<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
<TABLE>
<S> <C> <C> <C>
Carrols Corporation Delaware 5800 16-0958146
Carrols Realty Holdings Corp. Delaware 6511 16-1443701
Carrols Realty I Corp. Delaware 6511 16-1440018
Carrols Realty II Corp. Delaware 6511 16-1440017
Carrols J.G. Corp. Delaware 6749 16-1440019
Quanta Advertising Corp. New York 7310 16-1033405
Pollo Franchise, Inc. Florida 5800 65-0446291
Pollo Operations, Inc. Florida 5800 65-0446289
(EXACT NAME OF EACH REGISTRANT (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
AS SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
968 James Street
Syracuse, New York 13203
(315) 424-0513
(ADDRESS AND TELEPHONE NUMBER OF EACH REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<S> <C>
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
------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
</TABLE>
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------- ------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated Notes due 2008........ $170,000,000 100% $170,000,000 $47,260
Subsidiary Guarantees of the 9 1/2% Senior
Subordinated Notes Due 2008(3)................. (3) (3) (3) (3)
Total............................................ $170,000,000 100% $170,000,000 $47,260
</TABLE>
- ------------------
(1) Estimated, solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Each Registrant other than Carrols Corporation is a subsidiary of Carrols
Corporation and is guaranteeing payment of the Notes. Pursuant to Rule
457(n) under the Securities Act of 1933, no registration fee is required
with respect to these guarantees.
(3) No separate consideration will be received from purchasers of the Notes with
respect to these guarantees.
------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 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 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 are unsecured.
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 14 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................................................................... 1
Risk Factors................................................................................................ 14
Use of Proceeds............................................................................................. 21
Capitalization.............................................................................................. 22
Unaudited Pro Forma Combined Financial Information.......................................................... 23
Selected Historical Financial Information of Carrols........................................................ 28
Selected Historical Financial Information of Pollo Tropical................................................. 29
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 30
The Exchange Offer.......................................................................................... 41
Business.................................................................................................... 50
Management.................................................................................................. 62
Principal Stockholders...................................................................................... 73
Certain Relationships and Related Transactions.............................................................. 74
Description of the Senior Credit Facility................................................................... 75
Description of the Exchange Notes........................................................................... 76
Book-Entry; Delivery and Form............................................................................... 102
Certain U.S. Federal Income Tax Considerations.............................................................. 105
Plan of Distribution........................................................................................ 109
Legal Matters............................................................................................... 109
Experts..................................................................................................... 109
</TABLE>
<PAGE>
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 particular
obligations of the Company 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 ("SEC") a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), 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 "Exchange Act"). 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. 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).
<PAGE>
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.
<PAGE>
PROSPECTUS SUMMARY
In this Prospectus, the words "Company", "we", "ours", and "us" refer to
Carrols Corporation and its subsidiaries both before and after giving effect to
the acquisition of Pollo Tropical, Inc. ("Pollo Tropical"). The term "Carrols"
refers to Carrols Corporation and its subsidiaries prior to the acquisition of
Pollo Tropical. 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, 1993, 1994, 1995, 1996 and 1997, and as of, and for the nine months
ended September 30, 1997 and 1998 for Carrols, and the six months ended
June 30, 1997 and 1998 for Pollo Tropical, as the case may be, rather than the
actual fiscal year end or fiscal period end dates.
THE EXCHANGE OFFER
On November 24, 1998, we completed the private offering of $170,000,000
aggregate original principal amount at maturity of 9 1/2% Senior Subordinated
Notes due 2008. The Exchange Notes are guaranteed 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 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.
THE COMPANY
OVERVIEW
Who We Are
Our company is the largest Burger King(Registered) franchisee in the world,
and we have operated Burger King restaurants since 1976. As of September 30,
1998, we operated 338 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 70% from 1993 to 1997, and over 40% in 1997
alone. From fiscal 1993 to fiscal 1997, we grew our revenues from $171.1 million
to $394.4 million and EBITDA from $20.2 million to $49.2 million. In July 1998,
we completed our purchase of Pollo Tropical for a cash purchase price of
approximately $97 million (the "Pollo Acquisition"). Pollo Tropical is a
regional quick-service restaurant chain featuring grilled marinated chicken and
authentic "made from scratch" side dishes. Before its acquisition by us, for the
twelve months ended June 30, 1998, Pollo Tropical had revenues of $69.6 million
and EBITDA of $13.0 million. Assuming the Pollo Acquisition had occurred on
October 1, 1997, for the twelve months ended September 30, 1998 our revenues
were $449.3 million and our EBITDA was $60.2 million.
1
<PAGE>
The Burger King System
Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 9,800 restaurants throughout the U.S. and in 56
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
As a result of the Pollo Acquisition, 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 Miami, and its
first international franchised restaurant in 1995 in Puerto Rico. As of
September 30, 1998, we owned and operated 37 Pollo Tropical restaurants, all of
which are located in south and central Florida, and we franchised 20 Pollo
Tropical restaurants located in Puerto Rico, the Dominican Republic, Ecuador,
Netherlands Antilles and Miami. For the fiscal year ended December 31, 1997,
Pollo Tropical's average comparable restaurant sales were approximately $1.9
million, which we believe is among the highest in the quick-service restaurant
industry. We believe that the 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, 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 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" grew
from approximately 25% of the food budget in 1955 to approximately 44% in 1995.
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.
2
<PAGE>
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., from 1992 to 1997, Burger King increased its share
of the domestic quick-service hamburger market from approximately 16.2% to
19.4%.
The Pollo Acquisition 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 lead 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 18.3% and averaged 16.9%. In addition, over
the same period, restaurant level EBITDA margins for Pollo Tropical restaurants
ranged between 19.5% and 25.8% and averaged 23.7%. 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. The Pollo Acquisition 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, the Pollo 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 44 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 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.
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 our business
3
<PAGE>
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 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 opportunity 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.
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 Pollo Acquisition by eliminating duplicative costs. In
addition, we expect to realize further operating efficiencies by leveraging our
existing infrastructure and restaurant operating experience.
4
<PAGE>
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 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.
OWNERSHIP
Carrols Holdings Corporation
The Company's 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 Atlantic Restaurants, Inc., 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 Atlantic Restaurants, Inc. and
Dilmun Investments, Inc. 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, Inc. is one
of the largest and most experienced private equity investment firms in the U.S.,
with $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 the Pollo Acquisition was approximately
$97 million, which we financed under our credit facility. We used the proceeds
from the private offering of the outstanding notes to repay a portion of our
indebtedness under our credit facility, to repay all of our then outstanding
11 1/2% Senior Notes due 2003 and to pay related fees and expenses.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........................... We are offering to exchange up to $170,000,000 principal amount of
9 1/2% Senior Subordinated Notes Due 2008 of Carrols Corporation
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.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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............. This 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 Letter of Transmittal in accordance with the
instructions, and deliver the Letter of Transmittal, along with
the outstanding notes and any other required documentation, to the
exchange agent.
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 Old Notes."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 covenant 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
restrictions on transfer 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.
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 restrictions on transfer. We and the
guarantor subsidiaries do not anticipate that we will register any
outstanding notes and the related guarantees which are not
exchanged in the Exchange Offer under the Securities Act, 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 "Certain
U.S. Federal Income Tax Considerations."
Use of Proceeds.............................. We will not receive any proceeds from the issuance of the Exchange
Notes.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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, 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.
Assuming we had completed the private offering of the outstanding
notes on September 30, 1998 and applied the proceeds as intended,
the Exchange Notes and the subsidiary guarantees would have been
subordinated to $84.3 million of indebtedness (excluding unused
commitments of $25.0 million under our credit facility).
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 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--Redemption."
Change of Control............................ Upon the occurrence of a change of control of the Company, we will
be required to offer to repurchase the Exchange Notes from you at
a price equal to 101% of their principal amount, together with
accrued and unpaid interest to the date of repurchase. See
"Description of the Exchange Notes--Change of Control."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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 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.
9
<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, 1997 and its unaudited financial statements for the nine months
ended September 30, 1997 and September 30, 1998 and from Pollo Tropical's
audited financial statements for its fiscal year ended December 31, 1997 and its
unaudited financial statements for the six months ended June 30, 1997 and
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 applicable periods presented:
o our acquisition of Pollo Tropical in July 1998;
o our acquisition of 23 and 63 Burger King restaurants in March 1997 and
August 1997, respectively; and
o the private offering of the outstanding notes.
The Unaudited Pro Forma Combined Balance Sheet Data presented below gives
you a better picture of what our business would have looked like if the private
offering of the outstanding notes occurred at September 30, 1998. 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."
<TABLE>
<CAPTION>
PRO FORMA COMBINED
--------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1997 1997 1998
------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................................................ $407,819 $302,648 $344,114
Costs and expenses:
Cost of sales....................................................... 120,862 89,248 102,577
Restaurant wages and related expenses............................... 117,983 88,197 97,477
Other restaurant operating expenses................................. 80,480 59,521 65,503
Advertising expenses................................................ 19,629 15,011 15,779
General and administrative expenses................................. 18,732 13,857 15,906
Depreciation and amortization....................................... 20,985 15,402 16,473
-------- -------- --------
Total costs and expenses......................................... 378,671 281,236 313,715
-------- -------- --------
Operating income...................................................... $ 29,148 $ 21,412 $ 30,399
-------- -------- --------
-------- -------- --------
OTHER FINANCIAL DATA:
EBITDA(1)............................................................. $ 50,133 $ 36,814 $ 46,872
EBITDA margin......................................................... 12.3% 12.2% 13.6%
Interest expense...................................................... $ 27,469 $ 21,338 $ 18,187
Capital expenditures.................................................. 20,555 12,052 23,522
Ratio of earnings to fixed charges(2)................................. 1.1x 1.0x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
<S> <C>
BALANCE SHEET DATA:
Cash....................................................................................... $ 2,442
Total assets............................................................................... 312,828
Working capital (deficiency)............................................................... (26,092)
Total long-term debt(3).................................................................... 254,276
Stockholders' equity....................................................................... 14,427
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1997 1997 1998
------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING STATISTICS(4):
Number of restaurants (at end of period):
Burger King units..................................................... 335 329 338
Pollo Tropical units.................................................. 36 36 37
-------- -------- --------
Total.............................................................. 371 365 375
Average annual sales per restaurant:
Burger King units..................................................... $ 1,055 -- --
Pollo Tropical units.................................................. 1,843 -- --
Percentage change in comparable restaurant sales:
Burger King units(5).................................................. (1.4)% (1.2)% 7.2%
Pollo Tropical units(6)............................................... 4.2% 4.4% 8.4%
</TABLE>
(1) EBITDA is defined as income (loss) from continuing operations before income
taxes, extraordinary items, interest, refinancing expenses, depreciation and
amortization and acquisition related expenses pertaining to the sale of
Pollo Tropical to Carrols. 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.
(2) For the purpose of determining the ratio of earnings to fixed charges,
earnings included earnings from continuing operations 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.
(3) Includes approximately $3.1 million of capital lease obligations and other
debt.
(4) Data presented reflects our owned restaurants only and does not include
Pollo Tropical franchised units, which totaled 20 at September 30, 1998.
(5) The nine months ended September 30, 1998 contains 40 weeks. The percentage
change in comparable restaurant sales for this period 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 nine months ended September 30, 1998 is 10.2%. 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.
(6) 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.
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical information at the end of and for each of
the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997 with respect
to Carrols and Pollo Tropical have been derived from audited financial
statements of the respective companies. The summary historical financial
information at the end of and for the nine month periods ended September 30,
1997 and 1998 with respect to Carrols and 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.
The Pollo Acquisition was completed in July 1998, and as a result, Carrols'
unaudited financial statements as of and for the nine month period ended
September 30, 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
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,(1)
------------------------------------------------------------ --------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.............................. $171,137 $203,927 $226,257 $240,809 $295,436 $207,113
Franchise revenues............................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total revenues............................... 171,137 203,927 226,257 240,809 295,436 207,113
Costs and expenses:
Cost of sales................................ 48,502 57,847 63,629 68,031 85,542 59,600
Restaurant wages and related expenses........ 51,739 59,934 65,932 70,894 89,447 63,539
Other restaurant operating expenses.......... 35,192 42,390 45,635 48,683 61,691 43,005
Advertising expenses......................... 7,930 8,785 9,764 10,798 13,122 9,093
General and administrative................... 7,534 9,122 10,434 10,387 13,121 9,337
Depreciation and amortization................ 12,143 11,259 11,263 11,015 15,102 10,578
Other costs(2)............................... -- 1,800 -- 509 -- --
-------- -------- -------- -------- -------- --------
Total costs and expenses................... 163,040 191,137 206,657 220,317 278,025 195,152
-------- -------- -------- -------- -------- --------
Income from operations........................ 8,097 12,790 19,600 20,492 17,411 11,961
Refinancing expenses.......................... -- -- -- -- -- --
Interest expense, net......................... 12,505 14,456 14,500 14,209 14,598 11,059
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss........................... (4,408) (1,666) 5,100 6,283 2,813 902
Provision (benefit) for income taxes.......... -- 165 (9,826) 3,100 655 181
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary loss....... (4,408) (1,831) 14,926 3,183 2,158 721
Extraordinary loss on extinguishment of debt,
net of tax................................... (4,883) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)............................. $ (9,291) $ (1,831) $ 14,926 $ 3,183 $ 2,158 $ 721
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
EBITDA(3)..................................... $ 20,240 $ 25,849 $ 30,863 $ 32,016 $ 32,513 $ 22,539
EBITDA margin................................. 11.8% 12.7% 13.6% 13.3% 11.0% 10.9%
Capital expenditures.......................... $ 3,863 $ 6,024 $ 8,022 $ 15,255 $ 18,210 $ 10,952
Ratio of earnings to fixed charges(4)......... -- -- 1.3x 1.3x 1.1x 1.1x
OPERATING STATISTICS:
Number of Burger King restaurants (at end of
period)...................................... 195 219 219 232 335 329
Average number of Burger King restaurants..... 185 207 219 225 280 263
Average annual sales per Burger King
restaurant................................... $ 925 $ 985 $ 1,033 $ 1,070 $ 1,055 --
Percentage change in comparable Burger King
restaurant sales(1).......................... (1.3)% 5.1% 3.8% 3.2% (1.4)% (1.2)%
BALANCE SHEET DATA (AT PERIOD END):
Total assets.................................. $119,735 $125,317 $135,064 $138,588 $215,328 $220,970
Working capital (deficiency).................. (13,806) (16,456) (13,602) (15,004) (18,273) (12,668)
Total long-term debt(5)....................... 119,667 125,519 120,578 121,265 160,287 177,232
Stockholders' equity (deficit)................ (22,404) (27,208) (12,916) (11,662) 17,447 18,059
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
30,(1)
--------
1998
--------
(DOLLARS IN THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.............................. $305,866
Franchise revenues............................ 161
--------
Total revenues............................... 306,027
Costs and expenses:
Cost of sales................................ 89,829
Restaurant wages and related expenses........ 89,014
Other restaurant operating expenses.......... 60,685
Advertising expenses......................... 13,920
General and administrative................... 13,364
Depreciation and amortization................ 14,294
Other costs(2)............................... --
--------
Total costs and expenses................... 281,106
--------
Income from operations........................ 24,921
Refinancing expenses.......................... 1,639
Interest expense, net......................... 14,716
--------
Income (loss) before income taxes and
extraordinary loss........................... 8,566
Provision (benefit) for income taxes.......... 3,850
--------
Income (loss) before extraordinary loss....... 4,716
Extraordinary loss on extinguishment of debt,
net of tax................................... --
--------
Net income (loss)............................. $ 4,716
--------
--------
OTHER FINANCIAL DATA:
EBITDA(3)..................................... $ 39,215
EBITDA margin................................. 12.8%
Capital expenditures.......................... $ 21,963
Ratio of earnings to fixed charges(4)......... 1.4x
OPERATING STATISTICS:
Number of Burger King restaurants (at end of
period)...................................... 338
Average number of Burger King restaurants..... 339
Average annual sales per Burger King
restaurant................................... --
Percentage change in comparable Burger King
restaurant sales(1).......................... 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Total assets.................................. $306,898
Working capital (deficiency).................. (28,692)
Total long-term debt(5)....................... 241,613
Stockholders' equity (deficit)................ 18,285
</TABLE>
- ------------------
(1) The nine month periods ended September 30, 1997 and 1998 include 39 weeks
and 40 weeks, respectively. The percentage change in comparable restaurant
sales for the nine months ended September 30, 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 nine
months ended September 30, 1998 and 1997 is 10.2%. 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 restaurant closure expenses of $1,800 in 1994 and
costs associated with a change in control of $509 in 1996 associated with
our sale to Atlantic Restaurants, Inc.
(3) EBITDA is defined as income (loss) from continuing operations before income
taxes, extraordinary items, interest, refinancing expenses, depreciation and
amortization and 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.
(4) For the purpose of determining the ratio of earnings to fixed charges,
earnings included earnings from continuing operations 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 1993 and 1994, earnings were insufficient to cover fixed charges
by $4,808 and $1,666, respectively.
(5) Includes capital lease obligations and other debt which was $3.1 million at
September 30, 1998.
12
<PAGE>
POLLO TROPICAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales....................... $19,305 $41,114 $55,489 $63,735 $65,118 $31,817 $35,448
Franchise revenues..................... -- 41 555 499 812 420 454
------- ------- ------- ------- ------- ------- -------
Total revenues....................... 19,305 41,155 56,044 64,234 65,930 32,237 35,902
Costs and expenses:
Cost of sales.......................... 6,961 14,849 20,065 24,037 22,533 11,164 11,999
Restaurant wages and related expenses.. 4,481 9,710 13,661 15,695 15,178 7,472 7,994
Other restaurant operating expenses.... 2,325 4,812 7,362 9,159 8,427 4,106 4,694
Advertising expenses................... 764 1,383 2,103 2,978 2,987 1,563 1,702
General and administrative............. 1,528 3,702 5,178 5,371 5,538 2,903 2,805
Depreciation and amortization.......... 635 2,301 3,397 2,962 2,355 1,208 1,133
Other (income) expense, net(1)......... (16) (22) 1,623 6,250 (32) (8) 488
------- ------- ------- ------- ------- ------- -------
Total costs and expenses............. 16,678 36,735 53,389 66,452 56,986 28,408 30,815
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations............ 2,627 4,420 2,655 (2,218) 8,944 3,829 5,087
Interest (income) expense, net........... (14) 32 758 976 490 363 (31)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary loss..................... 2,641 4,388 1,897 (3,194) 8,454 3,466 5,118
Provision (benefit) for income taxes..... 963 1,590 720 (1,213) 3,212 1,316 2,242
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
loss................................... 1,678 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)........................ $ 1,678 $ 2,798 $ 1,114 $(1,981) $ 5,242 $ 2,150 $ 2,876
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
OTHER FINANCIAL DATA:
EBITDA(2)................................ $ 3,262 $ 6,721 $ 7,544 $ 7,068 $11,299 $ 5,037 $ 6,723
EBITDA margin............................ 16.9% 16.3% 13.5% 11.0% 17.1% 15.6% 18.7%
Capital expenditures..................... $11,479 $24,179 $ 9,599 $ 4,621 $ 1,451 $ 659 $ 1,749
Ratio of earnings to fixed charges(3).... 6.7x 5.2x 2.2x -- 8.8x 6.4x 18.3x
OPERATING STATISTICS:
Number of restaurants (at end of
period)................................ 14 33 36 35 36 35 36
Average number of restaurants............ 9 21 33 38 35 35 36
Average annual sales per restaurant...... $ 2,145 $ 1,958 $ 1,681 $ 1,677 $ 1,861 -- --
Percentage change in comparable
restaurant sales(4).................... 7.8% (0.7)% (5.6)% 7.9% 4.2% 6.0% 7.9%
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................. $28,336 $42,255 $46,825 $48,501 $40,354 $45,309 $43,333
Working capital (deficiency)............. 6,979 (2,685) (4,407) (7,381) (4,906) (6,666) (3,368)
Total long-term debt..................... 2,500 11,402 12,049 11,375 1,214 6,632 95
Stockholders' equity..................... 21,409 24,619 25,959 24,142 29,731 26,442 32,877
</TABLE>
- ------------------
(1) Other (income) expense for 1995 and 1996 includes 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) from operations before income taxes,
extraordinary items, interest, depreciation and amortization, restaurant
closure expenses and acquisition related expenses pertaining to the sale of
Pollo Tropical to us. 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) For the purposes of determining the ratio of earnings to fixed charges,
earnings included earnings from continuing operations 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.
(4) 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.
13
<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 and is presented assuming we had completed
the private offering of the outstanding notes as of the dates or at the
beginning of the periods specified below and applied the proceeds as intended:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------
<S> <C>
Total indebtedness......................................... $254.3 million
Stockholders' equity....................................... $ 14.4 million
Debt to total capitalization............................... 94.6%
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, 1997 ENDED SEPTEMBER 30, 1998
------------------ ------------------------
<S> <C> <C>
Ratio of earnings to fixed charges....................... 1.1x 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 the Pollo
Acquisition.
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 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
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
subsidiary guarantors' senior debt will be entitled to be paid in full in cash
before any payment may be made with respect to the Exchange Notes or the
subsidiary guarantees.
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
subsidiary guarantors have paid all senior debt. However, because the Indenture
requires that amounts otherwise payable to holders 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
14
<PAGE>
these cases, we and the subsidiary guarantors 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.
In addition, 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.
Assuming we had completed the private offering of the outstanding notes on
September 30, 1998, the Exchange Notes and the subsidiary guarantees would have
been subordinated to $84.3 million of senior debt. See "Description of the
Exchange Notes--Ranking and Subordination of the Exchange Notes."
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. Our credit facility would permit additional
borrowing of up to $25.0 million and 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;
o repurchasing or redeeming capital stock;
15
<PAGE>
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 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.
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 (the "BKC Franchise Agreements"),
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 the BKC Franchise Agreements expire. The BKC Franchise
Agreements typically have 20-year terms and are set to expire as follows:
o 55 BKC Franchise Agreements are due to expire within five years from
September 30, 1998; and
o an additional 123 BKC Franchise Agreements are due to expire within ten
years from September 30, 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;
o changes in demographic characteristics;
o changes in consumer tastes;
16
<PAGE>
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 purchased 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 through 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 such 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 THE POLLO ACQUISITION
The Pollo Acquisition 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.
17
<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 properties 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, operation
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, resulting in potentially reduced sales in those locations. We cannot
assure you that new sites will produce the same results 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
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.
18
<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 thereunder or accelerate the debt and, if the debt is not paid,
to enforce security interests on, or commence litigation 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
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 the foregoing considerations will
vary depending upon the laws of the jurisdiction that is being applied in any
such proceeding. Generally, however, we would be considered insolvent if, at the
time we incurred the indebtedness, either:
o the sum of our debts (including 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
19
<PAGE>
methodology. We cannot give any assurances, 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 restrictions on transfer.
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
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.
20
<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 (the "Private Offering") to:
o pay approximately $116.6 million to redeem our 11 1/2% Senior Notes due
2003 (the "11 1/2% Senior Notes"), 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 credit facility in an amount
equal to $47.9 million; and
o pay fees and expenses of approximately $5.5 million.
Our credit facility consists of term loans which mature on June 30, 2003
and a revolving credit facility which matures 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%.
21
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1998 and the pro forma capitalization of the Company, adjusted
to give effect to the Private Offering of the outstanding 9 1/2% Senior
Subordinated Notes due 2008 (the "Old Notes") and the application of the
proceeds therefrom as if it had occurred at September 30, 1998. The information
presented below should be read in conjunction with the historical and pro forma
financial statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------------
ACTUAL PRO FORMA
------------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Senior Credit Facility:
Revolving Credit Facility(1)....................... $ 11,300 $ --
Term Loans......................................... 119,609 81,209
11 1/2% Senior Notes.................................. 107,637 --
9 1/2% Senior Subordinated Notes...................... -- 170,000
Capital leases and other.............................. 3,067 3,067
-------- --------
Total long-term debt............................... 241,613 254,276
Stockholders' equity(2)................................. 18,285 14,427
-------- --------
Total capitalization............................... $259,898 $268,703
-------- --------
-------- --------
</TABLE>
- ------------------
(1) Pro forma for the Private Offering, the Company would have full availability
under its $25.0 million revolving credit facility.
(2) Pro forma stockholders' equity reflects extraordinary charges to record the
redemption premium of approximately $4.6 million associated with the
prepayment of the Company's 11 1/2% Senior Notes and to record the write off
of deferred financing costs of approximately $2.4 million, net of the
related income tax benefits.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statement of Operations and
Other Financial Data of the Company gives effect to the Pollo Acquisition, the
acquisition of 23 and 63 Burger King restaurants in March 1997 and August 1997,
respectively (the "Burger King Acquisitions") and the Private Offering as if
they occurred at the beginning of each of the applicable periods presented. Such
financial information has been derived from Carrols' audited financial
statements for its fiscal year ended December 31, 1997 and its unaudited
financial statements for the nine months ended September 30, 1997 and 1998 and
from Pollo Tropical's audited financial statements for its fiscal year ended
December 31, 1997 and its unaudited financial statements for the six months
ended June 30, 1997 and 1998. The Pollo Acquisition was completed in July 1998,
and as a result, Carrols' unaudited financial statements as of and for the nine
month period ended September 30, 1998 include the results of operations for the
Pollo Tropical restaurants since July 10, 1998.
The Pollo Acquisition was accounted for using the purchase method of
accounting. The total cost of the Pollo 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 the Company
believes are reasonable.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only, does not purport to be indicative of
the Company's financial position or results of operations as of the date hereof,
or as of or for any other future date, and is not necessarily indicative of what
the Company's actual financial position or results of operations would have been
had the foregoing transactions occurred on January 1, 1998, October 1, 1997 or
January 1, 1997, nor does it give effect to (i) any transactions other than the
foregoing transactions and those described in the accompanying notes to
unaudited pro forma combined financial information of the Company or
(ii) Carrols' results of operations since September 30, 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
notes thereto 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."
23
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL BURGER KING PRO FORMA HISTORICAL -----------------------
CARROLS ACQUISITIONS CARROLS POLLO TROPICAL ADJUSTMENTS COMBINED
---------- ----------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales..................... $295,436 $46,453 $341,889 $ 65,118 $407,007
Franchise revenues................... -- 812 812
-------- ------- --------- -------- --------
Total revenues..................... 295,436 46,453 341,889 65,930 407,819
Costs and expenses:
Cost of sales........................ 85,542 12,787 98,329 22,533 120,862
Restaurant wages and related
expenses........................... 89,447 13,358 102,805 15,178 117,983
Other restaurant operating expenses.. 61,691 10,362 72,053 8,427 80,480
Advertising expense.................. 13,122 3,520 16,642 2,987 19,629
General and administrative........... 13,121 1,013 14,134 5,506 $ (908)(1) 18,732
Depreciation and amortization........ 15,102 1,694 16,796 2,355 240 (2) 20,985
1,594 (3)
-------- ------- --------- -------- --------- --------
Total costs and expenses........... 278,025 42,734 320,759 56,986 926 378,671
-------- ------- --------- -------- --------- --------
Income from operations................. 17,411 3,719 21,130 8,944 (926) 29,148
Interest expense....................... 15,581 2,664 18,245 545 8,679(4) 27,469
Interest income........................ (983) -- (983) (55) -- (1,038)
-------- ------- --------- -------- --------- --------
Income before income taxes and
extraordinary loss................... 2,813 1,055 3,868 8,454 (9,605) 2,717
Provision (benefit) for income taxes... 655 384 1,039 3,212 (3,204)(6) 1,047
-------- ------- --------- -------- --------- --------
Income before extraordinary loss....... 2,158 671 2,829 5,242 (6,401) 1,670
Extraordinary loss on extinguishment of
debt, net of taxes................... -- -- -- -- (4,173)(7) (4,173)
-------- ------- --------- -------- --------- --------
Net income (loss)...................... $ 2,158 $ 671 $ 2,829 $ 5,242 $ (10,574) $ (2,503)
-------- ------- --------- -------- --------- --------
-------- ------- --------- -------- --------- --------
OTHER FINANCIAL DATA:
EBITDA(8).............................. $ 32,513 $ 5,413 $ 37,926 $ 11,299 $ 908 $ 50,133
-------- ------- --------- -------- --------- --------
-------- ------- --------- -------- --------- --------
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO PRO FORMA
HISTORICAL BURGER KING FORMA HISTORICAL -----------------------
CARROLS ACQUISITIONS CARROLS POLLO TROPICAL ADJUSTMENTS COMBINED
---------- ----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales................... $207,113 $46,453 $253,566 $ 48,502 $302,068
Franchise revenues................. -- -- -- 580 580
-------- ------- -------- -------- --------
Total revenues................... 207,113 46,453 $253,566 49,082 302,648
Costs and expenses:
Cost of sales...................... 59,600 12,787 72,387 16,861 89,248
Restaurant wages and related
expenses......................... 63,539 13,358 76,897 11,300 88,197
Other restaurant operating
expenses......................... 43,005 10,362 53,367 6,154 59,521
Advertising expense................ 9,093 3,520 12,613 2,398 15,011
General and administrative......... 9,337 1,013 10,350 4,199 $ (692)(1) 13,857
Depreciation and
amortization..................... 10,578 1,694 12,272 1,752 181 (2) 15,402
1,197 (3)
-------- ------- -------- -------- ------- --------
Total costs and expenses......... 195,152 42,734 237,886 42,664 686 281,236
-------- ------- -------- -------- ------- --------
Income from operations............... 11,961 3,719 15,680 6,418 (686) 21,412
Interest expense..................... 11,059 2,664 13,723 502 7,113 (4) 21,338
-------- ------- -------- -------- ------- --------
Income before income taxes
and extraordinary loss............. 902 1,055 1,957 5,916 (7,799) 74
Provision (benefit) for income
taxes.............................. 181 384 565 2,247 (2,641)(6) 171
-------- ------- -------- -------- ------- --------
Income (loss) before extraordinary
loss............................... 721 671 1,392 3,669 (5,158) (97)
Extraordinary loss on extinguishment
of debt, net of taxes.............. -- -- -- -- (4,173)(7) (4,173)
-------- ------- -------- -------- ------- --------
Net income (loss).................. $ 721 $ 671 $ 1,392 $ 3,669 $(9,331) $ (4,270)
-------- ------- -------- -------- --------
-------- ------- -------- -------- ------- --------
-------
OTHER FINANCIAL DATA:
EBITDA(8)............................ $ 22,539 $ 5,413 $ 27,952 $ 8,170 $ 692 $ 36,814
-------- ------- -------- -------- --------
-------- ------- -------- -------- ------- --------
-------
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations
25
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL POLLO TROPICAL
--------------------------
JANUARY 1,
1998
TO JULY 1, 1998 PRO FORMA
HISTORICAL JUNE 30, TO --------------------------
CARROLS 1998 JULY 9, 1998 ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.............................. $305,866 $ 35,448 $2,161 $343,475
Franchise revenues............................ 161 454 24 639
-------- -------- ------ --------
Total revenues.............................. 306,027 35,902 2,185 344,114
Costs and expenses:
Cost of sales................................. 89,829 11,999 749 102,577
Restaurant wages and related expenses......... 89,014 7,994 469 97,477
Other restaurant operating expenses........... 60,685 4,694 124 65,503
Advertising expense........................... 13,920 1,702 157 15,779
General and administrative.................... 13,364 2,790 268 $ (516)(1) 15,906
Depreciation and amortization................. 14,294 1,133 68 151 (2) 16,473
827 (3)
-------- -------- ------ ------- --------
Total costs and expenses.................... 281,106 30,312 1,835 462 313,715
-------- -------- ------ ------- --------
Income from operations.......................... 24,921 5,590 350 (462) 30,399
Refinance expense............................... 1,639 -- -- -- 1,639
Interest expense................................ 14,716 (31) 1 3,501 (4) 18,187
Acquisition expense............................. -- 503 1,396 (1,899)(5) --
-------- -------- ------ ------- --------
Income (loss) before income taxes and
extraordinary loss............................ 8,566 5,118 (1,047) (2,064) 10,573
Provision (benefit) for income taxes............ 3,850 2,242 (424) (1,254)(6) 4,414
-------- -------- ------ ------- --------
Income (loss) before extraordinary loss......... 4,716 2,876 (623) (810) 6,159
Extraordinary loss on extinguishment of debt,
net of taxes.................................. -- -- -- (4,002)(7) (4,002)
-------- -------- ------ ------- --------
Net income (loss)............................... $ 4,716 $ 2,876 $ (623) $(4,812) $ 2,157
-------- -------- ------ ------- --------
-------- -------- ------ ------- --------
OTHER FINANCIAL DATA:
EBITDA(8)....................................... $ 39,215 $ 6,723 $ 418 $ 516 $ 46,872
-------- -------- ------ ------- --------
-------- -------- ------ ------- --------
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations
26
<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 subsequent to its acquisition, for the
respective periods as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------
1997 1997 1998
------------ ---- ----
<S> <C> <C> <C>
Executive salaries and related costs................................... $723 $523 $356
Directors fees......................................................... 77 56 87
Public company expenses................................................ 108 113 73
---- ---- ----
$908 $692 $516
---- ---- ----
---- ---- ----
</TABLE>
(2) Adjustment reflects the incremental amortization related to the net
additional deferred financing costs.
(3) Reflects the amortization of goodwill resulting from the Pollo
Acquisition, amortized over a 40 year period.
(4) Adjustment reflects interest expense resulting from the Private
Offering less the reduction for the repayment of existing debt, assuming all of
the transactions had been effected at the beginning of the respective period.
Reflects an interest rate of 9.50% on the Old 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) Reflects an extraordinary charge related to the redemption premium on
the 11 1/2% Senior Notes, and the write off of deferred financing expenses
associated with refinanced debt, net of related tax benefits of $3,414 for the
year ended December 31, 1997 and the nine months ended September 30, 1997 and
$3,275 for the nine months ended September 30, 1998.
(8) EBITDA is defined as income (loss) from continuing operations before
income taxes, extraordinary items, interest, refinancing expenses, depreciation
and amortization and acquisition related expenses pertaining to the sale of
Pollo Tropical to Carrols. EBITDA is presented because the Company believes 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.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF CARROLS
The selected financial information presented below at the end of and for
each of the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997 has
been derived from the audited consolidated financial statements of Carrols. The
selected financial information for the nine months ended September 30, 1997 and
1998 has been derived from unaudited financial statements of Carrols and, in the
opinion of the Company, 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 herein. The Pollo Acquisition
was completed in July 1998, and as a result, Carrols' unaudited financial
statements as of and for the nine month period ended September 30, 1998 include
the results of operations for the Pollo Tropical restaurants since July 10,
1998. 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 Carrols' Consolidated
Financial Statements and Notes thereto as of 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 herein.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30, (1)
-------------------------------------------------------- --------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales..................................... $171,137.. $203,927 $226,257 $240,809 $295,436 $207,113
Franchise revenues................................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total revenues................................... 171,137 203,927 226,257 240,809 295,436 207,113
Costs and expenses:
Cost of sales...................................... 48,502 57,847 63,629 68,031 85,542 59,600
Restaurant wages and related expenses.............. 51,739 59,934 65,932 70,894 89,447 63,539
Other restaurant operating expenses................ 35,192 42,390 45,635 48,683 61,691 43,005
Advertising expenses............................... 7,930 8,785 9,764 10,798 13,122 9,093
General and administrative......................... 7,534 9,122 10,434 10,387 13,121 9,337
Depreciation and amortization...................... 12,143 11,259 11,263 11,015 15,102 10,578
Other costs(2)..................................... -- 1,800 -- 509 -- --
-------- -------- -------- -------- -------- --------
Total costs and expenses......................... 163,040 191,137 206,657 220,317 278,025 195,152
-------- -------- -------- -------- -------- --------
Income from operations............................... 8,097 12,790 19,600 20,492 17,411 11,961
Refinancing expenses................................. -- -- -- -- -- --
Interest expense, net................................ 12,505 14,456 14,500 14,209 14,598 11,059
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary
loss............................................... (4,408) (1,666) 5,100 6,283 2,813 902
Provision (benefit) for income taxes................. -- 165 (9,826) 3,100 655 181
-------- -------- -------- -------- -------- --------
Income before extraordinary loss..................... (4,408) (1,831) 14,926 3,183 2,158 721
Extraordinary loss on extinguishment of debt, net of
tax................................................ (4,883) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss).................................... $ (9,291) $ (1,831) $ 14,926 $ 3,183 $ 2,158 $ 721
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
EBITDA(3)............................................ $ 20,240 $ 25,849 $ 30,863 $ 32,016 $ 32,513 $ 22,539
EBITDA margin........................................ 11.8% 12.7% 13.6% 13.3% 11.0% 10.9%
Capital expenditures................................. $ 3,863 $ 6,024 $ 8,022 $ 15,255 $ 18,210 $ 10,952
Ratio of earnings to fixed charges(4)................ -- -- 1.3x 1.3x 1.1x 1.1x
Operating Statistics:
Number of Burger King restaurants (at end of
period)............................................ 195 219 219 232 335 329
Average number of Burger King restaurants............ 185 207 219 225 280 263
Average annual sales per Burger King restaurant...... $ 925 $ 985 $ 1,033 $ 1,070 $ 1,055 --
Percentage change in comparable Burger King
restaurant sales(1)................................ (1.3)% 5.1% 3.8% 3.2% (1.4)% (1.2)%
BALANCE SHEET DATA (AT PERIOD END):
Total assets......................................... $119,735 $125,317 $135,064 $138,588 $215,328 $220,970
Working capital (deficiency)......................... (13,806) (16,456) (13,602) (15,004) (18,273) (12,668)
Total long-term debt(5).............................. 119,667 125,519 120,578 121,265 160,287 177,232
Stockholders' equity (deficit)....................... (22,404) (27,208) (12,916) (11,662) 17,447 18,059
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
30, (1)
--------
1998
--------
(DOLLARS IN THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales..................................... $305,866
Franchise revenues................................... 161
--------
Total revenues................................... 306,027
Costs and expenses:
Cost of sales...................................... 89,829
Restaurant wages and related expenses.............. 89,014
Other restaurant operating expenses................ 60,685
Advertising expenses............................... 13,920
General and administrative......................... 13,364
Depreciation and amortization...................... 14,294
Other costs(2)..................................... --
--------
Total costs and expenses......................... 281,106
--------
Income from operations............................... 24,921
Refinancing expenses................................. 1,639
Interest expense, net................................ 14,716
--------
Income (loss) before income taxes and extraordinary
loss............................................... 8,566
Provision (benefit) for income taxes................. 3,850
--------
Income before extraordinary loss..................... 4,716
Extraordinary loss on extinguishment of debt, net of
tax................................................ --
--------
Net income (loss).................................... $ 4,716
--------
--------
OTHER FINANCIAL DATA:
EBITDA(3)............................................ $ 39,215
EBITDA margin........................................ 12.8%
Capital expenditures................................. $ 21,693
Ratio of earnings to fixed charges(4)................ 1.4x
Operating Statistics:
Number of Burger King restaurants (at end of
period)............................................ 338
Average number of Burger King restaurants............ 339
Average annual sales per Burger King restaurant...... --
Percentage change in comparable Burger King
restaurant sales(1)................................ 7.2%
BALANCE SHEET DATA (AT PERIOD END):
Total assets......................................... $306,898
Working capital (deficiency)......................... (28,692)
Total long-term debt(5).............................. 241,613
Stockholders' equity (deficit)....................... 18,285
</TABLE>
- ------------------
(1) The nine months ended September 30, 1997 and 1998 included 39 weeks and 40
weeks, respectively. The percentage change in comparable restaurant sales
for the nine months ended September 30, 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 nine
months ended September 30, 1998 and 1997 is 10.2%. 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 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 the Company to Atlantic Restaurants, Inc.
(3) EBITDA is defined as income (loss) from continuing operations before income
taxes, extraordinary items, interest, refinancing expenses, depreciation and
amortization and other costs. EBITDA is presented because the Company
believes 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.
(4) For the purpose of determining the ratio of earnings to fixed charges,
earnings included earnings from continuing operations 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 1993 and 1994, earnings were insufficient to cover fixed charges
by $4,808 and $1,666, respectively.
(5) Includes capital lease obligations and other debt, which was $3.1 million at
September 30, 1998.
28
<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, 1993, 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 the opinion of the Company, 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 herein. 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 Notes thereto as of 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 herein.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------------------------- -------
1993 1994 1995 1996 1997 1997
------- ------- ------- -------- ------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.......................................... $19,305 $41,114 $55,489 $ 63,735 $65,118 $31,817
Franchise revenues........................................ -- 41 555 499 812 420
------- ------- ------- -------- ------- -------
Total revenues.......................................... 19,305 41,155 56,044 64,234 65,930 32,237
Costs and expenses:
Cost of sales............................................. 6,961 14,849 20,065 24,037 22,533 11,164
Restaurant wages and related expenses..................... 4,481 9,710 13,661 15,695 15,178 7,472
Other restaurant operating expenses....................... 2,325 4,812 7,362 9,159 8,427 4,106
Advertising expenses...................................... 764 1,383 2,103 2,978 2,987 1,563
General and administrative................................ 1,528 3,702 5,178 5,371 5,538 2,903
Depreciation and amortization............................. 635 2,301 3,397 2,962 2,355 1,208
Other (income) expense, net(1)............................ (16) (22) 1,623 6,250 (32) (8)
------- ------- ------- -------- ------- -------
Total costs and expenses................................ 16,678 36,735 53,389 66,452 56,986 28,408
------- ------- ------- -------- ------- -------
Income (loss) from operations.............................. 2,627 4,420 2,655 (2,218) 8,944 3,829
Interest (income) expense, net............................. (14) 32 758 976 490 363
------- ------- ------- -------- ------- -------
Income (loss) before income taxes and extraordinary loss... 2,641 4,388 1,897 (3,194) 8,454 3,466
Provision (benefit) for income taxes....................... 963 1,590 720 (1,213) 3,212 1,316
------- ------- ------- -------- ------- -------
Income (loss) before extraordinary loss.................... 1,678 2,798 1,177 (1,981) 5,242 2,150
Extraordinary loss on extinguishment of debt, net of tax... -- -- (63) -- -- --
------- ------- ------- -------- ------- -------
Net income (loss)......................................... $ 1,678 $ 2,798 $ 1,114 $(1,981) $ 5,242 $ 2,150
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
OTHER FINANCIAL DATA:
EBITDA(2).................................................. $ 3,262 $ 6,721 $ 7,544 $ 7,068 $11,299 $ 5,037
EBITDA margin.............................................. 16.9% 16.3% 13.5% 11.0% 17.1% 15.6%
Capital expenditures....................................... $11,479 $24,179 $ 9,599 $ 4,621 $ 1,451 $ 659
Ratio of earnings to fixed charges(3)...................... 6.7x 5.2x 2.2x -- 8.8x 6.4x
OPERATING STATISTICS:
Number of restaurants (at end of period)................... 14 33 36 35 36 35
Average number of restaurants.............................. 9 21 33 38 35 35
Average annual sales per restaurant........................ $ 2,145 $ 1,958 $ 1,681 $ 1,677 $ 1,861 --
Percentage change in comparable restaurant sales(4) 7.8% (0.7)% (5.6)% 7.9% 4.2% 6.0%
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................................... $28,336 $42,255 $46,825 $ 48,501 $40,354 $45,309
Working capital (deficiency)............................... 6,979 (2,685) (4,407) (7,381) (4,906) (6,666)
Total long-term debt....................................... 2,500 11,402 12,049 11,375 1,214 6,632
Stockholders' equity....................................... 21,409 24,619 25,959 24,142 29,731 26,442
<CAPTION>
SIX
MONTHS
ENDED
JUNE
30,
1998
-------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.......................................... $35,448
Franchise revenues........................................ 454
-------
Total revenues.......................................... 35,902
Costs and expenses:
Cost of sales............................................. 11,999
Restaurant wages and related expenses..................... 7,994
Other restaurant operating expenses....................... 4,694
Advertising expenses...................................... 1,702
General and administrative................................ 2,805
Depreciation and amortization............................. 1,133
Other (income) expense, net(1)............................ 488
-------
Total costs and expenses................................ 30,815
-------
Income (loss) from operations.............................. 5,087
Interest (income) expense, net............................. (31)
-------
Income (loss) before income taxes and extraordinary loss... 5,118
Provision (benefit) for income taxes....................... 2,242
-------
Income (loss) before extraordinary loss.................... 2,876
Extraordinary loss on extinguishment of debt, net of tax... --
-------
Net income (loss)......................................... $ 2,876
-------
-------
OTHER FINANCIAL DATA:
EBITDA(2).................................................. $ 6,723
EBITDA margin.............................................. 18.7%
Capital expenditures....................................... $ 1,749
Ratio of earnings to fixed charges(3)...................... 18.3x
OPERATING STATISTICS:
Number of restaurants (at end of period)................... 36
Average number of restaurants.............................. 36
Average annual sales per restaurant........................ --
Percentage change in comparable restaurant sales(4) 7.9%
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................................... $43,333
Working capital (deficiency)............................... (3,368)
Total long-term debt....................................... 95
Stockholders' equity....................................... 32,877
</TABLE>
- ------------------
(1) Other (income) expense for 1995 and 1996 includes 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) from operations before income taxes,
extraordinary items, interest, depreciation and amortization, restaurant
closure expenses and acquisition related expenses pertaining to the sale of
Pollo Tropical to Carrols. EBITDA is presented because the Company believes
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) For the purposes of determining the ratio of earnings to fixed charges,
earnings included earnings from continuing operations 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.
(4) 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.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is the largest Burger King franchisee in the world and has
operated Burger King restaurants since 1976. As of September 30, 1998, the
Company operated 338 Burger King restaurants located in 13 Northeastern,
Midwestern and Southeastern states. Over the last five years, the Company has
expanded its 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 its existing restaurants. As a
result of its growth strategy, the Company has increased the total number of
restaurants it operates by over 70% from 1993 to 1997, and over 40% in 1997
alone. In July 1998, the Company completed its acquisition of Pollo Tropical for
a cash purchase price of approximately $97 million. As a result, the operations
of Pollo Tropical have been presented herein 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 September 30, 1998, the Company owned and operated 37 Pollo Tropical
restaurants in Florida and franchised an additional 20 restaurants in the
Caribbean and Central and South America. Due to the acquisition of Pollo
Tropical in July 1998, results of the Company for the nine months ended
September 30, 1998 include the operations of Pollo Tropical from July 10, 1998.
RESULTS OF OPERATIONS OF CARROLS
The following table sets forth, for fiscal year 1995, 1996 and 1997 and for
the nine months ended September 30, 1997 and 1998, selected operating results of
Carrols as a percentage of restaurant sales:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------------------------------
1995 1996 1997 1997 1998
----- ----- ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Restaurant sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales........................................ 28.1 28.3 29.0 28.8 29.4
Restaurant wages and related expenses................ 29.1 29.4 30.3 30.7 29.1
Other restaurant expenses including advertising...... 24.5 24.7 25.3 25.2 24.4
General and administrative expenses.................. 4.6 4.5 4.4 4.5 4.4
Depreciation and amortization........................ 5.0 4.6 5.1 5.1 4.7
----- ----- ----- ----- -----
Operating income....................................... 8.7% 8.5% 5.9% 5.8% 8.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
EBITDA................................................. 13.6% 13.3% 11.0% 10.9% 12.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Fiscal 1998 will contain 53 weeks and the Company has historically included
the extra week in its second fiscal quarter. Accordingly, the nine months
results of operations and cash flows ending September 30, 1998 and 1997 include
40 and 39 weeks, respectively.
Restaurant Sales. Restaurant sales for the nine months ended
September 30, 1998, increased 47.7% to $305.9 million from $207.1 million in the
nine months of 1997. Sales at the Company's 224 comparable restaurants (those
units operating for the entirety of the compared periods) increased 10.2% for
the nine months of 1998. Adjusted for the additional week in 1998, comparable
restaurant sales increased 7.2%.
Operating Costs and Expenses. Cost of sales, as a percentage of sales,
were 29.4% for the nine months ended September 30, 1998 compared to 28.8% for
the first nine months of 1997. The increase in 1998 was due to higher cost
relationships at the Company's Pollo Tropical restaurants and higher food
commodity costs associated with the introduction of a new french fry product in
January 1998 offset, in part, by lower beef costs. In addition, the Company's
food and paper cost relationships have been somewhat higher for its recently
acquired Burger King units prior to these units becoming fully integrated into
the Company's operating systems.
30
<PAGE>
Restaurant wages and related expenses, as a percentage of sales, during the
nine months ended September 30, 1998 decreased from 30.7% in 1997 to 29.1% in
1998 due to restaurant labor efficiencies, the effect of increased sales on
fixed management labor, and lower effective unemployment tax rates in New York
State and Ohio, offset, in part, by an increase in the Federal minimum wage rate
from $4.75 per hour to $5.15 per hour which took effect in September 1997.
Other restaurant operating expenses including advertising decreased from
25.2% of sales for the first nine months of 1997 to 24.4% for the first nine
months of 1998, due in part to reduced utility costs associated with a milder
winter in the Company's operating areas, as well as the effect of higher sales
on the fixed components of the Company's costs.
Administrative expenses, as a percentage of sales, decreased from 4.5% in
the first nine months of 1997 to 4.4% for the first nine months of 1998. The
approximate $4.8 million increase in the first nine months of 1998 compared to
1997 is due to the addition of field supervision and corporate support as a
result of the 1997 acquisition of 93 Burger King restaurants, the July 1998
acquisition of Pollo Tropical and to support the Company's plans for continued
expansion.
EBITDA. EBITDA increased from $22.5 million for the first nine months of
1997 to $39.2 million for the first nine months of 1998. As a percentage of
total revenues, EBITDA increased from 10.9% in 1997 to 12.8% in 1998 as a result
of the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$3.7 million in the first nine months of 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 $14.7 million for the first nine
months of 1998 compared to $11.1 million for the first nine months of 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 and construction
of Burger King restaurants in 1997.
Income Taxes. The provision for income taxes of $3.9 million for the nine
months ended September 30, 1998 is based on an estimated effective income tax
rate for 1998 of 45%. This rate is higher than the Federal statutory tax rate
due to state franchise and income taxes and non-deductible amortization of
certain franchise rights and intangible assets.
FISCAL 1997 COMPARED TO FISCAL 1996 COMPARED TO FISCAL 1995
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 the Company which increased from 232 at the end of 1996
to 335 at the end of 1997. During 1997, the Company opened 11 new restaurants,
acquired 93 restaurants in six transactions, and closed one underperforming
restaurant. Sales at the Company's 214 comparable restaurants (those units
operating for the entirety of the compared periods) decreased 1.4% during 1997.
In general, the Company did not increase menu prices during 1997.
Restaurant sales were $240.8 million and $226.3 million for 1996 and 1995,
respectively, and increased 6.4% and 10.9% over the year-earlier periods.
Comparable restaurant sales increased 3.2% in 1996 and 3.8% in 1995. The average
number of restaurants operated by the Company was 280 in 1997, compared to 225
in 1996 and 219 in 1995.
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 and 28.1% in
1995. The increase in 1997, in part, reflected somewhat higher food costs
including approximately a 2% increase in average beef prices from their 1996
level. The increase in 1996 was due to the effect of higher discount promotional
activity over 1995, offset in part by lower commodity costs.
Restaurant wages and related expenses have increased as a percentage of
sales during the past three years, rising from 29.1% in 1995, to 29.4% in 1996,
and to 30.3% in 1997. Wages have increased over this period due to higher labor
rates including the effect of increases in the Federal minimum wage rates over
the past two years. A 1996 amendment to the Federal Fair Labor Standards Act of
1938 (the "Federal Fair Labor Standards Act") 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.
31
<PAGE>
Other restaurant operating expenses were 25.3% of sales in 1997, compared
to 24.7% in 1996 and 24.5% in 1995. In part, the increase in 1997 is reflective
of general inflationary increases without a corresponding increase in comparable
restaurant sales. In addition, the Company added a significant number of
restaurants through acquisition during 1997, and, therefore, expense
relationships have been somewhat higher as these new units become fully
integrated into the business of the Company.
Administrative expenses increased approximately $2.7 million, and, as a
percentage of sales, were 4.4% in 1997 compared to 4.5% and 4.6% in 1996 and
1995, respectively. 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 the Company's plans for continued expansion.
EBITDA. EBITDA increased from $32.0 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. EBITDA was $30.9 million in
1995.
Depreciation and Amortization. Depreciation and amortization was
$15.1 million in 1997, $11.0 million in 1996 and $11.3 million in 1995. These
costs increased $4.1 million in 1997 which was due primarily 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 and $14.5 million in 1996 and 1995, respectively. The increase in
1997 was the result of higher average debt balances brought about by the funding
of the restaurants that were 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 the
Company has had outstanding for several years. As a result of the settlement,
the Company's tax provision was reduced by $806,000 and the Company recorded
interest income of $983,000. The higher than anticipated effective tax rate in
1996 was principally the result of the $.5 million of costs associated with a
change of control of the Company which are not deductible. The income tax
benefit reflected in 1995 resulted from the reversal of a valuation allowance
for the net deferred income tax asset associated with the Company's tax loss
carry forwards. This was based on a review of expected future earnings which
concluded that it was more likely than not that the Company would fully realize
the benefits of the net operating loss carry forwards.
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>
32
<PAGE>
- ------------------
(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. Pollo Tropical
believes that the sustained improvement in same store sales is primarily due to
the focused execution of its 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 improved
customer service. As a result of the continued emphasis on marketing,
operational and cost control initiatives, Pollo Tropical's operating margins
have 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. This increase was primarily attributable to a sales increase in
restaurants open during the entire six months for both years. Same store sales
for the six months ended June 30, 1998 increased 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.
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 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 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 primarily due to an overall decrease in the average market price
of
33
<PAGE>
chicken as compared to the first six months of 1997, a sales mix change driven
by the introduction of a new product during the first six months of 1997 and
improved operating efficiencies and controls.
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, as well as a reduction in workers'
compensation insurance expense.
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 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 Expenses. 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 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 and Carrols, 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
34
<PAGE>
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 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 Carrols 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 310 basis points, 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 130 basis points, 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.
During the next year Pollo Tropical expects that the higher minimum wage will
have a slightly
35
<PAGE>
adverse effect on restaurant payroll expense, as a percentage of restaurant
sales, when compared to the previous year.
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 150 basis points, 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 90 basis points, 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 Expenses. 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 40 basis points, as a
percentage of restaurant sales, to 3.1% for Fiscal 1997 from 3.5% for Fiscal
1996. This decrease was primarily due to the Company'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 70 basis points, as a percentage
of restaurant sales, to 0.2% for Fiscal 1997 from 0.9% for 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 the revolving line
of credit during Fiscal 1997, as compared to Fiscal 1996.
36
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Restaurant Sales. Restaurant sales for Fiscal 1996 increased $8.2 million
(15%) to $63.7 million for Fiscal 1996 from $55.5 million for Fiscal 1995. This
was due to an increased number of restaurants being opened during the year ended
December 31, 1996, as compared to the same period of the prior year and to a
sales increase in restaurants open for both years. During Fiscal 1996, 32
restaurants operated for the full year and eight restaurants operated for only
part of the year, of which five were closed during the year as compared to the
prior year when 31 restaurants operated for the full year and seven restaurants
operated for only part of the year, of which two were closed during the year.
Same store sales for Fiscal 1996 increased 7.9%.
Franchise Revenues. Franchise revenues for Fiscal 1996 decreased $55,000
to $499,000 for Fiscal 1996 from $554,000 for Fiscal 1995. This revenue consists
of initial franchise fees which are recognized when a restaurant opens,
continuing royalties, fees from operating franchised restaurants and forfeiture
of exclusivity fees when area development agreements are terminated. During
Fiscal 1996, Pollo Tropical recognized $112,500 for forfeiture of exclusivity
fees as compared to $197,000 for the same period of the prior year.
During the year ended December 31, 1996, five domestic franchised
restaurants were closed, five franchised restaurants were opened in Puerto Rico,
and one domestic franchised restaurant opened in a non-traditional site in South
Florida.
Cost of Sales. Cost of sales, which consists of food, beverage, paper and
supply costs, increased 150 basis points, as a percentage of restaurant sales,
to 37.7% for Fiscal 1996 from 36.2% for the comparable period of the prior year.
This increase was due to higher relative food costs resulting from several
factors including the continued higher market price for chicken, the value
pricing strategy implemented in the first quarter, the successful launch of the
new pork product line in the core market at introductory pricing, and the
greater waste experienced in the lower volume restaurants in the expansion
markets. The market price for chicken averaged 12% higher for Fiscal 1996 as
compared to the same period of the prior year. During the third and fourth
quarters of Fiscal 1996, Pollo Tropical implemented several cost savings
programs as well as selective price increases on several menu items.
Restaurant Payroll. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers
compensation insurance and group health insurance remained level, as a
percentage of restaurant sales, at 24.6% for Fiscal 1996 as compared to Fiscal
1995. Higher sales volumes as well as increased controls placed on labor
scheduling at the unit level helped to offset the higher relative payroll costs
in the expansion markets and the impact of the minimum wage increase which was
effective in the quarter ended December 31, 1996.
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
increased 190 basis points, as a percentage of restaurant sales, to 19.0% for
Fiscal 1996 from 17.1% for the same period of the prior year. The largest
component of this change was advertising expense which increased 90 basis points
to 4.7% from 3.8% during the same period of the prior year. This increase was
due to the new marketing strategies and initiatives as well as expenditures in
supporting the expansion markets. The increase in operating expenses was also a
result of an increase in occupancy costs of 30 basis points to 4.7% from 4.4%
for the same period of the prior year. This increase was primarily due to the
full year effect for the two restaurants that were part of sale-leaseback
transactions in September 1995.
General and Administrative Expenses. General and administrative expenses
for Fiscal 1996 decreased 80 basis points to 8.4% from 9.2% for the same period
of the prior year. This decrease was primarily due to the fixed cost nature of
the general and administrative expenses relative to the higher sales volumes
experienced during the year. Pollo Tropical has reduced the number of support
staff and several operations positions as a result of the decrease in the number
of openings of new company-owned restaurants in Fiscal 1996 and Fiscal 1997.
Depreciation and Amortization of Property and Equipment. Depreciation and
amortization of property and equipment remained level, as a percentage of
restaurant sales, at 3.5% for the year ended December 31, 1996 as compared to
the same period of the prior year.
37
<PAGE>
Amortization of Deferred Restaurant Pre-Opening Costs. Amortization of
deferred restaurant pre-opening costs decreased 120 basis points, as a
percentage of restaurant sales, to 0.9% for Fiscal 1996 from 2.1% for Fiscal
1995. This decrease was the result of fewer new restaurants being opened during
the latest 12 months as compared to the 12 month period ended December 31, 1995.
Other Amortization. Other amortization consists of amortization of
intangibles such as trademarks, organization costs, leasehold acquisition costs
and deferred franchise expenses. Other amortization decreased slightly 20 basis
points, as a percentage of restaurant sales, to 0.3% for Fiscal 1996 from 0.5%
for Fiscal 1995. This decrease was primarily due to the higher cost associated
with franchised restaurants opened during Fiscal 1995 as compared to Fiscal
1996.
Restaurant Closure Expenses. During 1995, Pollo Tropical accrued estimated
expenses in the amount of $1.6 million for two restaurants closed in October
1995. The estimated expenses consisted of $1.2 million in net losses on disposal
of fixed assets and $321,000 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
$174,000. This gain was 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, 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 fixed assets, $670,000 in estimated liabilities associated with
termination of leases and $115,000 associated with employee termination
benefits. 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 (Expense). Pollo Tropical incurred interest costs of
$1.0 million during Fiscal 1996 of which $44,000 was capitalized as construction
costs. Such interest was further offset by $15,000 in interest income. During
Fiscal 1995, Pollo Tropical incurred interest costs of $991,000, of which
$206,000 was capitalized as construction cost, and generated interest income of
$28,000. Other expense for Fiscal 1995, included a write-off of approximately
$166,000 of deferred costs associated with Pollo Tropical's efforts in obtaining
certain private financing.
Extraordinary Charge. During Fiscal 1995, Pollo Tropical incurred an
extraordinary charge of $63,000 net of income tax benefit of $38,000, related to
the write-off of charges associated with the refinancing of Pollo Tropical's
debt which occurred during the third quarter of Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food products and other
supplies. The Company is able to operate with a substantial working capital
deficit because (i) restaurant operations are conducted on a cash basis,
(ii) rapid turnover allows a limited investment in inventories, and (iii) cash
from sales is usually received before related accounts for food, supplies and
payroll become due. The Company's cash requirements arise primarily from the
need to finance the opening and equipping of new restaurants, for ongoing
capital reinvestment in its existing restaurants, for the acquisition of
existing Burger King restaurants, and for debt service.
The Company generated cash flow from operations in the first nine months of
1998 of approximately $22.3 million, compared with $7.1 million for the first
nine months of 1997.
The Company's capital expenditures include acquisitions of $97.3 million
and $78.1 million for the nine months ended September 30, 1998 and 1997,
respectively. The Company acquired Pollo Tropical in July 1998 for approximately
$97 million. For the first nine months of 1998 and 1997, the Company acquired
two and 91 Burger King restaurants, respectively, for $.6 million and
$78.1 million, respectively.
Capital expenditures, excluding acquisitions, for the first nine months of
1998 totaled $22.0 million, which included construction costs for twelve new
Burger King restaurants, six of which were open at September 30, 1998. Capital
expenditures, excluding acquisitions, for the same period in 1997 totaled
38
<PAGE>
$11.0 million, which included construction costs for seven new Burger King
restaurants. The Company's capital expenditures also include remodeling costs
and capital maintenance projects for the ongoing reinvestment and enhancement of
its restaurants. These expenditures have 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 the Company acquired since the beginning of 1997.
Carrols also has projects underway to upgrade its corporate information and
decision support systems along with its restaurant point-of-sale and management
systems. These systems projects have resulted in incremental capital investments
which totaled approximately $2.9 million for the first nine months of 1998.
The Company generated $18.5 million from the sale and leaseback of two
Burger King restaurant properties and 12 Pollo Tropical restaurant properties
during the first nine months of 1998, the proceeds of which were used to reduce
outstanding debt. Carrols also paid dividends to its parent totaling
$3.9 million for its parent's payment of dividends on its preferred stock and
for the early redemption of the remaining $3.6 million in preferred stock which
was scheduled for mandatory redemption in December 1998 and December 1999.
Carrols' 1997 operations generated approximately $19.9 million in cash,
compared to $14.3 million during 1996 and $16.7 million in 1995.
Capital expenditures totaled $96.7 million, $23.2 million and $8.5 million,
in 1997, 1996 and 1995, respectively. The 1997 capital expenditures included
$78.5 million for the acquisition of 93 existing Burger King restaurants
(including real estate for three of the restaurants), as well as $9.7 million
for the construction of 15 new restaurants. The balance of the 1997 capital
expenditures went toward restaurant capital maintenance and remodeling. During
1997, Carrols completed 23 remodels in conjunction with the renewal of
franchises that were scheduled to expire between 1997 and 1999. During the past
three years, Carrols has completed 68 remodels.
On March 27, 1997, Madison Dearborn acquired 283,334 shares, and senior
management acquired 10,810 shares, of common stock of Holdings which resulted in
Carrols receiving net proceeds of $30.4 million. On May 12, 1997 Carrols also
entered into a senior credit facility which established a $25.0 million
revolving loan facility and a $127.0 million advance loan facility (the "Senior
Credit Facility"). During 1997, Carrols used the net proceeds from the sale of
stock along with borrowings under its Senior Credit Facility to fund the
acquisition of 93 Burger King restaurants.
The sale and leaseback of 15 restaurant properties in December 1997
generated $13.0 million, the proceeds of which were used to reduce amounts which
had been borrowed under the Senior Credit Facility. In 1997, Carrols also paid
dividends to Holdings totaling $4.3 million for the payment by Holdings of
dividends on its preferred stock and for the redemption of $3.6 million of the
preferred stock.
At September 30, 1998, the Company had $130.9 million outstanding under the
Senior Credit Facility. The Pollo Acquisition was funded using the Company's
Senior Credit Facility which was amended on July 9, 1998 to modify, among other
things, certain financial covenants with respect to debt to cash flow ratios.
The Company is in compliance with its debt covenants at September 30, 1998. See
"Description of the Senior Credit Facility."
At September 30, 1998, after giving pro forma effect to the Private
Offering and the application of the proceeds therefrom, the Company would have
had approximately $254.3 million of indebtedness outstanding. Such indebtedness
would primarily have consisted of $170.0 million principal amount of the Old
Notes and $84.3 million of Senior Indebtedness.
Interest payments under the Old Notes and the Exchange Notes (after the
consummation of the Exchange Offer) and existing debt obligations will represent
significant liquidity requirements for the Company. The Company believes that
its operations and capital resources will provide sufficient cash availability
to cover its working capital, capital expenditures, planned development and debt
service requirements for the foreseeable future.
In 1998, the Company anticipates capital expenditures of approximately
$33 million, excluding the cost of acquisitions. These amounts include
approximately $15 million for construction of new Burger King
39
<PAGE>
restaurants (including certain real estate) and $8 million for ongoing
reinvestment and remodeling of its existing Burger King restaurants. In 1998,
the Company began to upgrade its restaurant point-of-sale and in-restaurant
support systems, and has also undertaken an upgrade of its corporate information
and decision support systems. During 1998 and 1999 the Company estimates that it
will incur total expenditures for these systems projects of $11 to $12 million.
The Company anticipates total capital expenditures in 1998 of approximately $5
million for Pollo Tropical, consisting primarily of costs related to the
construction of new restaurants.
INFLATION
The inflationary factors which have historically affected the Company's
results of operations include increases in food and paper costs, labor and other
operating expenses. Wages paid in the Company's 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 the Company's
labor cost. The Company 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 the
Company will be able to offset such inflationary cost increases in the future.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Carrols has addressed this
risk to the availability and integrity of financial systems and the reliability
of operation systems. Carrols has projects underway for the installation of new
point-of-sale systems in its restaurants and for the replacement of a
substantial portion of its corporate financial and decision support systems.
The primary purpose of these projects is to improve the efficiency of
Carrols' restaurant and support operations, however, they will also provide the
additional benefit of making its systems Year 2000 compliant. The Company has
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 $12 million to $13 million. Through September 30, 1998 the
Company has expended $3.2 million associated with these projects. The majority
of the remaining expenditures pertain to restaurant point-of-sale hardware.
As of November 13, 1998, the Company has successfully implemented certain
corporate financial applications including general ledger, accounts payable and
asset management as well as a portion of its payroll processing. The remaining
significant corporate support systems to be implemented are restaurant payroll
and human resources, which is anticipated to be implemented by March 31, 1999,
and sales and inventory accounting systems which are anticipated to be
implemented by the third quarter of 1999.
The Company believes that all of its computer systems will be Year 2000
compliant by the end of the third quarter of Fiscal 1999. The Company has not
developed a detailed contingency plan due to the anticipated implementation
dates of the projects above. The Company is evaluating its implementation
progress on an ongoing basis and will develop contingency plans as needed should
its scheduled implementation dates be modified. This is a forward looking
statement and is 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.
40
<PAGE>
THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (the
"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 Old 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 Old Notes.
As of the date of this Prospectus, the aggregate principal amount of the
Old Notes outstanding is $170,000,000. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about [ ], to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "--Certain Conditions to the Exchange Offer" below. The Company
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on November 24, 1998 in a transaction exempt from
the registration requirements of the Securities Act. Accordingly, the Old 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 Old Notes, the Company and
all of its subsidiaries which conduct business operations (the "Guarantors")
entered into the Exchange and Registration Rights Agreement dated November 24,
1998 among the Company, the Guarantors and Chase Securities Inc. and NationsBanc
Montgomery Securities LLC (the "Registration Rights Agreement"), which requires
the Company and the Guarantors to file with the Commission a registration
statement relating to the Exchange Offer (the "Registration Statement") not
later than 75 days after the date of original issuance of the Old Notes, and to
use 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 Old 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 Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Old Notes are held of record by The Depository Trust
Company ("DTC"). Other than pursuant to the Registration Rights Agreement, the
Company is not required to file any registration statement to register any
outstanding Old Notes. Holders of Old Notes who do not tender their Old Notes or
whose Old Notes are tendered but not accepted would have to rely on exemptions
from the registration requirements under the securities laws, including the
Securities Act, if they wish to sell their Old Notes.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal, $1,000 in principal amount of Exchange
Notes for each $1,000 in principal amount of the Old Notes. The terms of the
Exchange Notes are identical in all material respects to the terms of the Old
Notes for which they may be exchanged pursuant to this Exchange Offer, except
that the Exchange Notes will generally be freely transferable by holders thereof
and will not be subject to any covenant regarding registration. The Exchange
Notes will evidence the same indebtedness as the Old Notes and will be entitled
to the benefits of the Indenture. See "Description of the Exchange Notes."
41
<PAGE>
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Company is 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. However, the Company has not sought its own
interpretive letters, and there can be no assurance that the Commission would
make a similar determination with respect to the Exchange Notes. Based on these
interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old 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 the Company 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, there can be no assurance 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 shall accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from November 24, 1998.
Tendering holders of the Old Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old 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"). The Company expressly reserves 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 Old Notes, by giving oral or written notice to IBJ Whitehall Bank & Trust
Company, as Exchange Agent (the "Exchange Agent") and by giving written notice
of such extension to the holders thereof 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 Old Notes
previously tendered will remain subject to the Exchange Offer unless properly
withdrawn. The Company does not anticipate extending the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not to accept for exchange any Old Notes not theretofore 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 the
Company and (ii) amend the terms of the Exchange Offer in any manner which, in
its good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
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.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company 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
Old Notes for exchange pursuant to the
42
<PAGE>
Exchange Offer must transmit either (i) 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 (ii) if such Old Notes
are tendered pursuant to the procedures for book-entry transfer set forth below
under "--Book-Entry Transfer," a holder tendering Old Notes may transmit an
Agent's Message (as defined herein) to the Exchange Agent in lieu of the Letter
of Transmittal, in either case on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at the DTC (the
"Book-Entry Transfer Facility") 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 (iii) the holder must comply with the guaranteed delivery
procedures described below. The term "Agent's Message" means a message,
transmitted to the Book-Entry Transfer Facility and received by the Exchange
Agent and forming a part of the Book-Entry Confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering holder that such holder has received and agrees to be bound by the
Letter of Transmittal and the Company may enforce the Letter of Transmittal
against such holder. The method of delivery of Old Notes, Letters of Transmittal
or Agent's Message and all other required documents is at the election and risk
of the Holder. If such delivery is by mail, it is recommended 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 Old Notes should be sent to the Company.
If tendered Old 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
Old Notes are to be issued (and any untendered Old Notes are to be reissued) in
the name of the registered holder (which term, for the purposes described
herein, shall include any participant in the Book-Entry Transfer Facility's
systems whose name appears on a security listing as the owner of Old Notes), the
signature of such signer need not be guaranteed. In any other case, the tendered
Old Notes must be endorsed or accompanied by written instruments of transfer in
form satisfactory to the Company 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 Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly executed Letter of Transmittal
accompanied by the Old Notes is received by the Exchange Agent, or (ii) 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. Issuances of Exchange Notes in exchange for Old 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 Letter of Transmittal (and any other
required documents) and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Old Notes tendered for
exchange will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Old Notes not properly
tendered and not to accept any particular Old Notes for exchange which
acceptance might, in the judgment of the Company or its counsel, be unlawful.
The Company also reserves the absolute right to waive any defects or
irregularities as to any particular Old Notes or conditions of the Exchange
Offer either before or after the Expiration Date (including the fight to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities
43
<PAGE>
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. None of the Company,
the Guarantors, the Exchange Agent nor any other person shall be under any duty
to give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old 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 Old
Notes.
If the Letter of Transmittal or any Old 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
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, (a) 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, (b) 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 (c) neither the
holder nor any such other person is an "affiliate" of the Company 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 of Old Notes using the Exchange Offer to
participate in a distribution of the Exchange Notes (i) cannot rely on the
position of the staff of the Commission set forth in a certain no-action and
interpretive letters and (ii) 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 Old Notes where such Old 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."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility 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 the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
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 Old 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 Old Notes are registered and, if possible, the certificate
numbers of the Old 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 Old 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
44
<PAGE>
required documents). Unless Old 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), the Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("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 Old 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 herein prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers of such Old
Notes and the principal amount of each such Old Note), (iii) specify the
principal amount of Old Notes to be withdrawn, (iv) include a statement that
such holder is withdrawing his election to have such Old Notes exchanged,
(v) be signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered or as otherwise
described above (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the IBJ Whitehall Bank & Trust
Company, as trustee (the "Trustee") under the indenture ,dated as of
November 24, 1998 by and among the Company, the Guarantors and the Trustee (the
"Indenture"), a copy of which has been filed as an exhibit to the Registration
Statement, register the transfer of such Old Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. The Exchange Agent
will return the properly withdrawn Old Notes promptly following receipt of
notice of withdrawal. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes or otherwise comply with the Book-Entry Transfer
Facility procedure. All questions as to the validity, form and eligibility of
notices of withdrawals, including time of receipt, will be determined by the
Company and such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by Book-Entry Transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the Book-Entry Transfer procedures
described above, such Old Notes will be credited to an account with such
Book-Entry Transfer Facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old 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, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to the principal amount
(or portion thereof) of the Old Note surrendered for tender.
In all cases, issuance of Exchange Notes for Old 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 Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the
45
<PAGE>
Book-Entry Transfer Facility, 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 Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will he credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old 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 Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following events occur:
(a) if, in the sole judgment of the Company, the Exchange Offer would
violate any law, statute, rule or regulation or an interpretation thereof
of the Staff of the Commissions; or
(b) any governmental approval has not been obtained, which approval
the Company, in its sole discretion, deems necessary for the consummation
of the Exchange Offer; or
(c) there shall have occurred (i) 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
(whether or not mandatory), (ii) a declaration of a banking moratorium or
any suspension of payments in respect of banks by Federal or state
authorities in the United States (whether or not mandatory), (iii) a
commencement of a war, armed hostilities or other international or national
crisis directly or indirectly involving the United States, (iv) any
limitation (whether or not mandatory) 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
(v) 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.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company 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, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall 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 the Company waives or amends the
foregoing conditions, it will, if required by law, extend the Exchange Offer for
a minimum of five business days from the date that the Company first fives
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 the Company concerning the events described above will be final
and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event, the
46
<PAGE>
Company is 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
Old 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 one of 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 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 in the 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.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has 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. The Company will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company 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 Old
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 the Company and the Guarantors and are estimated in the
aggregate to be approximately $200,000, which includes fees and expenses of the
Exchange Agent, Trustee, registration fees, accounting, legal printing and
related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
47
<PAGE>
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old 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 than the registered holder of the Old Notes tendered, or if
tendered Old 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 Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Old Notes. 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
Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Notes as set forth in the legend thereon and in the Indenture. Old
Notes not exchanged pursuant to the Exchange Offer will continue to remain
outstanding in accordance with their terms. In general, the Old 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. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company and the Guarantors will have fulfilled a covenant contained in the
Registration Rights Agreement. Holders of Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold such Old 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 this Exchange Offer. All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Company is 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. However, the Company has not sought its own
interpretive letter, and there can be no assurance 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, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old 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 the
48
<PAGE>
Company 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 such Exchange Notes are acquired in the ordinary
course of such holder's business, 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 such other person is engaging in
or intends to engage in a distribution of the Exchange Notes. However, any
holder who is an "affiliate" of the Company or who has an arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Old
Notes from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old 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, therefore,
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 in exchange for Old Notes, where
such Old 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. The Company and
the Guarantors have agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations herein, 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.
49
<PAGE>
BUSINESS
The Company is the largest Burger King franchisee in the world and has
operated Burger King restaurants since 1976. As of September 30, 1998, the
Company operated 338 Burger King restaurants located in 13 Northeastern,
Midwestern and Southeastern states. Over the last five years, the Company has
expanded its 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 its existing restaurants. As a
result of its growth strategy, the Company has increased the total number of
restaurants it operates by over 70% from 1993 to 1997, and over 40% in 1997
alone. From fiscal 1993 to the last 12 months ending September 30, 1998, the
Company grew its revenues from $171.1 million to $394.4 million and EBITDA from
$20.2 million to $49.2 million. In July 1998, the Company completed its purchase
of Pollo Tropical for a cash purchase price of approximately $97 million. Pollo
Tropical is a regional quick-service restaurant chain featuring grilled
marinated chicken and authentic "made from scratch" side dishes. Prior to its
acquisition by the Company, for the twelve months ended June 30, 1998, Pollo
Tropical had revenues of $69.6 million and EBITDA of $13.0 million. Pro forma
for the Pollo Acquisition, the Company's revenues and EBITDA for the twelve
months ended September 30, 1998 were $449.3 million and $60.2 million,
respectively.
Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 9,800 restaurants throughout the U.S. and in 56
foreign countries. In fiscal 1997, BKC reported systemwide sales of
approximately $7.9 billion from its restaurants in the U.S. and from 1993 to
1997 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. The Company believes that convenience of
location, speed of service, quality and price are the primary competitive
advantages of Burger King restaurants.
As a result of the Pollo Acquisition, the Company operates and franchises
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's emphasis is on 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 September 30, 1998, the Company owned and operated 37 Pollo Tropical
restaurants, all of which are located in south and central Florida, and
franchised 20 Pollo Tropical restaurants located in Puerto Rico, the Dominican
Republic, Ecuador, Netherlands Antilles and Miami. For the fiscal year ended
December 31, 1997, Pollo Tropical's average comparable restaurant sales were
approximately $1.9 million, which the Company believes is among the highest in
the quick-service restaurant industry. The Company believes that the strategic
acquisition of Pollo Tropical will allow the Company to (i) broaden its
restaurant concepts; (ii) expand its geographic presence; (iii) diversify its
revenue base; (iv) increase its cash flow; and (v) enhance its operating
margins.
The quick-service restaurant industry, which includes hamburgers, pizza,
chicken, various types of sandwiches, 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 is a reflection of consumers' increasing
desire for a convenient, reasonably priced restaurant experience. In addition,
factors such as the greater numbers of working women and single parent families
have led to an increased need for meals and snacks prepared outside the home.
According to the National Restaurant Association, the percentage of the average
family's food budget spent on meals consumed "away from home" has grown from
approximately 25% of the food budget in 1955 to approximately 44% in 1995.
50
<PAGE>
COMPETITIVE STRENGTHS
The Company believes its success in the quick-service restaurant industry
is attributable to the following competitive strengths:
Largest Burger King Franchisee. The Company is the largest Burger King
franchisee in the world. The Company believes that this leadership position,
together with its experienced management team, effective management information
systems, an extensive infrastructure and a proven track record for integrating
acquisitions and new restaurants, will provide it with attractive opportunities
to build and acquire additional restaurants. In addition, the Company believes
that these factors enable it to enhance restaurant margins and overall
performance, thereby allowing it to operate more efficiently than other Burger
King franchisees.
Strong Brand Names. The Burger King brand has developed significant equity
since the formation of BKC in 1954, and is 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., from 1992 to 1997, Burger King increased its share of the domestic quick-
service hamburger market from approximately 16.2% to approximately 19.4%. The
acquisition of Pollo Tropical provides the Company with one of the most
recognized quick-service restaurant brands in Pollo Tropical's core markets of
south and central Florida. The Company believes that the success of the Pollo
Tropical concept is due in large part to a strong brand awareness in its
markets, loyalty among its Hispanic customers, and the distinctive positioning
of its menu to cater to the growing consumer preference for both healthier and
ethnic foods.
Stable Cash Flows. The Company believes that the stability of its
operating cash flow is due to the proven success of the Burger King concept and
the Company's consistent focus on restaurant operations. During the past five
years, the Company's restaurant level EBITDA (EBITDA before general and
administrative expenses) margins for its Burger King restaurants ranged between
15.4% and 18.3% and averaged 16.9%. In addition, over the same period,
restaurant level EBITDA margins for Pollo Tropical restaurants ranged between
19.5% and 25.8% and averaged 23.7%. The Company believes that the strength of
its cash flow provides it with liquidity to pursue its growth strategy.
Diversified Locations and Restaurant Concepts. Since August 1993, the
Company has increased the number of Burger King restaurants it owns by over 70%
and has increased its geographic presence from nine states to 13 states. The
Pollo Acquisition has further expanded the geographic presence of the Company
through the location of Pollo Tropical restaurants in Florida, the Caribbean and
Central and South America. The Company believes that this geographic expansion
will enable it to capitalize on a region with a rapidly growing population and
further reduce the Company's dependence on the economic performance of any one
particular region. In addition, the Pollo Acquisition has enabled it to further
diversify its revenue and cash flow base to another concept within the
quick-service restaurant industry.
Experienced Management Team with a Significant Equity Stake. The Company's
senior management team, led 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, the Company has 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 44 district managers who have an average of 16 years of
restaurant management experience in the Burger King system. The Company believes
that the combination of its existing management team, together with the
continuity of leadership provided by Pollo Tropical President and Chief
Operating Officer Nicholas A. Castaldo, will enhance its ability to capitalize
on future growth opportunities in the quick-service restaurant industry.
Management owns (on a fully diluted basis) approximately 12% of Holdings, which
owns 100% of the Company and all regional and district managers have options to
acquire equity in the Company.
51
<PAGE>
BUSINESS STRATEGY
The Company's 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 its historical performance, the
Company believes its business strategy represents a low-risk growth plan. The
Company's strategy is based on the following components:
Leverage Brand Names. The Company realizes significant benefits as a
Burger King franchisee. These benefits are the result of the widespread
recognition of the Burger King brand, the size and penetration of BKC's
advertising, BKC's management of the Burger King brand, including new product
development, and the continued growth of the Burger King system. The Company
believes that the Burger King brand provides significant opportunities to expand
the Company's operations both within and outside its existing geographic
markets, and that the Pollo Tropical brand provides it with significant growth
opportunities within south and central Florida.
Develop Additional Restaurants in Existing Markets. The Company believes
that its existing Burger King markets will continue to provide opportunities for
the development of new restaurants. The Company looks to develop restaurants in
those of its markets it believes are underpenetrated and where the demographic
characteristics are favorable for the development of new restaurants. The
Company's new restaurant development is conducted by its own staff of real
estate and construction professionals with support provided by BKC's development
field personnel. Prior to developing a new restaurant, the Company conducts an
extensive site selection and evaluation process which includes in-depth
demographic, market and financial analysis. By selectively increasing the number
of restaurants it operates in a particular market, the Company can effectively
leverage its management, corporate infrastructure and local marketing while
increasing brand awareness.
The Company believes that it is well positioned to develop new Pollo
Tropical restaurants in Pollo Tropical's core markets of south and central
Florida, which will take advantage of the strong acceptance of its menu items
and the high frequency of visits by its Hispanic customers. The Company believes
that the continued population growth in its Florida markets will provide
significant opportunity to develop additional Pollo Tropical restaurants. The
Company also expects 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. The Company expects to
continue to participate as a buyer in the consolidation of the Burger King
system and believes that there will continue to be opportunities for selective
acquisitions 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,
the Company believes that it is better positioned to capitalize on this
consolidation than other Burger King franchisees. The Company believes that by
acquiring additional Burger King restaurants, it will be able to achieve
operating efficiencies from its ability to improve controls over restaurant food
costs, more efficiently utilize labor, and achieve economies of scale by
leveraging its corporate infrastructure.
Achieve Operating Efficiencies. The Company maintains a disciplined
commitment to increasing the profitability of its existing restaurants. The
Company's large base of restaurants, centralized management structure and
management information systems enable the Company to optimize operating
efficiencies for its new and existing restaurants. The Company is able to
control restaurant and corporate level costs, capture economies of scale by
leveraging its existing corporate infrastructure and use its sophisticated
management information and point-of-sale systems to more efficiently manage its
restaurant operations and to ensure consistent application of operating
controls. Due to its size, the Company also realizes benefits from its improved
bargaining power with respect to purchasing and cost management activities. The
Company believes these factors provide the basis for increased unit and Company
profitability. The Company intends to reduce certain operating expenses
following the Pollo Acquisition by eliminating duplicative costs and, in
addition, expects to realize further operating efficiencies by leveraging the
Company's existing infrastructure and restaurant operating experience.
52
<PAGE>
Consistently Provide Superior Customer Satisfaction. The Company's
operations are focused on achieving a high level of customer satisfaction
through quick, accurate and high-quality customer service. The Company and BKC
have uniform operating standards and specifications relating to the quality,
preparation and selection of menu items, maintenance and cleanliness and
employee conduct. The Company closely supervises the operation of all its
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
The Burger King system marketing strategy is characterized by its "Have It
Your Way(Registered)" service, flame-broiling, generous portions and competitive
prices. 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.
The Company's 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. The Company believes
that convenience of location, quality, price and speed of service are the
primary competitive advantages of Burger King restaurants. Burger King
restaurants appeal to a broad spectrum of consumers, with multiple day-part meal
segments appealing to different groups of consumers.
The Company's 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. Of
the Company's 338 Burger King restaurants at September 30, 1998, 320 are
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. In 1996, Pollo Tropical broadened the selection by adding "island" pork
to the menu. In 1997, a line of "TropiChops," a bowl containing rice, black
beans, chicken or pork and other ingredients at an attractive price point, was
added to the menu. In 1998, the Company added grilled shrimp to the menu. Also
featured is 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. The Company also
offers freshly prepared tropical desserts, such as flan and tres leches.
The Company's 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. Restaurants are designed to conveniently serve a high volume of
customer traffic while retaining an inviting, casual atmosphere.
The Company's Pollo Tropical restaurants are open for lunch and dinner
seven days a 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. The 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.
53
<PAGE>
The Company's Pollo Tropical restaurants typically provide seating for 80
to 100 customers and provide drive-thru service. All of Pollo Tropical's
restaurants are free-standing buildings except for three end-cap locations in
strip shopping centers and one street-level storefront in an office building.
The Company's current prototypical free-standing Pollo Tropical restaurant
ranges between 2,800 and 3,200 square feet in size.
RESTAURANT ECONOMICS
Burger King Restaurants
For Fiscal 1997, the Company's Burger King restaurants generated average
sales of approximately $1,055,000 and average restaurant level EBITDA of
$163,000. Drive-thru sales contributed 56.2% of restaurant sales. In all but 24
locations, which are primarily in malls, the Company's Burger King restaurants
have a drive-thru window. Of total sales, breakfast accounted for 13.0% of
sales, lunch accounted for 34.7% of sales, dinner accounted for 26.7% of sales
and late afternoon and late night snacks accounted for the remainder of sales.
The average sales transaction was $3.85 in 1997.
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. The Company
typically leases the building and land components of its restaurants.
Pollo Tropical Restaurants
For Fiscal 1997, Company-owned Pollo Tropical restaurants generated average
sales of approximately $1,861,000 and average restaurant level EBITDA of
$453,000. Pollo Tropical restaurant sales are well balanced by method of service
and by day part. For 1997, drive-thru sales contributed 35.1% of restaurant
sales and take-out sales accounted for 22.3% of total sales. Of total sales,
lunch accounted for 45.8% of restaurant sales, and dinner accounted for 54.2% of
restaurant sales. The average sales transaction was $7.62.
The cost of equipment, seating signage and other interior costs of a
standard new Pollo Tropical restaurant is approximately $200,000 (excluding the
cost of the land, building, and site improvements). The cost of land generally
ranges from $500,000 to $800,000. 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, however, in the future, the Company intends to
lease its Pollo Tropical restaurants.
54
<PAGE>
RESTAURANT LOCATIONS
Burger King
The following table sets forth the locations of the 338 Burger King
restaurants in the Company's system at September 30, 1998.
<TABLE>
<CAPTION>
TOTAL
STATE RESTAURANTS
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Connecticut................................................................................ 1
Indiana.................................................................................... 5
Kentucky................................................................................... 6
Maine...................................................................................... 4
Massachusetts.............................................................................. 2
Michigan................................................................................... 23
New Jersey................................................................................. 2
New York................................................................................... 153
North Carolina............................................................................. 40
Ohio....................................................................................... 70
Pennsylvania............................................................................... 11
South Carolina............................................................................. 20
Vermont.................................................................................... 1
---
Total...................................................................................... 338
---
---
</TABLE>
Of the Company's Burger King restaurants, 6% are owned and 94% are leased. The
Company typically enters 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, the Company has been able to renew leases,
upon or prior to their expiration, at the prevailing market rates. As part of
its continuing program to upgrade its restaurants, the Company remodeled 68 of
its restaurants in the three years ended December 31, 1997.
Pollo Tropical
The success of the 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 September 30, 1998, Pollo Tropical owned and operated 37
restaurants, all of which are located in Florida, and franchised 20 restaurants,
12 of which are located in Puerto Rico, three in the Dominican Republic, three
in Ecuador, one in Netherlands Antilles and one in Miami.
COMPANY OPERATIONS
Management Structure. Substantially all of the Company's executive
management, finance, marketing and operations support functions are conducted
from either the Company's corporate headquarters in Syracuse, New York or the
Pollo Tropical headquarters in Miami, Florida. With respect to the Company's
Burger King operations, the Company currently has six regional directors with an
average of 22 years of restaurant industry experience, five of whom are vice
presidents of the Company. Each of the regional directors are responsible for
the operations of the Company's Burger King restaurants in their assigned
region. Three of the regional directors have been employed by the Company for
over 20 years. The regional directors are supported by 44 district supervisors
who have an average of 16 years restaurant management experience in the Burger
King system. 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 the
Company's 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 the Company's incentive stock option plan. A typical
Company operated restaurant is staffed with hourly employees who are supervised
by a salaried manager and two or three salaried assistant managers.
55
<PAGE>
Training. The Company maintains a comprehensive training and development
program for all of its personnel and provides both classroom and in-restaurant
training for its 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 the Company.
Management Information Systems. The Company believes that its management
information systems, which are typically more sophisticated than those utilized
by smaller Burger King franchisees and other smaller quick-service restaurant
operators, provide it with the ability to more efficiently manage its
restaurants and to ensure consistent application of operating controls. The
Company also believes that its size affords it the ability to maintain an
in-house staff of information systems professionals dedicated to continuously
enhancing its existing systems. These capabilities also allow the Company to
quickly integrate newly acquired restaurants and to leverage its investments in
information technology over a large base of restaurants.
The Company's 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 the Company's 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 management with the ability to analyze sales and product mix data, to
minimize shrinkage using inventory control and centralized standard costing
systems, and to manage and control labor costs through the use of computerized
labor systems.
The Company's 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. The 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. Key restaurant
performance indicators are monitored at each management level from district
supervisor through senior management.
The Company also has a number of projects underway, principally based on
existing commercially available software, that are designed to further enhance
its capabilities and to upgrade its restaurant and corporate information
systems. The Company is implementing state-of-the-art, touch-screen point-
of-sale systems in its restaurants which are designed to facilitate accuracy and
speed of order-taking while providing systems that are user-friendly and that
reduce training. The Company is also enhancing its labor scheduling and
inventory management modules at the restaurant to further automate these
functions. In addition, the Company's corporate financial systems are being
upgraded to a client/server architecture in order to enhance the functionality
of these systems, to take advantage of work-flow technologies and to provide the
foundation for the future deployment of web-based applications to its
restaurants.
The Company's 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 the Company's intention to
further enhance Pollo Tropical's operations by integrating its systems with the
Company's existing management information systems. The Company believes that it
will be able to improve the operating efficiencies of the Pollo Tropical
restaurants by employing tools and resources available in its existing
management information systems.
Site Selection. The Company believes that the location of its restaurants
is a critical component of each restaurant's success. Potential new development
sites are evaluated based upon accessibility, visibility, costs, surrounding
traffic patterns, competition and demographic characteristics. The Company's
senior management determines the acceptability of all acquisition and new
development sites, based upon analysis prepared by its real estate professionals
and operations personnel.
56
<PAGE>
BURGER KING FRANCHISE AGREEMENTS
Each of the Company's Burger King restaurants operates under a separate
franchise agreement entered into between the Company and BKC. The BKC Franchise
Agreements 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. The BKC Franchise Agreements generally provide for an
initial term of 20 years and have an initial fee of $40,000. A successor BKC
Franchise Agreement may be granted by BKC for an additional 20-year term,
provided the restaurant meets the then-current BKC operating standards and the
Company is not in default under its current BKC Franchise Agreement. Currently,
the successor BKC Franchise Agreement fee is $40,000. The BKC Franchise
Agreements are non-cancelable except for failure to abide by the terms thereof.
In order to obtain a successor BKC Franchise Agreement, 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 the Company has made interim
changes to the restaurant. Although the Company estimates that a substantial
remodeling can cost in excess of $250,000, the Company's average remodeling cost
over the past five years has been approximately $135,000 per restaurant.
The Company believes that it enjoys a good relationship with BKC and that
it will satisfy BKC's normal successor BKC Franchise Agreement policies and,
accordingly, believes that successor BKC Franchise Agreements will be granted in
due course by BKC at the expiration of its existing BKC Franchise Agreements.
Historically, BKC has granted each of the Company's requests for a successor BKC
Franchise Agreement for its restaurants. There can be no assurance, however,
that BKC will continue to grant each of the Company's requests for successor BKC
Franchise Agreements.
In addition to the initial franchise fee, the Company currently pays a
monthly royalty of 3 1/2% of the gross revenues from its Burger King restaurants
to BKC. The Company currently also contributes 4% of gross revenues from its
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. The Company supplements
BKC's marketing with local advertising and promotional campaigns. See
"Business--Advertising and Promotion."
The Company's BKC Franchise Agreements do not give the Company exclusive
rights to operate a Burger King restaurant in any defined territory. The Company
believes that BKC generally seeks to ensure that newly granted franchises do not
materially adversely affect the operations of existing Burger King restaurants.
There can be no assurance, however, that a franchise given by BKC to a third
party will not adversely effect any single Company-operated Burger King
restaurant.
The Company is required to obtain BKC's consent prior to the acquisition or
development of 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 the Company's historic
acquisitions of Burger King restaurants, except for one instance when it
exercised its right of first refusal with respect to a six restaurant
acquisition that the Company proposed in 1997.
POLLO TROPICAL FRANCHISE PROGRAM
As part of the Company's growth strategy for its Pollo Tropical
restaurants, the Company intends to complement the development of additional
Company-owned restaurants in the U.S. with a multi-unit area development
franchise program as a means of accelerating its penetration into international
markets. The Company intends 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.
The Company's standard franchise agreement under which it franchises Pollo
Tropical restaurants to independent restaurant operators (a "Pollo Tropical
Franchise Agreement") 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 prior to the
57
<PAGE>
opening of the franchisee's Pollo Tropical restaurants. The franchisee also pays
a continuing royalty, based upon gross sales. The terms and conditions of the
Pollo Tropical Franchise Agreement will vary depending upon a number of factors,
including the experience and resources of the franchisee, the size and density
of the covered territory, the number of units to be developed, the schedule for
development, capital requirements, fee and royalty arrangements and other
matters. 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 the Company.
ADVERTISING AND PROMOTION
Quick-service restaurant businesses can be significantly affected by the
efficiency and quality of advertising and promotional programs. The Company
believes 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, the Company supplements BKC's advertising
and promotional activities with local advertising and promotions, including the
purchase of additional television, radio and print advertising. The Company's
concentration of restaurants in many of its markets permits it to leverage
advertising in those markets. The Company also utilizes promotional programs,
such as combination value meals and discounted prices, targeted to its
customers, thereby enabling the Company to create a flexible and directed
marketing program.
The Company is 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).
The Company believes that brand awareness for its Pollo Tropical
restaurants is extremely high because of the concentration of its restaurants in
the south Florida markets. Pollo Tropical restaurants are also clustered in its
target markets in order to maximize the effectiveness of its 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 4.6% of revenues from restaurant sales on
advertising in Fiscal 1996 and 1997.
SUPPLIES AND DISTRIBUTION
The Company is a member of a national purchasing cooperative created for
the Burger King system known as Restaurant Services, Inc. ("RSI"). RSI 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. The Company uses its purchasing power to negotiate
directly with certain other vendors, to obtain favorable pricing and terms for
supplying its restaurants.
As a Burger King franchisee, the Company is required to purchase all of its
foodstuffs, paper goods and packaging materials from BKC approved suppliers.
Non-food items such as kitchen utensils, equipment maintenance tools and other
supplies may be purchased from any suitable source provided that such items meet
BKC product uniformity standards. The Company currently obtains substantially
all of its foodstuffs for its Burger King restaurants (other than bread products
which it purchases from local bakeries), paper goods, promotional premiums and
packaging materials from ProSource Distribution Services, Inc. ("ProSource")
under a five-year supply agreement which expires on March 31, 1999. The Company
believes that ProSource's services are competitive with alternatives available
to the Company.
58
<PAGE>
There are other BKC approved supplier/distributors which compete with
ProSource. The Company believes that reliable alternative sources for all
restaurant supplies are readily available at competitive prices should the
arrangements with ProSource 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 its Pollo Tropical restaurants, the Company has 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 by its manager from approved suppliers and are shipped directly to the
restaurants.
QUALITY ASSURANCE
The Company's operations are focused on achieving a high level of customer
satisfaction with speed, accuracy and quality of service closely monitored. The
Company's senior management and restaurant management staff are principally
responsible for ensuring compliance with the Company's and BKC's operating
procedures. The Company 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. Detailed
reports from the Company's management information system and surveys conducted
by the Company or BKC are tabulated and distributed to management on a regular
basis to help maintain compliance.
The Company operates 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.
The Company closely supervises the operation of all of its Burger King
restaurants to help ensure that standards and policies are followed and that
product quality, customer service and cleanliness of the restaurants are
maintained. In addition, BKC may conduct unscheduled inspections of Burger King
restaurants throughout the nationwide system.
At the Pollo Tropical restaurants, 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. Through the
use of a computer display and communications system, orders typically are filled
within two minutes. Managers conduct internal inspections for taste, quality,
cleanliness and food safety several times a day in order to provide a consistent
level of customer service.
TRADEMARKS
Prior to the Pollo Acquisition, the Company had no proprietary intellectual
property other than the logo and trademark of Carrols Corporation. As a
franchisee of Burger King, the Company has 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 U.S. 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
59
<PAGE>
the Pollo Acquisition, the Company has 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. The
Company intends to protect the Pollo Tropical and TropiGrill trademarks by
appropriate legal action whenever necessary.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws affecting
its 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 the Company's restaurants, the Company may incur costs to meet
certain Federal, state and local regulations, including regulations promulgated
under the Americans with Disabilities Act.
The Company is subject to the Federal Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. In September 1997, the
second phase of an increase in the minimum wage was implemented in accordance
with a 1996 amendment to the Federal Fair Labor Standards Act. A significant
number of the Company's 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 the Company's restaurants.
The Company also is subject to various Federal, state and local
environmental laws, rules and regulations. The Company believes that it conducts
its operations in substantial compliance with applicable environmental laws and
regulations. In an effort to prevent and, if necessary, to correct environmental
problems, the Company conducts environmental audits of proposed restaurant sites
and restaurants it seeks to acquire.
With respect to the franchising of Pollo Tropical restaurants, the Company
is subject to franchise and related regulations in the U.S. and certain foreign
jurisdictions where it offers and sells franchises. These regulations include
obligations to provide disclosure about Pollo Tropical, the franchise agreements
and the franchise system. They 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 its markets, the Company's
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 the Company.
With respect to its Burger King restaurants, the Company's 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. The
Company believes that product quality and taste, national brand recognition,
convenience of location, speed of service, menu variety, price and ambiance are
the most important competitive factors in the quick-service restaurant industry
and that its 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. The Company believes that the combination of freshly
prepared food, distinctive menu items, tropical ambience, and fast service help
to distinguish its Pollo Tropical restaurants from other quick-service food
operations. The Company also believes that the strong brand awareness of its
Pollo Tropical restaurants combined with the relatively high costs associated
with
60
<PAGE>
starting a quick-service chain in Pollo Tropical's core markets will make it
difficult for new competitors to effectively compete with the Company's Pollo
Tropical restaurants in these markets.
EMPLOYEES
At December 31, 1998, the Company employed approximately 12,725 persons of
which approximately 225 were supervisory and administrative personnel and 12,500
were restaurant operating personnel. None of the Company's employees are covered
by collective bargaining agreements. Approximately 10,850 of the Company's
restaurant operating personnel at December 31, 1998 were part-time employees.
The Company believes that its employee relations are good.
LITIGATION
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
these matters will have a material adverse effect on its financial condition or
results of operations and cash flows.
PROPERTIES
In addition to the restaurant locations set forth under
"Business--Restaurant Locations", the Company owns an approximately 22,000
square foot building at 968 James Street, Syracuse, New York, which houses its
executive offices and most of the Company's administrative operations for its
Burger King restaurants. The Company leases 10,488 square feet at 7300 North
Kendall Drive, 8th Floor, Miami, Florida, which houses most of the Company's
administrative operations for its Pollo Tropical restaurants.
61
<PAGE>
MANAGEMENT
The following table sets forth information with respect to the current
directors, executive officers and other officers of the Company:
<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 each current Director and
executive officer of the Company is set forth below:
Alan Vituli has been Chairman of the Board of the Company 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 the last ten years as a partner. Among the positions held by Mr. Vituli at
Coopers & Lybrand was National Director of Mergers and Acquisitions. Prior to
joining Coopers & Lybrand, Mr. Vituli was employed in a family-owned restaurant
business. From 1993 through the Pollo Acquisition, Mr. Vituli served on the
Board of Directors of Pollo Tropical, Inc.
Daniel T. Accordino has been President, Chief Operating Officer and a
Director of the Company since February 1993. Prior thereto, Mr. Accordino served
as Executive Vice President--Operations of the Company from December 1986 and as
Senior Vice President from April 1984. From 1979 to April 1984 he was Vice
President responsible for restaurant operations of the Company, having
previously served as the Company's Assistant Director of Restaurant Operations.
Mr. Accordino has been employed by the Company since 1972.
Paul R. Flanders has been Vice President--Finance and Treasurer since April
1997. Prior to joining the Company, he was Vice President--Corporate Controller
of Fay's Incorporated from 1989 to 1997, and Vice President--Controller for
Computer Consoles, Inc. 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 of the Company
in January 1993. He was appointed Secretary of the Company in February 1993.
Prior to joining the Company, 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.
Prior to joining the Company, Mr. Liem was a Senior Audit Manager with the
accounting firm of Price Waterhouse. Mr. Liem was with Price Waterhouse
beginning in 1983.
62
<PAGE>
Timothy J. LaLonde has been Vice President--Controller since July 1997.
Prior to joining the Company, he was a controller at Fay's Incorporated from
1992 to 1997. Prior to that he was a Senior Audit Manager with the accounting
firm of Deloitte & Touche LLP, having been associated with that firm beginning
in 1978.
Steven Barnes is Vice President--Regional Director of the Company. He has
been a Vice President since February 1997 and a Regional Director of Operations
since 1993. Prior to joining the Company, Mr. Barnes was Vice
President--Operations of Snapps Restaurants, Inc. from 1989 to 1993.
Michael A. Biviano is Vice President--Regional Director of the Company.
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 the Company since 1973.
Joseph W. Hoffman has been Regional Director of the Company since July
1997. Mr. Hoffman joined the Company in 1993 in connection with one of the
Company's acquisitions and served in the capacity of District Supervisor from
1993 to 1997. Prior to 1993 Mr. Hoffman was in a similar capacity with Community
Food Service, Inc.
David R. Smith is Vice President--Regional Director of the Company.
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 the
Company since 1972.
James E. Tunnessen is Vice President--Regional Director of the Company. 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
the Company since 1972.
Richard L. Verity has been Vice President--Regional Director since August
1997 when he joined the Company in conjunction with the Company's acquisition of
a group of 63 Burger King restaurants. Mr. Verity was previously with Resser
Management Corp. 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. Prior to
joining Pollo Tropical and since August 1993, Mr. Castaldo was employed as Vice
President of Marketing of Denny's Inc. 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. and
co-founded the firm in 1993. Prior to 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 Managing Director of Dilmun Investments, Inc.
since 1992. Since 1997, Mr. Conlon has been the Co-Head of the bank's U.S.
Merchant Banking group. Prior to 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 President of Dilmun Investments, Inc.,
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. and joined the firm in
1993. Prior to 1993 Mr. Selati was associated with Alex Brown & Sons
Incorporated in the consumer/retail investment banking group. Mr. Selati also
serves as
63
<PAGE>
a Director 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 the 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. Prior to 1996 Mr. Wilhite was with D'Arcy Masius
Benton & Bowles, Inc. ("DMB&B") having served as its Vice Chairman from 1995 to
1996, 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
the Pollo Acquisition, 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. The executive officers
of the Company are chosen by the Board and serve at its discretion. All
Directors of Carrols also serve as Directors for Holdings.
64
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth certain information for the fiscal years
ended December 31, 1997, 1996 and 1995 for the Chief Executive Officer and the
next four most highly compensated executive officers of the Company who were
serving as executive officers at December 31, 1997 and whose annual compensation
exceeded $100,000. No other executive officers received total compensation in
excess of $100,000 in 1997. 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 ...................................................... 1997 $392,758 $ -- 72,830
Chairman of the Board and Chief Executive Officer 1996 363,160 128,210 --
1995 352,632 245,000 20,000
Daniel T. Accordino .............................................. 1997 288,386 -- 31,479
President, Chief Operating Officer and Director 1996 258,943 91,778 --
1995 250,751 150,322 10,000
Joseph A. Zirkman ................................................ 1997 120,436 -- 1,118
Vice President, General Counsel and Secretary 1996 115,288 40,934 --
1995 105,249 41,995 3,000
Paul R. Flanders ................................................. 1997 105,925 -- 1,500
Vice President, Finance and Treasurer 1996 -- -- --
1995 -- -- --
Richard H. Liem .................................................. 1997 103,160 -- 500
Vice President, Financial Operations 1996 94,750 30,288 --
1995 93,092 37,153 3,000
</TABLE>
- ------------------
(a) The Company provides bonus compensation to Executive Officers based on an
individual's achievement of certain specified objectives and the Company's
achievement of specified increases in shareholder value.
65
<PAGE>
OPTION GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED EXERCISE
UNDERLYING TO PRICE
OPTIONS EMPLOYEES (PRICE EXPIRATION
NAME GRANTED(C) IN 1997 PER SHARE) DATE
- ---------------------------------------------------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Alan Vituli(a).................................................. 72,830 61.1% $ 101.76 3/26/2007
Daniel T. Accordino(a).......................................... 31,479 26.4% 101.76 3/26/2007
Joseph A. Zirkman(a)............................................ 368 .3% 101.76 3/26/2007
(b).......................................... 750 .6% 110.00 6/9/2007
Paul R. Flanders(b)............................................. 1,500 1.3% 110.00 6/9/2007
Richard H. Liem(b).............................................. 500 .4% 110.00 6/9/2007
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
OF STOCK APPRECIATION
FOR OPTION TERM(D)
------------------------------------------------
NAME 5% 10%
- ----------------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Alan Vituli(a)............................................. $5,429,590 $ 13,035,600
Daniel T. Accordino(a)..................................... 2,346,808 5,634,322
Joseph A. Zirkman(a)....................................... 27,435 65,867
(b)........................................................ 51,884 131,484
Paul R. Flanders(b)........................................ 103,768 262,968
Richard H. Liem(b)......................................... 34,589 87,656
</TABLE>
- ------------------
(a) Stock option grants to Messrs. Vituli, Accordino and Zirkman include 29,480,
2,579 and 368 shares, respectively, granted at the time of the investment in
the Company by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P. (the "Madison Dearborn Investors") on March 27,
1997 ("MD Investment") under the Vituli Non-Plan Option Agreement, the
Accordino Non-Plan Option Agreement and the Zirkman Non-Plan Option
Agreement, respectively. At the time of the MD Investment, stock option
grants under the 1996 Plan (as defined) were also made for 43,350 shares to
the Vituli Family Trust in exchange for options that it was holding.
Mr. Accordino was also granted options for 28,900 shares under the 1996
Plan. See "Management--Option Agreements Pursuant to the 1996 Plan" and
"Management--Other Option Agreements."
(b) Stock option grants to Messrs. Zirkman, Flanders and Liem include 750,
1,500, and 500 shares, respectively, granted under the 1996 Plan. These
options become exercisable at the rate of 25% per year beginning on
December 31, 1997.
(c) All options are exercisable for the common stock of Holdings.
(d) 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 Securities and
Exchange 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 the Company served as
a director of or member of a compensation committee of any entity for which any
of the persons serving on the Board of Directors of the Company or on the
Compensation Committee of the Board of Directors (the "Compensation Committee")
is an executive officer. The Compensation Committee is comprised of Messrs.
Chereskin, Mathies and Wilhite.
66
<PAGE>
BOARD OF DIRECTORS
Directors Compensation. Directors who are Company employees do not receive
any additional compensation for serving as directors. Directors who are not
employees of the Company receive a fee of $15,000 per annum. All Directors are
reimbursed for all reasonable expenses incurred by them in acting as Directors,
including as members of any committee of the Board of Directors.
Liability Limitation. As permitted under the Delaware General Corporation
Law, the Company's Restated Certificate of Incorporation provides that a
Director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of a fiduciary duty owed to the
Company or its 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 a Director of the Company: (i) for any breach of the Director's
duty of loyalty to the Company or its stockholders; (ii) for an act or omission
not in good faith or involving intentional misconduct or a knowing violation of
law; (iii) for any transaction from which the Director derived an improper
personal benefit; or (iv) for an improper declaration of dividends or purchase
or redemption of the Company's securities.
Indemnification. The Company's Restated Certificate of Incorporation
provides that the Company shall indemnify its Directors and officers to the
fullest extent permitted by Delaware law.
DESCRIPTION OF PLANS
Employee Savings Plan. The Company offers certain of its salaried
employees the option to participate in the Carrols Corporation Corporate
Employee Savings Plan (the "Savings Plan") which is qualified as a
profit-sharing plan by the Internal Revenue Service. In accordance with the
Savings Plan, the Company matches 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 the Company's 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. Benefits may be paid out
upon the occurrence of any of the foregoing events 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. The Company's matching contributions
may be withdrawn under certain conditions of financial necessity or hardship as
defined in the Savings Plan.
Bonus Plans. The Company has 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 the performance of the Company and the division.
1996 Long-Term Incentive Plan. In connection with the MD Investment,
Holdings adopted the Carrols Holdings Corporation 1996 Long-Term Incentive Plan
(the "1996 Plan") pursuant to which the Company may grant "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 (the
foregoing collectively "Awards") to certain officers and employees of the
Company and its subsidiaries. The 1996 Plan replaced a prior long-term incentive
plan which was adopted December 26, 1996 (the "Prior Incentive Plan"). The 1996
Plan is designed to advance the interests of Holdings and the Company 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 Plan permits the Compensation Committee of the Board of Directors
of Holdings (the "Holdings Compensation Committee") to grant, from time to time,
options to purchase an aggregate of up to 106,250 shares of common stock of
Holdings ("Holdings Common Stock"). The vesting periods for awards and the
expiration dates for exercisability of Awards granted under the 1996 Plan are
determined by the Holdings Compensation Committee; however, the exercise period
for an option granted under the 1996 Plan may not exceed ten years from the date
of the grant. The Holdings Compensation Committee is authorized to
67
<PAGE>
grant options under the 1996 Plan to all eligible officers and employees of the
Company and its subsidiaries, including executive officers and directors (other
than outside Directors and members of the Holdings Compensation Committee).
The option exercise price per share of any option granted under the 1996
Plan is determined by the Holdings Compensation Committee; however, in no event
shall the option price per share of any option intended to qualify as an
Incentive Stock Option be less than the fair market value of the Holdings Common
Stock on the date such option is granted. Payment of such option exercise price
shall be made (i) in cash, (ii) by delivering shares of Holdings Common Stock
already owned by the holder of such options, (iii) by delivering a promissory
note, (iv) by a combination for any of the foregoing, in accordance with the
terms of the 1996 Plan, the applicable stock option agreement and any applicable
guidelines of the Holdings Compensation Committee in effect at the time, or
(v) by any other means approved by the Holdings Compensation Committee. In the
event that the holder of an option issued pursuant to the 1996 Plan elects to
pay the exercise price of such option by delivering a promissory note, such
promissory note may be either (A) unsecured and fully recourse against the
holder of such option or (B) 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 forty percent of the exercise price of such
option and, in either event, such note shall mature on the fifth anniversary of
the date thereof 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 Plan, in the event of a Change of Control (as defined
in the 1996 Plan) any and all Awards 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 thirty days prior to the
occurrence of such Change of Control, the Holdings Compensation Committee shall
notify any holder of an Award granted under the 1996 Plan of such Change of
Control. Further, upon a Change of Control that qualifies as an Approved Sale
(as defined in the 1996 Plan) in which the outstanding Holdings Common Stock is
converted or exchanged for or becomes a right to receive any cash, property or
securities other than Illiquid Consideration (as defined in the 1996 Plan),
(i) each Award granted under the 1996 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; (ii) the holder of such Award shall be given an opportunity to
either (A) exercise such Award 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 (1) the same amount
of consideration per share of Holdings Common Stock received by the holders of
Holdings Common Stock 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 (2) the number of shares of Holdings Common Stock represented by
such Award; and (iii) to the extent such Award is not exercised prior to or
simultaneous with such Approved Sale, any such Award shall be canceled.
1998 Directors' Stock Option Plan. During 1998, Holdings adopted the
Carrols Holdings Corporation 1998 Directors' Stock Option Plan (the "1998
Directors' Plan") pursuant to which the Company 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 (the foregoing collectively "Director Awards") to
certain non-employee Directors of Holdings. The 1998 Directors' Plan is designed
to advance the interests of Holdings and the Company by providing an additional
incentive to attract, retain and motivate non-employee individuals as Directors
of the Board of Holdings and the Company.
The 1998 Directors' Plan permits the 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 Director Awards and the
expiration dates for exercisability of Director Awards granted under the 1998
Directors' Plan are determined by the Compensation Committee; however, the
exercise period for an option granted under the 1998 Directors' Plan may not
exceed ten years from the date of the grant. The Holdings Compensation Committee
is authorized to grant options under the 1998 Directors' Plan to all eligible
non-employee Directors of Holdings. Directors that are employees of Holdings or
the Company, Madison Dearborn or Atlantic, or any of their respective affiliates
are not eligible under the 1998 Directors' Plan.
68
<PAGE>
The option exercise price per share of any option granted under the 1998
Directors' Plan is determined by the Holdings Compensation Committee; however,
in no event shall the option price per share of any option intended to qualify
as an Incentive Stock Option be less than the fair market value of the Holdings
Common Stock on the date such option is granted. Payment of such option exercise
price shall be made (i) in cash, (ii) by delivering shares of Common Stock
already owned by the holder of such options, (iii) by delivering a promissory
note, (iv) by a combination of any of the foregoing, in accordance with the
terms of the 1998 Directors' Plan, the applicable stock option agreement and any
applicable guidelines of the Holdings Compensation Committee in effect at the
time, or (v) by any other means approved by the Holdings Compensation Committee.
In the event that the holder of an option issued pursuant to the 1998 Directors'
Plan elects to pay the exercise price of such option by delivering a promissory
note, such promissory note may be either (A) unsecured and fully recourse
against the holder of such options or (B) 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 forty percent of the exercise
price of such option and, in either event, such note shall mature on the fifth
anniversary of the date thereof 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' Plan, in the event of a Change of Control
(as defined in the 1998 Directors' Plan), any and all Director Awards 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
thirty days prior to the occurrence of a Change of Control, the Holdings
Compensation Committee shall notify any holder of a Director Award granted under
the 1998 Directors' 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 Holdings Common Stock 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), (i) each
Director Award granted under the 1998 Directors' Plan shall become exercisable
solely for the amount of such cash, property or securities that the holder of
such Director Award would have been entitled to had such Director Award been
exercised immediately prior to such event; (ii) the holder of such Director
Award shall be given an opportunity to either (A) exercise such Director Award
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 Director Award consideration equal to the amount
determined by multiplying (1) the same amount of consideration per share of
Holdings Common Stock received by the holders of Holdings Common Stock in
connection with the Approved Sale less the exercise price per share of Holdings
Common Stock of such Director Award to acquire Holdings Common Stock by (2) the
number of shares of Holdings Common Stock represented by such Director Award;
and (iii) to the extent such Director Award is not exercised prior to or
simultaneous with such Approved Sale, any such Director Award shall be canceled.
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Vituli Employment Agreement. On March 27, 1997, in connection with the MD
Investment, the Company entered into a Second Amended and Restated Employment
Agreement (the "Vituli Employment Agreement") with Alan Vituli, which amended
and restated that certain Amended and Restated Employment Agreement dated
April 3, 1996 between the Company and Mr. Vituli. Pursuant to the Vituli
Employment Agreement, Mr. Vituli will continue to serve as Chairman of the Board
and Chief Executive Officer of the Company. The Vituli Employment Agreement
shall 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 the Company or Mr. Vituli elects not to renew by giving written notice to
the other at least 90 days before a scheduled expiration date. Pursuant to the
Vituli 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 Vituli Employment Agreement, Mr. Vituli
will participate in the Executive Bonus Plan of the Company and any stock option
plan of the Company applicable to executive employees. The Vituli Employment
Agreement also requires that the Company is 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 Vituli Employment Agreement provides that if
Mr. Vituli's employment
69
<PAGE>
is terminated without Cause (as defined in the Vituli employment Agreement)
following a Change of Control (as defined in the Vituli Employment Agreement),
(i) Mr. Vituli will receive a cash payment in the amount equal to 2.99 times his
Five Year Compensation Average (as defined in the Vituli Employment Agreement)
if such Change of Control occurs during the first two years of the initial term
of the Vituli Employment Agreement and (ii) a cash lump sum equal to his salary
during the previous twelve months if terminated thereafter. The Vituli
Employment Agreement includes non-competition and non-solicitation provisions
effective during term of the agreement and for two years following its
termination.
Accordino Employment Agreement. On March 27, 1997 in connection with the
MD Investment, the Company entered into a Second Amended and Restated Employment
Agreement (the "Accordino Employment Agreement") with Daniel T. Accordino, which
amended and restated that certain Amended and Restated Employment Agreement
dated April 3, 1996 between the Company and Mr. Accordino. Pursuant to the
Accordino Employment Agreement, Mr. Accordino will continue to serve as
President and Chief Operating Officer of the Company. The Accordino Employment
Agreement shall 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 the Company or Mr. Accordino elects not to renew by giving written
notice to the other at least 90 days before a scheduled expiration date.
Pursuant to the Accordino 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 Accordino Employment
Agreement, Mr. Accordino will participate in the Executive Bonus Plan of the
Company and any stock option plan of the Company applicable to executive
employees. The Accordino Employment Agreement also will require that the Company
is 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 million payable to an irrevocable trust designated by Mr. Accordino. The
Accordino Employment Agreement provides that if Mr. Accordino's employment is
terminated without Cause (as defined in the Accordino Employment Agreement)
following a Change of Control (as defined in the Accordino Employment
Agreement), (i) Mr. Accordino will receive a cash payment in the amount equal to
2.99 times his Five year Compensation Average (as defined in the Accordino
Employment Agreement) if such Change of Control occurs during the first two
years of the initial term of the Accordino Employment Agreement and (ii) a cash
lump sum equal to his salary during the pervious twelve months if terminated
thereafter. The Accordino Employment Agreement includes non-competition and
non-solicitation provisions effective during term of the agreement and for two
years following its termination.
Castaldo Employment Agreement. Effective July 20, 1998, in connection with
the Pollo Acquisition, the Company entered into an Amended and Restated
Employment Agreement (the "Castaldo Employment Agreement") with Nicholas A.
Castaldo, which amended and restated that certain Employment Agreement dated
September 19, 1995, as amended May 5, 1997, between Pollo Tropical and
Mr. Castaldo. Pursuant to the Castaldo Employment Agreement, Mr. Castaldo will
serve as the President and Chief Operating Officer of the Company's Pollo
Tropical Division. The Castaldo Employment 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 the Company's option,
exercisable by giving written notice to Mr. Castaldo by no later than July 31,
2003 or 2004, as applicable. Pursuant to the Castaldo Employment 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 the Company's Board of Directors. Pursuant to the Castaldo
Employment 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 the Executive Bonus Plan of the Company (as defined in
the Castaldo Employment Agreement)), which bonus will be payable in accordance
with the Executive Bonus Plan of the Company 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 the Company
after consultation 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 Castaldo Employment Agreement),
none of which bonus will be subject to any deferral provisions in the Executive
Bonus Plan of the Company. Pursuant to the Castaldo Employment Agreement,
Mr. Castaldo will be entitled to be granted, and it is anticipated that he will
be granted, non-qualified options or the
70
<PAGE>
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 the Company
anticipates adopting in the future. The Castaldo Employment Agreement provides
that if Mr. Castaldo's employment is terminated by the Company without Cause (as
defined in the Castaldo Employment Agreement) or by Mr. Castaldo for Good Reason
(as defined in the Castaldo Employment Agreement), or if the term of the
Castaldo Employment Agreement expires, then Mr. Castaldo will be entitled to the
following payments and benefits:
(i) 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 Castaldo Employment 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 shall 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.
(ii) Mr. Castaldo's stock options to be granted under the Option
Agreement (as defined in the Castaldo Employment Agreement) shall vest as
set forth in and in accordance with the terms and provisions of the Option
Agreement.
(iii) Mr. Castaldo's health and medical insurance benefits will be
continued at the Company's expense through the date which is 24 months
following the termination date.
(iv) 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.
The Castaldo Employment 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 PLAN
Vituli Plan Option Agreement. On December 30, 1996 (during the Company's
1997 fiscal year), pursuant to the Securities Purchase Agreement dated as of
March 6, 1996 among the Company, Holdings, the stockholders of Holdings and
Atlantic Restaurants, Inc. (the "Atlantic Transaction"), Holdings granted to
Alan Vituli, under the 1996 Plan, an option (the "Vituli Option") to purchase
43,350 shares of Holdings Common Stock. The Vituli Option (i) was immediately
exercisable with regard to 15,300 shares of Holdings Common Stock at an exercise
price of $110.00 per share and (ii) 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 MD Investment, Holdings granted an option to
purchase 43,350 shares of Holdings Common Stock under the 1996 Plan in exchange
for the options held by the Vituli Family Trust (the "New Vituli Plan Option").
The Vituli Family Trust agreed to reduce the exercise price to $101.7646 per
share. The New Vituli Plan Option shall (i) have a term of ten years from the
date of grant, (ii) shall become exercisable on the date of grant with regard to
15,300 shares of Holdings Common Stock and (iii) shall become exercisable
(a) on December 31, 1997 with regard to 5,610 shares of Holdings Common Stock,
(b) on December 31, 1998 with regard to 5,610 shares of Holdings Common Stock,
(c) on December 31, 1999 with regard to 5,610 shares of Holdings Common Stock
and (d) on December 31, 2000 with regard to 11,220 shares of Holdings Common
Stock.
Accordino Plan Option Agreement. On December 30, 1996 (during the
Company's 1997 fiscal year), pursuant to the Atlantic Transaction, Holdings
granted to Daniel T. Accordino, under the 1996 Plan, an option (the "Accordino
Option") to purchase 28,900 shares of Holdings Common Stock. The Accordino
Option (i) was immediately exercisable with regard to 10,200 shares of Holdings
Common Stock at an exercise price of $110.00 per share and (ii) 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.
71
<PAGE>
In connection with the MD Investment, the Accordino Option was canceled and
Holdings granted to Mr. Accordino, under the 1996 Plan, an option (the "New
Accordino Plan Option") to purchase 28,900 shares of Holdings Common Stock at an
exercise price of $101.7646 per share. The New Accordino Plan Option shall
(i) have a term of ten years from the date of grant, (ii) shall become
exercisable on the date of grant with regard to 10,200 shares of Holdings Common
Stock and (iii) become exercisable (a) on December 31, 1997 with regard to 3,740
shares of Holdings Common Stock, (b) on December 31, 1998 with regard to 3,740
shares of Holdings Common Stock, (c) on December 31, 1999 with regard to 3,740
shares of Holdings Common Stock and (d) on December 31, 2000 with regard to
7,480 shares of Holdings Common Stock.
OTHER OPTION AGREEMENTS
Vituli Non-Plan Option Agreement. In connection with the MD Investment,
Holdings granted to Mr. Vituli a nonqualified stock option (the "Vituli Non-Plan
Option") to purchase 29,480 shares of Holdings Common Stock at an exercise price
of $101.7646. The Vituli Non-Plan Option shall have a term of ten years from the
date of grant and shall become exercisable in five equal parts on the five
consecutive anniversaries of the date of grant. The Vituli Non-Plan Option will
have substantially the same terms as options issued under the 1996 Plan with
respect to (i) the method of payment of the exercise price of the Vituli
Non-Plan Option and (ii) the effect of a Change of Control (as defined in the
1996 Plan).
Accordino Non-Plan Option Agreement. In connection with the MD Investment,
Holdings granted to Mr. Accordino a nonqualified stock option (the "Accordino
Non-Plan Option") to purchase 2,579 shares of Holdings Common Stock at an
exercise price of $101.7646. The Accordino Non-Plan Option shall have a term of
ten years from the date of grant and shall become exercisable in five equal
parts on the five consecutive anniversaries of the date of grant. The Accordino
Non-Plan Option will have substantially the same terms as the Vituli Non-Plan
Option.
Zirkman Non-Plan Option Agreement. In connection with the MD Investment,
Holdings granted to Joseph A. Zirkman a nonqualified stock option (the "Zirkman
Non-Plan Option") to purchase 368 shares of Holdings Common Stock at an exercise
price of $101.7646. The Zirkman Non-Plan Option shall have a term of ten years
from the date of grant and shall become exercisable in five substantially equal
parts on the five consecutive anniversaries of the date of grant. The Zirkman
Non-Plan Option will have substantially the same terms as the Vituli Non-Plan
Option.
72
<PAGE>
PRINCIPAL STOCKHOLDERS
The following tables set forth the number and percentage of shares of
voting common stock of the Company and of Holdings beneficially owned, as of
December 31, 1998, by (i) all persons known by the Company to be the beneficial
owners of more than 5% of the shares of such voting common stock, (ii) each
Director of the Company who owns shares of such voting common stock, (iii) each
executive officer of the Company included in the Summary Compensation Table
above and (iv) all executive officers and Directors of the Company 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:
Atlantic Restaurants, Inc............................................... 566,667 47.14% 44.14%
Madison Dearborn Capital Partners, L.P.................................. 283,333 23.57% 22.07%
Madison Dearborn Capital Partners II, L.P............................... 283,334 23.57% 22.07%
Executive Officers and Directors:
Alan Vituli(c).......................................................... 42,243 3.51% 6.44%
Daniel T. Accordino..................................................... 19,056 1.59% 2.52%
Joseph A. Zirkman....................................................... 672 .06% .13%
Paul R. Flanders........................................................ 875 .07% .16%
Richard H. Liem......................................................... 325 .03% .06%
Clayton E. Wilhite...................................................... 250 .02% .08%
Directors and executive officers of the Company as a group (12
persons)............................................................. 63,746 5.30% 9.44%
</TABLE>
- ------------------
(a) The number of shares shown in the table includes stock options which are
currently exercisable or exercisable within 60 days to purchase: 32,416
shares held by Mr. Vituli; 18,196 shares held by Mr. Accordino; 549 shares
held by Mr. Zirkman; 875 shares held by Mr. Flanders; 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) Includes 26,520 vested stock options contributed to and held by the Vituli
Family Trust.
73
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement. On March 27, 1997, in connection with the MD
Investment, all holders of Holdings Common Stock entered into a Stockholders
Agreement (the "Stockholders Agreement"). The Stockholders Agreement provides
that all holders of Holdings Common Stock will vote their Holdings 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 the Company):
(a) three representatives designated by the Madison Dearborn Investors; (b)
three representatives designated by Atlantic; and (c) two representatives
designated by Mr. Vituli as long as Mr. Vituli is the Chief Executive Officer of
the Company, subject in each case to adjustment if the percentage holdings of
each decreases below a certain threshold. In addition, the Stockholders
Agreement provides for certain limitations on the ability of holders of Holdings
Common Stock to sell, transfer, assign, pledge or otherwise dispose of their
Holdings Common Stock. The Stockholders Agreement contains covenants requiring
the Company to obtain the prior consent of the Madison Dearborn Investors and
Atlantic prior to taking certain actions including, without limitation, 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
MD Investment, Atlantic, the Madison Dearborn Investors, Alan Vituli, Daniel T.
Accordino and Joseph A. Zirkman entered into a Registration Agreement with
Holdings (the "Registration Agreement"). The Registration Agreement provides for
demand and piggyback rights with respect to Holdings Common Stock. The Madison
Dearborn Investors or Atlantic may demand registration under the Securities Act
(a "Demand Registration") 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 (i) in the case of the first Demand Registration,
the Madison Dearborn Investors and Atlantic must consent to a Demand
Registration unless Holdings has completed a registered public offering of the
Holdings Common Stock and (ii) all Demand Registrations on Form S-1 must be
underwritten. The Madison Dearborn Investors and Atlantic are each entitled to
request: three Demand Registrations on Form S-1 in which Holdings shall pay all
registration expenses, provided that the offering value of the Registrable
Securities is at least $15 million; and an unlimited number of Demand
Registrations on Form S-3 in which Holdings shall 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 therein within 20 days
after receipt of Holdings' notice (a "Piggyback Registration"). Holdings shall
pay the registration expenses of the holders of Registrable Securities in all
Piggyback Registrations. The Registration Agreement contains typical "cut back"
provisions in connection with both Demand Registrations and Piggyback
Registrations. The Company 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.
74
<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITY
The Senior Credit Facility, pursuant to which Chase Bank of Texas, National
Association, is agent and lender and which includes certain other lenders
parties thereto, provides for (i) a revolving credit facility under which the
Company may borrow up to $25.0 million (including a standby letter of credit
facility of up to $5.0 million) (the "Revolving Credit Facility") and (ii) a
term loan facility under which the Company may borrow up to $125.0 million (the
"Term Loan Facility"). Borrowings under the Revolving Credit Facility were, and
are required to be, used to refinance existing indebtedness of the Company, to
finance permitted acquisitions and new store development, and for other working
capital and general corporate purposes. Borrowings under the Term Loan Facility
were and are required to be, used to finance acquisitions by the Company and
refinance certain indebtedness of the Company.
Under the Senior Credit Facility, the Revolving Credit Facility expires on
December 31, 2001 (subject to a one-year extension upon the request of the
Company and unanimous approval of the lenders). Approximately $47.9 million of
the proceeds of the Private Offering were used to prepay principal amounts under
the Senior Credit Facility including $31.0 million which was applied to reduce
the Term Loan Facility. The outstanding principal amount of Term Loan advances
under the Term Loan Facility (after giving effect to the Private Offering and
the application by the Company of the proceeds therefrom) are repayable as
follows: (i) an aggregate of $7.1 million payable in four quarterly installments
in 1999; (ii) an aggregate of $8.9 million payable in four quarterly
installments in 2000; (iii) an aggregate of $10.8 million payable in four
quarterly installments in 2001; (iv) an aggregate of $12.6 million payable in
four quarterly installments in 2002; (v) an aggregate of $3.5 million payable in
March 2003 and (vi) a final payment of an aggregate of $45.7 million payable
upon the Term Loan Facility's maturity on June 30, 2003.
Borrowings under the Revolving Credit Facility and the Term Loan Facility
bear interest at a per annum rate, at the Company's option, of either
(i) (a) the greater of the prime rate or the federal funds rate plus .50%, plus
(b) a margin of 0%, .25%, .50%, .75% or 1.0%, based on the Company achieving
certain leverage ratios (as defined in the Senior Credit Facility) or
(ii) LIBOR plus a margin of 1.50%, 1.75%, 2.00%, 2.25% or 2.50%, based on the
Company achieving certain leverage ratios.
In general, the Company's obligations under the Senior Credit Facility are
secured by all of the assets, tangible or intangible, real, personal or mixed,
of the Company and certain of its subsidiaries (other than certain leasehold
property), and a pledge by Holdings of all of the outstanding capital stock of
the Company. In addition, payment of all obligations under the Senior Credit
Facility is guaranteed by Holdings. Under the Senior Credit Facility, the
Company is required to make mandatory prepayments of principal annually in an
amount equal to 50% of Excess Cash Flow (as defined in the Senior 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 the Company therefrom.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility will require the Company to meet certain financial
ratio tests.
75
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Old Notes have been, and the Exchange Notes are to be, issued under the
Indenture. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to
all of the provisions of the Indenture, including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
TIA as in effect on the date of the Indenture. The definitions of certain
capitalized terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this section, references to the
"Company" include only Carrols Corporation and not its subsidiaries. The Old
Notes and the Exchange Notes are collectively referred to herein as the "Notes."
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
the holders of the Exchange Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the Exchange Notes at the Trustee's corporate
trust office in New York, New York. At the Company's option, interest may be
paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders. Any Old Notes that remain outstanding after the
completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior
Indebtedness, including borrowings under the Senior Credit Facility. The
Exchange Notes will rank pari pasu in right of payment with all other senior
subordinated Indebtedness of the Company and senior in right of payment to all
subordinated Indebtedness of the Company. The Exchange Notes will be limited in
aggregate principal amount to $170,000,000, and 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 persons who are registered Holders at the
close of business on the May 15 and November 15, respectively, immediately
preceding the applicable interest payment date. 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 and including the Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Exchange Notes will be redeemable, at the
Company's option, in whole or in part at any time, on and after December 1,
2003, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on December 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------- ----------
<S> <C>
2003..................................................................................... 104.750%
2004..................................................................................... 103.167%
2005..................................................................................... 101.583%
2006 and thereafter...................................................................... 100.000%
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time, or from
time to time, on or prior to December 1, 2001, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
35% of the principal amount of Exchange Notes originally issued at a redemption
price equal to 109.50% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the principal amount of Exchange Notes originally
76
<PAGE>
issued remain outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 90 days after the
consummation of any such Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Exchange Notes of a principal amount of $1,000 or
less shall be redeemed in part; provided further, however, that if a partial
redemption is made with the proceeds of a Public Equity Offering, selection of
the Exchange Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first- class mail at least
30 but not more than 60 days before the redemption date to each Holder of
Exchange Notes to be redeemed at its registered address. If any Exchange Note is
to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
interest will cease to accrue on Exchange Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
RANKING AND SUBORDINATION OF THE EXCHANGE NOTES
The payment of the principal of, premium, if any, and interest on the
Exchange Notes is subordinated in right of payment, to the extent and in the
manner provided in the Indenture, to the prior payment in full in cash of all
Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings (excluding any payment or distribution of Permitted Junior
Securities and excluding any payment from funds deposited in accordance with,
and held in trust for the benefit of Holders pursuant to, "Legal Defeasance and
Covenant Defeasance" (a "Defeasance Trust Payment")), all Senior Indebtedness
then due shall first be paid in full in cash before the Holders of the Exchange
Notes or the Trustee on behalf of such Holders shall be entitled to receive any
payment by the Company of the principal of, premium, if any, or interest on the
Exchange Notes, or any payment by the Company to acquire any of the Exchange
Notes for cash, property or securities, or any distribution by the Company with
respect to the Exchange Notes of any cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment). Before any payment may be made by, or on behalf of,
the Company of the principal of, premium, if any, or interest on the Exchange
Notes upon any such dissolution or winding up or total liquidation or
reorganization, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment), to which the Holders of the
Exchange Notes or the Trustee on their behalf would be entitled, but for the
subordination provisions of the Indenture, shall be made by the Company or by
any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees or agent or agents under any agreement or indenture pursuant
to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash
77
<PAGE>
after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by the
Company of principal of, premium, if any, or interest on the Exchange Notes,
whether pursuant to the terms of the Exchange Notes, upon acceleration, pursuant
to an Offer to Repurchase or otherwise, shall be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by the Company of principal of, premium, if any, or
interest on the Exchange Notes, whether pursuant to the terms of the Exchange
Notes, upon acceleration, pursuant to an Offer to Purchase or otherwise, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or the
Exchange Notes to the contrary, (x) in no event will a Payment Blockage Period
extend beyond 179 days from the date the Payment Blockage Notice in respect
thereof was given, (y) there shall be a period of at least 181 consecutive days
in each 360-day period when no Payment Blockage Period is in effect and (z) not
more than one Payment Blockage Period may be commenced with respect to the
Exchange Notes during any period of 360 consecutive days. No event of default
that existed or was continuing on the date of commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period (to the extent the holder of Designated Senior
Indebtedness, or trustee or agent, giving notice commencing such Payment
Blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment Blockage
Period by the holder or holders of such Designated Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default has been cured or waived for a period of not less than 90 consecutive
days.
The failure to make any payment or distribution for or on account of the
Exchange Notes by reason of the provisions of the Indenture described under this
"Ranking and Subordination of the Exchange Notes" heading will not prevent, or
be construed as preventing, the occurrence of any Event of Default in respect of
the Exchange Notes. See "--Events of Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Exchange Notes will be paid to the holders of Senior Indebtedness to the
extent necessary to pay the Senior Indebtedness in full in cash, and the Company
may be unable to meet fully or at all its obligations with respect to the
Exchange Notes. Furthermore, by reason of such subordination, in the event of
any such insolvency of the Company, creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than other creditors of the
Company, including holders of the Exchange Notes. Subject to the restrictions
set forth in the Indenture, in the future the Company may issue additional
Senior Indebtedness.
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Exchange
Notes, including the payment of principal of and interest on the Exchange Notes.
The Guarantees will be subordinated to Guarantor Senior Indebtedness on the same
basis as the Exchange Notes
78
<PAGE>
are subordinated to Senior Indebtedness. The obligations of each Guarantor are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of such Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount pro rata, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the Indenture. See "Certain Covenants--Merger, Consolidation and
Sale of Assets." In the event all of the Capital Stock of a Guarantor is sold by
the Company and the sale complies with the provisions set forth in "Certain
Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be
released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Exchange Notes, and the aggregate net
assets, earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder has the right to require that the Company repurchase all or a
portion of such Holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a repurchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the repurchase date,
which must be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note repurchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Repurchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
repurchase price for all the Exchange Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to repurchase outstanding Exchange Notes pursuant to a change of
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its repurchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. Neither the Board of Directors of the Company nor the Trustee may
waive the covenant relating to a Holder's right to redemption upon a Change of
Control.
Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on its property, to make Restricted Payments (as defined) and to
make Asset Sales may also make more difficult or discourage a takeover of the
Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Exchange Notes, and there can be no assurance
that the Company or the acquiring party will have sufficient financial resources
to effect such redemption or repurchase. Such restrictions and the restrictions
on transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may
79
<PAGE>
not afford the Holders of Exchange Notes protection in all circumstances from
the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Senior Credit Facility provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any permitted
refinancings of the Senior Credit Facility to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Exchange Notes, the Company could seek the consent of its lenders to the
purchase of the Exchange Notes or could attempt to repay the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company will remain prohibited from purchasing the Exchange
Notes. In such case, the Company's failure to purchase tendered Exchange Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Senior Credit Facility.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness and Issuance of
Disqualified Capital Stock. The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, incur (as defined) any
Indebtedness (other than Permitted Indebtedness) and the Company will not issue
any Disqualified Capital Stock and will not permit its Restricted Subsidiaries
to issue any Preferred Stock except Preferred Stock of a Restricted Subsidiary
issued to (and as long as it is held by) the Company or a Wholly Owned
Restricted Subsidiary of the Company; provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Restricted Subsidiary may incur Indebtedness (including, without limitation,
Acquired Indebtedness), the Company 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
Stock, as the case may be, and the use of proceeds therefrom, the Company's
Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to 1.0.
Limitation on Senior Subordinated Indebtedness. The Company shall not, and
shall not cause or permit any Guarantor to, directly or indirectly, incur, or
suffer to exist, any Indebtedness that by its terms would expressly rank 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 the Company or such Guarantor, as the case may be.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any Restricted Subsidiary to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock, (b) redeem any Capital Stock
of the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock, or (c) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b) and (c) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default
shall have occurred and be continuing or (ii) the Company is not able to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness and
Issuance of Disqualified Capital Stock" covenant or (iii) the aggregate amount
of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of
80
<PAGE>
such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum (the "Basket"), without
duplication, of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); provided that for purposes of this clause (w), the
definition of "Net Income" shall include (i) after-tax gains from Asset Sales or
abandonments or reserves relating thereto and (ii) an add-back of amortization
associated with the excess of purchase price over the value allocated to
tangible property or assets, acquired by the Company or its Restricted
Subsidiaries; plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company or any equity contribution
received by the Company from a holder of the Company's Capital Stock (other than
Qualified Capital Stock or any equity contribution, the proceeds of which are to
be used to redeem Notes pursuant to the provisions described under
"Redemption--Optional Redemption Upon Public Equity Offerings"); plus (y) the
principal amount (or accreted amount (determined in accordance with GAAP), if
less) of any Indebtedness of the Company or any Subsidiary of the Company
incurred after the Issue Date which has been converted into or exchanged for
Qualified Capital Stock of the Company (minus the amount of any cash or property
distributed by the Company or any Subsidiary of the Company upon such conversion
or exchange); plus (z) the amount equal to the net reduction in Investments
(other than Permitted Investments) made by the Company or any of its Restricted
Subsidiaries in any Person resulting from, and without duplication,
(i) repurchases or redemptions of such Investments by such Person, proceeds
realized upon the sale of such Investment to an unaffiliated purchaser and
repayments of loans or advances or other transfers of assets by such Person to
the Company or any Restricted Subsidiary of the Company or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed the
amount of the Investment previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of Restricted Payments; provided, however, that no amount shall be
included under this clause (z) to the extent it is already included in
Consolidated Net Income.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within
60 days after the date of declaration of such dividend if the dividend would
have been permitted on the date of declaration; (2) so long as no Default shall
have occurred and be continuing or would arise therefrom, any purchase,
redemption, defeasance or other acquisition of Capital Stock or subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Qualified Capital Stock of the Company;
provided, however, that the value of any such Qualified Capital Stock issued in
exchange for Capital Stock and subordinated Indebtedness are excluded from
clause (iii)(x) of the immediately preceding paragraph; (3) so long as no
Default shall have occurred and be continuing or would arise therefrom, any
purchase, redemption, defeasance or other acquisition of subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, subordinated Indebtedness of the Company;
(4) so long as no Default shall have occurred and be continuing or would arise
therefrom, dividends or distributions by the Company to Holdings to be promptly
applied by Holdings to repurchase Capital Stock of Holdings (including rights,
options or warrants to acquire such 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, in an aggregate
amount not to exceed $1 million in any fiscal year; provided, however, that
amounts not expended in any calendar year may be expended in succeeding fiscal
years as long as no more than $3 million is so expended in any fiscal year;
(5) so long as no Default shall have occurred and be continuing or would arise
therefrom, Restricted Payments not to exceed $10 million in the aggregate during
the term of the Indenture; and (6) any dividends or payments to Holdings in
respect of overhead expenses, including legal, accounting and other professional
fees, that are directly attributable to the operations of the Company and its
Restricted Subsidiaries. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(4) and (5) shall be included in such calculation. Transactions pursuant to
clauses (2) and (3) shall not increase the Basket.
81
<PAGE>
The amount of any non-cash Restricted Payment shall be the fair market
value, on the date such Restricted Payment is made, of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 90% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 270 days of receipt thereof
either (A) to prepay any Indebtedness incurred pursuant to clause (ii) of the
definition of "Permitted Indebtedness" and effect a permanent reduction
thereunder, (B) to prepay any Senior Indebtedness and effect a permanent
reduction thereunder, (C) to make an investment in Replacement Assets or (D) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A), (iii)(B) and (iii)(C). On the 271st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines, as the case may be, not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B),
(iii)(C) and (iii)(D) of the next preceding sentence (each, a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not
been applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on
a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than
60 days following the applicable Net Proceeds Offer Trigger Date, from all
Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that the Company may defer the Net Proceeds Offer
until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in
excess of $5 million resulting from one or more Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $5 million, shall be applied as required pursuant to this paragraph). If at
any time any non-cash consideration received by the Company or any Restricted
Subsidiary, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 90% of the
consideration for such Asset Sale constitutes cash or Replacement Assets and
(ii) such Asset Sale is for fair market value; provided that any consideration
not constituting Replacement Assets received by the Company or any of its
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 two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
82
<PAGE>
elect to tender their Exchange Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender Notes in
an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders
will be purchased on a pro rata basis (based on amounts tendered). A Net
Proceeds Offer shall remain open for a period of 20 business days or such longer
period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock, (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such 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 Issue Date, including, without limitation, the
Senior Credit Facility, to the extent and in the manner such agreements are in
effect on the Issue Date; (6) customary Liens granted by the Company 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) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company 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, however, 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 "Limitation on Asset Sales" covenant
to the extent applicable thereto.
Limitation on Liens. (a) The Company shall not, and shall not permit any
Restricted Subsidiary to, incur or suffer to exist any Lien (other than
Permitted Liens) on property or assets of the Company or such Restricted
Subsidiary to secure Indebtedness that is pari passu or subordinate in right of
payment to the Exchange Notes, in the case of the Company, or the Guarantors, in
the case of a Restricted Subsidiary that is a Guarantor, without making, or
causing such Restricted Subsidiary to make, effective provision for securing the
Exchange Notes or the Guarantees, as the case may be (and, if the Company so
determines, any other Indebtedness of the Company or of such Restricted
Subsidiary that is not pari passu with or subordinated in right of payment to
the Exchange Notes or the Guarantees, as the case may be); provided, however,
that (i) in the case of a Lien securing Indebtedness that is pari passu with the
Exchange Notes, in the case of the Company, or the Guarantees, in the case of a
Restricted Subsidiary that is a Guarantor, the Lien securing the Exchange Notes
or the Guarantees, as the case may be, is senior or pari passu in priority with
such Lien and (ii) in the case of a Lien securing Indebtedness that is
subordinated in right of payment to the Exchange Notes, in the case of the
Company, or the Guarantees, in the case of a Restricted Subsidiary that is a
Guarantor, the Lien securing the Exchange Notes or the Guarantees, as the case
may be, is senior in priority to such Lien.
83
<PAGE>
(b) Notwithstanding the foregoing, any security interest granted by the
Company or any Restricted Subsidiary to secure the Exchange Notes, in the case
of the Company, or the Guarantees, in the case of a Restricted Subsidiary that
is a Guarantor, created pursuant to paragraph (a) above shall provide by its
terms that such security interest shall be automatically and unconditionally
released and discharged upon the release by the holders of the Indebtedness of
the Company or any Restricted Subsidiary described in paragraph (a) above of
their security interest (including any deemed release upon indefeasible payment
in full of all obligations under such Indebtedness), at a time when (A) no other
Indebtedness that is pari passu or subordinated in right of payment to the
Notes, or the Guarantees, as the case may be, has been secured by such property
or assets of the Company or any such Restricted Subsidiary or (B) the holders of
all such other Indebtedness which is secured by such property or assets of the
Company 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 and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person, unless: (i) either (1) the Company shall be the
surviving or continuing corporation or (2) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or the
Person which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the Company's
Restricted Subsidiaries substantially as an entirety (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia and (y) shall
expressly assume, by supplemental indenture (in form and substance satisfactory
to the Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on all of the
Exchange Notes and the performance of every covenant of the Exchange Notes and
the Indenture on the part of the Company to be performed or observed;
(ii) immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Disqualified Capital Stock" covenant; (iii) immediately before and immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer by lease, assignment, sale or
otherwise, in a single transaction or series of transactions, of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
The Indenture will provide that upon any consolidation, combination or
merger of the Company or any transfer of all or substantially all of the assets
of the Company in accordance with the foregoing, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company, as applicable, under the
84
<PAGE>
Indenture and the Exchange Notes, as applicable, and the Registration Rights
Agreement with the same effect as if such surviving entity had been named as
such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of its Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Guarantor on its Guarantee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
pro forma basis, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this covenant. Any merger or consolidation of a Guarantor
with and into the Company (with the Company being the surviving entity) or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (iv) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit or suffer to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than
(i) Affiliate Transactions permitted under paragraph (b) below and
(ii) Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary. In addition, if the Company or any Restricted
Subsidiary enters into an Affiliate Transaction (or a series of related
Affiliate Transactions) involving aggregate payments or other property with a
fair market value in excess of $5 million, the Company or such Restricted
Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain
a favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Restricted Subsidiary, as the case
may be, from a financial point of view, from an Independent Financial Advisor
and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors;
(ii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; (iii) any agreement as in effect as of the Issue Date and any payment
with respect thereto as required thereunder as of the Issue Date and as
described herein under "Certain Transactions"; and (iv) Restricted Payments
permitted by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its 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 the Company or any of its Restricted Subsidiaries
shall organize, acquire or otherwise invest in another Restricted Subsidiary,
then such transferee or acquired or other Restricted Subsidiary shall
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Exchange Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Guarantor for all purposes of the Indenture.
85
<PAGE>
Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and
(ii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of such Designation (assuming the
effectiveness of such Designation) pursuant the "Limitation on Restricted
Payments" covenant in an amount (the "Designation Amount") equal to the
fair market value of the Company's proportionate interest in the net worth
of such Subsidiary on such date calculated in accordance with GAAP.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the "Limitation
on Restricted Payments" covenant for all purposes of the Indenture in the
Designation Amount.
Neither the Company nor any Restricted Subsidiary shall at any time
(x) provide credit support for or guarantee any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness); provided that the Company may pledge equity interests or
Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis such that the
pledgee has no claim whatsoever against the Company other than to obtain such
pledged property, (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) 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,
except for any nonrecourse guarantee given solely to support the pledge by the
Company of the capital Stock of any Unrestricted Subsidiary. For purposes of the
foregoing, the Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to include the Designation of all of the Subsidiaries
of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses other than Permitted Businesses.
Reports to Holders. The Company will deliver to the Trustee and the
Holders within 15 days after the filing of the same with the Commission, copies
of the quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA Section 314(a). In addition, for so
long as any Exchange Notes remain outstanding, the Company will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Exchange Notes, if not obtainable from the SEC, information of the type that
would be filed with the SEC pursuant to the foregoing provisions, upon the
request of any such holder.
86
<PAGE>
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not prohibited by the provisions of the Indenture described under "Ranking
and Subordination of the Exchange Notes" above);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not prohibited by the provisions of the Indenture described
under "--Ranking and Subordination of the Exchange Notes" above);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) a default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any of its Restricted
Subsidiaries having an outstanding principal amount of $10 million or more
individually or in the aggregate that has resulted in the acceleration of
the payment of such Indebtedness or failure by the Company or any of its
Restricted Subsidiaries to pay principal when due at the stated maturity of
any such Indebtedness and such default or defaults shall have continued
after any applicable grace period and shall not have been cured or waived;
(v) one or more judgments in an aggregate amount in excess of $10
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Guarantee (other than by reason of release
of a Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of, and premium, if any, and accrued interest on all
the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
due and payable. If an Event of Default specified in clause (vi) above with
respect to the Company occurs and is continuing, then all unpaid principal of,
and premium, if any, and accrued interest on all of the outstanding Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description
87
<PAGE>
above of Events of Default, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Exchange Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such
88
<PAGE>
deposit or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain other customary conditions
precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel
required by clause (ii) above with respect to a Legal Defeasance need not be
delivered if all Exchange Notes not therefore delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable on
the maturity date within one year or (z) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be;
(ii) the Company has paid all other sums payable under the Indenture by the
Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a
89
<PAGE>
majority in principal amount of Notes to waive Defaults or Events of Default
(other than Defaults or Events of Default with respect to the payment of
principal and interest or the Notes); (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
the ranking or priority of any Note or Guarantee in respect thereof in any
manner adverse to the Holders or modify the definition of Senior Indebtedness or
amend or modify the subordination provisions of any Note or Guarantee in any
manner adverse to the Holders; or (viii) release any Guarantor from any of its
obligations under its Guarantee or the Indenture otherwise than in accordance
with the Indenture.
GOVERNING LAW
The Indenture provides that it, the Exchange Notes and the Guarantees are
governed by, and to be construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of its 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.
"amend" means amend, modify, supplement, restate or amend and restate,
including successively; and "amending" and "amended" have correlative meanings.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or any Restricted Subsidiary, or
shall be merged with or into the Company or any Restricted Subsidiary, or (b)
the acquisition by the Company 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
90
<PAGE>
business of such Person or any other properties or assets of such Person other
than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person of (a) any Capital Stock of any Restricted Subsidiary; or (b) any
other property or assets of the Company or any Restricted Subsidiary other than
in the ordinary course of business; provided, however, that Asset Sales shall
not include (i) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of less
than $1.5 million, (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "Merger, Consolidation and Sale of Assets," (iii) the Pollo Sale-Leaseback
or (iv) 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 thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person, and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"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 (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by any bank organized under the laws
of the United States of America or any state thereof or the District of Columbia
or any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company):
(i) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) other than to the Permitted Holders; (ii) the approval by the holders
of Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) prior to the earlier to occur of (A) the
first public offering of Capital Stock of Holdings or (B) the first public
offering of Capital Stock of the Company, either (1) the
91
<PAGE>
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 the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or dissolution
of the Company, any direct or indirect transfer of securities by Holdings or
otherwise or (2) 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 the Company than the Permitted
Holders; (iv) 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 (iii) above), directly or indirectly, of
more than 30% of the total voting power of the Voting Stock of the Company;
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 the Voting Stock of the Company 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 the Board of Directors of the Company; or
(v) the replacement of a majority of the Board of Directors of the Company over
a two-year period from the directors who constituted the Board of Directors of
the Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"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 Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been 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 to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis (calculated in accordance with Regulation S-X under the Securities
Act) for the period of such calculation to (i) the incurrence or repayment of
any Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition)
92
<PAGE>
incurring, assuming or otherwise being liable for Acquired Indebtedness and also
including any Consolidated EBITDA attributable to the assets which are the
subject of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) 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 (y) 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: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and 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
(ii) 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 there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except, for purposes
of the covenant described under "Certain Covenants--Limitation on Restricted
Payments," to the extent of cash dividends or distributions paid to the referent
Person or to a Restricted Subsidiary of the referent 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
(d) above, (f) 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 Issue Date, (g) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (h) in the case of a successor to the referent
Person by consolidation or merger or as a transferee of the referent Person's
assets, any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets.
93
<PAGE>
"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 (a) any Indebtedness outstanding
under the Senior Credit Facility and (b) 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 the
Company 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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means (i) each of 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 (ii) each of the Company's
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; provided that any Person constituting a Guarantor as
described above shall cease to constitute a Guarantor when its respective
Guarantee is released in accordance with the terms of the Indenture.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all obligations of such Guarantor under the Senior Credit
Facility; (b) all Interest Swap Obligations, Currency Swap Obligations and
Commodity Obligations of such Guarantor; (c) all obligations of such Guarantor
under stand-by letters of credit; and (d) 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
94
<PAGE>
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between such Guarantor and the Company or any Subsidiary
of the Company or any Affiliate of the Company or any of such Affiliate's
Subsidiaries; (c) 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;
(d) that portion of any Indebtedness that is incurred in violation of the
Indenture; (e) Indebtedness evidenced by the Guarantees; (f) Indebtedness of
such Guarantor that is expressly subordinate or junior in right of payment to
any other Indebtedness of such Guarantor; (g) to the extent that it may
constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (h) any obligation
that by operation of law is subordinate to any general unsecured obligations of
such Guarantor. No Indebtedness shall be deemed to be subordinated to other
Indebtedness solely because such other Indebtedness is secured.
"Holder" means the registered holder of any Exchange Notes.
"Holdings" means Carrols Holdings Corporation which owns all of the
outstanding Capital Stock of the Company.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become directly or indirectly liable,
contingently 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 of a Person existing at the time such Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Company or
any Restricted Subsidiary shall be deemed to be incurred at such time. The
accrual of interest or the accretion of original issue discount shall not be
deemed to be an incurrence.
"Indebtedness" means with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) 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), (v) reimbursement obligations of such
Person on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
indebtedness or obligations referred to in clauses (i) through (v) above and
clause (viii) below, (vii) all obligations of any other Person of the type
referred to in clauses (i) through (vi) which are secured by any lien on any
property or asset of such Person, the amount of such obligation being deemed to
be the lesser of the fair market value of such property or asset or the amount
of the obligation so secured, (viii) all Interest Swap Obligations, Currency
Swap Obligations and Commodity Obligations of such Person, and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
95
<PAGE>
"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, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include the applicable
Designation Amount at the time of the Designation of any Restricted Subsidiary
as an Unrestricted Subsidiary and shall exclude the fair market value of the
Company's proportionate interest in the net worth of such Unrestricted
Subsidiary at the time of the Revocation with respect to such Unrestricted
Subsidiary and (ii) the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by the Company or
any of its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall 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 the Company 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, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Partnership Investments" mean Investments by the Company or a Restricted
Subsidiary in a partnership (i) which holds one or more Burger King franchises,
(ii) in which the Company or a Restricted
96
<PAGE>
Subsidiary has at least a 20% equity interest and the remaining equity interest
is held by a former employee of the Company or a Restricted Subsidiary and
(iii) which has outstanding Partnership Loans, consistent with past practice.
"Partnership Loans" means loans made by the Company or a Restricted
Subsidiary to an entity (i) in which the Company or a Restricted Subsidiary has
a Partnership Investment and (ii) which finance the acquisition of assets from
the Company or a Restricted Subsidiary at fair market value.
"Permitted Business" means the business conducted by the Company and the
Restricted Subsidiaries on the Issue Date and other businesses similar thereto
or reasonably related thereto.
"Permitted Holders" means Atlantic Restaurants, Inc., 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 Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes and Permitted Refinancings thereof;
(ii) Indebtedness incurred pursuant to a senior secured credit
facility, including, without limitation, the Senior Credit Facility, in an
aggregate principal amount at any time outstanding not to exceed
$155 million in the aggregate;
(iii) Permitted Refinancings of (x) other Indebtedness of the Company
or any Restricted Subsidiary to the extent outstanding on the Issue Date
reduced by the amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions thereon and
(y) Indebtedness incurred under the Consolidated Fixed Charge Coverage
Ratio test of the "Limitation on Incurrence of Additional Indebtedness and
Issuance of Disqualified Capital Stock" covenant;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Currency Swap Obligations of the Company covering Indebtedness of
the Company or any Restricted Subsidiary; provided, however, that such
Currency Swap Obligations are entered into to protect the Company and its
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;
(vi) Commodity Obligations of the Company covering Indebtedness of the
Company or any Restricted Subsidiary; provided, however, that such
Commodity Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries;
(vii) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; provided that
if as of any date any Person other than the Company 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;
(viii) Indebtedness of the Company 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 the Company to
any Restricted Subsidiary is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any
97
<PAGE>
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 (viii);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(x) Indebtedness of the Company or any Restricted Subsidiary
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(xi) Indebtedness represented by Capitalized Lease Obligations of the
Company and its Restricted Subsidiaries with respect to leasehold
improvements and equipment;
(xii) Purchase Money Indebtedness; and
(xiii) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $30 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that immediately after such Investment will
be a Restricted Subsidiary of the Company; (ii) Investments in the Company by
any Restricted Subsidiary; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Notes and the Indenture; (iii) Investments
in cash and Cash Equivalents; (iv) loans and advances to employees and officers
of the Company and its Restricted Subsidiaries (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; (v) Interest Swap Obligations,
Currency Swap Obligations and Commodity Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with the Indenture; (vi) Investments 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; (vii) Investments made by the Company or its Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant; (viii) Partnership
Loans and Partnership Investments in an aggregate amount not to exceed
$5 million (without duplication) at any one time outstanding; and
(ix) Investments made by the Company or any Restricted Subsidiary of the Company
in a Restricted Subsidiary of the Company.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or
(ii) 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 than, 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 of readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) 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; (b) Liens existing on the Issue Date; (c) Liens securing only the
Notes; (d) Liens in favor of the Company or any Restricted Subsidiary; (e) 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
98
<PAGE>
in conformity with GAAP shall have been made therefor; (f) 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 the business of the Company and the Restricted Subsidiaries;
(g) 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; (h) judgment Liens not giving
rise to an Event of Default; and (i) Liens securing letters of credit entered
into in the ordinary course of business.
"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any Refinancing of such Indebtedness; provided, however, that (i) 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 the Company in connection with such Refinancing), (ii) such Indebtedness
other than Senior Indebtedness shall not have a Weighted Average Life to
Maturity that is less than the 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 (iii) if the Indebtedness
being Refinanced is subordinate or junior to the Notes, then such Refinancing
Indebtedness shall be subordinate to the Notes, as applicable, 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 thereof.
"Pollo Sale-Leaseback" means a Sale and Leaseback Transaction in respect of
real estate assets acquired in connection with the acquisition of Pollo
Tropical, Inc. by the Company and effected within 360 days of the Issue Date.
"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 (including, without limitation, any
rate applicable upon default) 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 the Company 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 the capital of the Company 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
pursuant to "--Redemption--Optional Redemption upon Public Equity Offerings."
"Purchase Money Indebtedness" means Indebtedness of the Company and its
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, (A) 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 the Company or
any Restricted Subsidiary other than the property and assets so acquired or
constructed, (B) 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 such underlying obligation and
(C) the Lien securing such Indebtedness shall be created within 270 days of such
acquisition or construction or, in the case of a refinancing of any Purchase
Money Indebtedness, within 270 days of such refinancing.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
99
<PAGE>
"redeem" means redeem, repurchase, defease or otherwise acquire or retire
for value; and "redemption" and "redeemed" have correlative meanings.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"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 the Company 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 the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Senior Credit Facility" means the Loan Agreement dated as of May 12, 1997,
as amended, among Carrols Corporation, Chase Bank of Texas, National
Association, as agent, and the lenders party thereto in their capacities as
lenders thereunder, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Disqualified Capital Stock" covenant above) or adding Restricted Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"Senior Indebtedness" means, at any date, (a) all obligations of the
Company under the Senior Credit Facility; (b) all Interest Swap Obligations,
Currency Swap Obligations and Commodity Obligations of the Company; (c) all
obligations of the Company under stand-by letters of credit; and (d) all other
Indebtedness of the Company, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company is incurred expressly provides that
such Indebtedness for money borrowed 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 (a) to the extent that it may constitute Indebtedness, any
obligation for federal, state, local or other taxes; (b) any Indebtedness among
or between the Company and any Subsidiary of the Company or any Affiliate of the
Company or any of such Affiliate's Subsidiaries; (c) 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; (d) that portion of any Indebtedness that is
incurred in violation of the Indenture; (e) Indebtedness evidenced by the Notes;
(f) Indebtedness of the Company that is expressly subordinate or junior in right
of payment to any other Indebtedness of the Company; (g) to the extent that it
may constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (h) any obligation
that by operation of law is subordinate to any general unsecured obligations of
the Company. No Indebtedness shall be deemed to be subordinated to other
Indebtedness solely because such other Indebtedness is secured.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary
100
<PAGE>
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
"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 (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
101
<PAGE>
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 (collectively, the "Global
Exchange Note") in minimum denominations of $1,000 and integral multiples in
excess thereof. 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 ("Euroclear"), or Cedel Bank, societe anonyme ("Cedel"), 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 ("Certificated Exchange
Notes") 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. The
Company does not take any responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, "Participants") and facilitates the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes to the accounts of its Participants, thereby eliminating the
need for physical transfer and delivery of certificates. DTC's Participants
include securities brokers and dealers (including the Initial Purchasers), banks
and trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies (collectively, "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 ("Systems") 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
(the "Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC ("Services"), 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, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
102
<PAGE>
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
The Company expects that pursuant to procedures established by DTC
(i) upon deposit of each Global Exchange Note, DTC will credit the accounts of
Participants with an interest in the Global Exchange Note and (ii) 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 thereof under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder. Accordingly, each
holder owning a beneficial interest in a Global 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. The Company understands that under existing industry
practice, in the event that the Company requests 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 the Company 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, the Company and the
Trustee may treat the persons in whose names the Exchange Notes, including the
Global Exchange Notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global 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
103
<PAGE>
Note will be governed by standing instructions and customary industry practice
and will be the responsibility of the Participants or the Indirect Participants
and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the 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 the Company 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 (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Exchange Notes in definitive form under the Indenture or (iii) upon the
occurrence of certain other events as provided in the Indenture, 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 the Company 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).
104
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material 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 (the "Code"), United States Treasury Department regulations
("Treasury 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 Old 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
Old 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 Old 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 Old Note exchanged therefor. All
references to Notes under this heading "Certain 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, (i) a citizen or resident of the United
States, (ii) 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, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (iv) 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 (collectively, a "Disposition"), 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
105
<PAGE>
of federal income tax in respect of 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 (a) (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (ii) the
Non-U.S. Holder is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership, (iii) the Non-U.S.
Holder is not a bank receiving interest on a loan entered into in the ordinary
course of its business, and (iv) either (x) the beneficial owner of the Note
provides the Company or its 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 the Company or its 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; (b) 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 United States and the Non-U.S. Holder complies with
certain certification requirements; or (c) 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 (the "Withholding 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 (a)(iv) above. The Withholding Regulations will also
require, in the case of Notes held by a foreign partnership, that (x) the
certification described in clause (a)(iv) above be provided by the partners and
(y) 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 (i) 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), (ii) 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 (iii) the Non-U.S. Holder is subject to tax
pursuant to certain provisions of the 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 (ii) 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
(iii) 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.
106
<PAGE>
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 (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote and (ii) 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
(i) the payee fails to furnish a taxpayer identification number ("TIN") in the
prescribed manner, (ii) the IRS notifies the payor that the TIN furnished by the
payee is incorrect, (iii) the payee has failed to report properly the receipt of
"reportable payments" and the IRS has notified the payor that withholding is
required, or (iv) 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, the Company, its
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 the Company or its 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.
The Company 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
(i) a U.S. person, (ii) a controlled foreign corporation for U.S. federal income
tax purposes, or (iii) 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.
107
<PAGE>
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY, 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 Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it 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.
The Company 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-dealers 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 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, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Old Notes) other than dealers' and brokers' discounts,
commissions and counsel fees and will indemnify the holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
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 will be passed upon for the Company by Rosenman & Colin LLP, New
York, New York.
EXPERTS
The consolidated balance sheet of Carrols and its subsidiaries as of
December 31, 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 and December 31, 1995 included in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent public accountants
("PricewaterhouseCoopers"), as stated in their report appearing herein. The
consolidated financial statements of Carrols and its subsidiaries as of
December 31, 1996 and for the year then ended included in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants ("Arthur
Andersen"), 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.
109
<PAGE>
The reports on the aforementioned financial statements and schedules are
included herein in reliance upon the authority of said firms as experts in
giving said reports.
On August 12, 1997 Carrols replaced the accounting firm of Arthur Andersen
as their principal audit accountants with PricewaterhouseCoopers.
Arthur Andersen was the principal audit accountants 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, 1997, 1996 and 1995
Reports of Independent Certified Public Accountants..................................................... F-2
Consolidated Balance Sheets............................................................................. F-4
Consolidated Statements of Operations................................................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)............................................... F-7
Consolidated Statements of Cash Flows................................................................... F-8
Notes to Consolidated Financial Statements.............................................................. F-9
Unaudited Consolidated Financial Statements--Nine Months Ended September 30, 1998 and 1997
Consolidated Balance Sheets............................................................................. F-19
Consolidated Statements of Operations................................................................... F-20
Consolidated Statements of Cash Flows................................................................... F-21
Notes to Consolidated Financial Statements.............................................................. F-22
POLLO TROPICAL, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements--Years Ended December 31, 1997, 1996 and 1995
Report of Independent Certified Public Accountants...................................................... F-24
Consolidated Balance Sheets............................................................................. F-25
Consolidated Statements of Operations................................................................... F-26
Consolidated Statements of Shareholders' Equity......................................................... F-27
Consolidated Statements of Cash Flows................................................................... F-28
Notes to Consolidated Financial Statements.............................................................. F-30
Unaudited Condensed Consolidated Financial Statements--Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets................................................................... F-42
Condensed Consolidated Statements of Operations......................................................... F-43
Consolidated Statement of Shareholders' Equity.......................................................... F-44
Condensed Consolidated Statements of Cash Flows......................................................... F-45
Notes to Condensed Consolidated Financial Statements.................................................... F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Carrols Corporation
We have audited the consolidated balance sheet of Carrols Corporation (a wholly
owned subsidiary of Carrols Holdings Corporation) and Subsidiaries as of
December 31, 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 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 and financial statement schedule 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 consolidated financial position of Carrols
Corporation and Subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their cash flows for the years ended
December 31, 1997 and December 31, 1995, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
for the years ended December 31, 1997 and 1995 is presented for purposes of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
/s/ PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
February 27, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Carrols Corporation:
We have audited the accompanying consolidated balance sheet of Carrols
Corporation (a wholly-owned subsidiary of Carrols Holdings Corporation) and
subsidiaries as of December 29, 1996, and the related consolidated statements of
operations, stockholder's deficit, and cash flows for the year then ended. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides 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 Carrols Corporation and
subsidiaries as of December 29, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule for the year ended December 29, 1996
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Rochester, New York
March 7, 1997
F-3
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 2,252,000 $ 1,314,000
Trade and other receivables, net of reserves of $130,000 and $310,000 at 1997
and 1996, respectively...................................................... 748,000 793,000
Inventories (Note 2)........................................................... 3,355,000 2,163,000
Prepaid real estate taxes...................................................... 939,000 725,000
Prepaid expenses and other current assets...................................... 1,388,000 932,000
Refundable income taxes (Note 5)............................................... 2,141,000 --
Deferred income taxes (Note 5)................................................. 2,605,000 3,264,000
------------ ------------
Total current assets............................................................. 13,428,000 9,191,000
------------ ------------
Property and equipment, at cost (Notes 3 and 4):
Land........................................................................... 7,280,000 9,066,000
Buildings and improvements..................................................... 12,487,000 16,175,000
Leasehold improvements......................................................... 43,146,000 38,816,000
Equipment...................................................................... 61,331,000 46,834,000
Capital leases................................................................. 14,548,000 14,548,000
------------ ------------
138,792,000 125,439,000
Less accumulated depreciation and amortization................................... (67,908,000) (63,356,000)
------------ ------------
Net property and equipment....................................................... 70,884,000 62,083,000
------------ ------------
Franchise rights, at cost less accumulated amortization of $25,047,000 and
$21,787,000 at 1997 and 1996, respectively..................................... 108,938,000 46,203,000
Intangible assets, at cost less accumulated amortization of $8,900,000 and
$8,326,000 at 1997 and 1996, respectively...................................... 7,864,000 8,640,000
Other assets..................................................................... 7,778,000 5,834,000
Deferred income taxes (Note 5)................................................... 6,436,000 6,637,000
------------ ------------
$215,328,000 $138,588,000
------------ ------------
------------ ------------
</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, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable............................................................... $ 11,950,000 $ 9,319,000
Accrued interest............................................................... 4,770,000 4,741,000
Accrued payroll, related taxes and benefits.................................... 6,299,000 4,620,000
Accrued income taxes........................................................... -- 1,058,000
Other liabilities.............................................................. 5,104,000 3,875,000
Current portion of long-term debt (Note 4)..................................... 3,137,000 8,000
Current portion of capital lease obligations (Note 3).......................... 441,000 574,000
------------ ------------
Total current liabilities........................................................ 31,701,000 24,195,000
Long-term debt, net of current portion (Note 4).................................. 154,649,000 118,180,000
Capital lease obligations, net of current portion (Note 3)....................... 2,060,000 2,503,000
Deferred income--sale/leaseback of real estate (Note 3).......................... 4,555,000 2,154,000
Accrued postretirement benefits (Note 9)......................................... 1,627,000 1,522,000
Other liabilities................................................................ 3,289,000 1,696,000
------------ ------------
Total liabilities................................................................ 197,881,000 150,250,000
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit) (Note 6):
Common stock, par value $1; authorized 1,000 shares, issued and outstanding--10
shares...................................................................... 10 10
Additional paid-in capital..................................................... 28,362,990 1,411,990
Accumulated deficit............................................................ (10,916,000) (10,574,000)
Less: note receivable--redemption of warrants.................................. -- (2,500,000)
------------ ------------
Total stockholders' equity (deficit)............................................. 17,447,000 (11,662,000)
------------ ------------
$215,328,000 $138,588,000
------------ ------------
------------ ------------
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Restaurant sales................................................ $295,436,000 $240,809,000 $226,257,000
Costs and expenses:
Cost of sales................................................. 85,542,000 68,031,000 63,629,000
Restaurant wages and related expenses......................... 89,447,000 70,894,000 65,932,000
Advertising expense........................................... 13,122,000 10,798,000 9,764,000
Other restaurant operating expenses........................... 61,691,000 48,683,000 45,635,000
Administrative expenses....................................... 13,121,000 10,387,000 10,434,000
Depreciation and amortization................................. 15,102,000 11,015,000 11,263,000
Costs associated with change of control....................... -- 509,000 --
------------ ------------ ------------
Total operating expenses...................................... 278,025,000 220,317,000 206,657,000
------------ ------------ ------------
Operating income................................................ 17,411,000 20,492,000 19,600,000
Interest income (Note 5)........................................ (983,000) -- --
Interest expense................................................ 15,581,000 14,209,000 14,500,000
------------ ------------ ------------
Income before income taxes...................................... 2,813,000 6,283,000 5,100,000
Provision (benefit) for income taxes (Note 5)................... 655,000 3,100,000 (9,826,000)
------------ ------------ ------------
Net Income...................................................... $ 2,158,000 $ 3,183,000 $ 14,926,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID- ACCUMULATED NOTES STOCKHOLDERS'
STOCK IN-CAPITAL DEFICIT RECEIVABLE EQUITY (DEFICIT)
------ ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.................... $ 10 $ 1,474,990 $(28,683,000) $ -- $(27,208,000)
Net income...................................... 14,926,000 14,926,000
Dividends declared.............................. (636,000) (636,000)
Exercise of stock options....................... 2,000 2,000
---- ----------- ------------ ------------ ------------
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
---- ----------- ------------ ------------ ------------
---- ----------- ------------ ------------ ------------
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................................ $ 2,158,000 $ 3,183,000 $ 14,926,000
Adjustments to reconcile net income to net cash provided by
operating activities:
(Gain) loss on disposal of property equipment................... (344,000) (314,000) 156,000
Depreciation and amortization................................... 15,102,000 11,015,000 11,263,000
Deferred income taxes........................................... 860,000 160,000 (10,061,000)
Changes in operating assets and liabilities:
Refundable income taxes...................................... (2,141,000) -- --
Trade and other receivables.................................. 45,000 (105,000) (156,000)
Inventories.................................................. (588,000) 129,000 (38,000)
Prepaid real estate tax expenses and other current assets.... (731,000) (174,000) (45,000)
Other assets...................................................... (149,000) (611,000) (80,000)
Accounts payable............................................. 2,631,000 410,000 1,363,000
Accrued payroll, related tax and benefits.................... 1,286,000 (256,000) 297,000
Accrued income taxes......................................... (1,058,000) 983,000 48,000
Other liabilities--current................................... 1,229,000 266,000 (893,000)
Accrued interest............................................. 29,000 (68,000) (90,000)
Other liabilities--long-term................................. 1,593,000 (231,000) 84,000
Other........................................................ 18,000 (65,000) (92,000)
------------ ------------ ------------
Net cash provided from operating activities......................... 19,940,000 14,322,000 16,682,000
------------ ------------ ------------
Cash Flows For Investing Activities:
Capital expenditures:
New restaurant development................................... (9,732,000) (5,280,000) (2,767,000)
Remodels..................................................... (3,807,000) (6,656,000) (2,524,000)
Other capital expenditures................................... (4,671,000) (3,319,000) (2,731,000)
Acquisition of restaurants........................................ (78,485,000) (7,945,000) (516,000)
Notes and mortgages issued........................................ -- (749,000) (2,503,000)
Payments received on notes and mortgages.......................... 88,000 39,000 32,000
Disposal of property, equipment and franchise rights.............. 1,224,000 2,342,000 17,000
Other investments................................................. -- 1,330,000 (1,356,000)
------------ ------------ ------------
Net cash used for investing activities.............................. (95,383,000) (20,238,000) (12,348,000)
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from long-term debt, net................................. 62,614,000 2,997,000 4,376,000
Principal payments and retirements of long-term obligations....... (26,184,000) (2,047,000) (9,184,000)
Proceeds from sale-leaseback transactions......................... 13,000,000 4,246,000 861,000
Dividends paid.................................................... (4,338,000) (1,000,000) (636,000)
Exercise of employee stock options and related tax benefits....... 907,000 1,571,000 2,000
Capital contribution.............................................. 30,382,000 -- --
------------ ------------ ------------
Net cash provided from (used for) financing activities.............. 76,381,000 5,767,000 (4,581,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................ 938,000 (149,000) (247,000)
Cash and cash equivalents, beginning of year........................ 1,314,000 1,463,000 1,710,000
------------ ------------ ------------
Cash and cash equivalents, end of year.............................. $ 2,252,000 $ 1,314,000 $ 1,463,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures:
Interest paid on debt............................................. $ 15,552,000 $ 14,277,000 $ 14,590,000
Income taxes paid................................................. $ 1,456,000 $ 393,000 $ 153,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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, 1997 the Company operated, as franchisee, 335 fast food
restaurants under the trade name "Burger King" in seven Northeastern, four
Midwestern and two Southeastern states. According to publicly available
information the Burger King brand is the second largest franchised restaurant
system in the world. The Company is the largest independent Burger King
franchisee in the United States.
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.
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, 1997, 1996 and 1995 was
$9,718,000, $7,300,000 and $7,594,000, respectively.
Franchise Rights. Fees for initial franchises and renewals paid to Burger
King Corporation 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 primarily of beneficial
leases which 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 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 notes and on a straight-line basis for costs associated with the
Company's advance loan facility.
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.
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
F-9
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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 Notes--The fair value of senior notes is based on quoted market
prices. The fair value at December 31, 1997 is approximately $113,557,000.
Revolving and Advance Loan Facilities--Rates currently available to
the Company for debt with similar terms and remaining maturities are used
to estimate fair value. The recorded amount, as of December 31, 1997,
approximates 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.
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 December 28, 1997 (52 weeks), December 29, 1996 (52 weeks), and December 31,
1995 (52 weeks).
Reclassifications. Certain amounts for prior years have been reclassified
to conform to the current year presentation.
2. INVENTORIES
Inventories at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Raw materials (food and paper products).......................... $2,111,000 $ 1,386,000
Supplies......................................................... 1,244,000 777,000
---------- -----------
$3,355,000 $ 2,163,000
---------- -----------
---------- -----------
</TABLE>
3. 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 and provide for additional rent based on a percentage of sales
in excess of predetermined levels. The net deferred gain is $4,555,000 and
$2,154,000 at December 31, 1997 and 1996, respectively. Accumulated
F-10
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. LEASES--(CONTINUED)
amortization pertaining to capital leases for the years ended December 31, 1997
and 1996 was $9,951,000 and $9,151,000, respectively.
Minimum rent commitments under noncancelable leases at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
YEARS ENDING: CAPITAL OPERATING
- ------------- ---------- ------------
<S> <C> <C>
1998........................................................ $ 758,000 $ 18,807,000
1999........................................................ 541,000 17,884,000
2000........................................................ 480,000 17,470,000
2001........................................................ 469,000 16,889,000
2002........................................................ 429,000 16,069,000
2003 and thereafter......................................... 1,329,000 123,819,000
---------- ------------
Total minimum lease payments................................ 4,006,000 $210,938,000
------------
------------
Less amount representing interest....................... 1,505,000
----------
Total obligations under capital leases...................... 2,501,000
Less current portion.................................... 441,000
----------
Long-term obligations under capital leases.................. $2,060,000
----------
----------
</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>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rent on real property............................. $15,303,000 $11,590,000 $11,108,000
Additional rent based on a percentage of sales............ 3,099,000 2,700,000 2,548,000
Equipment rent............................................ 162,000 167,000 164,000
----------- ----------- -----------
$18,564,000 $14,457,000 $13,820,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Collateralized:
Revolving loan facility.................................... $ 2,500,000 $ 4,669,000
Acquisition loan........................................... -- 5,000,000
Advance term loan facility................................. 46,786,000 --
Other notes payable with interest rates to 10%............. 863,000 857,000
Unsecured 11.5% senior notes................................. 107,637,000 107,662,000
------------ ------------
157,786,000 118,188,000
Less current portion......................................... 3,137,000 8,000
------------ ------------
$154,649,000 $118,180,000
------------ ------------
------------ ------------
</TABLE>
The Company issued $110 million of unsecured senior notes in August 1993.
The senior notes bear interest at a rate of 11.5%, payable semi-annually on each
February 15 and August 15, and are due August 15, 2003. The notes are redeemable
at the option of the Company in whole or in part on or after August 15, 1998 at
a price of 104.31% of the principal amount if redeemed before August 15, 1999
and 102.88% of the principal amount if redeemed before August 15, 2000, with
other specified redemption prices thereafter. Provisions of the revolving
F-11
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. LONG-TERM DEBT--(CONTINUED)
line of credit facility place limitations on the redemption or repurchase of the
notes so long as the facility remains in effect.
On March 27, 1997, the Company entered into a loan agreement (the "Loan
Agreement") among the Company, Texas Commerce Bank National Association, as
Agent, and other lenders (collectively the "Lenders") who are parties thereto.
The Loan Agreement provides for: (i) $127,000,000 Advance Term Loan Facility
under which the Company may borrow, through December 31, 1999, up to 75% of the
purchase costs incurred in connection with the acquisition of restaurants; and
(ii) a $25,000,000 Revolving Loan Facility which replaced the Company's previous
revolving credit facility. The Revolving Loan Facility is available to finance
restaurant acquisitions and new restaurant development by the Company, and for
other working capital and general corporate purposes. At December 31, 1997,
$21,525,000 was available for use under the Revolving Loan Facility after
reserving $975,000 for a letter of credit guaranteed by the facility.
The Loan Agreement provides for interest rate options of: (i) the greater
of the prime rate (or the Federal Funds Rate plus .50%) plus a variable margin
between 0% and 1% (1% at December 31, 1997); or (ii) the London Interbank
offering rate plus a variable margin between 1.5% and 2.5% (2.5% of
December 31, 1997), based upon debt to cash flow ratios. Commitment fees on the
unused balances of the Advance Term Loan Facility and the Revolving Loan
Facility are payable quarterly at the annual rates of 0.25% and 0.375%,
respectively.
The Revolving Loan Facility has a maturity date of December 31, 2001 while
the Advance Term Loan Facility requires quarterly principal repayments at an
annual rate of 6% beginning with the end of the second quarter after each
advance loan and increasing 2% per year through the sixth year, with the
remainder repayable on June 30, 2003.
The $5 million acquisition loan was collateralized by twenty-two
restaurants acquired during 1994. This loan was paid in full in 1997 and
refinanced under the Company's Advance Term Loan Facility.
Substantially all assets of the Company are or will be pledged to the
lender as collateral under the loans made pursuant to the Loan Agreement.
Restrictive covenants of the senior notes and the revolving loan facility
include limitations with respect to the issuance of additional debt and
redeemable preferred stock; the sale of assets; dividend payments and capital
stock redemption; transactions with affiliates; investments; consolidations,
mergers and transfers of assets and minimum interest and fixed charge coverage
ratios.
At December 31, 1997, principal payments required on all long-term debt are
as follows:
<TABLE>
<S> <C>
1998...................................................... $ 3,137,000
1999...................................................... 4,274,000
2000...................................................... 5,153,000
2001...................................................... 8,486,000
2002...................................................... 6,438,000
2003 and thereafter....................................... 129,798,000
------------
$157,286,000
------------
------------
</TABLE>
F-12
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. INCOME TAXES
The income tax provision (benefit) was comprised of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 887,000 $ 981,000 $ 35,000
State...................................................... 628,000 400,000 200,000
---------- ---------- -----------
1,515,000 1,381,000 235,000
---------- ---------- -----------
Deferred:
Federal.................................................... (672,000) 1,199,000 (8,552,000)
State...................................................... (188,000) 520,000 (1,509,000)
---------- ---------- -----------
(860,000) 1,719,000 (10,061,000)
---------- ---------- -----------
$ 655,000 $3,100,000 $(9,826,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The components of deferred income tax assets and liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and other reserves....................... $ 408,000 $ 503,000
Accrued vacation benefits.................................... 508,000 427,000
Other accruals............................................... 168,000 --
Deferred gain on sale of real estate......................... 1,710,000 853,000
Postretirement benefits...................................... 650,000 602,000
Capital leases............................................... 464,000 463,000
Property and equipment depreciation.......................... 549,000 671,000
Alternative minimum tax credit carryforward.................. 21,000 --
Net operating loss carryforwards............................. 10,459,000 12,348,000
----------- -----------
14,937,000 15,867,000
Deferred tax liabilities:
Amortization of franchise rights............................. 5,896,000 5,966,000
----------- -----------
Net deferred income tax assets................................. $ 9,041,000 $ 9,901,000
----------- -----------
----------- -----------
</TABLE>
The Company has net operating loss carryforwards for income tax purposes of
approximately $27 million. The net operating loss carryforwards expire in
varying amounts beginning in 2003 through 2010. Due to 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. Accordingly, during
1995, the previously provided valuation allowance was eliminated and the net
deferred tax assets were recognized as a deferred income tax benefit.
F-13
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. INCOME TAXES--(CONTINUED)
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>
1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate............................ 957,000 34.0% $2,136,000 34.0%
State income taxes, net of federal benefit................... 266,000 9.5% 607,000 9.7%
Nondeductible expenses....................................... 197,000 7.0% 197,000 3.1%
Tax appeals settlement....................................... (806,000) (28.7)% -- --
Miscellaneous................................................ 41,000 1.4% 160,000 2.5%
--------- ----- ---------- ----
$ 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.
6. STOCKHOLDERS' EQUITY (DEFICIT)
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 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. As a result of a recapitalization in February 1997, the capital
structure of Holdings was as follows at December 31, 1997:
<TABLE>
<S> <C>
Class A, preferred stock 10% cumulative redeemable, par value $.01, authorized,
issued and outstanding 3,633 shares, at liquidation preference and redemption
price $3,633,000
Voting common stock, par value $.01, authorized 3,000,000 shares, issued and
outstanding 1,144,144 shares 11,000
</TABLE>
The Class A preferred stock is subject to two remaining equal mandatory
redemptions, scheduled for December 23, 1998 and 1999. In addition, subject to
the redemption restrictions of various loan agreements, all preferred stock may
be redeemed at the option of Holdings, at a price of $1,000 per share, plus
accrued dividends. In the event that the scheduled redemptions are not made
timely, the annual dividend rate on the amount of Class A Preferred Stock not
redeemed is automatically increased to 14%.
Holders of the Preferred Stock are entitled to cumulative dividends payable
quarterly at the rate of 10% per annum. In the event that Holdings fails to pay
four consecutive quarterly dividends on the Class A preferred stock, the
subsequent dividend rate increases to 11.5%; if eight consecutive quarterly
dividends are missed, the rate increases to 13% per annum until such dividends
are paid.
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
F-14
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
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 Atlantic Restaurants, Inc. ("Atlantic"). 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 Atlantic, its then sole stockholder,
entered into an agreement whereby they agreed to sell 141,667 shares of common
stock of Holdings to each of Madison Dearborn Capital Partners, L.P. ("MDCP"),
and Madison Dearborn Capital Partners II, L.P. ("MDCP II"), both independent
third parties, resulting in approximately $30.4 million of new equity for the
Company. Atlantic also sold 141,666 of its shares of Holdings to MDCP and
141,667 of such shares to MDCP II, resulting in both Atlantic and funds managed
by Madison Dearborn Partners, Inc. having an equal interest in the Company.
Both transactions constituted a "change of control" under the Indenture
governing the 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
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 with 25,600 options exerciseable
as of December 31, 1995. As of December 31, 1995, non-employee directors were
granted options totaling 4,900 shares. Under the Directors Plan, no options were
exercised or canceled during 1995. 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.
F-15
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
A summary of all option activity in the 1993 Plan and the Directors Plan
for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
OPTIONS AT OPTIONS AT
$14.80 $22.65
---------- ----------
<S> <C> <C>
Balance at December 31, 1994.......................................... 69,441 --
Granted............................................................. -- 26,777
Exercised........................................................... (162) --
Canceled............................................................ (3,350) (621)
-------- --------
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>
Holdings adopted a stock option plan in 1996 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 There were no outstanding options in
fiscal 1996 under this plan. In 1997, options were granted at prices ranging
from $101.77 to $110.00 per share.
A summary of all option activity in the 1996 Plan for the year ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
OPTIONS AT OPTIONS AT
$101.77 $110.00
---------- ----------
<S> <C> <C>
Balance at December 31, 1996.......................................... -- --
Granted............................................................. 72,250 14,460
Canceled............................................................ -- (570)
-------- --------
Balance at December 31, 1997.......................................... 72,250 13,890
-------- --------
-------- --------
Exercisable at December 31, 1997...................................... 34,850 --
-------- --------
-------- --------
</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. None of
these options were exercisable at December 31, 1997.
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 for the year ended December 31, 1997 would have
been $1,527,000 as compared with $2,158,000, as reported.
The fair value of each option grant was estimated using the minimum value
option pricing model with the following weighted-average assumptions for the
year ended December 31, 1997:
<TABLE>
<S> <C>
Risk-free interest rate......................................... 6.53%
Annual dividend yield........................................... 0%
Expected life................................................... 5 years
</TABLE>
F-16
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
7. LITIGATION
The Company is a party to various legal proceedings arising from the normal
course of business. Management believes adverse decisions relating to litigation
and contingencies in the aggregate would not materially effect the Company's
results of operations or financial condition.
8. EMPLOYEE SAVINGS PLAN
The Company offers a savings plan for salaried employees. 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 $530 annually. The employees have various
investment options available under a trust established by the plan. The plan
expense was $208,000, $164,000 and $125,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
9. 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>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Retirees........................................................ $ 519,000 $ 518,000
Fully eligible active participants.............................. 28,000 26,000
Other active plan participants not fully eligible............... 814,000 697,000
---------- ----------
Total APBO...................................................... 1,361,000 1,241,000
Unrecognized prior service cost................................... 286,000 315,000
Unrecognized net actuarial losses................................. (20,000) (34,000)
---------- ----------
Accrued postretirement benefit obligation......................... $1,627,000 $1,522,000
---------- ----------
---------- ----------
</TABLE>
Net periodic postretirement benefit cost for 1997, 1996 and 1995 included
the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the year....................... $ 69,000 $ 64,000 $ 47,000
Interest cost on accumulated benefit obligation..................... 85,000 77,000 76,000
Net amortization of actuarial gains and losses and prior service
costs............................................................. (25,000) (25,000) (29,000)
-------- -------- --------
$129,000 $116,000 $ 94,000
-------- -------- --------
-------- -------- --------
</TABLE>
A 6.50% annual rate of increase in the per capita costs of covered health
care benefits was assumed for 1997, gradually decreasing to 5.5% by the year
2001. Increasing the assumed health care cost trend rates by one percentage
point in each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1997 by $137,000 and increase the sum of the
service cost and interest cost components by $26,000 in 1997.
For 1997, 1996 and 1995, a discount rate of 7% was used to determine the
accumulated postretirement benefit obligation. Actual benefit costs paid on
behalf of retirees in 1997, 1996 and 1995 was $24,000 in each year.
F-17
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. ACQUISITIONS
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 unaudited proforma results of operations assume these
acquisitions occurred as of the beginning of the respective periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues..................................................... $341,889,000 $329,927,000
------------ ------------
------------ ------------
Operating Income............................................. $ 21,129,000 $ 28,652,000
------------ ------------
------------ ------------
Net income................................................... $ 2,829,000 $ 5,603,000
------------ ------------
------------ ------------
</TABLE>
The unaudited results of operations are not necessarily indicative of the
actual operating results that would have occurred had the acquisitions been
consummated on January 1 of each fiscal year, or of future operating results of
the combined companies.
During the year ended December 31, 1997, the Company acquired a total of 93
restaurants. Assets acquired and liabilities assumed in these transactions were
as follows:
<TABLE>
<S> <C>
Inventory.................................................. $ 604,000
Land....................................................... 1,025,000
Buildings and improvements................................. 1,532,000
Equipment.................................................. 10,221,000
Franchise rights........................................... 65,496,000
Accrued payroll, related taxes and benefits................ (393,000)
-----------
$78,485,000
-----------
-----------
</TABLE>
F-18
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 2,442,000 $ 2,252,000
Trade and other receivables....................................................... 870,000 748,000
Inventories....................................................................... 2,973,000 3,355,000
Prepaid real estate taxes......................................................... 1,434,000 939,000
Prepaid expenses and other current assets......................................... 2,540,000 1,388,000
Refundable income taxes........................................................... 869,000 2,141,000
Deferred income taxes............................................................. 2,980,000 2,605,000
------------ ------------
Total current assets................................................................ 14,108,000 13,428,000
Property and equipment, at cost:
Land.............................................................................. 9,026,000 7,280,000
Buildings and improvements........................................................ 24,639,000 12,487,000
Leasehold improvements............................................................ 54,058,000 43,146,000
Equipment......................................................................... 75,114,000 61,331,000
Capital leases.................................................................... 14,548,000 14,548,000
------------ ------------
177,385,000 138,792,000
Less accumulated depreciation and amortization.................................... (76,060,000) (67,908,000)
------------ ------------
Net property and equipment.......................................................... 101,325,000 70,884,000
Franchise rights, at cost less accumulated amortization of $27,974,000 and
$25,047,000 at September 30, 1998 and December 31, 1997, respectively............. 107,106,000 108,938,000
Intangible assets, at cost less accumulated amortization of $9,229,000 and
$8,900,000 at September 30, 1998 and December 31, 1997, respectively.............. 71,547,000 7,864,000
Other assets........................................................................ 7,251,000 7,778,000
Deferred income taxes............................................................... 5,561,000 6,436,000
------------ ------------
$306,898,000 $215,328,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 14,091,000 $ 11,950,000
Accrued interest.................................................................. 2,344,000 4,770,000
Accrued payroll, related taxes and benefits....................................... 8,040,000 6,299,000
Other liabilities................................................................. 9,672,000 5,104,000
Current portion of long-term debt................................................. 8,351,000 3,137,000
Current portion of capital lease obligations...................................... 302,000 441,000
------------ ------------
Total current liabilities........................................................... 42,800,000 31,701,000
Long-term debt, net of current portion.............................................. 231,125,000 154,649,000
Capital lease obligations, net of current portion................................... 1,835,000 2,060,000
Deferred income--sale/leaseback of real estate...................................... 4,342,000 4,555,000
Accrued postretirement benefits..................................................... 1,765,000 1,627,000
Other liabilities................................................................... 6,746,000 3,289,000
------------ ------------
Total liabilities................................................................... 288,613,000 197,881,000
------------ ------------
Stockholders' equity:
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............................................................... (6,200,000) (10,916,000)
------------ ------------
Total stockholders' equity.......................................................... 18,285,000 17,447,000
------------ ------------
$306,898,000 $215,328,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(40 WEEKS) (39 WEEKS)
(UNAUDITED)
<S> <C> <C>
Revenues:
Restaurant sales............................................................... $305,866,000 $207,113,000
Franchise fees and royalties................................................... 161,000 --
------------ ------------
Total revenues.............................................................. 306,027,000 207,113,000
Costs and expenses:
Cost of sales.................................................................. 89,829,000 59,600,000
Restaurant wages and related expenses.......................................... 89,014,000 63,539,000
Advertising expense............................................................ 13,920,000 9,093,000
Other restaurant operating expenses............................................ 60,685,000 43,005,000
Administrative expenses........................................................ 13,364,000 9,337,000
Depreciation and amortization.................................................. 14,294,000 10,578,000
------------ ------------
Total operating expenses.................................................... 281,106,000 195,152,000
------------ ------------
Operating income................................................................. 24,921,000 11,961,000
Refinancing expenses (Note 5).................................................. 1,639,000 --
Interest expense............................................................... 14,716,000 11,059,000
------------ ------------
Income before income taxes....................................................... 8,566,000 902,000
Provision for income taxes....................................................... 3,850,000 181,000
------------ ------------
Net income....................................................................... $ 4,716,000 $ 721,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
(40 WEEKS) (39 WEEKS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 4,716,000 $ 721,000
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization............................................... 14,294,000 10,578,000
Deferred income taxes....................................................... (445,000) --
Gain on sale of property and equipment...................................... (119,000) (344,000)
Change in operating assets and liabilities.................................. 3,808,000 (3,904,000)
------------- ------------
Cash provided by operating activities....................................... 22,254,000 7,051,000
------------- ------------
Cash flows from investing activities:
Capital expenditures:
Purchase of Pollo Tropical, Inc.,
net of cash acquired...................................................... (96,632,000) --
New restaurant development.................................................. (7,595,000) (6,391,000)
Remodels and other capital expenditures..................................... (14,368,000) (4,561,000)
Acquisitions of Burger King restaurants..................................... (629,000) (78,056,000)
Proceeds from sales of property and equipment.................................. 1,337,000 1,092,000
------------- ------------
Net cash used for investing activities...................................... (117,887,000) (87,916,000)
------------- ------------
Cash flows from financing activities:
Proceeds from revolving loan facility, net..................................... 8,800,000 3,600,000
Proceeds from advance term loan facility....................................... 75,000,000 62,700,000
Principal payments on advance term loan
facility.................................................................... (2,177,000) (200,000)
Principal payments on capital leases........................................... (364,000) (444,000)
Proceeds from issuing stock.................................................... -- 30,442,000
Proceeds from sale-leaseback transactions...................................... 18,536,000 --
Dividends paid................................................................. (3,878,000) (2,349,000)
Retirement of long-term debt................................................... -- (9,669,000)
Financing costs associated with long-term debt................................. (75,000) (2,397,000)
Other.......................................................................... (19,000) (23,000)
------------- ------------
Net cash provided by financing activities................................... 95,823,000 81,660,000
------------- ------------
Increase in cash and cash equivalents............................................ 190,000 795,000
Cash and cash equivalents, beginning of period................................... 2,252,000 1,314,000
------------- ------------
Cash and cash equivalents, end of period......................................... $ 2,442,000 $ 2,109,000
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
1. STATEMENT OF MANAGEMENT
The accompanying consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and the footnotes
required by generally accepted accounting principles for complete statements. In
the opinion of management, all normal and recurring adjustments necessary for a
fair presentation of such financial statements have been included.
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. Fiscal 1998 will contain 53 weeks and the company has historically
included the extra week in its second fiscal quarter. Accordingly the nine
months results of operations and cash flows include 40 weeks and 39 weeks,
respectively.
The results of operations for the nine months ended September 30, 1998, are
not necessarily indicative of the results to be expected for the full year.
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.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
December 31, 1997 contained in the Company's 1997 Annual Report on Form 10-K.
The December 31, 1997 balance sheet data is derived from these audited financial
statements.
Certain amounts for the prior year have been reclassified to conform to the
current year presentation.
2. INVENTORIES
Inventories at September 30, 1998 and December 31, 1997, consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials (food and paper products)......................... $ 1,964,000 $2,111,000
Supplies........................................................ 1,009,000 1,244,000
----------- ----------
$ 2,973,000 $3,355,000
----------- ----------
----------- ----------
</TABLE>
3. INCOME TAXES
The income tax provision for the nine months ended September 30, 1998 and
1997 was comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Current............................................................. $4,295,000 $181,000
Deferred............................................................ (445,000) --
---------- --------
$3,850,000 $181,000
---------- --------
---------- --------
</TABLE>
For 1998 and 1997 the difference between the expected tax provision
resulting from application of the federal statutory income tax rate to pre-tax
income and the reported income tax provision results principally from state
taxes and non-deductible amortization of certain franchise rights and other
intangible assets.
F-22
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
4. ACQUISITIONS
On March 28, 1997, the Company purchased certain assets and franchise
rights of 23 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 63 Burger King restaurants, primarily in Western New York State,
Indiana and Kentucky for a cash price of approximately $52 million.
On July 9, 1998, the Company consummated the purchase of Pollo Tropical
Inc. ("Pollo Tropical") for an approximate cash purchase price of $96.6 million
and on July 20, 1998 merged Pollo Tropical into the Company. The excess purchase
price over net assets acquired, of approximately $64.0 million, is included in
intangible assets. The Company used its existing senior credit facility to
finance the Pollo Tropical acquisition. This borrowing required the Company to
amend this facility in July 1998 to modify, among other things, certain
financial covenants with respect to debt to cash flow ratios.
The following pro forma results of operations for the periods presented
below assume these acquisitions occurred as of the beginning of the respective
periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues................................. $344,114,000 $302,648,000
Operating income......................... $ 30,519,000 $ 21,580,000
Net income............................... $ 5,441,000 $ 1,083,000
</TABLE>
The preceding pro forma financial information is not necessarily indicative
of the operating results that would have occurred had either acquisition been
consummated as of the beginning of the respective periods, nor are they
necessarily indicative of future operating results.
5. LOSS ON 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 is uncertain and the related activities have currently ceased.
Approximately $1.2 million of these costs related to losses on interest rate
hedge transactions, which were settled in the third quarter.
F-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-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)
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:
LIFE IN YEARS
------------------
Covenant not to compete............................ Term of agreement
Organization costs................................. 5
Loan costs......................................... Term of loan
Trademark costs.................................... 40
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-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)
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-32
<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-33
<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-34
<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-35
<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-36
<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-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)
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-38
<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-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)
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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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 FEBRUARY 2, 1999.
CARROLS CORPORATION
By: /s/ ALAN VITULI
-----------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President--Finance and Treasurer February 2, 1999
- ------------------------------------------ (Principal Financial Officer)
Paul R. Flanders
/s/ BENJAMIN D. CHERESKIN Director February 2, 1999
- ------------------------------------------
Benjamin D. Chereskin
/s/ JAMES M. CONLON Director February 2, 1999
- ------------------------------------------
James M. Conlon
/s/ DAVID J. MATHIES, JR. Director February 2, 1999
- ------------------------------------------
David J. Mathies, Jr.
/s/ ROBIN P. SELATI Director February 2, 1999
- ------------------------------------------
Robin P. Selati
/s/ CLAYTON E. WILHITE Director February 2, 1999
- ------------------------------------------
Clayton E. Wilhite
</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 FEBRUARY 2, 1999.
CARROLS REALTY HOLDINGS CORP.
By: /s/ ALAN VITULI
-----------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
CARROLS REALTY I CORP.
By: /s/ ALAN VITULI
-----------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
CARROLS REALTY II CORP.
By: /s/ ALAN VITULI
------------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
CARROLS J.G. CORP.
By: /s/ ALAN VITULI
------------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
QUANTA ADVERTISING CORP.
By: /s/ ALAN VITULI
------------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ DANIEL T. ACCORDINO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Daniel T. Accordino
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
POLLO FRANCHISE, INC.
By: /s/ ALAN VITULI
------------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ NICHOLAS A. CASTALDO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Nicholas A. Castaldo
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</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 FEBRUARY 2, 1999.
POLLO OPERATIONS, INC.
By: /s/ ALAN VITULI
------------------------------------
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. EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALAN VITULI AND PAUL R. FLANDERS AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE WITHIN
REGISTRATION STATEMENT ON FORM S-4 AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION AND SUCH OTHER STATE AND FEDERAL GOVERNMENT COMMISSIONS AND
AGENCIES AS MAY BE NECESSARY OR ADVISABLE, AND GRANTS UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT AND
COULD DO IN PERSON, HEREBY FULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ALAN VITULI Chairman and Chief Executive Officer; February 2, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Alan Vituli
/s/ NICHOLAS A. CASTALDO President and Chief Operating Officer and February 2, 1999
- ------------------------------------------ Director
Nicholas A. Castaldo
/s/ PAUL R. FLANDERS Vice President, Treasurer and Chief February 2, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Paul R. Flanders Officer)
</TABLE>
II-10
<PAGE>
FINANCIAL STATEMENT SCHEDULE INDEX
<TABLE>
<S> <S>
Schedule II................... Valuation and qualifying accounts for the years ended December 31, 1997, 1996 and
1995
</TABLE>
S-1
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------- -------- -------- -------- --------
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
Year ended December 31, 1995:
Reserve for doubtful trade accounts receivable................. 424,000 12,000 (17,000)(b) 419,000
Other reserves(a).............................................. 542,000 388,000 (142,000)(b) 788,000
</TABLE>
(a) Included principally in other assets
(b) Represents write-offs of accounts
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------- ----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated June 3, 1998 by and between Carrols Corporation and
Pollo Tropical, Inc. (incorporated by reference to Exhibit (c)(1) to the Tender Offer
Statement on Schedule 14 (d)(1) dated July 3, 1998)
3.1 -- Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.(3)(a) to
Carrols Corporation's 1987 Annual Report on Form 10-K)
3.2 -- Certificate of Amendment of the Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to Carrols Corporation's 1996 Annual Report on Form 10-K)
3.3 -- Restated By-laws (incorporated by reference to Exhibit 3.(3)(b) to Carrols Corporation's
1986 Annual Report on Form 10-K )
*4.1 -- Indenture, dated as of November 24, 1998, between Carrols Corporation, the Guarantors
named therein and IBJ Schroder Bank & Trust Company, as Trustee
*4.2 -- Exchange and Registration Rights Agreement, dated as of November 24, 1998, among Carrols
Corporation and Chase Securities Inc. and NationsBanc Montgomery Securities LLC
*4.3 -- Form of 9 1/2% Senior Subordinated Note due 2008
*5.1 -- Opinion of Rosenman & Colin LLP
*10.1 -- Loan Agreement dated as of May 12, 1997 by and among Carrols Corporation, Texas Commerce
Bank National Association, Heller Financial, Inc., First Union National Bank of North
Carolina, and the other lenders now or thereafter parties thereto
10.2 -- Amendment to Carrols Corporation's Senior Credit Facility titled Amendment to Loan
Agreement, made and entered into as of July 9, 1998, by and among Carrols Corporation,
Heller Financial, Inc., NationsBank, and Chase Bank of Texas, National Association
(incorporated by reference to Exhibit (b)(2) to the Tender Offer Statement on Schedule
(d)(1) dated July 3, 1998)
*10.3 -- Amendment to Loan Agreement dated as of December 31, 1998, by and among Carrols
Corporation, Heller Financial, Inc., NationsBank, and Chase Bank of Texas, National
Association
10.4 -- Supply Agreement between ProSource Services Corporation and Carrols Corporation dated
April 1, 1994 (incorporated by reference to Exhibit 10.11 to Carrols Corporation's 1994
Annual Report on Form 10-K)
10.5 -- Stock Purchase Agreement dated as of February 25, 1997 by and among Madison Dearborn
Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Atlantic Restaurants,
Inc. and Carrols Holdings Corporation (incorporated by reference to Exhibit 10.12 to
Carrols Corporation's 1996 Annual Report on Form 10-K)
10.6 -- 1994 Regional Directors Bonus Plan (incorporated by reference to Exhibit 10.19 to Carrols
Corporation's 1994 Annual Report on Form 10-K)
10.7 -- Carrols Corporation Corporate Employee's Savings Plan dated December 31, 1994
(incorporated by reference to Exhibit 10.21 to Carrols Corporation's 1994 Annual Report
on Form 10-K)
10.8 -- Seventh Amendment to Third Amended and Restated Loan and Security Agreement by and among
Heller Financial, Inc., Carrols Holdings Corporation and Carrols Corporation dated as of
April 3, 1996 (incorporated by reference to Exhibit 10.27 to Carrols Corporation's
current report on Form 8-K filed April 10, 1996)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------- --
<S> <C> <C>
10.9 -- Amended and Restated Employment Agreement dated as of April 3, 1996 by and between
Carrols Corporation and Alan Vituli (incorporated by reference to Exhibit 10.23 to
Carrols Corporation's Current Report on Form 8-K filed on April 10, 1996)
10.10 -- Amended and Restated Employment Agreement dated as of April 3, 1996 by and between
Carrols Corporation and Daniel T. Accordino (incorporated by reference to Exhibit 10.24
to Carrols Corporation's Current Report on Form 8-K filed on April 10, 1996)
*10.11 -- Amended and Restated Employment Agreement dated as of July 20, 1998 by and between
Carrols Corporation and Nicholas A. Castaldo
10.12 -- Carrols Corporation 1996 Long-Term Incentive Plan (incorporated by reference to Exhibit
10.20 -- to Carrols Corporation's 1996 Annual Report on Form 10-K)
10.13 -- Stock Option Agreement dated as of December 30, 1996 by and between Carrols Corporation
and Alan Vituli (incorporated by reference to Exhibit 10.21 to Carrols Corporation's 1996
Annual Report on Form 10-K)
10.14 -- Stock Option Agreement dated as of December 30, 1996 by and between Carrols Corporation
and Daniel T. Accordino (incorporated by reference to Exhibit 10.22 to Carrols
Corporation's 1996 Annual Report on Form 10-K)
10.15 -- Form of Stockholders Agreement by and among Carrols Holdings Corporation, Madison
Dearborn Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Atlantic
Restaurants, Inc., Alan Vituli, Daniel T. Accordino and Joseph A. Zirkman (incorporated
by reference to Exhibit 10.23 to Carrols Corporation's 1996 Annual Report on Form 10-K)
10.16 -- Form of Registration Agreement by and among Carrols Holdings Corporation, Atlantic
Restaurants, Inc., Madison Dearborn Capital Partners, L.P., Madison Dearborn Capital
Partners II, L.P., Alan Vituli, Daniel T. Accordino and Joseph A. Zirkman (incorporated
by reference to Exhibit 10.24 to Carrols Corporation's 1996 Annual Report on Form 10-K)
10.17 -- Form of Second Amended and Restated Employment Agreement by and between Carrols
Corporation and Alan Vituli (incorporated by reference to Exhibit 10.25 to Carrols
Corporation's 1996 Annual Report on Form 10-K)
10.18 -- Form of Second Amended and Restated Employment Agreement by and between Carrols
Corporation and Daniel T. Accordino (incorporated by reference to Exhibit 10.26 to
Carrols Corporation's 1996 Annual Report on Form 10-K)
10.19 -- Form of Carrols Holdings Corporation 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.27 to Carrols Corporation's 1996 Annual Report on Form 10-K)
10.20 -- Form of Stock Option Agreement by and between Carrols Holdings Corporation and Alan
Vituli (incorporated by reference to Exhibit 10.28 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
10.21 -- Form of Stock Option Agreement by and between Carrols Holdings Corporation and Daniel T.
Accordino (incorporated by reference to Exhibit 10.29 to Carrols Corporation's 1996
Annual Report on Form 10-K)
10.22 -- Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and
Alan Vituli (incorporated by reference to Exhibit 10.30 to Carrols Corporation's 1996
Annual Report on Form 10-K)
10.23 -- Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and
Daniel T. Accordino (incorporated by reference to Exhibit 10.31 to Carrols Corporation's
1996 Annual Report on Form 10-K)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------- --
<S> <C> <C>
10.24 -- Form of Unvested Stock Option Agreement by and between Carrols Holdings Corporation and
Joseph A. Zirkman (incorporated by reference to Exhibit 10.32 to Carrols Corporation's
1996 Annual Report on Form 10-K)
10.25 -- First Amendment to the Stock Purchase Agreement dated March 27, 1997 by and among Carrols
Holdings Corporation, Atlantic Restaurants, Inc., Madison Dearborn Capital Partners, L.P.
and Madison Dearborn Capital Partners II, L.P. (incorporated by reference to
Exhibit 10.38 to Carrols Corporation's current report on Form 8-K filed March 27, 1997)
10.26 -- Purchase and Sale Agreement dated as of January 15, 1997 by and between Carrols
Corporation, as Purchaser, Omega Services, Inc. as Seller and Mr. Harold W. Hobgood as
Omega's Agent (incorporated by reference to Exhibit 10.39 to Carrols Corporation's
current report on Form 8-K filed March 27, 1997)
10.27 -- Purchase and Sale Agreement dated as of January 15, 1997 by and between Carrols
Corporation, as Purchaser, Omega Services, Inc. as Seller and Mr. Harold W. Hobgood as
Omega's Agent (incorporated by reference to Exhibit 10.40 to Carrols Corporation's
current report on Form 8-K filed March 27, 1997)
10.28 -- Purchase Agreement dated as of July 7, 1997 among Carrols Corporation, as Purchaser, and
the individuals and trusts listed on Exhibit A attached thereto, as Sellers, the
individuals and entities listed on Exhibit B attached thereto, as Affiliated Real
Property Owners, and Richard D. Fors, Jr. and Charles J. Mund, as the Seller's
representatives (incorporated by reference to Exhibit 10.41 to Carrols Corporation's
current report on Form 8-K filed August 20, 1997)
*10.29 -- Carrols Holdings Corporation 1998 Directors' Stock Option Plan
*12.1 -- Calculation of Earnings to Fixed Charges Ratio
16.1 -- Letter re: Change in Certifying Accountant (incorporated by reference to Exhibit 16.1 to
Carrols Corporation's Current Report on Form 8-K filed with the Commission on August 15,
1997)
*21.1 -- List of Subsidiaries
*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)
*24 -- Power of Attorney (included on signature pages at II-3, II-4, II-5, II-6, II-7, II-8,
II-9 and II-10)
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of IBJ Whitehall
Bank & Trust Company, as Trustee
*99.1 -- Form of Letter of Transmittal for Old Notes
*99.2 -- Form of Notice of Guaranteed Delivery for Old Notes
</TABLE>
- ------------------
* Filed herewith.
<PAGE>
Exhibit 4.1
INDENTURE
Dated as of November 24, 1998
among
CARROLS CORPORATION, as Issuer,
The GUARANTORS named herein
and
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
------------------
$170,000,000
9 1/2% Senior Subordinated Notes due 2008, Series A
9 1/2% Senior Subordinated Notes due 2008, Series B
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
ss. 310(a)(1).............................................................. 7.10
(a)(2)............................................................... 7.10
(a)(3)............................................................... N.A.
(a)(4)............................................................... N.A.
(a)(5)............................................................... 7.08, 7.10.
(b).................................................................. 7.08; 7.10; 13.02
(c).................................................................. N.A.
ss. 311(a).................................................................. 7.11
(b).................................................................. 7.11
(c).................................................................. N.A.
ss.312(a).................................................................. 2.05
(b).................................................................. 13.03
(c).................................................................. 13.03
ss.313(a).................................................................. 7.06
(b)(1)............................................................... 7.06
(b)(2)............................................................... 7.06
(c).................................................................. 7.06; 13.02
(d).................................................................. 7.06
ss.314(a).................................................................. 4.11; 4.12; 13.02
(b).................................................................. N.A.
(c)(1)............................................................... 13.04
(c)(2)............................................................... 13.04
(c)(3)............................................................... N.A.
(d).................................................................. N.A.
(e).................................................................. 13.05
(f).................................................................. N.A.
ss.315(a).................................................................. 7.01(b)
(b).................................................................. 7.05; 13.02
(c).................................................................. 7.01(a)
(d).................................................................. 7.01(c)
(e).................................................................. 6.11
ss.316(a)(last sentence)................................................... 2.09
(a)(1)(A)............................................................ 6.05
(a)(1)(B)............................................................ 6.04
(a)(2)............................................................... N.A.
<PAGE>
(b).................................................................. 6.07
(c).................................................................. 10.04
ss.317(a)(1)............................................................... 6.08
(a)(2)............................................................... 6.09
(b).................................................................. 2.04
ss.318(a).................................................................. 13.01
- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
</TABLE>
<TABLE>
<S> <C>
SECTION 1.01. Definitions.....................................................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act..............................................24
SECTION 1.03. Rules of Construction..........................................................................25
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating................................................................................26
SECTION 2.02. Execution and Authentication...................................................................27
SECTION 2.03. Registrar and Paying Agent.....................................................................28
SECTION 2.04. Paying Agent To Hold Assets in Trust...........................................................29
SECTION 2.05. Holder Lists...................................................................................29
SECTION 2.06. Transfer and Exchange..........................................................................29
SECTION 2.07. Replacement Securities.........................................................................30
SECTION 2.08. Outstanding Securities.........................................................................30
SECTION 2.09. Treasury Securities............................................................................31
SECTION 2.10. Temporary Securities...........................................................................31
SECTION 2.11. Cancellation...................................................................................32
SECTION 2.12. Defaulted Interest.............................................................................32
SECTION 2.13. CUSIP Number...................................................................................32
SECTION 2.14. Deposit of Moneys..............................................................................33
SECTION 2.15. Book-Entry Provisions for Global Securities....................................................33
SECTION 2.16. Registration of Transfers and Exchanges........................................................34
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.............................................................................40
SECTION 3.02. Selection of Securities To Be Redeemed.........................................................40
SECTION 3.03. Notice of Redemption...........................................................................40
SECTION 3.04. Effect of Notice of Redemption.................................................................41
SECTION 3.05. Deposit of Redemption Price....................................................................42
SECTION 3.06. Securities Redeemed in Part....................................................................42
</TABLE>
-i-
<PAGE>
ARTICLE FOUR COVENANTS
<TABLE>
<S> <C>
42
SECTION 4.01. Payment of Securities..........................................................................42
SECTION 4.02. Maintenance of Office or Agency................................................................43
SECTION 4.03. Limitation on Incurrence of Additional Indebtedness and Issuance of
Disqualified Capital Stock...................................................................43
SECTION 4.04. Limitation on Senior Subordinated Indebtedness.................................................43
SECTION 4.05. Limitation on Restricted Payments..............................................................44
SECTION 4.06. Limitation on Asset Sales......................................................................46
SECTION 4.07. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries...................49
SECTION 4.08. Limitation on Liens............................................................................50
SECTION 4.09. Limitations on Transactions with Affiliates....................................................51
SECTION 4.10. Change of Control..............................................................................51
SECTION 4.11. Additional Subsidiary Guarantees...............................................................54
SECTION 4.12. Designation of Unrestricted Subsidiaries.......................................................54
SECTION 4.13. Conduct of Business............................................................................55
SECTION 4.14. Reports to Holders.............................................................................55
SECTION 4.15. Corporate Existence............................................................................56
SECTION 4.16. Payment of Taxes and Other Claims..............................................................56
SECTION 4.17. Notice of Defaults.............................................................................57
SECTION 4.18. Maintenance of Properties and Insurance........................................................57
SECTION 4.19. Compliance Certificate.........................................................................58
SECTION 4.20. Waiver of Stay, Extension or Usury Laws........................................................58
SECTION 4.21. Payments for Consent...........................................................................58
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.......................................................59
SECTION 5.02. Successor Corporation Substituted..............................................................60
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default..............................................................................61
SECTION 6.02. Acceleration...................................................................................62
SECTION 6.03. Other Remedies.................................................................................63
SECTION 6.04. Waiver of Past Default.........................................................................63
SECTION 6.05. Control by Majority............................................................................64
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 6.06. Limitation on Suits............................................................................64
SECTION 6.07. Rights of Holders To Receive Payment...........................................................65
SECTION 6.08. Collection Suit by Trustee.....................................................................65
SECTION 6.09. Trustee May File Proofs of Claim...............................................................65
SECTION 6.10. Priorities.....................................................................................66
SECTION 6.11. Undertaking for Costs..........................................................................66
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee..............................................................................67
SECTION 7.02. Rights of Trustee..............................................................................68
SECTION 7.03. Individual Rights of Trustee...................................................................69
SECTION 7.04. Trustee's Disclaimer...........................................................................69
SECTION 7.05. Notice of Defaults.............................................................................70
SECTION 7.06. Reports by Trustee to Holders..................................................................70
SECTION 7.07. Compensation and Indemnity.....................................................................70
SECTION 7.08. Replacement of Trustee.........................................................................72
SECTION 7.09. Successor Trustee by Merger, etc...............................................................73
SECTION 7.10. Eligibility; Disqualification..................................................................73
SECTION 7.11. Preferential Collection of Claims Against Company..............................................73
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.................................................73
SECTION 8.02. No Payment on Securities in Certain Circumstances..............................................74
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.................................................75
SECTION 8.04. Subrogation....................................................................................77
SECTION 8.05. Obligations of Company Unconditional...........................................................77
SECTION 8.06. Notice to Trustee..............................................................................78
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.................................79
SECTION 8.08. Trustee's Relation to Senior Indebtedness......................................................79
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or
Holders of Senior Indebtedness.........................................................79
SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of Securities............................80
SECTION 8.11. This Article Not To Prevent Events of Default..................................................80
SECTION 8.12. Trustee's Compensation Not Prejudiced..........................................................80
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 8.13. No Waiver of Subordination Provisions..........................................................80
SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust for Holders;
Payments May Be Paid Prior to Dissolution..............................................81
SECTION 8.15. Acceleration of Securities.....................................................................81
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations...........................................................81
SECTION 9.02. Legal Defeasance and Covenant Defeasance.......................................................82
SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance..........................................83
SECTION 9.04. Application of Trust Money.....................................................................85
SECTION 9.05. Repayment to Company...........................................................................85
SECTION 9.06. Reinstatement..................................................................................85
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders....................................................................86
SECTION 10.02. With Consent of Holders.......................................................................87
SECTION 10.03. Compliance with Trust Indenture Act...........................................................89
SECTION 10.04. Revocation and Effect of Consents.............................................................89
SECTION 10.05. Notation on or Exchange of Securities.........................................................90
SECTION 10.06. Trustee To Sign Amendments, etc...............................................................90
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.......................................................................90
SECTION 11.02. Severability..................................................................................91
SECTION 11.03. Release of a Guarantor........................................................................91
SECTION 11.04. Limitation of Guarantor's Liability...........................................................92
SECTION 11.05. Contribution..................................................................................92
SECTION 11.06. Execution of Security Guarantee...............................................................92
SECTION 11.07. Subordination of Subrogation and Other Rights.................................................93
</TABLE>
-iv-
<PAGE>
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
<TABLE>
<S> <C>
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness...........................93
SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc................................................94
SECTION 12.03. Subrogation...................................................................................95
SECTION 12.04. Obligations of Guarantors Unconditional.......................................................96
SECTION 12.05. Notice to Trustee.............................................................................96
SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent................................97
SECTION 12.07. Trustee's Relation to Guarantor Senior Indebtedness...........................................97
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of the Guarantors or
Holders of Guarantor Senior Indebtedness...............................................98
SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee............................98
SECTION 12.10. This Article Not To Prevent Events of Default.................................................99
SECTION 12.11. Trustee's Compensation Not Prejudiced.........................................................99
SECTION 12.12. No Waiver of Guarantee Subordination Provisions...............................................99
SECTION 12.13. Payments May Be Paid Prior to Dissolution.....................................................99
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.................................................................100
SECTION 13.02. Notices......................................................................................100
SECTION 13.03. Communications by Holders with Other Holders.................................................102
SECTION 13.04. Certificate and Opinion as to Conditions Precedent...........................................102
SECTION 13.05. Statements Required in Certificate or Opinion................................................102
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar....................................................103
SECTION 13.07. Governing Law................................................................................103
SECTION 13.08. No Recourse Against Others...................................................................103
SECTION 13.09. Successors...................................................................................103
SECTION 13.10. Counterpart Originals........................................................................103
SECTION 13.11. Severability.................................................................................103
SECTION 13.12. No Adverse Interpretation of Other Agreements................................................104
SECTION 13.13. Legal Holidays...............................................................................104
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
SIGNATURES..................................................................................................S-1
EXHIBIT A Form of Series A Security.................................................................A-1
EXHIBIT B Form of Series B Security.................................................................B-1
EXHIBIT C Form of Legend for Global Securities......................................................C-1
EXHIBIT D Form of Transfer Certificate..............................................................D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors.......................E-1
EXHIBIT F Form of Certificate for Regulation S Transfers............................................F-1
</TABLE>
- -----------------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-vi-
<PAGE>
INDENTURE dated as of November 24, 1998, among CARROLS CORPORATION, a
Delaware corporation (the "Company"), the GUARANTORS named herein and IBJ
SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as trustee (the
"Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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 the Company or any of its
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.
"Affiliate Transaction" has the meaning set forth in Section 4.09(a).
"Agent" means any Registrar, Paying Agent or co-Registrar.
"amend" means amend, modify, supplement, restate or amend and restate,
including successively; and "amending" and "amended" have correlative meanings.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or any Restricted Subsidiary, or
shall be merged with or into the Company or any Restricted Subsidiary, or (b)
the acquisition by the Company or any Re-
<PAGE>
-2-
stricted 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 comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person of (a) any Capital Stock of any Restricted
Subsidiary; or (b) any other property or assets of the Company or any
Restricted Subsidiary other than in the ordinary course of business; provided,
however, that Asset Sales shall not include (i) a transaction or series of
related transactions for which the Company or its Restricted Subsidiaries
receive aggregate consideration of less than $1.5 million, (ii) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Company as permitted by Section 5.01, (iii) the Pollo
Sale-Leaseback or (iv) transactions resulting in a Partnership Investment and a
Partnership Loan.
"Bankruptcy Law" has the meaning set forth in Section 6.01.
"Basket" has the meaning set forth in Section 4.05.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York are not required to be
open.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person, and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"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
<PAGE>
-3-
at any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (iv) above; and
(vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events (whether or not approved by the Board of Directors of the
Company): (i) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture); other than to the Permitted Holders; (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) prior to the earlier
to occur of (A) the first public offering of Capital Stock of Holdings or (B)
the first public offering of Capital Stock of the Company, either (1) 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 the Voting Stock of the Company, whether as a result of
issuance of securities of the Company, any merger, consolidation, liquidation
or dissolution of the Company, any direct or indirect transfer of securi-
<PAGE>
-4-
ties by Holdings or otherwise or (2) 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 the Company than the
Permitted Holders; (iv) 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 (iii) above), directly or
indirectly, of more than 30% of the total voting power of the Voting Stock of
the Company; 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 the Voting Stock of the Company 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 the Board of Directors
of the Company; or (v) the replacement of a majority of the Board of Directors
of the Company over a two-year period from the directors who constituted the
Board of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of
the Board of Directors of the Company then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Change of Control Date" has the meaning set forth in Section 4.10(a).
"Change of Control Offer" has the meaning set forth in Section
4.10(a).
"Change of Control Payment Date" has the meaning set forth in Section
4.10(c)(2).
"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
Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the
<PAGE>
-5-
Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii)
to the extent Consolidated Net Income has been 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 to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis (calculated in accordance with Regulation S-X under the Securities
Act) for the period of such calculation to (i) the incurrence or repayment of
any Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability
for any such Acquired Indebtedness) occurred on the first day of the Four
Quarter Period. If such Person or any of its Restricted Subsidiaries directly
or indirectly guarantees Indebtedness of a third Person, the pre-
<PAGE>
-6-
ceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person had
directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on
a fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; and (2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) 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 (y) 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: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and 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
(ii) 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 there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to
the date it becomes a Restricted Subsidiary of the referent Person or is merged
or consolidated with the
<PAGE>
-7-
referent Person or any Restricted Subsidiary of the referent Person, (d) the
net income (but not loss) of any Restricted Subsidiary of the referent Person
to the extent that the declaration of dividends or similar distributions by
that Restricted Subsidiary of that income is restricted by a contract,
operation of law or otherwise, (e) the net income of any Person, other than a
Restricted Subsidiary of the referent Person, except, for purposes of Section
4.05, to the extent of cash dividends or distributions paid to the referent
Person or to a Restricted Subsidiary of the referent 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 (d) above, (f) 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 Issue Date, (g)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued), and (h) in the case of a successor
to the referent Person by consolidation or merger or as a transferee of the
referent Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets.
"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).
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 or such other address as the Trustee may
give notice to the Company.
"Currency Swap Obligations" means the obligations of any Person
pursuant to any foreign exchange contract, currency swap agreement or similar
agreement.
"Custodian" has the meaning set forth in Section 6.01.
"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.
"Defeasance Trust Payment" see Section 8.02.
<PAGE>
-8-
"Depository" means, with respect to the Securities issued in the form
of one or more Global Securities, The Depository Trust Company or another
Person designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Senior Indebtedness" means (a) any Indebtedness
outstanding under the Senior Credit Facility and (b) 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 this Indenture and a Board Resolution setting forth such
designation by the Company has been filed with the Trustee.
"Designation" has the meaning set forth in Section 4.12(a).
"Designation Amount" has the meaning set forth in Section 4.12(a).
"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 Securities.
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Exchange Securities" means the 9 1/2% Senior Subordinated Notes due
2008, Series B, to be issued in exchange for the Initial Securities pursuant to
the Registration Rights Agreement.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
market value shall be determined by the Board of Directors of the Company
acting reasonably and in good faith and shall be evidenced by a Board
Resolution of the Board of Directors of the Company delivered to the Trustee.
"Final Maturity Date" means December 1, 2008.
<PAGE>
-9-
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio" above.
"Funding Guarantor" has the meaning set forth in Section 11.05.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Securities" means one or more 144A Global Securities,
Regulation S Global Securities and IAI Global Securities.
"Group" has the meaning set forth in the definition of "Change of
Control" above.
"guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantee" or "Security Guarantee" has the meaning set forth in
Section 11.01.
"Guarantor" means (i) each of 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 (ii) each of the
Company's Restricted Subsidiaries that in the future executes a supplemental
indenture in which such Restricted Subsidiary agrees to be bound by the terms
of this Indenture as a Guarantor; provided that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of this
Indenture.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor,
at any date, (a) all obligations of such Guarantor under the Senior Credit
Facility; (b) all Interest
<PAGE>
-10-
Swap Obligations, Currency Swap Obligations and Commodity Obligations of such
Guarantor; (c) all obligations of such Guarantor under standby letters of
credit; and (d) 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 (a) to the extent that it may constitute
Indebtedness, any obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between such Guarantor and the Company or any Subsidiary
of the Company or any Affiliate of the Company or any of such Affiliate's
Subsidiaries; (c) 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; (d)
that portion of any Indebtedness that is incurred in violation of this
Indenture; (e) Indebtedness evidenced by the Guarantees; (f) Indebtedness of
such Guarantor that is expressly subordinate or junior in right of payment to
any other Indebtedness of such Guarantor; (g) to the extent that it may
constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (h) any obligation
that by operation of law is subordinate to any general unsecured obligations of
such Guarantor. No Indebtedness shall be deemed to be subordinated to other
Indebtedness solely because such other Indebtedness is secured.
"Holder" means the registered holder of any Security.
"Holdings" means Carrols Holdings Corporation, which owns all of the
outstanding Capital Stock of the Company.
"IAI Global Security" means a permanent global security in registered
form representing the aggregate principal amount of Securities sold to
Institutional Accredited Investors.
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become directly or indirectly
liable, contingently 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 of a Person existing at the time such Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Company or
any Restricted Subsidiary shall be
<PAGE>
-11-
deemed to be incurred at such time. The accrual of interest or the accretion of
original issue discount shall not be deemed to be an incurrence.
"Indebtedness" means with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness
of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) 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), (v) reimbursement obligations of
such Person on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
indebtedness or obligations referred to in clauses (i) through (v) above and
clause (viii) below, (vii) all obligations of any other Person of the type
referred to in clauses (i) through (vi) which are secured by any lien on any
property or asset of such Person, the amount of such obligation being deemed to
be the lesser of the fair market value of such property or asset or the amount
of the obligation so secured, (viii) all Interest Swap Obligations, Currency
Swap Obligations and Commodity Obligations of such Person, and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to this 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.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Initial Purchasers" means Chase Securities Inc. and NationsBanc
Montgomery Securities LLC.
<PAGE>
-12-
"Initial Securities" means the 9 1/2% Senior Subordinated Notes due
2008, Series A, of the Company.
"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.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"interest" means, with respect to the Securities, the sum of any cash
interest and any Additional Interest (as defined in the Registration Rights
Agreement) on the Securities.
"Interest Payment Date" means each semiannual interest payment date on
June 1 and December 1 of each year, commencing June 1, 1999.
"Interest Record Date" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the
November 15 or May 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"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, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of Section 4.05, (i)
"Investment" shall include the applicable Designation Amount at the time
<PAGE>
-13-
of the Designation of any Restricted Subsidiary as an Unrestricted Subsidiary
and shall exclude the fair market value of the Company's proportionate interest
in the net worth of such Unrestricted Subsidiary at the time of the Revocation
with respect to such Unrestricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that no such
payment of dividends or distributions or receipt of any such other amounts
shall 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 the Company 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, the Company no
longer owns, directly or indirectly, greater than 50% of the outstanding Common
Stock of such Restricted Subsidiary, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means the original issue date of the Securities, November
24, 1998.
"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).
"Moody's" has the meaning set forth in the definition of "Cash
Equivalents" above.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements, (c)
repayment of Indebtedness that is required to be repaid in connection with such
Asset Sale and (d) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted
<PAGE>
14
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.06(a).
"Net Proceeds Offer Amount" has the meaning set forth in Section
4.06(a).
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.06(a).
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
4.06(a).
"Officer" means the Chairman, any Vice Chairman, the President, any
Vice President, the Chief Financial Officer, the Treasurer or the Secretary of
the Company.
"Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 13.04 and 13.05.
"144A Global Security" means a permanent global security in registered
form representing the aggregate principal amount of Securities sold in reliance
on Rule 144A.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Participants" has the meaning set forth in Section 2.15.
"Partnership Investments" mean Investments by the Company or a
Restricted Subsidiary in a partnership (i) which holds one or more Burger King
franchises, (ii) in which the Company or a Restricted Subsidiary has at least a
20% equity interest and the remaining equity interest is held by a former
employee of the Company or a Restricted Subsidiary and (iii) which has
outstanding Partnership Loans, consistent with past practice.
"Partnership Loans" means loans made by the Company or a Restricted
Subsidiary to an entity (i) in which the Company or a Restricted Subsidiary has
a Partnership Investment and (ii) which finance the acquisition of assets from
the Company or a Restricted Subsidiary at fair market value.
<PAGE>
-15-
"Paying Agent" has the meaning set forth in Section 2.03.
"Payment Blockage Notice" see Section 8.02(a).
"Payment Blockage Period" see Section 8.02(a).
"Permitted Business" means the business conducted by the Company and
the Restricted Subsidiaries on the Issue Date and other businesses similar
thereto or reasonably related thereto.
"Permitted Holders" means Atlantic Restaurants, Inc., 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 Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities and Permitted Refinancings
thereof;
(ii) Indebtedness incurred pursuant to a senior secured credit
facility, including, without limitation, the Senior Credit Facility, in an
aggregate principal amount at any time outstanding not to exceed $155 million
in the aggregate;
(iii) Permitted Refinancings of (x) other Indebtedness of the Company
or any Restricted Subsidiary to the extent outstanding on the Issue Date
reduced by the amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions thereon and (y)
Indebtedness incurred under the Consolidated Fixed Charge Coverage Ratio test
of Section 4.03;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any Restricted Subsidiary; provided, however, that such Interest
Swap Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred in
accordance with this Indenture to the extent the notional principal amount of
such Interest Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(v) Currency Swap Obligations of the Company covering Indebtedness of
the Company or any Restricted Subsidiary; provided, however, that such Currency
Swap Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in currency exchange rates on obligations
incurred in accordance with this In-
<PAGE>
-16-
denture 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;
(vi) Commodity Obligations of the Company covering Indebtedness of the
Company or any Restricted Subsidiary; provided, however, that such Commodity
Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in the price of commodities actually used in the
ordinary course of business of the Company and its Restricted Subsidiaries;
(vii) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the Company
or a Restricted Subsidiary, in each case subject to no Lien held by a Person
other than the Company or a Restricted Subsidiary; provided that if as of any
date any Person other than the Company 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;
(viii) Indebtedness of the Company 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 the Company to any
Restricted Subsidiary is unsecured and subordinated, pursuant to a written
agreement, to the Company's obligations under this Indenture and the Securities
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 (viii);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(x) Indebtedness of the Company or any Restricted Subsidiary
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
<PAGE>
-17-
(xi) Indebtedness represented by Capitalized Lease Obligations of the
Company and its Restricted Subsidiaries with respect to leasehold improvements
and equipment;
(xii) Purchase Money Indebtedness; and
(xiii) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $30 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that immediately after such Investment is,
or will be, a Restricted Subsidiary of the Company; (ii) Investments in the
Company by any Restricted Subsidiary; provided that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Securities and this Indenture; (iii)
Investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its 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; (v) Interest
Swap Obligations, Currency Swap Obligations and Commodity Obligations entered
into in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with this Indenture; (vi) 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; (vii) Investments made by the Company or its
Restricted Subsidiaries as a result of consideration received in connection
with an Asset Sale made in compliance with Section 4.06; (viii) Partnership
Loans and Partnership Investments in an aggregate amount not to exceed $5
million (without duplication) at any one time outstanding; and (ix) Investments
made by the Company or any Restricted Subsidiary of the Company in a Restricted
Subsidiary of the Company.
"Permitted Junior Securities" means any securities of the Company or
any other Person that are (i) equity securities without special covenants or
(ii) 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 than, the Securities are subordinated as
provided in this 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 Securities on the date hereof, (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 Securities on the date hereof 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
<PAGE>
-18-
the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) 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; (b) Liens existing on the Issue Date; (c) Liens securing only the
Securities; (d) Liens in favor of the Company or any Restricted Subsidiary; (e)
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; (f) 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 the
business of the Company and the Restricted Subsidiaries; (g) 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; (h) judgment Liens not giving rise to an Event of
Default; and (i) Liens securing letters of credit entered into in the ordinary
course of business.
"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any Refinancing of such Indebtedness; provided, however, that (i) 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 the Company in connection with such Refinancing), (ii)
such Indebtedness other than Senior Indebtedness shall not have a Weighted
Average Life to Maturity that is less than the 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 (iii) if the
Indebtedness being Refinanced is subordinate or junior to the Securities, then
such Refinancing Indebtedness shall be subordinate to the Securities, as
applicable, 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 thereof.
<PAGE>
-19-
"Physical Securities" means one or more certificated Securities in
registered form.
"Pollo Sale-Leaseback" means a Sale and Leaseback Transaction in
respect of real estate assets acquired in connection with the acquisition of
Pollo Tropical, Inc. by the Company and effected within 360 days of the Issue
Date.
"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 (including, without limitation, any
rate applicable upon default) 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.
"principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.
"Private Exchange Securities" has the meaning provided in Section 1 of
the Registration Rights Agreement.
"Private Placement Legend" means the legend initially set forth on the
Initial Securities in the form set forth on Exhibit A hereto.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of Holdings or the Company 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 the capital of the Company 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
Securities to be redeemed pursuant to paragraph 6 of the Securities.
"Purchase Agreement" means the Purchase Agreement dated as of November
18, 1998, by and among the Company, the Guarantors and the Initial Purchasers.
"Purchase Money Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing
<PAGE>
-20-
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,
(A) 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 the Company or any
Restricted Subsidiary other than the property and assets so acquired or
constructed, (B) 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 such underlying obligation and
(C) the Lien securing such Indebtedness shall be created within 270 days of
such acquisition or construction or, in the case of a refinancing of any
Purchase Money Indebtedness, within 270 days of such refinancing.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"redeem" means redeem, repurchase, defease or otherwise acquire or
retire for value; and "redemption" and "redeemed" have correlative meanings.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
"Reference Date" has the meaning set forth in Section 4.05.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Registrar" has the meaning set forth in Section 2.03.
"Registration" means a registered exchange offer for the Securities by
the Company or other registration of the Securities under the Securities Act
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
<PAGE>
-21-
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement dated as of November 24, 1998, by and among the Company, the
Guarantors and the Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Permanent Global Security" means a permanent global
Security in registered form representing the outstanding principal amount of
the Regulation S Temporary Global Security upon expiration of the Restricted
Period.
"Regulation S Temporary Security" means a temporary global Security in
registered form representing the aggregate principal amount of Securities sold
in reliance on Regulation S.
"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 Period" means the "distribution compliance period"
applicable to the Company described in Regulation S.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; provided, however, that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether any Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company which at
the time of determination is not an Unrestricted Subsidiary.
"Revocation" has the meaning set forth in Section 4.12(c).
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company
or such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
property.
<PAGE>
-22-
"S&P" has the meaning set forth in the definition of "Cash
Equivalents" above.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities, the Private
Exchange Securities and the Unrestricted Securities treated as a single class
of securities, as amended or supplemented from time to time in accordance with
the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Senior Credit Facility" means the Loan Agreement dated as of May 12,
1997, as amended among Carrols Corporation, Chase Bank of Texas, National
Association, as agent and the lenders party thereto in their capacities as
lenders thereunder, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by Section
4.03) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of 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, (a) all obligations of the
Company under the Senior Credit Facility; (b) all Interest Swap Obligations,
Currency Swap Obligations and Commodity Obligations of the Company; (c) all
obligations of the Company under standby letters of credit; and (d) all other
Indebtedness of the Company, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company is incurred expressly provides
that such Indebtedness for money borrowed is not senior or superior in right of
payment to the Securities, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Senior
Indebtedness shall not include: (a) to the extent that it may constitute
Indebtedness, any obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between the Company and any Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries; (c) 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; (d) that portion of any
Indebtedness that is incurred in violation of this Indenture; (e) Indebtedness
evidenced by the Securities; (f) Indebtedness of the Company that is expressly
subordinate or
<PAGE>
-23-
junior in right of payment to any other Indebtedness of the Company; (g) to the
extent that it may constitute Indebtedness, any obligation owing under leases
(other than Capitalized Lease Obligations) or management agreements; and (h)
any obligation that by operation of law is subordinate to any general unsecured
obligations of the Company. No Indebtedness shall be deemed to be subordinated
to other Indebtedness solely because such other Indebtedness is secured.
"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.
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.01(a).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture (except
as provided in Section 10.03) until such time as this Indenture is qualified
under the TIA, and thereafter as in effect on the date on which this Indenture
is qualified under the TIA.
"Transaction Date" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio" above.
"Trust Officer" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice
president, assistant vice president, assistant secretary or any other officer
or assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at that time shall be such officers, and
also means, with respect to a particular corporate trust matter, any other
officer to whom such trust matter is referred because of his knowledge of and
familiarity with the particular subject.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.
<PAGE>
-24-
"United States Government Obligations" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"Unrestricted Securities" means one or more Securities that do not and
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A hereto, including, without limitation, the Exchange Securities and
any Securities registered under the Securities Act pursuant to and in
accordance with the Registration Rights Agreement.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary.
"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 (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Guaranties.
<PAGE>
-25-
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, a Guarantor
or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect from time to time, and any other reference in
this Indenture to "generally accepted accounting principles" refers to
GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in
the plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
<PAGE>
-26-
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Initial Securities and the Trustee's certificate of authentication
thereof shall be substantially in the form of Exhibit A hereto, which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities and the Trustee's certificate of authentication thereof shall be
substantially in the form of Exhibit B hereto, which is hereby incorporated in
and expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements (including the Security Guarantee) required by law,
stock exchange rule or usage. The Company and the Trustee shall approve the
form of the Securities and any notation, legend or endorsement (including the
Security Guarantee) on them. Each Security shall be dated the date of its
issuance and shall show the date of its authentication.
Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more Global Securities and Securities offered
and sold in reliance on Regulation S shall be issued initially in the form of
one or more Regulation S Temporary Global Securities, substantially in the form
set forth in Exhibit A hereto, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Exhibit C hereto.
The aggregate principal amount of the Global Securities may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided. Securities issued in
exchange for interests in a Global Security pursuant to Section 2.16 may be
issued in the form of Physical Securities in substantially the form set forth
in Exhibit A hereto.
The Restricted Period for the Regulation S Temporary Global Security
shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depository, together with copies of certificates from
Euroclear and Cedel Bank certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Security (except to the extent of
any beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Security or an IAI Global Security) and (ii) receipt of an
Opinion of Counsel. Following the termination of the Restricted Period,
beneficial interests in the Regulation S Temporary Global Security shall be
exchanged for beneficial interests in Regulation S Permanent Global Securities.
Simultaneously with the
<PAGE>
-27-
authentication of Regulation S Permanent Global Security, the Trustee shall
cancel the Regulation S Temporary Global Security. The aggregate principal
amount of the Regulation S Temporary Global Security and the Regulation S
Permanent Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms
and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Security and the Regulation S Permanent Global Security that are held by
participants through Euroclear or Cedel Bank.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such Officer's signature, the Securities for the
Company by manual or facsimile signature.
If an Officer or an Assistant Secretary whose signature is on a
Security was an Officer or an Assistant Secretary, as the case may be, at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Securities for original
issue in an aggregate principal amount not to exceed $170,000,000, (ii) Private
Exchange Securities from time to time only in exchange for a like principal
amount of Initial Securities and (iii) Unrestricted Securities from time to
time only in exchange for (A) a like principal amount of Initial Securities or
(B) a like principal amount of Private Exchange Securities, in each case upon a
written order of the Company in the form of an Officers' Certificate. Each such
written order shall specify the amount of Securities to be authenticated and
the date on which the Securities are to be authenticated, whether the
Securities are to be Initial Securities, Private Exchange Securities or
Unrestricted Securities and whether the Securities are to be issued as Physical
Securities or Global Securities and such other information as the Trustee may
reasonably re-
<PAGE>
-28-
quest. The aggregate principal amount of Securities outstanding at
any time may not exceed $170,000,000, except as provided in Sections 2.07 and
2.08.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"), (b)
Securities may be presented or surrendered for payment (the "Paying Agent") and
(c) notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term
"Paying Agent" includes any additional Paying Agent. Except as provided herein,
the Company or any Guarantor may act as Paying Agent, Registrar or
co-Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee in writing of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
<PAGE>
-29-
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee in
writing of any Default by the Company in making any such payment. The Company
at any time may require a Paying Agent to distribute all assets held by it to
the Trustee and account for any assets disbursed and the Trustee may at any
time during the continuance of any payment Default, upon written request to a
Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent (if other than the Company), the Paying Agent shall have no
further liability for such assets. If the Company, any Guarantor or any of
their respective Affiliates acts as Paying Agent, it shall, on or before each
due date of the principal of or interest on the Securities, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to
pay the principal or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee in writing of its action or failure so to act.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a written request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations of the
same series, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
<PAGE>
-30-
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.06,
4.10 or 10.05). The Registrar or co-Registrar shall not be required to register
the transfer or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee nor any such Agent shall be affected by notice to the contrary. Any
Holder of a beneficial interest in a Global Security shall, by acceptance of
such beneficial interest in a Global Security, agree that transfers of
beneficial interests in such Global Security may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
ownership of a beneficial interest in a Global Security shall be required to be
reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements for replacement of Securities are met.
If required by the Company or the Trustee, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee and any Agent from
any loss which any of them may suffer if a Security is replaced The Company may
charge such Holder for its reasonable out-of-pocket expenses in replacing a
Security, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security
<PAGE>
-31-
does not cease to be outstanding because the Company or any of its Affiliates
holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Net Proceeds Offer Payment Date, Change of
Control Payment Date or the Final Maturity Date the Paying Agent holds money
sufficient to pay all of the principal and interest due on the Securities
payable on that date, and is not prohibited from paying such money to the
Holders pursuant to the terms of this Indenture, then on and after that date
such Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities as to which the Trustee has received an Officer's Certificate that
such Securities are so owned shall be disregarded.
The Company shall notify the Trustee, in writing, when it, any
Guarantor or any of its Affiliates repurchases or otherwise acquires
Securities, of the aggregate principal amount of such Securities so repurchased
or otherwise acquired.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities that have been identified to the Trustee in writing by the
Company. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate upon receipt of a written order
<PAGE>
-32-
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and at the written direction of the Company,
dispose of and deliver evidence of such disposal of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that it has
delivered to the Trustee for cancellation. If the Company or any Guarantor
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company shall pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Securities. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Securities.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(i) shall be paid to
Holders as of the Interest Record Date for the Interest Payment Date for which
interest has not been paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as
a convenience to
<PAGE>
-33-
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed
only on the other identification numbers printed on the Securities. The Company
shall promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Redemption Date, Net Proceeds Offer Payment Date, Change of Control Payment
Date and the Final Maturity Date, the Company shall deposit with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Redemption Date, Net Proceeds Offer
Payment Date, Change of Control Payment Date or Final Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date, Redemption Date, Net Proceeds
Offer Payment Date, Change of Control Payment Date or Final Maturity Date, as
the case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C.
Members of, or participants in, the Depository ("Participants") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise
of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Company notifies the Trustee in writing that DTC is no longer willing or able
to act as a depositary or DTC ceases
<PAGE>
-34-
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, (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the securities as Physical Securities, or (iii) an Event
of Default has occurred and is continuing and the Registrar has received a
request from the Depository to issue Physical Securities; provided that in no
event shall the Regulation S Temporary Global Security be exchanged by the
Company for Physical Securities prior to (x) the expiration of the Restricted
Period and (y) the receipt by the Registrar of any certificates required
pursuant to Rule 903 under the Securities Act as stated in an Opinion of
Counsel.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Securities, an equal aggregate principal amount of Physical
Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to paragraph (c) of
this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the
Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a written
request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal
principal amount of Physical Securities of other authorized
denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the
Physical Securities presented or surrendered for registration of transfer or
exchange:
<PAGE>
-35-
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or co-Registrar, duly executed
by the Holder thereof or his attorney duly authorized in writing; and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the discretion of the Company or the Trustee, by the
following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (substantially in the form of Exhibit D
hereto); or
(B) if such Physical Security is being transferred to a QIB in
accordance with Rule 144A, a certification to that effect
(substantially in the form of Exhibit D hereto); or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a transferee letter of representation
(substantially in the form of Exhibit E hereto) and, at the
option of the Company or the Trustee, an Opinion of Counsel
reasonably satisfactory to the Company or the Trustee, as the
case may be, to the effect that such transfer is in
compliance with the Securities Act; or
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
transferor certificate for Regulation S transfer
substantially in the form of Exhibit F hereto and, at the
option of the Company or the Trustee, an Opinion of Counsel
reasonably satisfactory to the Company or the Trustee, as the
case may be, to the effect that such transfer is in
compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and, at the option of the Company or the
Trustee, an Opinion of Counsel reasonably satisfactory to the
Company or the Trustee, as the case may be, to the effect
that such transfer is in compliance with the Securities Act;
or
<PAGE>
-36-
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and, at the option of the
Company or the Trustee, an Opinion of Counsel reasonably
acceptable to the Company or the Trustee, as the case may be,
to the effect that such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security the offer and sale of which
has not been registered under the Securities Act may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of
a Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
that such Physical Security is being transferred (I) to a
QIB, (II) to an Accredited Investor or (III) in an offshore
transaction in reliance on Regulation S and, with respect to
(II) and (III), at the option of the Company or the Trustee,
an Opinion of Counsel reasonably acceptable to the Company or
the Trustee, as the case may be, to the effect that such
transfer is in compliance with the Securities Act; and
(B) written instructions directing the Registrar or co-Registrar
to make, or to direct the Depository to make, an endorsement
on the applicable Global Security to reflect an increase in
the aggregate amount of the Securities represented by the
Global Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar
or co-Registrar, the principal amount of Securities represented by the
applicable Global Security to be increased accordingly. If no 144A Global
Security, IAI Global Security or Regulation S Global Security, as the case may
be, is then outstanding, the Company shall, unless either of the events in the
proviso to Section 2.15(b) have occurred and are continuing, issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate a new Global Security of such type in principal
amount equal to the principal amount of the interest requested to be
transferred. Private Exchange Securities, as such, may not be exchanged for a
beneficial interest in a Global Security.
<PAGE>
-37-
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor; provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary Regulation S Global
Security may not be made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon receipt by the Registrar or
Co-Registrar of written instructions, or such other instruction as is customary
for the Depository, from the Depository or its nominee, requesting the
registration of transfer of an interest in a 144A Global Security, an IAI
Global Security or a Regulation S Global Security, as the case may be, to
another type of Global Security, together with the applicable Global Securities
(or, if the applicable type of Global Security required to represent the
interest as requested to be obtained is not then outstanding, only the Global
Security representing the interest being transferred), the Registrar or
Co-Registrar shall reflect on its books and records (and the applicable Global
Security) the applicable increase and decrease of the principal amount of
Securities represented by such types of Global Securities, giving effect to
such transfer. If the applicable type of Global Security required to represent
the interest as requested to be obtained is not outstanding at the time of such
request, the Company shall issue and the Trustee shall, upon written
instructions from the Company in accordance with Section 2.02, authenticate a
new Global Security of such type in principal amount equal to the principal
amount of the interest requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security may
upon written request exchange such beneficial interest for a Physical
Security; provided, however, that prior to the Registration, a
transferee that is a QIB or Institutional Accredited Investor may not
exchange a beneficial interest in Global Security for a Physical
Security; provided that in no event shall Physical Securities be issued
upon the transfer or exchange of beneficial interests in the Regulation
S Temporary Global Security prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the Securities Act as
stated in an Opinion of Counsel. Upon receipt by the Registrar or
co-Registrar of written instructions, or such other form of instructions
as is customary for the Depository, from the Depository or its nominee
on behalf of any Person having a beneficial interest in a Global
Security and upon receipt by the Trustee of a written order or such
other form of instructions as is customary for the Depository or the
Person designated by the Depository as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange of
<PAGE>
-38-
a beneficial interest in Securities the offer and sale of
which have not been registered under the Securities Act, the following
additional information and documents:
(A) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and, at the option of the Company or the
Trustee, an Opinion of Counsel reasonably satisfactory to the
Company or the Trustee, as the case may be, to the effect
that such transfer is in compliance with the Securities Act;
or
(B) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act, a certification to that effect
(substantially in the form of Exhibit D hereto) and, at the
option of the Company or the Trustee, an Opinion of Counsel
reasonably satisfactory to the Company or the Trustee, as the
case may be, to the effect that such transfer is in
compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository
and the Registrar or co-Registrar, the aggregate principal amount of
the applicable Global Security to be reduced and, following such
reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate in
accordance with Section 2.02, the Trustee will authenticate and
deliver to the transferee a Physical Security in the appropriate
principal amount.
(ii) Securities issued in exchange for a beneficial interest
in a Global Security pursuant to this Section 2.16(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Registrar or
co-Registrar in writing. The Registrar or co-Registrar shall deliver
such Physical Securities to the Persons in whose names such Physical
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
<PAGE>
-39-
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private
Placement Legend if, (i) there is delivered to the Trustee an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act; (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act (including pursuant to a Registration); or (iii) the
date of such transfer, exchange or replacement is two years after the later of
(x) the Issue Date and (y) the last date that the Company or any affiliate (as
defined in Rule 144 under the Securities Act) of the Company was the owner of
such Securities (or any predecessor thereto).
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to this Section 2.16 or Section 2.15.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
<PAGE>
-40-
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5 or 6
of the Securities at the applicable redemption price set forth thereon, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed. The Company shall give such notice to the
Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis or in
such other manner as the Trustee shall deem fair and appropriate. Selection of
the Securities to be redeemed pursuant to paragraph 6 of the Securities shall
be made by the Trustee only on a pro rata basis or on as nearly a pro rata
basis as is practicable (subject to the procedures of the Depository) based on
the aggregate principal amount of Securities held by each Holder. The Trustee
shall make the selection from the Securities then outstanding, subject to
redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 5 or 6 of
the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address;
provided, however, that notice of a redemption pursuant to paragraph 6 of the
Securities shall be mailed to each Holder whose
<PAGE>
-41-
Securities are to be redeemed no later than 90 days after the date of
the Closing of the relevant Public Equity Offering of Holdings or the
Company.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the Redemption Date and the only
remaining right of the Holders is to receive payment of the redemption
price upon surrender to the Paying Agent; and
(6) in the case of any redemption pursuant to paragraph 5 or
6 of the Securities, if any Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and
that, after the Redemption Date, upon surrender of such Security, a
new Security or Securities in principal amount equal to the unredeemed
portion thereof will be issued.
At the Company's written request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon, if any, to the Redemption
Date, but interest installments whose maturity is on or prior to such
Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date. Subject to the provisions of
Section 3.05, on and after the Redemption Date, interest ceases to accrue on
the Securities or portions of them called for redemption.
<PAGE>
-42-
SECTION 3.05. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company is its own Paying Agent, shall, on or before
the Redemption Date, segregate and hold in trust) money sufficient to pay the
redemption price of, including premium, if any, and accrued interest, if any,
on all Securities to be redeemed on that date other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure
of the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal, including premium, if any, and accrued
and unpaid interest, if any, thereon shall, until paid or duly provided for,
bear interest as provided in Sections 2.12 and 4.01 with respect to any payment
default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities and the Registration Rights Agreement.
An installment of principal or interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company, a Guarantor or any
of their respective Affiliates) holds on that date money designated for and
sufficient to pay the installment in full and is not prohibited from paying
such money to the Holders pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Securities. The Company shall pay cash interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.
<PAGE>
-43-
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in
the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in
Section 13.02. The Company hereby initially designates the Trustee at its
address set forth in Section 13.02 as its office or agency in The Borough of
Manhattan, The City of New York, for such purposes.
SECTION 4.03. Limitation on Incurrence of Additional Indebtedness and Issuance
of Disqualified Capital Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(other than Permitted Indebtedness) and the Company shall not issue any
Disqualified Capital Stock and shall not permit its Restricted Subsidiaries to
issue any Preferred Stock except Preferred Stock of a Restricted Subsidiary
issued to (and as long as it is held by) the Company or a Wholly Owned
Restricted Subsidiary of the Company; provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Restricted Subsidiary may incur Indebtedness (including, without limitation,
Acquired Indebtedness), the Company 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 Stock, as the case may be, and the use of proceeds therefrom, the
Company's Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to 1.0.
SECTION 4.04. Limitation on Senior Subordinated Indebtedness.
The Company shall not, and shall not cause or permit any Guarantor to,
directly or indirectly, incur, or suffer to exist, any Indebtedness that by its
terms would expressly rank senior in right of payment to the Securities or the
Guarantees of such Guarantor, as the case may be, and subordinate in right of
payment to any other Indebtedness of the Company or such Guarantor, as the case
may be.
<PAGE>
-44-
SECTION 4.05. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable in Qualified
Capital Stock of the Company) on or in respect of shares of the Company's
Capital Stock, (b) redeem any Capital Stock of the Company or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock, or (c) make any Investment (other than Permitted Investments) (each of
the foregoing actions set forth in clauses (a), (b) and (c) being referred to
as a "Restricted Payment"), if at the time of such Restricted Payment or
immediately after giving effect thereto, (i) a Default shall have occurred and
be continuing, (ii) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.03 or (iii) the aggregate amount of Restricted Payments (including
such proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum (the "Basket"), without
duplication, of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); provided that for purposes of this clause (w), the
definition of "Net Income" shall include (i) after-tax gains from Asset Sales
or abandonments or reserves relating thereto and (ii) an add-back of
amortization associated with the excess of purchase price over the value
allocated to tangible property or assets, acquired by the Company or its
Restricted Subsidiaries; plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the
Company) from the issuance and sale subsequent to the Issue Date and on or
prior to the Reference Date of Qualified Capital Stock of the Company or any
equity contribution received by the Company from a holder of the Company's
Capital Stock (other than Qualified Capital Stock or any equity contribution,
the proceeds of which are to be used to redeem Securities pursuant to paragraph
6 of the Securities); plus (y) the principal amount (or accreted amount
(determined in accordance with GAAP), if less) of any Indebtedness of the
Company or any Subsidiary of the Company incurred after the Issue Date which
has been converted into or exchanged for Qualified Capital Stock of the Company
(minus the amount of any cash or property distributed by the Company or any
Subsidiary of the Company upon such conversion or exchange); plus (z) the
amount equal to the net reduction in Investments (other than Permitted
Investments) made by the Company or any of its Restricted Subsidiaries in any
Person resulting from, and without duplication, (i) repurchases or redemptions
of such Investments by such Person, proceeds realized upon the sale of such
Investment to an unaffiliated purchaser and repayments of loans or advances or
other transfers of assets by such Person
<PAGE>
-45-
to the Company or any Restricted Subsidiary of the Company or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investment") not to exceed the
amount of the Investment previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of Restricted Payments; provided, however, that no amount shall be
included under this clause (z) to the extent it is already included in
Consolidated Net Income.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph shall not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration of such dividend if the
dividend would have been permitted on the date of declaration; (2) so long as
no Default shall have occurred and be continuing or would arise therefrom, any
purchase, redemption, defeasance or other acquisition of Capital Stock or
subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Qualified Capital Stock of
the Company; provided, however, that the value of any such Qualified Capital
Stock issued in exchange for Capital Stock and subordinated Indebtedness are
excluded from clause (iii)(x) of the immediately preceding paragraph; (3) so
long as no Default shall have occurred and be continuing or would arise
therefrom, any purchase, redemption, defeasance or other acquisition of
subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, subordinated Indebtedness of
the Company; (4) so long as no Default shall have occurred and be continuing or
would arise therefrom, dividends or distributions by the Company to Holdings to
be promptly applied by Holdings to repurchase Capital Stock of Holdings
(including rights, options or warrants to acquire such 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, in an aggregate amount not to exceed $1 million in any fiscal year;
provided, however, that amounts not expended in any calendar year may be
expended in succeeding fiscal years as long as no more than $3 million is so
expended in any fiscal year; (5) so long as no Default shall have occurred and
be continuing or would arise therefrom, Restricted Payments not to exceed $10
million in the aggregate during the term of this Indenture; and (6) any
dividends or payments to Holdings in respect of overhead expenses, including
legal, accounting and other professional fees, that are directly attributable
to the operations of the Company and its Restricted Subsidiaries. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (4) and (5) shall be
included in such calculation. Transactions pursuant to clauses (2) and (3)
shall not increase the Basket.
The amount of any non-cash Restricted Payment shall be the fair market
value, on the date such Restricted Payment is made, of the assets or securities
proposed to be trans-
<PAGE>
-46-
ferred or issued by the Company or such Restricted Subsidiary, as the case may
be, pursuant to such Restricted Payment. The fair market value of any non-cash
Restricted Payment shall be determined by the Board of Directors of the
Company.
SECTION 4.06. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 90% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such
Asset Sale shall be in the form of cash or Cash Equivalents and is received at
the time of such disposition; and (iii) upon the consummation of an Asset Sale,
the Company shall apply, or cause such Restricted Subsidiary to apply, the Net
Cash Proceeds relating to such Asset Sale within 270 days of receipt thereof
either (A) to prepay any Indebtedness incurred pursuant to clause (ii) of the
definition of "Permitted Indebtedness" and effect a permanent reduction
thereunder, (B) to prepay any Senior Indebtedness and effect a permanent
reduction thereunder, (C) to make an investment in Replacement Assets or (D) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A), (iii)(B) and (iii)(C). On the 271st day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines, as the case may be, not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A),
(iii)(B), (iii)(C) and (iii)(D) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 60 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a pro rata basis, that amount of Securities
equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Securities to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of repurchase; provided, however, that
the Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $5 million
resulting from one or more Asset Sales (at which time, the entire unutilized
Net Proceeds Offer Amount, and not just the amount in excess of $5 million,
shall be applied as required pursuant to this paragraph). If at any time any
non-cash consideration received by the Company or any Restricted Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
<PAGE>
-47-
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant.
(b) In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
(c) Notwithstanding paragraphs (a) and (b) above, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 90% of the
consideration for such Asset Sale constitutes cash or Replacement Assets and
(ii) such Asset Sale is for fair market value; provided that any consideration
not constituting Replacement Assets received by the Company or any of its
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 two preceding paragraphs.
(d) Within 30 days following the Net Proceeds Offer Trigger Date, the
Company shall send, by first class mail, postage prepaid, a notice to each
Holder of Securities, with a copy to the Trustee, which notice shall govern the
terms of the Net Proceeds Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Net Proceeds Offer. Such notice shall state:
(1) that the Net Proceeds Offer is being made pursuant to
this Section 4.06 and that all Securities validly tendered, in whole
or in part, and not withdrawn will be accepted for payment; provided,
however, that to the extent that Holders validly tender Securities in
an amount exceeding the Net Proceeds Offer Amount, Securities of
tendering Holders will be repurchased on a pro rata basis;
(2) the repurchase price (including the amount of accrued
interest, if any) and the repurchase date (which shall be no earlier
than 30 days nor later than 60 days following the applicable Net
Proceeds Offer Trigger Date, other than as may be required by law) and
that the Net Proceeds Offer will remain open for a period of 20
business days or such longer period as may be required by law;
(3) that any Security not tendered will continue to accrue
interest;
<PAGE>
-48-
(4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Net
Proceeds Offer shall cease to accrue interest after the Net Proceeds
Offer Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Net Proceeds Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect
Repurchase" on the reverse of the Security completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on the third Business Day prior to the Net Proceeds Offer
Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than five Business Days prior
to the Net Proceeds Offer Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have
such Security purchased;
(7) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; provided, however,
that each Security repurchased and each new Security issued shall be
in a principal amount of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts regarding the
applicable Asset Sale.
(e) On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof (in integral
multiples of $1,000) validly tendered pursuant to the Net Proceeds
Offer, (ii) deposit with the Paying Agent in accordance with Section
2.14 United States Government Obligations sufficient to pay the
repurchase price plus accrued and unpaid interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities
or portions thereof being repurchased by the Company. Upon receipt by
the Paying Agent of the monies specified in clause (ii) above and a copy
of the Officers' Certificate specified in clause (iii) above, the Paying
Agent shall promptly mail to the Holders so accepted payment in an
amount equal to the repurchase price plus accrued and unpaid interest,
if any, out of the funds deposited with the Paying Agent in accordance
with the preceding sentence. The Trustee shall promptly authenticate and
mail to such Holders new Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Upon the payment of
the repurchase price for the Securities accepted for repurchase, the
Trustee shall return the Securities repurchased to the Company for
cancellation. Any monies remaining after the repur-
<PAGE>
-49-
chase of Securities pursuant to a Net Proceeds Offer shall be returned
within three Business Days by the Trustee to the Company except with
respect to monies owed as obligations to the Trustee pursuant to Article
Seven. For purposes of this Section 4.06, the Trustee shall, except with
respect to monies owed as obligations to the Trustee pursuant to Article
Seven, act as the Paying Agent.
(f) The Company shall 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 Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.06, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.06 by virtue thereof.
SECTION 4.07. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock, (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) this
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 Issue Date, including, without limitation, the
Senior Credit Facility, to the extent and in the manner such agreements are in
effect on the Issue Date; (6) customary Liens granted by the Company 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) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company 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
<PAGE>
-50-
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, however, 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 Section 4.06 to the extent applicable thereto.
SECTION 4.08. Limitation on Liens.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, incur or suffer to exist any Lien (other than Permitted Liens)
on property or assets of the Company or such Restricted Subsidiary to secure
Indebtedness that is pari passu or subordinate in right of payment to the
Securities, in the case of the Company, or the Guarantors, in the case of a
Restricted Subsidiary that is a Guarantor, without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Securities
or the Guarantees, as the case may be (and, if the Company so determines, any
other Indebtedness of the Company or of such Restricted Subsidiary that is not
pari passu with or subordinated in right of payment to the Securities or the
Guarantees, as the case may be); provided, however, that (i) in the case of a
Lien securing Indebtedness that is pari passu with the Securities, in the case
of the Company, or the Guarantees, in the case of a Restricted Subsidiary that
is a Guarantor, the Lien securing the Securities or the Guarantees, as the case
may be, is senior or pari passu in priority with such Lien and (ii) in the case
of a Lien securing Indebtedness that is subordinated in right of payment to the
Securities, in the case of the Company, or the Guarantees, in the case of a
Restricted Subsidiary that is a Guarantor, the Lien securing the Securities or
the Guarantees, as the case may be, is senior in priority to such Lien.
(b) Notwithstanding the foregoing, any security interest granted by
the Company or any Restricted Subsidiary to secure the Securities, in the case
of the Company, or the Guarantees, in the case of a Restricted Subsidiary that
is a Guarantor, created pursuant to paragraph (a) above shall provide by its
terms that such security interest shall be automatically and unconditionally
released and discharged upon the release by the holders of the Indebtedness of
the Company or any Restricted Subsidiary described in paragraph (a) above of
their security interest (including any deemed release upon indefeasible payment
in full of all obligations under such Indebtedness), at a time when (A) no
other Indebtedness that is pari passu or subordinated in right of payment to
the Securities, or the Guarantees, as the case may be, has been secured by such
property or assets of the Company or any such Restricted Subsidiary or (B) the
holders of all such other Indebtedness which is secured by such property or
assets of the Company 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).
<PAGE>
-51-
SECTION 4.09. Limitations on Transactions with Affiliates.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit or suffer to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (i) Affiliate Transactions
permitted under paragraph (b) below and (ii) Affiliate Transactions on terms
that are no less favorable than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate of the Company or such Restricted Subsidiary. In
addition, if the Company or any Restricted Subsidiary enters into an Affiliate
Transaction (or a series of related Affiliate Transactions) involving aggregate
payments or other property with a fair market value in excess of $5 million,
the Company or such Restricted Subsidiary, as the case may be, shall, prior to
the consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors;
(ii) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by this
Indenture; (iii) any agreement as in effect as of the Issue Date and any
payment with respect thereto as required thereunder as of the Issue Date; and
(iv) Restricted Payments permitted by this Indenture.
SECTION 4.10. Change of Control.
(a) Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Trustee in writing of such Change of Control and shall notify the Holders of
such occurrence in the manner prescribed by this Indenture and shall, within 60
days after the Change of Control Date, make an offer to repurchase (the "Change
of Control Offer") all Securities then outstanding at a repurchase price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following the date on which the Company becomes aware that
a Change of Control
<PAGE>
-52-
has occurred, the Company covenants that if the repurchase of the Securities
would violate or constitute a default under any other Indebtedness of the
Company, then the Company shall, to the extent needed to permit such repurchase
of Securities, either (i) repay all such Indebtedness and terminate all
commitments outstanding thereunder or (ii) obtain the requisite consents, if
any, under any such Indebtedness required to permit the repurchase of the
Securities as provided below. The Company will first comply with the covenant
in the preceding sentence before it will be required to make the Change of
Control Offer or repurchase the Securities pursuant to the provisions described
below.
(c) Within 30 days following the Change of Control Date, the Company
shall send, by first class mail, postage prepaid, a notice to each Holder of
Securities, with copy to the Trustee, which notice shall govern the terms of
the Change of Control Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant
to this Section 4.10 and that all Securities validly tendered and not
withdrawn will be accepted for payment;
(2) the repurchase price (including the amount of accrued
interest, if any) and the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
Payment Date");
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender
the Security, with the form entitled "Option of Holder to Elect
Repurchase" on the reverse of the Security completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on the third Business Day prior to the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than five Business Days prior
to the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder delivered for purchase
<PAGE>
-53-
and a statement that such Holder is withdrawing his election to have
such Security purchased;
(7) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; provided, however,
that each Security repurchased and each new Security issued shall be
in a principal amount of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts regarding such
Change of Control.
(d) On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof (in integral multiples of
$1,000) validly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent in accordance with Section 2.14 United States Government
Obligations sufficient to pay the repurchase price plus accrued and unpaid
interest, if any, of all Securities so tendered and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof being repurchased by the Company. Upon
receipt by the Paying Agent of the monies specified in clause (ii) above and a
copy of the Officers' Certificate specified in clause (iii) above, the Paying
Agent shall promptly mail to the Holders so accepted payment in an amount equal
to the repurchase price plus accrued and unpaid interest, if any, out of the
funds deposited with the Paying Agent in accordance with the preceding
sentence. The Trustee shall promptly authenticate and mail to such Holders new
Securities equal in principal amount to any unpurchased portion of the
Securities surrendered. Upon the payment of the repurchase price for the
Securities accepted for repurchase, the Trustee shall return the Securities
repurchased to the Company for cancellation. Any monies remaining after the
repurchase of Securities pursuant to a Change of Control Offer shall be
returned within three Business Days by the Trustee to the Company except with
respect to monies owed as obligations to the Trustee pursuant to Article Seven.
For purposes of this Section 4.10, the Trustee shall, except with respect to
monies owed as obligations to the Trustee pursuant to Article Seven, act as the
Paying Agent.
(e) If the Company makes an Change of Control Offer, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any
other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Change of Control Offer occurring as a result of such compliance shall not be
deemed a Default or an Event of Default.
<PAGE>
-54-
SECTION 4.11. Additional Subsidiary Guarantees.
If the Company or any of its 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 the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Restricted Subsidiary, then
such transferee or acquired or other Restricted Subsidiary shall (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Securities
and this Indenture on the terms set forth in this Indenture and (ii) deliver to
the Trustee an Opinion of Counsel that such supplemental indenture has been
duly authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of this Indenture.
SECTION 4.12. Designation of Unrestricted Subsidiaries.
(a) The Company may designate after the Issue Date any
Subsidiary of the Company as an "Unrestricted Subsidiary" under this Indenture
(a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
and
(ii) the Company would be permitted to make an Investment
(other than a Permitted Investment) at the time of such Designation
(assuming the effectiveness of such Designation) pursuant to Section
4.05 in an amount (the "Designation Amount") equal to the fair market
value of the Company's proportionate interest in the net worth of such
Subsidiary on such date calculated in accordance with GAAP.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
4.05 for all purposes of this Indenture in the Designation Amount.
(b) Neither the Company nor any Restricted Subsidiary shall at any
time (x) provide credit support for or guarantee any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness); provided that the Company may pledge equity
interests or Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis
such that the pledgee has no claim whatsoever against the Company other than to
obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebted-
<PAGE>
-55-
ness 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, except for any nonrecourse guarantee given
solely to support the pledge by the Company of the capital Stock of any
Unrestricted Subsidiary. For purposes of the foregoing, the Designation
of a Subsidiary of the Company as an Unrestricted Subsidiary shall be
deemed to include the Designation of all of the Subsidiaries of such
Subsidiary.
(c) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all
purposes of this Indenture.
(d) All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
SECTION 4.13. Conduct of Business.
The Company and its Restricted Subsidiaries shall not engage in any
businesses other than Permitted Businesses.
SECTION 4.14. Reports to Holders.
The Company shall deliver to the Trustee and the Holders within 15
days after the filing of the same with the Commission, copies of the quarterly
and annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission within the time periods
specified by the Exchange Act and the rules of regulations promulgated
thereunder, to the extent permitted, and provide the Trustee and Holders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act within 15 days after the filing of
the same with the Commission or on such date as the same would have been
required to be filed with the Commission. The Company, the Guarantors and their
respective subsidiaries shall also comply with the other provisions of
TIA Section 314(a).
<PAGE>
-56-
In addition, for so long as any Securities remain outstanding, the Company
shall furnish to the Holders, the Trustee and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Securities, if not obtainable from the SEC, information of
the type that would be filed with the SEC pursuant to the foregoing provisions,
upon the request of any such holder.
SECTION 4.15. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational
documents of each such Restricted Subsidiary and the rights (charter and
statutory) and material franchises of the Company and the Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Restricted Subsidiaries, taken as a whole, and
that the loss thereof is not, and will not be, adverse in any material respect
to the Holders; provided, further, however, that a determination of the Board
of Directors of the Company shall not be required in the event of a merger of
one or more Wholly Owned Restricted Subsidiaries of the Company with or into
another Wholly Owned Restricted Subsidiary of the Company or another Person, if
the surviving Person is a Wholly Owned Restricted Subsidiary of the Company
organized under the laws of the United States or a State thereof or of the
District of Columbia.
SECTION 4.16. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments
and governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
<PAGE>
-57-
SECTION 4.17. Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any of its
Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.18. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or leased
to it or any Restricted Subsidiary and used or useful in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.18 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Restricted Subsidiary concerned, or of an officer (or other
agent employed by the Company or of any Restricted Subsidiary) of the Company
or such Restricted Subsidiary having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such
risks and in such amounts, and with such deductibles, retentions, self-insured
amounts and co-insurance provisions, as are customarily carried by similar
businesses of similar size, including property and casualty loss, and workers'
compensation insurance.
<PAGE>
-58-
SECTION 4.19. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days after the
close of each fiscal year a certificate signed by the principal executive
officer or chief financial officer stating that a review of the activities of
the Company has been made under the supervision of the signing officers with a
view to determining whether a Default or Event of Default has occurred and
whether or not the signers know of any Default or Event of Default by the
Company that occurred during such fiscal year. If they do know of such a
Default or Event of Default, the certificate shall describe all such Defaults
or Events of Default, their status and the action the Company is taking or
proposes to take with respect thereto. The first certificate to be delivered by
the Company pursuant to this Section 4.19 shall be for the fiscal year ending
December 31, 1998.
SECTION 4.20. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive
the Company or such Guarantor from paying all or any portion of the principal
of and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.21. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the
Securities, this Indenture or the Registration Rights Agreement unless such
consideration is offered to be paid or agreed to be paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
<PAGE>
-59-
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
(a) The Company shall not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Company's Restricted Subsidiaries)
whether as an entirety or substantially as an entirety to any Person, unless:
(i) either (1) the Company shall be the surviving or continuing corporation or
(2) the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and assets of
the Company and of the Company's Restricted Subsidiaries substantially as an
entirety (the "Surviving Entity") (x) shall be a corporation organized and
validly existing under the laws of the United States or any State thereof or
the District of Columbia and (y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Securities and the performance of
every covenant of the Securities and this Indenture on the part of the Company
to be performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.03; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
and any Lien granted in connection with or in respect of the transaction), no
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
<PAGE>
-60-
For purposes of the foregoing, the transfer by lease, assignment, sale
or otherwise, in a single transaction or series of transactions, of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(b) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of its Guarantee and this Indenture in
connection with any transaction complying with Section 4.06) shall not, and the
Company shall not cause or permit any Guarantor to, consolidate with or merge
with or into any Person other than the Company or any other Guarantor unless:
(i) the entity formed by or surviving any such consolidation or merger (if
other than the Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) such entity assumes by supplemental indenture all of
the obligations of the Guarantor on its Guarantee; (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; and (iv) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of paragraph (a) above. Any
merger or consolidation of a Guarantor with and into the Company (with the
Company being the surviving entity) or another Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company need only comply with clause (iv) of
paragraph (a) above.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01 in which the Company is
not the continuing corporation, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, as applicable, under this Indenture and the Securities, as
applicable, and the Registration Rights Agreement with the same effect as if
such surviving entity had been named as such and the Company shall be
discharged from its Obligations under this Indenture and the Securities or such
Guarantor shall be discharged from its Obligations under this Indenture and its
Guarantee.
<PAGE>
-61-
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
(i) the failure to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of
30 days (whether or not prohibited by Article Eight);
(ii) the failure to pay the principal on any Securities, when
such principal becomes due and payable, at maturity, upon redemption
or otherwise (including the failure to make a payment to purchase
Securities tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer) (whether or not prohibited by Article Eight);
(iii) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Securities (except in the case of
a default with respect to Article Five, which will constitute an Event
of Default with such notice requirement but without such passage of
time requirement);
(iv) a default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any
of its Restricted Subsidiaries having an outstanding principal amount
of $10 million or more individually or in the aggregate that has
resulted in the acceleration of the payment of such Indebtedness or
failure by the Company or any of its Restricted Subsidiaries to pay
principal when due at the stated maturity of any such Indebtedness and
such default or defaults shall have continued after any applicable
grace period and shall not have been cured or waived;
(v) one or more judgments in an aggregate amount in excess of
$10 million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid
or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable;
<PAGE>
-62-
(vi) the Company or any Significant Restricted Subsidiary
pursuant to or within the meaning of any Bankruptcy Law: (i) admits in
writing its inability to pay its debts generally as they become due;
(ii) commences a voluntary case or proceeding; (iii) consents to the
entry of an order for relief against it in an involuntary case or
proceeding; (iv) consents or acquiesces in the institution of a
bankruptcy or insolvency proceeding against it; (v) consents to the
appointment of a Custodian of it or for all or substantially all of
its property; or (vi) makes a general assignment for the benefit of
its creditors, or any of them takes any action to authorize or effect
any of the foregoing;
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the
Company or any Significant Restricted Subsidiary in an involuntary
case or proceeding; (ii) appoints a Custodian of the Company or any
Significant Restricted Subsidiary for all or substantially all of its
property; or (iii) orders the liquidation of the Company or any
Significant Restricted Subsidiary; and in each case the order or
decree remains unstayed and in effect for 60 days; provided, however,
that if the entry of such order or decree is appealed and dismissed on
appeal, then the Event of Default hereunder by reason of the entry of
such order or decree shall be deemed to have been cured; or
(viii) any of the Guarantees ceases to be in full force and
effect or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is found to be invalid or any
of the Guarantors denies its liability under its Guarantee (other than
by reason of release of a Guarantor in accordance with the terms of
this Indenture).
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (vi) or (vii) of Section 6.01 with respect to the Company) shall occur
and be continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of outstanding Securities may declare the principal of, and
premium, if any, and accrued interest on all the Securities to be due and
payable by notice in writing to the Company (and to the Trustee if given by the
Holders) specifying the respective Event of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable.
<PAGE>
-63-
If an Event of Default specified in clause (vi) or (vii) of Section
6.01 with respect to the Company occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued interest on all of the
outstanding Securities shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the two preceding paragraphs, the Holders of a
majority in principal amount of the Securities may rescind and cancel such
declaration and its consequences (i) if the recission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest
is lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration or acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (vi) or (vii) of Section 6.01, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount of the outstanding Securities by written notice to
the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or in-
<PAGE>
-64-
terest on any Security as specified in clauses (i) and (ii) of Section
6.01 or a Default in respect of any term or provision of this Indenture
that may not be amended or modified without the consent of each Holder
affected as provided in Section 10.02. The Company shall deliver to the
Trustee an Officers' Certificate stating that the requisite percentage
of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the
Holders shall be restored to their former positions and rights hereunder
and under the Securities, respectively. This paragraph of this Section
6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA and such
Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of not less than a majority in
principal amount of the outstanding Securities may direct the time,
method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of another Holder, or that may involve the
Trustee in personal liability; provided, however, that the Trustee may
take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any
action or follows any direction pursuant to this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole
discretion against any loss or expense caused by taking such action or
following such direction. This Section 6.05 shall be in lieu of Section
316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the TIA is
hereby expressly excluded from this Indenture and the Securities, as
permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
<PAGE>
-65-
(ii) the Holders of at least 25% in aggregate principal
amount of the outstanding Securities make a written request to the
Trustee to pursue a remedy;
(iii) such Holder or Holders offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee
a direction which, in the opinion of the Trustee, is inconsistent with
the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and premium, if any or interest
on a Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (i) or (ii) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal and to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per
annum borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its
<PAGE>
-66-
agents and counsel) and the Holders allowed in any judicial proceedings
relative to the Company (or any other obligor upon the Securities), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Holder to make such payments to the Trustee and,
in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agent and counsel, and any other amounts due the Trustee under Section
7.07. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a
suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Securities, or to any suit instituted
<PAGE>
-67-
by any Holder for the enforcement or the payment of the principal or interest
on any Securities on or after the respective due dates expressed in the
Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions conforming to the requirements of this Indenture; provided,
however, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
<PAGE>
-68-
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of
such funds is not assured to it or it does not receive from such Holders an
indemnity satisfactory to it in its sole discretion against such risk,
liability, loss, fee or expense which might be incurred by it in compliance
with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in acting or
refraining to act upon any document believed by it to be genuine and to have
been signed or presented by the proper person or parties . The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and/or an Opinion of Counsel, which shall conform to the
provisions of Section 13.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through attorneys and agents of its selection
and shall not be responsible for the misconduct or negligence of any agent or
attorney (other than an agent who is an employee of the Trustee) appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers.
<PAGE>
-69-
(e) The Trustee may consult with counsel of its selection and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof or
unless the Trustee shall have received written notice thereof at the Corporate
Trust Office of the Trustee, and such notice references the Securities and this
Indenture.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject
to Sections 7.10 and 7.11. Any Agent may do the same with like rights.
SECTION 7.04. Trustee's Disclaimer.
The Trustee assumes no responsibility for the correctness of, and
makes no representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in con-
<PAGE>
-70-
nection with the sale of Securities or any statement in the Securities other
than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing
and the Trustee knows of such Defaults or Events of Default, the Trustee
shall mail to each Holder notice of the Default or Event of Default
within 30 days after the occurrence thereof. Except in the case of a
Default or an Event of Default in payment of principal of or interest on
any Security or a Default or Event of Default in complying with Section
5.01, the Trustee may withhold the notice if and so long as a committee
of its Trust Officers in good faith determines that withholding the
notice is in the interest of Holders. This Section 7.05 shall be in lieu
of the proviso to Section 315(b) of the TIA and such proviso to Section
315(b) of the TIA is hereby expressly excluded from this Indenture and
the Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after each December 1
beginning with the December 1 following the date of this Indenture, the Trustee
shall mail to each Holder a report dated as of such December 1 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b), (c) and (d).
A copy of each such report at the time of its mailing to Holders shall
be filed with the SEC and each stock exchange, if any, on which the Securities
are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including reasonable fees, disbursements and expenses of its
agents and counsel) incurred or made by it in addition to the compensation for
its services except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence or bad faith. Such expenses shall
include, but are not limited to, the reasonable compensation, disbursements and
expenses of the Trustee's agents, accountants, experts and counsel and any
taxes or other expenses incurred by a trust created pursuant to Sections 9.01
and 9.03 hereof.
<PAGE>
-71-
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including, but not limited to, the reasonable costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the extent
that such loss, damage, claim, liability or expense is due to its own
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. However,
the failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and
the Trustee shall cooperate in the defense (and may employ its own counsel) at
the Company's expense; provided, however, that the Trustee shall have the right
to employ its own counsel in any such action only if a conflict exists (based
upon advice of counsel) between the Company and the Trustee, in which case the
reasonable fees and expenses of Trustee's counsel will be at the expense of the
Company.
The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by
the Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations pursuant to this Section
7.07, the Trustee shall have a Lien prior to the Securities against all money
or property held or collected by the Trustee, in its capacity as Trustee,
except money or property held in trust to pay principal of or interest on
particular Securities or the repurchase price or redemption price of any
Securities to be purchased pursuant to a Net Proceeds Offer, a Change of
Control Offer or a redemption, as the case may be.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (vi) or (vii) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute
expenses of administration under any Bankruptcy Law. The Company's obligations
under this Section 7.07 and any claim arising hereunder shall survive the
resignation or removal of any Trustee, the discharge of the Company's
obligations pursuant to Article Nine and any rejection or termination under any
Bankruptcy Law.
<PAGE>
-72-
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company
in writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(c) a custodian or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties
of the Trustee under this Indenture. A successor Trustee shall mail notice of
its succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
<PAGE>
-73-
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA Sections 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition. If the
Trustee has or shall acquire any "conflicting interest" within the
meaning of TIA Section 310(b), the Trustee and the Company shall comply
with the provisions of TIA Section 310(b); provided, however, that there
shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA
Section 310(b)(1) are met. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 7.10, the
Trustee shall resign immediately in the manner and with the effect
hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, that all
Securities shall be
<PAGE>
-74-
issued subject to the provisions of this Article Eight; and
each person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of, premium, if any, and interest on the Securities by the Company
shall, to the extent and in the manner set forth in this Article Eight, be
subordinated and junior in right of payment to the prior payment in full in
cash of all amounts payable under Senior Indebtedness.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any payment from
funds deposited in accordance with, and held in trust for the benefit of
Holders pursuant to Article Nine (a "Defeasance Trust Payment")) by the Company
of principal of, premium, if any, or interest on the Securities, whether
pursuant to the terms of the Securities, upon acceleration, pursuant to a Net
Proceeds Offer, a Change of Control Offer or otherwise, shall be made if, at
the time of such payment, there exists a default in the payment of all or any
portion of the obligations on any Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Senior Indebtedness. In
addition, during the continuance of any non-payment event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be immediately accelerated, and upon receipt by the Trustee of
written notice (a "Payment Blockage Notice") from the holder or holders of such
Designated Senior Indebtedness or the trustee or agent acting on behalf of the
holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by the Company of principal of, premium,
if any, or interest on the Securities, whether pursuant to the terms of the
Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise,
to such Holders, during a period (a "Payment Blockage Period") commencing on
the date of receipt of such notice by the Trustee and ending 179 days
thereafter.
Notwithstanding anything in this Article Eight or the Securities to
the contrary, (x) in no event will a Payment Blockage Period extend beyond 179
days from the date the Payment Blockage Notice in respect thereof was given,
(y) there shall be a period of at least 181 consecutive days in each 360-day
period when no Payment Blockage Period is in effect and (z) not more than one
Payment Blockage Period may be commenced with respect to the Securities during
any period of 360 consecutive days. No event of default that existed or was
<PAGE>
-75-
continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge
of such existing or continuing event of default) may be, or be made, the basis
for the commencement of any other Payment Blockage Period by the holder or
holders of such Designated Senior Indebtedness or the trustee or agent acting
on behalf of such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default has been cured or
waived for a period of not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that, upon notice from the Trustee to the holders of
Designated Senior Indebtedness that such prohibited payment has been made, the
holders of the Designated Senior Indebtedness (or their representative or
representatives or a trustee or trustees) notify the Trustee in writing of the
amounts then due and owing on the Designated Senior Indebtedness, if any, and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of Designated Senior Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, upon
any dissolution or winding up or total liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings (excluding any payment or distribution of
Permitted Junior Securities and any Defeasance Trust Payment), all Senior
Indebtedness then due shall first be paid in full in cash before the Holders or
the Trustee on behalf of such Holders shall be entitled to receive any payment
by the Company of the principal of, premium, if any, or interest on the
Securities, or any payment by the Company to acquire any of the Securities for
cash, property or securities, or any distribution by the Company with respect
to the Securities of any cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment). Before any payment may be made by, or on behalf of, the Company of
the principal of, premium, if any, or interest on the Securities upon any such
dissolution or winding up or total liquidation or reorganization, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, any payment or distribution of assets or securities of the Company
of
<PAGE>
-76-
any kind or character, whether in cash, property or securities (excluding
any payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment), to which the Holders or the Trustee on their behalf
would be entitled, but for the subordination provisions of this Indenture,
shall be made by the Company or by any receiver, trustee in bankruptcy,
liquidation trustee, agent or other Person making such payment or distribution,
directly to the holders of the Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such
holders) or their representatives or to the trustee or trustees or agent or
agents under any agreement or indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Senior Indebtedness in full in cash after
giving effect to any prior or concurrent payment, distribution or provision
therefor to or for the holders of such Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), shall be
received by the Trustee or any Holder of Securities at a time when such payment
or distribution is prohibited by Section 8.03(a) and before all obligations in
respect of Senior Indebtedness are paid in full in cash, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness held
by such holders) or their respective representatives, or to the trustee or
trustees or agent or agents under any indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of Senior Indebtedness remaining unpaid
until all such Senior Indebtedness has been paid in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor
to or for the holders of such Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
<PAGE>
-77-
SECTION 8.04. Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or
provision for payment, the Holders shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company made on such Senior Indebtedness until
the principal of and interest on the Securities shall be paid in full in cash;
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders or the Trustee on their behalf would be entitled except for the
provisions of this Article Eight, and no payment over pursuant to the
provisions of this Article Eight to the holders of Senior Indebtedness by
Holders or the Trustee on their behalf shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the Holders, be deemed
to be a payment by the Company to or on account of the Senior Indebtedness. It
is understood that the provisions of this Article Eight are and are intended
solely for the purpose of defining the relative rights of the Holders, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Eight shall have been
applied, pursuant to the provisions of this Article Eight, to the payment of
all amounts payable under Senior Indebtedness, then and in such case, the
Holders shall be entitled to receive from the holders of such Senior
Indebtedness any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount required to make payment in full in cash
of such Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company and
the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent any Holder or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if
any, under this Article Eight of the holders of the Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the Holders to
take any action to declare the Securities to be due and payable prior to their
stated maturity pursuant to Section 6.01 or to
<PAGE>
-78-
pursue any rights or remedies hereunder; provided, however, that all Senior
Indebtedness then due and payable shall first be paid in full in cash before
the Holders or the Trustee are entitled to receive any direct or indirect
payment from the Company of principal of or interest on the Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight. The Trustee shall not be charged with knowledge of the existence
of any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee
unless and until the Trustee shall have received notice in writing at its
Corporate Trust Office to that effect signed by an Officer of the Company, or
by a holder of Senior Indebtedness or trustee or agent therefor; and prior to
the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided, however, that
if the Trustee shall not have received the notice provided for in this Section
8.06 at least two Business Days prior to the date upon which by the terms of
this Indenture any moneys shall become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from the Company and
to apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date. Nothing contained in this Section 8.06 shall limit the right
of the holders of Senior Indebtedness to recover payments as contemplated by
Section 8.03. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Senior Indebtedness (or a trustee on behalf of, or other representative of,
such holder) to establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee or representative on behalf of any such
holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
<PAGE>
-79-
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants
or obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders or to
the Company or to any other person cash, property or securities to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article
Eight or otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with. The provisions of this Article Eight are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Indebtedness.
<PAGE>
-80-
SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder by his acceptance of such Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Eight, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, total liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Company, the filing of a claim for the unpaid balance of its or his
Securities in the form required in those proceedings.
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Eight shall not be
construed as preventing the occurrence of an Event of Default specified in
Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders, without incurring
responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Eight or the obligations hereunder of
the Holders to the holders of Senior Indebtedness, do any one or more of the
following: (a) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding or secured; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against
the Company and any other Person.
<PAGE>
-81-
SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust
for Holders; Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
8.02, from making payments of principal of and interest on the Securities or
from depositing with the Trustee any moneys for such payments or from effecting
a termination of the Company's and the Guarantors' obligations under the
Securities and this Indenture as provided in Article Nine, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of and interest on the Securities, to the
holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 8.02(b) or in Section 8.06.
The Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness
of the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations.
The Company may terminate its and the Guarantors' obligations under
the Securities and this Indenture, except those obligations referred to in the
penultimate paragraph of this Section 9.01, if:
(i) either (a) all the Securities theretofore authenticated
and delivered (except lost, stolen or destroyed Securities which have
been replaced or paid and Securities for whose payment money has
theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or
<PAGE>
-82-
(b) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable or have been called for
redemption and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Securities not theretofore
delivered to the Trustee for cancellation, for principal of, premium,
if any, and interest on the Securities to the date of deposit together
with irrevocable written instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(ii) the Company has paid all other sums payable under this
Indenture by the Company; and
(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions
precedent under this Indenture relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the first paragraph of this Section 9.01, the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10,
2.12, 2.13 and 4.01, 4.02, 7.07, 7.08, 9.05 and 9.06 shall survive until the
Securities are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07, 9.05 and 9.06 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon written request
shall acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above. The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the United
States Government Obligations deposited pursuant to this Section 9.01 or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of outstanding
Securities.
SECTION 9.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may at its option terminate its and the Guarantors'
obligations in respect of the Securities by delivering all outstanding
Securities to the Trustee for cancellation and paying all sums payable by it on
account of principal of and interest on all Securities or otherwise. In
addition to the foregoing, the Company may, at its option, at any time elect to
have either paragraph (b) or (c) below be applied to all outstanding
Securities, subject in either case to compliance with the conditions set forth
in Section 9.03.
<PAGE>
-83-
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Securities, except for (i) the rights of Holders to receive payments in respect
of the principal of, premium, if any, and interest on the Securities when such
payments are due, (ii) the Company's obligations with respect to the Securities
concerning issuance of temporary Securities, registration of Securities,
mutilated, destroyed, lost or stolen Securities and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee under this Indenture and the Company's obligations in
connection therewith and (iv) Article Nine of this Indenture (hereinafter,
"Legal Defeasance"). Subject to compliance with this Article Nine, the Company
may exercise its option under this paragraph (b) notwithstanding the prior
exercise of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be released from its
obligations under the covenants contained in Sections 4.03 through 4.19 and
Article Five with respect to the outstanding Securities (hereinafter, "Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Securities.
In addition, upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), subject to the satisfaction of the
conditions set forth in Section 9.03, any failure or omission to comply with
such obligations shall not constitute a Default or Event of Default with
respect to the Securities.
SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance.
In order to exercise either Legal Defeasance pursuant to Section
9.02(b) or Covenant Defeasance pursuant to Section 9.02(c):
(i) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in U.S. dollars,
non-callable United States Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest on the Securities on
the stated Final Maturity Date or on the applicable Redemption Date,
as the case may be;
(ii) in the case of an election under Section 9.02(b), the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
(A) the Company has received from, or
<PAGE>
-84-
there has been published by, the Internal Revenue Service a ruling or
(B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had
not occurred;
(iii) in the case of an election under Section 9.02(c), the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or insofar as Events of
Default described in Section 6.01(vi) or (vii) are concerned, at any
time in the period ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with;
(viii) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the
deposit, the trust funds will
<PAGE>
-85-
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
and
(ix) certain other customary conditions precedent are
satisfied.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (ii) above with respect to an election under Section 9.02(b) need not be
delivered if all Securities not therefore delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable
on the maturity date within one year or (z) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the expense, of the
Company.
SECTION 9.04. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Sections 9.01 and 9.03, and shall
apply the deposited money and the money from United States Government
Obligations in accordance with this Indenture solely to the payment of
principal of and interest on the Securities.
SECTION 9.05. Repayment to Company.
Subject to Sections 7.07, 9.01 and 9.03, the Trustee shall promptly
pay to the Company upon written request any excess money held by it at any
time. The Trustee shall pay to the Company upon written request any money held
by it for the payment of principal or interest that remains unclaimed for two
years; provided, however, that the Trustee before being required to make any
payment may at the expense of the Company cause to be published once in a
newspaper of general circulation in The City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that, after
a date specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining
shall be repaid to the Company. After payment to the Company, Holders entitled
to money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person and all liability
of the Trustee or Paying Agent with respect to such money shall thereupon
cease.
SECTION 9.06. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 or 9.03 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and the Guarantors' obligations under
<PAGE>
-86-
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 9.01 or 9.03, as the case may be,
until such time as the Trustee is permitted to apply all such money or United
States Government Obligations in accordance with Section 9.01 or 9.03, as the
case may be; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not, in the opinion of
the Trustee, adversely affect the rights of any Holder in any material
respect;
(ii) to effect the assumption by a successor Person of all
obligations of the Company under the Securities and his Indenture in
connection with any transaction complying with Article Five of this
Indenture;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional
benefit or rights to the Holders;
(vi) to make any other change that does not adversely affect
the rights of any Holder under this Indenture;
<PAGE>
-87-
(vii) to evidence the succession of another Person to any
Guarantor and the assumption by any such successor of the covenants of
such Guarantor herein and in the Guarantee in connection with any
transaction complying with Article Five of this Indenture;
(viii) to add to the covenants of the Company or the
Guarantors for the benefit of the Holders, or to surrender any right
or power herein conferred upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements of
Section 4.08 or otherwise; or
(x) to reflect the release of a Guarantor from its
obligations with respect to its Guarantee in accordance with the
provisions of Section 11.03 and to add a Guarantor pursuant to the
requirements of Section 4.11;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount of
the outstanding Securities. Subject to Section 6.07, the Holders of a majority
in principal amount of the outstanding Securities may waive compliance by the
Company or any Guarantor with any provision of this Indenture or the
Securities. However, without the consent of each Holder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of or any
installment of interest on any Security or alter the optional
redemption or repurchase provisions of any Security or this Indenture
in a manner adverse to the Holders;
(ii) reduce the principal amount (or premium) of any
Security;
(iii) reduce the rate of or extend the time for payment of
interest, including defaulted interest, on any Security;
<PAGE>
-88-
(iv) change the place or currency of payment of the principal
of (or premium) or interest on any Security;
(v) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07
or this Section 10.02 (other than to add sections of this Indenture or
the Securities which may not be amended, supplemented or waived
without the consent of each Holder affected);
(vi) reduce the percentage of the principal amount of
outstanding Securities necessary for amendment to or waiver of
compliance with any provision of this Indenture or the Securities or
for waiver of any Default;
(vii) waive a Default in the payment of the principal of or
interest on or redemption or purchase payment with respect to any
Security (except a rescission of acceleration of the Securities by the
Holders as provided in Section 6.02 and a waiver of the payment
default that resulted from such acceleration);
(viii) modify the ranking or priority of the Securities or
the Guarantee in respect of any Guarantor, or modify the definition of
Senior Indebtedness or Guarantor Senior Indebtedness, or amend or
modify any of the provisions of Article Eight or Article Twelve in any
manner adverse to the Holders;
(ix) release any Guarantor from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with this
Indenture; or
(x) modify the provisions relating to any Net Proceeds Offer
pursuant to Section 4.06 or a Change of Control Offer pursuant to
Section 4.10 in a manner materially adverse to the Holders.
An amendment under this Section 10.02 may not make any change under
Article Eight or Article Twelve hereof that adversely affects in any material
respect the rights of any holder of Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, then outstanding unless the holders of such
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, (or
any representative thereof authorized to give a consent) shall have consented
to such change.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
<PAGE>
-89-
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of
that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on
any Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
sentence of the immediately preceding paragraph, those persons who were Holders
of Securities at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Holders of such Securities after such record date. No such
consent shall be valid or effective for more than 90 days after such record
date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (i)
through (x) of Section 10.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
<PAGE>
-90-
SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement
or waiver constitutes the legal, valid and binding obligation of the Company
and the Guarantors, enforceable in accordance with its terms (subject to
customary exceptions). The Trustee may, but shall not be obligated to, execute
any such amendment, supplement or waiver which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise. In signing any
amendment, supplement or waiver, the Trustee shall be entitled to receive an
indemnity reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (each, a "Guarantee" or "Security Guarantee") to each Holder of a
Security authenticated by the Trustee and to the Trustee and its successors and
assigns that the principal of and interest on the Securities will be promptly
paid in full when due, subject to any applicable grace period, whether at
maturity, by acceleration or otherwise, and interest on the overdue principal
and interest on any overdue interest on the Securities and all other
obligations of the Company to the Holders or the Trustee hereunder or under the
Securities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; subject, however, to the limitations set forth in
Section 11.04. Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action
to enforce the same, any waiver or consent by
<PAGE>
-91-
any Holder of the Securities with respect to any provisions hereof or thereof,
the recovery of any judgment against the Company, any action to enforce the
same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that the Guarantee will not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture, and this Guarantee. If any Holder or the Trustee is required by any
court or otherwise to return to the Company, any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or any Guarantor, any amount paid by the Company or any Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six for the purpose of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article Six,
such obligations (whether or not due and payable) shall forth become due and
payable by each Guarantor for the purpose of this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this
Indenture, or if Section 5.01(b) is complied with, or if, subject to the
requirements of Section 5.01(a), all or substantially all of the assets of any
Guarantor or all of the Equity Interests of any Guarantor are sold (including
by issuance or otherwise) by the Company in a transaction constituting an Asset
Sale and (x) the Net Cash Proceeds from such Asset Sale are used in accordance
with Section 4.05 or (y) the Company delivers to the Trustee an Officers'
Certificate to the effect that the Net Cash Proceeds from such Asset Sale shall
be used in accordance with Section 4.06 and within the time limits specified by
Section 4.06, then each Guarantor (in the case of defeasance) or such Guarantor
(in the case of compliance with Section 5.01(b) or in the event of a sale or
other disposition of all of the Equity Interests of such Guarantor) or the
corporation acquiring such assets (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and discharged from all obligations under
<PAGE>
-92-
this Article Eleven without any further action required on the part of the
Trustee or any Holder. The Trustee shall, at the sole cost and expense of the
Company and upon receipt at the reasonable request of the Trustee of an Opinion
of Counsel that the provisions of this Section 11.03 have been complied with,
deliver an appropriate instrument evidencing such release upon receipt of a
request by the Company accompanied by an Officers' Certificate certifying as to
the compliance with this Section 11.03. Any Guarantor not so released remains
liable for the full amount of principal of and interest on the Securities and
the other obligations of the Company hereunder as provided in this Article
Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of title 11 of the United States
Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar U.S. Federal or state or other applicable law. To
effectuate the foregoing intention, the Holders and each Guarantor hereby
irrevocably agree that the obligations of each Guarantor under its Guarantee
shall be limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities of such Guarantor (including any Senior
Indebtedness incurred after the Issue Date) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.05, result in the obligations of such Guarantor under
its Guarantee not constituting such a fraudulent transfer or conveyance.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each
Guarantor (including the Funding Guarantor), determined in accordance with
GAAP, subject to Section 11.04, for all payments, damages and expenses incurred
by such Funding Guarantor in discharging the Company's obligations with respect
to the Securities or any other Guarantor's obligations with respect to the
Guarantee.
SECTION 11.06. Execution of Security Guarantee.
To further evidence their Guarantee to the Holders, each of the
Guarantors hereby agree to execute a Security Guarantee to be endorsed on each
Security ordered to be
<PAGE>
-93-
authenticated and delivered by the Trustee. Each Guarantor hereby agrees that
its Guarantee set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a Security Guarantee.
Each such Security Guarantee shall be signed on behalf of each Guarantor by its
Chairman of the Board, its President or one of its Vice Presidents prior to the
authentication of the Security on which it is endorsed, and the delivery of
such Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Security Guarantee on behalf of such Guarantor.
Such signature upon the Security Guarantee may be manual or facsimile signature
of such officer and may be imprinted or otherwise reproduced on the Security
Guarantee, and in case such officer who shall have signed the Security
Guarantee shall cease to be such officer before the Security on which such
Security Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
Security Guarantee had not ceased to be such officer of such Guarantor.
SECTION 11.07. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Securities in accordance
with the provisions provided therefor in this Indenture.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by his acceptance thereof likewise covenant and agree, that
the Guarantee of such Guarantor shall be issued subject to the provisions of
this Article Twelve; and each person holding any Security, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees that all payments of the principal of, premium, if any, and interest on
the Securities pursuant to the Guarantee made by or on behalf of any Guarantor
shall, to the extent and in the manner set forth in this Article Twelve, be
subordinated and junior in
<PAGE>
-94-
right of payment to the prior payment in full in cash of all amounts payable
under Guarantor Senior Indebtedness of such Guarantor.
SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of any
Guarantor of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total liquidation or reorganization of
such Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings (excluding any payment or distribution of
Permitted Junior Securities), all Guarantor Senior Indebtedness of such
Guarantor then due shall first be paid in full in cash before the Holders or
the Trustee on behalf of such Holders shall be entitled to receive any payment
by such Guarantor of the principal of, premium, if any, or interest on the
Securities, or any payment by such Guarantor to acquire any of the Securities
for cash, property or securities, or any distribution by such Guarantor with
respect to the Securities of any cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities). Before any payment may
be made by, or on behalf of, any Guarantor of the principal of, premium, if
any, or interest on the Securities upon any such dissolution or winding up or
total liquidation or reorganization, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, any payment or
distribution of assets or securities of such Guarantor of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities), to which the Holders or the
Trustee on their behalf would be entitled, but for the subordination provisions
of this Indenture, shall be made by such Guarantor or by any receiver, trustee
in bankruptcy, liquidation trustee, agent or other Person making such payment
or distribution, directly to the holders of Guarantor Senior Indebtedness of
such Guarantor (pro rata to such holders on the basis of the respective amounts
of such Guarantor Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities), shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by Section
12.02(a) and before all obligations in respect of the Guarantor Senior
Indebtedness of such Guarantor are paid in full in cash, such payment or
distribution shall be received and held in trust for the
<PAGE>
-95-
benefit of, and shall be paid over or delivered to, the holders of such
Guarantor Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of such Guarantor Senior Indebtedness held by such holders)
or their respective representatives, or to the trustee or trustees or agent or
agents under any indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear,
for application to the payment of such Guarantor Senior Indebtedness remaining
unpaid until all such Guarantor Senior Indebtedness has been paid in full in
cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution
of any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided in Article Five shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 12.02 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
Five.
SECTION 12.03. Subrogation.
Upon the payment in full in cash of all Guarantor Senior Indebtedness
of a Guarantor, or provision for payment, the Holders shall be subrogated to
the rights of the holders of such Guarantor Senior Indebtedness to receive
payments or distributions of cash, property or securities of such Guarantor
made on such Guarantor Senior Indebtedness until the principal of and interest
on the Securities shall be paid in full in cash; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Guarantor
Senior Indebtedness of any cash, property or securities to which the Holders or
the Trustee on their behalf would be entitled except for the provisions of this
Article Twelve, and no payment over pursuant to the provisions of this Article
Twelve to the holders of such Guarantor Senior Indebtedness by Holders or the
Trustee on their behalf shall, as between such Guarantor, its creditors other
than holders of such Guarantor Senior Indebtedness, and the Holders, be deemed
to be a payment by such Guarantor to or on account of such Guarantor Senior
Indebtedness. It is understood that the provisions of this Article Twelve are
and are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Guarantor Senior Indebtedness of
each Guarantor, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Twelve shall have
been applied, pursuant to the provisions of this Article Twelve, to the payment
of all amounts payable under Guarantor Senior Indebtedness, then and in such
case, the Holders shall be entitled to receive from the
<PAGE>
-96-
holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full in cash of such Guarantor Senior
Indebtedness.
SECTION 12.04. Obligations of Guarantors Unconditional.
Subject to Sections 11.04 and 8.02, nothing contained in this Article
Twelve or elsewhere in this Indenture or in the Securities or the Guaranties is
intended to or shall impair, as among each of the Guarantors and the Holders,
the obligation of each Guarantor, which is absolute and unconditional, to pay
to the Holders the principal of and interest on the Securities as and when the
same shall become due and payable in accordance with the terms of the Guarantee
of such Guarantor, or is intended to or shall affect the relative rights of the
Holders and creditors of any Guarantor other than the holders of Guarantor
Senior Indebtedness of such Guarantor, nor shall anything herein or therein
prevent any Holder or the Trustee on their behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article Twelve of the holders of
Guarantor Senior Indebtedness in respect of cash, property or securities of any
Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the Holders to
take any action to declare the Securities to be due and payable prior to their
stated maturity pursuant to Section 6.01 or to pursue any rights or remedies
hereunder; provided, however, that all Guarantor Senior Indebtedness of any
Guarantor then due and payable shall first be paid in full before the Holders
or the Trustee are entitled to receive any direct or indirect payment from such
Guarantor of principal of or interest on the Securities pursuant to such
Guarantor's Guarantee.
SECTION 12.05. Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Company or such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. The Trustee shall not be
charged with knowledge of the existence of any event of default with respect to
any Guarantor Senior Indebtedness or of any other facts which would prohibit
the making of any payment to or by the Trustee unless and until the Trustee
shall have received notice in writing at its Corporate Trust Office to that
effect signed by an Officer of the Company or such Guarantor, or by a holder of
Guarantor Senior Indebtedness or trustee or agent therefor; and prior to the
receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided, however, that
if the Trustee shall not have received the notice provided for in this Section
<PAGE>
-97-
12.06 at least two Business Days prior to the date upon which by the terms of
this Indenture any moneys shall become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from any Guarantor
and to apply the same to the purpose for which they were received, and shall
not be affected by any notice to the contrary which may be received by it on or
after such prior date. Nothing contained in this Section 12.05 shall limit the
right of the holders of Guarantor Senior Indebtedness to recover payments as
contemplated by Section 12.03. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself
to be a holder of any Guarantor Senior Indebtedness (or a trustee on behalf of,
or other representative of, such holder) to establish that such notice has been
given by a holder of such Guarantor Senior Indebtedness or a trustee or
representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders shall
be entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Guarantor Senior Indebtedness of such Guarantor
and other indebtedness of such Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article Twelve.
SECTION 12.07. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time
<PAGE>
-98-
be held by it in its individual or any other capacity to the same extent as any
other holder of Guarantor Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee or any Paying Agent of any of its rights as such
holder.
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no
implied covenants or obligations with respect to the holders of Guarantor
Senior Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of
Guarantor Senior Indebtedness (except as provided in Section 12.02(b)). The
Trustee shall not be liable to any such holders if the Trustee shall in good
faith mistakenly pay over or distribute to Holders or to the Company or to any
other person cash, property or securities to which any holders of Guarantor
Senior Indebtedness shall be entitled by virtue of this Article Twelve or
otherwise.
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have
or otherwise be charged with. The provisions of this Article Twelve are
intended to be for the benefit of, and shall be enforceable directly by, the
holders of Guarantor Senior Indebtedness.
SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of
Guarantee.
Each Holder by his acceptance of such Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings.
<PAGE>
-99-
SECTION 12.10. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not
be construed as preventing the occurrence of an Event of Default specified in
clauses (i) or (ii) of Section 6.01.
SECTION 12.11. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.12. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.08, the
holders of Guarantor Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Twelve or the obligations hereunder of
the Holders to the holders of Guarantor Senior Indebtedness, do any one or more
of the following: (a) change the manner, place or terms of payment or extend
the time of payment of, or renew or alter, Guarantor Senior Indebtedness or any
instrument evidencing the same or any agreement under which Guarantor Senior
Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (c) release any Person liable in any manner for
the collection of Guarantor Senior Indebtedness; and (d) exercise or refrain
from exercising any rights against any Guarantor and any other Person.
SECTION 12.13. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) a Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments,
or (ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Securities,
to the holders entitled thereto unless at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 12.06. The Guarantors shall
give prompt written notice to the Trustee of any dissolution, winding-up,
liquidation or reorganization of such Guarantor.
<PAGE>
-100-
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable,
be governed by such provisions. If any provision of this Indenture modifies any
TIA provision that may be so modified, such TIA provision shall be deemed to
apply to this Indenture as so modified. If any provision of this Indenture
excludes any TIA provision that may be so excluded, such TIA provision shall be
excluded from this Indenture.
The provisions of TIA Sections 310 through 317 that impose duties on
any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
Carrols Corporation
968 James Street
Syracuse, New York 13203
Attention: Chief Financial Officer
Facsimile: (315) 475-9616
Telephone: (315) 475-9616 x223
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
<PAGE>
-101-
Attention: David H. Landau, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-6608
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Facsimile: (212) 858-2952
Telephone: (212) 858-2000
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166-0153
Attention: David W. Bernstein, Esq.
Bonnie A. Barsamian, Esq.
Facsimile: (212) 878-8375
Telephone: (212) 878-8000
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA Section
310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall
be mailed to him at his address as set forth on the Security Register
and shall be sufficiently given to him if so mailed within the time
prescribed. To the extent required by the TIA, any notice or
communication shall also be mailed to any Person described in TIA
Section 313(c).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee,
<PAGE>
-102-
which is deemed given only when received, if a notice or communication is
mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person
shall have the protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to
<PAGE>
-103-
matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 13.07. Governing Law.
This Indenture, the Securities and the Security Guarantees shall be
governed by and construed in accordance with the laws of the State of New York
without regard to the application of principles of conflicts of laws. Each of
the parties hereto and thereto agrees to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to this Indenture, the Securities and the Security Guarantees.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Securities, the Guarantee of such Guarantor
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of each Guarantor in this Indenture
and such Guarantor's Guarantee shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the
Guarantee shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the re-
<PAGE>
-104-
maining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
Very truly yours,
CARROLS CORPORATION
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS REALTY HOLDINGS CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS REALTY I CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
<PAGE>
S-2
CARROLS REALTY II CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS J.G. CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
QUANTA ADVERTISING CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
POLLO FRANCHISE, INC.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President and Secretary
<PAGE>
S-3
POLLO OPERATIONS, INC.,
as Guarantor
By: /s/ Joseph A. Zirkman
----------------------------------
Name: Joseph A. Zirkman
Title: Vice President and Secretary
<PAGE>
S-4
IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By: /s/ Stephen J. Giurlando
----------------------------------
Name: Stephen J. Giurlando
Title:
<PAGE>
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN
INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO
THE ISSUER AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
<PAGE>
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1 , 2008, Series A
CUSIP No.:
No. $
CARROLS CORPORATION, a Delaware corporation (the "Company", which term
includes any successor corporation), for value received promises to pay to Cede
& Co. or registered assigns, the principal sum of , on December 1, 2008.
Interest Payment Dates: June 1 and December 1, commencing on June 1,
1999.
Interest Record Dates: May 15 and November 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
CARROLS CORPORATION
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
Dated:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 1/2% Senior Subordinated Notes due December 1,
2008, Series A, described in the within-mentioned Indenture.
Dated:
IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By:
----------------------------------
Name:
Title:
A-3
<PAGE>
(Reverse of Security)
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1, 2008, Series A
1. Interest.
CARROLS CORPORATION, a Delaware corporation (the "Company"), promises
to pay interest on the principal amount of this Security at the rate per annum
shown above. Cash interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
November 24, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing June 1, 1999. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Interest Record Date immediately preceding the Interest Payment
Date even if the Securities are cancelled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date),
or interest by check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders. The Company or any of its Subsidiaries
may, subject to certain exceptions, act as Registrar.
A-4
<PAGE>
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
November 24, 1998 (the "Indenture"), by and among the Company, the
Guarantors and the Trustee. Capitalized terms herein are used as defined
in the Indenture unless otherwise defined herein. This Security is one
of a duly authorized issue of Securities of the Company designated as
its 9 1/2% Senior Subordinated Notes due 2008, Series A (the "Initial
Securities"), limited (except as otherwise provided in the Indenture) in
aggregate principal amount to $170,000,000, which may be issued under
the Indenture. The Securities include the Initial Securities, the
Private Exchange Securities (as defined in the Indenture) and the
Unrestricted Securities (as defined below) issued in exchange for the
Initial Securities pursuant to the Registration Rights Agreement. The
Initial Securities and the Unrestricted Securities are treated as a
single class of securities under the Indenture. The terms of the
Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture (except as otherwise indicated in the Indenture) until such
time as the Indenture is qualified under the TIA, and thereafter as in
effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are
general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all Senior Indebtedness of the
Company to the extent and in the manner provided in the Indenture. Each
Holder of a Security, by accepting a Security, agrees to such
subordination, authorizes the Trustee to give effect to such
subordination and appoints the Trustee as attorney-in-fact for such
purpose.
Payment on the Securities is guaranteed (each, a "Guarantee"), on a
senior subordinated basis, jointly and severally, by each Restricted Subsidiary
of the Company existing on the Issue Date (each, a "Guarantor") pursuant to
Article Eleven and Article Twelve of the Indenture. In addition, the Indenture
requires the Company to cause each Restricted Subsidiary formed, created or
acquired after the Issue Date to become a party to the Indenture as a Guarantor
and guarantee payment on the Securities pursuant to Article Eleven and Article
Twelve of the Indenture. In certain circumstances, the Guaranties may be
released.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
or in part at any time, on and after December 1, 2003, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the
twelve-month period commencing on December 1 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
A-5
<PAGE>
Year Percentage
------------------- ----------
2003 104.750%
2004 103.167%
2005 101.583%
2006 and thereafter 100.000%
6. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to December 1, 2001,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the principal amount of Securities
originally issued at a redemption price equal to 109.500% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption (subject to the right of Holders of record on the relevant Interest
Record Date to receive interest due on the relevant Interest Payment Date);
provided that at least 65% of the principal amount of Securities originally
issued remain outstanding immediately after any such redemption (excluding any
Securities held by the Company or any of its Affiliates). In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 90 days after the consummation
of any such Public Equity Offering.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Security. On and after the
Redemption Date, interest will cease to accrue on Securities or portions
thereof called for redemption so long as the Company has deposited with the
Paying Agent for the Securities funds in satisfaction of the redemption price
pursuant to the Indenture and the Paying Agent is not prohibited from paying
such funds to the Holders pursuant to the terms of the Indenture.
A-6
<PAGE>
8. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 60
days after the Change of Control Date, make a Change of Control Offer to
repurchase all Securities then outstanding at a repurchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Payment Date (subject to the
right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date).
9. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make a Net
Proceeds Offer to repurchase Securities at a repurchase price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Net Proceeds Offer Date (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date) with the proceeds of certain asset dispositions.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
A-7
<PAGE>
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guaranties may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture, the Securities and the Guaranties to, among other things, cure
any ambiguity, defect or inconsistency, provide for uncertificated Securities
in addition to or in place of certificated Securities or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not materially adversely
affect the rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must report
quarterly to the Trustee on compliance with such limitations.
16. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of outstanding
Securities may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders may not
enforce the Indenture, the Securities or the Guaranties except as provided in
the Indenture. The Trustee is not obligated to enforce the Indenture, the
Securities or the Guaranties unless it has received indemnity satisfactory to
it. The Indenture permits, subject to certain limitations therein provided,
Holders of a majority in aggregate princi-
A-8
<PAGE>
pal amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders notice of
certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company or any Guarantor shall have any liability for any obligation of
the Company or any Guarantor under the Securities, the Guarantee of such
Guarantor or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and
the Guaranties.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders. No representation is
made as to the accuracy of such numbers as printed on the Securities and
reliance may be placed only on the other identification numbers printed hereon.
22. Registration Rights.
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the
A-9
<PAGE>
Holder of this Security shall have the right to exchange
this Security for a 9 1/2% Senior Subordinated Note due 2008, Series B, of the
Company (an "Unrestricted Security") which has been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects to this Security. The Holders shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
23. Governing Law.
The Indenture, this Security and any Guarantee thereof shall be
governed by and construed in accordance with the laws of the State of New York
without regard to the application of principles of conflicts of laws. Each of
the parties hereto and thereto agrees to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to the Indenture, this Security and any Guarantee thereof.
A-10
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Security
upon which this notation is endorsed) hereby unconditionally guarantees on a
senior subordinated basis (such guarantee by the Guarantor being referred to
herein as the "Guarantee") the due and punctual payment of the principal of,
premium, if any, and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, premium and interest on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms set forth in Article Eleven of
the Indenture.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth, and are
expressly subordinated and subject in right of payment to the prior payment in
full of all Guarantor Senior Indebtedness (as defined in the Indenture) of such
Guarantor, to the extent and in the manner provided in Article Eleven and
Article Twelve of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Guarantee therein made.
This Security Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Security Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Security Guarantee is subject to release upon the terms set forth
in the Indenture.
[Signature pages follow.]
<PAGE>
-2-
CARROLS REALTY HOLDINGS CORP.,
as Guarantor
By:
----------------------------------
Name:
Title:
CARROLS REALTY I CORP.,
as Guarantor
By:
----------------------------------
Name:
Title:
CARROLS REALTY II CORP.,
as Guarantor
By:
----------------------------------
Name:
Title:
CARROLS J.G. CORP.,
as Guarantor
By:
----------------------------------
Name:
Title:
QUANTA ADVERTISING CORP.,
as Guarantor
By:
----------------------------------
Name:
Title:
<PAGE>
-3-
POLLO FRANCHISE, INC.,
as Guarantor
By:
----------------------------------
Name:
Title:
POLLO OPERATIONS, INC.,
as Guarantor
By:
----------------------------------
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
_______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:____________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: ______________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to Section 4.06 or Section 4.10 of the Indenture, check the
appropriate box:
Section 4.06 [ ]
Section 4.10 [ ]
If you want to elect to have only part of this Security repurchased by
the Company pursuant to Section 4.06 or Section 4.10 of the Indenture, state
the amount: $_____________
Dated:___________________ Signed:___________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: ______________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
[FORM OF SERIES B SECURITY]
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1, 2008, Series B
CUSIP No.
No. $
CARROLS CORPORATION, a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to Cede & Co. or registered assigns, the principal sum of Dollars, on
December 1, 2008.
Interest Payment Dates: June 1 and December 1, commencing on
June 1, 1999.
Interest Record Dates: May 15 and November 15.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to
be signed manually or by facsimile by its duly authorized officer.
CARROLS CORPORATION
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
Dated:
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 1/2% Senior Subordinated Notes due
December 1, 2008, Series B, described in the within-mentioned Indenture.
Dated:
IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By:
-----------------------------------------
Name:
Title:
B-2
<PAGE>
(Reverse of Security)
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1, 2008, Series B
1. Interest.
CARROLS CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Cash interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from November 24, 1998. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing June 1, 1999. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from
time to time on demand and on overdue installments of interest (without regard
to any applicable grace periods) to the extent lawful from time to time on
demand, in each case at the rate borne by the Securities
2. Method of Payment.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are cancelled on registration of transfer
or registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date),
or interest by check payable in such U.S. Legal Tender. The Company may
deliver any such interest payment to the Paying Agent or to a Holder at the
Holder's registered address.
3. Paying Agent and Registrar.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying
Agent or Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar.
B-3
<PAGE>
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated
as of November 24, 1998 (the "Indenture"), by and among the Company, the
Guarantors and the Trustee. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. This Security is one of a duly
authorized issue of Securities of the Company designated as its 9 1/2% Senior
Subordinated Notes due 2008, Series B (the "Unrestricted Securities"), limited
(except as otherwise provided in the Indenture) in aggregate principal amount
to $170,000,000, which may be issued under the Indenture. The Securities
include the 9 1/2% Senior Subordinated Notes due 2008, Series A (the "Initial
Securities"), the Private Exchange Securities (as defined in the Indenture)
and the Unrestricted Securities. The Initial Securities, the Private Exchange
Securities and the Unrestricted Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture (except as otherwise indicated in
the Indenture) until such time as the Indenture is qualified under the TIA,
and thereafter as in effect on the date on which the Indenture is qualified
under the TIA. Notwithstanding anything to the contrary herein, the Securities
are subject to all such terms, and holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
unsecured obligations of the Company. The Securities are subordinated in right
of payment to all Senior Indebtedness of the Company to the extent and in the
manner provided in the Indenture. Each Holder of a Security, by accepting a
Security, agrees to such subordination, authorizes the Trustee to give effect
to such subordination and appoints the Trustee as attorney-in-fact for such
purpose.
Payment on the Securities is guaranteed (each, a
"Guarantee"), on a senior subordinated basis, jointly and severally, by each
Restricted Subsidiary of the Company existing on the Issue Date (each, a
"Guarantor") pursuant to Article Eleven and Article Twelve of the Indenture.
In addition, the Indenture requires the Company to cause each Restricted
Subsidiary formed, created or acquired after the Issue Date to become a party
to the Indenture as a Guarantor and guarantee payment on the Securities
pursuant to Article Eleven and Article Twelve of the Indenture. In certain
circumstances, the Guaranties may be released.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option,
in whole or in part at any time, on and after December 1, 2003, upon not less
than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on December 1 of the year
B-4
<PAGE>
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
Year Percentage
-------- ----------
2003 104.750%
2004 103.167%
2005 101.583%
2006 and thereafter 100.000%
6. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to December
1, 2001, the Company may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to 35% of the principal amount of
Securities originally issued at a redemption price equal to 109.500% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date); provided that at least 65% of the principal amount of
Securities originally issued remain outstanding immediately after any such
redemption (excluding any Securities held by the Company or any of its
Affiliates). In order to effect the foregoing redemption with the proceeds of
any Public Equity Offering, the Company shall make such redemption not more
than 90 days after the consummation of any such Public Equity Offering.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at its registered address. The Trustee may
select for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000
principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice
of redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Security. On and after the
Redemption Date, interest will cease to accrue on Securities or portions
thereof called for redemption so long as the Company has deposited with the
Paying Agent for the Securities
B-5
<PAGE>
funds in satisfaction of the redemption price pursuant to the Indenture and
the Paying Agent is not prohibited from paying such funds to the Holders
pursuant to the terms of the Indenture.
8. Change of Control Offer.
Following the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall, within
60 days after the Change of Control Date, make a Change of Control Offer to
repurchase all Securities then outstanding at a repurchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Payment Date (subject to
the right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date).
9. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to
make a Net Proceeds Offer to repurchase Securities at a repurchase price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Net Proceeds Offer Date (subject to the right of
Holders of record on the relevant Interest Record Date to receive interest due
on the relevant Interest Payment Date) with the proceeds of certain asset
dispositions.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
B-6
<PAGE>
12. Unclaimed Funds.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its written request. After that, all liability of the
Trustee and such Paying Agent with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities
and the Guaranties may be amended or supplemented with the written consent of
the Holders of at least a majority in aggregate principal amount of the
Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders of
a majority in aggregate principal amount of the Securities then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend or
supplement the Indenture, the Securities and the Guaranties to, among other
things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to
make restricted payments, to incur indebtedness, to create liens, to sell
assets, to permit restrictions on dividends and other payments by Restricted
Subsidiaries to the Company, to consolidate, merge or sell all or
substantially all of its assets, to engage in transactions with affiliates or
certain other related persons or to engage in certain businesses. The
limitations are subject to a number of important qualifications and
exceptions. The Company must report quarterly to the Trustee on compliance
with such limitations.
B-7
<PAGE>
16. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of
outstanding Securities may declare all the Securities to be due and payable
immediately in the manner and with the effect provided in the Indenture.
Holders may not enforce the Indenture, the Securities or the Guaranties except
as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guaranties unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of certain continuing
Defaults or Events of Default if it determines that withholding notice is in
their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may
otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator,
as such, of the Company or any Guarantor shall have any liability for any
obligation of the Company or any Guarantor under the Securities, the Guarantee
of such Guarantor or the Indenture or for any claim based on, in respect of or
by reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and
the Guaranties.
19. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder
of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
B-8
<PAGE>
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities as a convenience to the Holders. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Governing Law.
The Indenture, this Security and any Guarantee thereof shall
be governed by and construed in accordance with the laws of the State of New
York without regard to the application of principles of conflicts of laws.
Each of the parties hereto and thereto agrees to submit to the jurisdiction of
the courts of the State of New York in any action or proceeding arising out of
or relating to the Indenture, this Security and any Guarantee thereof.
B-9
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in
the Security upon which this notation is endorsed) hereby unconditionally
guarantees on a senior subordinated basis (such guarantee by the Guarantor
being referred to herein as the "Guarantee") the due and punctual payment of
the principal of, premium, if any, and interest on the Securities, whether at
maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal, premium and interest on the Securities, and
the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee, all in accordance with the terms set forth in
Article Eleven of the Indenture.
The obligations of the Guarantor to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness (as defined in the
Indenture) of such Guarantor, to the extent and in the manner provided in
Article Eleven and Article Twelve of the Indenture, and reference is hereby
made to such Indenture for the precise terms of the Guarantee therein made.
This Security Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Securities upon
which this Security Guarantee is noted shall have been executed by the Trustee
under the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of law.
This Security Guarantee is subject to release upon the terms
set forth in the Indenture.
[Signature pages follow]
<PAGE>
CARROLS REALTY HOLDINGS CORP.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
CARROLS REALTY I CORP.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
CARROLS REALTY II CORP.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
CARROLS J.G. CORP.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
QUANTA ADVERTISING CORP.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
<PAGE>
POLLO FRANCHISE, INC.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
POLLO OPERATIONS, INC.,
as Guarantor
By:
-----------------------------------------
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
_______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:__________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: _________________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Security repurchased by
the Company pursuant to Section 4.06 or Section 4.10 of the Indenture, check
the appropriate box:
Section 4.06 [ ]
Section 4.10 [ ]
If you want to elect to have only part of this Security
repurchased by the Company pursuant to Section 4.06 or Section 4.10 of the
Indenture, state the amount: $_____________
Dated:___________________ Signed:__________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: __________________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder
shall bear a legend (which would be in addition to any other legends required
in the case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE>
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 1/2% Senior Subordinated Notes due 2008
(the "Securities"), of Carrols Corporation
This Certificate relates to $_______ principal amount of
Securities held in the form of* ___ a beneficial interest in a Global Security
or* _______ Physical Securities by ______ (the "Transferor").
The Transferor:*
/ / has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive,
registered form of authorized denominations and an aggregate number equal to
its beneficial interest in such Global Security (or the portion thereof
indicated above); or
/ / has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 2.16 of such
Indenture, and that the transfer of the Securities does not require
Registration under the Securities Act of 1933, as amended (the "Act"),
because*:
/ / Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16 of the Indenture).
/ / Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
/ / Such Security is being transferred to an institutional
"accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Act) which delivers a certificate to the Trustee in the form of
Exhibit E to the Indenture.
/ / Such Security is being transferred in reliance on Rule 144 under
the Act.
/ / Such Security is being transferred in reliance on and in
compliance with an exemption from the Registration requirements of the Act
other than Rule 144A or Rule 144 under the Act to a person other than an
institutional "accredited investor." An Opinion of
D-1
<PAGE>
Counsel to the effect that such transfer does not require
Registration under the Securities Act accompanies this certification.
_______________________________
[INSERT NAME OF TRANSFEROR]
By: ___________________________
[Authorized Signatory]
Date: ______________
*Check applicable box.
D-2
<PAGE>
EXHIBIT E
Form of Transferee Letter of Representation
CARROLS CORPORATION
c/o IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
Ladies and Gentlemen:
This certificate is delivered to request a transfer of
$________ principal amount of the 9 1/2% Senior Subordinated Notes due 2008
(the "Notes") of CARROLS CORPORATION (the "Company"). Upon transfer, the Notes
would be registered in the name of the new beneficial owner as follows:
Name:________________________________
Address:_____________________________
Taxpayer ID Number:__________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the
"Securities Act")) purchasing for our own account or for the account of such
an institutional "accredited investor" at least $250,000 principal amount of
the Notes, and we are acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risk of our investment in the Notes
and we invest in or purchase securities similar to the Notes in the normal
course of our business. We and any accounts for which we are acting are each
able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered
under the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf
of any investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to the date which is two years after the
later of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registra-
E-1
<PAGE>
tion statement which has been declared effective under the Securities Act, (c)
in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made
in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside
the United States within the meaning of Regulation S under the Securities Act,
(e) to an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its
own account or for the account of such an institutional "accredited investor,"
in each case in a minimum principal amount of Notes of $250,000, or (f)
pursuant to any other available exemption from the registration requirements
of the Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of our property or the property of
such investor account or accounts be at all times within our or their control
and in compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed to
be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company and the Trustee reserve the right
prior to any offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Notes pursuant to clause (d), (e) or (f) above to
require the delivery of an opinion of counsel, certificates and/or other
information satisfactory to the Company and the Trustee.
Dated: ______________________ TRANSFEREE:______________________________
By:______________________________________
E-2
<PAGE>
EXHIBIT F
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
________________, _____
CARROLS CORPORATION
c/o IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
Re: CARROLS CORPORATION (the "Company")
9 1/2% Senior Subordinated Notes due 2008 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $____________
aggregate principal amount of the Securities, we confirm that such sale has
been effected pursuant to and in accordance with Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and
neither we nor any person acting on our behalf knows that the
transaction has been prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
<PAGE>
You and the Company are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Defined terms used herein
without definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _______________________________
[Authorized Signatory]
F-2
<PAGE>
Exhibit 4.2
CARROLS CORPORATION
$170,000,000
9 1/2% Senior Subordinated Notes due 2008
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
November 24, 1998
CHASE SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Carrols Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to Chase Securities Inc. ("CSI") and NationsBanc
Montgomery Securities LLC (together with CSI, the "Initial Purchasers"), upon
the terms and subject to the conditions set forth in a purchase agreement
dated November 18, 1998 (the "Purchase Agreement"), $170,000,000 aggregate
principal amount of its 9 1/2% Senior Subordinated Notes due 2008 (the
"Notes"). The Notes will be unconditionally guaranteed on a senior
subordinated basis (the "Guarantees" and, together with the Notes, the
"Securities"), jointly and severally, by all of the subsidiaries of the
Company (the "Guarantors" and, together with the Company, the "Issuers").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of
the Initial Purchasers thereunder, the Issuers agree with the Initial
Purchasers, for the benefit of the holders (including the Initial Purchasers)
of the Securities, the Exchange Securities (as defined herein) and the Private
Exchange Securities (as defined herein) (collectively, the "Holders"), as
follows:
1. Registered Exchange Offer. The Issuers shall (i) prepare and, not later than
75 days following the date of original issuance of the Securities (the "Issue
Date"), file with the Commission a registration statement (the "Exchange Offer
Registration Statement")
<PAGE>
on an appropriate form under the Securities Act with respect to a proposed offer
to the Holders of the Securities (the "Registered Exchange Offer") to issue and
deliver to such Holders, in exchange for the Securities, a like aggregate
principal amount of debt securities of the Company (the "Exchange Securities")
that are identical in all material respects to the Notes and are unconditionally
guaranteed by the Guarantors, except for the transfer restrictions relating to
the Securities, (ii) use their reasonable best efforts to cause the Exchange
Offer Registration Statement to become effective under the Securities Act no
later than 150 days after the Issue Date and the Registered Exchange Offer to be
consummated no later than 180 days after the Issue Date and (iii) keep the
Exchange Offer Registration Statement effective for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Registered Exchange Offer is mailed to the Holders (such period being called the
"Exchange Offer Registration Period"). The Exchange Securities will be issued
under the Indenture or an indenture (the "Exchange Securities Indenture")
between the Issuers and the Trustee or such other bank or trust company that is
reasonably satisfactory to the Initial Purchasers, as trustee (the "Exchange
Securities Trustee"), such indenture to be identical in all material respects to
the Indenture, except for the transfer restrictions relating to the Securities
(as described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuers shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of any of the Issuers or an Exchanging Dealer
(as defined herein) not complying with the requirements of the next sentence,
(b) is not an Initial Purchaser holding Securities that have, or that are
reasonably likely to have, the status of an unsold allotment in an initial
distribution, (c) acquires the Exchange Securities in the ordinary course of
such Holder's business and (d) has no arrangements or understandings with any
person to participate in the distribution of the Exchange Securities) to do so
and to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. The Issuers, the Initial Purchasers and each Exchanging Dealer
acknowledge that, pursuant to current interpretations by the Commission's
staff of Section 5 of the Securities Act, each Holder that is a broker-dealer
electing to exchange Securities, acquired for its own account as a result of
market-making activities or other trading activities, for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer.
-2-
<PAGE>
If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities acquired by it that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment
in an initial distribution, or any Holder is not entitled to participate in
the Registered Exchange Offer, the Issuers shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Exchange Offer, issue and deliver to any such Holder, in exchange
for the Securities held by such Holder (the "Private Exchange"), a like
aggregate principal amount of debt securities of the Company (the "Private
Exchange Securities") that are identical in all material respects to the
Exchange Securities and are unconditionally guaranteed by the Guarantors,
except for the transfer restrictions relating to such Private Exchange
Securities. The Private Exchange Securities will be issued under the same
indenture as the Exchange Securities, and the Issuers shall use their
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the
Issuers shall:
(a) mail to each Holder a copy of the prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less
than 30 days (or longer, if required by applicable law) after the
date on which notice of the Registered Exchange Offer is mailed to
the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York;
(d) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain
open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Issuers
shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange
Offer and the Private Exchange;
(b) deliver to the Trustee for cancellation all Securities
so accepted for exchange; and
-3-
<PAGE>
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder,
Exchange Securities or Private Exchange Securities, as the case may
be, equal in principal amount to the Securities of such Holder so
accepted for exchange.
The Issuers shall use their reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and
supplement the prospectus contained therein in order to permit such prospectus
to be used by all persons subject to the prospectus delivery requirements of
the Securities Act for such period of time as such persons must comply with
such requirements in order to resell the Exchange Securities; provided that
(i) in the case where such prospectus and any amendment or supplement thereto
must be delivered by an Exchanging Dealer, such period shall be the lesser of
180 days and the date on which all Exchanging Dealers have sold all Exchange
Securities held by them and (ii) the Issuers shall make such prospectus and
any amendment or supplement thereto available to any broker-dealer for use in
connection with any resale of any Exchange Securities for a period of not less
than 90 days after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and
the Private Exchange Securities shall vote and consent together on all matters
as one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of any of the Issuers or, if it is such an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers
shall ensure that (i) any Exchange Offer Registration Statement and any
amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the
rules and regulations of the Commission thereunder, (ii) any Exchange Offer
-4-
<PAGE>
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any prospectus forming part of any
Exchange Offer Registration Statement, and any supplement to such prospectus,
does not, as of the consummation of the Registered Exchange Offer, include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Issuers are not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, (ii) any Securities validly tendered pursuant to the Registered Exchange
Offer are not exchanged for Exchange Securities within 180 days after the Issue
Date, (iii) any Initial Purchaser so requests with respect to Securities or
Private Exchange Securities not eligible to be exchanged for Exchange Securities
in the Registered Exchange Offer and held by it following the consummation of
the Registered Exchange Offer, (iv) any applicable law or interpretations do not
permit any Holder to participate in the Registered Exchange Offer, (v) any
Holder that participates in the Registered Exchange Offer does not receive
freely transferable Exchange Securities in exchange for tendered Securities, or
(vi) the Issuers so elect (the date of each, a "Shelf Registration Trigger
Date"), then the following provisions shall apply:
(a) The Issuers shall use their reasonable best efforts to
file as promptly as practicable (but in no event more than 45 days
after the Shelf Registration Trigger Date) with the Commission,
and thereafter shall use their reasonable best efforts to cause to
be declared effective, a shelf registration statement on an
appropriate form under the Securities Act relating to the offer and
sale of the Transfer Restricted Securities (as defined below) by the
Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a
"Shelf Registration Statement" and, together with any Exchange
Offer Registration Statement, a "Registration Statement").
(b) The Issuers shall use their reasonable best efforts
to keep the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be used by
Holders of Transfer Restricted Securities for a period ending on
the earlier of (i) two years from the Issue Date or such shorter
period that will terminate when all the Transfer Restricted
Securities covered by the Shelf Registration Statement have been
sold pursuant thereto and (ii) the date on which the Securities become
eligible for resale without volume restrictions pursuant to Rule 144
under the Securities Act (in any such case, such period being
called the "Shelf Registration Period"). The Issuers shall be deemed
not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite
-5-
<PAGE>
period if any of the Issuers voluntarily takes any action that would
result in Holders of Transfer Restricted Securities covered thereby not
being able to offer and sell such Transfer Restricted Securities during
that period, unless such action is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Issuers
shall ensure that (i) any Shelf Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and
the rules and regulations of the Commission thereunder, (ii) any Shelf
Registration Statement and any amendment thereto (in either case, other
than with respect to information included therein in reliance upon or in
conformity with written information furnished to the Issuers by or on
behalf of any Holder specifically for use therein (the "Holders'
Information")) does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect
to Holders' Information), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuers fail to
fulfill their obligations under Section 1 or Section 2, as applicable, and that
it would not be feasible to ascertain the extent of such damages. Accordingly,
if (i) (x) the Exchange Offer Registration Statement is not filed within 75 days
after the Issue Date or (y) if applicable, the Shelf Registration Statement is
not filed within 45 days after the Shelf Registration Trigger Date, (ii) (x) the
Exchange Offer Registration Statement is not declared effective within 150 days
after the Issue Date or (y) if applicable, the Shelf Registration Statement is
not declared effective within 90 days after the Shelf Registration Trigger Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 45 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to 180 days after the Issue Date, or (iv) if applicable, the Shelf
Registration Statement is filed and declared effective within 90 days after the
Shelf Registration Trigger Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 45 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Issuers are obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Issuers, jointly and
-6-
<PAGE>
severally, will be obligated to pay liquidated damages to each Holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $ 0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (i)
the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "Transfer Restricted Securities"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary
in this Section 3(a), the Issuers shall not be required to pay liquidated
damages to a Holder of Transfer Restricted Securities if such Holder failed to
comply with its obligations to make the representations set forth in the second
to last paragraph of Section 1 or failed to provide the information required to
be provided by it, if any, pursuant to Section 4(n).
(b) The Issuers shall notify the Trustee and the Paying Agent under the
Indenture immediately upon the happening of each and every Registration Default.
The Issuers shall pay the liquidated damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be any of the
Issuers for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
-7-
<PAGE>
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Initial Purchaser may reasonably propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if requested by any Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement.
(b) The Issuers shall advise each Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Securities, the
Exchange Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
-8-
<PAGE>
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Issuers will make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules and, if any such Holder so requests in writing, all
exhibits thereto (including those, if any, incorporated by reference).
(e) The Issuers will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies
of the prospectus (including each preliminary prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Issuers consent to the use of such
prospectus or any amendment or supplement thereto by each of the selling
Holders of Transfer Restricted Securities in connection with the offer and
sale of the Transfer Restricted Securities covered by such prospectus or any
amendment or supplement thereto.
(f) The Issuers will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement and
any post-effective amendment thereto, including financial statements and
schedules and, if any Initial Purchaser or Exchanging Dealer or any such
Holder so requests in writing, all exhibits thereto (including those, if
any, incorporated by reference).
(g) The Issuers will, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as such Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and
-9-
<PAGE>
the Issuers consent to the use of such prospectus or any amendment or
supplement thereto by any such Initial Purchaser, Exchanging Dealer or
other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Issuers will use their reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities,
Exchange Securities or Private Exchange Securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions of
the Securities, Exchange Securities or Private Exchange Securities covered
by such Registration Statement; provided -------- that none of the Issuers
will be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action which would subject
it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(i) The Issuers will cooperate with the Holders of Securities, Exchange
Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders thereof may
request in writing prior to sales of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Issuers are required to maintain an
effective Registration Statement, the Issuers will promptly prepare and file
with the Commission a post-effective amendment to the Registration Statement
or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities,
Exchange Securities or Private Exchange Securities from a Holder, the
prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may be,
and provide the applicable trustee with printed certificates for the
Securities, the Exchange Securities
-10-
<PAGE>
or the Private Exchange Securities, as the case may be, in a form eligible
for deposit with The Depository Trust Company.
(l) The Company will comply with all applicable rules and regulations
of the Commission and will make generally available to its security holders
as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of
Section 11(a) of the Securities Act; provided that in no event shall such
earning statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of the applicable Registration Statement, which statement
shall cover such 12-month period. (m) The Issuers will cause the Indenture
or the Exchange Securities Indenture, as the case may be, to be qualified
under the Trust Indenture Act as required by applicable law in a timely
manner.
(n) The Issuers may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Issuers such information concerning the Holder and the
distribution of such Transfer Restricted Securities as the Issuers may from
time to time reasonably require for inclusion in such Shelf Registration
Statement, and the Issuers may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Issuers pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended
prospectus contemplated by Section 4(j) or until advised in writing (the
"Advice") by the Issuers that the use of the applicable prospectus may be
resumed. If the Issuers shall give any notice under Section 4(b)(ii) through
(v) during the period that the Issuers are required to maintain an effective
Registration Statement (the "Effectiveness Period"), such Effectiveness
Period shall be extended by the number of days during such period from and
including the date of the giving of such notice to and including the date
when each seller of Transfer Restricted Securities covered by such
Registration Statement shall have received (x) the copies of the
supplemental or amended prospectus contemplated by Section 4(j) (if an
amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
-11-
<PAGE>
(p) In the case of a Shelf Registration Statement, the Issuers shall
enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action, if
any, as Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold
or the managing underwriters (if any) shall reasonably request in order to
facilitate any disposition of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, each of the Issuers
shall (i) make reasonably available for inspection by a representative of,
and Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and
Private Exchange Securities being sold and any underwriter participating in
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties of
such Issuer and (ii) use its reasonable best efforts to have its officers,
directors, employees, accountants and counsel supply all relevant
information reasonably requested by such representative, Special Counsel
or any such underwriter (an "Inspector") in connection with such Shelf
Registration Statement.
(r) In the case of a Shelf Registration Statement, each of the Issuers
shall, if requested by Holders of a majority in aggregate principal amount
of the Securities, Exchange Securities and Private Exchange Securities being
sold, their Special Counsel or the managing underwriters (if any) in
connection with such Shelf Registration Statement, use its reasonable best
efforts to cause (i) its counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates requested by
Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) and (iii) the
Company's and its subsidiaries' independent public accountants to provide a
comfort letter or letters in customary form, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
(s) The Issuers may suspend the use of a prospectus contained in a
Registration Statement for a period not to exceed 30 days in any three-month
period for valid business reasons to be determined by the Issuers in their
sole reasonable judgment; provided, however, that such business reasons may
not include the avoidance of the Issuers' obligations hereunder.
-12-
<PAGE>
5. Registration Expenses. The Issuers shall bear all expenses incurred in
connection with the performance of its obligations under Sections 1, 2, 3 and 4
(other than brokers', dealers' and underwriters' discounts and commissions and
brokers', dealers' and underwriters' counsel's fees, and the Issuers, jointly
and severally, shall reimburse the Initial Purchasers and the Holders for the
reasonable fees and disbursements of one firm of attorneys (in addition to any
local counsel) chosen by the Holders of a majority in aggregate principal amount
of the Securities, the Exchange Securities and the Private Exchange Securities
to be sold pursuant to each Registration Statement (the "Special Counsel")
acting for the Initial Purchasers or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf Registration Statement or
in connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Issuers, jointly and severally, shall indemnify and hold
harmless each Holder (including, without limitation, any such Initial Purchaser
or Exchanging Dealer), its affiliates, their respective officers, directors,
employees, representatives and agents, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or regulation,
at common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder promptly, but in no event later than
30 days, following demand for any legal or other expenses reasonably incurred by
that Holder in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that upon a final determination by a court of competent jurisdiction
after all rights of appeal have expired that any Initial Purchaser was not
entitled to payment of such expenses by the Issuers pursuant to this Section
6(a), such Initial Purchaser shall reimburse such payment to the Issuers;
provided further, however, that the Issuers shall not be liable in any such case
to the extent that any such loss, claim, damage, liability or action arises out
of, or is based upon, an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with any Holders' Information; and provided, further, that with
respect to any such untrue statement in or omission from any related
-13-
<PAGE>
preliminary prospectus, the indemnity agreement contained in this Section 6(a)
shall not inure to the benefit of any Holder from whom the person asserting any
such loss, claim, damage, liability or action received Securities, Exchange
Securities or Private Exchange Securities to the extent that such loss, claim,
damage, liability or action of or with respect to such Holder results from the
fact that both (A) a copy of the final prospectus was not sent or given to such
person at or prior to the written confirmation of the sale of such Securities,
Exchange Securities or Private Exchange Securities to such person and (B) the
untrue statement in or omission from the related preliminary prospectus was
corrected in the final prospectus unless, in either case, such failure to
deliver the final prospectus was a result of non-compliance by the Issuers with
Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless each of the Issuers, its affiliates,
their respective officers, directors, employees, representatives and agents,
and each person, if any, who controls any Issuer within the meaning of the
Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 6(b) and Section 7 as the "Issuers"), from and against any loss,
claim, damage or liability, joint or several, or any action in respect
thereof, to which any of the Issuers may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained
in any such Registration Statement or any prospectus forming part thereof or
in any amendment or supplement thereto or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
any Holders' Information furnished to the Issuers by such Holder, and shall
reimburse the Issuers for any legal or other expenses reasonably incurred by
the Issuers in connection with investigating or defending or preparing to
defend against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that no such Holder shall be liable for any indemnity
claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 6 except to
the extent that it has been
-14-
<PAGE>
materially prejudiced (through the forfeiture of substantive rights or defenses)
by such failure; and provided further, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 6. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that an indemnified party shall have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel for the indemnified party will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict exists (based upon advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel reasonably satisfactory to the indemnified party to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent, but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party (which consent shall
not be unreasonably withheld or delayed), effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been
-15-
<PAGE>
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Issuers from the offering and sale of the Securities,
on the one hand, and a Holder with respect to the sale by such Holder of
Securities, Exchange Securities or Private Exchange Securities, on the other, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Issuers on the one hand and such Holder on the other with respect to the
statements or omissions that resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations.. The relative benefits received by the Issuers on the one hand
and a Holder on the other with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) received by or on behalf of the
Issuers as set forth in the table on the cover of the Offering Memorandum, on
the one hand, bear to the total proceeds received by such Holder with respect to
its sale of Securities, Exchange Securities or Private Exchange Securities, on
the other. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to any of the
Issuers or information supplied by any of the Issuers on the one hand or to any
Holders' Information supplied by such Holder on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7 were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 7 shall be deemed to include, for purposes of this Section
7, any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by such indemnifying party to any
purchaser exceeds the amount of any damages which such indemnifying party has
otherwise paid or become liable to pay by reason of any untrue or
-16-
<PAGE>
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best efforts to
file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time such Issuer is not required
to file such reports, it will, upon the written request of any Holder of
Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as any
Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require any of the Issuers to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted Securities
covered by any Shelf Registration Statement are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Issuers (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Issuers
have obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
-17-
<PAGE>
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement; and, furthermore, the parties hereto may make any amendment that does
not, in the good faith opinion of the Board of Directors of the Company,
adversely affect any Holder.
(b) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section 10(b), which address initially is, with respect to each
Holder, the address of such Holder maintained by the Registrar under
the Indenture, with a copy in like manner to Chase Securities Inc.
and NationsBanc Montgomery Securities LLC;
(2) if to an Initial Purchaser, initially at its address set forth
in the Purchase Agreement; and
(3) if to the Issuers, initially at the address of the
Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the
recipient's telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding
upon the Issuers and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any
number of counterparts (which may be delivered in original form or by
telecopier) and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Definition of Terms. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth
in Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
-18-
<PAGE>
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to application of principles of conflicts of law. Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.
(h) Remedies. In the event of a breach by any of the Issuers
or by any Holder of any of their obligations under this Agreement, each Holder
or the Issuers, as the case may be, in addition to being entitled to exercise
all rights granted by law, including recovery of damages (other than the
recovery of damages for a breach by the Issuers of its obligations under
Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to
Section 3 hereof), will be entitled to specific performance of its rights
under this Agreement. The Issuers and each Holder agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agree
that, in the event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. Each of the Issuers
represents, warrants and agrees that (i) it has not entered into, shall not,
on or after the date of this Agreement, enter into any agreement that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) it has not previously
entered into any agreement which remains in effect granting any registration
rights with respect to any of its debt securities to any person and (iii)
without limiting the generality of the foregoing, without the written consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Transfer Restricted Securities, it shall not grant to any person
the right to request the Company to register any debt securities of the
Company under the Securities Act unless the rights so granted are not in
conflict or inconsistent with the provisions of this Agreement.
(j) No Piggyback on Registrations. Neither the Issuers nor
any of their respective security holders (other than the Holders of Transfer
Restricted Securities in such capacity) shall have the right to include any
securities of the Company in any Shelf Registration or Registered Exchange
Offer other than Transfer Restricted Securities.
(k) Severability. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth
-19-
<PAGE>
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
best efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
[Remainder of page intentionally left blank]
-20-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Issuers and the Initial Purchasers.
Very truly yours,
CARROLS CORPORATION
By: /s/ Joseph A. Zirkman
-----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS REALTY HOLDINGS CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
-----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS REALTY I CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
-----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
CARROLS REALTY II CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
-----------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
<PAGE>
CARROLS J.G. CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
------------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
QUANTA ADVERTISING CORP.,
as Guarantor
By: /s/ Joseph A. Zirkman
------------------------------------
Name: Joseph A. Zirkman
Title: Vice President, Secretary
and General Counsel
POLLO FRANCHISE, INC.,
as Guarantor
By: /s/ Joseph A. Zirkman
------------------------------------
Name: Joseph A. Zirkman
Title: Vice President and Secretary
POLLO OPERATIONS, INC.,
as Guarantor
By: /s/ Joseph A. Zirkman
-------------------------------------
Name: Joseph A. Zirkman
Title: Vice President and Secretary
S-2
<PAGE>
Agreed to and accepted by:
CHASE SECURITIES INC.
By: /s/ Joseph C. Purcell
--------------------------
Name: Joseph C. Purcell
Title: Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ WK Mueller
---------------------------
Name: WK Mueller
Title: Managing Director
S-3
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution"
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities 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 Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. 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
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that, for a period of 180 days after the Expiration
Date, it will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition,
until _______________, 199_, all dealers effecting transactions in the
Exchange Securities may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered 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 Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for
its own account pursuant to the Registered Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the
Issuers shall promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Issuers have agreed to pay
all expenses incident to the Registered Exchange Offer (including the expenses
of one counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
<PAGE>
ANNEX D
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Securities. If the undersigned is a broker-dealer
that will receive Exchange Securities for its own account in exchange for
Securities that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Securities; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
<PAGE>
EXHIBIT 4.3
[FORM OF SERIES B SECURITY]
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1, 2008, Series B
CUSIP No.
No. $
CARROLS CORPORATION, a Delaware corporation (the "Company", which term
includes any successor corporation), for value received promises to pay to Cede
& Co. or registered assigns, the principal sum of Dollars, on December 1,
2008.
Interest Payment Dates: June 1 and December 1, commencing on June 1,
1999.
Interest Record Dates: May 15 and November 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
CARROLS CORPORATION
By:
-----------------------
Name:
Title:
By:
-----------------------
Name:
Title:
Dated:
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 1/2% Senior Subordinated Notes due December 1, 2008,
Series B, described in the within-mentioned Indenture.
Dated:
IBJ SCHRODER BANK & TRUST
COMPANY, as Trustee
By:
-----------------------
Name:
Title:
B-2
<PAGE>
(Reverse of Security)
CARROLS CORPORATION
9 1/2% Senior Subordinated Note
due December 1, 2008, Series B
1. Interest.
CARROLS CORPORATION, a Delaware corporation (the "Company"), promises to
pay interest on the principal amount of this Security at the rate per annum
shown above. Cash interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
November 24, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing June 1, 1999. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time on
demand and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful from time to time on demand, in each case at
the rate borne by the Securities
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are cancelled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
B-3
<PAGE>
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of November
24, 1998 (the "Indenture"), by and among the Company, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. This Security is one of a duly authorized issue of
Securities of the Company designated as its 9 1/2% Senior Subordinated Notes due
2008, Series B (the "Unrestricted Securities"), limited (except as otherwise
provided in the Indenture) in aggregate principal amount to $170,000,000, which
may be issued under the Indenture. The Securities include the 9 1/2% Senior
Subordinated Notes due 2008, Series A (the "Initial Securities"), the Private
Exchange Securities (as defined in the Indenture) and the Unrestricted
Securities. The Initial Securities, the Private Exchange Securities and the
Unrestricted Securities are treated as a single class of securities under the
Indenture. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture (except as otherwise indicated in the Indenture) until such time as
the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Securities are subject to all such terms, and
holders of Securities are referred to the Indenture and the TIA for a statement
of them. The Securities are general unsecured obligations of the Company. The
Securities are subordinated in right of payment to all Senior Indebtedness of
the Company to the extent and in the manner provided in the Indenture. Each
Holder of a Security, by accepting a Security, agrees to such subordination,
authorizes the Trustee to give effect to such subordination and appoints the
Trustee as attorney-in-fact for such purpose.
Payment on the Securities is guaranteed (each, a "Guarantee"), on a senior
subordinated basis, jointly and severally, by each Restricted Subsidiary of the
Company existing on the Issue Date (each, a "Guarantor") pursuant to Article
Eleven and Article Twelve of the Indenture. In addition, the Indenture requires
the Company to cause each Restricted Subsidiary formed, created or acquired
after the Issue Date to become a party to the Indenture as a Guarantor and
guarantee payment on the Securities pursuant to Article Eleven and Article
Twelve of the Indenture. In certain circumstances, the Guaranties may be
released.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole or in
part at any time, on and after December 1, 2003, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on December 1 of the year
B-4
<PAGE>
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
Year Percentage
------------------- ----------
2003 104.750%
2004 103.167%
2005 101.583%
2006 and thereafter 100.000%
6. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to December 1, 2001, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the principal amount of Securities
originally issued at a redemption price equal to 109.500% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption (subject to the right of Holders of record on the relevant Interest
Record Date to receive interest due on the relevant Interest Payment Date);
provided that at least 65% of the principal amount of Securities originally
issued remain outstanding immediately after any such redemption (excluding any
Securities held by the Company or any of its Affiliates). In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 90 days after the consummation
of any such Public Equity Offering.
7. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of redemption
that relates to such Security shall state the portion of the principal amount
thereof to be redeemed. A new Security in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Security. On and after the Redemption Date,
interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities
B-5
<PAGE>
funds in satisfaction of the redemption price pursuant to the Indenture and the
Paying Agent is not prohibited from paying such funds to the Holders pursuant to
the terms of the Indenture.
8. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 60
days after the Change of Control Date, make a Change of Control Offer to
repurchase all Securities then outstanding at a repurchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Payment Date (subject to the
right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date).
9. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make a Net
Proceeds Offer to repurchase Securities at a repurchase price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Net Proceeds Offer Date (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date) with the proceeds of certain asset dispositions.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder shall register the transfer
of or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay certain transfer taxes or similar governmental
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities or
portions thereof selected for redemption, except the unredeemed portion of any
security being redeemed in part.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
B-6
<PAGE>
12. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for two
years, the Trustee and the Paying Agent will repay the funds to the Company at
its written request. After that, all liability of the Trustee and such Paying
Agent with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their obligations
under the Indenture, the Securities and the Guaranties, except for certain
provisions thereof, and may be discharged from obligations to comply with
certain covenants contained in the Indenture, the Securities and the Guaranties,
in each case upon satisfaction of certain conditions specified in the Indenture.
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guaranties may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guaranties to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
requirements of the SEC in connection with the qualification of the Indenture
under the TIA, or make any other change that does not materially adversely
affect the rights of any Holder of a Security.
15. Restrictive Covenants.
The Indenture contains certain covenants that, among other things, limit
the ability of the Company and the Restricted Subsidiaries to make restricted
payments, to incur indebtedness, to create liens, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries to the
Company, to consolidate, merge or sell all or substantially all of its assets,
to engage in transactions with affiliates or certain other related persons or to
engage in certain businesses. The limitations are subject to a number of
important qualifications and exceptions. The Company must report quarterly to
the Trustee on compliance with such limitations.
B-7
<PAGE>
16. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of outstanding Securities
may declare all the Securities to be due and payable immediately in the manner
and with the effect provided in the Indenture. Holders may not enforce the
Indenture, the Securities or the Guaranties except as provided in the Indenture.
The Trustee is not obligated to enforce the Indenture, the Securities or the
Guaranties unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of certain continuing Defaults or Events of Default if it
determines that withholding notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such, of
the Company or any Guarantor shall have any liability for any obligation of the
Company or any Guarantor under the Securities, the Guarantee of such Guarantor
or the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities and the Guaranties.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
B-8
<PAGE>
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders. No representation is
made as to the accuracy of such numbers as printed on the Securities and
reliance may be placed only on the other identification numbers printed hereon.
22. Governing Law.
The Indenture, this Security and any Guarantee thereof shall be governed
by and construed in accordance with the laws of the State of New York without
regard to the application of principles of conflicts of laws. Each of the
parties hereto and thereto agrees to submit to the jurisdiction of the courts of
the State of New York in any action or proceeding arising out of or relating to
the Indenture, this Security and any Guarantee thereof.
B-9
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (as defined in the Indenture referred to in the Security
upon which this notation is endorsed) hereby unconditionally guarantees on a
senior subordinated basis (such guarantee by the Guarantor being referred to
herein as the "Guarantee") the due and punctual payment of the principal of,
premium, if any, and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, premium and interest on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee, all in accordance with the terms set forth in Article Eleven of the
Indenture.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth, and are
expressly subordinated and subject in right of payment to the prior payment in
full of all Guarantor Senior Indebtedness (as defined in the Indenture) of such
Guarantor, to the extent and in the manner provided in Article Eleven and
Article Twelve of the Indenture, and reference is hereby made to such Indenture
for the precise terms of the Guarantee therein made.
This Security Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Security Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of law.
This Security Guarantee is subject to release upon the terms set forth in
the Indenture.
[Signature pages follow]
<PAGE>
CARROLS REALTY HOLDINGS CORP.,
as Guarantor
By:
-----------------------
Name:
Title:
CARROLS REALTY I CORP.,
as Guarantor
By:
-----------------------
Name:
Title:
CARROLS REALTY II CORP.,
as Guarantor
By:
-----------------------
Name:
Title:
CARROLS J.G. CORP.,
as Guarantor
By:
-----------------------
Name:
Title:
QUANTA ADVERTISING CORP.,
as Guarantor
By:
-----------------------
Name:
Title:
<PAGE>
POLLO FRANCHISE, INC.,
as Guarantor
By:
-----------------------
Name:
Title:
POLLO OPERATIONS, INC.,
as Guarantor
By:
-----------------------
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
-------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: ----------------------------------------
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to Section 4.06 or Section 4.10 of the Indenture, check the appropriate
box:
Section 4.06 [ ]
Section 4.10 [ ]
If you want to elect to have only part of this Security repurchased by the
Company pursuant to Section 4.06 or Section 4.10 of the Indenture, state the
amount: $
-------------
Dated: Signed:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: ----------------------------------------
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
Exhibit 5.1
ROSENMAN & COLIN LLP
575 MADISON AVENUE
NEW YORK, NEW YORK 10022
February 2, 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, in connection with the registration statement (the "Registration
Statement") on Form S-4 filed with the Securities and Exchange Commission on
February 2, 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.
In rendering this opinion, we have examined (i) the Indenture between the
Company, the Guarantors named therein and IBJ Schroder 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 and (vii) 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, 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 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>
Exhibit 10.1
LOAN AGREEMENT
($127,000,000 ADVANCE LOAN FACILITY
AND
$25,000,000 REVOLVING LOAN FACILITY)
dated as of May 12, 1997
AMONG
CARROLS CORPORATION,
as Borrower,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent and as a Lender,
HELLER FINANCIAL, INC.,
as Documentation Agent and as a Lender,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Co-Agent and as a Lender,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions..............................................................................................1
1.1 Certain Defined Terms.........................................................................1
1.2 Miscellaneous................................................................................21
2. Commitments and Loans...................................................................................21
2.1 Loans........................................................................................21
2.2 Letters of Credit............................................................................22
2.3 Terminations or Reductions of Commitments....................................................26
2.4 Commitment Fees..............................................................................26
2.5 Several Obligations..........................................................................27
2.6 Notes........................................................................................27
2.7 Use of Proceeds..............................................................................28
3. Borrowings, Payments, Prepayments and Interest Options..................................................28
3.1 Borrowings...................................................................................28
3.2 Prepayments..................................................................................28
3.3 Interest Options.............................................................................31
4. Payments; Pro Rata Treatment; Computations, Etc.........................................................36
4.1 Payments.....................................................................................36
4.2 Pro Rata Treatment...........................................................................37
4.3 Certain Actions, Notices, Etc................................................................38
4.4 Non-Receipt of Funds by Agent................................................................39
4.5 Sharing of Payments, Etc.....................................................................39
5. Conditions Precedent....................................................................................40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
5.1 Initial Loans and Letters of Credit..........................................................40
5.2 Advance Loans................................................................................42
5.3 All Loans and Letters of Credit..............................................................43
6. Representations and Warranties..........................................................................43
6.1 Organization.................................................................................44
6.2 Financial Statements.........................................................................44
6.3 Enforceable Obligations; Authorization.......................................................44
6.4 Other Debt...................................................................................45
6.5 Litigation...................................................................................45
6.6 Title........................................................................................45
6.7 Taxes........................................................................................45
6.8 Regulations G, U and X.......................................................................45
6.9 Subsidiaries.................................................................................45
6.10 No Untrue or Misleading Statements...........................................................45
6.11 ERISA........................................................................................46
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................................................................47
6.19 Mortgaged Properties and Other Collateral; Subsidiary Property...............................47
7. Affirmative Covenants...................................................................................47
7.1 Taxes, Existence, Regulations, Property, Etc.................................................48
7.2 Financial Statements and Information.........................................................48
7.3 Financial Tests..............................................................................49
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 Guaranties; Pledge of Subsidiary Stock.......................................................53
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................................................................56
8.13 Unfunded Liabilities.........................................................................56
8.14 Acquisitions of Assets.......................................................................56
8.15 Prepayment of Heller Financial...............................................................57
9. Defaults................................................................................................57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
9.1 Events of Default............................................................................57
9.2 Right of Setoff..............................................................................60
9.3 Collateral Account...........................................................................61
9.4 Preservation of Security for Unmatured Reimbursement Obligations.............................61
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..............................................................................64
10.7 Non-Reliance on Agent and Other Lenders......................................................64
10.8 Failure to Act...............................................................................64
10.9 Resignation or Removal of Agent..............................................................65
10.10 No Partnership...............................................................................65
11. Miscellaneous...........................................................................................66
11.1 Waiver.......................................................................................66
11.2 Notices......................................................................................66
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.......................................................................71
11.8 Survival.....................................................................................72
11.9 Captions.....................................................................................72
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................................73
11.15 Jury Waiver..................................................................................73
11.16 Limitation on Charges; Substitute Lenders; Non-Discrimination................................73
11.17 Amendment and Restatement; Renewal Notes.....................................................74
</TABLE>
<PAGE>
EXHIBITS
- ---------
A -- Request for Extension of Credit
B -- Fee Simple Sites
C -- Rate Designation Notice
D -- Advance Note
E -- Revolving Note
F -- Assignment and Acceptance
G -- Compliance Certificate
H -- Lease Agreements
I -- Franchise Agreements
J -- Excluded Assets
K -- Certain Fee Sites (Financing on Sale/Leaseback Not Available)
v
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of May 12, 1997 (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"), HELLER FINANCIAL,
INC., as Documentation Agent, FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as
Co-Agent, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), 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.
Acquisition Package shall have the meaning ascribed to such term in
Section 5.2 hereof.
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>
Advance Loan means a Loan made pursuant to Section 2.1(a) hereof.
Advance Loan Availability Period means, for each Advance Loan Lender,
the period from and including the Effective Date to (but not including) the
Advance Loan Termination Date.
Advance Loan Commitment means, as to any Lender, the obligation, if
any, of such Lender to make Advance Loans 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 "Advance 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).
Advance Loan Commitment Percentage means, as to any Advance Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Advance Loan Commitment and the denominator of which
is the aggregate amount of the Advance Loan Commitments of all Lenders.
Advance Loan Lender means each Lender with (i) prior to the Advance
Loan Termination Date, an Advance Loan Commitment and (ii) on and after the
Advance Loan Termination Date, any outstanding Advance Loans.
Advance Loan Maturity Date means June 30, 2003.
Advance Loan Termination Date means the earlier of (a) December 31,
1999 or (b) the date specified by Agent in accordance with Section 9.1 hereof.
Advance Loan Tranche shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
Advance Notes means the Notes of Borrower evidencing the Advance
Loans, in the form of Exhibit D hereto.
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
2
<PAGE>
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 (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
3
<PAGE>
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.
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.
Ceiling Rate means, on any day, 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 One
establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate
ceiling" (as defined in Chapter One) for that day. Agent may from time to
time, as to current and future balances, implement any other ceiling under
Chapter One by notice to Borrower, if and to the extent permitted by Chapter
One. 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 One means Chapter One of Title 79, Texas Revised Civil
Statutes, 1925, as amended.
4
<PAGE>
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.
Compliance Certificate shall have the meaning given to it in Section
7.2 hereof.
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) 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.
5
<PAGE>
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.
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
Burger King Restaurant during such 12-month period shall be included in EBITDA
as if such acquisition occurred on the first day of such 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 and state
income tax expense.
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.
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
6
<PAGE>
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), voluntary
prepayments, federal and state income taxes actually paid, Investments of the
nature described in clause (f) of the definition of "Permitted Investments"
made by Borrower and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) during such period and unfinanced 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.
7
<PAGE>
Excluded Assets means leasehold estates with respect to which BKC is
the lessor and the sites described on Exhibit J hereto.
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 the sites described on Exhibit B hereto.
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 and state 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 by Borrower for such
12-month period.
Franchise Agreements means the franchise agreements described on
Exhibit I attached hereto, 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
8
<PAGE>
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, 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".
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 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.
9
<PAGE>
Interest Payment Dates means (a) for Base Rate Borrowings, June 30,
1997 and the last day of each March, June, September and December thereafter
prior to the Revolving Loan Maturity Date or the Advance Loan Maturity Date,
as the case may be, and the Revolving Loan Maturity Date or the Advance 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 Advance 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 five (5) 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 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 an Advance Loan shall ever extend
beyond the Advance 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.
10
<PAGE>
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,
the Senior Notes Documentation, the Underlying Lease Agreements, the Purchase
Agreements and the Material Title Documents.
Lease Agreements means the lease and sublease agreements described on
Exhibit H attached hereto, as any of the same may from time to time be
amended, modified, supplemented or restated. Except for the Excluded Assets
and except for Properties acquired after March 15, 1997 (which remain subject
to the provisions of Section 8.14(c) hereof), 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, 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
11
<PAGE>
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 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 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 Advance Loan Commitments, and at any time while Loans are
outstanding, Lenders having greater than 66-2/3% of the aggregate amount of
Advance Loans outstanding plus Revolving Loan Commitments and Advance Loan
Commitments outstanding.
12
<PAGE>
Margin Percentage means (i) on any day prior to July 1, 1997, 0.75%
with respect to Base Rate Borrowings and 2.25% with respect to LIBOR
Borrowings and (ii) on and after July 1, 1997, the applicable per annum
percentage set forth at the appropriate intersection in the table shown below,
based on the 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 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 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):
<TABLE>
<CAPTION>
Debt to LIBOR Borrowings Base Rate Borrowings
EBITDA Ratio Margin Percentage Margin Percentage
------------ ----------------- --------------------
<S> <C> <C>
Greater than or equal to
4.00 2.50 1.00
Greater than or equal to
3.50 but less than 4.00 2.25 0.75
Greater than or equal to
3.00 but less than 3.50 2.00 0.50
Greater than or equal to
2.50 but less than 3.00 1.75 0.25
Less than 2.50 1.50 0.00
</TABLE>
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 Advance Loan Available Amount means, at any date, an amount
equal to the aggregate of the Advance Loan Commitments.
Maximum Revolving Loan Available Amount means, at any date, an amount
equal to the aggregate of the Revolving Loan Commitments.
13
<PAGE>
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 Obligor) 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.
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 Security
Agreement or Mortgage.
14
<PAGE>
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.
Permitted Dividends means (i) dividends or distributions by a
Subsidiary of Borrower to Borrower and (ii) so long as no Default or Event of
Default shall have occurred and be continuing (or would result therefrom), (a)
dividends and scheduled redemptions payable in respect of preferred stock of
Carrols Holdings under the present terms of that certain Certificate of
Amendment of Restated Certificate of Incorporation of Carrols Holdings
Corporation dated as of February 20, 1997, without amendment except as
approved by the Majority Lenders 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 50% of such preceding fiscal year's Excess Cash Flow which may
be distributed to Carrols Holdings for the payment of voluntary redemptions of
preferred stock under the present terms of that certain Certificate of
Amendment of Restated Certificate of Incorporation of Carrols Holdings
Corporation dated as of February 20, 1997, without amendment except as
approved by the Majority Lenders.
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) repurchases of the stock of retiring or terminated
employees (excluding Alan Vituli) in an aggregate amount not to exceed, for
the period from the date hereof through December 31, 1997 or for any
subsequent fiscal year, the lesser of (x) $1,500,000 or (y) the sum of
$500,000 plus any prior unused capacity from prior years for permitted
repurchases of stock pursuant to this clause (d), (e) open market purchases by
Borrower of Senior Notes in an aggregate amount not to exceed $3,000,000 and
(f) 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
15
<PAGE>
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.
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(l) 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, and (l) extensions, renewals and
replacements of Liens referred to in clauses (a) through (k) 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.
16
<PAGE>
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.
Prime Rate means, on any day, the prime rate for that day as
determined from time to time by TCB. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate or a favored rate, and
TCB, Agent and each Lender disclaims any statement, representation or warranty
to the contrary. TCB, 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.
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 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.
17
<PAGE>
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 C.
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 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.
18
<PAGE>
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 and the denominator of which
is the aggregate amount of the Revolving Loan Commitments of all Lenders.
Revolving Loan Maturity Date means the maturity of the Revolving
Notes, December 31, 2001. Upon written request from Borrower at any time after
July 31, 2001 but prior to September 30, 2001, 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 E 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 Obligor) in
favor of Agent, as the same may from time to time be amended, modified,
restated or supplemented.
19
<PAGE>
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 Notes means those certain 11-1/2% Senior Notes Due 2003 dated
August 17, 1993 issued in the aggregate principal amount of $110,000,000,
together with all renewals, extensions, modifications and replacements thereof
and substitutions therefor.
Senior Notes Documentation means the Senior Notes and the Indenture
pursuant to which the Senior Notes are issued together with all documents and
instruments now or hereafter executed in connection with the Senior Notes, as
any of them may from time to time be amended, modified, restated or
supplemented.
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.
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).
Texas Credit Code means Title 79, Texas Revised Civil Statutes, 1925,
as amended.
270 Day Period means any period of 270 days designated by Agent which
includes the closing date for the acquisition of the applicable Property by
Borrower or any other Obligor.
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
20
<PAGE>
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.
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.
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, 5.2 and 5.3 hereof), to make Loans as follows:
(a) Advance Loans. From time to time on or after the Effective
Date and during the applicable Advance Loan Availability Period, each Advance
Loan Lender shall make loans under this Section 2.1(a) to Borrower in an
aggregate principal amount at any one time outstanding up to but not exceeding
such Lender's Advance Loan Commitment Percentage of the Maximum Advance Loan
Available Amount. Advance Loans shall be made in separate groupings or
tranches (each an "Advance Loan Tranche"), each of which shall (unless the
Majority Lenders shall otherwise consent in writing to a lower amount) be in
an amount not less than the lesser of (i) $10,000,000 or (ii) the aggregate
unused Advance Loan Commitments. Unless the Majority Lenders shall otherwise
21
<PAGE>
consent in writing, there shall be no more than ten (10) Advance Loan Tranches
made during the term of this Agreement.
(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 that Chapter 15 of the Texas Credit Code
shall not apply to this Agreement, the Revolving Notes or any Revolving Loan
Obligation. 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) TCB agrees to issue such
Letters of Credit. Upon the date 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 applicable 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. TCB 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:
22
<PAGE>
(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 applicable 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
is made after 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
23
<PAGE>
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 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 indemnifies 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)
24
<PAGE>
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
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).
25
<PAGE>
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. The Advance
Loan Commitments shall be automatically reduced by the amount of any Advance
Loans made and on the Advance Loan Termination Date, all Advance 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 or Advance 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 or the Advance 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 May 20, 1997 to
and including the Revolving Loan Termination Date at a rate per annum equal to
0.375%. 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) Borrower shall pay to Agent for the account of each Advance
Loan Lender advance loan commitment fees for the period from May 20, 1997 to
and including the Advance Loan Termination Date at a rate per annum equal to
0.25%. Such advance 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 Advance
Loan Lender's Advance Loan Commitment for such day over (y) the aggregate
unpaid principal balance of such Lender's Advance Notes on such day. Accrued
advance loan commitment fees shall be payable in arrears on the Quarterly
Dates prior to the Advance Loan Termination Date and on the Advance Loan
Termination Date.
(c) Concurrently with each Advance Loan made prior to November 20,
1997, Borrower shall pay to Agent for the account of each Advance Loan Lender
an additional advance loan fee in an amount equal to the Advance Loan made by
such Advance Loan Lender times 0.125% per annum
26
<PAGE>
calculated for a period equal to the number of days from May 20, 1997 through
the date of such Advance Loan. Concurrently with each Advance Loan made on or
after November 20, 1997, Borrower shall pay to Agent for the account of each
Advance Loan Lender an additional advance loan fee in an amount equal to the
Advance Loan made by such Advance Loan Lender times 0.0625%.
(d) All past due fees payable under this Section shall bear
interest at the Past Due Rate.
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 or Advance Loans, as the case may be, at any time outstanding
if as a result the total Revolving Loan Obligations to or the aggregate unpaid
principal balance of the Advance Loans held by, as the case may be, such
Lender shall exceed the lesser of (1) such Lender's Revolving Loan Commitment
Percentage or Advance Loan Commitment Percentage, as the case may be, of all
Revolving Loan Obligations or Advance Loans, as the case may be, and (2) such
Lender's Revolving Loan Commitment Percentage or Advance Loan Commitment
Percentage, as the case may be, of the Maximum Revolving Loan Available Amount
or Maximum Advance Loan Available Amount, as the case may be, (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 and (c) if an Advance Loan Lender fails to make an Advance 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 Advance Loan Commitment Percentages until the aggregate unpaid
principal balance of the Advance Loans held by each Advance Loan Lender
(including the defaulting Lender) are equal to such Lender's Advance Loan
Commitment Percentage of the aggregate amount of all Advance Loans
outstanding.
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 E 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 Advance Loans made by each Lender shall be evidenced by
separate Advance Notes (one for each Advance Loan Tranche) in substantially
the form of Exhibit D hereto each payable to the order of such Lender in a
principal amount equal to the principal amount of the applicable Advance Loan
of such Lender. The promissory notes described in this Section are each,
27
<PAGE>
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 Advance Loans shall be
used to finance up to 75% of the purchase costs incurred in connection with
permitted acquisitions by Borrower closing on or after the Effective Date
(provided, however, that an Advance Loan Tranche of up to $5,000,000 may,
subject to the terms and conditions of this Agreement, be used to refinance an
existing term loan with Heller Financial, Inc. and an Advance Loan Tranche of
up to $7,700,000 may, subject to the terms and conditions of this Agreement,
be used to refinance an existing term loan with Texas Commerce Bank National
Association) and to repurchase up to $25,000,000 of the Senior Notes if the
holders of the Senior Notes exercise a put option due to a Change of Control
(as defined in the Senior Notes Documentation) event. The proceeds of the
Revolving Loans shall be used to refinance existing Indebtedness of Borrower,
to finance permitted acquisitions by Borrower and new store development by
Borrower, 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.
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.
28
<PAGE>
(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 Advance Loans shall be applied ratably (based on
outstanding principal balances) to all Advance Notes and shall be applied to
scheduled principal installments in inverse order of their maturities.
(b) Mandatory 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 such
amount deposited with Agent shall be released by Agent to
Borrower; provided, however, that, in the event that within
180 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
Advance 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 180th
day. Such prepayment shall be applied to the Advance Notes
secured by the applicable Collateral 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
29
<PAGE>
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,
1997), Borrower shall make a prepayment on the Loans in an amount
equal to (i) Excess Cash Flow for such fiscal year times 50% less
(ii) optional prepayments made on the Advance 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 Advance Notes (applied ratably (based on
outstanding principal balances) to all Advance Notes and applied to
scheduled principal installments ratably over the remaining
payments).
(c) Advance Loan Amortization. The principal of each Advance Note
shall be due and payable in quarterly installments, each due on a Quarterly
Date, beginning on the second Quarterly Date following the date of the
applicable Advance Note, equal to the face amount of the applicable Advance
Note times the percentage set forth in the following table opposite the
applicable payment (to the extent such payment becomes due prior to the
Advance Loan Maturity Date):
Payment Payment Percentage
------- ------------------
first through fourth 1.50%
fifth through eighth 2.00%
ninth through twelfth 2.50%
thirteenth through sixteenth 3.00%
seventeenth through twentieth 3.50%
twenty-first through twenty-fourth 4.00%
On the Advance Loan Maturity Date, the entire unpaid principal balance of each
Advance Note and all accrued and unpaid interest on the unpaid principal
balance of each Advance 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
30
<PAGE>
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 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 Advance 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.
31
<PAGE>
ii) No more than three (3) LIBOR Borrowings shall be in effect
with respect to the Revolving Loans at any time. No more
than one (1) LIBOR Borrowing shall be in effect with respect
to any Advance Loan Tranche 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 any Advance Loan Tranche shall apply to all
of the Advance Notes executed in connection with such
Advance Loan Tranche 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.
32
<PAGE>
(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 of
the applicable Eurodollar Rate), special deposit
requirement or similar
33
<PAGE>
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 reasonable 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
(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
34
<PAGE>
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.
(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
35
<PAGE>
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 payments
(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.
(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
36
<PAGE>
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 Advance Loans, ratably from the Advance Loan Lenders
in accordance with their respective Advance Loan Commitments 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
37
<PAGE>
Loan Commitments; (c) each payment of advance loan commitment fees shall be made
for the account of the Advance Loan Lenders, and each termination or reduction
of the Advance Loan Commitments of the Advance Loan Lenders under Section 2.3
hereof shall be applied, pro rata, according to the Advance Loan Lenders'
respective Advance Loan Commitments; (d) each payment by Borrower of principal
of or interest on the Advance 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 Advance Loans or Revolving Loans, as the case may be, held by the
Lenders; (e) each payment by Borrower of principal of or interest on the Advance
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 Advance
Notes, regardless of any attempted contrary designation by Borrower), and (f)
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 or Advance 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 and 5
Advance Loan Commitments
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
Optional prepayment of
Advance Loan 5
38
<PAGE>
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment or Advance 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 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.
39
<PAGE>
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.
(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
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). Agent shall also have received evidence satisfactory
40
<PAGE>
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 Revolving
Loan Obligations upon all of the issued and outstanding equity interests in
and to Borrower, 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 the applicable Purchase Agreements and 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.
(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.
41
<PAGE>
(m) Equity. Borrower shall have received (through equity
contributions by Carrols Holdings to Borrower) not less than $31,200,000 in
proceeds (prior to deducting for expenses incurred in connection with such
transaction not to exceed $1,000,000 deducted from the equity contributed
concurrently with the execution hereof) from the sale of equity interests in
Carrols Holdings.
(n) Assignment of Liens Securing Existing Indebtedness. All
existing Indebtedness owing to Heller Financial, Inc. shall have been paid in
full (in consideration of the assignment of such Indebtedness to Agent and
Lenders) and all Liens securing such Indebtedness shall have been reviewed and
approved by Agent and shall have been assigned to Agent in such a manner as
shall permit (i) the Revolving Loans to be secured by all Liens presently
securing the existing revolving credit facility provided by Heller Financial,
Inc. and (ii) an Advance Loan Tranche in an amount not exceeding $5,000,000 to
be secured by all Liens presently securing the existing term loans owing to
Heller Financial, Inc.
(o) Compliance with Commitment Letter. Borrower shall have
complied with the terms and provisions of that certain Commitment Letter dated
January 8, 1997 regarding the transactions contemplated herein.
(p) 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 Advance Loans. The obligation of each Advance Loan Lender to
make any Advance Loan to be made by it under Section 2.1(b) hereof is further
subject to the following:
(a) The Advance Loans shall be requested for the purpose of paying
a portion (not to exceed 75%) of the purchase costs related to real Property
or material personal Property purchased within a particular 270 Day Period
which shall be equal to or greater than the lesser of $13,333,334 or 1.33
times the Advance Loan Commitments remaining unused. The Property so acquired
is herein collectively called an "Acquisition Package".
(b) The execution and delivery of a Purchase Agreement, in Proper
Form, providing for the acquisition by an Obligor of the applicable
Acquisition Package, including the rights of the franchisees under the
Franchise Agreements relating to restaurants included in such Acquisition
Package, and the closing of the transactions provided therein (subject only to
funding of the applicable Advance Loans under Section 2.1(b)).
(c) Copies, in Proper Form and certified as true, correct and
complete, of financial information regarding such properties as of a recent
date, together with pro forma financial statements for the Borrower assuming
the closing of the applicable Acquisition Package.
42
<PAGE>
(d) Agent shall have received an environmental report satisfactory
to the Majority Lenders with respect to the applicable Acquisition Package
prepared by an environmental consultant or environmental consultants
satisfactory to Agent.
(e) Agent shall have received evidence satisfactory to the
Majority Lenders that BKC shall have consented in writing to such purchase
without conditions except as approved by the Majority Lenders in writing and
the Agent shall have received an amendment to the BKC Consent (or an
additional BKC Consent), in Proper Form, incorporating the applicable
Acquisition Package.
(f) Agent shall have received Mortgages and other Security
Documents providing for a Lien upon the applicable Acquisition Package (other
than Excluded Assets) securing the applicable Advance Loan Tranche, together
with Advance Notes evidencing the applicable Advance Loan Tranche and such
other documentation as Agent or the Majority Lenders may reasonably request in
connection therewith.
(g) Compliance with the provisions of Section 7.12 hereof, to the
extent applicable, and with Section 8.14 hereof.
(h) The making of such Advance Loan and the execution and delivery
of the Security Documents relating thereto shall not cause a default under the
Senior Notes Documentation.
5.3 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
43
<PAGE>
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
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 1995 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 1996 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.
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.
44
<PAGE>
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.
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 G,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 G, 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, 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.
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
45
<PAGE>
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, 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 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. After giving effect to the equity contributions
required under the provisions of Section 5.1(m), 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
46
<PAGE>
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 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. 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.
6.19 Mortgaged Properties and Other Collateral; Subsidiary
Property. As of the Effective Date, the Mortgaged Properties and the other
Collateral covered by the Security Documents constitute the only real Property
and all material personal Property owned by any Obligor, other than the
Excluded Assets and other than Properties acquired after March 15, 1997 (which
remain subject to the provisions of Section 8.14(c) hereof). As of the
Effective Date, the Subsidiaries of Borrower do not own any real Property or
material personal Property which is not covered by the Security Documents,
other than the Excluded Assets and other than Properties acquired after March
15, 1997 (which remain subject to the provisions of Section 8.14(c) hereof).
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:
47
<PAGE>
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
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, 1997, 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 quarterly financial statement prepared as of June 30, 1997, a
compliance certificate ("Compliance Certificate") in the form of Exhibit G
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.
48
<PAGE>
7.3 Financial Tests. Borrower will have and maintain:
(a) Debt Service Coverage Ratio - a Debt Service Coverage
Ratio of not less than 1.30 to 1.00 at all times.
(b) Debt to EBITDA Ratio - a Debt to EBITDA Ratio of not
greater than (1) 4.50 to 1.00 at all times during the period
commencing on the date hereof through and including June 30, 1998;
(2) 4.00 to 1.00 at all times during the period commencing on July 1,
1998 through and including June 30, 2000; (3) 3.50 to 1.00 at all
times during the period commencing on July 1, 2000 through and
including June 30, 2002, and (4) 3.00 to 1.00 at all times
thereafter.
(c) 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 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 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).
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 manner without thirty (30) days' prior written notice
to Agent. Wherever applicable, such insurance shall name Agent as loss payee
and/or mortgagee insured.
49
<PAGE>
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 $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 Mortgaged Properties and the other 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. In addition to the foregoing, after the Effective Date,
Borrower will notify Agent in writing at least 10 days prior to any prepayment
of any part of the term loan Indebtedness currently owing to Heller Financial,
Inc. or the refinancing of the revolving loan facility currently owing to
Heller Financial, Inc. and such prepayment or refinancing shall constitute an
"Additional Collateral Event" and concurrently with such prepayment or
refinancing all Property currently securing the applicable Indebtedness owing
to Heller Financial, Inc. shall constitute "Additional Collateral".
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
50
<PAGE>
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
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
51
<PAGE>
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 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
(1) 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 (except in the case of the payment in full of the Indebtedness currently
owing to Heller Financial, Inc., in which event these requirements must be
satisfied concurrently with such 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,
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. The provisions of this Section are subject
to the limitations imposed upon Borrower and the other Obligors under the
current Senior Notes Documentation (without amendment except as agreed to in
writing by Agent). To the full extent permitted under the provisions of the
Senior Notes Documentation, Borrower shall (and shall cause each other Obligor
to) execute and deliver to Agent any Security Documents requested by Agent or
the Majority Lenders covering any Property of Borrower or any other Obligor
(other than the Excluded Assets), whether or not the Lien created by such
Security Document is otherwise provided for in this Agreement or other Credit
Documents. It is the stated objective of Borrower, each other Obligor, Agent
and the Lenders to maximize the extent to which Liens may
52
<PAGE>
be taken upon Property of Borrower and the other Obligors without causing a
default under the Senior Notes Documentation and, to the extent reasonably
requested by Agent or the Majority Lenders, Borrower shall (and shall cause
each Obligor to) cooperate in a timely fashion to accomplish such objective.
7.13 Guaranties; Pledge of Subsidiary Stock. To the full extent
permitted under the provisions of the Senior Notes Documentation, and in any
event concurrently with any refinancing of the Senior Notes, Borrower shall
(i) cause Carrols Holdings and each of the Subsidiaries (other than
Non-Recourse Subsidiaries) of Borrower to execute and deliver to Agent a
guaranty, in Proper Form, whereby payment of all of the Obligations is
guaranteed and (ii) pledge or cause to be pledged all of the issued and
outstanding equity interests in and to Borrower and all of Borrower's interest
in and to each of its Subsidiaries to Agent as security for the Obligations
pursuant to Loan Documents, in Proper Form.
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, and (d) 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.
53
<PAGE>
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 sales of Property in the
ordinary course of business and except for sales not exceeding, for the period
from the date hereof through December 31, 1997 or for any subsequent 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) must (x) if the assets sold secure Advance Loans,
be immediately applied to the payment of such Advance Loans (with such
payments to be credited pro rata to all of the installments required to be
paid on such Advance Loans) and (y) if the assets sold do not secure any
Advance Loans or if the assets sold secure the Revolving Loans, within two
hundred seventy (270) days after the applicable sale, either (I) be used to
make a prepayment on all of the Advance 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 Advance Loans) or (II) be
applied to a portion of the closing costs in respect of an acquisition
permitted under the terms hereof (provided, however, that no assets securing
the Revolving Loans may be sold if, after giving effect to such sale, less
than 100 restaurants shall remain as Collateral for the Revolving Loans and
provided further, however, that at least 60 of such remaining units must be
located outside the State of New York); (d) enter into any sale/leaseback
transaction unless (x) such sale/leaseback transaction does not violate the
Senior Notes Documentation and (y) the Majority Lenders shall otherwise
consent in writing and except for sale/leaseback transactions with respect to
the sites described on Exhibit K hereto (so long as, after giving effect to
such sale/leaseback, at least 100 restaurants shall remain as Collateral for
the Revolving Loans), 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 through the inclusion of such leasehold
interests in an Acquisition Package (with the acquisition costs of the
underlying fee title to be used in calculating the amount of the applicable
Advance Loan Tranche); 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 prohibit
any Obligor from selling obsolete equipment or from replacing used equipment
in the ordinary course of business.
54
<PAGE>
8.5 Redemption, Dividends and Distributions. At any time: (a)
redeem, retire or otherwise acquire, directly or indirectly, any equity
interest in any Obligor or (b) make any distributions of any Property or cash
to the owner of any of the equity interests in any Obligor other than
Permitted Dividends.
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) shall at all times be the direct or indirect ownership and
operation of restaurants 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
Senior Notes Documentation, 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 other Subsidiaries approved by the Majority
Lenders in writing.
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 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. Any refinancing of the Senior Notes shall require the prior written
consent of Agent and the Majority Lenders, which consent will not be withheld
so long as (i) the refinancing shall be upon terms no less favorable to the
Obligors and to the Lenders than those set forth in the existing terms of the
Senior Notes Documentation (without amendment except as agreed to in writing
by Agent), (ii) no Default or Event of Default shall have occurred and be
continuing (or would result from such refinancing) and (iii) such refinancing
shall permit all of the Obligations to be secured by all of the real Property
and material personal Property owned by each Obligor (other than Carrols
Holdings), other than the Excluded Assets and by all of the issued and
outstanding equity interests in and to Borrower and shall permit Carrols
Holdings and each Subsidiary of Borrower to execute and deliver to Agent a
guaranty, in Proper Form, whereby payment of all of the Obligations is
guaranteed.
55
<PAGE>
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 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. Borrower will not permit 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 unless the Majority 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) If the aggregate purchase price of the applicable
acquisition equals $40,000,000 or more, all of the acquisitions
comprising 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 all such acquisitions in order to evaluate their 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 all of such acquisitions).
(c) If Borrower or any other Obligor (other than Carrols
Holdings) shall have acquired any real Property or material personal
Property without having obtained any Advance Loans to finance the
purchase thereof, Borrower shall give written notice to Agent
concurrently with such acquisition. Such written notice shall
indicate the acquisition date of the applicable Property. At any time
after 225 days after such acquisition date but prior to the
expiration of the 270 Day Period commencing on such acquisition date,
the Majority Lenders may, by written notice to Borrower, require that
Borrower borrow Advance Loans in connection with such acquisition and
satisfy all conditions precedent to such Advance Loans prior to the
expiration of such 270 Day Period. The amount of the applicable
Advance Loan Tranche shall be (i) if the aggregate costs related to
such acquisition are less than $13,333,334, the lesser of 75% of such
aggregate costs and the Advance Loan Commitments remaining unused or
(ii) if the aggregate costs related to such acquisition are
$13,333,334 or more, (A) the lesser of $10,000,000 and the Advance
Loan Commitments remaining
56
<PAGE>
unused or (B) such greater amount as Borrower may specify (not to
exceed the lesser of 75% of such aggregate costs and the Advance Loan
Commitments remaining unused). The sites identified on Exhibit K
hereto under the heading "October 29, 1996 Purchase of Real Estate"
shall be subject to the provisions of Section 8.4(d) hereof and this
Section 8.14(c).
(d) Unless the Majority Lenders shall have given their prior
written consent, no Obligor other than Borrower and other than
Carrols Holdings (whose acquisitions are not restricted by this
Section) may acquire any real Property or any material personal
Property pursuant to this Section.
8.15 Prepayment of Heller Financial. Borrower may not prepay any
of the term loan Indebtedness currently owing to Heller Financial, Inc. or
refinance the revolving loan facility currently owing to Heller Financial,
Inc. unless all such Indebtedness is paid in full (in consideration of the
assignment of such Indebtedness to Agent and Lenders) and the Liens securing
such Indebtedness shall have been assigned to Agent.
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
and Advance Loan Commitments terminated (whereupon the Revolving Loan
Commitments and Advance Loan Commitments shall be terminated) and/or
accelerate the Revolving Loan Termination Date and/or the Advance Loan
Termination Date to a date as early as the date of termination of the
Revolving Loan Commitments or the Advance Loan Commitments, as the case may
be; (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 and Advance 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:
57
<PAGE>
(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
(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 $1,000,000 (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
58
<PAGE>
(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, 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,
$1,000,000 (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, after the
creation thereof as herein provided, Agent shall cease to have a
first priority Lien upon all of the equity interests of Borrower
securing all of the Revolving Loan Obligations (and such other
Obligations as may be required by this Agreement); 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
59
<PAGE>
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 or Heller Financial, Inc. 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, 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 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); or
(m) Uninsured Loss - any Obligor shall be the subject of any
uninsured or unindemnified casualty losses exceeding, in the
aggregate, $500,000 in any fiscal year.
(n) Failure to Effect Refinancing - Borrower shall fail to
refinance the term and revolving loan Indebtedness currently owing to
Heller Financial, Inc. by May 15, 1997.
9.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, each Lenders 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.
60
<PAGE>
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 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
61
<PAGE>
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 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
62
<PAGE>
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 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 Advance Loan Commitments and the Loans made and Letter of
Credit Liabilities, TCB 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
63
<PAGE>
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, Advance Loan Commitments and Advance
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 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 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
64
<PAGE>
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
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.
65
<PAGE>
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 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
66
<PAGE>
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 Section 362 of the
Bankruptcy Code and fees and expenses incurred in connection with any action
pursuant to Section 1129 of the Bankruptcy Code and all other customary
out-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
67
<PAGE>
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 or Advance Loan Commitment of any of the Lenders (or reinstate
any termination or reduction of the Revolving Loan Commitments or Advance 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 hereunder; (c) postpone or extend the Revolving Loan Maturity Date, the
Advance Loan Maturity Date, the Revolving Loan Termination Date, the Advance
Loan Termination Date, the Revolving Loan Availability Period, the Advance
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 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 Advance 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)(2), 7.10, 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.
11.6 Successors and Assigns.
68
<PAGE>
(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,
Advance 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 pro 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, the Advance Loan Commitments and the Advance Loans of the
assigning Lender subject to each such assignment shall in no event be less
than $5,000,000; (ii) other than in the case 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 F 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 at any
time assign all or any portion of its rights under this Agreement and the
Notes issued to it as collateral to a Federal Reserve Bank; provided that no
such assignment shall release such Lender from any of its obligations
hereunder.
69
<PAGE>
(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 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 and Advance 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 Advance 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 Advance Loans (or any of
70
<PAGE>
them) hereunder, new Notes to the order of the assigning Lender in an amount
equal to the Revolving Loan Commitment and the Advance 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 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
71
<PAGE>
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, the Advance 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.
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
72
<PAGE>
applicable tax treaty. 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.
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 and Advance Loan Commitments in
order to replace the affected Lender in lieu of such substitution.
73
<PAGE>
11.17 Amendment and Restatement; Renewal Notes. This Agreement
amends and restates in its entirety that certain Loan Agreement dated as of
March 27, 1997 executed by and among Borrower, 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 by Heller
Financial, Inc., the Advance Loan Notes evidencing the $5,000,000 Advance Loan
Tranche made concurrently herewith have been given in renewal, extension and
modification of a term loan previously made to Borrower by Heller Financial,
Inc. and the Advance Loan Notes evidencing the $7,700,000 Advance Loan Tranche
made concurrently herewith have been given in renewal, extension and
modification of a term loan previously made to Borrower by Texas Commerce Bank
National Association.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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
-------------------------------
Title: Vice President & Secretary
------------------------------
Address for Notices:
968 James Street
Syracuse, New York 13203
Attention: Alan Vituli
Telecopy No.: (315) 425-8874
75
<PAGE>
TEXAS COMMERCE BANK 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
$4,440,789.48 Attention: Manager, Franchise and Trademark
Finance Division
Telecopy No.: (713) 216-6710
Advance Loan Commitment:
$22,559,210.53
76
<PAGE>
HELLER FINANCIAL, INC.,
as Documentation Agent and as a Lender
By: /s/ K. Craig Gallehugh
---------------------------------
Name: K. Craig Gallehugh
-------------------------------
Title: Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 500 W. Monroe Street
Chicago, Illinois 60661
$4,111,842.11 Attention: Portfolio Manager
Telecopy No.: (312) 441-7367
Advance Loan Commitment:
$20,888,157.89
77
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Co-Agent and as a Lender
By: /s/ Jorge Gonzalez
---------------------------------
Name: Jorge Gonzalez
-------------------------------
Title: Senior Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 301 South College St.
Floor DC-5
$4,111,842.11 Charlotte, North Carolina 28288-0737
Attention: Bragg Comer
Telecopy No.: (704) 374-3300
Advance Loan Commitment:
$20,888,157.89
78
<PAGE>
SUNTRUST BANK, ATLANTA
By: /s/ Kristina L. Anderson
---------------------------------
Name: Kristina L. Anderson
-------------------------------
Title: Vice President
------------------------------
By: /s/ Candace J. Cole
---------------------------------
Name: Candace J. Cole
-------------------------------
Title: Banking Officer
------------------------------
Address for Notices:
Revolving Loan Commitment: 25 Park Place, N.E, Mail Code 124
Atlanta, Georgia 30303
$3,289,473.68 Attention: Ms. Candace Cole
Telecopy No.: (404) 588-8505
Advance Loan Commitment:
$16,710,526.32
79
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/ Arthur J. Fogel
---------------------------------
Name: Arthur J. Fogel
-------------------------------
Title: Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 50 S. LaSalle Street B-2
Chicago, Illinois 60675
$2,467,105.26 Attention: Art Fogel
Telecopy No.: (312) 444-7028
Advance Loan Commitment:
$12,532,894.74
80
<PAGE>
COMERICA BANK
By: /s/ Chris Georvassilis
---------------------------------
Name: Chris Georvassilis
-------------------------------
Title: Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 500 Woodward Ave., 9th Fl., MS 3281
Detroit, Michigan 48226
$2,467,105.26 Attention: Chris Georvassilis
Telecopy No.: (313) 222-3330
Advance Loan Commitment:
$12,532,894.74
81
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
---------------------------------
Name: Annie Chin Tat
-------------------------------
Title: Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 565 Fifth Avenue, 5th Floor
New York, New York 10017
$2,467,105.26 Attention: Ms. Catherine Oniffrey
Advance Loan Commitment: with a copy to:
$12,532,894.74 Ms. Janna Blanter
1200 Smith Street
1750 Citicorp Center
Houston, Texas 77002
Telecopy No.: (713) 651-9714
82
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Tom Colwell
---------------------------------
Name: Tom Colwell
-------------------------------
Title: Vice President
------------------------------
Address for Notices:
Revolving Loan Commitment: 345 Park Ave., 29th Floor
New York, New York 10154
$1,644,736.84 Attention: Tom Colwell
Telecopy No.: (212) 409-3737
Advance Loan Commitment:
$8,355,263.16
83
<PAGE>
Exhibit 10.3
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of December 31, 1998 by and among CARROLS CORPORATION, a
Delaware corporation (the "Borrower"); each of the Lenders which is or may
from time to time become a party to the Loan Agreement (as defined below)
(individually, a "Lender" and, collectively, the "Lenders"), HELLER FINANCIAL,
INC., as Documentation Agent, NATIONSBANK, as Co-Agent, and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, a national banking association, acting as agent
for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS
A. The Borrower, the Lenders and the Agent executed and delivered
that certain Loan Agreement dated as of May 12, 1997, as amended by instrument
dated as of July 9, 1998. Said Loan Agreement, as amended, supplemented and
restated, is herein called the "Loan Agreement." Any capitalized term used in
this Amendment and not otherwise defined shall have the meaning ascribed to it
in the Loan Agreement.
B. The Borrower, the Lenders and the Agent desire to amend the Loan
Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and further good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Lenders and the Agent do hereby agree as
follows:
SECTION 1. Amendment to Loan Agreement.
(a) Section 7.14 of the Loan Agreement is hereby amended to read
in its entirety as follows:
7.14 Borrower will cause Pollo Tropical to distribute its
available cash flow to its shareholders (and will cause each
Subsidiary of Pollo Tropical to distribute its available cash flow to
its shareholders), ratably in accordance with their respective
interests, on a quarterly basis beginning on March 31, 1999 (but
subject to the provisions of Section 1(e) above), to the maximum
extent legally permissible.
(b) Section 9.1(o) of the Loan Agreement is hereby amended to l
read in its entirety as follows:
(l) Pollo Tropical Assets and Merger - the Borrower shall
fail to acquire all of the issued and outstanding equity interests of
Pollo Tropical (and to cause the
<PAGE>
merger of Pollo Tropical and each Subsidiary of Pollo Tropical into
Borrower) by March 31, 1999 or the Borrower shall fail to create
valid, perfected Liens upon the assets owned by Pollo Tropical and its
Subsidiaries as of the date of such merger in favor of Agent securing
the Obligations (to the maximum extent permissible under the present
terms of the Senior Notes Documentation) by March 31, 1999.
SECTION 2. Payment of Senior Notes and Required Additional Liens. The
parties hereto acknowledge that the Senior Notes have been paid in full and,
as a result, Borrower is obligated under the terms of the Loan Agreement to
provide additional Liens to Agent securing the Obligations. Notwithstanding
the foregoing, Lenders hereby agree that Borrower shall not be required to
provided such additional Liens required by reason of the payment in full of
the Senior Notes until March 31, 1999.
SECTION 3. Ratification. Except as expressly amended by this
Amendment, the Loan Agreement and the other Loan Documents shall remain in
full force and effect. None of the rights, title and interests existing and to
exist under the Loan Agreement are hereby released, diminished or impaired,
and the Borrower hereby reaffirms all covenants, representations and
warranties in the Loan Agreement.
SECTION 4. Expenses. The Borrower shall pay to the Agent all
reasonable fees and expenses of its respective legal counsel (pursuant to
Section 11.3 of the Loan Agreement) incurred in connection with the execution
of this Amendment.
SECTION 5. Certifications. The Borrower hereby certifies that (a) no
material adverse change in the assets, liabilities, financial condition,
business or affairs of the Borrower has occurred and (b) no Default or Event
of Default has occurred and is continuing or will occur as a result of this
Amendment.
SECTION 6. Miscellaneous. This Amendment (a) shall be binding upon
and inure to the benefit of the Borrower, the Lenders and the Agent and their
respective successors, assigns, receivers and trustees; (b) may be modified or
amended only by a writing signed by the required parties; (c) shall be
governed by and construed in accordance with the laws of the State of New York
and the United States of America; (d) may be executed in several counterparts
by the parties hereto on separate counterparts, and each counterpart, when so
executed and delivered, shall constitute an original agreement, and all such
separate counterparts shall constitute but one and the same agreement and (e)
together with the other Loan Documents, embodies the entire agreement and
understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements, consents and understandings relating to
such subject matter. The headings herein shall be accorded no significance in
interpreting this Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02
2
<PAGE>
THE LOAN AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER LOAN
DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR SUBSTANTIALLY
CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT BLANK INTENTIONALLY
3
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
caused this Amendment to be signed by their respective duly authorized
officers, effective as of the date first above written.
CARROLS CORPORATION,
a Delaware corporation
By: /s/ Joseph A. Zirkman
------------------------
Name: Joseph A. Zirkman
Title: Vice President & Secretary
4
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as
a Lender
By: /s/ Michael J. Costello
-----------------------
Name: Michael J. Costello
Title: Vice President
5
<PAGE>
HELLER FINANCIAL, INC.,
as Documentation Agent and as
a Lender
By: --------------------------
Name: ------------------------
Title: -----------------------
6
<PAGE>
NATIONSBANK,
as Co-Agent and as a Lender
By: /s/ William Tucker
----------------------
Name: William Tucker
Title: Senior Vice President
7
<PAGE>
SUNTRUST BANK, ATLANTA
By: /s/ J. Scott Deviney
----------------------
Name: J. Scott Deviney
Title: Banking Officer
By: /s/ Charles J. Johnson
----------------------
Name: Charles J. Johnson
Title: Vice President
8
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/ Arthur J. Fogel
----------------------
Name: Arthur J. Fogel
Title: Vice President
9
<PAGE>
COMERICA BANK
By: /s/ David W. Shiney
------------------------
Name: David W. Shiney
Title: Assistant Vice President
10
<PAGE>
BANK OF SCOTLAND
By: /s/ Tom Colwell
-------------------------
Name: Tom Colwell
Title: Vice President
11
<PAGE>
PNC BANK, NATIONAL
ASSOCIATION
By: --------------------------
Name: ------------------------
Title: -----------------------
12
<PAGE>
The undersigned hereby join in this Amendment to evidence their
consent to execution by Borrower of this Amendment, to confirm that each Loan
Document now or previously executed by the undersigned applies and shall
continue to apply to the Loan Agreement, as amended hereby, to acknowledge
that without such consent and confirmation, Lender would not execute this
Amendment and to join in the notice pursuant to Tex. Bus. & Comm.
Code '26.02 set forth above.
CARROLS REALTY HOLDINGS CORP.,
a Delaware corporation
By: /s/ Joseph A. Zirkman
-----------------------
Name: Joseph A. Zirkman
Title: Vice President & Secretary
CARROLS HOLDINGS CORPORATION,
a Delaware corporation
By: /s/ Joseph A. Zirkman
-----------------------
Name: Joseph A. Zirkman
Title: Vice President & Secretary
CARROLS REALTY HOLDINGS CORP.,
a Delaware corporation
By: /s/ Joseph A. Zirkman
-----------------------
Name: Joseph A. Zirkman
Title: Vice President & Secretary
CARROLS REALTY I CORP., a
Delaware corporation
By: /s/ Joseph A. Zirkman
-----------------------
Name: Joseph A. Zirkman
Title: Vice President & Secretary
13
<PAGE>
Exhibit 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made
and entered into as of July 20, 1998, by and between CARROLS CORPORATION,
(successor by merger with Pollo Tropical, Inc.), a Delaware corporation (the
"Company"), and NICHOLAS A. CASTALDO ("Employee").
W I T N E S S E T H
WHEREAS, pursuant to the terms of an employment agreement dated
September 19, 1995 between Pollo Tropical, Inc. ("Pollo") and Employee, as
amended May 5, 1997 (together the "Prior Agreement") Employee has been and is
presently employed by the Company.
WHEREAS, in connection with the merger of Pollo into the Company, as
of July 20, 1998, the parties have agreed that the Company and Employee shall
enter into this Agreement which shall supersede in its entirety the Prior
Agreement upon the terms and conditions set forth herein;
WHEREAS, Employee has more than 20 years of experience in the
marketing and sale of consumer products and services, and has more than 15
years of experience in corporate management, strategic planning, concept
design, marketing or sales in the restaurant industry (including with Denny's,
Steak and Ale, Bennigan's, Burger King, and Pollo Tropical).
WHEREAS, the Company desires to retain, engage and employ Employee,
and Employee desires to be so retained, engaged and employed by the Company
and to work for the Company, as the President and Chief Operating Officer
("COO") of the Company's Pollo Tropical Division, upon the terms and
conditions set forth in this Agreement; and
WHEREAS, Employee, by reason of the nature of Employee's duties and
responsibilities, will be provided access to the Company's trade secrets and
other confidential and proprietary information and the Company desires to
maintain the confidentiality of such.
NOW, THEREFORE, for and in consideration of the mutual premises,
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. Employment and Duties
1.1 General. The Company hereby employs Employee, and
Employee hereby accepts employment with the Company, effective as of July 20,
1998, as the President and COO of the Company's Pollo Tropical Division for
the term(s) set forth below in Section 2 below, and upon the terms and
conditions set forth in this Agreement.
1.2 Position. During the term of his employment, Employee
shall be the President and COO of the Company's Pollo Tropical Division
("Pollo Tropical"). During his term of employment, Employee shall have duties
generally associated with the office of President and COO of Pollo Tropical.
During the term of his employment, Employee shall devote his full-time
professional efforts and attention to his services as contemplated hereunder,
shall render such services to the best of his ability, and shall carry out his
employment in a good and professional manner and in the best interests of the
Company. Employee shall perform his duties principally from Pollo Tropical's
executive offices, which are presently located in Miami, Florida. Employee
shall be permitted to serve as an outside director of not more than two other
companies and may perform duties as part-time adjunct teacher at a local
college or university provided such membership and teaching duties do not in
the reasonable discretion of the Board of Directors of Carrols Corporation
(the "Board"), negatively impact Employee's ability to perform the duties of
President and COO of Pollo Tropical.
1.3 Management Committee. Employee shall be a member of the
Management Committee of Pollo Tropical, which shall serve as the Board of
Directors of Pollo Tropical.
2. Term of Employment
2.1 Initial Term. The initial term of this Agreement, and of
Employee's employment hereunder, shall be from the date hereof through
September 30, 2003 (the "Initial Term"), subject to the renewal provisions,
set forth below, and subject to earlier termination pursuant to any of
Sections 6, 7 or 8 hereof. The "Term" shall mean the Initial Term, together
with any "Renewal Term(s)" (as hereinafter defined) exercised by the Company.
2.2 Renewal Terms. The Initial Term of this Agreement, and
of Employee's employment hereunder, may, at the Company's option, exercisable
in its sole and absolute discretion, be renewed and extended as follows:
(i) through September 30, 2004 (the "First Renewal
Term"), provided the Company
provides written notice to Employee of such renewal and extension by no later
than July 31, 2003. If this Agreement, and Employee's employment hereunder, is
not so renewed and extended by the Company, then such Agreement and employment
shall automatically cease and terminate upon the expiration of the Initial
Term; and
(ii) if the Company exercises its option to renew
and extend the term of this Agreement, and of Employee's employment hereunder,
pursuant to clause (i) of this Section 2.2 above, then the Company may, at its
option, exercisable in its sole and absolute discretion, renew and extend same
again through September 30, 2005 (the "Second Renewal Term" and, collectively
with the First Renewal Term, each a "Renewal Term" and together the "Renewal
Terms"), provided the Company provides written notice to Employee of such
renewal and extension by no later than July 31, 2004.
2
<PAGE>
3. Compensation
3.1 Base Salary. Commencing July 1, 1998 and throughout the
Term of Employee's employment under this Agreement, in consideration for all
services rendered for and on behalf of the Company and Pollo Tropical,
Employee shall receive a base salary (as may be increased from time to time in
accordance with the next succeeding sentence, the "Base Salary") at the annual
rate of $300,000.00, payable in accordance with the Company's regular payroll
practices in effect from time to time. On January 1, 2000 and on each January
1st thereafter during the Term, Employee's base salary shall be increased by a
minimum of 5% per annum and may be increased above the minimum 5% per annum,
in the sole and absolute discretion of the Board of Directors of the Company
(the "Board") (or Compensation Committee thereof), if the Board (or
Compensation Committee) determines that such additional increase is reasonable
and appropriate under the circumstances.
3.2 Bonus. For the period July 1, 1998 to December 31, 1998,
and each calendar year thereafter during the Term, Employee shall, in addition
to Base Salary, be eligible to receive an annual bonus (the "Bonus") of up to
one hundred percent (100%) of his Base Salary (of which not more than 50% may
be subject to deferral provisions in the Executive Bonus Plan) for the period,
which Bonus shall become payable in accordance with the then current Executive
Bonus Plan established by the Compensation Committee of the Board and be based
solely upon the achievement by Employee of certain corporate and individual
performance standards during the relevant period as reasonably established by
the Company after consultation with Employee (the "Performance Standards").
Employee and the Company shall endeavor to agree to the applicable Performance
Standards for each year or period by no later than March 30th of such year or
period. Any such amounts payable shall be paid within thirty (30) days
following the applicable year or period end. For the period January 1, 1998
through June 30, 1998, Employee shall receive a bonus based upon the previous
Pollo Tropical, Inc. Executive Bonus Plan, (i.e. up to 50% of salary for the
period with calculations covering the 12-month period ending December 31,
1998). No bonus earned in 1998 shall be subject to any deferral provisions in
the Executive Bonus Plan.)
4. Stock Option or Tracking Stock Option
4.1 Stock Options or Tracking Stock Option. (a) Employee
shall be entitled to be granted non-qualified options or the equivalent to
purchase 5% of the Pollo Tropical's common stock (fully diluted as measured
upon initial grant date) or equity value if no Common Stock has been issued
(the "Stock Options"), subject to approval by the Compensation Committee of,
and upon the terms and conditions set forth in, that certain form of
Non-Qualified Stock Option Agreement between the Company and Employee to be
attached hereto as Exhibit A (the "Option Agreement"). The Stock Options shall
be issued pursuant to the Pollo Tropical's 1998 Stock Option or Tracking Stock
Option Plan (the "Plan"), to be attached hereto as Exhibit B.
5. Benefits; Expense Reimbursement
5.1 Benefits. During the term of Employee's employment under
this Agreement, Employee shall be entitled to receive the following benefits:
(a) Car Allowance. Employee shall receive an automobile
allowance of $600 per month (pro rated for any partial month of employment).
3
<PAGE>
(b) Vacation. Commencing September 1, 1998 and
thereafter during the Term of this Agreement, Employee shall be entitled to
three (3) weeks paid vacation per year (pro rated for any period of employment
of less than an entire year). Employee shall also be entitled to all paid
holidays provided by the Company from time to time to its senior management
personnel. All paid vacation must be taken during the year in which it is
earned and available; provided, however, that not more than one (1) week of
paid vacation which is earned and available in any year may by accrued and
carried over to the next succeeding year. No cash payments will be made by the
Company in respect of any earned but unused paid vacation time.
(c) Other Benefits. Employee shall be entitled, in
accordance with the Company's general policies and practices for senior
management in effect from time to time, to participate in and receive the
benefits of any and all health, medical, casualty, accident, disability and
life insurance plans, sick leave plans and other executive and employment
benefits as are made available and in effect from time to time by the Company.
5.2 Reimbursement of Expenses. (a) Employee shall be
entitled to reimbursement of all ordinary and reasonable business expenses
actually paid or incurred by Employee in the course of and pursuant to the
performance of his duties hereunder and in furtherance of the best interests
of the Company.
(b) Any reimbursement by the Company under this Section 5.2
shall be made solely against voucher(s) or invoice(s) therefor and in
accordance with the Company's regular reimbursement practices and procedures
in effect from time to time.
6. Termination of Employment Upon Death or Disability
6.1 Death of Employee. In the event that Employee shall die
during the term of his employment under this Agreement, Employee's employment
with the Company shall immediately cease and terminate and Employee's estate,
heirs (at law), devisees, legatees or other proper and legally-entitled
descendants (hereinafter, "descendants"), or the personal representative,
executor, administrator or other proper legal representative on behalf of such
descendants (the "Legal Representative"), shall be entitled to receive and be
paid solely the amounts, on the terms, provided in Section 6.3 below (relating
to payments and benefits due upon a termination as a result of the death of
Employee) (hereinafter, the "Death Benefit"), and the Company shall have no
further obligation or liability hereunder (other than for any reimbursement of
reasonable out-of-pocket business expenses properly incurred by Employee prior
to his death and documented to the Company in accordance with Sections 5.2(a)
and 5.2(b) hereof).
6.2 Disability of Employee. (a) In the event that Employee
shall become incapacitated by reason of sickness, accident or other mental or
physical disability during the term of his employment hereunder such that he
is substantially unable to perform his duties and responsibilities hereunder
for a period of 60 consecutive days, or for shorter periods aggregating 90
days during any 12-month period (a "Disability"), the Company thereafter shall
have the right, in its sole and absolute discretion, to terminate Employee's
employment under this agreement by sending written notice of such termination
to Employee or his legal guardian or other proper legal representative (the
"Guardian") and thereupon his employment hereunder shall immediately cease and
terminate. In the event of any such termination, Employee shall be entitled to
receive and be paid solely the amounts, on the terms, provided in Section 6.3
below (relating to payments and benefits due upon a termination as a result of
the Disability of Employee) (the "Disability Benefit"), and the Company shall
have no further obligation or liability hereunder (other than for any
reimbursement of reasonable out-of-pocket business expenses
4
<PAGE>
properly incurred by Employee prior to his Disability and documented to the
Company in accordance with Sections 5.2(a) and 5.2(b) hereof).
(b) Notwithstanding Section 10.4 hereof, in the event
of any good faith dispute which cannot be resolved after reasonable efforts
between the parties as to whether Employee suffers a "Disability" as such term
is defined and used in this Section 6.2, then the issue shall be determined by
the unanimous decision of two Qualifying Physicians (as such term is defined
below), with one physician to be appointed by the Company and the other to be
appointed by Employee. If the two Qualifying Physicians are unable to agree on
the issue, they shall jointly appoint a third Qualifying Physician, and the
decision of a majority of the three Qualifying Physicians shall be final and
binding on all parties as to the issue of Disability. The fees, costs and
expenses associated with such determination, including without limitation the
fees of Qualifying Physicians, shall be assessed against and paid by the
unsuccessful party. Each party shall be entitled to submit testimony,
documents and other competent evidence before the Qualifying Physicians. As
used herein, "Qualifying Physician" shall mean a physician licensed to
practice medicine in the State of Florida for at least five (5) years, and who
has no personal or professional relationship with, or business or financial
interest related to, either party to this Agreement.
6.3 Payments Upon Section 6 Termination. Within forty-five
(45) days of a termination by reason of death or Disability pursuant to
Section 6.1 or Section 6.2 hereof, respectively, the Legal Representative or
Employee (or Employee's Guardian), as the case may be, shall be entitled to
receive and be paid Employee's Base Salary as in effect on the date of
termination, payable at the Company's regular and customary intervals for the
payment of salaries as then in effect, for the lesser of three (3) months or
the remaining term of this Agreement (the "Payment Period"), and, except as
otherwise provided below, no other or further amounts or payments (other than
any previously due and unpaid amounts to which Employee is entitled through
the date of death or Disability, as the case may be). In addition, in the
event of a Disability termination pursuant to Section 6.2 hereof, during such
Payment Period the Company shall continue to provide to Employee, at the
Company's expense, the health and medical insurance benefits described in
Section 5.1(c) hereof as in effect at the date of termination (and solely in
accordance with the terms and provisions of such benefits and related plans).
Employee shall also be entitled to receive in one lump sum, payable within 30
days of the date of termination, any benefits or entitlements, including,
without limitation, any portion of Bonus that was deferred under the Pollo
Tropical Executive Bonus Plan and any vesting of Stock Options, in the case of
such Stock Options, solely as such are specifically provided for, in the event
of death or Disability, as the case may be, under the terms, provisions and
conditions of the Option Agreement. Employee shall accept payment pursuant to
this Section 6 in full discharge and release of the Company of and from any
further obligation or liability under this Agreement.
7. Termination by Company for Cause; By Employee Without Good
Reason
7.1 Termination by Company for Cause. The Company shall have
the right, in its sole and absolute discretion, to terminate the employment of
Employee hereunder, at any time, for cause (as used herein, "Cause"), if:
(i) Employee shall be convicted by a court of competent
jurisdiction of any crime (whether or not involving the Company) which
constitutes a felony in the jurisdiction involved or shall be habitually
drunk, drugged or intoxicated in public or otherwise commit acts of moral
turpitude in such a manner as to publicly and adversely reflect upon the
reputation or stature of the Company; or
5
<PAGE>
(ii) Employee shall have committed any act of fraud,
embezzlement, misappropriation of funds or similar dishonest and injurious
conduct against the Company, or shall have violated either (x) the Company's
Board-adopted policy regarding trading in the Company's securities on the
basis of material, non-public information, or (y) the restrictive covenant set
forth in Section 9.2 hereof; or
(iii) Employee shall have demonstrated willful and
injurious misconduct, or shall have demonstrated reckless or grossly negligent
and injurious conduct, in connection with the performance of his duties and
responsibilities under, or assigned pursuant to, this Agreement.
In the event of any such termination for Cause, Employee shall be entitled to
receive and be paid solely the amounts, on the terms, provided in Section 7.3
below, and the Company shall have no further obligation or liability to
Employee (other than for any reimbursement of reasonable out-of-pocket
business expenses properly incurred by Employee prior to such termination and
documented to the Company in accordance with Sections 5.2(a) and 5.2(b)
hereof).
7.2 Termination by Employee Without Good Reason. In the
event Employee shall terminate his employment with the Company at any time
during the Term, , and such termination of employment shall be for any cause,
reason or justification other than for Good Reason (as such term is defined,
and in accordance with the procedures established, under Section 8.2 below),
excluding only death and Disability (but including, without limitation,
quitting or voluntary resignation or termination), then Employee shall be
entitled to receive and be paid solely the amounts, on the terms, provided in
Section 7.3 below, and the Company shall have no further obligation or
liability (other than for any reimbursement of reasonable out-of-pocket
business expenses properly incurred by Employee prior to such termination and
documented to the Company in accordance with Sections 5.2(a) and 5.2(b)
hereof).
7.3 Payments Upon Section 7 Termination. In the event that
the employment of Employee shall be terminated by the Company for Cause
pursuant to Section 7.1 hereof, or such employment shall be terminated by
Employee for any cause, reason or justification other than for Good Reason as
described in Section 7.2 hereof, then, in either such case, Employee shall be
entitled to receive and be paid his Base Salary then in effect through the
date of such termination, and no other or further amounts or payments. Nothing
contained in this Section 7 shall constitute a waiver or release by the
Company of any rights or claims it may have against Employee, including, but
not limited to, any rights or claims pursuant to Section 9 hereof or arising
from actions or omissions which may give rise to an event causing or leading
to termination of this Agreement pursuant to this Section 7. Employee shall
accept payment pursuant to this Section 7 in full discharge and release of the
Company of and from any further obligation or liability under this Agreement.
8. Termination By Company Without Cause; by Employee for Good
Reason
8.1 Termination by Company Without Cause. The Company shall
have the right, in its sole and absolute discretion, to terminate the
employment of Employee, at any time, without Cause, or otherwise without any
cause, reason or justification, provided that the Company provides to Employee
at least thirty (30) days' prior written notice (the "Termination Notice") of
such termination. In the event of any such termination by the Company, (i)
Employee's employment with the Company shall cease and terminate on the date
specified in the Termination Notice (or, if no date is so specified, on the
date which is 30 days following the date of such notice), and (ii) Employee
shall be entitled to receive and be paid solely the amounts, on the terms,
provided in Section 8.4 below, and the Company shall have no further
obligation or liability to Employee hereunder (other than for any
reimbursement of reasonable out-of-
6
<PAGE>
pocket business expenses properly incurred by Employee prior to such
termination and documented to the Company in accordance with Sections 5.2(a)
and 5.2(b) hereof).
8.2 Termination by Employee for Good Reason; Procedures. (a)
Employee shall have the right to terminate his employment with the Company, at
any time, for Good Reason (as such term is defined in Section 8.2(c) below),
provided that Employee provides not less than forty-five (45) days' prior
written notice to the Company, which notice shall explain in reasonable detail
the cause or reason for such termination, and provided Employee satisfies the
provisions and procedures set forth in this Section 8.2. On a mutually agreed
date which shall be within fifteen (15) days following receipt of Employee's
notice to the Company, Employee shall meet with representatives of the
Company's Board of Directors and Employee shall present testimony and other
evidence as to the bona fides of his purported termination for Good Reason
hereunder. Within fifteen (15) days following such meeting, the Company shall
have the opportunity to correct or cure the matter, or otherwise to address
Employee's "Good Reason" concerns, such that there is no further reasonable
basis for Employee's purported termination for Good Reason hereunder. If, at
the conclusion of such second fifteen (15) day period, Employee continues to
maintain in good faith that he has grounds to terminate his employment for
Good Reason under this Section 8.2, he shall provide written notice of such,
within five (5) days, to the Company, and thereupon the parties shall
endeavor, for a period not to exceed ten (10) days, to amicably resolve,
settle and compromise the matter. If no such resolution, settlement or
compromise is reached by the conclusion of such 10-day period, the matter
shall promptly be submitted to arbitration in accordance with the procedures
set forth in Section 10.4 hereof. The determination of the arbitration panel
selected pursuant to Section 10.4 hereof -- which shall determine whether
Employee has properly terminated his employment for Good Reason in accordance
with this Agreement and, if so, the date of such termination, and shall assess
the fees and costs associated with arbitration in accordance with Section 10.4
- -- shall be final and binding on all parties.
(b) In the event Employee satisfies the provisions of
Section 8.2(a) hereof and thus is found to have properly terminated his
employment for Good Reason in accordance with this Section 8.2, (i) Employee's
employment with the Company shall cease and terminate on the date determined
by the arbitration panel (or, if the issue is agreed upon by both parties, on
the mutually agreed date), and (ii) Employee shall be entitled to receive and
be paid solely the amounts, on the terms, provided in Section 8.4 below, and
the Company shall have no further obligation or liability to Employee
hereunder (other than for any reimbursement of reasonable out-of-pocket
business expenses properly incurred by Employee prior to such termination and
documented to the Company in accordance with Sections 5.2(a) and 5.2(b)
hereof).
(c) For purposes of this Agreement, the term "Good Reason"
shall mean and include the following:
(i) any failure by the Company to pay to Employee the
then applicable Base Salary and/or Bonus as such is required (or, in the case
of the Bonus, as such may be required) to be paid under and in accordance with
the terms of Section 3 of this Agreement, other than an isolated,
insubstantial or inadvertent failure not occurring in bad faith and which is
remedied promptly by the Company after receipt of written notice thereof from
Employee; or
(ii) the assignment to Employee, without Employee's
consent, of a title or position which is materially inconsistent with
Employee's title or position as provided for or contemplated under this
Agreement, or action by the Company which results in the material diminution
of such title or position; or
7
<PAGE>
(iii) the requirement by the Company that Employee,
without Employee's consent, perform the services, duties and responsibilities
required of Employee as contemplated hereunder from a location or office which
is located outside of the South Florida area (which includes Miami Dade,
Broward and Palm Beach counties), excluding business travel, road shows, trade
shows and restaurant, franchise and site visits reasonably required in the
course of performance of his duties as President and COO of Pollo Tropical
hereunder.
8.3 Non-Renewal or Expiration of Employment Term. Pursuant
to Section 2.2 hereof, the Company, in its sole and absolute discretion, has
the option, among other things, to renew and extend this Agreement, and the
employment of Employee hereunder. Pursuant to such Section 2.2, the Company
also has the right, in its sole and absolute discretion, not to renew or
extend this Agreement, and the employment of Employee hereunder, beyond the
Initial Term. In the event this Agreement is not renewed and extended by the
Company beyond the expiration of the Initial Term or any Renewal Term, or
otherwise expires in accordance with its terms (in each case, an
"Expiration"), then (i) this Agreement and Employee's employment shall
automatically cease and terminate upon such Expiration, and (ii) Employee
shall be entitled to receive and be paid solely the amounts, on the terms,
provided in Section 8.4 below, and the Company shall have no further
obligation or liability to Employee hereunder (other than for any
reimbursement of reasonable out-of-pocket business expenses properly incurred
by Employee prior to such termination and documented to the Company in
accordance with Sections 5.2(a) and 5.2(b) hereof). Notwithstanding any other
term or provision in this Agreement (except as expressly provided in Section
8.4 hereof), no right to payments or benefits shall arise hereunder or
otherwise in the event the Company does not elect to renew or extend
Employee's employment term (or this Agreement) beyond the Initial Term or any
Renewal Term.
8.4 Payments Upon Section 8 Termination or Expiration. (a)
In the event of either (x) a termination of Employee's employment under,
pursuant to and in compliance with Section 8.1 or Section 8.2 hereof, which
termination of employment occurs at any time, or (y) in the event of an
Expiration (as such term is defined in Section 8.3 hereof) of this Agreement,
then Employee shall be entitled solely to the following payments and benefits:
(i) An amount equal to the greater of (x) the Employee's
Base Salary then in effect, from the date on which Employee's employment is
terminated or expires under the terms of this Agreement (the "Termination
Date") until twelve (12) months after the Termination Date or (y) the
Employee's Base Salary from the Termination Date through the end of the
Initial Term as set forth in Section 2.1. The foregoing shall be payable as
follows: a lump sum equal to one year's then current Base Salary payable
within ten (10) days of the Termination Date and the balance, if any, payable
in 24 equal monthly installments (i.e. through the end of the term of the
2-year non-competition agreement in Section 9.2).
(ii) Employee's Stock Options to be granted under
the Option Agreement (as such terms are defined and described in Section 4.1
hereof) shall vest as set forth in and in accordance with the terms and
provisions of the Option Agreement;
(iii) Employee's health and medical insurance
benefits described under Section 5.1(c) (in accordance with the terms and
provisions of such benefits and related plans), shall be continued at the
Company's expense through the date which is 24 months following the
Termination Date.
(iv) Any portion of Bonus that was deferred under
the Pollo Tropical Executive Bonus Plan, shall be payable in a lump sum within
ten (10) days of the Termination Date.
8
<PAGE>
(b) Employee shall accept payment pursuant to this Section 8
in full discharge and release of the Company of and from any further
obligation or liability under this Agreement.
9. Restrictive Covenants
9.1 Confidentiality Agreement. (a) Employee recognizes and
acknowledges that, as a consequence of his duties hereunder, Employee from
time to time will be provided access to or will otherwise come into contact
with confidential and/or proprietary information of or regarding the Company.
Accordingly, Employee agrees that he will not, during or after the term of his
engagement, except with the prior written consent of the Company (or as
expressly provided herein), disclose any confidential information relating to
the Company to any individual or entity (other than employees or
representatives of the Company who need to know such information to further
the best interests of the Company, and other than third parties, such as
analysts, potential franchisees, potential investors or lenders, who are
either bound by a confidentiality agreement with respect to such information
or, where such an agreement is not advisable or appropriate, are reasonably
expected to further the best interests of the Company). The provisions of this
Section 9.1 shall not apply to information which is or shall become generally
known to the public, the trade or similarly employed persons (except by reason
of Employee's breach of his obligations hereunder), information which is or
shall become available in trade or other publications (except by reason of
Employee's breach of his obligations hereunder), and information which
Employee is required to disclose by law or by order of a court of competent
jurisdiction (but only to the extent specifically required by law or ordered
by such court and only if Employee, where possible, shall give the Company
prior notice of such intended disclosure so that it has the opportunity to
seek a protective order if it deems such appropriate).
(b) As used in this Agreement, "confidential information"
shall mean and include studies, plans, reports, surveys, analyses, budgets,
projections, sketches, drawings, notes, records, renditions, promotional
materials, agreements, memoranda or documents, and all other information
relating to the Company's activities, operations, products, services, layouts,
plans, strategies, systems, prospects and finances, including, without
limitation, all methods, processes, recipes, techniques, shop practices,
equipment, research data, marketing and sales information, personnel data,
customer lists, supplier lists, franchisee lists, location lists, employee
lists, financial data, data compilations, and all other techniques, know-how
and trade secrets, including improvements thereof or know-how related thereto,
which presently or in the future relate to the Company, or were conceived,
originated, discovered or developed by the Company or any employee, agent,
consultant or representative thereof (including, without limitation,
Employee), or were or are in the possession of the Company. "Confidential
information" shall not include general knowledge, expertise or skills gained
by Employee with respect to the industry or markets in which the Company
operates or information which Employee can prove by documentary evidence was
known to Employee prior to his employment with the Company.
9.2 Non-Competition Agreement. (a) For so long as he is
employed by the Company and for a period of two (2) years following the
Termination Date, Employee shall not, directly or indirectly, for himself or
for or on behalf of (either as principal, agent or consultant for, or in which
he is or may be or become an officer, director, trustee, employee, significant
shareholder, partner, member, or with which he is otherwise affiliated) any
corporation, partnership, company, association, firm, entity or organization:
(i) provide services to, or engage in any business for
profit with, any food service operation which:
9
<PAGE>
(a) is a quick-service format restaurant operation,
or "home meal replacement" food preparation or delivery operation, in each
case, which derives 30 percent (30%) or more of its gross food product
revenues from the retail sale of poultry products (and, of such 30%, at least
half of such revenues shall relate to the retail sale of bone-in poultry
products); or
(b) is a Latin, tropical or Caribbean-theme restaurant
operation (whether quick-service, sit-down, casual dining or other format) in
the United States (including its territories);
or
(ii) attempt to employ, solicit the employment of, offer
employment to or enter into any employment or consulting agreement,
arrangement, understanding or relationship with any employee or former
employee of the Company, unless such employee or former employee has not been
employed by the Company for a period of more than one (1) year.
(b) Employee acknowledges that Section 9.2(a) above shall
not be construed to limit in any way Employee's obligations regarding use or
disclosure of confidential information as set forth in Section 9.1 above. If
Employee violates this restrictive covenant and the Company brings legal
action for injunctive or other relief and prevails in any such action, the
Company shall not, as a result of the time involved in obtaining the relief,
be deprived of the benefit of the full period of the restrictive covenant.
Employee's obligations pursuant to Section 9.1 above regarding the
nondisclosure of confidential or proprietary information shall survive and
continue after the two year restrictive time period provided in Section 9.2.
9.3 Property of Company. All files, records, lists, notes,
books, documents, materials, literature, discs, tapes, software, recordings,
products and other materials (collectively, "Materials") owned by the Company
or used by the Company in connection with its business or operations shall at
all times remain the property of the Company, and, upon termination of
Employee's employment, irrespective of the time, manner, cause or
circumstances of termination, Employee shall surrender all of such Materials
to the Secretary (or other properly authorized officer) of the Company.
9.4 No Modification; Conflicts. Employee understands and
agrees that, unless he receives the prior written consent of the Company, his
covenants, agreements and obligations under this Agreement (and each of them)
may not be modified, released, amended, waived or terminated, and shall
survive any termination of employment, irrespective of the time, manner, cause
or circumstances of termination. Employee shall advise the Company's Board of
Directors in writing of any matter which appears to present a conflict of
interest with the interests of the Company, and Employee will promptly comply
with any reasonable action requested by the Company to resolve or remedy any
such conflicts as, when and if they arise.
9.5 Enforcement; Injunctive Relief. Notwithstanding any term
or provision of this Agreement to the contrary (including, without limitation,
Section 10.4 hereof), the restrictions, covenants and agreements set forth in
this Section 9 shall be subject to interpretation and enforcement solely in
accordance with this Section 9.5. Employee acknowledges that the services to
be rendered by him are of a special, unique and extraordinary character, that,
in connection with such services, he will have access to confidential and
proprietary information vital to the Company's business, and that therefore
the restrictive covenants set forth in this Section 9 hereof are bargained
for, fair and reasonable. Accordingly, Employee consents and agrees that if he
violates any of the provisions of this Section 9, the
10
<PAGE>
Company would sustain irreparable harm and damage, the monetary amount of
which may be impossible to ascertain. Therefore, in addition to any other
remedies which may be available to it, Employee acknowledges and agrees that
the Company shall be entitled to apply to any court of competent jurisdiction
for an injunction enjoining and restraining Employee from committing or
continuing any such violation of any provision of this Agreement. Nothing in
this Agreement shall be construed as prohibiting or limiting the Company from
pursuing any other remedy or remedies, at law or in equity, before any court
of competent jurisdiction, including, without limitation, recovery of damages.
9.6 Modification or Elimination of Restrictions. In the
event that, notwithstanding Employee's acknowledgment that the restrictive
covenants set forth in Section 9 hereof are bargained for, fair and
reasonable, any of the restrictions contained in Section 9 shall be held to be
in any way an unreasonable or otherwise unenforceable restriction on Employee,
then, and only in such event, the parties hereto specifically agree that the
court so holding may reduce the territory and/or period of time in which such
restrictions operate, or modify, reduce or eliminate any such restriction, in
each case, to the extent necessary to render such section enforceable to the
maximum extent permitted under applicable law. The parties hereto desire that
the restrictive covenants included in this Section 9 be enforced as written
and, if not as written, to the maximum extent possible.
9.7 Employee's Address. Upon any termination of employment
with the Company by Employee and for a period of two years thereafter,
Employee shall advise the Company of his home and business addresses and the
identity of his employer, including any changes thereto.
10. Miscellaneous
10.1 Attorneys' Fees. Each party hereto shall be responsible
for its own attorney's or other fees associated with drafting and negotiating
this Agreement. In the event of any dispute which results in a proceeding
between the parties (including any arbitration pursuant to Section 10.4
hereof) arising out of or relating to this Agreement, the unsuccessful party
shall pay to the successful party all costs and expenses incurred therein by
the successful party, including, without limitation, reasonable attorneys'
fees and expenses, which costs, expenses and fees shall be included in and
made a part of any judgment or award rendered in such proceeding.
10.2 Notices. All notices, requests, demands, waivers,
consents, approvals or other communications required or permitted hereunder
shall be in writing and shall be deemed to have been given when received if
delivered personally or by recognized overnight courier, or three (3) days
after being sent if sent by certified or registered mail, postage prepaid,
return receipt requested, to the following addresses:
If to the Company, to: CARROLS CORPORATION
968 James Street
Syracuse, NY 13203
Attention: Chairman
General Counsel
(or to such other address as the Company makes publicly
known as the address of its principal executive offices).
If to Employee, to his last known address as set forth in
the Company's employment and payroll records.
11
<PAGE>
Any party may by proper notice change the address to which notice or
other communications to it are to be delivered or mailed.
10.3 Entire Agreement; Employee Representations; Amendments;
Waivers; Headings; Drafting. (a) This Agreement (together with the other
written agreements specifically referred to herein) represents the entire
agreement between the parties with respect to the subject matter hereof and
shall not be modified or affected by, and supersedes, any and all prior
offers, proposals, statements, understandings, promises, assurances,
warranties or representations, oral or written, made by, for or on behalf of
either party. Notwithstanding any other term or provision hereof (or any
descriptions contained herein), the terms, provisions and conditions of the
Stock Options shall be as set forth in, and shall be governed solely by, the
Option Agreement (in its final form as executed and delivered by both
parties).
(b) As a material inducement for the Company to enter into
this Agreement, Employee represents and warrants to the Company as follows:
(i) the Company (including, for purposes of this Section 10.3(b), includes its
officers, directors, employees, agents, representatives and controlling
shareholders, or any of them), has not made, and does not make, any
representation, warranty, promise or assurance to Employee regarding the
Company, or its business, operations, affairs, financial condition, capital
resources, personnel, plans, prospects or related or other matters regarding
the Company, and (ii) with respect to any information or materials
(hereinafter, "materials") the Company may have provided to Employee prior to
and including the date hereof, although the Company has endeavored to include
in any such materials information known to it which it believes to be relevant
and useful for the purposes of Employee's evaluation and investigation,
Employee specifically understands and agrees that the Company has not made,
and does not make, any representation, warranty, promise or assurance as to
the accuracy or completeness of any such information (provided, however, that
the Company represents that any such materials which have been filed with the
Securities and Exchange Commission and made publicly available are, as of the
date of which they speak, true and correct in all material respects).
(c) This Agreement may not be amended or modified except by
an instrument in writing signed by the Company and Employee. The waiver by
either party of a breach or violation of any term or provision of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach or violation.
(d) The captions and headings set forth herein are for
convenience of reference only, and shall in no way effect the meaning,
construction or interpretation of this Agreement.
(e) The fact that one party initially prepared the first
draft, or was responsible for revising subsequent drafts, of this Agreement
shall be accorded no weight, shall give rise to no presumption regarding
bargaining position, and otherwise shall not affect the construction, meaning
or interpretation of any term or provision hereof, each party having been
represented by counsel having reviewed and discussed the document and having
thoughtfully considered and weighed the relative merits and costs, benefits
and detriments, of each of the provisions hereof before entering into this
Agreement.
10.4 Arbitration. (a) Except as set forth in subsection (b)
of this Section 10.4, in the event that any good faith dispute arises between
the parties regarding the terms or provisions of this Agreement, and
specifically as provided under Section 8.2 hereof (regarding a purported "Good
Reason" termination by Employee), the following provisions and procedures
shall apply for reaching a final resolution of such dispute. The matters
and/or issues which cannot be resolved after the parties have used reasonable
efforts to reach an amicable resolution or settlement shall be settled by
arbitration in
12
<PAGE>
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (or any successor thereof), and judgment upon the determination or
award rendered by the arbitration panel may be entered in any court having
competent jurisdiction over such. Venue of the arbitration shall be Miami,
Florida. Any controversy or claim shall be submitted to a panel of three
arbitrators selected from the panels of arbitrators of the American
Arbitration Association. In the event of any such arbitration, (i) the
arbitrators shall interpret the terms, provisions and conditions, and the
rights, duties, responsibilities, entitlements and benefits, hereunder based
solely upon the language set forth in this Agreement, it being understood and
agreed by the parties that each party has carefully considered, negotiated and
bargained for the language as set forth in this Agreement, and (ii) the fees,
costs and expenses associated with such arbitration, including without
limitation, the fees of members of the arbitration panel, shall be assessed
and paid in accordance with Section 10.1 hereof. Each party shall be entitled
to submit testimony, documents and other competent evidence before the panel.
The determination of the arbitration panel pursuant to this Section 10.4 shall
be final and binding on all parties.
(b) Notwithstanding any other term or provision of this
Agreement, the provisions and procedures set forth in subsection (a) of this
Section 10.4 shall not apply to any dispute, interpretation or enforcement of
any term, provision or restriction set forth in Section 9 hereof.
10.5 Further Assurances; Releases. Each party shall execute
and deliver such other and further agreements, instruments, releases and
documents as the other party may reasonably request in order to more fully
implement the agreements and obligations provided for under this Agreement.
Any failure or refusal by a party to provide a further implementing agreement,
instrument, release or document requested by the other party, or required
pursuant to the terms of this Agreement, shall in no way affect the substance,
meaning, validity or enforceability of the provision or agreement (whether a
representation, covenant, release, discharge or otherwise) which is sought to
be more fully implemented, or implemented, pursuant to this Agreement.
Employee affirms that he has carefully read and fully understands all of the
provisions of this Agreement, that he has had the opportunity to consult with
legal counsel regarding the contents and consequences of this Agreement, that
he signed this Agreement knowingly, voluntarily and of his own free will
intending to be legally bound hereby. Employee recognizes that this Agreement
requires, under the circumstances specified herein, the full discharge and
release (the "Release") by Employee (on behalf of himself and his assigns,
estate, descendants, Guardian(s) and other representative(s), including Legal
Representatives), of the Company (and its successors, assigns, officers and
directors) of and from any further obligation or liability under this
Agreement. The requirement of the Release, under the circumstances specified
in this Agreement, was bargained for between the parties and constitutes a
material provision, or provisions, of this Agreement.
10.6 Successors and Assigns: Severability. This Agreement
shall inure to the benefit of and be binding upon and enforceable against the
Company, its successors and assigns, and Employee and his descendants,
executors, administrators and other representatives, including Legal
Representatives. This Agreement is not assignable, and the obligations
hereunder are not delegable, by Employee. Should any section, provision or
clause hereof be held to be invalid, void or unenforceable, such holding shall
not affect any other section, provision or clause hereof which can be given
effect without such invalid, void or unenforceable provision.
10.7 Governing Law Venue. This Agreement, and all questions
as to its validity, interpretation, meaning, performance and enforcement,
shall be governed by and construed and enforced in accordance with the
internal laws of the State of Florida. The Federal and state courts of Miami -
Dade County, Florida shall be the exclusive venue for any litigation or other
proceeding that may arise out of or by reason of this Agreement.
13
<PAGE>
10.8 Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be deemed to be an original as
against any party whose signature (or, in the case of the Company, whose
officer's signature) appears thereon, and all of which together shall
constitute one and the same instrument and agreement. This agreement shall be
and become binding when all parties hereto have signed or executed one or more
counterparts.
10.9 Directors and Officers Liability Insurance. Employee
shall be covered under the Carrols Corporation Officers and Directors
liability insurance policy as long as such policy is in effect. The Company
shall notify Employee, in writing, thirty (30) days prior to the cancellation
or termination of such insurance coverage.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Witnesses: CARROLS CORPORATION
By: /s/ Alan Vituli
- ------------------------------------ -------------------------------
Name: Alan Vituli
Title: Chairman and Chief
Executive Officer
EMPLOYEE
/s/ Nicholas A. Castaldo
- ------------------------------------- ----------------------------------
Nicholas A. Castaldo
14
<PAGE>
Exhibit 10.29
CARROLS HOLDINGS CORPORATION
1998 DIRECTORS' STOCK OPTION PLAN
1. Purpose
The purpose of this Plan is to further the growth and general
prosperity of Carrols Holdings Corporation (the "Company") by
providing an additional incentive to help attract, retain and
motivate non-employee individuals as directors of the Board of the
Company and to align the commonality of their interest with those of
the Company's shareholders.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
"Award" means an award made to a Eligible Director pursuant to the
Plan and described in Paragraph 6, including, without limitation, an
award of an Incentive Stock Option, Nonqualified Stock Option, Stock
Appreciation Right, Restricted Stock, or Other Stock-Based Awards or
any combination of the foregoing.
"Award Agreement" means an agreement between the Company and a
Eligible Director that sets forth the terms, conditions and
limitations applicable to an Award.
"Board" means the Board of Directors of the Company as constituted from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Cause" has the meaning determined by the Committee and set forth in
the applicable Eligible Director's Award Agreement.
"Change of Control" means:
(a) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act"), excluding for this
purpose any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of
voting securities of the Company, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act), of more than 50% of either the
then outstanding shares of common stock or the combined
voting power of the Company's then
<PAGE>
outstanding voting securities entitled to vote generally
in the election of directors;
(b)(1) Individuals who are elected as members of the new
Board of Directors of the Company (the "Incumbent
Board") pursuant to the terms of the Stockholders
Agreement executed in connection with the Stock
Purchase Agreement thereto (the "Stockholders
Agreement") cease for any reason to constitute at least
a majority of the Board; provided that any person
becoming a director on or after the effective date of
the Stockholders Agreement whose election, or
nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose
initial assumption of office is in connection with an
actual or threatened election contest relating to the
election of directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) shall be for purposes of this Plan,
considered as though such person were a member of the
Incumbent Board,
(b)(2) Notwithstanding the foregoing, paragraph (b)(1) above
shall not apply to any change in the Incumbent Board
during the period in which the Stockholders Agreement
is in effect and a majority of the Board of the Company
is designated or otherwise appointed to serve on the
Board under the provisions of such Stockholders
Agreement;
(c) Approval and consummation of a reorganization, merger,
or consolidation, in each case, with respect to which
persons who were the stockholders of the Company
immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote
generally in the election of directors of the
reorganized, merged or consolidated company's then
outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or
substantially all of the assets of the Company; or
(d) The Company ceases to own at least 50 percent of Carrols
Corporation.
(e) A Change of Control shall not be deemed to have
occurred as a result of any purchase or acquisition of
shares of capital stock in the Company by Madison
Dearborn Capital Partners, L.P. and its affiliates
(collectively "MDCP"), Madison Dearborn Capital
Partners II, L.P. and its affiliates, Atlantic
Restaurants, Inc. and its affiliates (collectively
"Atlantic"), or any combination thereof.
"Committee" means the Compensation Committee of the Board.
"Director" means a member of the Board.
2
<PAGE>
"Eligible Director" means a Director who is not an employee of the
Company, MDCP or Atlantic, or any of their respective affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" as of any date:
(a) of Stock shall be deemed to equal (i) if the Stock is
publicly traded, the average of the last reported sales
prices of such Stock for ten (10) consecutive trading
days as officially reported on the principal trading
market on which the Stock is traded ending on the
second trading day prior to the date of determination;
or (ii) if the Stock is not publicly traded, the value
of a Share of Stock as determined in good faith by the
Committee or the Board of the Company on the advice of
its independent auditors; or
(b) of assets other than Stock shall equal such value as
determined by the Committee in its sole discretion.
"Incentive Stock Option" means an option intended to be and
designated as an incentive stock option meeting the requirements of
Section 422 of the Code.
"Nonqualified Stock Option" means an option that is not intended to
be nor designated as an Incentive Stock Option.
"Permanent Disability" has the meaning determined by the Committee
and set forth in the applicable Eligible Director's Award Agreement.
"Plan" means this Carrols Holdings Corporation 1997 Directors' Stock
Option Plan, as amended from time to time.
"Retirement" has the meaning determined by the Committee and set
forth in the applicable Eligible Director's Award Agreement.
"Stock" or "Share" means common stock of the Company, par value $.01
per share, which may be authorized but unissued or issued and
reacquired.
"Other Stock-Based Awards" means any Award other than a Stock Option,
Stock Appreciation Right, Restricted Stock, Performance Unit or
Performance Share that is valued by reference to or otherwise based
upon the Stock.
"Stock Options" means the collective reference to Incentive Stock
Options and Nonqualified Stock Options.
"Subsidiary" means any corporation, other than the Company, in which
the Company has at least a fifty percent beneficial ownership
interest.
3
<PAGE>
3. Administration
(a) The Plan shall be administered by the Committee. Members of
the Committee shall qualify to administer and make Awards
under the Plan for purposes of Section 162(m) of the Code
and Rule 16b-3 (and any other applicable rule) promulgated
under Section 16(b) of the Exchange Act. The Committee may
adopt its own rules or procedures, and the action of a
majority of the Committee, taken at a meeting or taken
without a meeting by a writing signed by such majority,
shall constitute action by the Committee. The Committee
shall have the power and authority to administer, construe
and interpret the Plan, to make rules for carrying it out
and to make changes in such rules. Any such interpretations,
rules, and administration shall be consistent with the basic
purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer
and to other senior officers of the Company its duties under
the Plan subject to such conditions and limitations as the
Committee shall prescribe; provided, however, that only the
Committee may designate and make Awards to Eligible
Directors who are subject to Section 16 of the Exchange Act
and Section 162(m) of the Code.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the
Company, and the officers and directors of the Company shall
be entitled to rely upon the advice, opinions or valuations
of any such persons. All actions taken and all
interpretations and determinations made by the Committee in
good faith shall be final and binding upon all Eligible
Directors, the Company and all other interested persons. No
member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith
with respect to the Plan or Awards made under the Plan, and
all members of the Committee shall be fully protected by the
Company with respect to any such action, determination or
interpretation.
4. Award Agreement
The terms, conditions and limitations of each Award under the Plan
shall be determined by the Committee subject to the limitations
provided for in Paragraph 7 below, and shall be set forth in an Award
Agreement, in a form approved by the Committee, consistent, however,
with the terms of the Plan; provided, however, that such Award
Agreement shall contain provisions dealing with the treatment of
Awards in the event of the termination, death or disability of a
Eligible Director.
5. Grant of Awards
(a) Each Eligible Director shall receive a grant of an Option (the
"Initial Option" to purchase 1000 Shares on the Effective
Date (as defined in Paragraph 18).
4
<PAGE>
(b) On each anniversary date of the Effective Date each Eligible
Director shall receive a grant of an Option to purchase
additional Shares in such amounts as shall be determined
annually by the Committee.
(c) Upon the grant of each Option, the Company and the Eligible
Director shall enter into an Option Agreement, which shall
specify the grant date and the exercise price and shall
include or incorporate by reference the substance of this
Plan and such other provisions consistent with this Plan as
the Board may determine.
6. Awards
As the Committee may determine, the following types of Awards may be
granted under the Plan to Eligible Directors, either alone, in
combination or on an alternative basis:
(a) Incentive Stock Options: These are options within the meaning
of Section 422 of the Code to purchase Stock. In addition to
other restrictions contained in the Plan, an option granted
under this Paragraph 6(a), (i) may not be exercised more
than 10 years after the date it is granted, (ii) may not
have an option exercise price less than the Fair Market
Value of the Stock on the date the option is granted, (iii)
must otherwise comply with the requirements of Section 422
of the Code, and (iv) must be designated as an "Incentive
Stock Option" by the Committee. To the extent the aggregate
Fair Market Value (determined as of the time the Incentive
Stock Option is granted) of the Stock with respect to which
Incentive Stock Options become exercisable for the first
time by an individual during any calendar year under all
plans of the Company or any Subsidiary exceeds ONE HUNDRED
THOUSAND DOLLARS ($100,000), such options shall be treated
as Nonqualified Stock Options. Payment of the option
exercise price shall be made (i) in cash, (ii) by delivering
shares of Stock already owned by the Eligible Director,
(iii) by delivering a promissory note to the Company that is
either (A) unsecured and full recourse against the Eligible
Director or (B) nonrecourse but secured by the Stock being
purchased by such exercise and by other assets having a Fair
Market Value equal to not less than forty (40) percent of
the exercise price per share (a "Nonrecourse Note") and, in
either event, such note shall mature on the fifth
anniversary date thereof and shall bear interest, payable
quarterly, at the Federal mid-term rate provided under
Section 1274(d) of the Code; (iv) by a combination of any of
the foregoing, in accordance with the terms of the Plan, the
Award Agreement, and any applicable guidelines of the
Committee in effect at the time, or (v) by any other means
approved by the Committee. The terms of a Nonrecourse Note
shall provide that: (i) any dividends received on Stock
securing a Nonrecourse Note shall be applied toward payment
of the principal and accrued interest of the Nonrecourse
Note; and (ii) a Nonrecourse Note shall become immediately
due and payable upon the sale of Stock securing the
Nonrecourse Note and the proceeds shall be applied to the
payment of the unpaid principal balance and accrued interest
of the Nonrecourse Note.
5
<PAGE>
(b) Nonqualified Stock Options: These are options to purchase
Stock which are not intended to be and are not designated by
the Committee as "Incentive Stock Options." At the time of
the Award, the Committee shall determine, and shall have
included in the Award Agreement or other Plan rules, the
option exercise period, the option price, and such other
conditions or restrictions as may be appropriate. In
addition to the other restrictions contained in the Plan, an
option granted under this Paragraph 6(b), (i) may not be
exercised more than 10 years after the date it is granted,
and (ii) may not have an option exercise price less than
100% of the Fair Market Value of Stock on the date the
option is granted. Payment of the option exercise price
shall be made (i) in cash, (ii) by delivering shares of
Stock already owned by the Eligible Director, (iii) by
delivering a promissory note to the Company that is either
(A) unsecured and fully recourse against the Eligible
Director or (B) nonrecourse but secured by the Stock being
purchased by such exercise and by other assets having a Fair
Market Value equal to not less than forty (40) percent of
the exercise price per share (a "Nonrecourse Note") and, in
either event, such note shall mature on the fifth
anniversary date thereof and shall bear interest, payable
quarterly, at the Federal mid-term rate provided under
Section 1274(d) of the Code; (iv) by a combination of any of
the foregoing, in accordance with the terms of the Plan, the
Award Agreement, and any applicable guidelines of the
Committee in effect at the time, or (v) by any other means
approved by the Committee. The terms of a Nonrecourse Note
shall provide that: (i) any dividends received on Stock
securing a Nonrecourse Note shall be applied toward payment
of the principal and accrued interest of the Nonrecourse
Note; and (ii) a Nonrecourse Note shall become immediately
due and payable upon the sale of Stock securing the
Nonrecourse Note and the proceeds shall be applied to the
payment of the unpaid principal balance and accrued interest
of the Nonrecourse Note.
(c) Stock Appreciation Rights: These are rights that on exercise
entitle the holder to receive the excess of (i) the Fair
Market Value of a Share of Stock on the date of exercise
over (ii) the Fair Market Value on the date of award or, if
connected with a previously issued Stock Option, the Fair
Market Value at the time such previously issued Stock Option
was granted (the "base value"), multiplied by (iii) the number
of Shares covered by the rights exercised, as determined by
the Committee. A Stock Appreciation Right granted under the
Plan may, but need not be, granted in tandem with a Stock
Option under Paragraphs 6(a) or 6(b). The Committee, in the
Award Agreement or by other Plan rules, may impose such
restrictions or conditions on the exercise of Stock
Appreciation Rights as it deems appropriate, and may
terminate, amend, or suspend such Stock Appreciation Rights
at any time. No Stock Appreciation Right granted under this
Plan may be exercised more than 10 years after the date it
is granted.
(d) Restricted Stock: Restricted Stock is Stock delivered to a
Eligible Director with or without payment of consideration,
subject to such conditions, terms and restrictions
(including performance-based or employment-based vesting,
6
<PAGE>
forfeiture conditions and transfer restrictions) on the
Eligible Director's right to transfer or sell such Stock.
The number of Shares of Restricted Stock and the
restrictions or conditions on such Shares shall be
determined by the Committee, in the Award Agreement or by
other Plan rules, and the certificate for the Restricted
Stock shall bear evidence of the restrictions or conditions.
(e) Other Stock-Based Awards: Other Stock-Based Awards may be
granted to such Employees as the Committee may select, at
any time and from time to time as the Committee shall
determine. The Committee shall have complete discretion in
determining the number of Shares subject to such Awards, the
consideration for such Awards and the terms, conditions and
limitations pertaining to same including, without
limitation, restrictions based upon the achievement of
specific business objectives, tenure, and other measurements
of individual or business performance, and/or restrictions
under applicable federal or state securities laws, and
conditions under which same will lapse. Such Awards may
include the issuance of Stock in payments of amounts earned
under other incentive compensation plans of the Company. The
terms, restrictions and conditions of the Award need not be
the same with respect to each Eligible Director.
The Committee may, in its sole discretion, direct the
Company to issue Shares subject to such restrictive legends
and/or stop transfer instructions as the Committee deems
appropriate.
7. Limitations and Conditions
(a) The number of Shares available for Awards under this Plan
shall be 10,000 Shares or, if greater, such Shares as
approved by the Committee. The Shares available for Awards
under this Plan will be available for grant at an exercise
price per share as determined by the Committee. The number
of Shares subject to Awards under the Plan (including, but
not limited to, Stock Options and Stock Appreciation Rights)
to any one Eligible Director shall not exceed 5,000 Shares.
To the extent that any Award is canceled or forfeited, or
terminates, expires, or lapses for any reason, any unissued
Shares subject to such Award shall again be available for
grant under the Plan.
(b) No Awards shall be made under the Plan beyond ten years
after the effective date of the Plan, but the terms of
Awards made on or before the expiration thereof may extend
beyond such expiration.
(c) Nothing in this Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary to remove any
Eligible Director as a member of the Board, nor confer upon
any Eligible Director any right to continue as a Director of
the Company or any Subsidiary.
7
<PAGE>
(d) Deferral of Award payouts may be provided for, at the sole
discretion of the Committee, subject to such terms and
conditions as the Committee may specify in the Award
Agreements.
(e) Eligible Directors shall not have any of the rights or
privileges of stockholders of the Company with respect to any
Shares purchasable in connection with any Award, unless and
until certificates representing such Shares have been issued
by the Company to such Eligible Directors, except as
otherwise specifically provided.
(f) Except as otherwise provided in this Paragraph 7, no Stock
Option or other Award under the Plan shall be sold,
transferred, assigned or otherwise alienated or hypothecated
by the Eligible Director, other than by will or by the laws
of descent and distribution, and all Stock Options shall be
exercisable during the Eligible Director's lifetime only by
the Eligible Director or the Eligible Director's legal
representative. The Eligible Director may, if permitted by
state law or the rules and regulations governing any
exchange on which the Stock is traded, transfer, without
payment of consideration, any Stock Option, other than
Incentive Stock Options, to a member of such Eligible
Director's immediate family or to a trust or partnership
whose beneficiaries are members of such Eligible Director's
immediate family. For purposes of this Paragraph, the term
"immediate family" shall include the Eligible Director's
spouse, children and grandchildren.
(g) No grant or Award related payout under this Plan shall be
deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Company or its
Subsidiaries and shall not affect any benefits under any
other benefit plan of any kind or any benefit plan
subsequently instituted under which the availability or
amount of benefits is related to level of compensation. This
Plan is not a "Retirement-Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended.
(h) No benefit or promise under the Plan shall be secured by any
specific assets of the Company or any of its Subsidiaries,
nor shall any assets of the Company or any of it Subsidiaries
be designated as attributable or allocated to the
satisfaction of the Company's obligations under the Plan.
(i) Prior to the issuance of Shares, the Eligible Director must
execute a shareholder's agreement containing such terms and
conditions as determined by the Committee and approved by the
Board.
8. Option Terms
(a) The exercise period for a Stock Option, including any
extension which the Committee may from time to time decide
to grant, shall not exceed ten years from the date of grant.
8
<PAGE>
(b) Except as otherwise provided by the Committee, a Stock
Option shall become exercisable with respect to 25% of the
Shares commencing on December 31 following the date of
grant, with an additional 25% becoming exercisable on each
successive December 31 grant thereafter; provided, in each
case, that the Eligible Director shall have continuously
remained as an active member of the Board.
(c) Except as otherwise provided by the Committee, if an
Eligible Director ceases to be a member of the Board then
the Stock Options held by the Eligible Director shall have
the vesting and exercise terms as determined by the
Committee and provided in the applicable Eligible Director's
Award Agreement.
9. Dividends and Dividend Equivalents
The Committee may provide that Awards earn dividends or dividend
equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to an account established by the
Committee under the Plan in the name of the Eligible Director. Any
crediting of dividends or dividend equivalents may be subject to such
restrictions and conditions as the Committee may establish, including
reinvestment in additional Shares or Share equivalents.
10. Adjustments
In the event of a reclassification, recapitalization, merger,
consolidation, reorganization, stock dividends, stock split or
reverse stock split, including, without limitation, a distribution of
the stock of a Subsidiary, combination or exchange of Shares, the
Committee shall determine, in its discretion, the appropriate
adjustments, if any, to (a) the number of Shares which may be issued
under the Plan, and (b) the number of Shares issuable and the
exercise price per Share pursuant to any outstanding Award
theretofore granted under this Plan.
11. Change of Control
In the event of a Change of Control, any or all Stock Options and
Stock Appreciation Rights still outstanding shall, notwithstanding
any contrary terms of the Award Agreement, vest and become
exercisable in full on the date of such Change of Control. As soon as
practicable but in no event later than thirty (30) days prior to the
occurrence of a Change of Control, the Committee shall notify the
Eligible Director of such Change of Control. Upon a Change of Control
that qualifies as an Approved Sale (as defined in Paragraph 12) in
which the outstanding common stock of the Company is converted or
exchanged for or becomes a right to receive any cash, property or
securities other than Illiquid Consideration (as defined in Paragraph
12), (i) the Stock Options and Stock Appreciation
9
<PAGE>
Rights shall become exercisable solely for the amount of such cash,
property or securities that the Eligible Director would have been
entitled to had the Stock Options and Stock Appreciation Rights been
exercised immediately prior to such event; (ii) the Eligible Director
shall be given an opportunity to either (A) exercise any Stock
Options and Stock Appreciation Rights prior to the consummation of
the Approved Sale and participate in such sale as holders of Stock or
(B) upon consummation of the Approved Sale, receive in exchange for
such Stock Options and Stock Appreciation Rights consideration equal
to the amount determined by multiplying (1) the same amount of
consideration per share of Stock received by the holders of Stock in
connection with the Approved Sale less the exercise price per share
of Stock of such Stock Options and Stock Appreciation Rights to
acquire Stock by (2) the number of shares of Stock represented by
such Stock Options and Stock Appreciation Rights; and (iii) to the
extent the Stock Options and Stock Appreciation Rights are not
exercised prior to or simultaneous with such Approved Sale, the Stock
Options and Stock Appreciation Rights shall be canceled.
12. Sale of the Company
(a) If the Board and the holders of a majority of the Company's
Stock approve a Sale of the Company (the "Approved Sale"),
the holders of Stock shall consent to and raise no
objections against the Approved Sale of the Company, and if
the Approved Sale of the Company is structured as a sale of
capital stock, the holders of Stock shall agree to sell
their shares of Stock on the terms and conditions approved
by the Board and the holders of a majority of the Company's
Stock. The holders of Stock shall take all necessary and
desirable actions in connection with the consummation of the
Approved Sale of the Company. Notwithstanding the foregoing,
in the event that the consideration to be received by the
holders of Stock in connection with the Approved Sale shall
include either (a) shares of common stock of a class which
is not listed on a national securities exchange or in the
NASDAQ system and which is not entitled to registration
rights for sale in a registered public offering under the
Securities Act of 1933 or (b) shares of senior equity
securities which do not provide for a scheduled redemption
or a redemption at the option of the holders thereof, such
holders shall not be required to sell their shares of Stock
pursuant to this Paragraph 12(a) (collectively, the
"Illiquid Consideration").
(b) The obligations of the holders of Stock with respect to the
Approved Sale of the Company is subject to the satisfaction
of the condition that, upon the consummation of the Approved
Sale, all of the holders of Stock receive the same form and
amount of consideration per share of Stock, or if any
holders of Stock are given an option as to the form and
amount of consideration to be received, all holders be given
the same option.
(c) If the Company or the holders of the Company's securities
enter into any negotiation or transaction for which Rule 506
(or any similar rule then in effect) promulgated by the
Securities Exchange Commission may be available with
10
<PAGE>
respect to such negotiation or transaction (including a
merger, consolidation or other reorganization), the holders
of Stock shall at the request of the Company, appoint a
"purchaser representative" (as such term is defined in Rule
501) reasonably acceptable to the Company. If any holder of
Stock appoints a purchaser representative designated by the
Company, the Company shall pay the fees of such purchaser
representative. However, if any holder of Stock declines to
appoint the purchaser representative designated by the
Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and
such holder shall be responsible for the fees of the
purchaser representative so appointed.
(d) Eligible Directors and the other holders of Stock (if any)
shall bear their pro-rata share (based upon the number of
shares sold) of the costs of any sale of Stock pursuant to
an Approved Sale to the extent such costs are incurred for
the benefit of all holders of Stock and are not otherwise
paid by the Company or the acquiring party. Costs incurred
by Eligible Directors and the other holders of Stock on
their own behalf shall not be considered costs of the
transaction hereunder.
(e) The provisions of this Paragraph 12 shall terminate upon the
completion of a Qualified Public Offering.
(f) For purposes of this Paragraph 12, "Independent Third Party"
shall mean any Person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of
the Company's Stock on a fully-diluted basis (a "5% Owner");
who is not controlling, controlled by or under control with
any such 5% Owner and who is not the spouse or descendent
(by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other Persons;
"Person" shall mean an individual, a partnership, a
corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof;
"Qualified Public Offering" shall mean the sale in an
underwritten public offering registered under the Securities
Act of 1933 of Shares of the Company's Stock resulting in
aggregate gross proceeds to the Company of at least $50
million and a price per share of not less than $108.2353 (as
such amount is equitably adjusted for subsequent stock
splits, stock dividends and recapitalizations); and "Sale of
the Company" shall mean the sale of the Company to an
Independent Third Party or affiliated group of Independent
Third Parties pursuant to which such party or parties
acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of
directors (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or
substantially all the Company's assets determined on a
consolidated basis.
11
<PAGE>
13. Amendment and Termination
(a) The Committee shall have the authority to make such
amendments to any terms and conditions applicable to
outstanding Awards as are consistent with this Plan provided
that, except for adjustments under Paragraph 10 hereof, no
such action shall modify such Award in a manner adverse to
the Eligible Director without the Eligible Director's
consent, except as such modification is provided for or
contemplated under the terms of the Award.
(b) The Committee may terminate, amend or modify the provisions
of this Plan (including any performance criteria or
conditions which must be achieved in order for an Employee
to receive an Award or Awards, subject to Paragraph 6(e)) at
any time and from time to time; provided, however, that an
amendment which requires stockholder approval in order for
the Plan to continue to comply with Rule 16b-3, Section
162(m) of the Code or any other law, regulation or stock
exchange requirement shall not be effective unless approved
by the requisite vote of stockholders. The termination,
amendment or modification of the Plan may be in response to
changes in the Code, the Exchange Act, national securities
exchange regulations or for other reasons deemed appropriate
by the Committee.
14. Withholding Taxes
The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such payment. It shall
be a condition to the obligation of the Company to deliver Shares
upon the exercise of a Stock Option or Stock Appreciation Right, upon
payment of Performance Units or Performance Shares, upon delivery of
Restricted Stock or upon exercise, settlement or payment of any Other
Stock-Based Award, that the Eligible Director pay to the Company such
amount as may be requested by the Company for the purpose of
satisfying any liability for such withholding taxes.
15. Indemnification
Each current or former member of the Committee, and of the Board,
shall be indemnified and held harmless by the Company against any
loss, cost, liability or expense that may be imposed upon, or
reasonably incurred by him or her in connection with or resulting
from any claim, action, suit or proceeding to which the member may be
a party or in which the member may be involved by reason of any
action taken or failure to act under the Plan and against and from
any and all amounts paid by the member in settlement thereof, with
the Company's approval, or paid by the member in satisfaction of any
judgment in any such action, suit or proceeding against the member,
provided such member shall give the Company an opportunity, at its
own expense, to handle and defend the same before the member
undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which
12
<PAGE>
the member may be entitled under the Company's Certificate of
Incorporation or By-laws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them
harmless.
16. Successors
The terms of the Plan shall be binding upon the Company and its
successors and assigns.
17. Requirements of Law
(a) The granting of Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules and
regulations, and to such approval by any governmental
agencies or national securities exchanges as may be
required.
(b) In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the
Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
(c) To the extent that federal laws do not otherwise control,
the Plan and all Award Agreements, shall be construed in
accordance with and governed by the laws of the State of New
York.
18. Effective Date and Termination Dates
The Plan, as amended and restated, shall be effective as of February
24, 1998 (the "Effective Date") and shall terminate on February 23,
2008, subject to such earlier termination by the Board pursuant to
Paragraph 13.
13
<PAGE>
Executed on this 24 day of February, 1998
CARROLS HOLDINGS CORPORATION
By: /s/ Joseph A. Zirkman
-----------------------
Name: Joseph A. Zirkman
Title: Vice President
<PAGE>
Exhibit 12.1
Carrols Corporation
Schedule of Computation of
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ----------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary loss $ (4,808) $ (1,666) $ 5,100 $ 6,283 $ 2,813
Fixed Charges:
Interest on Indebtedness 12,505 14,456 14,500 14,209 14,598
Interest Component of Operating Rent 2,873 3,379 3,699 3,869 5,096
------------- ------------- ----------- ------------ -----------
Income (loss) before income taxes and
extraordinary loss and fixed charges 10,570 16,169 23,299 24,351 22,507
------------- ------------- ----------- ------------ -----------
Total Fixed Charges 15,378 17,835 18,199 18,068 19,694
------------- ------------- ----------- ------------ -----------
Ratio of Earnings to Fixed Charges 0.7 X 0.9 X 1.3 X 1.3 X 1.1 X
============= ============= =========== ============ ===========
Deficiency of earnings to fixed charges (4,808) (1,666)
============= =============
</TABLE>
<TABLE>
<CAPTION>
-----------------------------
Nine Months Ended
September 30,
------------ --- ------------
1997 1998
------------ ------------
<S> <C> <C>
Income (loss) before income taxes
and extraordinary loss $ 902 $ 8,566
Fixed Charges:
Interest on Indebtedness 11,059 14,716
Interest Component of Operating Rent 4,281 6,284
------------ ------------
Income (loss) before income taxes and
extraordinary loss and fixed charges 16,242 29,566
------------ ------------
Total Fixed Charges 15,340 21,000
------------ ------------
Ratio of Earnings to Fixed Charges 1.1 X 1.4 X
============ ============
</TABLE>
<PAGE>
Exhibit 21.1
List of Subsidiaries of Carrols Corporation
Carrols Realty I Corp.
Carrols Realty II Corp.
Carrols Realty
Carrols J.G. Corp.
HNS Equipment and Leasing Corp.
Quanta Advertising Corp.
Jo-Ann Enterprises, Inc.
Confectionery Square Corp.
Pollo Franchise, Inc.
Pollo Operations, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 27, 1998, 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
Syracuse, New York
January 29, 1999.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Rochester, New York
January 29, 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,
January 29, 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.)
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
3. A copy of the Certificate of Amendment of the Organization
Certificate of IBJ Schroder Bank & Trust Company.
*4. 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).
*5. A copy of the existing By-Laws of the trustee, as amended to
date (See Exhibit 4 to Form T-1, Securities and Exchange
Commission File No. 22-19146).
6. Not Applicable
7. The consent of United States institutional trustee required
by Section 321(b) of the Act.
4
<PAGE>
8. A copy of the report of condition of the trustee as
of September 30, 1998, published pursuant to law or
the requirements of its supervising or examining
authority.
* 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 14th day of January,
1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
---------------------------------------
Stephen J. Giurlando
Assistant Vice President
6
<PAGE>
Exhibit 3
State of New York
Banking Department
I, Robert H. McCormick, Deputy Superintendent of Banks of the State of New York,
DO HEREBY APPROVE the annexed certificate entitled "Certificate of Amendment of
the Organization Certificate of IBJ Schroder Bank & Trust Company under Section
8005 of the Banking Law" dated April 2, 1929, providing for a change of name
from: "IBJ Schroder Bank & Trust Company"
to: "IBJ Whitehall Bank & Trust Company".
IN WITNESS WHEREOF, I have hereunto
set my hand and affixed the official
seal of the Banking Department of
New York, New York, this 4th day of
January 1999.
/s/ Robert H. McCormick
-------------------------------------
Robert H. McCormick
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT OF THE ORGANIZATION
CERTIFICATE OF IBJ SCHRODER BANK & TRUST COMPANY
UNDER SECTION 8005 OF THE BANKING LAW
We, the undersigned, Dennis G. Buchert, President and Chief Executive
Officer, and Jean Zimmerman, Secretary of IBJ Schroder Bank & Trust Company,
do hereby certify:
1. The name of the corporation is IBJ Schroder Bank and Trust Company
(the "Bank"). The name under which the corporation was originally formed was J.
Henry Schroder Trust Company.
2. The Organization Certificate of the corporation was filed by the
Superintendent of Banks of the State of New York on April 2, 1929.
3. Paragraph "First" of the Organization Certificate, as amended,
which now provides that the name of the Trust Company is IBJ Schroder Bank &
Trust Company, is hereby further amended, effective January 1, 1999, to read as
follows:
"First, The name of the Trust Company is
IBJ Whitehall Bank & Trust Company"
IN WITNESS WHEREOF, we have signed and verified this Certificate as of
this 17th day of December 1998.
/s/ Dennis G. Buchert
-------------------------------------
Dennis G. Buchert
President and Chief Executive Officer
/s/ Jean Zimmerman
-------------------------------------
Jean Zimmerman
Secretary
Sworn to before me this
17th day of December 1998.
/s/ Aileen V. Burnes
- --------------------------
Notary Public
Aileen V. Burnes
Notary Public, State of New York
No. 80-4089531
Qualified in Westchester County
Commission Expires July 16, 2002
<PAGE>
Exhibit 7
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: January 14, 1999
7
<PAGE>
EXHIBIT 8
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of September 30, 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 ....................................................$ 42,702
b. Interest-bearing balances.................................................................................$ 13,444
2. Securities:
a. Held-to-maturity securities...............................................................................$ 191,921
b. Available-for-sale securities.............................................................................$ 118,931
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........................................$ 79,838
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................................$ 1,938,005
b. LESS: Allowance for loan and lease losses...............................................$ 63,361
c. LESS: Allocated transfer risk reserve...................................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,874,644
5. Trading assets held in trading accounts.......................................................................$ 462
6. Premises and fixed assets (including capitalized leases)......................................................$ 1,922
7. Other real estate owned.......................................................................................$ 819
8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0-
9. Customers' liability to this bank on acceptances outstanding..................................................$ 371
10. Intangible assets.............................................................................................$ 11,167
11. Other assets..................................................................................................$ 68,097
12. TOTAL ASSETS..................................................................................................$ 2,404,318
</TABLE>
<PAGE>
<TABLE>
LIABILITIES
-----------
<S> <C> <C>
13. Deposits:
a. In domestic offices.......................................................................................$ 682,904
(1) Noninterest-bearing ....................................................................$ 135,253
(2) Interest-bearing........................................................................$ 547,651
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 1,154,887
(1) Noninterest-bearing.....................................................................$ 17,024
(2) Interest-bearing .......................................................................$ 1,137,863
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....................................$ 91,000
15. a. Demand notes issued to the U.S. Treasury..................................................................$ 12,693
b. Trading Liabilities.......................................................................................$ 239
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................................$ 31,002
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......................................................$ 371
19. Subordinated notes and debentures.............................................................................$ 100,000
20. Other liabilities.............................................................................................$ 76,658
21. TOTAL LIABILITIES.............................................................................................$ 2,152,679
22. Limited-life preferred stock and related surplus..............................................................$ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................................$ -0-
24. Common stock..................................................................................................$ 29,649
25. Surplus (exclude all surplus related to preferred stock)......................................................$ 217,008
26. a. Undivided profits and capital reserves....................................................................$ 4,112
b. Net unrealized gains (losses) on available-for-sale securities............................................$ 870
27. Cumulative foreign currency translation adjustments...........................................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................................$ 251,639
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,404,318
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
Offer to Exchange
9 1/2% Senior Subordinated Notes Due 2008
for any and all outstanding
9 1/2% Senior Subordinated Notes Due 2008
of
Carrols Corporation
The Exchange Offer Will Expire at 5:00 P.M., New York City Time,
On [ ], 1999, Unless Extended By
Carrols Corporation (the "Expiration Date").
The Exchange Agent
for the Exchange Offer is:
IBJ WHITEHALL BANK & TRUST COMPANY
By Hand or Overnight Courier:
IBJ Whitehall Bank & Trust Company
1 State Street
New York, New York 10004
Attention: Corporate Trust Administration
By Mail:
IBJ Whitehall Bank & Trust Company
1 State Street
New York, New York 10004
Attention: Corporate Trust Administration
or
By Facsimile:
IBJ Whitehall Bank & Trust Company
Attention: Corporate Trust Administration
Facsimile Number: (212) 858-2952
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates of
Old Notes are to be forwarded herewith to the Exchange Agent or if delivery of
Old Notes is to be made by book-entry transfer to an account maintained by the
Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer - Book-Entry Transfer." Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder or any person whose Old Notes are held of record by DTC.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer - Guaranteed Delivery Procedure."
<PAGE>
The undersigned must check the appropriate boxes at page 6 below and
sign this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated [ ],
1999 (the "Prospectus") of Carrols Corporation (the "Company"), and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe
the Company's offer (the "Exchange Offer") to exchange $1,000 in principal
amount of 9 1/2% Senior Subordinated Notes Due 2008 (the "Exchange Notes"),
for each $1,000 in principal amount of outstanding 9 1/2% Senior Subordinated
Notes Due 2008 (the "Old Notes"). The terms of the Exchange Notes are
substantially identical in all respects (including principal amount, interest
rate and maturity) to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the Exchange Notes are
freely transferable by Holders thereof (except as provided herein or in the
Prospectus) and are issued without any right to registration under the
Securities Act of 1933, as amended (the "Securities Act"). Capitalized terms
used herein but not defined herein have the meanings ascribed to them in the
Prospectus.
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the principal amount of the Old
Notes indicated in Box 1, below. The undersigned is the registered owner of
all the Old Notes, and the undersigned represents that it has received from
each beneficial owner of tendered Old Notes ("Beneficial Owner(s)") a duly
completed and executed form of "Instructions to Registered Holder from
Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby irrevocably exchanges,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the Company in connection with the Exchange Offer)
to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned agrees that acceptance of any and all validly tendered Old Notes
by the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company and the Guarantors shall
have no further obligations or liabilities thereunder.
The undersigned hereby represents and warrants that the undersigned
accepts the terms and conditions of the Exchange Offer and has full power and
authority to tender, exchange, assign and transfer the Old Notes tendered
hereby and to acquire Exchange Notes issuable upon the exchange of such
tendered Old Notes, and that, when such tendered Old Notes are accepted for
exchange, the Company will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The undersigned and each Beneficial Owner will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete and give effect
to the transactions contemplated hereof.
The undersigned represents that it and each Beneficial Owner
acknowledge that the Exchange Offer is being made in reliance on an
interpretation by the staff of the Securities and Exchange Commission (the
"SEC"), not issued in connection with the Company or the Exchange Offer, to
the effect that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1993, as amended (the "Securities Act"),
provided that such Exchange Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes, and as
to broker-dealer prospectus delivery requirements, subject to the provisions
of the paragraph below. See "Shearman & Sterling," SEC No-Action Letter
(available July 2, 1993). Any Holder who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes cannot rely
on such interpretation by the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. See "Morgan Stanley & Co.,
Inc." SEC No-Action Letter (available June 5, 1991), and "Exxon Capital
Holdings Corporation," SEC No-Action Letter (available May 13, 1988).
3
<PAGE>
The undersigned hereby represents and warrants that (i) the Exchange
Notes or interests therein received by the undersigned and any Beneficial
Owner(s) pursuant to the Exchange Offer are being acquired by the undersigned
and any Beneficial Owner(s) in the ordinary course of business of the
undersigned and any Beneficial Owner(s) receiving such Exchange Notes, (ii)
neither the undersigned nor any Beneficial Owner(s) is participating, intends
to participate or has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) the undersigned
and any Beneficial Owner(s) acknowledge that any person who is a broker-dealer
under the Exchange Act or is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale of the Exchange Notes and any interest therein acquired by
such person and cannot rely on the position of the Staff of the SEC set forth
in the no-action letters that are discussed above, (iv) the undersigned and
each Beneficial Owner understand that a secondary resale transaction described
in the preceding clause (iii) and any resale of the Exchange Notes and any
interest therein obtained by the undersigned and in exchange for the Old Notes
originally acquired by the undersigned directly from the Company should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 and 508, as applicable, of Regulation
S-K of the SEC and (v) neither the undersigned nor any Beneficial Owner(s) is
an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company, or if either the undersigned or any Beneficial Owner(s) is an
affiliate, that the undersigned and any such Beneficial Owner(s) will comply
with the prospectus delivery requirements of the Securities Act in connection
with the disposition of any Exchange Notes to the extent applicable. If the
undersigned or any Beneficial Owner(s) is a broker-dealer, the undersigned
further represents that (x) it and any such Beneficial Owner(s) acquired Old
Notes for the undersigned's and any such Beneficial Owner's own account as a
result of market-making activities or other trading activities, (y) neither
the undersigned nor any Beneficial Owner(s) has entered into any arrangement
or understanding with the Company or any "affiliate" of the Company (within
the meaning of Rule 405 under the Securities Act) to distribute the Exchange
Notes to be received in the Exchange Offer and (z) the undersigned and any
Beneficial Owner(s) acknowledge that the undersigned and any Beneficial
Owner(s) will deliver a copy of a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes. By so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with the resales of
Exchange Notes received in exchange for Old Notes where Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company intends to make the Prospectus (as it
may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 180 days after the expiration
date of the Exchange Offer.
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, Holders of the Old Notes in any jurisdiction in which
the making of the Exchange Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction or would otherwise not be in
compliance with any provision of any applicable security law. For purposes of
compliance with state blue sky laws, the undersigned represents and warrants
to the Company that the state in which each Beneficial Owner's principal
business office is located or the state of each Beneficial Owner's principal
residence is one of the states which is listed on Schedule A attached hereto.
The undersigned hereby represents and warrants that the information set forth
in Box 2 is true and correct.
The Exchange Offer is subject to certain conditions as set forth in
the Prospectus under the caption "The Exchange -- Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these
conditions (which may be waived, in whole or in part, by the Company), as more
particularly set forth in the Prospectus, the Company may not be required to
exchange any of the Old Notes rendered hereby, and in such event, the Old
Notes not exchanged will be returned to the undersigned at the address
indicated below. The undersigned acknowledges that prior to the Exchange
Offer, there has been no public market for the Old Notes or the Exchange
Notes. The Company does not intend to list the Exchange Notes on a national
securities exchange. There can be no assurance that an active market for the
Exchange Notes will develop. The undersigned understands and acknowledges that
the Company reserves the right in its sole discretion to purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date and, to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise.
4
<PAGE>
The undersigned understands that tenders of the Old Notes pursuant to
any one of the procedures described in the Prospectus under the caption "The
Exchange Offer" and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offer.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of Letters of Transmittal or Old Notes tendered for
exchange, and of withdrawal of the tendered Old Notes, will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or if, in the sole judgment
of the Company, (i) the Exchange Offer would violate any law, statute, rule or
regulation or an interpretation thereof of the SEC staff or (ii) any
governmental approval has not been obtained, which approval the Company deems
necessary for the consummation of the Exchange Offer. The Company also
reserves the absolute right to waive any defects of irregularities as to any
particular Old 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 Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Old Notes to exchange must be
cured within such reasonable period of time as the Company shall determine.
None of the Company, the Guarantors, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity
with respect to any tender of Old Notes for exchange, nor shall any of them
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such Holder by the Exchange
Agent to the tendering Holders of Old Notes, as soon as practicable following
the Expiration Date.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive, the death or incapacity of the undersigned and
any Beneficial Owner(s), and every obligation of the undersigned or any
Beneficial Owner(s) shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned and any Beneficial Owner(s). The
undersigned also agrees that except as provided in the Prospectus and set
forth in Instruction 3 below, the Old Notes tendered hereby cannot be
withdrawn.
Certificates for all Exchange Notes delivered in exchange for
tendered Old Notes and any Old Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the
undersigned at the address shown below the signature of the undersigned,
unless otherwise indicated on page 6.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES TENDERED HEREWITH" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD NOTES AND MADE THE REPRESENTATIONS DESCRIBED HEREIN AND IN
THE PROSPECTUS.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
_______________________________________________________________________________
_______________________________________________________________________________
Signature(s) of Holder(s)
Date:_______________________________, 1999
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) of Old Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 4.
Name(s):_______________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity (full title):_________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.:___________________________________________________
Taxpayer Identification No.:___________________________________________________
GUARANTEE OF SIGNATURE(S)
(If Required - See Instruction 4)
Authorized Signature:__________________________________________________________
Name:__________________________________________________________________________
Title:_________________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
Name of Firm:__________________________________________________________________
Area Code and Telephone No.:___________________________________________________
Date:_______________________________, 1999
6
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
A Holder that is a participant in The Depository Trust Company's
system may utilize The Depository Trust Company's Automated Tender Offer
Program to tender Old Notes.
|_| CHECK HERE IF YOU ARE TENDERING OLD NOTES IN CERTIFICATED FORM AND WISH
TO RECEIVE AN INTEREST IN THE GLOBAL EXCHANGE NOTE AND COMPLETE THE
FOLLOWING:
Account Number:________________________________________________________________
Transaction Code Number:_______________________________________________________
|_| CHECK HERE IF YOU ARE TENDERING OLD NOTES IN CERTIFICATED FORM AND WISH
TO RECEIVE EXCHANGE NOTES IN CERTIFICATED FORM.
|_| CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_______________________ |_| The Depository
Trust Company
Account Number:___________________________________________________________
Transaction Code Number:__________________________________________________
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):_____________________________________________
Name of Eligible Institution that Guaranteed Delivery:____________________
If Delivered by Book-Entry Transfer:
Account Number:___________________________________________________________
|_| CHECK HERE ONLY IF EXCHANGE NOTES OR UNEXCHANGED OLD NOTES DELIVERED
HEREWITH ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Notes to:
Name:_____________________________________________________________________
(Please Print)
Address:__________________________________________________________________
__________________________________________________________________________
Tax Identification Number:________________________________________________
Social Security No.:______________________________________________________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_____________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________________
7
<PAGE>
List in Box 1 the Old Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, information should be
listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- ---------------------------------------- ------------------------ ------------------------ -------------------------
Name(s) and Address(es) Certificate Aggregate Principal Principal Amount
of Registered Holder(s) Number(s)* Amount Represented Tendered**
(Please fill in) by Old Notes*
- ---------------------------------------- ------------------------ ------------------------ -------------------------
<S> <C> <C> <C>
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
Total
- --------------------------------------------------------------------------------------------------------------------
<FN>
* Need not be completed by book-entry Holders
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate principal amount
represented by such Old Notes. See Instruction 3.
</FN>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNERS(S)
- ------------------------------------------------------------ -----------------------------------------------------
State of Principal Residence or Principal Place of Business Principal Amount of Tendered Old Notes Held
of Each Beneficial Owner of Tendered Old Notes for Account of Beneficial Owner
<S> <C>
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
</TABLE>
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates; Guaranteed
Delivery Procedures.
Certificates for all physically delivered Old Notes or confirmation
of any book-entry transfer to the Exchange Agent's account at the Book-Entry
Transfer Facility of Old Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses
set forth on the front page of this Letter of Transmittal prior to 5:00 p.m.,
New York City time, on the Expiration Date (as defined in the Prospectus).
The method of delivery of this Letter of Transmittal, the Old Notes
and any other required documents is at the election and risk of the Holder,
and except as otherwise provided below, the delivery will be deemed made only
when actually received by the Exchange Agent. If such delivery is by mail, it
is suggested that registered mail with return receipt requested be used,
proper insurance be obtained and the mailing be made sufficiently in advance
of the Expiration Date to permit delivery to the Exchange Agent on or before
the Expiration Date.
Holders who wish to tender their Old Notes but whose Old Notes are
not immediately available or who cannot deliver their Old Notes and all other
required documents to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date or comply with book-entry transfer procedures on
a timely basis may tender their Old Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer-Guaranteed
Delivery Procedure." Such Holders' tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has
received from such Eligible Institution (x) either a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) or a properly
transmitted Agent's Message and (y) a Notice of Guaranteed Delivery,
substantially in the form provided by the Company, by hand or mail, or
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) setting forth the name and address
of such Holder of Old Notes and the amount of Old Notes tendered, stating that
the tender is being made thereby and guaranteeing that within three business
days (as defined in the Prospectus) after the Expiration Date, that the Old
Notes in proper form for transfer or a Book-Entry Confirmation and all other
documents required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) a Book-Entry Confirmation or the certificates relating to the Old
Notes in registered form and all other documents required by this Letter of
Transmittal, are received by the Exchange Agent within three business days (as
defined in the Prospectus) after the Expiration Date.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal
(or facsimile thereof), shall waive any right to receive notice of the
acceptance of the Old Notes for exchange.
2. Beneficial Owner Instructions to Registered Holders.
Only a Holder in whose name tendered Old Notes are registered on the
books of the registrar (or the legal representative or attorney-in-fact of
such registered Holder) may execute and deliver this Letter of Transmittal.
Any Beneficial Owner of tendered Old Notes who is not the registered Holder
must arrange promptly with the registered Holder to execute and deliver this
Letter of Transmittal on his or her behalf through the execution and delivery
to the registered Holder of the "Instructions to Registered Holder from
Beneficial Owner" form accompanying this Letter of Transmittal.
3. Partial Tender; Withdrawals.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but
not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
9
<PAGE>
Old Notes tendered pursuant to the Exchange Offer 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 herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers of such Old Notes and the
principal amount of each such Initial Note), (iii) specify the principal
amount of Old Notes to be withdrawn, (iv) include a statement that such Holder
is withdrawing his election to have such Old Notes exchanged, (v) be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described in
the Prospectus (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. The Exchange
Agent will return the properly withdrawn Old Notes promptly following receipt
of notice of withdrawal. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes or otherwise comply with the Book-Entry
Transfer Facility procedure. All questions as to the validity, form and
eligibility of such notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
4. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered Holder(s)
of the Old Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in several
names, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Old Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the
registered Holder, in either case signed exactly as the name or names of the
registered Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal or any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporation or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 4 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal or notice of withdrawal need
not be guaranteed by an Eligible Institution, provided the Old Notes are
tendered: (i) by a registered Holder of such Old Notes or (ii) for the account
of an Eligible Institution.
For purposes of this Letter of Transmittal, an "Eligible Institution"
shall mean any bank, broker, dealer, credit union, savings association,
clearing agency or other institution that is a member of a recognized
signature guarantee medallion program within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended.
10
<PAGE>
5. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Old 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 Old
Notes tendered, or if tendered Old 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 Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
Except as provided in this Instruction 5, it will not be necessary
for transfer tax stamps to be affixed to the Old Notes listed in this Letter
of Transmittal.
6. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any Holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
7. Acceptance of tendered Old Notes and Issuance of Exchange Notes; Return of
Old Notes.
Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes promptly after
the Expiration Date and will issue Exchange Notes therefor promptly after
acceptance of the Old Notes. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered Old Notes when, as and if the
Company has given written or oral notice thereof to the Exchange Agent. If any
tendered Old Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Old Notes will be returned, without expense, to the
undersigned at the address indicated above.
8. Substitute Form W-9.
Each Holder of Old Notes whose Old Notes are accepted for exchange
(or any other such payee) is required to provide the Exchange Agent with a
correct taxpayer identification number ("TIN"), generally the Holder's Social
Security or federal employer identification number, and certain other
information, on a Substitute Form W-9, a form of which accompanies this Letter
of Transmittal, and to certify that the Holder (or other payee) is not subject
to backup withholding. Failure to provide the information on the Substitute
Form W-9 may subject the Holder (or other payee) to a penalty imposed by the
Internal Revenue Service and 31% federal income tax backup withholding on
payments made in connection with the Exchange Notes. The box in Part 3 of the
Substitute Form W-9 may be checked if the surrendering Holder of Old Notes (or
other payee) has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in part 3 is checked, the
Holder of Old Notes (or other payee) must also complete the Certificate of
Awaiting Taxpayer Identification Number accompanying this Letter of
Transmittal in order to avoid backup withholding. Notwithstanding that the box
in part 3 is checked and the Certificate of Awaiting Taxpayer Identification
Number is completed, the Exchange Agent will withhold 31% of all payments made
prior to the time a properly certified TIN is provided to the Exchange Agent.
The Holder of Old Notes is required to give the Exchange Agent the
TIN (e.g., social security number or employer identification number) of the
record owner of the Old Notes. If the Old Notes are in more than one name or
are not in the name of the beneficial owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for additional guidance on which number to report.
Certain Holders of Old Notes (or other payees) (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. However, exempt Holders
of Old Notes (or other payees) should indicate their exempt status on
Substitute Form W-9. For example, a corporation must complete the Substitute
Form W-9, providing its TIN and indicating that it is exempt from backup
withholding. In order for a foreign individual to qualify as an exempt
recipient, the Holder (or other payee) must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
11
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: IBJ Whitehall Bank & Trust Company, as Exchange Agent
- ---------------------------------------- ------------------------------------- ------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY BY ______________________________
SIGNING AND DATING BELOW Social Security number(s)
Department of the Treasury Internal Or
Revenue Service
______________________________
Employer Identification Number
--------------------------------------------------------------------------------------
Part 2 -- CERTIFICATION: Under penalties of perjury, I certify that:
Payor's Request for Taxpayer
Identification Number ("TIN") (1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued for me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
.
------------------------------------------------------------------ -------------------
CERTIFICATION INSTRUCTIONS: You must cross out item (2) above Part 3
if you have been notified by the IRS that you are currently Awaiting TIN |_|
subject to backup withholding because of underreporting interest
or dividends on your tax return
Signature______________________________Date_______________
- ---------------------------------------- ------------------------------------------------------------------ -------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF ANY
CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable cash payments made to me thereafter
will be withheld until I provide a taxpayer identification number.
------------------------------------- ---------------------
Signature Date
- --------------------------------------------------------------------------------
12
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GUIDE
THE PAYER. -- Social Security Numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer Identification Numbers have nine digits
separated by only one hyphen: i.e. 00-0000000. The table below will help
determine the number to give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF --
- ----------- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined
funds, any one of the individuals (1)
3. Custodian account of a minor The minor (2)
4. (a) The usual revocable savings trust account The grantor-trustee (1)
(grantor is also trustee)
(b) So-called trust account that is not a The actual owner (1)
legal or valid trust under State law.
5. Sole proprietorship account The owner (3)
6. A valid trust, estate, or pension trust The legal entity (Do not furnish the identifying
number of the personal representative or trustee
unless the legal entity itself is not designated in
the account title.)(4)
7. Corporate account The corporation
8. Religious, charitable, or educational The organization
organization account
9. Partnership The partnership
10. Association, club or other tax-exempt organization The organization
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a State or local
government, school district, or prison) that
receives agricultural program payments
- ----------- ---------------------------------------------------- -------------------------------------------------------
</TABLE>
- -----------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) Show the name of the owner. You may also enter your business name.
You may use your Social Security Number or Employer Identification
Number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
13
<PAGE>
OBTAINING A NUMBER
If you don't have a Taxpayer Identification Number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on broker transactions
include the following:
(i) A corporation.
(ii) A financial institution.
(iii) An organization exempt from tax under Section 501(a), or an individual
retirement plan.
(iv) The United States or any agency or instrumentality thereof.
(v) A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
(vi) A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
(vii) An international organization or any agency or instrumentality
thereof.
(viii) A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
(ix) A real estate investment trust.
(x) A common trust fund operated by a bank under Section 584(a).
(xi) An entity registered at all times under the Investment Company Act of
1940.
(xii) A foreign central bank of issue.
(xiii) A person registered under the Investment Advisors Act of 1940 who
regularly acts as a broker.
Payments of interest not generally subject to backup withholding include the
following:
(i) Payments to nonresident aliens subject to withholding under Section
1441.
(ii) Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
(iii) Payments made by certain foreign organizations.
Exempt payees described above should file Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give Taxpayer Identification Numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a Taxpayer Identification Number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If
you fail to furnish your Taxpayer IDENTIFICATION NUMBER to a payer,
you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If
you make a false statement with no reasonable basis which results in
no imposition of backup withholding, you are subject to a penalty of
$500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR
TAX CONSULTANT OR THE IRS.
14
<PAGE>
SCHEDULE A
15
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
CARROLS CORPORATION
9 1/2 % Senior Subordinated Notes Due 2008
The undersigned hereby acknowledges receipt of the Prospectus dated
[ ], 1999 (the "Prospectus") of Carrols Corporation (the "Company"), and
the accompanying Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 in principal amount of its 9 1/2% Senior Subordinated Notes Due 2008
(the "Exchange Notes") for each $1,000 in principal amount of its outstanding
9 1/2% Senior Subordinated Notes Due 2008 (the "Old Notes"). Capitalized terms
used herein but not defined herein have the meaning ascribed to them in the
Prospectus.
This will instruct you, the registered Holder, as to the action to be
taken by you relating to the Exchange Offer with respect to the Old Notes held
by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the
account of the undersigned is (fill in amount):
$________________________ of the 91/2% Senior Subordinated
Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
|_| To TENDER the following Old Notes held by you for the
account of the undersigned (insert principal amount of Old
Notes to be tendered,* if any):
$________________________ of the 91/2% Senior Subordinated
Notes Due 2008.
* The minimum permitted tender is $1,000 in principal amount
of Old Notes. All other tenders must be in integral
multiples of $1,000 of principal amount.
|_| NOT to TENDER any Old Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Old Notes held by you
for the account of the undersigned, it is understood that you are authorized
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a Beneficial Owner (as defined in the Letter of Transmittal),
including, but not limited to, representations to the effect that (i) the
undersigned's principal residence or principal business office is in the state
of (fill in state) which is listed on Schedule A attached
to the Letter of Transmittal, (ii) the undersigned is acquiring the Exchange
Notes or interests therein in the ordinary course of business of the
undersigned, (iii) the undersigned is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, (iv) the undersigned
acknowledges that any person who is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale of the Exchange Notes or any
interest therein acquired by such person and cannot rely on the position of
the Staff of the Securities and Exchange Commission ("SEC") set forth in the
no-action letters that are discussed in the section of the Prospectus entitled
"The Exchange Offer" and the Letter of Transmittal; (v) the undersigned
understands that a secondary resale transaction described in clause (iv) above
and any resale of the Exchange Notes and any interest therein obtained by the
undersigned in exchange for the Old Notes originally acquired by the
undersigned directly from the Company should be covered by an effective
registration statement containing the selling security holder information
required by Items 507 and 508, as applicable, of Regulation S-K of the SEC,
and (vi) except as otherwise disclosed in writing herewith, the undersigned is
not an "affiliate," as defined in Rule 405 under the Securities Act of 1933,
as amended, (the "Securities Act") of the Company; (b) to agree, on behalf of
the undersigned, as set forth in the Letter of Transmittal and (c) to take
such other action as may be necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of such Old Notes. If the undersigned
is a broker-dealer, the undersigned further (x) represents that it acquired
Old Notes for the undersigned's own account as a result of market-making
activities or other trading activities, (y) represents that it has not entered
into any
16
<PAGE>
arrangement or understanding with the Company or any "affiliate" of the
Company (within the meaning of Rule 405 under the Securities Act) to
distribute the Exchange Notes to be received in the Exchange Offer and (z)
acknowledges that it will deliver a copy of a Prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes.
SIGN HERE
Name of Beneficial Owner(s):___________________________________________________
Signature(s):_______________________________________________________________
Name(s) (please print):_____________________________________________________
Address:_______________________________________________________________________
Telephone Number:______________________________________________________________
Taxpayer Identification or Social Security Number:_____________________________
Date:__________________________________________________________________________
17
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
CARROLS CORPORATION
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
This form must be used by a holder of the 9 1/2% Senior Subordinated
Notes due 2008 (the "Old Notes") of Carrols Corporation (the "Company"), who
wishes to tender Old Notes to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer -- Guaranteed Delivery
Procedure" of the Prospectus dated _____________, 1999 (the "Prospectus") and
in Instruction 1 of the Letter of Transmittal. Any holder who wishes to tender
Old Notes pursuant to such guaranteed delivery procedures must ensure that the
Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms not defined herein
have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
To: IBJ Whitehall Bank & Trust Company -- Exchange Agent
By Hand, Overnight Courier or Mail:
IBJ Whitehall Bank & Trust Company
1 State Street
New York, New York 10004
Attention: Corporate Trust Administration
or
By Facsimile:
IBJ Whitehall Bank & Trust Company
Facsimile Number: (212) 858-2952
Attention: Corporate Trust Administration
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal, receipt of which is hereby acknowledged, the principal amount
of Old Notes specified below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 1 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD NOTES AGGREGATE PRINCIPAL AMOUNT TENDERED
- ---------------------------------------------- ---------------------------------------------
<S> <C>
- ---------------------------------------------- ---------------------------------------------
- ---------------------------------------------- ---------------------------------------------
- ---------------------------------------------- ---------------------------------------------
- ---------------------------------------------- ---------------------------------------------
</TABLE>
Name of Tendering Holder:
--------------------------------------------
Signature(s):
---------------------------------------------------
Name(s) (please print):
-----------------------------------------
Address:
-------------------------------------------------------------
- ---------------------------------------------------------------------
Telephone Number:
----------------------------------------------------
Date: , 1999
---------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a bank, broker, dealer, credit union, savings
association, clearing agency or other institution that is a member of a
recognized signature guarantee medallion program or is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent
of the Letter of Transmittal, together with the Old Notes tendered hereby, in
proper form for transfer and any other required documents, all by 5:00 p.m.,
New York City time, before the third business day (as defined in the
Prospectus) following the Expiration Date.
SIGN HERE
Name of firm (please print):
---------------------------------------
Authorized Signature:
----------------------------------------------
Name (please print):
-----------------------------------------------
Address:
-----------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Telephone Number:
--------------------------------------------------
Date:
--------------------------------------------------------------
DO NOT SEND TENDERED OLD NOTES WITH THIS FORM. ACTUAL DELIVERY OF TENDERED OLD
NOTES MUST BE MADE IN ACCORDANCE WITH, AND BE ACCOMPANIED BY, AN EXECUTED
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and risk of
the holder, and the delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. Instead of delivery by
mail, it is recommended that the holder use an overnight or hand delivery
service. Facsimile transmission is permissible, provided, however, that
receipt is confirmed by telephone and an original is delivered by guaranteed
overnight courier. In all cases, sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedure, see
the section set forth in the Prospectus entitled "The Exchange Offer --
Guaranteed Delivery Procedure" and Instruction 1 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the tendered Old
Notes referred to herein, the signature must correspond with the name(s)
written on the face of the tendered Old Notes without alteration or any change
whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any tendered Old Notes listed, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers, signed as
the name of the registered holder(s) appears on the tendered Old Notes.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders also may contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
