SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 29, 1994
Commission File Number 0-13007
NATIONAL PIZZA COMPANY
(Exact name of registrant as specified in its charter)
Kansas 48-0817298
(State of Incorporation) (I.R.S. Employer
Identification Number)
720 W. 20th Street, Pittsburg, KS 66762
(Address of principal executive offices)
Registrant's telephone number, including area code (316) 231-3390
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
Class B Common Stock, $0.01 par value
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 is not contained herein, and will
not be contained, to the best of the 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 ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of May 25, 1994:
Class A Common Stock, $0.01 par value - $24,860,072
The number of shares outstanding of each of the registrant's
classes of common stock as of May 25, 1994:
Class A Common Stock, $0.01 par value - 12,582,321
Class B Common Stock, $0.01 par value - 12,431,802
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal
year ended March 29, 1994 are incorporated by reference in Part
II, Items 5 - 8.
Portions of the Proxy Statement for the annual stockholders
meeting to be held July 12, 1994, are incorporated into Part III,
Items 10 - 12.
NATIONAL PIZZA COMPANY
TABLE OF CONTENTS
<TABLE>
PART I
<CAPTION>
ITEM PAGE
<S> <C> <C>
1. Business 2
2. Properties 16
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders 18
Executive Officers of the Company 18
PART II
5. Market for Registrant's Common Stock and
Related Stockholder Matters 19
6. Selected Financial Data 19
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 21
12. Security Ownership of Certain
Beneficial Owners and Management 21
13. Certain Relationships and Related Transactions 21
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 22
</TABLE>
PART I
ITEM 1. BUSINESS
_______________________________________________________________
General
THE COMPANY
National Pizza Company (the "Company" or "Registrant") is the
successor to certain Pizza Hut operations commenced in 1962 by O.
Gene Bicknell, the Chairman of the Board of the Company.
At March 29, 1994, the Company operated 363 Pizza Hut
restaurants and delivery units pursuant to franchise agreements
with Pizza Hut, Inc. ("PHI"), a wholly-owned subsidiary of
PepsiCo, Inc. The Pizza Hut restaurant system is the largest
pizza chain in the world and the Company is the largest Pizza Hut
franchisee.
On November 26, 1989, the Company acquired a majority
interest in Skipper's, Inc., a corporation based in Bellevue,
Washington ("Skipper's"), which at March 29, 1994 operates 188
quick service seafood restaurants in 12 states and franchises 16
units in eight states and 2 units in British Columbia. Pursuant
to a merger effective January 12, 1990, Skipper's became a wholly-
owned subsidiary of the Company.
On June 8, 1993, the Company signed completed the acquisition
of NRH Corporation. NRH
was the operator and franchisor of Tony Roma's A Place For Ribs.
At March 29, 1994, the Company operated 26 Company restaurants in
four states and franchised 105 units in 20 states and 32 units in
international locations.
The Company is a Kansas corporation incorporated in 1974
under the name Southeast Pizza Huts, Inc. In 1984, the name of
the Company was changed to National Pizza Company. Subject to
stockholder approval at the Company's annual meeting of
stockholders to be held on July 12, 1994, the Company intends to
change its name to NPC International, Inc. Its principal
executive offices are located at 720 W. 20th Street, Pittsburg,
Kansas and its telephone number is (316) 231-3390.
Financial Information About Industry Segments
The restaurant industry is the only business segment in which
the Registrant operates.
PIZZA HUT OPERATIONS
Pizza Hut Restaurant System
The first Pizza Hut restaurant was opened in 1958 in Wichita,
Kansas by the original founders of the Pizza Hut system. Pizza
Hut, Inc. (PHI), the franchisor of the Company, was formed in
1959.
In 1977, PHI was acquired by PepsiCo, Inc., which continued
expanding the Pizza Hut system. The Pizza Hut system is the
largest pizza chain in the world, both in sales and number of
units. As of December 31, 1993 the Pizza Hut system had over
10,400 restaurants, delivery kitchens and kiosks with locations in
all 50 states and many foreign countries. Approximately 60% of
the domestic Pizza Hut units are operated by PHI.
Pizza Hut restaurants generally offer full table service and
a similar menu, featuring pizza, pasta, sandwiches, a salad bar,
soft drinks and, in most restaurants, beer. Most dough products
are made fresh several times each day, and only 100% natural
cheese products are used. Product ingredients are of a high
quality and are prepared in accordance with proprietary formulas
established by PHI. The restaurants offer pizza in five sizes
with a variety of toppings. Customers may also choose among thin
crust, traditional hand-tossed and thick crust pan pizza, as well
as Pizza Hut's value-priced BIGFOOT pizza. With the exception of
the Personal Pan Pizza, all food products are prepared at the time
of order.
Pizza sales account for approximately 85% of the Company's
Pizza Hut operations revenues. Sales of alcoholic beverages are
less than 2% of net sales.
New product introduction is vital to the continued success of
any restaurant system, and PHI maintains a research and
development department which develops new products and recipes,
tests new procedures and equipment, and approves suppliers for
Pizza Hut products. All new products are developed by PHI, and
franchisees are prohibited from offering any other products in
their restaurants unless approved by PHI.
Pizza Hut also delivers pizza products to their customers.
Prior to 1985, most delivery was done out of existing restaurants.
In 1985, the system began to aggressively pursue home delivery
through delivery / carryout kitchens. Customer orders are made to
a computerized customer service center (CSC), a "single unit
solution" (SUS, a facility similar to a CSC, but smaller in
scale), or directly to the kitchen.
A successful delivery operation yields lower profit margins
as a percentage of sales than the Company's Pizza Hut restaurants
due to higher labor costs, but the return on invested capital is
greater.
The Company's Pizza Hut Operations
The Company is the largest Pizza Hut franchisee in the world
and, at March 29, 1994, operated 363 Pizza Hut restaurants and
delivery kitchens. The Company's franchise agreements grant to
the Company the exclusive right to operate Pizza Hut restaurants
in certain designated areas. The Company currently operates
restaurants in the states shown in the table below.
On March 1, 1994, the Company completed its acquisition of
two Pizza Hut restaurants in Missouri previously operated by
another Pizza Hut franchisee. This was the first successful
acquisition of another Pizza Hut franchisee since 1988. On March
28, 1994, the Company entered into an agreement in principle to
acquire 17 Pizza Hut restaurants from another Pizza Hut
franchisee. A related agreement with Pizza Hut, Inc. specifies
that eleven of these units will be subsequently exchanged for twelve
more PHI-owned restaurants in the Southeast. The transaction is
expected to close in June, 1994.
On April 5, 1994, the Company announced the signing of a non-
binding memorandum of intent with its franchisor Pizza Hut, Inc.,
which would involve the exchange of 84 restaurants owned by the
Company on March 29, 1994 with 50 units owned by PHI. The Company
signed a binding asset exchange agreement with PHI (the "Asset
Exchange Agreement Agreement") on June 7 and formally
renewed its franchise agreement for a period of 15 years. On the
same day, approximately 40 stores, primarily in California, were
transferred to PHI as part of the agreement. The remaining
exchanges are expected to be completed by August, 1994.
If consummated, the 17 unit acquisition and the PHI asset
exchanges will result in a net change in the Company's locations as
shown in the table below.
<TABLE>
<CAPTION>
Company- Proforma effect of
owned Acquisition & Exchange
Pizza Huts at Transactions
State/Country March 29, 1994 Change Count
<C> <S> <S> <S>
Alabama 69 +6 75
Arkansas 26 +23 49
California 37 -37 0
Kansas 5 +4 9
Kentucky 11 -11 0
Louisiana 18 +11 29
Maryland 18 -18 0
Mississippi 110 -1 109
Missouri 25 +2 27
Oklahoma 1 +1 2
Tennessee 37 +6 43
Texas --- +4 4
Virginia 4 -4 0
West Virginia 2 -2 0
Company Total 363 -16 347
</TABLE>
Unit Development
The following table sets forth information concerning the
growth in the number of Pizza Hut restaurants and delivery
kitchens operated by the Company:
<TABLE>
<CAPTION>
Fiscal Year Ended
March 27, March 26, March 31, March 30, March 29
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Units operated at
beginning of period 321 354 366 368 358
Opened during period 17 19 15 2 10
Acquired during period 20 1 --- --- 2
Closed or relocated 4 8 13 12 7
Units operated at end
of period 354 366 368 358 363
</TABLE>
At March 29, 1994, the Company provided delivery services at
80 full-service Pizza Hut restaurants and at 97 delivery-only
outlets. Delivery service is provided utilizing a CSC telephone
system in ten metropolitan markets: Springfield, Missouri;
Hagerstown, Maryland; Bakersfield, California; Montgomery and
Birmingham, Alabama; Shreveport, Louisiana; Jackson and Long
Beach, Mississippi; Little Rock, Arkansas; and Memphis, Tennessee.
Under the CSC system, all customers within the trade area place
telephone orders through a single clearing number, and the pizza
is dispatched from the Company's delivery kitchen nearest the
customer. Customers call the restaurant delivery kitchens
directly in other locations.
Relationships with Pizza Hut, Inc.
The Company's franchise agreements with PHI (the "Franchise
Agreements") provide, among other things, for standards of
operation and physical condition of the Company's restaurants, the
provision of services, the geographical territories in which the
Company has exclusive rights to open and operate Pizza Hut
restaurants and delivery kitchens, the term of the franchise and
renewal options, the Company's development rights and obligations
and various provisions relating to the transfer of interests in
the Company's franchise rights.
PHI determines standards of operation for all Pizza Hut
restaurants, including standards of quality, cleanliness and
service. Further, the Franchise Agreements allow the franchisor
to set specifications for all furnishings, interior and exterior
decor, supplies, fixtures and equipment. See "Business - Supplies
and Equipment." PHI also has the right to determine and change
the menu items offered by, and to inspect all restaurants of, its
franchisees, including the Company. All such standards may be
revised from time to time. Upon the failure to comply with such
standards, PHI has various rights, including the right to
terminate the applicable Franchise Agreements, redefine the
franchise territory or terminate the Company's rights to establish
additional restaurants in that franchise territory. The Franchise
Agreements may also be terminated upon the occurrence of certain
events, such as the insolvency or bankruptcy of the Company or the
commission by the Company or any of its officers, directors or
principal stockholders (other than its public stockholders) of a
felony or other crime that, in the sole judgment of PHI is
reasonably likely to adversely affect the Pizza Hut system, its
trademark, the goodwill associated therewith or PHI's interest
therein. At no time during the Company's history has PHI sought
to terminate any of the Company's Franchise Agreements, redefine
its franchise territories or otherwise limit the Company's
franchise rights. The Company believes it is in compliance with
all material provisions of the Franchise Agreements.
Under the Franchise Agreements, extensive structural changes,
major remodeling and renovation and substantial modifications to
the Company's restaurants necessary to conform to the then current
Pizza Hut system image may be required by PHI, but not more often
than once every seven years. The Company has not been required to
make any such changes, renovations or modifications. PHI may also
request the Company introduce new food products that could require
remodeling or equipment changes. PHI can require changes of decor
or products only after it has tested such changes in at least 5%
of Pizza Hut system restaurants.
PHI is required to provide certain continuing services to the
Company, including training programs, the furnishing of operations
manuals and assistance in evaluating and selecting locations for
restaurants.
In early 1990, PHI offered franchisees the opportunity to
sign a new twenty year franchise agreement (the "1990 Franchise
Agreement"). The 1990 Franchise Agreement
required franchise fees of 4% of sales, as defined, for all
restaurants and delivery kitchens and increases in certain
advertising contributions. The 1990 Franchise Agreement also sought to
redefine certain rights and obligations of the franchisee and franchisor.
The 1990 Franchise Agreement did not alter the franchisee's territorial
rights and maintained, subject to some minor limitations, the exclusivity
of the Pizza Hut brand within the geographical limits of the
territory defined by each franchise agreement.
On June 7, 1994, the Company entered into the Asset Exchange
Agreement with PHI which in essence conformed the Company's existing
Franchise Agreements to the 1990 Franchise Agreement. As part of the
Asset Exchange Agreement, the Company will exchange 84 of its operating Pizza
Hut restaurants and delivery kitchens for 50 Pizza Hut restaurants
and delivery kitchens owned by PHI contiguous to the Company's
southeastern operating area and certain additional rights under the 1990
Franchise Agreement. In a related transaction, an additional
eleven units acquired from another franchisee would also be
exchanged with twelve PHI-owned units, also in the Southeast.
The 1990 Franchise Agreement grants to the Company the
exclusive right to develop and operate restaurants within
designated geographic areas through March 29, 2010. The Company has
the option to renew each Franchise Agreement prior to its expiration
for a single renewal term of 15 years by entering into the then-
current form of the PHI franchise agreement, including the then-
current fee schedules, provided the Company is not then in default
of its obligations under that Franchise Agreement, including the
development schedule, and has complied with the requirements
therof throughout the term of the agreement.
The Franchise Agreements under which the Company operates
require the payment of monthly fees to PHI. Under the 1990
Franchise Agreement (as it applies to the Company), the
Company's royalty payments for all units owned will increase
to 4% of gross sales beginning in July, 1996, from the Company's
current effective rate of 2.06%. This rate reflects the royalty
rate which was proposed by PHI to Pizza Hut franchisees as part
of the 1990 Franchise Agreement and is lower than the rate under
PHI's current franchise agreement.
Pizza Huts acquired after the signing of the 1990 Franchise
Agreement will continue with the terms and conditions of the
acquired units, but are likely to be similar to those found in the
1990 Franchise Agreement signed by the Company.
For the fiscal years ended March 29, 1994, March 30, 1993,
and March 31, 1992 the Company incurred total franchise fees
payable to PHI of approximately $4,461,000, $4,236,000, and
$4,250,000, respectively. The Franchise Agreements require the
Company to pay initial franchise fees to PHI in amounts of up to
$15,000 for each new restaurant opened. The Company is required
to contribute or expend a certain percentage of its sales for
local and national advertising and promotion. See "Business -
Advertising and Promotion."
Failure to develop a franchise territory as required would
give PHI the right to operate Pizza Hut restaurants in that
territory. Such failure would not affect the Company's rights
with respect to the Pizza Hut restaurants then in operation or
under development by the Company in any such territory. The
Company is required to obtain the prior written approval of PHI
for the location of each new restaurant.
The Franchise Agreements prohibit the transfer or assignment of any
interest in the franchise rights granted thereunder or in the
Company without the prior written consent of PHI, which consent
may not be unreasonably withheld if certain conditions are met.
All franchise agreements also give PHI a right of first refusal to
purchase any interest in the franchise rights or in the Company if
a proposed transfer by the Company or a controlling person would
result in a change of control of the Company. PHI also has a
right of first refusal with respect to any Pizza Hut franchise
right proposed to be acquired by the Company from any other Pizza
Hut franchisee. The right of first refusal, if exercised, would
allow PHI to purchase the interest proposed to be transferred upon
the same terms and conditions and for the same price as offered by
the proposed transferee.
The Company has the right to develop additional Pizza Hut
restaurants and delivery kitchens in its exclusive franchise
territories. However, since going public, expansion by
acquisition has been one of the Company's primary methods of
growth. After 1990, PHI exercised its right of first refusal as
described above on all proposed transactions between the Company
and other Pizza Hut franchisees. In March, 1994, the Company received
permission to acquire a two-unit franchise in Missouri and to
acquire 17 additional units from another franchisee. Pizza Hut,
Inc. nevertheless retains the right of first refusal on any
proposed acquisition in the future, and the Company cannot be
assured it will receive such permission on proposed future
acquisitions, if any.
Pizza Hut, Inc., through the Franchise Agreements, requires
principals of the Company to maintain "control" over the Company,
which PHI defines as 51% of the voting securities of the Company.
Accordingly, a portion of the controlling stockholder's shares is
restricted to insure compliance with this requirement. Holders of
common stock who are not principals of the Company are not subject
to any of the restrictions of the Franchise Agreements.
Advertising and Promotion
The Company is required under its Franchise Agreements to be
a member of the International Pizza Hut Franchise Holders
Association, Inc. ("IPHFHA"), an independent association of
substantially all PHI franchisees. IPHFHA requires its members to
pay dues, which are spent primarily for national advertising and
promotion. Current dues are 2% of restaurant net sales and net
delivery sales. Dues may be increased up to a maximum of 3% by
the affirmative vote of 51% of the members. A joint advertising
committee, consisting of two representatives each from PHI and
IPHFHA, directs the national advertising campaign. PHI is not a
member of IPHFHA but has agreed to make contributions with respect
to those restaurants it owns on a per-restaurant basis to the
joint advertising committee at the same rate as its franchisees
(less IPHFHA overhead).
The Franchise Agreements also require the Company to
participate in cooperative advertising associations designated by
PHI on the basis of certain marketing areas defined by PHI. Each
Pizza Hut restaurant, including restaurants operated by PHI,
contributes to such cooperative advertising associations an amount
currently equal to 2% of gross sales. Certain of the Company's
Franchise Agreements provide that the amount of the required
contribution may be increased at the sole discretion of PHI. The
cooperative advertising associations are required to use their
funds to purchase only broadcast media advertising within their
designated marketing areas. All advertisements must be approved
in writing by PHI, except with respect to product or menu item
prices.
Supplies and Equipment
The Franchise Agreements require the Company to purchase all
equipment, supplies and other products and materials required in
the operation of its restaurants and delivery kitchens from
suppliers who have been approved by PHI. PepsiCo Food Systems,
Inc. ("PFS"), a wholly-owned subsidiary of PepsiCo, offers purchasing
and distribution services to the Company and substantially all
other Pizza Hut franchisees. Although the Franchise Agreements
only require the Company to purchase certain spice blends from PFS
or another supplier designated by PHI, the Company currently
purchases substantially all of its food products and supplies from
PFS and may continue to do so. The Company believes, however, it
would not experience difficulties in obtaining its required food
products and supplies from other sources. The Franchise
Agreements limit the amount of profit that PHI and PFS may realize
on sales to Pizza Hut franchisees. PHI is a wholly-owned
subsidiary of PepsiCo, Inc., and most of the Pizza Hut units sell
Pepsi Cola and other PepsiCo, Inc. beverages, but the Company is
not obligated to purchase any such products.
Competition
The restaurant business is highly competitive with respect to
price, service, location, food quality and presentation, and is
affected by changes in taste and eating habits of the public,
local and national economic conditions and population and traffic
patterns. The Company competes with a variety of restaurants
offering moderately priced food to the public, including other
pizza restaurants. The Company also competes with locally-owned
restaurants, which offer pizza as well as many other types of
popularly priced food. The Company believes other companies can
easily enter its market segment, which could result in the market
becoming saturated, thereby adversely affecting the Company's
revenues and profits. There is also active competition for the
type of commercial real estate sites suitable for the Company's
restaurants.
In the delivery portion of the segment, Pizza Hut is not
currently the dominant concept.
Employees
At March 29, 1994, the Company's Pizza Hut operations had
approximately 8,400 employees, including 149 headquarters and
staff personnel, two vice presidents, seven regional managers, 46
area general managers, 870 restaurant management employees and
approximately 7,326 restaurant employees (of whom approximately
80% are part-time). The Company experiences a high rate of
turnover of its part-time employees, which it believes to be
normal in the restaurant industry. The Company is not a party to
any collective bargaining agreements and believes its employee
relations to be satisfactory. The maintenance and expansion of
the Company's restaurant business is dependent on attracting and
training competent employees. The Company believes that the
restaurant manager plays a significant role in the success of its
business. Accordingly, the Company has established bonus plans
pursuant to which certain of its supervisory employees may earn
cash bonuses based upon both the sales and profits of their
restaurants.
Trade Names, Trademarks and Service Marks
The trade name "Pizza Hut" and all other trademarks, service
marks, symbols, slogans, emblems, logos and designs used in the
Pizza Hut system are owned by Pizza Hut, Inc. All of the
foregoing are of material importance to the Company's business and
are licensed to the Company under its Franchise Agreements for use
with respect to the operation and promotion of the Company's
restaurants.
Seasonality
The Company's Pizza Hut operations has not experienced
significant seasonality in its sales.
SKIPPER'S OPERATIONS
Restaurant Format
Skipper's operates and franchises restaurants primarily under
the name Skipper's Seafood 'n Chowder House. Skipper's
restaurants feature a limited quick-service menu, featuring fish,
shrimp, clams and other seafood items. The nautical decor of the
restaurants is casual, suitable for family dining. With its
limited-service format, all meal orders are taken at the cash
register. Beginning in fiscal 1994, some entrees are cooked in
advance and held in a special holding area to maintain food at the
proper temperature. Customers pick up these ready-made entrees,
as well as their drinks, chowder and salads from the front counter
and carry them to their table. If cooked to order, entrees are
delivered to the customer when prepared.
The Company operates or franchises restaurants in 12 states
and internationally as follows:
<TABLE>
<CAPTION>
State/Country Company-owned Franchised
<S> <C> <C>
Alaska 5 ---
Arizona --- 1
California 25 ---
Colorado 18 2
Idaho 12 2
Montana 1 3
Nevada --- 1
North Dakota --- 5
Oregon 35 1
Utah 16 ---
Washington 75 1
Wyoming 1 ---
United States Total 188 16
Canada --- 2
World Total 188 18
</TABLE>
Unit Development
The following table sets forth information concerning the
growth in the number of Skipper's Company-owned and franchised
restaurants.
<TABLE>
<CAPTION>
17 Weeks
Ended -----------Fiscal Year Ended-------------
March 27, March 26, March 31, March 30, March 29,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Company
Units operated at
beginning of period 184 172 192 192 188
Opened during period 1 3 8 2 ---
Closed during period 13 2 10 6 ---
Acquired during period --- 19 2 --- ---
Units operated at end
of period 172 192 192 188 188
Franchised
Units operated at
beginning of period 31 30 21 19 18
Opened during period --- --- --- --- ---
Closed during period 1 2 --- 1 ---
Sold to Company --- 7 2 --- ---
Units operated at end
of period 30 21 19 18 18
</TABLE>
Menu and Food Preparation
Skipper's emphasizes high quality seafood and poultry
products. Food is cooked either at the time or in advance of each
order. Much of the necessary food preparation, such as filleting
and breading seafood products and preparing clam chowder, is
performed on the restaurant premises several times a day.
Seafood entrees on Skipper's menu include fish fillets,
scallops, shrimp and clams. All of Skipper's fried entree items
are deep fried in pure vegetable shortening. The restaurants also
serve baked or broiled fish. Skipper's menu also includes clam
chowder, french fried potatoes, baked potatoes, coleslaw, entree
salads and fish and chicken sandwiches.
Beer is served at most restaurants. Skipper's believes that
beer, which accounts for only a small portion of revenues, is
important in attracting and maintaining its adult customer base
and increasing food purchases.
Supplies and Equipment
Skipper's ability to maintain consistent quality throughout
its chain of restaurants depends upon acquiring food products,
other consumables, and other products from reliable sources. To
most effectively achieve this consistency and to reduce the costs
of products, Skipper's contracts centrally for all major raw food,
paper products and other restaurant supplies through its
purchasing department. Skipper's negotiates directly with a
processor or manufacturer (and will do so on behalf of franchisees
if franchisees so desire) and then contracts with a distributor
for company-wide distribution. Skipper's also centralizes
purchases of restaurant equipment for its company-operated
restaurants and for such franchisees as may wish to use this
service.
Skipper's is generally not dependent upon any one supplier
for availability of its products because its food and other
products are available from a number of acceptable sources.
Skipper's has a policy of maintaining alternate suppliers for most
of its baseline products.
Franchising
Skipper's commenced franchising in 1978 and now has 18
franchised units located in twelve states and British Columbia,
Canada.
Skipper's franchise program was designed both for single unit
owner/operators and for multi-unit franchise owners who would
operate several Skipper's restaurants. There were no outstanding
agreements with any franchise owner for the development of
additional franchise restaurants at March 29, 1994.
The franchise owners paid an initial franchise fee of
$10,000. In addition, Skipper's receives a royalty of 4.725% on
the first $500,000 in annual gross revenues and 5% of revenues
over $500,000 of each franchise restaurant. In addition to these
payments, franchise restaurant owners are also required to pay
Skipper's an amount equal to 0.8% of gross revenues for
administration of the advertising program.
Skipper's has currently suspended new domestic franchising
while it concentrates on concept refinement.
Supervision and Control
Skipper's restaurants are open seven days a week and serve
both lunch and dinner. Each of the restaurants has a manager and
an assistant manager who are responsible for daily operations of
the restaurant, including food preparation, quality control,
service, maintenance, personnel, and record keeping. All of the
Skipper's restaurant managers have completed a comprehensive
management training program. Each area general manager is
responsible for approximately six restaurants. Detailed
operations manuals reflecting current operations and control
procedures are provided to each restaurant and district manager as
well as others in the organization.
A point-of-sale cash register system was placed into
operation in all company-operated restaurants in 1986. It
provides cost savings through the use of detailed product and
consumer information. The system provides detailed information
daily to assist management in decision making.
Accounting is centralized in Pittsburg, Kansas. Additional
financial and management controls are maintained at the individual
restaurants, where inventory, labor and food data are recorded to
monitor food usage, food waste, labor costs, and other
controllable costs.
Advertising
With customer research as an information base, the marketing
department directs sales program development, advertising, public
relations, field marketing activities, menu pricing and content,
restaurant decor and product packaging.
Skipper's advertising programs are developed by the Company's
central marketing department and agency. Television, radio and
direct mail are the primary advertising media, with a creative
focus on product quality and value-pricing.
Competition
In general, the restaurant business is highly competitive and
its often affected by changes in taste and eating habits of the
public, local and national economic conditions affecting spending
habits, population and traffic patterns. The principal basis of
competition in the industry is the quality and price of the food
products offered. Site selection, quality and speed of service,
advertising and attractiveness of facilities are also important.
Skipper's restaurants compete with moderately priced and fast
food restaurants located in their respective vicinities as well as
seafood chain restaurants in Skipper's market areas.
Employees
At March 29, 1994, Skipper's operations had approximately
2,800 employees including 27 headquarters and staff personnel, 4
regional managers, 27 area general managers, 1 franchise manager,
321 restaurant management employees and approximately 2,420
restaurant employees (of whom approximately 80% are part-time).
Skipper's experiences a high rate of turnover of its part-time
employees, which it believes to be normal in the restaurant
industry. Skipper's is not a party to any collective bargaining
agreements and believes its employee relations to be satisfactory.
Trade Names, Trademarks and Service Marks
The trade name "Skipper's" and all other trademarks, service
marks, symbols, slogans, emblems, logos, and designs used in the
Skipper's restaurant system are of material importance to
Skipper's business. Further, Skipper's licenses these marks to
its franchisees under its franchise agreements for use with
respect to the operation and promotion of their Skipper's
restaurants.
Seasonality
Skipper's sales and earnings are usually slightly higher
immediately before Christmas and during Lent (March / April).
TONY ROMA'S OPERATIONS
Restaurant Format
Romacorp, Inc. operates and franchises casual-themed
restaurants under the name Tony Roma's A Place For Ribs. The
restaurants offer a full and varied menu, including ribs, salads,
steaks, seafood, chicken and other menu items. The decor of the
restaurants is casual, suitable for family dining. Recent
renovations and new restaurants feature brighter lighting and
decor packages to attract a broader segment of customers. All
entrees are prepared to order. The location of the Company-owned
and franchised restaurants is as follows:
<TABLE>
<CAPTION>
Company-owned/
State/Country Joint Venture Franchised
<S> <C> <C>
Alaska --- 1
Arizona --- 7
California 9 39
Colorado --- 4
Florida 11 3
Hawaii --- 3
Maine --- 1
Minnesota --- 2
Mississippi --- 1
Nebraska --- 1
Nevada 1 4
New York --- 10
Ohio --- 3
Oregon --- 3
South Carolina --- 1
Tennessee --- 2
Texas 5 5
Utah --- 5
Washington --- 8
Wisconsin --- 2
United States Total 26 105
Aruba --- 1
Canada --- 9
Caribbean --- 4
Great Britain --- 1
Guam --- 2
Hong Kong --- 1
Indonesia --- 1
Japan --- 10
Mexico --- 2
Singapore --- 1
International Total --- 32
World Total 26 137
Number of franchise holders 60
</TABLE>
Romacorp operates two of its restaurants as joint ventures.
In general, the Company receives a fee for managing the
restaurants and remits to the partners an agreed-upon percentage
of gross sales. In the event the restaurants do not generate
sufficient cash flow, the Company funds the deficit necessary to
provide sufficient working capital and partner distributions.
Unit Development
The following table sets forth information concerning the
growth in the number of Tony Roma's Company-owned and franchised
restaurants. Information provided for periods prior to the
acquisition of Tony Roma's by the Company is reported based on the
concept's prior fiscal years.
<TABLE>
<CAPTION>
14 42
Weeks Weeks
-------Fiscal year ended---------- Ended Ended
2/28/90 2/28/91 2/28/92 2/28/93 6/8/93 3/24/94
<S> <C> <C> <C> <C> <C> <C>
Company/Joint Ventures
Units operated at
beginning of period 17 17 16 17 28 26
Opened during period 1 --- 1 --- --- 1
Acquired --- 0 --- 12 --- ---
Closed during period 1 1 --- 1 2 1
Units operated at end
of period 17 16 17 28 26 26
Franchised
Units operated at
beginning of period 100 116 125 130 123 129
Opened during period 19 18 6 13 9 9
Closed during period 3 9 1 8 3 1
Sold to Company --- 0 --- 12 --- ---
Units operated at end
of period 116 125 130 123 129 137
</TABLE>
Menu and Food Preparation
All entrees served at Tony Roma's restaurants are prepared to
order. To the extent possible, food is partially prepared in
advance to reduce cooking time and assure a pleasurable dining
experience. Its menu includes ribs, steak, chicken, seafood,
sandwiches and salads. Tony Roma's signature product, barbecued
baby back ribs, and other rib dishes account for about 45% of food
sales. Guest checks average from approximately $9.00 for lunch and
$13.00 for dinner. Alcohol beverages are is served in all
restaurants, and accounts for approximately 13% of sales.
Supplies and Equipment
To assure consistent product quality and to obtain quantity
discounts, Tony Roma's purchases its food and restaurant equipment
from its operations office in Dallas, TX. The Company negotiates
directly with meat processors for its ribs inventory, which is
maintained in two warehouses in Iowa. Inventory is then shipped
to restaurants via two commercial distributors. Produce and dairy
products are obtained locally. Tony Roma's food and equipment
pricing is also generally available to the franchisee community.
Tony Roma's is generally not dependent upon any one supplier
for availability of its products; its food and other products are
generally available from a number of acceptable sources. Tony
Roma's has a policy of maintaining alternate suppliers for most of
its baseline products. The Company does not manufacture any
products nor act as a middleman.
Franchising
Although the first Tony Roma's opened in 1972, franchising
wasn't a key element of Tony Roma's growth strategy until 1984.
At March 29, 1994, the Company had 60 franchisees operating 137
units world wide. The largest franchise holder operates a chain
of 10 Tony Roma's restaurants in Japan. Although there are some
individual unit franchisees, the Company seeks to attract
franchisees who can develop several restaurants.
New domestic franchisees pay an initial franchise fee of
$50,000 and a continuing royalty of 4% of gross sales. In
addition, franchisees are required to contribute 0.5% of gross
sales to a joint marketing account and may be required to
participate in local market advertising cooperatives. All
potential franchisees must meet certain operational and financial
criteria.
In return for the domestic franchisee's initial fee and
royalties, the Company provides a variety of services, including:
real estate services, including site selection criteria and
review/advice on construction cost and administration;
architectural services in the form of prototype designs and an in-
house design team to help with decor considerations; pre-opening
and opening assistance, which include an on-site training team to
assist in recruitment, training, organization, inventory planning
and quality control; centralized and system-wide purchasing
opportunities; in-store managers training programs, coordinated
and assisted advertising and marketing programs; and various
administrative and training programs developed by the Company.
International franchisees receive a modified version of the
above services. Currently, international franchises require an
initial fee of $30,000 and royalty rate of 3% of gross sales.
International franchise holders also contribute 0.25% to a joint
marketing account.
Supervision and Control
Company operated restaurants are typically run by one general
manager, two to three assistant managers and a kitchen manager.
General managers report to one of seven district managers who, in
turn, report to one of two regional managers. All of the Tony
Roma's restaurant managers have completed a comprehensive
management training program. Detailed operations manuals
reflecting current operations and control procedures are provided
to each restaurant and district manager as well as others in the
organization.
A point-of-sale cash register system is in place in all
Company-operated restaurants. It provides cost savings through
the use of detailed product and consumer information. The system
is polled daily and provides detailed information to assist
management in decision making. The Company anticipates installing
a new state-of-the-art point of sale system in all Company-owned
restaurants in fiscal 1995.
Accounting is centralized in Pittsburg, Kansas. Additional
financial and management controls are maintained at the individual
restaurants, where inventory, labor and food data are recorded to
monitor food usage, food waste, labor costs, and other
controllable costs.
Advertising
With customer research as an information base, the marketing
department directs sales program development, advertising, public
relations, field marketing activities, menu pricing and content,
restaurant decor and product packaging.
Competition
The restaurant industry is intensely competitive with respect
to price, value, service, location and food quality. Tony Roma's
has developed high brand identity within the casual theme segment
and is the only national chain to focus on ribs. On a regional
basis, the Company competes with smaller chains which also
specialize in ribs.
Employees
At March 29, 1994, Tony Roma's operations had approximately
1,300 employees including 28 headquarters and staff personnel, 2
regional managers, 7 district managers, 124 restaurant management
employees and approximately 1,138 restaurant employees (of whom
approximately 80% are part-time). Tony Roma's is not a party to
any collective bargaining agreements and believes its employee
relations to be satisfactory.
Trade Names, Trademarks and Service Marks
The trade name "Tony Roma's" and all other trademarks,
service marks, symbols, slogans, emblems, logos, and designs used
in the Tony Roma's restaurant system are of material importance to
its business. The domestic trademark and franchise rights are
owned by Romacorp, Inc. and international trademarks/franchise
rights are owned by Roma Systems, Inc., a wholly owned subsidiary
of Romacorp, Inc. Tony Roma's licenses the use these marks to its
franchisees under its franchise agreements for use with respect to
the operation and promotion of their Tony Roma's restaurants.
Seasonality
Tony Roma's does not experience significant seasonality in
its revenues.
* * * * * * * *
Government Regulation
All of the Company's operations are subject to various
federal, state and local laws that affect its business, including
laws and regulations relating to health, sanitation, alcoholic
beverage control and safety standards. To date, federal and state
environmental regulations have not had a material effect on the
Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, building
codes, land use and environmental factors have in the past
increased, and can be expected in the future to increase, the cost
of, and the time required for opening new restaurants.
Difficulties or failures in obtaining required licenses or
approvals could delay or prohibit the opening of new restaurants.
In some instances, the Company may have to obtain zoning variances
and land use permits for its new restaurants. The Company
believes it is operating in compliance with all material laws and
regulations governing its operations.
The Company is also subject to the Fair Labor Standards Act,
which governs such matters as minimum wages, overtime and other
working conditions. A substantial majority of the Company's food
service personnel are paid at rates related to the minimum wage
and, accordingly, increases in the minimum wage result in higher
labor costs.
Legislation mandating health coverage for employees, if
passed, will increase benefit costs since most hourly restaurant
employees are not currently covered under Company plans. The
Company cannot always effect immediate price increases to offset
higher costs, and no assurance can be given that the Company will
be able to do so in the future.
ITEM 2. PROPERTIES
__________________________________________________________________
PIZZA HUT OPERATIONS
Pizza Hut restaurants historically have been built according
to minimum identification specifications established by PHI
relating to exterior style and interior decor. Variation from
such specifications is permitted only upon request and if required
by local regulations or to take advantage of specific
opportunities in a market area.
The distinctive Pizza Hut red roof is the identifying feature
of Pizza Hut restaurants throughout the world. Pizza Hut
restaurants are generally free-standing, one-story buildings,
usually with wood and brick exteriors, and are substantially
uniform in design and appearance. Property sites range from
15,000 to 40,000 square feet and accommodate parking for 30 to 70
cars. Typically, Pizza Hut restaurants contain from 1,800 to
3,200 square feet, including a kitchen area, and have seating
capacity for 70 to 125 persons.
The cost of land, building and equipment for a typical Pizza
Hut restaurant varies with location, size, construction costs and
other factors. The Company currently estimates that the average
cost to construct and equip a new restaurant in its existing
franchise territories (other than Los Angeles) is approximately
$450,000 to $550,000, or $700,000 to $900,000 including the cost
of land acquisition. The cost to construct and equip a typical
new restaurant in the Los Angeles franchise area is approximately
$550,000 to $650,000, exclusive of the cost of land acquisition or
leasing.
The Company continually renovates and upgrades its existing
restaurants. Such improvements generally include new interior
decor, expansion of seating areas, and installation of more modern
equipment.
The Company anticipates that the capital investment necessary
for each delivery-only kitchen is approximately $85,000 in
equipment and $35,000 in leasehold improvements. The cost of a
customer service center is approximately $100,000 in equipment and
improvements.
The Pizza Hut restaurants and delivery units operated by the
Company at March 29, 1994, are owned or leased as follows:
<TABLE>
<S> <C>
Leased from unrelated third parties 196
Leased from officers 5
Land and building owned by the Company 123
Building owned by the Company and land leased 39
363
</TABLE>
The amount of rent paid to unrelated persons is determined on
a flat rate basis or as a percentage of sales or as a combination
of both. Some leases contain provisions requiring cost of living
adjustments.
The Company's Pizza Hut operations also have 13 non-operating
locations. Of these, eight are leased from unrelated parties, two
are land and buildings owned by the Company, and three are
undeveloped parcels of land. The Company intends to sell or
sublease these locations.
Rent paid to affiliates is determined as a combination of a
flat rate or as a percentage of sales in excess of specified
amounts. Generally, the percentage rate is 6% where both land and
buildings are leased and 3% where buildings only are leased.
Approximately 185 leases have initial terms which will expire
within the next five years. Nearly all of these leases contain
provisions allowing for the extension of the lease term.
The Company owns its principal executive and administrative
offices in Pittsburg, Kansas, containing approximately 46,000
square feet of commercial office space. In addition, the Company
leases from third parties office space for its regional offices in
Hagerstown, Maryland; Birmingham, Alabama; Jackson, Mississippi;
Springfield, Missouri; West Lake, California; and Gulfport,
Mississippi.
SKIPPER'S OPERATIONS
Skipper's selects all company-operated restaurant sites and
must approve all franchised restaurant locations. Sites are
selected using a screening model to analyze locations with an
emphasis on demographics (such as, population density, age and
income distribution); analysis of restaurant competition in the
area; and an analysis of the site characteristics, including
accessibility, traffic counts, and visibility.
Skipper's generally locates its restaurants in
commercial/retail areas near residential concentrations rather
than downtown business districts. Skipper's favors locations
which are in or near regional or district shopping centers and
follows a general policy of clustering its restaurants
geographically to achieve economies in restaurant supervisory and
advertising costs.
The current cost of constructing and equipping a Skipper's
restaurant typically ranges from $300,000 to $400,000 for building
and land improvements and $135,000 to $185,000 for equipment. The
cost of land varies considerably depending on geographic and site
location. Land costs vary from $150,000 to $400,000. Skipper's
has developed a standardized restaurant design using a free-
standing wood frame building to be situated on a one-half acre
site. The design is regularly revised and refined.
The 188 Company-operated Skipper's restaurants at March 29,
1994, are owned and leased as follows:
<TABLE>
<S> <C>
Leased from unrelated parties 90
Land and buildings owned by Skipper's 59
Buildings owned by Skipper's and land leased 39
188
</TABLE>
Skipper's also has 30 locations which are not currently used
for Skipper's restaurants. Of these, 13 are properties leased
from unrelated parties, 11 are land and buildings owned by
Skipper's and six are buildings owned on leased land. Skipper's
intends to sublease or sell these excess properties.
Most of Skipper's leases contain percentage rent clauses
(typically 5% to 6% of gross sales) against which the minimum rent
is applied, and most are net leases under which Skipper's pays
taxes, maintenance, insurance, repairs and utility costs.
All company-owned restaurant locations are free of major
encumbrances.
TONY ROMA'S OPERATIONS
Tony Roma's selects all company-operated restaurant sites,
and must approve all franchised restaurant locations. Sites are
selected using a screening model to analyze locations with an
emphasis on demographics (such as, population density, age and
income distribution); analysis of restaurant competition in the
area; and an analysis of the site characteristics, including
accessibility, traffic counts, and visibility.
The current cost of constructing and equipping a Tony Roma's
restaurant typically ranges from $550,000 to $650,000 for building
and land improvements and $200,000 to $250,000 for equipment. The
cost of land varies considerably depending on geographic and site
location. Land costs vary from $500,000 to $800,000. Tony Roma's
has developed a standardized restaurant design using a free-
standing wood frame building to be situated on a 1-1/2 acre site.
The design is regularly revised and refined.
All land and buildings are leased from unrelated parties on
the 26 Company-operated Tony Roma's restaurants at March 29, 1994.
Tony Roma's has no excess real estate at March 29, 1994.
Most of Tony Roma's leases contain percentage rent clauses
(typically 5% to 6% of gross sales) against which the minimum rent
is applied, and most are net leases under which Tony Roma's pays
taxes, maintenance, insurance, repairs and utility costs.
All company-owned restaurant locations are free of major
encumbrances.
* * * * * *
See Note 7 of Notes to Consolidated Financial Statements for
information with respect to the Company's lease obligations
included in the 1994 Annual Report to Stockholders for the year
ended March 29, 1994 (the "Annual Report "), which is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
__________________________________________________________________
The Company and its subsidiaries are engaged in ordinary and
routine litigation incidental to its business, but management does
not anticipate that any amounts which it may be required to pay by
reason thereof, net of insurance reimbursements, will have a
materially adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
__________________________________________________________________
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended March 29, 1994.
EXECUTIVE OFFICERS OF THE COMPANY
See item 10, Part III, "Directors and Executive Officers and
Directors of the Registrant" of this Form 10-K
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
__________________________________________________________________
"Stockholder Data" on pages 28 of the Annual Report is
incorporated herein by reference. Restrictions on the payment of
dividends are incorporated herein by reference to Note 4 of the
Notes to Consolidated Financial Statements on page 23 of the
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
__________________________________________________________________
The "Ten Year Financial Summary" on page 13 of the Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
__________________________________________________________________
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 14 to 17 of the Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
__________________________________________________________________
The following financial statements of the Registrant and
independent auditor's report set forth on pages 18 to 27 of the
Annual Report are incorporated herein by reference:
Consolidated Balance Sheets -- As of March 29, 1994, and
March 30, 1993.
Consolidated Statements of Income -- Years ended March 29,
1994, March 30, 1993, and March 31, 1992.
Consolidated Statements of Stockholders' Equity -- Years
ended March 29, 1994,
March 30, 1993, and March 31, 1992.
Consolidated Statements of Cash Flows -- Years ended March
29, 1994, March 30, 1993, and March 31, 1992.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
__________________________________________________________________
No disagreements on accounting and financial disclosure have
occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
__________________________________________________________________
The name, age and background of each of the Company's
Directors are contained under the caption "Election of Two
Directors" on pages 2 to 3 of the Proxy Statement dated June 13,
1994, for the Annual Meeting of Stockholders to be held on July
12, 1994, as filed with the Securities and Exchange Commission on
June 13, 1994 (the "Proxy Statement") is incorporated herein by
reference in response to this item.
The executive officers of the Company and their current
positions and ages are as follows:
<TABLE>
<CAPTION>
Name Position Age
<S> <C>
O. Gene Bicknell
Chairman of the Board and Director 61
J. Mitchell Boyd
President, Chief Executive
Officer and Director 55
Marty D. Couk
Senior Vice President,
Pizza Hut Operations 39
R. Frank Brown
President, Skipper's, Inc.
(Skipper's Operations) 45
Gerald A. Brunotts
President, Romacorp, Inc.
(Tony Roma's Operations) 51
Robert M. McDevitt
Vice President Marketing 45
James K. Schwartz
Vice President Finance,
Chief Financial Officer,
Treasurer and Assistant Secretary 32
David G. Short
Vice President Legal, Secretary 55
</TABLE>
O. Gene Bicknell founded the Company and has served as
Chairman of the Board since 1962. He also served as Chief
Executive Officer of the Company until July, 1993.
J. Mitchell Boyd joined the Company as President of National
Pizza on June 1, 1992 and was appointed Chief Executive Officer in
July, 1993. From December, 1989 to June, 1992, Mr. Boyd pursued
various personal business interests. From 1986 to December, 1989,
he was vice chairman and chief executive officer of Shoney's Inc.
Marty D. Couk joined the Company as a restaurant manager
trainee in April, 1979. He served in various capacities at the
Company, including Field Specialist (1982), Area General Manager
(1983) and Regional Manager (1987). He was promoted to Vice
President of Pizza Hut Operations in December, 1992 and Senior
Vice President of Pizza Hut Operations in September, 1993.
R. Frank Brown joined the Company as President of Skipper's
in September, 1993. For the previous 17 years, he served as vice
president of franchising and president of Capt. D's Seafood
Restaurants, another quick-service seafood chain.
Gerald A. Brunotts joined the Company in May, 1993 to serve
as President of NRH Corporation (now Romacorp, Inc.), owner and
operator of Tony Roma's. From January, 1990 until May, 1993, Mr.
Brunotts was a consultant to the restaurant industry. Prior to
that, he was a Vice President with Shoney's Inc.
Robert M. McDevitt joined the Company as Vice President
Marketing in August, 1992. From 1990 to 1992, he was vice
president marketing with Host Communications. Prior to that, Mr.
McDevitt was senior vice president marketing with Long John
Silvers, operator of a quick service seafood chain. Mr. McDevitt
terminated with the Company in May, 1994.
James K. Schwartz was appointed Vice President Finance,
Treasurer, Assistant Secretary and Chief Financial Officer in
January, 1993. He joined the Company in October, 1991 and served
as Vice President Accounting and Administration. Prior to that,
Mr. Schwartz was a manager with the international accounting firm
of Ernst & Young. He is a certified public accountant.
David G. Short joined the Company in June, 1993 as part of
the NRH Corporation acquisition and was appointed to Vice
President Legal and General Counsel in July, 1993. He was vice
president, legal and general counsel for NRH Corporation since
September, 1990 and, previous to that, vice president-legal,
general counsel and secretary of TGI Fridays, Inc.
ITEM 11. EXECUTIVE COMPENSATION
__________________________________________________________________
"Executive Compensation" on pages 5 to 9 of the Proxy
Statement is incorporated herein by reference in response to this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
__________________________________________________________________
"Principal Stockholders" and "Stock Ownership of Directors
and Management" on pages 2 and 5 of the Proxy Statement are
incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
__________________________________________________________________
At March 29, 1994, the Company leased five properties from O.
Gene Bicknell, Chairman, and one property from Gordon W. Elliott,
Vice Chairman, at rental rates comparable to terms obtained from
unrelated lessors. Rent expense under these leases for fiscal
1994 was $222,000. Rental paid to affiliates is determined as a
combination of a flat rate or as a percentage of sales in excess
of specified amounts. The percentage rate is 6% where both land
and buildings are leased and 3% where buildings only are leased.
The Board of Directors in January, 1993, authorized the
purchase of certain real estate comprised principally of ten Pizza
Hut restaurants owned by Mr. Bicknell. The Company engaged an
outside appraisal company to perform a MAI appraisal of the
properties. The Board of Directors, upon review of the proposal
and the appraisals, and with Mr. Bicknell abstaining from any
participation in the vote, approved the purchase of these sites
for the appraised values. At March 29, 1994, the Company had
completed all transactions on these properties. Due to the delay
in processing the sale of the final two properties, the Company
extended a $1,000,000 loan to Mr. Bicknell during the fiscal year
ended March 29,1994, all except $50,000 of which was repaid by
year end.
During the fiscal year ended March 26, 1991, the Company and one
of its executives entered into a joint venture agreement to
purchase a business aircraft for approximately $2,000,000. The
purchase was funded 25% and 75% by the Company and the executive,
respectively. During the fiscal year ended March 29, 1994 the
Company incurred rental expense under the month-to-month lease of
$258,000. Management believes the lease is at least as favorable
as could be obtained from unrelated parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
__________________________________________________________________
(a) List of Documents filed as part of this Report
1) Financial Statements
All financial statements of the registrant as set forth
under Item 8 of this Report on Form 10-K.
2) Financial Statement Schedules
<TABLE>
<CAPTION>
Schedule Page
Number Description Number
<S> <C> <C>
II Amounts Receivable from Related Parties 28
V Property, Plant & Equipment 29
VI Accumulated Depreciation, Depletion, and
Amortization of Property, Plant and
Equipment 30
X Supplementary Income Statement Information 31
</TABLE>
Schedules other than those listed above are omitted because
they are not required or are not applicable, or the required
information is shown in the financial statements or notes
thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
3) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
Page Number or
Exhibit Incorporation
Number Description by Reference to
3.1 Restated Articles of Incorporation Exhibit 3(a) to Form S-1
Registration Statement
effective August 14, 1984
File #2-91885
3.2 Certificate of Amendment to Amended by Form 8 filed
Restated Articles of Incorporation May 30, 1991
dated August 7, 1986, Certificate
of Amendment to Restated of
Articles of Incorporation dated
July 31, 1987 and Certificate of
Change of Location of Registered
Office dated October 20, 1987
3.3 Bylaws Exhibit 3(b) to Form S-1
Registration Statement
effective August 14,1984
File #2-91885
4.1 Specimen Stock Certificate Exhibit 4 to Form S-1
Registration Statement
effective August 14, 1984
File #2-91885
4.2 Specimen Stock Certificate Exhibit 4.2 to Form 10-K
For Class B Common Stock filed June 16, 1992
10.1 Standard Form of Superseding Exhibit 10(a) to Form S-1
Franchise Agreement between Registration Statement
the Company and Pizza Hut, Inc. effective August 14, 1984
dated July 20, 1981 File #2-91885
10.2 Schedule of Superseding Exhibit 10(b) to Form S-1
Franchise Agreements Registration Statement
effective August 14, 1984
File #2-91885
10.3 Franchise Agreement between Exhibit 10(c)(1) to Form
the Company and Pizza Hut, Inc. S-1 Registration Statement
dated January 1, 1983 for the effective August 14, 1984
West Los Angeles, California File #2-91885
franchise territory
10.4 Letter Agreement dated February Exhibit 10(c)(2) to Form
10, 1984 between the Company and S-1 Registration Statement
Pizza Hut, Inc. for the Los effective August 14, 1984
Angeles County franchise territory File #2-91885
10.5 Blanket Amendment to Franchise Exhibit 10(d) to Form S-1
Agreements Registration Statement
effective August 14, 1984
File #2-91885
10.6 Second Blanket Amendment to Exhibit 10(d)(2) to Form
Franchise Agreements dated S-1 Registration Statement
as of November 18, 1985 effective November 27,
1985; File #33-1588
10.7 Leases between the Company and Exhibit 10(e) to Form S-1
Messrs. Bicknell and Elliott Registration Statement
effective August 14, 1984
File #2-91885
10.8 Note Purchase Agreement Exhibit 10(r) to Form 10-Q
between National Pizza Company filed August 4, 1988
as Seller and the Prudential
Insurance Company of America and
Pruco Life Insurance Company as
Purchasers dated June 29, 1988
10.9 Note Agreement between National Exhibit 10(u) to Form 10-K
Pizza Company and the Prudential filed June 25, 1990
Insurance Company of America dated
January 25, 1990
10.10 Note Agreement between National Exhibit 10.10 to Form 10-K
Pizza Company and Prudential Life for the year ended
Insurance Company of America March 26, 1991
dated March 13, 1991
10.11 National Pizza Company 1984 Exhibit 10(t) to Form 10-K
Amended and Restated Stock filed June 25, 1990
Option Plan
10.12 Form of Franchise Agreement Exhibit 10(x) to Form 10-K
between Skipper's, Inc. and filed June 25, 1990
its franchisees
10.13 Amended and Restated Revolving Exhibit 10(u) to Form 10-Q
Credit Agreement among National filed February 9, 1990
Pizza Company, Continental Bank,
N.A., Bank of Oklahoma, N.A., The
Bank of Tokyo Trust Company and
Continental Bank, N.A., as Agent,
dated November 17, 1989
10.14 Second Amendment to Amended Exhibit 10.14 to Form 10-K
and Restated Revolving Credit for the year ended
Agreement among National Pizza March 26, 1991
Company, Continental Bank, N.A.,
The Bank of Tokyo Trust Company,
U.S. Bank of Washington, National
Association, and Continental Bank,
N.A., as Agent, dated February 5,
1991
10.15 Airplane Lease between O. Gene Exhibit 10.24 to Form 10-K
Bicknell as Lessor and National for the year ended
Pizza Company as Lessee dated March 26,1991
May 9, 1990
10.16 Pyramid Project Pizza Hut Food Exhibit 10.16 to Form 10-K
and Beverage Agreement dated filed June 16, 1992
August 9, 1991
10.17 Pyramid Project Pizza Hut Exhibit 10.17 to Form 10-K
Concessions Agreement dated filed June 16, 1992
August 9, 1991
10.18 Interim Mud Island Food and Exhibit 10.18 to Form 10-K
Beverage Concession Agreement filed June 16, 1992
dated May 4, 1992
10.19 Senior Note Purchase Agreement Exhibit 10.19 to Form 10-K
made by and between PM Group filed June 16, 1992
Life Insurance Company, Pacific
Mutual Life Insurance Company, and
Massachusetts Mutual Life Insurance
Company and National Pizza Company
dated May 15, 1992 (sample document)
10.20 Third Amendment to Amended Exhibit 10-20 to Form 10-K
& Restated Revolving Credit for the year ended
Agreement among National Pizza March 30, 1993
Company, Continental Bank, N.A.,
The Bank of Tokyo Trust Company,
U.S. Bank of Washington, National
Association, and Continental Bank,
N.A., as Agent, dated June 1, 1992
10.21 Fourth Amendment to Amended Exhibit 10.21
& Restated Revolving Credit to Form 10-K for the
Agreement among National Pizza year ended March 30, 1993
Company, Continental Bank, N.A.,
The Bank of Tokyo Trust Company,
U.S. Bank of Washington, National
Association, and Continental Bank
N.A., as Agent, dated October 1,
1992
10.22 Fifth Amendment to Amended Exhibit 10.22
& Restated Revolving Credit to Form 10-K for the
Agreement among National Pizza year ended March 30, 1993
Company, Continental Bank, N.A.
The Bank of Tokyo Trust Company
U.S. Bank of Washington, National
Association, and Continental Bank
N.A., as Agent, dated May 28, 1993
10.23 Sixth Amendment to Amended Exhibit 10.23
& Restated Revolving Credit to Form 10-K for the
Agreement among National Pizza year ended March 30, 1993
Company, Continental Bank, N.A.,
The Bank of Tokyo Trust Company
U.S. Bank of Washington, National
Association, and Continental Bank
N.A., as Agent, dated June 11, 1993
10.24 Real Estate Purchase Agreement Exhibit 10.24
between the Company and O. Gene to Form 10-K for the
Bicknell regarding the sale year ended March 30, 1993
of eight Maryland properties
dated March 30, 1993
10.25 Profit Sharing Plan of National Pizza Exhibit 10.25
Company dated July 1, 1992 and to Form 10-K for the
First Amendment dated January 1, 1993 year ended March 30,
1993
10.26 Senior Note Purchase Agreement made Exhibit 10.26
by and between Pacific Mutual Life to Form 10-K for the
Insurance Company, Pacific Corinthian year ended March 30, 1993
Life Insurance Company, Lutheran
Brotherhood and National Pizza Company
dated March 30, 1993
10.27 Stock Purchase Agreement dated Exhibit B to Form 8-K
May 18, 1993 by and among National filed May 28, 1993
Pizza Company, NRH Corporation and
selling stockholders
10.28 Amendment #1 to the Stock Purchase Exhibit A to Form 8-K
Agreement relating to the sale of filed June 23, 1993
NRH Corporation dated June 9, 1993
10.29 Second Amendment dated October 19, Exhibit 10.29
1993, to the Profit Sharing Plan of to Form 10-K for the
National Pizza Company year ended March 29, 1994
10.30 Seventh Amendment to Amended Exhibit 10.30
& Restated Revolving Credit to Form 10-K for the
Agreement among National Pizza year ended March 29, 1994
Company, Continental Bank, N.A.,
The Bank of Tokyo Trust Company
U.S. Bank of Washington, National
Association, and Continental Bank
N.A., as Agent, dated December 20,
1993.
10.31 Asset Exchange Agreement by Exhibit 10.31
and among National Pizza to Form 10-K for the
Company, Pizza Hut, Inc. and year ended March 29, 1994
Pizza Hut of San Diego, Inc.
dated June 7, 1994
11 Statement regarding computation of per Exhibit 11
share earnings for the year ended to From 10-K for the
March 29, 1994, March 30, 1993, and year ended March 29,1994
March 31, 1992.
13 1994 Annual Report to Stockholders Exhibit 13
to Form 10-K for the
year ended March 29, 1994
21 List of Subsidiaries Exhibit 21 to
Form 10-K for the year
ended March 29, 1994
23.1 Consent of Ernst & Young Exhibit 23.1 to
Form 10-K for the year
ended March 29, 1994
99 Proxy Statement for Annual Meeting Definitive proxy
of Stockholders to be held filed June 13, 1994
July 12, 1994 via EDGAR
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the fiscal quarter
ended March 29, 1994.
SIGNATURES
__________________________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on the 13th day of June, 1994 on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL PIZZA COMPANY
By James K. Schwartz
Vice President, Chief Financial Officer,
Treasurer, Assistant Secretary
(Principal Financial Officer)
By Douglas K. Stuckey
Corporate Controller
(Chief Accounting Officer)
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 Registrant and in the capacities indicated on the
13th day of June, 1994.
O. Gene Bicknell Chairman of the Board and Director
Gordon W. Elliott Vice Chairman and Director
J. Mitchell Boyd President, Chief Executive
Officer and Director
(Principal Executive Officer)
James K. Schwartz Vice President Finance,
Chief Financial Officer,
Treasurer and
Assistant Secretary
(Principal Financial Officer)
David G. Short Secretary
Fran D. Jabara Director
Robert E. Cressler Director
John W. Carlin Director
<TABLE>
NATIONAL PIZZA COMPANY
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTY
<CAPTION>
Balance -----Deductions--- Balance at
at Amounts ---end of year--
beginning Amounts Written Not
of year Additions Collected Off Current Current
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED MARCH 29, 1994:
O. Gene Bicknell
Chairman of the Board --- $1,000,000 $950,000 --- $50,000 ---
</TABLE>
<TABLE>
NATIONAL PIZZA COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at Balance
Beginning Additions Retirements Other at End
Classification of Period at Cost(1) or Sales Changes(2) of Period
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
MARCH 29, 1994:
Land $35,151,000 $851,000 $786,000 $ --- $35,216,000
Buildings 55,051,000 1,514,000 684,000 1,023,000 56,904,000
Leasehold
improvements 37,532,000 8,579,000 1,412,000 789,000 45,488,000
Furniture
and equipment 80,578,000 11,900,000 5,076,000 87,402,000
Capitalized
leases 4,998,000 1,445,000 1,340,000 5,103,000
Construction
in process 9,000 1,991,000 --- (1,812,000) 188,000
$213,319,000 $26,280,000 $9,298,000 $ --- $230,301,000
FOR THE YEAR ENDED
MARCH 30, 1993:
Land $ 31,567,000 $4,715,000 $1,131,000 $ --- $35,151,000
Buildings 44,741,000 10,848,000 715,000 177,000 55,051,000
Leasehold
improvements 40,455,000 1,637,000 4,560,000 --- 37,532,000
Furniture
and equipment 76,108,000 10,003,000 5,533,000 --- 80,578,000
Capitalized
leases 5,927,000 --- 929,000 --- 4,998,000
Construction
in process 186,000 --- --- (177,000) 9,000
$198,984,000 $27,203,000 $12,868,000 $ --- $213,319,000
FOR THE YEAR ENDED
MARCH 31, 1992:
Land $ 27,667,000 $4,892,000 $ 992,000 $ --- $31,567,000
Buildings 36,786,000 8,516,000 661,000 100,000 44,741,000
Leasehold
improvements 36,718,000 4,295,000 558,000 --- 40,455,000
Furniture
and equipment 63,396,000 14,618,000 1,906,000 --- 76,108,000
Capitalized
leases 5,945,000 --- 18,000 --- 5,927,000
Construction
in process 286,000 --- --- (100,000) 186,000
$170,798,000 $32,321,000 $4,135,000 $ --- $198,984,000
</TABLE>
[FN]
NOTES
(1) On June 8, 1993, National Pizza Company acquired the stock of
NRH Corporation, owner/franchisor of Tony Roma's. Approximately
$11,763,000 of the purchase price was allocated to fixed assets in
the following amounts: $6,879,000 to leasehold improvements;
$4,470,000 to furniture and equipment; and $414,000 to
construction in progress.
(2) Represents completion of construction.
<TABLE>
NATIONAL PIZZA COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION
DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Additions
Balance at Charges to Balance
Beginning Costs and at End
Description of Period Expenses Retirements of Period
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
MARCH 29, 1994:
Buildings $ 9,680,000 $ 3,308,000 $ 140,000 $12,848,000
Leasehold
improvements 11,914,000 3,739,000 544,000 15,109,000
Furniture
and equipment 43,034,000 10,384,000 1,446,000 51,972,000
Capitalized
leases 1,564,000 580,000 532,000 1,612,000
$66,192,000 $18,011,000 $2,662,000 $81,541,000
FOR THE YEAR ENDED
MARCH 30, 1993:
Buildings $ 6,554,000 $ 3,379,000 $ 253,000 $ 9,680,000
Leasehold
improvements 10,109,000 2,689,000 884,000 11,914,000
Furniture
and equipment 34,396,000 10,125,000 1,487,000 43,034,000
Capitalized
leases 1,237,000 486,000 159,000 1,564,000
$52,296,000 $16,679,000 $2,783,000 $66,192,000
FOR THE YEAR ENDED
MARCH 31, 1992:
Buildings $ 4,359,000 $ 2,479,000 $ 284,000 $ 6,554,000
Leasehold
improvements 7,658,000 2,600,000 149,000 10,109,000
Furniture
and equipment 25,784,000 10,212,000 1,600,000 34,396,000
Capitalized
leases 636,000 601,000 --- 1,237,000
$38,437,000 $15,892,000 $2,033,000 $52,296,000
</TABLE>
<TABLE>
NATIONAL PIZZA COMPANY
SCHEDULE X - SUPPLEMENTARY INCOME
STATEMENT INFORMATION
<CAPTION>
------Charged to Costs and Expenses----
March 29, March 30, March 31,
Item 1994 1993 1992
<S> <C> <C> <C>
Maintenance
and repairs $ 7,652,000 $ 6,074,000 $5,590,000
Advertising and
promotion costs 19,421,000 20,226,000 20,752,000
</TABLE>
Exhibit 10.29
SECOND AMENDMENT TO
NATIONAL PIZZA COMPANY
PROFIT SHARING PLAN
This Amendment is entered into and is effective as of the first
day of January, 1993 by National Pizza Company (the "Employer").
WITNESSETH, WHEREAS:
The Employer maintains a plan intended to meet the requirements of
Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), for the benefit of its employees; and
The Employer is empowered to amend the Plan pursuant to Article
11.1 thereof; and
The Employee wishes to amend the Plan to the extent necessary to
provide for distributions to be made as soon as possible upon the
occurrence of an event giving rise to a distribution;
The Employer also wishes to amend the Plan to the extent necessary
and permitted under IRS Revenue Procedure 93-3 to ensure its
compliance with Section 401(a)(31) and any other applicable
sections of the Code by adopting an amendment as provided under
Revenue Procedure 93-3;
NOW, THEREFORE, the Employer has determined that the Plan shall be
amended, effective as of the date set forth above, as follows:
1. Section 6.2 of the Plan is
hereby amended and restated in its entirety as follows:
6.2Time of Benefit Commencement
(a)Benefit Commencement
Benefits shall be paid as soon as practical following a
request for benefit commencement and determination of
the amount of payment under Section 6.2(b).
Participants and Beneficiaries may request benefit
commencement as described below.
(1)Participant
A Participant who is eligible for benefits may
request commencement by written notice to the
Administrative Committee. Benefits may commence at
any time following termination and on or before the
date the Participant attains or would have attained
age 70 1/2. If such a Participant fails to request
benefit commencement, he or she shall be deemed to
have requested that benefits commence on the date
the Participant attains or would have attained age
70 1/2.
(2)Beneficiary
A Beneficiary who is eligible for benefits shall
receive benefits within a reasonable time following
the date of the Participant's death.
(3)Age 70 1/2 Limitation
In no event shall benefits commence later than April
1 following the calendar year in which the
Participant attains age 70 1/2, regardless of
whether the Participant continues in service after
that date (unless the Participant attained age 70
1/2 prior to January 1, 1988 and was not a 5% owner
at any time after age 66 1/2, in which case payments
shall commence no later than upon termination of
employment).
(b)Amount of Payment
The amount distributed shall be based on the Account
balance determined as of the most recent completed
Valuation Date.
(c)Small Benefits
Notwithstanding any election to commence benefits or
lack thereof, the Administrative Committee shall
distribute a benefit which is $3,500 or less at the time
benefits commence, in a lump sum as soon as practical
following termination of employment, death or becoming
Disabled, without Participant or Beneficiary consent.
2. Section 6 of the Plan is hereby amended by adding thereto the
following Section 6.6:
6.6Rollovers to Other Plans or IRAs
This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Administrator, to
have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
Definitions:
(1)Eligible rollover distribution. An eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that an
eligible rollover distribution does not include:
(a)any distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
beneficiary, or for a specified period of ten years or
more;
(b)any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and
(c)the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer
securities).
(2)Eligible retirement plan. An eligible retirement plan is an
individual retirement account described in section 408(a) of
the Code, an individual retirement annuity described in
section 408(b) of the Code, an annuity plan described in
403(a) of the Code, or a qualified trust described in
section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account
or individual retirement annuity.
(3)Distributee. A distributee includes an employee or former
employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations orders as defined in section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(4)Direct rollover. A direct rollover is a payment by the plan
to the eligible retirement plan specified by the
distributee.
Except as amended hereby, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the Plan is amended as of the day and date set
forth above.
National Pizza Company
By:
Title:
EXHIBIT 10.30
NATIONAL PIZZA COMPANY
SEVENTH AMENDMENT AND EXTENSION TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS SEVENTH AMENDMENT AND EXTENSION TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT (this "Seventh Amendment"), dated as of
December 20, 1993, is entered into by and among NATIONAL PIZZA
COMPANY (the "Company"), the banks listed on the signature pages
hereof (each a "Bank" and collectively the "Banks") and
CONTINENTAL BANK N.A., as agent for such Banks (in such capacity,
the "Agent").
WHEREAS, the Company, the Banks and the Agent are parties to
the Amended and Restated Revolving Credit Agreement dated as of
November 17, 1989 (as heretofore amended, the "Original Credit
Agreement"; capitalized terms used but not defined herein shall
have the meanings given to them in the Original Credit Agreement);
and
WHEREAS, the parties hereto desire to make certain amendments
to the Original Credit Agreement and extend its Termination Date.
NOW, THEREFORE, it is hereby agreed by the parties hereto as
follows:
SECTION 1. Amendments to Original Credit Agreement.
Section 1.1. Amendment to Section 1.1. Section 1.1 of
the Original Credit Agreement is hereby amended by adding thereto
the following definitions in proper alphabetical sequence:
"EBITDA" means the sum of the Company's Consolidated Net
Earnings before interest expense and provision for taxes,
plus depreciation, amortization and the noncash portion of
nonrecurring charges (as defined by GAAP).
"Indebtedness to EBITDA Ratio" means, as of the last day
of any fiscal quarter, the ratio of (a) all Indebtedness of
the Company and its Subsidiaries on such day to (b) EBITDA
for the period of four consecutive fiscal quarters ending on
such day.
"Margin" means (a) initially, .75% and (b) on and after
any date specified below on which the Margin is to be
adjusted, the rate per annum set forth in the table below
opposite the applicable Indebtedness to EBITDA Ratio:
Indebtedness
to
EBITDA Margin
Greater than 2.75 to 1 1.0%
Greater than 2.25 to 1
but equal to or less
than 2.75 to 1 .75%
Greater than 1.50 to 1
but equal to or less
than 2.25 to 1 .625%
Equal to or less than
1.50 to 1 .50%
The Margin shall be adjusted, to the extent applicable,
45 days (or, in the case of the last fiscal quarter of
any fiscal year, 90 days) after the end of each fiscal
quarter based on the Indebtedness to EBITDA Ratio as of
the last day of such fiscal quarter; it being understood
that if the Company fails to deliver the financial
statements required by Section 10.1(a) or 10.1(b), as
applicable, by the 45th day (or, if applicable, the 90th
day) after any fiscal quarter, the Margin shall be 1.0%
for Eurodollar Loans until such financial statements are
delivered.
Section 1.2. Amendment to Section 4.1(b). The first
sentence of Section 4.1(b) of the Original Credit Agreement is
hereby amended by deleting the percentage "3/4%" referenced
therein and replacing it with the words "the Margin".
SECTION 2. Termination of Domestic Fixed Rate Pricing Option.
Notwithstanding anything to the contrary in the Original Credit
Agreement, the Company may not borrow pursuant to a Domestic Fixed
Rate Loan on or after the effective date hereof.
SECTION 3. Extension. The Termination Date is hereby extended
to August 10, 1996.
SECTION 4. Warranties and Representations. The Company
hereby affirms that no Event of Default or Unmatured Event of
Default exists under the Original Credit Agreement as amended
hereby as of the effective date hereof. The Company hereby
represents and warrants to the Agent and the Banks that after
giving effect to the amendment set forth herein, the warranties of
the Company contained in Sections 9.1, 9.2, 9.3, 9.4, 9.7, 9.9,
9.13, 9.14 and 9.15 of the Original Credit Agreement are true and
correct as of the date hereof, with the same effect as though made
on the date hereof, except to the extent that such representations
relate solely to an earlier date (and were true and correct as of
such earlier date). Since September 30, 1993, there has been no
material adverse change in the financial condition, assets,
liabilities, business operations, management or prospects of the
Company and its Subsidiaries taken as a whole. No claims,
litigation, arbitration proceedings or governmental proceedings
are pending or threatened against or are affecting the Company or
any of its Subsidiaries, the results of which might materially and
adversely affect the financial condition, assets, liabilities,
business operations, management or prospects of the Company and
its Subsidiaries taken as a whole.
SECTION 5. Effectiveness of Seventh Amendment. This Seventh
Amendment shall become effective, as of the day and year first
above written, on such date when the Agent shall have received all
of the following at the Company's cost and expense, each of which
shall be duly executed, dated such date(s) as shall be
satisfactory to the Agent, in form and substance satisfactory to
the Agent, and in sufficient number of signed counterparts to
provide one to each Bank: (a) counterparts of this Seventh
Amendment executed by the Company and the Banks, (b) a certificate
of the Secretary or an Assistant Secretary of the Company
substantially in the form of Exhibit 1 attached hereto, (c) an
opinion of counsel substantially in the form of Exhibit 2 attached
hereto and (d) any other documents which the Banks may reasonably
request.
SECTION 6. Miscellaneous.
(a) Captions. Section captions used in this Seventh
Amendment are for convenience only and shall not affect the
construction of this Seventh Amendment.
(b) Governing Law. THIS SEVENTH AMENDMENT SHALL BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
Wherever possible each provision of this Seventh Amendment
shall be interpreted in such manner as to be effective and
valid under applicable laws, but if any provision of this
Seventh Amendment shall be prohibited by or invalid under
such laws, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of
this Seventh Amendment.
(c) Counterparts. This Seventh Amendment may be executed
in any number of counterparts and by the different parties on
separate counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts shall
together constitute but one and the same Seventh Amendment.
(d) Successors and Assigns. This Seventh Amendment shall
be binding upon the parties hereto and their respective
successors and assigns, and shall inure to the sole benefit
of the parties hereto and the successors and assigns of the
Agent and the Banks.
(e) Continued Effectiveness. Except as specifically modi-
fied hereby, the Original Credit Agreement and the other
related loan documents shall remain unmodified and are
specifically confirmed to be in full force and effect. Upon
the effectiveness of this Seventh Amendment pursuant to
Section 5, all references in the Original Credit Agreement to
"Credit Agreement", "Agreement", "hereof" or the like shall
refer to the Original Credit Agreement as hereby amended.
(f) Final Agreement. THIS AGREEMENT, TOGETHER WITH ALL
OTHER WRITTEN AGREEMENTS BETWEEN THE COMPANY, THE BANKS AND
THE AGENT (INCLUDING WITHOUT LIMITATION THE ORIGINAL CREDIT
AGREEMENT AS AMENDED HEREBY), IS THE FINAL EXPRESSION OF THE
CREDIT AGREEMENT BETWEEN THE COMPANY, THE BANKS AND THE
AGENT, AND SUCH WRITTEN CREDIT AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT
BETWEEN THE COMPANY, THE BANKS AND THE AGENT.
(g) Non-Standard Terms; No Unwritten Oral Agreements. ANY
ADDITIONAL NON-STANDARD TERMS OF THE CREDIT AGREEMENT BETWEEN
THE COMPANY, THE BANKS AND THE AGENT, INCLUDING THE REDUCTION
TO WRITING OF A PREVIOUS ORAL CREDIT AGREEMENT BETWEEN THE
COMPANY, THE BANK, AND THE AGENT, ARE SET FORTH IN THE SPACE
BELOW (IF NONE, WRITE "NONE"):
NONE
NO UNWRITTEN ORAL CREDIT AGREEMENT BETWEEN THE COMPANY, THE
BANKS AND THE AGENT EXISTS.
Delivered at Chicago, Illinois, as of the day and year first
above written.
NATIONAL PIZZA COMPANY
By:
Title:
CONTINENTAL BANK N.A.,
in its individual capacity
and as Agent
By:
Title:
THE BANK OF TOKYO TRUST COMPANY
By:
Title:
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By:
Title:
ASSET EXCHANGE AGREEMENT
BY AND AMONG
NATIONAL PIZZA COMPANY,
PIZZA HUT, INC.
AND
PIZZA HUT OF SAN DIEGO, INC.
DATED JUNE 7, 1994
TABLE OF CONTENTS
ARTICLE I EXCHANGE OF ASSETS 2
Section 1.1 Execution and Transfer of
Franchise Agreements 2
Section 1.2 Transfer by NPC 2
Section 1.3 NPC Assets 3
Section 1.4 Transfer of O'Donnell Assets 4
Section 1.5 O'Donnell Assets 5
Section 1.6 Transfer by PH 6
Section 1.7 PH Assets 6
Section 1.8 Escrow 8
Section 1.9 Closings 8
Section 1.10 Risk of Loss 8
Section 1.11 POS Systems 9
ARTICLE II ADDITIONAL AGREEMENT 10
ARTICLE III VALUATIONS, CONSIDERATION AND ADDITIONAL
TRANSFERS 10
Section 3.1 Valuation of Sites 10
Section 3.2 Payment Adjustments 10
Section 3.3 Additional Consideration to be
paid by PHSD 11
Section 3.4 Payment 11
Section 3.5 Allocation 11
Section 3.6 Method of Payment 11
ARTICLE IV NON-ASSUMPTION OF EXISTING LIABILITIES 11
Section 4.1 NPC 11
Section 4.2 PH and PHSD 12
Section 4.3 Apportionments and Inventory 12
Section 4.4 Other Liabilities 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF NPC 13
Section 5.1 Organization 13
Section 5.2 Authorization and Enforceability 13
Section 5.3 Absence of Conflict 14
Section 5.4 Title to NPC Personal Property 14
Section 5.5 Title to Real Property 15
Section 5.6 Absence of Other Assets 16
Section 5.7 Leases 17
Section 5.8 Documents Sufficient 17
Section 5.9 Litigation 17
Section 5.10 Governmental Licenses 18
Section 5.11 Compliance with Laws 18
Section 5.12 Assigned Contracts. 19
Section 5.13 Employees 20
Section 5.14 Environmental Matters 20
Section 5.15 Payment of Taxes 22
Section 5.16 No Finder's or Broker's Fee 23
Section 5.17 Disclosure 23
Section 5.18 Representations and Warranties True 24
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF
PHI AND PHSD 25
Section 6.1 Organization 25
Section 6.2 Authorization and Enforceability 25
Section 6.3 Absence of Conflict 25
Section 6.4 Title to PH Personal Property 26
Section 6.5 Title to PH Real Property 26
Section 6.6 Absence of Other Assets 28
Section 6.7 Leases 28
Section 6.8 Documents Sufficient 28
Section 6.9 Litigation 28
Section 6.10 Governmental Licenses 29
Section 6.11 Compliance with Laws 29
Section 6.12 PH Assigned Contracts. 30
Section 6.13 Employees 30
Section 6.14 Environmental Matters 31
Section 6.15 Payment of Taxes 32
Section 6.16 No Finder's or Broker's Fee 33
Section 6.17 Disclosure 33
Section 6.18 Representations and Warranties True 33
ARTICLE VII TRANSFER OF THE O'DONNELL ASSETS 33
Section 7.1 Representations and Warranties 33
Section 7.2 Assignment 34
Section 7.3 Acceptance 34
ARTICLE VIII COVENANTS OF NPC 34
Section 8.1 Management of the NPC Sites
Pending Closing 34
Section 8.2 Transfer of Licenses and Permits 35
Section 8.3 Accuracy of Representations and
Warranties 35
Section 8.4 Access to Information and Facilities 36
Section 8.5 Taxes 36
Section 8.6 Further Assurances 36
Section 8.7 Exchange Sales Tax 37
Section 8.8 Notification 37
Section 8.9 O'Donnell Agreement 37
ARTICLE IX COVENANTS OF PHI AND PHSD 37
Section 9.1 Management of the PH Sites
Pending Closing 37
Section 9.2 Transfer of License and Permits 38
Section 9.3 Accuracy of Representations and
Warranties 38
Section 9.4 Access to Information and Facilities 39
Section 9.5 Taxes 39
Section 9.6 Further Assurances 39
Section 9.7 Exchange Sales Tax 40
Section 9.8 Notification 40
ARTICLE X CONDITIONS TO OBLIGATION OF NPC AT
EACH CLOSING 40
Section 10.1 Representations and Warranties
True and Correct 41
Section 10.2 Performance 41
Section 10.3 Consents 41
Section 10.4 Hart-Scott-Rodino 41
Section 10.5 No Litigation 41
Section 10.6 No Adverse Developments 41
Section 10.7 Investigation 42
Section 10.8 Other Actions 42
ARTICLE XI CONDITIONS TO OBLIGATION OF PHI AND
PHSD AT EACH CLOSING 42
Section 11.1 Representations and Warranties
True and Correct 42
Section 11.2 Performance 42
Section 11.3 Consents 42
Section 11.4 Hart-Scott-Rodino 43
Section 11.5 No Litigation 43
Section 11.6 No Adverse Developments 43
Section 11.7 Investigation 43
Section 11.8 Other Actions 43
Section 11.9 O'Donnell Assets 43
Section 11.10 O'Donnell Agreement 44
ARTICLE XII DOCUMENTS TO BE DELIVERED ON EACH CLOSING
DATE 44
Section 12.1 Condition Precedent 44
Section 12.2 Documents to be Delivered by NPC 44
Section 12.3 Documents to be Delivered by PHI
and PHSD 46
ARTICLE XIII EMPLOYEES 47
Section 13.1 Definitions 47
Section 13.2 Transfer of Employees 47
Section 13.3 Responsibility of Former Employer 48
Section 13.4 Responsibility of New Employer 48
Section 13.5 Claims 48
Section 13.6 Benefit Plans 48
Section 13.7 Benefits to be Provided 49
Section 13.8 Future Employment 49
Section 13.9 Agreement Not to Recruit 49
Section 13.10 Certain Employees 49
ARTICLE XIV EMPLOYEE BENEFITS AND ERISA 50
Section 14.1 Treatment of PH Employee Plans 50
Section 14.2 Treatment of NPC Employee Plans 51
Section 14.3 Definitions 52
ARTICLE XV BULK TRANSFER; TAX CERTIFICATES 54
ARTICLE XVI INDEMNIFICATION AND MEDIATION 54
Section 16.1 Survival 54
Section 16.2 Indemnification of PHI and PHSD by NPC 54
Section 16.3 Indemnification of NPC by PHI and PHSD 56
Section 16.4 Indemnification Procedure 58
Section 16.5 Effect of Insurance Payments 59
Section 16.6 Limitations on Indemnification 59
Section 16.7 Other Remedies 59
Section 16.8 Mediation 59
ARTICLE XVII TERMINATION 60
Section 17.1 Termination by Either Party 60
Section 17.2 Delay 61
ARTICLE XVIII MISCELLANEOUS 63
Section 18.1 Notices 63
Section 18.2 Expenses 63
Section 18.3 Public Announcement 64
Section 18.4 Assignment 64
Section 18.5 Governing Law 64
Section 18.6 Waiver and Amendment 64
Section 18.7 Entire Agreement 64
Section 18.8 Binding Agreement 64
Section 18.9 Agreement Negotiated 65
Section 18.10 Confidentiality 65
Section 18.11 Attorneys' Fees 65
Section 18.12 Remedies Not Exclusive 65
Section 18.13 No Third-Party Beneficiaries 65
Section 18.14 Headings 65
Section 18.15 Severability 66
Section 18.16 Counterparts 66
Section 18.17 Nontraditional 66
INDEX OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A PH Sites
Exhibit B NPC Sites
Exhibit C O'Donnell Sites
Exhibit D Form of New Agreements
Exhibit E Form of Blanket Amendment
Exhibit F Schedule of Closings
Exhibit G Liquor License Escrow Agreement
Exhibit H Valued NPC Sites
Exhibit I Valuation Methodology
Exhibit J Opinion of NPC Counsel
Exhibit K Form CSC Management Agreement
Exhibit L Opinion of PHI and PHSD Counsel
Exhibit M Form of O'Donnell Agreement
Exhibit N Mutual Release
Schedules
Schedule 1.3(a)(i) NPC Real Property
Schedule 1.3(a)(ii) NPC Assigned Leases
Schedule 1.3(a)(iv) NPC Assigned Contracts
Schedule 1.3(a)(v) NPC Equipment
Schedule 1.3(a)(vii) NPC Prepaid Items
Schedule 1.5(a)(i) O'Donnell Real Property
Schedule 1.5(a)(ii) O'Donnell Assigned Leases
Schedule 1.5(a)(iii) O'Donnell Assigned Contracts
Schedule 1.5(a)(iv) O'Donnell Equipment
Schedule 1.5(a)(vi) O'Donnell Prepaid Items
Schedule 1.7(a)(i) PH Real Property
Schedule 1.7(a)(ii) PH Assigned Leases
Schedule 1.7(a)(iv) PH Assigned Contracts
Schedule 1.7(a)(v) PH Equipment
Schedule 1.7(a)(vii) PH Prepaid Items
Schedule 5.4 Title to NPC Personal Property
Schedule 5.5(a) Title to NPC Real Property
Schedule 5.7 NPC Lease Prepayments
Schedule 5.9 NPC Litigation
Schedule 5.10(a) NPC Licenses
Schedule 5.10(b) O'Donnell Licenses
Schedule 5.11(c) NPC Necessary Consents
Schedule 5.14(b) NPC Environmental Matters
Schedule 6.4 Title to PH Personal Property
Schedule 6.5(a) Title to PH Real Property
Schedule 6.5(c) PH Condemnation
Schedule 6.7 PH Lease Prepayments
Schedule 6.9 PH Litigation
Schedule 6.10 PH Governmental Licenses
Schedule 6.11(c) PH Necessary Consents
Schedule 6.13(e) PH Severance Pay Policy
Schedule 6.14(a) PH Environmental Matters
Schedule 13.10 Certain Employees
Schedule 17.2 Cash Flow Values
Schedule 18.17(a) NPC Nontraditional Sites
Schedule 18.17(b) PH Nontraditional Sites
Schedule 18.17(c) Proposed Nontraditional Sites
ASSET EXCHANGE AGREEMENT
THIS ASSET EXCHANGE AGREEMENT is made and entered
into as of the 7th day of June, 1994, by and among NATIONAL
PIZZA COMPANY, a Kansas corporation with its principal office
located at 720 West 20th Street, Pittsburg, Kansas 66762
("NPC"), PIZZA HUT, INC., a Delaware corporation with its
principal office located at 9111 E. Douglas, Wichita, Kansas
67201 ("PHI") and PIZZA HUT OF SAN DIEGO, INC., a California
corporation with its principal place of business at 9111 East
Douglas, Wichita, Kansas 67201 ("PHSD"). This Asset Exchange
Agreement, including all exhibits and schedules attached
hereto, shall be referred to herein as the "Agreement."
W I T N E S E T H:
WHEREAS, various affiliates of PHSD operate the Pizza
Hut restaurants set forth on Exhibit A hereto, which it wishes
to transfer to NPC (the "PH Sites"); and
WHEREAS, NPC is the franchisee and NPC and various
subsidiaries and affiliates of NPC operate the Pizza Hut
restaurants set forth on Exhibit B hereto, (the "NPC Sites");
and
WHEREAS, NPC is in the process of negotiating an
agreement with the present franchisees and operators of the
Pizza Hut restaurants set forth on Exhibit C hereto (the
"O'Donnell Sites") pursuant to which NPC intends to purchase
the O'Donnell Sites; and
WHEREAS, NPC has agreed to transfer the O'Donnell
Sites and the NPC Sites to PHSD as part of the exchange
contemplated hereby; and
WHEREAS, PHSD has agreed to transfer the PH Sites to
NPC as part of the exchange, upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in addition, as part of such exchange, NPC
will enter into or otherwise receive franchise agreements and
the development schedules (collectively, the "New Agreements")
substantially in the form attached hereto as Exhibit D and a
blanket amendment in the form of Exhibit E hereto (the "Blanket
Amendment");
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
I EXCHANGE OF ASSETS
.1 Execution and Transfer of Franchise
Agreements.
(a) Upon the terms and subject to the conditions set
forth herein, and in reliance upon the representations,
warranties, covenants and agreements made herein:
(i) PHI agrees to issue New Agreements to NPC in the
completed form of Exhibit D hereto, with respect to the
territories specified in the existing Pizza Hut franchise
agreements currently in effect between PHI and NPC, including
those NPC Sites (as hereinafter defined) not transferred to
PHSD at the first Closing, unless the issuance of such New
Agreements is, in PHI's reasonable opinion, prohibited by state
law, and
(ii) PHSD agrees to transfer New Agreements to NPC in the
completed form of Exhibit D hereto with respect to the PH
Sites.
(b) The parties agree that, if the first Closing (as
defined below) takes place on or before June 8, 1994, each New
Agreement (other than those applicable to the PH Sites) shall
be deemed to take effect as of March 30, 1994, regardless of
the actual date of execution. In the event the first Closing
Date does not take place on or before June 8, 1994, each New
Agreement shall be effective the date of its actual issuance or
transfer to NPC. All New Agreements will be issued or
transferred to NPC at the first Closing, except only for those
New Agreements applicable to PH Sites to be transferred to NPC
at subsequent Closings hereunder (each, a "Subsequent New
Agreement"), which Subsequent New Agreements will be
transferred to NPC as part of the Closing at which such PH
Sites are, in fact, transferred to NPC. PHI agrees to consent
to all such transfers of the New Agreements and PH Sites and to
execute any documents reasonably requested by NPC to evidence
that consent. Each New Agreement transferred to NPC in respect
to PH Sites will be effective the date of such transfer.
.2 Transfer by NPC. Upon the terms and
subject to the conditions set forth herein, and in reliance
upon, in consideration of, and in exchange for the
representations, warranties, covenants, agreements and
transfers made by PHI and PHSD herein, NPC agrees to convey,
assign, transfer and deliver to PHSD, in accordance with the
Schedule of Closings attached hereto as Exhibit F, and PHSD
agrees to acquire and accept from NPC, good and marketable
title to the NPC Assets (as defined below).
.3 NPC Assets. For purposes of this
Agreement, the term "NPC Assets" shall mean:
(a) The following assets located at the NPC Sites:
(i) Good, valid and marketable fee simple title to the real
property described on Schedule 1.3(a)(i) hereto, including all
land, land improvements, buildings, fixtures and other
appurtenances thereto (the "NPC Real Property");
(ii) Good, valid and marketable right, title and interest as
lessee in and to the leases which are set forth on
Schedule 1.3(a)(ii) hereto (the "NPC Assigned Leases"),
including all interest thereunder in the buildings, fixtures,
signs, parking facilities, trash facilities, fences, easements,
rights of way, or other leasehold improvements subject to such
NPC Assigned Leases;
(iii) Good, valid and marketable right, title and
interest in and to the buildings, fixtures, signs, parking
facilities, trash facilities, fences, easements, rights of way,
or other improvements owned by NPC or its affiliates on each
NPC Site;
(iv) All of NPC's right, title and interest in and to the
personal property leases and contracts specifically described
on Schedule 1.3(a)(iv) hereto related to and used in the normal
and customary operations of the NPC Sites (the "NPC Assigned
Contracts");
(v) Except for all items described in Sections 1.3(a)(i)
through 1.3(a)(iv) above, all right, title and interest in and
to the equipment used by NPC or its affiliates in the normal
and customary operations of the NPC Sites, including but not
limited to the telephone equipment, furniture, machinery,
equipment, tables, chairs, ovens, refrigerators, display cases,
shelves, utensils, tools, pans, salad bars, sneeze guards,
lights, uniforms, curtains, signs, menus, tablecloths, glasses,
plates, dishes, silverware, pitchers, books, cabinets, racks,
towels, ornaments, bars and bar equipment (the "NPC Equipment")
set forth on Schedule 1.3(a)(v) hereto, provided, however, that
the NPC Equipment shall not include any point of sale, register
or back office ("POS") system located at any of the NPC Sites;
(vi) All right, title and interest in and to the inventories
of foodstuffs, paper products, and other supplies (the "NPC
Inventory") which are at the NPC Sites on the relevant Closing
Date. (NPC Inventory at each NPC Site shall be not less than
or greater than the normal amount of inventory for an average
Pizza Hut outlet operated by NPC, and all of such NPC Inventory
shall be in good condition, and shall be useable and saleable
in the normal and ordinary course of business);
(vii) The prepaid items set forth on Schedule 1.3(a)(vii)
hereto (the "NPC Prepaid Items"); and
(viii) All other rights and property interests of any
nature which are customarily used by NPC or its affiliates in
or are useful to NPC or its affiliates in the operation of the
NPC Sites, including, but not limited to, liquor licenses (to
the extent transferable), rights to the use of existing NPC
Site telephone numbers, rights arising under equipment
warranties, and all change funds at each NPC Site. (The amount
of change funds at each NPC Site shall be not less than or
greater than the normal amount of change funds for an average
Pizza Hut outlet operated by NPC).
(b) All of the franchise rights related to the NPC Sites.
.4 Transfer of O'Donnell Assets.
(a) Upon the terms and subject to the conditions set
forth herein, and in reliance upon, in consideration of, and in
exchange for the representations, warranties, covenants,
agreements and transfers made by PHI and PHSD herein, NPC
agrees to convey, assign, transfer and deliver to PHSD, in
accordance with the Schedule of Closings attached hereto as
Exhibit F, and PHSD agrees to acquire and accept from NPC,
title to the O'Donnell Assets (as defined below), to be
acquired by NPC pursuant to that certain Asset Purchase
Agreement between NPC and the sellers identified therein
(collectively referred to herein as "O'Donnell") in
substantially the form attached hereto as Exhibit M (the
"O'Donnell Agreement").
(b) Recognizing that NPC does not presently own, and has
never operated, the O'Donnell Assets, NPC and PHSD recognize
and agree that NPC cannot assure the delivery to PHSD of good,
valid and marketable title to the O'Donnell Assets and,
therefore, the parties agree that NPC shall not be deemed to be
in breach of any obligation, representation or warranty
hereunder if, through no fault of NPC's, NPC is unable to
tender good, valid and marketable title to the O'Donnell Assets
to PHSD at the applicable Closing. However, it is the
intention and expectation of the parties that PHSD shall
receive good, valid and marketable title to the O'Donnell
Assets and, therefore, PHSD shall not be obligated to accept
the O'Donnell Assets to which inferior title is tendered at the
applicable Closing if, in PHSD's reasonable opinion, inferior
title is tendered.
.5 O'Donnell Assets. For purposes of this
Agreement, the term "O'Donnell Assets" shall mean:
(a) The following assets located at the O'Donnell Sites:
(i) Good, valid and marketable fee simple title to the real
property described on Schedule 1.5(a)(i) hereto, including all
land, land improvements, buildings, fixtures and other
appurtenances thereto (the "O'Donnell Real Property");
(ii) Good, valid and marketable right, title and interest as
lessee in and to the leases which are set forth on
Schedule 1.5(a)(ii) hereto (the "O'Donnell Assigned Leases"),
including all interest thereunder in the buildings, fixtures,
signs, parking facilities, trash facilities, fences, easements,
rights of way, or other leasehold improvements subject to such
O'Donnell Assigned Leases;
(iii) Good, valid and marketable right, title and
interest in and to the personal property leases and contracts
with a remaining term not exceeding one year and which are
transferrable, specifically described on Schedule 1.5(a)(iii)
hereto related to and used in the normal and customary
operations of the O'Donnell Sites (the "O'Donnell Assigned
Contracts");
(iv) Except for all items described in Sections 1.5(a)(i)
through 1.5(a)(iii) above, right, title and interest in and to
the equipment and leasehold improvements used in the normal and
customary operations of the O'Donnell Sites, including but not
limited to the telephone equipment, furniture, machinery,
equipment, tables, chairs, cash registers, ovens,
refrigerators, display cases, shelves, utensils, tools, pans,
salad bars, sneeze guards, lights, uniforms, curtains, signs,
menus, tablecloths, glasses, plates, dishes, silverware,
pitchers, books, cabinets, racks, towels, ornaments, bars and
bar equipment (the "O'Donnell Equipment") set forth on
Schedule 1.5(a)(iv) hereto;
(v) All right, title and interest in and to the
inventories of foodstuffs, paper products, and other supplies
(the "O'Donnell Inventory") which are at the O'Donnell Sites on
the relevant Closing Date. (O'Donnell Inventory at each
O'Donnell Site shall be not less than or greater than the
normal amount of inventory for an average Pizza Hut outlet
operated by O'Donnell, and all of such O'Donnell Inventory
shall be in good condition, and shall be useable and saleable
in the normal and ordinary course of business);
(vi) The prepaid items set forth on Schedule 1.5(a)(vi)
hereto (the "O'Donnell Prepaid Items"); and
(vii) All other rights and property interests of any
nature which are customarily used in or are useful to the
operation of the O'Donnell Sites, including, but not limited
to, liquor licenses (to the extent transferable), rights to the
use of existing O'Donnell Site telephone numbers, rights
arising under equipment warranties, and all change funds at
each O'Donnell Site. (The amount of change funds at each
O'Donnell Site shall be not less than or greater than the
normal amount of change funds for an average Pizza Hut outlet
operated by O'Donnell).
(b) All of the franchise rights related to the O'Donnell
Sites.
.6 Transfer by PHSD. Upon the terms and
subject to the conditions set forth herein, and in reliance
upon the representations, warranties, covenants and agreements
made by NPC herein, PHSD agrees to convey, assign, transfer and
deliver to NPC, in accordance with the Schedule of Closings
attached hereto as Exhibit F, and NPC agrees to acquire and
accept from PHSD, good and marketable title to the PH Assets
(as defined below).
.7 PH Assets. For purposes of this Agreement,
the term "PH Assets" shall mean:
(a) The following assets located at the PH Sites:
(i) Good, valid and marketable fee simple title to the
real property described on Schedule 1.7(a)(i) hereto, including
all land, land improvements, buildings, fixtures and other
appurtenances thereto (the "PH Real Property");
(ii) Good, valid and marketable right, title and interest as
lessee in and to the leases which are set forth on Schedule
1.7(a)(ii) hereto (the "PH Assigned Leases"), including all
interest thereunder in the buildings, fixtures, signs, parking
facilities, trash facilities, fences, easements, rights of way,
or other leasehold improvements subject to such PH Assigned
Leases;
(iii) Good, valid and marketable right, title and
interest in and to the buildings, fixtures, signs, parking
facilities, trash facilities, fences, easements, rights of way,
or other improvements owned by PHSD or its affiliates on each
such PH Site;
(iv) All of PHSD's right, title and interest in and to the
personal property leases and contracts specifically described
on Schedule 1.7(a)(iv) hereto related to and used in the normal
and customary operations of the PH Sites (the "PH Assigned
Contracts");
(v) Except for all items described in Sections 1.7(a)(i)
through 1.7(a)(iv) above, all right, title and interest in and
to the equipment and leasehold improvements used by PHSD or its
affiliates in the normal and customary operations of the PH
Sites, including but not limited to the telephone equipment,
furniture, machinery, equipment, tables, chairs, ovens,
refrigerators, display cases, shelves, utensils, tools, pans,
salad bars, sneeze guards, lights, uniforms, curtains, signs,
menus, tablecloths, glasses, plates, dishes, silverware,
pitchers, books, cabinets, racks, towels, ornaments, bars and
bar equipment (the "PH Equipment") set forth on
Schedule 1.7(a)(v) hereto, provided, however, that the PH
Equipment shall not include any POS system located at any of
the PH Sites;
(vi) All right, title and interest in and to the inventories
of foodstuffs, paper products, and other supplies (the "PH
Inventory") which are at the PH Sites on the relevant Closing
Date. (PH Inventory at each PH Site shall be not less than or
greater than the normal amount of inventory for an average
Pizza Hut outlet operated by PHSD, and all of such PH Inventory
shall be in good condition, and shall be useable and saleable
in the normal and ordinary course of business);
(vii) The prepaid items set forth on Schedule 1.7(a)(vii)
hereto (the "PH Prepaid Items"); and
(viii) All other rights and property interests of any
nature which are customarily used by PHSD or its affiliates in
or are useful to the operation of the PH Sites, including, but
not limited to, liquor licenses (to the extent transferable),
rights to the use of existing PH Site telephone numbers, rights
arising under equipment warranties, and all change funds at
each PH Site. (The amount of change funds at each PH Site
shall be not less than or greater than the normal amount of
change funds for an average Pizza Hut outlet operated by PHSD).
(b) All of the franchise rights related to the PH Sites.
.8 Escrow. The parties agree that to the
extent necessary and not prohibited by applicable law the
liquor licenses for each of the NPC Sites, the O'Donnell Sites
and the PH Sites shall be transferred through an escrow or site
management mechanism utilizing an escrow agent selected by
mutual agreement of PHSD and NPC (the "Liquor License Escrow
Agent"). The terms of such escrow mechanism shall be in
accordance with an escrow agreement substantially in the form
of Exhibit G hereto (the "Liquor License Escrow Agreement").
PHSD and NPC shall each pay one-half of all Liquor License
Escrow Agent fees and expenses.
.9 Closings.
(a) The exchange of documents, funds, properties and
assets in connection with the transactions contemplated by
Articles I, II and III of this Agreement shall take place in a
series of closings, the assets and related documentation to be
transferred at each closing as set forth on the Schedule of
Closings attached as Exhibit F hereto (individually a
"Closing," and collectively the "Closings", the last Closing to
be referred to as the "Final Closing"). Each Closing shall
take place on the date set forth on Exhibit F (each a "Closing
Date") beginning at 9:00 a.m., Central time, at the offices of
Pizza Hut, Inc., 9111 East Douglas, Wichita, Kansas 67201, or
at such other time, date or place as the parties hereto shall
mutually agree.
(b) The transferee of a Site shall be entitled to
immediate possession of, and to exercise all rights attendant
to the Assets associated therewith from and after the close of
all restaurant operations at the Site that commenced on the day
of Closing (the "Effective Time"), and operation of the Sites
shall transfer at such time. Except as provided hereby, all
profits, losses, liabilities, claims or injuries related to any
Site arising before such Effective Time shall be solely to the
benefit or the risk of the transferor. All such occurrences
after such Effective Time shall be solely to the benefit or the
risk of the transferee.
.10 Risk of Loss. The risk of loss relating to
each PH Site, on the one hand, and each NPC Site and O'Donnell
Site, on the other hand, shall remain with PHSD and NPC,
respectively, until the Effective Time of the Closing at which
that particular Site and the related assets are transferred.
.11 POS Systems. The automated point of sale,
cash register and order taking equipment (the "Cash Registers")
and the back of the house personal computers (the "PC's")
presently installed in the NPC Sites and PH Sites are not
included in the NPC Assets or the PH Assets, and are not being
conveyed hereunder. Notwithstanding the foregoing:
(a) The Cash Registers presently installed at the NPC
Sites and the PH Sites will be left in place by the transferor
and the transferee will have the right to use such equipment in
its operations for a period of up to eight weeks from and after
the applicable Closing. Each transferee shall cause all of
such Cash Registers to be removed from the Sites in a
professional and workmanlike manner and delivered by no later
than the end of such eight week period to the destinations
specified by the transferor.
(b) The PC's, except as to those PC's in NPC's Maryland
market (18 PC's in total); will be left in place at each
Closing and may be used by the transferee in its operations
until removed and returned to the transferor in accordance with
the following schedule:
(i) As to the NPC Sites located in California, at least
eighteen (18) of the PC's will be removed and returned to NPC's
California market office by no later than June 30, 1994 or
three (3) weeks after the applicable Closing Date of those
California Sites, whichever is later. The remainder of the
PC's from the NPC Sites in California will be removed and
returned to NPC's California market office by no later than
August 3, 1994;
(ii) As to all other NPC Sites, all PC's will be removed and
returned to NPC's closest market office as directed after
Closing by NPC on no less than ten days advance notice;
(iii) The PC's at the PH Sites shall be removed and
returned along with the corresponding cash registers, as the
same cannot be operated independently of each other.
(c) It is the intention of the parties that neither party
should be required to purchase new and additional point of sale
cash registers or personal computers to equip the Sites they
are acquiring hereunder and the forgoing schedule has been
developed with that goal in mind. The parties shall continue
to cooperate in scheduling these matters.
(d) All freight charges will be paid by the transferor,
but the deinstallation expenses shall be paid by the
transferee. To facilitate the orderly transition of Cash
Registers and PC's, PHSD and NPC will be granted all reasonable
access to the Sites they are to receive in advance of the
applicable Closing Date for purposes of surveying the
construction and electrical requirements to the conversion. No
license, royalty or service fee will be payable for or in
respect of the licenses granted in this Section 1.11.
II ADDITIONAL AGREEMENT
NPC and PHI acknowledge and agree that the New
Agreements will provide for the payment of franchise royalty
fees from and after their effective dates under a fixed formula
at the rate of 4% of sales (as the term "sales" is defined
under the New Agreements). NPC and PHI acknowledge and agree
further that, notwithstanding anything contained in the New
Agreements to the contrary, (a) for the period from the
effective dates of those specific New Agreements identified on
Schedules A and B to the form of Blanket Amendment included in
Exhibit E hereto (the "Affected New Agreements") through July
21, 1996, NPC's liability with respect to the portion of the 4%
royalty rate in excess of 2.062% payable under the Affected New
Agreements shall be fixed and determinable, and (b) NPC shall
satisfy its obligation with respect to such liability under the
Affected New Agreements by paying $8,382,000.00 in cash to PHI.
This payment shall be due on the Final Closing Date.
III VALUATIONS, CONSIDERATION
AND ADDITIONAL TRANSFERS
.1 Valuation of Sites. Each PH Site
transferred in fee by PHSD (the "Valued PH Sites"), each NPC
Site listed on Exhibit H hereto transferred in fee by NPC (the
"Valued NPC Sites") and each O'Donnell Site transferred in fee
by NPC (the "Valued O'Donnell Sites") shall be assigned a value
(the "Real Estate Value") equal to the MAI appraised value of
the land and buildings comprising the Site. The provisions of
this Section 3.1 shall not apply to the NPC Site in Pikeville,
Kentucky (the "Pikeville Site"), which will not be assigned a
Real Estate Value.
.2 Payment Adjustments. If the aggregate Real
Estate Value of the Valued PH Sites exceeds the aggregate Real
Estate Value of the Valued NPC Sites and the Valued O'Donnell
Sites, then NPC shall pay that excess amount to PHSD on the
Final Closing Date. If, on the other hand, the aggregate Real
Estate Value of the Valued NPC Sites and the Valued O'Donnell
Sites exceeds the aggregate Real Estate Value of the Valued PH
Sites, then PHSD shall pay that excess amount to NPC on the
Final Closing Date. Real Estate Values shall be established by
Arthur Andersen & Co. using the valuation methodology set forth
in Exhibit I hereto.
.3 Additional Consideration to be paid by
PHSD. In addition to the exchange of the NPC Assets and the PH
Assets, on the Final Closing Date, PHSD shall pay to NPC the
sum of Seven Million One Hundred Seventeen Thousand Eight
Hundred Sixty-Eight Dollars ($7,117,868.00) (the "PH Additional
Consideration") in consideration of the difference in location
value of the assets being exchanged, which number includes
$300,000.00 for construction costs associated with the
Pikeville Site.
.4 Payment. NPC and PHSD agree that payments
due under this Article III shall be set off against each other,
such that only one payment will be due with respect to all of
the items referenced under this Article III.
.5 Allocation. NPC and PHSD agree that they
will work together and will use their best efforts to agree on
the fair market values of the assets to be transferred pursuant
to the terms of this Agreement.
.6 Method of Payment. The payments to be made
on each Closing Date pursuant to this Agreement shall be made
by federal wire transfer of immediately available funds. The
recipient shall designate an account to receive such funds in
writing at least one (1) business day prior to the relevant
Closing Date.
IV NON-ASSUMPTION OF EXISTING
LIABILITIES
.1 NPC. In connection with its acquisition of
the PH Assets, neither NPC nor any affiliate thereof shall
assume any obligations of PHSD or any affiliate thereof other
than liabilities relating to the PH Assets which arise out of
the operation of the PH Sites from and after the Closing Date
at which the PH Site giving rise to the obligation is
transferred. Except as expressly provided in this Agreement,
neither NPC nor any affiliate thereof shall assume nor be
responsible for any liabilities or obligations which arise from
the operation of a PH Site prior to the Closing Date on which
that Site is transferred. PHSD agrees promptly to perform all
of the obligations relating to each PH Site which arise out of
events occurring prior to the Effective Time of the relevant
Closing Date for that Site.
.2 PH and PHSD. In connection with its
acquisition of the NPC Assets and the O'Donnell Assets, neither
PHSD nor any affiliate thereof shall assume any obligations of
NPC or O'Donnell or any of their respective affiliates other
than liabilities relating to the NPC Assets and the O'Donnell
Assets which arise out of the operation of the NPC Sites and
the O'Donnell Sites from and after the Closing Date at which
the NPC Site or the O'Donnell Site giving rise to the
obligation is transferred. Except as expressly provided in
this Agreement, neither PHSD nor any affiliate thereof shall
assume or be responsible for any liabilities or obligations
which arise from the operation of an NPC Site or an O'Donnell
Site prior to the Closing Date on which that Site is
transferred. NPC agrees promptly to perform all of the
obligations relating to each NPC Site or O'Donnell Site which
arise out of events occurring prior to the Effective Time of
the relevant Closing Date for that Site.
.3 Apportionments and Inventory.
(a) All prepaid items relating to the operation of the
NPC Assets, the O'Donnell Assets and the PH Assets
(collectively the "Assets") existing as of each Closing Date,
and other items of apportionment or allocation relating to the
Assets and rights transferred hereunder, including, without
limitation, the NPC Prepaid Items, the O'Donnell Prepaid Items,
the PH Prepaid Items, rentals under assigned leases, deposits
under assigned leases, utility fees, and ad valorem or other
property taxes on the Assets (the "Prorated Items"), shall be
prorated as of the relevant Closing Date.
(b) Upon and subject to the consummation of each Closing,
each transferring party (a "Transferor") shall bear the cost
and expense of payments for all Prorated Items applicable to
periods prior to that Closing, and shall receive the benefits
thereof. Each party to which a Site is transferred (a
"Transferee") shall bear the cost and expense of payment for
all Prorated Items applicable to periods from and after that
Closing, and shall receive the benefits thereof. Sixty (60)
days following the Final Closing, each Transferee shall
reimburse each Transferor for any amounts paid by the
Transferor for Prorated Items of which the Transferor will not
receive a benefit and each Transferor shall reimburse each
Transferee for any amounts paid by the Transferee for Prorated
Items of which the Transferee will not receive a benefit, based
upon a master closing statement to which the parties shall
agree.
(c) At each Closing, the NPC Inventory, the O'Donnell
Inventory and the PH Inventory shall be valued (including, for
this purpose, change funds as inventory), and if (i) the sum of
the value of the NPC Inventory and the O'Donnell Inventory
exceeds the value of the PH Inventory, PHSD shall pay the
difference to NPC, and (ii) if the value of the PH Inventory
exceeds the sum of the values of the NPC Inventory and the
O'Donnell Inventory, NPC shall pay the difference to PHSD. All
such payments shall be made within sixty (60) days following
the Final Closing, based upon a master closing statement to
which the parties shall agree.
.4 Other Liabilities. Except to the extent of
(i) the liabilities, obligations and commitments assumed by the
parties pursuant to Section 4.1 or Section 4.2 hereof, and
(ii) each party's obligation to assume a pro rata portion of
the expense of certain Prorated Items as described in
Section 4.3, neither party assumes, nor shall it be liable for
or in respect of, any debts, liabilities or obligations of the
other party or any of its affiliates, whatsoever, whether known
or unknown, fixed or contingent.
V REPRESENTATIONS AND
WARRANTIES OF NPC
NPC hereby represents and warrants to PH as follows:
.1 Organization. NPC is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Kansas, is qualified to do business and is in
good standing in all jurisdictions where its activities with
regard to the NPC Sites and the O'Donnell Sites so require, and
has all requisite corporate power and authority to own and
lease all of its properties and assets and to carry on its
business as it is now being conducted.
.2 Authorization and Enforceability.
(a) NPC has all requisite corporate power and authority
to execute, deliver and perform this Agreement and all other
instruments and agreements required to be executed, delivered
or performed by it pursuant hereto. On each of the Closing
Dates, the execution, delivery and performance of this
Agreement, and all such other instruments and agreements, will
have been duly authorized by all necessary corporate action on
the part of NPC.
(b) This Agreement has been, and on each of the
Closing Dates all other instruments and agreements
executed by NPC pursuant hereto (the "NPC Transaction
Documents") will have been, duly executed and delivered by
authorized officers of NPC, and this Agreement and each of
the NPC Transaction Documents constitutes or will
constitute legal, valid and binding obligations of NPC
enforceable against NPC in accordance with their
respective terms.
.3 Absence of Conflict. The execution,
delivery and, subject to obtaining the consents set forth in
Schedule 5.3 hereto, performance of this Agreement by NPC do
not and will not (i) violate any provision of the Articles of
Incorporation or Bylaws of NPC; (ii) contravene any law, rule,
or regulation of any State or of the United States, or any
order, writ, judgment, injunction, decree, determination or
award currently in effect (collectively, "Laws") that affects
or binds NPC, the NPC Sites or, to the best of NPC's knowledge,
the O'Donnell Sites; or (iii) result in any manner whatsoever
in the violation or breach of, or constitute a default (or give
rise to any right of termination, cancellation, or
acceleration) under, any of the terms, conditions, or
provisions of any license, permit, note, bond, mortgage,
indenture, lease, contract, agreement or other instrument or
obligation to which NPC is a party or by which any of the NPC
Assets or, to the best of NPC's knowledge, the O'Donnell Assets
may be bound, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the NPC Assets or, to
the best of NPC's knowledge, the O'Donnell Assets.
.4 Title to NPC Personal Property.
(a) Except as set forth on Schedule 5.4 hereto, NPC has
good and marketable title to all personal property, tangible or
intangible, included in the NPC Assets, free and clear of any
pledge, security interest, charge, claim, lien or other
encumbrance of any kind, other than liens for taxes not yet due
and payable.
(b) To the best knowledge of NPC, all of the personal
property included in the NPC Assets and the O'Donnell Assets is
fit and usable for the purposes for which it is being used,
subject to ordinary wear and tear, and is sufficient for the
operations of the NPC Sites and the O'Donnell Sites. No items
of such personal property, other than any new items, have been
brought to, installed in or removed from any of the NPC Sites
or, to the best of NPC's knowledge, the O'Donnell Sites within
the last ninety (90) days.
(c) OTHER THAN AS EXPRESSLY STATED IN SECTION 5.4(b), NPC
MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR
IMPLIED, AS TO THE MERCHANTABILITY, CONDITION, DESIGN,
OPERATION OR FITNESS OF SUCH ASSETS FOR THEIR INTENDED PURPOSE.
.5 Title to Real Property.
(a) Schedule 1.3(a)(i) hereto sets forth by address or
other sufficient method of identification an accurate and
complete list of the NPC Real Property. Except to the extent
set forth on Schedule 5.5(a) hereto, NPC has (or by the Closing
Date applicable to the transfer of each such parcel will have)
good, marketable, and insurable title in fee simple to the NPC
Real Property, free and clear of any mortgage, deed of trust,
lien, pledge, charge, security interest or other encumbrance
which could have a material adverse impact on the operation or
value of that particular Site.
(b) No instrument of record, easement, license, grant or
applicable zoning, building, land use, or urban redevelopment
regulation or other impediment of any kind, to the best of
NPC's knowledge, materially prohibits or interferes with,
limits or impairs the use, operation, maintenance of, or access
to, or affects the value of the NPC Real Property or the real
property subject to the NPC Assigned Leases (collectively, the
"NPC Transferred Real Property") or any item of personal
property related to the NPC Transferred Real Property as now
used, operated or maintained. To the best of NPC's knowledge,
the same is true for the O'Donnell Real Property, the real
property subject to the O'Donnell Assigned Leases
(collectively, the "O'Donnell Transferred Real Property") or
any item of personal property related thereto.
(c) Each parcel of NPC Transferred Real Property is
currently zoned in the zoning category which permits operation
of such parcel of NPC Transferred Real Property as now used,
operated, and maintained and, to the best of NPC's knowledge,
the same is true of the O'Donnell Transferred Real Property.
NPC has not requested, applied for, or given consent to, and
NPC has no knowledge of any pending zoning variance or change
with respect to the NPC Transferred Real Property. NPC does
not know of any pending, proposed, or threatened proceeding or
governmental action to condemn or take by the power of eminent
domain (or to purchase in lieu thereof), or to impose special
assessments on, or otherwise to take or restrict in any way,
the right to use, alter or occupy all or any part of any of the
NPC Transferred Real Property or the O'Donnell Transferred Real
Property. NPC has not received any notice from any
governmental body requiring it to make any repairs or changes
to the NPC Transferred Real Property or the O'Donnell
Transferred Real Property, or the improvements located on the
NPC Transferred Real Property or the O'Donnell Transferred Real
Property. Each parcel of the NPC Transferred Real Property has
adequate ingress and egress and to the best of NPC's knowledge,
the same is true for the O'Donnell Transferred Real Property.
(d) There is no action, proceeding or litigation pending
(or, to the best knowledge of NPC, contemplated or threatened)
for any street widening or changes in highway or traffic lanes
or patterns in the vicinity of the NPC Transferred Real
Property or otherwise relating to the NPC Transferred Real
Property or the interests of NPC therein, or which otherwise
would interfere with the use, development and/or operation of
the NPC Transferred Real Property. To the best of NPC's
knowledge, the same is true for the O'Donnell Transferred Real
Property.
(e) No portion of the NPC Transferred Real Property or
the roads immediately adjacent to the NPC Transferred Real
Property: (i) to the best knowledge of NPC, is situated in a
"Special Flood Hazard Area," as set forth on a federal
Emergency Management Agency Flood Insurance Rate Map or Flood
Hazard Boundary Map; (ii) to the best knowledge of NPC, was the
former site of any public or private landfill, dump site,
retention basin or settling pond; (iii) to the best knowledge
of NPC, was the former site of any oil or gas drilling
operations or gas station; (iv) to the best knowledge of NPC,
was the former site of any experimentation, processing,
refining, reprocessing, recovery or manufacturing operation for
any petrochemicals; or (v) has any defect or condition which
would impair the current use of the NPC Transferred Real
Property. To the best of NPC's knowledge, the same is true for
the O'Donnell Transferred Real Property.
(f) The activities carried on in all buildings,
structures or improvements included as part of, or located on
or at the NPC Transferred Real Property, and the buildings,
structures and improvements themselves, to the best of NPC's
knowledge, are not in violation of, or in conflict with, any
applicable law, regulation, ordinance or law, including any
health or safety regulation and to the best of NPC's knowledge,
the same is true for the O'Donnell Transferred Real Property.
.6 Absence of Other Assets. Except as
specifically provided in this Agreement, there is no asset,
property, or right of any nature owned by NPC or its affiliates
which is not being transferred to PHSD hereunder by NPC or
which is being retained by NPC that has been customarily
employed, owned, held, or used in connection with the operation
of the NPC Sites or the O'Donnell Sites. All of the tangible
NPC Assets are situated entirely upon the premises of the NPC
Sites and, to the best of NPC's knowledge, all of the tangible
O'Donnell Assets are situated entirely on the O'Donnell Sites.
.7 Leases.
(a) All of the NPC Assigned Leases are in full force and
effect. Neither NPC nor any other party to such leases is in
material breach or default thereunder and there does not exist
any state of facts, which, with notice or passage of time,
would constitute a material breach or default or would excuse
performance by any party thereto. To the best of NPC's
knowledge, the same is true for the O'Donnell Assigned Leases.
(b) True and correct copies of the NPC Assigned Leases
have been delivered to PHSD. The NPC Assigned Leases are
unmodified other than as disclosed to PHSD and in full force
and effect, and there are no other agreements, written or oral,
between NPC or any of its affiliates and any third parties
claiming an interest in the interest of NPC in the leased
property or otherwise relating to their use and occupancy
thereof. Schedule 5.7 hereto sets forth any and all advances,
deposits, and prepayments made under the NPC Assigned Leases.
.8 Documents Sufficient. The documents to be
delivered by NPC to PHSD pursuant to Section 12.2 hereof are
valid, sufficient and effective to completely transfer to PHSD
full legal and equitable title to all of the NPC Assets and all
of NPC's right, title and interest in the O'Donnell Assets.
.9 Litigation. Except as set forth on
Schedule 5.9 hereto, there are no actions, suits, condemnation
actions, claims, administrative, arbitral or other proceedings
or governmental investigations ("Litigation") that are pending
or, to the best of NPC's knowledge, threatened against or
otherwise affecting the NPC Sites or any of the NPC Assets
before any arbitrator or arbitration panel or any court or
other federal, state or other governmental department,
commission, board, agency or instrumentality, which Litigation
is an attempt to keep the transactions contemplated herein from
occurring, or which would make it difficult or impossible to
transfer some or all of the NPC Assets or would have a material
adverse effect on the value of any NPC Site or any significant
NPC Asset or which questions, or seeks to terminate or change
the terms pursuant to which NPC claims, title or the right to
use or occupy any site or asset. NPC is not operating the NPC
Sites or the O'Donnell Sites under or subject to, and is not in
default with respect to, any order, writ, injunction or decree
of any arbitrator or arbitration panel or any court or other
federal, state or other governmental department, commission,
board, agency or instrumentality.
.10 Governmental Licenses.
(a) Attached as Schedule 5.10(a) hereto is a complete
list of all governmental licenses and permits ("Licenses")
required in connection with the NPC Sites, the absence of which
would prevent or delay the operation or the use of any part of
the NPC Sites or use of any part of the NPC Assets, which
schedule identifies which such Licenses are assignable to PHSD
(the "NPC Licenses").
(b) Attached as Schedule 5.10(b) hereto is a complete
list, to the best of NPC's knowledge, of all Licenses required
in connection with the O'Donnell Sites, the absence of which
would prevent or delay the operation or the use of any part of
the O'Donnell Sites or use of any part of the O'Donnell Assets,
which schedule identifies which such Licenses are assignable to
PHSD (the "O'Donnell Licenses").
.11 Compliance with Laws.
(a) In operating the NPC Sites and, to the extent
applicable, the O'Donnell Sites, NPC and its affiliates have
complied in all material respects with all laws, rules,
regulations, ordinances, orders, judgments, or decrees
applicable to the NPC Sites and the O'Donnell Sites as
operated, and the NPC Assets and the O'Donnell Assets. NPC is
not aware of any proposed laws, rules, regulations, ordinances,
orders, judgments, decrees or other proceedings that would be
applicable to NPC which might adversely affect the NPC Sites,
the O'Donnell Sites, the O'Donnell Assets or the NPC Assets.
The operations of NPC and its affiliates at the NPC Sites and
the O'Donnell Sites have not received a citation, warning, or
reprimand for, or otherwise been notified of, any violation of
any law, rule or regulation governing alcoholic beverages, or
any health, environmental, or similar municipal, state or
federal law or regulation which has not been cured.
(b) Assuming the consents listed in Schedule 5.11(c)
hereto are obtained, neither the execution, delivery or
performance by NPC of this Agreement and the other agreements
to be entered into by it in connection with the transactions
contemplated hereby, nor the acquisition by PHSD of the NPC
Assets or, to the best of NPC's knowledge, the O'Donnell Assets
or the assumption by PHSD of the liabilities described herein,
will on any Closing Date in any material respect violate any
provision of any applicable law or violate, conflict with, or
result in a breach of any provision of, or constitute a default
under any material provision of any mortgage, lien, lease
agreement, contract, instrument, order, arbitration award,
judgment, decision or any other agreement to which NPC is a
party or by which it is otherwise bound or to which any of the
NPC Assets or the liabilities being assumed by PHSD hereunder
are subject.
(c) Except as otherwise set forth on Schedule 5.11(c)
hereto, and except for the consents required under the Hart-
Scott-Rodino Antitrust Act of 1976, as amended (the "HSR Act"),
and under applicable state liquor licensing laws, to the best
of NPC's knowledge, no consent, approval or authorization of,
or registration, qualification, designation, declaration or
filing with, any governmental or regulatory authority is
required on the part of NPC or any other person or entity in
connection with the execution, delivery or performance by NPC
of this Agreement or the other agreements to be entered into by
it in connection herewith.
.12 Assigned Contracts.
(a) NPC has made, or as soon as practicable will make,
available for inspection by PHSD complete and correct copies of
the NPC Assigned Contracts, together with all exhibits,
schedules and amendments thereto.
(b) The NPC Assigned Contracts constitute all of the
material contracts, leases, and other agreements related to the
operation of the NPC Sites and are sufficient for the operation
of the NPC Sites as conducted by NPC.
(c) The NPC Assigned Contracts are valid, binding and
enforceable in accordance with their terms, are in full force
and effect with, to the best of NPC's knowledge, no default or
dispute or basis therefor existing with respect thereto, and
will remain in full force and effect during the term thereof
(except as a result of any acts or omissions by PHSD), subject
to the receipt of any required consents, are assignable to PHSD
and, except as contemplated by this Agreement, will not be
terminated or otherwise affected by the execution and delivery
of this Agreement or the consummation of the transactions
contemplated hereby. To the best of NPC's knowledge, the same
is true for the O'Donnell Assigned Contracts.
(d) No event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any
other event) would constitute an actionable default under any
of the NPC Assigned Contracts. To the best of NPC's knowledge,
the same is true for the O'Donnell Assigned Contracts.
(e) Except for the NPC Assigned Contracts and
other than month-to-month personal property leases, there
are no management, employment, service, billboard, pest
control, supply, maintenance or other contracts or
automobile, soft drink dispenser, dishwasher, or other
leases entered into by NPC or its affiliates with respect
to the NPC Assets.
.13 Employees.
(a) NPC is, to the best of its knowledge, in material
compliance with all applicable federal, state and local laws
respecting employment and employment practices, including,
without limitation, laws relating to wage and hour, employment
eligibility verifications under the Immigration Reform and
Control Act of 1986, employment discrimination and sexual
harassment.
(b) There are no labor controversies, grievances or
disputes, in any form whatsoever, pending or, to the best
knowledge of NPC, threatened against NPC and NPC has no
knowledge of any facts which would be likely to give rise to
such a controversy, grievance or dispute.
(c) There is no union representing the interests of any
of the employees of NPC and, to the knowledge of NPC (i) there
are no employees of NPC currently petitioning for union
representation and (ii) there is no union petitioning to
represent such employees.
(d) NPC and its affiliates have satisfactory relations
with their employees and NPC has no knowledge of any facts that
would be likely to affect adversely such relations.
(e) NPC has no written or oral policy, agreement or
understanding with any employee to be transferred regarding
severance pay.
.14 Environmental Matters.
(a) For purposes of Sections 5.14 and 6.14 of this
Agreement, the following terms shall have the following
meanings:
(i) "Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation,
investigations or proceedings relating to any Environmental Law
or Environmental Permit (hereafter "Claims"), including,
without limitation, (A) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and (B) any and all Claims by any
third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from
Hazardous Substances or arising from alleged injury or threat
of injury to the environment.
(ii) "Environmental Laws" means any federal, state, or local
statute, law, rule, regulation, ordinance, code, policy or rule
of common law in effect and in each case as amended, and any
judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or
judgment, relating to human health and the environment or
Hazardous Substances, including, without limitation, the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. 9601 et. seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
11001 et. seq.; the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et. seq.; the federal Water Pollution Control
Act, 33 U.S.C. 1251 et. seq.; the Clean Air Act, as amended,
42 U.S.C. 7401 et. seq.; the federal Insecticide, Fungicide
and Rodenticide Act, 7 U.S.C. 136 et. seq.; the Safe Drinking
Water Act, 42 U.S.C. 300f et. seq.; the Toxic Substances
Control Act, 15 U.S.C. 2601 et. seq.; the Oil Pollution Act
of 1990, 33 U.S.C. 1001 et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. 1801 et seq.; The
Occupational Safety and Health Act, as amended, 29 U.S.C. 651
et seq.; or the federal Food, Drug and Cosmetic Act, as
amended, 21 U.S.C. 301 et seq., or any environmental transfer
laws which regulate the transfer of property and the
corresponding state laws, regulations and local ordinances,
etc. which may be applicable, as any such acts have been or may
be amended.
(iii) "Environmental Permits" means all permits,
approvals, identification numbers, licenses and other
authorizations required under any applicable Environmental Law.
(iv) "Hazardous Substances" means (A) any chemicals,
materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic
pollutants," "hazardous air pollutants," "pollutants,"
"contaminants," "toxic chemicals," "petroleum or petroleum
products," "toxics," "hazardous chemicals," "extremely
hazardous substances," "pesticides" or related materials, as
now, in the past, or hereafter defined in any applicable
Environmental Law; (B) any petroleum or petroleum products,
natural or synthetic gas, radioactive materials, asbestos-
containing materials, urea formaldehyde foam insulation, and
radon; and (C) any other chemical, material or substance, the
presence of which requires investigation or remediation under
any applicable Environmental Law.
(b) NPC represents and warrants that, except as would not
have a material adverse effect or except as included in
Schedule 5.14(b), with respect to the NPC Real Property and/or
the NPC Sites: (i) NPC has not violated nor is in violation in
any material respect of any applicable Environmental Law; (ii)
NPC has all Environmental Permits and is in material compliance
with their requirements; (iii) the NPC Real Property and, to
NPC's actual knowledge, the NPC Sites and the O'Donnell Sites
(including, without limitation, soils and surface, ground
waters and buildings) is not contaminated with any Hazardous
Substances; (iv) there are no past, pending or to the best of
NPC's knowledge threatened Environmental Claims or
circumstances that could reasonably be anticipated to form the
basis thereof against NPC; (v) the NPC Real Property is not
listed on CERCLIS, the NPL, or any similar state or local
listing nor is it, to the best of NPC's knowledge, included in
an area included in such a list, and NPC is not aware that such
a listing is pending or contemplated.
(c) NPC hereby agrees to assign to PHSD all Environmental
Permits that may be lawfully transferred. NPC further agrees
to cooperate fully in aiding PHSD to obtain new Environmental
Permits, where the law prohibits transfer of existing
Environmental Permits or rights to operate.
.15 Payment of Taxes.
(a) For purposes of this Section 5.15, the following
terms shall have the meanings set forth below:
(i) "NPC Group" means the "affiliated group" (within the
meaning of Section 1504(a) of the Code) of which NPC is a
member, or any member of such "affiliated group."
(ii) "Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, whether
directly assessed or assumed by contract, including any
interest, penalty, or addition thereto, whether disputed or
not.
(iii) "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating
to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) All Taxes owed by the NPC Group (whether or not shown
on any Tax Return) have been paid.
(c) The NPC Group has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax
liability of the NPC Group either (i) claimed or raised by any
authority in writing or (ii) as to which any of the directors
and officers (and employees responsible for Tax matters) of the
NPC Group has knowledge; provided, however, the representation
and warranty in this subsection (d) shall not apply if the
resolution of such dispute or claim in favor of the applicable
taxing authority would not have a material adverse effect on
the business or assets of any of the NPC Sites.
(e) The representations and warranties set forth in
subsections (b) - (e) of this Section 5.15 are not applicable
to the extent that the NPC Assets are not made subject to tax
liens and the PH Group is not made liable for Taxes relating to
the matters constituting breaches of such representations and
warranties.
.17 No Finder's or Broker's Fee. NPC has
not incurred or caused to be incurred any liability for any fee
or commission in the nature of a finder's, originator's or
broker's fee in connection with the transactions contemplated
hereby.
.19 Disclosure.
(a) None of the representations, warranties or statements
of NPC in this Agreement (including the attached schedules and
exhibits) or any other documents or certificates furnished or
to be furnished to PHSD by or on behalf of NPC in connection
herewith as of their respective dates did, or does, (i) contain
any untrue statement of a material fact, or (ii) omit to state
a material fact necessary in order to make the statements
contained herein and therein not misleading.
(b) PHI and PHSD recognize and agree that NPC has not
operated any of the O'Donnell Sites prior to NPC's acquisition
thereof and that NPC does not have the same degree of
information and knowledge about the O'Donnell Assets that it
has about the NPC Assets. Notwithstanding the foregoing, NPC
represents and warrants to PHI and PHSD that nothing has come
to the attention of those officers, employees, representatives
and agents of NPC who have been actively involved in either:
(i) the negotiations with the present owners of the O'Donnell
Assets for the purchase thereof by NPC, or (ii) performing
NPC's due diligence investigation of the O'Donnell Assets (the
"Transaction Team") that would render any of the
representations or warranties made by NPC herein with respect
to the NPC Assets, false, misleading or untrue if the same had
been made with respect to the O'Donnell Assets. NPC represents
and warrants that it will perform an appropriate due diligence
investigation of the O'Donnell Assets. If anything comes to
the attention of the Transaction Team in the course of that
investigation which would cause a representation or warranty
contained herein to be false, inaccurate or misleading if it
had been made in respect of the O'Donnell Assets or their use
and enjoyment, NPC will notify PHI and PHSD of such discovery
immediately.
(c) In acquiring the O'Donnell Sites, NPC and the
Transaction Team shall exercise the same level and degree of
care, diligence and precaution that it would exercise in
acquiring restaurants it intended to retain and operate as its
own.
(d) NPC covenants and agrees that, should NPC operate any
of the O'Donnell Sites after NPC's acquisition thereof, pending
their transfer to PHSD, NPC will operate the O'Donnell Sites
and the O'Donnell Assets only in the normal, regular and
ordinary course of business consistent with past practices to
the same extent as if those sites and assets were NPC Sites and
Assets covered by Article VIII hereof.
.20 Representations and Warranties True. The
representations and warranties of NPC contained in this
Agreement and in any certificate or other writing delivered by
NPC pursuant to this Agreement shall be true in all respects at
and as of each of the Closing Dates, as if made at and as of
such dates.
VI REPRESENTATIONS AND
WARRANTIES OF PHI AND PHSD
PHI and PHSD hereby represent and warrant to NPC as
follows:
.1 Organization. PHI and PHSD are
corporations duly organized, validly existing and in good
standing under the laws of the States of Delaware and
California, respectively, are qualified to do business and are
in good standing in all jurisdictions where their activities
with regard to the PH Sites so require, and have all requisite
corporate power and authority to own and lease all of their
respective properties and assets and to carry on their
respective businesses as they are now being conducted.
.2 Authorization and Enforceability.
(a) Each of PHI and PHSD has all requisite
corporate power and authority to execute, deliver and
perform this Agreement and all other instruments and
agreements required to be executed, delivered or performed
by it pursuant hereto. On each of the Closing Dates, the
execution, delivery and performance of this Agreement, and
all such other instruments and agreements, will have been
duly authorized by all necessary corporate action on the
part of PHI and PHSD.
(b) This Agreement has been, and on each of the
Closing Dates all other instruments and agreements
executed by PHI and PHSD pursuant hereto (the "PH
Transaction Documents") will have been, duly executed and
delivered by authorized officers of PHI and PHSD, and this
Agreement and each of the PH Transaction Documents
constitutes or will constitute legal, valid and binding
obligations of PHI and/or PHSD, as the case may be,
enforceable against them in accordance with their
respective terms.
.3 Absence of Conflict. The execution,
delivery and, subject to obtaining the consents set forth in
Schedule 6.3 hereto, performance of this Agreement by PHI and
PHSD do not and will not (i) violate any provision of the
Articles of Incorporation or Bylaws of PHI or PHSD;
(ii) contravene any Laws that affect or bind PHI or PHSD; or
(iii) result in any manner whatsoever in the violation or
breach of, or constitute a default (or give rise to any right
of termination, cancellation, or acceleration) under, any of
the terms, conditions, or provisions of any license, permit,
note, bond, mortgage, indenture, lease, contract, agreement or
other instrument or obligation to which PHI or PHSD is a party
or by which any of the PH Assets may be bound, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the PH Assets.
.4 Title to PH Personal Property.
(a) Except as set forth on Schedule 6.4 hereto, PHSD has
good and marketable title to all personal property, tangible or
intangible, included in the PH Assets, free and clear of any
pledge, security interest, charge, claim, lien or other
encumbrance of any kind, other than liens for taxes not yet due
and payable.
(b) To the best knowledge of PHI and PHSD, all of the
personal property included in the PH Assets is fit and usable
for the purposes for which it is being used, subject to
ordinary wear and tear, and is sufficient for the operations of
the PH Sites. No items of such personal property, other than
any new items, have been brought to, installed in or removed
from any of the PH Sites within the last ninety (90) days.
(c) OTHER THAN AS EXPRESSLY STATED IN SECTION 6.4(b),
NEITHER PHI NOR PHSD MAKES ANY REPRESENTATIONS OR WARRANTIES,
EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY,
CONDITION, DESIGN, OPERATION OR FITNESS OF SUCH ASSETS FOR
THEIR INTENDED PURPOSE.
.5 Title to PH Real Property.
(a) Schedule 1.7(a)(i) hereto sets forth by address or
other sufficient method of identification an accurate and
complete list of the PH Real Property. Except to the extent
set forth on Schedule 6.5(a) hereto, PHSD has (or by the
Closing Date applicable to the transfer of each such parcel
will have) good, marketable, and insurable title in fee simple
to the PH Real Property, free and clear of any mortgage, deed
of trust, lien, pledge, charge, security interest or other
encumbrance which could have a material adverse impact on the
operation or value of that particular Site.
(b) No instrument of record, easement, license, grant or
applicable zoning, building, land use, or urban redevelopment
regulation or other impediment of any kind, to the best of
PHSD's knowledge, materially prohibits or interferes with,
limits or impairs the use, operation, maintenance of, or access
to, or affects the value of the PH Real Property or the real
property subject to the PH Assigned Leases (collectively, the
"PH Transferred Real Property") or any item of personal
property related to the PH Transferred Real Property as now
used, operated or maintained.
(c) Each parcel of PH Transferred Real Property is
currently zoned in the zoning category which permits operation
of such parcel of PH Transferred Real Property as now used,
operated, and maintained. Neither PHI nor PHSD has requested,
applied for, or given consent to, and neither PHI nor PHSD has
knowledge of any pending zoning variance or change with respect
to the PH Transferred Real Property. Except as set forth on
Schedule 6.5(c), neither PHI nor PHSD knows of any pending,
proposed, or threatened proceeding or governmental action to
condemn or take by the power of eminent domain (or to purchase
in lieu thereof), or to impose special assessments on, or
otherwise to take or restrict in any way, the right to use,
alter or occupy all or any part of any of the PH Transferred
Real Property. PHSD has not received any notice from any
governmental body requiring it to make any repairs or changes
to the PH Transferred Real Property or the improvements located
on the PH Transferred Real Property. Each parcel of the PH
Transferred Real Property has adequate ingress and egress.
(d) There is no action, proceeding or litigation pending
(or, to the best knowledge of PHI or PHSD, contemplated or
threatened) for any street widening or changes in highway or
traffic lanes or patterns in the vicinity of the PH Transferred
Real Property or otherwise relating to the PH Transferred Real
Property or the interests of PH or PHSD therein, or which
otherwise would interfere with the use, development and/or
operation of the PH Transferred Real Property.
(e) No portion of the PH Transferred Real Property or the
roads immediately adjacent to the PH Transferred Real Property:
(i) to the best knowledge of PHI or PHSD, is situated in a
"Special Flood Hazard Area," as set forth on a federal
Emergency Management Agency Flood Insurance Rate Map or Flood
Hazard Boundary Map; (ii) to the best knowledge of PHI or PHSD,
was the former site of any public or private landfill, dump
site, retention basin or settling pond; (iii) to the best
knowledge of PHI or PHSD, was the former site of any oil or gas
drilling operations or gas station; (iv) to the best knowledge
of PHI or PHSD, was the former site of any experimentation,
processing, refining, reprocessing, recovery or manufacturing
operation for any petrochemicals; or (v) has any defect or
condition which would impair the current use of the PH
Transferred Real Property.
(f) The activities carried on in all buildings,
structures or improvements included as part of, or located on
or at the PH Transferred Real Property, and the buildings,
structures and improvements themselves, to the best of PHI's or
PHSD's knowledge, are not in violation of, or in conflict with,
any applicable law, regulation, ordinance or law, including any
health or safety regulation.
.6 Absence of Other Assets. Except as
specifically provided in this Agreement, there is no asset,
property, or right of any nature owned by PHSD or its
affiliates which is not being transferred to NPC hereunder by
PHSD or which is being retained by PHSD that has been
customarily employed, owned, held, or used in connection with
the operation of the PH Sites. All of the tangible PH Assets
are situated entirely upon the premises of the PH Sites.
.7 Leases.
(a) All of the PH Assigned Leases are in full force and
effect. Neither PHSD nor any other party to such leases is in
material breach or default thereunder and there does not exist
any state of facts, which, with notice or passage of time,
would constitute a material breach or default or would excuse
performance by any party thereto.
(b) True and correct copies of the PH Assigned Leases
have been delivered to NPC. The PH Assigned Leases are
unmodified other than as disclosed to NPC and in full force and
effect, and there are no other agreements, written or oral,
between PHSD or any of its affiliates and any third parties
claiming an interest in the interest of PHSD in the leased
property or otherwise relating to their use and occupancy
thereof. Schedule 6.7 hereto sets forth any and all advances,
deposits, and prepayments made under the PH Assigned Leases.
.8 Documents Sufficient. The documents to be
delivered by PHI and PHSD to NPC pursuant to Section 12.2
hereof are valid, sufficient and effective to completely
transfer to NPC full legal and equitable title to all of the PH
Assets.
.9 Litigation. Except as set forth on
Schedule 6.9 hereto, there is no Litigation pending or, to the
best of PHI's or PHSD's knowledge, threatened against or
otherwise affecting the PH Sites or any of the PH Assets before
any arbitrator or arbitration panel or any court or other
federal, state or other governmental department, commission,
board, agency or instrumentality, which Litigation is an
attempt to keep the transactions contemplated herein from
occurring, or which would make it difficult or impossible to
transfer some or all of the PH Assets or would have a material
adverse effect on the value of any PH Site or any significant
PH Asset or which questions, or seeks to terminate or change
the terms pursuant to which PHSD claims, title or the right to
use or occupy any site or asset. PHSD is not operating the PH
Sites under or subject to, and is not in default with respect
to, any order, writ, injunction or decree of any arbitrator or
arbitration panel or any court or other federal, state or other
governmental department, commission, board, agency or
instrumentality.
.10 Governmental Licenses. Attached as
Schedule 6.10 hereto is a complete list of all Licenses
required in connection with the PH Sites, the absence of which
would prevent or delay the operation or the use of any part of
the PH Sites or use of any part of the PH Assets, which
schedule identifies which such Licenses are assignable to NPC
(the "PH Licenses").
.11 Compliance with Laws.
(a) In operating the PH Sites, PHSD and its affiliates
have complied in all material respects with all laws, rules,
regulations, ordinances, orders, judgments, or decrees
applicable to the PH Sites as operated and the PH Assets. PHSD
is not aware of any proposed laws, rules, regulations,
ordinances, orders, judgments, decrees or other proceedings
that would be applicable to PHSD which might adversely affect
the PH Sites or the PH Assets. The operations of PHSD and its
affiliates at the PH Sites have not received a citation,
warning, or reprimand for, or otherwise been notified of, any
violation of any law, rule or regulation governing alcoholic
beverages, or any health, environmental, or similar municipal,
state or federal law or regulation which has not been cured.
(b) Assuming the consents listed on Schedule 6.11(c)
hereto have been obtained, neither the execution, delivery or
performance by PHI or PHSD of this Agreement and the other
agreements to be entered into by it in connection with the
transactions contemplated hereby, nor the acquisition by NPC of
the PH Assets or the assumption by NPC of the liabilities
described herein, will on any Closing Date in any material
respect violate any provision of any applicable law or violate,
conflict with, or result in a breach of any provision of, or
constitute a default under any material provision of any
mortgage, lien, lease agreement, contract, instrument, order,
arbitration award, judgment, decision or any other agreement to
which PHI or PHSD is a party or by which it is otherwise bound
or to which any of the PH Assets or the liabilities being
assumed by NPC hereunder are subject.
(c) Except as otherwise set forth on Schedule 6.11(c)
hereto, and except for the consents required by the HSR Act,
and under applicable state liquor licensing laws, to the best
of PHI's or PHSD's knowledge, no consent, approval or
authorization of, or registration, qualification, designation,
declaration or filing with, any governmental or regulatory
authority is required on the part of PHI or PHSD or any other
person or entity in connection with the execution, delivery or
performance by PHI and PHSD of this Agreement or the other
agreements to be entered into by either of them in connection
herewith.
.12 PH Assigned Contracts.
(a) PHSD has made, or as soon as practicable will make,
available for inspection by NPC complete and correct copies of
the PH Assigned Contracts, together with all exhibits,
schedules and amendments thereto.
(b) The PH Assigned Contracts constitute all of the
material contracts, leases, and other agreements related to the
operation of the PH Sites and are sufficient for the operation
of the PH Sites as conducted by PHSD.
(c) The PH Assigned Contracts are valid, binding and
enforceable in accordance with their terms, are in full force
and effect with, to the best of PHSD's knowledge, no default or
dispute or basis therefor existing with respect thereto, and
will remain in full force and effect during the term thereof
(except as a result of any acts or omissions by NPC), subject
to the receipt of any required consents, are assignable to NPC
and, except as contemplated by this Agreement, will not be
terminated or otherwise affected by the execution and delivery
of this Agreement or the consummation of the transactions
contemplated hereby.
(d) No event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any
other event) would constitute an actionable default under any
of the PH Assigned Contracts.
(e) Except for the PH Assigned Contracts and other than
month-to-month personal property leases, there are no
management, employment, service, billboard, pest control,
supply, maintenance or other contracts or automobile, soft
drink dispenser, dishwasher or other leases entered into by
PHSD or its affiliates with respect to the PH Assets.
.13 Employees.
(a) Each of PHI and PHSD is, to the best of its
knowledge, in material compliance with all applicable federal,
state and local laws respecting employment and employment
practices, including, without limitation, laws relating to wage
and hour, employment eligibility verifications under the
Immigration Reform and Control Act of 1986, employment
discrimination and sexual harassment.
(b) There are no labor controversies, grievances or
disputes, in any form whatsoever, pending or, to the best
knowledge of PHI or PHSD, threatened against PHI or PHSD and
neither PHI nor PHSD has any knowledge of any facts which would
be likely to give rise to such a controversy, grievance or
dispute.
(c) There is no union representing the interests of any
of the employees of PHSD and, to the knowledge of PHI or PHSD
(i) there are no employees of PHSD currently petitioning for
union representation and (ii) there is no union petitioning to
represent such employees.
(d) PHSD and its affiliates have satisfactory relations
with their employees and PHSD has no knowledge of any facts
that would be likely to affect adversely such relations.
(e) Except as set forth on Schedule 6.13(e), PHSD has no
written or oral policy, agreement or understanding with any
employee to be transferred regarding severance pay.
.14 Environmental Matters.
(a) PHSD represents and warrants that, except as would
not have a material adverse effect or except as included in
Schedule 6.14, with respect to the PH Real Property and/or the
PH Sites: (i) PHSD has not violated nor is in violation in any
material respect of any applicable Environmental Law; (ii) PHSD
has all Environmental Permits and is in material compliance
with their requirements; (iii) the PH Real Property and, to
PHI's or PHSD's actual knowledge, the PH Sites (including,
without limitation, soils and surface, ground waters and
buildings) is not contaminated with any Hazardous Substances;
(iv) there are no past, pending or to the best of PHI's or
PHSD's knowledge threatened Environmental Claims or
circumstances that could reasonably be anticipated to form the
basis thereof against PHI or PHSD; (v) the PH Real Property is
not listed on CERCLIS, the NPL, or any similar state or local
listing nor is it, to the best of PHI's or PHSD's knowledge,
included in an area included in such a list, and PHI and PHSD
are not aware that such a listing is pending or contemplated.
(b) PHSD hereby agrees to assign to NPC all Environmental
Permits that may be lawfully transferred. PHSD further agrees
to cooperate fully in aiding NPC to obtain new Environmental
Permits, where the law prohibits transfer of existing
Environmental Permits or rights to operate.
.15 Payment of Taxes.
(a) For purposes of this Section 6.15, the following
terms shall have the meanings set forth below:
(i) "PH Group" means the "affiliated group" (within the
meaning of Section 1504(a) of the Code) of which PHI is a
member, or any member of such "affiliated group."
(ii) "Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, whether
directly assessed or assumed by contract, including any
interest, penalty, or addition thereto, whether disputed or
not.
(iii) "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating
to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) All Taxes owed by the PH Group (whether or not shown
on any Tax Return) have been paid.
(c) The PH Group has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax
liability of the PH Group either (i) claimed or raised by any
authority in writing or (ii) as to which any of the directors
and officers (and employees responsible for Tax matters) of the
PH Group has knowledge; provided, however, the representation
and warranty in this subsection (d) shall not apply if the
resolution of such dispute or claim in favor of the applicable
taxing authority would not have a material adverse effect on
the business or assets of any of the PH Sites.
(e) The representations and warranties set forth in
subsections (b) - (e) of this Section 6.15 are not applicable
to the extent that the PH Assets are not made subject to tax
liens and the NPC Group is not made liable for Taxes relating
to the matters constituting breaches of such representations
and warranties.
.16 No Finder's or Broker's Fee. Neither PHI
nor PHSD has incurred or caused to be incurred any liability
for any fee or commission in the nature of a finder's,
originator's or broker's fee in connection with the
transactions contemplated hereby.
.17 Disclosure. None of the representations,
warranties or statements of PHI or PHSD in this Agreement
(including the attached schedules and exhibits) or any other
documents or certificates furnished or to be furnished to NPC
by or on behalf of PHI or PHSD in connection herewith as of
their respective dates did, or does, (i) contain any untrue
statement of a material fact, or (ii) omit to state a material
fact necessary in order to make the statements contained herein
and therein not misleading.
.18 Representations and Warranties True. The
representations and warranties of PHI and PHSD contained in
this Agreement and in any certificate or other writing
delivered by PHI and PHSD pursuant to this Agreement shall be
true in all material respects at and as of each of the Closing
Dates, as if made at and as of such dates.
VII TRANSFER OF THE O'DONNELL
ASSETS
.1 Representations and Warranties.
(a) EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THIS
AGREEMENT, NPC MAKES NO REPRESENTATIONS OR WARRANTIES
WHATSOEVER WITH RESPECT TO THE O'DONNELL ASSETS. SPECIFICALLY,
NPC MAKES NO IMPLIED REPRESENTATIONS OR WARRANTIES, AS TO THE
MERCHANTABILITY, SUITABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE, OR QUALITY, AS TO THE O'DONNELL ASSETS, OR ANY PART
THEREOF, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF, OR THE
ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT
BEING UNDERSTOOD THAT THE O'DONNELL ASSETS ARE TO BE CONVEYED
HEREUNDER "AS IS WHERE IS" ON THE CLOSING DATE AT WHICH THEY
ARE TRANSFERRED, AND IN THEIR THEN PRESENT CONDITION, SUBJECT
ONLY TO THOSE SPECIFIC REPRESENTATIONS SET FORTH HEREIN.
(b) PHSD hereby agrees to accept the O'Donnell Assets on an
"as is where is" basis subject only to those specific
representations set forth herein and subject to its rights as
assignee of NPC's rights to indemnification from O'Donnell and
its affiliates under the O'Donnell Agreement.
.2 Assignment. NPC hereby assigns and
transfers to PHSD, its successors and assigns, all of NPC's
right, title and interest in and to the benefits belonging to
NPC under the O'Donnell Agreement to the extent the same relate
to the O'Donnell Assets, to have and to hold the same unto
PHSD, its successors and assigns. Specifically, NPC assigns
its rights to indemnification from the "Sellers" under the
O'Donnell Agreement in respect of all matters relating to the
O'Donnell Sites and the O'Donnell Assets.
.3 Acceptance. PHSD hereby accepts the
assignment and transfer of all of NPC's right, title and
interest in and to the benefits belonging to NPC under the
O'Donnell Agreement to the extent the same relates to the
O'Donnell Assets. In addition, upon acceptance of the transfer
of the O'Donnell Assets at the relevant Closing, PHSD will
assume the obligations of NPC under the O'Donnell Agreement as
regards future performance under the O'Donnell Assigned Leases
and Assigned Contracts actually transferred to PHSD and future
operations of the transferred O'Donnell Sites.
VIII COVENANTS OF NPC
.1 Management of the NPC Sites Pending
Closing. NPC hereby covenants and agrees that, unless
otherwise agreed to, in writing, by NPC and PHSD, during the
period of time commencing on the date of this Agreement and
ending with respect to each NPC Site immediately after the
Closing at which that NPC Site is transferred to PHSD (the
"Interim Period"):
(a) NPC and its affiliates will operate the NPC Sites
diligently and substantially in the same manner as heretofore
conducted and shall not institute any unusual or novel methods
of purchase, sale, lease, management, accounting or operation
with respect thereto other than those which are normal and
customary for NPC. NPC will operate the NPC Sites in a manner
intended to preserve the goodwill, reputation and customer
satisfaction of the NPC Sites;
(b) NPC will not increase the rates of pay of its
employees or increase the fixed compensation payable or to
become payable to any employee, or change any plan or other
contract or commitment in a manner which would increase the
benefits or compensation of any such employee, and NPC shall
not pay any bonus or commission to any employee, except for
increases, bonuses and commissions paid in the ordinary course
of the operation of the NPC Sites;
(c) NPC will not enter into any contract or commitment or
engage in any transaction relating to the NPC Assets which is
not in the usual and ordinary course of business and consistent
with past practices, or which will not be fully performed by
all parties thereto at or prior to the Final Closing;
(d) NPC will not enter into any leases or contracts to
acquire capital equipment for use in the NPC Sites; provided,
however, that NPC shall consult with PHSD on all upcoming lease
renewals and will not permit any lease to expire without first
consulting with PHSD;
(e) All tangible, personal property of NPC constituting a
part of the NPC Assets will be used, operated, maintained and
repaired in a careful and efficient manner, consistent with the
useful life thereof;
(f) NPC will use its best efforts to preserve the NPC
Sites intact, to keep available to PHSD its present employees
who are engaged therein and to preserve for PHSD the present
relationships with suppliers and customers thereof and others
having business relations therewith; and
(g) NPC will not do any act, or omit to do any act, or
permit any act or omission to act, which will cause a breach of
any material contract, commitment or obligation relating to the
NPC Sites.
.2 Transfer of Licenses and Permits. NPC
shall use its best efforts and cooperate fully in assisting
PHSD with the assumption, transfer or reissuance of any and all
required state, county or city licenses or permits required for
the operation of the NPC Sites and the O'Donnell Sites,
including any liquor licenses.
.3 Accuracy of Representations and Warranties.
(a) During the Interim Period, without the prior written
consent of PHSD, NPC (i) shall not take any action or omit to
take any action which would cause any of the representations or
warranties set forth in Article V to be inaccurate or any of
the covenants set forth in this Article VIII to be breached,
and (ii) shall use its best efforts to prohibit third parties
from taking any action or omitting to take any action which
would cause any of such representations or warranties to be
inaccurate or any of such covenants to be breached.
(b) To the extent that, during the Interim Period, any
representation or warranty set forth in Article V hereof shall
be incomplete or incorrect in any respect, NPC immediately
shall cause to be provided to PHSD a modification of or
amendment to the appropriate section or schedule setting forth
in full detail the substance of the events or facts giving rise
to such untrue or incomplete representation or warranty.
.4 Access to Information and Facilities.
(a) Upon the reasonable request of PHI or PHSD, and with
the prior consent of NPC, which consent will not be
unreasonably withheld, PHI or PHSD and their representatives
will have access during normal business hours prior to the
Final Closing Date to all of the facilities, properties, books
and records, contracts, and commitments relating to the NPC
Sites, and, to the extent applicable and within NPC's control,
the O'Donnell Sites, as well as the existing officers and
employees of NPC whose duties relate to the operation of the
NPC Sites. NPC will furnish PHI and PHSD and their
representatives with any and all information concerning the NPC
Assets and, to the extent within NPC's control, the O'Donnell
Assets which PH, PHSD or their representatives reasonably
request.
(b) PHI and PHSD acknowledge and agree that scheduling of
the access provided pursuant to this Section 8.4 and its other
due diligence activities shall be in consultation with NPC, and
that each of PHI and PHSD will use its best efforts to schedule
said activities so as to leave disclosure of NPC's most
proprietary information to the latest practicable date that
will not impair PHI's and PHSD's ability to conduct their due
diligence.
.5 Taxes. All property taxes, including
general or special assessments or any other similar taxes, on
each NPC Site payable prior to the Closing Date for such Site
shall be paid by NPC and will be subject to the proration
provisions of Section 4.3 hereof.
.6 Further Assurances. NPC hereby covenants
and agrees that from and after the Final Closing Date, NPC
shall, at its expense, execute and deliver to PHSD or its
designee all such deeds, conveyances, bills of sale,
assurances, transfers, assignments and consents, approvals,
agreements and contracts and any other documents, and shall
cooperate fully with PHSD and do all such other things as may
be necessary to (a) effectively transfer the NPC Assets and the
O'Donnell Assets to, and to perfect and confirm the ownership
of the NPC Assets and the O'Donnell Assets by, PHSD, and (b)
effectuate the transfer of the NPC Sites and the O'Donnell
Sites to PHSD, in each case as reasonably requested by PHSD.
.7 Exchange Sales Tax. NPC shall pay to PHSD
as collection agent on the Final Closing Date, one-half of the
sum of money determined by PHSD to be due and owing with
respect to all sales and use taxes resulting from the transfer
of the PH Assets. PHSD shall timely prepare and file all
returns and reports in respect of such sales and use taxes and
cause the collected funds, along with the remaining one-half of
the total sum due, to be transferred to the appropriate taxing
authorities. If the actual amount due in respect of such sales
and use taxes is determined to be less than twice the amount
collected by PHSD, then PHSD shall cause one-half of such
excess to be refunded promptly to NPC. If the actual amount
due in respect of such sales and use taxes is determined to be
greater than twice the amount collected by PHSD, NPC agrees to
pay one-half of such deficiency to PHSD and PHSD agrees to
transfer such amount, along with the remaining one-half of the
deficiency, to the appropriate taxing authorities. NPC further
agrees to pay one-half of any deed taxes (including deed
recordation taxes) resulting from the transfer of the PH
Assets.
.8 Notification. NPC shall notify PHSD
promptly after becoming aware of the occurrence of, or the
impending or threatened occurrence of, any event that would
constitute a breach by NPC of any obligation under this
Agreement, or the occurrence of any event that would cause any
representation or warranty made by NPC herein to be false or
misleading, or if NPC becomes a party or is threatened with
becoming a party to investigation, or upon the occurrence of
any event that would result in a material change in the
circumstances described in the representations and warranties
contained herein, or upon the occurrence of any event that
would impair the ability of NPC to consummate the transactions
contemplated by this Agreement.
.9 O'Donnell Agreement. NPC hereby covenants
and agrees that, during the Interim Period, it will not change
or amend the O'Donnell Agreement without PHI's knowledge of and
consent to the proposed amendment.
IX COVENANTS OF PHI AND PHSD
.1 Management of the PH Sites Pending Closing.
PHSD hereby covenants and agrees that, unless otherwise agreed
to, in writing, by NPC and PHSD, during the Interim Period:
(a) PHSD and its affiliates will operate the PH Sites
diligently and substantially in the same manner as heretofore
conducted and shall not institute any unusual or novel methods
of purchase, sale, lease, management, accounting or operation
with respect thereto other than those which are normal and
customary for PHSD. PHSD will operate the PH Sites in a manner
intended to preserve the goodwill, reputation and customer
satisfaction of the PH Sites;
(b) PHSD will not increase the rates of pay of its
employees or increase the fixed compensation payable or to
become payable to any employee, or change any plan or other
contract or commitment in a manner which would increase the
benefits or compensation of any such employee, and PHSD shall
not pay any bonus or commission to any employee, except for
increases, bonuses and commissions paid in the ordinary course
of the operation of the PH Sites;
(c) PHSD will not enter into any contract or commitment
or engage in any transaction relating to the PH Assets which is
not in the usual and ordinary course of business and consistent
with past practices, or which will not be fully performed by
all parties thereto at or prior to the Final Closing;
(d) PHSD will not enter into any leases or contracts to
acquire capital equipment for use in the PH Sites; provided,
however, that PHSD shall consult with NPC on all upcoming lease
renewals and will not permit any lease to expire without first
consulting with NPC;
(e) All tangible, personal property of PHSD constituting
a part of the PH Assets will be used, operated, maintained and
repaired in a careful and efficient manner, consistent with the
useful life thereof;
(f) PHSD will use its best efforts to preserve the PH
Sites intact, to keep available to NPC its present employees
who are engaged therein and to preserve for NPC the present
relationships with suppliers and customers thereof and others
having business relations therewith; and
(g) PHSD will not do any act, or omit to do any act, or
permit any act or omission to act, which will cause a breach of
any material contract, commitment or obligation relating to the
PH Sites.
.2 Transfer of License and Permits. PHSD
shall use its best efforts and cooperate fully in assisting NPC
with the assumption, transfer or reissuance of any and all
required state, county or city licenses or permits required for
the operation of the PH Sites, including any liquor licenses.
.3 Accuracy of Representations and Warranties.
(a) During the Interim Period, without the prior written
consent of NPC, (i) neither PHI nor PHSD shall take any action
or omit to take any action which would cause any of the
representations or warranties set forth in Article VI to be
inaccurate or any of the covenants set forth in this Article IX
to be breached, and (ii) they shall use their best efforts to
prohibit third parties from taking any action or omitting to
take any action which would cause any of such representations
or warranties to be inaccurate or any of such covenants to be
breached.
(b) To the extent that, during the Interim Period, any
representation or warranty set forth in Article VI hereof shall
be incomplete or incorrect in any respect, PHSD immediately
shall cause to be provided to NPC a modification of or
amendment to the appropriate section or schedule setting forth
in full detail the substance of the events or facts giving rise
to such untrue or incomplete representation or warranty.
.4 Access to Information and Facilities.
(a) Upon the reasonable request of NPC, and with the
prior consent of PHI and PHSD, which consent will not be
unreasonably withheld, NPC and NPC's representatives will have
access during normal business hours prior to the Final Closing
Date to all of the facilities, properties, books and records,
contracts, and commitments relating to the PH Sites, as well as
the existing officers and employees of PHSD whose duties relate
to the operation of the PH Sites. PHSD will furnish NPC and
its representatives with any and all information concerning the
PH Assets which NPC or its representatives reasonably request.
(b) NPC acknowledges and agrees that scheduling of the
access provided pursuant to this Section 9.4 and its other due
diligence activities shall be in consultation with PHSD, and
that NPC will use its best efforts to schedule said activities
so as to leave disclosure of PHI's and PHSD's most proprietary
information to the latest practicable date that will not impair
NPC's ability to conduct its due diligence.
.5 Taxes. All property taxes, including
general or special assessments or any other similar taxes, on
each PH Site payable prior to the Closing Date for such Site
shall be paid by PHSD and will be subject to the proration
provisions of Section 4.3 hereof.
.6 Further Assurances. Each of PHI and PHSD
hereby covenants and agrees that from and after the Final
Closing Date, it shall, at its expense, execute and deliver to
NPC or its designee all such deeds, conveyances, bills of sale,
assurances, transfers, assignments and consents, approvals,
agreements and contracts and any other documents, and shall
cooperate fully with NPC and do all such other things as may be
necessary to (a) effectively transfer the PH Assets to, and to
perfect and confirm the ownership of the PH Assets by, NPC, and
(b) effectuate the transfer of the PH Sites to NPC, in each
case as reasonably requested by NPC.
.7 Exchange Sales Tax. PHSD shall pay to NPC
as collection agent on the Final Closing Date, one-half of the
sum of money determined by NPC to be due and owing with respect
to all sales and use taxes resulting from the transfer of the
NPC Assets and the O'Donnell Assets. NPC shall timely prepare
and file all returns and reports in respect of such sales and
use taxes and cause the collected funds, along with the
remaining one-half of the total sum due, to be transferred to
the appropriate taxing authorities. If the actual amount due
in respect of such sales and use taxes is determined to be less
than twice the amount collected by NPC, then NPC shall cause
one-half of such excess to be refunded promptly to PHSD. If
the actual amount due in respect of such sales and use taxes is
determined to be greater than twice the amount collected by
NPC, PHSD agrees to pay one-half of such deficiency to NPC and
NPC agrees to transfer such amount, along with the remaining
one-half of the deficiency, to the appropriate taxing
authorities. PHSD further agrees to pay one-half of any deed
taxes (including deed recordation taxes) resulting from the
transfer of the NPC Assets and the O'Donnell Assets.
.8 Notification. Each of PHI and PHSD shall
notify NPC promptly after becoming aware of the occurrence of,
or the impending or threatened occurrence of, any event that
would constitute a breach by PHI or PHSD of any obligation
under this Agreement, or the occurrence of any event that would
cause any representation or warranty made by PHI or PHSD herein
to be false or misleading, or if PHI or PHSD becomes a party or
is threatened with becoming a party to investigation, or upon
the occurrence of any event that would result in a material
change in the circumstances described in the representations
and warranties contained herein, or upon the occurrence of any
event that would impair the ability of PHI or PHSD to
consummate the transactions contemplated by this Agreement.
X CONDITIONS TO OBLIGATION OF
NPC AT EACH CLOSING
The obligations of NPC to consummate the transactions
contemplated hereby shall be subject to the fulfillment by PHI
and PHSD, to the reasonable satisfaction of NPC, prior to or on
each Closing Date, of each of the following conditions
precedent; provided, however, that any of such conditions may
be waived in writing by NPC at or prior to any Closing Date.
Any such waiver as to one Closing Date shall not apply to any
other Closing Date unless otherwise specifically stated
therein.
.1 Representations and Warranties True and
Correct. The representations and warranties of PHI and PHSD
set forth in Article VI hereof (as the same may be amended
pursuant to Section 9.3) shall be true and correct when made
and as of each Closing Date with the same effect as though made
on and as of such date.
.2 Performance. PHI and PHSD shall have
performed and complied with all agreements, covenants and
conditions contained herein required to be performed or
complied with by them on or prior to each Closing Date.
.3 Consents. PHI and PHSD shall have obtained
and delivered to NPC any and all necessary consents, approvals,
agreements and waivers of any person or entity, the absence of
which would prevent or delay the operation of any part of the
PH Sites or use of any part of the PH Assets by NPC, including
any transferable PH Licenses which are required in connection
with the execution and performance of this Agreement and the
consummation of the transactions contemplated hereby.
.4 Hart-Scott-Rodino. Any waiting period (and
any extension thereof) applicable to the transfer of the PH
Assets under the HSR Act shall have expired or been terminated.
.5 No Litigation. There shall be no
Litigation which might result in any material adverse change in
the PH Assets, or the prospects, conditions, affairs or
operations of the PH Assets, or which questions the validity of
this Agreement or of any of the agreements, consents, approvals
or other instruments referred to herein, or of any action taken
or to be taken in connection herewith or which would prevent or
hinder the consummation of any of the transactions contemplated
hereby.
.6 No Adverse Developments.
(a) No material amount or portion of the PH Assets shall
have been destroyed or substantially damaged as a result of
fire, explosion, earthquake, disaster, accident, any action by
the United States or any other governmental authority, floods,
drought, embargo, vandalism, riot, robbery, shooting, civil
disturbance, uprising, activity of armed forces, act of God, or
public enemies.
(b) If any damage or destruction of the type contemplated
in Section 10.6(a) occurs prior to the Closing at which the
damaged PH Assets are to be transferred and, in NPC's good
faith determination, such damage or destruction constitutes a
material adverse change to the PH Site(s) in question, NPC may
elect to (i) consummate the transactions contemplated by this
Agreement, in which event NPC shall receive at the Closing
relating to that PH Site, the insurance proceeds equal to the
replacement cost of such damaged or destroyed PH Asset or (ii)
terminate this Agreement.
.7 Investigation. NPC shall have been
afforded the opportunity to complete an investigation of the PH
Assets to confirm, to the reasonable satisfaction of NPC, the
satisfactory condition of the PH Sites.
.8 Other Actions. PHI and PHSD shall have
executed and delivered such other documents and instruments and
taken such other actions as NPC reasonably shall request in
order to carry out the transactions contemplated by this
Agreement.
XI CONDITIONS TO OBLIGATION OF
PHI AND PHSD AT EACH CLOSING
The obligations of PHI and PHSD to consummate the
transactions contemplated hereby shall be subject to the
fulfillment by NPC, to the reasonable satisfaction of PHI and
PHSD, prior to or on each Closing Date, of each of the
following conditions precedent; provided, however, that any of
such conditions may be waived in writing by PHI or PHSD at or
prior to any Closing Date. Any such waiver as to one Closing
Date shall not apply to any other Closing Date unless otherwise
specifically stated therein.
.1 Representations and Warranties True and
Correct. The representations and warranties of NPC set forth
in Article V hereof (as the same may be amended pursuant to
Section 8.3) shall be true and correct when made and as of each
Closing Date with the same effect as though made on and as of
such date.
.2 Performance. NPC shall have performed and
complied with all agreements, covenants and conditions
contained herein required to be performed or complied with by
it on or prior to each Closing Date.
.3 Consents. NPC shall have obtained and
delivered to PHI and PHSD any and all necessary consents,
approvals, agreements and waivers of any person or entity, the
absence of which would prevent or delay the operation of any
part of the NPC Sites or the O'Donnell Sites or use of any part
of the NPC Assets or the O'Donnell Assets by PHSD and its
affiliates, including any transferable NPC Licenses and
O'Donnell Licenses which are required in connection with the
execution and performance of this Agreement and the
consummation of the transactions contemplated hereby.
.4 Hart-Scott-Rodino. Any waiting period (and
any extension thereof) applicable to the transfer of the NPC
Assets and the O'Donnell Assets under the HSR Act shall have
expired or been terminated.
.5 No Litigation. There shall be no
Litigation which might result in any material adverse change in
the NPC Assets or the O'Donnell Assets, or the prospects,
conditions, affairs or operations of the NPC Assets or
O'Donnell Assets, or which questions the validity of this
Agreement or of any of the agreements, consents, approvals or
other instruments referred to herein, or of any action taken or
to be taken in connection herewith or which would prevent or
hinder the consummation of any of the transactions contemplated
hereby.
.6 No Adverse Developments.
(a) No material amount or portion of the NPC Assets or
O'Donnell Assets shall have been destroyed or substantially
damaged as a result of fire, explosion, earthquake, disaster,
accident, any action by the United States or any other
governmental authority, floods, drought, embargo, vandalism,
riot, robbery, shooting, civil disturbance, uprising, activity
of armed forces, act of God, or public enemies.
(b) If any damage or destruction of the type contemplated
in Section 11.6(a) occurs prior to the Closing at which the
damaged NPC Assets or O'Donnell Assets are to be transferred
and, in PHSD's good faith determination, such damage or
destruction constitutes a material adverse change to the NPC
Site(s) or O'Donnell Site(s) in question, PHSD may elect to (i)
consummate the transactions contemplated by this Agreement, in
which event PHSD shall receive at the Closing relating to that
NPC Site or O'Donnell Site, the insurance proceeds equal to the
replacement cost of such damaged or destroyed NPC Asset or
O'Donnell Asset, or (ii) terminate this Agreement.
.7 Investigation. PHSD shall have been
afforded the opportunity to complete an investigation of the
NPC Assets and the O'Donnell Assets to confirm, to the
reasonable satisfaction of PHSD, the satisfactory condition of
the NPC Sites and the O'Donnell Sites.
.8 Other Actions. NPC shall have executed and
delivered such other documents and instruments and taken such
other actions as PHI and PHSD reasonably shall request in order
to carry out the transactions contemplated by this Agreement.
.9 O'Donnell Assets. Prior to the Closing at
which the O'Donnell Sites are transferred to PHSD, but only as
a condition to the transfer of the O'Donnell Assets, NPC shall
have completed its due diligence review of the O'Donnell
Assets, which review will be at least as extensive as its
customary diligence review in transactions of this size and
which will include, at a minimum, the procurement and careful
review of: (i) title commitments as to all O'Donnell Real
Property, (ii) UCC lien and judgment searches under the names
of all of the present owners and operators of the O'Donnell
Assets, (iii) a review of the past forty years in the chain of
title for all O'Donnell Real Property for potential sources,
users, storers and generators of hazardous materials, and (iv)
estoppel certificates from all lessors of the O'Donnell
Assigned Leases, in each case in form and substance
satisfactory to PHSD, and shall have delivered these materials
to PHSD along with its certificate that it has reviewed these
materials. In addition, PHSD's own review of these materials
and any other review it may choose to conduct shall not cause
it to be dissatisfied with the state of title to or the
condition of the O'Donnell Assets, either in whole or in part.
Section 11.10 O'Donnell Agreement. Prior to the
Closing at which the O'Donnell Sites are transferred to PHSD,
but only as a condition to the transfer of the O'Donnell
Assets, NPC and O'Donnell shall have executed the O'Donnell
Agreement in substantially the form attached hereto as Exhibit
M, with only such schedules, changes and amendments as have
been approved by PHSD, and shall have closed the transactions
contemplated in the O'Donnell Agreement in accordance with the
terms and conditions thereof without waiving any requirements
or rights which might adversely affect the value or use of the
O'Donnell Assets to PHSD or PHSD's rights under this Agreement.
XII DOCUMENTS TO BE DELIVERED ON
EACH CLOSING DATE
.1 Condition Precedent. Each party's
obligation to consummate the transactions contemplated in this
Agreement is conditioned on the delivery to such party of each
of the documents listed in this Article XII, unless such
delivery is expressly waived by such party in writing.
.2 Documents to be Delivered by NPC. NPC
shall deliver the following documents to PHI and PHSD on each
Closing Date with respect to the specific NPC Assets and/or
O'Donnell Assets to be transferred on that Closing Date:
(a) a Certificate of Good Standing of NPC issued by the
Secretary of State of Kansas as of a date not more than 10
business days prior to that Closing Date;
(b) at the first Closing, a certified copy of NPC's
Charter and Bylaws, and thereafter, a certificate of the
secretary of NPC certifying that there have been no amendments
to NPC's Bylaws since the prior Closing Date;
(c) bills of sale, assignments and other instruments in
form acceptable to PHSD as may be necessary or reasonably
requested by PHSD in order effectively to convey, transfer and
assign good and marketable title to the NPC Assets and the
O'Donnell Assets;
(d) one or more general warranty deeds conveying the NPC
Real Property and the O'Donnell Real Property under
Section 1.3(a)(i) hereof;
(e) all necessary third party written assignments and
consents to the assignment of the NPC Assigned Contracts, the
NPC Assigned Leases, the NPC Licenses, the O'Donnell Assigned
Contracts, the O'Donnell Assigned Leases and all of NPC's
right, title and interest in and to the O'Donnell Licenses;
(f) executed copies of the Liquor License Escrow
Agreements, substantially in the form of Exhibit G hereto;
(g) an opinion of legal counsel to NPC, substantially in
the form of Exhibit J hereto;
(h) updated schedules relating to the NPC Sites and the
O'Donnell Sites being transferred at that Closing;
(i) at the first Closing, executed copies of the New
Agreements for all existing Pizza Hut restaurant locations
operated by NPC on the date hereof except the NPC Sites
transferred to PHSD at the first Closing, and any other NPC
Site as to which PHI reasonably believes the issuance of a New
Agreement would violate applicable state law, and at each
Closing executed copies of the New Agreements for the PH Sites
being transferred to NPC at that Closing, as required by
Section 1.1 hereof and in the form of Exhibit D hereto;
(j) at the first Closing, the Blanket Amendment, in the
form of Exhibit E hereto;
(k) at the Final Closing, documentation evidencing the
payment, by federal wire transfer of immediately available
funds, to PHI or PHSD, as appropriate, of the payment required
by Article II hereof, as well as all other payments required by
the provisions of this Agreement;
(l) at the first Closing, a mutual release in
substantially the form of Exhibit N hereto;
(m) at the first Closing, a CSC Management Agreement
substantially in the form of Exhibit K hereto for Bakersfield,
California; and
(n) at the relevant Closing, a CSC Management Agreement
substantially in the form of Exhibit K hereto for Hagerstown,
Maryland.
.3 Documents to be Delivered by PHI and PHSD.
PHI and PHSD shall deliver the following documents to NPC on
each Closing Date with respect to the specific PH Assets to be
transferred on that Closing Date:
(a) Certificates of Good Standing of PHI and PHSD issued
by the Secretaries of the States of Kansas and California,
respectively, as of a date not more than 10 business days prior
to that Closing Date;
(b) at the first Closing, a certified copy of each of
PHI's and PHSD's Charter and Bylaws, and thereafter, a
certificate of the Secretary of each of PHI and PHSD certifying
that there have been no amendments to PHI's or PHSD's Bylaws
since the prior Closing Date;
(c) bills of sale, assignments and other instruments in
form acceptable to NPC as may be necessary or reasonably
requested by NPC in order effectively to convey, transfer and
assign good and marketable title to the PH Assets;
(d) one or more general warranty deeds conveying the PH
Real Property under Section 1.7 hereof;
(e) all necessary third party written assignments and
consents to the assignment of the PH Assigned Contracts, the PH
Assigned Leases and the PH Licenses;
(f) executed copies of the Liquor License Escrow
Agreements, substantially in the form of Exhibit G hereto;
(g) an opinion of legal counsel to PHI and PHSD,
substantially in the form of Exhibit L hereto;
(h) updated schedules relating to the PH Sites being
transferred at that Closing;
(i) at the first Closing, executed copies of the New
Agreements for all existing Pizza Hut restaurant locations
operated by NPC on the date hereof except the NPC Sites
transferred to PHSD at the first Closing, and any other NPC
Site as to which PHI reasonably believes the issuance of a New
Agreement would violate applicable state law, and at each
Closing executed copies of the New Agreements for the PH Sites
being transferred to NPC at that Closing, as required by
Section 1.1 hereof and in the form of Exhibit D hereto;
(j) at the first Closing, the Blanket Amendment, in the
form of Exhibit E hereto;
(k) at the Final Closing, documentation evidencing the
payment, by federal wire transfer of immediately available
funds, to NPC of any PH Additional Consideration required by
Article III hereof after the setoff provided for by Section 3.4
hereof, as well as all other payments required by the
provisions of this Agreement;
(l) at the first Closing, a mutual release in
substantially the form of Exhibit N hereto;
(m) at the first Closing, a CSC Management Agreement
substantially in the form of Exhibit K hereto for Bakersfield,
California; and
(n) at the relevant Closing, a CSC Management Agreement
substantially in the form of Exhibit K hereto for Hagerstown,
Maryland.
XIII EMPLOYEES
.1 Definitions. In connection with this
Article XIII, the transferee of a specific Site shall sometimes
be referred to as the "New Employer" and the transferor of that
Site shall sometimes be referred to as the "Former Employer."
Employees at any Site whose employment is terminated by the
Former Employer and who are thereafter hired by the New
Employer shall be referred to as the "New Employees." Former
employees at any Site whose employment is terminated by the
Former Employer and who are not thereafter hired by the New
Employer shall be referred to as the "Ex-Employees."
.2 Transfer of Employees.
(a) Upon the transfer of any Site as contemplated by this
Agreement, the Former Employer will terminate the employment of
each store level employee (i.e., unit managers and below)
assigned to the Site so transferred (except any manager or
assistant manager who indicates to the Former Employer that he
or she would prefer to remain employed with the Former Employer
rather than the New Employer (each, an "Electing Employee")),
and the New Employer may in its sole discretion offer
comparable employment to any or all such store level employees
so as to permit such store level employees to continue in their
then current job.
(b) The Former Employer shall use its best efforts to
provide the services of all Electing Employees for at least 90
days after the relevant Closing, if so requested by the New
Employer. The New Employer shall reimburse the Former Employer
for all payroll and benefit expenses and all other costs
associated with any such loaned Electing Employee. The Former
Employer may employ such Electing Employee in accordance with
this paragraph without violating Section 13.2(a).
.3 Responsibility of Former Employer. The
Former Employer agrees to make full and final settlement with
each of its employees at each transferred Site, as of the
relevant Closing Date, with respect to all liabilities and
obligations, including payment for all vested vacation time,
relating to their employment with the Former Employer through
the relevant Closing Date. NPC recognizes and agrees that this
includes all earned vacation time for Sites in California.
.4 Responsibility of New Employer. The New
Employer shall, after the relevant Closing Date, be responsible
for any and all liabilities and obligations relating to the
employment or subsequent termination of the New Employees from
and after the relevant Closing Date. The New Employer agrees
to recognize and honor years of service of the New Employees
for purposes of vacation accruals and to honor all unvested
vacation time earned by New Employees prior to the relevant
Closing in accordance with the Former Employer's vacation
earning schedule.
.5 Claims. The Former Employer shall
administer and retain liability for all employment and labor
related claims of any kind, including but not limited to any
claims for severance pay, that arise out of or that are
attributable to the Former Employer's employment and
termination of its employees. In particular, except only for
claims against the New Employer alleging discrimination in
failing to hire the Ex-Employee, the Former Employer shall be
responsible for all claims relating to Ex-Employees. The New
Employer shall administer and retain liability for all claims
of any kind in respect to the New Employees that arise out of
or that are attributable to its employment and termination of
New Employees.
.6 Benefit Plans. The active participation of
Former Employees in any benefit or compensation plan, program,
understanding or arrangement of a Former Employer, including
without limitation, employee welfare benefit plans, as defined
in section 3(1) of ERISA, severance plans, and vacation plans,
shall cease as of the relevant Closing Date for all periods of
time on or after that Closing Date. As soon as practicable
after the relevant Closing Date: (i) NPC shall provide its
Former Employees the option to effect a distribution of their
account balances under the National Pizza Company Profit-
Sharing Plan (the "NPC Plan") or to transfer their account
balances under the NPC Plan to the PepsiCo Long Term Savings
Program (the "PepsiCo Plan"); (ii) PHSD shall provide its
Former Employees the opportunity to effect a distribution of
their account balances under the PepsiCo Plan. Except as
provided in Sections 13.4 and 13.7, no service or credited
service will be provided to any Former Employee under a Former
Employer's benefits and compensation plans, programs,
arrangements, or understandings after the Closing Date.
.7 Benefits to be Provided. Each New Employer
will treat the New Employees as if they had been hired directly
by the New Employer, and neither New Employer will
differentiate in the treatment of its current employees and the
New Employees. Any health, disability, and life insurance
benefits shall be provided to any currently insured New
Employees without regard to any waiting periods or any
preexisting condition limitations, and each New Employer shall
honor and give full credit to all deductible amounts previously
paid by the New Employees.
.8 Future Employment. Nothing in this
Agreement shall be deemed or construed to require the New
Employer to continue to employ any of the New Employees for any
period after the relevant Closing Date.
.9 Agreement Not to Recruit. Each Former
Employer agrees that, for a period of three (3) years from the
relevant Closing, it will not, directly or indirectly, for
itself or for any other person or entity, solicit any former
employee who is a New Employee to become reemployed with it.
.10 Certain Employees. For the period
commencing on the first Closing Date and ending on August 3,
1994, NPC will provide the full time services as consultants to
PHSD and its affiliates of the individuals listed on Schedule
13.10 hereto to assist in the transition. During such period,
NPC shall pay wages, benefits, taxes and all other charges
associated with the employment of such individuals and provide
the office space and other equipment and facilities currently
utilized by such employees in the performance of their regular
duties. PHSD shall reimburse NPC for all payroll and benefit
expenses and all other costs incurred by NPC in providing the
services of any such consultant employees and the associated
equipment and facilities applicable to such services; provided,
however, that NPC shall remain solely responsible for any
severance or other benefits payable upon, or in respect of, the
termination of any such consultant employees.
XIV EMPLOYEE BENEFITS AND ERISA
.1 Treatment of PH Employee Plans.
(a) No Assumption of PH Employee Plans. It is expressly
understood and agreed by the parties that NPC is not adopting
for the benefit of any past, present or future employees of NPC
and any of its past, present or future affiliates, any of the
PH Employee Plans, and that NPC, as a result of this
transaction, shall not assume any liability or obligation of
PHSD or its affiliates relating to or arising under any PH
Employee Plan. Any obligation or liability relating to or
arising under any PH Employee Plan (including, but not limited
to, any liability or obligation that arises as a result of the
transaction contemplated by this Agreement) shall remain the
sole and complete responsibility of PHSD and its affiliates.
For purposes of the preceding paragraph, such
obligations and liabilities shall include, but not be
limited to, (i) any medical expenses incurred by any of
the PHSD employees of PHSD or its affiliates (whether
prior or subsequent to the relevant Closing Date) for
medical care related to events occurring prior to the
relevant Closing Date, (ii) any claims for disability
benefits by any employee of PHSD or its affiliates whose
elimination period includes the relevant Closing Date,
(iii) except as set forth in Section 16.2(e), the payment
of severance pay under any severance pay plan or
arrangement covering any employee of PHSD or its
affiliates, (iv) the extension of benefits under any
"group health plan" as defined in Section 601(1) of ERISA
in accordance with the requirements of Part 6 of Title I
of ERISA and Section 4980B of the Code, (v) the payment of
any taxes, interest, penalties, damages, losses and claims
resulting from the failure to comply with any of the
requirements of Part 6, Title I of ERISA and Code
Section 4980B and (vi) any present or future obligation to
make any payment to or with respect to any present or
former employee of PHSD or its affiliates pursuant to any
retiree medical benefit plan.
(b) Indemnification of NPC by PHI and PHSD. With respect
to the PH Employee Plans, each of PHI and PHSD hereby agrees to
indemnify and hold NPC harmless from and against any and all
losses, damages, claims, liabilities, penalties, taxes,
assessments, liens, and expenses (including, without
limitation, attorneys' fees) relating to or arising out of the
establishment, operation or maintenance of any such PH Employee
Plan or the termination of participation by the past, present
or future employees of PHSD and any of its past, present or
future affiliates therein as contemplated by this Agreement.
.2 Treatment of NPC Employee Plans.
(a) No Assumption of NPC Employee Plans. It is expressly
understood and agreed by the parties that neither PH nor PHSD
is adopting for the benefit of any past, present or future
employees of NPC and any of its past, present or future
affiliates, any of the NPC Employee Plans, and that neither PH
nor PHSD, as a result of this transaction, shall assume any
liability or obligation of NPC or its affiliates relating to or
arising under any NPC Employee Plan. Any obligation or
liability relating to or arising under any NPC Employee Plan
(including, but not limited to, any liability or obligation
that arises as a result of the transaction contemplated by this
Agreement) shall remain the sole and complete responsibility of
NPC and its affiliates.
For purposes of the preceding paragraph, such
obligations and liabilities shall include, but not be
limited to, (i) any medical expenses incurred by any of
the employees of NPC or its affiliates (whether prior or
subsequent to the relevant Closing Date) for medical care
related to events occurring prior to the relevant Closing
Date, (ii) any claims for disability benefits by any
employee of NPC or its affiliates whose elimination period
includes the relevant Closing Date, (iii) except as set
forth in Section 16.3(e), the payment of severance pay
under any severance pay plan or arrangement covering any
employee of NPC or its affiliates, (iv) the extension of
benefits under any "group health plan" as defined in
Section 601(1) of ERISA in accordance with the
requirements of Part 6 of Title I of ERISA and
Section 4980B of the Code, (v) the payment of any taxes,
interest, penalties, damages, losses and claims resulting
from the failure to comply with any of the requirements of
Part 6, Title I of ERISA and Code Section 4980B and (vi)
any present or future obligation to make any payment to or
with respect to any present or former employee of NPC or
its affiliates pursuant to any retiree medical benefit
plan.
(b) Indemnification of PHI and PHSD by NPC. With respect
to the NPC Employee Plans, NPC hereby agrees to indemnify and
hold each of PHI and PHSD harmless from and against any and all
losses, damages, claims, liabilities, penalties, taxes,
assessments, liens, and expenses (including, without
limitation, attorneys' fees) relating to or arising out of the
establishment, operation or maintenance of any such NPC
Employee Plan or the termination of participation by the past,
present or future employees of NPC and any of its past, present
or future affiliates therein as contemplated by this Agreement.
.3 Definitions. The following terms, when
used in or in connection with the above Sections 14.1 and 14.2,
shall have the following meanings. Any of these terms may,
unless the context otherwise requires, be used in the singular
or the plural depending on the reference.
(a) Benefit Arrangement. "Benefit Arrangement" shall
mean any employment, consulting, severance or other similar
contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing
for insurance coverage (including any self-funded
arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident
benefits (including, without limitation, any "voluntary
employees' beneficiary association" as defined in
Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses,
stock options, stock appreciation rights, stock purchases or
other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (A) is not a Welfare
Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as
the case may be, by NPC, PHI, any Subsidiary of NPC or PHI, or
an ERISA Affiliate of NPC or PHI or under which NPC or PHI, any
Subsidiary of NPC or PHI, or any ERISA Affiliate of NPC or PHI
may incur any liability, and (C) covers any employee or former
employee, independent contractor or former independent
contractor, officer, director or agent of NPC or PHI, any
Subsidiary of NPC or PHI, or any ERISA Affiliate of NPC or PHI.
(b) ERISA. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
(c) ERISA Affiliate. "ERISA Affiliate" shall mean (A)
any entity which is (or at any relevant time was) a member of a
"controlled group of corporations" with or under "common
control" with NPC or PHI, as the case may be, as defined in
Section 414(b) or (c) of the Code, or (B) any entity which is
(or at any relevant time was) a member of an "affiliated
service group" (as such term is defined in Section 414(m) of
the Code) which includes NPC or PHI, as the case may be.
(d) Multiemployer Plan. "Multiemployer Plan" shall mean
any "multiemployer plan," as defined in Section 4001(a)(3) of
ERISA (A) which NPC or PHI, any Subsidiary of NPC or PHI, or
any ERISA Affiliate of NPC or PHI maintains, administers,
contributes to or is required to contribute to, or, after
September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which NPC or PHI, any
Subsidiary of NPC or PHI, or any ERISA Affiliate of NPC or PHI
may incur any liability and (B) which covers any employee or
former employee, officer, director or agent of NPC or PHI, any
Subsidiary of NPC or PHI, or any ERISA Affiliate of NPC or PHI.
(e) NPC Employee Plans. "NPC Employee Plans" shall mean
all Benefit Arrangements, Multiemployer Plans, Pension Plans
and Welfare Plans which cover or have covered any employee or
former employee, independent contractor or former independent
contractor, officer, director or agent of NPC, any Subsidiary
of NPC, or any ERISA Affiliate of NPC.
(f) Pension Plan. "Pension Plan" shall mean any
"employee pension benefit plan" as defined in Section 3(2) of
ERISA (other than a Multiemployer Plan) (A) which NPC or PHI,
any Subsidiary of NPC or PHI, or any ERISA Affiliate of NPC or
PHI maintains, administers, contributes to or is required to
contribute to, or within the five years prior to the Closing
Date, maintained, administered, contributed to or was required
to contribute to, or under which NPC or PHI, any Subsidiary of
NPC or PHI, or any ERISA Affiliate or NPC or PHI may incur any
liability and (B) which covers any employee or former employee,
officer, director or agent of NPC or PHI, any Subsidiary of NPC
or PHI, or any ERISA Affiliate of NPC or PHI.
(g) PH Employee Plans. "PH Employee Plans" shall mean
all Benefit Arrangements, Multiemployer Plans, Pension Plans
and Welfare Plans which cover or have covered any employee or
former employee, independent contractor or former independent
contractor, officer, director or agent of PHI, any Subsidiary
of PHI, or any ERISA Affiliate of PHI.
(h) Subsidiary. "Subsidiary" shall mean any corporation,
partnership, or other business entity controlled by NPC or PHI,
directly or indirectly. In the case of a corporation, such
control shall be evidenced where more than 50% of the voting
stock of such corporation, at the time as of which any
determination is being made, is owned by NPC or PHI, either
directly or through Subsidiaries.
(i) Welfare Plan. "Welfare Plan" shall mean any
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA (A) which NPC or PHI, any Subsidiary of NPC or PHI, or
any ERISA Affiliate of NPC or PHI maintains, administers,
contributes to or is required to contribute to, or under which
NPC or PHI, any Subsidiary of NPC or PHI, or any ERISA
Affiliate of NPC or PHI may incur any liability and (B) which
covers any employee or former employee, independent contractor
or former independent contractor, officer, director or agent of
NPC or PHI, any Subsidiary of NPC or PHI, or any ERISA
Affiliate of NPC or PHI.
XV BULK TRANSFER; TAX
CERTIFICATES
Except to the extent required under any applicable
alcoholic beverage license regulations, the parties hereto
agree and acknowledge that, notwithstanding anything to the
contrary contained herein, neither party shall be required to
comply with Article VIII, Bulk Transfers of the Uniform
Commercial Code, as in effect in the states in which the NPC
Assets, the O'Donnell Assets and the PH Assets are located, and
neither party shall be required to obtain tax clearance
certificates from any state taxing authority with respect to
sales and use taxes and from any state employment development
departments with respect to unemployment compensation insurance
contributions; provided, however, that in the event any claim
is made against a party which arises out of the failure of the
other to comply with such bulk transfer laws, or to pay such
taxes, such party shall be entitled to indemnification as
provided in Article XVI hereof, as applicable. The parties
recognize and agree that the alcoholic beverage license
regulations for the State of Maryland do require compliance
with that state's Bulk Sales Law and the parties further agree
to fulfill those requirements.
XVI INDEMNIFICATION AND
MEDIATION
.1 Survival. The representations, warranties,
and covenants made herein shall survive the Final Closing until
the third anniversary of the date hereof except that the
representations, warranties and covenants set forth in Sections
5.1, 5.2, 6.1, 6.2, 14.1(b), 14.2(b) and those relating to
federal, state and local taxes shall continue until the
applicable statute of limitations (including extensions)
expires. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of
any party hereto pursuant hereto or in connection with the
transactions contemplated hereby shall be deemed to be
representations and warranties by such party hereunder as of
the date of the Closing at which such documents are delivered.
The indemnification obligations under Sections 16.2 and 16.3
shall survive termination of this Agreement.
.2 Indemnification of PHI and PHSD by NPC.
NPC agrees to hold harmless, indemnify and defend each of PHI
and PHSD, persons who control, are controlled by or are under
common control with PHI and PHSD, and the directors, officers
and employees thereof, from and against, and will reimburse
such indemnified parties with respect to, any and all claims,
demands, causes of action, proceedings, losses, damages, debts,
expenses, liabilities, fines, penalties, deficiencies,
judgments or costs, including, without limitation, reasonable
accountants' and attorneys' fees, court costs, amounts paid in
settlement and costs and expenses of investigations
(collectively, "Claims") at any time and from time to time
asserted against or incurred by any such indemnified party
insofar as such Claims are based upon:
(a) any breach or nonfulfillment of or any inaccuracy in
any representation, warranty, covenant or agreement contained
herein or otherwise made in writing by or on behalf of NPC in
connection with the transactions contemplated hereby;
(b) any injury to any person or damage to any property
occurring prior to the relevant Closing Date related in any way
to the NPC Sites, or to any product of the NPC Sites produced
prior to the relevant Closing Date except to the extent such
Claims are liabilities assumed by PHSD hereunder;
(c) any and all Claims against PHI or PHSD relating to,
concerning or involving any of the NPC Assets, but only to the
extent such Claims arise from or are based upon any action,
event or condition existing on or occurring before the relevant
Closing Date;
(d) any claim for severance or termination pay allegedly
due upon or in respect of the termination by NPC or its
affiliates of any person who, on or prior to the Final Closing
Date, was an employee of NPC or its affiliates;
(e) any claim for severance or termination pay by reason
of the termination by NPC on or after the relevant Closing Date
of any person who had been an employee of PHSD or one of its
affiliates;
(f) any claim, including claims under the Workers'
Adjustment and Retraining Notification Act (the "WARN Act"),
arising out of or relating to the employment or termination by
NPC or its affiliates prior to the relevant Closing Date of any
of their employees;
(g) the failure of NPC or any of its affiliates, as
transferor, to comply with the "bulk transfer" laws of any
jurisdiction in connection with the transactions contemplated
hereby;
(h) the failure of NPC to pay any taxes, including,
without limitation, its agreed share of any sales tax resulting
from the transfer of the PH Assets to NPC or the transfer of
the NPC Assets and O'Donnell Assets to PHSD, or to make any
unemployment compensation insurance contribution;
(i) any claims by any former employee of PHSD or
O'Donnell that NPC or its affiliates unlawfully refused to hire
him/her after the relevant Closing because of that person's
race, age, sex, religion, national origin, disability, or union
membership. This indemnification does not extend to any claims
that PHI or PHSD violated any law or collective bargaining
agreement by its own acts, or omissions, including but not
limited to (1) termination by PHSD of any of its employees
prior to the relevant Closing Date; (2) PHSD's failure to
require that NPC as transferee assume any or all of PHSD's
Collective Bargaining Agreements; or (3) PHSD's failure to
provide appropriate notice under the WARN Act;
(j) any claim or liability of any kind related in any way
to NPC's operation, ownership, use or enjoyment of the
O'Donnell Assets;
(k) any claim or liability of any kind alleging that NPC
or its affiliates breached the O'Donnell Agreement or any other
agreements or arrangements related thereto; or
(l) NPC's failure to deliver the consent of any lessor to
the assignment of a lease to PHSD and its affiliates where such
lease requires lessor's consent for such an assignment.
.3 Indemnification of NPC by PHI and PHSD.
PHI and PHSD agree to hold harmless, indemnify and defend NPC,
persons who control, are controlled by or are under common
control with NPC, and the directors, officers and employees
thereof, from and against, and will reimburse such indemnified
parties with respect to Claims at any time and from time to
time asserted against or incurred by any such indemnified party
insofar as such Claims are based upon:
(a) any breach or nonfulfillment of or any inaccuracy in
any representation, warranty, covenant or agreement contained
herein or otherwise made in writing by or on behalf of PHI or
PHSD in connection with the transactions contemplated hereby;
(b) any injury to any person or damage to any property
occurring prior to the relevant Closing Date related in any way
to the PH Sites, or to any product of the PH Sites produced
prior to the relevant Closing Date except to the extent such
Claims are liabilities assumed by NPC hereunder;
(c) any and all Claims against NPC relating to,
concerning or involving any of the PH Assets, but only to the
extent such Claims arise from or based upon any action, event
or condition existing on or occurring before the relevant
Closing Date;
(d) any claim for severance or termination pay allegedly
due upon or in respect of the termination by PHSD or its
affiliates of any person who, on or prior to the Final Closing
Date, was an employee of PHSD or its affiliates;
(e) any claim for severance or termination pay by reason
of the termination by PHSD on or after the relevant Closing
Date of any person who had been an employee of NPC or one of
its affiliates;
(f) any claim, including claims under the WARN Act,
arising out of or relating to the employment or termination by
PHSD or its affiliates prior to the relevant Closing Date of
any of their employees;
(g) the failure of PHSD or any of its affiliates, as
transferor, to comply with the "bulk transfer" laws of any
jurisdiction in connection with the transactions contemplated
hereby;
(h) the failure of PHSD to pay any taxes, including,
without limitation, its agreed share of any sales tax resulting
from the transfer of the NPC Assets and the O'Donnell Assets to
PHSD or the transfer of the PH Assets to NPC, or to make any
unemployment compensation insurance contribution;
(i) any claims by any former employee of NPC that PHSD or
its affiliates unlawfully refused to hire him/her after the
relevant Closing because of that person's race, age, sex,
religion, national origin, disability, or union membership.
This indemnification does not extend to any claims that NPC
violated any law or collective bargaining agreement by its own
acts, or omissions, including but not limited to (1)
termination by NPC of any of its employees prior to the
relevant Closing Date; (2) NPC's failure to require that PHSD
as transferee assume any or all of NPC's Collective Bargaining
Agreements; or (3) NPC's failure to provide appropriate notice
under the WARN Act;
(j) any claim or liability of any kind related in any way
to PHSD's operation, ownership, use or enjoyment of the
O'Donnell Assets which arises after the transfer to PHSD of the
O'Donnell Assets as contemplated hereby; or
(k) PHSD's failure to deliver the consent of any lessor
to the assignment of a lease to NPC and its affiliates where
such lease requires lessor's consent for such an assignment.
.4 Indemnification Procedure. In the event of
any Claim by either party hereto seeking indemnification under
this Article XVI (an "Indemnified Party"):
(a) The Indemnified Party will give the other party (the
"Indemnifying Party") prompt written notice of the Claim
asserted against or imposed upon or incurred by the Indemnified
Party (which notice shall set forth the basis of the Claim) and
the Indemnifying Party shall have the right to undertake the
defense thereof by representatives of its own choosing;
provided, however, that the Indemnified Party may join in the
defense of any such Claim and employ counsel at its own
expense.
(b) In the event that the Indemnifying Party, within ten
(10) days after notice of the Claim, fails or refuses to
undertake the defense of such Claim, the Indemnified Party will
(upon further written notice to the Indemnifying Party) have
the right to undertake the defense, compromise or settlement of
the Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of the Claim at any time prior to
the settlement, compromise or final determination thereof. If
any Indemnified Party undertakes the defense, compromise or
settlement of any such Claim pursuant to this Section 16.4, the
Indemnifying Party shall reimburse such Indemnified Party for
any reasonable legal fees and expenses incurred in connection
therewith within five (5) business days of receipt of notice
seeking such reimbursement.
(c) Notwithstanding anything to the contrary contained
herein, (i) if there is a reasonable probability that the Claim
may materially and adversely affect the Indemnified Party other
than as a result of money damages or other money payments, the
Indemnified Party shall have the right to defend, compromise or
settle the Claim; provided, however, in such event, if the
Indemnified Party shall compromise or settle such Claim without
the approval of the Indemnifying Party, the Indemnifying Party
shall not be bound by such compromise or settlement, and
(ii) the Indemnifying Party shall not, without the Indemnified
Party's written consent, settle or compromise the Claim or
consent to entry of any judgment that does not include as an
unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Party from all liability in
respect of the Claim.
.5 Effect of Insurance Payments.
Notwithstanding the provisions of this Article XVI, no person
shall be entitled to be indemnified hereunder for any portion
of the amount of any Claim with respect to which such person
has previously received or will receive payment from any
insurer or other third party.
.6 Limitations on Indemnification.
(a) No Indemnifying Party shall be liable to an
Indemnified Party pursuant to Section 16.2 or 16.3 hereof with
respect to any Claim unless written notice of such Claim shall
have been given to such Indemnifying Party on or prior to the
third anniversary of the Final Closing Date, except as to
Environmental Claims and Claims related to tax matters, with
respect to which the liability to indemnify shall expire when
the Indemnified Party is no longer subject to liability for
such Claims.
(b) Each party's responsibility to indemnify the other
pursuant to Section 16.2 or 16.3 hereof shall be limited to the
extent that claims for indemnity (other than claims under
Sections 16.2(d), (e), (h), (i) or (k) or 16.3(d), (e), (h) or
(i)) must total One Hundred Thousand Dollars ($100,000) in the
aggregate before a party hereto may seek reimbursement for such
Claims from the other. Once the $100,000 basket is met, the
Indemnified Party may seek reimbursement for all additional
indemnity Claims (but not such initial $100,000 in claims) from
the Indemnifying Party for any dollar amount.
(c) In no event will a party's indemnity obligation under
Section 16.2 or 16.3 exceed Forty Million Dollars
($40,000,000.00).
.7 Other Remedies. The right of an
Indemnified Party to be indemnified under this Article XVI
shall not limit, reduce or otherwise affect the rights and
remedies of such Indemnified Party under this Agreement.
.8 Mediation.
(a) The parties shall attempt in good faith to resolve
any dispute arising out of or relating to this Agreement
promptly by negotiations between executives who have authority
to settle the controversy. Either party may give the other
party written notice of any dispute not resolved in the normal
course of business. Within 20 days after delivery of said
notice, executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and
to attempt to resolve the dispute. If the matter has not been
resolved within 60 days of the disputing party's notice, either
party may initiate mediation as provided hereinafter.
If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator shall be
given at least three working days' notice of such
intention and may also be accompanied by an attorney. All
negotiations pursuant to this clause are confidential and
shall be treated as compromise and settlement negotiations
for purposes of the Federal Rules of Evidence and state
rules of evidence.
(b) If the dispute has not been resolved by negotiation
as provided herein, the parties shall endeavor to settle the
dispute by mediation under the then current Center for Public
Resources ("CPR") Model Procedure for Mediation of Business
Disputes. The neutral third party will be selected from the
CPR Panels of Neutrals. If the parties encounter difficulty in
agreeing upon a neutral, they will seek the assistance of CPR
in the selection process.
XVII TERMINATION
.1 Termination by Either Party. Without
prejudice to other rights and remedies which it may have,
either party may, at its option, terminate this Agreement at
any time prior to the first Closing by giving notice thereof to
the other party if:
(a) A bona fide legal action or proceeding is pending or
threatened against such party as of the date of such notice of
termination, an unfavorable judgment, decree or order in such
action or proceeding would prevent or make unlawful the
consummation of the transactions contemplated by this Agreement
and an unfavorable judgment, order or decree is likely;
(b) The modification or amendment, contemplated in
Sections 8.3(b) or 9.3(b) hereof as applicable, to any section
in or schedule to this Agreement reveals a material change in
the assets or the business to be acquired by that party and
such party reasonably determines, in its sole discretion, that
any Closing is therefore undesirable;
(c) Any representation, warranty or covenant in this
Agreement shall prove to have been incorrect, incomplete or
misleading at the time it was made in any material respect; and
(d) Any of the conditions precedent to the Closings,
contained at Articles X and XI, as applicable, do not occur.
(e) In the event of termination of this Agreement as
expressly permitted under this Section 17.1, this Agreement and
the memorandum of intent dated March 30, 1994, executed by NPC
and PHI shall forthwith become void and there shall be no
liability on the part of either party, or their respective
officers, directors, or affiliated companies.
.2 Delay. It is the intention of the parties
that all of the transfers to be made hereunder shall be
concluded within 180 days (the "Transfer Period") after the
actual date on which the first Closing hereunder occurs. The
parties acknowledge and agree that the payment obligation of
PHSD referred to in Section 3.3 above is based on the
assumption that all of the NPC Sites (and the related NPC
Assets) and the O'Donnell Sites (and the related O'Donnell
Assets) will be transferred to PHSD, and that all of the PH
Sites (and the related PH Assets) will be transferred to NPC,
prior to or on the last day of the Transfer Period. However,
the parties recognize that any number of circumstances could
prevent one or more of such transfers from taking place during
the Transfer Period. Without limiting the generality of the
foregoing, a transferee will not be under any obligation to
accept a transfer of:
(a) any Site in respect of which the transferor is unable
to transfer good, valid and marketable fee simple or leasehold,
as applicable, title,
(b) any leased Site in respect of which the transferor is
unable to assign to the transferee a valid and effective lease
with all of the required consents to the transfer; or
(c) any Site which would be, in the reasonable judgment
of the transferee, substantially impossible to operate as
reasonably anticipated because of some material defect in the
Site or its equipment package.
The parties hereby agree that, without prejudice to either
party's right to pursue its remedies for any failure by the
other party to perform hereunder, in the event one or more of
the transfers required hereunder has not occurred by the end of
the Transfer Period:
(ii) None of the transfers that were, in fact, made during
the Transfer Period shall be rescinded, reversed or cancelled;
(iii) All payments required to be made hereunder prior to
or on the Final Closing Date will be due and payable on the
last day of the Transfer Period and any payments required to be
made hereunder within a specified number of days after the
Final Closing Date will be due and payable on that specified
number of days after the last day of the Transfer Period;
(iv) if any NPC Site (or group of NPC Sites) has not been
transferred to PHSD prior to the end of the Transfer Period,
the aggregate amount payable by PHSD to NPC under Section 3.3
shall be reduced by the amount set forth next to such NPC Site
(or group of NPC Sites) on the attached Schedule 17.2, (or, if
no such amount is set forth thereon, four times the cash flow
of such Site(s) for the four fiscal quarter period ended
December 28, 1993);
(v) if any O'Donnell Site (or group of O'Donnell Sites) has
not been transferred to PHSD prior to the end of the Transfer
Period, PHSD shall have the option to elect either to: (x)
reduce the aggregate amount payable by PHSD to NPC under
Section 3.3 by the amount set forth next to such O'Donnell Site
(or group of O'Donnell Sites) on the attached Schedule 17.2,
(or, if no such amount is set forth thereon, four times the
cash flow of such Site(s) for the four fiscal quarter period
ended closest to December 31, 1993 (for purposes of this
section, the "Value")), or (y) without incurring any liability
to NPC in respect thereof, retain and not transfer to NPC a
number of PH Sites with a Value approximately equal to the
payment amount in Section 17.2(iv)(x) above of its selection;
and
(vi) if any PH Site (or group of PH Sites) has not been
transferred to NPC prior to the end of the Transfer Period, the
aggregate amount payable by PHSD to NPC under Section 3.3 shall
be increased by the amount set forth next to such PH Site (or
group of PH Sites) on the attached Schedule 17.2, (or if no
such amount is set forth thereon, four times the cash flow of
such Site(s) for the four fiscal quarter period ended
December 23, 1993).
XVIII MISCELLANEOUS
.1 Notices. All notices, requests, claims,
demands or other communications required or permitted by this
Transfer Agreement or any instrument provided for herein to be
given or made by the parties shall be in writing (including,
without limitation, by telex or telecopy) and shall be deemed
delivered if delivered in person, by telegram, telefax, telex,
or telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties:
To NPC: National Pizza Company
100 North Pine Street
Pittsburg, KS 66762
Fax: (316) 231-1199
Attention: President
To PHI: Pizza Hut, Inc.
9111 East Douglas
Wichita, KS 67201
Fax: (316) 681-9850
Attention: President
With a copy to: Senior Vice President, General Counsel
To PHSD: Pizza Hut of San Diego, Inc.
9111 East Douglas
Wichita, KS 67201
Fax: (316) 681-9850
Attention: President
With a copy to: Senior Vice President, General Counsel
Any of the respective parties may, however, designate
in writing such new or other addresses or telecopy numbers to
which such notice shall thereafter be mailed or telecopied.
Any notice or demand given in accordance with this section
shall be deemed delivered upon deposit in the United States
mail, properly addressed, and with correct postage, or in the
event of hand-delivery, telegram, telefax, telex or telecopy
upon receipt.
.2 Expenses. Except as otherwise provided in
this Agreement, each party hereto shall bear all of its own
costs, fees and expenses in connection with the transactions
contemplated hereby, including, without limitation, all fees
and expenses of their respective agents, representatives,
counsel and accountants; provided, however, that if either
party institutes any action or proceeding in any court to
enforce the provisions hereof, or for damages by reason of an
alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable a
ttorneys' fees incurred in bringing or defending such action or
proceeding, including any such fees incurred on appeal of any
such action or proceeding. In addition, except for the costs
of the investigation required by Section 11.9 hereof, which
shall be borne by NPC, to the extent that a transferee obtains
a survey and/or environmental audit on any of the Sites being
transferred to it, the transferee shall be responsible for
obtaining such survey and/or environmental audit at its sole
cost. In each case, the transferee shall pay necessary title
insurance costs. NPC and PHSD shall each pay 50% of the fees
and expenses of Arthur Andersen & Co. and all real estate,
sales and transfer taxes and fees incurred in conjunction with
the Closings. The provisions of this Section 18.2 shall
survive the Final Closing hereunder and any termination of this
Agreement.
.3 Public Announcement. No press release or
other public announcement, or notice to or other communication
with either party's distributors, dealers, suppliers,
customers, employees or stockholders relating to the
transactions contemplated by this Agreement shall be made or
given prior to any Closing without the prior consent of the
other party, except as may be required by law.
.4 Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
The rights, benefits, duties and obligations contemplated by
this Agreement are not assignable by either party.
.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Kansas.
.6 Waiver and Amendment. Except as otherwise
expressly provided herein, no provision hereof may be waived,
amended or otherwise modified except by a written agreement
signed by each party hereto.
.7 Entire Agreement. This Agreement, together
with the exhibits and schedules hereto, embodies the entire
agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior
agreements and understandings relating thereto.
.8 Binding Agreement. The Agreement
constitutes, and all other agreements and instruments entered
into or delivered in connection with the transactions
contemplated hereby will constitute, the valid and binding
obligations of the parties and are enforceable against the
parties in accordance with their terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditor's rights, or rules of law governing specific
performance, injunctive relief or other equitable remedies.
.9 Agreement Negotiated. The parties to this
Agreement are sophisticated and have been represented by
lawyers throughout this transaction who have carefully
negotiated the provisions of this Agreement. As a consequence,
the parties do not believe that any statutory or common law
presumption relating to the interpretation of contents against
the drafter of any particular clause should be applied in this
case and therefore waive the effects of any such presumptions.
.10 Confidentiality. NPC, PHI and PHSD shall
keep this Agreement and the transactions contemplated hereby
confidential and shall only disclose it to their respective
senior management and professional advisors on a confidential
basis at all times prior to the issuance of mutual information
releases, if any.
.11 Attorneys' Fees. Should any action
(including any proceedings in a bankruptcy court) be commenced
between any of the parties to this Agreement or their
representatives concerning any provision of this Agreement or
the rights of any person or entity thereunder, solely as
between the parties or their successors, the party or parties
prevailing in such action as determined by the court shall be
entitled to recover from the other party all of its costs and
expenses incurred in connection with such action (including
without limitation fees, disbursements and expenses of
attorneys and costs of investigation).
.12 Remedies Not Exclusive. No remedy
conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise; provided,
however, that the parties agree to comply with the letter and
intent of Section 16.8 hereof prior to proceeding to litigation
in respect of any specific controversy. The election of any
one or more remedies shall not constitute a waiver or the right
to pursue other available remedies.
.13 No Third-Party Beneficiaries. Each party
intends that this Agreement shall not benefit or create any
right or cause of action in any person other than the parties.
.14 Headings. The headings of this Agreement
are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
.15 Severability. If all or any portion or
provision of this Agreement shall to any extent be held invalid
or unenforceable in whole or in part by a court or agency
having valid jurisdiction pursuant to a valid decision or
decree, then the parties hereto expressly agree to be bound by
any lesser covenant imposing the maximum legal duty permitted
by law that is subsumed within the terms of such covenant, as
if the resulting covenants were separately stated in and made a
part of this Agreement, and the remainder of this Agreement
shall remain in full force and effect.
.16 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which taken together shall
constitute one and the same instrument.
.17 Nontraditional.
(a) Schedule 18.17(a) lists every location (each, an "NPC
Nontraditional Site") within the Pizza Hut franchise
territories associated with the NPC Sites where, to the best of
NPC's and PHI's knowledge, third parties are licensed or
authorized presently to sell products under the Pizza Hut
trademark. Any rights NPC presently has to participate or
share in the sales of the NPC Nontraditional Sites or to
receive payments in respect thereof shall terminate upon the
Closing for the applicable territory hereunder; provided,
however, that until paid, NPC shall continue to have the right
to receive its participation payments in respect of all Pizza
Hut sales made through the date of Closing at the NPC
Nontraditional Sites.
(b) Schedule 18.17(b) lists every location (each a "PH
Nontraditional Site") within the Pizza Hut franchise
territories associated with the PH Sites where, to the best of
PHI's knowledge, third parties are licensed or authorized
presently to sell products under the Pizza Hut trademark. NPC
shall be entitled to receive fifty percent (50%) of the net
payments (gross payments, less the deduction for local and
national advertising) received by PHI in respect of the Pizza
Hut sales made at the PH Nontraditional Sites subsequent to the
Closing for the applicable territory.
(c) Currently, PHI is working on projects that might lead
to the opening of nontraditional sites at the locations listed
on Schedule 18.17(c) (the "Proposed Nontraditional Sites").
NPC shall be entitled to receive fifty percent (50%) of the net
payments (gross payments, less the deduction for local and
national advertising) received by PHI in respect of the Pizza
Hut sales made at the Proposed Nontraditional Sites subsequent
to the Closing for the applicable territory.
(d) NPC recognizes and agrees that PHI will continue to
administer its national nontraditional programs and that
additional nontraditional sites may be opened in NPC's Pizza
Hut territory. Any payments in connection with any such
additional nontraditional sites opened in the future in NPC
territory shall, except as provided for in Article I.D.1 of the
New Agreements, be agreed upon by the parties.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the date first set
forth above.
NATIONAL PIZZA COMPANY PIZZA HUT, INC.
_____________________________ ________________________________
PIZZA HUT OF SAN DIEGO, INC.
________________________________
Exhibit 11
<TABLE>
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
<CAPTION>
----------Fiscal Year Ended-------------
March 29, March 30, March 31,
1994 1993 1992 (1)
<S> <C> <C> <C>
PRIMARY
Shares outstanding at
beginning of period 25,284,622 26,362,005 27,453,320
Weighted average of
shares issued and
reacquired during period (191,438) (550,294) (354,678)
Assuming exercise of
options and warrants
reduced by the number
of shares which could
have been purchased with
the proceeds from exercise 74,165 91,652 239,591
Shares outstanding
for computation
of per share earnings 25,167,349 25,903,363 27,338,233
Net income $ 11,295,000 $ 9,124,000 $11,045,000
Earnings per share $ 0.45 $ 0.35 $ 0.40
FULLY DILUTED
Shares outstanding at
beginning of period 25,284,622 26,362,005 27,453,320
Weighted average of
shares issued and
reacquired during period (191,438) (550,294) (354,678)
Assuming exercise of
options and warrants
reduced by the number
of shares which could
have been purchased with
the proceeds from exercise 86,384 110,786 241,941
Shares outstanding
for computation
of per share earnings 25,179,568 25,922,497 27,340,582
Net income $ 11,295,000 $9,124,000 $11,045,000
Earnings per share $ 0.45 $ 0.35 $ 0.40
</TABLE>
[FN]
(1) Fiscal Year Included 53 Weeks
EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
NATIONAL PIZZA COMPANY
National Pizza Company is the largest Pizza Hut franchisee in the
world operating 363 Pizza Hut restaurants and delivery kitchens in
thirteen states. The Company operates and franchises 206 Skipper's
quick service seafood restaurants in twelve western states and British
Columbia. Romacorp, Inc., acquired by the Company on June 8, 1993,
operates and franchises 163 Tony Roma's A Place for Ribs, nationwide.
The Company's common shares are traded on the NASDAQ Stock
Market under the symbols "PIZA" and "PIZB." On July 12, 1994, the
Company anticipates its name will change to NPC International, Inc.
and it will adopt new ticker symbols: "NPCIA" and NPCIB".
ANNUAL MEETING
The annual meeting of stockholders of National Pizza Company will be
held at 10:00 a.m. on Tuesday, July 12, 1994, at the Memorial
Auditorium, 503 North Pine Street, Pittsburg, Kansas. Stockholders,
vendors and members of the business community are invited to attend
the meeting; Class A Common stockholders of record as of June 7,
1994, will be entitled to vote on any issues brought before the group.
<TABLE>
FINANCIAL SUMMARY
<CAPTION>
Fiscal Year Ended
March 29, March 30, March 31,
1994 1993 1992 (1)
<S> <C> <C> <C>
For the Year:
Revenues $337,422,000 $285,433,000 $298,718,000
Operating income 24,953,000 21,273,000 27,513,000
Loss on disposition of
underperforming assets ---- ---- 4,000,000
Income before income taxes 18,506,000 14,668,000 17,245,000
Net income 11,295,000 9,124,000 11,045,000
Earnings per share 0.45 0.35 0.40
Performance Measures:
Operating income as a
percent of revenues 7.4% 7.5% 9.2%
Income before income taxes
as a percent of revenues 5.5% 5.1% 5.8%
Net income as a
percent of revenues 3.3% 3.2% 3.7%
Return on average
stockholders' equity 12.0% 10.3% 12.8%
Return on average assets 5.2% 4.4% 5.4%
At Year-End:
Total Assets $229,112,000 $205,310,000 $206,350,000
Long-term debt 86,734,000 79,078,000 85,847,000
Stockholder's equity 98,987,000 89,436,000 87,091,000
Number of Company units 577 546 560
Number of franchised units 155 18 19
</TABLE>
YEAR IN REVIEW, WITH NPC'S TOP EXECUTIVES
After the challenges National Pizza Company encountered in fiscal 1992
and 1993, we had great expectations for the fiscal year just ended. In the
1993 annual report we resolved to emphasize basic operations, to improve
earnings and to return National Pizza Company to its historical growth rate.
This year we are proud to report the significant progress the Company
has made towards these goals. Our focus on these three objectives
translated to an overall 18.2% increase in revenues and a corresponding
23.8% improvement in net income when comparing results of the fiscal
year ended March 29, 1994, with the fiscal year ended March 30, 1993.
Revenues for 1994 were approximately $337,000,000, which represents
a $52,000,000 increase over the $285,000,000 reported last fiscal year.
Approximately $38,500,000 of this growth came from our newest concept,
Tony Roma's, which the Company acquired June 8, 1993. The remaining
increase was generated primarily by our Pizza Huts, while Skipper's
maintained its sales levels from last year.
Restaurant operating profit grew at a faster rate than revenues, increasing
to 15.3% of total revenues for the 1994 fiscal year when compared with
14.9% of revenues a year ago. Factors contributing to this rise include a
7.3% same-store sales growth in our Pizza Hut restaurants, improved
returns on steady revenue levels at Skipper's and a positive contribution
by Tony Roma's.
Net income increased to $11,295,000 for the fiscal year ended
March 29, 1994, or $0.45 per share, compared with $9,124,000 or
$0.35 per share for the fiscal year ended March 30, 1993.
We plan to continue this momentum into fiscal 1995 and beyond.
We recently took steps to renew our franchise agreement with Pizza
Hut, Inc. (PHI), which would secure our franchise rights through the
year 2010. The non-binding memorandum of intent includes the exchange
of certain properties with our franchisor which would consolidate our
Pizza Hut service areas and move the Company to a 4% royalty rate
beginning in July 1996. While this increase is higher than the 2.06%
the Company currently pays, it is much lower than the royalty
rate on PHI's current franchise agreement. We intend to close this
transaction in August, 1994.
We recently announced the planned acquisition of several Pizza Hut
restaurants from other franchisees, approved by PHI earlier this fiscal
year. A new franchise agreement and our renewed long-term commitment
to the Pizza Hut system may again allow the Company the opportunity
to pursue acquisitions of other franchisee restaurants, subject to PHI's
approval.
This past year has been one of transition for Tony Roma's. We have
been very pleased, in the short time we have been associated with this
well-run organization, with the exceptional caliber of the operators and
franchisees alike. The acquisition provides National Pizza Company with
a different customer base and a vehicle for growth in the restaurant
industry's fast-growing casual theme segment.
In the coming fiscal year, we plan to continue our emphasis on operational
controls, especially in the Skipper's division. With the elevated training
and food costs associated with the BIGFOOT and luncheon buffet introductions
now behind us, we feel our Pizza Hut division is poised for improved
operational results this year. Although we already run a lean corporate staff,
we will continue to improve the administrative synergies in servicing the
concepts and refine the technology which enhances efficiency and provides
instant access to operating results. We also recognize that improving sales at
our existing units, with their fixed costs already covered, can dramatically
improve operating margins.
Despite the expansion, our corporate philosophy is to remain minimalistic,
with limited staff and negligible bureaucracy. This allows us to react
quickly to an ever-changing restaurant environment.
We strongly believe we have the proper management and the strategic plan
in place to meet our growth objectives, primarily through our Tony Roma's and
our Pizza Hut units. We will closely manage Skipper's to continue to improve
their operations.
We adopted the National Pizza Company name back in 1984, when the
Company went public. Since we are no longer just a pizza company, subject
to stockholder approval, we intend to change our name to NPC International,
Inc. to reflect the diversity of our concepts and our worldwide geographical
reach.
It is firmly our belief that National Pizza Company has made the turn
towards strength and prosperity. We appreciate the stockholders who
stood by the Company when the prospects were not as bright, and welcome
new investors who are joining us in this exciting opportunity.
Sincerely,
Gene Bicknell
Chairman of the Board
Mitch Boyd
President and Chief Executive Officer
Pizza Hut Operational Review
Fiscal 1994 was our first complete year with the luncheon buffet and
BIGFOOT, our monster, one-foot-by-two-foot value-priced pizza. Both
are a great success for us, helping push the Pizza Hut operations' sales
up $13,600,000, a 6.7% increase over a year ago. Sales on a comparable
basis were up 7.3% for the year. Restaurant operating profit rose 11% as
we sought to maintain level operating expenses in spite of the higher sales
base. As a result, operating profit rose to 21.3% of fiscal 1994 revenues,
up from 20.5% for the previous year.
Marty Couk, Senior Vice President of Pizza Hut Operations, said the
new products made fiscal 1994 an exceptional year for the Pizza Hut division.
The buffet increased our lunch business nearly 60% in some restaurants,
and BIGFOOT brought in a significant number of new customers who now
look to Pizza Hut for their value-priced pizza. In fiscal 1994, the Company
lowered its everyday price and reduced the number of coupons distributed,
resulting in sales growth despite significantly lower marketing costs. We
intend to continue this value-pricing strategy since the segment remains
highly competitive.
Product innovations are a key to our success. Meeting our previous goals
of increasing delivery, carryout and, more recently, lunch dine-in customers,
we now will turn to our dinner dine-in segment. Our
franchisor is currently testing new products to expand the dinner menu and
continues to refine the Grand Pan Dinners, which appeal to the non-pizza
eater. Our franchisor is also experimenting with other promotions and
products to keep the buffet fresh in the eyes of our consumers.
We have taken steps to renew our franchise agreement with Pizza Hut,
Inc. (PHI), which would secure our rights to operate our Pizza Huts for
another 16 years. The agreement would involve the exchange of 84
Company-owned restaurants (primarily on the east and west coasts)
for 50 PHI-owned restaurants in the Southeast, where we already have
substantial operations. This asset swap will improve our operating
efficiencies. More importantly, the agreement would allow the Company
to acquire other franchisees, subject to the approval of the franchisor.
After assimilating a total of 20 franchisee-acquired units, already approved
by PHI, our net store count will drop by 14 units. We already have plans
to expand our delivery system in existing markets to eliminate this shortfall.
In fiscal 1994, our goal was to expand our customer and sales base.
With a 7.3% increase in comparable store sales, we feel we have accomplished
this goal. This increase, however, came at the expense of $2,000,000
in start-up costs associated with introducing BIGFOOT and the luncheon
buffet. These costs are now fully amortized and behind us. Our goal
in fiscal 1995 will be to improve profit by emphasizing food and labor
controls and leveraging the sales base we generated in fiscal 1994.
We have every reason to be extremely optimistic about the earnings and
concept growth of our Pizza Hut segment in fiscal 1995.
Skipper's Operational Review
Revenues for fiscal 1993 at Skipper's were substantially below fiscal 1992.
The current fiscal year revenues were $81,400,000, approximately the
same as fiscal 1993's revenues. While this figure was below our internal
goal, we were able to maintain those sales levels with much-less overhead
and with a 20% reduction in marketing dollars. Skipper's new President,
Frank Brown, has also made several improvements in operations, including
quicker service times.
Skipper's continues to represent a challenge. Shortly after we purchased
Skipper's, we experienced a significant increase in fish prices, part of which
we tried to pass on through pricing. Because we compete with value-priced
hamburgers, tacos and chicken, that didn't work. So in fiscal 1994, we
reduced our couponing and lowered our everyday prices, successfully
building guest counts with a value-oriented menu and quicker service.
Pricing has now become a strategic consideration, as opposed to the tactical
concern of old.
We also introduced English Style fish, which has a lower food cost.
The repositioning helped improve Skipper's traffic and operating results
in the first six months of fiscal 1994. In an attempt to further improve
profitability, we then moved--perhaps too aggressively--to promote
products with higher margins, which drew negative reactions. The third
and fourth quarters tempered the hard-fought gains made during the first
and second quarters of the fiscal year. We feel confident about the future
of Skipper's with a lower-price, higher volume strategy, but it will take
time to turn the concept into the performance player we require. The
Company is constantly testing new products such as crab cakes and
beer-battered fish to improve customer response.
We are currently focusing on four primary areas in improving Skipper's
operations: service delivery, marketing, product procurement and
operational cost controls. In fiscal 1994, we installed a new food
delivery system that will reduce our serving time to approximately
one or two minutes from our previous "cooked-to-order" eight minutes.
We have retrofitted approximately 120 stores to date with the new
holding system equipment. Our plans are to remain with the value menu
promotions which are very popular with our customers. We also
re-examined our buying procedures; in many cases we were able to
source a similar product at a lower price. During fiscal 1994, we
further pared the corporate overhead, reducing general and administrative
costs a full 1% of revenues.
As with all of our concepts, we examine results on a store-by-store basis,
and will continue to move or close those units that are unprofitable.
Tony Roma's Operational Review
National Pizza was extremely excited when we acquired the Tony Roma's
chain on June 8, 1993. The Tony Roma's concept started with one
restaurant in 1972. It featured a casual decor and comfortable
ambiance--kind of like a neighborhood bar--with sensational food and
reasonable prices. People would travel for miles to enjoy Tony Roma's
ribs. Today Tony Roma's enjoys extremely high brand name
identification. It is NPC's first entry in the casual dining market, a very
attractive segment of the restaurant industry due to the baby boomer
influence. Tony Roma's reputation is world wide, and we will continue
to aggressively expand its international and domestic franchise system to
build upon that sturdy foundation. Given the superb abilities of Roma's
personnel and franchisees, we are comfortable in this plan for accelerated
growth.
Total revenues for Tony Roma's for the 42 weeks ended March 29, 1994,
were $38,500,000, including $5,900,000 in gross franchising revenues
before related expenses. Tony Roma's is meeting the Company's financial
objectives even in this early stage, and we have great plans for its future.
National Pizza has the capital base and cash flow to expand the concept.
We anticipate opening six Company restaurants and adding at least 15
franchised units in fiscal 1995.
Our successes since owning the concept are many. We have improved
the consistency of Tony Roma's signature products, its baby back ribs
and onion rings, as well as its ancillary menu items. We helped refine
Roma's marketing niche and expanded the television media. A new
prototype restaurant design was finalized and six restaurants were
completely remodeled since acquisition. Synergies were gained by
moving administrative functions to NPC's corporate office and we
are working closely with the franchise system to resolve their issues
and ours.
We view Tony Roma's as our growth vehicle. So do our franchisees;
they've opened eighteen restaurants in the last thirteen months. We had
almost 100 inquiries about franchising opportunities in the first three
months of calendar 1994. We trust that if you are not yet convinced of
the potential of Tony Roma's, you will be in the future.
Financial Strategies
While we certainly achieved our financial objectives for this fiscal year,
which included a 24% increase in earnings, a 28% increase in earnings
per share and an 18% increase in revenues, we have not achieved our
key financial target of generating 20% compounded earnings growth the
last three fiscal years. We measure this target over a three-year period as
we invest in new products or new ventures. Contributing to fiscal 1994's
growth was the successful introductions of two new products and the
returns provided by Tony Roma's.
We invested heavily in our future, both in product introductions and
our newest venture, Tony Roma's. In Pizza Hut, we spent over
$2,000,000 in the introduction of the luncheon buffet and BIGFOOT
pizza and in the introduction of Skipper's newest fish product, English
Style. We were confident that both products would provide incremental
traffic as well as incremental profits. Both product introductions exceeded
our expectations and with the introduction costs fully amortized, we expect
future profit gains from these products.
When we purchased Tony Roma's in June of 1993, we indicated
that one of our investment strategies was to produce an acquisition
which would be non-dilutive to our stockholders. Tony Roma's has
also exceeded this goal.
In spite of acquiring Tony Roma's in an all-cash purchase, our
debt to total capitalization is 47%, which is well within our
comfort level of 50% debt to total capitalization. In fiscal 1994,
we generated nearly $35,000,000 in operating cash flow of which
approximately $19,000,000 was used to purchase Tony Roma's,
net of cash acquired, $13,000,000 was reinvested in our business
through capital expenditures, $2,000,000 to purchase company
stock and $1,000,000 to pay down debt. It is expected that future
operating cash flow will principally be used to build Tony Roma's
restaurants, to expand the Pizza Hut concept either through unit
development or franchisee acquisition and to reduce debt.
Also in 1994, we reviewed our operating assets and the returns
generated. Those assets not meeting required internal rates of
return were either divested or sold. This focus contributed to
an increase in return on assets to 5.2% compared to 4.4% in
the prior fiscal year. We will continue to review this process
throughout fiscal 1995.
Technology will continue to play a key role in our restaurant
operations. In the last two years, we implemented state of the
art back office manager workstations. To further enhance the
functionality of these workstations, we will install front-of-the-
house point of sale systems which will directly feed sales
information to our back office system and provide greater
information on sales trends, menu costing, labor requirements
as well as a host of operating information. Tony Roma's will
be the first to receive the new system followed by our Pizza
Huts and finally, Skipper's. We believe an appropriate use of
technology at the store level will improve productivity and
enhance overall operating returns.
<TABLE>
TEN YEAR FINANCIAL SUMMARY
(Dollars in thousands except per share amounts)
<CAPTION>
Fiscal Year Ended
March 29, March 30, March 31, March 26, March 27,
1994 1993 1992(1) 1991 1990
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $337,422 $285,433 $298,718 $286,079 $198,382
Cost of sales 98,693 82,552 84,722 84,010 55,709
Direct labor costs 97,102 79,829 81,386 71,637 48,258
Operating expenses 89,988 80,475 82,659 78,849 52,713
General and
administrative
expenses 26,686 21,304 22,438 21,902 15,948
Operating income 24,953 21,273 27,513 29,681 25,754
Interest expense (6,629) (6,390) (6,688) (6,258) (3,515)
Loss on disposition
of underperforming
assets ---- ---- (4,000) ---- ----
Other income (expense) 182 (215) 420 (152) 407
Premium on
conversion of debt ---- ---- ---- ---- ----
Income before
income taxes 18,506 14,668 17,245 23,271 22,646
Provision for
income taxes 7,211 5,544 6,200 8,233 7,900
Net income 11,295 9,124 11,045 15,038 14,746
Earnings per share:
Primary 0.45 0.35 0.40 0.54 0.53
Fully diluted 0.45 0.35 0.40 0.54 0.53
</TABLE>
<TABLE>
<CAPTION>
March 29, March 30, March 31, March 26, March 27,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Year-End Data:
Working capital
(deficit) $(19,620) $(16,361) $(13,033) $ (4,890) $(11,342)
Total assets 229,112 205,310 206,350 200,917 171,901
Long-term debt 86,734 79,078 85,847 86,258 66,544
Stockholders' equity 98,987 89,436 87,091 85,060 71,989
Number of Company-
owned units 577 546 560 558 526
Number of
franchised units 155 18 19 21 30
Number of employees 12,500 11,200 11,000 10,900 10,200
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
March 28, March 29, March 31, March 25, March 26,
1989 1988 1987(1) 1986 1985
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $141,776 $119,788 $96,479 $68,064 $44,709
Cost of sales 39,006 32,987 26,285 19,269 13,560
Direct labor costs 34,689 28,370 22,038 14,900 9,991
Operating expenses 38,591 30,464 24,141 17,032 11,073
General and
administrative
expenses 11,850 9,763 8,487 6,263 3,531
Operating income 17,640 18,204 15,528 10,600 6,554
Interest expense (2,630) (2,940) (2,518) (1,215) (77)
Loss on disposition
of underperforming
assets ---- ---- ---- ---- ----
Other income (expense) (548) (460) 777 802 683
Premium on
conversion of debt ---- (852) ---- ---- ----
Income before
income taxes 14,462 13,952 13,787 10,187 7,160
Provision for
income taxes 4,630 5,186 6,400 4,403 3,279
Net income 9,832 8,766 7,387 5,784 3,881
Earnings per share:
Primary 0.36 0.33 0.30 0.23 0.17
Fully diluted 0.36 0.31 0.28 0.23 0.17
</TABLE>
<TABLE>
<CAPTION>
March 28, March 29, March 31, March 25, March 26,
1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C>
Year-End Data:
Working capital
(deficit) $(3,687) $(4,219) $(5,025) $12,822 $5,382
Total assets 102,971 84,838 75,296 57,937 25,016
Long-term debt 27,720 26,867 37,269 23,037 62
Stockholders' equity 56,845 45,707 26,369 26,095 19,266
Number of Company-
owned units 321 280 240 165 109
Number of
franchised units ---- ---- ---- ---- ----
Number of employees 6,300 5,600 4,400 2,700 1,900
</TABLE>
[FN]
(1) Fiscal year included 53 weeks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
At March 29, 1994, National Pizza Company owned and operated 266
Pizza Hut restaurants and 97 delivery kitchens in 13 states. The
Company's pizza restaurants are generally free standing, full
table service restaurants which offer high quality and moderately
priced pizza, pasta, sandwiches and a salad bar. Beverage service
includes soft drinks and, in most restaurants, beer. Delivery
kitchens provide home delivery and carry out of pizza products,
but do not have dining facilities, salad bars or beer.
At March 29, 1994, the Company owned and operated 188 and
franchised 18 Skipper's quick-service seafood restaurants in 12
western states and British Columbia. Skipper's offers a limited
menu including fish, shrimp and clams. Each restaurant features a
casual atmosphere with a nautical theme and beer is served in most
locations.
The Company also owned and operated 26 and franchised 137 Tony
Roma's restaurants, a casual theme restaurant chain with 131
domestic units in 20 states and 32 international locations as of
March 29, 1994. Tony Roma's offers fully staffed, table service
and a varied menu, but is especially "Famous for Ribs". All Tony
Roma's restaurants serve alcohol.
RESULTS OF OPERATIONS
Pizza Hut Operations
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, 1994 March 30, 1993
Restaurants Delivery Restaurants Delivery
<S> <C> <C> <C> <C>
Net sales $161,667,000 $54,804,000 $149,335,000 $53,457,000
Percentage of net sales:
Cost of sales 26.5% 25.4% 26.0% 25.0%
Direct labor costs 26.3% 32.9% 26.3% 31.2%
Operating expenses 24.7% 24.1% 26.4% 25.5%
77.5% 82.4% 78.7% 81.7%
Operating profit 22.5% 17.6% 21.3% 18.3%
Number of Company units 266 97 262 96
</TABLE>
Sales
Net sales from Pizza Hut operations for the fiscal year ended
March 29, 1994, were $216 million, up 6.7% over the prior fiscal
year. In comparable restaurants and delivery kitchens open in
excess of twelve months, sales increased approximately 7.3% in
fiscal 1994 over the prior fiscal year reflecting continued impact
from the value-priced BIGFOOT pizza, the luncheon buffet and
successful national marketing campaigns.
Additionally, during fiscal year 1994, the Company recorded
approximately $910,000 in sales from its Catering division, down
47% from the previous fiscal year. This division was sold on
November 18, 1993, but the Company still operates a Pizza Hut-only
concession operation in the multi-purpose facility in Memphis,
Tennessee. The Catering division was not material to the overall
operations of the Company.
Net sales for the fiscal year ended March 30, 1993 ($203 million)
were down 2.1% from the fiscal 1992 sales. Fiscal 1992 sales,
however, included 53 weeks and average weekly sales between the
two fiscal years were comparable. Same-store sales for
restaurants and delivery kitchens open a year or more increased
0.6% in fiscal 1993 over fiscal 1992.
Management anticipates, based on the economic environment and
competitive conditions, that comparable unit sales in real dollars
will increase moderately in fiscal 1995 due to the positive
results generated by new products and from increased consumer
confidence. On September 29, 1993, the Company appointed Mr.
Marty Couk to the position of Senior Vice President of Pizza Hut
Operations with the transfer of Mr. Bob Page to Tony Roma's
operations.
The Company has the right to develop additional Pizza Hut
restaurants and delivery kitchens in its exclusive franchise
territories. During the 1980's, expansion by acquisition was one
of the Company's primary methods of growth. However, the Pizza
Hut franchise agreements give Pizza Hut, Inc. (PHI, the
franchisor) the right of first refusal on each sale of a Pizza Hut
franchisee's restaurant. In the late 1980's, Pizza Hut, Inc.
exercised this right on all proposed transactions between the
Company and other Pizza Hut franchisees. On April 5, 1994, the
Company announced that it had signed a non-binding memorandum of
intent with Pizza Hut, Inc. which would extend the company's
rights to operate its Pizza Hut restaurants through the year 2010.
As a result of the tentative agreement, PHI re-established the
Company in good standing and will allow the Company to submit
prospective acquisitions of other Pizza Hut franchisees for PHI
approval. In March, 1994, the Company completed the acquisition
of a two-unit franchise and the following month received approval
from PHI to acquire 17 additional restaurants from another
franchisee. The purchase price of the acquisitions will be funded
by the Company's revolving credit agreement. However, the
franchisor still retains the right of first refusal on any
acquisition submitted in the future.
The new franchise agreement, to be signed subsequent to March 29,
1994, would also involve the exchange of a total of 84 Company
restaurants in ten states in return for 50 PHI-owned restaurants
primarily in the Southeastern United States. Under the Agreement,
the Company's royalty payments for all units owned would increase
to 4% of gross sales beginning in July, 1996, from the Company's
current effective rate of slightly over 2%. This rate reflects
the royalty rate which was proposed by PHI to Pizza Hut
franchisees as part of the 1990 Franchise Agreement and is lower
than the royalty rate under PHI's current franchise agreement
rate.
Costs and Expenses
Cost of sales in the Pizza Hut operations as a percentage of net
sales for the fiscal year ended March 29, 1994, increased to
26.2%, a 0.5% increase when compared with the 25.7% cost of sales
percentage in fiscal 1993. Cost of sales includes food and
beverage costs and the expense of paper supplies. Some of this
increase is due to the higher costs associated with the luncheon
buffet, as well as the fluctuation of cheese prices, which is
approximately 50% of food cost. Cost of sales for fiscal 1993, as
a percent of sales, also rose slightly when compared with the
fiscal 1992 cost of sales percentage, attributable to higher
cheese costs.
Direct labor in the Pizza Hut operations increased 0.4%, to 28.0%
of fiscal 1994 net sales compared with 27.6% of fiscal 1993 net
sales, primarily due to higher training costs associated with the
introduction of BIGFOOT and employee-related costs such as workers
compensation. Direct labor for the year ended March 30, 1993,
27.6% of sales, increased 0.5% over the levels experienced in
fiscal 1992 principally from increased employee-related costs.
Overall operating expenses in fiscal 1994 were significantly lower
than fiscal 1993, dropping to 24.6% of net sales from 26.2% of net
sales. This decrease is due to reductions in concept marketing as
compared with unit volume sales and the spread of operating
expenditures over a larger sales base. Major operating expenses
in fiscal 1994 for the Pizza Hut division include advertising
($11.9 million in fiscal 1994, down 9.9% from fiscal 1993),
restaurant depreciation and amortization ($8.8 million in fiscal
1994, up 4.0% from last fiscal year), and rent ($6.2 million, up
7.8%). Fiscal 1993's operating expenses as a percentage of net
sales did not change materially when compared with fiscal 1992.
Skipper's Operations
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, 1994 March 30, 1993
<S> <C> <C>
Net restaurant sales $81,073,000 $80,606,000
Net franchise revenues 327,000 326,000
Total revenues $81,400,000 $80,932,000
Percentage of revenue:
Cost of sales 37.1% 36.8%
Direct labor costs 30.7% 28.8%
Operating expenses 30.6% 32.9%
98.4% 98.5%
Operating profit 1.6% 1.5%
Number of Company units 188 188
Number of franchised units 18 18
</TABLE>
Sales
Sales improved slightly as Skipper's returned to its value pricing
strategy and improved service time in fiscal 1994. Early in the
fiscal year, the concept relied less on coupons and adopted an
"everyday low pricing" strategy to increase customer traffic.
Customer counts rose in the first two quarters but declined in the
third and fourth quarters (compared with the comparable quarters a
year earlier) when the Company began promoting meals with higher
profit contribution margins in an attempt to enhance overall
operating returns. Sales were up 0.6% in the current fiscal year
when compared with the fiscal year ended March 30, 1993. Same
store sales were up 0.5% in the current fiscal year when compared
with the prior year.
Skipper's sales declined in the 1993 fiscal year due to the
significant increase in fish prices, which were partially passed
on to the customer. Higher sales prices caused overall sales to
decline by $9.2 million, or 10.3% in fiscal 1993 when compared
with fiscal 1992. This represented an 8.7% decline in average
weekly sales (fiscal 1992 was a 53 week year).
Management anticipates, based on the economic environment and
competitive conditions, that comparable unit sale in real dollars
will remain stable in fiscal 1995 with improved results through
food and labor cost reductions. On September 21, 1993, Mr. Frank
Brown joined the Company as President of Skipper's. Mr. Brown was
previously with another quick-service seafood chain.
Costs and Expenses
Cost of sales as a percentage of net revenues was up 0.3% of
revenues in fiscal 1994 when compared with the fiscal year ended
March 30, 1993. This increase represents the effect of similar
raw product costs on lower menu prices.
The cost of sales percentage increased 1.9% of net revenues in
fiscal 1993 when compared with fiscal 1992. Because the Company
must also compete with non-seafood competitors, increased food
costs cannot be totally recaptured through sales price increases.
The effect of increases in raw product costs were partially
offset by reductions in paper and packaging costs in the fiscal
year ended March 30, 1993, due to the introduction of the use of
permanent dinnerware for serving its products in the prior year.
Direct labor costs, consisting of wages, taxes and related fringe
benefits, increased to 30.7% of total net revenues for the fiscal
year ended March 29, 1994, compared with 28.8% for the prior
fiscal year. This increase is due to an emphasis placed on
improving service and correcting labor inefficiencies associated
with implementing Skipper's new service system. In fiscal 1994,
Skipper's retrofitted approximately 120 stores with a new food
delivery system designed to reduce serving time.
Direct labor costs increased 1.3% of net revenues in fiscal 1993
when compared with fiscal 1992. The increase in direct labor as a
percent of revenues is due primarily to management wages
representing a greater percentage of a reduced sales base.
Operating expenses continued to decline, to 30.6% of fiscal 1994
net revenues, compared with 32.9% of net revenues for the prior
fiscal year. Significant components of operating expenses include
advertising ($5.6 million in fiscal 1994, down 10.8% from fiscal
1993), restaurant depreciation and amortization ($6.0 million,
down 2.4%) and restaurant related rent expense ($3.0 million, down
1% from last year). Fiscal 1993 operating expenses as a
percentage of net revenues were higher than fiscal 1992's
operating expense percentage of 31.1% of net revenues, but the
increase is due to a much lower sales level in 1993 when compared
with 1992.
Tony Roma's Operations
<TABLE>
<CAPTION>
For the 42 Weeks Ended
March 29, 1994
<S> <C>
Restaurant sales $33,753,000
Net franchise revenues 4,764,000
Total revenues $38,517,000
Percentage of revenue:
Cost of sales 29.8%
Direct labor costs 29.3%
Operating expenses 29.6%
88.7%
Operating profit 11.3%
Number of Company units 26
Number of franchised units 137
</TABLE>
Sales
On June 8, 1993, National Pizza Company completed its acquisition
of NRH Corporation, owner and franchisor of Tony Roma's A Place
for Ribs. Since the acquisition, the Company has focused on
promoting the Tony Roma's brand through regional television
advertising, on gaining efficiencies through the consolidation of
backoffice operations, and on funding the renovation of existing
units and the building of new units to provide growth for the
Company. Immediately after the acquisition, the Company announced
Mr. Jerry Brunotts would serve as President of the subsidiary and
on September 29, 1993, the Company appointed Mr. Bob Page,
formerly the Senior Vice President of the Pizza Hut Operations, as
Chief Operating Officer of Tony Roma's .
Comparable sales for the 42 weeks ended March 29, 1994, were down
3.1% when compared with the similar period in the prior year,
reflective of the positive sales impact caused by Hurricane Andrew
in August, 1992 in the Company's Florida market. In addition, six
Florida locations were under extensive remodeling, which further
suppressed the fiscal 1994 third and fourth quarter's sales.
Franchising operations contributed approximately 12.4% of Tony
Roma's total revenue for the 42 weeks ended March 29, 1994.
One reason cited for the acquisition of Tony Roma's was to provide
a growth vehicle for the Company. Management currently
anticipates opening six to seven Company-owned restaurants in the
next fiscal year, and anticipates improved same store sales from
the completed renovations of several restaurants. Additionally,
the Company anticipates opening 15 new franchise units in the
fiscal year ended March 28, 1995. NRH was merged into its
subsidiary Romacorp, Inc. on March 29, 1994, as part of a
restructuring of the NRH corporate group.
Costs and Expenses
Costs of food, labor and operating expenses have remained fairly
steady during the 42 week fiscal period ended March 27, 1994. In
general, all three expense categories, when expressed as a percent
of net revenues, are running at a rate slightly higher in the
current fiscal period when compared with the prior fiscal period.
Such variances are not significant, given the change in ownership
and operational management since the acquisition. However,
significant to this increase are slightly higher food costs due to
improved food quality and slightly higher labor costs associated
with enhancing the overall dine-in experience.
Consolidated Results
General and administrative expenses rose to 7.9% of net revenues
for the fiscal year ended March 29, 1994, compared with 7.5% for
the fiscal year ended March 30, 1993. This increase is primarily
due to absorption of administrative costs and amortization of
certain intangibles associated with the Tony Roma's acquisition.
Major expenses principally include corporate salaries,
amortization of intangible assets, and bank service charges.
General and administrative expenses for the fiscal year ended
March 30, 1993, declined to $21.3 million, a 5.1% decrease from
the 53 weeks ended March 31, 1992.
In late fiscal 1992, the Company recognized a $4,000,000 pre-tax
charge for the planned disposition of 12 underperforming skippers
restaurants, principally in the Company's Colorado market. At
March 29, 1994, the balance of this and other newly-established
closure reserves was $2.0 million which is expected to cover the
loss on disposal of the remaining restaurant facilities and
equipment.
Interest expense is higher in this fiscal year due to increased
debt, primarily from the $21.4 million NRH acquisition in June,
1993.
Other income (expense) in the year ended March 31, 1992, included
a gain of $400,000 related to the sale of property.
The Company had minor business interruption and clean-up expenses
due to the earthquake in the Los Angeles, California area. All
restaurants were fully operating within ten days following the
January 17, 1994, quake and the incident did not materially affect
operations.
LIQUIDITY AND CAPITAL RESOURCES
On March 29, 1994, the Company had a working capital deficit of
$19.6 million ($16.4 million deficit at March 30, 1993). Like
most restaurant businesses, the Company is able to operate with a
working capital deficit because substantially all of its sales are
for cash, while it generally receives credit from trade suppliers.
Further, receivables are not a significant asset in the restaurant
business and inventory turnover is rapid. Therefore, the Company
uses all available liquid assets to reduce borrowings under its
line of credit.
The Company has a $45,000,000 unsecured line of credit. On March
29, 1994, there was $20.9 million available under this agreement.
Subsequent to March 29, 1994, the Company will sign a $20.0
million "shelf" facility with a major insurance company to provide
flexibility in financing future expansion or acquisitions, if
required.
The Company anticipates cash flow from operations will provide
sufficient capital to fund continuing expansion and improvements,
to service debt obligations and to develop new restaurants in
existing territories. Future acquisitions may require additional
debt or capital resources.
CASH FLOWS
Net cash provided by operating activities increased approximately
$2.6 million or 7.9% over operating cash flows for fiscal 1993.
This increase is primarily due to increased depreciation and
amortization (from the NRH acquisition) and increased earnings of
the Company in fiscal 1994. Operating cash flow for the fiscal
year ended March 30, 1993, was down $5.8 million, or 15.3%, from
fiscal 1992, because of a drop in earnings.
Investing activities reflect the stock purchase of NRH Corporation
on June 8, 1993 for approximately $21.4 million. In addition, the
Company continually renovates its properties, and recently
completed renovating six Tony Roma's restaurants in Florida.
The Company financed its acquisition of NRH through its revolving
credit agreement, which increased $23.7 million in fiscal 1994.
In the fiscal year ended March 30, 1993, the Company issued two
series of Senior Notes, $25.0 million on May 15, 1992 and $20.0
million on March 30, 1993. These funds were used to reduce the
revolver balance and to repurchase Company stock. As of March 29,
1994, the Company has purchased all shares authorized under the
stock repurchase program by the Board of Directors.
SEASONALITY
As a result of continued concept diversification, the Company has
not experienced significant seasonality in its sales. Sales are
typically higher at Skipper's in the fourth quarter of the year,
during the Lenten period.
EFFECTS OF INFLATION
Inflationary factors such as increases in food and labor costs
directly affect the Company's operations. Because most of the
Company's employees are paid hourly rates related to federal and
state minimum wage and tip credit laws, changes in these laws will
result in increases in the Company's labor costs. Legislation
mandating health coverage for employees, if passed, will increase
benefit costs since most hourly restaurant employees are not
currently covered under Company plans. The Company cannot always
effect immediate price increases to offset higher costs, and no
assurance can be given that the Company will be able to do so in
the future.
Increases in interest rates could directly affect the Company's
financial results.
<TABLE>
CONSOLIDATED BALANCE SHEETS
National Pizza Company and Subsidiaries
<CAPTION>
March 29, March 30,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $8,119,000 $7,197,000
Accounts receivable and other,
net of $825,000 and
$67,000 reserves, respectively 3,105,000 675,000
Notes receivable, net of
$275,000 reserve at March 29, 1994 641,000 339,000
Inventories of food and supplies 3,297,000 2,436,000
Prepaid expenses and other current assets 2,048,000 1,154,000
Total current assets 17,210,000 11,801,000
Facilities and equipment, net 148,760,000 147,127,000
Franchise rights 21,047,000 21,778,000
Goodwill, less accumulated amortization of
$4,089,000 and $1,943,000, respectively 33,327,000 17,673,000
Other assets 8,768,000 6,931,000
$229,112,000 $205,310,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,200,000 $14,139,000
Payroll taxes 1,283,000 1,315,000
Accrued interest 1,788,000 1,066,000
Accrued payroll 3,303,000 2,907,000
Other accrued liabilities 12,866,000 8,073,000
Current portion of long-term debt 1,390,000 662,000
Total current liabilities 36,830,000 28,162,000
Long-term debt and obligations
under capital leases 86,734,000 79,078,000
Deferred income taxes and other 6,561,000 8,634,000
Stockholders' equity
Common stock, $.01 par value
Class A - 50,000,000 shares
authorized, 13,849,070 issued 139,000 139,000
Class B - 50,000,000 shares
authorized, 13,743,440 issued 137,000 137,000
Paid-in capital 22,322,000 22,368,000
Retained earnings 95,700,000 84,405,000
118,298,000 107,049,000
Less treasury stock at cost,
representing 1,267,124 and
1,089,253 shares of Class A Common,
1,312,013 and 1,218,635 shares of
Class B Common, respectively (19,311,000) (17,613,000)
Total stockholders' equity 98,987,000 89,436,000
$229,112,000 $205,310,000
</TABLE>
[FN]
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
National Pizza Company and Subsidiaries
<CAPTION>
Fiscal Year Ended
March 29, March 30, March 31,
1994 1993 1992 (1)
<S> <C> <C> <C>
Net sales $332,207,000 $284,972,000 $298,175,000
Net franchise revenues 5,215,000 461,000 543,000
Total revenues 337,422,000 285,433,000 298,718,000
Cost of sales 98,693,000 82,552,000 84,722,000
238,729,000 202,881,000 213,996,000
Direct labor costs 97,102,000 79,829,000 81,386,000
Operating expenses 89,988,000 80,475,000 82,659,000
General and
administrative expenses 26,686,000 21,304,000 22,438,000
213,776,000 181,608,000 186,483,000
Operating income 24,953,000 21,273,000 27,513,000
Interest expense (6,629,000) (6,390,000) (6,688,000)
Loss on disposition
of underperforming assets ---- ---- (4,000,000)
Other income (expense) 182,000 (215,000) 420,000
Income before income taxes 18,506,000 14,668,000 17,245,000
Provision for income taxes:
Current 8,028,000 4,760,000 6,782,000
Deferred (817,000) 784,000 (582,000)
7,211,000 5,544,000 6,200,000
Net income $11,295,000 $9,124,000 $11,045,000
Earnings per share $ 0.45 $ 0.35 $ 0.40
Weighted average shares
outstanding 25,167,349 25,903,363 27,338,233
</TABLE>
[FN]
(1) Fiscal year included 53 weeks.
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Pizza Company and Subsidiaries
<CAPTION>
Fiscal Year Ended
March 29, March 30, March 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net income $11,295,000 $9,124,000 $11,045,000
Non-cash items included in
net income:
Depreciation and amortization 24,008,000 19,329,000 19,201,000
Deferred income taxes and other (1,791,000) (789,000) (1,363,000)
Loss on disposition of
underperforming assets ---- ---- 4,000,000
Change in assets and liabilities,
net of acquisitions:
Accounts receivable and other, net 452,000 (79,000) 765,000
Notes receivable (302,000) (70,000) (156,000)
Inventories of food and supplies 427,000 136,000 1,938,000
Prepaid expenses and
other current assets (56,000) 367,000 448,000
Accounts payable 4,000 1,346,000 648,000
Payroll taxes (32,000) (596,000) 487,000
Accrued interest 722,000 605,000 (371,000)
Accrued payroll (354,000) 362,000 (637,000)
Other accrued liabilities 479,000 2,552,000 2,124,000
Net cash flows provided by
operating activities 34,852,000 32,287,000 38,129,000
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchase of NRH Corporation,
net of cash (19,370,000) ---- ----
Capital expenditures, net (13,202,000) (19,197,000) (31,696,000)
Acquisition of intangible
assets, net (61,000) ---- (699,000)
Changes in other assets, net 788,000 617,000 154,000
Proceeds from sale of
capital assets 565,000 1,136,000 1,200,000
Net cash flows used by
investing activities (31,280,000) (17,444,000) (31,041,000)
CASH FLOWS USED BY FINANCING ACTIVITIES:
Purchase of treasury stock (1,766,000) (6,791,000) (9,188,000)
Net change in revolving
credit agreements 23,710,000 (36,120,000) 14,320,000
Proceeds from issuance of
long-term debt ---- 45,000,000 99,000
Payment of long-term debt (24,616,000) (15,745,000) (14,900,000)
Exercise of stock options 22,000 12,000 174,000
Net cash flows used by
financing activities (2,650,000) (13,644,000) (9,495,000)
NET CHANGE IN CASH
AND CASH EQUIVALENTS 922,000 1,199,000 (2,407,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 7,197,000 5,998,000 8,405,000
CASH AND CASH EQUIVALENTS
AT END OF YEAR $8,119,000 $7,197,000 $5,998,000
</TABLE>
[FN]
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Pizza Company and Subsidiaries
<CAPTION>
Common Stock Paid-In
Class A Class B Capital
<S> <C> <C> <C>
Balance, March 26, 1991 $139,000 $ ---- $22,797,000
Net income ---- ---- ----
Acquisition of treasury stock ---- ---- ----
Dividend of Class B Common ---- 137,000 (137,000)
Exercise of stock options ---- ---- (262,000)
Balance, March 31, 1992 139,000 137,000 22,398,000
Net income ---- ---- ----
Acquisition of treasury stock ---- ---- ----
Exercise of stock options ---- ---- (30,000)
Balance, March 30, 1993 139,000 137,000 22,368,000
Net income ---- ---- ----
Acquisition of treasury stock ---- ---- ----
Exercise of stock options ---- ---- (46,000)
Balance, March 29, 1994 $139,000 $137,000 $22,322,000
</TABLE>
<TABLE>
<CAPTION>
Total
Retained Treasury Stockholders'
Earnings Stock Equity
<S> <C> <C> <C>
Balance, March 26, 1991 $64,236,000 $ (2,112.000) $85,060,000
Net income 11,045,000 ---- 11,045,000
Acquisition of treasury stock ---- (9,188,000) (9,188,000)
Dividend of Class B Common ---- ---- ----
Exercise of stock options ---- 436,000 174,000
Balance, March 31, 1992 75,281,000 (10,864,000) 87,091,000
Net income 9,124,000 ---- 9,124,000
Acquisition of treasury stock ---- (6,791,000) (6,791,000)
Exercise of stock options ---- 42,000 12,000
Balance, March 30, 1993 84,405,000 (17,613,000) 89,436,000
Net income 11,295,000 ---- 11,295,000
Acquisition of treasury stock ---- (1,766,000) (1,766,000)
Exercise of stock options ---- 68,000 22,000
Balance, March 29, 1994 $95,700,000 $(19,311,000) $98,987,000
</TABLE>
[FN]
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
National Pizza Company and Subsidiaries
<F1>
Summary of Significant Accounting Policies
Consolidation - The financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany transactions are eliminated.
Fiscal Year - The Company operates on a 52 or 53 week fiscal year
ending on the last Tuesday in March. The fiscal years ended March
29, 1994 and March 30, 1993 included 52 weeks, and the fiscal year
ended March 31, 1992 was composed of 53 weeks.
Cash Equivalents - For purposes of the Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt
instruments with a maturity of three months or less to be cash
equivalents. At March 29, 1994 and March 30, 1993, substantially
all cash was in the form of depository accounts.
Inventories - Inventories of food and supplies are valued at the
lower of cost (first-in, first-out method) or market.
Pre-opening Costs - The Company amortizes pre-opening costs, which
principally represents the cost of hiring and training new
personnel, over a period of one year commencing with the
restaurant's opening.
Facilities and Equipment - Facilities and equipment are recorded
at cost. Depreciation is charged on the straight-line basis for
buildings, furniture and equipment. Leasehold improvements are
amortized on the straight-line method over the life of the lease
or the life of the improvements, whichever is shorter.
Franchise Rights - The Company's Pizza Hut franchise agreements
generally provide franchise rights for a period of 15 years and
are renewable at the option of the Company for an additional 15
years. Initial franchise fees were capitalized for accounting
purposes and are amortized over their estimated economic life of
30 years on a straight-line basis. Purchased franchise rights are
recorded at estimated value and amortized ratably over the
remaining life of the franchise agreement. Periodic franchise
fees, generally provided for in the agreements as a percent of
gross sales, are recorded as operating expenses as incurred.
Skipper's, Inc. granted franchise rights for a term of 20 years to
private operators in exchange for an initial franchise fee which
was not recognized as income until the pre-opening obligations
were satisfied. Royalties based on a percentage of gross sales
are recognized on the accrual basis. Skipper's has had no
franchising activity for the last several years.
The franchise agreements for Tony Roma's restaurants similarly
provide for an initial fee and continuing royalty payments based
upon gross sales, in return for operational support, product
development, marketing programs and various administrative
services. Royalty revenue is recognized on the accrual basis,
although initial fees are not recognized until the franchisee's
restaurant is opened. Franchisees also participate in national
and local marketing programs which are managed by the Company but
are not included in the accompanying financials.
Goodwill - Goodwill represents the excess of cost over the
identifiable net assets of companies acquired and is amortized on
the straight-line method over periods ranging from 25 to 40 years.
Income Taxes - The provision for income taxes includes federal and
state taxes currently payable and those deferred because of
temporary differences between the financial statements and tax
bases of assets and liabilities. Deferred taxes arise principally
from accelerated amortization of franchise rights for tax purposes
and the use of accelerated depreciation for tax purposes.
Earnings Per Share - Earnings per share is computed using the
weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares represent
the number of shares which would be issued assuming the exercise
of dilutive common stock warrants and options, reduced by the
number of shares which could be purchased with proceeds from the
exercise of such warrants and options. Earnings per share
attributable to prior years have been restated to reflect the
effect of the fiscal 1992 Class B Common stock dividend. Per
share amounts are not materially different on a fully diluted
basis.
Reclassifications - Certain reclasses were made to 1993 balances
to conform with the 1994 presentation.
<F2>
(2) Facilities and Equipment
Facilities and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1994 1993
<S> <C> <C> <C>
Land $35,216,000 $35,151,000
Buildings 15-30 years 56,904,000 55,051,000
Leasehold improvements 5-20 years 45,488,000 37,532,000
Furniture and equipment 3-10 years 87,402,000 80,578,000
Capitalized leases 5,103,000 4,998,000
Construction in progress 188,000 9,000
230,301,000 213,319,000
Less accumulated depreciation
and amortization (81,541,000) (66,192,000)
$148,760,000 $147,127,000
</TABLE>
<F3>
(3) Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Currently payable:
Federal $6,225,000 $3,435,000 $5,504,000
State 1,803,000 1,325,000 1,278,000
8,028,000 4,760,000 6,782,000
Deferred:
Federal (727,000) 715,000 (526,000)
State (90,000) 69,000 (56,000)
(817,000) 784,000 (582,000)
Provision for
income taxes $7,211,000 $5,544,000 $6,200,000
</TABLE>
The differences between the provision for income taxes and the
amount computed by applying the statutory federal income tax rate
to earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Tax computed at
statutory rate $6,477,000 $4,987,000 $ 5,863,000
Job tax credits (695,000) (660,000) (1,060,000)
State taxes, net of
federal effect, and other 1,429,000 1,217,000 1,397,000
Provision for income taxes $7,211,000 $5,544,000 $ 6,200,000
</TABLE>
During 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 - Accounting for Income
Taxes. The cumulative effect of change in accounting for income
taxes under this standard was not material to the Company's
financial statements, and therefore no cumulative effect was
reported. The net deferred tax liability of $4,899,000 at March
29, 1994, includes the impact of $7,044,000 of gross deferred tax
assets which are expected to be fully realized.
The significant components of the net deferred tax liability at
March 29, 1994 consisted of the following:
<TABLE>
<CAPTION>
Deferred Deferred Total Deferred
Tax Assets Tax Liabilities Taxes
<S> <C> <C> <C>
Depreciation and
amortization $ ---- $ 9,997,000 $9,997,000
Capitalized leases (649,000) ---- (649,000)
Loss on disposition of
underperforming assets (842,000) ---- (842,000)
Tax credit carryforwards (1,348,000) ---- (1,348,000)
Insurance reserves (2,730,000) ---- (2,730,000)
Other (1,475,000) 1,946,000 471,000
Total $(7,044,000) $11,943,000 $ 4,899,000
</TABLE>
For income tax purposes, the Company has available at March
29,1994, jobs tax credit carryforwards of approximately $1,149,000
which, if not previously utilized, will expire in varying amounts
during years 2001 through 2004. The utilization of the
carryforwards is subject to the ability of the subsidiaries of the
Company, from which they originated, to generate taxable income on
a separate company basis.
Cash paid for income taxes in fiscal years 1994, 1993, and 1992
was $7,001,000, $5,107,000, and $6,590,000, respectively.
<F4>
(4) Bank Debt and Senior Notes
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1994 1994 1993
Carrying Estimated Carrying
Value Fair Value Value
<S> <C> <C> <C>
Revolving credit agreement $24,140,000 $24,140,000 $430,000
9.19% senior notes ---- ---- 3,000,000
9.03% senior notes 7,000,000 7,103,000 14,000,000
8.49% senior notes 8,000,000 8,115,000 12,000,000
7.58% senior notes 20,000,000 20,058,000 25,000,000
6.35% senior notes 20,000,000 21,677,000 20,000,000
Other 3,813,000 3,648,000 299,000
82,953,000 $84,741,000 74,729,000
Less current installments (630,000) (118,000)
Total long-term debt $82,323,000 $74,611,000
</TABLE>
The Company has a $45,000,000 unsecured revolving credit
agreement. Under this agreement, as amended, the Company has the
right to borrow, repay and reborrow up to $45,000,000 for the
remaining two-year period. The Company may elect to pay interest
at the prime rate, LIBOR plus a tiered pricing spread (0.625% at
March 29, 1994), an adjusted certificate of deposit rate, or a
money market rate. Commitment fees of .25% per annum are paid on
the unused balance of the facility and are included in interest
expense.
On January 25, 1990, the Company entered into a $35,000,000 note
agreement with a major insurance company bearing interest at 9.03%
per annum. On March 13, 1991, the Company issued an additional
$20,000,000 of 8.49% fixed rate uncollateralized senior notes. On
May 15, 1992, the Company issued a $25,000,000, 7.58% fixed rate
uncollateralized senior note. On March 30, 1993, the Company
privately placed another $20,000,000 note, bearing 6.35% interest,
due in the year 2000. Principal payments on this last note begins
in fiscal 1997. Each senior note requires annual principal
payments equal to 20% of the original principal amount. Proceeds
from these notes were used to repay amounts borrowed under the
Company's revolving credit agreement. The Company has the ability
and intent to refinance the principal payments due under its
senior notes through its revolving credit agreement. Accordingly,
such amounts are classified as long-term debt.
The Company is subject to a number of covenants under its various
credit agreements including limits on additional borrowing,
restrictions on dividend payments and requirements to maintain
various financial ratios. The aggregate maturities of long-term
debt, excluding capital leases and the revolving credit agreement,
are as follows: fiscal year 1995 - $16,630,000; fiscal year 1996
- - $9,547,000; fiscal year 1997 - $9,549,000; fiscal year 1998 -
$9,520,000; fiscal year 1999 - $4,522,000; and $9,045,000 in years
beyond.
The average amount outstanding on all bank borrowings and senior
notes for the year ended March 29, 1994, was $76,785,000 and the
maximum borrowings were $95,830,000. Interest expense from bank
borrowings and senior notes for fiscal years 1994, 1993, and 1992
was $5,812,000, $5,785,000, and $5,991,000, respectively.
Weighted average interest rates during the same periods were
6.44%, 7.71%, and 8.20%, respectively.
Cash paid for interest in fiscal years 1994, 1993, and 1992 was
$6,198,000, $5,882,000, and $7,138,000, respectively.
Statement of Financial Accounting Standards No. 107--Disclosures
about the Fair Market Value of Financial Instruments--requires
companies to disclose the estimated fair value of financial
instruments. The Company's debt consists of non-trading long-term
notes with fixed rates maturing over the next seven years and a
long-term revolving loan with variable rates. Management has
computed the fair market values of the fixed-rate notes based upon
an estimated incremental borrowing rate of 7.45%. This rate is
not substantially different from the rate spread from similar
government bonds with similar maturities to that of the Company's
debt portfolio. Management believes the fair market value of the
revolving credit agreement to equal its carrying value, due to its
daily rate fluctuation.
<F5>
(5) Stock Options
At March 29, 1994, the Company has an Amended and Restated 1984
Non-Qualified Stock Option Plan pursuant to which an aggregate of
2,791,450 shares of common stock are reserved for issuance to
employees (including officers) of the Company. The options have
an exercise price equal to the fair market value of the common
stock on the date of grant, and generally become exercisable over
a four-year period in equal annual amounts. At March 29, 1994,
348,108 options on Class A Common and 446,110 options on Class B
Common were exercisable.
<TABLE>
<CAPTION>
Shares Under Option Option Price Range
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
March 26, 1991 1,206,480 ----
Reclassification
of common stock (603,240) 603,240
Granted 29,375 117,525 $9.75-$11.50 $6.75-$11.50
Canceled (71,488) (77,738)
Exercised (34,677) (34,677) $2.19-$9.00 $2.19-$9.00
March 31, 1992 526,450 608,350
Granted 235,000 362,700 $6.50 $5.75-$7.50
Canceled (39,319) (67,719)
Exercised (5,718) (5,718) $5.17-$6.25 $5.17-$6.25
March 30, 1993 716,413 897,613
Granted ---- 167,050 $6.00
Canceled (61,032) (148,382)
Exercised (3,518) (3,518) $2.19-$5.42 $2.19-$5.42
March 29, 1994 651,863 912,763
</TABLE>
On July 30, 1991, the Company's then existing common stock was
reclassified as voting Class A Common, and on July 31, 1992, the
Company declared a dividend of one share of non-voting Class B
Common for each share of Class A Common. The above table has been
adjusted to give effect to the reclassification of common stock
and the Class B Common dividend.
(6) Profit Sharing Plan
The Company discontinued its Simplified Employee Benefit Plan and,
effective July 1, 1992, instituted the National Pizza Company
Profit Sharing Plan. To qualify, employees must generally have
two years of service, attain the age of 21 and be employed on the
last day of the plan year. The Company's contribution to the plan
is discretionary, based upon the earnings of each operating
division. The Company contributed $477,000 for calendar year 1993
and $719,000 for the calendar year 1992 and prior.
<F7>
(7) Commitments
The Company leases certain restaurant equipment and buildings
under capitalized and operating leases. Rent expense for fiscal
years 1994, 1993, and 1992 was $11,923,000, $9,998,000 and
$10,485,000, respectively, including additional rentals of
approximately $1,344,000 in 1994, $978,000 in 1993 and $1,168,000
in 1992. The additional rentals are based upon a percentage of
sales in excess of a base amount as specified in the lease. The
majority of the Company's leases contain renewal options for 5 to
10 years. The remaining leases may be renewed upon negotiations.
Facilities and equipment accounts include the following amounts
for leases that were capitalized:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Buildings $ 3,997,000 $ 4,998,000
Equipment 1,106,000 ----
Less accumulated amortization (1,612,000) (1,564,000)
Net leased facilities and equipment $ 3,491,000 $3,434,000
</TABLE>
Minimum lease payments for the next five years at March 29, 1994
consisted of:
<TABLE>
<CAPTION>
Fiscal Year Capital Leases Operating Leases Total
<S> <C> <C> <C>
1995 $ 1,340,000 $ 9,275,000 $10,615,000
1996 1,324,000 8,364,000 9,688,000
1997 842,000 7,364,000 8,206,000
1998 714,000 6,161,000 6,875,000
1999 622,000 5,208,000 5,830,000
Thereafter 4,536,000 27,304,000 31,840,000
Total minimum lease commitments 9,378,000 $63,676,000 $73,054,000
Less amounts representing
implicit interest (4,207,000)
Present value of net
minimum lease commitments 5,171,000
Less current portion (760,000)
Long-term capital
lease obligation $ 4,411,000
</TABLE>
During the fiscal year ended March 29, 1994, the Company leased
eight properties from Company officers at rental rates comparable
to terms the Company could obtain from unrelated lessors. Rental
expense under these leases for fiscal years 1994, 1993, and 1992
was $222,000, $477,000, and $444,000, respectively. The Company
purchased real estate from an officer of the Company in the amount
of $1,456,000 in the fiscal year ended March 29, 1994 and
$3,461,000 in the fiscal year ended March 30, 1993. The value of
the purchased real estate was determined by an independent
certified appraiser. Additionally, the Company leases a corporate
aircraft from an officer. Management believes the lease is at
least as favorable as could be obtained from unrelated parties.
Rental expense incurred under this lease amounted to $258,000 for
each of the fiscal years ended March 29, 1994 and March 30, 1993.
For purposes of administering its self-insurance program, the
Company has issued three standby letters of credit. One letter of
credit for $6,974,000, expiring July 1, 1994, benefits the
insurance company which administers the Company's primary workers
compensation program. Two additional letters of credit for
$250,000 and $100,000 benefit another insurance company and state
workers compensation program and expire October 2, 1994 and June
23, 1994, respectively. All claims are routinely paid in the
normal course of business and the Company does not anticipate that
such instruments will be funded.
<F8>
(8) Loss on Disposition of Underperforming Assets
During the fourth quarter of fiscal year 1992, the Company
recognized a $4,000,000 charge before income taxes for the planned
closure of 12 of its Skipper's restaurants located principally in
Colorado. The Company believes this charge will be adequate to
cover any losses primarily related to the disposal of restaurant
facilities and equipment. Total long-term liabilities established
for restaurant closures, including reserves established in prior
years, were $1,102,000 and $2,104,000 at March 29, 1994 and March
30, 1993, respectively.
Included in other accrued liabilities is $888,000 and $923,000 at
March 29, 1994 and March 30, 1993, respectively, related to other
current costs of disposing of these restaurants.
<F9>
(9) Acquisition
On May 18, 1993, the Company executed a definitive stock purchase
agreement to acquire all of the outstanding stock of NRH
Corporation, owner and franchisor of Tony Roma's restaurants, for
an aggregate purchase price of approximately $21,400,000 in cash.
The transaction became effective June 9, 1993. The business
combination was accounted for as a purchase and, accordingly, the
Company tentatively allocated the purchase price as follows:
$16,100,000 to goodwill (amortized primarily over a 25 year
period), $11,800,000 to property, plant and equipment (amortized
over six to 15 years, depending on the asset's remaining life),
$1,190,000 to a non-compete agreement (two year amortization),
$551,000 to deferred tax assets, $1,400,000 to other assets,
$5,341,000 to net current liabilities and $4,300,000 to long term
debt. The results of operations of NRH Corporation were included
with the results of the Company from the effective date of the
acquisition. The pro forma effect of this acquisition would not
be materially different than the results presented herein. Under
the terms of the agreement, approximately $2.0 million of the
purchase price was placed in an escrow fund to be released
incrementally over three years.
On March 29, 1994, NRH Corporation was merged into its operating
subsidiary Romacorp, Inc. as part of a restructuring of the NRH
Corporate group.
<F10>
(10) Subsequent Events
On March 24, 1994, the Company entered into a non-binding
memorandum of intent and asset exchange agreement by and between
the Company and Pizza Hut, Inc. (PHI) which would extend the
Company's Pizza Hut franchise rights through the year 2010. As a
part of the agreement, the Company would exchange 84 of its
current operating Pizza Hut restaurants and delivery kitchens for
50 Pizza Hut restaurants and delivery kitchens operated by PHI
contiguous to the Company's southeastern operating area. No gain
or loss would be recognized as a result of this exchange in
properties. Approximately $10,000,000 of book basis in the
exchanged assets would be recapitalized as franchise rights in
connection with the transaction and would be amortized beginning
in 1996 over the remaining life of the franchise agreement. Under
the Agreement, the Company's royalty payments for all units owned
would increase to 4% of gross sales beginning in July, 1996 from
the Company's current effective rate of slightly over 2%.
On March 18, 1994, the Company entered into an agreement in
principle to acquire 17 Pizza Hut restaurants from another Pizza
Hut franchisee. If consummated, the transaction will be funded
from the Company's revolving line of credit. Neither the purchase
price nor the operations are material to the Company's financial
statements. The transaction is expected to close in June, 1994.
The transactions noted above would not have material impact on the
financial statements of the Company taken as a whole.
<F11>
(11) Quarterly Results (unaudited)
Summarized results of operations for each quarter of the last two
fiscal years are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Annual
Fiscal Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Quarter Quarter Total
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Year Ended March 29, 1994
Revenues $78,779 $87,759(1) $83,499 $87,385 $337,422
Gross margin 55,230 62,175 59,151 62,173 238,729
Operating income 6,008 5,980 5,866 7,099 24,953
Net income 2,674 2,522 2,740 3,359 11,295
Earnings per share $ 0.11 $ 0.10 $ 0.11 $ 0.13 $ 0.45
Year Ended March 30, 1993
Revenues $71,646 $70,182 $69,121 $74,484 $285,433
Gross margin 51,059 49,341 49,380 53,101 202,881
Operating income 5,526 4,440 5,349 5,958 21,273
Net income 2,562 1,764 2,294 2,504 9,124
Earnings per share $ 0.10 $ 0.07 $ 0.09 $ 0.10 $ 0.35
</TABLE>
[FN]
(1) Romacorp, Inc., operator and franchisor of Tony Roma's, was acquired
on June 8, 1993 and the second fiscal quarter of the year ended
March 29, 1994, is the first full 13 weeks to reflect its operations.
Report of Management
The management of National Pizza Company has prepared the
consolidated financial statements and related financial
information included in this Annual Report. Management has the
primary responsibility for the integrity of the consolidated
financial statements and other financial information. The
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
in all material respects and reflect estimates and judgments by
management where necessary. Financial information included
throughout this Annual Report is consistent with the consolidated
financial statements.
Management of the Company has established a system of internal
accounting controls that provides reasonable assurance that assets
are properly safeguarded and accounted for and that transactions
are executed in accordance with management's authorization.
The consolidated financial statements have been audited by our
independent auditors, Ernst & Young, whose unqualified report is
presented herein. Their opinion is based upon procedures
performed in accordance with generally accepted auditing
standards, including tests of the accounting records, obtaining an
understanding of the system of internal accounting controls and
such other tests as deemed necessary in the circumstances to
provide them reasonable assurance that the consolidated financial
statements are fairly presented. The Audit Committee of the Board
of Directors, consisting solely of outside directors, meets with
the independent auditors at least twice per year to discuss the
scope and major findings of the audit. The independent auditors
have access to the Audit Committee at any time.
O. Gene Bicknell J. Mitchell Boyd James K. Schwartz
Chairman of the Board President and Vice President Finance and
Chief Executive Officer Chief Financial Officer
<AUDIT-REPORT>
Report of Ernst & Young
Independent Auditors
The Board of Directors and Stockholders
National Pizza Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of
National Pizza Company and Subsidiaries as of March 29, 1994 and
March 30, 1993 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal
years in the period ended March 29, 1994. 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 National Pizza Company and Subsidiaries at
March 29, 1994, and March 30, 1993, and the consolidated results
of their operations and their cash flows for each of the three
fiscal years in the period ended March 29, 1994, in conformity
with generally accepted accounting principles.
ERNST & YOUNG
Kansas City, Missouri
May 2, 1994
</AUDIT-REPORT>
STOCKHOLDER DATA
Directors and Corporate Officers
O. Gene Bicknell
Chairman of the Board and Director
Gordon W. Elliott
Vice Chairman and Director
J. Mitchell Boyd
President, Chief Executive Officer and Director
Marty D. Couk
Senior Vice President, Pizza Hut Operations
R. Frank Brown
President, Skipper's, Inc.
Gerald A. Brunotts
President, Romacorp, Inc.
Robert B. Page
Chief Operating Officer, Romacorp, Inc.
James K. Schwartz
Vice President Finance,
Chief Financial Officer, and Treasurer
Robert M. McDevitt
Vice President Marketing
David G. Short
Vice President Legal, Secretary and General Counsel
Frank S. Covvey
Vice President Information and Communication Systems
James K. Villamaria
Risk and Regulatory Counsel
Douglas K. Stuckey
Corporate Controller and Chief Accounting Officer
Melissa A. Radell
Assistant Treasurer
Fran D. Jabara
Director, President of Jabara Ventures Group
Robert E. Cressler
Director, Partner in FRAC Enterprises
John W. Carlin
Director, President of Midwest Superconductivity, Inc.
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Auditors
Ernst & Young
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Legal Counsel
Shook, Hardy & Bacon, P.C.
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Inquiries regarding stock transfers, lost certificates or address
changes should be directed to the Stock Transfer Department of
American Stock Transfer at the above address.
Stock Information
National Pizza Company's common shares are traded on the NASDAQ
stock market under the symbols "PIZA" and "PIZB." In July 1994,
the Company anticipates its name and ticker symbols will change to
NPC International, Inc. and "NPCIA" and "NPCIB".
For the calendar periods indicated, the following table sets forth
the range of high and low closing sale prices.
<TABLE>
<CAPTION>
Calendar Period Class A Common Stock Class B Common Stock
High Low High Low
<S> <C> <C> <C> <C>
1992
First Quarter 10-1/4 6-3/4 9-3/4 6-3/4
Second Quarter 9-1/2 7 8-1/2 6-3/4
Third Quarter 8 6-1/4 7-1/4 5-3/4
Fourth Quarter 7 6 7-1/4 5-3/4
1993
First Quarter 7-1/2 6 7 5-3/4
Second Quarter 8 6-1/4 7-1/4 6
Third Quarter 7-1/4 5-7/8 7 5-1/2
Fourth Quarter 7-1/8 6 6-3/4 5-3/4
1994
First Quarter 7-1/2 6 6-3/4 5-1/4
</TABLE>
All prices were adjusted to reflect a stock dividend of one share
of non-voting Class B Common stock for each share of voting Class
A Common held on July 31, 1991.
National Pizza's policy is to retain earnings to fund development
and growth of the business. The Company has not paid cash
dividends during the periods presented and does not contemplate
payment of cash dividends within the foreseeable future.
As of April 25, 1994, the approximate number of stockholders was
5,900.
Form 10-K
National Pizza Company's 1994 Form 10-K Annual Report to the
Securities and Exchange Commission is available without charge to
stockholders upon written request to the Chief Financial Officer,
National Pizza Company, 720 West 20th Street, Pittsburg, Kansas
66762.
Exhibit 21
National Pizza Company
List of Subsidiaries
Skipper's Inc.
Seattle Restaurant Equipment Company
National Catering Company
Pizza Hut of Cumberland, Inc.
White Oaks Pizza Hut, Inc.
Pizza Hut of Emmitsburg, Inc.
B-H Pizza Hut of Frederick, Inc.
Hinkle-Bicknell Pizza Hut of Frederick, Inc.
Hinkle Equities, Inc.
Pizza Hut of Frostburg, Inc.
Bicknell Equities, Inc.
Pizza Hut of Hagerstown, Inc.
Bicknell-Hickle Enterprises, Inc.
Pizza Hut of Hancock, Inc.
Pizza Hut of Thurmont, Inc.
Pizza Hut of Walkersville, Inc.
Pizzaco of Maryland, Inc.
Pizza Hut of North Hagerstown, Inc.
Romacorp, Inc.
Roma Systems, Inc.
Roma Franchising Corporation
Roma Huntington Beach, Inc.
Roma Fort Worth, Inc.
National Pizza Company
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this
Annual Report (Form 10-K) of National Pizza Company of
our report dated May 2, 1994, included in the 1994
Annual Report to Stockholders of National Pizza Company.
Our audits also included the consolidated financial
statement schedules of National Pizza Company listed in
Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to
express an opinion on these schedules based on our
audits. In our opinion, the consolidated financial
statement schedules referred to above, when considered
in relation to the basic consolidated financial
statements taken as a whole, present fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-2233 and Form S-8
No. 33-37354) pertaining to the National Pizza Company
1984 Non-Qualified Stock Option Plan, As Amended of our
report dated May 2, 1994, with respect to the
consolidated financial statements, incorporated herein
by reference, and our report included in the preceding
paragraph with respect to the financial statement
schedules included in the Annual Report (Form 10-K) of
National Pizza Company.
ERNST & YOUNG
Kansas City, Missouri
June 13, 1994
