FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended May 27, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________
Commission file number 1-12604
THE MARCUS CORPORATION
(Exact name of registrant)
Wisconsin 39-1139844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East Wisconsin Avenue - Suite 1700 53202-4220
Milwaukee, Wisconsin (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 905-1000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1 par value New York Stock Exchange
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(Title of class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of August 13, 1999: $270,846,264.
Number of shares outstanding of each of the classes of the registrant's capital
stock as of August 13, 1999:
Common Stock, $1 par value: 17,401,015 shares
Class B Common Stock, $1 par value: 12,502,026 shares
DOCUMENTS INCORPORATED BY REFERENCE:
1999 Annual Report to Shareholders (incorporated by reference into Parts I, II
and IV); Proxy Statement for 1999 Annual Meeting of Shareholders (to be filed
with the Commission under Regulation 14A within 120 days after the end of the
registrant's fiscal year and, upon such filing, to be incorporated by reference
into Part III).
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PART I
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements may generally be identified as such because the
context of such statements will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, the following:
(i) the Company's ability to identify properties to acquire, develop and/or
manage and continuing availability of funds for such development; (ii) the
limited-service lodging division's ability to attract and retain quality
franchise operators and to effectively execute its Baymont name change strategy;
(iii) continuing consumer demand as a result of general economic conditions with
respect to the hotels and resorts and limited-service lodging divisions; (iv)
continuing availability, in terms of both quality and quantity, of films for the
theatre division; (v) absence of significant increases in costs of obtaining
food for the restaurant division; and (vi) competitive conditions in the markets
served by the Company. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are made only as of the
date of this Form 10-K and the Company undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
Item 1. Business.
The Marcus Corporation through its subsidiaries (collectively, the
"Company") is engaged in four business segments: limited-service lodging; movie
theatres; hotels and resorts; and restaurants.
The Company's limited-service lodging operations include a chain of
164 Baymont Inns & Suites limited-service facilities in 30 states and six
Woodfield Suites all-suite hotels in Wisconsin, Colorado, Ohio and Illinois. Of
the 164 Baymont Inns & Suites, 99 are owned or operated by the Company and 65
are franchised.
The Company operates 48 movie theatres with an aggregate of 428
screens throughout Wisconsin, Illinois, Minnesota and Ohio. The Company also
operates a family entertainment center, Funset Boulevard, in Appleton,
Wisconsin.
The Company's hotel and resort operations include the Pfister and the
Hilton Milwaukee City Center, which are full-service hotels in Milwaukee,
Wisconsin, the Grand Geneva Resort & Spa and the Miramonte Resort, which are
full-facility destination resorts in Lake Geneva, Wisconsin and Indian Wells,
California, respectively. The Company also manages three hotels and one resort
for third parties: the Hotel Mead in Wisconsin Rapids, Wisconsin, the
Crowne-Plaza Northstar in Minneapolis, Minnesota, Beverly Garland's Holiday Inn
in North Hollywood, California and the Mission Point Resort on Mackinac Island,
Michigan.
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The Company's restaurant division includes 27 KFC (Kentucky Fried
Chicken) restaurants and 3 KFC/Taco Bell 2-in-1 restaurants in Wisconsin.
The Company is continuing its expansion plan that it began in fiscal
1994. The Company's current plans include the following goals:
o Completing the Baymont Inns & Suites conversion strategy in fiscal
2000, including the implementation of lobby breakfasts at a vast
majority of the chain's properties, and then increasing the total
number of Baymont Inns and Baymont Inns & Suites to over 300 within
the next four years. The Company currently believes that most of this
anticipated future growth will ultimately come from its emphasis on
opening new franchised Baymont Inns and Baymont Inns & Suites. Up to
two new Company-owned and 28 new franchised properties are currently
in development for fiscal 2000. The Company plans to further emphasize
franchising in the future by exploring the potential sale of
approximately 20 Company-owned properties to new and existing
franchisees over the next three years, with the Company possibly
retaining a management contract in some cases.
o Increasing its number of movie theatre screens to 500 during calendar
2000, with expected continued expansion outside of Wisconsin. Up to 60
new screens are currently planned to be opened by the Company in
fiscal 2000, including 37 new screens to be added to existing
locations in Wisconsin, Illinois and Minnesota and the Company's
second large screen IMAX(R) 2D/3D theatre at its Addison, Illinois
location. The Company also has plans to complete its stadium seating
retrofit program, resulting in stadium seating in approximately 90% of
its first-run screens by the end of 2000.
o Adding one or two hotel properties each year over the next few fiscal
years, either Company-owned or managed for others. In some cases, the
Company may own only a partial interest in the new properties. The
Company currently has two Company-owned projects under construction:
an extensive addition to the Hilton Milwaukee City Center, scheduled
to open in July 2000; and a 238-room public/private endeavor with the
City of Madison, Wisconsin - the Hilton Madison at Monona Terrace,
scheduled to open in late fiscal 2001.
o Increasing its number of Woodfield Suites. The Company currently has
one Company-owned Woodfield Suites scheduled to open late in fiscal
2000 and is evaluating additional sites and franchising opportunities.
o Evaluating new business opportunities. The Company recently began
constructing a vacation ownership development at the Grand Geneva
Resort & Spa, representing the Company's entrance into the timesharing
business. The Company expects to begin selling units during the summer
of 1999, with construction of the first 24 units scheduled for
completion by the end of the fiscal year.
The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
general economic conditions, the Company's
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financial performance and available capital, the competitive environment,
evolving customer needs and trends, and the availability of attractive
opportunities. It is likely that the Company's expansion goals will continue to
evolve and change in response to these and other factors and there can be no
assurance that these current goals will be achieved.
Business Segment Data
Certain business segment data for the Company's three most recent
fiscal years relating to the Company's four industry segments is set forth in
footnote 11 to the Notes to Consolidated Financial Statements included on Page
32 of the Company's 1999 Annual Report to Shareholders, which pages are
incorporated by reference herein.
Limited-Service Lodging Operations
Baymont Inns & Suites
The Company owns, operates or franchises 164 limited-service
facilities, with over 16,000 available rooms, under the names "Baymont Inns" and
"Baymont Inns & Suites" in 30 states. Of this total, 65 Baymont Inns & Suites
are operated by franchisees, 90 are Company-owned or operated and nine are
operated under joint venture agreements. During fiscal 1999, ten new franchised
units were opened, with an additional 28 franchised units under construction or
in development at fiscal year-end. Late in fiscal 1999, the Company sold seven
Baymont Inns & Suites, including five to a new franchisee. Depending upon
favorable industry conditions and attractive opportunities, the Company
currently plans to add up to 30 new Baymont Inns & Suites in fiscal 2000
(including up to two Company-owned and up to 28 franchised properties).
During the third quarter of fiscal 1999, the Company officially
changed the name of its Budgetel Inns to Baymont Inns and Baymont Inns & Suites.
Targeted at the business traveler, Baymont Inns & Suites feature an upscale,
contemporary exterior appearance, are generally located in high traffic
commercial areas in close proximity to interstate highway exits and major
thoroughfares and vary in size between 60 and 190 rooms.
The Company believes that providing amenities typically associated
with full-service hotels distinguishes Baymont Inns & Suites from many of its
competitors. These amenities include executive conference centers,
room-delivered complimentary continental breakfasts, king-sized beds, free local
telephone calls, incoming fax transmissions, non-smoking rooms, in-room coffee
makers, remote control cable televisions, extra-long telephone cords and large
working desks. Additional amenities have been introduced in conjunction with the
Baymont name change, including lobby breakfasts, two-room suites, 25-inch
televisions, fitness facilities, voice mail, hair dryers, irons and ironing
boards and complimentary copies of USA Today. To enhance customer security, all
Baymont Inns & Suites feature "card key" room locking systems and provide
well-lighted parking areas and all-night front desk staffing. The interior of
each Baymont Inns & Suites is refurbished in accordance with a strict periodic
schedule.
Baymont Inns & Suites has a national franchise program and has
increased its emphasis on opening more franchised Baymont Inns & Suites. Support
offices in Atlanta, Chicago and Dallas and a service office in Florida are
intended to help support expansion of the Baymont
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Inns & Suites franchise. Franchisees pay an initial franchise fee and annual
marketing assessments, reservation system assessments and royalty fees based on
room revenues. The Company is qualified to sell, and anticipates ultimately
selling, franchises in all 50 states. The Company plans to further emphasize
franchising in the future by exploring the potential sale of approximately 20
Company-owned properties to new and existing franchisees over the next three
years as a part of the Company's strategy to emphasize growth through
franchising. In some cases, the Company may continue to manage a sold property
for a new owner under a management contract for an agreed upon period. The
Company believes that by selling selected properties, its franchise partners
will have the opportunity to develop a significant market presence and will also
allow the Company to use capital for other growth opportunities, including
developing Baymont properties in new markets.
Woodfield Suites
The Company operates six mid-priced, all-suite hotels under the name
"Woodfield Suites." In fiscal 1999, the Company opened a new Company-owned
property in Bannockburn (suburban Chicago), Illinois. Another new Company-owned
property is under construction near the River Walk in San Antonio, Texas, which
is scheduled to open in fiscal 2000. The Bannockburn property is the prototype
for future new construction.
Woodfield Suites offers all of its guests the use of a
centrally-located swimming pool, whirlpool and game room. Most suites have a
bedroom and separate living room and feature an extra-length bed, sleeper sofa
for additional guests, microwave, refrigerator, wet bar, television and hair
dryer. Some suites also have a kitchenette. All guests receive a complimentary
continental breakfast and are invited to a complimentary cocktail hour. Meeting
rooms and two-line telephones equipped with dataports in every suite enhance
Woodfield Suites' appeal for business travelers.
Hotels and Resorts Operations
The Pfister Hotel
The Company owns and operates the Pfister Hotel in downtown Milwaukee.
The Pfister Hotel, a full service, luxury hotel, has 307 rooms (including 80
luxury suites), three restaurants, a cocktail lounge, a night club, an indoor
swimming pool, an exercise facility and a 275-car parking ramp. The Pfister has
20,000 square feet of banquet and convention facilities. Banquet and meeting
rooms accommodate up to 3,000 persons and the hotel features two large
ballrooms, including one of the largest ballrooms in the Milwaukee metropolitan
area, with banquet seating for 1,200 people. A portion of the Pfister's
first-floor space is leased for use by retail tenants. In fiscal 1999, the
Pfister Hotel earned its 23rd consecutive four-diamond award from the American
Automobile Association. The Pfister is also a member of Preferred Hotels and
Resorts Worldwide Association, an organization of independent luxury hotels and
resorts, and the Association of Historic Hotels of America. The Company has also
begun planning for a health and fitness center on the top floor of the hotel.
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The Hilton Milwaukee City Center
The Company owns and operates the 500-room Hilton Milwaukee City
Center. All 500 guest rooms, bathrooms, public areas and a significant portion
of meeting space were remodeled in 1995. The Hilton franchise affiliation has
benefited the Hilton Milwaukee City Center through the Hilton's international
centralized reservation and marketing system, advertising cooperatives and
frequent stay programs. During fiscal 1999, the Company began construction on an
extensive addition. Upon completion, the hotel will include 750 rooms, expanded
meeting space, a skywalk to Milwaukee's new convention center and a water-themed
family fun center which will feature a sand beach, lounge and restaurant, all
with a Caribbean atmosphere.
The Grand Geneva Resort & Spa
The Grand Geneva Resort & Spa in Lake Geneva, Wisconsin is a
full-facility destination resort located on 1,300 acres. The largest convention
resort in Wisconsin includes 355 guest rooms, 50,000 square feet of banquet,
meeting and exhibit space, three specialty restaurants, two cocktail lounges,
two championship golf courses, several ski-hills, four indoor and five outdoor
tennis courts, three swimming pools, a spa and fitness complex, horse stables
and an on-site airport. During fiscal 1999, the Company added a new 6,600 square
foot ballroom and completed improvements to the resort's two championship golf
courses.
The Company recently began construction of a vacation ownership
development representing the Company's entrance into the timesharing business.
The Company will begin selling its first 24 units during the summer of 1999,
with construction of the units scheduled for completion by the end of fiscal
2000. Condominium owners will be able to participate in exchange programs
through Resort Condominiums International.
Miramonte Resort
The Miramonte Resort in Indian Wells, California, a boutique luxury
resort located on 11 landscaped acres, opened in 1998 following an extensive
renovation. The resort includes 14 two-story Tuscan style buildings housing 226
guest rooms, one restaurant, one lounge and 9,500 square feet of banquet,
meeting and exhibit space, including a 5,000 square foot grand ballroom.
Additionally, there is a fully equipped fitness center and two outdoor swimming
pools, each with an adjacent jacuzzi spa and sauna. New amenities include
outdoor meeting facilities, a golf concierge and Rolls Royce limousine service.
During fiscal 1999, the Miramonte Resort was awarded the AAA Four Diamond Award
after only six months of operation.
Operated and Managed Hotels
The Company operates the Crowne Plaza-Northstar Hotel in Minneapolis,
Minnesota. The Crowne Plaza-Northstar Hotel is located in downtown Minneapolis
and has 226 rooms, 13 meeting rooms, 6,370 square feet of ballroom and
convention space, one restaurant, one cocktail lounge and an exercise facility.
The Company manages the Hotel Mead in Wisconsin Rapids, Wisconsin. The
Hotel Mead has 157 guest rooms, 11 meeting rooms totaling 14,000 square feet of
meeting space,
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two cocktail lounges, two restaurants and an indoor pool with a sauna and
whirlpool. During fiscal 1999, the Company provided planning and technical
assistance for construction of a new 89-room tower and expanded conference and
health club facilities.
The Company manages Beverly Garland's Holiday Inn in North Hollywood,
California. The Beverly Garland has 255 rooms, including 12 suites, meeting
space for up to 600, including an amphitheater and ballroom, and an outdoor
swimming pool and lighted tennis courts. The mission-style hotel is located on
seven acres near Universal Studios.
The Company also manages the Mission Point Resort on Mackinac Island,
Michigan. The Mission Point Resort is a seasonal property and has 239 rooms and
suites, a 3,000 square foot health club and fitness center, three restaurants,
tennis courts, a swimming pool and a 575-seat theatre. In fiscal 1999, the
Company guided the addition of an 18-hole executive putting course, the
renovation of an eight-story observation tower/museum, the conversion of
additional rooms into suites and the upgrading of restaurant operations.
New Developments
The Company commenced construction late in fiscal 1999 on the
Company's new Hilton Madison at Monona Terrace, a 238-room hotel that will be
connected by skywalk to the new Monona Terrace Convention Center in Madison,
Wisconsin and is scheduled to open in late fiscal 2001.
Theatre Operations
At the end of fiscal 1999, the Company operated 48 movie theatre
locations with an aggregate of 428 screens in Wisconsin, Illinois, Minnesota and
Ohio for an average of 8.9 screens per location, compared to an average of 7.8
screens per location at the end of fiscal 1998 and 7.4 at the end of fiscal
1997. The Company's facilities include 46 multi-screen complexes and two
single-screen theatres. The theatre division's long-term growth strategy is to
focus on multi-screen theatres having between 12 and 20 screens which typically
vary in seating capacity from 150 to 450 seats per screen. Multi-screen theatres
allow the Company to offer a more diversified selection of films to attract
additional customers, exhibit movies in larger or smaller auditoriums within the
same theatre depending on the popularity of the movie and benefit from the
economies of having common box office, concession, projection and lobby
facilities. Most of the Company's movie theatres feature exclusively first-run
films.
The Company added 67 screens in fiscal 1999, including the
acquisitions of a 10-screen theatre in Milwaukee, a 14-screen theatre in Elgin,
Illinois, and a 10-screen theatre in Wausau, Wisconsin. The Company also opened
its first IMAX theatre as part of a new 17-screen UltraPlex(TM) in Columbus,
Ohio. A second IMAX opened at the Company's existing 20-screen UltraPlex(TM) in
Addison, Illinois, just after the end of the fiscal year. At fiscal year end,
the Company operated 394 first-run screens and 34 budget-oriented screens. The
Company plans on opening up to 60 additional new screens in fiscal 2000.
The results of the Company's movie theatre business and the motion
picture industry in general are largely dependent upon the box office appeal and
marketing of available
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first-run films, factors over which the Company has no control. Movie production
has been stimulated by additional demand from ancillary markets such as home
video, pay-per-view and cable television, as well as increased demand from
foreign film markets. Fiscal 1999 featured such box office hits as Saving
Private Ryan, There's Something About Mary, Armageddon, Bug's Life, Waterboy,
Star Wars I: The Phantom Menace and The Matrix.
The Company obtains its films from the national motion picture
production and distribution companies and is not dependent on any single motion
picture supplier. Booking, advertising, concession purchases and promotion are
handled centrally by an administrative staff.
The Company strives to provide its movie patrons with high-quality
picture and sound presentation in clean, comfortable, attractive and
contemporary theatre environments. Substantially all of the Company's movie
theatre complexes feature either digital sound, Dolby or other stereo sound
systems; acoustical ceilings; side wall insulation; engineered drapery folds to
eliminate sound imbalance, reverberation and distortion; tiled floors; loge
seats; cup-holder chair-arms; and computer-controlled heating, air conditioning
and ventilation. Computerized box offices permit all of the Company's movie
theatres to sell tickets in advance. The Company's theatres are accessible to
persons with disabilities and provide wireless headphones for hearing-impaired
moviegoers. Other amenities at certain theatres include THX auditoriums, which
allow customers to hear the softest and loudest sounds, and touch-screen,
computerized, self-service ticket kiosks, which simplify advance ticket
purchases. The Company also operates an exclusive customer information telephone
system in Milwaukee and Madison, allowing customers to call for information
regarding the locations, times and titles of movies being shown by the Company
throughout each metropolitan area. In fiscal 1999, the Company also introduced
the Marcus Movie Hitline, which is a satellite-based automated telephone
ticketing system enabling moviegoers to buy tickets to any of 12 Marcus
first-run theatres in the metropolitan Milwaukee area and its two theatres in
Columbus, Ohio using a credit card.
In fiscal 1999, the Company debuted Marcus Theatres' Luxury Cinema
concept at the West Point Cinema in suburban Milwaukee, featuring amenities such
as leather rocker seating with side tables, gourmet foods, a lounge, discounted
childcare, concierge service and weekend valet parking. The Company also debuted
the largest traditional theatre screen in the Midwest at the Westown Cinemas in
suburban Milwaukee. The 75-foot wide, 32-foot high UltraScreen(TM) is nearly
three times the size of traditional theatre screens.
The Company has enhanced its offerings of amenities at over 60% of its
theatres with stadium seating, a tiered seating system that permits unobstructed
viewing. The Company is now installing stadium seating in all of its new
theatres and is continuing an extensive program to add stadium seating to over
90% of its existing first-run screens by the end of 2000.
The Company sells food and beverage concessions at all of its movie
theatres. The Company believes that a wide variety of food and beverage items,
properly merchandised, increases concession revenue per patron. Although popcorn
still remains the traditional favorite with moviegoers, the Company continues to
upgrade its available concessions by offering varied choices. For example, some
of the Company's theatres offer hot dogs, pizza, ice cream, pretzel bites,
frozen yogurt, coffee, mineral water and juices.
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The Company also owns a family entertainment center, Funset Boulevard,
adjacent to its 11-screen movie theatre in Appleton, Wisconsin. Funset Boulevard
features a 40,000 square foot Hollywood-themed indoor amusement facility,
including a restaurant, party room, a laser tag center, virtual reality games,
an arcade, an outdoor miniature golf course and batting cages.
Restaurant Operations
The Company has non-exclusive franchise rights to operate KFC
restaurants in the Milwaukee metropolitan area and in northeast Wisconsin. The
Company has operated KFC restaurants for 38 years and currently operates 27 KFC
restaurants and 3 KFC/Taco Bell 2-in-1 restaurants. The Company is the largest
operator of KFC restaurants in Wisconsin, based on the number of facilities
operated. The restaurants feature Kentucky Fried Chicken and other
franchisor-authorized food items.
Virtually all of the Company's KFC restaurants feature inside seating
for approximately 24 to 54 customers, drive-thru windows and updated electronic
equipment to better facilitate food preparation and order processing. Twelve
locations in the Fox Valley and Milwaukee metropolitan areas offer home
delivery.
The Company's KFC locations operate under individual franchise
agreements, all of which were renewed in early fiscal 1998 for a term of 20
years. Franchise royalties approximate 4% of net sales and, in addition, an
initial flat fee of $20,000 is payable for each new KFC restaurant.
The KFC franchisor specifies certain product requirements and provides
for certain approved suppliers of products and supplies in order to maintain
quality standards.
In fiscal 1999, the Company opened two additional combined two-in-one
KFC and Taco Bell locations in Milwaukee, Wisconsin.
Competition
In each of its businesses the Company experiences intense competition
from national and/or regional chain and franchise operations, some of which have
substantially greater financial and marketing resources than the Company. Most
of the Company's facilities are located in close proximity to other facilities
which compete directly with those of the Company.
The Company's Baymont Inns & Suites compete with such national
limited-service lodging chains as Days Inn, Hampton Inn (owned by The Promus
Companies Incorporated), Fairfield Inn (owned by Marriott Corporation), Red Roof
Inn, La Quinta Inn, Comfort Inn and others, as well as a large number of
regional and local chains. The Company's Woodfield Suites compete with such
national chains as Embassy Suites, Comfort Suites, AmeriSuites and Courtyard by
Marriott, as well as other regional and local all-suite facilities.
The Company's hotels and resorts compete with the hotels and resorts
operated by Hyatt Corporation, Marriott Corporation, Ramada Inns, Holiday Inns
and Wyndham Hotels, along with other regional and local hotels and resorts.
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In the restaurant business, the Company's KFC restaurants compete
locally with Hardee's, Boston Market, Popeye's and similar national, as well as
regional, fast food chains and individual restaurants offering chicken.
The Company's movie theatres compete with large national movie theatre
operators, such as AMC Entertainment, General Cinemas, Cinemark, Regal Cinemas,
Loews Cineplex and Carmike Cinemas, as well as with a wide array of smaller
first-run and discount exhibitors. Although movie exhibitors also generally
compete with the home video, pay-per-view and cable television markets, the
Company believes that such ancillary markets have assisted the growth of the
movie theatre industry by encouraging the production of first-run movies
released for initial movie theatre exhibition, which establishes the demand for
such movies in these ancillary markets.
The Company believes that the principal factors of competition in each
of its businesses, in varying degrees, are the price and quality of its product,
quality and location of its facilities, and customer service. The Company
believes that it is well positioned to compete on the basis of these factors.
Seasonality
Historically, the Company's first fiscal quarter has produced the
strongest operating results, because this period coincides with the typical
summer seasonality of the movie theatre industry and the summer strength of the
Company's lodging and food service businesses. The Company's third fiscal
quarter has historically produced the weakest operating results primarily due to
the effects of reduced travel during the winter months on the Company's lodging
businesses.
Research and Development
Research and development expenditures for the Company are not
material.
Environmental Regulation
The Company does not expect federal, state or local environmental
legislation to have a material effect on the Company's capital expenditures,
earnings or competitive position. However, the Company's activities in acquiring
and selling real estate for business development purposes have been complicated
by the continued emphasis placed by Company personnel on properly analyzing real
estate sites for potential environmental problems. This circumstance has
resulted in, and is expected to continue to result in, greater time and
increased costs involved in acquiring and selling properties associated with the
Company's various businesses.
Employees
As of the end of fiscal 1999, the Company had approximately 7,300
employees, a majority of whom were employed on a part-time basis. A majority of
the Company's hotel employees in Milwaukee, Wisconsin are covered by collective
bargaining agreements which expire in June 2002. A number of the Company's hotel
employees in Minneapolis, Minnesota are covered by collective bargaining
agreements which expire in April 2000. Relations with employees have been
satisfactory and there have been no work stoppages due to labor disputes.
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Item 2. Properties.
The Company owns a substantial portion of its facilities, including
the Pfister Hotel, the Hilton Milwaukee City Center, the Grand Geneva Resort and
Spa and the Miramonte Resort, all of the Company-owned Baymont Inns & Suites and
Woodfield Suites, the majority of its theatres and restaurants, and leases the
remainder. The Company also manages four hotel properties for third parties.
Additionally, the Company owns properties acquired for the future construction
and operation of new Company operating facilities. Some of its properties are
leased from entities owned by principal shareholders of the Company. All of the
Company's properties are suitably maintained and adequately utilized to cover
the respective business segment served.
The operating properties owned, leased and franchised by the Company
are summarized in the following table:
<TABLE>
<CAPTION>
Total Leased Leased Managed Managed
Number of from from for for
Facilities Unrelated Related Related Unrelated Owned By
Business Segment in Operation Owned(1) Parties Parties Parties Parties Franchisees(2)
---------------- ------------ -------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Restaurants:
KFC 30 29 1 0 0 0 0
Movie Theatres: 48 35 12 1 0 0 0
Hotels and Resorts:
Hotels 5 2 0 0 0 3
Resorts 3 2 0 0 0 1
Limited-Service Lodging:
Baymont Inns & Suites 164 89 0 0 9 1 65
Woodfield Suites 6 6 0 0 0 0 0
--- --- -- -- -- -- --
TOTALS 256 163 13 1 9 5 65
=== === == == == == ==
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(1) One of the KFC restaurants, two of the movie theatres and two of the Baymont Inns & Suites are on land leased from unrelated
parties under long-term leases. One of the Baymont Inns & Suites and one of the Woodfield Suites are located on land leased from
related parties. The Company's partnership interests in nine Baymont Inns & Suites that it manages and one movie theatre that it
leases are not included in this column.
(2) The Company manages three Baymont Inns & Suites for franchisees.
</TABLE>
Certain of the above individual properties or facilities are subject
to purchase money or construction mortgages or commercial lease financing
arrangements; none of these encumbrances are considered in the aggregate to be
material to the Company.
The terms of over 90% of the Company's operating property leases
expire on various dates after fiscal 2000 (assuming exercise by the Company of
all renewal and extension options).
Item 3. Legal Proceedings.
The Company does not believe that any pending legal proceeding
involving the Company is material to its business. No legal proceeding required
to be disclosed under this item was terminated during the fourth quarter of the
Company's 1999 fiscal year.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the Company's 1999 fiscal year.
EXECUTIVE OFFICERS OF COMPANY
Each of the current executive officers of the Company is identified
below together with information about each such officer's age, current position
with the Company and employment history for at least the past five years:
Name Position Age
---- -------- ---
Stephen H. Marcus Chairman of the Board, President
and Chief Executive Officer 64
Bruce J. Olson Group Vice President 49
H. Fred Delmenhorst Vice President-Human Resources 58
Thomas F. Kissinger General Counsel and Secretary 39
Douglas A. Neis Chief Financial Officer and Treasurer 40
Stephen H. Marcus has been Chairman of the Board of the Company since
December 1991 and President and Chief Executive Officer since December 1988. Mr.
Marcus has been employed by the Company for 38 years.
Bruce J. Olson has been employed in his present position with the
Company since July 1991. He was elected to serve on the Company's Board of
Directors in April 1996. Mr. Olson previously served as Vice
President-Administration and Planning for the Company from September 1987 until
July 1991 and as Executive Vice President and Chief Operating Officer of Marcus
Theatres Corporation from August 1978 until October 1988, when he was appointed
President of that corporation. Mr. Olson joined the Company in 1974.
H. Fred Delmenhorst has been the Vice President-Human Resources since
he joined the Company in December 1984.
Thomas F. Kissinger joined the Company in August 1993 as Secretary and
Director of Legal Affairs and in August 1995 was promoted to General Counsel and
Secretary. Prior thereto, Mr. Kissinger was associated with the law firm of
Foley & Lardner for five years.
Douglas A. Neis joined the Company in February 1986 as Controller of
the Marcus Theatres division. In November 1987, Mr. Neis was promoted to
Controller of Marcus Restaurants. In July 1991, he was appointed Vice President
of Planning and Administration for Marcus Restaurants. In September 1994, Mr.
Neis was also named Director of Technology for the Company and in September 1995
he was elected Corporate Controller for the Company. In September 1996, Mr. Neis
was promoted to Chief Financial Officer and Treasurer of the Company.
-11-
<PAGE>
The executive officers of the Company are generally elected annually
by the Board of Directors after the annual meeting of shareholders. Each
executive officer holds office until his successor has been duly qualified and
elected or until his earlier death, resignation or removal.
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder
Matters.
The information required by this item is incorporated by reference to
the information pertaining thereto included on Pages 35 and 37 of the Company's
1999 Annual Report to Shareholders.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to
the information pertaining thereto included on Page 34 of the Company's 1999
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated by reference to
the information pertaining thereto included on Pages 14 through 21 of the
Company's 1999 Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to
the information pertaining thereto included on Page 16 of the Company's 1999
Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference to
the information pertaining thereto included on Pages 22 through 33 and 35 of the
Company's 1999 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
-12-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this item with respect to directors is
incorporated herein by reference to the information pertaining thereto set forth
under the caption entitled "Election of Directors" in the definitive Proxy
Statement for the Company's 1999 Annual Meeting of Shareholders scheduled to be
held October 4, 1999 (the "Proxy Statement"). The required information with
respect to executive officers appears at the end of Part I of this Form 10-K.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the caption
entitled "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the caption
entitled "Stock Ownership of Management and Others" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, to the extent applicable, is
incorporated herein by reference to the information pertaining thereto set forth
under the caption entitled "Certain Transactions" in the Proxy Statement.
-13-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
The consolidated financial statements of the Company as of May 27,
1999 and May 28, 1998 and for each of the three years in the period ended May
27, 1999, together with the report thereon of Ernst & Young LLP, dated July 16,
1999, appear on Pages 22 through 33 of the Company's 1999 Annual Report to
Shareholders, and are incorporated herein by reference.
(a)(2) Financial Statement Schedules.
All schedules are omitted because they are inapplicable, not
required under the instructions or the financial information is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits.
The exhibits filed herewith or incorporated by reference herein are
set forth on the attached Exhibit Index.*
(b) Reports on Form 8-K.
The Company did not file a Form 8-K with the Securities and Exchange
Commission during the fourth quarter of fiscal 1999.
- - ------------------
* Exhibits to this Form 10-K will be furnished to shareholders upon advance
payment of a fee of $0.20 per page, plus mailing expenses. Requests for
copies should be addressed to Thomas F. Kissinger, General Counsel and
Secretary, The Marcus Corporation, 250 East Wisconsin Avenue, Suite 1700,
Milwaukee, Wisconsin 53202.
-14-
<PAGE>
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE MARCUS CORPORATION
Date: August 24, 1999 By:/s/ Stephen H. Marcus
-----------------------------------
Stephen H. Marcus,
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities as of the date indicated above.
By:/s/ Stephen H. Marcus By:/s/ Daniel F. McKeithan
---------------------------------- ------------------------------------
Stephen H. Marcus, Chairman of the Daniel F. McKeithan, Jr., Director
Board and President (Chief
Executive Officer)
By:/s/ Douglas A. Neis By:/s/ Diane Marcus Gershowitz
---------------------------------- ------------------------------------
Douglas A. Neis, Treasurer and Diane Marcus Gershowitz, Director
Controller (Chief Financial and
Accounting Officer)
By:/s/ Bruce J. Olson By:/s/ Timothy E. Hoeksema
---------------------------------- ------------------------------------
Bruce J. Olson, Director Timothy E. Hoeksema, Director
By:/s/ Philip L. Milstein By:/s/ Allan H. Selig
---------------------------------- ------------------------------------
Philip L. Milstein, Director Allan H. Selig, Director
By:/s/ Bronson J. Haase
----------------------------------
Bronson J. Haase, Director
S-1
<PAGE>
EXHIBIT INDEX
No. Description
- - --- -----------
3.1 Restated Articles of Incorporation. [Incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended November 13, 1997.]
3.2* Bylaws, as amended as of December 17, 1998. [Incorporated by reference
to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended November 26, 1998.]
4.1 Senior Note Purchase Agreement dated May 31, 1990, between the Company
and The Northwestern Mutual Life Insurance Company. [Incorporated by
reference to Exhibit 4 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1990.]
4.2 The Marcus Corporation Note Purchase Agreement dated October 25, 1996.
[Incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended November 14, 1996.]
4.3 First Supplement to Note Purchase Agreements dated May 15, 1998.
[Incorporated by reference to Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 28, 1998.]
4.4 Second Supplement to Note Purchase Agreements dated May 7, 1999.
4.5 Credit Agreement dated as of April 29, 1999, among the Company, Bank
of America National Trust and Savings Association, as Administrative
Agent, Bank One, Wisconsin, as Documentation Agent, the other
financial institutions parties thereto and Nationsbanc Montgomery
Securities LLC, as Sole Arranger and Sole Book Manager.
4.6 Other than as set forth in Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, the
Company has numerous instruments which define the rights of holders of
long-term debt. These instruments, primarily promissory notes, have
arisen from the purchase of operating properties in the ordinary
course of business. These instruments are not being filed with this
Annual Report on Form 10-K in reliance upon Item 601(b)(4)(iii) of
Regulation S-K. Copies of these instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1 The Company is the guarantor and/or obligor under various loan
agreements in connection with operating properties (primarily Baymont
Inns & Suites) which were financed through the issuance of industrial
development bonds. These loan agreements and the additional
documentation relating to these projects are not being filed with this
Annual Report on Form 10-K in reliance upon Item 601(b)(4)(iii) of
Regulation S-K. Copies of these documents will be furnished to the
Securities and Exchange Commission upon request.
E-1
<PAGE>
10.2 Comprehensive Image Enhancement Agreement dated October 12, 1988,
between the Company and KFC Corporation. [Incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 25, 1989.]
10.3 Form of individual Kentucky Fried Chicken franchise agreement between
the Company and KFC Corporation. [Incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the fiscal year
ended May 29, 1997.]
10.4* The Marcus Corporation 1995 Equity Incentive Plan, as amended, subject
to approval at the 1999 Annual Meeting of Shareholders.
10.5* The Marcus Corporation 1994 Nonemployee Director Stock Option Plan.
[Incorporated by reference to Exhibit A to the Company's 1994 Proxy
Statement.]
13 The Company's 1999 Annual Report to Shareholders, to the extent
incorporated by reference herein.
21 Subsidiaries of the Company as of May 27, 1999.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule for the fiscal year ended May 27, 1999.
99 Proxy Statement for the 1999 Annual Meeting of Shareholders. (The
Proxy Statement for the 1999 Annual Meeting of Shareholders will be
filed with the Securities and Exchange Commission under Regulation 14A
within 120 days after the end of the Company's fiscal year. Except to
the extent specifically incorporated by reference, the Proxy Statement
for the 1999 Annual Meeting of Shareholders shall not be deemed to be
filed with the Securities and Exchange Commission as part of this
Annual Report on Form 10-K.)
- - ----------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14(c) of Form
10-K.
E-2
Exhibit 4.4
===============================================================================
THE MARCUS CORPORATION
SECOND SUPPLEMENT TO NOTE PURCHASE AGREEMENTS
Dated as of May 1, 1999
Re: $15,000,000; 6.75% Series C Senior Notes, Tranche A,
due May 1, 2014
and
$25,000,000 6.82% Series C Senior Notes, Tranche B,
due May 1,2014
================================================================================
<PAGE>
SECOND SUPPLEMENT TO NOTE PURCHASE AGREEMENTS
Dated as of
May 1, 1999
To the Purchaser named in
Schedule A hereto which is
a signatory of this Agreement
Ladies and Gentlemen:
This Second Supplement to Note Purchase Agreements (the "Second
Supplement") is between The Marcus Corporation (the "Company") whose address is
250 East Wisconsin Avenue, Suite 1700, Milwaukee, Wisconsin 53202 and the
institutional investors named on Schedule A attached hereto (the "Purchasers").
Reference is hereby made to those certain Note Purchase Agreements dated as
of October 25, 1996 (the "Note Agreements") between the Company and the
purchasers listed on Schedule A thereto. All capitalized terms not otherwise
defined herein shall have the same meaning as specified in the Note Agreements.
Reference is further made to Section 4.11 thereof which requires that, prior to
the delivery of any Additional Notes, the Company and each Additional Purchaser
shall execute and deliver a Supplement.
The Company hereby agrees with you as follows:
1. The Company has authorized the issue and sale of $15,000,000 aggregate
principal amount of its 6.75% Series C Senior Notes, Tranche A due May 1, 2014
(the "Tranche A Notes") and $25,000,000 aggregate principal amount of its 6.82%
Series C Senior Notes, Tranche B due May 1, 2014 (the "Tranche B Notes" and
together with the Tranche A Notes, the "Series C Notes"). The Series C Notes,
together with the Series A Notes initially issued pursuant to the Note
Agreements and each Series of Additional Notes, including the Series B Notes
issued under the First Supplement to Note Purchase Agreements dated as of May
15, 1998, which may from time to time be issued pursuant to the provisions of
Section 2.2 of the Notes Agreements, are collectively referred to as the "Notes"
(such term shall also include any such notes issued in substitution therefor
pursuant to Section 13 of the Note Agreements). The Tranche A Notes and the
Tranche B Notes shall be substantially in the forms set out in Exhibit 1 and
Exhibit 2 hereto, respectively, with such changes therefrom, if any, as may be
approved by you and the Company.
2. Subject to the terms and conditions hereof and as set forth in the Note
Agreements and on the basis of the representations and warranties hereinafter
set forth, the Company agrees to issue and sell to you, and you agree to
purchase from the Company, Series C Notes in the principal amount set forth
opposite your name on Schedule A hereto at a price of 100% of the principal
amount thereof on the closing date hereafter mentioned.
<PAGE>
3. Delivery of the $40,000,000 in aggregate principal amount of the Series
C Notes will be made at the offices of Chapman and Cutler, 111 West Monroe,
Chicago, Illinois 60603, against payment therefor in Federal Reserve or other
funds current and immediately available at the principal office of Bank One
Milwaukee, N.A., 111 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (ABA
Number 075-0000-19) for credit to the First American Finance Corporation
Account, Account Number 550-2510-15 with telephonic confirmation to Ms. Debbie
Luedke at (414) 905-1160 in the amount of the purchase price at 11:00 A.M.,
Milwaukee, Wisconsin time, on May 7, 1999 or such later date (not later than May
30, 1999 as shall mutually be agreed upon by the Company and the Purchasers of
the Series C Notes (the "Closing").
4. (a) Required Prepayments.
(i) Tranche A Notes. On May 1, 2004 and on each May 1 thereafter
to and including May 1, 2013, the Company will prepay $1,363,636
principal amount (or such lesser principal amount as shall then be
outstanding) of the Tranche A Notes at par and without payment of the
Make-Whole Amount or any premium. The entire remaining principal
amount of the Tranche A Notes shall become due and payable on May 1,
2014. For purposes of this Section 4(a)(i), any prepayment of less
than all of the outstanding Tranche A Notes pursuant to Section 4(b)
shall be deemed to be applied first to the amount of principal
scheduled to be repaid on May 1, 2014, and then to the remaining
scheduled principal payments, if any, in inverse chronological order.
(ii) Tranche B Notes. On May 1, 2008 and on each May 1 thereafter
to and including May 1, 2013, the Company will prepay $3,571,429
principal amount (or such lesser principal amount as shall then be
outstanding) of the Tranche B Notes at par and without payment of the
Make-Whole Amount or any premium. The entire remaining principal
amount of the Tranche B Notes shall become due and payable on May 1,
2014. For purposes of this Section 4(a)(ii), any prepayment of less
than all of the outstanding Tranche B Notes pursuant to Section 4(b)
shall be deemed to be applied first to the amount of principal
scheduled to be repaid on May 1, 2014, and then to the remaining
scheduled principal payments, if any, in inverse chronological order.
(b) Application of Prepayments. In the event of a purchase of the
Series C Notes pursuant to Section 8.5 of the Note Agreements or a Partial
Redemption of the Series C Notes all required prepayments on the Series C
Notes shall be adjusted as provided in Section 8.1(c) of the Note
Agreements.
(c) Optional Prepayments. The Series C Notes are subject to prepayment
at the option of the Company in the manner and with the effect set forth in
Section 8.2 of the Note Agreements.
(d) Allocation of Partial Prepayments. In the case of each partial
prepayment of the Series C Notes pursuant to the provisions of Section 8.2
of the Note Agreements, the principal amount of the Series C Notes to be
prepaid shall be allocated
<PAGE>
among all of the Notes of such Series at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof. In the case of each required prepayment of the Series C
Notes pursuant to Section 4(a), the principal amount of the Tranche to be
prepaid shall be allocated among all of the Notes of such Tranche at the
time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof.
(e) Make-Whole Amount for Series C Notes. The term "Make-Whole Amount"
means, with respect to any Series C Note of any Tranche, an amount equal to
the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Series C Note of such
Tranche over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Series C Note of any
Tranche, the principal of such Series C Note of such Tranche that is to be
prepaid pursuant to Section 8.2 of the Note Agreements or has become or is
declared to be immediately due and payable pursuant to Section 12.1 of the
Note Agreements, as the context requires.
"Discounted Value" means, with respect to the Called Principal of any
Series C Note of any Tranche, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such Called Principal from
their respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice and
at a discount factor (applied on the same periodic basis as that on which
interest on the Series C Note of such Tranche is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Series C Note of any Tranche, 0.50% over the yield to maturity implied
by (i) the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "PX-1" on the Bloomberg
Financial Markets Services Screen (or such other display as may replace
PX-1 of the Bloomberg Financial Markets Services Screen) for actively
traded U.S. Treasury securities having a maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date, or (ii)
if such yields are not reported as of such time or the yields reported as
of such time are not ascertainable, the Treasury Constant Maturity Series
Yields reported, for the latest day for which such yields have been so
reported as of the second Business Day preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date. Such
implied yield will be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the
<PAGE>
maturity closest to and greater than the Remaining Average Life and (2) the
actively traded U.S. Treasury security with the maturity closest to and
less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number
of years (calculated to the nearest one-twelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Series C Note of any Tranche, all payments of such Called
Principal and interest thereon that would be due after the Settlement Date
with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be made
under the terms of the Series C Note of such Tranche, then the amount of
the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2 of the Note Agreements or
12.1 of the Note Agreements.
"Settlement Date" means, with respect to the Called Principal of any
Series C Note of any Tranche, the date on which such Called Principal is to
be prepaid pursuant to Section 8.2 of the Note Agreements or has become or
is declared to be immediately due and payable pursuant to Section 12.1 of
the Note Agreements, as the context requires.
5. The obligation of each Purchaser to purchase and pay for the Series C
Notes to be sold to such Purchaser at the Closing is subject to the fulfillment
to such Purchaser's satisfaction, prior to the Closing, of the conditions set
forth in Section 4 of the Note Agreements, and to the following additional
conditions:
(a) Except as supplemented by the representations and warranties set
forth in Exhibit A hereto, each of the representations and warranties of
the Company set forth in Section 5 of the Note Agreements shall be correct
as of the date of Closing and the Company shall have delivered to each
Purchaser an Officer's Certificate, dated the date of the Closing
certifying that such condition has been fulfilled.
(b) Contemporaneously with the Closing, the Company shall sell to each
Purchaser, and each Purchaser shall purchase, the Notes to be purchased by
such Purchaser at the Closing as specified in Schedule A.
(c) Private Placement Numbers shall have been obtained for each
Tranche of the Series C Notes.
<PAGE>
The execution hereof shall constitute a contract between us for the uses
and purposes hereinabove set forth, and this agreement may be executed in any
number of counterparts, each executed counterpart constituting an original but
all together only one agreement.
THE MARCUS CORPORATION
By:/s/ Stephen H. Marcus
-------------------------------------
Its: President
Printed Name: Stephen H. Marcus
<PAGE>
Accepted as of May 1, 1999:
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
By: CIGNA Investments, Inc.,
Its Authorized Agent
By:/s/ James R. Kuzemchak
-------------------------------------
Name: James R. Kuzemchak
Title: Managing Director
<PAGE>
Accepted as of May 1, 1999:
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-in-Fact
By:/s/ Timothy L. Power
-------------------------------------
Name: Timothy L. Power
Title: Vice President
<PAGE>
Accepted as of May 1, 1999:
LINCOLN NATIONAL HEALTH & CASUALTY
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-in-Fact
By:/s/ Timothy L. Power
-------------------------------------
Name: Timothy L. Power
Title: Vice President
<PAGE>
Accepted as of May 1, 1999:
LINCOLN LIFE & ANNUITY COMPANY OF NEW
YORK
By: Lincoln Investment Management, Inc.,
Its Attorney-in-Fact
By: /s/ Timothy L. Power
------------------------------------
Name: Timothy L. Power
Title: Vice President
Exhibit 4.5
================================================================================
CREDIT AGREEMENT
Dated as of April 29, 1999
among
THE MARCUS CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent,
BANK ONE, WISCONSIN,
as Documentation Agent,
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
and
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Sole Arranger and Sole Book Manager
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I DEFINITIONS.......................................................1
1.1 Certain Defined Terms........................................1
1.2 Other Interpretive Provisions...............................14
1.3 Accounting Principles.......................................15
ARTICLE II THE CREDITS......................................................15
2.1 Amounts and Terms of Commitments............................15
2.2 Loan Accounts...............................................15
2.3 Procedure for Borrowing.....................................16
2.4 Conversion and Continuation Elections.......................17
2.5 Changes in Aggregate Commitments............................18
2.6 Optional Prepayments........................................19
2.7 Repayment...................................................19
2.8 Interest....................................................19
2.9 Fees........................................................20
(a) Arrangement, Agency Fees................................20
(b) Facility Fee............................................20
2.10 Computation of Fees and Interest............................21
2.11 Payments by the Company.....................................21
2.12 Payments by the Banks to the Agent..........................22
2.13 Sharing of Payments, Etc....................................22
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY...........................23
3.1 Taxes.......................................................23
3.2 Illegality..................................................24
3.3 Increased Costs and Reduction of Return.....................25
3.4 Funding Losses..............................................25
3.5 Inability to Determine Rates................................26
3.6 Certificates of Banks.......................................26
3.7 Substitution of Banks.......................................26
3.8 Survival....................................................27
ARTICLE IV CONDITIONS PRECEDENT.............................................27
4.1 Conditions of Initial Loans.................................27
(a) Credit Agreement......................................27
(b) Resolutions; Incumbency...............................27
(c) Organization Documents................................27
(d) Legal Opinions........................................27
(e) Payment of Fees.......................................28
(f) Certificate...........................................28
(g) Other Documents.......................................28
-i-
<PAGE>
Section Page
4.2 Conditions to All Borrowings................................28
(a) Notice of Borrowing.....................................28
(b) Continuation of Representations and Warranties..........28
(c) No Existing Default.....................................28
ARTICLE V REPRESENTATIONS AND WARRANTIES...................................29
5.1 Corporate Existence and Power...............................29
5.2 Corporate Authorization; No Contravention...................29
5.3 Governmental Authorization..................................29
5.4 Binding Effect..............................................30
5.5 Litigation..................................................30
5.6 No Default..................................................30
5.7 ERISA Compliance............................................30
5.8 Use of Proceeds; Margin Regulations.........................31
5.9 Title to Properties.........................................31
5.10 Taxes.......................................................31
5.11 Financial Condition.........................................31
5.12 Environmental Matters.......................................32
5.13 Regulated Entities..........................................32
5.14 No Burdensome Restrictions..................................32
5.15 Copyrights, Patents, Trademarks and Licenses, etc...........32
5.16 Subsidiaries................................................33
5.17 Insurance...................................................33
5.18 Full Disclosure.............................................33
5.19 Year 2000 Problem...........................................33
ARTICLE VI AFFIRMATIVE COVENANTS............................................34
6.1 Financial Statements........................................34
6.2 Certificates; Other Information.............................34
6.3 Notices.....................................................35
6.4 Preservation of Corporate Existence, Etc....................36
6.5 Maintenance of Property.....................................36
6.6 Insurance...................................................36
6.7 Payment of Obligations......................................36
6.8 Compliance with Laws........................................37
6.9 Employee Benefit Plans......................................37
6.10 Accounting; Inspection of Property and
Books and Records...........................................37
6.11 Environmental Laws..........................................38
6.12 Use of Proceeds.............................................38
-ii-
<PAGE>
Section Page
6.13 Contingent Obligations......................................38
ARTICLE VII NEGATIVE COVENANTS...............................................38
7.1 Limitation on Liens.........................................38
7.2 Disposition of Assets.......................................39
7.3 Merger; Purchase of Assets; Acquisitions; Etc...............40
7.4 Loans and Investments.......................................40
7.5 Limitation on Subsidiary Indebtedness.......................40
7.6 Transactions with Affiliates................................41
7.7 Use of Proceeds.............................................41
7.8 Restricted Payments.........................................41
7.9 Change in Business..........................................41
7.10 Accounting Changes..........................................41
7.11 Funded Debt Ratio...........................................41
7.12 Fixed Charge Coverage Ratio.................................41
7.13 Subsidiary Dividends........................................42
ARTICLE VIII VENTS OF DEFAULT.................................................42
8.1 Event of Default............................................42
(a) NonPayment..............................................42
(b) Representation or Warranty..............................42
(c) Specific Defaults.......................................42
(d) Other Defaults..........................................42
(e) CrossDefault............................................42
(f) Insolvency; Voluntary Proceedings.......................43
(g) Involuntary Proceedings.................................43
(h) [Pension Plans..........................................43
(i) Monetary Judgments......................................43
(j) NonMonetary Judgments...................................44
(k) Change of Control.......................................44
(l) Loss of Licenses........................................44
(m) Adverse Change..........................................44
(n) Guarantor Defaults......................................44
8.2 Remedies....................................................44
8.3 Rights Not Exclusive........................................45
ARTICLE IX THE AGENT........................................................45
9.1 Appointment and Authorization...............................45
9.2 Delegation of Duties........................................45
9.3 Liability of Agent..........................................45
9.4 Reliance by Agent...........................................46
-iii-
<PAGE>
Section Page
9.5 Notice of Default...........................................46
9.6 Credit Decision.............................................47
9.7 Indemnification.............................................47
9.8 Agent in Individual Capacity................................48
9.9 Successor Agent.............................................48
9.10 Withholding Tax.............................................48
ARTICLE X MISCELLANEOUS....................................................50
10.1 Amendments and Waivers.....................................50
10.2 Notices....................................................51
10.3 No Waiver; Cumulative Remedies.............................52
10.4 Costs and Expenses.........................................52
10.5 Indemnity..................................................52
10.6 Payments Set Aside.........................................53
10.7 Successors and Assigns.....................................53
10.8 Assignments, Participations, Etc...........................53
10.9 Confidentiality............................................55
10.10 Setoff.....................................................56
10.11 Automatic Debits of Fees...................................56
10.12 Notification of Addresses, Lending Offices, Etc............56
10.13 Counterparts...............................................56
10.14 Severability...............................................57
10.15 No Third Parties Benefited.................................57
10.16 Governing Law and Jurisdiction.............................57
10.17 Waiver of Jury Trial.......................................57
10.18 Entire Agreement...........................................58
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SCHEDULES
Schedule 1.1 Pricing Schedule
Schedule 2.1 Commitments
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 7.1 Permitted Liens
Schedule 7.4 Investments
Schedule 7.5 Permitted Indebtedness
Schedule 10.2 Lending Offices; Addresses for Notices
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EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
Exhibit G Form of Request for Increase
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CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of April 29, 1999, among THE
MARCUS CORPORATION, a Wisconsin corporation (the "Company"), the several
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), and Bank of America National Trust and
Savings Association, as administrative agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a revolving
credit facility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of
50% of the capital stock, partnership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a
Person that is a Subsidiary) provided that the Company or the Subsidiary is
the surviving entity.
"Adjusted Consolidated Cash Flow" means, for any period, the
Consolidated Net Income of the Company and its Subsidiaries plus (a)
depreciation and amortization for such period, (b) all current and deferred
taxes on income, provision for taxes on income, provision for taxes on
unremitted foreign earnings which are included in consolidated gross
revenues and current additions to reserves, and (c) Interest and Rental
Expense for the Company and its Subsidiaries on a consolidated basis.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities, by
contract, or otherwise.
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"Agent" means Bank of America in its capacity as administrative agent
for the Banks hereunder, and any successor administrative agent arising
under Section 9.9.
"Agent-Related Persons" means Bank of America and any successor
administrative agent arising under Section 9.9, together with their
respective Affiliates (including, in the case of Bank of America, the Sole
Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the Agent, or such other address
as the Agent may from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means, at any time, with respect to Offshore Rate
Loans and Base Rate Loans, the rate per annum determined in accordance with
Schedule 1.1.
"Assignee" has the meaning specified in subsection 10.8(a).
"Attorney Costs" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause hereto.
"Bank of America" means Bank of America National Trust and Savings
Association, a national banking association.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. ss.101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect
for such day as publicly announced from time to time by Bank of America in
San Francisco, California, as its "reference rate." (The "reference rate"
is a rate set by Bank of America based upon various factors including Bank
of America's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate.)
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Any change in the reference rate announced by Bank of America shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Borrowing" means a borrowing hereunder consisting of Loans of the
same Type made to the Company on the same day by the Banks under Article
II, and, in the case of Offshore Rate Loans, having the same Interest
Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.3.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means such a day on which dealings are carried on in
the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Capital Lease" means, as to any Person, any lease which, in
accordance with GAAP consistently applied, is or should be capitalized on
the books of such Person.
"Cash Equivalents" means, as to any Person, (a) securities issued or
directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more
than three months from the date of acquisition, (b) time deposits and
certificates of deposit of any commercial bank with a long-term unsecured
debt rating of at least A or its equivalent from Standard & Poor's Ratings
Group or at least A-2 or its equivalent from Moody's Investors Service,
Inc., with maturities of not more than three months from the date of
acquisition by such Person, (c) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clause (a) above entered into with any bank meeting the qualifications
specified in clause (b) above, (d) commercial paper issued by any Person
incorporated in the United States, which commercial paper is rated at least
A-1 or the equivalent thereof by Standard & Poor's Corporation or at least
P-1 or the equivalent thereof by Moody's Investors Service, Inc., and in
each case maturing not more than three months after the date of acquisition
by such Person and (e) investments in money market funds, substantially all
the assets of which are comprised of securities of the types described in
clauses (a) through (d) above.
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"Change of Control" means any event, or combination of events, the
result of which is that Ben Marcus, Stephen H. Marcus and Diane Marcus
Gershowitz and their respective heirs, collectively, no longer beneficially
own (within the meaning of Rule 13d-3 of the SEC under the Exchange Act)
51% or more of the voting rights with respect to outstanding shares of the
Company.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.1 are satisfied or waived by all Banks (or, in the case
of subsection 4.1(e), waived by the Person entitled to receive such
payment).
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in Section
2.1. As of the date of this Agreement, the amount of the combined
Commitments of all Banks is $125,000,000.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C.
"Consolidated Net Income" means, for any period, the consolidated
gross revenues of the Company and its Subsidiaries, less all operating and
nonoperating expenses of the Company and its Subsidiaries, including all
charges of a proper character (including current and deferred taxes on
income, provision for taxes on income, provisions for taxes on unremitted
foreign earnings which are included in consolidated gross revenues, and
current additions to reserves), all determined in accordance with GAAP
consistently applied, but not including in the computation thereof the
amounts (including related expenses and any tax effect related thereto)
resulting from (i) any gains or losses resulting from the sale, conversion
or other disposition of capital assets (i.e., assets other than current
assets), (ii) any gains or losses resulting from the reevaluation of
assets, (iii) any gains or losses resulting from an acquisition by the
Company or any of its Subsidiaries at a discount of any debt of the Company
or any of its Subsidiaries, (iv) any equity of the Company or any of its
Subsidiaries in the unremitted earnings of any Person which is not a
Subsidiary, (v) any earnings of any Person acquired by the Company or any
of its Subsidiaries through purchase, merger or consolidation or otherwise
for any time prior to the date of acquisition, (vi) any deferred credit
representing the excess of equity in any Subsidiary of the Company at the
date of acquisition over the cost of the investment in such Subsidiary,
(vii) any restoration to income of any reserve, except to the extent that
provision for such reserve was made out of income accrued during such
period, (viii) any net gain from the collection of life insurance policies,
or (ix) any gain resulting from any other non-recurring item.
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"Contingent Obligation" means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes
or is contingently liable upon (by direct or indirect agreement, contingent
or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against
loss) the indebtedness, obligation or any other liability of any other
Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions
upon the shares of any other Person. The amount of any Person's obligation
under any Contingent Obligation shall (subject to any limitation set forth
therein) be deemed to be the outstanding principal amount (or maximum
principal amount, if larger) of the debt, obligation or other liability
guaranteed thereby.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Company, are treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA.
"Conversion/Continuation Date" means any date on which, under Section
2.4, the Company (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (ii) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, provided that such bank is acting
through a branch or agency located in the United States;(iii) a Person that
is primarily engaged in the business of commercial banking and that is (A)
a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank
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is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary; and (iv)
any other Person agreed to by the Company and the Agent.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances specified
in Section 8.1.
"Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"Facility Fee Rate" means, at any time, the rate per annum determined
in accordance with Schedule 1.1.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.9(a).
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
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"Funded Debt" means all Indebtedness for borrowed money (including
obligations under Capital Leases and excluding Contingent Obligations with
respect to Funded Indebtedness of other Persons).
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the Closing Date.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property); (f) all obligations with respect to capital leases; (g) all
net obligations with respect to Swap Contracts; (h) all indebtedness
referred to in clauses (a) through (g) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (i) all
Contingent Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (a) through (g) above.
"Indemnified Liabilities" has the meaning specified in Section 10.5.
"Indemnified Person" has the meaning specified in Section 10.5.
"Independent Auditor" has the meaning specified in subsection 6.1(a).
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"Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; undertaken under U.S. Federal, state
or foreign law, including the Bankruptcy Code.
"Interest and Rental Expense" means, for any period, all amounts
recorded and deducted in computing the Company's Consolidated Net Income
for such period in respect of interest charges and expense and rental
charges for such period (whether paid or accrued, or a cash or non-cash
expense, and in the case of rental payments, including the full amount of
those payments made under operating leases or synthetic leases, but only
the imputed interest under Capital Leases).
"Interest Payment Date" means, as to Offshore Rate Loan, the last day
of each Interest Period applicable to such Offshore Rate Loan and, as to
any Base Rate Loan, the last Business Day of each calendar quarter and each
date such Base Rate Loan is converted into an Offshore Rate Loan, provided,
however, that if any Interest Period for an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of such
Interest Period and after each Interest Payment Date thereafter is also an
Interest Payment Date.
"Interest Period" means, the period commencing on the Borrowing Date
of an Offshore Rate Loan or on the Conversion/Continuation Date on which
the Loan is converted into or continued as an Offshore Rate Loan, and
ending on the date one, two, three or six months thereafter as selected by
the Company in its Notice of Borrowing or Notice of
Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the
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calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period shall extend beyond the Termination
Date.
"Investment" means any advance, loan, extension of credit or capital
contribution to, or any investment in the capital stock or other equity
interest, or debt securities or other obligations of, another Person or any
contingent liability incurred for the benefit of another Person.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Joint Venture" means a single-purpose corporation, partnership, joint
venture or other similar legal arrangement (whether created by contract or
conducted through a separate legal entity) now or hereafter formed by the
Company or any of its Subsidiaries with another Person in order to conduct
a common venture or enterprise with such Person.
"Lending Office" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 10.2, or such
other office or offices as such Bank may from time to time notify the
Company and the Agent.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law), but not including the interest of a lessor
under an operating lease.
"Loan" means an extension of credit by a Bank to the Company under
Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"Type" of Loan).
"Loan Documents" means this Agreement, any Notes, the Guaranty, the
Fee Letter and all other documents delivered to the Agent or any Bank in
connection herewith.
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"Majority Banks" means at any time Banks then holding in excess of 50%
of the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, Banks then having in excess of 50% of
the Commitments.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, assets, liabilities
(actual or contingent), properties, condition (financial or otherwise) or
prospects of the Company or the Company and its Subsidiaries taken as a
whole; (b) a material impairment of the ability of the Company or any
Subsidiary to perform under any Loan Document and to avoid any Event of
Default; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Company or any Subsidiary of
any Loan Document.
"Multiemployer Plan" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any member of the
Controlled Group makes, is making, or is obligated to make contributions
or, during the preceding three calendar years, has made, or been obligated
to make, contributions.
"Note" means a promissory note executed by the Company in favor of a
Bank pursuant to subsection 2.2(b), in substantially the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially
the form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company
to any Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, the rate of interest
per annum (rounded upward to the next 1/16th of 1%) determined by the Agent
as follows:
Offshore Rate = IBOR
-----------------------
1.00 - Eurodollar Reserve Percentage
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Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such
day (whether or not applicable to any Bank) under regulations issued
from time to time by the FRB for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the
Agent as the rate at which dollar deposits in the approximate amount
of Bank of America's Offshore Rate Loan for such Interest Period would
be offered by Bank of America's Grand Cayman Branch, Grand Cayman
B.W.I. (or such other office as may be designated for such purpose by
Bank of America), to major banks in the offshore dollar interbank
market at their request at approximately 11:00 a.m. (New York City
time) two Business Days prior to the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
"Organization Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Other Taxes" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Participant" has the meaning specified in subsection 10.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
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"Pension Plan" means a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
Multiemployer Plan), and to which the Company or any member of the
Controlled Group may have any liability with respect to current or former
employees of the Company or any member of the Controlled Group, including
any liability by reason of having been a substantial employer within the
meaning of Section 4063 of ERISA at any time during the preceding five
years, or by reason of being deemed to be a contributing sponsor under
Section 4069 of ERISA.
"Permitted Liens" has the meaning specified in Section 7.1.
"Person" means an individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of such Bank's Commitment divided by the combined Commitments of
all Banks.
"Replacement Bank" has the meaning specified in Section 3.7.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company, or any other officer having substantially the same authority and
responsibility.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"Senior Indebtedness" means all Indebtedness of the Company for money
borrowed which is not by its terms subordinated in right of payment to the
payment of any other Indebtedness of the Company.
"Sole Arranger" means NationsBanc Montgomery Securities LLC.
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"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50%
of the voting stock or other equity interests (in the case of Persons other
than corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a combination
thereof. Unless the context otherwise clearly requires, references herein
to a "Subsidiary" refer to a Subsidiary of the Company.
"Surety Instruments" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Swap Contract" means any agreement (including any master agreement
and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward
rate agreement, commodity swap, commodity option, equity or equity index
swap or option, bond option, interest rate option, forward foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
cross-currency rate swap agreement, swaption, currency option or any other,
similar agreement (including any option to enter into any of the
foregoing).
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured
by each Bank's net income by the jurisdictions (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as the
case may be, is organized or maintains a lending office.
"Termination Date" means the earlier to occur of:
(a) April 30, 2004; and
(b) the date on which the Commitments terminate in accordance
with the provisions of this Agreement.
"Total Capitalization" means, as to any Person and as of any date, the
sum of the shareholders' equity of such Person, calculated in accordance
with GAAP consistently applied, as shown on a balance sheet of such Person,
plus the Funded Debt of such Person.
"Type" has the meaning specified in the definition of "Loan."
"United States" and "U.S." each means the United States of America.
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"Welfare Plan" means a "welfare plan", as such term is defined in
Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of
every other class, in each case, at the time as of which any determination
is being made, is owned, beneficially and of record, by the Company, or by
one or more of the other Wholly-Owned Subsidiaries, or both.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the singular
and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer to
this Agreement as a whole and not to any particular provision of this Agreement;
and subsection, Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced.
(ii) The term "including" is not limiting and means "including without
limitation."
(iii) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means
"to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
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(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.3 Accounting Principles. Unless the context otherwise clearly requires,
all accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(a) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Company.
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments. Each Bank severally agrees, on the
terms and conditions set forth herein, to make loans to the Company (each such
loan, a "Loan") from time to time on any Business Day during the period from the
Closing Date to the Termination Date, in an aggregate amount not to exceed at
any time outstanding, together with the principal amount of Loans outstanding in
favor of such Bank at such time, the amount set forth next to such Bank's name
on Schedule 2.1 (such amount, as the same may be reduced or increased under
Section 2.5 or as a result of one or more assignments under Section 10.8, the
Bank's "Commitment"); provided, however, that, after giving effect to any
Borrowing, the aggregate principal amount of all outstanding Loans shall not at
any time exceed the combined Commitments. Within the limits of each Bank's
Commitment, and subject to the other terms and conditions hereof, the Company
may borrow under this Section 2.1, prepay under Section 2.6 and reborrow under
this Section 2.1.
2.2 Loan Accounts.
(a) The Loans made by each Bank shall be evidenced by one or more loan
accounts or records maintained by such Bank in the ordinary course of business.
The loan accounts or records maintained by the Agent and each Bank shall be
conclusive absent manifest error of the amount of the Loans made by the Banks to
the Company and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with respect to the
Loans.
(b) Upon the request of any Bank made through the Agent, the Loans made by
such Bank may be evidenced by one or more Notes, instead of loan accounts. Each
such Bank shall
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endorse on the schedules annexed to its Note(s) the date, amount and maturity of
each Loan made by it and the amount of each payment of principal made by the
Company with respect thereto. Each such Bank is irrevocably authorized by the
Company to endorse its Note(s) and each Bank's record shall be conclusive absent
manifest error; provided, however, that the failure of a Bank to make, or an
error in making, a notation thereon with respect to any Loan shall not limit or
otherwise affect the obligations of the Company hereunder or under any such Note
to such Bank.
2.3 Procedure for Borrowing.
(a) Each Borrowing shall be made upon the Company's irrevocable telephonic
or written notice delivered to the Agent in the form of a Notice of Borrowing,
if written and promptly confirmed by delivery of a form of Notice of Borrowing,
if telephonic, which written or telephonic notice must be received by the Agent
prior to 9:00 a.m. (Chicago time) (i) two Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans; and (ii) on the requested
Borrowing Date, in the case of Base Rate Loans, specifying:
(1) the amount of the Borrowing, which shall be in an aggregate
minimum amount of $5,000,000 or any multiple of $1,000,000 in excess
thereof;
(2) the requested Borrowing Date, which shall be a Business Day;
(3) the Type of Loans comprising the Borrowing; and
(4) the duration of the Interest Period applicable to such Loans
included in such notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any Borrowing comprised of Offshore
Rate Loans, such Interest Period shall be three months.
(b) The Agent will promptly notify each Bank of its receipt of any Notice
of Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each Borrowing
available to the Agent for the account of the Company at the Agent's Payment
Office by 1:00 p.m. (Chicago time) on the Borrowing Date requested by the
Company in funds immediately available to the Agent. The proceeds of all such
Loans will then be made available to the Company by the Agent by wire transfer
in accordance with written instructions provided to the Agent by the Company of
like funds as received by the Agent.
(d) After giving effect to any Borrowing, there may not be more than ten
different Interest Periods in effect.
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2.4 Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written or telephonic notice
(promptly confirmed in writing, if telephonic) to the Agent in accordance with
subsection 2.4(b):
(1) elect, as of any Business Day, in the case of Base Rate Loans, or
as of the last day of the applicable Interest Period, in the case of
Offshore Rate Loans, to convert any such Loans (or any part thereof in an
amount not less than $5,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof) into Loans of any other Type; or
(2) elect, as of the last day of the applicable Interest Period, to
continue any Offshore Rate Loans having Interest Periods expiring on such
day (or any part thereof in an amount not less than $5,000,000, or that is
in an integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into, Offshore
Rate Loans shall terminate.
(b) The Company shall give written or telephonic notice to be received by
the Agent not later than 9:00 a.m. (Chicago time) at least (i) two Business Days
in advance of the Conversion/Continuation Date, if the Loans are to be converted
into or continued as Offshore Rate Loans; and (ii) on the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(1) the proposed Conversion/Continuation Date;
(2) the aggregate amount of Loans to be converted or renewed;
(3) the Type of Loans resulting from the proposed conversion or
continuation; and
(4) in the case of conversions into or continuations of Offshore Rate
Loans, the duration of the requested Interest Period.
Such notice, if written, shall be in the form of a Notice of
Conversion/Continuation and, if telephonic, shall be confirmed with a Notice of
Conversion/Continuation.
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(c) If upon the expiration of any Interest Period applicable to Offshore
Rate Loans, the Company has failed to select timely a new Interest Period to be
applicable to such Offshore Rate Loans or if any Default or Event of Default
then exists, the Company shall be deemed to have elected to convert such
Offshore Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a Notice of
Conversion/Continuation, or, if no timely notice is provided by the Company, the
Agent will promptly notify each Bank of the details of any automatic conversion.
All conversions and continuations shall be made ratably according to the
respective outstanding principal amounts of the Loans with respect to which the
notice was given held by each Bank.
(e) Unless the Majority Banks otherwise agree, during the existence of a
Default or Event of Default, the Company may not elect to have a Loan converted
into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans, there
may not be more than ten different Interest Periods in effect.
2.5 Changes in Aggregate Commitments.
(a) The Company may, upon not less than four Business Days' prior notice to
the Agent, terminate the Commitments, or permanently reduce the Commitments by
an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in
excess thereof; unless, after giving effect thereto and to any prepayments of
Loans made on the effective date thereof, the then-outstanding principal amount
of the Loans would exceed the amount of the combined Commitments then in effect.
Once reduced in accordance with this Section 2.5, the Commitments may not be
increased. Any reduction of the Commitments shall be applied to each Bank
according to its Pro Rata Share. All accrued commitment fees to, but not
including the effective date of any reduction or termination of Commitments,
shall be paid on the effective date of such reduction or termination.
(b) The Company may from time to time but no more often than once in any
consecutive twelve month period, by means of a letter to the Agent substantially
in the form of Exhibit G, request that the aggregate Commitments be increased by
(a) increasing the Commitment of one or more Banks which have agreed to such
increase and/or (b) adding one or more commercial banks or other Persons as a
party hereto with a Commitment in an amount agreed to by any such commercial
bank or other Person; provided that (i) no commercial bank or other Person shall
be added as a party hereto without the written consent of the Company and the
Agent, (ii) no commercial bank or other Person shall be added as a party hereto
unless the Commitment of such commercial bank or other Person equals or exceeds
the lowest existing Commitment of an existing Bank immediately prior to any
increase in the aggregate Commitments pursuant to this Section
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2.5(b) and (iii) in no event shall the aggregate Commitments exceed $175,000,000
without the written consent of all Banks; provided further, the aggregate
Commitments shall not be increased pursuant to this Section 2.5(b) unless (i)
the Company will be in pro forma compliance with all of its covenants under this
Agreement before and after giving effect to any increase hereunder and (ii) no
Default or Event of Default has occurred and is continuing or will result from
any such increase hereunder. Any increase in the aggregate Commitments pursuant
to this Section 2.5(b) shall be effective five Business Days after the date on
which the Agent has received and accepted the applicable increase letter in the
form of Annex 1 to Exhibit G (in the case of an increase in the Commitment of an
existing Bank) or assumption letter in the form of Annex 2 to Exhibit G (in the
case of the addition of a commercial bank or other Person as a new Bank). The
Agent shall promptly notify the Company and the Banks of any increase in the
amount of the aggregate Commitments pursuant to this Section 2.5(b) and of the
Commitment and Pro Rata Share of each Bank after giving effect thereto. The
Company acknowledges that, in order to maintain Loans in accordance with each
Bank's Pro Rata Share, a reallocation of the Commitments as a result of a
non-pro-rata increase in the aggregate Commitments may require prepayment or
funding of all or portions of certain Loans on the date of such increase and
funding of all or portions of Loans on the date of such increase (and any such
prepayment or funding shall be subject to the provision of Section 3.4). The
Agent shall promptly notify all Banks of any increase in the aggregate
Commitments pursuant to this Section 2.5(b).
2.6 Optional Prepayments. Subject to Section 3.4, the Company may, at any
time or from time to time, upon not less than one Business Day's irrevocable
notice to the Agent, ratably prepay Loans in whole or in part, in minimum
amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof. Such
notice of prepayment shall specify the date and amount of such prepayment and
the Type(s) of Loans to be prepaid. The Agent will promptly notify each Bank of
its receipt of any such notice, and of such Bank's Pro Rata Share of such
prepayment. If such notice is given by the Company, the Company shall make such
prepayment and the payment amount specified in such notice shall be due and
payable on the date specified therein, together with, in the case of Offshore
Rate Loans, accrued interest to each such date on the amount prepaid and any
amounts required pursuant to Section 3.4.
2.7 Repayment. The Company shall repay to the Banks on the Termination Date
the aggregate principal amount of Loans outstanding on such date.
2.8 Interest.
(a) Each Loan shall bear interest on the outstanding principal amount
thereof from the applicable Borrowing Date at a rate per annum equal to the
Offshore Rate or the Base Rate, as the case may be (and subject to the Company's
right to convert to other Types of Loans under Section 2.4), plus the Applicable
Margin.
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(b) Interest on each Loan shall be paid in arrears on each Interest Payment
Date. Interest shall also be paid on the date of any prepayment of Loans under
Section 2.6 for the portion of the Loans so prepaid and upon payment (including
prepayment) in full thereof and, during the existence of any Event of Default,
interest shall be paid on demand of the Agent at the request or with the consent
of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while any Event of
Default exists or after acceleration, the Company shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Loans, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans; provided, however, that, on and after the expiration of any Interest
Period applicable to any Offshore Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Offshore Rate Loan shall, during the continuation of such Event of Default
or after acceleration, bear interest at a rate per annum equal to the Base Rate
plus 2%.
(d) Anything herein to the contrary notwithstanding, the obligations of the
Company to any Bank hereunder shall be subject to the limitation that payments
of interest shall not be required for any period for which interest is computed
hereunder, to the extent (but only to the extent) that contracting for or
receiving such payment by such Bank would be contrary to the provisions of any
law applicable to such Bank limiting the highest rate of interest that may be
lawfully contracted for, charged or received by such Bank, and in such event the
Company shall pay such Bank interest at the highest rate permitted by applicable
law.
2.9 Fees.
(a) Arrangement, Agency Fees. The Company shall pay an arrangement fee to
the Sole Arranger for the Sole Arranger's own account, and shall pay an agency
fee to the Agent for the Agent's own account, as required by the letter
agreement ("Fee Letter") between the Company and the Sole Arranger and Agent
dated March 12, 1999.
(b) Facility Fee. The Company shall pay to the Agent for the account of
each Bank a facility fee on the Bank's Commitment (regardless of usage),
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter, equal to the Facility Fee Rate. Such facility fee shall accrue
from the date hereof to the Termination Date and shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter
commencing on July 31, 1999 through the Termination Date, with the final payment
to be made on the Termination Date; provided that, in connection with any
reduction or termination of Commitments under Section 2.5, the accrued facility
fee calculated for the period ending on such date shall also be paid on the date
of such reduction or termination, with the following quarterly payment being
calculated on the basis of the period from such reduction or termination date to
such quarterly payment date. The facility fees
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provided in this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article IV are not met.
2.10 Computation of Fees and Interest.
(a) All computations of interest for Base Rate Loans when the Base Rate is
determined by Bank of America's "reference rate" shall be made on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed. All other
computations of fees and interest shall be made on the basis of a 360-day year
and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year). Interest and fees shall accrue during
each period during which interest or such fees are computed from the first day
thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be conclusive
and binding on the Company and the Banks in the absence of manifest error.
2.11 Payments by the Company.
(a) All payments to be made by the Company shall be made without set-off,
recoupment or counterclaim. Except as otherwise expressly provided herein, all
payments by the Company shall be made to the Agent for the account of the Banks
at the Agent's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 2:00 p.m. (Chicago time) on the date specified
herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or
other applicable share as expressly provided herein) of such payment in like
funds as received. Any payment received by the Agent later than 2:00 p.m.
(Chicago time) shall be deemed to have been received on the following Business
Day and any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(c) Unless the Agent receives notice from the Company prior to the date on
which any payment is due to the Banks that the Company will not make such
payment in full as and when required, the Agent may assume that the Company has
made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank,
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together with interest thereon at the Federal Funds Rate for each day from the
date such amount is distributed to such Bank until the date repaid.
2.12 Payments by the Banks to the Agent.
(a) Unless the Agent receives notice from a Bank on or prior to the Closing
Date or, with respect to any Borrowing after the Closing Date, at least one
Business Day prior to the date of such Borrowing, that such Bank will not make
available as and when required hereunder to the Agent for the account of the
Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may
assume that each Bank has made such amount available to the Agent in immediately
available funds on the Borrowing Date and the Agent may (but shall not be so
required), in reliance upon such assumption, make available to the Company on
such date a corresponding amount. If and to the extent any Bank shall not have
made its full amount available to the Agent in immediately available funds and
the Agent in such circumstances has made available to the Company such amount,
that Bank shall on the Business Day following such Borrowing Date make such
amount available to the Agent, together with interest at the Federal Funds Rate
for each day during such period. A notice of the Agent submitted to any Bank
with respect to amounts owing under this subsection (a) shall be conclusive,
absent manifest error. If such amount is so made available, such payment to the
Agent shall constitute such Bank's Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the Agent on
the Business Day following the Borrowing Date, the Agent will notify the Company
of such failure to fund and, upon demand by the Agent, the Company shall pay
such amount to the Agent for the Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the interest rate applicable at the time to the Loans comprising such
Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date shall
not relieve any other Bank of any obligation hereunder to make a Loan on such
Borrowing Date, but no Bank shall be responsible for the failure of any other
Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.13 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from the other
Banks such participations in the Loans made by them as shall be necessary to
cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
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purchasing Bank in respect of the total amount so recovered. The Company agrees
that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 10.9) with respect to such
participation as fully as if such Bank were the direct creditor of the Company
in the amount of such participation. The Agent will keep records (which shall be
conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks following
any such purchases or repayments.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 Taxes.
(a) Any and all payments by the Company to each Bank or the Agent under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for any Taxes. In addition, the Company shall
pay all Other Taxes.
(b) The Company agrees to indemnify and hold harmless each Bank and the
Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Bank or the Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days after the date
the Bank or the Agent makes written demand therefor.
(c) If the Company shall be required by law to deduct or withhold any Taxes
or Other Taxes from or in respect of any sum payable hereunder to any Bank or
the Agent, then:
(1) the sum payable shall be increased as necessary so that after
making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section) such
Bank or the Agent, as the case may be, receives an amount equal to the sum
it would have received had no such deductions or withholdings been made;
(2) the Company shall make such deductions and withholdings;
(3) the Company shall pay the full amount deducted or withheld to the
relevant taxing authority or other authority in accordance with applicable
law; and
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(4) the Company shall also pay to each Bank or the Agent for the
account of such Bank, at the time interest is paid, all additional amounts
which the respective Bank specifies as necessary to preserve the after-tax
yield the Bank would have received if such Taxes or Other Taxes had not
been imposed.
(d) Within 30 days after the date of any payment by the Company of Taxes or
Other Taxes, the Company shall furnish the Agent the original or a certified
copy of a receipt evidencing payment thereof, or other evidence of payment
satisfactory to the Agent.
(e) If the Company is required to pay additional amounts to any Bank or the
Agent pursuant to subsection (c) of this Section, then such Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Company which may thereafter accrue, if such change in the
judgment of such Bank is not otherwise disadvantageous to such Bank.
3.2 Illegality.
(a) If any Bank determines that the introduction of any Requirement of Law,
or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans, then,
on notice thereof by the Bank to the Company through the Agent, any obligation
of that Bank to make Offshore Rate Loans shall be suspended until the Bank
notifies the Agent and the Company that the circumstances giving rise to such
determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore Rate
Loan, the Company shall, upon its receipt of notice of such fact and demand from
such Bank (with a copy to the Agent), prepay in full such Offshore Rate Loans of
that Bank then outstanding, together with interest accrued thereon and amounts
required under Section 3.4, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans
to such day, or immediately, if the Bank may not lawfully continue to maintain
such Offshore Rate Loan. If the Company is required to so prepay any Offshore
Rate Loan, then concurrently with such prepayment, the Company shall borrow from
the affected Bank, in the amount of such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain Offshore Rate Loans
has been so terminated or suspended, the Company may elect, by giving notice to
the Bank through the Agent that all Loans which would otherwise be made by the
Bank as Offshore Rate Loans shall be instead Base Rate Loans.
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(d) Before giving any notice to the Agent under this Section, the affected
Bank shall designate a different Lending Office with respect to its Offshore
Rate Loans if such designation will avoid the need for giving such notice or
making such demand and will not, in the judgment of the Bank, be illegal or
otherwise disadvantageous to the Bank.
3.3 Increased Costs and Reduction of Return.
(a) If any Bank determines that, due to either (i) the introduction of or
any change in or in the interpretation of any law or regulation or (ii) the
compliance by that Bank with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Bank of agreeing to make or making,
funding or maintaining any Offshore Rate Loans, then the Company shall be liable
for, and shall from time to time, upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such Bank, additional
amounts as are sufficient to compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank
and (taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy and such Bank's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitments, loans, credits or obligations under this Agreement, then, upon
demand of such Bank to the Company through the Agent, the Company shall pay to
the Bank, from time to time as specified by the Bank, additional amounts
sufficient to compensate the Bank for such increase.
3.4 Funding Losses. The Company shall reimburse each Bank and hold each
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(a) the failure of the Company to make on a timely basis any payment of
principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a Loan after
the Company has given (or is deemed to have given) a Notice of Borrowing or a
Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in accordance with
any notice delivered under Section 2.6;
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(d) the prepayment or other payment (including after acceleration thereof)
of an Offshore Rate Loan on a day that is not the last day of the relevant
Interest Period; or
(e) the automatic conversion under Section 2.4 of any Offshore Rate Loan to
a Base Rate Loan on a day that is not the last day of the relevant Interest
Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Banks under this Section and
under subsection 3.3(a), each Offshore Rate Loan made by a Bank (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the IBOR used in determining the Offshore Rate for
such Offshore Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded.
3.5 Inability to Determine Rates. If the Agent determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to subsection 2.8(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to such Banks of funding such Loan, the
Agent will promptly so notify the Company and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall
be suspended until the Agent with the consent of the Majority Banks revokes such
notice in writing. Upon receipt of such notice, the Company may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then submitted by it.
If the Company does not revoke such Notice, the Banks shall make, convert or
continue the Loans, as proposed by the Company, in the amount specified in the
applicable notice submitted by the Company, but such Loans shall be made,
converted or continued as Base Rate Loans instead of Offshore Rate Loans.
3.6 Certificates of Banks. Any Bank claiming reimbursement or compensation
under this Article III shall deliver to the Company (with a copy to the Agent) a
certificate setting forth in reasonable detail the amount payable to the Bank
hereunder and such certificate shall be conclusive and binding on the Company in
the absence of manifest error.
3.7 Substitution of Banks. Upon the receipt by the Company from any Bank
(an "Affected Bank") of a claim for compensation under Section 3.3, the Company
may: (i) request the Affected Bank to use its best efforts to obtain a
replacement bank or financial institution satisfactory to the Company to acquire
and assume all or a ratable part of all of such Affected Bank's Loans and
Commitment (a "Replacement Bank"); (ii) request one more of the other Banks to
acquire and assume all or part of such Affected Bank's Loans and Commitment; or
(iii) designate a Replacement
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Bank. Any such designation of a Replacement Bank under clause (i) or (iii) shall
be subject to the prior written consent of the Agent (which consent shall not be
unreasonably withheld).
3.8 Survival. The agreements and obligations of the Company in this Article
III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions of Initial Loans. The obligation of each Bank to make its
initial Loan hereunder is subject to the condition that the Agent have received
on or before the Closing Date (i) evidence, satisfactory to the Agent, that the
Credit Agreement dated as of November 30, 1994, as amended, among the Company
and Bank of America has been terminated, that all amounts owing by the Company
thereunder have been paid and that all obligations of the Company thereunder
have been satisfied, and (ii) all of the following, in form and substance
satisfactory to the Agent and each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement. This Agreement executed by each party thereto;
(b) Resolutions; Incumbency.
(1) Copies of the resolutions of the board of directors of the Company
authorizing the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Company; and
(2) A certificate of the Secretary or Assistant Secretary of the
Company certifying the names and true signatures of the officers of the
Company authorized to execute, deliver and perform this Agreement, and all
other Loan Documents to be delivered by it hereunder;
(c) Organization Documents. The articles or certificate of incorporation
and the bylaws of the Company as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the Company as of the Closing Date.
(d) Legal Opinions. An opinion of Robin J. Irwin, counsel to the Company
and addressed to the Agent and the Banks, substantially in the form of Exhibit
D;
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(e) Payment of Fees. Evidence of payment by the Company of all accrued and
unpaid fees, costs and expenses to the extent then due and payable on the
Closing Date; including any such costs, fees and expenses arising under or
referenced in Sections 2.9 and 10.4;
(f) Certificate. A certificate signed by a Responsible Officer, dated as of
the Closing Date, stating that:
(1) the representations and warranties contained in Article V are true
and correct on and as of such date, as though made on and as of such date;
(2) no Default or Event of Default exists or would result from the
initial Borrowing; and
(3) there has occurred since May 28, 1998, no event or circumstance
that has resulted or could reasonably be expected to result in a Material
Adverse Effect;
(g) Other Documents. Such other approvals, opinions, documents or materials
as the Agent or any Bank may request.
4.2 Conditions to All Borrowings. The obligation of each Bank to make any
Loan to be made by it (including its initial Loan) is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) Notice of Borrowing. The Agent shall have received a Notice of
Borrowing;
(b) Continuation of Representations and Warranties. The representations and
warranties in Article V shall be true and correct on and as of such Borrowing
Date with the same effect as if made on and as of such Borrowing Date (except to
the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date); and
(c) No Existing Default. No Default or Event of Default shall exist or
shall result from such Borrowing.
Each Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of each
such notice and as of each Borrowing Date, that the conditions in Section 4.2
are satisfied.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank that:
5.1 Corporate Existence and Power. The Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law; except, with respect to
clauses (c) and (d), to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
5.2 Corporate Authorization; No Contravention. The execution, delivery and
performance by the Company and its Subsidiaries of this Agreement and each other
Loan Document to which such Person is party, have been duly authorized by all
necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's Organization Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which such Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is subject; or
(c) violate any Requirement of Law, except to the extent that such
violation could not reasonably be expected to have a Material Adverse Effect.
5.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is
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necessary or required in connection with the execution, delivery or performance
by, or enforcement against, the Company or any of its Subsidiaries of the
Agreement or any other Loan Document.
5.4 Binding Effect. This Agreement and each other Loan Document to which
the Company or any of its Subsidiaries is a party constitute the legal, valid
and binding obligations of the Company and any of its Subsidiaries to the extent
it is a party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.5 Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Company or its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect. No injunction, writ,
temporary restraining order or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
5.6 No Default. No Default or Event of Default exists or would result from
the incurring of any Obligations by the Company or the execution, delivery and
performance of a Guaranty by any Subsidiary. As of the Closing Date, neither the
Company nor any Subsidiary is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the Closing Date, create an
Event of Default under subsection 8.1(e).
5.7 ERISA Compliance.
(a) During the twelve-consecutive-month period prior to the date of the
execution and delivery of this Agreement or the making of any Loan hereunder,
(i) no steps have been taken to terminate any Pension Plan and (ii) no
contribution failure has occurred with respect to any Pension Plan sufficient to
give rise to a lien under Section 302(f) of ERISA. No condition exists or event
or transaction has occurred with respect to any Pension Plan which might result
in the incurrence by the Company or any Subsidiary of any material liability,
fine or penalty.
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(b) All contributions (if any) have been made to any Multiemployer Plan
that are required to be made by the Company or any other member of the
Controlled Group under the terms of the plan or of any collective bargaining
agreement or by applicable law; neither the Company nor any member of the
Controlled Group has withdrawn or partially withdrawn from any Multiemployer
Plan (except a single withdrawal, with respect to which the liability of the
Company and the members of the Controlled Group shall not exceed $1,000,000),
incurred any withdrawal liability with respect to any such plan, received notice
of any claim or demand for withdrawal liability or partial withdrawal liability
from any such plan, and no condition has occurred which, if continued, might
result in a withdrawal or partial withdrawal from any such plan; and neither the
Company nor any member of the Controlled Group has received any notice that any
Multiemployer Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any excise
tax, that any such plan is or has been funded at a rate less than that required
under Section 412 of the Code, that any such plan is or may be terminated, or
that any such plan is or may become insolvent.
5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to
be used solely for the purposes set forth in and permitted by Section 6.12 and
Section 7.7. Neither the Company nor any Subsidiary is generally engaged in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
5.9 Title to Properties. The Company and each Subsidiary have good record
and marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. The property of the Company and
its Subsidiaries is subject to no Liens, other than Permitted Liens.
5.10 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 Financial Condition.
(a) The audited consolidated financial statements of the Company and its
Subsidiaries dated May 28, 1998 and the unaudited consolidated financial
statements of the Company and its Subsidiaries dated February 25, 1999, and the
related consolidated statements of
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income or operations, shareholders' equity and cash flows for the fiscal year or
period ended on such dates:
(1) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein;
(2) fairly present the financial condition of the Company and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(3) show all material indebtedness and other liabilities, direct or
contingent, of the Company and its consolidated Subsidiaries as of the date
thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since May 28, 1998, there has been no Material Adverse Effect.
5.12 Environmental Matters. The Company and its Subsidiaries conduct in the
ordinary course of business a review of the effect of existing Environmental
Laws and existing Environmental Claims on its business, operations and
properties, and as a result thereof the Company has reasonably concluded that
such Environmental Laws and Environmental Claims could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
5.13 Regulated Entities. None of the Company, any Person controlling the
Company, or any Subsidiary, is an "Investment Company" within the meaning of the
Investment Company Act of 1940. The Company is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is
a party to or bound by any Contractual Obligation, or subject to any restriction
in any Organization Document, or any Requirement of Law, which could reasonably
be expected to have a Material Adverse Effect.
5.15 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its
Subsidiaries own or are licensed or otherwise have the right to use all of the
patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person, except to the extent any such conflict could not reasonably
be expected to have a Material Adverse Effect. To the best knowledge of the
Company, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Company or any Subsidiary infringes upon any rights held
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by any other Person. No claim or litigation regarding any of the foregoing is
pending or threatened, and no patent, invention, device, application, principle
or any statute, law, rule, regulation, standard or code is pending or, to the
knowledge of the Company, proposed, which, in either case, could reasonably be
expected to have a Material Adverse Effect.
5.16 Subsidiaries. As of the Closing Date, the Company has no Subsidiaries
other than those specifically disclosed in part (a) of Schedule 5.16 hereto and,
except as specifically disclosed in part (b) of Schedule 5.16, has no equity
investments in any other corporation or entity, which, as to any one corporation
or entity, are equal to or greater than 20% of the aggregate ownership interests
in such corporation or entity or the value of which equity investments in any
one corporation or entity is equal to or greater than $100,000.
5.17 Insurance. The properties of the Company and its Subsidiaries are
insured with financially sound and reputable insurance companies not Affiliates
of the Company, in such amounts, with such deductibles and covering such risks
as are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Company or such Subsidiary operates.
5.18 Full Disclosure. None of the representations or warranties made by the
Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
5.19 Year 2000 Problem. (a) The Company and its Subsidiaries are taking all
necessary and appropriate steps to ascertain the extent of, and to quantify and
successfully address, business and financial risks facing the Company and its
Subsidiaries as a result of the Year 2000 problem including risks resulting from
the failure of key vendors and customers of the Company and its Subsidiaries to
successfully address the "Year 2000 problem" (that is, the inability of certain
computers, as well as embedded microchips in non computing devices, to perform
properly date sensitive functions with respect to certain dates prior to and
after December 31, 1999) and (b) the Company's and its Subsidiaries' material
computer applications and those of its key vendors and customers will, on a
timely basis, adequately address the Year 2000 problem in all material respects.
5.20 Subsidiary Indebtedness. No Subsidiary has outstanding any Contingent
Obligations with respect to Indebtedness of the Company.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
6.1 Financial Statements. The Company shall deliver to the Agent and the
Banks, in form and detail satisfactory to the Agent and the Majority Banks:
(a) as soon as available, but not later than 110 days after the end of each
fiscal year, a copy of the audited consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year and the related consolidated
statements of income or operations, shareholders' equity and cash flows for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, and accompanied by the opinion of Ernst & Young LLP or
another nationally-recognized independent public accounting firm ("Independent
Auditor") which report shall state that such consolidated financial statements
present fairly the financial position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years. Such opinion shall not
be qualified or limited because of a restricted or limited examination by the
Independent Auditor of any material portion of the Company's or any Subsidiary's
records;
(b) as soon as available, but not later than 60 days after the end of each
of the first three fiscal quarters of each fiscal year, a copy of the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such quarter and the related consolidated statements of income, shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Company and the Subsidiaries;
6.2 Certificates; Other Information. The Company shall furnish to the Agent
and the Banks:
(a) concurrently with the delivery of the financial statements referred to
in subsections 6.1(a) and (b), a Compliance Certificate executed by a
Responsible Officer;
(b) promptly, copies of all financial statements and reports that the
Company sends to its shareholders, and copies of all financial statements and
regular, periodical or special reports (including Forms 10K, 10Q and 8K) that
the Company or any Subsidiary may make to, or file with, the SEC, any securities
exchange or the National Association of Securities Dealers, Inc.; and
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(c) promptly, such additional information regarding the business, financial
or corporate affairs of the Company or any Subsidiary as the Agent, at the
request of any Bank, may from time to time request.
6.3 Notices. The Company shall promptly notify the Agent and each Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or may result in a Material Adverse
Effect, including (i) breach or non-performance of, or any default under, a
Contractual Obligation of the Company or any Subsidiary; (ii) any dispute,
litigation, investigation, proceeding or suspension between the Company or any
Subsidiary and any Governmental Authority; or (iii) the commencement of, or any
material development in, any litigation or proceeding affecting the Company or
any Subsidiary; including pursuant to any applicable Environmental Laws;
(c) of the institution of any steps by any member of the Controlled Group
or any other Person to terminate any Pension Plan, or the failure of any member
of the Controlled Group to make a required contribution to any Pension Plan (if
such failure is sufficient to give rise to a lien under Section 302(f) of ERISA)
or to any Multiemployer Plan, or the taking of any action with respect to a
Pension Plan which could result in the requirement that the Company furnish a
bond on or other security to the PBGC or such Pension Plan, or the occurrence of
any event with respect to any Pension Plan or Multiemployer Plan which could
result in the incurrence by any member of the Controlled Group of any material
liability, fine or penalty (including any claim or demand for withdrawal
liability or partial withdrawal from any Multiemployer Plan), or any material
increase in the contingent liability of the Company with respect to any
post-retirement Welfare Plan benefit, or any notice that any Multiemployer Plan
is in reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of an excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the Code, that any such plan is or may be terminated or that any such plan is
or may become insolvent;
(d) of any material change in accounting policies or financial reporting
practices by the Company or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written statement
by a Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action the Company or any affected Subsidiary proposes
to take with respect thereto and at what time. Each notice under subsection
6.3(a) shall describe with particularity any and all clauses or provisions of
this Agreement or other Loan Document that have been (or foreseeably will be)
breached or violated.
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6.4 Preservation of Corporate Existence, Etc. The Company shall, and shall
cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate existence
and good standing under the laws of its state or jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all governmental rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business except in connection with
transactions permitted by Section 7.3 and sales of assets permitted by Section
7.2;
(c) use reasonable efforts, in the ordinary course of business, to preserve
its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks, trade
names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.5 Maintenance of Property. The Company shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
6.6 Insurance. The Company shall maintain, and shall cause each Subsidiary
to maintain, with financially sound and reputable independent insurers,
insurance with respect to its properties and business against loss or damage of
the kinds customarily insured against by Persons engaged in the same or similar
business, of such types and in such amounts as are customarily carried under
similar circumstances by such other Persons.
6.7 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company or such Subsidiary;
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(b) all lawful claims which, if unpaid, would by law become a Lien upon its
property; and
(c) all indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
6.8 Compliance with Laws. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except as such may be
contested in good faith or as to which a bona fide dispute may exist.
6.9 Employee Benefit Plans. The Company shall maintain, and cause each of
its Subsidiaries to maintain, each Pension Plan in substantial compliance with
all applicable requirements of law and regulations.
6.10 Accounting; Inspection of Property and Books and Records. The Company
shall maintain a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements in
accordance with GAAP consistently applied, and to comply with the requirements
of this Agreement and the other Loan Documents. The Company shall maintain and
shall cause each Subsidiary to maintain proper books of record and account, in
which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of the Company and such Subsidiary. The Company shall
permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
the Company and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; provided, however, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at the expense of the Company at any time
during normal business hours and without advance notice.
6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary
to, conduct its operations and keep and maintain its property in compliance with
all Environmental Laws except to the extent any such noncompliance could not
reasonably be expected to have a Material Adverse Effect.
6.12 Use of Proceeds. The Company shall use the proceeds of the Loans for
working capital, capital expenditures, commercial paper backup and other general
corporate purposes not in contravention of any Requirement of Law or of any Loan
Document.
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6.13 Contingent Obligations. If any Subsidiary shall have any Contingent
Obligations with respect to any Indebtedness of the Company, the Company shall
cause such Subsidiary to take such actions as are reasonably necessary, or as
the Agent or any Bank may reasonably request from time to time, to guarantee the
Obligations.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
7.1 Limitation on Liens. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) Liens for taxes not delinquent or for taxes being contested in good
faith by appropriate proceedings and as to which adequate financial reserves
have been established on the books and records of the Company or any Subsidiary;
(b) Liens (other than any Lien imposed by ERISA) created and maintained in
the ordinary course of business which are not material in the aggregate, and
which would not constitute or result in a Material Adverse Effect, and which
constitute (i) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (ii) good faith deposits in
connection with bids, tenders, contracts or leases to which the Company or a
Subsidiary is a party for a purpose other than borrowing money or obtaining
credit, including rent security deposits, (iii) Liens imposed by law, such as
those of carriers, warehousemen and mechanics, if payment of the obligation
secured thereby is not yet due, (iv) Liens securing taxes, assessments or other
charges or levies of any Governmental Authority not yet subject to penalties for
nonpayment, and (v) pledges or deposits to secure public or statutory
obligations of the Company or a Subsidiary, or surety, customs or appeal bonds
to which the Company or a Subsidiary is a party;
(c) Liens affecting real property which constitute minor survey exceptions
or defects or irregularities in title, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of such real property; provided, however, that all of
the foregoing, in the aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the operation of the
businesses of the Company or any Subsidiary;
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(d) each Lien described in Schedule 7.1 may be suffered to exist upon the
same terms as those existing on the date hereof, but no extension or renewal
thereof shall be permitted except for a refinancing in the ordinary course of
business for an amount not in excess of the original amount subject to such
Lien;
(e) purchase money Liens upon or in property of the Company or a Subsidiary
acquired after the Closing Date; provided, however, that no such Lien shall
extend to or cover any other property of the Company or a Subsidiary or secure
an amount in excess of the lesser of the purchase price or the market value of
such property; and
(f) other Liens provided that the aggregate outstanding amount of
Indebtedness secured by all such other Liens shall not exceed $15,000,000 at any
time after the Closing Date.
7.2 Disposition of Assets. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any property (including accounts and notes receivable, with or without recourse)
or enter into any agreement to do any of the foregoing, except: (a) inventory
sold in the ordinary course of business upon customary credit terms and sales of
obsolete or damaged material or equipment, (b) sales of assets in connection
with sale-leaseback transactions in an amount not to exceed $10,000,000 and (c)
other sales of assets not to exceed 10% of the consolidated total assets of the
Company and its Subsidiaries in any fiscal year of the Company ending after the
Closing Date; except that (x) any Subsidiary may sell, lease, transfer or
otherwise dispose of its assets to the Company or any other Subsidiary; and (y)
the Company may sell, lease, transfer or otherwise dispose of assets in excess
of the limitations set forth above if the proceeds thereof (i) are used to
purchase or are committed to purchase other property of a similar nature of at
least equivalent value within one year of such sale, lease, transfer or other
disposition or (ii) are used to prepay Senior Indebtedness (including the Loans)
on a pro-rata basis.
7.3 Merger; Purchase of Assets; Acquisitions; Etc. The Company shall not,
and shall not suffer or permit any Subsidiary to purchase or otherwise acquire,
whether in one or a series of transactions, all or a substantial portion of the
business, assets, rights, revenues or property, real, personal or mixed,
tangible or intangible, of any Person, or all or a substantial portion of the
capital stock of or other ownership interest in any other Person; nor merge or
consolidate or amalgamate with any other Person or take any other action having
a similar effect, nor enter into any Joint Venture or similar arrangement with
any other Person; provided, however, that this Section 7.3 shall not prohibit
any Acquisition by the Company or any of its Subsidiaries of any Person engaged
in substantially the same business as the Company or such Subsidiary if (a) in
the case of an Acquisition of stock or a merger, the acquired Person shall be
immediately merged with and into the Company or such Subsidiary which shall be
the surviving corporation, and (b) immediately after such Acquisition, no
Default or Event of Default shall exist or shall have occurred and be continuing
and, prior to the consummation of such Acquisition, the Company shall have
provided to the Bank
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a certificate of a Responsible Officer (attaching computations to demonstrate
compliance with all financial covenants hereunder) stating that such Acquisition
complies with this Section 7.3 and will not cause a Default or Event of Default
to occur or continue and that any other conditions under this Agreement and the
other Loan Documents relating to such transaction have been satisfied; and
provided, further, that this Section 7.3 shall not prohibit any merger or
consolidation solely between or among the Company and its Subsidiaries, so long
as the Company is the surviving person of such merger or consolidation.
7.4 Loans and Investments. The Company shall not and shall not suffer or
permit any Subsidiary to make or commit to make any Investment, other than: (a)
Investments in Cash Equivalents; (b) Investments in its existing Subsidiaries;
(c) Investments in new Subsidiaries consisting of partnerships or limited
liability companies engaged in the business of owning and operating hotels or
motels, movie theaters or restaurants; (d) loans or advances to franchisees not
to exceed $10,000,000, on a consolidated basis, in the aggregate at any time
after the Closing Date; (e) Investments listed in the attached Schedule 7.4, (f)
Investments (excluding contingent liabilities) to owners of properties or
businesses managed by the Company or a Subsidiary not to exceed $15,000,000, on
a consolidated basis, in the aggregate at any time after the Closing Date; (g)
Investments, consisting of contingent liabilities, to owners of properties or
businesses managed by the Company or a Subsidiary not to exceed $10,000,000, on
a consolidated basis, in the aggregate at any time after the Closing Date; and
(h) other Investments (including contingent liabilities) not to exceed
$3,000,000 on a consolidated basis, in the aggregate at any time after the
Closing Date.
7.5 Limitation on Subsidiary Indebtedness. The Company shall not permit any
Subsidiary to create, incur, assume, suffer to exist, or otherwise become or
remain directly or indirectly liable with respect to, any Indebtedness, except
Indebtedness, such when added to the Indebtedness secured by Liens permitted
under Sections 7.1(d), (e) and (f) shall not exceed 5% of Total Capitalization.
7.6 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company or such
Subsidiary.
7.7 Use of Proceeds. The Company shall not, and shall not suffer or permit
any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly,
(i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
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7.8 Restricted Payments. The Company shall not, and shall not suffer or
permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding, if a
Default or Event of Default has occurred and is continuing or would result from
any of the foregoing.
7.9 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, change the nature of its business from that engaged in
on the date hereof or engage in any other businesses other than those in which
it is engaged on the date hereof or other than those related thereto.
7.10 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
7.11 Funded Debt Ratio. The Company shall not permit or suffer the ratio of
Funded Debt to Total Capitalization to exceed at any time 0.55 to 1.0.
7.12 Fixed Charge Coverage Ratio. The Company shall not permit or suffer
the ratio at any fiscal quarter end for the four fiscal quarters then ending of
Adjusted Consolidated Cash Flow to Interest and Rental Expense to be less than
3.0 to 1.0.
7.13 Subsidiary Dividends. The Company shall not, and shall not permit any
Subsidiary to, enter into any agreement that would restrict the ability of any
Subsidiary to pay dividends.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Event of Default. Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. The Company fails to pay, (i) when and as required to be
paid herein, any amount of principal of any Loan, or (ii) within three days
after the same becomes due, any interest, fee or any other amount payable
hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any
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Responsible Officer, furnished at any time under this Agreement, or in or under
any other Loan Document, is incorrect in any material respect on or as of the
date made or deemed made; or
(c) Specific Defaults. The Company fails to perform or observe any term,
covenant or agreement contained in any of Section 6.1, 6.2, 6.3, 6.4, 6.9 or
6.12 or in Article VII; or
(d) Other Defaults. The Company or any Subsidiary party thereto fails to
perform or observe any other term or covenant contained in this Agreement or any
other Loan Document, and such default shall continue unremedied for a period of
30 days after the earlier of (i) the date upon which a Responsible Officer knew
or reasonably should have known of such failure or (ii) the date upon which
written notice thereof is given to the Company by the Agent or any Bank; or
(e) Cross-Default. The Company or any Subsidiary (i) fails to make any
payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $5,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) Insolvency; Voluntary Proceedings. The Company or any Subsidiary (i)
ceases or fails to be solvent, or generally fails to pay, or admits in writing
its inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is
commenced or filed against the Company or any Subsidiary, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the Company's or any Subsidiary's properties, and any such
proceeding or petition shall not be
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dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Company or any Subsidiary admits the
material allegations of a petition against it in any Insolvency Proceeding, or
an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or
(h) [Pension Plans. (i) Institution of any steps by the Company or any
other Person to terminate a Pension Plan if as a result of such termination the
Company could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of
[$10,000,000]; (ii) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; or (iii)
there shall occur any withdrawal or partial withdrawal from a Multiemployer Plan
and the withdrawal liability (without unaccrued interest) to Multiemployer Plans
as a result of such withdrawal (including any outstanding withdrawal liability
that the Company and the Controlled Group have incurred on the date of such
withdrawal) exceeds [$10,000,000];] or
(i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Company or any Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $10,000,000 or more, and the same shall remain
unvacated and unstayed pending appeal for a period of 30 days after the entry
thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or decree is
entered against the Company or any Subsidiary which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(k) Change of Control. There occurs any Change of Control; or
(l) Loss of Licenses. The Company or any Subsidiary for any reason loses
any material license, permit or franchise, or the Company or any Subsidiary
suffers the imposition of any restraining order, escrow, suspension or impound
of funds in connection with any proceeding (judicial or administrative) with
respect to any material license, permit or franchise; or
(m) Adverse Change. There occurs a Material Adverse Effect.
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8.2 Remedies. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans to be terminated,
whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.1 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent or any
Bank.
8.3 Rights Not Exclusive. The rights provided for in this Agreement and the
other Loan Documents are cumulative and are not exclusive of any other rights,
powers, privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
THE AGENT
9.1 Appointment and Authorization. Each Bank hereby irrevocably (subject to
Section 9.9) appoints, designates and authorizes the Agent to take such action
on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall the Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent.
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9.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Bank to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
9.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Banks as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(a) For purposes of determining compliance with the conditions specified in
Section 4.1, each Bank that has executed this Agreement shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter either sent by the Agent to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Bank.
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9.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees required to be paid
to the Agent for the account of the Banks, unless the Agent shall have received
written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Majority Banks in accordance with Article
VIII; provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
9.6 Credit Decision. Each Bank acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by the
Agent hereinafter taken, including any review of the affairs of the Company and
its Subsidiaries, shall be deemed to constitute any representation or warranty
by any Agent-Related Person to any Bank. Each Bank represents to the Agent that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Company and
its Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Company which may come into the possession of any of the
Agent-Related Persons.
9.7 Indemnification. Whether or not the transactions contemplated hereby
are consummated, the Banks shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata, from and against any
and all Indemnified Liabilities; provided, however, that no Bank shall be liable
for the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Agent upon demand for its
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ratable share of any costs or out-of-pocket expenses (including Attorney Costs)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
9.8 Agent in Individual Capacity. Bank of America and its Affiliates may
make loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though Bank of America were not the Agent
hereunder and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, Bank of America or its Affiliates may receive
information regarding the Company or its Affiliates (including information that
may be subject to confidentiality obligations in favor of the Company or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, Bank of America
shall have the same rights and powers under this Agreement as any other Bank and
may exercise the same as though it were not the Agent, and the terms "Bank" and
"Banks" include Bank of America in its individual capacity.
9.9 Successor Agent. The Agent may, and at the request of the Majority
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Majority Banks shall appoint from among the
Banks a successor agent for the Banks. If no successor agent is appointed prior
to the effective date of the resignation of the Agent, the Agent may appoint,
after consulting with the Banks and the Company, a successor agent from among
the Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article IX and Sections 10.4 and 10.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.
9.10 Withholding Tax.
(a) If any Bank is a "foreign corporation, partnership or trust" within the
meaning of the Code and such Bank claims exemption from, or a reduction of, U.S.
withholding tax under
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Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the
Agent, to deliver to the Agent:
(1) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(2) if such Bank claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement, and IRS Form W-9; and
(3) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Bank sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of the Company to such Bank, such Bank agrees to notify the Agent of
the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax by
filing IRS Form 4224 with the Agent sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Company to such
Bank, such Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable withholding
tax, the Agent may withhold from any interest payment to such Bank an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not delivered to the Agent, then the Agent may
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withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that the Agent did not properly withhold tax
from amounts paid to or for the account of any Bank (because the appropriate
form was not delivered, was not properly executed, or because such Bank failed
to notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Bank shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses (including
Attorney Costs). The obligation of the Banks under this subsection shall survive
the payment of all Obligations and the resignation or replacement of the Agent.
9.11 Documentation Agent. None of the Banks identified on the facing page
or signature pages of this Agreement as a "documentation agent" shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Banks as such. Without limiting the
foregoing, none of the Banks so identified as a "documentation agent" shall have
or be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.
ARTICLE X
MISCELLANEOUS
10.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Banks
(or by the Agent at the written request of the Majority Banks) and the Company
and acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks and the Company and acknowledged
by the Agent, do any of the following:
(a) increase (except as provided in Section 2.5) or extend the Commitment
of any Bank (or reinstate any Commitment terminated pursuant to Section 8.2);
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(b) postpone or delay any date for any scheduled payment of principal or
any date for payment of interest, fees or other amounts due to the Banks (or any
of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein on
any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Banks or any of them to
take any action hereunder; or
(e) amend this Section, or Section 2.13, or any provision herein providing
for consent or other action by all Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed by the parties
thereto.
10.2 Notices.
(a) All notices, requests and other communications shall be in writing
(including, unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by the Company by facsimile
(i) shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 10.2, and (ii) shall be followed promptly by
delivery of a hard copy original thereof) and mailed, faxed or delivered, to the
address or facsimile number specified for notices on Schedule 10.2; or, as
directed to the Company or the Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and as
directed to any other party, at such other address as shall be designated by
such party in a written notice to the Company and the Agent.
(b) All such notices, requests and communications shall, when transmitted
by overnight delivery, or faxed, be effective when delivered for overnight
(next-day) delivery, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery; except that notices pursuant
to Article II or IX shall not be effective until actually received by the Agent.
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(c) Any agreement of the Agent and the Banks herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Company. The Agent and the Banks shall be entitled to rely on the
authority of any Person purporting to be a Person authorized by the Company to
give such notice and the Agent and the Banks shall not have any liability to the
Company or other Person on account of any action taken or not taken by the Agent
or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Company to repay the Loans shall not be affected in any way or
to any extent by any failure by the Agent and the Banks to receive written
confirmation of any telephonic or facsimile notice or the receipt by the Agent
and the Banks of a confirmation which is at variance with the terms understood
by the Agent and the Banks to be contained in the telephonic or facsimile
notice.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
10.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are consummated,
pay or reimburse Bank of America (including in its capacity as Agent) and the
Sole Arranger within ten days after demand (subject to subsection 4.1(e)) for
all costs and expenses incurred by Bank of America (including in its capacity as
Agent) and the Sole Arranger in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by Bank of America
(including in its capacity as Agent) and the Sole Arranger with respect thereto;
and
(b) pay or reimburse the Agent, the Sole Arranger and each Bank within ten
days after demand (subject to subsection 4.1(e)) for all costs and expenses
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding).
10.5 Indemnity. Whether or not the transactions contemplated hereby are
consummated, the Company shall indemnify and hold the Agent-Related Persons, and
each Bank and each of its respective officers, directors, employees, counsel,
agents and attorneys-in-fact (each,
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an "Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted against
any such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any Insolvency Proceeding or appellate
proceeding) related to or arising out of this Agreement or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that the Company shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting solely from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section shall survive payment of all other Obligations.
10.6 Payments Set Aside. To the extent that the Company makes a payment to
the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
10.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
10.8 Assignments, Participations, Etc.
(a) Any Bank may, with the written consent of the Company at all times
other than during the existence of an Event of Default and the Agent, which
consents shall not be unreasonably withheld, at any time assign and delegate to
one or more Eligible Assignees (provided that no written consent of the Company
or the Agent shall be required in connection with any assignment and delegation
by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an
"Assignee") all, or any ratable part of all, of the Loans, the Commitments and
the other rights and obligations of such Bank hereunder, in a minimum amount of
$10,000,000; provided, however, that
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the Company and the Agent may continue to deal solely and directly with such
Bank in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have been given to
the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its
Assignee shall have delivered to the Company and the Agent an Assignment and
Acceptance in the form of Exhibit E ("Assignment and Acceptance") and (iii) the
assignor Bank or Assignee has paid to the Agent a processing fee in the amount
of $3,500 (including, without limitation, in connection with any assignment by a
Bank to a Bank).
(b) From and after the date that the Agent notifies the assignor Bank that
it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by the Agent that
it has received an executed Assignment and Acceptance and payment of the
processing fee, (and provided that it consents to such assignment in accordance
with subsection 10.8(a)), the Company shall execute and deliver to the Agent,
new Notes evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held by
such Bank). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more commercial banks or other
Persons not Affiliates of the Company (a "Participant") participating interests
in any Loans, the Commitment of that Bank and the other interests of that Bank
(the "originating Bank") hereunder and under the other Loan Documents; provided,
however, that (i) the originating Bank's obligations under this Agreement shall
remain unchanged, (ii) the originating Bank shall remain solely responsible for
the performance of such obligations, (iii) the Company and the Agent shall
continue to deal solely and directly with the originating Bank in connection
with the originating Bank's rights and obligations under this Agreement and the
other Loan Documents, and (iv) no Bank shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, except
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to the extent such amendment, consent or waiver would require unanimous consent
of the Banks as described in the first proviso to Section 10.1. In the case of
any such participation, the Participant shall be entitled to the benefit of
Sections 3.1, 3.3 and 10.5 as though it were also a Bank hereunder, and if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank may at
any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement and the Note held by it in favor of
any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR '203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
10.9 Confidentiality. Each Bank agrees to take and to cause its Affiliates
to take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as "confidential" or "secret" by
the Company and provided to it by the Company or any Subsidiary, or by the Agent
on such Company's or Subsidiary's behalf, under this Agreement or any other Loan
Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any Subsidiary; except to
the extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates.
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10.10 Set-off. In addition to any rights and remedies of the Banks provided
by law, if an Event of Default exists or the Loans have been accelerated, each
Bank is authorized at any time and from time to time, without prior notice to
the Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or the account
of the Company against any and all Obligations owing to such Bank, now or
hereafter existing, irrespective of whether or not the Agent or such Bank shall
have made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. Each Bank agrees promptly to notify
the Company and the Agent after any such set-off and application made by such
Bank; provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application.
10.11 Automatic Debits of Fees. With respect to any commitment fee,
arrangement fee, or other fee, or any other cost or expense (including Attorney
Costs) due and payable to the Agent, Bank of America or the Sole Arranger under
the Loan Documents, the Company hereby irrevocably authorizes Bank of America to
debit any deposit account of the Company with Bank of America in an amount such
that the aggregate amount debited from all such deposit accounts does not exceed
such fee or other cost or expense. If there are insufficient funds in such
deposit accounts to cover the amount of the fee or other cost or expense then
due, such debits will be reversed (in whole or in part, in Bank of America's
sole discretion) and such amount not debited shall be deemed to be unpaid. No
such debit under this Section shall be deemed a set-off.
10.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
10.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.14 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.15 No Third Parties Benefited. This Agreement is made and entered into
for the sole protection and legal benefit of the Company, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect
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legal beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.
10.16 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND
THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF
THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE
BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
10.17 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
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SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE MARCUS CORPORATION
By:____________________
Title:_________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:____________________
Title:_________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By:____________________
Title:_________________
BANK ONE, WISCONSIN
By:____________________
Title:_________________
M&I MARSHALL & ILSLEY BANK
By:____________________
Title:_________________
FIRSTAR BANK MILWAUKEE, N.A.
By:____________________
Title:_________________
<PAGE>
NORWEST BANK WISCONSIN,
NATIONAL ASSOCIATION
By:____________________
Title:_________________
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:____________________
Title:_________________
U.S. BANK NATIONAL ASSOCIATION
By:____________________
Title:_________________
Exhibit 10.4
THE MARCUS CORPORATION
1995 EQUITY INCENTIVE PLAN
AMENDED THROUGH OCTOBER 4, 1999
Section 1. Purpose
The purpose of The Marcus Corporation 1995 Equity Incentive Plan (the
"Plan") is to promote the best interests of The Marcus Corporation (the
"Company") and its shareholders by providing key employees of the Company and
its Affiliates (as defined below) with an opportunity to acquire a, or increase
their, proprietary interest in the Company. It is intended that the Plan will
promote continuity of management and increased incentive and personal interest
in the welfare of the Company by those key employees who are primarily
responsible for shaping and carrying out the long-range plans of the Company and
securing the Company's continued growth and financial success.
Section 2. Definitions
As used in the Plan, the following terms shall have the respective meanings
set forth below:
(a) "Affiliate" shall mean any entity that, directly or through one or more
intermediaries, is controlled by, controls, or is under common control with, the
Company.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock or Performance Share granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Commission" shall mean the Securities and Exchange Commission.
(f) "Committee" shall mean the Compensation and Nominating Committee of the
Board of Directors of the Company (or any other committee thereof designated by
such Board to administer the Plan); provided, however, that the Committee is
composed of not less than two directors, each of whom is a "non-employee
director" within the meaning of Rule 16b-3.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
<PAGE>
(i) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code (or any successor provision thereto).
(j) "Key Employee" shall mean any officer or other key employee of the
Company or of any Affiliate who is responsible for or contributes to the
management, growth or profitability of the business of the Company or any
Affiliate as determined by the Committee in its discretion.
(k) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(m) "Participating Key Employee" shall mean a Key Employee designated to be
granted an Award under the Plan.
(n) "Performance Period" shall mean, in relation to Performance Shares, any
period for which a performance goal or goals have been established.
(o) "Performance Share" shall mean any right granted under Section 6(d) of
the Plan that will be paid out as a Share (which, in specified circumstances,
may be a Share of Restricted Stock).
(p) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.
(q) "Released Securities" shall mean Shares of Restricted Stock with
respect to which all applicable restrictions have expired, lapsed or been
waived.
(r) "Restricted Securities" shall mean Awards of Restricted Stock or other
Awards under which issued and outstanding Shares are held subject to certain
restrictions.
(s) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan or, in specified circumstances, a Share paid in connection with a
Performance Share under Section 6(e) of the Plan.
(t) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
under the Exchange Act, or any successor rule or regulation thereto.
(u) "Shares" shall mean shares of common stock of the Company, $1 par
value, and such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(b) of the Plan.
(v) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
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Section 3. Administration
The Plan shall be administered by the Committee; provided, however, that if
at any time the Committee shall not be in existence, the functions of the
Committee as specified in the Plan shall be exercised by the Board of Directors
of the Company. Subject to the terms of the Plan and applicable laws and without
limitation by reason of enumeration, the Committee shall have full discretionary
power and authority to: (i) designate Participating Key Employees; (ii)
determine the type or types of Awards to be granted to each Participating Key
Employee under the Plan; (iii) determine the number of Shares to be covered by
(or with respect to which payments, rights or other matters are to be calculated
in connection with) Awards granted to Participating Key Employees; (iv)
determine the terms and conditions of any Award granted to a Participating Key
Employee; (v) determine whether, to what extent and under what circumstances
Awards granted to Participating Key Employees may be settled or exercised in
cash, Shares, other securities, other Awards or other property, and the method
or methods by which Awards may be settled, exercised, canceled, forfeited or
suspended; (vi) determine whether, to what extent and under what circumstances
cash, Shares, other Awards and other amounts payable with respect to an Award
granted to Participating Key Employees under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan (including, without limitation, any Award
Agreement); (viii) establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time or from time to time, and shall be final,
conclusive and binding upon all Persons, including the Company, any Affiliate,
any Participating Key Employee, any holder or beneficiary of any Award, any
shareholder and any employee of the Company or of any Affiliate.
Section 4. Shares Available for Award
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Number of Shares Available. The number of Shares with respect to
which Awards may be granted under the Plan shall be 3,125,000, subject to
the limitations set forth in Section 6(c)(i).
(ii) Accounting for Awards. The number of Shares covered by an Award
under the Plan, or to which such Award relates, shall be counted on the
date of grant of such Award against the number of Shares available for
granting Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
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<PAGE>
(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee may, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares subject
to the Plan and which thereafter may be made the subject of Awards under the
Plan; (ii) the number and type of Shares subject to outstanding Awards; and
(iii) the grant, purchase or exercise price with respect to any Award, or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b) of the Code
(or any successor provision thereto); and provided further that the number of
Shares subject to any Award payable or denominated in Shares shall always be a
whole number.
Section 5. Eligibility
Any Key Employee, including any executive officer or employee-director of
the Company or of any Affiliate, who is not a member of the Committee shall be
eligible to be designated a Participating Key Employee. Ben Marcus, Stephen H.
Marcus, Diane Marcus Gershowitz and any other person who beneficially owns,
directly or indirectly (taking into account stock ownership attributed to such
person pursuant to Section 425(d) of the Code), stock possessing more than five
percent (5%) of the total combined voting power of all classes of stock of the
Company or of any Affiliate of the Company shall not be eligible to receive
Awards under the Plan.
Section 6. Awards
(a) Option Awards. The Committee is hereby authorized to grant Options to
Key Employees with the terms and conditions as set forth below and with such
additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine in its discretion.
(i) Exercise Price. The exercise price per Share of an Option granted
pursuant to this Section 6(a) shall be determined by the Committee;
provided, however, that such exercise price shall not be less than 100% of
the Fair Market Value of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee; provided, however, that in no event shall the term of any Option
exceed a period of ten years from the date of its grant.
(iii) Exercisability and Method of Exercise. An Option shall become
exercisable in such manner and within such period or periods and in such
installments or otherwise as shall be determined by the Committee. The
Committee also shall determine
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<PAGE>
the method or methods by which, and the form or forms, including, without
limitation, cash, Shares, other securities, other Awards, other property or
any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price, in which payment of the exercise
price with respect to any Option may be made or deemed to have been made.
(iv) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code (or any successor provision thereto) and any
regulations promulgated thereunder. Notwithstanding any provision in the
Plan to the contrary, no Incentive Stock Option may be granted hereunder
after the tenth anniversary of the adoption of the Plan by the Board of
Directors of the Company.
(b) Stock Appreciation Right Awards. The Committee is hereby authorized to
grant Stock Appreciation Rights to Key Employees. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one Share on the
date of exercise over (ii) the grant price of the Stock Appreciation Right as
specified by the Committee, which shall not be less than 100% of the Fair Market
Value of one Share on the date of grant of the Stock Appreciation Right. Subject
to the terms of the Plan, the grant price, term, methods of exercise, methods of
settlement (including whether the Participating Key Employee will be paid in
cash, Shares, other securities, other Awards, or other property or any
combination thereof), and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee in its discretion.
The Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock Awards.
(i) Issuance. The Committee is hereby authorized to grant Awards of
Restricted Stock to Key Employees; provided, however, that the aggregate
number of Shares of Restricted Stock granted under the Plan to all
Participating Key Employees as a group shall not exceed 50,000 Shares (such
number of Shares subject to adjustment in accordance with the terms of
Section 4(b) hereof) of the total number of Shares available for Awards
under Section 4(a)(i).
(ii) Restrictions. Shares of Restricted Stock granted to Participating
Key Employees shall be subject to such restrictions as the Committee may
impose in its discretion (including, without limitation, any limitation on
the right to vote a Share of Restricted Stock or the right to receive any
dividend or other right or property), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate in its discretion.
(iii) Registration. Any Restricted Stock granted under the Plan to a
Participating Key Employee may be evidenced in such manner as the Committee
may deem appropriate in its discretion, including, without limitation,
book-entry registration or issuance of a stock certificate or certificates.
In the event any stock certificate is issued in respect of Shares of
Restricted Stock granted under the Plan to a Participating Key
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<PAGE>
Employee, such certificate shall be registered in the name of the
Participating Key Employee and shall bear an appropriate legend (as
determined by the Committee) referring to the terms, conditions and
restrictions applicable to such Restricted Stock.
(iv) Payment of Restricted Stock. At the end of the applicable
restriction period relating to Restricted Stock granted to a Participating
Key Employee, one or more stock certificates for the appropriate number of
Shares, free of restrictions imposed under the Plan, shall be delivered to
the Participating Key Employee or, if the Participating Key Employee
received stock certificates representing the Restricted Stock at the time
of grant, the legends placed on such certificates shall be removed.
(v) Forfeiture. Except as otherwise determined by the Committee in its
discretion, upon termination of employment of a Participating Key Employee
(as determined under criteria established by the Committee in its
discretion) for any reason during the applicable restriction period, all
Shares of Restricted Stock still subject to restriction shall be forfeited
by the Participating Key Employee; provided, however, that the Committee
may, when it finds that a waiver would be in the best interests of the
Company, waive in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock held by a Participating Key Employee.
(d) Performance Share Awards.
(i) Issuance. The Committee is hereby authorized to grant Awards of
Performance Shares to Key Employees.
(ii) Performance Goals and Other Terms. The Committee shall determine
in its discretion the Performance Period, the performance goal or goals to
be achieved during any Performance Period, the proportion of payments, if
any, to be made for performance between the minimum and full performance
levels, the restrictions applicable to Shares of Restricted Stock received
upon payment of Performance Shares if Performance Shares are paid in such
manner, and any other terms, conditions and rights relating to a grant of
Performance Shares. Performance goals established by the Committee may be
based on one or more measures such as return on shareholders' equity,
earnings or any other standard or standards deemed relevant by the
Committee, measured internally or relative to other organizations and
before or after extraordinary items.
(iii) Rights and Benefits During the Performance Period. The Committee
may provide that, during a Performance Period, a Participating Key Employee
shall be paid cash amounts, with respect to each Performance Share held by
such Participating Key Employee, in the same manner, at the same time, and
in the same amount paid, as a cash dividend on a Share. Participating Key
Employees shall have no voting rights with respect to Performance Shares
held by them.
(iv) Adjustments with Respect to Performance Shares. Any other
provision of the Plan to the contrary notwithstanding, the Committee may in
its discretion at any time or from time to time adjust performance goals
(up or down) and minimum or full performance levels (and any intermediate
levels and proportion of payments related
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<PAGE>
thereto), adjust the manner in which performance goals are measured, or
shorten any Performance Period or waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock issued in
payment of Performance Shares, if the Committee determines that conditions,
including but not limited to, changes in the economy, changes in
competitive conditions, changes in laws or governmental regulations,
changes in generally accepted accounting principles, changes in the
Company's accounting policies, acquisitions or dispositions by the Company
or its Affiliates, or the occurrence of other unusual, unforeseen or
extraordinary events, so warrant.
(v) Payment of Performance Shares. As soon as is reasonably
practicable following the end of the applicable Performance Period, one or
more certificates representing the number of Shares equal to the number of
Performance Shares payable shall be registered in the name of and delivered
to the Participating Key Employee; provided, however, that any Shares of
Restricted Stock payable in connection with Performance Shares shall,
pending the expiration, lapse, or waiver of the applicable restrictions, be
evidenced in the manner as set forth in Section 6(c)(iii) hereof.
(e) General.
(i) No Consideration for Awards. Awards shall be granted to
Participating Key Employees for no cash consideration unless otherwise
determined by the Committee.
(ii) Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement in such form (consistent with the terms of
the Plan) as shall have been approved by the Committee.
(iii) Awards May Be Granted Separately or Together. Awards to
Participating Key Employees under the Plan may be granted either alone or
in addition to, in tandem with, or in substitution for, any other Award or
any award granted under any other plan of the Company or any Affiliate.
Awards granted in addition to, or in tandem with, other Awards, or in
addition to, or in tandem with, awards granted under any other plan of the
Company or any Affiliate, may be granted either at the same time as or at a
different time from the grant of such other Awards or awards.
(iv) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award
to a Participating Key Employee may be made in such form or forms as the
Committee shall determine, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case in accordance with
rules and procedures established by the Committee in its discretion. Such
rules and procedures may include, without limitation, provisions for the
payment or crediting of interest on installment or deferred payments.
(v) Transferability. Each Award granted under the Plan shall not be
transferable other than by will or the laws of descent and distribution
except that a Participating Key Employee may, to the extent allowed by the
Committee and in a manner
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<PAGE>
specified by the Committee or the Award Agreement, (a) designate in writing
a beneficiary to exercise the Award after the Participating Key Employee's
death, as the case may be, and (b) transfer any Award.
(vi) Term of Awards. Except as otherwise provided in the Plan, the
term of each Award shall be for such period as may be determined by the
Committee.
(vii) Share Certificates; Representation. In addition to the
restrictions imposed pursuant to Section 6(c) and Section 6(d) hereof, all
certificates for Shares delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Commission, New York
Stock Exchange or any other stock exchange or other market upon which such
Shares are then listed or traded, and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions. The Committee may require each Participating Key Employee, or
other Person who acquires Shares under the Plan by means of an Award
originally made to a Participating Key Employee to represent to the Company
in writing that such Participating Key Employee, or other Person is
acquiring the Shares without a view to the distribution thereof.
Section 7. Amendment and Termination of the Plan; Correction of Defects and
Omissions
(a) Amendments to and Termination of the Plan. The Board of Directors of
the Company may at any time amend, alter, suspend, discontinue or terminate the
Plan; provided, however, that shareholder approval of any amendment of the Plan
shall also be obtained if otherwise required by: (i) the Code or any rules
promulgated thereunder (in order to allow for Incentive Stock Options to be
granted under the Plan); or (ii) the listing requirements of the New York Stock
Exchange or any other principal securities exchange or market on which the
Shares are then traded (in order to maintain the listing of the Shares thereon).
Termination of the Plan shall not affect the rights of Participating Key
Employees with respect to Awards previously granted to them, and all unexpired
Awards shall continue in force and effect after termination of the Plan except
as they may lapse or be terminated by their own terms and conditions.
(b) Correction of Defects, Omissions and Inconsistencies. The Committee may
in its discretion correct any defect, supply any omission or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Key Employee, Participating Key Employee or
other Person shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Key Employees,
Participating Key Employees or holders or beneficiaries of Awards under the
Plan. The terms and conditions of Awards need not be the same with respect to
each Participating Key Employee.
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<PAGE>
(b) Withholding. No later than the date as of which an amount first becomes
includable in the gross income of a Participating Key Employee for federal
income tax purposes with respect to any Award under the Plan, the Participating
Key Employee shall pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any federal, state, local or foreign taxes of
any kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations arising with
respect to Awards to Participating Key Employees under the Plan may be settled
with Shares previously owned by the Participating Key Employee; provided,
however, that the Participating Key Employee may not settle such obligations
with Shares that are part of, or are received upon exercise of, the Award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the Company
and any Affiliate shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participating Key
Employee. The Committee may establish such procedures as it deems appropriate
for the settling of withholding obligations with Shares.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(d) Rights and Status of Recipients of Awards. The grant of an Award shall
not be construed as giving a Participating Key Employee the right to be retained
in the employ of the Company or any Affiliate. Further, the Company or any
Affiliate may at any time dismiss a Participating Key Employee from employment,
free from any liability, or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement. Except for rights accorded under
the Plan and under any applicable Award Agreement, Participating Key Employees
shall have no rights as holders of Shares as a result of the granting of Awards
hereunder.
(e) Unfunded Status of the Plan. Unless otherwise determined by the
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company or the Committee and any
Participating Key Employee or other Person. To the extent any Person holds any
right by virtue of a grant under the Plan, such right (unless otherwise
determined by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
(f) Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the internal laws of the State of Wisconsin and applicable federal law.
(g) Severability. If any provision of the Plan or any Award Agreement or
any Award is or becomes or is deemed to be invalid, illegal or unenforceable in
any jurisdiction, or as to any Person or Award, or would disqualify the Plan,
any Award Agreement or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the Plan,
any Award Agreement or the Award, such provision shall be stricken as to such
jurisdiction, Person or
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<PAGE>
Award, and the remainder of the Plan, any such Award Agreement and any such
Award shall remain in full force and effect.
(h) No Fractional Shares. No fractional Shares or other securities shall be
issued or delivered pursuant to the Plan, any Award Agreement or any Award, and
the Committee shall determine (except as otherwise provided in the Plan) whether
cash, other securities or other property shall be paid or transferred in lieu of
any fractional Shares or other securities, or whether such fractional Shares or
other securities or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 9. Effective Date of the Plan
The Plan shall be effective as of the date the Plan is adopted by the
shareholders, provided such shareholder approval of the Plan is within 12 months
following the date of adoption of the Plan by the Board of Directors, and all
Awards granted under the Plan prior to the date of shareholder approval shall be
subject to such approval and the effective date of such Award grants shall be
deemed to be the date of such shareholder approval.
Section 10. Term of the Plan
No Award shall be granted under the Plan following the tenth anniversary of
its effective date. However, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award theretofore granted may extend
beyond such date and, to the extent set forth in the Plan, the authority of the
Committee to amend, alter, adjust, suspend, discontinue or terminate any such
Award, or to waive any conditions or restrictions with respect to any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual report to shareholders, particularly in
the Shareholders' Letter and Management's Discussion and Analysis, are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements may generally be identified as such because the
context of such statements will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, the following:
(i) the Company's ability to identify properties to acquire, develop and/or
manage and continuing availability of funds for such development; (ii) the
limited-service lodging division's ability to attract and retain quality
franchise operators and to effectively execute its Baymont name change strategy;
(iii) continuing consumer demand as a result of general economic conditions with
respect to the hotels and resorts and limited-service lodging divisions; (iv)
continuing availability, in terms of both quality and quantity, of films for the
theatre division; (v) absence of significant increases in costs of obtaining
food for the restaurant division; and (vi) competitive conditions in the markets
served by the Company. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are made only as of the
date of this report and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances.
RESULTS of OPERATIONS
GENERAL
The Marcus Corporation and its four divisions report their consolidated and
individual segment results of operations on either a 52-or 53-week fiscal year.
Fiscal 1999 was a 52-week year for the Company and each of its divisions. Fiscal
1998 was a 53-week fiscal year for the Company's restaurant division, while the
Company and each of its other divisions reported on a 52-week fiscal year.
Fiscal 1997 was a 53-week fiscal year for the Company's limited-service lodging
and hotel/resort divisions, while the Company and each of its other divisions
reported on a 52-week fiscal year. Fiscal 2000 will be a 52-week year for the
Company and each of its divisions.
Historically, the Company's fiscal year has been divided into three 12-week
quarters and a final quarter consisting of 16 or 17 weeks. In fiscal 1999, the
Company began dividing its fiscal year into three 13-week quarters and a final
quarter consisting of 13 or 14 weeks. The Company made this change in order to
simplify its reporting process and provide greater consistency between quarters.
To facilitate comparisons with fiscal 1999 quarterly results included in the
Supplementary Quarterly Financial Data provided in this annual report to
shareholders, fiscal 1998 quarterly results have been presented on a pro forma
basis, as if the periods had been reported on the new basis.
Total revenues for fiscal 1999 were $362.9 million, an increase of $28.1
million, or 8.4%, compared to fiscal 1998 revenues of $334.8 million. Fiscal
1998 revenues increased $32.1 million, or 10.6%, from fiscal 1997 revenues. The
Company's theatre and hotel/resort divisions contributed the greatest increase
in revenues during both fiscal years. The additional week of results reported
for the restaurant division in fiscal 1998 did not materially impact the
Company's consolidated results of operations due to the relative size of the
restaurant division compared to the Company's other divisions. The additional
week of results reported for the limited-service lodging and hotel/resort
divisions in fiscal 1997 contributed an additional $3.5 million in revenues and
$1.5 million in operating income to the Company's fourth quarter and fiscal 1997
results.
Net earnings for fiscal 1999 were $23.1 million, or $.77 per share. This
represented a $7.6 million, or 24.8%, decrease from comparable fiscal 1998
earnings of $30.7 million, or $1.02 per share, excluding the after-tax charge of
$2.34 million, or $.08 per share, in fiscal 1998 resulting from the Company's
decision to change the name of Budgetel Inns to Baymont Inns & Suites. The
Company recorded a $2.34 million after-tax charge ($3.9 million before-tax) to
earnings for the write-off of existing signage and other one-time expenses
associated with the name change during the fourth quarter of fiscal 1998.
Including the name change charge, net earnings were $28.4 million, or $.94 per
share, for fiscal 1998. Fiscal 1998 earnings, again excluding the name change
charge, decreased $100,000, or 0.3%, from comparable fiscal 1997 earnings of
$30.9 million, or $1.04 per share. Weighted average shares outstanding were 30.1
million for fiscal 1999, 30.3 million for fiscal 1998 and 29.7 million for
fiscal 1997. All per share and share data in this discussion have been adjusted
to reflect the Company's three-for-two stock split effected in the form of a 50%
stock dividend on December 5, 1997. The Company adopted SFAS No. 128, "Earnings
per Share," in fiscal 1998. Prior period amounts have been restated under the
new standard. All per share data presented herein is on a diluted basis.
The Company's net interest expense, net of investment income, totaled $16.1
million for fiscal 1999. This represented an increase of $4.3 million, or 36.4%,
over fiscal 1998 net interest expense of $11.8 million. Fiscal 1998 net interest
expense increased $1.8 million, or 17.7%, over fiscal 1997 net interest expense
of $10.0 million. These increases were the result of additional borrowings in
fiscal 1999 and fiscal 1998 used to help finance the Company's capital expansion
program.
The Company's income tax expense for fiscal 1999 was $15.7 million, a decrease
of $3.2 million from fiscal 1998. The Company's effective tax rate for fiscal
1999 was 40.5%, compared to 40.0% in fiscal 1998 and 39.7% in fiscal 1997. The
increased effective tax rate during fiscal 1999 was the result of increased
state income taxes, net of federal
<PAGE>
income tax benefits. The Company believes its effective tax rate could increase
slightly in fiscal 2000.
Historically, the Company's first fiscal quarter has produced the strongest
operating results because this period coincides with the typical summer
seasonality of the movie theatre industry and the summer strength of the
Company's lodging and food service businesses. The Company's third fiscal
quarter has historically produced the weakest operating results primarily due to
the effects of reduced travel during the winter months on the Company's lodging
businesses.
The Company is continuing its aggressive capital expansion plan that it began in
fiscal 1994, incurring approximately $500 million in aggregate capital
expenditures during the last five fiscal years. The Company's current plans
include the following goals:
o Completing the Baymont Inns & Suites conversion strategy in fiscal 2000,
including the implementation of lobby breakfasts at a vast majority of the
chain's properties, and then increasing the total number of Baymont Inns and
Baymont Inns & Suites to over 300 within the next four years. The Company
currently believes that most of this anticipated future growth will
ultimately come from its emphasis on opening new franchised Baymont Inns and
Baymont Inns & Suites. Up to two new Company-owned and 28 new franchised
properties are currently under development for fiscal 2000. The Company
plans to further emphasize franchising in the future by exploring the
potential sale of approximately 20 Company-owned properties to new and
existing franchisees over the next three years, with the Company possibly
retaining a management contract in some cases.
o Increasing its number of movie theatre screens to 500 during calendar 2000,
with expected continued expansion outside of Wisconsin. Up to 60 new screens
are currently planned to be opened by the Company in fiscal 2000, including
37 new screens to be added to existing locations in Wisconsin, Illinois and
Minnesota and the Company's second large screen IMAX(R) 2D/3D theatre at its
Addison, Illinois location. The Company also has plans to complete its
stadium seating retrofit program, resulting in stadium seating in
approximately 90% of its first-run screens by the end of fiscal 2000.
o Adding one or two hotel properties each year over the next few fiscal years,
either Company-owned or managed for others. In some cases, the Company may
own only a partial interest in the new properties. The Company currently has
two company-owned projects under construction: an extensive addition to the
Hilton Milwaukee City Center, scheduled to open in July 2000; and a 238-room
public/private endeavor with the City of Madison, Wisconsin - the Hilton
Madison at Monona Terrace, scheduled to open late in fiscal 2001.
o Increasing its number of Woodfield Suites. The Company currently has one
Company-owned Woodfield Suites scheduled to open late in fiscal 2000 and is
evaluating additional sites and franchising opportunities.
o Evaluating new business opportunities. The Company recently began
constructing a vacation ownership development at the Grand Geneva Resort &
Spa, representing the Company's entrance into the timesharing business. The
Company expects to begin selling units during the summer of 1999, with
construction of the first 24 units scheduled for completion by the end of
the fiscal year.
The actual number, mix and timing of potential future new facilities and
expansions will depend in large part on continuing favorable industry and
economic conditions, the Company's financial performance and available capital,
the competitive environment, evolving customer needs and trends and the
continued availability of attractive opportunities. It is likely that the
Company's expansion goals will continue to evolve and change in response to
these and other factors with no assurance that these current goals will be
achieved.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue refers generally to the data structure problem that may
prevent systems from properly recognizing dates after the year 1999. The Year
2000 issue affects information technology (IT) systems, such as computer
programs and various types of electronic equipment that process date information
by using only two digits rather than four digits to define the applicable year,
and thus may recognize a date using "00" as the year 1900 rather than the year
2000. The issue also affects some non-IT systems, such as devices which rely on
embedded microchips to process date information. The Year 2000 issue may result
in system failures or miscalculations, causing disruptions of a company's
operations. Moreover, even if a company's systems are Year 2000 compliant, a
problem may exist to the extent that the data that such systems process is not
compliant.
State of Readiness: The Company has implemented a Year 2000 Program designed to
ensure that the Company's computer system and applications will function
properly through 1999, into Year 2000 and beyond. The Company's Year 2000
Program has four phases: (1) identification and assessment, (2) remediation
(including modification, upgrading and replacement), (3) testing and (4)
contingency planning. The Company's Year 2000 Program is an ongoing process
involving continual evaluation and may be subject to a change in response to new
developments.
The Company has four distinct operating divisions. The Company has identified
corporate-wide and division specific operating systems and is finalizing the
remediation and testing of modified, upgraded and replacement systems. This
testing will continue through the remainder of 1999. Corporate financial and
human resource management/payroll systems are scheduled for completion of
testing during the fourth quarter of the calendar year. The Company expects that
all critical IT systems and
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critical embedded systems will be compliant by December 31, 1999. The Company
has surveyed all operating divisions and has identified any non-IT systems,
which if not Year 2000 compliant, may have a material adverse effect on the
Company's business, operating results or financial condition. The Company has
identified and surveyed its critical vendors, suppliers and financial
institutions with which it has material relationships. Based on current survey
status, the Company is not aware of any material third-party Year 2000 risks not
resolved by contingency plans.
Costs to Address Year 2000 Issues: The Company estimates that the cost of
remediation of problems related to Year 2000 issues will be less than $750,000,
the majority of which is expected to be capitalized.
Contingency Plan: If the Company's IT systems are not Year 2000 compliant on a
timely basis, the Company plans to operate such systems manually until any Year
2000 issues are remediated. Although such failure should not result in any loss
of data and information, it may increase some costs of operation. All systems
will be backed-up prior to January 1, 2000, with some being turned off following
back-up to reduce any potential for failure at time of rollover. Contingency
plans are being developed for all critical processes to operate manually. In
addition, if the failure of major utility companies to operate properly in the
Year 2000 contributes to the failure of internal systems, contingency plans
focus on the safety and security of guests and asset preservation. The Company
expects to maintain close contact with third parties with whom it has material
relationships, such as vendors, suppliers and financial institutions, to ensure
that such third parties' Year 2000 compliance issues do not materially adversely
affect the Company's operations. Contingency plans include alternate plans
should one of these third parties be unable to maintain their supply chain to
the Company.
In light of its compliance efforts, the Company does not believe that the Year
2000 issue will materially adversely affect operations or results of operations,
and does not expect implementation to have a material impact on the Company's
financial statements. However, there can be no assurance that the Company's
systems will be Year 2000 compliant prior to December 31, 1999, or that the
failure of any such system will not have a material adverse effect on the
Company's business, operating results and financial condition. To the extent the
Year 2000 problem has a material adverse effect on the business, operations or
financial condition of third parties with whom the Company has material
relationships, such as vendors, suppliers and financial institutions, the Year
2000 problem may also have a material adverse effect on the Company's business,
results of operations and financial condition.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. The
Company manages its exposure to this market risk through the monitoring of
available financing alternatives.
Variable interest rate risk: The Company's earnings are affected by changes in
short-term interest rates as a result of its borrowings under its revolving
credit agreements, floating-rate mortgages/industrial development revenue bonds
and unsecured term notes not subject to interest rate swap agreements. Based
upon the Company's variable rate debt for such borrowings at May 27, 1999, a 100
basis point increase in market rates would increase interest expense and
decrease earnings before income taxes by approximately $400,000. This
sensitivity analysis does not consider any actions management might take to
mitigate its exposure in the event of a change of such magnitude. The Company's
commercial paper outstanding at May 27, 1999 has been excluded from the above
sensitivity analysis. Although commercial paper is classified as long-term debt
based upon the Company's ability and intent to replace it with long-term
borrowings, all outstanding commercial paper matures within two months of
year-end. As a result, there would be no material expected change in interest
expense or fair market value following a reasonably expected change in interest
rates.
Fixed interest rate risk: The fair value of long-term fixed interest rate debt
may also be subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. Based upon the respective rates and prepayment provisions
of the Company's fixed interest rate senior notes and mortgages at May 27, 1999,
the carrying amounts of such debt approximates their fair value.
Interest rate swaps: The Company enters into interest rate swap agreements to
manage its exposure to interest rate changes. The swaps involve the exchange of
fixed and variable interest rate payments without exchanging the notional
principal amount. Payments or receipts on the agreements are recorded as
adjustments to interest expense. At May 27, 1999, the Company had interest rate
swap agreements in place of $4.5 million, expiring on October 2, 2000, and $7.5
million, expiring August 6, 2001. The Company pays a defined fixed rate while
receiving a defined variable rate based on LIBOR. Together, these swap
agreements effectively convert $12.0 million of the Company's variable rate
unsecured term notes to a fixed rate. The additional net interest expense
recorded in fiscal 1999 and 1998 as a result of the swap agreements was not
material. The fair value of these interest rate swap agreements represents the
estimated receipts or payments that would be made to terminate the agreements.
At May 27, 1999, the fair market value of the Company's swap agreements, as
determined by the lender, was a liability of approximately $142,000.
LIMITED-SERVICE LODGING
The Company's largest division is its limited service lodging division, which
contributed 39.0% of the Company's consolidated revenues and 44.5% of Company
consolidated operating income, excluding corporate items, during fiscal 1999.
<PAGE>
The division's primary business consists of owning and franchising Baymont Inns
& Suites and Woodfield Suites, which respectively operate in the limited-service
economy and limited-service all-suites segments of the lodging industry. The
following tables set forth revenues, operating income, operating margin, number
of units and rooms data for the limited-service lodging division for the last
three fiscal years:
1999 1998 1997
- - -------------------------------------------------------------------------
(in millions)
Revenues $ 141.6 $ 144.7 $ 134.7
Operating income 25.5 35.4* 39.8
Operating margin (% of revenues) 18.0% 24.4%* 29.5%
- - -------------------------------------------------------------------------
* Excludes $3.9 million before-tax charge for Baymont name change.
Number of units at year-end
------------------------------------
1999 1998 1997
- - -------------------------------------------------------------------------
Baymont Inns & Suites
Company-owned or operated 99 106 104
Franchised 65 50 39
- - -------------------------------------------------------------------------
Total Baymont Inns & Suites 164 156 143
- - -------------------------------------------------------------------------
Woodfield Suites
Company-owned 6 5 4
- - -------------------------------------------------------------------------
Total number of units 170 161 147
- - -------------------------------------------------------------------------
Available rooms at year-end
------------------------------------
1999 1998 1997
- - -------------------------------------------------------------------------
Baymont Inns & Suites
Company-owned or operated 10,380 11,326 11,111
Franchised 5,984 4,766 3,757
- - -------------------------------------------------------------------------
Total Baymont Inns & Suites 16,364 16,092 14,868
- - -------------------------------------------------------------------------
Woodfield Suites 737 610 490
- - -------------------------------------------------------------------------
Total available rooms 17,101 16,702 15,358
- - -------------------------------------------------------------------------
Total revenues in the limited-service lodging division decreased 2.2% during
fiscal 1999 due primarily to reduced occupancy at Baymont Inns & Suites. Total
revenues increased 7.5% during fiscal 1998 principally as a result of increased
available rooms. The additional week of operations included in the
limited-service lodging division's fiscal 1997 results contributed an additional
$2.5 million to fiscal 1997 revenues and approximately $1.2 million to fiscal
1997 operating income. Average daily room rates at Baymont Inns & Suites
increased 3.1% in both fiscal 1999 and 1998. Baymont's occupancy percentage
decreased 3.9 and 2.9 percentage points during fiscal 1999 and fiscal 1998,
respectively, but still remained above limited-service lodging industry
averages. The primary factor contributing to the decline in occupancy in both
fiscal years was the significant increase in the supply of limited service
economy lodging rooms. The increased room supply was especially prevalent in the
Midwestern and Southern portions of the country, where the Company has a large
number of properties. Occupancy was also negatively impacted in fiscal 1999
during the name change from Budgetel to Baymont. The result of the average daily
rate increases and occupancy declines was a 3.7% and 0.4% decrease in Baymont
Inns & Suites revenue per available room, or RevPAR, for comparable Inns for
fiscal 1999 and 1998, respectively. RevPAR for comparable Woodfield Suites
increased 7.9% during fiscal 1999 after decreasing 5.5% during fiscal 1998.
During the third quarter of fiscal 1999, the Company officially changed the name
of its Budgetel Inns to Baymont Inns and Baymont Inns & Suites. As the Company
expected, the Baymont introduction did not immediately alter the current trends
occurring in the limited-service segment of the lodging industry and may have
actually contributed to a decline in occupancy during the name change
transition. Delays in completing the new Baymont signage, caused in part by
severe January weather in the Midwest, contributed to the challenging transition
and adversely impacted results during fiscal 1999. Although the Company expects
that short-term declines in occupancy may continue during the initial
introduction of the new Baymont brand, the Company believes that the long-term
benefits of the name change should expand the Company's customer base, increase
RevPAR and increase development opportunities. In particular, the Company is
encouraged by significantly increased franchising interest as evidenced by a
greater number of franchises sold since the name change compared to a comparable
period in the prior year and the increased sales activity with potential new
franchisees. In addition, Company-owned properties that have introduced the new
lobby breakfast have performed significantly better than those that have not.
The Company plans to introduce the lobby breakfast to a vast majority of its
properties during fiscal 2000. As a result of the Baymont repositioning and the
anticipated expanded market potential, the Company's goal is to have over 300
locations under the Baymont banner within the next four years. The Company's
ability to reach this goal will be significantly impacted by customer acceptance
of the new name and product and the Company's ability to increase the number of
franchised locations at a pace faster than that achieved under the Budgetel
name, as well as industry and economic conditions, the competitive environment
and other factors.
No Company-owned Baymont Inns & Suites were opened in fiscal 1999 and two new
Budgetel Inns were opened in fiscal 1998. One new Woodfield Suites was opened in
both fiscal 1999 and fiscal 1998. The Company's newly opened Baymont Inns &
Suites and Woodfield Suites contributed additional revenues of $2.4 million and
nominal operating income during fiscal 1999. Newly opened properties in fiscal
1998 contributed additional revenue of $11.5 million and nominal operating
income. Late in fiscal 1999, the Company sold seven Baymont Inns & Suites,
including five to a new franchisee. A pre-tax gain of approximately $1.3 million
was recognized in fiscal 1999 as a result of the sale of these Inns. The Inns
sold contributed revenues of $5.5 million during fiscal 1999, compared to $6.3
million from a full year of operation during fiscal 1998. The Company has
identified up to 20 additional Baymont Inns & Suites that will be considered for
sale to new and existing franchisees over the next three
17
<PAGE>
years as part of the Company's strategy to emphasize growth through franchising.
In some cases, the Company may continue to manage a sold property for a new
owner under a management contract for an agreed upon period. The Company
believes that this strategy will give its franchise partners the opportunity to
develop a significant market presence and will allow the Company to utilize the
sales proceeds for other growth opportunities, including developing Baymont
properties in new markets.
The limited-service lodging division's operating income decreased 27.9% and
11.1% during fiscal 1999 and fiscal 1998, respectively, excluding the fiscal
1998 $3.9 million before-tax charge for Baymont name change costs. Operating
margins, excluding the Baymont name change costs, declined to 18.0%, compared to
24.4% and 29.5% in fiscal 1998 and 1997, respectively, due primarily to the
reductions in RevPAR, increased payroll costs from a tight labor market and
increased marketing expenditures. In addition, administrative costs have
increased due to recent investments in information technology and personnel,
including sales staff, incurred in association with the Baymont name change.
Offsetting these increased costs were improved franchise revenue and increased
operating income from the division's Woodfield Suites properties. The Company
currently expects RevPAR for Baymont Inns & Suites to remain below prior year
levels during the first half of fiscal 2000 due to the anticipated effect of the
increased room supply and the recent re-positioning of the brand. As a result,
operating margins may decline again early in fiscal 2000 if costs increase at a
pace exceeding that of RevPAR growth. The Company continues to believe that
RevPAR and operating margins may stabilize later in fiscal 2000 as the Company
completes its Baymont brand re-positioning and as market awareness of the
Baymont name increases.
THEATRES
The Company's oldest and second largest division is its theatre division. The
theatre division contributed 30.7% of the Company's consolidated revenues and
35.5% of its consolidated operating income, excluding corporate items, during
fiscal 1999. The theatre division operates motion picture theatres in Wisconsin,
Illinois, Ohio and Minnesota, and a family entertainment center in Wisconsin.
The following tables set forth revenues, operating income, operating margin,
screens and theatres for the last three fiscal years:
1999 1998 1997
- - --------------------------------------------------------------------------
(in millions)
Revenues $111.2 $91.8 $80.6
Operating income 20.4 19.7 16.9
Operating margin (% of revenues) 18.3% 21.4% 20.9%
Number of screens
and locations at year-end
-------------------------------------
1999 1998 1997
- - -------------------------------------------------------------------------
Theatre screens 428 361 297
Theatre locations 48 46 40
Average screens per location 8.9 7.8 7.4
- - --------------------------------------------------------------------------
Total revenues in the theatre division increased 21.2% and 13.9% during fiscal
years 1999 and 1998, respectively, principally as a result of adding additional
screens. Consistent with the Company's long-term strategic plan to focus on
operating large multi-screen theatres, the Company added 73 new screens during
fiscal 1999, including a new 17-screen ultraplex in suburban Columbus, Ohio.
This ultraplex represents the Company's second theatre in the Columbus market
and includes the Company's first IMAX(R) theatre. The Company also purchased
three theatres during fiscal 1999 - a 10-screen theatre in Milwaukee; a
14-screen theatre in Elgin, Illinois; and a 10-screen theatre in Wausau,
Wisconsin. In addition, the Company added 23 screens to seven existing theatres
during fiscal 1999 and converted two screens at a suburban Milwaukee theatre
into its first UltraScreen(TM) - a 75-foot wide, 32-foot high screen nearly
three times the size of traditional theatre screens. During fiscal 1999, the
Company also converted a suburban Milwaukee theatre into a new Luxury Cinema(TM)
concept, featuring amenities such as leather rocker seating with side tables,
gourmet foods, a lounge, discounted childcare, concierge service and weekend
valet parking. As of May 27, 1999, the Company operated 394 first-run screens
and 34 budget screens. Compared to first-run theatres, budget theatres generally
have lower box office revenues and associated film costs, but higher concession
sales as a percentage of box office revenue.
The Company added 66 new screens during fiscal 1998, all during the fourth
quarter, including a new 12-plex in Menomonee Falls, Wisconsin and a 16-screen
theatre in Pickerington (Columbus), Ohio. During the final weeks of fiscal 1998,
the Company also completed the purchase of five suburban Minneapolis/St. Paul,
Minnesota theatres with a total of 38 screens (32 first-run and six budget
screens). Upon opening the new location in Menomonee Falls, the Company
converted an existing five-screen complex in that city into a budget-oriented
theatre. The new screens added during fiscal 1999 and fiscal 1998 generated
additional revenues of $21.9 million and $8.5 million, respectively, compared to
the previous years.
Two theatres with a total of six screens were closed during fiscal 1999 and one
theatre with two screens was closed during fiscal 1998. These closed theatres
had minimal impact on operations in each year.
Revenues for the theatre business and the motion picture industry in general are
heavily dependent on the general audience appeal of available films, together
with studio marketing, advertising and support campaigns, factors over which the
Company has no control. This was particularly evident in fiscal 1999. Theatre
division revenues and
<PAGE>
operating income were up 36% over the prior year at the end of the second
quarter, due to the strong box office performance of films such as Saving
Private Ryan, There's Something About Mary, Armegeddon, Bug's Life and Waterboy.
With the exception of the film Patch Adams, the lack of quality and quantity of
film product during the second half of fiscal 1999, however, eliminated the
majority of the division's earlier increases. Negative comparisons to fiscal
1998 results during that period were also greatly affected by the record-setting
box office performance of the film Titanic during fiscal 1998. Film product did
improve significantly during the last weeks of fiscal 1999 with the release of
Star Wars I: The Phantom Menace and The Matrix. Additional box office hits
during fiscal 1998 included Men in Black, Air Force One, Good Will Hunting, As
Good As It Gets, Tomorrow Never Dies, Lost World, My Best Friend's Wedding and
Batman & Robin. Each of the fiscal 1999 films identified produced box office
receipts in excess of $1.5 million for the theatre division during fiscal 1999.
Each of the fiscal 1998 films identified produced box office receipts in excess
of $1.0 million for the theatre division during fiscal 1998. The Company played
149, 162 and 166 films at its theatres during fiscal years 1999, 1998 and 1997,
respectively.
Total box office receipts during fiscal 1999 were $74.0 million, an increase of
$14.0 million, or 23.4%, from $60.0 million during fiscal 1998. Fiscal 1998 box
office receipts increased $5.5 million, or 10.1%, compared to fiscal 1997. These
increases were attributable to 21.8% and 7.4% increases in attendance during
fiscal years 1999 and 1998, respectively. The increases in attendance were due
to the increase in new screens each year. Attendance at the Company's comparable
locations decreased 4.1% during fiscal 1999 and 1.4% during fiscal 1998,
compared to the previous year. Attendance during fiscal 1999 was negatively
impacted by a major winter storm on New Year's weekend during what is
traditionally the largest theatre attendance week of the year. The Company
estimates that it lost approximately $2 million in revenues due to the storm.
Early in the third quarter of fiscal 1998, the Company experienced a fire at its
North Shore Cinema in Mequon, Wisconsin, resulting in the loss of 11 screens for
approximately five months in fiscal 1998.
The theatre division's average ticket price increased 1.3% and 2.4% during
fiscal 1999 and fiscal 1998, respectively, compared to the prior year. The
fiscal 1999 overall average ticket price increase was impacted by a reduction in
the average ticket price at several of the Company's budget-oriented theatres
during the fiscal year. First-run theatre average ticket prices increased 2.2%
during fiscal 1999 and 1.4% during fiscal 1998, compared to the prior year.
Concession revenues during fiscal 1999 were $33.4 million, an increase of $6.4
million, or 23.9%, from $27.0 million during fiscal 1998. Fiscal 1998 concession
revenues increased $4.4 million, or 19.4%, from fiscal 1997 concession revenues
of $22.6 million. Concession revenues increased due to increased theatre
attendance from the Company's added screens and the 1.9% and 11.4% increase in
average concession sales per person during fiscal years 1999 and 1998,
respectively. Average concession sales per person are impacted by changes in
concession pricing, types of films played and changes in the Company's
geographic mix of theatre locations.
The theatre division's operating income increased 3.7% during fiscal 1999 and
16.7% during fiscal 1998, compared to the prior year results. The division's
operating margin decreased to 18.3%, compared to 21.4% and 20.9% in fiscal 1998
and 1997, respectively. Fiscal 1999 operating margins were impacted by the
disappointing film product and increased occupancy expenses associated with
recent capital investments in the division. Fiscal 1999 and fiscal 1998
operating income was reduced by pre-opening expenses of over $700,000 and
$550,000, respectively, relating to the opening of new screens.
HOTELS and RESORTS
The Company's hotel and resort division contributed 22.4% of the Company's
consolidated revenues and 14.1% of the Company's consolidated operating income,
excluding corporate items, during fiscal 1999. The hotel and resort division
owns and operates two full-service hotels in downtown Milwaukee, Wisconsin, a
full-facility destination resort in Lake Geneva, Wisconsin and a boutique luxury
resort in Indian Wells, California. In addition, the Company managed three
hotels and a resort during fiscal 1999 and 1998, compared to three hotels during
fiscal 1997. The following table sets forth revenues, operating income and
operating margin for the hotel and resort division for the last three fiscal
years:
1999 1998 1997
- - --------------------------------------------------------------------------
(in millions)
Revenues $81.2 $70.3 $60.2
Operating income 8.1 7.9 5.5
Operating margin (% of revenues) 10.0% 11.2% 9.1%
- - --------------------------------------------------------------------------
Total revenues in the hotel and resort division increased 15.5% and 16.8% during
fiscal 1999 and fiscal 1998, respectively, compared to the prior year. The
additional week of operations included in the division's fiscal 1997 results
contributed an additional $1.0 million to fiscal 1997 revenues and $230,000 to
the fiscal 1997 operating income. The division's operating income increased 2.9%
during fiscal 1999 and 44.1% during fiscal 1998, compared to the previous year.
Increased management fees, due to improved results at the Company's managed
properties, contributed to the improved operating results during fiscal 1999.
Operating margin declined in fiscal 1999 due to the impact of the first full
year of operation at the Miramonte Resort in Indian Wells, California.
Occupancy and average daily rate increases at the division's three comparable
owned properties contributed to the increase in revenues and operating income in
both fiscal 1999 and fiscal 1998. As a result of the occupancy and
19
<PAGE>
average daily rate increases, the division's total RevPAR for comparable
properties increased 10.5% and 12.5% during fiscal 1999 and 1998, respectively,
compared to the prior year. Unlike the limited-service segment of the lodging
industry, strong consumer demand in conjunction with relatively little increase
in room supply has resulted in strong operating results for owners and operators
of upper-end hotels and resorts during the past two years. The Company currently
believes that its RevPAR in the hotel and resort division will continue to
increase in fiscal 2000, but at a somewhat slower rate. As a result, operating
margins at comparable properties may increase during fiscal 2000.
The division acquired a resort in Indian Wells, California in fiscal 1997 and
closed the facility for an extensive renovation. The Company reopened the
property in January 1998 under the name Miramonte Resort. Fiscal 1999 and 1998
results were negatively impacted by approximately $2.0 million and $1.2 million,
respectively, of pre-opening costs and start-up operating losses at the
Miramonte. The Miramonte did not have a material effect on fiscal 1997 results.
All pre-opening expenses were fully amortized during fiscal 1999, which should
contribute to more favorable comparisons in operating income during fiscal 2000.
During fiscal 1998, the Company entered into a management contract to operate
its first property in Michigan, the Mission Point Resort on Mackinac Island. The
Mission Point Resort is a seasonal property and did not materially impact the
Company's fiscal 1998 operating results. Fiscal 1997 operating results were
favorably impacted by reduced charges for pre-opening costs for the Milwaukee
Hilton (formerly the Marc Plaza) and increased management fees.
The Company began construction during fiscal 1999 on an extensive addition to
the Hilton Milwaukee City Center. When completed, the hotel will have 750 rooms,
making it the largest hotel in Wisconsin. Scheduled to open in July 2000, the
addition will also include meeting rooms, a family water park fun center and a
skywalk to the city's new Midwest Express Convention Center. The Company
anticipates some pre-opening expenses during fiscal 2000 related to this
project, but does not expect that the amount will have a material impact on
fiscal 2000 operating results. Construction also commenced late in fiscal 1999
on the division's new Hilton Madison at Monona Terrace, a 238- room hotel
connected by skywalk to the Monona Terrace Convention Center in Madison,
Wisconsin and scheduled to open late in fiscal 2001. The Company does expect
pre-opening expenses during fiscal 2001 related to the opening of this new hotel
to have an adverse impact on fiscal 2001 division operating results. Plans for a
250-room downtown Chicago luxury hotel project that was to be developed and
managed by the Company are being re-evaluated due to current market conditions
and higher than expected estimated project costs.
The Company recently began construction on a vacation ownership development at
the Grand Geneva Resort & Spa, representing the Company's entrance into the
timesharing business. The Company will begin selling its first 24 units during
the summer of 1999, with construction of the units scheduled for completion by
the end of fiscal 2000. The vacation ownership development is not expected to
materially impact operating results in fiscal 2000, but if sales efforts are
successful, may add to division operating income in fiscal 2001.
RESTAURANTS
The Company's restaurant division contributed 7.8% of the Company's consolidated
revenues and 5.9% of its consolidated operating income, excluding corporate
items, during fiscal 1999. The restaurant division has non-exclusive franchise
rights to operate KFC restaurants in the Milwaukee metropolitan area and in
northeast Wisconsin. The division operated 27 KFC restaurants and three KFC
/Taco Bell 2-in-1 restaurants at the end of fiscal 1999, 30 KFC restaurants and
1 KFC /Taco Bell 2-in-1 restaurant at the end of fiscal 1998 and 31 KFC
restaurants at the end of fiscal 1997. The division also leases several
Company-owned restaurants to other restaurant operators. The following tables
set forth revenues, operating income and operating margin for the restaurant
division for the last three fiscal years:
1999 1998 1997
- - --------------------------------------------------------------------------
(in millions)
Revenues $28.5 $27.6 $26.8
Operating income 3.4 3.6 2.7
Operating margin (% of revenues) 11.9% 12.9% 10.0%
- - --------------------------------------------------------------------------
Total revenues in the restaurant division increased 3.2% and 2.9% during fiscal
years 1999 and 1998, respectively, compared to the previous year. Restaurant
division revenues included annual rental income from leased restaurants of
approximately $1.5 million during fiscal 1999 and 1998 and $1.7 million during
fiscal 1997. The restaurant division's operating income decreased 4.9% during
fiscal 1999 and increased 32.7% during fiscal 1998, compared to the previous
year. Although operating income from the Company's KFC restaurants increased
during fiscal 1999, the restaurant division's reported operating income
decreased due primarily to a one-time insurance adjustment from a prior year
claim that was settled during fiscal 1999.
The Company's KFC restaurants experienced a 3.6% and 3.5% increase in aggregate
revenues during fiscal years 1999 and 1998, respectively, compared to the
previous year. Excluding $300,000 of decreased revenues during fiscal 1999
resulting from the sale of one KFC restaurant, same store KFC restaurant sales
increased 5.0% during fiscal 1999. Same store KFC guest counts increased 1.9%
and 2.1% during fiscal 1999 and 1998, respectively, due to increased snack and
lunch-time traffic, the consumer appeal of the KFC /Taco Bell 2-in-1 concept and
the introduction of several new franchisor products. Average
<PAGE>
guest checks increased in both fiscal 1999 and 1998 over previous year levels.
The Company's comparable KFC restaurants experienced a 2.4% increase in
aggregate operating income during fiscal 1999, compared to a 41.9% increase
during fiscal 1998. Increased food costs resulting from higher chicken prices
limited the increase in operating income in fiscal 1999. The improved operating
results in fiscal 1998 were primarily the result of the increased customer
counts and average guest checks, significantly reduced food costs resulting from
favorable chicken pricing and the successful conversion of an existing KFC
restaurant into the Company's first KFC /Taco Bell 2-in-1 unit in June 1997. The
Company converted two additional KFC restaurants into KFC/Taco Bell 2-in-1 units
and sold one KFC restaurant during fiscal 1999.
FINANCIAL CONDITION
The Company's lodging, movie theatre and restaurant businesses each generate
significant and consistent daily amounts of cash because each segment's revenue
is derived predominantly from consumer cash purchases. The Company believes that
these consistent and predictable cash sources, together with the availability to
the Company of $83 million of unused credit lines at fiscal 1999 year end,
should be adequate to support the ongoing operational liquidity needs of the
Company's businesses. The Company increased its credit lines during fiscal 1999,
replacing several separate lines totaling $90 million with a new five-year $125
million revolving credit agreement.
Net cash provided by operating activities decreased by $11.7 million, or 16.4%,
to $60.0 million in fiscal 1999, compared to $71.7 million in fiscal 1998. The
decrease was primarily the result of timing differences in payments of accounts
payable, net of receipts of accounts and notes receivable.
Net cash used in investing activities in fiscal 1999 increased by $500,000, or
0.5%, to $106.7 million. Total capital expenditures (including normal continuing
capital maintenance projects and business acquisitions) of $111.8 million and
$115.9 million were incurred in fiscal 1999 and 1998, respectively. Capital
expenditures and business acquisitions during fiscal 1999 included $29.7 million
incurred on limited-service lodging division projects, $64.5 million on theatre
division projects and $14.1 million on hotel and resort division projects.
During fiscal 1998, $25.2 million was incurred on limited-service lodging
division projects, $59.4 million on theatre division projects and $24.9 million
on hotel and resort division projects. Total capital expenditures in fiscal 2000
are expected to exceed fiscal 1999 expenditures and are expected to be funded by
cash generated from operations, net proceeds from the disposal of selected
assets and additional debt, including additional institutional debt from the
Company's private placement program and borrowings under the Company's new
revolving credit facility. The mix of fiscal 2000 capital expenditures between
segments is currently not anticipated to be significantly different than fiscal
1999 capital expenditures, with the exception of an increase in capital spending
in the hotel and resort division due to the major construction projects
currently underway.
During fiscal 1999, the Company expended $3.2 million for the purchase of
interests in several joint ventures in the limited-service lodging division.
During fiscal 1998, the Company acquired $2.6 million in cash pursuant to the
acquisition of operating assets of a related company, Guest House Inn, Inc. The
Company issued 610,173 shares of its Common Stock in conjunction with the
acquisition. Cash proceeds from the disposals of property, equipment and other
assets totaled $10.5 million and $6.1 million during fiscal 1999 and 1998,
respectively.
Principally as a result of funding a portion of the Company's fiscal 1999
facility expansions and renovations, the Company's total debt increased to
$274.7 million at the close of fiscal 1999, compared to $215.9 million at the
end of fiscal 1998. Net cash provided by financing activities in fiscal 1999
totaled $45.5 million, compared to $31.1 million in fiscal 1998. During fiscal
1999, the Company received $76.9 million of net proceeds from the issuance of
notes payable and long-term debt, compared to $54.7 million during fiscal 1998.
Included in the fiscal 1999 proceeds was $40 million in principal of senior
unsecured long-term notes privately placed with two institutional lenders.
Fiscal 1998 proceeds included $30 million in principal amount of senior
unsecured long-term notes privately placed with two institutional lenders. The
Company has the ability to issue up to $45 million of additional senior notes
under its private placement program. The Company used a portion of the proceeds
from its issued senior notes to pay off existing short-term debt, resulting in
total principal payments on notes payable and long-term debt of $18.9 million in
fiscal 1999 and $16.5 million in fiscal 1998. The Company expects to use the
remaining proceeds to help fund the Company's ongoing expansion plans. The
Company's debt-capitalization ratio was 0.47 at May 27, 1999, compared to 0.42
at the prior fiscal year end.
During fiscal 1999, the Company repurchased 490,000 of its common shares for
approximately $7.2 million in the open market pursuant to a long-standing
existing repurchase program and a recently announced new repurchase program. The
Company announced in the second quarter of fiscal 1999 that its Board of
Directors had authorized the repurchase of up to 1 million additional shares of
the Company's outstanding common stock. The repurchases are expected to be
executed on the open market or in privately negotiated transactions depending
upon a number of factors, including prevailing market conditions.
21
<PAGE>
CONSOLIDATED STATEMENTS OF
EARNINGS
Years ended
---------------------------------------
May 27, May 28, May 29,
1999 1998 1997
- - --------------------------------------------------------------------------------
(in thousands, except per share data)
REVENUES:
Rooms and telephone $ 173,305 $ 171,668 $ 156,689
Theatre admissions 74,011 59,969 54,495
Theatre concessions 33,413 26,968 22,587
Food and beverage 51,979 48,346 45,401
Other income 30,219 27,888 23,601
- - --------------------------------------------------------------------------------
Total revenues 362,927 334,839 302,773
COSTS and EXPENSES:
Rooms and telephone 70,117 66,644 58,752
Theatre operations 58,150 46,231 41,714
Theatre concessions 8,419 7,321 6,634
Food and beverage 37,016 34,670 33,154
Advertising and marketing 26,136 22,875 20,052
Administrative 38,606 32,387 27,108
Depreciation and amortization 38,258 32,904 28,903
Rent (Note 9) 3,303 2,739 2,435
Property taxes 13,856 12,300 10,175
Pre-opening expenses 1,810 2,057 2,310
Other operating expenses 15,420 13,192 10,805
Baymont name change (Note 3) -- 3,900 --
- - --------------------------------------------------------------------------------
Total costs and expenses 311,091 277,220 242,042
- - --------------------------------------------------------------------------------
OPERATING INCOME 51,836 57,619 60,731
OTHER INCOME (EXPENSE):
Investment income 783 834 1,584
Interest expense (16,848) (12,616) (11,597)
Gain on disposition of property
and equipment (Note 2) 3,096 1,547 488
- - --------------------------------------------------------------------------------
(12,969) (10,235) (9,525)
- - --------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 38,867 47,384 51,206
INCOME TAXES (Note 8) 15,723 18,940 20,325
- - --------------------------------------------------------------------------------
NET EARNINGS $ 23,144 $ 28,444 $ 30,881
================================================================================
NET EARNINGS PER COMMON SHARE
Basic $ .77 $ .95 $ 1.05
Diluted .77 .94 1.04
================================================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 30,005 30,046 29,525
Diluted 30,105 30,293 29,745
================================================================================
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS
May 27 May 28,
1999 1998
- - ---------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,499 $ 4,678
Accounts and notes receivable (Note 4) 11,059 14,294
Receivables from joint ventures (Note 10) 1,739 1,288
Refundable income taxes 6,041 4,385
Other current assets 4,400 3,773
- - ---------------------------------------------------------------------------------------------------------
Total current assets 26,738 28,418
Property and equipment, net (Note 4) 611,213 559,996
Other assets:
Investments in joint ventures (Notes 9 and 10) 2,045 1,496
Other 36,120 18,594
- - ---------------------------------------------------------------------------------------------------------
Total other assets 38,165 20,090
- - ---------------------------------------------------------------------------------------------------------
Total assets $ 676,116 $ 608,504
=========================================================================================================
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 10) $ 4,479 $ 5,255
Accounts payable 22,958 26,385
Taxes other than income taxes 9,575 11,404
Accrued compensation 2,617 2,643
Other accrued liabilities 9,287 10,072
Current maturities of long-term debt (Note 5) 10,470 10,277
- - ---------------------------------------------------------------------------------------------------------
Total current liabilities 59,386 66,036
Long-term debt (Note 5) 264,270 205,632
Deferred income taxes (Note 8) 31,405 26,479
Deferred compensation and other (Note 7) 7,481 7,826
Commitments, license rights and contingencies (Note 9)
Shareholders' equity (Note 6):
Preferred Stock, $1 par; authorized 1,000,000 shares; none issued
Common Stock:
Common Stock, $1 par; authorized 50,000,000 shares;
issued 18,680,508 shares in 1999 and 18,511,866 shares in 1998 18,681 18,512
Class B Common Stock, $1 par; authorized 33,000,000 shares; issued
and outstanding 12,509,014 shares in 1999 and 12,677,656 shares
in 1998 12,509 12,678
Capital in excess of par 40,685 40,265
Retained earnings 252,498 235,708
Accumulated other comprehensive loss (214) --
- - ---------------------------------------------------------------------------------------------------------
324,159 307,163
Less cost of Common Stock in treasury (1,280,676 shares in 1999 and
944,544 shares in 1998) (10,585) (4,632)
- - ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 313,574 302,531
- - ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 676,116 $ 608,504
=========================================================================================================
</TABLE>
See accompanying notes.
23
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
Three Years ended May 27, 1999
--------------------------------------------------------------------------------------
Accumulated
Class B Capital Other
Common Common in Excess Retained Comprehensive Treasury
Stock Stock of Par Earnings Loss Stock Total
- - ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES at MAY 30, 1996 $17,294 $13,286 $28,639 $195,643 $ - $ (3,614) $251,248
Cash dividends:
$.18 per share Class B
Common Stock - - - (2,409) - - (2,409)
$.20 per share Common Stock - - - (3,255) - - (3,255)
Exercise of stock options - - 127 - - 251 378
Purchase of treasury stock - - - - - (214) (214)
Savings and profit-sharing
contribution - - 383 - - 115 498
Reissuance of treasury stock - - 128 - - 38 166
Conversions of Class B
Common Stock 224 (224) - - - - -
Net earnings - - - 30,881 - - 30,881
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCES at MAY 29, 1997 17,518 13,062 29,277 220,860 - (3,424) 277,293
Cash dividends:
$.20 per share Class B
Common Stock - - - (2,522) - - (2,522)
$.22 per share Common Stock - - - (3,756) - - (3,756)
Exercise of stock options - - 339 - - 1,107 1,446
Purchase of treasury stock - - - - - (2,504) (2,504)
Savings and profit-sharing
contribution - - 464 - - 118 582
Reissuance of treasury
stock - - 266 - - 71 337
Conversions of Class B
Common Stock 384 (384) - - - - -
Guest House Inn, Inc.
acquisition (Note 2) 610 - 9,919 (7,318) - - 3,211
Net earnings - - - 28,444 - - 28,444
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCES at MAY 28, 1998 18,512 12,678 40,265 235,708 - (4,632) 302,531
Cash dividends:
$.20 per share Class B
Common Stock - - - (2,524) - - (2,524)
$.22 per share Common Stock - - - (3,830) - - (3,830)
Exercise of stock options - - 54 - - 592 646
Purchase of treasury stock - - - - - (7,169) (7,169)
Savings and profit-sharing
contribution - - 208 - - 438 646
Reissuance of treasury stock - - 158 - - 186 344
Conversions of Class B
Common Stock 169 (169) - - - - -
Components of comprehensive
income (loss):
Net earnings - - - 23,144 - - 23,144
Change in unrealized loss on available
for sale investments, net of tax - - - - (214) - (214)
Total comprehensive income 22,930
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCES at MAY 27, 1999 $18,681 $12,509 $40,685 $252,498 $ (214) $(10,585) $313,574
====================================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<CAPTION>
Years ended
-------------------------------------
May 27, May 28, May 29,
1999 1998 1997
- - ------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 23,144 $ 28,444 $ 30,881
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Earnings) losses on investments in joint ventures,
net of distributions 221 (57) (144)
Gain on disposition of property and equipment (3,096) (1,547) (488)
Impairment of property and equipment -- 1,521 --
Depreciation and amortization 38,258 32,904 28,903
Deferred income taxes 4,926 4,054 2,398
Deferred compensation and other 1,712 400 1,239
Contribution of Company stock to savings
and profit-sharing plan 646 582 498
Changes in operating assets and liabilities:
Accounts and notes receivable 2,489 (8,763) 3,249
Other current assets (627) (182) (1,128)
Accounts payable (3,427) 16,094 (5,355)
Income taxes (1,656) (4,437) (1,341)
Taxes other than income taxes (1,829) 2,107 974
Accrued compensation (26) 1,373 (110)
Other accrued liabilities (785) (814) 1,534
- - ------------------------------------------------------------------------------------------------------
Total adjustments 36,806 43,235 30,229
- - ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 59,950 71,679 61,110
INVESTING ACTIVITIES
Capital expenditures, including business acquisitions (111,843) (115,880) (107,514)
Net proceeds from disposals of property,
equipment and other assets 10,509 6,093 3,783
Purchase of interest in joint ventures (3,178) -- --
(Increase) decrease in other assets (1,688) 1,280 (4,602)
Cash acquired pursuant to Guest House Inn, Inc. acquisition -- 2,589 --
Cash received from (advanced to) joint ventures (451) (222) 3,824
- - ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (106,651) (106,140) (104,509)
FINANCING ACTIVITIES
Debt transactions:
Net proceeds from issuance of notes payable
and long-term debt 76,944 54,665 99,857
Principal payments on notes payable and long-term debt (18,889) (16,518) (58,599)
Equity transactions:
Treasury stock transactions, except for stock options (6,825) (2,167) (48)
Exercise of stock options 646 1,446 378
Dividends paid (6,354) (6,278) (5,664)
- - ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 45,522 31,148 35,924
- - ------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,179) (3,313) (7,475)
Cash and cash equivalents at beginning of year 4,678 7,991 15,466
- - ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,499 $ 4,678 $ 7,991
======================================================================================================
</TABLE>
See accompanying notes.
25
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - The Marcus Corporation and its subsidiaries (the
Company) operate principally in four business segments:
Limited-Service Lodging: Operates and franchises lodging facilities under
the names Baymont Inns, Baymont Inns & Suites and Woodfield Suites,
primarily located in the eastern half of the United States.
Theatres: Operates multi-screen motion picture theatres and a family
entertainment center in Wisconsin, Illinois, Ohio and Minnesota.
Hotels/Resorts: Owns and operates full service hotels and resorts in
Wisconsin and California and manages full service hotels and resorts in
Wisconsin, Minnesota, Michigan and California.
Restaurants: Operates KFC restaurants under a license agreement for certain
areas in the state of Wisconsin.
Principles of Consolidation - The consolidated financial statements include the
accounts of The Marcus Corporation and all of its subsidiaries. Investments in
50%-owned affiliates are accounted for on the equity method. All intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year - The Company reports on a 52/53-week year ending the last Thursday
of May. The Restaurants segment had a 53-week year in fiscal 1998. The
Limited-Service Lodging and Hotels/Resorts segments had a 53-week year in fiscal
1997. All other segments had 52-week years in each period.
Cash Equivalents - The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents. Cash
equivalents are carried at cost, which approximates market.
Pre-opening Costs - Certain costs incurred prior to opening new or remodeled
motels and remodeled hotels were deferred and charged to operations over the 12
months subsequent to the opening. Similar expenses incurred in connection with
the opening and remodeling of theatres and restaurants were deferred and charged
to operations at the time of opening.
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." The SOP is effective for fiscal years
beginning after December 15, 1998 and requires that start-up costs capitalized
prior to adoption of the SOP be written off and any future costs be expensed as
incurred. As of May 27, 1999, the Company had amortized all previously deferred
start-up costs, and will expense all future costs.
Long-Lived Assets - The Company periodically considers whether indicators of
impairment of long-lived assets held for use (including goodwill) are present.
If such indicators are present, the Company determines whether the sum of the
estimated undiscounted future cash flows attributable to such assets is less
than their carrying amounts. The Company recognizes any impairment losses based
on the excess of the carrying amount of the assets over their fair value. The
Company evaluated the ongoing value of its property and equipment and other
long-lived assets as of May 27, 1999 and May 28, 1998, and determined that there
was no significant impact on the Company's results of operations, other than the
Baymont name change costs described in Note 3.
Investments - Available for sale securities are stated at fair market value,
with unrealized gains and losses reported as a component of shareholders'
equity. The cost of securities sold is based upon the specific identification
method. Realized gains and losses and declines in value judged to be other than
temporary are included in investment income.
Management Fees - Amounts earned are included in the consolidated statements of
earnings as other income.
Depreciation and Amortization - Depreciation and amortization of property and
equipment is provided using the straight-line method over the following
estimated useful lives:
Years
- - ---------------------------------------------------
Land improvements 10 - 39
Buildings and improvements 10 - 39
Leasehold improvements 3 - 39
Furniture, fixtures and equipment 3 - 20
- - ---------------------------------------------------
Advertising and Marketing Costs - The Company expenses all advertising and
marketing costs as incurred.
<PAGE>
Net Earnings Per Share - The numerator for the calculation of basic and diluted
earnings per share is net earnings and the denominator is the respective
weighted average shares outstanding. The difference between basic and diluted
weighted average shares outstanding is the dilutive effect of employee stock
options.
Options to purchase 499,994 shares of common stock at prices ranging from $14.94
to $18.13 per share were outstanding at May 27, 1999 but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
Comprehensive Income - The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes
the standards for reporting and displaying comprehensive income and its
components (revenue, expenses, gains and losses) as part of a full set of
financial statements. SFAS No. 130 had no impact on the Company's results of
operations, financial position or cash flows. Accumulated other comprehensive
loss presented in the accompanying balance sheets consists of the accumulated
net unrealized losses on available for sale securities.
New Accounting Pronouncements - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
2000. The statement will require the Company to recognize all derivatives,
including interest rate swaps, on the balance sheet at fair value, with the
offset going through income or other comprehensive income based on the nature of
the hedged item. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new statement will have a
significant effect on the Company's financial condition or results of
operations.
Capitalization of Interest - The Company capitalizes interest during
construction periods by adding such interest to the cost of property and
equipment. Interest of approximately $761,000, $1,601,000 and $1,320,000 was
capitalized in fiscal 1999, 1998 and 1997, respectively.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications - Certain fiscal 1997 and fiscal 1998 amounts have been
reclassified to conform to the fiscal 1999 presentation.
2. ACQUISITION
On October 1, 1997, the Company issued 610,173 shares of Common Stock to Guest
House Inn, Inc. (GHI) in exchange for all of the net operating assets of GHI and
issued 449,320 new shares of Class B Common Stock to GHI in exchange for the
cancellation of the existing 449,320 shares of Class B Common Stock owned by
GHI. Share data has been adjusted to reflect the three-for-two stock split (see
Note 6). GHI was owned and controlled by certain officers, directors and/or
principal controlling shareholders of the Company. Based on this common
ownership and control, for financial reporting purposes the assets acquired from
GHI were recorded at the historical book value of GHI rather than fair value.
The common shares issued to complete this transaction were recorded at their
fair value and the excess of this fair value over the historical book value of
the assets acquired was recorded as a distribution.
3. BAYMONT NAME CHANGE
On February 10, 1998, the Company announced the name change of its Budgetel Inns
to Baymont Inns and Baymont Inns & Suites. This change was effective in January
1999. As a result of the name change, the Company recorded a $3.9 million
pre-tax charge in fiscal 1998 for the write-off of existing signage ($1.5
million), assistance provided to franchisees ($1.4 million) and other one-time
expenses associated with the name change.
4. ADDITIONAL BALANCE SHEET INFORMATION
The composition of accounts and notes receivable is as follows:
May 27, May 28,
1999 1998
- - --------------------------------------------------------------------------
(in thousands)
Trade receivables $ 5,888 $ 7,549
Notes receivable 679 646
Employee advances 14 2,257
Other receivables 4,478 3,842
- - --------------------------------------------------------------------------
$11,059 $14,294
==========================================================================
27
<PAGE>
The composition of property and equipment, which is
stated at cost, is as follows:
May 27, May 28,
1999 1998
- - --------------------------------------------------------------------------
(in thousands)
Land and improvements $ 88,221 $ 85,282
Buildings and improvements 478,576 440,737
Leasehold improvements 9,904 9,355
Furniture, fixtures and
equipment 213,408 187,341
Construction in progress 28,620 27,510
- - --------------------------------------------------------------------------
818,729 750,225
Less accumulated depreciation
and amortization 207,516 190,229
- - --------------------------------------------------------------------------
$611,213 $559,996
==========================================================================
5. LONG-TERM DEBT
Long-term debt is summarized as follows:
May 27, May 28,
1999 1998
- - --------------------------------------------------------------------------
(in thousands)
Mortgage notes due to 2008 $ 5,768 $ 11,564
Industrial Development Revenue
Bonds due to 2006 6,250 6,686
Senior notes due May 31, 2005,
with monthly principal and interest
payments of $362,346, bearing
interest at 10.22% 19,637 21,854
Senior notes 155,000 115,000
Unsecured term notes 40,621 46,625
Commercial paper 37,464 12,180
Revolving credit agreements 10,000 2,000
- - --------------------------------------------------------------------------
274,740 215,909
Less current maturities 10,470 10,277
- - --------------------------------------------------------------------------
$264,270 $205,632
==========================================================================
Substantially all of the mortgage notes, both fixed rate and adjustable, bear
interest from 6.65% to 9.25% at May 27, 1999. The Industrial Development Revenue
Bonds, both fixed rate and adjustable, bear interest from 6.4% to 8.8%. The
mortgage notes and the Industrial Development Revenue Bonds are secured by the
related land, buildings and equipment.
The $155 million of senior notes mature in 2008 through 2014, require annual
principal payments in varying installments beginning October 15, 2000, and bear
interest payable semiannually at fixed rates ranging from 6.66% to 7.51% with a
weighted average fixed rate of 7.13%.
The Company has unsecured term notes outstanding as follows:
May 27, May 28,
1999 1998
- - --------------------------------------------------------------------------
(in thousands)
Note due May 31, 2004, with quarterly
principal payments of $781,250.
The variable interest rate is based on
the LIBOR rate with an effective rate of 5.81%
at May 27, 1999 and is payable quarterly. $14,844 $17,969
Note due February 1, 2004, with quarterly
principal payments of $714,286 due beginning
May 1, 2000. The variable interest rate is based
on the LIBOR rate with an effective rate of
6.06% at May 27, 1999 and is payable quarterly. 20,000 20,000
Note due October 1, 2000, with quarterly
principal payments of $750,000.The variable
interest rate is based on the LIBOR rate with an
effective rate of 5.75%at May 27, 1999 and is
payable quarterly. 4,500 7,500
Note due April 28, 2003, with monthly
payments of $20,267, including interest at 2%. 893 1,156
Note due March 25, 2004, with monthly
payments of $7,733, including interest at 6%. 384 -
- - --------------------------------------------------------------------------
$40,621 $46,625
- - --------------------------------------------------------------------------
The Company issues commercial paper through agreements with two banks, up to a
maximum of $40,000,000, which bears interest at rates ranging from 4.9% to 5.1%
at May 27, 1999. The agreements require the Company to maintain unused bank
lines of credit at least equal to the principal amount of outstanding commercial
paper.
At May 27, 1999, the Company had credit lines totaling $130,000,000 in place.
Borrowings on the $125,000,000 line, which total $5,000,000 at May 27, 1999,
bear interest at LIBOR plus a margin which adjusts based on the Company's
borrowing levels (effectively 5.49% at May 27, 1999). This agreement matures in
2004 and requires an annual facility fee of .2% on the total commitment. Based
on borrowings and commercial paper outstanding, availability under this line at
May 27, 1999 totaled $82,536,000. The remaining $5,000,000 line, all of which is
outstanding at May 27, 1999, bears interest at a bank's
<PAGE>
reference rate (effectively 7.75% at May 27, 1999) and is due on demand.
The Company has the ability and intent to replace commercial paper borrowings,
certain revolving credit borrowings and certain other long-term debt with
long-term borrowings under its $125,000,000 revolving credit facility agreement.
Accordingly, the Company has classified these borrowings at May 27, 1999, as
long-term.
Scheduled annual principal payments on long-term debt for the five years
subsequent to May 27, 1999, are:
Fiscal Year (in thousands)
- - --------------------------------------------------
2000 $10,470
2001 19,036
2002 20,888
2003 19,700
2004 71,568
- - --------------------------------------------------
Interest paid, net of amounts capitalized, in 1999, 1998 and 1997 totaled
$16,363,000, $13,179,000 and $10,985,000, respectively.
The Company has a swap agreement covering $4,500,000, which is reduced by
$750,000 quarterly, expires October 2, 2000, and requires the Company to pay
interest at a defined fixed rate of 5.08% while receiving interest at a defined
variable rate of three-month LIBOR (5.07% at May 27, 1999). The Company also has
a swap agreement covering $7,500,000 which expires August 6, 2001, and requires
the Company to pay interest at a defined fixed rate of 6.56% while receiving
interest at a defined variable rate of three-month LIBOR (5.07% at May 27,
1999). Together, these swap agreements effectively convert $12,000,000 of the
Company's variable rate unsecured term notes to a fixed rate. The Company
recorded the net interest expense related to these swap agreements as incurred,
totaling $63,000, $3,000 and $4,000 in 1999, 1998 and 1997, respectively. The
accompanying consolidated balance sheet at May 27, 1999, does not reflect the
fair market value of the remaining swap agreements as determined by the lender,
which totals a liability of approximately $142,000. The carrying amounts of the
Company's long-term debt, based on the respective rates and prepayment
provisions of the senior notes, approximate their fair value.
6. SHAREHOLDERS' EQUITY
The Company's Board of Directors declared a three-for-two stock split, effected
in the form of a 50% stock dividend, which was distributed on December 5, 1997
to all holders of Common and Class B Common Stock. Shareholders' equity and all
share and per share amounts have been adjusted to reflect these dividends.
Shareholders may convert their shares of Class B Common Stock into shares of
Common Stock at any time. Class B Common Stock shareholders are substantially
restricted in their ability to transfer their Class B Common Stock. Holders of
Common Stock are entitled to cash dividends per share equal to 110% of all
dividends declared and paid on each share of the Class B Common Stock. Holders
of Class B Common Stock are entitled to ten votes per share while holders of
Common Stock are entitled to one vote per share on any matters brought before
the shareholders of the Company. Liquidation rights are the same for both
classes of stock.
Shareholders have approved the issuance of up to 1,237,500 shares of Common
Stock under various stock option plans. The options generally become exercisable
40% after two years, 60% after three years and 80% after four years. The
remaining options are exercisable five years after the date of the grant. At May
27, 1999 and May 28, 1998, there were 733,117 and 918,980 shares, respectively,
available for grants under the plans.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), in accounting for its
employee stock options. Under APB No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net earnings and earnings per share required by
SFAS No. 123, "Accounting for Stock Based Compensation," has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
4.6%, 5.2% and 5.3%; dividend yield of 1.3% in all years; volatility factors of
the expected market price of the Company's common stock of 49% for 1999, 48% for
1998 and 55% for 1997, and an expected life of the option of approximately six
years. Based on this analysis, the impact on net earnings and earnings per share
is immaterial.
29
<PAGE>
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
May 27, 1999 May 28,1998 May 29, 1997
-----------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- - ----------------------------------------------------------------------------------------------
(options in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 840 $13.04 828 $11.72 759 $10.75
Granted 203 16.83 180 16.52 126 16.67
Exercised (79) 8.54 (145) 9.48 (44) 9.15
Forfeited (17) 16.41 (23) 15.34 (13) 13.15
- - ----------------------------------------------------------------------------------------------
Outstanding at
end of year 947 $14.17 840 $13.04 828 $11.72
- - ----------------------------------------------------------------------------------------------
Exercisable at
end of year 458 $11.91 389 $10.66 371 $10.61
- - ----------------------------------------------------------------------------------------------
Weighted-average
fair value of options
granted during year $ 7.88 $ 7.77 $ 8.64
==============================================================================================
</TABLE>
Exercise prices for options outstanding as of May 27, 1999 ranged from $6.67 to
$18.13. The weighted-average remaining contractual life of those options is 6.7
years. Additional information related to these options segregated by exercise
price range is as follows:
Exercise Price Range
- - --------------------------------------------------------------------------------
$6.67 to $10.8751 to $14.51 to
$10.875 $14.50 $18.125
- - --------------------------------------------------------------------------------
Options outstanding 116,949 333,469 496,094
Weighted-average exercise
price of options
outstanding $8.49 $12.36 $16.73
Weighted-average remaining
contractual life of
options outstanding 3.7 5.3 8.1
- - --------------------------------------------------------------------------------
Options exercisable 116,949 277,131 64,344
Weighted-average exercise
price of options
exercisable $ 8.49 $12.23 $ 16.73
================================================================================
The Company's Board of Directors has approved the aggregate repurchase of up to
2,687,500 shares of Common Stock to be held in treasury. The Company intends to
reissue these shares upon the exercise of stock options and for savings and
profit-sharing contributions. The Company purchased 490,360, 145,297 and 13,751
shares pursuant to these authorizations during 1999, 1998 and 1997,
respectively. At May 27, 1999, there were 872,113 shares available for
repurchase under these authorizations.
The Board has authorized the issuance of up to 750,000 shares of Common Stock
for The Marcus Corporation Dividend Reinvestment and Associate Stock Purchase
Plan. At May 27, 1999, there were 695,322 shares available under
this authorization.
The Company's loan agreements include, among other covenants, restrictions on
retained earnings and maintenance of certain financial ratios. At May 27, 1999,
retained earnings of approximately $76,487,000 were unrestricted.
7. EMPLOYEE BENEFIT PLANS
The Company has a qualified profit-sharing savings plan (401(k) plan) covering
eligible employees. The 401(k) plan provides for a contribution of a minimum of
1% of defined compensation for all plan participants and matching of 25% of
employee contributions up to 6% of defined compensation. In addition, the
Company may make additional discretionary contributions. The Company also
sponsors unfunded nonqualified defined benefit and deferred compensation plans.
Pension and profit-sharing expense for all plans was $1,825,000, $1,814,000 and
$1,485,000 for fiscal 1999, 1998 and 1997, respectively.
8. INCOME TAXES
Income tax expense consists of the following:
Year ended
---------------------------------------
May 27, May 28, May 29,
1999 1998 1997
- - --------------------------------------------------------------------
(in thousands)
Currently payable:
Federal $8,616 $12,173 $14,415
State 2,181 2,713 3,512
Deferred 4,926 4,054 2,398
- - --------------------------------------------------------------------
$15,723 $18,940 $20,325
====================================================================
The Company recognizes deferred tax assets and liabilities based upon the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under the liability method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates for the year in which the differences are expected to reverse.
<PAGE>
The components of the net deferred tax liability were as follows:
May 27, May 28,
1999 1998
- - --------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Accrued employee benefits $ 2,586 $ 2,140
Other 813 1,419
- - --------------------------------------------------------------------------
Total deferred tax assets 3,399 3,559
Deferred tax liability -
Depreciation and amortization 34,804 30,038
- - --------------------------------------------------------------------------
Net deferred tax liability
included in balance sheet $ 31,405 $26,479
==========================================================================
A reconciliation of the statutory federal tax rate to the effective tax rate
follows:
Year ended
---------------------------------------------
May 27, May 28, May 29,
1999 1998 1997
- - ------------------------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal income
tax benefit 5.5 5.1 5.1
Other - (.1) (.4)
- - ------------------------------------------------------------------------------
40.5% 40.0% 39.7%
==============================================================================
Income taxes paid in 1999, 1998 and 1997 totaled $11,760,000, $19,323,000 and
$19,268,000, respectively.
9. COMMITMENTS, LICENSE RIGHTS and CONTINGENCIES
Lease Commitments - The Company leases real estate under various noncancellable
operating leases with an initial term greater than one year. Percentage rentals
are based on the revenues at the specific rented property.
Certain sublease agreements include buyout incentives. Rent expense charged to
operations under these leases was as follows:
Year ended
---------------------------------------------------
May 27, May 28, May 29,
1999 1998 1997
- - --------------------------------------------------------------------------------
(in thousands)
Fixed minimum rentals $3,231 $2,733 $2,282
Percentage rentals 203 188 335
Sublease rental income (131) (182) (182)
- - --------------------------------------------------------------------------------
$3,303 $2,739 $2,435
================================================================================
Payments to affiliated parties for lease obligations were approximately $44,000,
$144,000 and $492,000 in 1999, 1998 and 1997, respectively.
Aggregate minimum rental commitments at May 27, 1999, are as follows:
Fiscal Year (in thousands)
- - -------------------------------------------------------------
2000 $ 2,075
2001 2,096
2002 2,124
2003 1,882
2004 1,219
After 2004 16,311
- - -------------------------------------------------------------
$25,707
=============================================================
Included in the above commitments is $484,000 in minimum rental commitments to
affiliated parties.
Commitments - The Company has commitments for the completion of construction at
various properties and the purchase of various properties totaling approximately
$51,026,000 at May 27, 1999.
License Rights - The Company owns the license rights in certain areas to operate
its restaurants and to sell products using the KFC trademark. In addition, the
Company has license rights to operate a hotel using the Hilton trademark. Under
the terms of the licenses, the Company is obligated to pay fees based on defined
gross sales. The KFC license also requires the Company to pay an additional fee
for each new location established.
Contingencies - The Company guarantees the debt of joint ventures and other
entities totaling approximately $23,529,000 at May 27, 1999. The debt of the
joint ventures is collateralized by the real estate, buildings and improvements,
and all equipment of each joint venture.
10. JOINT VENTURE TRANSACTIONS
At May 27, 1999 and May 28, 1998, the Company held investments of $2,045,000 and
$1,496,000, respectively, in various approximately 50%-owned affiliates (joint
ventures) which are accounted for under the equity method.
The Company has receivables from the joint ventures of $1,739,000 and $1,288,000
at May 27, 1999 and May 28, 1998, respectively. The Company earns interest on
$907,000 and $405,000 of the receivables at approximately prime to prime plus
1.5% at May 27, 1999 and May 28, 1998, respectively.
Included in notes payable at May 27, 1999 and May 28, 1998, is $1,276,000 and
$2,044,000, respectively, due to joint ventures in connection with cash advanced
to the Company. The Company pays interest on the cash advances based on the
90-day certificate of deposit rates.
31
<PAGE>
11. BUSINESS SEGMENT INFORMATION
Effective in the first quarter of fiscal year 1999, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for disclosures about operating segments in annual
and interim financial statements, products and services, geographic areas and
major customers. The adoption of Statement No. 131 did not affect results of
operations, the financial position of the Company or the Company's reported
segments.
The Company evaluates performance and allocates resources based on the operating
income (loss) of each segment. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
Following is a summary of business segment information for 1997 through 1999:
<TABLE>
<CAPTION>
Limited-Service Hotels/ Corporate
Lodging Theatres Resorts Restaurants Items Total
- - ----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues $141,577 $111,249 $ 81,169 $28,470 $ 462 $362,927
Operating income (loss) 25,509 20,395 8,103 3,385 (5,556) 51,836
Depreciation and amortization 18,922 9,505 7,369 1,878 584 38,258
Assets 290,878 203,737 107,367 21,523 52,611 676,116
Capital expenditures, including
business acquisitions 29,730 64,525 14,060 1,336 2,192 111,843
- - ----------------------------------------------------------------------------------------------------------------------
1998
Revenues $144,713 $ 91,825 $ 70,305 $27,596 $ 400 $334,839
Operating income (loss) 31,479(1) 19,676 7,874 3,558 (4,968) 57,619(1)
Depreciation and amortization 17,910 6,069 6,649 1,969 307 32,904
Assets 292,571 149,491 102,923 23,279 40,240 608,504
Capital expenditures, including
business acquisitions 25,241 59,440 24,903 569 5,727 115,880
- - ----------------------------------------------------------------------------------------------------------------------
1997
Revenues $134,667 $ 80,586 $ 60,210 $26,828 $ 482 $302,773
Operating income (loss) 39,787 16,865 5,464 2,681 (4,066) 60,731
Depreciation and amortization 15,389 5,071 6,174 2,001 268 28,903
Assets 287,027 98,554 79,829 24,979 31,568 521,957
Capital expenditures, including
business acquisitions 55,916 37,364 13,445 384 405 107,514
- - ----------------------------------------------------------------------------------------------------------------------
(1) Includes a $3.9 million charge related to the Baymont name change.
</TABLE>
Corporate items include amounts not allocable to the business segments.
Corporate revenues consist principally of rent and the corporate operating loss
includes general corporate expenses. Corporate assets primarily include cash and
cash equivalents, notes receivable, receivables from joint ventures and land
held for development.
The Company has a loan outstanding of approximately $2,749,000 at May 27, 1999,
to one of the hotels it manages, which bears interest at the prime rate plus 1%
and matures December 31, 2008.
<PAGE>
AUDITORS' REPORT AND MANAGEMENT
STATEMENT
REPORT of INDEPENDENT AUDITORS
The Board of Directors and Shareholders of The Marcus Corporation
We have audited the accompanying consolidated balance sheets of The Marcus
Corporation (the Company) as of May 27, 1999 and May 28, 1998, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended May 27, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at May
27, 1999 and May 28, 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended May 27, 1999, in
conformity with generally accepted
accounting principles.
/s/ERNST & YOUNG LLP
Milwaukee, Wisconsin
July 16, 1999
STATEMENT of MANAGEMENT RESPONSIBILITY for FINANCIAL STATEMENTS
The management of The Marcus Corporation and its subsidiaries is responsible for
the preparation of the financial and operating information contained in this
annual report, including the consolidated financial statements audited by Ernst
& Young LLP, independent auditors. These statements were prepared in conformity
with generally accepted accounting principles and include amounts that are based
on the best estimates and judgments of management.
A system of internal financial controls provides management with reasonable
assurance that transactions are recorded and executed as authorized, that assets
are properly safeguarded and accounted for, and that records are maintained to
permit preparation of financial statements in accordance with generally accepted
accounting principles. The Company also has policies and guidelines that require
employees to maintain a high level of ethical standards.
The Audit Committee of the Board of Directors is composed entirely of outside
directors and has unrestricted access to representatives of Ernst & Young LLP.
/s/ Stephen H. Marcus /s/ Douglas A. Neis
Stephen H. Marcus Douglas A. Neis
Chairman and Chief Executive Officer Chief Financial Officer and Treasurer
33
<PAGE>
ELEVEN-YEAR
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1999 1998(2) 1997 1996(3) 1995 1994(4) 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $362,927 334,839 302,773 262,287 277,990 242,614 212,910 204,297 188,008 176,592 166,710
Net earnings $ 23,144 28,444 30,881 42,307 24,136 22,829 16,482 13,289 11,618 10,781 10,042
- - ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA(1)
Net earnings per
share $ .77 .94 1.04 1.42 .82 .77 .63 .52 .45 .42 .39
Cash dividends per
share $ .22 .22 .20 .23 .15 .13 .11 .10 .09 .08 .07
Weighted average
shares outstanding
(in thousands) 30,105 30,293 29,745 29,712 29,537 29,492 26,208 25,325 25,569 25,839 25,959
Book value per share $ 10.48 10.00 9.37 8.51 7.29 6.61 5.95 4.97 4.54 4.17 3.83
- - ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
(in thousands)
Total assets $676,116 608,504 521,957 455,315 407,082 361,606 309,455 274,394 255,117 230,789 197,898
Long-term debt $264,270 205,632 168,065 127,135 116,364 107,681 78,995 100,032 96,183 85,563 64,163
Shareholders' equity $313,574 302,531 277,293 251,248 214,464 193,918 173,980 124,874 114,697 106,983 98,250
Capital expenditures,
including business
acquisitions $111,843 115,880 107,514 83,689 77,083 75,825 47,237 27,238 39,861 42,385 34,253
- - ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Current ratio .45 .43 .39 .62 .41 .67 .90 .73 .65 .91 .75
Debt/capitalization
ratio .47 .42 .39 .35 .37 .37 .34 .46 .47 .45 .41
Return on revenues 6.4% 8.5% 10.2% 16.1% 8.7% 9.4% 7.7% 6.5% 6.2% 6.1% 6.0%
Return on average
shareholders' equity 7.5% 9.8% 11.7% 18.2% 11.8% 12.4% 11.0% 11.1% 10.5% 10.5% 10.6%
- - ------------------------------------------------------------------------------------------------------------------------------------
(1) All per share and shares outstanding data is on a diluted basis and has been adjusted to reflect stock splits in 1998, 1996 and
1993.
(2) Includes charge of $2.34 million or $0.08 per share for costs associated with the Baymont name change.
(3) Includes gain of $14.8 million or $0.49 per share on sale of certain restaurant locations.
(4) Includes gain of $1.8 million or $0.06 per share for cumulative effect of change in accounting for income taxes.
(5) Includes annual dividend of $0.18 per share and one quarterly dividend of $0.05 per share.
</TABLE>
<PAGE>
QUARTERLY INFORMATION AND
STOCK PRICES
<TABLE>
SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per share data)
<CAPTION>
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended
FISCAL 1999 August 27, 1998 November 26, 1998 February 25, 1999 May 27, 1999
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $107,360 $87,994 $82,269 $85,304
Operating income 26,098 12,711 5,280 7,747
Net earnings 14,191 5,889 513 2,551
Net earnings per share .47 .20 .02 .09
- - -------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL 1998 12 Weeks Ended 12 Weeks Ended 12 Weeks Ended 16 Weeks Ended
(as reported) August 21, 1997 November 13, 1997 February 5, 1998 May 28, 1998
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $90,053 $71,184 $71,220 $102,382
Operating income 24,205 13,674 8,092 11,648
Net earnings 13,065 6,917 3,035 5,427
Net earnings per share* .44 .23 .10 .18
- - -------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL 1998 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended
(pro forma)(1) August 28, 1997 November 27, 1997 February 26, 1998 May 28, 1998
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $96,111 $76,051 $79,625 $83,052
Operating income 25,444 13,523 10,472 8,180
Net earnings 13,669 6,707 4,284 3,784
Net earnings per share* .46 .22 .14 .12
- - -------------------------------------------------------------------------------------------------
(1) Pro forma information is presented as if the prior year had been reported on
the new 13-week basis.
<CAPTION>
LAST SALE PRICE RANGE of COMMON STOCK
First Second Third Fourth
FISCAL 1999 Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $18.19 $16.56 $16.25 $14.19
Low 14.00 12.50 12.50 10.94
- - -------------------------------------------------------------------------------------------------
FISCAL 1998*
- - -------------------------------------------------------------------------------------------------
High $17.29 $20.67 $20.38 $18.13
Low 16.00 16.54 16.38 16.06
=================================================================================================
* Adjusted for the 50% stock dividend distributed December 5, 1997.
On August 13, 1999, there were 2,333 shareholders of record for the Common Stock
and 49 shareholders of record for the Class B Common Stock.
</TABLE>
35
<PAGE>
Corporate Information
Annual Meeting
Shareholders are invited to attend The Marcus Corporation's 1999 Annual Meeting
at 10:00 a.m. on Monday, October 4, 1999, at the Marcus Westown Cinemas, 2440
East Moreland Boulevard, Waukesha, Wisconsin.
Investor Information
Marcus Corporation news releases and other investor information are available on
the Internet at: www.businesswire.com/cnn/mcs.shtml or by contacting the
corporate secretary at the company's address.
Dividend Reinvestment Plan
The Marcus Corporation has a dividend reinvestment plan through which
shareholders of record may invest their cash dividends and make supplemental
cash investments in additional shares. There are no commissions or service
charges to purchase shares. For additional information, write or call:
Firstar Bank Milwaukee, N.A.
P.O. Box 2077 o Milwaukee, WI 53201-2077
(414) 287-3737 o (800) 637-7549
Members of the National Association of Investors Corporation (NAIC) may also
participate in The Marcus Corporation's Dividend Reinvestment Plan through the
NAIC Low Cost Investment Plan.
Stock Listing and Symbol
The Marcus Corporation common stock is traded on the New York Stock Exchange
under the symbol MCS.
Form 10-K Report
A copy of the company's fiscal 1999 Form 10-K annual report (without exhibits)
filed with the Securities and Exchange Commission is available to shareholders,
without charge, by contacting the corporate secretary at the company's address.
Transfer Agent
Firstar Bank Milwaukee, N.A.
P.O. Box 2077 o Milwaukee, WI 53201-2077
(414) 287-3737 o (800) 637-7549
Legal Counsel
Foley & Lardner o Milwaukee, Wisconsin
Independent Auditors
Ernst & Young LLP o Milwaukee, Wisconsin
Corporate Headquarters
The Marcus Corporation
250 East Wisconsin Avenue Suite 1700
Milwaukee, Wisconsin 53202- 4220
(414) 905-1000
37
Exhibit 21
Subsidiaries of the Company
as of May 27, 1999
The Company owns all of the stock of the following corporations:
Name State of Incorporation
- - ---- ----------------------
Marcus Theatres Corporation Wisconsin
Marcus Restaurants, Inc. Wisconsin
B & G Realty, Inc. Wisconsin
First American Finance Corporation Wisconsin
Marc Plaza Corporation Wisconsin
Pfister Corporation Wisconsin
Marcus Geneva, Inc. Wisconsin
Marcus Hotels, Inc. Wisconsin
Baymont Inns, Inc. Wisconsin
Woodfield Suites, Inc. Wisconsin
Woodfield Suites, Inc. owns all of the stock of the following corporations:
Name State of Incorporation
- - ---- ----------------------
Woodfield Suites Hospitality Corporation Wisconsin
Woodfield Suites Franchises International Inc. Wisconsin
Woodfield Suites Hospitality Corporation owns all of the stock of the
following corporation:
Name State of Incorporation
- - ---- ----------------------
Woodfield Refreshments, Inc. Wisconsin
Marcus Theatres Corporation owns all of the stock of the following
corporations:
Name State of Incorporation
- - ---- ----------------------
Marcus Cinemas, Inc. Wisconsin
Southtown Corporation Wisconsin
Tower 41-Corporation Wisconsin
Vending Corporation Wisconsin
41-Bowl, Inc. Wisconsin
Marcus Cinemas of Minnesota, Inc. Wisconsin
1
<PAGE>
Baymont Inns, Inc. owns all of the stock of the following corporations:
Name State of Incorporation
- - ---- ----------------------
Baymont Partners, Inc. Wisconsin
Baymont Inns Hospitality Corporation Wisconsin
Baymont Franchises International, Inc. Wisconsin
Woodfield Refreshments of Colorado, Inc. Colorado
Woodfield Refreshments of Ohio, Inc. Ohio
Marcus Restaurants, Inc. owns all of the stock of the following
corporations, except it owns 50% of 642, Inc.:
Name State of Incorporation
- - ---- ----------------------
Marc's Carryout Corporation Wisconsin
Captains-Kenosha, Inc. Wisconsin
Colony Inns Restaurant Corporation Wisconsin
642, Inc. Wisconsin
Cafe Refreshments, Inc. Wisconsin
Marcus Restaurants, Inc. has an option to purchase the remaining 50%
of the stock of 642, Inc. for $5.
Colony Inns Restaurant Corporation owns 80% of the stock of Colony
Inns Refreshments, Inc., a Wisconsin corporation, and has an option to purchase
the remaining 20% for $5.
Marcus Hotels, Inc. owns all of the stock of the following
corporations:
Name State of Incorporation
- - ---- ----------------------
HPG Laundry Systems, Inc. Wisconsin
Marcus Northstar, Inc. Minnesota
Marcus Hotels of California, Inc. California
Marcus Hotel Partners, Inc. Wisconsin
Marcus Hotels Associates, Inc. Wisconsin
2
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in Registration Statements (Forms
S-8 No. 33-18801 and No. 33-55695) of The Marcus Corporation of our report dated
July 16, 1999, with respect to the consolidated financial statements of The
Marcus Corporation incorporated by reference in the Annual Report (Form 10-K)
for the year ended May 27, 1999.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MARCUS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-27-1999
<PERIOD-START> MAY-29-1998
<PERIOD-END> MAY-27-1999
<CASH> 3,499
<SECURITIES> 0
<RECEIVABLES> 12,798
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,738
<PP&E> 818,729
<DEPRECIATION> 207,516
<TOTAL-ASSETS> 676,116
<CURRENT-LIABILITIES> 59,386
<BONDS> 264,270
0
0
<COMMON> 31,190
<OTHER-SE> 282,384
<TOTAL-LIABILITY-AND-EQUITY> 676,116
<SALES> 332,708
<TOTAL-REVENUES> 362,927
<CGS> 173,702
<TOTAL-COSTS> 311,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,848
<INCOME-PRETAX> 38,867
<INCOME-TAX> 15,723
<INCOME-CONTINUING> 23,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,144
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.77
</TABLE>
