of the
largest and most experienced private equity investment firms in the U.S. with
approximately $3.5 billion of capital under management and having invested over
$1.8 billion in more than 125 companies in a variety of industries since 1980.
THE POLLO ACQUISITION AND THE PRIVATE OFFERING
Pursuant to an Agreement and Plan of Merger, dated June 3, 1998, we
commenced a tender offer to purchase all the outstanding shares of common stock
of Pollo Tropical for a price of $11.00 per share. We completed our merger with
Pollo Tropical on July 20, 1998. The aggregate consideration paid, including
fees and expenses, to effect our acquisition of Pollo Tropical was approximately
$95 million, which we financed under our previous credit facility. We used the
proceeds from the private offering of the outstanding notes to repay a portion
of our indebtedness under our previous credit facility, to repay all of our then
outstanding 11 1/2% Senior Notes Due 2003 and to pay related fees and expenses.
RISK FACTORS
You should carefully consider the matters set forth under "Risk Factors,"
as well as the other information and financial statements included in this
prospectus before you tender your outstanding notes in the exchange offer.
PRINCIPAL OFFICES
We are a Delaware corporation. Our principal offices are located at 968
James Street, Syracuse, New York 13203, and our telephone number is (315)
424-0513.
You should rely only on the information provided in this prospectus. No
person has been authorized to provide you with different information. The
information in this prospectus is accurate as of the date on the front cover.
You should not assume that the information contained in this prospectus is
accurate as of any other date.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth summary unaudited pro forma combined
financial information of our company. Such financial information has been
derived from Carrols' audited financial statements for its fiscal year ended
December 31, 1998 and from Pollo Tropical's unaudited financial statements for
the six months ended June 30, 1998.
It is important that you read the summary financial information presented
below along with the historical consolidated financial statements of Carrols and
the historical consolidated financial statements of Pollo Tropical, the notes
thereto and the other information contained elsewhere in this prospectus.
The Unaudited Pro Forma Combined Statement of Operations Data and Other
Financial Data presented below is intended to give you a better picture of what
our business might have looked like if the following transactions had occurred
at the beginning of the period presented:
o our acquisition of Pollo Tropical in July 1998; and
o the private offering of the outstanding notes.
You should be aware of the following when reading the summary financial
information presented below:
o in calculating the ratio of earnings to fixed charges:
o earnings include earnings before income taxes plus fixed charges;
and
o fixed charges consist of interest on all indebtedness plus that
portion of operating lease rentals representative of the interest
factor;
o total long-term debt includes approximately $2.9 million of capital lease
obligations and other debt;
o data under "Operating Statistics" only includes owned, and not
franchised, Pollo Tropical units;
o in calculating the percentage change in comparable restaurant sales for
Burger King units,
o because the year ended December 31, 1998 contained 53 weeks, the
percentage change in comparable restaurant sales for that period was
calculated using a comparable number of weeks from the year ended
December 31, 1997;
o the percentage change in comparable restaurant sales using the
actual number of weeks in the year ended December 31, 1998 was 7.9%;
and
o the percentage change in comparable restaurant sales is calculated
using only those restaurants that have been open since the beginning
of the earliest period being compared; and
o in calculating the percentage change in comparable restaurant sales for
Pollo Tropical units, we have compared only those restaurants open for
seven full calendar quarters prior to the beginning of the latest period
compared.
See "Unaudited Pro Forma Combined Financial Information," "Selected Historical
Financial Information of Carrols," "Selected Historical Financial Information of
Pollo Tropical," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Index to Financial Statements."
9
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
------------------
YEAR ENDED
DECEMBER 31,
1998
------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................................................................... $454,672
Costs and expenses:
Cost of sales.......................................................................... 135,368
Restaurant wages and related expenses.................................................. 130,195
Other restaurant operating expenses.................................................... 87,528
Advertising expense.................................................................... 20,474
General and administrative............................................................. 21,761
Depreciation and amortization.......................................................... 22,263
--------
Total costs and expenses............................................................ 417,589
--------
Income from operations................................................................... $ 37,083
--------
--------
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-----------------
AS OF
DECEMBER 31, 1998
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................................................ $ 6,777
Total assets................................................................................ 319,606
Working capital deficiency.................................................................. (11,567)
Total long-term debt........................................................................ 261,522
Stockholder's equity........................................................................ 13,998
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
------------------
YEAR ENDED
DECEMBER 31,
1998
------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
OTHER FINANCIAL DATA:
Interest expense......................................................................... $ 24,452
Capital expenditures..................................................................... 34,824
Ratio of earnings to fixed charges....................................................... 1.3x
OPERATING STATISTICS:
Number of restaurants (at end of period):
Burger King units...................................................................... 343
Pollo Tropical units................................................................... 40
--------
Total............................................................................... 383
--------
--------
Average annual sales per restaurant:
Burger King units...................................................................... $ 1,124
Pollo Tropical units................................................................... 1,989
Percentage change in comparable restaurant sales:
Burger King units...................................................................... 6.2%
Pollo Tropical units................................................................... 7.8
</TABLE>
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical information at the end of and for each of
the fiscal years ended December 31, 1994, 1995, 1996 and 1997 with respect to
Carrols and Pollo Tropical and for the fiscal year ended December 31, 1998 with
respect to Carrols have been derived from audited financial statements of the
respective companies. The summary historical financial information at the end of
and for the six month periods ended June 30, 1997 and 1998 of Pollo Tropical has
been derived from unaudited financial statements contained elsewhere in this
prospectus.
Our acquisition of Pollo Tropical was completed in July 1998, and as a
result, Carrols' audited financial statements as of and for the year ended
December 31, 1998 include the results of operations for the Pollo Tropical
restaurants since July 10, 1998. Interim period results are not necessarily
indicative of results to be expected for a complete fiscal year.
See "Selected Historical Financial Information of Carrols," "Selected
Historical Financial Information of Pollo Tropical," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Index to
Financial Statements."
CARROLS
You should be aware of the following when reading the summary financial
information presented below for Carrols:
o other costs represent a non-cash provision for restaurant closure
expenses of $1,800,000 in 1994 and costs of $509,000 in 1996 associated
with the sale of us to BIB Holdings;
o EBITDA is income (loss) before income taxes, interest, depreciation and
amortization, non-cash extraordinary items and non-cash other costs, and
is presented because we believe it is a useful financial indicator for
measuring a company's ability to service and/or incur indebtedness;
o EBITDA should not be considered as an alternative to net income (loss) as
a measure of operating results or for cash flows as a measure of
liquidity in accordance with generally accepted accounting principles;
o Adjusted EBITDA is EBITDA plus $509,000 of other costs in 1996 associated
with the sale of us to BIB Holdings, refinancing expenses of $1,639,000
in 1998 and the redemption premium of $4,639,000 associated with the
retirement of debt in 1998;
o in calculating the ratio of earnings to fixed charges:
o earnings include earnings before income taxes plus fixed charges;
o fixed charges consist of interest on all indebtedness plus that
portion of operating lease rentals representative of the interest
factor; and
o for 1994, earnings were insufficient to cover fixed charges by
$1,666,000;
o total long-term debt at December 31, 1998 includes approximately
$2.9 million of capital lease obligations and other debt; and
o in calculating the percentage change in comparable restaurant sales for
Burger King units:
o because the year ended December 31, 1998 contained 53 weeks, the
percentage change in comparable restaurant sales for that period was
calculated using a comparable number of weeks for the year ended
December 31, 1997;
o the percentage change in comparable restaurant sales using the
actual number of weeks in the year ended December 31, 1998 was 7.9%;
and
o the percentage change in comparable restaurant sales is calculated
using only those restaurants that have been open since the beginning
of the earliest period being compared.
11
<PAGE>
<TABLE>
<CAPTION>
CARROLS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales....................... $203,927 $226,257 $240,809 $295,436 $416,190
Franchise revenues..................... -- -- -- -- 395
-------- -------- -------- -------- --------
Total revenues....................... 203,927 226,257 240,809 295,436 416,585
Costs and expenses:
Cost of sales........................ 57,847 63,629 68,031 85,542 122,620
Restaurant wages and related
expenses........................... 59,934 65,932 70,894 89,447 121,732
Other restaurant operating
expenses........................... 42,390 45,635 48,683 61,691 82,710
Advertising expense.................. 8,785 9,764 10,798 13,122 18,615
General and administrative........... 9,122 10,434 10,387 13,121 19,219
Depreciation and amortization........ 11,259 11,263 11,015 15,102 20,005
Other costs.......................... 1,800 -- 509 -- --
-------- -------- -------- -------- --------
Total costs and expenses........... 191,137 206,657 220,317 278,025 384,901
-------- -------- -------- -------- --------
Income from operations................. 12,790 19,600 20,492 17,411 31,684
Refinancing expenses................... -- -- -- -- 1,639
Interest expense, net.................. 14,456 14,500 14,209 14,598 21,068
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss................... (1,666) 5,100 6,283 2,813 8,977
Provision (benefit) for income taxes... 165 (9,826) 3,100 655 4,847
-------- -------- -------- -------- --------
Income (loss) before extraordinary
loss................................. (1,831) 14,926 3,183 2,158 4,130
Extraordinary loss on extinguishment of
debt, net of tax..................... -- -- -- -- 3,701
-------- -------- -------- -------- --------
Net income (loss)...................... $ (1,831) $ 14,926 $ 3,183 $ 2,158 $ 429
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................... $125,317 $135,064 $138,588 $215,328 $319,606
Working capital deficiency............. (16,456) (13,602) (15,004) (18,293) (11,567)
Total long-term debt................... 125,519 120,578 121,265 160,287 261,522
Stockholder's equity (deficit)......... (27,208) (12,916) (11,662) 17,447 13,998
OTHER FINANCIAL DATA:
EBITDA................................. $ 25,849 $ 30,863 $ 31,507 $ 32,513 $ 45,411
Adjusted EBITDA........................ 25,849 30,863 32,016 32,513 51,689
Adjusted EBITDA margin................. 12.7% 13.6% 13.3% 11.0% 12.4%
Cash provided by operating
activities........................... $ 14,400 $ 16,682 $ 14,322 $ 19,940 $ 23,273
Cash used in investing activities...... (16,958) (12,348) (20,238) (95,383) (126,504)
Cash provided by financing
activities........................... 3,096 4,581 5,767 76,381 107,756
Capital expenditures, excluding
acquisitions......................... 6,024 8,022 15,255 18,210 33,295
Ratio of earnings to fixed charges..... -- 1.3x 1.3x 1.1x 1.3x
OPERATING STATISTICS:
Total number of restaurants............ 219 219 232 335 383
Number of Burger King restaurants (at
end of period)....................... 219 219 232 335 343
Average number of Burger King
restaurants.......................... 207 219 225 280 339
Average annual sales per Burger King
restaurant........................... $ 985 $ 1,033 $ 1,070 $ 1,055 $ 1,124
Percentage change in comparable Burger
King
restaurant sales..................... 5.1% 3.8% 3.2% (1.4)% 6.2%
</TABLE>
12
<PAGE>
POLLO TROPICAL
You should be aware of the following when reading the summary financial
information presented below for Pollo Tropical:
o other (income) expense includes a provision for restaurant closure
expenses of $1,492,000 for 1995 and $6,324,000 for 1996, and acquisition
related expenses of $503,000 for the six months ended June 30, 1998 for
the sale of Pollo Tropical to us;
o EBITDA is income (loss) before income taxes, interest, depreciation and
amortization, and non-cash provisions for restaurant closure expenses,
and is presented because we believe it is a useful financial indicator
for measuring a company's ability to service and/or incur indebtedness;
o EBITDA should not be considered as an alternative to net income (loss) as
a measure of operating results or to cash flows as a measure of liquidity
in accordance with generally accepted accounting principles;
o Adjusted EBITDA is EBITDA plus the pretax extraordinary loss of $102,000
in 1995 and acquisition related expenses of $503,000 for the six months
ended June 30, 1998;
o in calculating the ratio of earnings to fixed charges:
o earnings include earnings before income taxes plus fixed charges;
o fixed charges consist of interest on all indebtedness plus that
portion of operating lease rentals representative of the interest
factor; and
o for 1996, earnings were insufficient to cover fixed charges by
$3,194,000; and
o in calculating the percentage change in comparable restaurant sales for
Pollo Tropical units, we have compared only those restaurants open for
seven full calendar quarters prior to the beginning of the latest period
compared in order to take into consideration the maturation period of
newly opened Pollo Tropical restaurants.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------
1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Restaurant sales............................ $41,114 $55,489 $63,735 $65,118 $31,817 $35,448
Franchise revenues.......................... 41 555 499 812 420 454
------- ------- ------- ------- ------- -------
Total revenues.............................. 41,155 56,044 64,234 65,930 32,237 35,902
Costs and expenses:
Cost of sales............................... 14,849 20,065 24,037 22,533 11,164 11,999
Restaurant wages and related expenses....... 9,710 13,661 15,695 15,178 7,472 7,994
Other restaurant operating expenses......... 4,812 7,362 9,159 8,427 4,106 4,694
Advertising expense......................... 1,383 2,103 2,978 2,987 1,563 1,702
General and administrative.................. 3,702 5,178 5,371 5,538 2,903 2,805
Depreciation and amortization............... 2,301 3,397 2,962 2,355 1,208 1,133
Other (income) expense, net................. (22) 1,623 6,250 (32) (8) 488
------- ------- ------- ------- ------- -------
Total costs and expenses.................... 36,735 53,389 66,452 56,986 28,408 30,815
------- ------- ------- ------- ------- -------
Income (loss) from operations............... 4,420 2,655 (2,218) 8,944 3,829 5,087
Interest (income) expense, net.............. 32 758 976 490 363 (31)
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary loss.......................... 4,388 1,897 (3,194) 8,454 3,466 5,118
Provision (benefit) for income taxes........ 1,590 720 (1,213) 3,212 1,316 2,242
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary loss..... 2,798 1,177 (1,981) 5,242 2,150 2,876
Extraordinary loss on extinguishment of
debt, net of tax............................ -- 63 -- -- -- --
------- ------- ------- ------- ------- -------
Net income (loss)........................... $ 2,798 $ 1,114 $(1,981) $ 5,242 $ 2,150 $ 2,876
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
13
<PAGE>
POLLO TROPICAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------
1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets....................................... $42,255 $46,825 $48,501 $40,354 $45,309 $43,333
Working capital deficiency......................... (2,685) (4,407) (7,381) (4,906) (6,666) (3,368)
Total long-term debt............................... 11,402 12,049 11,375 1,214 6,632 95
Stockholder's equity............................... 24,619 25,959 24,142 29,731 26,442 32,877
OTHER FINANCIAL DATA:
EBITDA............................................. $ 6,721 $ 7,442 $ 7,068 $11,299 $ 5,037 $ 6,220
Adjusted EBITDA.................................... 6,721 7,544 7,068 11,299 5,037 6,723
Adjusted EBITDA margin............................. 16.3% 13.5% 11.0% 17.1% 15.6% 18.7%
Cash provided by operating activities.............. $ 5,894 $ 6,226 $ 4,632 $11,732 $ 6,282 $ 4,852
Cash used in investing activities.................. (17,244) (6,893) (4,587) (1,596) (584) (1,736)
Cash provided (used) by financing activities....... 8,068 669 (642) (9,938) (4,654) (888)
Capital expenditures............................... $24,179 $ 9,059 $ 4,539 $ 1,397 $ 616 $ 1,559
Ratio of earnings to fixed charges................. 5.2x 2.2x -- 8.8x 6.4x 18.3x
OPERATING STATISTICS:
Number of restaurants (at end of period)........... 33 36 35 36 35 36
Average number of restaurants...................... 21 33 38 35 35 36
Average annual sales per restaurant................ $ 1,958 $ 1,681 $ 1,677 $ 1,861 -- --
Percentage change in comparable restaurant sales... (0.7)% (5.6)% 7.9% 4.2% 6.0% 7.9%
</TABLE>
14
<PAGE>
RISK FACTORS
In addition to the other information set forth in this prospectus, you
should carefully consider the following information before participating in the
exchange offer.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH.
We have a significant amount of indebtedness. The following chart shows
certain important credit statistics. The calculation of the ratio of earnings to
fixed charges assumes that our purchase of Pollo Tropical and the private
offering of the outstanding notes occurred on January 1, 1998.
<TABLE>
<CAPTION>
HISTORICAL
AT DECEMBER 31, 1998
--------------------
<S> <C>
Total indebtedness............................................ $261.5 million
Stockholder's equity.......................................... 14.0 million
Debt to total capitalization.................................. 94.9%
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
--------------
<S> <C>
Ratio of earnings to fixed charges............................ 1.3x
</TABLE>
In addition to the foregoing, please be aware that our interest expense
will be higher compared to previous years because of our financing of our
acquisition of Pollo Tropical.
Such a large amount of indebtedness could have negative consequences for
us. For example, it could:
o make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
o increase our vulnerability to general adverse economic and industry
conditions, as well as increases in interest rates;
o limit our ability to fund future working capital, capital expenditures
and other general corporate requirements;
o 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 to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
o place us at a competitive disadvantage compared to our competitors that
have less debt; and
o limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
And, failing to comply with those covenants could result in an Event of
Default under the Indenture which, if not cured or waived, could have a
material adverse effect on us.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS JUNIOR TO
OUR CREDIT FACILITY AND POSSIBLY TO ALL OF OUR FUTURE BORROWINGS.
The exchange notes and the subsidiary guarantees rank behind all of our and
our guarantor subsidiaries' current and future indebtedness (other than trade
payables), except indebtedness that expressly provides that it is not senior to
the exchange notes and the subsidiary guarantees or that expressly provides that
it is subordinate to any other of our indebtedness. As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of our and the guarantor
subsidiaries' 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.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the exchange notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and the guarantors in the assets remaining after we and the
guarantor subsidiaries have paid all senior debt. However, because the Indenture
requires that amounts otherwise payable to holders
15
<PAGE>
of the 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
the guarantor subsidiaries may not have sufficient funds to pay all of our
creditors and holders of the exchange notes may receive less, ratably, than
holders of senior debt. As of December 31, 1998, the exchange notes and the
subsidiary guarantees were subordinated to $88.6 million of senior debt. See
"Description of the Exchange Notes--Subordination."
THE EXCHANGE NOTES ARE UNSECURED--THE LENDERS UNDER OUR CREDIT FACILITY HAVE A
PRIOR CLAIM TO OUR ASSETS
The exchange notes will not be secured by any of our assets or the assets
of our subsidiaries. Obligations under our credit facility and any guarantees of
those obligations are secured by substantially all of our assets and the assets
of our subsidiaries. If we become insolvent or are liquidated, or if payment
under our credit facility is accelerated, the lenders under our credit facility
would have a prior claim with respect to our assets and would be entitled to
exercise remedies available to them under applicable laws.
ADDITIONAL BORROWINGS AVAILABLE--WE AND OUR SUBSIDIARIES MAY BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the Indenture do not fully prohibit us
or our subsidiaries from doing so. If our present credit facility had been in
effect on December 31, 1998, we would have been permitted to borrow an
additional $60.4 million under our credit facility at that date. All of those
borrowings would be senior to the exchange notes and the subsidiary guarantees.
See "Capitalization" and "Description of the Senior Credit Facility."
ABILITY TO SERVICE DEBT--WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE
OUR INDEBTEDNESS
Our ability to make payments on our indebtedness, including the exchange
notes, and to fund operating and capital expenditures will depend on our ability
to generate cash in the future. We believe based on current circumstances that
our cash flow, together with available borrowings under our credit facility,
will be adequate to permit us to meet our operating expenses and to service our
debt requirements for the foreseeable future. Significant assumptions underlie
this belief including that we will be successful in implementing our business
strategy and that there is no material adverse change in our business, liquidity
or capital requirements. We cannot assure you that we will generate sufficient
cash flow to meet our operating expenses and to service our debt requirements.
We may need to adopt alternative strategies, including:
o reducing or delaying capital expenditures;
o selling assets;
o restructuring or refinancing our indebtedness; or
o seeking additional equity capital.
We cannot assure you, however, that any of these alternative strategies
would be completed on satisfactory terms.
RESTRICTIONS IMPOSED BY OUR CREDIT FACILITY AND THE INDENTURE--OUR CREDIT
FACILITY AND THE INDENTURE IMPOSE SIGNIFICANT OPERATING AND FINANCIAL
RESTRICTIONS
Our credit facility and the Indenture impose significant operating and
financial restrictions on us and our subsidiaries. These restrictions may
significantly limit or prohibit us from engaging in certain transactions,
including:
o disposing of assets;
o incurring additional indebtedness;
o repaying other indebtedness;
o paying dividends;
o entering into certain investments or acquisitions;
16
<PAGE>
o repurchasing or redeeming capital stock;
o engaging in mergers or consolidations; and
o engaging in certain transactions with subsidiaries and affiliates.
Our credit facility requires us to maintain specified financial ratios and
satisfy certain financial tests. Our ability to meet these financial ratios and
tests may be affected by events beyond our control and, as a result, we cannot
guarantee to you that we will be able to meet such tests. In addition, the
restrictions contained in our credit facility could limit our ability to finance
future operations or capital needs or engage in other business activities that
may be in the interests of us or our subsidiaries. Our failure to comply with
the restrictions in the Indenture and our credit facility could lead to a
default under the terms of our credit facility. In the event of such a default,
the lenders under our credit facility could declare all amounts borrowed due and
payable, including all interest that is accrued and unpaid. In addition, the
lenders under our credit facility could terminate their commitments to lend to
us. If that does occur, we cannot assure you that we would be able to make the
necessary payments to the lenders and we cannot give you any assurance that we
would be able to find additional alternative financing. Even if we could obtain
additional alternative financing, we cannot assure you that it would be on terms
that are favorable or acceptable to us. We currently are in compliance with the
restrictions and financial tests contained in our credit facility and with the
restrictions contained in the Indenture.
You should also be aware that the existing indebtedness under our credit
facility is secured by substantially all of our and our subsidiaries' assets.
Should a default or acceleration of such indebtedness occur, the holders of such
indebtedness could seize these assets securing the indebtedness and sell the
assets to satisfy all or a part of what is owed.
WE ARE HIGHLY DEPENDENT ON THE BURGER KING SYSTEM AND OUR ABILITY TO RENEW OUR
FRANCHISES WITH BURGER KING CORPORATION
Our success is, to a large extent, directly related to the success of the
nationwide Burger King system. In turn, the ability of the nationwide Burger
King system to compete effectively depends upon the success of the management of
the Burger King system by BKC. We cannot assure you that BKC will be able to
compete effectively with other quick-service restaurants.
Under our franchise agreements with BKC, we are required to comply with
operational programs established by BKC. In addition, although not required, we
may not be able to avoid adopting menu price discount promotions instituted by
BKC which may be unprofitable.
BKC's consent is required for us to expand and acquire additional Burger
King restaurants. BKC has a right of first refusal to acquire existing Burger
King restaurants which we may seek to acquire. Although BKC has historically
granted its approval to most of our acquisition requests, we cannot assure you
that it will continue to do so. In addition, BKC must consent to renew our
franchise agreements when they expire. Our franchise agreements with BKC
typically have 20-year terms and are set to expire as follows:
o 61 of our franchise agreements with BKC are due to expire within five
years from December 31, 1998; and
o an additional 131 of our franchise agreements with BKC are due to expire
within ten years from December 31, 1998.
Although BKC has granted each of our requests for successor franchise
agreements, we cannot assure you that it will continue to do so. In addition, we
may be obligated to remodel particular restaurants in connection with obtaining
successor franchise agreements and thus incur substantial costs.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE QUICK-SERVICE RESTAURANT
INDUSTRY.
The quick-service restaurant industry is highly competitive and can be
materially affected by many factors, including:
o changes in local, regional or national economic conditions;
17
<PAGE>
o changes in demographic characteristics;
o changes in consumer tastes;
o changes in traffic patterns;
o consumer concerns about nutrition;
o increases in the number of, and particular locations of, competing
quick-service restaurants and other competitors;
o inflation;
o increases in the cost of food and packaging;
o increased labor costs, including health care and minimum wage
requirements;
o regional weather conditions; and
o the availability of experienced management and hourly-paid employees.
In addition, publicity from food quality, illness, injury or other health
concerns or alleged discrimination or other operating issues stemming from one
location or a limited number of locations could substantially affect us,
regardless of whether they pertain to our own restaurants. For a short period
during August 1997, negative publicity related to a recall of beef furnished by
a Burger King system supplier affected our sales, although none of our
restaurants received beef from this supplier. See "Business."
RISKS RELATED TO INCREASED LABOR COSTS
Wage rates for a substantial number of our employees are at or slightly
above the minimum wage. Recent legislation increasing the minimum wage has
resulted in higher wage rates for us. As federal and/or state minimum wage rates
increase, we may need to increase not only the wage rates of our minimum wage
employees but also the wages paid to the employees at wage rates which are above
the minimum wage. Although we anticipate that increases in the minimum wage may
be offset by pricing and other cost control efforts, we cannot assure you that
we will be able to do so. See "Business--Government Regulation."
COMPETITION IS INTENSE IN THE QUICK-SERVICE RESTAURANT INDUSTRY
The quick-service restaurant industry is highly competitive. Our
restaurants compete with a large number of national quick-service restaurant
chains, as well as regional quick-service restaurant chains, convenience stores
and other purveyors of moderately priced and quickly served foods. Our largest
competitor is McDonald's restaurants. According to publicly available
information, McDonald's restaurants had aggregate U.S. revenues of
$17.1 billion for the year ended December 31, 1997 and operated 12,380
restaurants in the U.S. at that date.
To remain competitive, we, as well as certain of the other major
quick-service restaurant chains, have increasingly offered selected food items
and combination meals at discounted prices. These changes in pricing and other
marketing strategies have had, and in the future may continue to have, a
negative impact on our sales and earnings. See "Business--Competition."
RISKS RELATING TO OUR ACQUISITION OF POLLO TROPICAL
Our acquisition of Pollo Tropical has increased the size of our operations
which will increase the demands placed upon our management, including demands
resulting from the need to integrate the accounting systems, management
information systems and other operations of Pollo Tropical with our own.
Successful integration of Pollo Tropical's operations will depend primarily on
our ability to effectively manage Pollo Tropical's operations. The integration
of Pollo Tropical may result in unforeseen difficulties that require a
disproportionate amount of our management's attention and our resources. We
cannot assure you that we will be able to integrate effectively the operations
of Pollo Tropical. A failure to integrate its operations effectively could have
a material adverse effect on us.
18
<PAGE>
RISKS ASSOCIATED WITH GROWTH AND DEVELOPMENT
Our growth strategy is to acquire and develop additional Burger King
restaurants and, to a lesser extent, develop and franchise additional Pollo
Tropical restaurants. Development involves substantial risks, including the
risk:
o that development costs will exceed budgeted amounts;
o of delays in completion of construction;
o of the inability to obtain all necessary zoning and construction permits;
o of the inability to identify, or the unavailability of, suitable sites on
acceptable leasing or purchase terms;
o that developed restaurants will not achieve desired revenue or cash flow
levels once opened;
o of incurring substantial unrecoverable costs in the event a development
project is abandoned prior to completion;
o of changes in governmental rules, regulations and interpretations; and
o of changes in general economic and business conditions.
Although we intend to manage our growth and development to reduce these risks,
we cannot assure you that newly developed, acquired or franchised restaurants
will perform in accordance with our expectations.
Our development plans also will require additional management, operational
and financial resources. For example, we will be required to recruit and train
managers and other personnel for each new restaurant. We cannot assure you that
we will be able to manage our expanding operations effectively.
THE LOCATION OF RESTAURANTS IS IMPORTANT TO THEIR SUCCESS.
The location of our restaurants has significant influence on their success.
We cannot assure you that current locations will continue to be economically
viable or that additional locations can be acquired at reasonable costs. In
addition, economic conditions where restaurants are located could decline in the
future, which could result in potentially reduced sales in those locations. We
cannot assure you that new sites will be as profitable as existing sites.
OUR SUCCESS DEPENDS ON CERTAIN SENIOR EXECUTIVES.
Our success depends to a large extent upon the continued services of our
senior management, including Alan Vituli, Chairman of the Board and Chief
Executive Officer, and Daniel T. Accordino, President and Chief Operating
Officer. We have employment agreements with Mr. Vituli and Mr. Accordino which
expire in March 2001. The loss of the services of Mr. Vituli or Mr. Accordino
could have a material adverse effect on our business, financial condition or
results of operations. Our success also depends upon our ability to develop
additional senior level operating management. See "Management."
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
As is the case with most businesses, we are subject to extensive laws and
regulations relating to the development and operation of restaurants, including
the following:
o zoning;
o the preparation and sale of food; and
o employer/employee relationships.
In the event that legislation having a negative impact on our business is
adopted, you should be aware that it could have a material adverse impact on us.
For example, substantial increases in the minimum wage could adversely affect
our financial condition and results of operations. Local zoning or building
codes or regulations can cause substantial delays in our ability to build and
open new restaurants.
19
<PAGE>
POTENTIAL INABILITY TO REPURCHASE EXCHANGE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of certain specific kinds of change of control events,
we may be required to offer to repurchase all or a portion of the exchange
notes. We would be required to purchase the exchange notes at 101% of their
principal amount, plus accrued interest to the date of repurchase. If a change
of control occurs, we cannot be sure that we would have enough funds to pay for
all of the exchange notes. If we are required to purchase the exchange notes, we
would need to secure third-party financing if we do not have available funds to
meet our purchase obligations. However, we cannot assure you that we would be
able to secure such financing on favorable terms, if at all.
A change of control will result in an event of default under our credit
facility and may lead to an acceleration of other senior debt, if any. Such
events may permit the holders under such debt instruments to reduce the
borrowing base under such debt instruments or accelerate the debt and, if the
debt is not paid, to take action that could ultimately result in a sale of
substantially all of our assets. This would further reduce our ability to raise
cash to purchase the exchange notes.
FRAUDULENT CONVEYANCE LAWS COULD BE APPLIED TO VOID OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
Various fraudulent conveyance laws protect creditors. These laws may be
applied by a court to subordinate or avoid the exchange notes or the guarantees
in favor of our other existing or future creditors or those of the guarantors.
If, in a lawsuit on behalf of one of our unpaid creditors or a representative of
one of our creditors, a court were to find that, at the time we issued the
outstanding notes, we:
o intended to hinder, delay or defraud any existing or future unpaid
creditors or contemplated insolvency with the intent to favor one or more
creditors over others; or
o did not receive fair consideration or reasonably equivalent value for
issuing the outstanding notes and we, at such time:
o were insolvent,
o were made insolvent by issuing the outstanding notes,
o were engaged or about to engage in a business or transaction for which
our remaining assets would be unreasonably small to carry on our
business, or
o intended to take on, or believed that we would take on, more debts than
we could pay,
such court could void our obligations under the exchange notes.
The measure of insolvency for purposes of these considerations will vary
depending upon the laws of the jurisdiction that are being applied in any such
proceeding. Generally, however, we would be considered insolvent if, at the time
we incurred the indebtedness, either:
o the sum of our debts (including contingent liabilities) is greater than
our assets, at a fair valuation; or
o the present fair saleable value of our assets is less than the amount
required to pay the probable liability on our total existing debts and
liabilities (including contingent liabilities) as they become absolute
and matured.
We believe that at the time we incurred the indebtedness constituting the
exchange notes, we:
o were not insolvent nor rendered insolvent as a result;
o were in possession of sufficient capital to run our business effectively;
o were incurring debts within our ability to pay them as they become due;
and
o had sufficient assets to satisfy any probable money judgment against us
in any pending action.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In reaching these conclusions, we
have relied upon various valuations and estimations of future cash flows that
necessarily involve a number of assumptions and choices of
20
<PAGE>
methodology. We cannot assure you, however, as to what standards a court would
apply in making such determinations or that a court would agree with our
conclusions in this regard.
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The outstanding notes have not been registered under the Securities Act or
any state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption from those laws or in a transaction not subject to those laws.
Outstanding notes that remain outstanding after consummation of the exchange
offer will continue to bear a legend reflecting these transfer restrictions. In
addition, upon consummation of the exchange offer, holders of outstanding notes
that remain outstanding will not be entitled to certain registration rights
under the Registration Rights Agreement. We do not currently anticipate that we
will register the outstanding notes under the Securities Act.
The outstanding notes were issued to, and are currently owned by, a small
number of beneficial owners. Although the outstanding notes have been designated
for trading in the PORTAL market, to the extent that outstanding notes are
tendered and accepted in connection with the exchange offer, any trading market
for outstanding notes that remain outstanding after the exchange offer could be
adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
Currently, there is no public market for the exchange notes. We do not
intend to apply for listing of the notes on any securities exchange or on any
automated dealer quotation system. We can make no assurances to you as to the
development or liquidity of any market for the exchange notes, your ability to
sell the exchange notes, or the price at which you may be able to sell the
exchange notes. General declines in the market for securities similar to the
exchange notes may adversely affect the liquidity of, and trading market for,
the exchange notes independent of our financial performance and prospects.
21
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. We applied the
gross proceeds of $170.0 million from the private offering of the outstanding
notes to:
o pay approximately $116.6 million to redeem our 11 1/2% Senior Notes Due
2003, consisting of the payment of $107.6 million aggregate principal
amount, a redemption premium of approximately $4.6 million and interest
accrued to December 24, 1998 of $4.4 million;
o repay a portion of the borrowings under our previous credit facility in
an amount equal to $47.9 million; and
o pay fees and expenses of approximately $5.5 million.
Our previous credit facility consisted of term loans maturing on June 30,
2003 and a revolving credit facility maturing on December 31, 2001. At September
30, 1998, the term loans generally bore interest at a rate of 7.82% and loans
under the revolving credit facility bore interest at a weighted average rate of
7.97%. For the terms of our credit facility presently in effect, see
"Description of the Senior Credit Facility."
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998,
which reflects, on a historical basis, the private offering of the outstanding
notes and the application of the proceeds from the private offering. The
information below assumes our credit facility was in effect at December 31,
1998. The information presented below should be read in conjunction with the
historical financial statements and related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Senior Credit Facility:
Revolving Credit Facility............................................................ $ 38,619
Term Loans........................................................................... 50,000
9 1/2% Senior Subordinated Notes Due 2008............................................... 170,000
Capital leases and other................................................................ 2,903
---------
Total long-term debt................................................................. 261,522
Stockholders' equity...................................................................... 13,998
---------
Total capitalization................................................................. $ 275,520
---------
---------
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statement of Operations and
Other Financial Data gives effect to the following transactions as if they had
occurred at the beginning of the applicable periods presented:
o our acquisition of Pollo Tropical in July 1998; and
o the private offering of the outstanding notes.
Such financial information has been derived from Carrols' audited financial
statements for its fiscal year ended December 31, 1998 and from Pollo Tropical's
unaudited financial statements for the six months ended June 30, 1998. Our
acquisition of Pollo Tropical was completed in July 1998, and as a result,
Carrols' audited financial statements as of and for the year ended December 31,
1998 include the results of operations for the Pollo Tropical restaurants since
July 10, 1998.
Our acquisition of Pollo Tropical was accounted for using the purchase
method of accounting. The total cost of that acquisition has been allocated to
the assets acquired and liabilities assumed based upon their respective fair
values as determined through appraisals and internal estimates that we believe
are reasonable.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only, does not purport to be indicative of
our financial position or results of operations as of the date of this
prospectus, or as of or for any other future date, and is not necessarily
indicative of what our actual financial position or results of operations would
have been had the foregoing transactions occurred on January 1, 1998, nor does
it give effect to (1) any transactions other than the foregoing transactions and
those described in the accompanying notes to our unaudited pro forma combined
financial information or (2) Carrols' results of operations since December 31,
1998.
The following unaudited pro forma combined financial information is based
upon the historical financial statements of Carrols and Pollo Tropical and
should be read in conjunction with such historical financial statements, the
accompanying notes and the other information contained elsewhere in this
prospectus. See "Selected Historical Financial Information of Carrols,"
"Selected Historical Financial Information of Pollo Tropical," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Index to Financial Statements."
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL POLLO TROPICAL
-------------------------------
JANUARY 1, 1998 JULY 1, 1998 PRO FORMA
HISTORICAL TO TO -----------------------
CARROLS JUNE 30, 1998 JULY 9, 1998 ADJUSTMENTS COMBINED
---------- --------------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales............................... $416,190 $35,448 $ 2,161 $453,799
Franchise revenues............................. 395 454 24 873
-------- ------- -------- --------
Total revenues............................... 416,585 35,902 2,185 454,672
Costs and expenses:
Cost of sales.................................. 122,620 11,999 749 135,368
Restaurant wages and related expenses.......... 121,732 7,994 469 130,195
Other restaurant operating expenses............ 82,710 4,694 124 87,528
Advertising expense............................ 18,615 1,702 157 20,474
General and administrative..................... 19,219 2,790 268 $ (516)(1) 21,761
Depreciation and amortization.................. 20,005 1,133 68 230 (2) 22,263
827 (3)
-------- ------- -------- ------- --------
Total costs and expenses....................... 384,901 30,312 1,835 541 417,589
-------- ------- -------- ------- --------
Income from operations........................... 31,684 5,590 350 (541) 37,083
Refinancing expenses............................. 1,639 -- -- -- 1,639
Interest expense (income)........................ 21,068 (31) 1 3,414 (4) 24,452
Acquisition expense.............................. -- 503 1,396 (1,899)(5) --
-------- ------- -------- ------- --------
Income (loss) before income taxes and
extraordinary loss............................. 8,977 5,118 (1,047) (2,056) 10,992
Provision (benefit) for income taxes............. 4,847 2,242 (424) (1,251)(6) 5,414
-------- ------- -------- ------- --------
Income (loss) before extraordinary loss(7)....... $ 4,130 $ 2,876 $ (623) $ (805) $ 5,578
-------- ------- -------- ------- --------
-------- ------- -------- ------- --------
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) General and administrative expenses have been adjusted to eliminate
non-continuing expenses of Pollo Tropical after we acquired it, as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Executive salaries and related costs.................................. $356
Directors fees........................................................ 87
Public company expenses............................................... 73
----
$516
----
----
</TABLE>
(2) Adjustment reflects the incremental amortization related to the net
additional deferred financing costs.
(3) Reflects the amortization of goodwill resulting from our acquisition of
Pollo Tropical, amortized over a 40 year period.
(4) Adjustment reflects interest expense resulting from the private
offering of the outstanding notes less the reduction for the repayment
of existing debt, assuming all of the transactions had been effected at
the beginning of the period. Reflects an interest rate of 9.50% on the
outstanding notes.
(5) Adjustment reflects the elimination of the acquisition expenses
incurred by Pollo Tropical.
(6) The income tax expense (benefit) rate related to the effects of pro
forma adjustments is 40% before the effect of non-deductible goodwill
and acquisition expenses incurred by Pollo Tropical.
(7) Before an extraordinary charge of $3,701, which is net of tax benefits,
related to the redemption premium on the 11 1/2% Senior Notes Due 2003,
and the write off of deferred financing expenses associated with
refinanced debt. This charge was recorded in the fourth quarter of
fiscal 1998.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CARROLS
The selected historical financial information presented below at the end of
and for each of the fiscal years ended December 31, 1994, 1995, 1996, 1997 and
1998 has been derived from the audited consolidated financial statements of
Carrols. Our acquisition of Pollo Tropical was completed in July 1998 and, as a
result, Carrols' audited financial statements as of and for the year ended
December 31, 1998 include the results of operations for the Pollo Tropical
restaurants since July 10, 1998. The following selected financial information
should be read in conjunction with Carrols' Consolidated Financial Statements
and accompanying Notes as of December 31, 1997 and 1998 and for the fiscal years
ended December 31, 1996, 1997 and 1998 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998(1)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales................................................ $203,927 $226,257 $240,809 $295,436 $416,190
Franchise revenues.............................................. -- -- -- -- 395
-------- -------- -------- -------- --------
Total revenues.................................................. 203,927 226,257 240,809 295,436 416,585
Costs and expenses:
Cost of sales..................................................... 57,847 63,629 68,031 85,542 122,620
Restaurant wages and related expenses............................. 59,934 65,932 70,894 89,447 121,732
Other restaurant operating expenses............................... 42,390 45,635 48,683 61,691 82,710
Advertising expense............................................... 8,785 9,764 10,798 13,122 18,615
General and administrative........................................ 9,122 10,434 10,387 13,121 19,219
Depreciation and amortization..................................... 11,259 11,263 11,015 15,102 20,005
Other costs(2).................................................... 1,800 -- 509 -- --
-------- -------- -------- -------- --------
Total costs and expenses........................................ 191,137 206,657 220,317 278,025 384,901
-------- -------- -------- -------- --------
Income from operations.............................................. 12,790 19,600 20,492 17,411 31,684
Refinancing expenses................................................ -- -- -- -- 1,639
Interest expense, net............................................... 14,456 14,500 14,209 14,598 21,068
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary loss............ (1,666) 5,100 6,283 2,813 8,977
Provision (benefit) for income taxes................................ 165 (9,826) 3,100 655 4,847
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss............................. (1,831) 14,926 3,183 2,158 4,130
Extraordinary loss on extinguishment of debt, net of tax............ -- -- -- -- 3,701
-------- -------- -------- -------- --------
Net income (loss)................................................... $ (1,831) $ 14,926 $ 3,183 $ 2,158 $ 429
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................................................ $125,317 $135,064 $138,588 $215,328 $319,606
Working capital deficiency.......................................... (16,456) (13,602) (15,004) (18,293) (11,567)
Total long-term debt(3)............................................. 125,519 120,578 121,265 160,287 261,522
Stockholder's equity (deficit)...................................... (27,208) (12,916) (11,662) 17,447 13,998
OTHER FINANCIAL DATA:
EBITDA(4)........................................................... $ 25,849 $ 30,863 $ 31,507 $ 32,513 $ 45,411
Adjusted EBITDA(5).................................................. 25,849 30,863 32,016 32,513 51,689
Adjusted EBITDA margin.............................................. 12.7% 13.6% 13.3% 11.0% 12.4%
Cash provided by operating activities............................... $ 14,400 $ 16,682 $ 14,322 $ 19,940 $ 23,273
Cash used in investing activities................................... (16,958) (12,348) (20,238) (95,383) (126,504)
Cash provided by financing activities............................... 3,096 4,581 5,767 76,381 107,756
Capital expenditures, excluding acquisitions........................ 6,024 8,022 15,255 18,210 33,295
Ratio of earnings to fixed charges(6)............................... -- 1.3x 1.3x 1.1x 1.3x
OPERATING STATISTICS:
Total number of restaurants......................................... 219 219 232 335 383
Number of Burger King restaurants (at end of period)................ 219 219 232 335 343
Average number of Burger King restaurants........................... 207 219 225 280 339
Average annual sales per Burger King restaurant..................... $ 985 $ 1,033 $ 1,070 $ 1,055 $ 1,124
Percentage change in comparable Burger King restaurant sales(1)..... 5.1% 3.8% 3.2% (1.4)% 6.2%
</TABLE>
- ------------------
(1) The year ended December 31, 1998 includes 53 weeks. All other years
presented include 52 weeks. The percentage change in comparable restaurant
sales for the year ended December 31, 1998 has been calculated using a
comparable number of weeks from the prior year. The percentage change in
comparable restaurant sales using the actual number of weeks in the year
ended December 31, 1998 is 7.9%. The percentage change in comparable
restaurant sales is calculated using only those restaurants that have been
open since the beginning of the earliest period being compared.
(2) Other costs represent a non-cash provision for restaurant closure expenses
of $1,800 in 1994 and costs associated with a change in control of $509 in
1996 associated with the sale of us to BIB Holdings.
(3) Includes capital lease obligations and other debt which was $2.9 million at
December 31, 1998.
(4) EBITDA is defined as income (loss) before income taxes, interest,
depreciation and amortization, non-cash extraordinary items and non-cash
other costs. EBITDA is presented because we believe it is a useful financial
indicator for measuring a company's ability to service and/or incur
indebtedness; however, EBITDA should not be considered as an alternative to
net income (loss) as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles.
(5) Adjusted EBITDA is defined as EBITDA plus $509,000 of other costs in 1996
associated with the sale of us to BIB Holdings, refinancing expenses of
$1,639,000 in 1998 and the redemption premium of $4,639,000 associated with
the retirement of debt in 1998.
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings included earnings before income taxes plus fixed charges. Fixed
charges consist of interest on all indebtedness plus that portion of
operating lease rentals representative of the interest factor. For 1994,
earnings were insufficient to cover fixed charges by $1,666.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF POLLO TROPICAL
The selected financial information presented below at the end of and for
each of the fiscal years ended December 31, 1994, 1995, 1996 and 1997 has been
derived from the audited consolidated financial statements of Pollo Tropical.
The selected information for the six months ended June 30, 1997 and 1998 has
been derived from unaudited financial statements of Pollo Tropical and, in our
opinion, reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data on a basis
consistent with that of the audited data presented elsewhere in this prospectus.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for a full year. The following selected financial
information should be read in conjunction with Pollo Tropical's Consolidated
Financial Statements and accompanying Notes as of December 31, 1996 and 1997 and
for the fiscal years ended December 31, 1995, 1996 and 1997 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------------
1994 1995 1996 1997 1997 1998
------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Restaurant sales..................................... $41,114 $55,489 $63,735 $ 65,118 $31,817 $35,448
Franchise revenues................................... 41 555 499 812 420 454
------- ------- ------- -------- ------- -------
Total revenues..................................... 41,155 56,044 64,234 65,930 32,237 35,902
Costs and expenses:
Cost of sales........................................ 14,849 20,065 24,037 22,533 11,164 11,999
Restaurant wages and related expenses................ 9,710 13,661 15,695 15,178 7,472 7,994
Other restaurant operating expenses.................. 4,812 7,362 9,159 8,427 4,106 4,694
Advertising expense.................................. 1,383 2,103 2,978 2,987 1,563 1,702
General and administrative........................... 3,702 5,178 5,371 5,538 2,903 2,805
Depreciation and amortization........................ 2,301 3,397 2,962 2,355 1,208 1,133
Other (income) expense, net(1)....................... (22) 1,623 6,250 (32) (8) 488
------- ------- ------- -------- ------- -------
Total costs and expenses........................... 36,735 53,389 66,452 56,986 28,408 30,815
------- ------- ------- -------- ------- -------
Income (loss) from operations......................... 4,420 2,655 (2,218) 8,944 3,829 5,087
Interest (income) expense, net........................ 32 758 976 490 363 (31)
------- ------- ------- -------- ------- -------
Income (loss) before income taxes and extraordinary
loss................................................. 4,388 1,897 (3,194) 8,454 3,466 5,118
Provision (benefit) for income taxes.................. 1,590 720 (1,213) 3,212 1,316 2,242
------- ------- ------- -------- ------- -------
Income (loss) before extraordinary loss............... 2,798 1,177 (1,981) 5,242 2,150 2,876
Extraordinary loss on extinguishment of debt, net of
tax.................................................. -- 63 -- -- -- --
------- ------- ------- -------- ------- -------
Net income (loss)..................................... $ 2,798 $ 1,114 $(1,981) $ 5,242 $ 2,150 $ 2,876
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
BALANCE SHEET DATA (AT PERIOD END):
Total assets.......................................... $42,255 $46,825 $48,501 $ 40,354 $45,309 $43,333
Working capital deficiency............................ (2,685) (4,407) (7,381) (4,906) (6,666) (3,368)
Total long-term debt.................................. 11,402 12,049 11,375 1,214 6,632 95
Stockholder's equity.................................. 24,619 25,959 24,142 29,731 26,442 32,877
OTHER FINANCIAL DATA:
EBITDA(2)............................................. $ 6,721 $ 7,442 $ 7,068 $ 11,299 $ 5,037 $ 6,220
Adjusted EBITDA(3).................................... 6,721 7,544 7,068 11,299 5,037 6,723
Adjusted EBITDA margin................................ 16.3% 13.5% 11.0% 17.1% 15.6% 18.7%
Cash provided by operating activities................. $ 5,894 $ 6,226 $ 4,632 $ 11,732 $ 6,282 $ 4,852
Cash used in investing activities..................... (17,244) (6,893) (4,587) (1,596) (584) (1,736)
Cash provided (used) by financing activities.......... 8,068 669 (642) (9,938) (4,654) (888)
Capital expenditures.................................. 24,179 9,059 4,539 1,397 616 1,559
Ratio of earnings to fixed charges(4)................. 5.2x 2.2x -- 8.8x 6.4x 18.3x
OPERATING STATISTICS:
Number of restaurants (at end of period).............. 33 36 35 36 35 36
Average number of restaurants......................... 21 33 38 35 35 36
Average annual sales per restaurant................... $ 1,958 $ 1,681 $ 1,677 $ 1,861 -- --
Percentage change in comparable restaurant sales(5)... (0.7)% (5.6)% 7.9% 4.2% 6.0% 7.9%
</TABLE>
- ------------------
(1) Other (income) expense for 1995 and 1996 includes a provision for restaurant
closure expenses of $1,492 and $6,324, respectively, and, for the six months
ended June 30, 1998, acquisition related expenses of $503 pertaining to the
sale of Pollo Tropical to Carrols.
(2) EBITDA is defined as income (loss) before income taxes, interest,
depreciation and amortization, and non-cash provisions for restaurant
closure expenses. EBITDA is presented because we believe it is a useful
financial indicator for measuring a company's ability to service and/or
incur indebtedness; however, EBITDA should not be considered as an
alternative to net income (loss) as a measure of operating results or to
cash flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(3) Adjusted EBITDA is EBITDA plus pretax extraordinary loss of $102,000 in 1995
and acquisition related expenses of $503,000 for the six months ended
June 30, 1998.
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings included earnings before income taxes plus fixed charges. Fixed
charges consist of interest on all indebtedness plus that portion of
operating lease rentals representative of the interest factor. For 1996,
earnings were insufficient to cover fixed charges by $3,194.
(5) The percentage change in comparable restaurant sales is calculated using
only those restaurants that have been open for seven full calendar quarters
prior to the beginning of the latest period compared in order to take into
consideration the maturation period of newly opened Pollo Tropical
restaurants.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are the largest Burger King franchisee in the world, and we have
operated Burger King restaurants since 1976. As of December 31, 1998, we
operated 343 Burger King restaurants located in 13 Northeastern, Midwestern and
Southeastern states. Over the last five years, we expanded our operations
through the acquisition and construction of additional Burger King restaurants
while also enhancing the quality of operations, the competitive position and
financial performance of our existing restaurants. As a result of our growth
strategy, we increased the total number of restaurants we operate by over 55%
from 1994 to 1998. In July 1998, we completed our acquisition of Pollo Tropical
for a cash purchase price of approximately $95 million. As a result, the
operations of Pollo Tropical have been presented for the six months ended
June 30, 1998 and 1997. Pollo Tropical is a regional quick-service restaurant
chain featuring grilled marinated chicken and authentic "made from scratch" side
dishes. At December 31, 1998, we owned and operated 40 Pollo Tropical
restaurants in Florida and franchised an additional 21 restaurants in the
Caribbean, Central and South America and Miami. Due to our acquisition of Pollo
Tropical in July 1998, our results for the year ended December 31, 1998 include
the operations of Pollo Tropical from July 10, 1998.
RESULTS OF OPERATIONS OF CARROLS
The following table sets forth, for fiscal years 1996, 1997 and 1998,
selected operating results of Carrols as a percentage of restaurant sales:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Restaurant sales:
Burger King restaurants.................................................... 100.0% 100.0% 91.6%
Pollo Tropical............................................................. -- -- 8.4
--------- --------- ---------
Total restaurant sales....................................................... 100.0 100.0 100.0
Costs and expenses:
Cost of sales.............................................................. 28.3 29.0 29.5
Restaurant wages and related expenses...................................... 29.4 30.3 29.2
Other restaurant expenses including advertising............................ 24.7 25.3 24.3
General and administrative................................................. 4.5 4.4 4.6
Depreciation and amortization.............................................. 4.6 5.1 4.8
--------- --------- ---------
Income from operations....................................................... 8.5% 5.9% 7.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
The results of operations and cash flows for the years ended December 31,
1998 and 1997 include 53 and 52 weeks, respectively. During 1998, we opened 11
Burger King restaurants, acquired 2 Burger King restaurants and closed 5
underperforming Burger King restaurants.
Restaurant Sales. Burger King restaurant sales for the year ended
December 31, 1998 increased 29.0% to $381.0 million from $295.4 million in 1997.
Sales at our 223 comparable Burger King restaurants (those units operating for
the entirety of the compared periods) increased 6.2% in 1998, using a comparable
number of weeks from the year ended December 31, 1997. Comparable Burger King
restaurant sales increased 7.9% using the actual number of weeks in both fiscal
years. Burger King sales increases were also due to increased sales from our
$.99 Great Tastes Menu and the additional week in 1998. Pollo Tropical
restaurant sales for the period July 10, 1998 to December 31, 1998,
$35.1 million.
Operating Costs and Expenses. Cost of sales, as a percentage of sales,
were 29.5% in 1998 compared to 29.0% in 1997. The increase in 1998 was due to
higher cost of sales at our Pollo Tropical restaurants, whose cost of sales was
35.1% in 1998, and which affected total cost of sales, as a percentage of sales,
by 0.5%. A 24% increase in costs associated with the new french fry product,
introduced in January 1998 at our Burger King restaurants, and higher food and
paper costs at recently acquired Burger King restaurants was offset by a 5.7%
decrease in beef costs.
29
<PAGE>
Restaurant wages and related expenses, as a percentage of sales, decreased
from 30.3% in 1997 to 29.2% in 1998 due to Pollo Tropical restaurant wages and
related expenses being 23.5% of sales. Pollo Tropical's restaurant wages and
related expenses are lower than those of the Burger King restaurants due to
Pollo Tropical's higher per unit sales volumes. This caused a 0.5% decrease, as
a percentage of sales, in combined restaurant wages and related expenses. The
remainder of the decrease is due to the effect of increased Burger King sales on
fixed management costs and lower unemployment tax rates in New York State and
Ohio.
Other restaurant operating expenses, including advertising, decreased from
25.3% of sales in 1997 to 24.3% in 1998 due to Pollo Tropical's other restaurant
operating expenses being 16.9% of sales. This caused a 0.7% decrease as a
percentage of sales, in total other restaurant operating expenses. In addition,
reduced utility costs associated with a milder winter in our Burger King
operating areas contributed 0.2%, as a percentage of sales, to the decrease from
1997 to 1998.
Administrative expenses, as a percentage of sales, increased from 4.4% in
1997 to 4.6% in 1998. The increase in 1998 is due to the addition of field
supervision and corporate support as a result of the 1997 acquisition of 93
Burger King restaurants, administrative functions acquired in the July 1998
acquisition of Pollo Tropical, and increased corporate expenses to support our
plans for continued expansion.
EBITDA. EBITDA increased from $32.5 million in 1997 to $45.4 million in
1998. Included in EBITDA for the year ended December 31, 1998 are refinancing
expenses of $1.6 million and a redemption premium of $4.6 million associated
with the retirement of debt. EBITDA, as adjusted for these items, was
$51.7 million for the year ended December 31, 1998. As a percentage of total
revenues, EBITDA, as adjusted, increased from 11.0% in 1997 to 12.4% in 1998 as
a result of the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$4.9 million in 1998 compared to 1997 due primarily to the increase in goodwill
and purchased intangibles associated with the purchase of Pollo Tropical in July
1998 and the purchase of Burger King restaurants in 1997.
Interest Expense. Interest expense was $21.1 million in 1998 compared to
$15.6 million in 1997. The increase in 1998 was due to higher average debt
balances from funding the acquisition of Pollo Tropical in July 1998 and the
acquisition of Burger King restaurants in 1997.
Income Taxes. The provision for income taxes of $4.8 million in 1998 is
based on an estimated effective income tax rate for 1998 of 53.9%. This rate is
higher than the Federal statutory tax rate due to state franchise and income
taxes and non-deductible amortization of franchise rights and intangible assets
pertaining to our acquisitions.
FISCAL 1997 COMPARED TO FISCAL 1996
Restaurant Sales. Restaurant sales for the year ended December 31, 1997,
increased 22.7% to $295.4 million from $240.8 million in 1996. The increase in
sales was primarily the result of the growth in the number of Burger King
restaurants operated by us which increased from 232 at the end of 1996 to 335 at
the end of 1997. During 1997, we opened 11 new restaurants, acquired 93
restaurants in six transactions, and closed one underperforming restaurant.
Sales at our 214 comparable restaurants (those units operating for the entirety
of the compared periods) decreased 1.4% during 1997. In general, we did not
increase menu prices during 1997.
Operating Costs and Expenses. Cost of sales (food and paper costs), as a
percentage of sales, were 29.0% in 1997 compared to 28.3% in 1996. The increase
in 1997 reflected higher food costs, including approximately a 2% increase in
average beef prices and higher costs as a percentage of sales at our newly
acquired Burger King units.
Restaurant wages and related expenses increased as a percentage of sales
from 29.4% in 1996 to 30.3% in 1997. Wages increased due to higher labor rates
including the effect of increases in the Federal minimum wage rates. A 1996
amendment to the Federal Fair Labor Standards Act of 1938 mandated an increase
from $4.25 per hour to $4.75 per hour which took effect in October 1996, and a
second increase in September 1997 to $5.15 per hour.
Other restaurant operating expenses were 25.3% of sales in 1997 compared to
24.7% in 1996. In part, the increase in 1997 is reflective of general
inflationary increases combined with a decrease in comparable restaurant sales.
In addition, we added a significant number of restaurants through acquisition
during 1997,
30
<PAGE>
and, therefore, expense relationships were somewhat higher as these new units
were not yet fully integrated into our business.
Administrative expenses increased approximately $2.7 million, and, as a
percentage of sales, were 4.4% in 1997 compared to 4.5% in 1996. This increase
reflects the addition of field supervision and corporate support as a result of
the 1997 addition of over 100 restaurants and to support our plans for continued
expansion.
EBITDA. EBITDA increased from $31.5 million in 1996 to $32.5 million in
1997. As a percentage of sales, EBITDA decreased from 13.3% in 1996 to 11.0% in
1997 as a result of the factors discussed above.
Depreciation and Amortization. Depreciation and amortization was $15.1
million in 1997 compared to $11.0 million in 1996. The $4.1 million increase in
1997 was due to the increase in goodwill and purchased intangibles resulting
from the purchase method of accounting for newly acquired restaurants.
Interest Expense. Interest expense was $15.6 million in 1997 compared to
$14.2 million in 1996. The increase in 1997 was the result of higher average
debt balances brought about by the funding of the restaurants that we acquired
during the year.
Income Taxes. The provision for income taxes of $655,000 in 1997 resulted
in an effective income tax rate of 23.2%. The low effective rate was primarily
attributable to the favorable settlement of a Federal income tax claim that we
had outstanding for several years. As a result of the settlement, our tax
provision was reduced by $806,000, and we recorded interest income of $983,000.
RESULTS OF OPERATIONS OF POLLO TROPICAL
The following table sets forth for the period indicated certain selected
income statement data as a percentage of restaurant sales, except general and
administrative expenses, which is shown as a percentage of total revenues, and
certain restaurant data:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
COSTS AND EXPENSES:
Cost of sales............................................. 36.2% 37.7% 34.6% 35.1% 33.9%
Restaurant payroll........................................ 24.6 24.6 23.3 23.5 22.6
Other restaurant operating expenses....................... 17.1 19.0 17.5 17.8 18.0
General and administrative................................ 9.2 8.4 8.4 9.0 7.8
Depreciation and amortization of property and equipment... 3.5 3.5 3.1 3.1 2.9
Amortization of deferred restaurant pre-opening costs..... 2.1 0.9 0.2 0.3 0.1
Other amortization........................................ 0.5 0.3 0.3 0.4 0.2
Restaurant closure expenses............................... 2.7 9.9 -- -- --
Income (loss) from operations............................... 5.0 (3.6) 13.7 12.0 14.4
Other expense, net(a)....................................... (1.6) (1.4) (0.7) (1.1) (1.3)
Net income (loss)........................................... 2.0 (3.1) 8.1 6.8 8.1
</TABLE>
- ------------------
(a) Includes interest expense, interest income, other (income) expense, net, and
for the six months ended June 30, 1998, $503,000 of expenses related to the
sale of Pollo Tropical; excludes restaurant closure expenses.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
General
Pollo Tropical's operating results continued to improve during the six
months ended June 30, 1998 as Pollo Tropical posted its ninth consecutive
quarter of positive same store sales. For the first six months of 1998, same
store sales increased 7.9% compared with the same period of 1997 primarily due
to the focused execution of key marketing strategies, including every-day value
pricing on selected menu items, separate advertising campaigns aimed toward its
dual-target audiences, successful new product introductions and
31
<PAGE>
improved customer service. As a result of the continued emphasis on marketing,
operational and cost control initiatives, Pollo Tropical's operating margins
improved to 15.7% as a percentage of restaurant sales for the first six months
of 1998 compared with 12.0% for the same period of 1997.
During the six months ended June 30, 1998, one franchise restaurant opened
in Puerto Rico, one franchise restaurant opened in the Dominican Republic and
one franchise restaurant opened in Ecuador, continuing Pollo Tropical's growth
in the Caribbean and Central and South America through franchising. Pollo
Tropical receives exclusivity fees upon signing of area development agreements.
Such fees are recognized as revenue when franchise restaurants open or when such
agreements terminate. Additionally, Pollo Tropical receives a franchise fee when
franchise restaurants become operational, and Pollo Tropical receives continuing
royalties based on sales. As Pollo Tropical does not control the timing of
franchise openings and/or terminations of agreements, the recognition of
franchise revenues cannot be accurately predicted and, therefore, may fluctuate
significantly on a quarter to quarter basis.
Restaurant Sales. Restaurant sales for the six months ended June 30, 1998
increased 11.4% to $35.4 million from $31.8 million for the comparable six
months of 1997. Same store sales for the six months ended June 30, 1998
increased approximately $2.5 million or 7.9% from the comparable period of 1997.
Restaurant sales were also positively affected by an increase in the number of
restaurants open during the six months ended June 30, 1998, as compared to the
same period of 1997. During the six months ended June 30, 1998, 36 restaurants
operated for the full six months, compared to the six months ended June 30, 1997
when 34 restaurants operated for the full six months and one operated for part
of the six months. The additional restaurants for the six months ended June 30,
1998 had incremental sales of approximately $1.1 million.
Franchise Revenues. Franchise revenues for the six months ended June 30,
1998 increased $34,000 to $454,000 for the six months ended June 30, 1998, from
$420,000 for the six months ended June 30, 1997. Franchise revenues generally
consist of initial franchise fees which are recognized when a restaurant opens,
continuing royalties and fees from operating franchised restaurants, and
forfeiture of exclusivity fees when area development agreements are terminated.
This increase in franchise revenues primarily relates to an increase in
royalties of $146,000 from more franchise restaurants operating during the six
months ended June 30, 1998, as compared to the same period of 1997. During the
six months ended June 30, 1998, 16 franchise restaurants operated for the full
six months and three franchise restaurants operated for part of the six months,
compared to the first six months of 1997 when seven franchise restaurants
operated for the full six months and seven franchise restaurants operated for
part of the six months. The increase in royalty revenues was partially offset by
a decrease in franchise fees of $112,000 related to fewer franchise restaurant
openings during the six months ended June 30, 1998 as compared to the first six
months of 1997.
Cost of Sales. Cost of sales, which consists of food, beverage, and paper
and supply costs, for the six months ended June 30, 1998 decreased to 33.9%, as
a percentage of restaurant sales, from 35.1% for the comparable six months of
1997. This was due to an overall decrease in the average market price of chicken
as compared to the first six months of 1997, the effect of which was a reduction
in costs of $308,000 from 1997, a sales mix change driven by the introduction of
a new product during the first six months of 1997, which had a higher cost as a
percentage of sales and improved operating efficiencies and controls which
resulted in savings of approximately $125,000.
Restaurant Payroll. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers'
compensation insurance and group health insurance, for the six months ended June
30, 1998 decreased to 22.6%, as a percentage of restaurant sales, from 23.5% for
the comparable period of 1997. This decrease was primarily due to efficiencies
from the relative fixed cost nature of certain payroll costs resulting from
higher sales volumes for the six months ended June 30, 1998, as compared to the
first six months of 1997.
Other Restaurant Operating Expenses. Other restaurant operating expenses
consists of all restaurant operating costs other than payroll expenses and
includes occupancy costs, utilities and advertising expenses. These expenses for
the six months ended June 30, 1998 increased to 18.0%, as a percentage of
restaurant sales, from 17.8% for the comparable period of 1997. The largest
component of the increase is a $150,000 increase in restaurant closure expenses.
The estimated expenses consist of $50,000 in net losses on disposal of fixed
assets and $100,000 in estimated liabilities associated with the termination of
the leases. Any
32
<PAGE>
difference between these estimated expenses and the actual amounts of such
expense will be recorded during the period in which such differences become
known.
General and Administrative. General and administrative expenses for the
six months ended June 30, 1998 decreased to 7.8%, as a percentage of total
revenues, from 9.0% for the comparable period of 1997. This decrease was
primarily due to savings of $109,000 associated with the outsourcing of certain
management functions and the fixed cost nature of general and administrative
costs relative to higher sales volume experienced during the six months ended
June 30, 1998 as compared to the first six months of 1997.
Depreciation and Amortization of Property and Equipment. Depreciation and
amortization of property and equipment for the six months ended June 30, 1998
decreased to 2.9%, as a percentage of restaurant sales, from 3.1% for the
comparable six month period in 1997. This decrease was primarily due to the
fixed cost nature of depreciation costs relative to the higher sales volume
experienced during the six months ended June 30, 1998, as compared to the
comparable six month period in 1997.
Other Amortization. Other amortization consists of amortization of
intangibles such as trademarks, leasehold acquisition costs, deferred restaurant
pre-opening costs and deferred franchise expenses. Other amortization for the
six months ended June 30, 1998, decreased to 0.3% as a percentage of restaurant
sales, from 0.7% for the comparable six month period of 1997. The decrease
primarily relates to fewer new restaurants being opened during the 12 months
ended June 30, 1998 as compared to the 12 months ended June 30, 1997 and less
amortization of deferred franchise costs due to the opening of fewer franchise
restaurants during the six months ended June 30, 1998, as compared to the first
six months of 1997.
Other Income (Expenses). Other income (expenses) for the six month period
ended June 30, 1998, increased as a percentage of restaurant sales, to 1.3% from
1.1% for the comparable six month period of 1997. This increase was primarily
due to approximately $503,000 in consulting and advisory services related to the
merger of Pollo Tropical with us, partially offset by lower interest costs due
to the lower average balance of debt under the revolving line of credit during
the six months ended June 30, 1998 as compared with the comparable six months of
1997. Pollo Tropical incurred interest costs of $29,340 during the six months
ended June 30, 1998. Such interest cost was offset by $60,991 in interest
income, which consisted primarily of interest income on invested cash balances.
During the same six month period of 1997, Pollo Tropical incurred interest costs
of $371,471, of which $1,034 was capitalized as construction cost and $7,578 was
offset as interest income.
FISCAL 1997 COMPARED TO FISCAL 1996
General
Pollo Tropical's financial results showed significant improvement in Fiscal
1997 as a result of Pollo Tropical's focused strategy. In Fiscal 1996, Pollo
Tropical revised its business strategy to concentrate on its ownership of
restaurants in its core markets in south and central Florida with company
restaurants and to utilize franchising to expand the concept internationally,
targeting South and Central America and the Caribbean. As a result of this
revised strategy, Pollo Tropical closed five unprofitable expansion market
restaurants in the fourth quarter of 1996, and one in the first quarter of 1997.
During Fiscal 1997, Pollo Tropical opened two new restaurants in the core market
of south Florida, bringing the total company owned restaurants to 36 as of the
end of Fiscal 1997, from the 35 restaurants open as of the end of Fiscal 1996.
Restaurant sales increased approximately two percent as a result of
positive same store sales, but were somewhat offset by Pollo Tropical operating
fewer restaurants through most of 1997 as compared with 1996. Pollo Tropical's
continued emphasis on marketing, operational, and cost control initiatives
produced improved store level margins in 1997.
During Fiscal 1997, a total of nine new franchises were opened during the
year. This expansion occurred in three new international markets: the Dominican
Republic, Netherlands Antilles and Ecuador, as well as continued expansion in
the Puerto Rico market.
Restaurant Sales. Restaurant sales increased $1.4 million (2%) to $65.1
million for Fiscal 1997 from $63.7 million for Fiscal 1996. This was primarily
due to a sales increase in restaurants open for both years. This increase was
offset by the effect of five restaurants closed in November 1996 and one
restaurant closed
33
<PAGE>
in January 1997. During Fiscal 1997, 34 restaurants operated for the full year
and three restaurants operated for only part of the year, of which one was
closed during the year as compared to the prior year when 32 restaurants
operated for the full year and eight restaurants operated for only part of the
year, of which five were closed in November 1996. Same store sales for Fiscal
1997 increased 4.2%.
Franchise Revenues. Franchise revenues increased $313,000 to $812,000 for
Fiscal 1997 from $499,000 for Fiscal 1996. This revenue consisted of initial
franchise fees which are recognized when a restaurant opens, continuing
royalties, fees from operating franchised restaurants and forfeiture of
exclusivity fees, which are recognized when area development agreements are
terminated. This increase was primarily due to an increase in the number of
restaurants opened and operating during Fiscal 1997. During Fiscal 1997, seven
restaurants operated for the full year and nine opened during the year as
compared to the prior year when one restaurant operated for the full year and
six were opened during the year and five domestic franchised restaurants were
closed. During Fiscal 1997, Pollo Tropical recognized $25,000 for forfeiture of
exclusivity fees, as the area development agreement with us was terminated.
During Fiscal 1996, $112,500 was recognized for forfeitures of exclusivity fees.
No area development agreements were entered into during Fiscal 1997.
As of the fiscal year ended December 31, 1997, 16 franchised restaurants
were in operation, as compared to seven franchised restaurants as of the fiscal
year ended December 31, 1996. Of the nine franchised restaurants opened during
Fiscal 1997, four were opened in Puerto Rico, two in the Dominican Republic, two
in Ecuador and one in Netherlands Antilles.
Cost of Sales. Cost of sales, which consists of food, beverage, paper and
supply costs, decreased 3.1%, as a percentage of restaurant sales, to 34.6% for
Fiscal 1997 from 37.7% for Fiscal 1996. This decrease was due to a variety of
factors including favorable new contract prices on certain food and paper items
and distribution services, improved operating efficiencies and controls, a sales
mix change driven by the introduction of a new product with relative lower food
costs, the closing of six stores which had higher food cost relative to their
low sales volumes, and the effect of other initiatives implemented during the
previous twelve-month period.
Restaurant Payroll. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers
compensation insurance and group health insurance decreased 1.3%, as a
percentage of restaurant sales, to 23.3% for Fiscal 1997 as compared to 24.6%
for Fiscal 1996. This decrease was primarily due to Pollo Tropical's strategy of
concentrating growth in its core markets of south and central Florida which have
lower payroll expenses relative to their sales. In addition, higher average
sales volumes for Fiscal 1997 and increased controls placed on labor scheduling
at the unit level further reduced payroll expense, as a percentage of restaurant
sales, as compared to Fiscal 1996. These factors were slightly offset by the
increases in the minimum wage which went into effect September 1, 1996 and 1997.
Other Restaurant Operating Expenses. Other restaurant operating expenses
consist of all restaurant operating costs other than payroll expenses and
include occupancy costs, utilities and advertising expenses. These expenses
decreased 1.5%, as a percentage of restaurant sales, to 17.5% for Fiscal 1997
from 19.0% for Fiscal 1996. The largest component of this change was occupancy
and utilities costs which decreased 0.6% and 0.3%, respectively, as a percentage
of restaurant sales, to 8.6% for Fiscal 1997 from 9.5% during Fiscal 1996. This
decrease was due to Pollo Tropical's strategy of concentrating growth in its
core markets of south and central Florida which have lower occupancy and
utilities costs relative to their sales.
General and Administrative. General and administrative expenses remained
level at 8.4%, as a percentage of total revenues, for the year ended
December 31, 1997, as compared to the same period of the prior year.
Depreciation and Amortization of Property and Equipment. Depreciation and
amortization of property and equipment decreased 0.4%, as a percentage of
restaurant sales, to 3.1% for Fiscal 1997 from 3.5% for Fiscal 1996. This
decrease was primarily due to Pollo Tropical's strategy of concentrating growth
in its core markets of South and Central Florida which have lower depreciation
costs relative to their sales volumes. This decrease was partially offset by the
two new restaurants opened during Fiscal 1997.
Amortization of Deferred Restaurant Pre-Opening Costs. Amortization of
deferred restaurant pre-opening costs decreased 0.7%, as a percentage of
restaurant sales, to 0.2% for Fiscal 1997 from 0.9% for
34
<PAGE>
Fiscal 1996. This decrease was the result of fewer new restaurants being opened
during the 12 months ended December 31, 1997, as compared to the 12 month period
ended December 31, 1996.
Other Amortization. Other amortization consists of amortization of
intangibles such as trademarks, organization costs, leasehold acquisition costs
and deferred franchise expenses. Other amortization as a percentage of
restaurant sales remained level at 0.3% for Fiscal 1997, as compared to Fiscal
1996.
Restaurant Closure Expense. In the fourth quarter of Fiscal 1996, Pollo
Tropical accrued estimated expenses in the amount of $6.5 million associated
with the closing of six restaurants. The estimated expenses consist of $5.7
million in net losses on disposal of property and equipment, $670,000 in
estimated liabilities associated with termination of leases and $115,000
associated with employee termination benefits.
During Fiscal 1997, Pollo Tropical disposed of four of the six restaurants
for which it had established a reserve in Fiscal 1996. Three of the restaurants
were sold and one was subleased. As part of the sale of one of the restaurants,
Pollo Tropical received a note receivable in the amount of $880,000. Subsequent
to December 31, 1997, the mortgagee defaulted on the note. During Fiscal 1997,
Pollo Tropical incurred $3.5 million in net losses on disposal of fixed assets,
$583,000 in expenses associated with termination of leases and $108,000
associated with employee termination benefits which were applied to the closure
reserve established in Fiscal 1996. The remaining closure reserve in
management's estimate represents amounts expected to be incurred, net of amounts
realized upon the disposition of the remaining two restaurants. Any difference
between these estimated expenses and the actual amounts of such expenses will be
recorded during the period in which such differences become known.
Other Income (Expenses). Pollo Tropical incurred interest costs of
$549,000 during Fiscal 1997 of which $4,000 was capitalized as construction
costs. Such interest was further offset by $55,000 in interest income, $46,000
of which was interest income on the note receivable for the sale of a
restaurant. During Fiscal 1996, Pollo Tropical incurred interest costs of
$1,035,000, of which $44,000 was capitalized as construction cost, and generated
interest income of $15,000. This decrease in interest costs was primarily the
result of the lower average balance of debt outstanding under Pollo Tropical's
revolving line of credit during Fiscal 1997, as compared to Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
We do not have significant receivables or inventory and receive trade
credit based upon negotiated terms in purchasing food products and other
supplies. We are able to operate with a substantial working capital deficit
because:
o restaurant operations are conducted on a cash basis;
o rapid turnover results in a limited investment in inventories; and
o cash from sales is usually received before related accounts for food,
supplies and payroll become due.
Our cash requirements arise primarily from:
o the need to finance the opening and equipping of new restaurants;
o ongoing capital reinvestment in our existing restaurants;
o the acquisition of existing Burger King restaurants; and
o servicing our debt.
Our 1998 operations generated approximately $23.3 million in cash, compared
to $19.9 million during 1997 and $14.3 million in 1996.
Our capital expenditures included acquisitions of $95.3 million in 1998,
$78.5 million in 1997 and $7.9 million in 1996. We acquired Pollo Tropical in
July 1998 for approximately $95 million and we also acquired two Burger King
restaurants earlier in 1998 for approximately $600,000. In 1997 we acquired 93
Burger King restaurants and in 1996 we acquired eight Burger King restaurants.
Capital expenditures, excluding acquisitions, totaled $33.3 million in 1998
as compared to $18.2 million in 1997 and $15.3 million in 1996. Capital
expenditures in 1998 included construction costs for twelve new Burger King
restaurants, eleven of which were open in 1998, and for five new Pollo Tropical
restaurants,
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four of which were open in 1998. Capital expenditures in 1997 included
construction costs for 15 new units, 11 of which were opened in 1997. Our
capital expenditures also include remodeling costs and capital maintenance
projects for the ongoing reinvestment and enhancement of our restaurants. These
expenditures increased in 1998 due to growth in the number of restaurants and
investments being made to enhance the operations of the 95 Burger King
restaurants that we have acquired since the beginning of 1997. During 1998, we
completed the remodeling of 16 Burger King restaurants in conjunction with the
renewal of franchises that were scheduled to expire between 1998 and 2000.
During the past three years, we have completed the remodeling of 83 Burger King
restaurants. We also have projects underway to upgrade our corporate information
and decision support systems along with our restaurant point-of-sale and
management systems. These systems projects have resulted in incremental capital
investments which totaled approximately $4 million in 1998.
During 1998, we generated $20.5 million from the sale and leaseback of two
Burger King restaurant properties and 13 Pollo Tropical restaurant properties.
During 1997, the sale and leaseback of 15 Burger King restaurant properties
generated $13.0 million. The proceeds from these transactions were used to
reduce outstanding debt. We also paid dividends to our parent totaling $3.9
million in 1998 and $4.3 million in 1997 for our parent's payment of dividends
on and for the redemption of its preferred stock. In 1998 this included the
early redemption of the remaining $3.6 million in preferred stock which was
scheduled for mandatory redemption in December 1998 and December 1999.
At December 31, 1998, we had total outstanding borrowings of
$261.5 million comprised of the $170.0 million principal amount of outstanding
notes, borrowings under our previous credit facility of $88.6 million and other
debt of $2.9 million. In total our borrowings were $101.2 million higher than at
December 31, 1997 and reflected an increase due to borrowings required to fund
the Pollo Tropical acquisition, costs incurred to redeem the 11 1/2% Senior
Notes Due 2003, and borrowings to partially fund capital expenditures for new
restaurants.
On February 12, 1999 we replaced our previous credit facility. Under our
new senior credit facility, Chase Bank of Texas, National Association, as agent,
along with a syndicate of five other lenders, have provided a term loan facility
of $50.0 million (all of which is outstanding) and a revolving credit facility
under which we may borrow up to $100.0 million.
The revolving credit facility expires on December 31, 2003 (subject to a
one-year extension upon request and unanimous approval of the lenders) and the
term loan facility is repayable in quarterly installments through September 30,
2003 with a final payment due December 31, 2003. Principal repayments required
in 1999 total $3.0 million. Borrowings under our credit facility bear interest,
at our option, of either:
(1) the greater of the prime rate (or the Federal Funds Rate plus
.50%) plus a margin of 0%, .25%, .50% or .75% based on debt to
cash flow ratios; or,
(2) LIBOR plus a margin of 1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%
based on debt to cash flow ratios.
At comparable debt to cash flow ratios, these two interest rate options
under our credit facility are .50% lower than under our previous credit
facility.
In 1999, we anticipate capital expenditures of approximately $40 million,
excluding the cost of any acquisitions that we may make. These amounts include
approximately $12 million for construction of new Burger King restaurants
(including certain real estate), $5 million for construction of new Pollo
Tropical restaurants, and $12 million for ongoing reinvestment and remodeling of
our existing restaurants. We are also in the process of upgrading our restaurant
point-of-sale systems, our in-restaurant support systems, and our corporate
information systems. In 1999, we anticipate that we will incur expenditures of
up to $11 million related to these systems projects. We are committed at
December 31, 1998 to purchase approximately $8.6 million of restaurant
point-of-sale systems.
Interest payments under the outstanding notes and the exchange notes (after
the completion of the exchange offer) and other existing debt obligations will
represent significant liquidity requirements for us. We believe that cash
generated from our operations and availability under our revolving credit
facility will provide sufficient cash availability to cover our working capital
needs, capital expenditures, planned development and debt service requirements
for fiscal 1999.
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INFLATION
The inflationary factors which have historically affected our results of
operations include increases in food and paper costs, labor and other operating
expenses. Wages paid in our restaurants are impacted by changes in the Federal
or state minimum hourly wage rates. Accordingly, changes in the Federal or
states minimum hourly wage rate directly affect our labor cost. We and the
restaurant industry typically attempt to offset the effect of inflation, at
least in part, through periodic menu price increases and various cost reduction
programs. However, no assurance can be given that we will be able to offset such
inflationary cost increases in the future.
YEAR 2000
We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 software failures. We have addressed this risk to the
availability and integrity of financial systems and the reliability of operation
systems. We have projects underway for the installation of new point-of-sale
(POS) systems in our restaurants, although substantially all of our existing POS
systems will operate through the change to Year 2000, and for the replacement of
a substantial portion of our corporate financial and decision support systems.
The primary purpose of these projects is to improve the efficiency of our
restaurant and support operations, however, they will also provide the
additional benefit of making our systems Year 2000 compliant where necessary. We
have purchased point-of-sale hardware and software, and a suite of corporate
financial software applications all of which are designed and warranted to be
Year 2000 compliant. The total cost of these capital projects is anticipated to
be approximately $14 million. Through December 31, 1998, we have expended
$4.5 million associated with these projects. The majority of the remaining
expenditures pertain to restaurant point-of-sale hardware.
As of December 31, 1998, we had successfully implemented certain corporate
financial applications including general ledger, accounts payable and asset
management as well as all salaried payroll and human resource processing. The
remaining significant corporate support systems to be implemented are hourly
restaurant payroll and human resources, anticipated to begin production during
the second quarter of 1999, and sales and inventory accounting systems which are
anticipated to be implemented by the third quarter of 1999. We believe that all
of our computer systems will be Year 2000 compliant by the end of the third
quarter of Fiscal 1999.
In addition to our internal efforts, we are also monitoring certain
initiatives of BKC as they evaluate Year 2000 readiness of food and equipment
suppliers, utility companies, and other key suppliers to the Burger King system.
Although BKC has not made any representations or warranties with respect to such
activities, they will provide us the results of third party validations of the
readiness of existing equipment used in the restaurants, summarized responses
from shared vendors and domestic contingency plans. We have also been closely
monitoring the remediation progress of our major food supplier and working
closely with it to successfully interface our ordering and delivery systems as
changes are made to these systems.
We have not developed a detailed contingency plan due to the anticipated
implementation dates associated with our planned systems conversions and the
anticipated timing of the Burger King results being provided to us. We are
evaluating our implementation progress on an ongoing basis and will develop
contingency plans as needed should our scheduled implementation dates be
modified or if the Burger King results warrant enhanced contingency planning.
While we are taking steps to monitor the progress of our key suppliers, we
cannot be assured that their remediation efforts will be successful, in which
case we could be adversely impacted by our ability to obtain food supplies for
our restaurants. In the event that the remediation efforts of our suppliers are
not successful we believe that we could alternatively process orders to obtain
food supplies for our restaurants manually. Should we be unable to process
orders we believe that the time required by our key suppliers to implement
corrective actions, when combined with our inventory levels, would not result in
a material disruption to our restaurant operations.
These are forward looking statements and are subject to risks and
uncertainties, including the ability of third party vendors and software
provided by third parties to effectively satisfy the requirements of being Year
2000 compliant.
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THE EXCHANGE OFFER
GENERAL
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal (which together
constitute the exchange offer), to exchange up to $170,000,000 aggregate
principal amount of exchange notes for a like aggregate principal amount of
outstanding notes properly tendered on or prior to [ ] (the
"Expiration Date") and not withdrawn as permitted pursuant to the procedures
described below. The exchange offer is being made with respect to all of the
outstanding notes.
As of the date of this prospectus, the aggregate principal amount of the
outstanding notes is $170,000,000. This prospectus, together with the
accompanying letter of transmittal, is first being sent on or about
[ ], to all holders of outstanding notes known to us. Our obligation
to accept outstanding notes for exchange pursuant to the exchange offer is
subject to certain conditions set forth under "--Certain Conditions to the
Exchange Offer" below. We currently expect that each of the conditions will be
satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The outstanding notes were issued on November 24, 1998 in a transaction
exempt from the registration requirements of the Securities Act. Accordingly,
the outstanding notes may not be reoffered, resold, or otherwise transferred
unless registered under the Securities Act or any applicable securities law or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the outstanding notes, we and
all of our subsidiaries which conduct business operations entered into the
Exchange and Registration Rights Agreement, dated November 24, 1998, among us,
the guarantor subsidiaries, Chase Securities Inc. and NationsBanc Montgomery
Securities LLC (the "Registration Rights Agreement"), which requires us and our
guarantor subsidiaries to file with the Commission a registration statement
relating to the exchange offer not later than 75 days after the date of original
issuance of the outstanding notes, and to use our (and their) best efforts to
cause the registration statement to become effective under the Securities Act
not later than 150 days after the date of original issuance of the outstanding
notes and the exchange offer to be consummated not later than 30 business days
after the date of the effectiveness of the registration statement. A copy of the
Registration Rights Agreement has been filed as an exhibit to the registration
statement.
The term "holder" with respect to the exchange offer means any person in
whose name outstanding notes are registered on our books or any other person who
has obtained a properly completed bond power from such registered holder, or any
person whose outstanding notes are held of record by The Depository Trust
Company. Other than pursuant to the Registration Rights Agreement, we are not
required to file any registration statement to register any outstanding notes.
Holders of outstanding notes who do not tender their outstanding notes or whose
outstanding notes are tendered but not accepted by us would have to rely on
exemptions from the registration requirements under the securities laws,
including the Securities Act, if they wish to sell their outstanding notes.
TERMS OF THE EXCHANGE
We hereby offer to exchange, subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, $1,000 in principal
amount of exchange notes for each $1,000 in principal amount of the outstanding
notes. The terms of the exchange notes are identical in all material respects to
the terms of the outstanding notes for which they may be exchanged pursuant to
this exchange offer, except that the exchange notes will generally be freely
transferable by their holders and will not be subject to any covenant regarding
registration. The exchange notes will evidence the same indebtedness as the
outstanding notes and will be entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
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The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
We are making the exchange offer in reliance on the position of the
Commission as set forth in certain interpretive letters addressed to third
parties in other transactions, including Exxon Capital Holdings Corp. (May 13,
1998), Morgan Stanley & Co. Incorporated (June 5, 1991) and Shearman &
Sterling (July 2, 1993). However, we have not sought our own interpretive
letter, and we cannot assure you that the Commission would make a similar
determination with respect to the exchange notes. Based on these interpretations
by the staff of the Commission, we believe that exchange notes issued pursuant
to the exchange offer in exchange for outstanding notes may be offered for sale,
resold and otherwise transferred by any holder of such exchange notes (other
than any such holder that is a broker-dealer or an "affiliate" of ours within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such exchange notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to participate in the distribution of such exchange notes and neither
such holder nor any other such person is engaging in or intends to engage in a
distribution of such exchange notes. Since the Commission has not considered the
exchange offer in the context of a no-action letter, we cannot assure you that
the staff of the Commission would make a similar determination with respect to
the exchange offer. See "--Resale of exchange notes" and "Plan of Distribution."
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the outstanding notes surrendered or, if no
interest has been paid on the outstanding notes, from November 24, 1998.
Tendering holders of the outstanding notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the
accompanying letter of transmittal, transfer taxes, with respect to the exchange
of the outstanding notes pursuant to the exchange offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on the
Expiration Date. We expressly reserve the right, at any time or from time to
time, to extend the period of time during which the exchange offer is open, and
thereby delay acceptance for exchange of any outstanding notes, by giving oral
or written notice to IBJ Whitehall Bank & Trust Company, the exchange agent, and
by giving written notice of such extension to the holders or by timely public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date. During any such extension,
all outstanding notes previously tendered will remain subject to the exchange
offer unless properly withdrawn. We do not anticipate extending the Expiration
Date.
We expressly reserve the right to:
(1) terminate the exchange offer and not to accept for exchange any
outstanding notes not previously accepted for exchange upon the
occurrence of any of the events specified below under "--Certain
Conditions to the Exchange Offer" which have not been waived by
us; and
(2) amend the terms of the exchange offer in any manner which, in our
good faith judgment, is advantageous to the holders of the
outstanding notes, whether before or after any tender of the
outstanding notes.
We will notify the exchange agent if any such termination or amendment
occurs, and will either issue a press release or give oral or written notice to
the holders of the outstanding notes as promptly as practicable.
For purposes of the exchange offer, a "business day" means any day
excluding Saturday, Sunday or any other day which is a legal holiday under the
laws of New York, New York, or is a day on which banking institutions therein
located are authorized or required by law or other governmental action to close.
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PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to us of outstanding notes by a holder as set forth below and
the acceptance of the tender by us will constitute a binding agreement between
the tendering holder and us upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal. Except
as set forth below, a holder who wishes to tender outstanding notes for exchange
pursuant to the exchange offer must transmit either:
(1) a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of
transmittal, to the exchange agent, at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date; or
(2) if outstanding notes are tendered pursuant to the procedures for
book-entry transfer set forth below under "--Book-Entry Transfer,"
a holder tendering outstanding notes may transmit an agent's
message to the exchange agent in lieu of the letter of
transmittal, in either case on or prior to the Expiration Date.
In addition, either:
(1) certificates for outstanding notes must be received by the
exchange agent along with the accompanying letter of transmittal;
(2) a timely confirmation of a book-entry transfer of such outstanding
notes, if such procedure is available, into the exchange agent's
account at DTC pursuant to the procedure for book-entry transfer
described below, along with the letter of transmittal or an
agent's message, as the case may be, must be received by the
exchange agent prior to the Expiration Date; or
(3) the holder must comply with the guaranteed delivery
procedures described below.
The term "agent's message" means a message, transmitted to DTC and received
by the exchange agent and forming a part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering holder
that such holder has received and agrees to be bound by the accompanying letter
of transmittal and that we may enforce the letter of transmittal against such
holder.
The method of delivery of outstanding notes, letters of transmittal or
agent's messages and all other required documents is at the election and risk of
the holder. If such delivery is by mail, we recommend that registered mail,
properly insured, with return receipt requested be used. In all cases,
sufficient time should be allowed to assure timely delivery. No letters of
transmittal or outstanding notes should be sent to us.
If tendered outstanding notes are registered in the name of the signer of
the letter of transmittal and the exchange notes to be issued in exchange for
such outstanding notes are to be issued (and any untendered outstanding notes
are to be reissued) in the name of the registered holder (which term, for the
purposes described in this prospectus includes any participant in DTC's systems
whose name appears on a security listing as the owner of outstanding notes), the
signature of such signer need not be guaranteed. In any other case, the tendered
outstanding notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to us and duly executed by the registered holder,
and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act. If the exchange notes and/or outstanding
notes not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the outstanding notes, the
signature in the accompanying letter of transmittal must be guaranteed by an
Eligible Institution.
A tender will be deemed to have been received as of the date when:
(1) the tendering holder's properly completed and duly executed letter
of transmittal accompanied by the outstanding notes is received by
the exchange agent; or
(2) a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an
Eligible Institution is received by the exchange agent.
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Issuances of exchange notes in exchange for outstanding notes tendered
pursuant to a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) by an Eligible Institution
will be made only against deposit of the accompanying letter of transmittal (and
any other required documents) and the tendered outstanding notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of letters of transmittal or outstanding notes tendered
for exchange will be determined by us in our sole discretion, which
determination shall be final and binding. We reserve the absolute right to
reject any and all tenders of any particular outstanding notes not properly
tendered and not to accept any outstanding notes for exchange which acceptance
might, in our judgment or our counsel's judgment, be unlawful. We also reserve
the absolute right to waive any defects or irregularities as to any particular
outstanding notes or conditions of the exchange offer either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender outstanding notes in the exchange offer).
The interpretation of the terms and conditions of the exchange offer
(including the accompanying letter of transmittal and related instructions) by
us will be final and binding on all parties. Any defects or irregularities in
connection with tenders of outstanding notes for exchange must be cured within
such reasonable period of time as we shall determine unless we waive this
condition. None of us, the guarantor subsidiaries, the exchange agent nor any
other person will be under any duty to give notification of any defect or
irregularity with respect to any tender of outstanding notes for exchange, nor
will any of us or them incur any liability for any failure to give such
notification.
If the accompanying letter of transmittal is signed by a person or persons
other than the registered holder or holders, such outstanding notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
outstanding notes.
If the accompanying letter of transmittal or any outstanding notes or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by us, proper evidence satisfactory to us of their authority to so
act must be submitted.
By tendering, each holder will represent to us that, among other things:
(1) exchange notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person
receiving such exchange notes, whether or not such person is the
holder;
(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
(3) neither the holder nor any such other person is an "affiliate" of
ours as defined under Rule 405 of the Securities Act, or if it is
an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent
applicable.
Any holder using the exchange offer to participate in a distribution of the
exchange notes:
(1) cannot rely on the position of the staff of the Commission set
forth in a certain no-action and interpretive letters; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary
resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such exchange notes. See "Plan of Distribution."
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BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus and any financial institution
that is a participant in DTC's systems may make book-entry delivery of
outstanding notes by causing DTC to transfer such outstanding notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of outstanding notes may be effected
through book-entry transfer at DTC, the accompanying letter of transmittal or a
facsimile of it, with any required signature guarantees, or an agent's message
in lieu of a letter of transmittal, and any other required documents, must, in
any case, be transmitted to and received by the exchange agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURE
If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or outstanding notes to reach the exchange agent before
the Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the exchange agent has received
at its address set forth below, on or prior to the Expiration Date, a letter by
hand or mail, or sent by facsimile transmission (receipt confirmed by telephone
and an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the outstanding notes are registered and, if possible, the
certificate numbers of the outstanding notes to be tendered, and stating that
the tender is being made thereby and guaranteeing that within three business
days after the Expiration Date, the outstanding notes in proper form for
transfer or a book-entry confirmation, will be delivered by such Eligible
Institution together with a properly completed and duly executed letter of
transmittal (and any other required documents). Unless outstanding notes being
tendered by the above-described method are deposited with the exchange agent
within the time period set forth above accompanied or preceded by a properly
completed letter of transmittal and any other required documents), we may reject
the tender. Copies of the notice of guaranteed delivery which may be used by
Eligible Institutions for the purposes described in this paragraph are available
from the exchange agent.
WITHDRAWAL RIGHTS
Tenders of outstanding notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) or letter must be received by the
exchange agent at the address set forth in this prospectus prior to the
Expiration Date. Any such notice of withdrawal must:
o specify the name of the person having tendered the outstanding notes
to be withdrawn;
o identify the outstanding notes to be withdrawn, including the certificate
number or numbers of such outstanding notes and their principal amount;
o include a statement that such holder is withdrawing his election to have
such outstanding notes exchanged; and
o specify the name in which any such outstanding notes are to be
registered, if different from that of the person who tendered the
outstanding notes.
The exchange agent will return the properly withdrawn outstanding notes
promptly following receipt of notice of withdrawal. If outstanding notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn outstanding notes or otherwise comply with DTC procedures.
All questions as to the validity, form and eligibility of notices of
withdrawals, including time of receipt, will be determined by us and such
determination will be final and binding on all parties.
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Any outstanding notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer. Any outstanding notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder without cost to such holder (or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at DTC pursuant to the book-entry transfer procedures described above,
such outstanding notes will be credited to an account with DTC specified by the
holder) as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Outstanding Notes" above at any time on or prior to the Expiration
Date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the Expiration Date, all outstanding notes
properly tendered and will issue the exchange notes promptly after such
acceptance. See "--Certain Conditions to the Exchange Offer." For purposes of
the exchange offer, we will be deemed to have accepted properly tendered
outstanding notes for exchange when, as and if we have given oral or written
notice to the exchange agent.
For each outstanding note accepted for exchange, the holder of such
outstanding note will receive an exchange note having a principal amount equal
to the principal amount (or portion thereof) of the outstanding note surrendered
for tender.
In all cases, issuance of exchange notes for outstanding notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for such outstanding notes
or a timely book-entry confirmation of such outstanding notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal and all other required documents, or, in the case of a book-entry
confirmation, an agent's message in lieu thereof. If any tendered outstanding
notes are not accepted for any reason set forth in the terms and conditions of
the exchange offer or if outstanding notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
outstanding notes will be returned without expense to the tendering holder (or,
in the case of outstanding notes tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry transfer procedures
described above, such non-exchanged outstanding notes will be credited to an
account maintained with DTC) as promptly as practicable after the expiration of
the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or to issue exchange notes
in exchange for, any outstanding notes and may terminate or amend the exchange
offer (by oral or written notice to the exchange agent or by a timely press
release) if at any time before the acceptance of such outstanding notes for
exchange or the exchange of the exchange notes for such outstanding notes, any
of the following events occur:
(1) if, in our sole judgment, the exchange offer would violate any
law, statute, rule or regulation or an interpretation thereof of
the staff of the Commissions; or
(2) any governmental approval has not been obtained, which approval
we, in our sole discretion, deem necessary for the consummation of
the exchange offer; or
(3) there shall have occurred:
o any general suspension of, shortening of hours for, or limitation
on prices for, trading in securities on any national securities
exchange or in the over-the-counter market;
o a declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state authorities in
the United States;
o a commencement of a war, armed hostilities or other international
or national crisis directly or indirectly involving the United
States;
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o any limitation by any governmental authority on, or other event
having reasonable likelihood of affecting, the extension of
credit by banks or other lending institutions in the United
States; or
o in the case of any of the foregoing existing at the time of the
commencement of the exchange offer, a material acceleration or
worsening thereof.
We expressly reserve the right to terminate the exchange offer and not
accept for exchange any outstanding notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to our
acceptance of properly tendered outstanding notes). In addition, we may amend
the exchange offer at any time prior to the Expiration Date if any of the
conditions set forth above occur. Moreover, regardless of whether any of such
conditions has occurred, we may amend the exchange offer in any manner which, in
our good faith judgment, is advantageous to holders of the outstanding notes.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of these rights will not be
deemed a waiver of any such right, and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time. If we
waive or amend the foregoing conditions, we will, if required by law, extend the
exchange offer for a minimum of five business days from the date that we first
give notice, by public announcement or otherwise, of such waiver or amendment,
if the exchange offer would otherwise expire within such five business-day
period. Any determination by us concerning the events described above will be
final and binding upon all parties.
In addition, we will not accept for exchange any outstanding notes
tendered, and no exchange notes will be issued in exchange for any such
outstanding notes, if at such time any stop order shall be threatened or be in
effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended. In any such event, we are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
The exchange offer is not conditioned upon any minimum principal amount of
outstanding notes being tendered for exchange.
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company has been appointed as the exchange agent
for the exchange offer. All executed letters of transmittal should be directed
to the exchange agent at the addresses set forth below.
BY HAND/OVERNIGHT COURIER OR MAIL:
IBJ Whitehall Bank & Trust Company
1 State Street
New York, New York 10004
Attention: Corporate Trust Administration
BY FACSIMILE: (212) 858-2952
Attention: Corporate Trust Administration
BY TELEPHONE: (212) 858-2000
Questions and requests for assistance, requests for additional copies of this
prospectus or of the accompanying letter of transmittal and requests for notices
of guaranteed delivery should be directed to the exchange agent at the address
and telephone number set forth above and in the accompanying letter of
transmittal.
Delivery to an address other than as set forth above, or transmissions of
instructions via a facsimile to a number other than as set forth above, will not
constitute a valid delivery.
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SOLICITATION OF TENDERS; FEES AND EXPENSES
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others for
soliciting acceptances of the exchange offer. We will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses. We will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and other related documents to the
beneficial owners of the outstanding notes and in handling or forwarding tenders
for their customers.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be approximately
$250,000, which includes fees and expenses of the exchange agent, trustee,
registration fees, accounting, legal, printing and related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. If, however, certificates
representing exchange notes or outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the outstanding
notes tendered, or if tendered outstanding notes are registered in the name of
any person other than the person signing the letter of transmittal, or if a
transfer tax is imposed for any reason other than the exchange of outstanding
notes pursuant to the exchange offer, then the amount of any such transfer taxes
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption from paying such taxes 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 carrying value of the
outstanding notes as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. Expenses incurred in connection
with the issuance of the exchange notes will be amortized over the term of the
exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Outstanding notes that are not exchanged for exchange notes pursuant to the
exchange offer will continue to be subject to the transfer restrictions as set
forth in the legend on the outstanding notes and in the Indenture. Outstanding
notes not exchanged pursuant to the exchange offer will continue to remain
outstanding in accordance with their terms. In general, the outstanding notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the outstanding notes under the Securities Act.
Participation in the exchange offer is voluntary and holders of outstanding
notes should carefully consider whether to participate. Holders are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
Holders who do not tender their outstanding notes in the exchange offer
will continue to hold such outstanding notes and will be entitled to all the
rights and subject to all the limitations applicable thereto under the
Indenture, except for any such rights under the Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of the exchange offer. All untendered outstanding notes will
continue to be subject to the transfer restrictions set forth in the Indenture.
To the extent that outstanding notes are tendered and accepted in the exchange
offer, the trading market for untendered outstanding notes could be adversely
affected.
We may in the future seek to acquire, subject to the terms of the
Indenture, untendered outstanding notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plan to acquire any outstanding notes which are not tendered in the
exchange offer.
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RESALE OF EXCHANGE NOTES
We are making the exchange offer in reliance on the position of the
Commission as set forth in certain interpretive letters addressed to third
parties in other transactions, including Exxon Capital Holdings Corp. (May 13,
1988), Morgan Stanley & Co. Incorporated (June 5, 1991) and Shearman &
Sterling (July 2, 1993). However, we have not sought our own interpretive
letter, and we cannot make any assurances that the Commission would make a
similar determination with respect to the exchange offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Commission, we believe that the exchange notes may be offered for
resale, resold and otherwise transferred by a holder, other than any holder that
is a broker-dealer or an "affiliate" of ours within the meaning of Rule 405 of
the Securities Act, without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that:
o such exchange notes are acquired in the ordinary course of such holder's
business;
o such holder has no arrangement or understanding with any person to
participate in the distribution of such exchange notes; and
o neither such holder nor any such other person is engaging in or intends
to engage in a distribution of the exchange notes.
Any holder who is an "affiliate" of ours or who has an arrangement or
understanding with respect to the distribution of the exchange notes, or any
broker-dealer who purchased outstanding notes from us to resell pursuant to Rule
144A or any other available exemption under the Securities Act could not rely on
the applicable interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds outstanding notes that were acquired for its own
account as a result of market-making or other trading activities may be deemed
to be an "underwriter" within the meaning of the Securities Act and must deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of exchange notes. Each such broker-dealer that receives exchange
notes for its own account, where outstanding notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities, must
acknowledge in the letter of transmittal that it will deliver a prospectus in
connection with any resale of such exchange notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the exchange notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. We and the
guarantor subsidiaries have agreed, pursuant to the Registration Rights
Agreement, to register or qualify the exchange notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the exchange
notes reasonably requests in writing. Such registration or qualification may
require the imposition of restrictions or conditions (including suitability
requirements for offerees or purchasers) in connection with the offer or sale of
any exchange notes.
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BUSINESS
OVERVIEW
Who We Are
We are the largest Burger King(Registered) franchisee in the world, and we
have operated Burger King restaurants since 1976. As of December 31, 1998, we
operated 343 Burger King restaurants located in 13 Northeastern, Midwestern and
Southeastern states. We also own and operate the Pollo Tropical restaurant chain
which at December 31, 1998 included 40 company owned restaurants in Florida and
21 franchised restaurants. Over the last five years, we expanded our operations
through the acquisition and construction of additional Burger King restaurants
while also enhancing the quality of operations, the competitive position and the
financial performance of our existing restaurants.
As a result of our growth strategy, we increased the total number of Burger
King restaurants we operate by over 55% from 1994 to 1998. From fiscal 1994 to
fiscal 1998, we grew our revenues from $203.9 million to $416.6 million. In July
1998, we completed our purchase of Pollo Tropical for a cash purchase price of
approximately $95 million. Pollo Tropical is a regional quick-service restaurant
chain featuring grilled marinated chicken and authentic "made from scratch" side
dishes. Before we acquired it, for the twelve months ended June 30, 1998, Pollo
Tropical had revenues of $69.6 million. Assuming we had acquired Pollo Tropical
on January 1, 1998, for fiscal 1998 our revenues would have been
$454.7 million.
The Burger King System
Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 10,200 restaurants throughout the U.S. and in
53 foreign countries. In fiscal 1997, BKC reported systemwide sales of
approximately $7.9 billion from its restaurants in the U.S. From 1993 to 1997,
BKC increased its market share of the domestic quick-service hamburger market
from 16.2% to 19.4%. Burger King restaurants are quick-service restaurants of
distinctive design which feature flame-broiled hamburgers and serve several
widely-known, trademarked products, the most popular being the
WHOPPER(Registered) sandwich. Burger King restaurants are generally located in
high traffic areas throughout the U.S. We believe that the primary competitive
advantages of Burger King restaurants are:
o convenience of location;
o speed of service;
o quality; and
o price.
Pollo Tropical
We operate and franchise Pollo Tropical quick-service restaurants featuring
fresh grilled chicken marinated in a proprietary blend of tropical fruit juices
and spices and authentic "made from scratch" side dishes. The menu emphasizes
freshness and quality, with a focus on flavorful chicken served "hot off the
grill." Pollo Tropical restaurants combine high quality, distinctive menu items
and an inviting tropical setting with the convenience and value of quick-service
restaurants.
Pollo Tropical opened its first company-owned restaurant in 1988 in Miami,
and its first international franchised restaurant in 1995 in Puerto Rico. As of
December 31, 1998, we owned and operated 40 Pollo Tropical restaurants, all
located in south and central Florida, and we franchised 21 Pollo Tropical
restaurants located in Puerto Rico, the Dominican Republic, Ecuador, Netherlands
Antilles and Miami. For the fiscal year ended December 31, 1998, Pollo
Tropical's average comparable restaurant sales were approximately $2 million,
which we believe is among the highest in the quick-service restaurant industry.
We believe that our strategic acquisition of Pollo Tropical will allow us to:
o broaden our restaurant concepts;
o expand our geographic presence;
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o diversify our revenue base;
o increase our cash flow; and
o enhance our operating margins.
The Industry
The quick-service restaurant industry, which includes hamburgers, pizza,
chicken, various types of sandwiches and Mexican and other ethnic foods, has
experienced consistent growth. The National Restaurant Association estimates
that sales at quick-service restaurants will reach approximately $105.7 billion
in 1998, compared with approximately $61.4 billion in 1988.
This growth in the quick-service restaurant industry reflects consumers'
increasing desire for a convenient, reasonably priced restaurant experience. In
addition, consumer need for meals and snacks prepared outside of the home has
increased as a result of the greater numbers of working women and single parent
families. According to the National Restaurant Association, the percentage of
the average family's food budget spent on meals consumed "away from home" will
have grown from approximately 25% of the food budget in 1955 to a projected 44%
in 1999.
COMPETITIVE STRENGTHS
We attribute our success in the quick-service restaurant industry to the
following competitive strengths:
Largest Burger King Franchisee. We are the largest Burger King franchisee
in the world. We believe that our leadership position, together with our
experienced management team, effective management information systems, an
extensive infrastructure and a proven track record for integrating acquisitions
and new restaurants, provide us with attractive opportunities to build and
acquire additional restaurants. In addition, we believe that these factors
enable us to enhance restaurant margins and overall performance and allow us to
operate more efficiently than other Burger King franchisees.
Strong Brand Names. Since the formation of BKC in 1954, the Burger King
brand has become one of the most recognized brands in the restaurant industry.
BKC spends between 4% and 5% of total system sales on advertising per year
(approximately $390 million in 1997 and approximately $1.5 billion over the past
five years). The strong Burger King brand, coupled with the quality and value of
the food and convenience of its restaurants has provided the Burger King system
with consistent growth. According to Technomic, Inc., Burger King increased its
share of the domestic quick-service hamburger market from approximately 16.2% to
19.4% from 1992 to 1997.
Our acquisition of Pollo Tropical provides us with one of the most
recognized quick-service restaurant brands in Pollo Tropical's core markets of
south and central Florida. We believe that the following factors have led to the
success of the Pollo Tropical concept:
o strong brand awareness in Pollo Tropical's markets;
o loyalty among our Hispanic customers; and
o positioning of our menu to capitalize on the growing consumer preference
for both healthier and ethnic foods.
Stable Cash Flows. We believe that the stability of our operating cash
flow is due to the proven success of the Burger King concept and our consistent
focus on restaurant operations. During the past five years, our restaurant level
EBITDA (EBITDA before general and administrative expenses) margins for our
Burger King restaurants ranged between 15.4% and 18.2% and averaged 16.8%. In
addition, over the same period, restaurant level EBITDA margins for Pollo
Tropical restaurants ranged between 18.7% and 25.4% and averaged 23.1%. We
believe that the strength of our cash flow provides us with liquidity to pursue
our growth strategy.
Diversified Locations and Restaurant Concepts. Since August 1993, we have
increased the number of Burger King restaurants we own by over 70% and we have
increased our geographic presence from nine states to 13 states. Our acquisition
of Pollo Tropical further expands our geographic presence through the
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location of Pollo Tropical restaurants in Florida, the Caribbean and Central and
South America. We believe that this geographic expansion enables us to
capitalize on a region that has a rapidly growing population and to further
reduce our dependence on the economic performance of any one particular region.
In addition, this acquisition enables us to further diversify our revenue and
cash flow base to another concept within the quick-service restaurant industry.
Experienced Management Team with a Significant Equity Stake. Our senior
management team, headed by Chairman and Chief Executive Officer Alan Vituli and
President and Chief Operating Officer Daniel T. Accordino, has a long and
successful history of developing, acquiring and operating quick-service
restaurants. Under their leadership and direction, we have become the largest
Burger King franchisee. Mr. Vituli and Mr. Accordino lead a team of six regional
operating directors who have an average of 22 years of restaurant industry
experience and 46 district managers who have an average of 16 years of
restaurant management experience in the Burger King system.
We believe that the combination of our existing management team, together
with the continuity of leadership provided by Pollo Tropical's President and
Chief Operating Officer Nicholas A. Castaldo enhances our ability to capitalize
on future growth opportunities in the quick-service restaurant industry. Our
management owns (on a fully diluted basis) approximately 12% of Holdings, which
owns 100% of our stock. Our regional and district managers also hold options to
acquire equity in Holdings.
BUSINESS STRATEGY
Our business strategy is to continue to increase revenues and cash flow
through the construction of new restaurants, acquisitions, franchising and
increasing operating efficiencies. Based on our historical performance, we
believe that our business strategy represents a low-risk growth plan. Our
strategy is based on the following components:
Leverage Brand Names. We realize significant benefits as a Burger King
franchisee. These benefits are the result of the following:
o widespread recognition of the Burger King brand;
o the size and penetration of BKC's advertising;
o BKC's management of the Burger King brand, including new product
development; and
o the continued growth of the Burger King system.
We believe that the Burger King brand provides significant opportunities to
expand our operations both within and outside our existing geographic markets,
and that the Pollo Tropical brand provides us with significant growth
opportunities within south and central Florida.
Develop Additional Restaurants in Existing Markets. We believe that our
existing Burger King markets will continue to provide opportunities for the
development of new restaurants. We look to develop restaurants in those of our
markets that we believe are underpenetrated and where the demographic
characteristics are favorable for the development of new restaurants. Our own
staff of real estate and construction professionals conduct our new restaurant
development, with support provided by BKC's development field personnel. Before
developing a new restaurant, we conduct an extensive site selection and
evaluation process which includes in-depth demographic, market and financial
analysis. By selectively increasing the number of restaurants we operate in a
particular market, we can effectively leverage our management, corporate
infrastructure and local marketing while increasing brand awareness.
We believe that we are well positioned to develop new Pollo Tropical
restaurants in Pollo Tropical's core markets of south and central Florida, which
will take advantage of Hispanic customers' high frequency of visits and strong
acceptance of Pollo Tropical's menu items. We believe that the continued
population growth in our Florida markets will provide significant opportunities
to develop additional Pollo Tropical restaurants. We also expect to continue
franchising Pollo Tropical restaurants in parts of Central and South America and
the Caribbean.
Selectively Acquire Burger King Restaurants. The Burger King system is
highly fragmented in the U.S., with approximately 7,200 Burger King restaurants
being operated by approximately 1,600 franchisees.
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We expect to continue to participate as a buyer in the consolidation of the
Burger King system and we believe that opportunities for selective acquisitions
will continue in both existing and new geographic markets as smaller franchisees
seek liquidity through the sale of their restaurants. As the largest Burger King
franchisee with a demonstrated ability to effectively integrate acquisitions, we
believe that we are better positioned to capitalize on this consolidation than
other Burger King franchisees. We believe that by acquiring additional Burger
King restaurants, we can achieve operating efficiencies from our ability to
improve controls over restaurant food costs, more efficiently utilize labor, and
achieve economies of scale by leveraging our corporate infrastructure.
Achieve Operating Efficiencies. We maintain a disciplined commitment to
increasing the profitability of our existing restaurants. Our large base of
restaurants, centralized management structure and management information systems
enable us to optimize operating efficiencies for our new and existing
restaurants. We are able to control restaurant and corporate level costs,
capture economies of scale by leveraging our existing corporate infrastructure
and use our sophisticated management information and point-of-sale systems to
more efficiently manage our restaurant operations and to ensure consistent
application of operating controls. Our size enables us to realize benefits with
improved bargaining power for purchasing and cost management activities. We
believe these factors provide the basis for increased unit and company
profitability. We intend to reduce certain operating expenses after the our
acquisition of Pollo Tropical by eliminating duplicative costs. In addition, we
expect to realize further operating efficiencies by applying our existing
infrastructure and restaurant operating experience to our newly acquired Pollo
Tropical restaurants.
Consistently Provide Superior Customer Satisfaction. Our operations are
focused on achieving a high level of customer satisfaction through quick,
accurate and high-quality customer service. We and BKC have uniform operating
standards and specifications relating to the following:
o quality;
o preparation and selection of menu items;
o maintenance and cleanliness; and
o employee conduct.
We closely supervise the operation of all of our restaurants to help ensure that
standards and policies are followed and that product quality, customer service
and cleanliness of the restaurants are maintained at high levels.
OVERVIEW OF RESTAURANT CONCEPTS
Burger King Restaurants
"Have It Your Way(Registered)" service, flame-broiling, generous portions
and competitive prices characterize the Burger King system marketing strategy.
Burger King restaurants feature flame-broiled hamburgers, the most popular of
which is the WHOPPER(Registered) sandwich. The WHOPPER(Registered) is a large,
flame-broiled hamburger on a toasted bun garnished with a combination of
mayonnaise, lettuce, onions, pickles and tomatoes. The basic menu of all Burger
King restaurants consists of hamburgers, cheeseburgers, chicken and fish
sandwiches, breakfast items, french fried potatoes, salads, shakes, desserts,
soft drinks, milk and coffee. In addition, promotional menu items are introduced
periodically for limited periods. BKC continually seeks to develop new products
as it endeavors to enhance the menu and service of Burger King restaurants.
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Our Burger King restaurants are typically open seven days per week with
minimum operating hours from 6:00 AM to 11:00 PM. Burger King restaurants are
quick-service restaurants of distinctive design and are generally located in
high-traffic areas throughout the U.S. We believe that the primary competitive
advantages of Burger King restaurants are:
o convenience of location;
o quality;
o price; and
o speed of service.
Burger King restaurants appeal to a broad spectrum of consumers, with multiple
day-part meal segments that appeal to different groups of consumers.
Our Burger King restaurants consist of one of several building types with
various seating capacities. BKC's traditional restaurant contains approximately
2,800 to 3,200 square feet with seating capacity for 90 to 100 customers, has
drive-thru service windows, and has adjacent parking areas. At December 31,
1998, 322 of our 343 Burger King restaurants were free-standing.
Pollo Tropical Restaurants
Pollo Tropical restaurants combine high quality, distinctive taste and an
inviting tropical setting with the convenience and value pricing of
quick-service restaurants. Pollo Tropical restaurants offer a unique selection
of food items reflecting tropical and Caribbean influences and feature grilled
fresh chicken marinated in a proprietary blend of tropical fruit juices and
spices. Chicken is grilled in view of customers on large, custom, open-flame
grills. Pollo Tropical broadened its selection in 1996 by adding "island" pork
to the menu, and in 1997 by adding a line of "TropiChops," a bowl containing
rice, black beans, chicken or pork and other ingredients at an attractive price
point to the menu. In 1998, grilled shrimp was added to the menu. We also
feature an array of distinctive and popular side dishes, including black beans
and rice, yucatan fries and sweet plantains, as well as more traditional fare
such as french fries, corn, and tossed and caesar salads. We also offer freshly
prepared tropical desserts, such as flan and tres leches.
Our Pollo Tropical restaurants incorporate high ceilings, large windows,
tropical plants, light colored woods, decorative tiles, a visually distinctive
exterior entrance tower, lush landscaping and other signature architectural
features, all designed to create an airy, inviting and tropical atmosphere. We
design our restaurants to conveniently serve a high volume of customer traffic
while retaining an inviting, casual atmosphere.
Our Pollo Tropical restaurants are open for lunch and dinner seven days per
week from 11:00 AM to 10:00 PM (11:00 PM on Friday and Saturday) and offer
sit-down dining, counter take-out and drive-thru service to accommodate the
varied schedules of families, business people, students and other time-sensitive
individuals. Our menu offers a variety of portion sizes to accommodate a single
customer, family or large group. Pollo Tropical restaurants also offer an
economical catering menu, with special prices and portions to serve 25 to 500
persons.
Our Pollo Tropical restaurants typically provide seating for 80 to 100
customers and provide drive-thru service. All of our Pollo Tropical restaurants
are free-standing buildings except for three end-cap locations in strip shopping
centers and one street-level storefront in an office building. Our current
prototypical free-standing Pollo Tropical restaurant ranges between 2,800 and
3,200 square feet in size.
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RESTAURANT ECONOMICS
Burger King Restaurants
For Fiscal 1998, our Burger King restaurants generated average sales of
approximately $1,124,000 and average restaurant level EBITDA of $183,000.
Drive-thru sales contributed 55.8% of restaurant sales. In all but 25 locations,
which are primarily in malls, our Burger King restaurants have a drive-thru
window. Percentages of total sales by day part are as follows:
<TABLE>
<S> <C>
Breakfast 14.3%
Lunch 33.6%
Dinner 26.7%
Late Afternoon and
Late Night Snacks Remainder
</TABLE>
The average sales transaction was $3.83 in 1998.
The cost of the franchise fee, equipment, seating, signage and other
interior costs of a standard new Burger King restaurant is approximately
$265,000 (excluding the cost of the land, building, and site improvements). The
cost of land generally ranges from $200,000 to $500,000. The cost of building
and site improvements generally ranges from $500,000 to $550,000. We typically
lease the building and land components of our restaurants.
Pollo Tropical Restaurants
For Fiscal 1998, our Pollo Tropical restaurants generated average sales of
approximately $1,989,000 and average restaurant level EBITDA of $501,000. Pollo
Tropical restaurant sales are well balanced by method of service and by day
part. For 1998, drive-thru sales contributed 35.8% of restaurant sales and
take-out sales accounted for 23.2% of total sales. Percentages of total sales by
day part are as follows:
<TABLE>
<S> <C>
Lunch 47.1%
Dinner 52.9%
</TABLE>
The average sales transaction was $7.62 in 1998.
The cost of equipment, seating signage and other interior costs of a
standard new Pollo Tropical restaurant is approximately $240,000 (excluding the
cost of the land, building, and site improvements). The cost of land generally
ranges from $450,000 to $700,000. The cost of building and site improvements
generally ranges from $550,000 to $650,000. Pollo Tropical has historically
financed the building and land costs of its Pollo Tropical restaurants through
internally generated cash flow, but we intend to lease our Pollo Tropical
restaurants in the future.
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RESTAURANT LOCATIONS
Burger King
The following table sets forth the locations of the 343 Burger King
restaurants in our system at December 31, 1998.
<TABLE>
<CAPTION>
TOTAL
STATE RESTAURANTS
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Connecticut.......................................................................................... 1
Indiana.............................................................................................. 5
Kentucky............................................................................................. 6
Maine................................................................................................ 4
Massachusetts........................................................................................ 2
Michigan............................................................................................. 24
New Jersey........................................................................................... 2
New York............................................................................................. 154
North Carolina....................................................................................... 40
Ohio................................................................................................. 72
Pennsylvania......................................................................................... 12
South Carolina....................................................................................... 20
Vermont.............................................................................................. 1
---
Total................................................................................................ 343
---
---
</TABLE>
We own 6% and lease 94% of our Burger King restaurants. We typically enter
into leases (including options to renew) from 20 to 40 years. The average
remaining term on all leases, including options, is approximately 25 years.
Generally, we have been able to renew leases, upon or prior to their expiration,
at the prevailing market rates. As part of our continuing program to upgrade our
restaurants, we remodeled 83 of our restaurants in the three years ended
December 31, 1998.
Pollo Tropical
The success of our Pollo Tropical restaurants has been due in large part to
the base of Hispanic customers who are a critical component in achieving the
high average store volumes that Pollo Tropical has experienced in its core
markets. As of December 31, 1998, we owned and operated 40 Pollo Tropical
restaurants, all located in Florida. In addition, our 21 franchised Pollo
Tropical restaurants are located as follows:
o 13 in Puerto Rico;
o 3 in the Dominican Republic;
o 3 in Ecuador;
o 1 in Netherlands Antilles; and
o 1 in Miami.
OPERATIONS
Management Structure
We conduct substantially all of our executive management, finance,
marketing and operations support functions from either our corporate
headquarters in Syracuse, New York or our Pollo Tropical headquarters in Miami,
Florida. With respect to our Burger King operations, we currently have six
regional directors with an average of 22 years of restaurant industry
experience, five of whom are our vice presidents. Each of our regional directors
are responsible for the operations of our Burger King restaurants in their
assigned region. Three of our regional directors have been employed by us for
over 20 years. Forty-six district supervisors who have an average of 16 years of
restaurant management experience in the Burger King system support the
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regional directors. Each district supervisor is responsible for the direct
oversight of the day-to-day operations of an average of seven restaurants.
Typically, district supervisors have previously served as restaurant managers at
one of our restaurants or at an acquired restaurant. Both regional directors and
district supervisors are compensated with a fixed salary plus an incentive bonus
based upon the performance of the restaurants under their supervision and are
eligible to participate in our incentive stock option plan. Typically, our
restaurants are staffed with hourly employees who are supervised by a salaried
manager and two or three salaried assistant managers.
Training
We maintain a comprehensive training and development program for all of our
personnel and provide both classroom and in-restaurant training for our salaried
and hourly personnel. For the Burger King restaurants, this program emphasizes
system-wide operating procedures, food preparation methods and customer service
standards. In addition, BKC's training and development programs are also
available to us.
Management Information Systems
We believe that our management information systems, which are typically
more sophisticated than those utilized by smaller Burger King franchisees and
other smaller quick-service restaurant operators, provide us with the ability to
more efficiently manage our restaurants and to ensure consistent application of
operating controls. We also believe that our size affords us the ability to
maintain an in-house staff of information systems professionals dedicated to
continuously enhancing our existing systems. These capabilities also allow us to
quickly integrate newly acquired restaurants and to leverage our investments in
information technology over a large base of restaurants.
Our Burger King restaurant systems, which consist of point-of-sale cash
register systems and PC-based restaurant support systems, transmit data on a
daily basis to our headquarters, which house mainframe, PC and server-based
application and decision support systems. These systems facilitate financial and
management control of restaurant operations and provide us with the ability to:
o analyze sales and product mix data;
o minimize shrinkage using inventory control and centralized standard costing
systems; and
o manage and control labor costs through the use of computerized labor systems.
Our systems provide daily tracking and reporting of customer traffic
counts, menu item sales, payroll data, food and labor cost analyses and other
operating information for each restaurant. This information is available daily
to the restaurant manager, who is expected to react quickly to trends or
situations in his or her restaurant. Our district supervisors also receive daily
information for all restaurants under their respective control and have access
to key operating data on a remote basis using laptop computers. Each management
level, from district supervisor through senior management, monitors key
restaurant performance indicators.
We also have a number of projects underway, principally based on existing
commercially available software, that are designed to further enhance our
capabilities and to upgrade our restaurant and corporate information systems. We
are implementing state-of-the-art, touch-screen point-of-sale systems in our
restaurants which are designed to facilitate accuracy and speed of order-taking
while providing systems that are user-friendly and that reduce training. We are
also enhancing our labor scheduling and inventory management modules at the
restaurants to further automate these functions. In addition, our corporate
financial systems are being upgraded to a client/server architecture in order
to:
o enhance the functionality of these systems;
o take advantage of work-flow technologies; and
o provide the foundation for the future deployment of web-based applications to
our restaurants.
Our Pollo Tropical restaurants utilize in-store computerized point-of-sale
systems to control cash, collect customer and sales statistics, and to track
labor and other restaurant data. It is our intention to further enhance our
Pollo Tropical operations by integrating its systems with our existing
management information
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systems. We believe that we will be able to improve the operating efficiencies
of the Pollo Tropical restaurants by employing tools and resources available in
our existing management information systems.
Site Selection
We believe that the location of our restaurants is a critical component of
each restaurant's success. We evaluate potential new development sites based
upon accessibility, visibility, costs, surrounding traffic patterns, competition
and demographic characteristics. Our senior management determines the
acceptability of all acquisition and new development sites, based upon analyses
prepared by our real estate professionals and operations personnel.
BURGER KING FRANCHISE AGREEMENTS
Each of our Burger King restaurants operates under a separate franchise
agreement. Our franchise agreements with BKC require, among other things, that
all restaurants be of standardized design and be operated in a prescribed
manner, including utilization of the standard Burger King menu. Our franchise
agreements with BKC generally provide for an initial term of 20 years and have
an initial fee of $40,000. BKC may grant a successor franchise agreement for an
additional 20-year term, provided the restaurant meets the then-current BKC
operating standards. We are not in default under our current franchise agreement
with BKC. The successor BKC franchise agreement fee is currently $40,000. Our
franchise agreements with BKC are non-cancelable except for failure to abide by
their terms.
In order to obtain a successor franchise agreement with BKC, a franchisee
is typically required to make capital improvements to the Burger King restaurant
to bring the Burger King restaurant up to BKC's then-current design standards.
The required capital improvements will vary widely depending upon the magnitude
of the required changes and the degree to which we have made interim changes to
the restaurant. Although we estimate that a substantial remodeling can cost in
excess of $250,000, our average remodeling cost over the past five years has
been approximately $135,000 per restaurant.
We believe that we enjoy a good relationship with BKC and that we will
satisfy BKC's normal successor franchise agreement policies. Accordingly, we
believe that successor franchise agreements with BKC will be granted on a timely
basis by BKC at the expiration of our existing franchise agreements with BKC.
Historically, BKC has granted each of our requests for a successor franchise
agreement for our restaurants. We cannot assure you, however, that BKC will
continue to grant each of our requests for successor franchise agreements.
In addition to the initial franchise fee, we currently pay a monthly
royalty of 3 1/2% of the gross revenues from our Burger King restaurants to BKC.
We currently also contribute 4% of gross revenues from our Burger King
restaurants to fund BKC's national and regional advertising. BKC engages in
substantial national advertising and promotional activities and other efforts to
maintain and enhance the Burger King brand. We supplement BKC's marketing with
local advertising and promotional campaigns. See "Business--Advertising and
Promotion."
Our franchise agreements with BKC do not give us exclusive rights to
operate a Burger King restaurant in any defined territory. We believe that BKC
generally seeks to ensure that newly granted franchises do not materially
adversely affect the operations of existing Burger King restaurants. We cannot
assure you, however, that a franchise given by BKC to a third party will not
adversely effect any single Burger King restaurant that we operate.
We are required to obtain BKC's consent before we acquire or develop new
Burger King restaurants. BKC also has the right of first refusal to purchase any
Burger King restaurant which is the subject of a contract of sale. BKC has
granted its approval to all of our historic acquisitions of Burger King
restaurants, except for two instances when it exercised its right of first
refusal.
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POLLO TROPICAL FRANCHISE PROGRAM
As part of our growth strategy for our Pollo Tropical restaurants, we
intend to complement the development of additional restaurants owned by us in
the U.S. with a multi-unit area development franchise program as a means of
accelerating our penetration into international markets. We intend to offer
certain market areas to qualified and experienced area developers in the
Caribbean and Central and South American markets who are committed to the
development of multiple units in such areas on an expedited basis.
Our standard franchise agreement under which we franchise Pollo Tropical
restaurants to independent restaurant operators has a 15-year term (with one
15-year renewal option) and provides for an initial payment by the franchisee of
a portion of all franchise fees upon signing of the area development and
franchise agreements, with the remainder due before the opening of the
franchisee's Pollo Tropical restaurants. The franchisee also pays a continuing
royalty, based upon gross sales. The terms and conditions of these franchise
agreements will vary depending upon a number of factors, including:
o the experience and resources of the franchisee;
o the size and density of the covered territory;
o the number of units to be developed;
o the schedule for development;
o capital requirements; and
o fee and royalty arrangements.
All franchisees are required to operate their restaurants in compliance with
certain methods, standards and specifications developed by Pollo Tropical
regarding such matters as menu items, recipes, food preparation, materials,
supplies, services, fixtures, furnishings, decor and signs, although the
franchisee has discretion to determine the prices to be charged to customers. In
addition, all franchisees are required to purchase substantially all food,
ingredients, supplies and materials from suppliers approved by us.
ADVERTISING AND PROMOTION
The efficiency and quality of advertising and promotional programs can
significantly affect quick-service restaurant businesses. We believe that one of
the major advantages of being a Burger King franchisee is the value of the
extensive regional and national advertising and promotional programs conducted
by BKC. In addition to the benefits derived from BKC's advertising spending,
which according to information published by BKC was approximately $390 million
for 1997, we supplement BKC's advertising and promotional activities with local
advertising and promotions, including the purchase of additional television,
radio and print advertising. Our concentration of restaurants in many of our
markets permits us to leverage advertising in those markets. We also utilize
promotional programs, such as combination value meals and discounted prices,
targeted to our customers, in order to create a flexible and directed marketing
program.
We are generally required to contribute 4% of gross revenues from
restaurant operations to an advertising fund utilized by BKC for its
advertising, promotional programs and public relations activities. BKC's
advertising programs consist of national campaigns supplemented by local
advertising. BKC's advertising campaigns are generally carried on television,
radio and in circulated print media (national and regional newspapers and
magazines).
We believe that brand awareness for our Pollo Tropical restaurants is
extremely high because of the concentration of our restaurants in the south
Florida markets. Pollo Tropical restaurants are also clustered in target markets
in order to maximize the effectiveness of our advertising efforts. Pollo
Tropical advertises in both English and Spanish media throughout the year,
including television, radio and print advertising. Pollo Tropical also has
marketed at the individual restaurant level through special price offerings,
coupon discounts and unique promotional and public relations programs. Pollo
Tropical spent approximately 4.3% and 4.6% of revenues from restaurant sales on
advertising in fiscal 1998 and 1997, respectively.
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SUPPLIES AND DISTRIBUTION
We are a member of a national purchasing cooperative created for the Burger
King system known as Restaurant Services, Inc. Restaurant Services is a
non-profit independent cooperative which acts as the purchasing agent for
approved distributors to the system and serves to negotiate the lowest cost for
the Burger King system. We use our purchasing power to negotiate directly with
certain other vendors, to obtain favorable pricing and terms for supplying our
restaurants.
We are required to purchase all of our foodstuffs, paper goods and
packaging materials from BKC-approved suppliers. We may purchase non-food items
such as kitchen utensils, equipment maintenance tools and other supplies from
any suitable source provided that such items meet BKC product uniformity
standards. We currently obtain substantially all of our foodstuffs for our
Burger King restaurants (other than bread products which we purchase from local
bakeries), paper goods, promotional premiums and packaging materials from
AmeriServe Food Distribution, Inc. under a five-year supply agreement which
expires on March 31, 2004. We believe that AmeriServe's services are competitive
with alternatives available to us.
There are other BKC-approved supplier/distributors which compete with
AmeriServe. We believe that reliable alternative sources for all restaurant
supplies are readily available at competitive prices should our arrangements
with AmeriServe or any other existing supplier or distributor change.
All BKC-approved suppliers are required to purchase foodstuffs and supplies
from BKC-approved manufacturers and purveyors. BKC is responsible for monitoring
quality control and supervision of these manufacturers and conducts regular
visits to observe the preparation of foodstuffs, and to run various tests to
ensure that only high quality foodstuffs are sold to BKC-approved suppliers. In
addition, BKC coordinates and supervises audits of approved suppliers and
distributors to determine continuing product specification compliance and to
ensure that manufacturing plant and distribution center standards are met.
For our Pollo Tropical restaurants, we have negotiated directly with local
and national suppliers for the purchase of food and beverage products and
supplies to ensure consistent quality and freshness and to obtain competitive
prices. Each Pollo Tropical restaurant's food and supplies are ordered from
approved suppliers and are shipped directly to the restaurants.
QUALITY ASSURANCE
We focus our operations on achieving a high level of customer satisfaction
with speed, accuracy and quality of service closely monitored. Our senior
management and restaurant management staff are principally responsible for
ensuring compliance with our and BKC's operating procedures. We and BKC have
uniform operating standards and specifications relating to the quality,
preparation and selection of menu items, maintenance and cleanliness of the
premises and employee conduct. In order to help maintain compliance with these
operating standards and specifications, we tabulate and distribute to our
restaurant management team detailed reports from our management information
system and surveys that are conducted by us or BKC.
We operate in accordance with quality assurance and health standards set by
BKC, as well as standards set by Federal, state and local governmental laws and
regulations. These standards include food preparation rules regarding, among
other things, minimum cooking times and temperatures, sanitation and
cleanliness. The "conveyor belt" cooking system utilized in all Burger King
restaurants, which is calibrated to carry hamburgers through the flame broiler
at regulated speeds, is one of the safest cooking systems among major
quick-service restaurants and helps to ensure that the standardized minimum
times and temperatures for cooking are met. In addition, BKC has set maximum
time standards for holding prepared food.
We closely supervise the operation of all of our Burger King restaurants to
help ensure that the restaurants follow standards and policies and maintain
product quality, customer service and cleanliness. In addition, BKC may conduct
unscheduled inspections of Burger King restaurants throughout the nationwide
system.
Our Pollo Tropical restaurant managers are actively involved in all aspects
of operations, with an emphasis on supervising the food preparation process as
well as food safety while insuring prompt and precise order fulfillment at both
the front counter and drive-thru windows. Orders typically are filled within two
minutes through the use of a computer display and communications system.
Managers conduct internal
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inspections for taste, quality, cleanliness and food safety several times a day
in order to provide a consistent level of customer service.
TRADEMARKS
Before we acquired Pollo Tropical, we had no proprietary intellectual
property other than the logo and trademark of Carrols Corporation. As a
franchisee of Burger King, we have contractual rights to use certain BKC-owned
trademarks, servicemarks and other intellectual property relating to the Burger
King concept.
Pollo Tropical has registered its principal trademarks for "Pollo
Tropical," "TropiGrill" and "TropiChops" in the United States and presently has
applications pending or registrations granted in various foreign countries in
which it conducts business or may conduct business through its franchise system.
As a result of our acquisition of Pollo Tropical, we have assumed ownership of
these marks. In certain foreign countries, Pollo Tropical has been involved in
trademark opposition proceedings to defend its rights to register certain
trademarks. We intend to protect the Pollo Tropical and TropiGrill trademarks by
appropriate legal action whenever necessary.
GOVERNMENT REGULATION
Various Federal, state and local laws affect our business, including
various health, sanitation, fire and safety standards. Restaurants to be
constructed or remodeled are subject to state and local building code and zoning
requirements. In connection with the construction and remodeling of our
restaurants, we may incur costs to meet certain Federal, state and local
regulations, including regulations promulgated under the Americans with
Disabilities Act.
We are subject to the Federal Fair Labor Standards Act and various state
laws governing such matters as:
o minimum wage requirements;
o overtime; and
o other working conditions and citizenship requirements.
In September 1997, we implemented the second phase of an increase in the
minimum wage in accordance with a 1996 amendment to the Federal Fair Labor
Standards Act. A significant number of our food service personnel are paid at
rates related to the Federal minimum wage and, accordingly, increases in the
minimum wage have increased wage rates at our restaurants.
We are also subject to various Federal, state and local environmental laws,
rules and regulations. We believe that we conduct our operations in substantial
compliance with applicable environmental laws and regulations. In an effort to
prevent and, if necessary, to correct environmental problems, we conduct
environmental audits of proposed restaurant sites and restaurants we seek to
acquire. None of the applicable environmental laws or regulations have had a
material adverse effect on our operations or financial condition.
With respect to the franchising of Pollo Tropical restaurants, we are
subject to franchise and related regulations in the U.S. and certain foreign
jurisdictions where we offer and sell franchises. These regulations include
obligations to provide disclosure about Pollo Tropical, the franchise agreements
and the franchise system. The regulations also include obligations to register
certain franchise documents in the U.S. and foreign jurisdictions, and
obligations to disclose the substantive relationship between the parties to the
agreements.
COMPETITION
The quick-service restaurant industry is highly competitive with respect to
price, service, location and food quality. In each of our markets, our
restaurants compete with a large number of national and regional restaurant
chains, as well as locally-owned restaurants, offering low and medium-priced
fare. Convenience stores, grocery store delicatessens and food counters,
cafeterias and other purveyors of moderately priced and quickly prepared foods
also compete with us.
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With respect to our Burger King restaurants, our largest competitors in the
quick-service hamburger restaurant segment are McDonald's and Wendy's. According
to publicly available information, as of December 31, 1997, McDonald's U.S.
operations comprised 12,380 restaurants and had U.S. systemwide sales for the
year ended December 31, 1997 of $17.1 billion. As of December 31, 1997, Wendy's
U.S. operations comprised 4,575 restaurants and had total U.S. systemwide sales
for the year ended December 31, 1997 of $4.6 billion. We believe that:
o product quality and taste;
o national brand recognition;
o convenience of location;
o speed of service;
o menu variety;
o price; and
o ambiance
are the most important competitive factors in the quick-service restaurant
industry and that our Burger King and Pollo Tropical restaurants effectively
compete in each category.
In addition to the quick-service hamburger restaurant chains, Pollo
Tropical's competitors include international and regional chicken theme chains,
such as Boston Market, KFC and Kenny Rogers Roasters, as well as other types of
quick-service restaurants. We believe that the combination of:
o freshly prepared food;
o distinctive menu items;
o tropical ambience; and
o fast service
help to distinguish our Pollo Tropical restaurants from other quick-service food
operations. We also believe that the strong brand awareness of our Pollo
Tropical restaurants combined with the relatively high costs associated with
starting a quick-service chain in Pollo Tropical's core markets will make it
difficult for new competitors to effectively compete with our Pollo Tropical
restaurants in these markets.
EMPLOYEES
At December 31, 1998, we employed approximately 12,725 persons of which
approximately 225 were supervisory and administrative personnel and 12,500 were
restaurant operating personnel. None of our employees are covered by collective
bargaining agreements. Approximately 10,850 of our restaurant operating
personnel at December 31, 1998 were part-time employees. We believe that our
employee relations are good.
LITIGATION
We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of these matters will
have a material adverse effect on our financial condition or results of
operations and cash flows.
PROPERTIES
In addition to the restaurant locations set forth under
"Business--Restaurant Locations," we own an approximately 22,000 square foot
building at 968 James Street, Syracuse, New York, which houses our executive
offices and most of our administrative operations for our Burger King
restaurants. We lease 10,488 square feet at 7300 North Kendall Drive, 8th Floor,
Miami, Florida, which houses most of our administrative operations for our Pollo
Tropical restaurants. We also lease six small regional offices that serve as the
bases for regional management.
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MANAGEMENT
The following table sets forth information about our directors, executive
officers and other officers:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
Alan Vituli............................... 57 Chairman of the Board and Chief Executive Officer
Daniel T. Accordino....................... 48 President, Chief Operating Officer and Director
Paul R. Flanders.......................... 42 Vice President--Finance and Treasurer
Joseph A. Zirkman......................... 38 Vice President, General Counsel and Secretary
Richard H. Liem........................... 45 Vice President--Financial Operations
Timothy J. LaLonde........................ 42 Vice President--Controller
Steven Barnes............................. 50 Vice President--Regional Director
Michael A. Biviano........................ 41 Vice President--Regional Director
Joseph W. Hoffman......................... 36 Regional Director
David R. Smith............................ 49 Vice President--Regional Director
James E. Tunnessen........................ 43 Vice President--Regional Director
Richard L. Verity......................... 42 Vice President--Regional Director
Nicholas A. Castaldo...................... 47 President and Chief Operating Officer--Pollo Tropical
Division
Benjamin D. Chereskin..................... 40 Director
James M. Conlon........................... 31 Director
David J. Mathies, Jr...................... 51 Director
Robin P. Selati........................... 32 Director
Clayton E. Wilhite........................ 53 Director
</TABLE>
Certain biographical information regarding our directors, executive
officers and other officers is set forth below:
Alan Vituli has been Chairman of the Board since 1986 and Chief Executive
Officer since March 1992. He is also a Director and Chairman of the Board of
Holdings. Between 1983 and 1985, Mr. Vituli was employed by Smith Barney, Harris
Upham & Co., Inc. as a Senior Vice President responsible for real estate
transactions. From 1966 until joining Smith Barney, Mr. Vituli was associated
with the accounting firm of Coopers & Lybrand, first as an employee and for the
last ten years as a partner. Among the positions held by Mr. Vituli at Coopers &
Lybrand was National Director of Mergers and Acquisitions. Before joining
Coopers & Lybrand, Mr. Vituli was employed in a family-owned restaurant
business. From 1993 through our acquisition of Pollo Tropical, Mr. Vituli served
on the Board of Directors of Pollo Tropical.
Daniel T. Accordino has been President, Chief Operating Officer and a
Director since February 1993. Before that, Mr. Accordino served as Executive
Vice President--Operations from December 1986 and as Senior Vice President from
April 1984. From 1979 to April 1984 he was Vice President responsible for
restaurant operations, having previously served as our Assistant Director of
Restaurant Operations. Mr. Accordino has been employed by us since 1972.
Paul R. Flanders has been Vice President--Finance and Treasurer since April
1997. Before joining us, he was Vice President--Corporate Controller of Fay's
Incorporated, a retailing chain, from 1989 to 1997, and Vice
President--Controller for Computer Consoles, Inc., a computer systems
manufacturer, from 1982 to 1989. Mr. Flanders was also associated with the
accounting firm of Touche Ross & Co. from 1977 to 1982.
Joseph A. Zirkman became Vice President and General Counsel in January
1993. He was appointed Secretary in February 1993. Before joining us,
Mr. Zirkman was an associate with the New York City law firm of Baer Marks &
Upham beginning in 1986.
Richard H. Liem became Vice President--Financial Operations in May 1994.
Before joining us, Mr. Liem was a Senior Audit Manager with the accounting firm
of Price Waterhouse. Mr. Liem was with Price Waterhouse beginning in 1983.
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Timothy J. LaLonde has been Vice President--Controller since July 1997.
Before joining us, he was a controller at Fay's Incorporated, a retailing chain,
from 1992 to 1997. Before that he was a Senior Audit Manager with the accounting
firm of Deloitte & Touche LLP, where he was employed since 1978.
Steven Barnes is Vice President--Regional Director. He has been a Vice
President since February 1997 and a Regional Director of Operations since 1993.
Before joining us, Mr. Barnes was Vice President--Operations of Snapps
Restaurants, Inc. from 1989 to 1993.
Michael A. Biviano is Vice President--Regional Director. Mr. Biviano has
been Regional Director of Operations since October 1989, having served as
District Supervisor from December 1983 to October 1989. Mr. Biviano has been
employed by us since 1973.
Joseph W. Hoffman has been Regional Director since July 1997. Mr. Hoffman
joined us in 1993 in connection with one of our acquisitions and served in the
capacity of District Supervisor from 1993 to 1997. Before 1993 Mr. Hoffman was
in a similar capacity with Community Food Service, Inc.
David R. Smith is Vice President--Regional Director. Mr. Smith has been
Regional Director of Operations since 1984, having served as District Supervisor
from 1975 to 1984. Mr. Smith has been employed by us since 1972.
James E. Tunnessen is Vice President--Regional Director. He has been
Regional Director of Operations since August 1988, having served as District
Supervisor from 1979 to August 1988. Mr. Tunnessen has been employed by us since
1972.
Richard L. Verity has been Vice President--Regional Director since August
1997 when he joined us in conjunction with our acquisition of a group of 63
Burger King restaurants. Mr. Verity was previously with Resser Management Corp.,
a restaurant management company, from 1986 to 1997 and held the position of
Executive Vice President.
Nicholas A. Castaldo has been the President of Pollo Tropical, Inc. since
October 1995 and its Chief Operating Officer since November 1, 1996. Before
joining Pollo Tropical and since August 1993, Mr. Castaldo was employed as Vice
President of Marketing for Denny's Inc., a restaurant company. From 1986 to
1993, Mr. Castaldo was employed by S&A Restaurant Corp., which includes Steak &
Ale and Bennigan's restaurant chains, and ultimately served as Senior Vice
President of Marketing and Business Development. Mr. Castaldo's career spans 20
years and includes management positions at Burger King, Citicorp, and Clairol
Inc.
Benjamin D. Chereskin has served as a Director since March 1997.
Mr. Chereskin is a Managing Director of Madison Dearborn Partners, Inc., a
venture capital firm, and co-founded the firm in 1993. Before that,
Mr. Chereskin was with First Chicago Venture Capital for nine years.
Mr. Chereskin also serves on the Board of Directors of Beverages & More, Inc.;
Cornerstone Brands, Inc.; Tuesday Morning Corporation and NWL Holdings, Inc.
James M. Conlon has served as a Director since 1998. Mr. Conlon has served
as Managing Director of Dilmun Investments, Inc., a venture capital firm, since
1992. Since 1997, Mr. Conlon has been the Co-Head of the bank's U.S. Merchant
Banking group. Before joining Dilmun Investments, Inc., Mr. Conlon was employed
as an Investment Analyst in the Securities Division of TIAA-CREF. Mr. Conlon
serves on the Boards of Directors of Carrols Corporation; Capital Recovery
Holdings, Inc; Thompson Products, Inc. and Independent Pictures, Inc.
David J. Mathies, Jr. has served as a Director since 1996. Mr. Mathies has
served as President of Dilmun Investments, Inc., a venture capital firm, since
its inception in 1988. From 1971 to 1988, he was employed by Mellon Bank, where
he was head of their Pension Management Group, providing investment management
services to middle market clients. Mr. Mathies serves on the Boards of Directors
of Carrols Corporation; Capital Recovery Holdings, Inc; Thompson Products and
Independent Pictures, Inc.
Robin P. Selati has served as a Director since March 1997. Mr. Selati is a
Managing Director of Madison Dearborn Partners, Inc., a venture capital firm,
and joined the firm in 1993. Before 1993, Mr. Selati was associated with Alex
Brown & Sons Incorporated in the consumer/retail investment banking group.
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Mr. Selati also serves on the Board of Directors of Peter Piper, Inc., Tuesday
Morning Corporation and NWL Holdings, Inc.
Clayton E. Wilhite has served as a Director since July 1997. Since January
1998, Mr. Wilhite has been with CFI Group, Inc., has been its Managing Partner
since May 1998, and has served on its Board of Directors since September 1998.
CFI Group, Inc. is an international marketing and consulting firm specializing
in measuring customer satisfaction. Between 1996 and 1998, he was the Chairman
of Thurloe Holdings, L.L.C. Before 1996, Mr. Wilhite was with the advertising
firm of D'Arcy Masius Benton & Bowles, Inc. having served as its Vice Chairman
from 1995 to 1996, as President of DMB&B/North America from 1988 to 1995, and as
Chairman and Managing Director of DMB&B/St. Louis from 1985 to 1988. From August
1996 through our acquisition of Pollo Tropical, Mr. Wilhite served on the Board
of Directors of Pollo Tropical, Inc.
All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Our executive officers
are chosen by the Board and serve at its discretion. All of our directors also
serve as directors of Holdings.
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EXECUTIVE COMPENSATION
The following tables set forth certain information for the fiscal years
ended December 31, 1998, 1997 and 1996 for our Chief Executive Officer and our
next four most highly compensated executive officers who were serving as
executive officers at December 31, 1998 and whose annual compensation exceeded
$100,000. Stock option data refers to the stock options of Holdings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(#)
- ------------------------------------------------------------------ ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Alan Vituli ...................................................... 1998 $425,004 $297,503 --
Chairman of the Board and Chief Executive Officer 1997 392,758 -- 72,830
1996 363,160 128,210 --
Daniel T. Accordino .............................................. 1998 320,004 192,002 --
President, Chief Operating Officer and Director 1997 288,386 -- 31,479
1996 258,943 91,778 --
Paul R. Flanders ................................................. 1998 143,759 71,880 500
Vice President, Finance and Treasurer 1997 105,925 -- 1,500
1996 -- -- --
Joseph A. Zirkman ................................................ 1998 131,000 65,500 400
Vice President, General Counsel and Secretary 1997 120,436 -- 1,118
1996 115,288 40,934 --
Richard H. Liem .................................................. 1998 111,000 39,960 300
Vice President, Financial Operations 1997 103,160 -- 500
1996 94,750 30,288 --
</TABLE>
- ------------------
(a) We provide bonus compensation to executive officers based on an individual's
achievement of certain specified objectives and our achievement of specified
increases in stockholder value.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED EXERCISE
UNDERLYING TO PRICE
OPTIONS EMPLOYEES (PRICE EXPIRATION
NAME GRANTED(A) IN 1998 PER SHARE) DATE
- ---------------------------------------------------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Paul R. Flanders................................................ 500 4.8% $ 124.78 2/28/2008
Joseph A. Zirkman............................................... 400 3.9 124.78 2/28/2008
Richard H. Liem................................................. 300 2.9 124.78 2/28/2008
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
OF STOCK APPRECIATION
FOR OPTION TERM(B)
------------------------------------------------
NAME 5% 10%
- -------------------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Paul R. Flanders.............................................. $ 39,237 $ 99,434
Joseph A. Zirkman............................................. 31,389 79,547
Richard H. Liem............................................... 23,542 59,660
</TABLE>
- ------------------
(a) Stock option grants were granted under the 1996 Long-Term Incentive Plan.
These options become exercisable at the rate of 25% per year beginning on
December 31, 1998.
(b) Potential realizable value is based on an assumption that the price of
Holdings' common shares appreciate at 5% and 10% annually (compounded) from
the date of grant until the end of the ten year option term. These
calculations are based on requirements promulgated by the Commission and are
not intended to forecast possible future appreciation of the stock price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, no executive officer of ours served as a
director of or member of a compensation committee of any entity for which any of
the persons serving on our Board of Directors or on the Compensation Committee
of the Board of Directors is an executive officer. The Compensation Committee is
comprised of Messrs. Chereskin, Mathies and Wilhite.
BOARD OF DIRECTORS
Directors' Compensation. Directors who are our employees do not receive
any additional compensation for serving as directors. Directors who are not our
employees receive a fee of $15,000 per annum. All directors are reimbursed for
all reasonable expenses they incur while acting as directors, including as
members of any committee of the Board of Directors.
Liability Limitation. As permitted under the Delaware General Corporation
Law, our Restated Certificate of Incorporation provides that a director will not
be personally liable to us or our stockholders for monetary damages for breach
of a fiduciary duty owed to us or our stockholders. By its terms and in
accordance with the laws of the State of Delaware, however, this provision does
not eliminate or limit the liability of any of our directors:
o for any breach of the director's duty of loyalty to us or our stockholders;
o for an act or omission not in good faith or involving intentional
misconduct or a knowing violation of law;
o for any transaction from which the director derived an improper personal
benefit; or
o for an improper declaration of dividends or purchase or redemption of our
securities.
Indemnification. Our Restated Certificate of Incorporation provides that we
will indemnify our directors and officers to the fullest extent permitted by
Delaware law.
64
<PAGE>
DESCRIPTION OF PLANS
Employee Savings Plan. We offer salaried employees, excluding those of
Pollo Tropical, the option to participate in the Carrols Corporation Corporate
Employee Savings Plan, which is qualified as a profit-sharing plan by the
Internal Revenue Service. In accordance with the plan, we match up to $1,040 of
an employee's mandatory contributions by contributing $0.50 for each dollar
contributed by the employee. Employees are fully vested in their own
contributions; employees become vested in our contributions beginning in the
fourth year of service and are fully vested after seven years of service or upon
retirement at age 65 with five years service, death, or permanent or total
disability. If any of the foregoing events occurs, benefits may be paid out in a
single cash lump sum or in periodic installments over not more than the
employee's assumed life expectancy. The employee's contributions may be
withdrawn at any time, subject to restrictions on future contributions. Our
matching contributions may be withdrawn under certain conditions of financial
necessity or hardship as defined in the plan.
Pollo Tropical 401(k) Savings Plan. Pollo Tropical has an employee savings
plan pursuant to Section 401(k) of the Internal Revenue Code. All employees who
are age 21 or older and who have been credited with at least 1,000 hours of
service within twelve consecutive months are eligible to participate in the
plan. Employees may elect to contribute to the plan through payroll deductions
in an amount not to exceed the amount permitted under the Internal Revenue Code.
We make discretionary matching contributions, which are allocated to
participants based on the participant's eligible deferrals during the plan year.
Employees are fully vested in their contributions. Our contributions vest at a
rate of 33% for each complete year of service. For the year ended December 31,
1998, our contributions to the plan totaled $17,000.
Bonus Plans. We have cash bonus plans designed to promote and reward
excellent performance by providing employees with incentive compensation. Key
senior management executives of each operating division can be eligible for
bonuses equal to varying percentages of their respective annual salaries
determined by our performance as well as the division's performance.
1996 Long-Term Incentive Plan. In connection with the investment by
Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners
II, L.P. in 1997, Holdings adopted the Carrols Holdings Corporation 1996
Long-Term Incentive Plan pursuant to which we may grant awards such as
"Incentive Stock Options" (as defined under Section 422 of the Internal Revenue
Code), nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units and other stock-based awards to certain
of our and our subsidiaries' officers and employees. The 1996 Long-Term
Incentive Plan replaced a prior long-term incentive plan which was adopted
December 26, 1996. The plan is designed to advance our interests and the
interests of Holdings by providing an additional incentive to attract, retain
and motivate qualified and competent persons through the encouragement of stock
ownership or stock appreciation rights in Holdings.
The 1996 Long-Term Incentive Plan permits the Compensation Committee of the
Board of Directors of Holdings to grant, from time to time, options to purchase
an aggregate of up to 106,250 shares of common stock of Holdings. The vesting
periods for options and the expiration dates for exercisability of options
granted under the 1996 Long-Term Incentive Plan are determined by Holdings'
Compensation Committee; however, the exercise period for an option granted under
the 1996 Long-Term Incentive Plan may not exceed ten years from the date of the
grant. Holdings' Compensation Committee is authorized to grant options under the
plan to all of our and our subsidiaries' eligible officers and employees,
including executive officers and directors (other than outside directors and
members of Holdings' Compensation Committee).
Holdings' Compensation Committee determines the option exercise price per
share of any option granted under the 1996 Long-Term Incentive Plan; however,
the option price per share of an option intended to qualify as an Incentive
Stock Option shall not be less than the fair market value of the common stock of
Holdings on the date such option is granted. Payment of such option exercise
price shall be made:
(1) in cash;
(2) by delivering shares of Holdings' common stock already owned by the holder
of such options;
65
<PAGE>
(3) by delivering a promissory note;
(4) by a combination of any of the foregoing, in accordance with the
terms of the 1996 Long-Term Incentive Plan, the applicable stock
option agreement and any applicable guidelines of Holdings'
Compensation Committee in effect at the time; or
(5) by any other means approved by Holdings' Compensation Committee.
If the holder of an option issued pursuant to the plan elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:
(1) unsecured and fully recourse against the holder of such option; or
(2) nonrecourse but secured by the shares of Holdings' common stock
being purchased by such exercise and by other assets having a fair
market value equal to not less than 40% of the exercise price of
such option. In either event, such note shall mature on the fifth
anniversary of the date of the note and bear interest at the rate
provided under Section 1274(d) of the Internal Revenue Code of
1986, as amended from time to time.
Pursuant to the 1996 Long-Term Incentive Plan, in the event of a Change of
Control (as defined in the plan) any and all options issued and outstanding will
vest and become exercisable in full on the date of such Change of Control. In
addition, as soon as practicable but no later than thirty days before such
Change of Control, Holdings' Compensation Committee shall notify any holder of
an option granted under the plan of such Change of Control. Further, upon a
Change of Control that qualifies as an Approved Sale (as defined in the plan) in
which the outstanding common stock of Holdings is converted or exchanged for or
becomes a right to receive any cash, property or securities other than Illiquid
Consideration (as defined in the plan),
(1) each option granted under the plan shall become exercisable solely
for the amount of such cash, property or securities that the
holder of such option would have been entitled to had such option
been exercised immediately prior to such event;
(2) the holder of such option shall be given an opportunity to either:
(a) exercise such option prior to the consummation of the Approved
Sale and participate in such sale as a holder of Holdings'
common stock; or
(b) upon consummation of the Approved Sale, receive in exchange for
such option consideration equal to the amount determined by
multiplying:
(x) the same amount of consideration per share of Holdings'
common stock received by the holders in connection with the
Approved Sale less the exercise price per share of Holdings'
common stock of such option to acquire Holdings' common
stock by
(y) the number of shares of Holdings' common stock represented by such option;
and
(3) to the extent such option is not exercised prior to or
simultaneous with such Approved Sale, any such option shall be
canceled.
1998 Directors' Stock Option Plan. During 1998, Holdings adopted the
Carrols Holdings Corporation 1998 Directors' Stock Option Plan pursuant to which
we may grant "Incentive Stock Options" (as defined under Section 422 of the
Internal Revenue Code), nonqualified stock options, stock appreciation rights,
restricted stock, and other stock-based awards to certain non-employee directors
of Holdings. The plan is designed to advance the interests of Holdings and us by
providing an additional incentive to attract, retain and motivate non-employee
individuals as directors of our Board and the Board of Holdings.
The 1998 Directors' Stock Option Plan permits Holdings' Compensation
Committee to grant, from time to time, options to purchase an aggregate of up to
10,000 shares of Holdings' common stock. The vesting periods for these options
and the expiration dates for exercisability of the options granted under the
plan are determined by the Compensation Committee; however, the exercise period
for an option granted under the plan may not exceed ten years from the date of
the grant. Holdings' Compensation Committee is authorized to grant options under
the plan to all eligible non-employee directors of Holdings. Directors that are
our
66
<PAGE>
employees or employees of Holdings, Madison Dearborn Capital Partners, L.P.,
Madison Dearborn Capital Partners II, L.P. or BIB Holdings, or any of their
respective affiliates are not eligible under the plan.
The option exercise price per share of any option granted under the 1998
Directors' Stock Option Plan is determined by Holdings' Compensation Committee;
however, the option price per share of an option intended to qualify as an
Incentive Stock Option shall not be less than the fair market value of Holdings'
common stock on the date such option is granted. Payment of such option exercise
price shall be made:
(1) in cash;
(2) by delivering shares of common stock already owned by the holder of such
options;
(3) by delivering a promissory note;
(4) by a combination of any of the foregoing, in accordance with the
terms of the plan, the applicable stock option agreement and any
applicable guidelines of the Holdings Compensation Committee in
effect at the time; or
(5) by any other means approved by the Holdings Compensation Committee.
If the holder of an option issued pursuant to the plan elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:
(1) unsecured and fully recourse against the holder of such options; or
(2) nonrecourse but secured by the shares of Holdings' common stock
being purchased by such exercise and by other assets having a fair
market value equal to not less than 40% of the exercise price of
such option.
In either event, such note shall mature on the fifth anniversary of the date of
the note and bear interest at the rate provided under Section 1274(d) of the
Internal Revenue Code of 1986, as amended from time to time.
Pursuant to the 1998 Directors' Stock Option Plan, in the event of a Change
of Control (as defined in the plan), any and all options issued and outstanding
shall vest and become exercisable in full on the date of such Change of Control.
In addition, as soon as practicable but in no event later than 30 days prior to
a Change of Control, Holdings' Compensation Committee shall notify any holder of
an option granted under the plan of such Change of Control. Further, upon a
Change of Control that qualifies as an Approved Sale (as defined in the 1998
Directors' Plan) in which the outstanding common stock of Holdings is converted
or exchanged for or becomes a right to receive any cash, property or securities
other than Illiquid Consideration (as defined in the 1998 Directors' Plan):
(1) each option granted under the plan shall become exercisable solely
for the amount of such cash, property or securities that the
holder of such award would have been entitled to had such award
been exercised immediately prior to such event;
(2) the holder of such option shall be given an opportunity to either:
(a) exercise such option prior to the consummation of the Approved
Sale and participate in such sale as a holder of Holdings'
common stock; or
(b) upon consummation of the Approved Sale, receive in exchange for
such award consideration equal to the amount determined by
multiplying:
(x) the same amount of consideration per share of Holdings'
common stock received by the holders in connection with the
Approved Sale less the exercise price per share of Holdings'
common stock of such award to acquire Holdings' common stock
by
(y) the number of shares of Holdings' common stock represented by such option;
and
(3) to the extent such option is not exercised prior to or
simultaneous with such Approved Sale, any such award will be
canceled.
67
<PAGE>
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Vituli Employment Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Alan Vituli, which amended and restated an Amended and
Restated Employment Agreement dated April 3, 1996 between us and Mr. Vituli.
Pursuant to the amended employment agreement, Mr. Vituli will continue to serve
as our Chairman of the Board and Chief Executive Officer. The amended employment
agreement will be for an initial term of four years, commencing on March 27,
1997 and will be subject to automatic renewals for successive one-year terms
unless either we or Mr. Vituli elect not to renew by giving written notice to
the other at least 90 days before a scheduled expiration date. Pursuant to the
amended employment agreement, Mr. Vituli will receive a base salary of $400,000
for the first year of the term, which amount increases annually by at least
$25,000 subject to additional increases that may be authorized by the
Compensation Committee. Pursuant to the amended employment agreement,
Mr. Vituli will participate in our Executive Bonus Plan and any of our stock
option plans applicable to executive employees. The amended employment agreement
also requires that we are responsible for maintaining the premium payments on a
split-dollar life insurance policy on the life of Mr. Vituli providing a death
benefit of $1.5 million payable to an irrevocable trust designated by
Mr. Vituli. The amended employment agreement provides that if Mr. Vituli's
employment is terminated without Cause (as defined in the amended employment
agreement) following a Change of Control (as defined in the amended employment
agreement),
(1) Mr. Vituli will receive a cash payment in the amount equal to 2.99
times his Five Year Compensation Average (as defined in the
amended employment agreement) if such Change of Control occurs
during the first two years of the initial term of the amended
employment agreement; and
(2) a cash lump sum equal to his salary during the previous 12 months
if terminated thereafter. The amended employment agreement
includes non-competition and non-solicitation provisions effective
during the term of the amended employment agreement and for two
years following its termination.
Accordino Employment Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Daniel T. Accordino, which amended and restated an
Amended and Restated Employment Agreement dated April 3, 1996 between us and
Mr. Accordino. Pursuant to the amended employment agreement, Mr. Accordino will
continue to serve as our President and Chief Operating Officer. The amended
employment agreement will be for an initial term of four years, commencing on
March 27, 1997 and will be subject to automatic renewal for successive one-year
terms unless either we or Mr. Accordino elect not to renew by giving written
notice to the other at least 90 days before a scheduled expiration date.
Pursuant to the amended employment agreement, Mr. Accordino will receive a base
salary of $300,000 for the first year of the term, which amount increases
annually by at least $20,000 subject to additional increases that may be
authorized by the Compensation Committee. Pursuant to the amended employment
agreement, Mr. Accordino will participate in our Executive Bonus Plan and any of
stock option plans applicable to executive employees. The amended employment
agreement also will require that we are responsible for maintaining the premium
payments on a split-dollar life insurance policy on the life of Mr. Accordino
providing a death benefit of $1.0 million payable to an irrevocable trust
designated by Mr. Accordino. The amended employment agreement provides that if
Mr. Accordino's employment is terminated without Cause (as defined in the
amended employment agreement) following a Change of Control (as defined in the
amended employment agreement),
(1) Mr. Accordino will receive a cash payment in the amount equal to
2.99 times his Five Year Compensation Average (as defined in the
amended employment agreement) if such change of control occurs
during the first two years of the agreement; and
(2) a cash lump sum equal to his salary during the previous 12 months
if terminated thereafter. The agreement includes non-competition
and non-solicitation provisions effective during the term of the
amended employment agreement and for two years following its
termination.
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<PAGE>
Castaldo Employment Agreement. Effective July 20, 1998, in connection with
our acquisition of Pollo Tropical, we entered into an Amended and Restated
Employment Agreement with Nicholas A. Castaldo, which amended and restated an
Employment Agreement dated September 19, 1995, as amended May 5, 1997, between
Pollo Tropical and Mr. Castaldo. Pursuant to the amended agreement,
Mr. Castaldo will serve as the President and Chief Operating Officer of our
Pollo Tropical Division. The agreement will be for an initial term commencing on
July 20, 1998 and ending September 30, 2003, and will be subject to renewal for
up to two additional one-year periods at our option, exercisable by giving
written notice to Mr. Castaldo by no later than July 31, 2003 or 2004, as
applicable. Pursuant to the agreement, Mr. Castaldo will receive a base salary
of $300,000 per year during the term, which amount increases on January 1, 2000
and on each January 1st thereafter during the term by at least 5% subject to
additional increases that may be authorized by our Board of Directors. Pursuant
to the agreement, Mr. Castaldo will be eligible to receive an annual bonus of up
to 100% of his base salary (of which not more than 50% may be subject to
deferral provisions in our Executive Bonus Plan (as defined in the agreement)),
which bonus will be payable in accordance with our Executive Bonus Plan and will
be based solely upon the achievement by Mr. Castaldo of certain corporate and
individual performance standards during the relevant period as reasonably
established by us with Mr. Castaldo. For the period January 1, 1998 through
June 30, 1998, Mr. Castaldo will receive a bonus based upon the previous Pollo
Tropical Executive Bonus Plan (as defined in the agreement), none of which bonus
will be subject to any deferral provisions in our Executive Bonus Plan. Pursuant
to the agreement, Mr. Castaldo will be entitled to be granted, and it is
anticipated that he will be granted, non-qualified options or the equivalent to
purchase 5% of Pollo Tropical's common stock or equity value if no such common
stock has been issued. Such options will be issued pursuant to Pollo Tropical's
1998 Stock Option or Tracking Stock Option Plan, which we anticipate adopting in
the future. Mr. Castaldo's agreement provides that if Mr. Castaldo's employment
is terminated by us without Cause (as defined in the agreement) or by
Mr. Castaldo for Good Reason (as defined in the agreement), or if the term of
the agreement expires, then Mr. Castaldo will be entitled to the following
payments and benefits:
(1) An amount equal to the greater of:
(x) Mr. Castaldo's base salary then in effect, from the date on
which his employment is terminated or expires under the
terms of the agreement until 12 months after such
termination date; or
(y) Mr. Castaldo's base salary from such termination date
through the end of the initial term. The foregoing will be
payable as follows: a lump sum equal to one year's then
current base salary payable within ten days of such
termination date and the balance, if any, payable in 24
equal monthly installments.
(2) Mr. Castaldo's stock options to be granted under the Option
Agreement (as defined in the agreement) shall vest as set forth in
and in accordance with the terms and provisions of the Option
Agreement;
(3) Mr. Castaldo's health and medical insurance benefits will be
continued at our expense through the date which is 24 months
following the termination date; and
(4) any portion of bonus that was deferred under the Pollo Tropical
Executive Bonus Plan will be payable in a lump sum within ten days
of the termination date.
Mr. Castaldo's agreement includes non-competition and non-solicitation
provisions effective during the term of the agreement and for two years
following its termination.
OPTION AGREEMENTS PURSUANT TO THE 1996 LONG-TERM INCENTIVE PLAN
Vituli Plan Option Agreement. On December 30, 1996, pursuant to the
Securities Purchase Agreement dated as of March 6, 1996 among Holdings, the
stockholders of Holdings, BIB Holdings and us, Holdings granted to Alan Vituli,
under the 1996 Long-Term Incentive Plan, an option to purchase 43,350 shares of
Holdings' common stock. The option:
(1) was immediately exercisable with regard to 15,300 shares of
Holdings' common stock at an exercise price of $110.00 per share;
and
69
<PAGE>
(2) was to become exercisable on June 1, 1997 with regard to:
(a) 15,300 shares of Holdings' common stock at an exercise price of
$130.00 per share; and
(b) 12,750 shares of Holdings' common stock at an exercise price of
$140.00 per share.
On January 22, 1997, Mr. Vituli contributed these options to the Vituli Family
Trust for the benefit of his children.
In connection with the investment by Madison Dearborn Capital Partners,
L.P. and Madison Dearborn Capital Partners II, L.P. in 1997, Holdings granted an
option to purchase 43,350 shares of Holdings' common stock under the 1996
Long-Term Incentive Plan in exchange for the options held by the Vituli Family
Trust. The Vituli Family Trust agreed to reduce the exercise price to $101.7646
per share. The new option:
(1) has a term of ten years from the date of grant;
(2) became exercisable:
(a) on the date of grant with regard to 15,300 shares of Holdings'
common stock;
(b) on December 31, 1997 with regard to 5,610 shares of Holdings' common stock;
(c) on December 31, 1998 with regard to 5,610 shares of Holdings' common stock;
and
(3) will become exercisable:
(a) on December 31, 1999 with regard to 5,610 shares of Holdings' common stock;
and
(b) on December 31, 2000 with regard to 11,220 shares of Holdings' common stock.
Accordino Plan Option Agreement. On December 30, 1996, pursuant to the
Securities Purchase Agreement dated as of March 6, 1996, Holdings granted to
Daniel T. Accordino, under the 1996 Long-Term Incentive Plan, an option to
purchase 28,900 shares of Holdings' common stock. The option:
(1) was immediately exercisable with regard to 10,200 shares of
Holdings' common stock at an exercise price of $110.00 per share;
and
(2) was to become exercisable on December 31, 1997 with regard to:
(a) 10,200 shares of Holdings' common stock at an exercise price of
$130.00 per share; and
(b) 8,500 shares of Holdings' common stock at an exercise price of
$140.00 per share.
In connection with the investment by Madison Dearborn Capital Partners,
L.P. and Madison Dearborn Capital Partners II, L.P. in 1997, the option granted
to Mr. Accordino was canceled and Holdings granted to Mr. Accordino, under the
1996 Long-Term Incentive Plan, an option to purchase 28,900 shares of Holdings'
common stock at an exercise price of $101.7646 per share. The new option:
(1) has a term of ten years from the date of grant;
(2) became exercisable:
(a) on the date of grant with regard to 10,200 shares of Holdings'
common stock;
(b) on December 31, 1997 with regard to 3,740 shares of Holdings' common stock;
(c) on December 31, 1998 with regard to 3,740 shares of Holdings' common stock;
and
(3) will become exercisable:
(a) on December 31, 1999 with regard to 3,740 shares of Holdings' common stock;
and
(b) on December 31, 2000 with regard to 7,480 shares of Holdings' common stock.
70
<PAGE>
OTHER OPTION AGREEMENTS GRANTED IN CONNECTION WITH THE MADISON DEARBORN
INVESTMENT
Vituli Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Mr. Vituli a nonqualified stock option to purchase
29,480 shares of Holdings' common stock at an exercise price of $101.7646. The
option will have a term of ten years from the date of grant and will become
exercisable in five equal parts on the five consecutive anniversaries of the
date of grant. The option will have substantially the same terms as options
issued under the 1996 Long-Term Incentive Plan with respect to:
(1) the method of payment of the exercise price of the option; and
(2) the effect of a Change of Control (as defined in the 1996 Long-Term
Incentive Plan).
Accordino Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Mr. Accordino a nonqualified stock option to
purchase 2,579 shares of Holdings' common stock at an exercise price of
$101.7646. The option will have a term of ten years from the date of grant and
will become exercisable in five equal parts on the five consecutive
anniversaries of the date of grant. The option will have substantially the same
terms as the option granted to Mr. Vituli.
Zirkman Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Joseph A. Zirkman a nonqualified stock option to
purchase 368 shares of Holdings' common stock at an exercise price of $101.7646.
The option will have a term of ten years from the date of grant and will become
exercisable in five substantially equal parts on the five consecutive
anniversaries of the date of grant. The option will have substantially the same
terms as the option granted to Mr. Vituli.
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PRINCIPAL STOCKHOLDERS
The following tables set forth the number and percentage of shares of our
voting stock and Holdings' voting common stock beneficially owned, as of March
15, 1999, by:
(1) all persons known by us to be the beneficial owners of more than
5% of the shares of such voting common stock;
(2) each of our directors who owns shares of such voting common stock;
(3) each of our executive officers included in the Summary Compensation Table
above; and
(4) all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(A)
---------------------- FULLY DILUTED(B)
NUMBER PERCENTAGE PERCENTAGE
--------- ---------- ----------------
<S> <C> <C> <C>
Stockholders of Carrols Corporation:
Carrols Holdings Corporation............................................ 10 100% 100%
968 James Street
Syracuse, New York 13203
Stockholders of Carrols Holdings Corporation:
BIB Holdings (Bermuda) Ltd.(c).......................................... 566,667 46.80% 44.50%
c/o Dilmun Investments
Metro Center
One Station Place
Stamford, CT 06902
Madison Dearborn Capital Partners, L.P.................................. 283,333 23.40% 22.25%
Three First National Plaza
Suite 3800
Chicago, IL 60602
Madison Dearborn Capital Partners II, L.P............................... 283,334 23.40% 22.25%
(Same address as Madison Dearborn Capital Partners, L.P.)
Executive Officers and Directors:
Alan Vituli(d).......................................................... 48,139 3.98% 6.49%
Daniel T. Accordino..................................................... 19,572 1.62% 2.54%
Paul R. Flanders........................................................ 875 *% *%
Joseph A. Zirkman....................................................... 746 *% *%
Richard H. Liem......................................................... 325 *% *%
Clayton E. Wilhite...................................................... 250 *% *%
Directors and executive officers of Carrols as a group (12 persons)..... 70,232 5.80% 9.52%
</TABLE>
- ------------------
* Less than one percent.
(a) The number of shares shown in the table includes stock options which are
currently exercisable or exercisable within 60 days of the date of this
prospectus to purchase: 38,312 shares held by Mr. Vituli; 18,712 shares held
by Mr. Accordino; 875 shares held by Mr. Flanders; 623 shares held by
Mr. Zirkman; 325 shares held by Mr. Liem; and 250 shares held by
Mr. Wilhite.
(b) Gives effect to the exercise of all outstanding options for Holdings' common
stock.
(c) These 566,667 shares of Holdings' common stock were previously owned by
Atlantic Restaurants, Inc. which was formed to effect the acquisition of the
company in 1996. Atlantic Restaurants, Inc., which was a wholly-owned
subsidiary of BIB Holdings, was merged into BIB Holdings on February 10,
1999.
(d) Includes 26,520 vested stock options contributed to and held by the Vituli
Family Trust.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., all holders of Holdings' common stock entered into a
Stockholders Agreement. The agreement provides that all holders of Holdings'
common stock will vote their common stock in order to cause the following
individuals to be elected to the Board of Directors of Holdings and each of its
subsidiaries (including us):
(a) three representatives designated collectively by Madison Dearborn
Capital Partners, L.P. and Madison Dearborn Capital Partners II,
L.P.;
(b) three representatives designated by BIB Holdings; and
(c) two representatives designated by Mr. Vituli as long as
Mr. Vituli is our Chief Executive Officer, subject in each case to
adjustment if the percentage holdings of each decreases below a
certain threshold.
In addition, the agreement provides for certain limitations on the ability
of holders of Holdings' common stock to sell, transfer, assign, pledge or
otherwise dispose of their common stock. The agreement contains covenants
requiring us to obtain the prior consent of Madison Dearborn Capital Partners,
L.P., Madison Dearborn Capital Partners II, L.P., and BIB Holdings before taking
certain actions including the redemption, purchase or other acquisition of
Holdings' capital budget approved by Holdings' Board of Directors for that year
or the entry into the ownership, active management or operation of any business
other than Burger King franchise restaurants.
Registration Rights Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., those entities, BIB Holdings, Alan Vituli, Daniel T.
Accordino and Joseph A. Zirkman entered into a registration agreement with
Holdings. The registration agreement provides for demand and piggyback rights
with respect to Holdings' common stock. The Madison Dearborn Capital Partners,
L.P. and Madison Dearborn Capital Partners II, L.P. or BIB Holdings may demand
registration under the Securities Act of all or any portion of their shares of
Holdings' common stock or options for shares of Holdings' common stock (the
"Registrable Securities"), provided that:
(1) in the case of the first demand registration, Madison Dearborn
Capital Partners, L.P., and Madison Dearborn Capital Partners II,
L.P. and BIB Holdings must consent to a demand registration unless
Holdings has completed a registered public offering of the
Holdings' common stock; and
(2) all demand registrations on Form S-1 must be underwritten.
Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners
II, L.P., collectively, and BIB Holdings are each entitled to request:
(1) three demand registrations on Form S-1 in which Holdings will pay
all registration expenses, provided that the offering value of the
Registrable Securities is at least $15 million; and
(2) an unlimited number of demand registrations on Form S-3 in which
Holdings will pay all registration expenses, provided that the
offering value of the Registrable Securities is at least
$5 million with an underwritten offering equal to at least
$10 million.
Whenever Holdings proposes to register any of its securities (other than
pursuant to a demand registration) and the registration form may be used for the
registration of Registrable Securities, Holdings shall give prompt written
notice to all holders of Registrable Securities of its intention to effect such
a registration and shall include in such registration all Registrable Securities
to which Holdings has received written requests for inclusion in such
registration within 20 days after receipt of Holdings' notice. Holdings shall
pay the registration expenses of the holders of Registrable Securities in all
such piggyback registrations. The Registration Agreement contains typical "cut
back" provisions in connection with both demand registrations and piggyback
registrations. We will provide the holders of the Registrable Securities with
typical indemnification in the event of certain misstatements or omissions made
in connection with both demand registrations and piggyback registrations.
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DESCRIPTION OF THE SENIOR CREDIT FACILITY
We entered into a new credit facility on February 12, 1999 with Chase Bank
of Texas, National Association, as agent and lender, and which includes certain
other lenders as parties. Our credit facility provides for:
(1) a revolving credit facility under which we may borrow up to
$100 million (including a standby letter of credit facility of up
to $5 million); and
(2) a term loan facility under which we have borrowed $50.0 million.
Borrowings under the revolving credit facility are required to be used to
finance permitted acquisitions and new store development, and for other working
capital and general corporate purposes.
Under our credit facility, the revolving credit facility expires on
December 31, 2003 (subject to a one-year extension upon request and unanimous
approval of the lenders). The term loan facility is repayable as follows:
(1) an aggregate of $3.0 million payable in four quarterly installments in 1999;
(2) an aggregate of $4.0 million payable in four quarterly installments in 2000;
(3) an aggregate of $5.0 million payable in four quarterly installments in 2001;
(4) an aggregate of $6.0 million payable in four quarterly installments in 2002;
(5) an aggregate of $7.0 million payable in four quarterly installments in 2003;
and
(6) a final payment of $25.0 million payable upon the term loan
facility's maturity on December 31, 2003.
Borrowings under the revolving credit facility and the term loan facility
bear interest at a per annum rate, at our option, of either:
(1) (a) the greater of the prime rate (or the federal funds rate plus
.50%), plus (b) a margin of 0%, .25%, .50% or .75%, based on debt
to cash flow ratios (as defined in our credit facility); or
(2) LIBOR plus a margin of 1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%,
based on debt to cash flow ratios.
In general, our obligations under our credit facility are secured by all of
our assets, tangible or intangible, real, personal or mixed, and those of each
of our subsidiaries and by a pledge of our stock, a pledge of the stock of each
of our subsidiaries, and by a pledge by Holdings of all of our outstanding
capital stock. In addition, Holdings and each of our subsidiaries guarantee
payment of all obligations under our credit facility. Under our credit facility,
we are required to make mandatory prepayments of principal annually in an amount
equal to 50% of Excess Cash Flow (as defined in our credit facility), and also
in the event of certain dispositions of assets (all subject to certain
exceptions) in an amount equal to 100% of the net proceeds received by us from
those dispositions.
Our credit facility contains certain covenants, including those limiting
our and our subsidiaries' ability to incur indebtedness, incur liens, sell or
acquire assets or businesses, change the nature of our or our subsidiaries'
business, make certain investments or pay dividends. In addition, our credit
facility requires us to meet certain financial ratio tests.
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DESCRIPTION OF THE 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,"
"ours," and "us" refer only to Carrols Corporation and not to any of our
subsidiaries.
The outstanding notes have been, and the exchange notes will be, issued by
us under the Indenture, dated as of November 24, 1998, among us, the Guarantors,
and IBJ Whitehall Bank & Trust Company (formerly IBJ Schroder Bank & Trust
Company), which is incorporated by reference into this prospectus. 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, as amended. The
term "notes" refers to both the outstanding notes and the exchange notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture. It does not restate the Indenture
in its entirety. Because this is a summary, we urge you to read the Indenture
and the relevant portions of the Trust Indenture Act because they, and not this
description, define your rights as holders of the exchange notes. We have filed
copies of the Indenture as an exhibit to the registration statement which
includes this prospectus.
GENERAL
The notes are:
o general unsecured obligations of ours;
o subordinated in right of payment to all existing and future Senior
Indebtedness;
o senior in right of payment to any future Subordinated Indebtedness;
and
o unconditionally guaranteed by the Guarantors.
As of December 31, 1998, we had approximately $88.6 million of Senior
Indebtedness. We and our subsidiaries may incur additional Senior Indebtedness
under the terms of the Indenture, subject to certain restrictions.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be limited in aggregate principal amount to
$170,000,000. The exchange notes will mature on December 1, 2008. Interest on
the exchange notes will accrue at the rate of 9.5% per annum and will be payable
semiannually in arrears on each June 1 and December 1, commencing on June 1,
1999, to the registered holders at the close of business on the immediately
preceding May 15 and November 15. Interest on the exchange notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original insurance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of exchange notes has given wire transfer instructions to us,
we may make all principal, premium and interest payments on those exchange notes
in accordance with those instructions. All other payments on the 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 interest payments by
check mailed to the holders at their address set forth in the register of
holders.
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, and 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.
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SUBORDINATION
The payment of principal, premium, if any, and interest on the exchange
notes will be subordinated to the prior payment in full of all Senior
Indebtedness.
All Senior Indebtedness then due shall be paid in full before the holders
will be entitled to receive any payment with respect to the exchange notes
(except that holders may receive and retain Permitted Junior Securities and
payments made from the trust described under "Legal Defeasance and Covenant
Defeasance") in the event of any distribution to our creditors:
(1) in the event of our liquidation or dissolution;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to us or our property; or
(3) in an assignment for the benefit of creditors.
We also may not make any payment in respect of the exchange notes except in
Permitted Junior Securities or from the trust described under the caption "Legal
Defeasance and Covenant Defeasance," if:
(1) a payment Default on any Senior Indebtedness occurs and is
continuing beyond any applicable grace period; or
(2) any other Default occurs and is continuing with respect to any
Designated Senior Indebtedness that permits holders of that
Designated Senior Indebtedness to accelerate its maturity and the
trustee receives a notice of such default (a "Payment Blockage
Notice") from us or the holders of such Designated Senior
Indebtedness.
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, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Indebtedness has been
accelerated.
No new period of payment blockage may be commenced 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 has
been cured or waived for a period of at least 90 consecutive days.
As a result of the subordinated provisions described above, in the event of
a liquidation or insolvency, holders of Indebtedness may recover less ratably
than creditors of ours who are holders of Senior Indebtedness.
SUBSIDIARY GUARANTEES
Each of our subsidiaries which currently conducts business operations and
all of our future subsidiaries will jointly and severally guarantee in full our
obligations under the exchange notes and the Indenture. Each guarantee will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Guarantor making the guarantee. The obligations of each Guarantor under
its guarantee will be limited as necessary to prevent that guarantee from
constituting a fraudulent conveyance under applicable law.
A Guarantor may not consolidate with or merge with or into, whether or not
such Guarantor is the surviving Person, another corporation, Person or entity
unless:
(1) the Person formed by or surviving any such consolidation or
merger, if other than such Guarantor, assumes all the obligations
of such Guarantor pursuant to a supplemental indenture reasonably
satisfactory to the trustee, and is incorporated under the laws of
the United States, any state or the District of Columbia;
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(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) we would have a Consolidated Net Worth immediately after giving
effect to such transaction equal to or greater than our
Consolidated Net Worth immediately preceding the transaction; and
(4) we would be permitted by virtue of our pro forma Consolidated
Fixed Charge Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Fixed Charge Ratio test set forth in
the covenant described below under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock."
The 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 we apply 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 we apply the net proceeds of that sale in accordance
with the applicable provisions of the Indenture.
OPTIONAL REDEMPTION
On or prior to December 1, 2001, we may, on any one or more occasions,
redeem up to 35% of the aggregate principal amount of notes originally issued
under the Indenture at a redemption price of 109.50% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of the notes remain
outstanding immediately after the occurrence of each such
redemption, excluding notes held by us and our subsidiaries; and
(2) each such redemption shall occur within 90 days after the date of
the closing of each such Public Equity Offering.
Except pursuant to the preceding paragraph, we will not be able to redeem
the exchange notes prior to December 1, 2003.
After December 1, 2003, we may redeem all or a part of the 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, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on December 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ ----------
<S> <C>
2003.................................................................... 104.750%
2004.................................................................... 103.167%
2005.................................................................... 101.583%
2006 and thereafter..................................................... 100.000%
</TABLE>
SELECTION AND NOTICE OF REDEMPTION
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the notes are listed.
If the notes are not so listed, the trustee will make the selection of notes for
redemption on a pro rata basis, by lot or by such method as the trustee shall
deem fair and appropriate. No 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 notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the
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unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under the caption "--Repurchase at the Option of
Holders," we are 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 will have the right to require
us to make an offer (a "Change of Control Offer") to each holder to repurchase
all or any part, equal to $1,000 or an integral multiple thereof, of such
holder's exchange notes. In the Change of Control offer, we will offer payment
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, we will mail a notice
to each holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase exchange notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. We 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.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all 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 notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the trustee and the notes so
accepted together with an officers' certificate stating the
aggregate principal amount of notes or portions thereof being
purchased by us.
The paying agent will promptly mail to each holder of notes so tendered the
change of control payment for such notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this "Change of Control"
covenant, but in any event within 30 days following a Change of Control, if the
repurchase of notes would violate any other Indebtedness, we will either repay
all such Indebtedness or obtain the requisite consents, if any, under all
agreements governing such Indebtedness to permit the repurchase of notes. We
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Our credit facility provides that certain change of control events with
respect to us would constitute a default. Any other future credit agreements or
other agreements relating to Senior Indebtedness to which we become a party may
contain similar provisions. If a Change of Control occurs at a time when we are
prohibited from purchasing notes, we could seek the consent of our lenders to
the purchase of notes or we 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 notes. Our failure to
purchase tendered notes following a Change of Control would constitute an Event
of Default under the Indenture which, in turn, would constitute a default under
our credit facility.
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Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we or the Restricted Subsidiary, as the case may be, receive
consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or sold or otherwise disposed of;
and
(2) at least 90% of the consideration therefor received by us or such
Restricted Subsidiary is in the form of cash or Cash Equivalents.
However, we and our Restricted Subsidiaries will be permitted to consummate
an Asset Sale without complying with the preceding paragraph if:
(1) We or the applicable Restricted Subsidiary, as the case may be,
receive consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or other property
sold, issued or otherwise disposed of; and
(2) at least 90% of the consideration for such Asset Sale constitutes
cash or Replacement Assets; provided that any consideration not
constituting Replacement Assets, received by us or any of our
restricted subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph, shall constitute
Net Cash Proceeds subject to the provisions of the next paragraph.
Within 270 days of the receipt of any Net Cash Proceeds from an Asset Sale,
we may apply such Net Cash Proceeds, at our option:
(1) to prepay Indebtedness under our credit facility and permanently
reduce the availability thereunder;
(2) to repay any Senior Indebtedness and permanently reduce the
availability thereunder;
(3) to make an investment in Replacement Assets; or
(4) to effect a combination of the transactions set forth in clauses
(1), (2) and (3) of this paragraph.
When the aggregate amount of Net Cash Proceeds from Assets Sales which are
not applied or invested as provided in the preceding paragraph ("Excess
Proceeds") exceeds $5.0 million, we will be required to make an offer to all
holders of notes to purchase on a pro rata basis, that amount of notes equal to
the amount of Excess Proceeds. The offer price will be equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase and will be paid in cash. In the event of a transfer of
substantially all (but not all) of the property and assets of us and our
Restricted Subsidiaries as an entirety to a Person which is permitted under
"--Merger, Consolidation and Sale of Assets," the successor corporation shall be
deemed to have sold the properties and assets of us and our Restricted
Subsidiaries not so transferred for purposes of this "Asset Sales" provision and
shall comply with this Asset Sales provision in connection with such deemed
sale.
CERTAIN COVENANTS
Incurrence of Additional Indebtedness and Issuance of Disqualified Capital
Stock
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, incur (as defined) any Indebtedness and we will not
issue any Disqualified Capital Stock and will not permit our Restricted
Subsidiaries to issue any preferred stock except preferred stock of a Restricted
Subsidiary issued to (and as long as it is held by) us or a Wholly-Owned
Restricted Subsidiary of ours; provided, however, that if no Default or Event of
Default has occurred and is continuing, we or any Restricted Subsidiary may
incur Indebtedness (including Acquired Indebtedness), we may issue Disqualified
Capital Stock and any Restricted Subsidiary may issue preferred stock, if, in
any case, at the time of and immediately after giving pro forma effect to such
incurrence of such Indebtedness or the issuance of such Disqualified Capital
Stock or preferred
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stock, as the case may be, and the use of proceeds therefrom, our Consolidated
Fixed Charge Coverage Ratio is greater than 2.0 to 1.0.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted
Indebtedness"):
(1) Indebtedness under the notes and Permitted Refinancings thereof;
(2) Indebtedness incurred pursuant to a senior secured credit
facility, including the Senior Credit Facility, provided that the
aggregate principal amount at any time outstanding does not
exceed $155 million;
(3) Permitted Refinancings of:
(a) other Indebtedness of ours or any Restricted Subsidiary to the
extent outstanding on the date of issuance of the outstanding
notes reduced by the amount of any scheduled amortization
payments or mandatory prepayments when actually paid or permanent
reductions thereon; and
(b) Indebtedness incurred under the Consolidated Fixed Charge
Coverage Ratio test of the first paragraph of this covenant;
(4) Interest Swap Obligations of ours covering Indebtedness of ours
or any Restricted Subsidiary; provided, that such Interest Swap
Obligations are entered into to protect us and our Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(5) Currency Swap Obligations of ours covering Indebtedness of our or
any Restricted Subsidiary; provided, however, that such Currency
Swap Obligations are entered into to protect us and our
Restricted Subsidiaries from fluctuations in currency exchange
rates on obligations incurred in accordance with the Indenture to
the extent the notional principal amount of such Currency Swap
Obligation does not exceed the amount of the underlying
obligation to which such Currency Swap Obligation relates;
(6) Commodity Obligations of ours covering Indebtedness of ours or
any Restricted Subsidiary; provided, however, that such Commodity
Obligations are entered into to protect us and our Restricted
Subsidiaries from fluctuations in the price of commodities
actually used in our and our Restricted Subsidiaries' ordinary
course of business;
(7) Indebtedness of a Restricted Subsidiary to us or to a Restricted
Subsidiary for so long as such Indebtedness is held by us or a
Restricted Subsidiary, in each case subject to no Lien held by a
Person other than us or a Restricted Subsidiary; provided that if
as of any date any Person other than us or a Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(8) Indebtedness of ours to a Restricted Subsidiary for so long as
such Indebtedness is held by a Restricted Subsidiary, in each
case subject to no Lien; provided that:
(a) any Indebtedness of ours to any Restricted Subsidiary is
unsecured and subordinated, pursuant to a written agreement, to
our obligations under the Indenture and the Notes; and
(b) if as of any date any Person other than a Restricted Subsidiary
owns or holds any such Indebtedness or any Person holds a Lien in
respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Indebtedness
permitted by this clause (8);
(9) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
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against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within
two business days of incurrence;
(10) Indebtedness of ours or any Restricted Subsidiary represented by
letters of credit for our account or the account of such
Restricted Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the
ordinary course of business;
(11) Indebtedness represented by Capitalized Lease Obligations of ours
and our Restricted Subsidiaries with respect to leasehold
improvements and equipment;
(12) Purchase Money Indebtedness; and
(13) additional Indebtedness of ours in an aggregate principal amount
not to exceed $30 million at any one time outstanding.
For purposes of determining compliance with this "Incurrence of Additional
Indebtedness and Issuance of Disqualified Capital Stock" covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of the
categories of "Permitted Indebtedness" described in clauses (1) through (13)
above, or is entitled to be incurred pursuant to the first paragraph of this
covenant, we will be permitted to classify such item of Indebtedness on the date
of its incurrence in any matter that complies with this covenant.
Senior Subordinated Indebtedness
We will not, and will not cause or permit any Guarantor to directly or
indirectly incur, or be liable for any Indebtedness that expressly ranks senior
in right of payment to the exchange notes or the guarantees of such Guarantor,
as the case may be, and subordinate in right of payment to any other
Indebtedness of ours or such Guarantor, as the case may be.
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other distribution on
account of our Capital Stock (other than dividends or
distributions payable in our Qualified Capital Stock);
(2) redeem any of our Capital Stock or any warrants, rights or options
to purchase or acquire shares of any class of such Capital Stock;
or
(3) make any Investment (other than Permitted Investments) (all such
payments and other actions set forth in clauses (1) through
(3) above being collectively referred to as a "Restricted
Payment"),
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) we would, at the time of such Restricted Payment and after giving
pro forma effect thereto, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the consolidated
Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant under the caption "--Incurrence of Additional
Indebtedness and Issuance of Disqualified Capital Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted
Subsidiaries after the date of the Indenture, is less than or
equal to the sum, without duplication, of
(a) 50% of our Consolidated Net Income for the period (taken as one
account period) commencing after the date of the Indenture to the
date of such Restricted Payment (or, if such Consolidated Net
Income for such period is a loss, less 100% of such deficit), plus
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(b) 100% of the aggregate net cash proceeds received by us since the
date of the Indenture and on or prior to the date of the
Restricted Payment from any Person (other than one of our
subsidiaries) from the issue and sale of our Qualified Capital
Stock or from any equity contribution from a holder of our Capital
Stock (other than Qualified Capital Stock), or any equity
contribution, the proceeds of which are used to redeem notes under
"--Optional Redemption," plus
(c) the principal amount of any Indebtedness of ours or any of our
subsidiaries incurred after the date of the Indenture which has
been converted into or exchanged for our Qualified Capital Stock
(minus the amount of any cash or property distributed by us or our
subsidiaries upon such conversion or exchange), plus
(d) the amount equal to the net reduction in Investments (other than
Permitted Investments) made by us or any of our Restricted
Subsidiaries in any Person, resulting from, without duplication:
(x) repurchases or redemptions of such Investments, proceeds
realized upon the sale of such Investments to an
unaffiliated purchaser and repayments of loans or advances
or other transfers of assets by such Person to us or any of
our Restricted Subsidiaries; or
(y) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed the initial amount
of the Restricted Payment in such Unrestricted Subsidiary;
provided, that, no amount shall be included under this clause
(d) to the extent already included in Consolidated Net Income.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment
would have complied with the provisions of the Indenture;
(2) so long as no Default has occurred and is continuing or would be
caused thereby, the redemption, repurchase, retirement, defeasance
or other acquisition of any of our subordinated Indebtedness or
Capital Stock in exchange for, or out of the net cash proceeds of
the substantially concurrent sale of Qualified Capital Stock of
ours; provided 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) so long as no Default has occurred and is continuing or would be
caused thereby, the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of ours with the net cash
proceeds from a substantially concurrent sale of subordinated
Indebtedness of ours;
(4) so long as no Default has occurred and is continuing or would be
caused thereby, the payment of any dividends or distributions by
us to Holdings which Holdings promptly applies to repurchase its
Capital Stock, including rights, options or warrants to acquire
its Capital Stock, from employees of Holdings or any of its
subsidiaries or their authorized representatives upon the death,
disability or termination of employment of such employees,
provided that the aggregate amount of such payments does not
exceed $1 million in any fiscal year; provided, however, that
amounts not expended in any calendar year may be expended in
succeeding fiscal years up to a maximum of $3 million in any
fiscal year;
(5) so long as no Default has occurred and is continuing or would be
caused thereby, Restricted Payments not to exceed $10 million
during the term of the Indenture; and
(6) dividends or payments to Holdings for overhead expenses, including
legal, accounting and other professional fees, directly
attributable to our operations and those of our Restricted
Subsidiaries.
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In determining the amount of Restricted Payment made under clause (3) of the
preceding paragraph, amounts expended under clauses (1), (4) and (5) of this
paragraph will be included, but amounts under clauses (2) and (3) of this
paragraph will not be included.
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 us 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 our Board of Directors.
Dividend and Other Payment Restrictions Affecting Subsidiaries
We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
of our Restricted Subsidiaries to:
(1) pay dividends or make any other distributions on or in respect of
their Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other
obligation owed to us or any of our other Restricted Subsidiaries;
or
(3) transfer any of our or their property or assets to us or any of
our other Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture;
(3) customary non-assignment provisions of any contract or any lease
entered into in the ordinary course of business and consistent
with past practices governing a leasehold interest of any
Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person or the properties
or assets of the Person so acquired;
(5) agreements existing on the date of the Indenture, to the extent
and in the manner such agreements are in effect on the date of
the Indenture;
(6) customary Liens granted by us or any Restricted Subsidiary to
secure Senior Indebtedness or Senior Indebtedness of a Restricted
Subsidiary;
(7) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4) or (5) of this paragraph;
provided, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less
favorable to us in any material respect as determined by our
Board of Directors in their reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or
(5);
(8) Purchase Money Indebtedness for property or assets acquired in
the ordinary course of business that only imposes encumbrances or
restrictions on the property so acquired;
(9) Permitted Liens; and
(10) any agreement for the sale or disposition of the Capital Stock or
assets of a Restricted Subsidiary; provided, that such
encumbrances and restrictions are only applicable to such assets
or Restricted Subsidiary, as applicable, and any such sale or
disposition is made in compliance with the "Asset Sales"
provision above.
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Liens
We will not, and will not permit any Restricted Subsidiary to, incur or
suffer to exist any Lien, other than Permitted Liens, on our or our Restricted
Subsidiary's property or assets to secure Indebtedness that is pari passu or
subordinate in right of payment to the exchange notes, or the guarantees,
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the exchange notes or the guarantees; provided, that:
(1) in the case of a Lien securing Indebtedness that is pari passu
with the exchange notes or the guarantees, the Lien securing the
exchange notes or the guarantees is senior or pari passu in
priority with such Lien and
(2) in the case of a Lien securing Indebtedness that is subordinated
in right of payment to the exchange notes or the guarantees, the
Lien securing the exchange notes or the guarantees is senior in
priority to such Lien.
Notwithstanding the foregoing, any security interest granted by us or any
Restricted Subsidiary to secure the exchange notes or the guarantees, created
pursuant to the previous paragraph will provide that such security interest
shall be automatically and unconditionally released and discharged upon the
release by the holders of the Indebtedness of ours or any Restricted Subsidiary
described in the previous paragraph of their security interest (including any
deemed release upon indefeasible payment in full of all obligations under such
Indebtedness), at a time when:
(1) no other Indebtedness that is pari passu or subordinated in right
of payment to the exchange notes or the guarantees has been
secured by such property or assets of ours or any such Restricted
Subsidiary; or
(2) the holders of all such other Indebtedness which is secured by
such property or assets of ours or any such Restricted Subsidiary
release their security interest in such property or assets
(including any deemed release upon indefeasible payment in full of
all obligations under such Indebtedness).
Merger, Consolidation, or Sale of Assets
We will not, in a single transaction or series of related transactions: (1)
consolidate or merge with or into another Person (whether or not we are the
surviving corporation); or (2) sell, assign, transfer, convey, lease or
otherwise dispose of all or substantially all of our properties or assets, in
one or more related transactions, to another Person; unless:
(1) either: (a) we are the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other
than us) or to which such sale, assignment, transfer, conveyance,
lease or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any
state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than us) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made
assumes all the obligations of us under the exchange notes and the
Indenture pursuant to a supplemental indenture reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) we or the Person formed by or surviving any such consolidation or
merger (if other than us):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than our Consolidated Net Worth
immediately preceding the transaction; and
(b) 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
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the consolidated Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the
caption "--Incurrence of Additional Indebtedness and Issuance
of Disqualified Capital Stock."
Each Guarantor will not, and we will not cause or permit any Guarantor to,
consolidate or merge with or into any Person other than us or any other
Guarantor, unless:
(1) the Person formed by or surviving any such consolidation or merger
(if other than the Guarantor) is a corporation organized or
existing under the laws of the United States, any state of the
United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Guarantor) assumes all the obligations of the
Guarantor on its guarantee pursuant to a supplemental indenture;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) we will immediately after the transaction satisfy clause (4) of
the previous paragraph.
Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into or permit or suffer to exist any transaction or series of related
transactions 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 us or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by us or such
Restricted Subsidiary with an unrelated Person; and
(2) we deliver to the trustee with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as
to the fairness to the holders of such Affiliate Transaction from
a financial point of view issued by an Independent Financial
Advisor.
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) transactions between or among us and/or our Restricted
Subsidiaries;
(2) payment of reasonable fees and compensation paid to, and indemnity
provided on behalf of, our or any of our Restricted Subsidiaries'
officers, directors, employees or consultants and determined in
good faith by our Board of Directors;
(3) any agreement in effect on the date of the Indenture and as
described under "Certain Relationships and Related Transactions"
elsewhere in this prospectus; and
(4) Restricted Payments that are permitted by the provisions of the
Indenture.
Additional Subsidiary Guarantees
If we or any of our Restricted Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property to any Restricted Subsidiary that is not a Guarantor, or if we or any
of our Restricted Subsidiaries organize, acquire or otherwise invest in another
Restricted Subsidiary, then such transferee or newly acquired or other
Restricted Subsidiary shall execute and deliver to the trustee a supplemental
indenture as a Guarantor and deliver to the trustee an opinion of counsel.
Designation of Restricted and Unrestricted Subsidiaries
We 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
us and our Restricted Subsidiaries in the Subsidiary so designated will be
deemed to
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be an Investment constituting a Restricted Payment made as of the time of such
designation. All such outstanding Investments will be valued at the fair market
value of our proportionate interest in the net worth of such Subsidiary at the
time of such designation calculated in accordance with GAAP. That designation
will only be permitted if such Restricted Payment would be permitted at that
time. The Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default and all
Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately
after such redesignation would, if incurred at such time, have been permitted to
be incurred for all purposes of the Indenture.
Neither we nor any Restricted Subsidiary shall at any time:
(1) provide credit support for or guarantee any Indebtedness of any
Unrestricted Subsidiary;
(2) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary; or
(3) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon or cause the payment thereof to
be accelerated or payable prior to its final scheduled maturity
upon the occurrence of a default with respect to any Indebtedness
of any Unrestricted Subsidiary.
Conduct of Business
We and our Restricted Subsidiaries will not engage in any businesses other
than Permitted Businesses.
Reports
Whether or not required by the Commission, we will file with the Commission
within the time periods specified in the Commission's rules and regulations and
deliver to the trustee and the holders within 15 days after filing with the
Commission:
(1) all quarterly and annual financial information required to be
contained in a filing with the Commission on Forms 10-Q and 10-K;
and
(2) all current reports required to be filed with the Commission on
Form 8-K.
In addition, we will furnish the holders, and to securities analysts and
prospective investors upon their request, information required to be delivered
under Rule 144(d)(4) under the Securities Act.
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
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 notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure to comply with the covenant described under "Merger,
Consolidation, or Sale of Assets";
(4) failure for 30 days after notice to comply with any of the other
agreements or covenants in the Indenture;
(5) default under one or more instruments under which there may be
issued or by which there may be secured or evidenced any
Indebtedness having an outstanding principal amount of
$10.0 million or more, individually or in the aggregate, of ours
or any of our Restricted Subsidiaries, if that default:
(a) results in the acceleration of such Indebtedness prior to its
express maturity; or
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(b) is caused by a failure to pay principal of such Indebtedness at
its stated maturity and the grace period provided in such
Indebtedness on the date of such default has expired;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any
Guarantor shall deny or disaffirm its obligations under its
guarantee; and
(8) certain events of bankruptcy or insolvency with respect to us or
any of our Significant Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to us or any Significant Subsidiary, all
outstanding notes will become due and payable immediately without further action
or notice. If any other Event of Default occurs and is continuing, the trustee
or the holders of at least 25% in principal amount of the then outstanding notes
may declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee is not under any obligation to
exercise its powers under the Indenture unless the holders have provided the
trustee with a reasonable indemnity.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
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 notes. Upon becoming aware of any Default
or Event of Default, we are required to deliver to the trustee a statement
specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding exchange notes ("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) our obligations with respect to the exchange notes concerning
issuing temporary exchange notes, registration of 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 our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations 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 notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders, cash in U.S. dollars, non-callable
government obligations, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized
firm of independent public
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accountants, to pay the principal of, premium, if any, and
interest on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that (a) we have 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 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, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders of the
outstanding 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 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 Event 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
Indenture or any other material agreement or instrument to which
we or any of our Subsidiaries is a party or by which we or any of
our Subsidiaries is bound;
(6) we shall 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) we shall have delivered to the trustee an officers' certificate
stating that the deposit was not made by us within the intent of
preferring the holders of notes over our other creditors with the
intent of defeating, hindering, delaying or defrauding our
creditors or others; and
(8) we shall have delivered 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
Without the consent of each holder affected, an amendment or waiver may
not:
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the
notes;
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) make any note payable in money other than that stated in the
notes;
(5) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the right of holders of notes to
receive payments of principal of or premium, if any, or interest
on the notes;
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(6) make any change in any material respect to our obligation to make
a Change of Control Offer or a Net Proceeds Offer in connection
with an Asset Sale;
(7) change the provisions of the notes or guarantees relating to
subordination or the definition of Senior Indebtedness in a manner
adverse to the holders;
(8) release a Guarantor from its obligations under its guarantee and
the Indenture if not in compliance with the Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder, we and
the trustee may amend or supplement the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertified notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations or the
obligations of a Guarantor to holders in the case of a merger or
consolidation or sale of all or substantially all of our assets or
the merger or consolidation of such Guarantor;
(4) to make any change that would provide any additional rights or
benefits to the holders or that does not adversely affect the
legal rights under the Indenture of any such holder;
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust
Indenture Act; or
(6) to add to the covenants of ours or any Guarantor for the benefit
of the holders or to reduce any right of ours or any Guarantor.
CONCERNING THE TRUSTEE
If IBJ Whitehall Bank & Trust Company, the trustee, becomes our creditor or
a creditor of 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 or resign.
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.
CERTAIN DEFINITIONS
Set forth below are certain of the 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 terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with us or any of our Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
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"amend" means amend, modify, supplement, restate or amend and restate,
including successively; and "amending" and amended have correlative meanings.
"Asset Acquisition" means:
(1)an Investment by us or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted
Subsidiary of us or any Restricted Subsidiary, or shall be merged
with or into us or any Restricted Subsidiary; or
(2)the acquisition by us or any Restricted Subsidiary of the assets of
any Person (other than a Restricted Subsidiary) which constitute
all or substantially all of the assets of such Person or comprises
any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by us or any of our
Restricted Subsidiaries, including any Sale and Leaseback Transaction, to any
Person of:
(1) any Capital Stock of any Restricted Subsidiary; or
(2) any other property or assets of ours or any Restricted Subsidiary
other than in the ordinary course of business.
Not withstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) a transaction or series of related transactions for which we or
our Restricted Subsidiaries receive aggregate consideration of
less than $1.5 million;
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of our assets as permitted under the caption
"--Merger, Consolidation or Sale of Assets";
(3) the Pollo Sale-Leaseback; or
(4) transactions resulting in a Partnership Investment and a
Partnership Loan.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee of that board of directors.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means:
(1) in the case of a corporation, any and all shares, interests,
participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of
common stock and preferred stock of the corporation; and
(2) in the case of a Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any
United States Government agency and backed by the full faith and
credit of the United States maturing within one year from the date
of acquisition;
(2) marketable direct obligations issued by any state of the United
States or any political subdivision of any state or any public
instrumentality of any state maturing within one year
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from the date of acquisition and, at the time of acquisition,
having one of the two highest ratings obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc.;
(3) commercial paper maturing no more than one year from the date of
creation and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition issued by any bank organized
under the laws of the United States or any state of the United
States or the District of Columbia or any United States branch of
a foreign bank having at the date of acquisition combined capital
and surplus of at least $250,000,000;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) of this
definition entered into with any bank meeting the qualifications
specified in clause (4) of this definition; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses
(1) through (5) above.
"Change of Control" means the occurrence of any of the following:
(1) any sale, lease, exchange or other transfer in one transaction or
a series of related transactions of all or substantially all of
our assets to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act, together with any Affiliates
other than to the Permitted Holders;
(2) the approval by the holders of our Capital Stock of any plan or
proposal for the liquidation or dissolution of us;
(3) prior to the earlier to occur of (a) the first public offering of
Capital Stock of Holdings or (b) the first public offering of our
Capital Stock; either
(a) the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 45% in the
aggregate of the total voting power of our Voting Stock,
whether as a result of issuance of securities of ours, any
merger, consolidation, liquidation or dissolution of us, any
direct or indirect transfer of securities by Holdings or
otherwise; or
(b) any "person" (as such term is used in Section 13(d) and
14(d) of the Exchange Act), other than the Permitted Holders,
is or becomes the "beneficial owner" (as defined above),
directly or indirectly, of more of the total voting power of
the voting stock of ours than the Permitted Holders;
(4) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (3) of this
definition, directly or indirectly, of more than 30% of the total
voting power of our Voting Stock; provided, however, that the
Permitted Holders "beneficially own" (as so defined), directly or
indirectly, in the aggregate a lesser percentage of the total
voting power of our Voting Stock than such other person and do not
have the right or ability by voting power, contract or otherwise
to elect designate for election a majority of our Board of
Directors; or
(5) the replacement of a majority of our Board of Directors over a
two-year period from the directors who constituted our Board of
Directors at the beginning of such period, and the replacement
shall not have been approved by a vote of at least a majority of
our Board of Directors then still in office who either were
members of our Board of Directors at the beginning of such period
or whose election as a member of our Board of Directors was
previously so approved.
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"Commodity Obligations" means the obligations of any Person pursuant to any
commodity futures contract, commodity option or other similar agreement or
arrangement.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the date of
the Indenture or issued after the date of the Indenture, and includes all series
and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby,
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as
determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period.
In addition, for purposes of calculating the "Consolidated Fixed Charge
Coverage Ratio," "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis (calculated in accordance
with Regulation S-X under the Securities Act) for the period of such calculation
to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries giving rise to the need to make
such calculation and any incurrence or repayment of other
Indebtedness, other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working
capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case
may be, occurred on the first day of the Four Quarter Period; and
(2) any Asset Sales or Asset Acquisitions occurring during the Four
Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if
such Asset Sale or Asset Acquisition, including the incurrence,
assumption or liability for any such Acquired Indebtedness,
occurred on the first day of the Four Quarter Period.
In calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such Indebtedness
in effect on the Transaction Date; and
(2) interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest
Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
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"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; and
(2) the product of (a) the amount of all dividend payments on any
series of Preferred Stock of such Person or its Restricted
Subsidiaries (other than dividends paid in Qualified Capital Stock
and other than dividends paid with respect to such Preferred Stock
held by such Person or its Restricted Subsidiaries) paid, accrued
or scheduled to be paid or accrued during such period times (b) a
fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including (a) any
amortization of debt discount and amortization or write-off of
deferred financing costs, (b) the net costs under Interest Swap
Obligations, Currency Swap Obligations and Commodity Obligations,
(c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations, in each
case paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that the following shall be excluded:
(1) after-tax gains from Asset Sales or abandonments or reserves
relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date of the acquisition;
(4) the net income (but not loss) of any Restricted Subsidiary of the
specified Person to the extent that the declaration of dividends
or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary,
except, for purposes of the covenant described under "--Restricted
Payments," to the extent of cash dividends or distributions paid
to the specified Person or to a Restricted Subsidiary of the
specified Person by such Person unless, and to the extent, in the
case of a Restricted Subsidiary who receives such dividends or
distributions, such Restricted Subsidiary is subject to clause
(4) above;
(6) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the date of
the Indenture;
(7) income or loss attributable to discontinued operations, including
operations disposed of during such period whether or not such
operations were classified as discontinued; and
(8) in the case of a successor to the specified Person by
consolidation or merger or as a transferee of the specified
Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets.
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"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Currency Swap Obligations" means the obligations of any Person pursuant to
any foreign exchange contract, currency swap agreement or similar agreement.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means:
(1) any Indebtedness outstanding under the Senior Credit Facility;
and
(2) any other Senior Indebtedness which, at the time of determination,
has an aggregate principal amount outstanding, together with any
commitments to lend additional amounts, of at least $20 million,
if the instrument governing such Senior Indebtedness expressly
states that such Indebtedness is "Designated Senior Indebtedness"
for purposes of the Indenture and a Board Resolution setting forth
such designation by us has been filed with the Trustee.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the notes.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by our Board of Directors acting reasonably and in good
faith.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the date of the
Indenture.
"Guarantor" means each of:
(1) Carrols Realty Holdings Corp., Carrols Realty I Corp., Carrols
Realty II Corp., Carrols J.G. Corp., Quanta Advertising Corp.,
Pollo Franchise, Inc. and Pollo Operations, Inc.; and
(2) each of our Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees
to be bound by the terms of the Indenture as a Guarantor.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor:
(1) all obligations of such Guarantor under the senior credit
facility;
(2) all Interest Swap Obligations, Currency Swap Obligations and
Commodity Obligations of such Guarantor;
(3) all obligations of such Guarantor under stand-by letters of
credit; and
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(4) all other Indebtedness of such Guarantor, including principal,
premium, if any, and interest (including Post-Petition Interest)
on such Indebtedness, unless the instrument under which such
Indebtedness of such Guarantor is incurred expressly provides that
such Indebtedness for money borrowed is not senior or superior in
right of payment to the guarantee of such Guarantor, and all
renewals, extensions, modifications, amendments or Refinancings
thereof.
Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not
include:
(1) to the extent that it may constitute Indebtedness, any obligation
for federal, state, local or other taxes;
(2) any Indebtedness among or between such Guarantor and us or any of
our Subsidiaries or any of our Affiliates or any of such
Affiliate's Subsidiaries;
(3) to the extent that it may constitute Indebtedness, any obligation
in respect of any trade payable incurred for the purchase of goods
or materials, or for services obtained, in the ordinary course of
business;
(4) that portion of any Indebtedness that is incurred in violation
of the Indenture;
(5) Indebtedness evidenced by the guarantees;
(6) Indebtedness that is expressly subordinate or junior in right of
payment to any other Indebtedness of such Guarantor;
(7) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations) or
management agreements; and
(8) any obligation that by operation of law is subordinate to any
general unsecured obligations of such Guarantor.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, assume, guarantee or otherwise become directly
or indirectly liable, continently or otherwise, in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred" and "incurring" shall have meanings correlative to
the foregoing).
"Indebtedness" means with respect to any Person, without duplication:
(1) all indebtedness of such Person for borrowed money;
(2) all indebtedness of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all indebtedness of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and
all obligations under any title retention agreement, but excluding
trade accounts payable and other accrued liabilities arising in
the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted;
(5) reimbursement obligations of such Person on any letter of credit,
banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
indebtedness or obligations referred to in clauses (1) through
(5) above and clause (8) below;
(7) all obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any
property or asset of such Person, the amount of such obligation
being deemed to be the lesser of the fair market value of such
property or asset or the amount of the obligation so secured;
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(8) all Interest Swap Obligations, Currency Swap Obligations and
Commodity Obligations of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends. For purposes hereof, the "maximum
fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such
fair market value shall be determined reasonably and in good faith
by the Board of Directors of the issuer of such Disqualified
Capital Stock.
"Independent Financial Advisor" means a firm:
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in
us; and
(2) which, in the judgment of our Board of Directors, is otherwise
independent and qualified to perform the task for which it is to
be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including a guarantee) or capital contribution to,
or any purchase or acquisition by, such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued by,
any Person, but shall exclude extensions of trade credit by the Company and its
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Restricted Subsidiary, as the case
may be. For the purposes of the covenant described above under the caption
"--Restricted Payments":
(1) "Investment" shall include the applicable Designation Amount at
the time of the Designation of any Restricted Subsidiary as an
Unrestricted Subsidiary; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by us or
any of our Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment
of dividends or distributions in connection with such Investment
or any other amounts received in respect of such Investment;
provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any
Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net
Income. If we or any Restricted Subsidiary sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted
Subsidiary such that, after giving effect to any such sale or
disposition, we no longer own, directly or indirectly, greater
than 50% of the outstanding Common Stock of such Restricted
Subsidiary, we shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market
value of the Common Stock of such Restricted Subsidiary not sold
or disposed of.
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"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents, other
than the portion of any such deferred payment constituting interest, received by
us or any of our Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale, including legal, accounting and investment banking fees and
sales commissions;
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements;
(3) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale; and
(4) appropriate amounts to be provided by us or any Restricted
Subsidiary, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by us or
any Restricted Subsidiary after such Asset Sale.
"Partnership Investments" mean Investments by us or a Restricted Subsidiary
in a partnership:
(1) which holds one or more Burger King franchises;
(2) in which we or a Restricted Subsidiary have at least a 20% equity
interest and the remaining equity interest is held by a former
employee of ours or a Restricted Subsidiary; and
(3) which has outstanding Partnership Loans, consistent with past
practice.
"Partnership Loans" means loans made by us or a Restricted Subsidiary to an
entity:
(1) in which we or a Restricted Subsidiary have a Partnership
Investment; and
(2) which finance the acquisition of assets from us or a Restricted
Subsidiary at fair market value.
"Permitted Business" means the business conducted by us and our Restricted
Subsidiaries on the date of the Indenture and other similar or reasonably
related business.
"Permitted Holders" means BIB Holdings (Bermuda) Ltd., Madison Dearborn
Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Alan Vituli
or Daniel T. Accordino or their respective affiliates or, in the case of a
natural person, any entity of which the controlling owners or beneficiaries
consist of family members of such natural person or such natural person.
"Permitted Investments" means:
(1) Investments by us or any Restricted Subsidiary in any Person that
immediately after such Investment will be our Restricted
Subsidiary;
(2) Investments in us by any Restricted Subsidiary; provided that any
Indebtedness evidencing such Investment is unsecured and
subordinated pursuant to a written agreement, to our obligations
under the notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to our employees and officers and those of our
Restricted Subsidiaries (other than to Permitted Holders) in the
ordinary course of business for bona fide business purposes not in
excess of $1,000,000 at any one time outstanding;
(5) Interest Swap Obligations, Currency Swap Obligations and Commodity
Obligations entered into in the ordinary course of our business or
the business of our Restricted Subsidiaries and otherwise in
compliance with the Indenture;
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(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(7) Investments made by us or our Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in
compliance with the covenant described above under the caption
"--Asset Sales;"
(8) Partnership Loans and Partnership Investments in an aggregate
amount not to exceed $5 million (without duplication) at any one
time outstanding; and
(9) Investments made by us or any Restricted Subsidiary of ours in a
Restricted Subsidiary of ours.
"Permitted Junior Securities" means any securities of ours or any other
Person that are:
(1) equity securities without special covenants; or
(2) debt securities expressly subordinated in right of payment to all
Senior Indebtedness that may at the time be outstanding, to
substantially the same extent as, or to a greater extent that, the
notes are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the
rate of interest on such securities shall not exceed the effective
rate of interest on the Notes on the date of the Indenture,
(b) such securities shall not be entitled to the benefits of
covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on
the date of the Indenture and (c) such securities shall not
provide for amortization (including sinking fund and mandatory
prepayment provisions) commencing prior to the date six months
following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or
readjustment pursuant to which such securities are issued).
"Permitted Liens" means:
(1) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
and by appropriate proceedings;
(2) Liens existing on the date of the Indenture;
(3) Liens securing only the notes;
(4) Liens in favor of us or any Restricted Subsidiary;
(5) 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;
(6) easements, reservation of rights of way, restrictions and other
similar easements, licenses, restrictions on the use of
properties, or minor imperfections of title that in the aggregate
are not material in amount and do not in any case materially
detract from the properties subject thereto or interfere with the
ordinary conduct of our business and that of our Restricted
Subsidiaries;
(7) Liens resulting from the deposit of cash or notes in connection
with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation
when required by law and public and statutory obligations or
obligations under franchise arrangements entered into in the
ordinary course of business;
(8) judgment Liens not giving rise to an Event of Default; and
(9) Liens securing letters of credit entered into in the ordinary
course of business.
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"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any Refinancing of such Indebtedness; provided, however, that:
(1) such Indebtedness shall not result in an increase in the aggregate
principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing, plus the amount of any premium required
to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred
by us in connection with the Refinancing;
(2) such Indebtedness other than Senior Indebtedness shall not have a
Weighted Average Life to Maturity that is less than Weighted
Average Life to Maturity of the Indebtedness being Refinanced or a
final maturity earlier than the final maturity of the Indebtedness
being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinate or junior to
the notes, then such Refinancing Indebtedness shall be subordinate
to the notes, at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision of a governmental agency.
"Pollo Sale-Leaseback" means a Sale and Leaseback Transaction in respect of
real estate assets acquired in connection with our acquisition of Pollo Tropical
and completed within 360 days of the date of the Indenture.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of Holdings or us pursuant to a registration statement filed with
the Commission in accordance with the Securities Act; provided, however, that in
the event of a Public Equity Offering by Holdings, Holdings contributes to our
capital the portion of the net cash proceeds of such Public Equity Offering
necessary to pay the aggregate redemption price (plus accrued interest to the
date of redemption) of the notes to be redeemed as described under the caption
"Optional Redemption."
"Purchase Money Indebtedness" means Indebtedness of ours and our Restricted
Subsidiaries incurred in the normal course of business for the purpose of
financing part of the purchase price, or the cost of installation, construction
or improvement, of property or equipment (including quick-service restaurant
properties and related franchises and other intangibles); provided, however:
(1) the Indebtedness shall not exceed 75% of the cost of such property
or assets and shall not be secured by any property or assets of
our or any Restricted Subsidiary other than the property and
assets so acquired or constructed;
(2) the Indebtedness constituting such Indebtedness, other than the
refinancing of such Indebtedness, shall have initially been
incurred within 270 days of the entering into or incurrence of the
transaction; and
(3) the Lien securing such Indebtedness shall be created within
270 days of the acquisition or construction or, in the case of a
refinancing of any Purchase Money Indebtedness, within 270 days of
the refinancing.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"redeem" means redeem, repurchase, defuse or otherwise acquire or retire
for value; and "redemption" and "redeemed" have correlative meanings.
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"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defuse or retire, or to
issue a security or Indebtedness in exchange or replacement for, such security
or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Replacement Assets" means, with respect to an Asset Sale, properties and
assets that replace the properties and assets that were the subject of such
Asset Sale or properties and assets that will be used in a Permitted Business,
or the Capital Stock of an entity all of whose assets constitute Replacement
Assets.
"Restricted Subsidiary" means any Subsidiary of ours which at the time of
determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to us or a Restricted Subsidiary of any property, whether owned by us or
any Restricted Subsidiary at the date of the Indenture or later acquired, which
has been or is to be sold or transferred by us or such Restricted Subsidiary to
such Person or to any other Person from whom funds have been or are to be
advanced by such Person on the security of such property.
"Senior Credit Facility" means the Loan Agreement dated as of May 12, 1997,
as amended, among us, Chase Bank of Texas, National Association, as agent, and
the lenders party to the agreement in their capacities as lenders, together with
the related documents, in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that the increase in borrowings is
permitted under the caption "Limitation on Incurrence of Additional Indebtedness
and Issuance of Disqualified Capital Stock" above) or adding Restricted
Subsidiaries of ours as additional borrowers or guarantors thereunder) all or
any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Senior Indebtedness" means, at any date:
(1) all obligations of ours under the Senior Credit Facility;
(2) all Interest Swap Obligations, Currency Swap Obligations and
Commodity Obligations of ours;
(3) all obligations of ours under stand-by letters of credit; and
(4) all other Indebtedness of ours, including principal, premium, if
any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness
is incurred expressly provides that such Indebtedness is not
senior or superior in right of payment to the notes, and all
renewals, extensions, modifications, amendments or Refinancings
thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include:
(1) any obligation for federal, state, local or other taxes;
(2) any Indebtedness among or between us and any Subsidiary of ours or
any Affiliate of ours or any of such Affiliate's Subsidiaries;
(3) any obligation in respect of any trade payable incurred for the
purchase of goods or materials, or for services obtained, in the
ordinary course of business;
(4) that portion of any Indebtedness that is incurred in violation
of the Indenture;
(5) Indebtedness evidenced by the notes;
(6) Indebtedness of ours that is expressly subordinate or junior in
right of payment to any other Indebtedness of ours;
(7) any obligation owing under leases, other than Capitalized Lease
Obligations, or management agreements; and
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(8) any obligation that by operation of law is subordinate to any
general unsecured obligations of ours.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary," with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election
of directors under ordinary circumstances shall at the time be
owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary
by the Board of Directors of such Person in the manner provided
below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such
Indebtedness; into
(2) the sum of the total of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly-Owned
Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL EXCHANGE NOTES
The exchange notes initially will be represented by one or more registered
notes in global form, without interest coupons in minimum denominations of
$1,000 and integral multiples in excess of $1,000. The global exchange note will
be deposited with, or on behalf of, DTC and registered in the name of Cede &
Co., as nominee of DTC, Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System, or Cedel Bank, societe anonyme, or
will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the trustee.
Except as set forth below, the global exchange note may be transferred, in
whole and not in part, solely to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the global exchange notes may not be
exchanged for notes in physical, certificated form except in the limited
circumstances described below.
All interests in the global exchange notes, including those held through
Euroclear or Cedel, may be subject to the procedures and requirements of DTC.
Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL EXCHANGE NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We do
not take any responsibility for these operations or procedures, and we urge you
to contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is:
(1) a limited purpose trust company organized under the laws of
the State of New York;
(2) a "banking organization" within the meaning of the New
York Banking Law;
(3) a member of the Federal Reserve System;
(4) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended; and
(5) a "clearing agency" registered pursuant to Section 17A of
the Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers (including the initial
purchasers of the outstanding notes), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies (collectively, "Indirect Participants") that clear through or maintain
a custodial relationship with a participant, either directly or indirectly.
Investors who are not participants may beneficially own securities held by or on
behalf of DTC only through participants or Indirect Participants.
DTC is aware that some computer applications, systems and the like for
processing data that are dependent upon calendar dates, including dates before,
on, and after January 1, 2000, may encounter "Year 2000" problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions (including principal and income
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information on the provision of services, including telecommunication and
electrical utility service providers,
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among others. DTC has informed the financial community that it is contacting
(and will continue to contact) third party vendors from whom DTC acquires
services to:
(1) impress upon them the importance of such services being Year 2000
compliant; and
(2) determine the extent of their efforts for Year 2000 remediation
(and, as appropriate, testing) of their services.
In addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
We expect that pursuant to procedures established by DTC: (1) upon deposit
of each global exchange note, DTC will credit the accounts of participants with
an interest in the global exchange note; and (2) ownership of the exchange notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of
participants) and the records of participants and Indirect Participants (with
respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the exchange notes represented
by a global exchange note to such persons may be limited. In addition, because
DTC can act only on behalf of participants, who in turn act on behalf of persons
who hold interests through such participants, the ability of a person having an
interest in exchange notes represented by a global exchange note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of a global exchange
note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the exchange notes represented by the global exchange note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a global exchange note will not be entitled to have exchange notes
represented by such global exchange note registered in their names, will not
receive or be entitled to receive physical delivery of certificated exchange
notes, and will not be considered the owners or holders of such notes under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee thereunder. Accordingly, each
holder owning a beneficial interest in a global exchange note must rely on the
procedures of DTC and, if such holder is not a participant or an Indirect
Participant, on the procedures of the participant through which such holder owns
its interest, to exercise any rights of a holder of notes under the Indenture or
such global exchange note.
We understand that under existing industry practice, in the event that we
request any action of holders of exchange notes, or a holder that is an owner of
a beneficial interest in a global exchange note desires to take any action that
DTC, as the holder of such global exchange note, is entitled to take, DTC would
authorize the participants to take such action and the participants would
authorize holders owning through such participants to take such action or would
otherwise act upon the instruction of such holders. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of notes by DTC, or for maintaining, supervising
or reviewing any records of DTC relating to such exchange notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any exchange notes represented by a global exchange note registered
in the name of DTC or its nominee on the applicable record date will be payable
by the trustee to or at the direction of DTC or its nominee in its capacity as
the registered holder of the global exchange note representing such exchange
notes under the Indenture. Under the terms of the Indenture, we and the trustee
may treat the persons in whose names the exchange notes, including the global
exchange notes, are registered as owners for the purpose of receiving payment
and for any and all other purposes. Accordingly, neither we nor the trustee have
or will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a global exchange note (including principal,
premium, if any, and interest). Payments by the participants and the Indirect
Participants to the owners of beneficial interests in a global exchange note
will be governed by standing instructions and
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customary industry practice and will be the responsibility of the participants
or the Indirect Participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, cross-market transactions will
require delivery of instructions to Euroclear or Cedel, as the case may be, by
the counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the global exchange notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global exchange note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in Euroclear or
Cedel as a result of sales of interest in a global security by or through a
Euroclear or Cedel participant to a participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the global exchange notes among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
If:
(1) we notify the trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary
is not appointed within 90 days of such notice or cessation;
(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of exchange notes in definitive form under the
Indenture; or
(3) certain other events as provided in the Indenture occur,
then, upon surrender by DTC of the global exchange notes, certificated exchange
notes will be issued to each person that DTC identifies as the beneficial owner
of the notes represented by the global exchange notes. Upon any such issuance,
the trustee is required to register such certificated exchange notes in the name
of such person or persons (or the nominee of any thereof) and cause the same to
be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or Indirect Participant in identifying the beneficial owners of the
related exchange notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the exchange notes to be issued).
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of U.S. federal income tax
consequences of the purchase, ownership and disposition of notes by holders that
acquire notes at original issuance for cash at their face value. This discussion
does not address the tax consequences to subsequent purchasers of notes and is
limited to investors who hold the notes as capital assets. Furthermore, this
discussion does not address all aspects of U.S. federal income taxation that may
be applicable to investors in light of their particular circumstances, or to
investors subject to special treatment under U.S. federal income tax law
(including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons who have acquired
notes as part of a straddle, hedge, conversion transaction or other integrated
investment or persons whose functional currency is not the U.S. dollar). This
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended, United States Treasury Department regulations promulgated thereunder,
and administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect.
Each Prospective Investor Should Consult Its Tax Advisor As To The
Particular Tax Consequences To Such Investor Of The Purchase, Ownership And
Disposition Of A Note, Including The Applicability Of Any Federal Estate Or Gift
Tax Laws, Any State, Local Or Foreign Tax Laws And Any Proposed Changes In
Applicable Tax Laws.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will not be considered a taxable exchange for U.S. federal income
tax purposes because the exchange notes will not differ materially in kind or
extent from the outstanding notes and because the exchange will occur by
operation of the terms of the notes. Accordingly, such exchange will have no
U.S. federal income tax consequences to holders of outstanding notes. A holder's
adjusted tax basis and holding period in an exchange note will be the same as
such holder's adjusted tax basis and holding period, respectively, in the
outstanding note exchanged therefor. All references to notes under this heading
"U.S. Federal Income Tax Considerations," apply equally to exchange notes.
U.S. TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. holder" means a holder of a note that is,
for U.S. federal income tax purposes,
(1) a citizen or resident of the United States;
(2) a corporation, limited liability company or partnership created or
organized in or under the laws of the U.S. or of any political
subdivision thereof;
(3) an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
(4) a trust, if a U.S. court is able to exercise primary supervision over
the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of such trust;
and the term "non-U. S. holder" means a holder of a note that is not a U.S.
holder.
Payments of Interest
Stated interest payable on the notes generally will be included in the
gross income of a U.S. holder as ordinary interest income at the time accrued or
received, in accordance with such U.S. holder's method of accounting for U.S.
federal income tax purposes.
Disposition of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a note, a U.S. holder generally will recognize a capital gain or
loss equal to the difference between the amount realized by such U.S. holder
(except to the extent such amount is attributable to accrued interest, which
will be treated as ordinary interest income) and such U.S. holder's adjusted tax
basis in the note. Such capital gain or loss generally will be long-term capital
gain or loss if the holding period for the note exceeds one year at the time of
the disposition. Non-corporate taxpayers may be taxed at reduced rates of
federal income tax in respect of
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long-term capital gains realized on a disposition of notes in certain instances.
Prospective investors should consult their tax advisors regarding the tax
consequences of realizing long-term capital gains.
U.S. TAXATION OF NON-U.S. HOLDERS
Payments of Interest
In general, payments of interest received by a non-U.S. holder will not be
subject to U.S. federal withholding tax, provided that:
(1)(a) the non-U.S. holder does not actually or constructively own 10%
or more of the total combined voting power of all of our
classes of stock entitled to vote;
(b) the non-U.S. holder is not a controlled foreign corporation that
is related to us actually or constructively through stock
ownership;
(c) the non-U.S. holder is not a bank receiving interest on a loan
entered into in the ordinary course of its business; and
(d) either:
(x) the beneficial owner of the note provides us or our paying
agent with a properly executed certification on IRS Form W-8
(or a suitable substitute form) signed under penalties of
perjury that the beneficial owner is not a "U.S. person" for
United States federal income tax purpose and that provides
the beneficial owner's name and address; or
(y) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary
course of its business holds the note and certifies to us or
our agent under penalties of perjury that the IRS Form W-8
(or a suitable substitute) has been received by it from the
beneficial owner of the note or a qualifying intermediary
and furnishes the payor a copy thereof;
(2) the interest received on the note is effectively connected with
the conduct by the non-U.S. holder of a trade or business in the
U.S. and the non-U.S. holder complies with certain certification
requirements; or
(3) the non-U.S. holder is entitled to the benefits of an income tax
treaty under which the interest is exempt from U.S. withholding
tax and the non-U.S. holder complies with certain certification
requirements.
Recently issued Treasury regulations that will be effective with respect to
payments made after December 31, 1999 will provide alternative methods for
satisfying the certification requirements described in clause (1)(d) above.
These regulations will also require, in the case of notes held by a foreign
partnership, that:
(1) the certification described in clause (1)(d) above be provided
by the partners; and
(2) the partnership provide certain information, including its
taxpayer identification number. A look-through rule will apply in
the case of tiered partnerships.
Payments of interest to a non-U.S. holder that do not qualify for the
non-imposition of U.S. withholding tax discussed above, will be subjected to
U.S. federal withholding tax at a rate of 30% (or such reduced rate of
withholding as provided for in an applicable treaty if such non-U.S. holder
provides a properly executed Form 1001 or successor form).
Disposition of the Notes
A non-U.S. holder generally will not be subject to U.S. federal income tax
or withholding tax with respect to gain realized on the disposition of a note,
unless:
(1) the gain is effectively connected with a U.S. trade or business
conducted by the non-U.S. holder (see "U.S. Taxation of Non-U.S.
Holders--Effectively Connected Income," below);
(2) subject to certain exceptions, the non-U.S. holder is an
individual who holds the note as a capital asset and is present in
the United States for 183 or more days during the taxable year of
the Disposition; or
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(3) the non-U.S. holder is subject to tax pursuant to certain
provisions of the Internal Revenue Code applicable to certain
individuals who renounce their U.S. citizenship or terminate long-
term U.S. residency.
If a non-U.S. holder falls under clause (2) above, the holder generally will be
subject to U.S. federal income tax at a rate of 30% (or reduced treaty rate) on
the gain derived from the sale. If a non-U.S. holder falls under clause (3)
above, such holder generally will be taxed on the net gain derived from the
disposition of a note in a manner similar to that of U.S. citizens and resident
aliens.
Effectively Connected Income
If interest and other payments received by a non-U.S. holder with respect
to the notes (including proceeds from the disposition of the notes) are
effectively connected with the conduct by the non-U.S. holder of a trade or
business within the United States (or the non-U.S. holder is otherwise subject
to U.S. federal income taxation on a net basis with respect to such holder's
ownership of the notes), such non-U.S. holder generally will be subject to the
rules described above under "U.S. Taxation of U.S. Holders" (subject to any
modification provided under an applicable income tax treaty). Such non-U.S.
holder may also be subject to the U.S. "branch profits tax" if such non-U.S.
holder is a corporation.
U.S. Federal Estate Taxes
A note beneficially owned by an individual who is a non-U.S. holder at the
time of his or her death generally will not be subject to U.S. federal estate
tax as a result of such death if:
(1) the non-U.S. holder does not actually or constructively own 10% or
more of the total combined voting power of all of classes of our
stock entitled to vote; and
(2) interest payments with respect to the note would not have been, if
received at the time of such individual's death, effectively
connected with the conduct of a U.S. trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The backup withholding rules require a payor to deduct and withhold tax if:
(1) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner;
(2) the IRS notifies the payor that the TIN furnished by the payee
is incorrect;
(3) the payee has failed to report properly the receipt of "reportable
payments" and the IRS has notified the payor that withholding is
required; or
(4) the payee fails to certify under the penalty of perjury that such
payee is not subject to backup withholding.
If any one of the events discussed above occurs with respect to a holder of
notes, we, our paying agent or other withholding agent will be required to
withhold a tax equal to 31% of any "reportable payment" made in connection with
the notes of such holder. A "reportable payment" includes, among other things,
amounts paid in respect of interest on a note. Certain holders (including, among
others, corporations and certain tax-exempt organizations) are not subject to
backup withholding.
Back-up withholding generally will not apply to a note issued in registered
form that is beneficially owned by a non-U.S. holder if the certification of
non-U.S. holder status is provided to us or our agent as described above in
"U.S. Taxation of non-U.S. Holders--Payments and Interest", provided that the
payor does not have actual knowledge that the holder is a U.S. person. We may be
required to report annually to the IRS and to each non-U.S. holder the amount of
interest paid to, and the tax withheld, if any, with respect to each non-U.S.
holder.
If payments of principal and interest are made to the beneficial owner of a
note by or through the foreign office of a custodian, nominee or other agent of
such beneficial owner, or if the proceeds of the sale of notes are paid to the
beneficial owner of a note through a foreign office of a "broker" (as defined in
the pertinent regulations), the proceeds will not be subject to backup
withholding (absent actual knowledge that the payee is a U.S. person).
Information reporting (but not backup withholding) will apply, however, to a
payment by a foreign office of a custodian, nominee, agent or broker that is:
(1) a U.S. person;
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(2) a controlled foreign corporation for U.S. federal income
tax purposes; or
(3) a foreign person that derives 50% or more of its gross income from
the conduct of a U.S. trade or business for a specified three-year
period or, effective after December 31, 1999, by a foreign office
of certain other persons; unless the broker has in its records
documentary evidence that the holder is a non-U.S. holder and
certain conditions are met (including that the broker has no
actual knowledge that the holder is a U.S. holder) or the holder
otherwise establishes an exemption.
Payment through the U.S. office of a custodian, nominee, agent or broker is
subject to both backup withholding at a rate of 31% and information reporting,
unless the holder certifies that it is a non-U. S. holder under penalties of
perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules will be allowed as a
credit against, or refund of, such holder's U.S. federal income tax liability,
provided that any required information is provided by the holder to the IRS.
The Preceding Discussion Of U.S. Federal Income And Estate Tax Consequences
does Not Constitute Tax Advice And Is Not Based Upon Any Opinion Of Counsel.
Accordingly, Each Investor Should Consult Its Own Tax Advisor As To Particular
Tax Consequences To It Of Purchasing, Holding And Disposing Of Notes, Including
The Applicability And Effect Of Any State, Local Or Foreign Tax Laws, And Of Any
Proposed Changes In Applicable Laws.
108
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that for a period of 180 days after the Expiration Date, we will make this
prospectus, as amended or supplemented, available to such broker-dealer for use
in connection with any such resale. In addition, until [ ], 1999,
all dealers effecting transactions in the exchange notes may be required to
deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchaser of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit from such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be an underwriting compensation under the Securities Act. The
accompanying 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 the Expiration Date, 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 agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the outstanding notes)
other than dealers' and brokers' discounts, commissions and counsel fees and
will indemnify the holders of the outstanding notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Rosenman & Colin LLP, New York, New York, will pass on certain legal
matters in connection with the validity of the exchange notes being offered
hereby and certain other legal matters in connection with the exchange offer.
EXPERTS
Carrols' consolidated balance sheets as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholder's equity and cash
flows for each of the two years ended December 31, 1998 and 1997 included in
this prospectus have been audited by PricewaterhouseCoopers LLP, independent
public accountants, as stated in their report appearing herein. Carrols'
consolidated financial statements for the year ended December 31, 1996 included
in this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
The consolidated financial statements of Pollo Tropical and its
subsidiaries as of December 31, 1997 and 1996 and for each of the three years
ended December 31, 1997, 1996 and 1995 included in this prospectus have been
audited by Arthur Andersen, as stated in their report included herein.
The reports on the aforementioned financial statements and schedules are
included herein in reliance upon the authority of said firms as experts in
accounting and auditing.
109
<PAGE>
On August 12, 1997, Carrols replaced the accounting firm of Arthur Andersen
as their principal external auditor with PricewaterhouseCoopers. The decision to
change Carrols' principal external auditor was approved by the audit committee
of their Board of Directors.
Arthur Andersen was Carrols' principal external auditor during the year
ended December 31, 1996 and their report on the financial statements for the
period ended December 31, 1996 did not contain an adverse opinion or disclaimer
of opinion nor were financial statement opinions qualified or modified as to
uncertainty, as to audit scope or as to accounting principles.
There were no disagreements on any matters of accounting principles or
practices, financial statement disclosure or auditing scope of procedure with
the accounting firm of Arthur Andersen.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CARROLS CORPORATION AND SUBSIDIARIES
Audited Consolidated Financial Statements--Years Ended December 31, 1998, 1997, and 1996
Reports of Independent Certified Public Accountants..................................................... F-2
Consolidated Balance Sheets............................................................................. F-4
Consolidated Statements of Operations................................................................... F-6
Consolidated Statements of Stockholder's Equity (Deficit)............................................... F-7
Consolidated Statements of Cash Flows................................................................... F-8
Notes to Consolidated Financial Statements.............................................................. F-10
POLLO TROPICAL, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements--Years Ended December 31, 1997, 1996 and 1995
Report of Independent Certified Public Accountants...................................................... F-23
Consolidated Balance Sheets............................................................................. F-24
Consolidated Statements of Operations................................................................... F-25
Consolidated Statements of Shareholders' Equity......................................................... F-26
Consolidated Statements of Cash Flows................................................................... F-27
Notes to Consolidated Financial Statements.............................................................. F-29
Unaudited Condensed Consolidated Financial Statements--Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets................................................................... F-41
Condensed Consolidated Statements of Operations......................................................... F-42
Consolidated Statement of Shareholders' Equity.......................................................... F-43
Condensed Consolidated Statements of Cash Flows......................................................... F-44
Notes to Condensed Consolidated Financial Statements.................................................... F-45
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
of Carrols Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholder's equity, cash flows, and
supplemental schedule present fairly, in all material respects, the financial
position of Carrols Corporation (a wholly owned subsidiary of Carrols Holdings
Corporation) and its subsidiaries at December 31, 1998 and December 31, 1997,
and the results of their operations and their cash flows for the two years ended
in the period December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements and schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits proved a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
February 19, 1999
F-2
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 6,777,000 $ 2,252,000
Trade and other receivables, net of reserves of $93,000 and $130,000,
respectively................................................................ 1,060,000 748,000
Inventories.................................................................... 3,431,000 3,355,000
Prepaid real estate taxes...................................................... 796,000 939,000
Prepaid expenses and other current assets...................................... 2,768,000 1,388,000
Refundable income taxes (Note 6)............................................... 4,588,000 2,141,000
Deferred income taxes (Note 6)................................................. 3,956,000 2,585,000
------------ ------------
Total current assets............................................................. 23,376,000 13,408,000
------------ ------------
Property and equipment, at cost (Notes 2 and 3):
Land........................................................................... 9,497,000 7,280,000
Buildings and improvements..................................................... 22,275,000 12,487,000
Leasehold improvements......................................................... 57,148,000 43,146,000
Equipment...................................................................... 81,630,000 61,331,000
Capital leases................................................................. 14,570,000 14,548,000
------------ ------------
185,120,000 138,792,000
Less accumulated depreciation and amortization................................... (77,451,000) (67,908,000)
------------ ------------
Net property and equipment....................................................... 107,669,000 70,884,000
------------ ------------
Franchise rights, at cost less accumulated amortization of $29,819,000 and
$25,047,000, respectively...................................................... 106,041,000 108,938,000
Intangible assets, at cost less accumulated amortization of $9,630,000 and
$8,900,000, respectively....................................................... 69,167,000 7,864,000
Other assets..................................................................... 10,367,000 7,778,000
Deferred income taxes (Note 6)................................................... 2,986,000 6,456,000
------------ ------------
$319,606,000 $215,328,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 10,614,000 $ 11,950,000
Accrued interest............................................................... 2,012,000 4,770,000
Accrued payroll, related taxes and benefits.................................... 9,390,000 6,299,000
Other liabilities.............................................................. 9,431,000 5,104,000
Current portion of long-term debt (Note 3)..................................... 3,200,000 3,137,000
Current portion of capital lease obligations (Note 2).......................... 296,000 441,000
------------ ------------
Total current liabilities........................................................ 34,943,000 31,701,000
Long-term debt, net of current portion (Note 3).................................. 256,285,000 154,649,000
Capital lease obligations, net of current portion (Note 2)....................... 1,741,000 2,060,000
Deferred income--sale/leaseback of real estate (Note 2).......................... 4,274,000 4,555,000
Accrued postretirement benefits (Note 12)........................................ 1,708,000 1,627,000
Other liabilities................................................................ 6,657,000 3,289,000
------------ ------------
Total liabilities................................................................ 305,608,000 197,881,000
Commitments and contingencies (Notes 2 and 9)
Stockholder's equity (Note 7):
Common stock, par value $1; authorized 1,000 shares, issued and outstanding--10
shares...................................................................... 10 10
Additional paid-in capital..................................................... 24,484,990 28,362,990
Accumulated deficit............................................................ (10,487,000) (10,916,000)
------------ ------------
Total stockholder's equity....................................................... 13,998,000 17,447,000
------------ ------------
$319,606,000 $215,328,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Restaurant sales.............................................. $416,190,000 $295,436,000 $240,809,000
Franchise fees and royalty revenues........................... 395,000 -- --
------------ ------------ ------------
Total revenues................................................ 416,585,000 295,436,000 240,809,000
------------ ------------ ------------
Costs and expenses:
Cost of sales................................................. 122,620,000 85,542,000 68,031,000
Restaurant wages and related expenses......................... 121,732,000 89,447,000 70,894,000
Other restaurant operating expenses........................... 82,710,000 61,691,000 48,683,000
Advertising expense........................................... 18,615,000 13,122,000 10,798,000
General and administrative.................................... 19,219,000 13,121,000 10,387,000
Depreciation and amortization................................. 20,005,000 15,102,000 11,015,000
Costs associated with change of control....................... -- -- 509,000
------------ ------------ ------------
Total operating expenses................................... 384,901,000 278,025,000 220,317,000
------------ ------------ ------------
Income from operations.......................................... 31,684,000 17,411,000 20,492,000
Interest expense.............................................. 21,068,000 15,581,000 14,209,000
Interest income (Note 6)...................................... -- (983,000) --
Refinancing expenses (Note 4)................................. 1,639,000 -- --
------------ ------------ ------------
Income before income taxes and extraordinary loss............... 8,977,000 2,813,000 6,283,000
Provision for income taxes (Note 6)............................. 4,847,000 655,000 3,100,000
------------ ------------ ------------
Income before extraordinary loss................................ 4,130,000 2,158,000 3,183,000
Extraordinary loss on extinguishment of debt, net of tax benefit
(Note 3)...................................................... 3,701,000 -- --
------------ ------------ ------------
Net income...................................................... $ 429,000 $ 2,158,000 $ 3,183,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID- ACCUMULATED NOTES STOCKHOLDER'S
STOCK IN-CAPITAL DEFICIT RECEIVABLE EQUITY (DEFICIT)
------ ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.................... $ 10 $ 840,990 $(13,757,000) $ -- $(12,916,000)
Net income.................................... 3,183,000 3,183,000
Dividends declared............................ (1,000,000) (1,000,000)
Exercise of stock options..................... 12,000 12,000
Tax benefit from sale of stock options due to
change of control........................... 1,559,000 1,559,000
Loan to purchase warrants..................... (2,500,000) (2,500,000)
---- ----------- ------------ ------------ ------------
Balance at December 31, 1996.................... 10 1,411,990 (10,574,000) (2,500,000) (11,662,000)
Net income.................................... 2,158,000 2,158,000
Dividends declared............................ (4,338,000) (4,338,000)
Capital contribution.......................... 30,382,000 30,382,000
Tax benefit from sale of stock options due to
change of control........................... 907,000 907,000
Redemption of warrants........................ (2,500,000) 2,500,000
---- ----------- ------------ ------------ ------------
Balance at December 31, 1997.................... 10 28,362,990 (10,916,000) -- 17,447,000
Net income.................................... 429,000 429,000
Dividends declared............................ (3,878,000) (3,878,000)
---- ----------- ------------ ------------ ------------
Balance at December 31, 1998.................... $ 10 $24,484,990 $(10,487,000) $ -- $ 13,998,000
---- ----------- ------------ ------------ ------------
---- ----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income...................................................... $ 429,000 $ 2,158,000 $ 3,183,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on disposal of property & equipment...................... (96,000) (344,000) (314,000)
Depreciation and amortization................................. 20,005,000 15,102,000 11,015,000
Extraordinary loss on redemption of debt, net of tax.......... 3,701,000 -- --
Deferred income taxes......................................... 854,000 860,000 160,000
Changes in operating assets and liabilities:
Refundable income taxes....................................... 2,204,000 (2,141,000) --
Accounts payable.............................................. (3,169,000) 2,631,000 410,000
Accrued payroll, related taxes and benefits................... 2,128,000 1,286,000 (256,000)
Accrued income taxes.......................................... -- (1,058,000) 983,000
Other liabilities--current.................................... 383,000 1,229,000 266,000
Accrued interest.............................................. (2,758,000) 29,000 (68,000)
Other liabilities--long-term.................................. -- 1,593,000 (231,000)
Other......................................................... (408,000) (1,405,000) (826,000)
------------- ------------ ------------
Net cash provided from operating activities....................... 23,273,000 19,940,000 14,322,000
------------- ------------ ------------
Cash Flows For Investing Activities:
Capital expenditures:
Purchase of Pollo Tropical, Inc. net of cash acquired......... (94,632,000) -- --
New restaurant development.................................... (13,297,000) (9,732,000) (5,280,000)
Restaurant remodeling......................................... (9,500,000) (3,807,000) (6,656,000)
Other capital expenditures.................................... (10,498,000) (4,671,000) (3,319,000)
Acquisition of restaurants.................................... (629,000) (78,485,000) (7,945,000)
Notes and mortgages issued...................................... -- -- (749,000)
Payments received on notes and mortgages........................ 715,000 88,000 39,000
Proceeds from dispositions of property and equipment............ 1,337,000 1,224,000 2,342,000
Other investments............................................... -- -- 1,330,000
------------- ------------ ------------
Net cash used for investing activities............................ $(126,504,000) $(95,383,000) $(20,238,000)
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Proceeds from long-term debt, net............................... $ 245,000,000 $ 65,206,000 $ 2,997,000
Principal payments and retirements of long-term obligations..... (143,851,000) (26,184,000) (2,047,000)
Proceeds from sale-leaseback transactions....................... 20,532,000 13,000,000 4,246,000
Dividends paid.................................................. (3,878,000) (4,338,000) (1,000,000)
Financing costs associated with issuance of debt................ (5,408,000) (2,592,000) --
Redemption premium on retirement of debt........................ (4,639,000) -- --
Exercise of employee stock options and related tax benefits..... -- 907,000 1,571,000
Capital contribution............................................ -- 30,382,000 --
------------- ------------ ------------
Net cash provided from financing activities....................... 107,756,000 76,381,000 5,767,000
------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.............. 4,525,000 938,000 (149,000)
Cash and cash equivalents, beginning of year...................... 2,252,000 1,314,000 1,463,000
------------- ------------ ------------
Cash and cash equivalents, end of year............................ $ 6,777,000 $ 2,252,000 $ 1,314,000
------------- ------------ ------------
------------- ------------ ------------
Supplemental disclosures:
Interest paid on debt........................................... $ 23,826,000 $ 15,552,000 $ 14,277,000
Income taxes paid............................................... $ 3,652,000 $ 1,456,000 $ 393,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements include the
accounts of Carrols Corporation and its subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in consolidation. The
Company is a wholly-owned subsidiary of Carrols Holdings Corporation
("Holdings").
At December 31, 1998 the Company operated, as franchisee, 343 quick-service
restaurants under the trade name "Burger King" in thirteen Northeastern,
Midwestern and Southeastern states. As described in Note 13, during fiscal 1998,
the Company purchased Pollo Tropical, Inc. ("Pollo Tropical"). At December 31,
1998 the Company also owned and operated 40 Pollo Tropical restaurants located
in Florida and franchised 21 restaurants in Puerto Rico, the Dominican Republic,
Ecuador, Netherlands Antilles, and Florida.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories are primarily comprised of food and paper.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization is provided using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................... 5 to 20 years
Leasehold improvements........................ Remaining life of lease including renewal
options or life of asset whichever is shorter
Equipment..................................... 3 to 10 years
Capital leases................................ Remaining life of lease
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$12,737,000, $9,718,000, and $7,300,000, respectively.
Franchise Rights. Fees for initial franchises and renewals are amortized
using the straight-line method over the term of the agreement, generally twenty
years. Acquisition costs allocated to franchise rights are amortized using the
straight-line method, principally over the remaining lives of the acquired
leases including renewal options, but not in excess of 40 years.
Intangible Assets. Intangible assets consist of the excess purchase price
over net assets acquired and beneficial leases. The excess purchase price over
net assets acquired is amortized using the straight line method over 40 years.
Beneficial leases are amortized using the straight-line method over the lives of
the leases including renewal options, but not in excess of 40 years.
Long-Lived Assets. The Company assesses the recoverability of property and
equipment, franchise rights and intangible assets by determining whether the
amortization of these assets, over their respective remaining lives, can be
recovered through undiscounted future operating cash flows. Impairment is
reviewed whenever events or changes in circumstances indicate the carrying
amounts of these assets may not be fully recoverable.
Deferred Financing Costs. Financing costs, which are included in other
assets, were incurred in obtaining long-term debt are capitalized and amortized
over the life of the related debt on an effective interest basis for costs
associated with the Company's unsecured senior subordinated notes and on a
straight-line basis for costs associated with the Company's senior credit
facility.
Franchise Fees and Royalty Revenues associated with Pollo Tropical
restaurants. Franchise fees are typically collected upon execution of an area
development and/or franchise agreement. Royalty revenues are based on a percent
of gross sales. Franchise fees are initially recorded as deferred revenue and
are recognized in
F-10
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
earnings when the franchised restaurants are opened, or upon forfeiture of such
fees by the franchisees pursuant to the terms of the franchise development
agreements.
Income Taxes. The Company and its subsidiaries were included in the
consolidated federal income tax return of Holdings through the date of the
change of control at April 3, 1996. The Company and its subsidiaries have filed
separate federal income tax returns for the period April 4, 1996 to December 31,
1996 and the year ended December 31, 1997. The Company and its subsidiaries will
file a consolidated federal income tax return for the year ended December 31,
1998.
Advertising Costs. All advertising costs are expensed as incurred.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Self Insurance. The Company is generally self-insured for workers
compensation and general liability insurance. The Company maintains stop loss
coverage for both individual claim amounts in the amount of $500,000 and annual
aggregate claims in the amount of $1,500,000. Losses are accrued based upon the
Company's estimates of the aggregate liability for claims based on Company
experience and certain actuarial methods used to measure such estimates.
Fair Value of Financial Instruments. The following methods were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate that fair value:
Current Assets and Liabilities. The carrying value of cash and cash
equivalents and accrued liabilities approximates fair value because of the
short maturity of those instruments.
Senior Subordinated Notes. The fair values of outstanding senior
subordinated notes and senior notes are based on quoted market prices. The
fair values at December 31, 1998 and 1997 are approximately $171,275,000,
and $113,577,000, respectively.
Revolving and Term Loan Facilities. Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate fair value. The recorded amounts, as of December 31, 1998 and
1997, approximated fair value.
Stock-Based Compensation. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) which permitted entities to recognize as an expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 also allowed entities to continue to apply the
provisions of APB 25 and provide pro forma net income disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS 123 has
been applied. The Company has elected to continue to apply the provisions of APB
25 and provide the pro forma disclosure provisions of SFAS 123.
Segment Reporting. On December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires reporting financial and
descriptive information about reportable operating segments. The Company has
determined that its two quick-service restaurant concepts, Burger King and Pollo
Tropical, are considered segments. See Note 8.
F-11
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the
Sunday closest to December 31. The financial statements included herein are as
of January 3, 1999 (53 weeks), December 28, 1997 (52 weeks) and December 29,
1996 (52 weeks).
Reclassifications. Certain amounts for prior years have been reclassified
to conform to the current year presentation.
2. LEASES
The Company utilizes land and buildings in its operations under various
lease agreements. These leases are generally for initial terms of twenty years
and, in most cases, contain renewal options for two to four additional five year
periods. The rent payable under such leases is generally a percentage of sales
with a provision for minimum rent. In addition, most leases require payment of
property taxes, insurance and utilities.
Deferred gains have been recorded as a result of sale/leaseback
transactions and are being amortized over the lives of the leases. These leases
are operating leases, with a twenty year primary term with four five-year
renewal options. The net deferred gain is $4,274,000 and $4,555,000 at
December 31, 1998 and 1997, respectively. Accumulated amortization pertaining to
capital leases for the years ended December 31, 1998 and 1997 was $10,580,000
and $9,951,000, respectively.
Minimum rent commitments under capital and noncancelable operating leases
at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
YEARS ENDING: CAPITAL OPERATING
- --------------------------------------------------------------- ---------- ------------
<S> <C> <C>
1999........................................................ $ 533,000 $ 24,156,000
2000........................................................ 480,000 23,803,000
2001........................................................ 470,000 23,274,000
2002........................................................ 429,000 22,229,000
2003........................................................ 288,000 21,195,000
2004 and thereafter......................................... 1,041,000 163,648,000
---------- ------------
Total minimum lease payments................................ 3,241,000 $278,305,000
------------
------------
Less amount representing interest....................... 1,204,000
----------
Total obligations under capital leases...................... 2,037,000
Less current portion.................................... 296,000
----------
Long-term obligations under capital leases.................. $1,741,000
----------
----------
</TABLE>
Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the past three years was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rent on real property............................. $22,441,000 $15,303,000 $11,590,000
Additional rent based on a percentage of sales............ 4,328,000 3,099,000 2,700,000
Equipment rent............................................ 39,000 162,000 167,000
----------- ----------- -----------
$26,808,000 $18,564,000 $14,457,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-12
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. LONG-TERM DEBT
On February 12, 1999, the Company entered into a new senior credit facility
with Chase Bank of Texas, National Association, as agent and lender, and other
lenders as parties thereto. The balance sheet at December 31, 1998 and principal
payment schedule below reflect the principal payment terms of this new credit
facility.
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Collateralized:
Revolving credit facility.................................. $ 38,619,000 $ 2,500,000
Term loan facility......................................... 50,000,000 46,786,000
Other notes payable with interest rates to 10%............. 866,000 863,000
Unsecured 9.5% senior notes.................................. 170,000,000 --
Unsecured 11.5% senior subordinated notes.................... -- 107,637,000
------------ ------------
259,485,000 157,786,000
Less current portion......................................... 3,200,000 3,137,000
------------ ------------
$256,285,000 $154,649,000
------------ ------------
------------ ------------
</TABLE>
The new senior credit facility provides for total borrowings of
$150.0 million and consists of a $100.0 million revolving credit facility
(including a standby letter of credit facility for up to $5.0 million) and a
$50.0 million term loan facility.
Borrowings under the new revolving credit facility may be used to finance
permitted acquisitions and new store development, or for working capital and
general corporate purposes. At December 31, 1998, $60,400,000 would have been
available for borrowings under the new revolving credit facility, after
reserving $975,000 for an outstanding letter of credit guaranteed by the
facility.
Borrowings under the revolving credit facility and the term loan facility
bear interest at a per annum rate, at our option, of either:
1) (a) the greater of the prime rate (or the federal funds rate plus
.50%) plus (b) a margin ranging from 0% to .75%, based on debt to cash flow
ratios; or
2) LIBOR plus a margin ranging from 1.00% to 2.25%, based on debt to
cash flow ratios.
Under the new senior credit facility, the revolving credit facility expires
on December 31, 2003 (subject to a one-year extension upon request and unanimous
approval of the lenders). The term loan facility is repayable as follows:
1) an aggregate of $3.0 million payable in four quarterly installments
in 1999;
2) an aggregate of $4.0 million payable in four quarterly installments
in 2000;
3) an aggregate of $5.0 million payable in four quarterly installments
in 2001;
4) an aggregate of $6.0 million payable in four quarterly installments
in 2002;
5) an aggregate of $7.0 million payable in four quarterly installments
in 2003; and
6) a final payment of $25.0 million payable upon the term loan
facility's maturity on December 31, 2003.
In general, the Company's obligations under our new senior credit facility
are secured by all of the Company's assets, a pledge of the Company's common
stock and the stock of each of the Company's subsidiaries.
F-13
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. LONG-TERM DEBT--(CONTINUED)
The Company issued $170.0 million of unsecured senior subordinated notes on
November 24, 1998. The senior notes bear interest at a rate of 9.5% payable
semi-annually on June 1 and December 1 and mature on December 1, 2008. The notes
are redeemable at the option of the Company in whole or in part on or after
December 1, 2003 at a price of 104.75% of the principal amount if redeemed
before December 1, 2004, 103.167% of the principal amount if redeemed after
December 1, 2004 but before December 1, 2005, 101.583% of the principal amount
if redeemed after December 1, 2005 but before December 1, 2006 and at 100% of
the principal amount after December 1, 2006.
In connection with the issuance of the 9.5% senior subordinated notes, the
Company redeemed all of its outstanding 11.5% senior notes. This redemption
included aggregate principal amounts of $107,637,000, a redemption premium of
$4,639,000, and accrued interest to December 24, 1998 of $4,436,000. In
addition, the Company used the proceeds of the 9.5% notes to repay $47.9 million
of its previous senior credit facility.
In connection with the redemption of the 11.5% senior notes, the Company
recognized an extraordinary loss of $3,701,000, which is net of a $3,281,000
income tax benefit, for the redemption premium and the write-off of $2,343,000
in unamortized debt issue costs related to the 11.5% notes.
In connection with the new senior credit facility above, the Company has
recognized a pre-tax write-off in 1999 of approximately $1.8 million. This
write-off represents unamortized debt issue costs related to the previous senior
credit facility.
Restrictive covenants of the senior subordinated notes and the senior
credit facility include limitations with respect to the Company's ability to
issue additional debt, incur liens, sell or acquire assets or businesses, pay
dividends and make certain investments. In addition, our senior credit facility
requires the Company to meet certain financial ratio tests.
At December 31, 1998, principal payments required on all long-term debt,
including the new senior credit facility, are as follows:
<TABLE>
<S> <C>
1999...................................................... $ 3,200,000
2000...................................................... 4,112,000
2001...................................................... 5,000,000
2002...................................................... 6,000,000
2003...................................................... 70,619,000
Thereafter................................................ 170,554,000
------------
$259,485,000
------------
------------
</TABLE>
The weighted average interest rate for the years ended December 31, 1998
and 1997 was 9.9% and 10.7%, respectively.
4. REFINANCING EXPENSES
The Company expensed all costs associated with its efforts to refinance its
existing debt in the third quarter of 1998 as the timing of any future
refinancing was uncertain and the related activities had ceased. Approximately
$1.2 million of these costs related to losses on interest rate hedge
transactions, which were settled in the third quarter.
5. SUMMARIZED FINANCIAL INFORMATION OF CERTAIN SUBSIDIARIES
The following table presents summarized combined financial information for
the following wholly-owned subsidiaries, whom unconditionally guarantee the
$170.0 million senior subordinated notes of the Company:
F-14
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
5. SUMMARIZED FINANCIAL INFORMATION OF CERTAIN SUBSIDIARIES--(CONTINUED)
Carrols Realty Holdings, Carrols Realty I Corp., Carrols Realty II Corp.,
Carrols J.G. Corp., Quanta Advertising Corp., Pollo Franchise Inc. and Pollo
Operations, Inc. on a combined basis at December 31, or for the year then ended.
The Statement of Operations for the year ended December 31, 1998 includes the
operations of Pollo Operations, Inc. and Pollo Franchise Inc. for the period
July 10, 1998 through December 31, 1998.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C> <C>
Balance sheet:
Current assets.............................................. $ 910,000 $ 6,000
Non-current assets.......................................... 89,922,000 5,591,000
Current liabilities......................................... 7,401,000 --
Non-current liabilities..................................... 1,845,000 344,000
<CAPTION>
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Statement of Operations:
Revenues.................................................... $35,543,000 $ 283,000 $268,000
Operating expenses.......................................... 30,576,000 283,000 268,000
Income from operations...................................... 4,967,000 -- --
Net income.................................................. 805,000 -- --
</TABLE>
6. INCOME TAXES
The income tax provision was comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 152,000 $ 887,000 $ 981,000
Foreign..................................................... 114,000 -- --
State....................................................... 471,000 628,000 400,000
---------- ---------- ----------
737,000 1,515,000 1,381,000
---------- ---------- ----------
Deferred:
Federal..................................................... 3,602,000 (672,000) 1,199,000
State....................................................... 508,000 (188,000) 520,000
---------- ---------- ----------
4,110,000 (860,000) 1,719,000
---------- ---------- ----------
$4,847,000 $ 655,000 $3,100,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-15
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. INCOME TAXES--(CONTINUED)
The components of deferred income tax assets and liabilities at December
31, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Deferred Tax Assets:
Accounts receivable and other reserves.................................... $ 206,000 $ 248,000
Accrued vacation benefits................................................. 649,000 508,000
Other non-deductible accruals............................................. 695,000 132,000
Loss on disposal of assets................................................ 259,000 --
Reserve for closed restaurants............................................ 450,000 --
Net operating loss carryforwards.......................................... 1,697,000 1,697,000
---------- ----------
Total Current Deferred Tax Assets........................................... 3,956,000 2,585,000
---------- ----------
Long Term Deferred Tax Assets/(Liabilities):
Deferred income on sale/leaseback of real estate.......................... 1,265,000 1,710,000
Postretirement benefit expenses........................................... 723,000 650,000
Capital leases............................................................ 412,000 464,000
Property and equipment depreciation....................................... (1,216,000) 549,000
Net operating loss carryforwards.......................................... 7,388,000 8,762,000
Amortization of franchise rights.......................................... (6,443,000) (5,896,000)
Non-deductible rent expense............................................... 843,000 36,000
Other..................................................................... 14,000 181,000
---------- ----------
Total Long-Term Net Deferred Tax Assets..................................... 2,986,000 6,456,000
---------- ----------
Total Net Deferred Tax Assets............................................... $6,942,000 $9,041,000
---------- ----------
---------- ----------
</TABLE>
The Company has net operating loss carryforwards for income tax purposes of
approximately $23 million. The net operating loss carryforwards expire in
varying amounts beginning in 2003 through 2010. Due to a change in ownership the
Company is limited, for Federal tax purposes, to a $4,354,000 utilization of net
operating losses annually. Realization of the deferred income tax assets
relating to these net operating losses is dependent on generating sufficient
taxable income prior to the expiration of the loss carryforwards. Based upon
results of operations, management believes it is more likely than not that the
Company will generate sufficient future taxable income to fully realize the
benefit of the net operating loss carryforwards and existing temporary
differences, although there can be no assurance of this.
A reconciliation of the statutory federal income tax rate to the effective
tax rates for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax rate..................... $3,053,000 34.0% $ 957,000 34.0% $2,136,000 34.0%
State income taxes, net of federal benefit............ 515,000 5.7% 266,000 9.5% 607,000 9.7%
Nondeductible expenses................................ 611,000 6.8% 197,000 7.0% 197,000 3.1%
Tax appeals settlement................................ -- -- (806,000) (28.7)% -- --
Foreign taxes......................................... 114,000 1.3% -- -- -- --
Miscellaneous......................................... 554,000 6.1% 41,000 1.4% 160,000 2.5%
---------- ---- --------- ----- ---------- ----
$4,847,000 53.9% $ 655,000 23.2% $3,100,000 49.3%
---------- ---- --------- ----- ---------- ----
---------- ---- --------- ----- ---------- ----
</TABLE>
Included in refundable income taxes at December 31, 1997 is $983,000 of
interest income associated with a Federal tax appeals claim settlement.
F-16
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDER'S EQUITY
The Company
The Company has 1,000 shares of common stock authorized of which 10 shares
are issued and outstanding. Dividends on the Company's common stock are
restricted to amounts permitted by various loan agreements.
Holdings
The sole activity of Holdings is the ownership of 100% of the stock of
Carrols Corporation. In 1998, all preferred stock was redeemed at the option of
Holdings, at a price of $1,000 per share, plus accrued dividends. In February
1997, a 1 for 3.701 reverse stock split was effected to reduce the outstanding
shares of common stock of Holdings to 850,000 shares. The capital structure of
Holdings at December 31, 1998 was as follows:
<TABLE>
<S> <C>
Voting common stock, par value $.01, authorized
3,000,000 shares issued and outstanding
1,144,144 shares................................................................. $11,000
</TABLE>
Warrants outstanding at December 31, 1996 to purchase 131,886 shares of
Holdings Common Stock at exercise prices of $3.59 to $3.70 per share were owned
by an independent third party. To facilitate the sale and purchase of the
warrants, Holdings loaned $2,500,000 to the purchaser of the warrants which loan
was secured by a collateral pledge of the shares of the purchaser and of the
warrants. The receivable was reclassified to increase stockholders' deficit as
of December 31, 1996. In 1997, Holdings exercised its option to purchase the
warrants at an aggregate price of $2,510,000 from the third party in exchange
for payment on the related loan.
Change of Control Transactions
On April 3, 1996, Holdings, Carrols Corporation and certain selling
shareholders of Holdings sold approximately 97 percent of the issued common
stock and common stock equivalents (the Class B Convertible Preferred stock,
warrants to buy common stock and options to buy common stock) exclusive of the
warrants referred to above to BIB Holdings (Bermuda) Ltd. ("BIB"), formerly
Atlantic Restaurants, Inc. This change in control resulted in the Company
incurring a one-time charge of $509,000 in fiscal 1996.
On March 27, 1997, Holdings and BIB, its then sole stockholder, entered
into an agreement whereby they agreed to sell 283,334 shares of common stock of
Holdings to Madison Dearborn Capital Partners ("Madison Dearborn"), an
independent third party, resulting in approximately $30.4 million of new equity
for the Company. BIB also sold 283,333 of its shares of Holdings to Madison
Dearborn resulting in both BIB and Madison Dearborn having an equal interest in
the Company.
Both transactions constituted a "change of control" under the Indenture
governing the pre-existing Senior Notes Due 2003 ("Notes"). Accordingly, each
holder of the Notes had the right to require the Company to repurchase all or
any part of such holder's Notes at a repurchase price in cash equal to 101% of
the principal amount of the Notes being repurchased plus accrued and unpaid
interest in both 1996 and in 1997. Such redemptions totaled $25,000 in 1997 and
$838,000 in 1996.
Stock Options
In 1996, Holdings adopted a stock option plan entitled the 1996 Long-Term
Incentive Plan ("1996 Plan") and authorized a total of 106,250 shares to be
granted at prices ranging from $101.77 to $140.00 per share. Options under this
plan generally vest over a four year period.
F-17
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDER'S EQUITY--(CONTINUED)
In 1998, Holdings adopted the Carrols Holdings Corporation 1998 Directors'
Stock Option Plan ("1998 Directors' Plan") authorizing to grant up to 10,000
options to non-employee Directors. Options under this plan are exercisable over
four years.
A summary of all option activity in the 1996 Plan and the Directors Plan
for the years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS AT OPTIONS AT OPTIONS AT
$101.77 $110.00 $124.78
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1996.............................. -- -- --
Granted................................................. 72,250 14,460 --
Canceled................................................ -- (570) --
------ ------ ------
Balance at December 31, 1997.............................. 72,250 13,890 --
Granted................................................. -- 2,000 10,375
Canceled................................................ -- (310) (465)
------ ------ ------
Balance at December 31, 1998.............................. 72,250 15,580 9,910
------ ------ ------
------ ------ ------
Exercisable at December 31, 1997.......................... 34,850 -- --
------ ------ ------
------ ------ ------
Exercisable at December 31, 1998.......................... 44,250 3,895 --
------ ------ ------
------ ------ ------
</TABLE>
Holdings adopted an Employee Stock Option and Award Plan on December 14,
1993 ("The 1993 Plan"). Effective April 1, 1994, Holdings also adopted a Stock
Option Plan for non-employee directors ("Directors Plan"). The Plans allowed for
the granting of non-qualified stock options, stock appreciation rights and
incentive stock options to directors, officers and certain other Company
employees. The Company was authorized to grant options for up to 229,700 shares,
27,000 shares for non-employee directors and 202,700 shares for employees.
Options were generally exercisable over 5 years. During 1996, 57,000 options
(36,600 at $14.80 and 20,400 at $22.65) were canceled by the sale of such
options in conjunction with the sale to Atlantic and the plans were canceled.
The remaining 32,426 options were subject to a deferred purchase agreement
whereby the sale and cancellation occurred in January, 1997.
A summary of all option activity in the 1993 Plan and the Directors Plan
for the years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS AT OPTIONS AT
$14.80 $22.65
---------- ----------
<S> <C> <C>
Balance at December 31, 1995.......................................... 65,929 26,156
Exercised........................................................... (810) --
Canceled............................................................ (38,098) (20,751)
-------- --------
Balance at December 31, 1996.......................................... 27,021 5,405
Canceled............................................................ (27,021) (5,405)
-------- --------
Balance at December 31, 1997.......................................... -- --
-------- --------
-------- --------
</TABLE>
In addition, in conjunction with the 1997 sale of Holdings common stock to
Madison Dearborn, additional options not part of the 1996 Plan for 32,427 shares
at a price of $101.77 were granted with vesting over a five year period. There
were no options exercisable at December 31, 1997 and 6,486 options exercisable
at December 31, 1998. The weighted average exercise price of all options
outstanding at December 31, 1998 is $122.30.
F-18
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. STOCKHOLDER'S EQUITY--(CONTINUED)
Had compensation cost been determined based upon the fair value of the
stock options at grant date consistent with the method of SFAS 123, the
Company's pro-forma net income would have been $180,000 and $1,527,000 for the
years ended December 31, 1998 and 1997, respectively.
The fair value of each option grant was estimated using the minimum value
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Risk-free interest rate............................................................. 5.60% 6.53%
Annual dividend yield............................................................... 0% 0%
Expected life....................................................................... 5 years 5 years
</TABLE>
8. BUSINESS SEGMENT INFORMATION
The Company is engaged in the quick-service restaurant industry, with two
restaurant concepts: Burger King operating as a franchisee and Pollo Tropical a
Company owned concept. The Company's Burger King restaurants are all located in
the United States, primarily in the Northeast, Southeast and Midwest. Pollo
Tropical is a regional quick-service restaurant chain featuring grilled
marinated chicken and authentic "made from scratch" side dishes. Pollo
Tropical's core markets are located in south and central Florida.
Segment information for December 31, 1997 and 1996 is not presented, since
the Pollo Tropical acquisition did not occur until July 9, 1998 and previous to
this the Company operated its business as one segment whose results are
reflected in the 1997 and 1996 Statement of Operations. Segment information for
Burger King restaurants for the year ended December 31, 1998 and Pollo Tropical
for the period July 10, 1998 through December 31, 1998 is shown in the following
table. The "Other" column includes corporate related items not allocated to
reportable segments and for income from operations, principally corporate
depreciation and amortization. Other identifiable assets consist primarily of
franchise rights and intangible assets. Non-operating expenses, comprised of
interest expense, interest income, and refinancing expenses and the
extraordinary loss are corporate related items and therefore have not been
allocated to the reportable segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------
BURGER KING
RESTAURANTS POLLO TROPICAL OTHER CONSOLIDATED
----------- -------------- ------- ------------
($ IN 000'S)
<S> <C> <C> <C> <C>
Revenues.................................................... $ 381,042 $ 35,543 $ -- $416,585
Cost of sales............................................... 110,269 12,351 -- 122,620
Restaurant wages and related expenses....................... 113,456 8,276 -- 121,732
Depreciation and amortization............................... 11,620 1,018 7,367 20,005
Income from operations...................................... 33,334 5,717 (7,367) 31,684
Identifiable assets......................................... 196,932 23,078 99,596 319,606
Capital expenditures, excluding acquisitions................ 26,560 4,335 2,400 33,295
</TABLE>
9. LITIGATION
The Company is a party to various legal proceedings arising from the normal
course of business. Based on information currently available, management
believes adverse decisions relating to litigation and contingencies in the
aggregate would not materially affect the Company's results of operations, cash
flows or financial condition.
F-19
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. EMPLOYEE SAVINGS PLAN
The Company offers a savings plan for its salaried employees, excluding
those of Pollo Tropical. Under the plan, participating employees may contribute
up to 10% of their salary annually. The Company's contributions, which begin to
vest after three years and fully vest after seven years of service, are equal to
50% of the employee's contributions to a maximum Company contribution of $520
annually. The employees have various investment options available under a trust
established by the plan. The plan expense, including Company contributions, was
$216,000, $208,000 and $164,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
11. 401(K) PLAN
The Company offers an employee savings plan for its Pollo Tropical
employees pursuant to Section 401(k) (the "401K Plan) of the Internal Revenue
Code. All employees who are age 21 or older and who have been credited with at
least 1,000 hours of service within 12 consecutive months are eligible to
participate in the 401K Plan. The Company makes discretionary matching
contributions, which are allocated to participants based on the participant's
eligible deferrals during the plan year. Company contributions vest at a rate of
33% for each year of service. Company contributions to the 401K Plan totaled
$17,000, for the year ended December 31, 1998.
12. POSTRETIREMENT BENEFITS
While the Company reserves the right to change its policy, the Company
provides postretirement medical and life insurance benefits covering
substantially all salaried employees. The following is the plan status and
accumulated postretirement benefit obligation (APBO) at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of the year............................. $ 1,361,000 $ 1,241,000
Service cost............................................................ 107,000 69,000
Interest cost........................................................... 101,000 85,000
Plan participant's contributions........................................ 3,000 --
Amendments, curtailments, special termination........................... 69,000 --
Actuarial loss.......................................................... 177,000 --
Benefits paid........................................................... (95,000) (34,000)
----------- -----------
Benefit obligation at end of the year................................... $ 1,723,000 $ 1,361,000
Change in plan assets:
Fair value of plan assets at end of year................................ -- --
----------- -----------
Funded status........................................................... (1,723,000) (1,361,000)
Unrecognized prior service cost......................................... (193,000) (286,000)
Unrecognized actuarial net loss......................................... 208,000 20,000
----------- -----------
Accrued benefit cost.................................................... $(1,708,000) $(1,627,000)
----------- -----------
----------- -----------
Weighted average assumptions as of December 31:
Discount rate........................................................... 6.5% 7.0%
----------- -----------
----------- -----------
</TABLE>
F-20
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
12. POSTRETIREMENT BENEFITS--(CONTINUED)
For measurement purposes, a 6.25% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998, gradually decreasing
to 5.5% by the year 2001.
<TABLE>
<CAPTION>
1998 1997 1996
----------- -----------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost............................................. $ 107,000 $ 69,000 $ 64,000
Interest cost............................................ 101,000 85,000 77,000
Amortization of gains and losses......................... -- 4,000 --
Amortization of unrecognized prior service cost.......... (25,000) (29,000) (25,000)
----------- ----------- -----------
Net periodic postretirement benefit cost................... $ 183,000 $ 129,000 $ 116,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in the
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
INCREASE DECREASE
-------- ---------
<S> <C> <C>
Effect on total of service and interest cost components.............. $ 42,000 $ (32,000)
Effect on postretirement benefit obligation.......................... 277,000 (215,000)
</TABLE>
13. ACQUISITIONS
On July 9, 1998, the Company consummated the purchase of the outstanding
common stock of Pollo Tropical Inc. ("Pollo Tropical") for an approximate cash
purchase price of $94.6 million and on July 20, 1998 merged Pollo Tropical into
the Company. Pollo Tropical operates and franchises quick-service restaurants
featuring fresh grilled chicken marinated in a proprietary blend of tropical
fruit juices and spices and authentic "made from scratch" side dishes. The Pollo
Tropical acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of Pollo Tropical from July 10, 1998
are included in the accompanying consolidated financial statements. The excess
purchase price over net assets acquired is included in intangible assets and is
amortized over 40 years using the straight-line method. The Company used its
previous senior credit facility to finance the Pollo Tropical acquisition.
On March 28, 1997, the Company purchased certain assets and franchise
rights of twenty-three Burger King restaurants in North and South Carolina for a
cash price of approximately $21 million. On August 20, 1997, the Company
purchased certain assets and franchise rights of sixty-three Burger King
restaurants, primarily in Western New York State, Indiana and Kentucky for a
cash price of approximately $52 million.
The following proforma results of operations for the periods presented
below assume these acquisitions occurred as of the beginning of the respective
period in which the acquisition occurred:
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
Revenues..................................................... $ 454,672,000 $ 407,819,000
------------- -------------
------------- -------------
Income from operations....................................... $ 37,313,000 $ 29,356,000
------------- -------------
------------- -------------
Net income................................................... $ 1,206,000 $ 2,728,000
------------- -------------
------------- -------------
</TABLE>
The preceding proforma financial information is not necessarily indicative
of the operating results that would have occurred had any of the acquisitions
been consummated as of the beginning of the respective periods, nor are they
necessarily indicative of future operating results.
F-21
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. ACQUISITIONS--(CONTINUED)
Assets acquired and liabilities assumed in these acquisitions were as follows:
<TABLE>
<CAPTION>
ACQUISITION OF ACQUISITION OF
POLLO TROPICAL BURGER KING UNITS
--------------- ------------------
<S> <C> <C>
Current assets, excluding cash....................................... $ 2,422,000 $ --
Inventory............................................................ 298,000 604,000
Property and equipment............................................... 38,005,000 12,778,000
Franchise rights..................................................... -- 65,496,000
Intangible assets including goodwill................................. 64,011,000 --
Other non-current assets............................................. 783,000 --
Accounts payable..................................................... (1,833,000) --
Accrued payroll, related taxes and benefits.......................... (963,000) (393,000)
Current liabilities.................................................. (3,944,000) --
Other non-current liabilities........................................ (4,147,000) --
----------- ------------
$94,632,000 $ 78,485,000
----------- ------------
----------- ------------
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Pollo Tropical, Inc.:
We have audited the accompanying consolidated balance sheets of Pollo
Tropical, Inc. (a Florida corporation) and subsidiaries as of December 28, 1997
and December 29, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995. 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 Pollo Tropical, Inc. and
subsidiaries as of December 28, 1997 and December 29, 1996, and the results of
their operations and their cash flows for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 1998 (except with respect to the matters discussed
in Note 13, as to which the date is March 16, 1998).
F-23
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 292,455 $ 94,490
Inventories....................................................................... 280,595 271,996
Prepaid expenses.................................................................. 244,753 316,559
Prepaid income taxes.............................................................. -- 354,062
Deferred income taxes............................................................. 419,743 1,583,649
Other current assets.............................................................. 279,384 554,689
----------- -----------
Total current assets............................................................ 1,516,930 3,175,445
Property and equipment, at cost, less accumulated
depreciation and amortization..................................................... 35,405,159 42,539,997
Deferred restaurant pre-opening costs, net of
accumulated amortization of $45,603 in 1997 and $702,614 in 1996.................. 24,730 99,213
Intangible assets, net of accumulated amortization.................................. 467,923 431,892
Leasehold acquisition costs, net of accumulated
amortization of $387,537 in 1997 and $310,600 in 1996............................. 1,079,925 1,423,334
Note receivable, net of current portion............................................. 840,032 --
Deposits and deferred costs on future
restaurant locations.............................................................. 250,727 93,338
Other assets........................................................................ 768,675 737,345
----------- -----------
Total assets.................................................................... $40,354,101 $48,500,564
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 1,553,056 $ 2,673,868
Accrued liabilities............................................................... 2,617,624 1,524,906
Current maturities of long-term debt.............................................. 126,559 83,773
Accrued restaurant closure expenses............................................... 2,125,525 6,273,830
----------- -----------
Total current liabilities....................................................... 6,422,764 10,556,377
Long-term debt, net of current maturities........................................... 1,087,393 11,290,952
Deferred rent....................................................................... 1,483,978 1,361,353
Deferred franchise fee income....................................................... 237,500 270,000
Deferred income taxes............................................................... 1,391,085 879,830
----------- -----------
Total liabilities............................................................... 10,622,720 24,358,512
----------- -----------
Commitments and contingencies (Notes 11 and 13)
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued or
outstanding..................................................................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized, 8,207,658 shares in
1997 and 8,149,799 shares in 1996 issued and outstanding........................ 82,076 81,498
Additional paid-in capital........................................................ 22,054,326 21,708,161
Retained earnings................................................................. 7,594,979 2,352,393
----------- -----------
Total shareholders' equity...................................................... 29,731,381 24,142,052
----------- -----------
Total liabilities and shareholders' equity...................................... $40,354,101 $48,500,564
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-24
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Restaurant sales................................................ $ 65,118,299 $ 63,734,848 $ 55,489,397
Franchise revenues.............................................. 811,700 499,304 554,416
------------ ------------ ------------
65,929,999 64,234,152 56,043,813
------------ ------------ ------------
Operating expenses:
Cost of sales................................................... 22,532,898 24,037,263 20,064,837
Restaurant payroll.............................................. 15,177,551 15,695,011 13,660,579
Other restaurant operating expenses............................. 11,413,996 12,136,629 9,465,369
General and administrative...................................... 5,537,684 5,370,644 5,177,554
Depreciation and amortization of property and equipment......... 2,023,311 2,202,074 1,961,783
Amortization of deferred restaurant pre-opening costs........... 122,828 554,744 1,159,723
Other amortization.............................................. 209,378 204,514 274,970
Restaurant closure expenses..................................... -- 6,324,242 1,491,934
------------ ------------ ------------
57,017,646 66,525,121 53,256,749
------------ ------------ ------------
Income (loss) from operations..................................... 8,912,353 (2,290,969) 2,787,064
------------ ------------ ------------
Other income (expense):
Interest expense, net of capitalization......................... (545,104) (991,144) (785,648)
Interest income................................................. 54,955 14,599 27,861
Other, net...................................................... 32,481 73,843 (130,865)
------------ ------------ ------------
(457,668) (902,702) (888,652)
------------ ------------ ------------
Income (loss) before income taxes and extraordinary charge........ 8,454,685 (3,193,671) 1,898,412
Provision for (benefit from) income taxes......................... 3,212,099 (1,213,278) 720,836
------------ ------------ ------------
Income (loss) before extraordinary charge......................... 5,242,586 (1,980,393) 1,177,576
Extraordinary charge for early extinguishment of debt, net of
income tax benefit of $37,942................................... -- -- 62,967
------------ ------------ ------------
Net income (loss)............................................ $ 5,242,586 $ (1,980,393) $ 1,114,609
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share:
Basic........................................................... $ .64 $ (.24) $ .14
------------ ------------ ------------
------------ ------------ ------------
Diluted......................................................... $ .63 $ (.24) $ .14
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-25
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK,
$.01 PAR VALUE
-------------------- TOTAL
NUMBER OF ADDITIONAL RETAINED SHAREHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
--------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.................. 7,944,990 $79,449 $21,321,047 $ 3,218,177 $24,618,673
Proceeds from exercise of stock options,
including tax benefit of $202,078...... 77,962 780 223,907 -- 224,687
Restricted stock award, net of deferred
compensation of $112,500............... 25,000 250 (250) -- --
Amortization of deferred
compensation........................... -- -- 1,286 -- 1,286
Net income for the year................... -- -- -- 1,114,609 1,114,609
--------- ------- ----------- ----------- -----------
Balance, December 31, 1995.................. 8,047,952 80,479 21,545,990 4,332,786 25,959,255
Proceeds from exercise of stock options,
including tax benefit of $123,038...... 101,847 1,019 154,455 -- 155,474
Amortization of deferred
compensation........................... -- -- 7,716 -- 7,716
Net loss for the year..................... -- -- -- (1,980,393) (1,980,393)
--------- ------- ----------- ----------- -----------
Balance, December 31, 1996.................. 8,149,799 81,498 21,708,161 2,352,393 24,142,052
Proceeds from exercise of stock options,
including tax benefit of $53,107....... 57,859 578 275,005 -- 275,583
Amortization of deferred
compensation........................... -- -- 71,160 -- 71,160
Net income for the year................... -- -- -- 5,242,586 5,242,586
--------- ------- ----------- ----------- -----------
Balance, December 31, 1997.................. 8,207,658 $82,076 $22,054,326 $ 7,594,979 $29,731,381
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-26
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 5,242,586 $ (1,980,393) $ 1,114,609
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization................................ 2,355,517 2,961,332 3,396,476
Loss on disposal of property and equipment................... 87,156 221,239 63,856
Restaurant closure expenses, net............................. -- 6,324,242 1,491,934
Deferred rent................................................ 122,625 168,444 322,682
Amortization of stock based compensation..................... 71,160 7,716 1,286
Extraordinary charge, net.................................... -- -- 62,967
Changes in operating assets and liabilities--
(Increase) decrease in assets:
Inventories............................................. (8,599) 31,915 16,116
Prepaid expenses........................................ 71,806 (29,884) 91,810
Prepaid income taxes.................................... 421,343 (78,344) (152,680)
Other current assets.................................... 291,644 (103,133) (390,165)
Deferred restaurant pre-opening costs................... (48,345) (247,516) (530,748)
Other assets............................................ (144,441) (50,365) (242,841)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities................ (42,267) (602,491) 945,894
Income taxes payable.................................... -- -- 126,000
Accrued restaurant closure expenses..................... 1,669,612 (155,198) (92,418)
Deferred franchise fee income........................... (32,500) (327,500) (91,471)
Deferred income taxes, net................................... 1,675,161 (1,508,057) 92,517
------------ ------------ ------------
Total adjustments............................................ 6,489,872 6,612,400 5,111,215
------------ ------------ ------------
Net cash provided by operating activities.................. 11,732,458 4,632,007 6,225,824
------------ ------------ ------------
Cash flows from investing activities:
Payments for property and equipment............................. (1,397,021) (4,539,108) (9,058,937)
Proceeds from disposition of property and equipment............. -- -- 2,621,470
Payments for intangible assets.................................. (53,596) (81,896) (273,890)
Payments for leasehold acquisition costs........................ -- -- (265,772)
Payments on note receivable..................................... 11,810 -- --
(Increase) decrease in deposits and deferred costs on future
restaurant locations......................................... (157,389) 34,002 84,252
------------ ------------ ------------
Net cash used in investing activities...................... (1,596,196) (4,587,002) (6,892,877)
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-27
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
Cash flows from financing activities:
<S> <C> <C> <C>
Principal payments on long-term debt............................ $ (83,773) $ (77,276) $ (2,374,996)
Net borrowings (repayments) under revolving credit agreement.... (10,077,000) (596,999) 3,021,800
Proceeds from exercise of stock options......................... 222,476 32,436 22,609
------------ ------------ ------------
Net cash provided by (used in) financing activities........ (9,938,297) (641,839) 669,413
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents....... 197,965 (596,834) 2,360
Cash and cash equivalents,
Beginning of period............................................. 94,490 691,324 688,964
------------ ------------ ------------
Cash and cash equivalents,
End of period................................................... $ 292,455 $ 94,490 $ 691,324
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for --
Interest, net of capitalization of $4,022 in 1997, $43,894 in
1996 and $205,694 in 1995.................................. $ 483,877 $ 973,072 $ 790,260
------------ ------------ ------------
------------ ------------ ------------
Income taxes................................................. $ 963,085 $ 280,000 $ 655,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of noncash investing and financing
activities:
Tax benefit from stock options recorded to additional paid-in
capital...................................................... $ 53,107 $ 123,038 $ 202,078
------------ ------------ ------------
------------ ------------ ------------
Note received from sale of Company-owned restaurant............. $ 880,000 $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-28
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) GENERAL
Pollo Tropical, Inc. ("Pollo Tropical") and subsidiaries (collectively, the
"Company"), as of December 31, 1997, owned and operated 36 "Pollo Tropical"
restaurants located in Florida. As of December 31, 1997, there were 16
franchised restaurants open in Florida, Puerto Rico, the Dominican Republic,
Ecuador and Netherlands Antilles.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year end
The Company utilizes a 52/53 week year end and ends its year on the Sunday
closest to January 1. All references to December 31, 1997, and Fiscal 1997
herein relate to December 28, 1997, and the 52 week period then ended,
respectively. All references to December 31, 1996, and Fiscal 1996 herein relate
to December 29, 1996, and the 52 week period then ended, respectively. All
references to December 31, 1995, and Fiscal 1995 herein relate to December 31,
1995, and the 52 week period then ended, respectively.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
Pollo Tropical and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform with the current year
presentation.
Cash Equivalents
All highly liquid instruments with an original maturity of three months or
less when acquired are considered to be cash and cash equivalents.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, note receivable, accounts
payable, accrued liabilities and long-term debt approximates fair value as of
December 31, 1997 and 1996.
Inventories
Inventories, which consist of restaurant food items, related paper supplies
and crew uniforms, are stated at the lower of cost (computed on the first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the terms of the leases which are less
than the estimated lives of the related improvements. Maintenance and repairs
which do not improve or extend the life of the asset are expensed as incurred.
The Company capitalizes interest cost as part of the historical cost of
acquiring and constructing restaurant property. Interest capitalization ceases
when the property is placed in service.
F-29
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred Restaurant Pre-Opening Costs
Direct costs incurred prior to a restaurant opening to the public are
capitalized and amortized over a period of one year beginning on the date the
restaurant commences operations.
Intangible Assets
Intangible assets are amortized using the straight-line method over the
following periods:
<TABLE>
<CAPTION>
LIFE IN YEARS
------------------
<S> <C>
Covenant not to compete............................ Term of agreement
Organization costs................................. 5
Loan costs......................................... Term of loan
Trademark costs.................................... 40
</TABLE>
Leasehold Acquisition Costs
Costs incurred to obtain leaseholds are capitalized and amortized over the
initial terms of the related leases.
Deferred Franchise Costs
Deferred franchise costs, which are included in Other assets in the
accompanying Consolidated Balance Sheets, are amortized and included in Other
amortization in the accompanying Consolidated Statements of Operations, as
franchised restaurants are opened.
Long-Lived Assets
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of its
intangible and other long-lived assets or whether the remaining balance of its
intangible and other long-lived assets should be evaluated for possible
impairment. The Company uses an estimate of the related undiscounted cash flows
over the remaining lives of the intangible and other long-lived assets in
determining whether an impairment has occurred.
Consolidated Balance Sheet Data
Other current assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Insurance dividend receivable......................................... $ 63,000 $215,000
Rebates............................................................... 97,676 129,664
Other................................................................. 118,708 210,025
-------- --------
$279,384 $554,689
-------- --------
-------- --------
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales tax......................................................... $ 198,394 $ 293,084
Payroll related................................................... 1,100,214 585,436
Workers compensation.............................................. 449,014 --
Other............................................................. 870,002 646,386
---------- ----------
$2,617,624 $1,524,906
---------- ----------
---------- ----------
</TABLE>
F-30
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Franchise Revenues
Franchise revenues consist of franchise fees, which are typically collected
upon execution of an area development and/or franchise agreement, and continuing
royalties, based upon gross sales. Franchise fees are initially recorded as
deferred franchise fee income and are recognized in earnings either when
franchised restaurants are opened, or upon forfeiture of such fees by the
franchisees pursuant to the terms of the franchise development agreements, as
applicable.
Franchise revenues consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Franchise fees..................................................... $220,000 $227,500 $376,471
Continuing royalties............................................... 591,700 271,804 177,945
-------- -------- --------
$811,700 $499,304 $554,416
-------- -------- --------
-------- -------- --------
</TABLE>
Advertising Costs
Advertising costs not directly related to the opening of a new restaurant
are expensed during the period in which the cost is incurred. Advertising
expense was $2,987,688, $2,978,255 and $2,103,155 for Fiscal 1997, Fiscal 1996
and Fiscal 1995, respectively, and is included in other restaurant operating
expenses in the accompanying Consolidated Statements of Operations.
Income Taxes
The Company accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or
liability is expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability from period to
period. If available evidence suggests that it is more likely than not that some
portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such a valuation
allowance would be included in the provision for deferred income taxes in the
period of change.
Net Income (Loss) Per Share
In Fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). As a result, the Company's
earnings per share have been restated for Fiscal 1995 and Fiscal 1996 to show
basic and diluted earnings per share in accordance with SFAS 128. Prior to the
adoption of SFAS 128, the Company reported primary earnings per share, which
equaled diluted earnings per share pursuant to SFAS 128. Following is the
reconciliation of the shares used in the computations for the periods presented.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares used in basic computation............. 8,179,131 8,099,650 7,991,570
Stock options and warrants.................................... 108,148 -- 97,594
---------- ---------- ----------
Weighted average shares used in diluted computation........... 8,287,279 8,099,650 8,089,164
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-31
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The effect of the extraordinary charge on basic and diluted earnings per
share for Fiscal 1995 is as follows:
<TABLE>
<S> <C>
Basic:
Income before extraordinary charge.............................. $ .15
Extraordinary charge............................................ (.01)
-----
Net income...................................................... $ .14
-----
-----
Diluted:
Income before extraordinary charge.............................. $ .15
Extraordinary charge............................................ (.01)
-----
Net income...................................................... $ .14
-----
-----
</TABLE>
The net income (loss) amount used as the numerator in calculating basic and
diluted earnings per share equals net income (loss) in the accompanying
Consolidated Statements of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates with regard to the accompanying consolidated financial
statements relate to accrued restaurant closure expenses and workers
compensation expense, as discussed in Note 11. Although the Company believes its
estimates are appropriate, changes in assumptions utilized in preparing such
estimates could cause these estimates to change in the near term.
(3) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash on hand.......................................................... $ 52,450 $ 49,900
Cash management fund.................................................. 240,005 44,590
-------- --------
$292,455 $ 94,490
-------- --------
-------- --------
</TABLE>
F-32
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
LIFE IN
YEARS 1997 1996
------- ----------- -----------
<S> <C> <C> <C>
Land............................................................. -- $ 9,257,525 $11,657,999
Buildings and leasehold improvements............................. 7-31 23,130,989 25,927,959
Furniture, fixtures and equipment................................ 5-15 9,435,115 9,513,141
Signs............................................................ 7 1,036,597 1,103,039
Software......................................................... 5 95,022 92,500
----------- -----------
42,955,248 48,294,638
Less: Accumulated depreciation and amortization.................. (7,550,089) (5,754,641)
----------- -----------
$35,405,159 $42,539,997
----------- -----------
----------- -----------
</TABLE>
At December 31, 1997, property and equipment includes $2,164,448 of
property and equipment, less accumulated depreciation and amortization of
$136,923, related to closed restaurants (See Note 11).
The Company's office space and the land underlying some of its existing
restaurant locations are leased under operating leases (See Note 11).
(5) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Covenant not to compete............................................... $ 50,000 $ 50,000
Organization costs.................................................... -- 51,497
Loan costs............................................................ 154,632 154,632
Trademark costs....................................................... 335,100 260,281
-------- --------
539,732 516,410
Less: Accumulated amortization........................................ (71,809) (84,518)
-------- --------
$467,923 $431,892
-------- --------
-------- --------
</TABLE>
(6) NOTE RECEIVABLE
In conjunction with the Fiscal 1997 sale of a restaurant site (See
Note 11) the Company recorded a note receivable in the amount of $880,000. The
note bears interest at a rate of 10% per annum based on a 15 year amortization
period. The note is secured by a mortgage on the restaurant site. Subsequent to
December 31, 1997, the mortgagee defaulted on the note. During Fiscal 1998, the
Company intends to foreclose on the note and proceed with the sale of the
restaurant site in order to satisfy the mortgage. The foreclosure is not
expected to have a material effect on the Company's Fiscal 1998 results of
operations.
(7) DEPOSITS AND DEFERRED COSTS ON FUTURE RESTAURANT LOCATIONS
Deposits and deferred costs on future restaurant locations consist of
amounts deposited with lessors and/or paid to others to secure real property and
develop future restaurant locations. Upon opening of the restaurant, all such
deposits and deferred costs are charged to the appropriate depreciable and
amortizable asset categories.
F-33
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(8) INDEBTEDNESS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Advances under a $25,000,000 revolving credit and term loan
agreement with interest payable monthly, at the Company's
option, at prime (8.50% at December 31, 1997) plus .375% or
libor rate (5.969% at December 31, 1997) plus 2.65%. Loan
converts to a term loan on August 31, 1998, at which time
principal payments equal to the loan balance divided by 120
commence, with a balloon payment due June 30, 2003............. $1,075,000 $11,152,000
Mortgage note payable with interest at 8%, payable monthly in
equal principal and interest installments from January 1996
through maturity in June 1999, collateralized by a restaurant
location....................................................... 138,952 222,725
---------- -----------
1,213,952 11,374,725
Less: Current maturities of long-term debt....................... (126,559) (83,773)
---------- -----------
$1,087,393 $11,290,952
---------- -----------
---------- -----------
</TABLE>
The $25,000,000 revolving credit and term loan (the "Loan") is unsecured;
however, the Company has agreed not to further encumber any of its presently
owned real estate while the Loan is outstanding. The lender has no obligation to
make further advances after July 13, 1998. At December 31, 1997, the available
portion of the Loan was $23,775,000.
The terms of the Loan require that the Company remain in compliance with
certain financial and non-financial covenants, including the maintenance of
certain financial ratios. The Company was in compliance with the debt covenants
at December 31, 1997.
In connection with obtaining the Loan, the proceeds from which were used to
repay substantially all the outstanding indebtedness, the Company incurred costs
in the aggregate of $154,632, which are capitalized as intangible assets in the
accompanying Consolidated Balance Sheets, and are being amortized over the term
of the Loan. The unamortized balance of capitalized costs associated with
obtaining indebtedness retired with the proceeds from the Loan was charged to
expense during the quarter ended October 1, 1995, and is included, net of income
tax benefit, in the accompanying Consolidated Statements of Operations as an
extraordinary charge.
Repayment of future maturities of long-term debt at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------------------------------------------------------
<S> <C>
1998...................................................... $ 126,559
1999...................................................... 155,726
2000...................................................... 107,500
2001...................................................... 107,500
2002...................................................... 107,500
Thereafter................................................ 609,167
----------
$1,213,952
----------
----------
</TABLE>
F-34
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(9) INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Federal........................................................ $3,035,434 $(1,225,018) $618,257
State.......................................................... 176,665 11,740 102,579
---------- ----------- --------
Total........................................................ $3,212,099 $(1,213,278) $720,836
---------- ----------- --------
---------- ----------- --------
Current........................................................ $1,536,938 $ 294,779 $628,319
Deferred....................................................... 1,675,161 (1,508,057) 92,517
---------- ----------- --------
Total........................................................ $3,212,099 $(1,213,278) $720,836
---------- ----------- --------
---------- ----------- --------
</TABLE>
Deferred income taxes arise primarily due to temporary differences in
recognizing certain revenues and expenses for tax purposes, the use of
accelerated depreciation for tax purposes, and the expected use of alternative
minimum tax carry-forwards in future periods. The components of the current
deferred income tax asset and the net non-current deferred income tax liability
are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Current deferred tax asset:
Accrued restaurant closure expenses............................ $ (248,846) $(1,583,649)
Accrued liabilities............................................ (170,897) --
---------- -----------
Current deferred income tax asset........................... $ (419,743) $(1,583,649)
---------- -----------
---------- -----------
Non-current deferred tax liability:
Depreciation and amortization of property and equipment........ $2,184,573 $ 2,024,154
Deferred franchise fee income, net............................. 102,099 54,947
Deferred rent.................................................. (527,085) (341,705)
Alternative minimum tax carry-forwards......................... (162,590) (736,747)
Foreign tax credit carry-forwards.............................. (197,569) (74,577)
Other, net..................................................... (8,343) (46,242)
---------- -----------
Non-current deferred income tax liability, net.............. $1,391,085 $ 879,830
---------- -----------
---------- -----------
</TABLE>
At December 31, 1997, the Company had available foreign tax credit
carry-forwards in the amount of $45,545 which expires in 2001, and $152,024,
which expires in 2002.
The following table reconciles the Federal statutory income tax rate and
the Company's effective income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at Federal statutory rate.............................. 34.0% 34.0% 34.0%
State taxes, net of Federal income tax benefit.................................... 3.6 3.6 3.6
Nondeductible expenses............................................................ 1.0 0.9 0.8
Jobs tax credits.................................................................. (.5) -- --
Other, net........................................................................ (.1) (.5) (.4)
---- ---- ----
Effective income tax rate......................................................... 38.0% 38.0% 38.0%
---- ---- ----
---- ---- ----
</TABLE>
The Company's December 31, 1993 Federal income tax return is currently
being audited by the Internal Revenue Service. It is not possible to predict the
ultimate outcome of this audit; however, the Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying consolidated financial statements.
F-35
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(10) SHAREHOLDERS' EQUITY
Stock Based Compensation Plans
In September 1993, the Company adopted the 1993 Option Plan (as amended to
date, the "1993 Plan"). Under the 1993 Plan, 800,000 shares of common stock are
reserved for issuance upon exercise of options. All regular employees of the
Company or any of its subsidiaries, including officers and directors, are
eligible to receive grants of options under the 1993 Plan. The 1993 Plan is
designed to serve as an incentive for retaining qualified and competent
employees.
In June 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"). Under the 1995 Plan, 500,000 shares of common stock are reserved for
issuance upon exercise of options. All regular and former regular employees and
consultants of the Company or any of its subsidiaries, including officers and
directors, are eligible to receive grants of options under the 1995 Plan. The
1995 Plan is designed to serve as an incentive for retaining qualified and
competent employees.
In June 1995, the Company adopted the 1995 Bonus/Fee Stock Option Plan (the
"1995 Bonus Plan"). Under the 1995 Bonus Plan, 500,000 shares of common stock
are reserved for issuance upon exercise of options. The 1995 Bonus Plan allows
certain eligible employees and directors who receive either a cash bonus or a
director's fee of $2,500 or more to elect to receive stock options instead of
receiving cash to which they are entitled (the "Deferred Cash"). The per share
exercise price of the options granted pursuant to the 1995 Bonus Plan would be
equal to 50% of the fair market value of the common stock on the day the option
is granted. The number of shares of common stock covered by the option would be
calculated by doubling the number of shares that could be purchased at fair
market value with the Deferred Cash so that the "in-the-money" value of the
option equals the Deferred Cash.
In November 1995, the Company adopted the 1995 Directors' Stock Option Plan
(the "1995 Directors' Plan"). Under the 1995 Directors' Plan, 200,000 shares of
common stock are reserved for issuance upon exercise of options. Each existing
Director received a grant of an option to purchase 18,000 shares on the
effective date of the plan. Upon election as a member of the Board, each
Director receives an option to purchase 15,000 shares of common stock, and an
additional option to purchase 3,000 shares of common stock is granted to each
eligible Director on each annual meeting date under certain conditions. All
stock options granted to existing Directors pursuant to the 1995 Directors' Plan
become exercisable as follows: 11,000 shares six months from the date of grant,
the next 6,000 shares twelve months from the date of grant and the remaining
1,000 shares two years after the date of grant, so long as the optionee is a
Director on the relevant exercise date. The remaining stock options granted
pursuant to the 1995 Directors' Plan become exercisable equally over a three
year period on each of the three one-year anniversaries of the date of grant, so
long as the optionee is a Director on the relevant exercise date.
In November 1995, the Company adopted the 1995 Restricted Stock Award Plan
(the "1995 Restricted Plan"). Under the 1995 Restricted Plan, not less than
100,000 shares of common stock are reserved for award and issuance, generally at
no cost to the employee. In November 1995, the Company awarded 25,000 shares of
common stock to its President pursuant to the 1995 Restricted Plan. These shares
vest as to 20% in September 1998, 30% in September 1999 and 50% in September
2000. The Company recorded deferred compensation of $112,500 on the date of
grant based on the quoted market value of the common stock. Deferred
compensation is being amortized to expense ratably over the restricted period,
and is included in the accompanying consolidated financial statements.
The Company's Board of Directors, or a committee thereof (the "Committee"),
administers and interprets each of the above described plans (collectively, the
"Plans"). The Plans provide for the granting of both "incentive stock options"
(as defined in Section 422 of the Internal Revenue Code) and nonstatutory stock
options or awards. Options are granted under the Plans on such terms and at such
prices as determined by the
F-36
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(10) SHAREHOLDERS' EQUITY--(CONTINUED)
Committee, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the common stock on the date of
grant. Generally, the stock options granted pursuant to the 1993 Plan, the 1995
Plan and the 1995 Bonus Plan vest in increments of 33% per year over a three
year period on the yearly anniversary of the grant and have a term of ten years
from the date of grant.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE AVAILABLE FOR
PRICE PER SHARE OUTSTANDING FUTURE GRANTS
---------------- ----------- -------------
<S> <C> <C> <C>
Balance, December 31, 1994.............................. $ 8.23 788,066 131,235
Authorized, net....................................... -- -- 1,065,000
Granted/converted..................................... $ 4.66 478,800 (478,800)
Exercised............................................. $ 0.29 (77,962) --
Canceled.............................................. $12.84 (213,400) 213,400
--------- ---------
Balance, December 31, 1995.............................. $ 6.10 975,504 930,835
Granted............................................... $ 4.50 136,900 (136,900)
Exercised............................................. $ 0.32 (101,847) --
Canceled.............................................. $ 6.09 (98,790) 98,790
--------- ---------
Balance, December 31, 1996.............................. $ 6.51 911,767 892,725
Granted............................................... $ 5.68 49,454 (49,454)
Exercised............................................. $ 3.86 (59,192) --
Canceled.............................................. $ 7.19 (118,135) 118,135
--------- ---------
Balance, December 31, 1997.............................. $ 6.36 783,894 961,406
--------- ---------
--------- ---------
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING
- ---------------------------------------------------------- EXERCISABLE
WEIGHTED-AVERAGE -----------------------------------------------
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------------------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$0.29 - $0.58 27,034 3.98 $ 0.30 27,034 $ 0.30
$2.71 - $6.94 529,690 6.44 $ 4.42 214,987 $ 4.02
$8.00 - $13.50 227,170 5.62 $11.62 227,170 $11.62
------- -------
783,894 469,191
------- -------
------- -------
</TABLE>
The weighted-average exercise price and weighted-average market price of
13,100 options granted during 1997 for which the exercise price exceeds the
market price of the stock on the grant date is $4.50 and $3.02, respectively.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income (loss) if the exercise price of a stock
option is equal to quoted market value on the measurement date. Had compensation
cost for the Company's stock option plans been determined pursuant to SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's pro forma net
income (loss) and diluted net income (loss) per share would have been different
than the amounts recorded in the accompanying Consolidated Statements of
Operations. Using the Black-Scholes option pricing model for all options granted
after December 31, 1994, the Company's pro forma net income
F-37
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(10) SHAREHOLDERS' EQUITY--(CONTINUED)
(loss), pro forma diluted net income (loss) per share and pro forma weighted
average fair value of options granted, with related assumptions, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income (loss)........................... $5,077,850 $(2,127,024) $1,064,705
Pro forma diluted net income (loss) per share......... $ 0.62 $ (0.26) $ 0.13
Pro forma weighted average fair value of options
granted............................................. $ 2.57 $ 1.54 $ 2.12
Risk free interest rates.............................. 5.31%-6.46% 5.31%-6.46% 5.37%-7.11%
Expected lives........................................ 3-5 Years 3-5 Years 3-5 Years
Expected volatility................................... 59% 59% 59%
</TABLE>
Pro forma net income (loss) reflects only options granted in Fiscal 1997,
1996 and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost is reflected over the
options' vesting period ranging from one to three years and compensation cost
for options granted prior to January 1, 1995 is not considered.
(11) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases land and facilities for office and restaurant locations
under various noncancelable operating lease agreements, one of which is with a
related party. Certain of these lease agreements contain provisions for rent
overrides based on a percentage of gross sales. Additionally, the Company, in
certain instances, is responsible for real estate taxes and common area
maintenance costs. The leases also provide for renewal options. Future minimum
rental commitments, excluding renewal option periods, under these operating
lease agreements at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
FISCAL YEAR PARTIES PARTIES TOTAL
- ----------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
1998..................................................... $ 102,879 $ 2,013,167 $ 2,116,046
1999..................................................... 102,879 1,986,226 2,089,105
2000..................................................... 111,881 1,908,793 2,020,674
2001..................................................... 118,311 1,871,445 1,989,756
2002..................................................... 118,311 1,725,974 1,844,285
Thereafter............................................... 830,150 13,585,382 14,415,532
---------- ----------- -----------
$1,384,411 $23,090,987 $24,475,398
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Future minimum rental commitments have been reduced by future minimum
sublease rentals of $2,605,841 due under non-cancelable subleases.
Rent expense was $2,201,655 (net of $159,010 in sublease rentals),
$2,292,827 (net of $94,850 in sublease rentals) and $1,918,955 in Fiscal 1997,
Fiscal 1996 and Fiscal 1995, respectively, which included $102,879, $102,879 and
$97,288, respectively, paid to related parties.
Rent expense is recorded in the accompanying consolidated financial
statements on the straight-line basis in accordance with generally accepted
accounting principles. Actual rent is paid in accordance with the lease terms.
The excess of rent expense over actual rent paid in Fiscal 1997, Fiscal 1996 and
Fiscal 1995 was $88,047, $76,655 and $332,950, respectively.
F-38
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(11) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In July 1995, the Company entered into sale/leaseback transactions with an
unrelated party for two of its owned restaurant sites, which resulted in net
proceeds that approximated the carrying value of the land, buildings and
fixtures sold. The resulting leases are accounted for as operating leases.
Employment Agreements
In September 1995, the Company entered into an employment agreement with
its President which calls for minimum annual compensation of $250,000 through
September 1998 and which may be extended at the Company's discretion, through
September 2000.
Franchise Development Agreements
The Company has entered into international area development and franchise
agreements, granting the right to develop Pollo Tropical restaurants in the
Caribbean and Latin America. The Company's standard franchise agreement has a
15-year term and provides for an initial franchise fee and a continuing royalty,
based upon gross sales. The agreements grant the franchisee the rights to
operate restaurants and use the associated trade name and trademark within the
standards and guidelines established by the Company.
Guarantee
A loan (with a principal balance of approximately $485,000 at December 31,
1997) made by a bank to a related party is collateralized by all the assets of
one of the Company's operating restaurants.
Self-Insured Workers Compensation
The Company is self-insured for workers compensation. The Company maintains
stop loss coverage for individual claims in excess of $250,000 and for claims
which exceed $700,000 in the aggregate in any one year. While the ultimate
amount of claims incurred are dependent on future developments, in management's
opinion, recorded reserves are adequate to cover the future payment of claims.
Accrued Restaurant Closure Expenses
During Fiscal 1995, the Company accrued estimated expenses in the amount of
$1,565,108 for two restaurants closed in October 1995. The estimated expenses
consisted of $1,243,626 in net losses on disposal of fixed assets and $321,482
in estimated liabilities associated with termination of leases. The assets
related to the Fiscal 1995 closed restaurants were disposed of during Fiscal
1996 resulting in a gain in the amount of $174,047. This gain is primarily
attributable to the sale of the one restaurant site and the reversal of an
accrual due to a more favorable economic transaction than originally estimated
associated with the subleasing of the other restaurant site.
In the fourth quarter of Fiscal 1996, the Company accrued estimated
expenses in the amount of $6,498,289 associated with the closing of six
restaurants. The estimated expenses consist of $5,713,142 in net losses on
disposal of fixed assets, $670,237 in estimated liabilities associated with
termination of leases and $114,910 associated with employee termination
benefits.
During Fiscal 1997, the Company disposed of four of the six restaurants for
which it had established a reserve in Fiscal 1996. Three of the restaurants were
sold and one was subleased. As part of the sale of one of the restaurants, the
Company received a note receivable in the amount of $880,000. Subsequent to
December 31, 1997, the mortgagee defaulted on the note. During Fiscal 1998, the
Company intends to foreclose on the property, which was held as collateral under
the mortgage and proceed with its sale in order to satisfy the mortgage. During
Fiscal 1997, the Company incurred $3,456,570 in net losses on disposal of fixed
assets, $583,436 in expenses associated with termination of leases and $108,299
associated with employee termination
F-39
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(11) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
benefits which were applied to the closure reserve established in Fiscal 1996.
The remaining closure reserve in management's estimate represents amounts
expected to be incurred, net of amounts realized upon the disposition of the
remaining two restaurants. Any difference between these estimated expenses and
the actual amounts of such expenses will be recorded during the period in which
such differences become known. Actual results that substantially differ from
management's estimate could be material to the Company's financial statements.
Purchase Agreements
During Fiscal 1997, the Company entered into three purchase agreements for
future restaurant sites for an aggregate purchase price in the amount of
$1,740,000. The anticipated closing dates for the purchase agreements will be
during Fiscal 1998.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying consolidated financial statements.
(12) RELATED-PARTY TRANSACTIONS
Included in Payments for property and equipment for the years ended
December 31, 1997, 1996 and 1995 are $13,245, $32,920 and $26,758, respectively,
paid to a related party for architectural services.
Included in Deferred franchise fee income at December 31, 1996 is $120,000
received from a related party for initial franchise fees. During Fiscal 1997,
forfeitures of exclusivity fees of $25,000 were recognized due to the
termination of the area development agreement.
Included in restaurant sales for the years ended December 31, 1997 and 1996
are $27,849 and $7,593, respectively, of sales to a related party.
During Fiscal 1997, the Company entered into an agreement to purchase
certain rights relating to parking, exclusivity and option terms from a related
party in the amount of $150,000. The Company anticipates closing on the purchase
during Fiscal 1998.
(13) SUBSEQUENT EVENTS
On March 16, 1998, purported shareholders of the Company instituted suit
against the Company, its principal officers and all of its directors, alleging a
breach of fiduciary duties and seeking damages as well as injunctive and other
relief in response to the Company's announcement that it had received a proposal
from Larry J. Harris, the co-founder and Chief Executive Officer of the Company,
for the merger of the Company, pursuant to which the public shareholders of the
Company would receive $10.00 per share in cash. The plaintiff is seeking
certification as the representative of a class of all of the Company's
shareholders other than the defendants, the Company's principal shareholders,
and all persons related thereto. The Company believes that the lawsuit has no
basis, and intends to vigorously defend the action. Although the ultimate
outcome of the lawsuit cannot be predicted, the Company does not believe the
outcome of the lawsuit will have a material adverse effect on the financial
position, results of operation or cash flows of the Company.
F-40
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 2,520,531 $ 292,455
Inventories...................................................................... 284,602 280,595
Prepaid expenses................................................................. 549,225 244,753
Deferred income taxes............................................................ 336,929 419,743
Other current assets............................................................. 350,388 279,384
----------- ------------
Total current assets............................................................... 4,041,675 1,516,930
Property and equipment, at cost, less accumulated depreciation and amortization.... 35,753,202 35,405,159
Intangible assets, net............................................................. 636,112 467,923
Leasehold acquisition costs, net................................................... 1,037,854 1,079,925
Deposits and deferred costs on future restaurant locations......................... 237,911 250,727
Note receivable, net of current portion............................................ 824,870 840,032
Other assets....................................................................... 801,582 793,405
----------- ------------
Total assets....................................................................... $43,333,206 $ 40,354,101
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 1,529,751 $ 1,553,056
Accrued liabilities.............................................................. 3,465,113 2,603,450
Current maturities of long-term debt............................................. 94,543 126,559
Income tax payable............................................................... 277,117 14,174
Accrued restaurant closure expenses.............................................. 2,042,945 2,125,525
----------- ------------
Total current liabilities.......................................................... 7,409,469 6,422,764
Long-term debt, net of current maturities.......................................... -- 1,087,393
Deferred rent...................................................................... 1,574,891 1,483,978
Deferred franchise fee income...................................................... 187,500 237,500
Deferred income taxes.............................................................. 1,284,353 1,391,085
----------- ------------
Total liabilities.................................................................. 10,456,213 10,622,720
----------- ------------
Shareholders' equity:
Common stock..................................................................... 82,810 82,076
Additional paid-in capital....................................................... 22,322,765 22,054,326
Retained earnings................................................................ 10,471,418 7,594,979
----------- ------------
Total shareholders' equity......................................................... 32,876,993 29,731,381
----------- ------------
Total liabilities and shareholders' equity......................................... $43,333,206 $ 40,354,101
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-41
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Restaurant sales................................................................. $35,448,257 $31,816,551
Franchise revenues............................................................... 454,016 420,045
----------- -----------
35,902,273 32,236,596
----------- -----------
Operating expenses:
Cost of sales.................................................................... 11,999,029 11,164,343
Restaurant payroll............................................................... 7,994,411 7,471,827
Other restaurant operating expenses.............................................. 6,396,129 5,668,812
General and administrative....................................................... 2,805,088 2,902,578
Depreciation and amortization of property
and equipment................................................................. 1,036,607 999,145
Other amortization............................................................... 96,398 208,900
Other income, net................................................................ (15,860) (8,410)
Acquisition expenses............................................................. 503,457 --
----------- -----------
30,815,259 28,407,195
----------- -----------
Income from operations............................................................. 5,087,014 3,829,401
Interest (income) expense, net..................................................... (31,204) 362,859
----------- -----------
Income before income taxes......................................................... 5,118,218 3,466,542
Provision for income taxes......................................................... 2,241,779 1,316,939
----------- -----------
Net income......................................................................... $ 2,876,439 $ 2,149,603
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-42
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK,
$.01 PAR VALUE
-------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997.................. 8,207,658 $82,076 $22,054,326 $ 7,594,979 $29,731,381
Proceeds from exercise of stock options,
including tax benefit of $13,131....... 73,338 734 243,497 -- 244,231
Amortization of deferred
compensation........................... -- -- 24,942 -- 24,942
Net income for the period................. -- -- -- 2,876,439 2,876,439
--------- ------- ----------- ----------- -----------
Balance, June 30, 1998...................... 8,280,996 $82,810 $22,322,765 $10,471,418 $32,876,993
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-43
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 2,876,439 $ 2,149,603
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................................ 1,133,005 1,208,045
Loss on disposal of property and equipment................................... 93,354 6,481
Deferred rent................................................................ 90,913 81,110
Amortization of stock based compensation..................................... 24,942 33,788
Deferred income taxes........................................................ (23,918) 667,186
Amortization of deferred loan costs.......................................... 10,144 10,144
Changes in operating assets and liabilities:
(Increase) decrease in--
Inventories.................................................................. (4,007) (9,530)
Prepaid expenses............................................................. (304,472) (206,660)
Other current assets......................................................... (55,842) 39,251
Other assets............................................................... (58,228) 20,453
Increase (decrease) in--
Accounts payable and accrued liabilities..................................... 838,358 1,029,503
Income tax payable........................................................... 276,076 337,116
Deferred franchise fee income................................................ (50,000) (66,892)
Accrued restaurant closure expenses.......................................... 5,665 982,405
----------- -----------
Total adjustments................................................................. 1,975,990 4,132,400
----------- -----------
Net cash provided by operating activities......................................... 4,852,429 6,282,003
----------- -----------
Cash flows from investing activities:
Payments for property and equipment................................................. (1,558,950) (616,098)
Payment for intangible assets....................................................... (189,910) (43,108)
Decrease in deposits and deferred costs on future
restaurant locations........................................................... 12,816 75,436
----------- -----------
Net cash used in investing activities........................................ (1,736,044) (583,770)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreement........................ (1,074,950) (4,701,794)
Principal payments on long-term debt................................................ (44,459) (41,051)
Proceeds from issuance of common stock.............................................. 231,100 89,303
----------- -----------
Net cash used in financing activities........................................ (888,309) (4,653,542)
----------- -----------
Net increase in cash and cash equivalents.................................... 2,228,076 1,044,691
Cash and cash equivalents, beginning of period...................................... 292,455 94,490
----------- -----------
Cash and cash equivalents, end of period............................................ $ 2,520,531 $ 1,139,181
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 31, 1997, which has
been derived from audited financial statements, and the unaudited interim
condensed financial statements included herein, have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission, except that
earnings per share data has been omitted. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made herein are adequate to make the information presented
not misleading. These financial statements must be read in conjunction with the
financial statements and the notes thereto included elsewhere in this Offering
Memorandum.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
Pollo Tropical and the results of operations and cash flows for the periods
indicated. Results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
(2) ACCOUNTING POLICIES
During interim periods Pollo Tropical follows the accounting policies set
forth in its consolidated financial statements included elsewhere in this
Offering Memorandum. Reference should be made to such financial statements for
information on such accounting policies and further financial details. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
(3) NEWLY ISSUED ACCOUNTING STANDARD
In April 1998, the Financial Accounting Standards Board issued Statement of
Position ("SOP") No. 98-5, "Reporting on the Cost of Start-Up Activities". SOP
98-5 requires that the costs of start-up activities, including organization
costs, be expensed as incurred. Pollo Tropical plans to adopt SOP 98-5 when
required in the first quarter of Fiscal 1999, although early adoption is
permitted. Initial adoption of SOP 98-5 should be as of the beginning of the
Fiscal year in which first adopted, and will be reported as the cumulative
effect of a change in accounting principle in the first quarter of Fiscal 1999.
At the present time, Pollo Tropical cannot predict the amount of the cumulative
effect of the change in accounting principle that will be recorded in the first
quarter of Fiscal year 1999, however, had the Company adopted the new standard
at the beginning of Fiscal year 1998, the cumulative effect of the change in
accounting principle that would have been recorded in the accompanying Condensed
Consolidated Statements of Operations for the six months ended June 30, 1998,
would not have been material to income before cumulative effect of a change in
accounting principle. Had the provisions of SOP 98-5 been applicable to the
accompanying condensed consolidated financial statements, income before
cumulative effect of a change in accounting principle as calculated in
accordance with the provisions of SOP 98-5 would not have been materially
different than the historical amount reported herein.
(4) ACQUISITION EXPENSES
As of July 20, 1998, Pollo Tropical consummated an Agreement and Plan of
Merger, ("Merger Agreement"), with Carrols Corporation ("Carrols"). Pursuant to
the Merger Agreement, Pollo Tropical shareholders tendering their shares to
Carrols will receive $11.00 per share and Pollo Tropical will be merged with and
into Carrols (the "Merger") and upon the Merger, the remaining shares
outstanding, if any, will be converted into the right to receive $11.00 per
share. Carrols will be the surviving corporation of the Merger.
Simultaneously with the execution of the Merger Agreement, Pollo Tropical,
Carrols and Larry Harris, Pollo Tropical's Chairman and Chief Executive Officer
entered into a Non-Competition and Confidentiality Agreement
F-45
<PAGE>
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(4) ACQUISITION EXPENSES--(CONTINUED)
(the "Confidentiality Agreement"). Under the Confidentiality Agreement, Carrols
will pay $350,000 to Mr. Harris within five days after the consummation of the
Merger and an additional $90,000 in connection with Mr. Harris' accrued bonus
for the six months ended June 30, 1998. Additionally, Carrols will pay William
Carl Drew, Pollo Tropical's Chief Financial Officer, half his full maximum
annual bonus due plus a lump sum severance payment upon his departure equal to
Mr. Drew's one year annual base salary. The total amount of these payments to
Mr. Drew approximates $168,000. During the six months ended June 30, 1998, Pollo
Tropical has incurred approximately $300,000 in financial services advisory
fees, $97,000 in legal fees, $93,000 in director fees for special committee
meetings and $14,000 in outside professional and office expenses associated with
the merger, which are included in Acquisition expenses in the accompanying
Condensed Consolidated Statements of Operations. In addition, Pollo Tropical
will also incur approximately $1.1 million in financial services advisory fees
upon the consummation of the Merger Agreement, write off approximately $101,000
in capitalized loan costs approximately $51,000 in unamortized deferred
compensation, and will record approximately $18,000 due to the accelerated
vesting of stock options.
The accompanying Condensed Consolidated Financial Statements do not include
any adjustments to reflect the amount of Carrols' investment in the Company.
(5) COMMITMENTS AND CONTINGENCIES
Accrued Restaurant Closure Expenses
During the six months ended June 30, 1998, Pollo Tropical incurred $88,597
in net losses on disposal of fixed assets and $141,118 in expenses associated
with termination of leases which were applied to the closure reserve established
in Fiscal 1996. In the second quarter of Fiscal 1998 Pollo Tropical increased
the accrued restaurant closure expenses $150,000, consisting of $50,000 in net
losses on disposal of fixed assets and $100,000 in estimated liabilities
associated with the termination of leases. Any difference between these
estimated expenses and the actual amounts of such expenses will be recorded
during the period in which such differences become known.
Purchase and Construction Agreements
During Fiscal 1997, Pollo Tropical entered into a purchase agreement for a
future restaurant site with a purchase price of approximately $640,000. Pollo
Tropical expects to close the agreement during Fiscal 1998. Pollo Tropical has
also entered into a construction contract for a new restaurant in the amount of
approximately $492,000 and estimates incurring an additional $3.3 million in
capital expenditures to develop five restaurants in 1998.
F-46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
$170,000,000
CARROLS CORPORATION
----------------
PROSPECTUS
----------------
OFFER TO EXCHANGE UP TO $170,000,000 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING $170,000,000 9 1/2% SENIOR SUBORDINATED NOTES DUE
2008
, 1999
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus. You must not
rely on any unauthorized information. This Prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
Prospectus is current as of the date of this Prospectus.
Until , all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Carrols Corporation (the "Company"), Carrols Realty Holdings Corp. ("Realty
Holdings"), Carrols Realty I Corp. ("Realty I"), Carrols Realty II Corp.
("Realty II") and Carrols J.G. Corp. ("J.G.") are all incorporated in Delaware.
Under Section 145 of the General Corporation Law of Delaware, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any action, suit or
proceeding. Article Ninth of the Restated Certificate of Incorporation of the
Company provides for indemnification of directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain 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 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 Company 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
(relating to liability for unauthorized acquisitions or redemptions of, or
dividends on, capital stock) of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Ninth of the Company's Certificate of
Incorporation contains such a provision.
Quanta Advertising Corp. ("Quanta") is incorporated in New York.
Section 722 of the New York Business Corporation Law permits a New York
corporation to indemnify its directors and officers in connection with actions
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are directors or officers
of the corporation, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein. Such
indemnification shall only be authorized if such person acted in good faith and
in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in criminal actions or proceedings, if
such person had no reasonable cause to believe that his conduct was unlawful.
Section 721 of the New York Business Corporation Law states that the
indemnification provided for by Article 7 thereof shall not be deemed exclusive
of any other rights to which a director or officer seeking indemnification or
advancement of expenses may be entitled.
Pollo Franchise, Inc. ("Pollo Franchise") and Pollo Operations, Inc.
("Pollo Operations") are both incorporated in Florida. Section 607.0850 of the
Florida Business Corporation Act permits indemnification against expenses,
fines, judgments and settlements incurred by any director, officer or employee
of a company in the event of pending or threatened civil, criminal,
administrative or investigative proceedings, if such person was, or was
threatened to be made, a party by reason of the fact that he or she is or was a
director, officer, or employee of the company. Section 607.0850 also provides
that the indemnification provided for therein shall not be deemed exclusive of
any other rights to which those seeking indemnification may otherwise be
entitled. The by-laws of Pollo Franchise and Pollo Operations each contain such
a provision in Article VIII thereof.
The Company, Realty Holdings, Realty I, Realty II, J.G., Quanta, Pollo
Franchise and Pollo Operations all have directors' and officers' liability
insurance covering certain liabilities incurred by the directors and officers of
the Company, Realty Holdings, Realty I, Realty II, J.G., Quanta, Pollo Franchise
and Pollo Operations in connection with the performance of their respective
duties.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) See the Schedule Index included immediately preceding the Exhibit Index
to this Registration Statement.
ITEM 22. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a Registrant
of expenses incurred or paid by a director, officer or controlling person of a
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, such Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act, and will be governed
by the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
CARROLS CORPORATION HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
CARROLS CORPORATION
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<S> <C> <C>
* Chairman and Chief Executive Officer; Director March 24, 1999
- ------------------------------------------ (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President--Finance and Treasurer March 24, 1999
- ------------------------------------------ (Principal Financial Officer and Principal
Paul R. Flanders Accounting Officer)
* Director March 24, 1999
- ------------------------------------------
Benjamin D. Chereskin
* Director March 24, 1999
- ------------------------------------------
James M. Conlon
* Director March 24, 1999
- ------------------------------------------
David J. Mathies, Jr.
* Director March 24, 1999
- ------------------------------------------
Robin P. Selati
* Director March 24, 1999
- ------------------------------------------
Clayton E. Wilhite
* By: /s/ PAUL R. FLANDERS
- ------------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
CARROLS REALTY HOLDINGS CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
CARROLS REALTY HOLDINGS CORP.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<S> <C> <C>
* Chairman and Chief Executive Officer; Director March 24, 1999
- ------------------------------------------ (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief Financial March 24, 1999
- ------------------------------------------ Officer (Principal Financial Officer and
Paul R. Flanders Principal Accounting Officer)
* By: /s/ PAUL R. FLANDERS
- ------------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
CARROLS REALTY I CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
CARROLS REALTY I CORP.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<S> <C> <C>
* Chairman and Chief Executive Officer; Director March 24, 1999
- ------------------------------------------ (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief Financial March 24, 1999
- ------------------------------------------ Officer (Principal Financial Officer and
Paul R. Flanders Principal Accounting Officer)
* By: /s/ PAUL R. FLANDERS
- ------------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
CARROLS REALTY II CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
CARROLS REALTY II CORP.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<S> <C> <C>
* Chairman and Chief Executive Officer; Director March 24, 1999
- ------------------------------------------ (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief Financial March 24, 1999
- ------------------------------------------ Officer (Principal Financial Officer and
Paul R. Flanders Principal Accounting Officer)
* By: /s/ PAUL R. FLANDERS
- ------------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
CARROLS J.G. CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
CARROLS J.G. CORP.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chairman and Chief Executive Officer; March 24, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief March 24, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer and Principal Accounting Officer)
*By: /s/ PAUL R. FLANDERS
-------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
QUANTA ADVERTISING CORP. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
QUANTA ADVERTISING CORP.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chairman and Chief Executive Officer; March 24, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief March 24, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer and Principal Accounting Officer)
*By: /s/ PAUL R. FLANDERS
-------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
POLLO FRANCHISE, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
POLLO FRANCHISE, INC.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chairman and Chief Executive Officer; March 24, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Nicholas A. Castaldo
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief March 24, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer and Principal Accounting Officer)
*By: /s/ PAUL R. FLANDERS
-------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
POLLO OPERATIONS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON MARCH 24, 1999.
POLLO OPERATIONS, INC.
By: *
-----------------------------------
Alan Vituli
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chairman and Chief Executive Officer; March 24, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
* President and Chief Operating Officer and March 24, 1999
- ------------------------------------------ Director
Nicholas A. Castaldo
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief March 24, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer and Principal Accounting Officer)
*By: /s/ PAUL R. FLANDERS
-------------------------------------
Paul R. Flanders
Attorney-in-Fact
</TABLE>
II-10
<PAGE>
FINANCIAL STATEMENT SCHEDULE INDEX
<TABLE>
<S> <C>
Schedule II................... Valuation and qualifying accounts for the years ended December 31, 1998, 1997 and
1996
</TABLE>
S-1
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COL. C
COL. B ---------- COL. E
---------- ADDITIONS ----------
COL. A BALANCE AT CHARGED TO COL. D BALANCE AT
- ---------------------------------------------------------- BEGINNING COSTS AND ---------- END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Reserve for doubtful trade accounts receivable.......... $130,000 $ 64,000(c) $ (101,000)(b) $ 93,000
Other reserves(a)....................................... 886,000 365,000 (277,000)(b) 974,000
Year ended December 31, 1997:
Reserve for doubtful trade accounts receivable.......... 310,000 -- (180,000)(b) 130,000
Other reserves(a)....................................... 753,000 133,000 -- 886,000
Year ended December 31, 1996:
Reserve for doubtful trade accounts receivable.......... 419,000 16,000 (125,000)(b) 310,000
Other reserves(a)....................................... 788,000 -- (35,000)(b) 753,000
</TABLE>
- ------------------
(a) Included principally in other assets.
(b) Represents write-offs of accounts.
(c) Represents reserves acquired in the Pollo Tropical acquisition.
S-2
<PAGE>
REGISTRATION NO. 333-71593
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARROLS CORPORATION
CARROLS REALTY HOLDINGS CORP.
CARROLS REALTY I CORP.
CARROLS REALTY II CORP.
CARROLS J.G. CORP.
QUANTA ADVERTISING CORP.
POLLO FRANCHISE, INC.
POLLO OPERATIONS, INC.
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------- ----------
<S> <C> <C>
3.2 -- Certificate of Amendment to Restated Certificate of Incorporation of Carrols Holdings
Corporation
5.1 -- Opinion of Rosenman & Colin LLP
10.30 -- Loan Agreement dated as of February 12, 1999 by and among Carrols Corporation, each of
the Lenders party thereto, Manufacturers and Traders Trust Company, as Co-Agent,
Nationsbank, N.A., as Co-Agent, Suntrust Bank, Atlanta, as Co-Agent and Chase Bank of
Texas, National Association, as Agent
12.1 -- Calculation of Earnings to Fixed Charges Ratio
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Rosenman & Colin LLP (included in Exhibit 5.1)
25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of IBJ Whitehall
Bank & Trust Company, as Trustee
27 -- Financial Data Schedule
</TABLE>
<PAGE>
CERTIFICATE OF AMENDMENT
TO RESTATED CERTIFICATE OF INCORPORATION
OF
CARROLS HOLDINGS CORPORATION
Under Section 242 of the
Delaware General Corporation Law
CARROLS HOLDINGS CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST, that on August 13, 1993, the Board of Directors, acting by
unanimous written consent, approved, declared advisable, and proposed for
adoption by the stockholders the following resolution to amend the Restated
Certificate of Incorporation of the Corporation by amending Section I.A(1) of
the Restated Certificate of Incorporation:
RESOLVED, that the Board of Directors hereby declares it advisable that
the Restated Certificate of Incorporation of the Corporation be amended to
update and reflect accurately the financing transactions to be entered into by
the Corporation on or about August 17, 1993, and hereby proposes:
1. That Section I.A. (1) of Article Fourth of the Corporation's
Certificate of Incorporation be amended to read as follows:
"General Dividend Obligation. When and as declared by the
Board of Directors of the Corporation and to the extent permitted by
the GCL and the Financing Agreements (as hereinafter defined), the
Corporation will pay to the holders of the Preferred Stock, out of the
assets of the Corporation legally available therefor, preferential
dividends at the times and in the amounts provided for in this
subsection I.A., and no more. As used in this Section I, "Financing
Agreements" shall mean the Third Amended and Restated Loan and Security
Agreement dated as of August 9, 1993 by and among Carrols Corporation
and the Corporation, as Borrower, and Heller Financial, Inc., as
Lender, as such Agreement may be amended from time to time in
accordance with its terms and the Other Agreements (as therein
defined), and the Indenture dated as of August 17, 1993, between
Carrols Corporation, the Corporation and Marine Midland Bank, N.A. as
trustee, relating to the 11 1/2% Senior Notes due 2003 of Carrols
Corporation, as such Indenture may be amended from time to time in
accordance with its terms."
2. That the first paragraph of Section I.D. of Article Fourth of the
Corporation's Certificate of Incorporation be amended to read as follows:
"Voting Rights; Restrictions on Corporation Action. Except as
otherwise required by law or as expressly provided in this subsection
D., Shares of preferred Stock shall not entitle the holders thereof to
any voting rights. So long as (i) any shares of Class A Preferred Stock
shall remain outstanding and (ii) Citicorp Capital Investors Ltd., a
Delaware corporation ("Citicorp") shall continue to hold at least 50% of
the shares of Series I Class B Preferred Stock originally issued to it,
and in addition to any other approvals or consents required by law,
without the prior consent of Citicorp and Heller Financial, Inc.:"
3. That Article Eighth of the Corporation's Certificate of
Incorporation be amended to read as follows:
<PAGE>
"EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provisions contained in this Certificate, subject
to the terms of Section I.D. of Article Fourth hereof, and to add or
insert other provisions authorized by the laws of the State of Delaware
at the time in force, in the manner now or hereafter prescribed by law,
and all rights and powers conferred herein on shareholders, directors
and officers are granted subject to this reservation."
SECOND, that the foregoing amendment was duly adopted by the
Stockholders of the Corporation in accordance with Sections 228 and 242 of the
Delaware General Corporation Law on August 17, 1993.
IN WITNESS WHEREOF, said CARROLS HOLDINGS CORPORATION has caused this
Certificate to be signed by its Chairman and attested by its Secretary this 17th
day of August, 1993.
CARROLS HOLDINGS CORPORATION
By: /s/ Alan Vituli
-------------------------------
Alan Vituli
Chairman
ATTEST:
By: /s/ Joseph A. Zirkman
-------------------------------
Joseph A. Zirkman, Secretary
<PAGE>
Exhibit 5.1
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
March 24, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel to Carrols Corporation (the "Company"), a Delaware
corporation, as well as Carrols Realty Holdings Corp., Carrols Realty I Corp.,
Carrols Realty II Corp., Carrols J.G. Corp., Quanta Advertising Corp., Pollo
Franchise, Inc. and Pollo Operations, Inc. (together the "Guarantors") in
connection with the registration statement (the "Registration Statement") on
Form S-4 filed with the Securities and Exchange Commission on February 2, 1999
(as amended on March 24, 1999) in connection with the registration of
$170,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes Due
2008 (the "Notes") of the Company, and in connection with the registration of
the guarantees (the "Guarantees") of the Notes by the Guarantors.
In rendering this opinion, we have examined (i) the Indenture between the
Company, the Guarantors and IBJ Schroder Bank & Trust Company (now known as IBJ
Whitehall Bank & Trust Company), dated November 24, 1998, pursuant to which the
Notes will be issued; (ii) the Notes; (iii) the Registration Statement; (iv) the
Restated Certificate of Incorporation of the Company; (v) the Restated By-laws
of the Company; (vi) resolutions of the Board of Directors of the Company, dated
May 12, 1998 and November 18, 1998; (vii) Certificates of Incorporation and
By-laws of each of the Guarantors; (viii) resolutions of the Board of Directors
of each of the Guarantors, dated August 10, 1998 and November 18, 1998; and
(ix) such other documents, and made such inquiries as to questions of law, as
we have deemed necessary.
Based upon the foregoing, it is our opinion that when (i) the Notes have been
(a) duly authenticated in accordance with the Indenture and (b) issued,
exchanged and delivered in the manner and for the consideration stated in the
Indenture, the Prospectus and the Letter of Transmittal, which have been, or
forms of which have been, filed as part of, or as exhibits to, the Registration
Statement; (ii) the Registration Statement has become effective under the
Securities Act of 1933, as amended; and (iii) the Notes have been qualified as
required under the laws of those jurisdictions in which they are to be issued
and exchanged then (A) the Notes will be legally issued, fully paid and
non-assessable and valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent
transfer or other similar laws, now or hereafter in effect, and equitable
considerations of any court before which enforcement may be sought, and (B) the
Guarantees will be valid and binding obligations of the Guarantors, enforceable
against the Guarantors in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent
transfer or other similar laws, now or hereafter in effect, and equitable
considerations of any court before which enforcement may be sought.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name in the Registration
Statement, including the Prospectus constituting a part thereof, and any
amendments or supplements thereto, under the caption "Legal Matters."
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ David H. Landau
--------------------
A Partner
<PAGE>
LOAN AGREEMENT
($50,000,000 TERM LOAN FACILITY
AND
$100,000,000 REVOLVING LOAN FACILITY)
dated as of February 12, 1999
AMONG
CARROLS CORPORATION,
as Borrower,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Agent and as a Lender,
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Co-Agent and as a Lender,
NATIONSBANK, N.A.,
as Co-Agent and as a Lender,
SUNTRUST BANK, ATLANTA,
as Co-Agent and as a Lender,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions ......................................................... 1
1.1 Certain Defined Terms ..................................... 1
1.2 Miscellaneous ............................................. 24
2. Commitments and Loans ............................................... 24
2.1 Loans ..................................................... 24
2.2 Letters of Credit ......................................... 24
2.3 Terminations or Reductions of Commitments ................. 28
2.4 Commitment Fees ........................................... 28
2.5 Several Obligations ....................................... 29
2.6 Notes ..................................................... 29
2.7 Use of Proceeds ........................................... 29
3. Borrowings, Payments, Prepayments and Interest Options .............. 30
3.1 Borrowings ................................................ 30
3.2 Prepayments ............................................... 30
3.3 Interest Options .......................................... 32
4. Payments: Pro Rata Treatment: Computations. Etc ..................... 37
4.1 Payments .................................................. 37
4.2 Pro Rata Treatment ........................................ 38
4.3 Certain Actions, Notices, Etc. ............................ 39
4.4 Non-Receipt of Funds by Agent ............................. 40
4.5 Sharing of Payments, Etc. ................................. 40
5. Conditions Precedent ................................................ 41
5.1 Initial Loans and Letters of Credit ....................... 41
5.2 All Loans and Letters of Credit ........................... 43
6. Representations and Warranties ...................................... 43
6.1 Organization .............................................. 43
6.2 Financial Statements ...................................... 44
6.3 Enforceable Obligations; Authorization .................... 44
6.4 Other Debt ................................................ 44
6.5 Litigation ................................................ 45
6.6 Title ..................................................... 45
6.7 Taxes ..................................................... 45
6.8 Regulations T, U and X .................................... 45
<PAGE>
6.9 Subsidiaries .............................................. 45
6.10 No Untrue or Misleading Statements ........................ 45
6.11 ERISA ..................................................... 45
6.12 Investment Company Act .................................... 46
6.13 Public Utility Holding Company Act ........................ 46
6.14 Solvency .................................................. 46
6.15 Fiscal Year ............................................... 46
6.16 Compliance ................................................ 46
6.17 Environmental Matters ..................................... 46
6.18 Certificate of Title Property; Property of
Excluded Subsidiaries ................................. 47
6.19 Collateral Covered ........................................ 47
7. Affirmative Covenants ............................................... 47
7.1 Taxes, Existence, Regulations, Property, Etc. ............. 47
7.2 Financial Statements and Information ...................... 48
7.3 Financial Tests ........................................... 48
7.4 Inspection ................................................ 49
7.5 Further Assurances ........................................ 49
7.6 Books and Records ......................................... 49
7.7 Insurance ................................................. 49
7.8 Notice of Certain Matters ................................. 50
7.9 Interest Rate Risk ........................................ 50
7.10 Capital Adequacy .......................................... 50
7.11 ERISA Information and Compliance .......................... 51
7.12 Additional Security Documents ............................. 52
7.13 Year 2000 ................................................. 52
8. Negative Covenants 53
8.1 Borrowed Money Indebtedness ............................... 53
8.2 Liens ..................................................... 53
8.3 Contingent Liabilities .................................... 53
8.4 Mergers, Consolidations and Dispositions of Assets ........ 54
8.5 Redemption, Dividends and Distributions ................... 55
8.6 Nature of Business ........................................ 55
8.7 Transactions with Related Parties ......................... 55
8.8 Loans and Investments ..................................... 55
8.9 Subsidiaries .............................................. 55
8.10 Key Agreements ............................................ 55
8.11 Organizational Documents .................................. 56
8.12 Certificate of Title Property; Excluded Subsidiaries ...... 56
8.13 Unfunded Liabilities ...................................... 56
8.14 Acquisitions of Assets .................................... 56
ii
<PAGE>
8.15 Subordinated Indebtedness ................................ 57
9. Defaults ........................................................... 57
9.1 Events of Default ........................................ 57
9.2 Right of Setoff .......................................... 60
9.3 Collateral Account ....................................... 60
9.4 Preservation of Security for Unmatured
Reimbursement Obligations ............................. 60
9.5 Remedies Cumulative ...................................... 61
10. Agent ............................................................... 61
10.1 Appointment, Powers and Immunities ....................... 61
10.2 Reliance ................................................. 62
10.3 Defaults ................................................. 63
10.4 Material Written Notices ................................. 63
10.5 Rights as a Lender ....................................... 63
10.6 Indemnification .......................................... 63
10.7 Non-Reliance on Agent and Other Lenders .................. 64
10.8 Failure to Act ........................................... 64
10.9 Resignation or Removal of Agent .......................... 64
10.10 No Partnership ........................................... 65
10.11 Co-Agents ................................................ 65
11. Miscellaneous ....................................................... 65
11.1 Waiver ................................................... 65
11.2 Notices .................................................. 65
11.3 Expenses, Etc. ........................................... 66
11.4 Indemnification .......................................... 67
11.5 Amendments, Etc. ......................................... 67
11.6 Successors and Assigns ................................... 68
11.7 Limitation of Interest ................................... 70
11.8 Survival ................................................. 71
11.9 Captions ................................................. 71
11.10 Counterparts ............................................. 72
11.11 Governing Law ............................................ 72
11.12 Severability ............................................. 72
11.13 Tax Forms ................................................ 72
11.14 Conflicts Between This Agreement and the Other
Loan Documents ........................................ 72
11.15 Jury Waiver .............................................. 73
11.16 Limitation on Charges: Substitute Lenders;
Non-Discrimination .................................... 73
11.17 Amendment and Restatement; Renewal Notes ................. 73
iii
<PAGE>
EXHIBITS
A -- Request for Extension of Credit
B -- Rate Designation Notice
C -- Term Note
D -- Revolving Note
E -- Assignment and Acceptance
F -- Compliance Certificate
iv
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of February 12, 1999 (the
"Effective Date"), by and among CARROLS CORPORATION, a Delaware corporation
(together with its permitted successors, herein called the "Borrower"); each of
the lenders which is or may from time to time become a party hereto
(individually, a "Lender" and, collectively, the "Lenders"), MANUFACTURERS AND
TRADERS TRUST COMPANY, as Co-Agent, NATIONSBANK, N.A., as Co-Agent, SUNTRUST
BANK, ATLANTA, as Co-Agent, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
("Chase Texas"), a national banking association, as agent for the Lenders (in
such capacity, together with its successors in such capacity, the "Agent").
The parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular have the same
meanings when used in the plural and vice versa):
Accounts, Equipment, General Intangibles and Inventory shall have the
respective meanings assigned to them in the Uniform Commercial Code enacted in
the State of New York in force on the Effective Date.
Additional Interest means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest on
the Notes at the Stated Rate) which, under applicable laws, are or may be deemed
to constitute interest on the indebtedness evidenced by the Notes.
Additional Collateral shall have the meaning ascribed to such term in
Section 7.8 hereof.
Additional Collateral Event shall have the meaning ascribed to such term in
Section 7.8 hereof.
Adjusted LIBOR means, with respect to each Interest Period applicable to a
LIBOR Borrowing, a rate per annum equal to the quotient, expressed as a
percentage, of (a) LIBOR with respect to such Interest Period divided by (b)
1.0000 minus the Eurodollar Reserve Requirement in effect on the first day of
such Interest Period.
<PAGE>
Affiliate means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
Agreement means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
Annual Audited Financial Statements means the annual financial statements
of a Person, including all notes thereto, which statements shall include a
balance sheet as of the end of such fiscal year and an income statement and a
statement of cash flows for such fiscal year, all setting forth in comparative
form the corresponding figures from the previous fiscal year, all prepared in
conformity with GAAP in all material respects, and accompanied by the opinion of
independent certified public accountants of recognized national standing, which
shall state that such financial statements present fairly in all material
respects the financial position of such Person and, if such Person has any
Subsidiaries (other than Non-Recourse Subsidiaries), its consolidated
Subsidiaries (other than Non-Recourse Subsidiaries) as of the date thereof and
the results of its operations for the period covered thereby in conformity with
GAAP. Such statements of Borrower shall be accompanied by a certificate of such
accountants that in making the appropriate audit and/or investigation in
connection with such report and opinion, such accountants did not become aware
of any Default relating to the financial tests set forth in Section 7.3 hereof
or, if in the opinion of such accountants any such Default exists, a description
of the nature and status thereof.
Applications means all applications and agreements for Letters of Credit,
or similar instruments or agreements, in Proper Form, now or hereafter executed
by any Person in connection with any Letter of Credit now or hereafter issued or
to be issued under the terms hereof at the request of any Person.
Assignment and Acceptance shall have the meaning ascribed to such term in
Section 11.6 hereof.
Bankruptcy Code means the United States Bankruptcy Code, as amended, and
any successor statute.
Base Rate means for any day a rate per annum equal to the lesser of (a) the
applicable Margin Percentage from time to time in effect plus the greater of (1)
the Prime Rate for that day and (2) the Federal Funds Rate for that day plus 1/2
of 1% or (b) the Ceiling Rate. If for any reason Agent shall have determined
(which determination shall be conclusive and binding, absent manifest error)
that it is unable to ascertain the Federal Funds Rate for any reason, including,
without limitation, the inability or failure of Agent to obtain sufficient
quotations in accordance with the terms hereof, the Base Rate shall, until the
circumstances giving rise to such inability no longer exist, be the lesser of
2
<PAGE>
(a) the Prime Rate plus the applicable Margin Percentage from time to time in
effect or (b) the Ceiling Rate.
Base Rate Borrowing means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
BKC means Burger King Corporation, a Florida corporation.
BKC Consents means, collectively, (i) the Intercreditor Agreement dated
concurrently herewith executed by and among BKC, Borrower, Carrols Holdings and
Agent and (ii) all other Intercreditor Agreements now or hereafter executed by
BKC relating to any of the Mortgaged Properties or Excluded Assets, as the same
may from time to time be amended, modified, supplemented or restated.
Borrowed Money Indebtedness means, with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such Person under conditional sale or
other title retention agreements relating to Property purchased by such Person,
(iv) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (excluding obligations of such Person to creditors
for raw materials, inventory, services and supplies and deferred payments for
services to employees and former employees incurred in the ordinary course of
such Person's business), (v) all capital lease obligations of such Person, (vi)
all obligations of others secured by any lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vii) Interest Rate Risk Indebtedness of such Person, (viii) all
obligations of such Person in respect of outstanding letters of credit issued
for the account of such Person and (ix) all guarantees of such Person of any of
the foregoing.
Business Day means any day other than a day on which commercial banks are
authorized or required to close in New York City, New York or Houston, Texas.
Capital Expenditures means, with respect to any Person for any period,
expenditures in respect of fixed or capital assets by such Person, including
capital lease obligations incurred during such period (to the extent not already
included), which would be reflected as additions to Property, plant or equipment
on a balance sheet of such Person and its consolidated Subsidiaries (other than
Non-Recourse Subsidiaries), if any, prepared in accordance with GAAP; but
excluding expenditures during such period for the repair or replacement of any
fixed or capital asset which was destroyed or damaged, in whole or in part, to
the extent financed by the proceeds of an insurance policy maintained by such
Person.
Carrols Holdings means Carrols Holdings Corporation, a Delaware
corporation.
3
<PAGE>
Ceiling Rate means, on any day, with respect to any Person, the maximum
nonusurious rate of interest permitted for that day by whichever of applicable
federal or New York (or any jurisdiction whose usury laws are deemed to apply to
the Notes or any other Loan Documents despite the intention and desire of the
parties to apply the usury laws of the State of New York) laws permits the
higher interest rate, stated as a rate per annum. On each day, if any, that
Chapter 1D establishes the Ceiling Rate, the Ceiling Rate shall be the "weekly
rate ceiling" (as defined in ss. 303 of the Texas Finance Code) for that day.
Agent may from time to time, as to current and future balances, implement any
other ceiling under the Texas Finance Code or Chapter 1D by notice to Borrower,
if and to the extent permitted by the Texas Finance Code or Chapter ID. Without
notice to Borrower or any other person or entity, the Ceiling Rate shall
automatically fluctuate upward and downward as and in the amount by which such
maximum nonusurious rate of interest permitted by applicable law fluctuates.
Chapter 1D means Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as
amended.
Co-Agent means Manufacturers and Traders Trust Company, NationsBank, N.A.
and SunTrust Bank, Atlanta, in their respective capacities as co-agents
hereunder.
Code means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
Collateral means all Property, tangible or intangible, real, personal or
mixed, now or hereafter subject to the Security Documents.
Commitment Fee Percentage means (i) on any day prior to April 1, 1999,
0.375% and (ii) on and after April 1, 1999, the applicable per annum percentage
set forth at the appropriate intersection in the table shown below, based on the
Total Debt to EBITDA Ratio as of the last day of the most recently ended fiscal
quarter of Borrower calculated by Agent as soon as practicable after receipt by
Agent of all financial reports required under this Agreement with respect to
such fiscal quarter (including a Compliance Certificate) (provided, however,
that if the Commitment Fee Percentage is increased as a result of the reported
Total Debt to EBITDA Ratio, such increase shall be retroactive to the date that
Borrower was obligated to deliver such financial reports to Agent pursuant to
the terms of this Agreement and provided further, however, that if the
Commitment Fee Percentage is decreased as a result of the reported Total Debt to
EBITDA Ratio, and such financial reports are delivered to Agent not more than
ten (10) calendar days after the date required to be delivered pursuant to the
terms of this Agreement, such decrease shall be retroactive to the date that
Borrower was obligated to deliver such financial reports to Agent pursuant to
the terms of this Agreement):
4
<PAGE>
Total Debt to Commitment
EBITDA Ratio Fee Percentage
------------ --------------
Greater than or equal to
3.50 0.375
Less than 3.50 0.250
Compliance Certificate shall have the meaning given to it in Section 7.2
hereof.
Contribution Agreement shall mean that certain Contribution Agreement dated
concurrently herewith by and among Borrower, Carrols Holdings and the current
Subsidiaries of Borrower, as the same may be amended, modified, supplemented and
restated--and joined in pursuant to a joinder agreement--from time to time.
Controlled Group means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with Borrower, are treated as a single employer under Section
414 of the Code.
Corporation means any corporation, limited liability company, partnership,
joint venture, joint stock association, business trust and other business
entity.
Cover for Letter of Credit Liabilities shall be effected by paying to Agent
immediately available funds, to be held by Agent in a collateral account
maintained by Agent at its Principal Office and collaterally assigned as
security for the financial accommodations extended pursuant to this Agreement
using documentation reasonably satisfactory to Agent, in the amount required by
any applicable provision hereof Such amount shall be retained by Agent in such
collateral account until such time as in the case of the Cover being provided
pursuant to Sections 2.2(a) or 9.3 hereof, the applicable Letter of Credit shall
have expired and the Reimbursement Obligations, if any, with respect thereto
shall have been fully satisfied; provided, however, that at such time if a
Default or Event of Default has occurred and is continuing, Agent shall not be
required to release such amount in such collateral account until such Default or
Event of Default shall have been cured or waived.
Debt means, with respect to any Person, the sum, without duplication, of
(i) all borrowings under the Notes, (ii) any obligation for Borrowed Money
Indebtedness which under GAAP would be shown on the balance sheet of such Person
as a liability (including, without limitation, capitalized lease obligations but
excluding reserves for deferred income taxes, deferred pension liability and
other deferred expenses and reserves), (iii) Indebtedness secured by any Lien
existing on Property owned by such Person, whether or not the Indebtedness
secured thereby shall have been assumed, (iv) guarantees by such Person of
Borrowed Money Indebtedness and endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of business) and
(v)
5
<PAGE>
Letters of Credit and other letters of credit (whether drawn or undrawn) for the
account of such Person.
Debt Service means, with respect to any Person for any period, the sum of
(i) Interest Expense for such period and (ii) scheduled principal payments on
obligations included within Debt for such period.
Debt Service Coverage Ratio means, as of any day, the ratio of (a) EBITDA
for the 12 months ending on such date plus rent expense of Borrower and its
consolidated Subsidiaries (other than Non-Recourse Subsidiaries) for such
12-month period to (b) Debt Service of Borrower and its consolidated
Subsidiaries (other than Non-Recourse Subsidiaries) for such 12-month period
plus rent expense of Borrower and its consolidated Subsidiaries (other than
Non-Recourse Subsidiaries) for such 12-month period.
Default means an Event of Default or an event which with notice or lapse of
time or both would, unless cured or waived, become an Event of Default.
Dollars and $ means lawful money of the United States of America.
EBITDA means, without duplication, for any period the consolidated net
earnings (excluding any extraordinary gains or losses) of Borrower and its
consolidated Subsidiaries (other than Non-Recourse Subsidiaries) plus, to the
extent deducted in calculating consolidated net income, depreciation,
amortization, other non-cash items, Interest Expense, and federal, state and
foreign income tax expense.
Effective Date shall have the meaning ascribed to that term in the first
paragraph of this Agreement.
Environmental Claim means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "Environmental Claim" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
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Environmental Liabilities includes all liabilities arising from any
Environmental Claim. Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
Environmental Permit means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and all rules, regulations, rulings and interpretations
adopted by the Internal Revenue Service or the U.S. Department of Labor
thereunder.
Eurodollar Rate means for any day during an Interest Period for a LIBOR
Borrowing a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR in effect on the first day of such Interest Period plus (2) the
applicable Margin Percentage in effect on the first day of such Interest Period
and (b) the Ceiling Rate. Each Eurodollar Rate is subject to adjustments for
reserves, insurance assessments and other matters as provided for in Section 3.3
hereof.
Eurodollar Reserve Requirement means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth [.0001]) which is in effect on such day for determining all
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to "Eurocurrency liabilities," as
currently defined in Regulation D. Each determination of the Eurodollar Reserve
Requirement by Agent shall be conclusive and binding, absent manifest error, and
may be computed using any reasonable averaging and attribution method.
Event of Default shall have the meaning assigned to it in Section 9 hereof.
Excess Cash Flow means, without duplication, for any period, (i) EBITDA for
such period less (ii) the sum of all Debt Service (other than mandatory
prepayments calculated on the basis of Excess Cash Flow), federal, state and
foreign income taxes actually paid, Investments of the nature described in
clause (e) of the definition of "Permitted Investments" made by Borrower and its
consolidated Subsidiaries (other than Non-Recourse Subsidiaries) during such
period and unfinanced
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Capital Expenditures (including the unfinanced portion of Properties acquired),
in each case for Borrower and its consolidated Subsidiaries (other than
Non-Recourse Subsidiaries) for such period.
Excluded Assets means (i) leasehold estates with respect to which BKC is
the lessor, (ii) the real property interest in and to leasehold estates situated
in shopping malls, (iii) those leasehold estates in respect of which the Lease
Agreement requires consent of the lessor/landlord to a collateral assignment and
such lessor/landlord has refused to grant such consent notwithstanding the
commercially reasonable efforts by Borrower to obtain such consent, (iv) assets
owned by the Excluded Subsidiaries and (v) such other Property acquired after
the date hereof as the Majority Lenders may from time to time agree shall be
included in "Excluded Assets".
Excluded Subsidiaries means Carrols Realty II Corp., a Delaware
corporation, Carrols J.G. Corp., a Delaware corporation, CDC Theatre Properties,
a Delaware corporation, HNS Leasing and Equipment Services, Inc., a New York
corporation, Quanta Advertising Corp., a New York corporation, Jo-Ann
Enterprises, Inc., a New Jersey corporation, and Confectionary Square Corp., a
New Jersey corporation. Borrower may at any time cause any of the above listed
entities to no longer be characterized as an "Excluded Subsidiary" by satisfying
the conditions set forth in Section 8.9 hereof as if such entity were a newly
acquired Subsidiary.
Federal Funds Rate means, for any day, a fluctuating interest rate per
annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any such day which is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent in its sole and absolute discretion.
Fee Simple Sites means all Property with respect to which Borrower or any
of its Subsidiaries owns fee simple title.
Financing Statements means all such Uniform Commercial Code financing
statements as Agent shall reasonably require, in Proper Form, duly executed by
Borrower (or any other applicable Obligor) to give notice of and to perfect or
continue perfection of Agent's Liens in any applicable Collateral, as any of the
foregoing may from time to time be amended, modified, supplemented or restated.
Fixed Charge Coverage Ratio means, as of any day, the ratio of (a) EBITDA
for the 12 months ending on such day less the current portion of federal, state
and foreign income taxes actually paid during such 12-month period and less
Maintenance Capital Expenditures for such 12-month period to (b) the sum of Debt
Service of Borrower and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) plus Permitted Dividends actually paid by Borrower for such
12-month period.
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Franchise Agreements means all of the franchise agreements to which
Borrower or any of its Subsidiaries is a party as franchisee, as any of the same
may from time to time be amended, modified, supplemented or restated.
Funding Loss means, with respect to (a) Borrower's payment of principal of
a LIBOR Borrowing on a day other than the last day of the applicable Interest
Period; (b) Borrower's failure to borrow a LIBOR Borrowing on the date specified
by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other
than Base Rate Borrowings) on the date specified by Borrower, or (d) any
cessation of a Eurodollar Rate to apply to the Loans or any part thereof
pursuant to Section 3.3, in each case whether voluntary or involuntary, any
loss, expense, penalty, premium or liability actually incurred by any Lender
(including but not limited to any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain a Loan).
GAAP means, as to a particular Person, such accounting practice as, in the
opinion of independent certified public accountants of recognized national
standing regularly retained by such Person, conforms at the time to generally
accepted accounting principles, consistently applied for all periods after the
Effective Date so as to present fairly the financial condition, and results of
operations and cash flows, of such Person. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board,
all reports and financial statements required hereunder may be prepared in
accordance with such change so long as Borrower provides to Agent such
disclosures of the impact of such change as Agent may reasonably require. No
such change in any accounting principle or practice shall, in itself, cause a
Default or Event of Default hereunder (but Borrower, Agent and Lenders shall
negotiate in good faith to replace any financial covenants hereunder to the
extent such financial covenants are affected by such change in accounting
principle or practice).
Governmental Authority means any foreign governmental authority, the United
States of America, any State of the United States, and any political subdivision
of any of the foregoing, and any central bank, agency, department, commission,
board, bureau, court or other tribunal having jurisdiction over Agent, any
Lender, any Obligor or their respective Property.
Guaranties means, collectively, (i) the Guaranties dated concurrently
herewith executed by Carrols Holdings and by each of the current Subsidiaries of
Borrower (other than Non-Recourse Subsidiaries) in favor of Agent, for the
benefit of Lenders, and (ii) any and all other guaranties hereafter executed in
favor of Agent, for the benefit of Lenders, relating to the Obligations, as any
of them may from time to time be amended, modified, restated or supplemented.
Hazardous Substance means petroleum products, and any hazardous or toxic
waste or substance defined or regulated as such from time to time by any law,
rule, regulation or order described in the definition of "Requirements of
Environmental Law".
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Indebtedness means, without duplication, (a) all items which in accordance
with GAAP would be included in the liability section of a balance sheet (other
than trade accounts payable and accrued expenses (other than Interest Expense)
arising in the ordinary course of business) on the date as of which Indebtedness
is to be determined (excluding, to the extent applicable, capital stock,
surplus, surplus reserves and deferred credits); (b) all guaranties, letter of
credit contingent reimbursement obligations and other contingent obligations in
respect of, or any obligations to purchase or otherwise acquire, Indebtedness of
others, and (c) all Indebtedness secured by any Lien existing on any interest of
the Person with respect to which Indebtedness is being determined in Property
owned subject to such Lien whether or not the Indebtedness secured thereby shall
have been assumed; provided, that the term "Indebtedness" shall not mean or
include any Indebtedness in respect of which monies sufficient to pay and
discharge the same in full (either on the expressed date of maturity thereof or
on such earlier date as such Indebtedness may be duly called for redemption and
payment) shall be deposited with a depository, agency or trustee reasonably
acceptable to Agent in trust or in escrow for the payment thereof.
Interest Expense means, for any period, total interest expense (including,
without limitation, interest expense attributable to capitalized leases and net
costs under interest rate swap, collar, cap or similar agreements providing
interest rate protection), determined in accordance with GAAP.
Interest Options means the Base Rate and each Eurodollar Rate, and
"Interest Option" means any of them.
Interest Payment Dates means (a) for Base Rate Borrowings, March 31, 1999
and the last day of each March, June, September and December thereafter prior to
the Revolving Loan Maturity Date or the Term Loan Maturity Date, as the case may
be, and the Revolving Loan Maturity Date or the Term Loan Maturity Date, as the
case may be; and (b) for LIBOR Borrowings, the end of the applicable Interest
Period (and if such Interest Period exceeds three months' duration, quarterly,
commencing on the first quarterly anniversary of the first day of such Interest
Period) and the Revolving Loan Maturity Date or the Term Loan Maturity Date, as
the case may be.
Interest Period means, for each LIBOR Borrowing, a period commencing on the
date such LIBOR Borrowing began and ending on the numerically corresponding day
which is, subject to availability as set forth in Section 3.3(c)(iii), 1, 2, 3
or 6 months thereafter, as Borrower shall elect in accordance herewith;
provided, (1) unless Agent shall otherwise consent, no Interest Period with
respect to a LIBOR Borrowing shall commence on a date earlier than three (3)
Business Days after this Agreement shall have been fully executed; (2) any
Interest Period with respect to a LIBOR Borrowing which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding LIBOR
Business Day; (3) any Interest Period with respect to a LIBOR Borrowing which
begins on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last
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LIBOR Business Day of the appropriate calendar month; (4) no Interest Period
for a Revolving Loan shall ever extend beyond the Revolving Loan Maturity Date
and no Interest Period for a Term Loan shall ever extend beyond the Term Loan
Maturity Date, and (5) Interest Periods shall be selected by Borrower in such a
manner that the Interest Period with respect to any portion of the Loans which
shall become due shall not extend beyond such due date.
Interest Rate Risk Agreement means an interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
arrangement entered into by Borrower for the purpose of reducing Borrower's
exposure to interest rate fluctuations and not for speculative purposes,
approved in writing by Agent (such approval not to be unreasonably withheld), as
it may from time to time be amended, modified, restated or supplemented.
Interest Rate Risk Indebtedness means all obligations and Indebtedness of
Borrower with respect to the program for the hedging of interest rate risk
provided for in any Interest Rate Risk Agreement.
Investment means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property (other
than transfers in the ordinary course of business) or capital contribution to,
or the incurring of any liability (other than trade accounts payable arising in
the ordinary course of business), contingently or otherwise, in respect of the
Indebtedness of, any Person.
Issuer means the issuer (or, where applicable, each issuer) of a Letter of
Credit under this Agreement.
Key Agreements means the Franchise Agreements, the Lease Agreements, any
document or paper evidencing, securing or otherwise relating to any Subordinated
Indebtedness, the Underlying Lease Agreements, the Purchase Agreements and the
Material Title Documents.
Lease Agreements means all of the lease agreements to which Borrower or any
of its Subsidiaries is a party as lessee or tenant, as any of the same may from
time to time be amended, modified, supplemented or restated. Except for the
Excluded Assets, the leasehold estates created under the Lease Agreements
constitute a part of the real Property comprising the Mortgaged Properties.
Legal Requirement means any law, statute, ordinance, decree, requirement,
order, judgment, rule, or regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, whether presently existing or arising in the future.
Lessor and Lender Estoppel Agreements means agreements executed by each
landlord and lessor under any of the Lease Agreements or any of the Underlying
Lease Agreements and by each lender under any of the Material Title Documents,
each in Proper Form, containing such consents,
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representations and agreements as Agent may reasonably require, as the same may
from time to time be amended, modified; supplemented or restated.
Letter of Credit shall have the meaning assigned to such term in Section
2.2 hereof.
Letter of Credit Liabilities means, at any time and in respect of any
Letter of Credit, the sum of (i) the amount available for drawings under such
Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit. For the purpose of determining at any time the
amount described in clause (i), in the case of any Letter of Credit payable in a
currency other than Dollars, such amount shall be converted by Agent to Dollars
by any reasonable method, and such converted amount shall be conclusive and
binding, absent manifest error.
LIBOR means, for each Interest Period for any LIBOR Borrowing, the rate per
annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the
average of the offered quotations appearing on Telerate Page 3750 (or if such
Telerate Page shall not be available, any successor or similar service as may be
selected by Agent and Borrower) as of 10:00 a.m., Houston, Texas time (or as
soon thereafter as practicable) on the day two LIBOR Business Days prior to the
first day of such Interest Period for deposits in United States dollars having a
term comparable to such Interest Period and in an amount comparable to the
principal amount of the LIBOR Borrowing to which such Interest Period relates.
If none of such Telerate Page 3750 nor any successor or similar service is
available, then "LIBOR" shall mean, with respect to any Interest Period for any
applicable LIBOR Borrowing, the rate of interest per annum, rounded upwards, if
necessary, to the nearest 1/16th of 1%, quoted by Agent at or before 10:00 a.m.,
Houston, Texas time (or as soon thereafter as practicable), on the date two
LIBOR Business Days before the first day of such Interest Period, to be the
arithmetic average of the prevailing rates per annum at the time of
determination and in accordance with the then existing practice in the
applicable market, for the offering to Agent by one or more prime banks selected
by Agent in its sole discretion, in the London interbank market, of deposits in
United States dollars for delivery on the first day of such Interest Period and
having a maturity equal to the length of such Interest Period and in an amount
equal (or as nearly equal as may be) to the LIBOR Borrowing to which such
Interest Period relates. Each determination by Agent of LIBOR shall be
conclusive and binding, absent manifest error, and may be computed using any
reasonable averaging and attribution method.
LIBOR Borrowing means each portion of the principal balance of the Loans at
any time bearing interest at a Eurodollar Rate.
LIBOR Business Day means a Business Day on which transactions in United
States dollar deposits between lenders may be carried on in the London interbank
market.
Lien means any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional
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provision, statute or contract, and shall include reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions, restrictions and
other title exceptions.
Loans means the loans provided for by Section 2.1 hereof.
Loan Documents means, collectively, this Agreement, the Notes, the
Guaranties, all Applications, the Security Documents, the Contribution
Agreement, the BKC Consents, the Lessor and Lender Estoppel Agreements, the
Notice of Entire Agreement, all instruments, certificates and agreements now or
hereafter executed or delivered by any Obligor to Agent or any Lender pursuant
to any of the foregoing or in connection with the Obligations or any commitment
regarding the Obligations, and all amendments, modifications, renewals,
extensions, increases and rearrangements of, and substitutions for, any of the
foregoing.
Maintenance Capital Expenditures means, for any period, $20,000 multiplied
by the number of restaurants which, as of the first day of such period, had been
operated by the Borrower (or the other applicable Obligor) for a period in
excess of one year.
Majority Lenders means, at any time while no Loans are outstanding, Lenders
having greater than 66-2/3% of the aggregate amount of Revolving Loan
Commitments, and at any time while Loans are outstanding, Lenders having greater
than 66-2/3% of the aggregate amount of Term Loans outstanding plus Revolving
Loan Commitments outstanding; provided that if all Revolving Loan Commitments
have terminated, the Majority Lenders shall be Lenders having greater than
66-2/3% of the aggregate amount of all Loans outstanding.
Margin Percentage means (i) on any day prior to April 1, 1999, 0.5 0% with
respect to Base Rate Borrowings and 2.00% with respect to LIBOR Borrowings and
(ii) on and after April 1, 1999, the applicable per annum percentage set forth
at the appropriate intersection in the table shown below, based on the Total
Debt to EBITDA Ratio as of the last day of the most recently ended fiscal
quarter of Borrower calculated by Agent as soon as practicable after receipt by
Agent of all financial reports required under this Agreement with respect to
such fiscal quarter (including a Compliance Certificate) (provided, however,
that if the Margin Percentage is increased as a result of the reported Total
Debt to EBITDA Ratio, such increase shall be retroactive to the date that
Borrower was obligated to deliver such financial reports to Agent pursuant to
the terms of this Agreement and provided further, however, that if the Margin
Percentage is decreased as a result of the reported Total Debt to EBITDA Ratio,
and such financial reports are delivered to Agent not more than ten (10)
calendar days after the date required to be delivered pursuant to the terms of
this Agreement, such decrease shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Agent pursuant to the terms of
this Agreement):
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Total Debt to LIBOR Borrowings Base Rate Borrowings
EBITDA Ratio Margin Percentage Margin Percentage
- ------------ ----------------- -----------------
Greater than or equal to
5.00 2.25 0.75
Greater than or equal to
4.00 but less than 5.00 2.00 0.50
Greater than or equal to
3.50 but less than 4.00 1.75 0.25
Greater than or equal to
3.00 but less than 3.50 1.50 0.00
Greater than or equal to
2.50 but less than 3.00 1.25 0.00
Less than 2.50 1.00 0.00
Material Title Documents means the documents and instruments under or
pursuant to which any Lien is created or evidenced which covers all or any part
of the Mortgaged Property and which secures Borrowed Money Indebtedness or is
otherwise of a material nature or character and outside of the ordinary course
of business, as any of the same may from time to time be amended, modified,
restated or supplemented.
Maximum Revolving Loan Available Amount means, at any date, an amount equal
to the aggregate of the Revolving Loan Commitments.
Mortgage means each deed of trust, mortgage or other applicable security
instrument, each in Proper Form, executed or to be executed by Borrower (or any
other applicable Subsidiary of Borrower) in favor of Agent, covering and
affecting the Fee Simple Sites and the leasehold estates created under the Lease
Agreements (except for the Excluded Assets), and all improvements, appurtenances
and personal Property related thereto, together with additional or supplemental
security documents covering and affecting the real Property comprising the
Additional Collateral, as the same may from time to time be amended, modified,
restated or supplemented.
Mortgaged Properties means all Property of any Person, whether now existing
or hereafter acquired, which is subject to the Lien of a Mortgage or, with the
prior written consent of Agent, a collateral assignment of lease.
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Non-Recourse Debt means Debt or that portion of Debt of a Subsidiary of
Borrower as to which (i) neither Borrower nor any Subsidiary of Borrower (other
than a Non-Recourse Subsidiary) provides credit support or is directly or
indirectly liable and (ii) no default with respect to such Debt (including any
rights which the holders thereof may have to take enforcement action against
such Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Debt of Borrower or any other Subsidiary of Borrower to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
Non-Recourse Subsidiary means a Subsidiary of Borrower which (i) has no
Borrowed Money Indebtedness other than Non-Recourse Debt and (ii) has been
designated as a Non-Recourse Subsidiary by the Board of Directors of Borrower
and (iii) is engaged in the business of providing food services and (iv) is not
an Obligor. Concurrently with the financial statements required under
Subsections 7.2(a) and (b) hereof, Borrower shall identify all then current
Non-Recourse Subsidiaries in a written notice to Agent.
Notes shall have the meaning assigned to such term in Section 2.6 hereof
Notice of Entire Agreement means a notice of entire agreement, in Proper
Form, executed by Borrower, each other Obligor and Agent, as the same may from
time to time be amended, modified, supplemented or restated.
Obligations means, as at any date of determination thereof, the sum of the
following: (i) the aggregate principal amount of Loans outstanding hereunder on
such date, plus (ii) the aggregate amount of the outstanding Letter of Credit
Liabilities hereunder on such date, plus (iii) all other outstanding
liabilities, obligations and indebtedness of any Obligor under any Loan Document
on such date.
Obligors means Borrower, Carrols Holdings and each Subsidiary of Borrower
other than Subsidiaries which are not parties to any Guaranty, Security
Agreement or Mortgage.
Organizational Documents means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership and with respect to a trust, the instrument
establishing such trust; in each case including any and all modifications
thereof as of the date of the Loan Document referring to such Organizational
Document and any and all future modifications thereof.
Past Due Rate means, on any day, a rate per annum equal to the lesser of
(i) the Ceiling Rate for that day or (ii) the Base Rate plus three percent (3%).
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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Permitted Dividends means dividends or distributions by a Subsidiary of
Borrower to Borrower or to another Subsidiary of Borrower which is an Obligor
and, so long as no Default shall have occurred and be continuing (or would
result from the payment of the applicable dividend), (a) dividends by Borrower
to Carrols Holdings for the sole purpose of funding stock repurchases described
in clause (d) of the definition of "Permitted Investments" set forth in this
Section 1.1 and (b) in any fiscal year, after the calculation and payment of the
required prepayment provided for in Section 3.2(b)(2), based on the preceding
fiscal year's Excess Cash Flow, an amount not exceeding the lesser of (x) 50% of
such preceding fiscal year's Excess Cash Flow which may be distributed to
Carrols Holdings or (y) the maximum amount permitted to be distributed at such
time under the present terms of the documents evidencing the Subordinated
Indebtedness under those certain Senior Subordinated Notes due 2008 in the
aggregate principal amount of $170,000.000 issued by Borrower on or about
November 24, 1998 (without amendment except as agreed to in writing by the
Majority Lenders). Notwithstanding anything to the contrary set forth herein,
the aggregate of Permitted Dividends of the nature described in clause (b) of
this definition and Investments of the nature described in clause (e) of the
definition of "Permitted Investments" paid or made, as the case may be, by
Borrower and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) during any fiscal year may not exceed 50% of the preceding fiscal
year's Excess Cash Flow.
Permitted Investments means: (a) readily marketable securities issued or
fully guaranteed by the United States of America with maturities of not more
than one year; (b) commercial paper rated "Prime 1" by Moody's Investors
Service, Inc. or "A-1" by Standard and Poor's Ratings Services with maturities
of not more than 180 days; (c) certificates of deposit or repurchase obligations
issued by any U.S. domestic bank having capital surplus of at least $100,000,000
or by any other financial institution acceptable to Agent, all of the foregoing
not having a maturity of more than one year from the date of issuance thereof;
(d) so long as no Default shall have occurred and be continuing (or would result
from the closing of the applicable repurchase), repurchases of stock of Carrols
Holdings (including rights, options or warrants to acquire such stock) from
employees of Carrols Holdings or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not to exceed $1,000,000 in any fiscal year;
provided, however, that amounts not expended in any fiscal year may be expended
in succeeding fiscal years so long as no more than $3,000,000 is so expended in
any fiscal year; (e) Investments in Non-Recourse Subsidiaries or in entities in
which Borrower's ownership interest is less than 50% and which are engaged in
the food services business so long as such Investments do not exceed, in the
aggregate after the first day of the fiscal quarter which begins subsequent to
the Effective Date to the end of the most recent fiscal quarter ending prior to
the relevant date of determination, the lesser of (x) $15,000,000 or (y) 50% of
the cumulative net income of Borrower and its Subsidiaries (other than
Non-Recourse Subsidiaries) for such period, on a consolidated basis and
determined in accordance with GAAP, and (f) Investments by Borrower or any of
its Subsidiaries in Borrower or any of its Subsidiaries, including Investments
in Persons which after giving effect thereto will become a wholly-owned
Subsidiary of Borrower (subject to compliance with the other provisions of this
Agreement) so long as any Borrowed Money Indebtedness of any
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Obligor to any other Obligor shall be subordinated to the Obligations in a
manner reasonably acceptable to Agent. Notwithstanding anything to the contrary
set forth herein, the aggregate of Permitted Dividends of the nature described
in clause (b) of the definition of "Permitted Dividends" and Investments of the
nature described in clause (e) of this definition paid or made, as the case may
be, by Borrower and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) during any fiscal year may not exceed 50% of the preceding fiscal
year's Excess Cash Flow.
Permitted Liens means each of the following: (a) artisans' or mechanics'
Liens arising in the ordinary course of business, and Liens for taxes, but only
to the extent that payment thereof shall not at the time be due or if due, the
payment thereof is being diligently contested in good faith and adequate
reserves computed in accordance with GAAP have been set aside therefor; (b)
Liens in effect on the Effective Date and disclosed to the Lenders in the
financial statements delivered on or prior to the Effective Date pursuant to
Section 6.2 hereof, in a schedule hereto or in a Title Insurance Policy,
provided that neither the Borrowed Money Indebtedness secured thereby nor the
Property covered thereby shall increase after the Effective Date without the
prior written consent of the Majority Lenders; (c) normal encumbrances and
restrictions on title which do not secure Borrowed Money Indebtedness and which
do not have a material adverse effect on the value or utility of the applicable
Property; (d) Liens in favor of Agent or any Lender under the Loan Documents,
including, without limitation, Liens securing Interest Rate Risk Indebtedness
owed to one or more of the Lenders (but not to any Person which is not, at such
time, a Lender); (e) Liens incurred or deposits made in the ordinary course of
business (1) in connection with workmen's compensation, unemployment insurance,
social security and other like laws, or (2) to secure insurance in the ordinary
course of business, the performance of bids, tenders, contracts, leases,
licenses, statutory obligations, surety, appeal and performance bonds and other
similar obligations incurred in the ordinary course of business, not, in any of
the cases specified in this clause (2), incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the deferred
purchase price of Property; (f) attachments, judgments and other similar Liens
arising in connection with court proceedings, provided that the execution and
enforcement of such Liens are effectively stayed and the claims secured thereby
are being actively contested in good faith with adequate reserves made therefor
in accordance with GAAP; (g) Liens imposed by law, such as carriers',
warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good
faith in the ordinary course of business and securing obligations which are not
yet due or which are being contested in good faith by appropriate proceedings if
adequate reserves with respect thereto are maintained in accordance with GAAP;
(h) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, and restrictions on the use of Property, and
which do not in any case singly or in the aggregate materially impair the
present use or value of the Property subject to any such restriction or
materially interfere with the ordinary conduct of the business of any Obligor;
(i) Liens disclosed in the Title Insurance Policies delivered pursuant to
Section 5.1(1) hereof; (j) Liens securing purchase money Indebtedness permitted
under Section 8.1 hereof and covering the Property so purchased; (k) capital
leases and sale/leaseback transactions permitted under the other provisions of
this Agreement; (1) Liens in favor of unaffiliated third parties securing
purchase money or acquisition and/or development Indebtedness (or Indebtedness
incurred to refinance acquisition
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and/or development costs of a restaurant so long as the proceeds of such
refinancing are included in the calculation of Excess Cash Flow for the
applicable period--in which event the Agent shall release the Liens of the
Mortgages covering such restaurant) permitted under Section 8.1(e) hereof
incurred after the Effective Date and covering assets of restaurants acquired or
developed by the Borrower or its Subsidiaries after the Effective Date,
provided, however, that (1) the Liens securing such Indebtedness may not cover
any Property other than the Property being acquired or developed and (2) such
Indebtedness may not exceed 100% of the fair market value of the property and
equipment acquired or developed at the time of acquisition or development; (m)
pre-existing Liens securing preexisting Borrowed Money Indebtedness permitted
under Section 8.1(f) hereof covering Property of Subsidiaries or businesses
acquired after the Effective Date (provided, however, that no such Liens were
created and no such Borrowed Money Indebtedness was incurred at the instigation
of Borrower in contemplation of the acquisition of such Subsidiary), and (n)
extensions, renewals and replacements of Liens referred to in clauses (a)
through (m) of this definition; provided that any such extension, renewal or
replacement Lien shall be limited to the Property or assets covered by the Lien
extended, renewed or replaced and that the Borrowed Money Indebtedness secured
by any such extension, renewal or replacement Lien shall be in an amount not
greater than the amount of the Indebtedness secured by the Lien extended,
renewed or replaced.
Person means any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan means an employee pension benefit plan which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
and is either (a) maintained by Borrower or any member of the Controlled Group
for employees of Borrower or any member of the Controlled Group or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
Pollo Subsidiaries means Pollo Franchise, Inc., a Florida corporation, and
Pollo Operations, Inc., a Florida corporation.
Prime Rate means, on any day, the prime rate for that day as determined
from time to time by Chase Texas. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate or a favored rate, and Chase
Texas, Agent and each Lender disclaims any statement, representation or warranty
to the contrary. Chase Texas, Agent or any Lender may make commercial loans or
other loans at rates of interest at, above or below the Prime Rate.
Principal Office means the principal office of Agent, presently located at
712 Main Street, Houston, Harris County, Texas 77002.
Proper Form means in form and substance reasonably satisfactory to Agent.
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Property means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
Purchase Agreements means, collectively, each purchase agreement heretofore
or hereafter entered into by Borrower or any other Obligor providing for the
acquisition of Burger King or other restaurants, as any of the same may from
time to time be amended, modified, restated or supplemented.
Quarterly Dates means the last day of each March, June, September and
December, provided that if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
Quarterly Financial Statements means the quarterly financial statements of
a Person, which statements shall include a balance sheet as of the end of such
fiscal quarter and an income statement and a statement of cash flows for such
fiscal quarter and for the fiscal year to date, subject to normal year-end
adjustments, all setting forth in comparative form the corresponding figures as
of the end of and for the corresponding fiscal quarter of the preceding year,
prepared in accordance with GAAP in all material respects except that such
statements are condensed and exclude detailed footnote disclosures and certified
by the chief financial officer or other authorized officer of such Person as
fairly presenting, in all material respects, the financial condition of such
person as of such date.
Rate Designation Date means that Business Day which is (a) in the case of
Base Rate Borrowings, 10:00 a.m., Houston, Texas time, on the date one Business
Day preceding the date of such borrowing and (b) in the case of LIBOR
Borrowings, 10:00 a.m., Houston, Texas time, on the date three LIBOR Business
Days preceding the first day of any proposed Interest Period.
Rate Designation Notice means a written notice substantially in the form of
Exhibit B.
Regulation D means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
Regulatory Change means with respect to any Lender, any change on or after
the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of lenders including
such Lender under any Legal Requirements (whether or not having the force of
law) by any Governmental Authority.
Reimbursement Obligations means, as at any date, the obligations of
Borrower then outstanding, or which may thereafter arise, in respect of Letters
of Credit under this Agreement, to reimburse the applicable issuers for the
amount paid by such Issuers in respect of any drawing under
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such Letters of Credit, which obligations shall at all times be payable in
Dollars notwithstanding any such Letter of Credit being payable in a currency
other than Dollars.
Request for Extension of Credit means a request for extension of credit
duly executed by the chief executive officer, chief financial officer or
treasurer of Borrower, appropriately completed and substantially in the form of
Exhibit A attached hereto.
Requirements of Environmental Law means all requirements imposed by any law
(including for example and without limitation The Resource Conservation and
Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
Revolving Loan means a Loan made pursuant to Section 2.1(b) hereof
Revolving Loan Availability Period means, for each Revolving Loan Lender,
the period from and including the Effective Date to (but not including) the
Revolving Loan Termination Date.
Revolving Loan Lender means each Lender with (i) prior to the Revolving
Loan Termination Date, a Revolving Loan Commitment and (ii) on and after the
Revolving Loan Termination Date, any outstanding Revolving Loan Obligations.
Revolving Loan Commitment means, as to any Lender, the obligation, if any,
of such Lender to make Revolving Loans and incur or participate in Letter of
Credit Liabilities in an aggregate principal amount at any one time outstanding
up to (but not exceeding) the amount, if any, set forth opposite such Lender's
name on the signature pages hereof under the caption "Revolving Loan
Commitment", or otherwise provided for in an Assignment and Acceptance Agreement
(as the same may be reduced from time to time pursuant to Section 2.3 hereof).
Revolving Loan Commitment Percentage means, as to any Revolving Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Revolving Loan Commitment (or if the Revolving Loan
Commitments have terminated, such Lender's outstanding Revolving Loans) and the
denominator of which is the aggregate of the Revolving Loan Commitments of all
Lenders (or if the Revolving Loan Commitments have terminated, the aggregate
amount of all Revolving Loans).
Revolving Loan Maturity Date means the maturity of the Revolving Notes,
December 31, 2003. Upon written request from Borrower at any time after July 31,
2003 but prior to September
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30, 2003, Agent shall make request on the Lenders for approval to a one (1) year
extension of the Revolving Loan Maturity Date; provided, however, that no such
extension shall be effective without the unanimous written consent of the
Lenders, which may be given or denied in their sole discretion, with or without
cause.
Revolving Loan Obligations means, as at any date of determination thereof,
the sum of the following (determined without duplication): (i) the aggregate
principal amount of Revolving Loans outstanding hereunder plus (ii) the
aggregate amount of the Letter of Credit Liabilities hereunder.
Revolving Loan Termination Date means the earlier of (a) the Revolving Loan
Maturity Date or (b) the date specified by Agent in accordance with Section 9.1
hereof
Revolving Notes means the Notes of Borrower evidencing the Revolving Loans,
in the form of Exhibit D hereto.
Secretary's Certificate means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signature of the officer of such corporation executing
such documents on behalf of such corporation, and (c) the Organizational
Documents of such corporation.
Security Agreements means security agreements, each in Proper Form,
executed or to be executed by Borrower (or any other applicable Subsidiary of
Borrower or other applicable Person) in favor of Agent covering (i) all of the
issued and outstanding equity interests in and to Borrower and each Subsidiary
of Borrower (other than Excluded Subsidiaries and Non-Recourse Subsidiaries) and
(ii) all of the material real and personal Property (other than Excluded Assets)
of Borrower and its Subsidiaries (other than Non-Recourse Subsidiaries), as the
same may from time to time be amended, modified, restated or supplemented. The
term "Security Agreements" shall include the Trademark Security Agreements.
Security Documents means, collectively, the Mortgages, the Security
Agreements and any and all other security documents now or hereafter executed
and delivered by any Obligor to secure all or any part of the Obligations, as
any of them may from time to time be amended, modified, restated or
supplemented.
Senior Debt to EBITDA Ratio means, as of any day, the ratio of (a) Debt
(other than Subordinated Indebtedness) of Borrower and its consolidated
Subsidiaries (other than Non-Recourse Subsidiaries) as of such date to (b)
EBITDA for the 12 months ending on such date; provided however, that for
purposes of this ratio only, so long as Borrower shall have delivered to Agent
financial information in Proper Form regarding the Property acquired which
disclose the prior operating results of such Property, the pro forma effect of
any acquisition by Borrower or any of its consolidated Subsidiaries (other than
Non-Recourse Subsidiaries) of any Property or business during
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such 12-month period shall be included in EBITDA as if such acquisition occurred
on the first day of such period.
Stated Rate means the effective weighted per annum rate of interest
applicable to the Loans; provided, that if on any day such rate shall exceed the
Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on
that day and on each day thereafter until the total amount of interest accrued
at the Stated Rate on the unpaid principal balances of the Notes plus the
Additional Interest equals the total amount of interest which would have accrued
if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before
such equality is achieved, then, in addition to the unpaid principal and accrued
interest then owing pursuant to the other provisions of the Loan Documents,
Borrower promises to pay on demand to the order of the holder of each Note
interest in an amount equal to the excess (if any) of (a) the lesser of (i) the
total interest which would have accrued on such Note if the Stated Rate had been
defined as equal to the Ceiling Rate from time to time in effect and (ii) the
total interest which would have accrued on such Note if the Stated Rate were not
so prohibited from exceeding the Ceiling Rate, over (b) the total interest
actually accrued on such Note to such maturity (or prepayment) date. Without
notice to Borrower or any other Person, the Stated Rate shall automatically
fluctuate upward and downward in accordance with the provisions of this
definition.
Subordinated Indebtedness means all Indebtedness of Borrower and its
Subsidiaries which has been subordinated on terms and conditions satisfactory to
the Majority Lenders, in their sole discretion, to the Obligations, whether now
existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Agent shall have received copies of
the documentation evidencing or relating to such Indebtedness together with a
subordination agreement, in Proper Form, duly executed by the holder or holders
of such Indebtedness and evidencing the terms and conditions of subordination
required by the Majority Lenders. The term "Subordinated Indebtedness" shall
include Indebtedness under those certain Senior Subordinated Notes due 2008 in
the aggregate principal amount of $170,000,000 issued by Borrower on or about
November 24, 1998 and any Indebtedness issued in exchange therefor which is
governed by subordination provisions substantially identical to those governing
such Senior Subordinated Notes.
Subsidiary means, as to a particular parent Corporation, any Corporation of
which more than 50% of the indicia of equity rights (whether outstanding capital
stock or otherwise) is at the time directly or indirectly owned by, such parent
Corporation.
Taxes shall have the meaning ascribed to it in Section 4.1(d).
Term Loan means a Loan made pursuant to Section 2.1(a) hereof
Term Loan Lender means each Lender with any outstanding Term Loans.
Term Loan Maturity Date means December 31, 2003.
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Term Notes means the Notes of Borrower evidencing the Term Loans, in the
form of Exhibit C hereto.
Title Insurance Policies means, collectively, the policies of title
insurance, in Proper Form, in face amounts satisfactory to Agent, issued in
favor of Agent by a title insurance company satisfactory to Agent and insuring
that title to the Mortgaged Properties is vested in Borrower, free and clear of
any Lien other than Permitted Liens and that each Mortgage creates a valid first
and prior lien on all the Mortgaged Properties affected by such Mortgage,
subject only to such exceptions as may be approved by Agent, together with any
endorsements thereto reasonably requested by Agent. Each of said policies shall
contain a complete and accurate description of the applicable Mortgages, shall
specify the recording and filing information applicable to it and shall describe
the Mortgaged Properties identically to the description thereof in such
Mortgage.
Total Debt to EBITDA Ratio means, as of any day, the ratio of (a) Debt of
Borrower and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) as of such date to (b) EBITDA for the 12 months ending on such
date; provided however, that for purposes of this ratio only, so long as
Borrower shall have delivered to Agent financial information in Proper Form
regarding the Property acquired which disclose the prior operating results of
such Property, the pro forma effect of any acquisition by Borrower or any of its
consolidated Subsidiaries (other than Non-Recourse Subsidiaries) of any Property
or business during such 12-month period shall be included in EBITDA as if such
acquisition occurred on the first day of such period.
Trademark Security Agreements shall mean, collectively, (i) that certain
Trademark Security Agreement dated concurrently herewith executed by Borrower
and Agent and (ii) all additional trademark security agreements executed as
security for the Obligations and all related recordation form cover sheets and
any and all amendments, modifications, renewals, extensions and supplements
thereof or thereto from time to time.
Underlying Lease Agreements means any and all lease agreements (other than
the Lease Agreements) now or hereafter affecting any of the Property covered by
any of the Lease Agreements and which is superior to the applicable Lease
Agreement, as any of the same may from time to time be amended, modified,
supplemented or restated.
Unfunded Liabilities means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the Controlled Group to the PBGC or a Plan under Title IV of
ERISA. With respect to multi-employer Plans, the term "Unfunded Liabilities"
shall also include contingent liability for withdrawal liability under Section
4201 of ERISA to all multi-employer Plans to which Borrower or any member of a
Controlled Group for employees of Borrower contributes in the event of complete
withdrawal from such plans.
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1.2 Miscellaneous. The words "hereof" "herein," and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement. The term "annualized"
as used herein shall mean the multiplication of the applicable amount for any
given period by a fraction, the numerator of which is 365 and the denominator of
which is the number of days elapsed in such period.
2. Commitments and Loans.
2.1 Loans. Each Lender severally agrees, subject to all of the terms and
conditions of this Agreement (including, without limitation, Sections 5.1 and
5.2 hereof), to make Loans as follows:
(a) Term Loans. On February 12, 1999, each Term Loan Lender shall make a
loan to Borrower in the amount set forth opposite such Term Loan Lender's name
on the signature pages hereof under the caption "Term Loans".
(b) Revolving Loans. From time to time on or after the Effective Date and
during the applicable Revolving Loan Availability Period, each Revolving Loan
Lender shall make loans under this Section 2.1(b) to Borrower in an aggregate
principal amount at any one time outstanding (including its Revolving Loan
Commitment Percentage of all Letter of Credit Liabilities at such time) up to
but not exceeding such Lender's Revolving Loan Commitment Percentage of the
Maximum Revolving Loan Available Amount. Subject to the conditions in this
Agreement, any such Revolving Loan repaid prior to the Revolving Loan
Termination Date may be reborrowed pursuant to the terms of this Agreement;
provided, that any and all such Revolving Loans shall be due and payable in full
at the end of the Revolving Loan Availability Period. Borrower, Agent and the
Lenders agree pursuant to Chapter 346 ("Chapter 346") of the Texas Finance Code,
that Chapter 346 (which relates to open-end line of credit revolving loan
accounts) shall not apply to this Agreement, the Notes or any Obligation and
that neither the Notes nor any Obligation shall be governed by Chapter 346 or
subject to its provisions in any manner whatsoever. The aggregate of all
Revolving Loans to be made by the Lenders in connection with a particular
borrowing shall be equal to an integral multiple of $100,000.
2.2 Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions of this
Agreement, and on the condition that aggregate Letter of Credit Liabilities
shall never exceed $5,000,000, (i) Borrower shall have the right to, in addition
to Loans provided for in Section 2.1 hereof, utilize the Revolving Loan
Commitments from time to time during the Revolving Loan Availability Period by
obtaining the issuance of standby letters of credit for the account of Borrower
if Borrower shall so request in the notice referred to in Section 2.2(b)(i)
hereof (such standby letters of credit as any of them may be amended,
supplemented; extended or confirmed from time to time, being herein collectively
called the "Letters of Credit)" and (ii) Chase Texas agrees to issue such
Letters of Credit. Upon the date
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of the issuance of a Letter of Credit, the applicable Issuer shall be deemed,
without further action by any party hereto, to have sold to each Revolving Loan
Lender, and each such Lender shall be deemed, without further action by any
party hereto, to have purchased from the applicable Issuer, a participation, to
the extent of such Lender's Revolving Loan Commitment Percentage, in such Letter
of Credit and the related Letter of Credit Liabilities, which participation
shall terminate on the earlier of the expiration date of such Letter of Credit
or the Revolving Loan Termination Date. No Letter of Credit shall have an
expiration date later than one year from date of issuance. Any Letter of Credit
that shall have an expiration date after the end of the Revolving Loan
Availability Period shall be subject to Cover or backed by a standby letter of
credit in form and substance, and issued by a Person, acceptable to Agent in its
sole discretion. Chase Texas or, with the prior approval of Borrower and Agent,
another Lender shall be the Issuer of each Letter of Credit.
(b) Additional Provisions. The following additional provisions shall apply
to each Letter of Credit:
(i) Borrower shall give Agent notice requesting each issuance of a
Letter of Credit hereunder as provided in Section 4.3 hereof and shall
furnish such additional information regarding such transaction as Agent may
reasonably request. Upon receipt of such notice, Agent shall promptly
notify each Revolving Loan Lender of the contents thereof and of such
Lender's Revolving Loan Commitment Percentage of the amount of such
proposed Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect thereto
the sum of (A) the aggregate outstanding principal amount of Revolving
Loans plus (B) the aggregate Letter of Credit Liabilities would exceed the
Maximum Revolving Loan Available Amount. On each day during the period
commencing with the issuance of any Letter of Credit and until such Letter
of Credit shall have expired or been terminated, the Revolving Loan
Commitment of each Revolving Loan Lender shall be deemed to be utilized for
all purposes hereof in an amount equal to such Lender's Revolving Loan
Commitment Percentage of the amount then available for drawings under such
Letter of Credit (or any unreimbursed drawings under such Letter of
Credit).
(iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, Agent shall promptly notify Borrower and
each Lender as to the amount to be paid as a result of such demand and the
payment date therefor. If at any time prior to the earlier of the
expiration date of a Letter of Credit or the Revolving Loan Termination
Date any Issuer shall have made a payment to a beneficiary of a Letter of
Credit in respect of a drawing under such Letter of Credit, each Revolving
Loan Lender will pay to Agent immediately upon demand by such Issuer at any
time during the period commencing after such payment until reimbursement
thereof in full by Borrower, an amount equal to such Lender's Revolving
Loan Commitment Percentage of such payment, together with interest on such
amount for each day from the date of demand for such payment (or, if such
demand
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is made aftet 11:00 a.m. Houston time on such date, from the next
succeeding Business Day) to the date of payment by such Lender of such
amount at a rate of interest per annum equal to the Federal Funds Rate for
such period. To the extent that it is ultimately determined that the
Borrower is relieved of its obligation to reimburse the applicable Issuer
because of such Issuer's gross negligence or willful misconduct in
determining that documents received under any applicable Letter of Credit
comply with the terms thereof, the applicable Issuer shall be obligated to
refund to the paying Lenders all amounts paid to such Issuer to reimburse
Issuer for the applicable drawing under such Letter of Credit.
(iv) Borrower shall be irrevocably and unconditionally obligated
forthwith to reimburse Agent, on the date on which the Agent notifies
Borrower of the date and amount of any payment by the Issuer of any drawing
under a Letter of Credit, for the amount paid by any Issuer upon such
drawing, without presentment, demand, protest or other formalities of any
kind, all of which are hereby waived. Such reimbursement may, subject to
satisfaction of the conditions in Sections 5.1 and 5.2 hereof and to the
Maximum Revolving Loan Available Amount (after adjustment in the same to
reflect the elimination of the corresponding Letter of Credit Liability),
be made by the borrowing of Revolving Loans. Agent will pay to each
Revolving Loan Lender such Lender's Revolving Loan Commitment Percentage of
all amounts received from Borrower for application in payment, in whole or
in part, of the Reimbursement Obligation in respect of any Letter of
Credit, but only to the extent such Lender has made payment to Agent in
respect of such Letter of Credit pursuant to clause (iii) above.
(v) Borrower will pay to Agent at the Principal Office for the account
of each Revolving Loan Lender a letter of credit fee with respect to each
Letter of Credit equal to the greater of (x) $500 or (y) an amount equal to
the Margin Percentage applicable from time to time with respect to LIBOR
Borrowings multiplied by the daily average amount available for drawings
under each Letter of Credit (and computed on the basis of the actual number
of days elapsed in a year composed of 360 days), in each case for the
period from and including the date of issuance of such Letter of Credit to
and including the date of expiration or termination thereof, such fee to be
due and payable in advance on the date of the issuance thereof. Agent will
pay to each Revolving Loan Lender, promptly after receiving any payment in
respect of letter of credit fees referred to in this clause (v), an amount
equal to the product of such Lender's Revolving Loan Commitment Percentage
times the amount of such fees.
(vi) The issuance by the applicable Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in Section 5
hereof, be subject to the conditions precedent (A) that such Letter of
Credit shall be in such form and contain such terms as shall be reasonably
satisfactory to Agent, and (B) that Borrower shall have executed and
delivered such Applications and other instruments and agreements relating
to such Letter of Credit as Agent shall have reasonably requested and are
not inconsistent with the terms of this
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Agreement. In the event of a conflict between the terms of this Agreement
and the terms of any Application, the terms hereof shall control.
(vii) Issuer will send to the Borrower and each Lender, immediately
upon issuance of any Letter of Credit issued by Issuer or any amendment
thereto, a true and correct copy of such Letter of Credit or amendment.
(c) Indemnification: Release. Borrower hereby indenmifies and holds
harmless Agent, each Revolving Loan Lender and each Issuer from and against any
and all claims and damages, losses, liabilities, costs or expenses which Agent,
such Lender or such Issuer may incur (or which may be claimed against Agent,
such Lender or such Issuer by any Person whatsoever). REGARDLESS OF WHETHER
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
in connection with the execution and delivery of any Letter of Credit or
transfer of or payment or failure to pay under any Letter of Credit; provided
that Borrower shall not be required to indemnify any party seeking
indemnification for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of the party seeking indemnification, or (ii) the failure by
the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.
Borrower hereby releases, waives and discharges Agent, each Revolving Loan
Lender and each Issuer from any claims, causes of action, damages, losses,
liabilities, reasonable costs or expenses which may now exist or may hereafter
arise, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
OF THE INDEMNIFIED PARTIES, by reason of or in connection with the failure of
any other Revolving Loan Lender to fulfill or comply with its obligations to
Agent, such Lender or such Issuer, as the case may be, hereunder (but nothing
herein contained shall affect any rights Borrower may have against such
defaulting Lender). Nothing in this Section 2.2(c) is intended to limit the
obligations of Borrower under any other provision of this Agreement.
(d) Additional Costs in Respect of Letters of Credit. If as a result of any
Regulatory Change there shall be imposed, modified or deemed applicable any tax
(other than any tax based on or measured by net income), reserve, special
deposit or similar requirement against or with respect to or measured by
reference to Letters of Credit issued or to be issued hereunder or
participations in such Letters of Credit, and the result shall be to increase
the cost to any Revolving Loan Lender of issuing or maintaining any Letter of
Credit or any participation therein, or materially reduce any amount receivable
by any Revolving Loan Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of such Lender's reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then such
Lender shall notify Borrower through Agent (which notice shall be accompanied by
a statement setting forth in reasonable detail the basis for the determination
of the amount due), and within 15 Business Days after demand therefor by such
Lender through Agent, Borrower shall pay to such Lender, from time to time as
specified by such Lender, such additional amounts as shall be sufficient to
compensate such Lender for such increased costs or reductions in
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amount. Such statement as to such increased costs or reductions in amount
incurred by such Lender, submitted by such Lender to Borrower, shall be
conclusive as to the amount thereof, absent manifest error, and may be computed
using any reasonable averaging and attribution method. Each Lender will notify
Borrower through Agent of any event occurring after the date of this Agreement
which will entitle such Lender to compensation pursuant to this Section as
promptly as practicable after any executive officer of such Lender obtains
knowledge thereof and determines to request such compensation, and (if so
requested by Borrower through Agent) will designate a different lending office
of such Lender for the issuance or maintenance of Letters of Credit by such
Lender or will take such other action as Borrower may reasonably request if such
designation or action is consistent with the internal policy of such Lender and
legal and regulatory restrictions, can be undertaken at no additional cost, will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Lender, be disadvantageous to such Lender (provided
that such Lender shall have no obligation so to designate a different lending
office which is not located in the United States of America).
2.3 Terminations or Reductions of Commitments.
(a) Mandatory. On the Revolving Loan Termination Date, all Revolving Loan
Commitments shall be terminated in their entirety.
(b) Optional. Borrower shall have the right to terminate or reduce the
unused portion of the Revolving Loan Commitments at any time or from time to
time, provided that (i) Borrower shall give notice of each such termination or
reduction to Agent as provided in Section 4.3 hereof and (ii) each such partial
reduction shall be in an integral multiple of $250,000.
(c) No Reinstatement. No termination or reduction of the Revolving Loan
Commitments may be reinstated without the written approval of Agent and the
Lenders.
2.4 Commitment Fees.
(a) Borrower shall pay to Agent for the account of each Revolving Loan
Lender revolving loan commitment fees for the period from February 12, 1999 to
and including the Revolving Loan Termination Date at a rate per annum equal to
the Commitment Fee Percentage. Such revolving loan commitment fees shall be
computed (on the basis of the actual number of days elapsed in a year composed
of 360 days) on each day and shall be based on the excess of (x) the aggregate
amount of each Revolving Loan Lender's Revolving Loan Commitment for such day
over (y) the sum of (i) the aggregate unpaid principal balance of such Lender's
Revolving Note on such day plus (ii) the aggregate Letter of Credit Liabilities
as to such Lender for such day. Accrued revolving loan commitment fees shall be
payable in arrears on the Quarterly Dates prior to the Revolving Loan
Termination Date and on the Revolving Loan Termination Date.
(b) All past due fees payable under this Section shall bear interest at the
Past Due Rate.
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2.5 Several Obligations. The failure of any Lender to make any Loan to be
made by it on the date specified therefor shall not relieve any other Lender of
its obligation to make its Loan on such date, but neither Agent nor any Lender
shall be responsible or liable for the failure of any other Lender to make a
Loan to be made by such other Lender or to participate in, or co-issue, any
Letter of Credit. Notwithstanding anything contained herein to the contrary, (a)
no Lender shall be required to make or maintain Revolving Loans at any time
outstanding if as a result the total Revolving Loan Obligations to such Lender
shall exceed the lesser of (1) such Lender's Revolving Loan Commitment
Percentage of all Revolving Loan Obligations and (2) such Lender's Revolving
Loan Commitment Percentage of the Maximum Revolving Loan Available Amount and
(b) if a Revolving Loan Lender fails to make a Revolving Loan as and when
required hereunder, then upon each subsequent event which would otherwise result
in funds being paid to the defaulting Lender, the amount which would have been
paid to the defaulting Lender shall be divided among the non-defaulting Lenders
ratably according to their respective shares of the outstanding Revolving Loan
Commitment Percentages until the Revolving Loan Obligations of each Revolving
Loan Lender (including the defaulting Lender) are equal to such Lender's
Revolving Loan Commitment Percentage of the total Revolving Loan Obligations.
2.6 Notes. The Revolving Loans made by each Lender shall be evidenced by a
single Revolving Note of Borrower in substantially the form of Exhibit D hereto
payable to the order of such Lender in a principal amount equal to the Revolving
Loan Commitment of such Lender, and otherwise duly completed. The Term Loan made
by each Lender shall be evidenced by a single Term Note of Borrower in
substantially the form of Exhibit C hereto payable to the order of such Lender
in a principal amount equal to the outstanding principal balance of the Term
Loan made by such Lender, and otherwise duly completed. The promissory notes
described in this Section are each, together with all renewals, extensions,
modifications and replacements thereof and substitutions therefor, called a
"Note" and collectively called the "Notes". Each Lender is hereby authorized by
Borrower to endorse on the schedule (or a continuation thereof) that may be
attached to each Note of such Lender, to the extent applicable, the date,
amount, type of and the applicable period of interest for each Loan made by such
Lender to Borrower hereunder, and the amount of each payment or prepayment of
principal of such Loan received by such Lender, provided, that any failure by
such Lender to make any such endorsement shall not affect the obligations of
Borrower under such Note or hereunder in respect of such Loan.
2.7 Use of Proceeds. The proceeds of the Loans shall be used to refinance
existing Indebtedness of Borrower, to finance permitted acquisitions by Borrower
and its Subsidiaries and new store development by Borrower and its Subsidiaries,
and for other working capital and general corporate purposes. Neither Agent nor
any Lender shall have any responsibility as to the use of any proceeds of the
Loans.
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3. Borrowings, Payments, Prepayments and Interest Options.
3.1 Borrowings. Borrower shall give Agent notice of each borrowing to be
made hereunder as provided in Section 4.3 hereof and Agent shall promptly notify
each Lender of such request. Not later than 11:00 a.m. Houston time on the date
specified for each such borrowing hereunder, each Lender shall make available
the amount of the Loan, if any, to be made by it on such date to Agent at its
Principal Office, in immediately available funds, for the account of Borrower.
Such amounts received by Agent will be held in an account maintained by Borrower
with Agent. The amounts so received by Agent shall, subject to the terms and
conditions of this Agreement, be made available to Borrower by wiring or
otherwise transferring, in immediately available funds, such amount to an
account designated by Borrower and approved by Agent.
3.2 Prepayments.
(a) Optional Prepayments. Except as provided in Section 3.3 hereof,
Borrower shall have the right to prepay, on any Business Day, in whole or in
part, without the payment of any penalty or fee, any Loans at any time or from
time to time, provided that Borrower shall give Agent notice of each such
prepayment as provided in Section 4.3 hereof Each optional prepayment on a Loan
shall be in an amount equal to an integral multiple of $250,000. Such optional
prepayments of Term Loans shall be applied ratably (based on outstanding
principal balances) to all Term Notes and shall be applied to scheduled
principal installments ratably over the remaining payments.
(b) Mandatorv Prepayments and Cover. Except, in each case, as provided in
Section 3.3 hereof,
(1) Insurance Proceeds and Condemnation Awards.
(i) Promptly following the receipt thereof by any Obligor,
Borrower shall deposit or cause to be deposited with Agent in an
interest bearing account (but without any obligation to maximize such
interest) all of the net cash proceeds of any payment or award in
excess of $250,000 made to any Obligor under any policy of Property
insurance with respect to any of the Collateral or pursuant to any
condemnation award with respect to any of the Collateral provided such
amounts have not theretofore been reasonably expended for the
restoration or replacement of the asset in respect of which such
payment or award was made. Such amounts shall be collaterally assigned
to Agent as security for the same portion of the Obligations as the
applicable Collateral secured in a manner reasonably acceptable to
Agent. Upon delivery to Agent of written certification by Borrower
that the applicable Obligor has reasonably expended amounts or
committed in writing to expend amounts for the restoration or
replacement of the asset in respect of which such payment or award was
made, specifying the amount expended or committed, so long as no
Default or Event of Default shall have occurred and be continuing any
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such amount deposited with Agent shall be released by Agent to
Borrower; provided, however, that, in the event that within 365 days
of receipt of such payment or award by Borrower, to the extent
Borrower shall not have certified to Agent its intention to expend an
equivalent amount for the restoration or replacement of the asset in
respect of which such payment or award was made, Borrower shall make a
prepayment on the Term Loans (using any funds deposited with Agent
pursuant to this Section 3.2(b)(1) or other funds) in the amount of
the excess of the amount of such payment or award over the amount of
such expenditures and/or commitment on such 365th day. Such prepayment
shall be applied to the Term Notes and shall be applied to scheduled
principal installments in inverse order of their maturities.
(ii) In cases where the amount of the net cash proceeds of any
payment or award is equal to or less than $250,000 and no Default or
Event of Default has occurred and is continuing, such proceeds may be
paid to any Obligor, and if received by Agent shall be paid by Agent
to Borrower, for use in paying for replacements or repairs of or
substitutes for the damaged, destroyed or taken assets.
(2) Excess Cash Flow. Within fifteen (15) Business Days after the
delivery of the Annual Audited Financial Statements pursuant to Section 7.2
hereof with respect to each fiscal year of Borrower (commencing with the
fiscal year ending on December 31, 1999), Borrower shall make a prepayment
on the Term Loans in an amount equal to (i) Excess Cash Flow for such
fiscal year times 50% less (ii) optional prepayments made on the Term Loans
during such fiscal year. The calculation of Excess Cash Flow for any fiscal
year based upon the applicable Annual Audited Financial Statements shall be
conclusive, absent manifest error. Such prepayment shall be applied first
to the unpaid principal balance of the Revolving Loans and the balance to
the Term Notes (applied ratably (based on outstanding principal balances)
to all Term Notes and applied to scheduled principal installments ratably
over the remaining payments).
(c) Term Loan Amortization. The principal of the Term Notes shall be due
and payable in quarterly installments, each due on a Quarterly Date, beginning
on March 31, 1999, equal to the amount set forth in the following table opposite
the applicable payment (allocated among the Term Loan Lenders pro rata in
accordance with the unpaid principal balances of their respective Term Notes):
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Payment Payment Amount
------- --------------
first through fourth $ 750,000
fifth through eighth $1,000,000
ninth through twelfth $1,250,000
thirteenth through sixteenth $1,500,000
seventeenth through nineteeth $1,750,000
On the Term Loan Maturity Date, the entire unpaid principal balance of each Term
Note and all accrued and unpaid interest on the unpaid principal balance of each
Term Note shall be finally due and payable.
(d) Interest Payments. Accrued and unpaid interest on the unpaid principal
balance of the Loans shall be due and payable on the Interest Payment Dates.
(e) Payments and Interest on Reimbursement Obligations. Borrower will pay
to Agent for the account of each Lender the amount of each Reimbursement
Obligation on the date on which the Agent notifies Borrower of the date and
amount of the applicable payment by the Issuer of any drawing under a Letter of
Credit. The amount of any Reimbursement Obligation may, if the applicable
conditions precedent specified in Sections 5.1 and 5.2 hereof have been
satisfied, be paid with the proceeds of Revolving Loans. Subject to Section 11.7
hereof, Borrower will pay to Agent for the account of each Lender interest at
the applicable Past Due Rate on any Reimbursement Obligation and on any other
amount payable by Borrower hereunder to or for the account of such Lender (but,
if such amount is interest, only to the extent legally allowed), which shall not
be paid in full within five (5) days after the date due (whether at stated
maturity, by acceleration or otherwise), for the period commencing on the
expiration of such five (5) day period until the same is paid in full.
3.3 Interest Options.
(a) Options Available. The outstanding principal balance of the Notes shall
bear interest at the Base Rate; provided, that (1) all past due amounts, both
principal and accrued interest, shall bear interest at the Past Due Rate, and
(2) subject to the provisions hereof, Borrower shall have the option of having
all or any portion of the principal balances of the Notes from time to time
outstanding bear interest at a Eurodollar Rate. The records of Agent and each of
the Lenders with respect to Interest Options, Interest Periods and the amounts
of Loans to which they are applicable shall be binding and conclusive, absent
manifest error. Interest on the Loans shall be calculated at the Base Rate
except where it is expressly provided pursuant to this Agreement that a
Eurodollar Rate is to apply. Interest on the amount of each advance against the
Notes shall be computed on the amount of that advance and from the date it is
made. Notwithstanding anything in this Agreement to the contrary, for the full
term of the Notes the interest rate produced by the aggregate of all sums paid
or agreed to be paid to the holders of the Notes for the use, forbearance or
detention of the debt
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evidenced thereby (including all interest on the Notes at the Stated Rate plus
the Additional Interest) shall not exceed the Ceiling Rate.
(b) Designation and Conversion. Borrower shall have the right to designate
or convert its Interest Options in accordance with the provisions hereof.
Provided no Event of Default has occurred and is continuing and subject to the
last sentence of Section 3.3(a) and the provisions of Section 3.3(c), Borrower
may elect to have a Eurodollar Rate apply or continue to apply to all or any
portion of the principal balance of the Notes. Each change in Interest Options
shall be a conversion of the rate of interest applicable to the specified
portion of the Loans, but such conversion shall not change the respective
outstanding principal balances of the Notes. The Interest Options shall be
designated or converted in the manner provided below:
(i) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice (and Agent shall promptly inform each Lender
thereof). Each such telephonic and written notice shall specify the
amount of the Loan and type (i.e. Revolving Loan or Term Loan) which
is the subject of the designation, if any; the amount of borrowings
into which such borrowings are to be converted or for which an
Interest Option is designated; the proposed date for the designation
or conversion and the Interest Period or Periods, if any, selected by
Borrower. Such telephonic notice shall be irrevocable and shall be
given to Agent no later than the applicable Rate Designation Date.
(ii) No more than twelve (12) LIBOR Borrowings shall be in effect with
respect to the Loans at any time.
(iii) Each designation or conversion of a LIBOR Borrowing shall occur on a
LIBOR Business Day.
(iv) Except as provided in Section 3.3(c) hereof, no LIBOR Borrowing shall
be converted to a Base Rate Borrowing or another LIBOR Borrowing on
any day other than the last day of the applicable Interest Period.
(v) Each request for a LIBOR Borrowing shall be in the amount equal to
$250,000 or a multiple of $100,000 in excess thereof.
(vi) Each designation of an Interest Option with respect to the Revolving
Notes shall apply to all of the Revolving Notes ratably in accordance
with their respective outstanding principal balances. Each designation
of an Interest Option with respect to the Term Notes shall apply to
all of the Term Notes ratably in accordance with their respective
outstanding principal balances. If any Lender assigns an interest in
any of its Notes when any LIBOR Borrowing is outstanding with respect
thereto, then such assignee shall have its ratable interest in such
LIBOR Borrowing.
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(c) Special Provisions Applicable to LIBOR Borrowings.
(i) Options Unlawful. If the adoption of any applicable Legal Requirement
after the Effective Date or any change after the Effective Date in any
applicable Legal Requirement or in the interpretation or administration thereof
by any Governmental Authority or compliance by any Lender with any request or
directive (whether or not having the force of law) issued after the Effective
Date by any central bank or other Governmental Authority shall at any time make
it unlawful or impossible for any Lender to permit the establishment of or to
maintain any LIBOR Borrowing, the commitment of such Lender to establish or
maintain such LIBOR Borrowing shall forthwith be canceled and Borrower shall
forthwith, upon demand by Agent to Borrower, (1) convert the LIBOR Borrowing of
such Lender with respect to which such demand was made to a Base Rate Borrowing;
(2) pay all accrued and unpaid interest to date on the amount so converted; and
(3) pay any amounts required to compensate each Lender for any additional cost
or expense which any Lender may incur as a result of such adoption of or change
in such Legal Requirement or in the interpretation or administration thereof and
any Funding Loss which any Lender may incur as a result of such conversion. If,
when Agent so notifies Borrower, Borrower has given a Rate Designation Notice
specifying a LIBOR Borrowing but the selected Interest Period has not yet begun,
as to the applicable Lender such Rate Designation Notice shall be deemed to be
of no force and effect, as if never made, and the balance of the Loans made by
such Lender specified in such Rate Designation Notice shall bear interest at the
Base Rate until a different available Interest Option shall be designated in
accordance herewith.
(ii) Increased Cost of Borrowings. If the adoption after the Effective Date
of any applicable Legal Requirement or any change after the Effective Date in
any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or Governmental Authority shall at any time
as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
(1) subject any Lender to any Taxes, or any deduction or withholding for
any Taxes, on or from any payment due under any LIBOR Borrowing or
other amount due hereunder, other than income and franchise taxes of
the United States or its political subdivisions or such other
jurisdiction in which the applicable Lender has its principal office
or applicable lending office; or
(2) change the basis of taxation of payments due from Borrower to any
Lender under any LIBOR Borrowing (otherwise than by a change in the
rate of taxation of the overall net income of such Lender); or
(3) impose, modify, increase or deem applicable any reserve requirement
(excluding that portion of any reserve requirement included in the
calculation
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of the applicable Eurodollar Rate), special deposit requirement or
similar requirement (including, but not limited to, state law
requirements and Regulation D) against assets of any Lender, or
against deposits with any Lender, or against loans made by any Lender,
or against any other funds, obligations or other property owned or
held by any Lender; or
(4) impose on any Lender any other condition regarding any LIBOR
Borrowing;
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such LIBOR Borrowing, or
reduce the amount of principal or interest received by any Lender, then, within
15 Business Days after demand by Agent (accompanied by a statement setting forth
in reasonable detail the applicable Lender's basis therefor), Borrower shall pay
to Agent additional amounts which shall compensate each Lender for such
increased cost or reduced amount. The determination by any Lender of the amount
of any such increased cost, increased reserve requirement or reduced amount
shall be conclusive and binding, absent manifest error. Borrower shall have the
right, if it receives from Agent any notice referred to in this paragraph, upon
three Business Days' notice to Agent (which shall notify each affected Lender),
either (i) to repay in full (but not in part) any borrowing with respect to
which such notice was given, together with any accrued interest thereon, or (ii)
to convert the LIBOR Borrowing which is the subject of the notice to a Base Rate
Borrowing; provided, that any such repayment or conversion shall be accompanied
by payment of (x) the amount required to compensate each Lender for the
increased cost or reduced amount referred to in the preceding paragraph; (y) all
accrued and unpaid interest to date on the amount so repaid or converted, and
(z) any Funding Loss which any Lender may incur as a result of such repayment or
conversion. Each Lender will notify Borrower through Agent of any event
occurring after the date of this Agreement which will entitle such Lender to
compensation pursuant to this Section as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and (if
so requested by Borrower through Agent) will designate a different lending
office of such Lender for the applicable LIBOR Borrowing or will take such other
action as Borrower may reasonably request if such designation or action is
consistent with the internal policy of such Lender and legal and regulatory
restrictions, will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender (provided that such Lender shall have no
obligation so to designate a different lending office which is located in the
United States of America).
(iii) Inadequacy of Pricing and Rate Determination. If, for any reason with
respect to any Interest Period, Agent (or, in the case of clause 3 below, the
applicable Lender) shall have determined (which determination shall be
conclusive and binding upon Borrower, absent manifest error) that:
(1) Agent is unable through its customary general practices to determine
any applicable Eurodollar Rate, or
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(2) by reason of circumstances affecting the applicable market, generally,
Agent is not being offered deposits in United States dollars in such
market, for the applicable Interest Period and in an amount equal to
the amount of any applicable LIBOR Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately and fairly reflect
the cost to any Lender of making and maintaining such LIBOR Borrowing
hereunder for any proposed Interest Period,
then Agent shall give Borrower notice thereof and thereupon, (A) any Rate
Designation Notice previously given by Borrower designating the applicable LIBOR
Borrowing which has not commenced as of the date of such notice from Agent shall
be deemed for all purposes hereof to be of no force and effect, as if never
given, and (B) until Agent shall notify Borrower that the circumstances giving
rise to such notice from Agent no longer exist, each Rate Designation Notice
requesting the applicable Eurodollar Rate shall be deemed a request for a Base
Rate Borrowing, and any applicable LIBOR Borrowing then outstanding shall be
converted, without any notice to or from Borrower, upon the termination of the
Interest Period then in effect with respect to it, to a Base Rate Borrowing.
(iv) Funding Losses. Borrower shall indemnify each Lender against and hold
each Lender harmless from any Funding Loss. This indemnity shall survive the
payment of the Notes. A certificate of such Lender (explaining in reasonable
detail the amount and calculation of the amount claimed) as to any additional
amounts payable pursuant to this paragraph submitted to Borrower shall be
conclusive and binding upon Borrower, absent manifest error.
(d) Funding Offices; Adjustments Automatic; Calculation Year. Any Lender
may, if it so elects, fulfill its obligation as to any LIBOR Borrowing by
causing a branch or affiliate of such Lender to make such Loan and may transfer
and carry such Loan at, to or for the account of any branch office or affiliate
of such Lender; provided, that in such event for the purposes of this Agreement
such Loan shall be deemed to have been made by such Lender and the obligation of
Borrower to repay such Loan shall nevertheless be to such Lender and shall be
deemed held by it for the account of such branch or affiliate. Without notice to
Borrower or any other Person, each rate required to be calculated or determined
under this Agreement shall automatically fluctuate upward and downward in
accordance with the provisions of this Agreement. Interest at the Prime Rate
shall be computed on the basis of the actual number of days elapsed in a year
consisting of 365 or 366 days, as the case may be. All other interest required
to be calculated or determined under this Agreement shall be computed on the
basis of the actual number of days elapsed in a year consisting of 360 days,
unless the Ceiling Rate would thereby be exceeded, in which event, to the extent
necessary to avoid exceeding the Ceiling Rate, the applicable interest shall be
computed on the basis of the actual number of days elapsed in the applicable
calendar year in which accrued.
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(e) Funding Sources. Notwithstanding any provision of this Agreement to the
contrary, each Lender shall be entitled to fund and maintain its funding of all
or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if each Lender had actually funded and maintained each LIBOR
Borrowing during each Interest Period through the purchase of deposits having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Eurodollar Rate for such Interest Period.
4. Payments; Pro Rata Treatment; Computations, Etc.
4.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
Borrower hereunder, under the Notes and under the other Loan Documents shall be
made in Dollars, in immediately available funds, to Agent at the Principal
Office (or in the case of a successor Agent, at the principal office of such
successor Agent in the United States), not later than 10:00 a.m. Houston time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). Agent, or any Lender for whose account any such payment is made,
may (but shall not be obligated to) debit the amount of any such payment which
is not made by such time to any ordinary deposit account of Borrower with Agent
or such Lender, as the case may be.
(b) Borrower shall, at the time of making each payment hereunder, under any
Note or under any other Loan Document, specify to Agent the Loans or other
amounts payable by Borrower hereunder or thereunder to which such payment is to
be applied. Each payment received by Agent hereunder, under any Note or under
any other Loan Document for the account of a Lender shall be paid promptly to
such Lender, in immediately available funds. If Agent fails to send to any
Lender the applicable amount by the close of business on the date any such
payment is received by Agent if such payment is received prior to 10:00 a.m.
Houston time (or on the next succeeding Business Day with respect to payments
which are received after 10:00 a.m. Houston time), Agent shall pay to the
applicable Lender interest on such amount from such date at the Federal Funds
Rate. Borrower, the Lenders and Agent acknowledge and agree that this provision
and each other provision of this Agreement or any of the other Loan Documents
relating to the application of amounts in payment of the Obligations shall be
subject to the provisions of Section 4.2(d) regarding pro rata application of
amounts after an Event of Default shall have occurred and be continuing.
(c) If the due date of any payment hereunder or under any Note falls on a
day which is not a Business Day, the due date for such payment (except as
otherwise provided in Section 3.3 hereof) shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
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(d) All payments by the Borrower hereunder or under any other Loan Document
shall be made free and clear of and without deduction for or on account of any
present or future income, stamp, or other taxes, fees, duties, withholding or
other charges of any nature whatsoever imposed by any taxing authority excluding
in the case of each Lender taxes imposed on or measured by its net income or
franchise taxes imposed by the jurisdiction in which it is organized or through
which it acts for purposes of this Agreement (such non-excluded items being
hereinafter referred to as "Taxes"). If as a result of any change in law (or the
interpretation thereof) after the date that the applicable Lender became a
"Lender" under this Agreement any withholding or deduction from any payment to
be made to, or for the account of, a Lender by the Borrower hereunder or under
any other Loan Document is required in respect of any Taxes pursuant to any
applicable law, rule, or regulation, then the Borrower will (i) pay to the
relevant authority the full amount required to be so withheld or deducted; (ii)
to the extent available, promptly forward to the Agent an official receipt or
other documentation reasonably satisfactory to the Agent evidencing such payment
to such authority; and (iii) pay to the Agent, for the account of each affected
Lender, such additional amount or amounts as are necessary to ensure that the
net amount actually received by such Lender will equal the full amount such
Lender would have received had no such withholding or deduction been required.
Each Lender shall determine such additional amount or amounts payable to it
(which determination shall, in the absence of manifest error, be conclusive and
binding on the Borrower). If a Lender becomes aware that any such withholding or
deduction from any payment to be made by the Borrower hereunder or under any
other Loan Document is required, then such Lender shall promptly notify the
Agent and the Borrower thereof stating the reasons therefor and the additional
amount required to be paid under this Section. Each Lender shall execute and
deliver to the Agent and Borrower such forms as it may be required to execute
and deliver pursuant to Section 11.13 hereof. To the extent that any such
withholding or deduction results from the failure of a Lender to provide a form
required by Section 11.13 hereof (unless such failure is due to some prohibition
under applicable Legal Requirements), the Borrower shall have no obligation to
pay the additional amount required by clause (iii) above. Anything in this
Section notwithstanding, if any Lender elects to require payment by the Borrower
of any material amount under this Section, the Borrower may, within 60 days
after the date of receiving notice thereof and so long as no Default shall have
occurred and be continuing, elect to terminate such Lender as a party to this
Agreement; provided that, concurrently with such termination the Borrower shall
(i) if the Agent and each of the other Lenders shall consent, pay that Lender
all principal, interest and fees and other amounts owed to such Lender through
such date of termination or (ii) have arranged for another financial institution
approved by the Agent (such approval not to be unreasonably withheld) as of such
date, to become a substitute Lender for all purposes under this Agreement in the
manner provided in Section 11.6; provided further that, prior to substitution
for any Lender, the Borrower shall have given written notice to the Agent of
such intention and the Lenders shall have the option, but no obligation, for a
period of 60 days after receipt of such notice, to increase their Commitments in
order to replace the affected Lender in lieu of such substitution.
4.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a)
each borrowing from the Lenders under Section 2.1 hereof shall be made (x) in
the case of Term Loans,
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ratably from the Term Loan Lenders in accordance with the amounts set forth
opposite their signature lines hereto under the heading "Term Loans" and (y) in
the case of Revolving Loans, ratably from the Revolving Loan Lenders in
accordance with their respective Revolving Loan Commitments; (b) each payment of
revolving loan commitment fees shall be made for the account of the Revolving
Loan Lenders, and each termination or reduction of the Revolving Loan
Commitments of the Revolving Loan Lenders under Section 2.3 hereof shall be
applied, pro rata, according to the Revolving Loan Lenders' respective Revolving
Loan Commitments; (c) each payment by Borrower of principal of or interest on
the Term Loans or Revolving Loans, as the case may be, prior to the occurrence
of an Event of Default (or after the applicable Event of Default shall have been
fully cured) shall be made to Agent for the account of the Lenders pro rata in
accordance with the respective unpaid principal amounts of such Term Loans or
Revolving Loans, as the case may be, held by the Lenders; (d) each payment by
Borrower of principal of or interest on the Term Loans or Revolving Loans, as
the case may be, after an Event of Default shall have occurred and be continuing
shall be made to Agent for the account of the Lenders pro rata in accordance
with the respective unpaid principal amounts of the Obligations held by the
Lenders (i.e. such payments shall be shared by all of the Lenders and not
restricted to the holders of Revolving Notes or Term Notes, regardless of any
attempted contrary designation by Borrower), and (e) the Revolving Loan Lenders
(other than the applicable Issuer) shall purchase from the applicable Issuer
participations in each Letter of Credit to the extent of their respective
Revolving Loan Commitment Percentages.
4.3 Certain Actions, Notices, Etc. Notices to Agent of any termination or
reduction of Revolving Loan Commitments and of borrowings and optional
prepayments of Loans and requests for issuances of Letters of Credit shall be
irrevocable and shall be effective only if received by Agent not later than
10:00 a.m. Houston time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing and/or prepayment specified below:
Number of Business Days
Prior Notice
------------
Termination or Reduction of
Revolving Loan Commitments 5
Revolving Loan repayment 1
Borrowing at the Base Rate 1
Letter of Credit issuance 5
Prepayments required pursuant to
Section 3.2(b) same day
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Optional prepayment of
Term Loan 5
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). Agent shall promptly notify the affected Lenders of the contents
of each such notice. Any selection of a Eurodollar Rate with respect to a Loan
shall be subject to the advance notice requirements set forth in Section 3.3
hereof.
4.4 Non-Receipt of Funds by Agent. Unless Agent shall have been notified by
a Lender or Borrower (the "Payor") prior to the date on which such Lender is to
make payment to Agent of the proceeds of a Loan (or funding of a drawing under a
Letter of Credit or reimbursement with respect to any drawing under a Letter of
Credit) to be made by it hereunder or Borrower is to make a payment to Agent for
the account of one or more of the Lenders, as the case may be (such payment
being herein called the "Required Payment"), which notice shall be effective
upon receipt, that the Payor does not intend to make the Required Payment to
Agent, Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to Agent, the recipient of such payment
(or, if such recipient is the beneficiary of a Letter of Credit, Borrower and,
if Borrower fails to pay the amount thereof to Agent forthwith upon demand, the
Lenders ratably in proportion to their respective Revolving Loan Commitment
Percentages) shall, on demand, pay to Agent the amount made available by Agent,
together with interest thereon in respect of the period commencing on the date
such amount was so made available by Agent until the date Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement, on any
Reimbursement Obligation or on any other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off (including, without
limitation, any right of setoff or lien granted under Section 9.2 hereof),
banker's lien, counterclaim or similar right, or otherwise, it shall promptly
purchase from the other Lenders participations in the Loans made, or
Reimbursement Obligations or other Obligations held, by the other Lenders in
such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) pro rata in accordance with the unpaid Obligations
then due to each of them. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
Lender so purchasing a participation in the Loans made, or Reimbursement
Obligations or other Obligations held, by other Lenders may
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exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans, or Reimbursement Obligations or other Obligations in the amount
of such participation. Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of Borrower.
5. Conditions Precedent.
5.1 Initial Loans and Letters of Credit. The obligation of each Lender or
each Issuer to make its initial Loans or issue or participate in a Letter of
Credit (if such Letter of Credit is issued prior to the funding of the initial
Loans) hereunder is subject to the following conditions precedent, each of which
shall have been fulfilled or waived to the satisfaction of the Majority Lenders:
(a) Authorization and Status. Agent shall have received from the
appropriate Governmental Authorities certified copies of the Organizational
Documents (other than by-laws) of each Obligor, and evidence satisfactory to
Agent of all action taken by each Obligor authorizing the execution, delivery
and performance of the Loan Documents and all other documents related to this
Agreement to which it is a party (including, without limitation, a certificate
of the secretary of each such party which is a corporation setting forth the
resolutions of its Board of Directors authorizing the transactions contemplated
thereby and attaching a copy of its bylaws), together with such certificates as
may be appropriate to demonstrate the qualification and good standing of and
payment of taxes by each Obligor in the jurisdiction of its organization and in
each other jurisdiction where the failure in which to qualify would have a
material adverse effect on the business, condition (financial or otherwise),
operations or Properties of any Obligor.
(b) Incumbency. Each Obligor shall have delivered to Agent a certificate in
respect of the name and signature of each of the officers (i) who is authorized
to sign on its behalf the applicable Loan Documents related to any Loan or the
issuance of any Letter of Credit and (ii) who will, until replaced by another
officer or officers duly authorized for that purpose, act as its representative
for the purposes of signing documents and giving notices and other
communications in connection with any Loan or the issuance of any Letter of
Credit. Agent and each Lender may conclusively rely on such certificates until
they receive notice in writing from the applicable Obligor to the contrary.
(c) Notes. Agent shall have received the appropriate Notes of Borrower for
each Lender, duly completed and executed.
(d) Loan Documents. Each Obligor shall have duly executed and delivered the
Loan Documents to which it is a party (in such number of copies as Agent shall
have requested). Each such Loan Document shall be in substantially the form
furnished to the Lenders prior to their execution of this Agreement, together
with such changes therein as Agent may approve.
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(e) Security Matters. All such action as Agent shall have requested to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including, without limitation, where applicable, the filing and recording
of the Security Documents with the appropriate Governmental Authorities (except
for those Properties in respect of which the Lenders have given their written
consent to deferral of recordation of the applicable Mortgage so long as no
Event of Default has occurred which is continuing). Agent shall also have
received evidence satisfactory to it that the Liens created by the Security
Documents constitute first priority Liens, except for the exceptions expressly
provided for herein, including, without limitation, Uniform Commercial Code
search reports, satisfactory title evidence in form and substance acceptable to
Agent, and executed releases of any prior Liens (except as permitted by Section
8.2). Agent shall be granted a first priority Lien securing all of the
Obligations upon all of the issued and outstanding equity interests in and to
Borrower and each of its Subsidiaries, pursuant to Loan Documentation in Proper
Form, as a condition precedent to any Loan.
(f) Fees and Expenses. Borrower shall have paid to Agent all unpaid fees in
the amounts previously agreed upon in writing among Borrower and Agent; and
shall have in addition paid to Agent all amounts payable under Section 11.3
hereof, on or before the date of this Agreement, except for amounts which Agent,
in its sole discretion, agrees may be paid at a later date.
(g) Insurance. Borrower shall have delivered to Agent certificates of
insurance satisfactory to Agent evidencing the existence of all insurance
required to be maintained by each Obligor by this Agreement and the Security
Documents.
(h) Opinions of Counsel. Agent shall have received such opinions of counsel
to Obligors as the Majority Lenders shall reasonably request with respect to
Obligors and the Loan Documents.
(i) Consents. Agent shall have received evidence satisfactory to the
Lenders that (i) BKC shall have consented in writing to the transactions
contemplated in this Agreement without conditions except as approved by the
Majority Lenders and (ii) all material consents of each Governmental Authority
and of each other Person, if any, reasonably required in connection with (a) the
Loans and the Letters of Credit and (b) the execution, delivery and performance
of this Agreement and the other Loan Documents have been satisfactorily
obtained.
(j) Key Agreements. Agent shall have received copies of the Key Agreements,
in Proper Form, and, where applicable, shall have received evidence satisfactory
to Agent that the transactions contemplated therein have been consummated,
subject only to the requested funding of Loans. Upon request of Agent or the
Majority Lenders, the copies of any designated Key Agreements shall be certified
as true, correct and complete by Borrower.
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(k) Environmental Reports. Agent shall have received environmental reports
satisfactory to the Lenders with respect to the Property of Borrower and the
other Obligors prepared by an environmental consultant or environmental
consultants satisfactory to the Lenders.
(l) Title Insurance Policies. To the extent requested by Agent or the
Majority Lenders, Agent shall have received the Title Insurance Policies and
legible copies of any matters referred to therein, together with a survey or
surveys of the Mortgaged Property, in Proper Form.
(m) Other Documents. Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent or the Majority Lenders may reasonably request.
5.2 All Loans and Letters of Credit. The obligation of each Lender to make
any Loan to be made by it hereunder or to issue or participate in any Letter of
Credit is subject to (a) the accuracy, in all material respects, on the date of
such Loan or such issuance of all representations and warranties of each Obligor
contained in this Agreement and the other Loan Documents; (b) Agent shall have
received the following, all of which shall be duly executed and in Proper Form:
(1) a Request for Extension of Credit as to the Loan or the Letter of Credit, as
the case may be, no later than 10:00 a.m. Houston time on the Business Day on
which such Request for Extension of Credit must be given under Section 4.3
hereof, (2) in the case of a Letter of Credit, an Application, and (3) such
other documents as Agent or the Majority Lenders may reasonably require; (c)
prior to the making of such Loan or the issuance of such Letter of Credit, there
shall have occurred no material adverse change in the assets, liabilities,
financial condition, business or affairs of the Borrower and the Obligors, on a
consolidated basis; (d) no Default or Event of Default shall have occurred and
be continuing; (e) the making of such Loan or the issuance of such Letter of
Credit shall not be illegal or prohibited by any Legal Requirement, and (f)
Borrower shall have paid all fees and expenses of the type described in Section
11.3 hereof and all other fees owed to Agent or any Lender under the Loan
Documents which are due and payable, in each case, prior to or on the date of
such Loan or such issuance. The submission by the Borrower of a Request for
Extension of Credit shall be deemed to be a representation and warranty that the
conditions precedent to the applicable Loan or Letter of Credit have been
satisfied.
6. Representations and Warranties.
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit, Borrower represents and
warrants (such representations and warranties to survive any investigation and
the making of the Loans and the issuance of any Letters of Credit) to the
Lenders and Agent as follows:
6.1 Organization. Each Obligor (a) is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization; (b) has
all necessary power and authority to conduct its business as presently
conducted, and (c) is duly qualified to do business and
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in good standing in the jurisdiction of its organization and in all
jurisdictions in which the failure to so qualify would reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), operations or Properties of any Obligor.
6.2 Financial Statements. Borrower has furnished to Agent audited financial
statements (including a balance sheet) as to Borrower which fairly present in
all material respects, in accordance with GAAP, the financial condition and the
results of operations of Borrower as at the end of Borrower's 1997 fiscal year
and unaudited financial statements (including a balance sheet) as to Borrower
which fairly present in all material respects, in accordance with GAAP, the
financial condition and the results of operations of Borrower as at the end of
the third quarter of Borrower's 1998 fiscal year. No events, conditions or
circumstances have occurred from the date that the financial statements were
delivered to Agent through the Effective Date which would cause said financial
statements to be misleading in any material respect. There are no material
instruments or liabilities which should be reflected in such financial
statements provided to Agent which are not so reflected (and disclosed to
Lenders in writing prior to the Effective Date).
6.3 Enforceable Obligations; Authorization. The Loan Documents are legal,
valid and binding obligations of each applicable Obligor, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency and other similar laws and judicial decisions affecting creditors'
rights generally and by general equitable principles. The execution, delivery
and performance of the Loan Documents (a) have all been duly authorized by all
necessary action; (b) are within the power and authority of each applicable
Obligor; (c) do not and will not contravene or violate any Legal Requirement
applicable to any applicable Obligor or the Organizational Documents of any
applicable Obligor, the contravention or violation of which would reasonably be
expected to have a material adverse effect on the business, condition (financial
or otherwise), operations or Properties of any Obligor; (d) do not and will not
result in the breach of, or constitute a default under, any material agreement
or instrument by which any Obligor or any of its Property may be bound, and (e)
do not and will not result in the creation of any Lien upon any Property of any
Obligor, except in favor of Agent or as expressly contemplated therein. All
necessary permits, registrations and consents for such making and performance
have been obtained. Except as otherwise expressly stated in the Security
Documents, the Liens of the Security Documents, will constitute valid and
perfected first and prior Liens on the Property described therein (except for
those Properties in respect of which the Majority Lenders have given their
written consent to deferral of recordation of the applicable Mortgage so long as
no Event of Default has occurred which is continuing), subject to no other Liens
whatsoever except Permitted Liens.
6.4 Other Debt. No Obligor is in default in the payment of any other
Indebtedness or under any agreement, mortgage, deed of trust, security agreement
or lease to which it is a party and which default would reasonably be expected
to have a material adverse effect on the business, condition (financial or
otherwise), operations or Properties of any Obligor or on the ability of any
Obligor to perform its respective obligations under any Loan Document to which
it is a party.
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6.5 Litigation. There is no litigation or administrative proceeding, to the
knowledge of any executive officer of any Obligor, pending or threatened
against, nor any outstanding judgment, order or decree against, any Obligor
before or by any Governmental Authority which does or would reasonably be
expected to have a material adverse effect on the business, condition (financial
or otherwise), operations or Properties of any Obligor or on the ability of any
Obligor to perform its respective obligations under any Loan Document to which
it is a party. No Obligor is in default with respect to any judgment, order or
decree of any Governmental Authority where such default would have a material
adverse effect on the business, condition (financial or otherwise), operations
or Properties of any Obligor.
6.6 Title. Each Obligor has good and marketable title to the Collateral
pledged (or purported to be pledged) thereby pursuant to the Security Documents,
free and clear of all Liens except Permitted Liens.
6.7 Taxes. Each Obligor has filed all tax returns required to have been
filed and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith.
6.8 Regulations T, U and X. None of the proceeds of any Loan will be used
for the purpose of purchasing or carrying directly or indirectly any margin
stock or for any other purpose would constitute this transaction a "purpose
credit" within the meaning of Regulations T, U and X of the Board of Governors
of the Federal Reserve System, as any of them may be amended from time to time.
6.9 Subsidiaries. As of the Effective Date, Borrower has no Subsidiaries
other than Carrols Realty Holdings Corp., a Delaware corporation, Carrols Realty
I Corp., a Delaware corporation, the Excluded Subsidiaries and the Pollo
Subsidiaries.
6.10 No Untrue or Misleading Statements. No representation or warranty made
by Borrower in any Loan Document or in any document, instrument or other writing
furnished to the Lenders by or on behalf of any Obligor in connection with the
transactions contemplated in any Loan Document does or will contain any untrue
material statement of fact or will omit to state any such fact (of which any
executive officer of any Obligor has knowledge) necessary to make the
representations, warranties and other statements contained herein or in such
other document, instrument or writing not misleading in any material respect.
6.11 ERISA. With respect to each Plan, Borrower and each member of the
Controlled Group have fulfilled their obligations in all material respects,
including obligations under the minimum funding standards of ERISA and the Code
and are in compliance in all material respects with the provisions of ERISA and
the Code. No event has occurred which could result in a liability of Borrower or
any member of the Controlled Group to the PBGC or a Plan (other than to make
contributions in the ordinary course) would reasonably be expected to have a
material adverse effect
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on the Properties, liabilities, condition (financial or otherwise), business or
operations of any Obligor. There have not been any nor are there now existing
any events or conditions that would cause the Lien provided under Section 4068
of ERISA to attach to any Property of Borrower or any member of the Controlled
Group. Unfunded Liabilities as of the date hereof do not exceed $500,000. No
"prohibited transaction" has occurred with respect to any Plan.
6.12 Investment Company Act. No Obligor is an investment company within the
meaning of the Investment Company Act of 1940, as amended, or, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company, within the meaning of said Act.
6.13 Public Utility Holding Company Act. No Obligor is an "affiliate" or a
"subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
6.14 Solvency. None of Borrower, any Obligor, or Borrower and its
Subsidiaries (other than Non-Recourse Subsidiaries), on a consolidated basis, is
"insolvent," as such term is used and defined in (i) the Bankruptcy Code and
(ii) the fraudulent conveyance statutes of the States of New York or Texas or of
any jurisdiction in which any of the Collateral may be located.
6.15 Fiscal Year. The fiscal year of each Obligor ends on the Sunday
nearest December 31.
6.16 Compliance. Each Obligor is in compliance with all Legal Requirements
applicable to it, except to the extent that the failure to comply therewith
would not reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), operations or Properties of any
Obligor or the ability of any Obligor to perform its obligations under this
Agreement or the Loan Documents to which it is a party.
6.17 Environmental Matters. Each Obligor has, to the best knowledge of
their respective executive officers, obtained and maintained in effect all
Environmental Permits (or the applicable Person has initiated the necessary
steps to transfer the Environmental Permits into its name or obtain such
permits), the failure to obtain which would reasonably be expected to have a
material adverse effect on the Properties, liabilities, condition (financial or
otherwise), business or operations of any Obligor. Each Obligor and its
Properties, business and operations have been and are, to the best knowledge of
their respective executive officers, in compliance with all applicable
Requirements of Environmental Law and Environmental Permits the failure to
comply with which would reasonably be expected to have a material adverse effect
on the Properties, liabilities, condition (financial or otherwise), business or
operations of any Obligor. Each Obligor and its Properties, business and
operations are not subject to any (A) Environmental Claims or (B), to the best
knowledge of their respective executive officers (after making reasonable
inquiry of the personnel and records of their
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respective Corporations), Environmental Liabilities, in either case direct or
contingent, arising from or based upon any act, omission, event, condition or
circumstance occurring or existing on or prior to the date hereof which would
reasonably be expected to have a material adverse effect on the Properties,
liabilities, condition (financial or otherwise), business or operations of any
Obligor. None of the officers of any Obligor has received any notice of any
violation or alleged violation of any Requirements of Environmental Law or
Environmental Permit or any Environmental Claim in connection with its
Properties, liabilities, condition (financial or otherwise), business or
operations which would reasonably be expected to have a material adverse effect
on the Properties, liabilities, condition (financial or otherwise), business or
operations of any Obligor. Borrower does not know of any event or condition with
respect to currently enacted Requirements of Environmental Laws presently
scheduled to become effective in the future with respect to any of the
Properties of any Obligor which would reasonably be expected to have a material
adverse effect on the Properties, liabilities, condition (financial or
otherwise), business or operations of any Obligor, for which the applicable
Obligor has not made good faith provisions in its business plan and projections
of financial performance.
6.18 Certificate of Title Property: Property of Excluded Subsidiaries. The
aggregate value (based on the greater of book or market value) of the Collateral
which is subject to certificate of title laws is equal to or less than $250,000
on the date hereof The aggregate value (based on the greater of book or market
value) of the Property owned by the Excluded Subsidiaries is equal to or less
than $1,000,000 on the date hereof
6.19 Collateral Covered. As of the Effective Date, the Collateral covered
by the Security Documents constitutes substantially all material real and
personal Property (other than Excluded Assets) owned by the Borrower and its
Subsidiaries (other than Non-Recourse Subsidiaries).
7. Affirmative Covenants.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will do, and cause each other Obligor to do,
and if necessary cause to be done, each and all of the following:
7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay when
due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested diligently in good faith and adequate reserves in accordance with
GAAP have been established therefor; (b) do all things necessary to preserve its
existence, qualifications, rights and franchises in all jurisdictions where such
failure to qualify would reasonably be expected to have a material adverse
effect on the business, condition (financial or otherwise), operations or
Properties of any Obligor; (c) comply with all applicable Legal Requirements
(including without limitation Requirements of Environmental Law) in respect of
the conduct of its business and the ownership of its Property, the noncompliance
with which would reasonably be expected to have a material adverse effect on the
business, condition (financial or
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otherwise), operations or Properties of any Obligor or on the ability of any
Obligor to perform its respective obligations under any Loan Document to which
it is a party; and (d) cause its Property to be protected, maintained and kept
in good repair and make all replacements and additions to such Property as may
be reasonably necessary to conduct its business properly and efficiently.
7.2 Financial Statements and Information. Furnish to Agent and each Lender
each of the following: (a) as soon as available and in any event within 120 days
after the end of each applicable fiscal year, beginning with the fiscal year
ending on December 31, 1998, Annual Audited Financial Statements of Borrower and
Carrols Holdings; (b) as soon as available and in any event within 45 days after
the end of each fiscal quarter (other than the last fiscal quarter) of each
applicable fiscal year, Quarterly Financial Statements of Borrower and Carrols
Holdings; (c) concurrently with the financial statements provided for in
Subsections 7.2(a) and (b) hereof, such schedules, computations and other
information, in reasonable detail, as may be required by Agent to demonstrate
compliance with the covenants set forth herein or reflecting any non-compliance
therewith as of the applicable date, all certified and signed by the president
or chief financial officer of Borrower (or other authorized officer approved by
Agent) as true and correct in all material respects to the best knowledge of
such officer and, commencing with the annual statement prepared as of December
31, 1998, a compliance certificate ("Compliance Certificate") in the form of
Exhibit F hereto, duly executed by such authorized officer; (d) by December 31
of each fiscal year, Borrower's annual business plan for the next fiscal year
(including its balance sheet and income and cash flow projections for such
fiscal year); (e) promptly upon their becoming publicly available, each
financial statement, report, notice or definitive proxy statements sent by any
Obligor to shareholders generally and each regular or periodic report and each
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by any Obligor with, or received
by any Obligor in connection therewith from, any securities exchange or the
Securities and Exchange Commission or any successor agency, and (f) such other
information relating to the condition (financial or otherwise), operations,
prospects or business of any Obligor as from time to time may be reasonably
requested by Agent. Financial Statements for Borrower and Carrols Holding shall
be prepared on a consolidated basis, and shall provide comparison to the
corresponding period of the previous fiscal year. Each delivery of a financial
statement pursuant to this Section 7.2 shall constitute a restatement of the
representations contained in the last two sentences of Section 6.2.
7.3 Financial Tests. Borrower will have and maintain:
(a) Debt Service Coverage Ratio - a Debt Service Coverage Ratio of not
less than 1.25 to 1.00 at all times.
(b) Senior Debt to EBITDA Ratio - a Senior Debt to EBITDA Ratio of not
greater than (1) 3.50 to 1.00 at all times during the period commencing on
the date hereof through and including December 31, 1999; (2) 3.00 to 1.00
at all times during the period commencing on January 1,2000 through and
including December 31, 2000; (3) 2.50 to 1.00
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at all times during the period commencing on January 1, 2001 through and
including December 31, 2001, and (4) 2.00 to 1.00 at all times thereafter.
(c) Total Debt to EBITDA Ratio - a Total Debt to EBITDA Ratio of not
greater than (1) 5.50 to 1.00 at all times during the period commencing on
the date hereof through and including December 31, 1999; (2) 5.25 to 1.00
at all times during the period commencing on January 1,2000 through and
including December 31, 2000; (3) 5.00 to 1.00 at all times during the
period commencing on January 1, 2001 through and including December 31,
2001, (4) 4.50 to 1.00 at all times during the period commencing on January
1, 2002 through and including December 31, 2002, and (5) 4.00 to 1.00 at
all times thereafter.
(d) Fixed Charge Coverage Ratio - a Fixed Charge Coverage Ratio of not
less than 1.10 to 1.00 at all times.
7.4 Inspection. Permit Agent and each Lender upon 3 days' prior notice
(unless, a Default or an Event of Default has occurred which is continuing, in
which case no prior notice is required) to inspect its Property, to examine its
files, books and records, except privileged communication with legal counsel and
classified governmental material, and make and take away copies thereof, and to
discuss its affairs with its officers and accountants, all during normal
business hours and at such intervals and to such extent as Agent or any Lender
may reasonably desire.
7.5 Further Assurances. Promptly execute and deliver, at Borrower's
expense, any and all other and further instruments which may be reasonably
requested by Agent to cure any defect in the execution and delivery of any Loan
Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve protect and perfect the validity and
priority of the security interests created by the Security Documents (except for
those Properties in respect of which the Lenders have given their written
consent to deferral of recordation of the applicable Mortgage so long as no
Event of Default has occurred which is continuing).
7.6 Books and Records. Maintain books of record and account which permit
financial statements to be prepared in accordance with GAAP.
7.7 Insurance. Borrower will (and will cause each other Obligor to)
maintain insurance with such insurers, on such of its Property, with responsible
companies in such amounts, with such deductibles and against such risks as are
usually carried by owners of similar businesses and properties in the same
general areas in which the applicable Obligor operates or as Agent may otherwise
reasonably require, and furnish Agent satisfactory evidence thereof promptly
upon request. These insurance provisions are cumulative of the insurance
provisions of the Security Documents. Agent shall be provided with copies of the
policies of insurance and a certificate of the insurer that the insurance
required by this Section may not be canceled, reduced or affected in any
material
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manner without thirty (30) days' prior written notice to Agent. Wherever
applicable, such insurance shall name Agent as loss payee and/or mortgagee
insured.
7.8 Notice of Certain Matters. Give Agent written notice of the following
promptly after any executive officer (vice president or more senior) of Borrower
shall become aware of the same:
(a) the issuance by any court or governmental agency or authority of any
injunction, order or other restraint prohibiting, or having the effect of
prohibiting, the performance of this Agreement, any other Loan Document, or the
making of the Loans or the initiation of any litigation, or any claim or
controversy which would reasonably be expected to result in the initiation of
any litigation, seeking any such injunction, order or other restraint;
(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any court or any Governmental Authority
involving claims in excess of $2,500,000 or which may reasonably be expected to
result in a Default hereunder; and
(c) any Event of Default or Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with the respect
thereto.
Borrower will also notify Agent in writing at least 30 days prior to the date
that any Obligor changes its name or the location of its chief executive office
or principal place of business or the place where it keeps its books and
records. After the Effective Date, Borrower will notify Agent in writing at
least 45 days prior to any Obligor's acquisition of any real Property or any
material personal Property (other than Accounts, Inventory and Equipment),
wherever located, other than the Collateral covered by the Security Documents
and other than the Excluded Assets (such acquisition or ownership being herein
called an "Additional Collateral Event" and the Property so acquired or owned
being herein called "Additional Collateral"). Any such acquisition shall be
subject to the provisions of Section 8.14 hereof.
7.9 Interest Rate Risk. Borrower shall comply with and shall maintain in
full force and effect a program for the hedging of interest rate risk (which may
include one or more Interest Rate Risk Agreements) upon terms and in a manner
acceptable to Agent providing for a notional amount equal to the excess amount
of (i) the aggregate unpaid principal balance of Borrowed Money Indebtedness of
Borrower (on a consolidated basis) bearing interest at a variable rate over (ii)
50% of the aggregate unpaid principal balance of the Borrowed Money Indebtedness
of Borrower (on a consolidated basis).
7.10 Capital Adequacy. If any Lender shall have determined that the
adoption after the Effective Date or effectiveness after the Effective Date
(whether or not previously announced) of any applicable law, rule, regulation or
treaty regarding capital adequacy, or any change therein after the Effective
Date, or any change in the interpretation or administration thereof after the
Effective Date by any Governmental Authority, central bank or comparable agency
charged with the interpretation
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or administration thereof, or compliance by any Lender with any request or
directive after the Effective Date regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency has or would have the effect of reducing the rate of return on
such Lender's capital as a consequence of its obligations hereunder, under the
Letters of Credit, the Notes or other Obligations held by it to a level below
that which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, upon satisfaction of the conditions precedent set forth in this
Section 7.10, after demand by such Lender (with a copy to Agent) as provided
below, pay (subject to Section 11.7 hereof) to such Lender such additional
amount or amounts as will compensate such Lender for such reduction. The
certificate of any Lender setting forth such amount or amounts as shall be
necessary to compensate it and the basis thereof and reasons therefor shall be
delivered as soon as practicable to Borrower and shall be conclusive and
binding, absent manifest error. Borrower shall pay the amount shown as due on
any such certificate within five (5) Business Days after the delivery of such
certificate. In preparing such certificate, a Lender may employ such assumptions
and allocations of costs and expenses as it shall in good faith deem reasonable
and may use any reasonable averaging and attribution method.
7.11 ERISA Information and Compliance. Promptly furnish to Agent (i)
immediately upon receipt, a copy of any notice of complete or partial withdrawal
liability under Title IV of ERISA and any notice from the PBGC under Title IV of
ERISA of an intent to terminate or appoint a trustee to administer any Plan,
(ii) if requested by Agent, promptly after the filing thereof with the United
States Secretary of Labor or the PBGC or the Internal Revenue Service, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (iii) immediately upon becoming aware of the occurrence of any
"reportable event," as such term is defined in Section 4043 of ERISA, for which
the disclosure requirements of Regulation Section 2615.3 promulgated by the PBGC
have not been waived, or of any "prohibited transaction," as such term is
defined in Section 4975 of the Code, in connection with any Plan or any trust
created thereunder, a written notice signed by the President or the principal
financial officer of Borrower or the applicable member of the Controlled Group
specifying the nature thereof, what action Borrower or the applicable member of
the Controlled Group is taking or proposes to take with respect thereto, and,
when known, any action taken by the PBGC, the Internal Revenue Service or the
Department of Labor with respect thereto, (iv) promptly after the filing or
receiving thereof by Borrower or any member of the Controlled Group of any
notice of the institution of any proceedings or other actions which may result
in the termination of any Plan, and (v) each request for waiver of the funding
standards or extension of the amortization periods required by Sections 303 and
304 of ERISA or Section 412 of the Code promptly after the request is submitted
by Borrower or any member of the Controlled Group to the Secretary of the
Treasury, the Department of Labor or the Internal Revenue Service, as the case
may be. To the extent required under applicable statutory funding requirements,
Borrower will fund, or will cause the applicable member of the Controlled Group
to fund, all current service pension liabilities as they are incurred under the
provisions of all Plans from time to time in effect, and comply with all
applicable provisions of ERISA, in each case, except to the extent that failure
to do
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the same would not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations or Properties of
any Obligor. Borrower covenants that it shall and shall cause each member of the
Controlled Group to (I) make contributions to each Plan in a timely manner and
in an amount sufficient to comply with the contribution obligations under such
Plan and the minimum funding standards requirements of ERISA; (2) prepare and
file in a timely manner all notices and reports required under the terms of
ERISA including but not limited to annual reports; and (3) pay in a timely
manner all required PBGC premiums, in each case, except to the extent that
failure to do the same would not reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise), operations
or Properties of any Obligor.
7.12 Additional Security Documents. As soon as practicable and in any event
within three (3) calendar months after an Additional Collateral Event, Borrower
shall (a) execute and deliver or cause to be executed and delivered a Mortgage
and/or other applicable Security Documents, in Proper Form and in an amount
reasonably satisfactory to the Majority Lenders, in favor of Agent and duly
executed by the applicable Obligor, granting a first-priority Lien upon the
applicable Additional Collateral (other than Excluded Assets) securing all of
the Obligations (except as the Majority Lenders may otherwise agree in order to
limit recording taxes or similar charges based upon the amount secured), and
such other documents (including, without limitation, all items required in
connection with the applicable Security Documents previously executed hereunder,
such as surveys, environmental assessments, certificates, legal opinions, all in
Proper Form) as may be required by Agent or the Majority Lenders in connection
with the execution and delivery of such Security Documents; (b) where
applicable, deliver to Agent Franchise Agreements covering the Additional
Collateral and all such amendments to the BKC Consent (or additional BKC
Consents), in Proper Form, as Agent or the Majority Lenders may require to
incorporate the Additional Collateral; (c) where applicable, cause a title
insurance underwriter satisfactory to Agent to issue to Agent a Title Insurance
Policy, in Proper Form, insuring the first-priority Lien of each applicable
Mortgage in such amount as is satisfactory to the Majority Lenders; (d) deliver
or cause to be delivered such other documents or certificates consistent with
the terms of this Agreement and relating to the transactions contemplated hereby
as Agent or the Majority Lenders may reasonably request, and (e) pay in full all
documentary stamps, filing and recording fees, taxes and other fees and charges
payable in connection with the filing and recording of any Mortgage and/or any
other Security Document.
7.13 Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (i) each Obligors's computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which any Obligor's systems interface) and
the testing of all such systems and equipment will be completed in all material
respects by September 30, 1999. The cost to Obligors of such reprogramming and
testing and of reasonably foreseeable consequences of year 2000 to Obligors
(including, without limitation, reprogramming errors and failure of others'
systems or equipment) will not result in an Event of Default or a material
adverse effect on the business, condition (financial or otherwise), operations
or Properties of any Obligor. Except for such of the reprogramming referred to
in the
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preceding sentence as may be necessary, the computer and management systems of
Obligors are and, with ordinary course upgrading and maintenance, will continue
for the term of this Agreement to be, sufficient to permit Obligors to conduct
their business without a material adverse effect on the business, condition
(financial or otherwise), operations or Properties of any Obligor.
8. Negative Covenants.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will not, and will not suffer or permit any
other Obligor (other than Carrols Holdings) to, do any of the following:
8.1 Borrowed Money Indebtedness. Create, incur, suffer or permit to exist,
or assume or guarantee, directly or indirectly, or become or remain liable with
respect to any Borrowed Money Indebtedness, whether direct, indirect, absolute,
contingent or otherwise, except the following: (a) Indebtedness under this
Agreement and the other Loan Documents and Indebtedness secured by Liens
permitted by Section 8.2 hereof; (b) the liabilities existing on the date of
this Agreement and disclosed in the financial statements delivered on or prior
to the Effective Date pursuant to Section 6.2 hereof, and subject to Section
8.10 hereof, all renewals, extensions and replacements (but not increases) of
any of the foregoing; (c) the Interest Rate Risk Indebtedness; (d) Subordinated
Indebtedness; (e) Borrowed Money Indebtedness incurred by Borrower for the
acquisition and/or development of restaurants acquired or developed by Borrower
or any of its Subsidiaries after the Effective Date and pre-existing
Indebtedness (excluding any Indebtedness incurred at the instigation of Borrower
in contemplation of the acquisition of such Subsidiary) of any Subsidiary or
business acquired after the Effective Date in an aggregate amount not to exceed,
at any one time outstanding, $20,000,000; (f) Borrowed Money Indebtedness of
Borrower or any of its Subsidiaries to Borrower or any of its Subsidiaries that
is a Guarantor so long as such Borrowed Money Indebtedness shall be subordinated
to the Obligations in a manner acceptable to Agent and the Majority Lenders, and
(g) capitalized lease obligations to the extent allowed by the other provisions
of this Agreement.
8.2 Liens. Create or suffer to exist any Lien upon any of its Property now
owned or hereafter acquired, or acquire any Property upon any conditional sale
or other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its Accounts or General Intangibles; provided,
however, that any Obligor may create or suffer to exist Permitted Liens.
8.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
obligations disclosed to Agent in the financial statements delivered on or prior
to the Effective Date pursuant to Section 6.2 hereof (but not increases of such
obligations after the Effective Date), and (c) those liabilities permitted under
Section 8.1 hereof.
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8.4 Mergers, Consolidations and Dispositions of Assets. In any single
transaction or series of transactions, directly or indirectly:
(a) liquidate or dissolve (provided that Subsidiaries of Borrower which
are not parties to any Security Agreement or Mortgage may be
liquidated or dissolved);
(b) be a party to any merger or consolidation unless and so long as (i) no
Default or Event of Default has occurred that is then continuing, (ii)
immediately thereafter and giving effect thereto, no event will occur
and be continuing which constitutes a Default, (iii) an Obligor is the
surviving Person; (iv) the surviving Person ratifies and assumes each
Loan Document to which any party to such merger was a party, and (v)
Agent is given at least 30 days' prior notice of such merger or
consolidation;
(c) sell, convey or lease all or any substantial part of its assets,
except for sale/leaseback transactions, sales of Property in the
ordinary course of business, sales to other Obligors and other sales
not exceeding, for any fiscal year, $15,000,000; provided, however,
that, unless the Majority Lenders shall have otherwise consented in
writing, the net proceeds realized from assets sales permitted under
this exception (other than sales of Property in the ordinary course of
business or sales to other Obligors) must, within two hundred seventy
(270) days after the applicable sale, either (I) be used to make a
prepayment on all of the Term Loans pro rata based on their
outstanding principal balances (with such payments to be credited pro
rata to all of the installments required to be paid on such Term
Loans) or (II) be applied to repayment of Revolving Loan Obligations
or applied to a portion of the closing costs in respect of an
acquisition permitted under the terms hereof or otherwise reinvested
in the business of Borrower and its Subsidiaries in a manner
acceptable to Agent;
(d) enter into any sale/leaseback transaction unless the Agent, for the
benefit of the Lenders, shall be granted a lien (concurrently with the
applicable sale/leaseback transaction unless the Majority Lenders
shall otherwise consent in writing) on the resulting leasehold
interests securing the Obligations (or such portion thereof as the
Majority Lenders may require); provided, however, that, unless the
Majority Lenders shall have otherwise consented in writing, the net
proceeds realized from asset sales permitted under this exception must
be applied or used in the same manner as provided in Section 8.4(c),
or
(e) except for Liens in favor of Agent, pledge, transfer or otherwise
dispose of any equity interest in any Obligor or any Indebtedness of
any Obligor or issue or permit any other Obligor (other than Carrols
Holdings) to issue any additional equity interest: Nothing in this
Agreement or any of the other Loan Documents shall
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prohibit any Obligor from selling obsolete equipment or from replacing
used equipment in the ordinary course of business.
8.5 Redemption. Dividends and Distributions. At any time: (a) make any
distributions of any Property or cash to the owner of any of the equity
interests in any Obligor other than Permitted Dividends or (b) redeem, retire or
otherwise acquire, directly or indirectly, any equity interest in any Obligor,
other than to the extent included in the definition of "Permitted Investments"
set forth in Section 1.1 hereof.
8.6 Nature of Business. Change the nature of its business or enter into any
business which is substantially different from the business in which it is
presently engaged. The primary business of each Obligor (other than Carrols
Holdings and other than the Pollo Subsidiaries) shall at all times be the direct
or indirect ownership and operation of restaurants under Burger King franchises.
The primary business of the Pollo Subsidiaries shall at all times be the direct
or indirect ownership, operation or franchise of restaurants. Borrower agrees
that at least 75% of the restaurants owned and operated by Borrower, directly or
indirectly through Subsidiaries, will at all times be under Burger King
franchises.
8.7 Transactions with Related Parties. Enter into any transaction or
agreement with any officer, director or holder of any equity interest in any
Obligor (or any Affiliate of any such Person) unless the same is upon terms
substantially similar to those obtainable from wholly unrelated sources (to the
best knowledge of the executive officers of the applicable Obligor or Affiliate,
after making reasonable inquiry of the personnel and records of the applicable
Obligor or Affiliate). Performance under the present terms of the Purchase
Agreements and the Lease Agreements (without amendment except as agreed to in
writing by Agent) shall not cause a Default hereunder.
8.8 Loans and Investments. Make any loan, advance, extension of credit or
capital contribution to, or make or have any Investment in, any Person, or make
any commitment to make any such extension of credit or Investment, except (a)
Permitted Investments and (b) normal and reasonable advances in the ordinary
course of business to officers and employees.
8.9 Subsidiaries. Form, create or acquire any Subsidiary except for
Non-Recourse Subsidiaries and except that Borrower or any of its Subsidiaries
may form, create or acquire a wholly-owned Subsidiary so long as (a) immediately
thereafter and giving effect thereto, no event will occur and be continuing
which constitutes a Default; (b) such Subsidiary (and, where applicable,
Borrower) shall execute and deliver a Guaranty and such Security Documents as
the Agent may reasonably require to effectuate the provisions of this Agreement
regarding Collateral to be covered by the Security Documents, and (c) Agent is
given at least 30 days' prior notice of such formation, creation or acquisition.
8.10 Key Agreements. Terminate or agree to the termination of any Key
Agreement or amend, modify or obtain or grant a waiver of any provision of any
of the Key Agreements if such
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action would reasonably be expected to have a material adverse effect on the
Properties, liabilities, condition (financial or otherwise), business or
operations of any Obligor. Borrower will not accept or permit any assignment to
any Obligor of the leasehold interest under any of the Underlying Lease
Agreements without the express prior written consent of Agent.
8.11 Organizational Documents. Amend, modify, restate or supplement any of
its Organizational Documents if such action would reasonably be expected to
materially and adversely affect any Collateral, Loan or Obligation or the
abilities of Borrower or any other Obligor to perform its Obligations under any
Loan Document, unless such action shall be consented to in writing by Agent.
8.12 Certificate of Title Property; Excluded Subsidiaries. Borrower will
not permit (i) the aggregate value (determined on the greater of book or market
value) of Property owned by any Obligor (other than Carrols Holdings) which is
subject to certificate of title laws to exceed $250,000 or (ii) the aggregate
value (determined on the greater of book or market value) of the Property owned
by the Excluded Subsidiaries to exceed $1,000,000, in each case unless the
Lenders shall have otherwise consented in writing.
8.13 Unfunded Liabilities. Incur any Unfunded Liabilities after the
Effective Date or allow any Unfunded Liabilities in excess of $500,000, in the
aggregate, to arise or exist.
8.14 Acquisitions of Assets. Acquire any real Property or any material
personal Property after the Effective Date unless the following conditions
precedent shall have been satisfied:
(a) No Default or Event of Default shall have occurred and be
continuing (or would result from the closing of the applicable
acquisition), and Agent shall have received adequate information relating
to the applicable acquisition to provide confirmation of this condition.
(b) The Total Debt to EBITDA Ratio, after giving effect to the closing
of the applicable acquisition, would not exceed 5.00 to 1.00, and Agent
shall have received adequate information relating to the applicable
acquisition to provide confirmation of this condition.
(c) If the aggregate purchase price of the applicable acquisition
equals $50,000,000 or more, such acquisition shall require the prior
written approval of the Majority Lenders (Lenders agree that they shall
respond to any request for such approval within thirty (30) days after
receipt of such request in writing accompanied by adequate information
relating to such acquisition in order to evaluate its projected impact. If
any Lender shall fail to respond to such a request within such thirty (30)
day period, the applicable Lender shall be deemed to have given its consent
to such acquisition).
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8.15 Subordinated Indebtedness. Except as expressly permitted in writing by
the Majority Lenders, Borrower will not amend, modify or obtain or grant a
waiver of any provision of any document or instrument evidencing any
Subordinated Indebtedness or purchase, redeem, retire or otherwise acquire for
value, deposit any monies with any Person with respect to or make any payment or
prepayment of the principal of or any other amount owing in respect of, any
Subordinated Indebtedness.
9. Defaults.
9.1 Events of Default. If any one or more of the following events (herein
called "Events of Default") shall occur, then Agent shall, at the direction of
the Majority Lenders, do any or all of the following: (1) without notice to
Borrower or any other Person, declare the Revolving Loan Commitments terminated
(whereupon the Revolving Loan Commitments shall be terminated) and/or accelerate
the Revolving Loan Termination Date to a date as early as the date of
termination of the Revolving Loan Commitments; (2) terminate any Letter of
Credit allowing for such termination, by sending a notice of termination as
provided therein and require Borrower to provide Cover for outstanding Letters
of Credit; (3) declare the principal amount then outstanding of and the unpaid
accrued interest on the Loans and Reimbursement Obligations and all fees and all
other amounts payable hereunder, under the Notes and under the other Loan
Documents to be forthwith due and payable, whereupon such amounts shall be and
become immediately due and payable, without notice (including, without
limitation, notice of acceleration and notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower; provided that in the case of the occurrence
of an Event of Default with respect to any Obligor referred to in clause (f),
(g) or (h) of this Section 9.1, the Revolving Loan Commitments shall be
automatically terminated and the principal amount then outstanding of and unpaid
accrued interest on the Loans and the Reimbursement Obligations and all fees and
all other amounts payable hereunder, under the Notes and under the other Loan
Documents shall be and become automatically and immediately due and payable,
without notice (including, without limitation, notice of acceleration and notice
of intent to accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by Borrower, and (4) exercise
any or all other rights and remedies available to Agent or any of the Lenders
under the Loan Documents, at law or in equity:
(a) Payments - (i) any Obligor shall fail to make any payment or
required prepayment of any installment of principal on the Loans or any
Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents when due or (ii) any Obligor fails to make any payment
or required prepayment of interest with respect to the Loans, any
Reimbursement Obligation or any other fee or amount under the Notes, this
Agreement or the other Loan Documents when due and such failure to pay
continues unremedied for a period of five days; or
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(b) Other Obligations - any Obligor shall default in the payment when
due of any principal of or interest on any Indebtedness having an
outstanding principal amount of at least $2,500,000 (other than the Loans
and Reimbursement Obligations) and such default shall continue beyond any
applicable period of grace; or any event or condition shall occur which
results in the acceleration of the maturity of any such Indebtedness or
enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of any such Indebtedness or any Person acting on such
holder's behalf to accelerate the maturity thereof and such event or
condition shall not be cured within any applicable period of grace; or
(c) Representations and Warranties - any representation or warranty
made or deemed made by or on behalf of any Obligor in this Agreement or any
other Loan Document or in any certificate furnished or made by any Obligor
to Agent or the Lenders in connection herewith or therewith shall prove to
have been incorrect, false or misleading in any material respect as of the
date thereof or as of the date as of which the facts therein set forth were
stated or certified or deemed stated or certified; or
(d) Affirmative Covenants - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained
in Section 7.3 hereof, (ii) default shall be made in the due observance or
performance of any of the covenants or agreements contained in Sections
7.2, 7.4, 7.7 or 7.8 hereof and, in each case, such default continues
unremedied for a period of 20 days after (x) notice thereof is given by
Agent to Borrower or (y) such default otherwise becomes known to any
executive officer of Borrower, whichever is earlier, or (iii) default is
made in the due observance or performance of any of the other covenants and
agreements contained in Section 7 hereof or any other affirmative covenant
of any Obligor contained in this Agreement or any other Loan Document and
such default continues unremedied for a period of 30 days after (x) notice
thereof is given by Agent to Borrower or (y) such default otherwise becomes
known to any executive officer of Borrower, whichever is earlier; or
(e) Negative Covenants - default is made in the due observance or
performance by Borrower of any of the other covenants or agreements
contained in Section 8 of this Agreement or of any other negative covenant
of any Obligor contained in this Agreement or any other Loan Document; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of any Obligor or of any of its property
is appointed by the order or decree of any court or agency or supervisory
authority having jurisdiction, and such decree or order remains in effect
for more than 60 days; or any Obligor is adjudicated bankrupt or insolvent;
or any of such Person's Property is sequestered by court order and such
order remains in effect for more than 60 days; or a petition is filed
against any Obligor under any state or federal bankruptcy, reorganization,
arrangement, insolvency, readjustment or debt,
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dissolution, liquidation or receivership law or any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or
(g) Voluntary Petitions or Consents - any Obligor commences a
voluntary case or other proceeding or order seeking liquidation,
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or other relief with respect to itself or its debts or other
liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its Property, or consents to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or fails generally to, or cannot,
pay its debts generally as they become due or takes any corporate action to
authorize or effect any of the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency -
any Obligor makes an assignment for the benefit of its creditors, or admits
in writing its inability to pay its debts generally as they become due, or
consents to the appointment of a receiver, trustee, or liquidator of such
Obligor or of all or any substantial part of its Property; or
(i) Undischarged Judgments - a final non-appealable judgment or
judgments for the payment of money exceeding, in the aggregate, $2,500,000
(exclusive of amounts covered by insurance) is rendered by any court or
other governmental body against any Obligor and such Obligor does not
discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within 30 days from the date
of entry thereof; or
(j) Security Documents - any Security Document for any reason ceases
to create a valid and perfected Lien of the first priority (subject to the
Permitted Liens), required thereby on any of the Collateral purported to be
covered thereby and securing that portion of the Obligations which is
therein designated as being secured, or any Obligor (or any other Person
who may have granted or purported to grant such Lien) will so state in
writing or Agent shall cease to have a first priority Lien upon all of the
equity interests of Borrower and each of its Subsidiaries securing all of
the Obligations; or
(k) Concealment - any Obligor shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with intent
to hinder, delay or defraud its creditors or any of them, or shall have
made any transfer of its Property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or
(l) Ownership Change or Encumbrance - any Person other than Carrols
Holdings shall own any equity interest in Borrower or any Person other than
Agent shall acquire any Lien on any of the equity interests in Borrower;
the executive management (vice president or more senior) of Borrower,
Atlantic Restaurants, Inc., Madison Dearborn Capital Partners,
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L.P. and Madison Dearborn Capital Partners II, L.P., and/or one or more of
their Affiliates, shall cease to own (and control the voting rights in
respect of), in the aggregate, at least 67% of the equity interests in
Carrols Holdings at all times prior to the closing of any initial public
offering by Borrower or Carrols Holdings and 51% at all times thereafter;
or any Person other than Borrower shall own any equity interest in any
Subsidiary of Borrower (other than a Non-Recourse Subsidiary or to the
extent otherwise expressly permitted in writing by the Majority Lenders) or
any Person shall acquire any Lien on Borrower's interest in and to the
equity interest in any Subsidiary of Borrower (other than a Non-Recourse
Subsidiary or to the extent otherwise expressly permitted in writing by the
Majority Lenders).
9.2 Right of Setoff. Upon the occurrence and during the continuance of any
Event of Default, each Lender is hereby authorized at any time and from time to
time, without notice to any Obligor (any such notice being expressly waived by
Borrower and the other Obligors), to setoff and apply any and all deposits
(general or special, time or demand, provisional or final (but excluding the
funds held in accounts clearly designated as escrow or trust accounts held by
Borrower or any other Obligor for the benefit of Persons which are not
Affiliates of any Obligor, whether or not such setoff results in any loss of
interest or other penalty, and including without limitation all certificates of
deposit) at any time held, and any other funds or Property at any time held, and
other Indebtedness at any time owing by such Lender to or for the credit or the
account of Borrower or any other Obligor against any and all of the Obligations
irrespective of whether or not such Lender or Agent will have made any demand
under this Agreement, the Notes or any other Loan Document. Should the right of
any Lender to realize funds in any manner set forth hereinabove be challenged
and any application of such funds be reversed, whether by court order or
otherwise, the Lenders shall make restitution or refund to Borrower pro rata in
accordance with their Revolving Loan Commitments. Each Lender agrees to promptly
notify Borrower and Agent after any such setoff and application, provided that
the failure to give such notice will not affect the validity of such setoff and
application. The rights of Agent and the Lenders under this Section are in
addition to other rights and remedies (including without limitation other rights
of setoff) which Agent or the Lenders may have. This Section is subject to the
terms and provisions of Sections 4.5 and 11.7 hereof
9.3 Collateral Account. Borrower hereby agrees, in addition to the
provisions of Section 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by Agent or the
Majority Lenders (through Agent), pay to Agent an amount in immediately
available funds equal to the then aggregate amount available for drawings under
all Letters of Credit issued for the account of Borrower, which funds shall be
held by Agent as Cover.
9.4 Preservation of Security for Unmatured Reimbursement Obligations. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to Agent or any Lender under the Loan
Documents, and (ii) payment in full of the principal amount then outstanding of
and the accrued interest on the Loans and Reimbursement Obligations and fees and
all other amounts payable hereunder and under the Notes and all other amounts
secured by the Security Documents, any Letters of Credit shall remain
outstanding and undrawn upon, Agent shall
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be entitled to hold (and Borrower and each other Obligor hereby grants and
conveys to Agent a security interest in and to) all cash or other Property
("Proceeds of Remedies") realized or arising out of the exercise of any rights
available under the Loan Documents, at law or in equity, including, without
limitation, the proceeds of any foreclosure, as collateral for the payment of
any amounts due or to become due under or in respect of such Letters of Credit.
Such Proceeds of Remedies shall be held for the ratable benefit of the Lenders.
The rights, titles, benefits, privileges, duties and obligations of Agent with
respect thereto shall be governed by the terms and provisions of this Agreement
and, to the extent not inconsistent with this Agreement, the applicable Security
Documents. Agent may, but shall have no obligation to, invest any such Proceeds
of Remedies in such manner as Agent, in the exercise of its sole discretion,
deems appropriate. Such Proceeds of Remedies shall be applied to Reimbursement
Obligations arising in respect of any such Letters of Credit and/or the payment
of any Lender's obligations under any such Letter of Credit when such Letter of
Credit is drawn upon. Nothing in this Section shall cause or permit an increase
in the maximum amount of the Revolving Loan Obligations permitted to be
outstanding from time to time under this Agreement.
9.5 Remedies Cumulative. No remedy, right or power conferred upon Agent or
any Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
10. Agent.
10.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder, under the Letters
of Credit and under the other Loan Documents with such powers as are
specifically delegated to Agent by the terms hereof and thereof, together with
such other powers as are reasonably incidental thereto. Any Loan Documents
executed in favor of Agent shall be held by Agent for the ratable benefit of the
Lenders. Agent ("Agent" as used in this Section 10 shall include reference to
its Affiliates and its own and its Affiliates' respective officers,
shareholders, directors, employees and agents) (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement, the Letters
of Credit, and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(b) shall not be responsible to any Lender for any recitals, statements,
representations or warranties contained in this Agreement, the Letters of Credit
or any other Loan Document, or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement, the
Letters of Credit or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, execution, filing, registration,
collectibility, recording, perfection, existence or sufficiency of this
Agreement, the Letters of Credit, or any other Loan Document or any other
document referred to or provided for herein or therein or any Property covered
thereby or for any failure by any Obligor or any other Person to perform any of
its obligations hereunder or thereunder, and shall not have any duty to inquire
into or pass upon any of the foregoing matters; (c) shall not be required to
initiate or conduct any litigation or
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collection proceedings hereunder or under the Letters of Credit or any other
Loan Document except to the extent requested by the Majority Lenders; (d) shall
not be responsible for any mistake of law or fact or any action taken or omitted
to be taken by it hereunder or under the Letters or Credit or any other Loan
Document or any other document or instrument referred to or provided for herein
or therein or in connection herewith or therewith, including, without
limitation, pursuant to its own negligence, except for its own gross negligence
or willful misconduct; (e) shall not be bound by or obliged to recognize any
agreement among or between Borrower and any Lender to which Agent is not a
party, regardless of whether Agent has knowledge of the existence of any such
agreement or the terms and provisions thereof; (f) shall not be charged with
notice or knowledge of any fact or information not herein set out or provided to
Agent in accordance with the terms of this Agreement or any other Loan Document;
(g) shall not be responsible for any delay, error, omission or default of any
mail, telegraph, cable or wireless agency or operator, and (h) shall not be
responsible for the acts or edicts of any Governmental Authority. Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Without in any way limiting any of the foregoing, each
Lender acknowledges that Agent shall have no greater responsibility in the
operation of the Letters of Credit than is specified in the Uniform Customs and
Practice for Documentary Credits (1993 Revision, International Chamber of
Commerce Publication No. 500). In any foreclosure proceeding concerning any
Collateral, each holder of an Obligation if bidding for its own account or for
its own account and the accounts of other Lenders is prohibited from including
in the amount of its bid an amount to be applied as a credit against the
Obligations held by it or the Obligations held by the other Lenders; instead,
such holder must bid in cash only. However, in any such foreclosure proceeding,
Agent may (but shall not be obligated to) submit a bid for all Lenders
(including itself) in the form of a credit against the Obligations, and Agent or
its designee may (but shall not be obligated to) accept title to such collateral
for and on behalf of all Lenders.
10.2 Reliance. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (which may be counsel for Borrower), independent
accountants and other experts selected by Agent. Agent shall not be required in
any way to determine the identity or authority of any Person delivering or
executing the same. As to any matters not expressly provided for by this
Agreement, the Letters of Credit, or any other Loan Document, Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
thereunder in accordance with instructions of the Majority Lenders, and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. Pursuant to instructions of the Majority Lenders, Agent shall have the
authority to execute releases of the Security Documents on behalf of the Lenders
without the joinder of any Lender. If any order, writ, judgment or decree shall
be made or entered by any court affecting the rights, duties and obligations of
Agent under this Agreement or any other Loan Document, then and in any of such
events Agent is authorized, in its sole discretion, to rely upon and comply with
such order, writ, judgment or decree which it is advised by legal counsel of its
own choosing is binding upon it under the terms of this Agreement, the relevant
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Loan Document or otherwise; and if Agent complies with any such order, writ,
judgment or decree, then it shall not be liable to any Lender or to any other
Person by reason of such compliance even though such order, writ, judgment or
decree may be subsequently reversed, modified, annulled, set aside or vacated.
10.3 Defaults. Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless Agent has received notice from a
Lender or Borrower specifying such Default and stating that such notice is a
"Notice of Default." In the event that Agent receives such a Notice of Default,
Agent shall give prompt notice thereof to the Lenders (and shall give each
Lender prompt notice of each such non-payment). Agent shall (subject to Section
10.7 hereof) take such action with respect to such Notice of Default as shall be
directed by the Majority Lenders and within its rights under the Loan Documents
and at law or in equity, provided that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, permitted hereby with respect to
such Notice of Default as it shall deem advisable in the best interests of the
Lenders and within its rights under the Loan Documents, at law or in equity.
10.4 Material Written Notices. In the event that Agent receives any written
notice of a material nature from the Borrower or any Obligor under the Loan
Documents, Agent shall promptly inform each of the Lenders thereof.
10.5 Rights as a Lender. With respect to its Revolving Loan Commitments and
the Loans made and Letter of Credit Liabilities, Chase Texas in its capacity as
a Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting in its agency
capacity, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include Agent in its individual capacity. Agent may (without having
to account therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust, letter of credit, agency or
other business with Borrower (and any of its Affiliates) as if it were not
acting as Agent, and Agent may accept fees and other consideration from Borrower
(in addition to the fees heretofore agreed to between Borrower and Agent) for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
10.6 Indemnification. The Lenders agree to indemnify Agent (to the extent
not reimbursed under Section 2.2(c), Section 11.3 or Section 11.4 hereof, but
without limiting the obligations of Borrower under said Sections 2.2(c). 11.3
and 11.4). ratably in accordance with the sum of the Lenders' respective
Revolving Loan Commitments and Term Loans, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever, REGARDLESS OF
WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES,
which may be imposed on, incurred by or asserted against Agent in any way
relating to or arising out of this Agreement, the Letters of Credit or any other
Loan Document or any other documents contemplated
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by or referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which Borrower is
obligated to pay under Sections 2.2(c), 11.3 and 11.4 hereof, interest,
penalties, attorneys' fees and amounts paid in settlement, but excluding, unless
a Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents; provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified. The obligations of the Lenders under this Section 10.6
shall survive the termination of this Agreement and the repayment of the
Obligations.
10.7 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has received current financial information with respect to Borrower and each
other Obligor and that it has, independently and without reliance on Agent or
any other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and each other Obligor and
decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by any Obligor of this Agreement,
the Letters of Credit or any of the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Obligor. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder, under the Letters of Credit or the other Loan Documents, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of any
Obligor (or any of their affiliates) which may come into the possession of
Agent.
10.8 Failure to Act. Except for action expressly required of Agent
hereunder, under the Letters of Credit or under the other Loan Documents, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Lenders of their indemnification obligations under Section 10.6 hereof
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to the Lenders and Borrower, and Agent may be removed
at any time with or without cause by the Majority Lenders; provided, that Agent
shall continue as Agent until such time as any successor shall have accepted
appointment as Agent hereunder. Upon any such resignation or removal, (i) the
Majority Lenders without the consent of Borrower shall have the right to appoint
a successor Agent so long as such successor Agent is also a Lender at the time
of such appointment and (ii) the Majority Lenders shall have the right to
appoint a successor Agent that is not a Lender at the time of such
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appointment so long as Borrower consents to such appointment (which consent
shall not be unreasonably withheld). If no successor Agent shall have been so
appointed by the Majority Lenders and accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent. Any successor Agent shall be a bank
which has an office in the United States and a combined capital and surplus of
at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under any other Loan Documents. Such successor Agent shall
promptly specify by notice to Borrower its Principal Office referred to in
Section 3.1 and Section 4 hereof. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 10 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Agent.
10.10 No Partnership. Neither the execution and delivery of this Agreement
nor any of the other Loan Documents nor any interest the Lenders, Agent or any
of them may now or hereafter have in all or any part of the Obligations shall
create or be construed as creating a partnership, joint venture or other joint
enterprise between the Lenders or among the Lenders and Agent. The relationship
between the Lenders, on the one hand, and Agent, on the other, is and shall be
that of principals and agent only, and nothing in this Agreement or any of the
other Loan Documents shall be construed to constitute Agent as trustee or other
fiduciary for any Lender or to impose on Agent any duty, responsibility or
obligation other than those expressly provided for herein and therein.
10.11 Co-Agents. The Co-Agents, in their capacity as such, shall have no
rights, powers, duties, obligations or liabilities under this Agreement or any
of the other Loan Documents, but to the extent that for any reason any Person
makes a claim against a Co-Agent in its capacity as Co-Agent and not as a Lender
the indemnification provisions in Section 10.6 shall apply to such Co-Agent.
11. Miscellaneous.
11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver
of any other Default or Event of Default. No failure on the part of Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any Loan Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege thereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law or in equity.
11.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be
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given or made by telex, telegraph, telecopy (confirmed by mail), cable or other
writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof (or provided for in an Assignment and Acceptance); or, as
to any party hereto, at such other address as shall be designated by such party
in a notice (given in accordance with this Section) (i) as to Borrower, to
Agent, (ii) as to Agent, to Borrower and to each Lender, and (iii) as to any
Lender, to Borrower and Agent. Except as otherwise provided in this Agreement,
all such notices or communications shall be deemed to have been duly given when
(i) transmitted by telex or telecopier or delivered to the telegraph or cable
office, (ii) personally delivered (iii) one Business Day after deposit with an
overnight mail or delivery service, postage prepaid or (iv) three Business Days'
after deposit in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested, in each
case given or addressed as aforesaid.
11.3 Expenses, Etc. Whether or not any Loan is ever made or any Letter of
Credit ever issued, Borrower shall pay or reimburse within 10 days after written
demand (a) Agent for paying the reasonable fees and expenses of legal counsel to
Agent, together with the reasonable fees and expenses of each local counsel to
Agent, in connection with the preparation, negotiation, execution and delivery
of this Agreement (including the exhibits and schedules hereto), the Security
Documents and the other Loan Documents and the making of the Loans and the
issuance of Letters of Credit hereunder, and any modification, supplement or
waiver of any of the terms of this Agreement, the Letters of Credit or any other
Loan Document; (b) Agent for any lien search fees, collateral audit fees,
appraisal fees, survey fees, environmental study fees, and title insurance costs
and premiums; (c) Agent for reasonable out-of-pocket expenses incurred in
connection with the preparation, documentation, administration and syndication
(with reimbursable syndication expenses not to exceed $10,000) of the Loans or
any of the Loan Documents (including, without limitation, the advertising,
marketing, printing, publicity, duplicating, mailing and similar expenses) of
the Loans and Letter of Credit Liabilities; (d) Agent for paying all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement, any Letter of
Credit or any other Loan Document or any other document referred to herein or
therein; (e) Agent for paying all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by this Agreement, the Title
Insurance Policies, any Security Document or any document referred to herein or
therein, and (f) following the occurrence and during the continuation of an
Event of Default, any Lender or Agent for paying all amounts reasonably
expended, advanced or incurred by such Lender or Agent to satisfy any obligation
of any Obligor under this Agreement or any other Loan Document, to protect the
Collateral, to collect the Obligations or to enforce, protect, preserve or
defend the rights of the Lenders or Agent under this Agreement or any other Loan
Document, including, without limitation, fees and expenses incurred in
connection with such Lender's or Agent's participation as a member of a
creditor's committee in a case commenced under the Bankruptcy Code or other
similar law, fees and expenses incurred in connection with lifting the automatic
stay prescribed in ss. 362 of the Bankruptcy Code and fees and expenses incurred
in connection with any action pursuant to ss. 1129 of the Bankruptcy Code and
all other customary out-
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of-pocket expenses incurred by such Lender or Agent in connection with such
matters, together with interest thereon at the Past Due Rate on each such amount
until the date of reimbursement to such Lender or Agent.
11.4 Indemnification. Borrower shall indemnify each of Agent, the Lenders,
and each affiliate thereof and their respective directors, officers, employees
and agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by Borrower of the
proceeds of any extension of credit (whether a Loan or a Letter of Credit) by
any Lender hereunder; (ii) breach by any Obligor of this Agreement or any other
Loan Document; (iii) violation by any Obligor of any Legal Requirement; (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and Borrower shall reimburse Agent, each Lender, and each Affiliate thereof and
their respective directors, officers, employees and agents, upon demand for any
reasonable expenses (including reasonable legal fees) incurred in connection
with any such investigation or proceeding, or (v) taxes (excluding income taxes
and franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Obligations or any Loan Document, together with interest and
penalties, if any; provided, however, that Borrower shall not have any
obligations pursuant to this Section with respect to any losses, liabilities,
claims, damages or expenses incurred by the Person seeking indemnification by
reason of the gross negligence or willful misconduct of that Person or with
respect to any disputes between or among any and all of Agent, Lenders and
Issuers. Nothing in this Section is intended to limit the obligations of
Borrower under any other provision of this Agreement. Agent and each Lender,
respectively, shall indemnify Borrower and hold Borrower harmless from and
against the gross negligence or willful misconduct of Agent or such Lender, as
the case may be.
11.5 Amendments, Etc. No amendment or modification of this Agreement, the
Notes or any other Loan Document shall in any event be effective against
Borrower unless the same shall be agreed or consented to in writing by Borrower.
No amendment, modification or waiver of any provision of this Agreement, the
Notes or any other Loan Document, nor any consent to any departure by Borrower
therefrom, shall in any event be effective against the Lenders unless the same
shall be agreed or consented to in writing by the Majority Lenders, and each
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, that no amendment, modification,
waiver or consent shall, unless in writing and signed by each Lender affected
thereby, do any of the following: (a) increase -any Revolving Loan Commitment of
any of the Lenders (or reinstate any termination or reduction of the Revolving
Loan Commitments) or subject any of the Lenders to any additional obligations;
(b) reduce the principal of, or interest on, any Loan, Reimbursement Obligation
or fee or other sum to be paid hereunder; (c) postpone or extend the Revolving
Loan Maturity Date, the Term Loan Maturity Date, the Revolving Loan Termination
Date, the Revolving Loan Availability Period or any scheduled date fixed for any
payment of principal of, or interest on, any Loan, Reimbursement Obligation, fee
or other sum to be
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paid hereunder or waive any Event of Default described in Section 9.1(a) hereof;
(d) change the percentage of any of the Revolving Loan Commitments or of the
aggregate unpaid principal amount of any of the Loans and Letter of Credit
Liabilities, or the percentage of Lenders, which shall be required for the
Lenders or any of them to take any action under this Agreement; (e) change any
provision contained in Sections 2.2(c), 3.2(b), 7.10, 10, 11.3 or 11.4 hereof or
this Section 11.5(f) release any Person from liability under a Guaranty or
release all or substantially all of the security for the Obligations or release
Collateral (exclusive of Collateral with respect to which Agent is obligated to
provide a release pursuant to this Agreement or any of the other Loan Documents
or by law) in any one (1) calendar year ascribed an aggregate value on the most
recent financial statements of Borrower delivered to Agent in excess of
$1,000,000, or (g) modify the provisions of Sections 4.1(b) or 4.2 hereof
regarding pro rata application of amounts after an Event of Default shall have
occurred and be continuing. Notwithstanding anything in this Section 11.5 to the
contrary, no amendment, modification, waiver or consent shall be made with
respect to Section 10 without the consent of Agent to the extent it affects
Agent, as Agent and no amendment, modification, waiver or consent shall be made
with respect to Section 10.11 without the consent of each Co-Agent.
11.6 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent and the Lenders and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of all of the Lenders,
and any such assignment or transfer without such consent shall be null and void.
Each Lender may sell participations to any Person in all or part of any Loan, or
all or part of its Notes, Revolving Loan Commitments or interests in Letters of
Credit, in which event, without limiting the foregoing, the provisions of the
Loan Documents shall inure to the benefit of each purchaser of a participation;
provided, however, the ~ rata treatment of payments, as described in Section 4.2
hereof; shall be determined as if such Lender had not sold such participation.
Any Lender that sells one or more participations to any Person shall not be
relieved by virtue of such participation from any of its obligations to Borrower
under this Agreement relating to the Loans. In the event any Lender shall sell
any participation, such Lender shall retain the sole right and responsibility to
enforce the obligations of Borrower relating to the Loans, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement other than amendments, modifications or waivers with
respect to (i) any fees payable hereunder to the Lenders, (ii) the amount of
principal or the rate of interest payable on, or the dates fixed for the
scheduled repayment of principal of; the Loans and (iii) the release of the
Liens on all or substantially all of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person all
or a portion of its interests, rights and obligations under this Agreement;
provided, however, that (i) the aggregate amount of the Revolving Loan
Commitments and the Term Loans of the assigning Lender subject to each such
assignment shall not (unless the Agent shall otherwise consent) be less than the
lesser of $5,000,000 or the assignor Lender's entire remaining interest
hereunder; (ii) other than in the case
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of an assignment to another Lender (that is, at the time of the assignment, a
party hereto) or to an Affiliate of such Lender or to a Federal Reserve Bank.
Agent and, so long as no Event of Default shall have occurred and be continuing,
Borrower must each give its prior written consent, which consents shall not be
unreasonably withheld, and (iii) the parties to each such assignment shall
execute and deliver to Agent, for its acceptance an Assignment and Acceptance in
the form of Exhibit E hereto (each an "Assignment and Acceptance") with blanks
appropriately completed, together with any Note or Notes subject to such
assignment and a processing and recording fee of $3,000 paid by the assignee
(for which Borrower will have no liability). Upon such execution, delivery and
acceptance, from and after the effective date specified in each Assignment and
Acceptance, (A) the assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (B) the Lender thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto except in respect of provisions of this Agreement which survive payment
of the Obligations and termination of the Commitments). Notwithstanding anything
contained in this Agreement to the contrary, any Lender may, without the consent
of Agent or Borrower, at any time assign all or any portion of its rights under
this Agreement and the Notes issued to it as collateral (i) to a Federal Reserve
Bank or (ii) if such Lender is a "fund" which purchase loans in the ordinary
course of its business, to secure such Lender's indebtedness; provided that no
such assignment shall release such Lender from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Lender assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Lender assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any of the other Loan Documents or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 6.2 hereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon Agent, such Lender assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents; (v) such assignee
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the
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<PAGE>
other Loan Documents as are delegated to Agent by the terms hereof together with
such powers as are reasonably incidental thereto; and (vi) such assignee agrees
that it will perform in accordance with their terms all obligations that by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender.
(d) The entries in the records of Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of and principal amount of the Loans owing to, each
Lender from time to time shall be conclusive, in the absence of manifest error,
and Borrower, Agent and the Lenders may treat each Person the name of which is
recorded in the books and records of Agent as a Lender hereunder for all
purposes of this Agreement and the other Loan Documents.
(e) Upon Agent's receipt of an Assignment and Acceptance executed by an
assigning Lender and the assignee thereunder, together with any Note or Notes
subject to such assignment and the written consent to such assignment (to the
extent consent is required), Agent shall, if such Assignment and Acceptance has
been completed with blanks appropriately filled, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in its records and
(iii) give prompt notice thereof to Borrower. Within five Business Days after
receipt of notice, Borrower, at its own expense, shall execute and deliver to
Agent in exchange for the surrendered Notes new Notes to the order of such
assignee in an amount equal to the Revolving Loan Commitments and the Term Loans
(or any of them) assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Lender has retained Revolving Loan Commitments and Term Loans
(or any of them) hereunder, new Notes to the order of the assigning Lender in an
amount equal to the Revolving Loan Commitment and the Term Loans (or any of
them) retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of the respective Note. Thereafter,
such surrendered Notes shall be marked renewed and substituted and the originals
thereof delivered to Borrower (with copies, certified by Borrower as true,
correct and complete, to be retained by Agent).
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 11.6, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to Borrower furnished to such Lender by or on behalf of Borrower.
11.7 Limitation of Interest. Borrower and the Lenders intend to strictly
comply with all applicable federal and New York laws, including applicable usury
laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply
to the Notes or any other Loan Documents despite the intention and desire of the
parties to apply the usury laws of the State of New York). Accordingly, the
provisions of this Section 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes
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<PAGE>
the aggregate of all charges, fees, benefits or other compensation which
constitute interest under applicable law, provided that, to the maximum extent
permitted by applicable law, (a) any non-principal payment shall be
characterized as an expense or as compensation for something other than the use,
forbearance or detention of money and not as interest, and (b) all interest at
any time contracted for, reserved, charged or received shall be amortized,
prorated, allocated and spread, in equal parts during the full term of the
Obligations. In no event shall Borrower or any other Person be obligated to pay,
or any Lender have any right or privilege to reserve, receive or retain, (a) any
interest in excess of the maximum amount of nonusurious interest permitted under
the laws of the State of New York or the applicable laws (if any) of the United
States or of any other jurisdiction, or (b) total interest in excess of the
amount which such Lender could lawfully have contracted for, reserved, received,
retained or charged had the interest been calculated for the full term of the
Obligations at the Ceiling Rate. The daily interest rates to be used in
calculating interest at the Ceiling Rate shall be determined by dividing the
applicable Ceiling Rate per annum by the number of days in the calendar year for
which such calculation is being made. None of the terms and provisions contained
in this Agreement or in any other Loan Document (including, without limitation,
Section 9.1 hereof) which directly or indirectly relate to interest shall ever
be construed without reference to this Section 11.7, or be construed to create a
contract to pay for the use, forbearance or detention of money at an interest
rate in excess of the Ceiling Rate. If the term of any Obligation is shortened
by reason of acceleration of maturity as a result of any Default or by any other
cause, or by reason of any required or permitted prepayment, and if for that (or
any other) reason any Lender at any time, including but not limited to, the
stated maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Ceiling Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Lender, it shall be credited pro tanto
against the then-outstanding principal balance of Borrower's obligations to such
Lender, effective as of the date or dates when the event occurs which causes it
to be excess interest, until such excess is exhausted or all of such principal
has been fully paid and satisfied, whichever occurs first, and any remaining
balance of such excess shall be promptly refunded to its payor.
11.8 Survival. The obligations of Borrower under Sections 2.2(c), 2.2(d),
7.10, 11.3 and 11.4 hereof and all other obligations of Borrower in any other
Loan Document (to the extent stated therein), the obligations of each Issuer
under the last sentence of Section 2.2(b)(iii) and the obligations of the
Lenders under Section 10.5 and 11.7 hereof, shall, notwithstanding anything
herein to the contrary, survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Revolving Loan Commitments and the
Letters of Credit:
11.9 Captions. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
71
<PAGE>
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA FROM
TIME TO TIME IN EFFECT.
11.12 Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 Tax Forms. Each Lender which is organized under the laws of a
jurisdiction outside the United States shall, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by Borrower or Agent, provide Agent and Borrower with the forms
prescribed by the Internal Revenue Service of the United States certifying as to
such Lender's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender
hereunder or other documents satisfactory to such Lender, Borrower and Agent
indicating that all payments to be made to such Lender hereunder are not subject
to United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty or, if such Lender is not a "bank" within the meaning
of Section 881(a)(3)(A) of the Code and intends to claim exemption from U.S.
Federal withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest," a Form W-8, or any subsequent versions
thereof or successors thereto (and, if such Lender delivers a Form W-8, a
certificate representing that such Lender is not a "bank" for purposes of
Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section
864(d)(4) of the Code)), properly completed and duly executed by such Lender
claiming complete exemption from, or a reduced rate of; United States
withholding tax on payments of interest by the Borrower under this Agreement and
the other Loan Documents. Unless Borrower and Agent shall have received such
forms or such documents indicating that payments hereunder are not subject to
United States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, Borrower or Agent shall withhold taxes from such payments
at the applicable statutory rate.
11.14 Conflicts Between This Agreement and the Other Loan Documents. In the
event of any conflict between the terms of this Agreement and the terms of any
of the other Loan Documents, the terms of this Agreement shall control.
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<PAGE>
11.15 Jury Waiver. BORROWER, AGENT AND LENDERS EACH WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED
IN A BENCH TRIAL WITHOUT A JURY.
11.16 Limitation on Charges; Substitute Lenders; Non-Discrimination.
Anything in Sections 3.3(c) or 7.10 notwithstanding:
(1) Borrower shall not be required to pay to any Lender reimbursement
with regard to any costs or expenses described in such Sections, unless
such Lender notifies Borrower of such costs or expenses within 90 days
after the date paid or incurred;
(2) none of the Lenders shall be permitted to pass through to Borrower
charges and costs under such Sections on a discriminatory basis (i.e.,
which are not also passed through by such Lender to other customers of such
Lender similarly situated where such customer is subject to documents
providing for such pass through); and
(3) if any Lender elects to pass through to Borrower any material
charge or cost under such Sections or elects to terminate the availability
of LIBOR Borrowings for any material period of time, Borrower may, within
60 days after the date of such event and so long as no Default shall have
occurred and be continuing, elect to terminate such Lender as a party to
this Agreement; provided that, concurrently with such termination Borrower
shall (i) if Agent and each of the other Lenders shall consent, pay that
Lender all principal, interest and fees and other amounts owed to such
Lender through such date of termination or (ii) have arranged for another
financial institution approved by Agent (such approval not to be
unreasonably withheld) as of such date, to become a substitute Lender for
all purposes under this Agreement in the manner provided in Section 11.6;
provided further that, prior to substitution for any Lender, Borrower shall
have given written notice to Agent of such intention and the Lenders shall
have the option, but no obligation, for a period of 60 days after receipt
of such notice, to increase their Revolving Loan Commitments in order to
replace the affected Lender in lieu of such substitution.
11.17 Amendment and Restatement; Renewal Notes. This Agreement amends and
restates in its entirety that certain Loan Agreement dated as of May 12, 1997
executed by and among Borrower, Chase Bank of Texas, National Association
(formerly known as Texas Commerce Bank National Association), as Agent, and
certain financial institutions therein set forth. The Revolving Notes have been
given in renewal, extension and modification of the revolving credit facility
previously provided to Borrower pursuant to such Loan Agreement and the Term
Loan Notes have
73
<PAGE>
been given in renewal, extension and modification of the term loans previously
made to Borrower pursuant to such Loan Agreement.
[BALANCE OF PAGE LEFT BLANK INTENTIONALLY]
74
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
CARROLS CORPORATION,
a Delaware corporation
By: /s/ JOSEPH A. ZIRKMAN
---------------------------------------
Name: Joseph A. Zirkman, Vice Pres. & Sec'y
---------------------------------------
Title:
---------------------------------------
Address for Notices:
968 James Street
Syracuse, New York 13203
Attention: Mr. Alan Vituli
Telecopy No.: (315) 425-8874
75
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as a Lender
By: /s/ MICHAEL J. COSTELLO
---------------------------------------
Michael J. Costello, Vice President
Address for Notices:
Revolving Loan Commitment: 712 Main Street
Houston, Texas 77002
$20,000,000 Attention: Manager, Franchise and Trademark
Finance Division
Telecopy No.: (713) 216-6710
Term Loan:
$10,000,000
76
<PAGE>
MANUFACTURERS AND TRADERS TRUST
COMPANY, as Co-Agent and as a Lender
By: /s/ MICHELE J. MARTIN
---------------------------------------
Name: Michele J. Martin
---------------------------------------
Title: Vice President
---------------------------------------
Address for Notices:
Revolving Loan Commitment: 101 South Salina Street
Syracuse, New York 13202
$20,000,000 Attention: Ms. Michele Martin
Telecopy No.: (315) 424-6777
Term Loan:
$10,000,000
77
<PAGE>
NATIONSBANK, N.A.,
as Co-Agent and as a Lender
By: /s/ WILLIAM W. TUCKER
---------------------------------------
Name: William W. Tucker
---------------------------------------
Title: Senior Vice President
---------------------------------------
Address for Notices:
Revolving Loan Commitment: 600 Peachtree St.
19th Floor
$20,000,000 Atlanta, Georgia 30308
Attention: Mr. William Tucker
Telecopy No.: (404) 607-4075
Term Loan:
$10,000,000
78
<PAGE>
SUNTRUST BANK, ATLANTA,
as Co-Agent and as a Lender
By: /s/ J. SCOTT DEVINEY
---------------------------------------
Name: J. Scott Deviney
---------------------------------------
Title: Assistant Vice President
---------------------------------------
By: /s/ WILLEM HATTINK
---------------------------------------
Name: Willem Hattink
---------------------------------------
Title: Managing Director
---------------------------------------
Address for Notices:
25 Park Place, 25th Floor
Revolving Loan Commitment: Center 128
Atlanta, Georgia 30303
$20,000,000 Attention: Mr. Scott Deviney
Telecopy No.: (404) 724-3716
Term Loan:
$10,000,000
79
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/ ARTHUR J. FOGEL
---------------------------------------
Name: Arthur J. Fogel
---------------------------------------
Title: VP
---------------------------------------
Address for Notices:
Revolving Loan Commitment: 50 S. LaSalle Street B-2
Chicago, Illinois 60675
$13,333,333.33 Attention: Mr. Art Fogel
Telecopy No.: (312) 444-7028
Term Loan:
$6,666,666.67
80
<PAGE>
COMERICA BANK
By: /s/ DAVID W. SHIREY
---------------------------------------
Name: David W. Shirey
---------------------------------------
Title: Assistant Vice President
---------------------------------------
Address for Notices:
Revolving Loan Commitment: 500 Woodward Ave., MC 3230
Detroit, Michigan 48226
$6,666,666.67 Attention: Mr. David Shirey
Telecopy No.: (313) 222-3330
Term Loan:
$3,333,333.33
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<PAGE>
[LETTERHEAD OF THE BORROWER]
REQUEST FOR EXTENSION OF CREDIT
____________, 199
Chase Bank of Texas, National
Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Franchise and Trademark Finance Division
Gentlemen:
The undersigned hereby certifies that he is the ____________________ of
CARROLS CORPORATION, a Delaware corporation (the "Company"), and that as such he
is authorized to execute this Request for Extension of Credit (the "Request") on
behalf of the Company pursuant to the Loan Agreement (as it may be amended,
supplemented or restated from time to time, the "Agreement") dated as of
February _____, 1999, by and among the Company, Chase Bank of Texas, National
Association, as Agent, and the Lenders therein named. The (check one) [_]
Revolving Loan [] Letter of Credit being requested hereby is to be in the amount
set forth in (b) below and is requested to be made on ______________, which is a
Business Day. The undersigned further certifies, represents and warrants that to
his knowledge, after due inquiry (each capitalized term used herein having the
same meaning given to it in the Agreement unless otherwise specified herein):
(a) As of the date hereof:
(1) The aggregate outstanding amount of Revolving
Loan Obligations is: $__________
(2) The Letter of Credit Liabilities as of the
date hereof, before giving effect to the
Letter of Credit, if any, requested hereby,
is: $__________
EXHIBIT A
to Loan Agreement
1
<PAGE>
(3) The aggregate unused Revolving Loan
Commitments of all Lenders [$100,000,000
minus the amount in (a)(1) above], if
positive, is: $__________
(b) If and only if the aggregate unused Revolving Loan Commitments of all
Lenders is positive, the Company hereby requests under this Request a
Revolving Loan or Letter of Credit (as indicated above) in the amount
of $_____________ (which is no more than the aggregate unused
Revolving Loan Commitments of all Lenders).
(c) If a Letter of Credit is requested hereby, it should be issued for the
benefit of ____________________________________ and should have an
expiration date of _____________________ (which date is no later than
one year from the proposed date of issuance) and any special language
to be incorporated into such Letter of Credit is attached hereto. The
sum of the face amount of the requested Letter of Credit plus the
Letter of Credit Liabilities as the date hereof as specified in item 2
above does not exceed $5,000,000.
(d) The representations and warranties made in each Loan Document are true
and correct in all material respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
(e) No material adverse change in the assets, liabilities, financial
condition, business or affairs of the Company or any of the other
Obligors has occurred.
(f) No Default or Event of Default has occurred and is continuing.
(g) To the best knowledge of the undersigned, if the financial covenants
under Section 7.3 of the Agreement were required to be calculated and
satisfied as of the date of the borrowing or issuance requested
hereby, the Company would be in compliance with such covenants.
Thank you for your attention to this matter.
Very truly yours,
_________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT A
to Loan Agreement
2
<PAGE>
RATE DESIGNATION NOTICE
CARROLS CORPORATION, Chase Bank of Texas, National Association, as Agent,
and certain financial institutions executed and delivered that certain Loan
Agreement (as amended, supplemented and restated, the "Loan Agreement") dated as
of February _____, 1999. Any term used herein and not otherwise defined herein
shall have the meaning herein ascribed to it in the Loan Agreement. In
accordance with the Loan Agreement, Borrower hereby notifies Agent of the
exercise of an Interest Option.
A. Type of Loan The Loans with respect to which this Rate Designation Notice
is being given are (check one):
[_] Term Loans
[_] Revolving Loans
B. Current borrowings
1. Interest Options now in effect: _____________
2. Amounts: $__________
3. Expiration of current Interest Periods, if applicable:
C. Proposed election
1. Total Amount: $___________
2. Date Interest Option is to be effective: _______________
3. Interest Option to be applicable (check one):
[_] Base Rate
[_] Eurodollar Rate
4. Interest Period: ____ [months] [days] (if available and if applicable)
EXHIBIT B
1
<PAGE>
Borrower represents and warrants that the Interest Option and Interest
Period selected above comply with all provisions of the Interest Rate Agreement
and that there exists no Event of Default or any event which, with the passage
of time, the giving of notice or both, would be an Event of Default.
Date: _______________
CARROLS CORPORATION,
a Delaware corporation
By:
Name:_________________
Title:________________
EXHIBIT B
2
<PAGE>
TERM NOTE
Houston, Texas
$__________ ___________, 199_
FOR VALUE RECEIVED, CARROLS CORPORATION (together with its permitted
successors, herein called "Maker"), a Delaware corporation, promises to pay to
the order of _____________________________ ("Payee"), at the principal office of
Chase Bank of Texas, National Association, a national banking association, 712
Main Street, Houston, Harris County, Texas 77002, in immediately available finds
and in lawful money of the United States of America, the principal sum
of____________________________ Dollars ($ (or the unpaid balance of all
principal advanced against this note, if that amount is less), together with
interest on the unpaid principal balance of this note from time to time
outstanding at the rate or rates provided in that certain Loan Agreement (as
amended, supplemented, restated or replaced from time to time, the "Loan
Agreement") dated as of February _____, 1999 among Maker, certain signatory
banks named therein (including the Payee) and Chase Bank of Texas, National
Association, as Agent; provided, that for the full term of this note the
interest rate produced by the aggregate of all sums paid or agreed to be paid to
the holder of this note for the use, forbearance or detention of the debt
evidenced hereby (including, but not limited to, all interest on this note at
the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
Any term defined in the Loan Agreement which is used in this note and which is
not otherwise defined in this note shall have the meaning ascribed to it in the
Loan Agreement.
1. Loan Agreement; Advances; Security. This note has been issued pursuant
to the terms of the Loan Agreement, and is one of the Term Notes referred to in
the Loan Agreement. Advances against this note by Payee or any other holder
hereof shall be governed by the terms and provisions of the Loan Agreement.
Reference is hereby made to the Loan Agreement for all purposes. Payee is
entitled to the benefits of and security provided for in the Loan Agreement. The
unpaid principal balance of this note at any time shall be the total of all
amounts lent or advanced against this note less the amount of all payments or
permitted prepayments made on this note and by or for the account of Maker. All
loans and advances and all payments and permitted prepayments made hereon may be
endorsed by the holder of this note on a schedule which may be attached hereto
(and thereby made a part hereof for all purposes) or otherwise recorded in the
holder's records; provided, that any failure to make notation of (a) any advance
shall not cancel, limit or otherwise affect Maker's obligations or any holder's
rights with respect to that advance, or (b) any payment or permitted prepayment
of principal shall not cancel, limit or otherwise affect Maker's entitlement to
credit for that payment as of the date received by the holder.
EXHIBIT C
to Loan Agreement
-1-
<PAGE>
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates.
(b) The principal of this note shall be due and payable in quarterly
installments as provided in Section 3.2(c) of the Loan Agreement.
(c) All payments hereon made pursuant to this Paragraph shall be applied
first to accrued interest, the balance to principal.
(d) If any payment provided for in this note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend the
date for such payment into another calendar month or beyond the Advance Loan
Maturity Date, and in either such event such payment shall be made on the
Business Day immediately preceding the day on which such payment would otherwise
have been due), and such extension (or reduction) of time shall in such case be
included in the computation of interest on this note.
(e) The Loan Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and New York
usury laws (and the usury laws of any other jurisdiction whose usury laws are
deemed to apply to this note or any of the other Loan Documents despite the
intention and desire of the parties to apply the usury laws of the State of New
York). In furtherance thereof none of the terms of this note or any of the other
Loan Documents shall ever be construed to create a contract to pay, as
consideration for the use, forbearance or detention of money, interest at a rate
in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming
liable for payment of the indebtedness evidenced by this note shall never be
liable for interest in excess of the Ceiling Rate. If, for any reason whatever,
the interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be
EXHIBIT C
to Loan Agreement
-2-
<PAGE>
necessary to cause the interest paid on this note to produce a rate equal to the
Ceiling Rate. All sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the indebtedness evidenced hereby shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of this note, so that the
interest rate is uniform throughout the full term of this note. The provisions
of this Paragraph shall control all agreements, whether now or hereafter
existing and whether written or oral, between Maker and Payee.
4. Default. The Loan Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any, that notice
of default is expressly required herein or in any of the other Loan Documents,
Maker and any and all co-makers, endorsers, guarantors and sureties severally
waive notice (including, but not limited to, notice of intent to accelerate and
notice of acceleration, notice of protest and notice of dishonor), demand,
presentment for payment, protest, diligence in collecting and the filing of suit
for the purpose of fixing liability and consent that the time of payment hereof
may be extended and re-extended from time to time without notice to any of them.
Each such person agrees that his, her or its liability on or with respect to
this note shall not be affected by any release of or change in any guaranty or
security at any time existing or by any failure to perfect or to maintain
perfection of any lien against or security interest in any such security or the
partial or complete unenforceability of any guaranty or other surety obligation,
in each case in whole or in part, with or without notice and before or after
maturity.
6. Paragraph Headings. Paragraph headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE
TO NEW YORK'S PRINCIPLES OF CONFLICTS OF LAW) AND THE UNITED STATES OF AMERICA
FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of Maker and
Payee.
9. Records of Payments. The records of Payee shall be prima facie evidence
of the amounts owing on this note.
EXHIBIT C
to Loan Agreement
-3-
<PAGE>
10. Severability. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it.
11. Business Loans. Maker warrants and represents to Payee and all other
holders of this note that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter lD of Title 79, Texas Rev. Civ. Stats. 1925, as amended.
CARROLS CORPORATION,
a Delaware corporation
By:___________________
Name:_________________
Title:________________
EXHIBIT C
to Loan Agreement
-4-
<PAGE>
REVOLVING NOTE
Houston, Texas
$_______ __________,199_
FOR VALUE RECEIVED, CARROLS CORPORATION (together with its permitted
successors, herein called "Maker"), a Delaware corporation, promises to pay to
the order ___________________________________ ("Payee"), at the principal office
of Chase Bank of Texas, National Association, a national banking association,
712 Main Street, Houston, Harris County. Texas 77002, in immediately available
funds and in lawful money of the United States of America, the principal sum of
_____________________________ Dollars ($______ (or the unpaid balance of all
principal advanced against this note, if that amount is less), together with
interest on the unpaid principal balance of this note from time to time
outstanding at the rate or rates provided in that certain Loan Agreement (as
amended, supplemented, restated or replaced from time to time, the "Loan
Agreement") dated as of February _____, 1999 among Maker, certain signatory
banks named therein (including the Payee) and Chase Bank of Texas, National
Association, as Agent; provided, that for the full term of this note the
interest rate produced by the aggregate of all sums paid or agreed to be paid to
the holder of this note for the use, forbearance or detention of the debt
evidenced hereby (including, but not limited to, all interest on this note at
the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
Any term defined in the Loan Agreement which is used in this note and which is
not otherwise defined in this note shall have the meaning ascribed to it in the
Loan Agreement.
1. Loan Agreement; Advances; Security. This note has been issued pursuant
to the terms of the Loan Agreement, and is one of the Revolving Notes referred
to in the Loan Agreement. Advances against this note by Payee or any other
holder hereof shall be governed by the terms and provisions of the Loan
Agreement. Reference is hereby made to the Loan Agreement for all purposes.
Payee is entitled to the benefits of and security provided for in the Loan
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or permitted prepayments made on this note and by or for the account of
Maker. All loans and advances and all payments and permitted prepayments made
hereon may be endorsed by the holder of this note on a schedule which may be
attached hereto (and thereby made a part hereof for all purposes) or otherwise
recorded in the holder's records; provided, that any failure to make notation of
(a) any advance shall not cancel, limit or otherwise affect Maker's obligations
or any holder's rights with respect to-that advance, or (b) any payment or
permitted prepayment of principal shall not cancel, limit or otherwise affect
Maker's entitlement to credit for that payment as of the date received by the
holder.
EXHIBIT D
to Loan Agreement
-1-
<PAGE>
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates.
(b) On the Revolving Loan Maturity Date, the entire unpaid principal
balance of this note and all accrued and unpaid interest on the unpaid principal
balance of this note shall be finally due and payable.
(c) All payments hereon made pursuant to this Paragraph shall be applied
first to accrued interest, the balance to principal.
(d) If any payment provided for in this note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend the
date for such payment into another calendar month or beyond the Revolving Loan
Maturity Date, and in either such event such payment shall be made on the
Business Day immediately preceding the day on which such payment would otherwise
have been due), and such extension (or reduction) of time shall in such case be
included in the computation of interest on this note.
(e) The Loan Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and New York
usury laws (and the usury laws of any other jurisdiction whose usury laws are
deemed to apply to this note or any of the other Loan Documents despite the
intention and desire of the parties to apply the usury laws of the State of New
York). In furtherance thereof, none of the terms of this note or any of the
other Loan Documents shall ever be construed to create a contract to pay, as
consideration for the use, forbearance or detention of money, interest at a rate
in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming
liable for payment of the indebtedness evidenced by this note shall never be
liable for interest in excess of the Ceiling Rate. If, for any reason whatever,
the interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have
EXHIBIT D
to Loan Agreement
-2-
<PAGE>
been paid in full, shall refund to the payor of such interest) such portion of
said interest as shall be necessary to cause the interest paid on this note to
produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid to
the holder of this note for the use, forbearance or detention of the
indebtedness evidenced hereby shall, to the extent permitted by applicable law,
be amortized, prorated, allocated and spread in equal parts throughout the full
term of this note, so that the interest rate is uniform throughout the full term
of this note. The provisions of this Paragraph shall control all agreements,
whether now or hereafter existing and whether written or oral, between Maker and
Payee.
4. Default. The Loan Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any, that notice
of default is expressly required herein or in any of the other Loan Documents,
Maker and any and all co-makers, endorsers, guarantors and sureties severally
waive notice (including, but not limited to, notice of intent to accelerate and
notice of acceleration, notice of protest and notice of dishonor), demand,
presentment for payment, protest, diligence in collecting and the filing of suit
for the purpose of fixing liability and consent that the time of payment hereof
may be extended and re-extended from time to time without notice to any of them.
Each such person agrees that his, her or its liability on or with respect to
this note shall not be affected by any release of or change in any guaranty or
security at any time existing or by any failure to perfect or to maintain
perfection of any lien against or security interest in any such security or the
partial or complete unenforceability of any guaranty or other surety obligation,
in each case in whole or in part, with or without notice and before or after
maturity.
6. Paragraph Headings. Paragraph headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE
TO NEW YORK'S PRINCIPLES OF CONFLICTS OF LAW) AND THE UNITED STATES OF AMERICA
FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of Maker and
Payee.
9. Records of Payments. The records of Payee shall be prima facie evidence
of the amounts owing on this note.
EXHIBIT D
to Loan Agreement
-3-
<PAGE>
10. Severability. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it.
11. Revolving Loan. Subject to the terms and provisions of the Loan
Agreement, Maker may use all or any part of the credit provided to be evidenced
by this note at any time before the Revolving Loan Maturity Date. Maker may
borrow, repay and reborrow hereunder, and except as set forth in the Loan
Agreement there is no limitation on the number of advances made hereunder. Maker
and Payee agree pursuant to Chapter 346 ("Chapter 346") of the Texas Finance
Code, that Chapter 346 (which relates to open-end line of credit revolving loan
accounts) shall not apply to this note or any Revolving Loan Obligation
hereunder and that neither this note nor any Revolving Loan Obligation hereunder
shall be governed by Chapter 346 or subject to its provisions in any manner
whatsoever.
12. Business Loans. Maker warrants and represents to Payee and all other
holders of this note that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter ID of Title 79, Texas Rev. Civ. Stats. 1925, as amended.
CARROLS CORPORATION,
a Delaware corporation
By:___________________
Name:_________________
Title:________________
EXHIBIT D
to Loan Agreement
-4-
<PAGE>
ASSIGNMENT AND ACCEPTANCE
Dated: ________________
Reference is made to the Loan Agreement dated as of February ______, 1999
(as restated, amended, modified, supplemented and in effect from time to time,
the "Loan Agreement"), among Carrols Corporation, a Delaware corporation (the
"Company"), the Lenders named therein, and Chase Bank of Texas, National
Association, as Agent (the "Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Loan
Agreement. This Assignment and Acceptance, between the Assignor (as defined and
set forth on Schedule I hereto and made a part hereof) and the Assignee (as
defined and set forth on Schedule I hereto and made a part hereof) is dated as
of the Effective Date (as set forth on Schedule I hereto and made a part
hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided interest (the "Assigned Interest") in and to all
the Assignor's rights and obligations under the Loan Agreement respecting those,
and only those, credit facilities contained in the Loan Agreement as are set
forth on Schedule I (collectively, the "Assigned Facilities," individually, an
"Assigned Facility"), in a principal amount for each Assigned Facility as set
forth on Schedule I.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or its Subsidiaries or the performance or observance by the
Company or its Subsidiaries of any of its respective obligations under the Loan
Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto; and (iii) attaches the Note(s) held by it evidencing the
Assigned Facility or Facilities, as the case may be, and requests that the Agent
exchange such Note(s) for a new Note or Notes payable to the Assignor (if the
Assignor has retained any interest in the Assigned Facility or Facilities) and a
new Note or Notes payable to the Assignee in the respective amounts which
reflect the assignment being made hereby (and after giving effect to any other
assignments which have become effective on the Effective Date).
EXHIBIT E
to Loan Agreement
-1-
<PAGE>
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Loan Agreement, together with copies of the financial statements
referred to in Section 6.2 thereof, or if later, the most recent financial
statements delivered pursuant to Section 7.2 thereof and such other documents
and information as it has deemed appropriate to make its own credit analysis;
(iii) agrees that it will, independently and without reliance upon the Agent,
the Assignor or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Loan Agreement; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Loan Agreement as are delegated to the Agent by the terms
thereof together with such powers as are reasonably incidental thereto; (v)
agrees that it will be bound by the provisions of the Loan Agreement and will
perform in accordance with its terms all the obligations which by the terms of
the Loan Agreement are required to be performed by it as a Lender; (vi) if the
Assignee is organized under the laws of a jurisdiction outside the United
States, attaches the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Assignee's exemption from United States
withholding taxes with respect to all payments to be made to the Assignee under
the Loan Agreement or such other documents as are necessary to indicate that all
such payments are subject to such tax at a rate reduced by an applicable tax
treaty, and (vii) has supplied the information requested on the administrative
questionnaire attached hereto as Exhibit A.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance by it and the Company and recording by the
Agent pursuant to Section 11.6 of the Loan Agreement, effective as of the
Effective Date (which Effective Date shall, unless otherwise agreed to by the
Agent, be at least five Business Days after the execution of this Assignment and
Acceptance).
5. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts) to the Assignee,
whether such amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective Date by
the Agent or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (i) the Assignee shall be a party to
the Loan Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Loan
Agreement.
EXHIBIT E
to Loan Agreement
-2-
<PAGE>
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
EXHIBIT E
to Loan Agreement
-3-
<PAGE>
Schedule I to Assignment and Acceptance
Legal Name of Assignor: ____________________________
Legal Name of Assignee: _________________________________________
Effective Date of Assignment: __________________________
<TABLE>
<CAPTION>
Percentage Assigned of Each
Facility (to at least 8
Principal decimals) (Shown as a
Amount (or, percentage of aggregate
with respect original principal amount
to Letters [or, with respect to Letters
Assigned of Credit, face Credit, face amount]
Facilities amount) Assigned of all Lenders)
---------- ---------------- -----------------------------
<S> <C> <C>
Term Loans: $________ _____%
Revolving Loan
Commitments: $________ _____%
Revolving Loans: $________ _____%
Letter of Credit
participation interests $________ _____%
</TABLE>
- -------------------
as Assignor
By:__________________
Name:________________
Title:_______________
EXHIBIT E
to Loan Agreement
-1-
<PAGE>
- -------------------
as Assignee
By:__________________
Name:________________
Title:_______________
CARROLS CORPORATION,
a Delaware corporation
By:__________________
Name:________________
Title:_______________
EXHIBIT E
to Loan Agreement
-2-
<PAGE>
Accepted:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent
By:__________________
Name:________________
Title:_______________
EXHIBIT E
to Loan Agreement
-3-
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the _______________________ of
CARROLS CORPORATION, a Delaware corporation (the "Borrower"), and that as such
he is authorized to execute this certificate on behalf of the Borrower pursuant
to the Loan Agreement (the "Agreement") dated as of February _____, 1999, by and
among the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent, a
national banking association, and the lenders therein named; and that a review
of the Borrower and the other Obligors has been made under his supervision with
a view to determining whether the Borrower and the other Obligors have fulfilled
all of their respective obligations under the Agreement, the Notes and the other
Loan Documents; and on behalf of the Borrower further certifies, represents and
warrants that to his knowledge, after due inquiry (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The Borrower and the other Obligors have fulfilled, in all material
respects, their respective obligations under the Agreement, the Notes and the
other Loan Documents.
(b) The representations and warranties made in each Loan Document are true
and correct in all material respects on and as of the time of delivery hereof,
with the same force and effect as if made on and as of the time of delivery
hereof.
(c) The financial statements delivered to the Agent concurrently with this
Compliance Certificate have been prepared in accordance with GAAP consistently
followed throughout the period indicated and fairly present the financial
condition and results of operations of the applicable Persons as at the end of,
and for, the period indicated (subject, in the case of Quarterly Financial
Statements and monthly statements of income and cash flow, to normal changes
resulting from year-end adjustments).
(d) No Default or Event of Default has occurred and is continuing. In this
regard, the compliance with the provisions of Section 7.3 is as follows (the
calculations of these ratios are set forth on the attached Schedule I):
(i) Section 7.3(a) -- Debt Service Coverage Ratio
Actual Required
------ --------
____to l.00 l.25 to 1.00
EXHIBIT F
1
<PAGE>
(ii) Section 7.3(b) -- Senior Debt to EBITDA Ratio
Actual Required
------ --------
____to l.00 ____ to 1.00
(iii) Section 7.3(c) -- Total Debt to EBITDA Ratio
Actual Required
------ --------
____to l.00 ____ to 1.00
(iii) Section 7.3(c) -- Fixed Charge Coverage Ratio
Actual Required
------ --------
____to l.00 1.10 to 1.00
(e) No material adverse change in the assets, liabilities, financial
condition, business or affairs of the Borrower or any of the other Obligors has
occurred since the Effective Date.
DATED as of_________________
---------------------------------
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT F
2
<PAGE>
Exhibit 12.1
Carrols Corporation
Schedule of Computation of
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------- ----------- ------------ ----------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary loss $ (1,666) $ 5,100 $ 6,283 $ 2,813 $ 8,977
Fixed Charges:
Interest on Indebtedness 14,456 14,500 14,209 14,598 21,068
Interest Component of Operating Rent 3,379 3,699 3,869 5,096 8,812
------------- ----------- ------------ ----------- -------------
Income (loss) before income taxes and
extraordinary loss and fixed charges 16,169 23,299 24,351 22,507 38,857
------------- ----------- ------------ ----------- -------------
Total Fixed Charges 17,835 18,199 18,068 19,694 29,880
------------- ----------- ------------ ----------- -------------
Ratio of Earnings to Fixed Charges 0.9 X 1.3 X 1.3 X 1.1 X 1.3 X
============= =========== ============ =========== =============
Deficiency of earnings to fixed charges (1,666)
=============
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-71593, Amendment #1) of our report dated February 19, 1999, on our audits of
the financial statements and financial statement schedules of Carrols
Corporation (a wholly owned subsidiary of Carrols Holdings Corporation). We also
consent to the references to our firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
/s/ PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
March 23, 1999.
<PAGE>
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.
/s/ Arthur Andersen LLP
Rochester, New York
March 23, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified 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.
/s/ Arthur Andersen LLP
Miami, Florida,
March 22, 1999.
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)
---------
IBJ WHITEHALL BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Stephen Giurlando, Assistant Vice President
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
CARROLS CORPORATION
CARROLS REALTY HOLDINGS CORP.
CARROLS REALTY I CORP.
CARROLS REALTY II CORP.
CARROLS J.G. CORP.
QUANTA ADVERTISING CORP.
POLLO FRANCHISE, INC.
POLLO OPERATIONS, INC.
(Exact name of each registrant as specified in its charter)
<PAGE>
Delaware 16-0958146
Delaware 16-1443701
Delaware 16-1440018
Delaware 16-1440017
Delaware 16-1440019
New York 16-1033405
Florida 65-0446291
Florida 65-0446289
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
968 James Street
Syracuse, New York 13203
(Address of principal executive office) (Zip code)
9 1/2% Senior Subordinated Notes due 2008
(Title of Indenture Securities)
2
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Banking Department,
Two Rector Street, New York, New York
Federal Deposit Insurance Corporation,
Washington, D.C.
Federal Reserve Bank of New York Second
District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligors.
If the obligors are an affiliate of the trustee, describe
each such affiliation.
The obligors are not an affiliate of the trustee.
Item 13. Defaults by the Obligors.
3
<PAGE>
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
None
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates
of interest or participation in any other
securities, of the obligors are outstanding, or is
trustee for more than one outstanding series of
securities under the indenture, state whether there
has been a default under any such indenture or
series, identify the indenture or series affected,
and explain the nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Whitehall Bank & Trust Company
(formerly known as IBJ Schroder Bank & Trust Company) as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460 and Exhibit 25.1 to
Form T-1, Securities and Exchange Commission File No.
333-46849.)
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit 4 to
Form T-1, Securities and Exchange Commission File
No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to
date (See Exhibit 25.1 to Form T-1, Securities and Exchange
Commission File No. 333-46849).
5. Not Applicable
6. The consent of United States institutional trustee required
by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
4
<PAGE>
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligors and its
directors or officers, the trustee has relied upon information
furnished to it by the obligors.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2,
the answer to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee
as indicated in Item 13, the obligors are not in default under any
indenture under which the applicant is trustee.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture
Act of 1939, the trustee, IBJ Whitehall Bank & Trust Company, a
corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on
its behalf by the undersigned, thereunto duly authorized, all in the
City of New York, and State of New York, on the 15th day of March,
1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
---------------------------------------
Stephen J. Giurlando
Assistant Vice President
6
<PAGE>
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issue by Carrols
Corporation, of its 9 1/2% Senior Subordinated Notes due 2008, we hereby
consent that reports of examinations by Federal, State, Territorial, or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
---------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: March 15, 1999
7
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
--------------
ASSETS
------
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin.......................................................$ 26,852
b. Interest-bearing balances.................................................................................$ 17,489
2. Securities:
a. Held-to-maturity securities...............................................................................$ -0-
b. Available-for-sale securities.............................................................................$ 207,069
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries
and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell........................................$ 80,389
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................................$ 2,033,599
b. LESS: Allowance for loan and lease losses...............................................$ 62,853
c. LESS: Allocated transfer risk reserve...................................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,970,746
5. Trading assets held in trading accounts.......................................................................$ 853
6. Premises and fixed assets (including capitalized leases)......................................................$ 1,583
7. Other real estate owned.......................................................................................$ -0-
8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0-
9. Customers' liability to this bank on acceptances outstanding..................................................$ 340
10. Intangible assets.............................................................................................$ 11,840
11. Other assets..................................................................................................$ 66,691
12. TOTAL ASSETS..................................................................................................$ 2,383,847
</TABLE>
<PAGE>
<TABLE>
LIABILITIES
-----------
<S> <C> <C>
13. Deposits:
a. In domestic offices.......................................................................................$ 804,562
(1) Noninterest-bearing ....................................................................$ 168,822
(2) Interest-bearing........................................................................$ 635,740
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 885,076
(1) Noninterest-bearing.....................................................................$ 16,554
(2) Interest-bearing .......................................................................$ 868,522
14. Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase....................................$ 225,000
15. a. Demand notes issued to the U.S. Treasury..................................................................$ 674
b. Trading Liabilities.......................................................................................$ 560
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................................$ 38,002
b. With a remaining maturity of more than one year...........................................................$ 1,375
c. With a remaining maturity of more than three years........................................................$ 1,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding......................................................$ 340
19. Subordinated notes and debentures.............................................................................$ 100,000
20. Other liabilities.............................................................................................$ 74,502
21. TOTAL LIABILITIES.............................................................................................$ 2,131,641
22. Limited-life preferred stock and related surplus..............................................................$ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................................$ -0-
24. Common stock..................................................................................................$ 28,958
25. Surplus (exclude all surplus related to preferred stock)......................................................$ 210,319
26. a. Undivided profits and capital reserves....................................................................$ 11,655
b. Net unrealized gains (losses) on available-for-sale securities............................................$ 1,274
27. Cumulative foreign currency translation adjustments...........................................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................................$ 252,206
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,383,847
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contain Summary Financial Information extracted from the Annual
Report for the 12 months ended December 31, 1998 of Carrols Corporation and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<CIK> 17927
<NAME> CARROLS CORP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,777,000
<SECURITIES> 0
<RECEIVABLES> 1,060,000
<ALLOWANCES> 93,000
<INVENTORY> 3,431,000
<CURRENT-ASSETS> 23,376,000
<PP&E> 185,120,000
<DEPRECIATION> (77,451,000)
<TOTAL-ASSETS> 319,606,000
<CURRENT-LIABILITIES> 34,943,000
<BONDS> 258,026,000
0
0
<COMMON> 10
<OTHER-SE> 13,998,000
<TOTAL-LIABILITY-AND-EQUITY> 319,606,000
<SALES> 416,190,000
<TOTAL-REVENUES> 416,585,000
<CGS> 122,620,000
<TOTAL-COSTS> 347,067,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,068,000
<INCOME-PRETAX> 8,977,000
<INCOME-TAX> 4,847,000
<INCOME-CONTINUING> 4,130,000
<DISCONTINUED> 0
<EXTRAORDINARY> 3,701,000
<CHANGES> 0
<NET-INCOME> 429,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
