<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1998
REGISTRATION NO. 333-45147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PERKINS FAMILY RESTAURANTS, L.P.
PERKINS FINANCE CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
62-1283091
DELAWARE 5812 62-1720081
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Numbers)
</TABLE>
PERKINS FAMILY RESTAURANTS L.P.
PERKINS FINANCE CORP.
6075 POPLAR AVENUE
SUITE 800
MEMPHIS, TN 38119
(901) 766-6400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
DONALD F. WISEMAN
PERKINS FAMILY RESTAURANTS, L.P.
PERKINS FINANCE CORP.
6075 POPLAR AVENUE
SUITE 800
MEMPHIS, TN 38119
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
WITH A COPY TO:
SCOTT J. DAVIS
JAMES T. LIDBURY
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 24, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
[LOGO]
PERKINS FAMILY RESTAURANTS, L.P.
PERKINS FINANCE CORP.
OFFER TO EXCHANGE ITS 10 1/8% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY
AND ALL OF ITS OUTSTANDING 10 1/8% SERIES A SENIOR NOTES DUE 2007
-----------
Perkins Family Restaurants, L.P., a Delaware limited partnership (the
"Company"), and Perkins Finance Corp., a Delaware Corporation and wholly owned
subsidiary of the Company ("Finance Corp." and, together with the Company, the
"Issuers"), hereby jointly and severally offer, upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying letter of
transmittal (the "Letter of Transmittal") (which together constitute the
"Exchange Offer"), to exchange up to $130 million principal amount of 10 1/8%
Series B Senior Notes due 2007 (the "New Notes"), of the Issuers for a like
principal amount of the Issuers' issued and outstanding 10 1/8% Series A Senior
Notes due 2007 (the "Old Notes" and collectively with the New Notes, the
"Notes"), with the holders (each holder of Old Notes, a "Holder") thereof. The
Issuers will receive no proceeds in connection with the Exchange Offer. The
terms of the New Notes are substantially identical to the terms of the Old Notes
that are to be exchanged therefor. See "Description of Notes."
The Notes will bear interest from the date of issuance at the rate of
10 1/8% per annum, payable semi-annually in arrears, on June 15 and December 15
of each year, commencing June 15, 1998, and will mature on December 15, 2007,
unless previously redeemed. The Notes are redeemable at the option of the
Issuers, in whole or in part, on or after December 15, 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, thereon to the redemption date. In addition, at any time
on or prior to December 15, 2000, the Issuers may redeem Notes with the net cash
proceeds of one or more public offerings of the Company's equity securities or
the equity securities of any of the Company's direct or indirect parents (to the
extent such net proceeds have been contributed to the Company as common equity
capital), at 110.125% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date,
provided that at least 65% of the principal amount of Notes originally issued
remains outstanding immediately following such redemption. In the event of a
Change of Control (as defined), holders of the Notes will have the right to
require the Issuers to purchase each such holder's Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase. There can be no
assurance that the Company will have access to sufficient funds to repurchase
the Notes in the event of a Change of Control.
The Notes will be general unsecured obligations of the Issuers, and will
rank PARI PASSU in right of payment with all current and future senior
indebtedness of the Issuers, including borrowings under the New Credit Facility
(as defined). However, all borrowings under the New Credit Facility are secured
by a first priority Lien (as defined) on substantially all of the assets of the
Company. At December 31, 1997, no borrowings were outstanding under the New
Credit Facility. However, assuming all Units (as defined) had been surrendered
for payment and all expenses had been paid in connection with the Going Private
Transaction, approximately $6.6 million would have been outstanding under the
New Credit Facility as of December 22, 1997, excluding approximately $3.0
million of standby letters of credit. The Indenture (as defined) permits
additional borrowings by the Issuers, under the New Credit Facility or
otherwise, in the future.
(COVER CONTINUED ON FOLLOWING PAGE)
--------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON, 1998, UNLESS EXTENDED.
--------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 14 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
The date of this Prospectus is , 1998
<PAGE>
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the New Notes. The Issuers do not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any trading
market for the New Notes or that an active public market for the New Notes will
develop. Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, a Holder's ability to sell untendered, or tendered but
unaccepted, Old Notes could be adversely affected. Following the consummation of
the Exchange Offer, the Holders of the Old Notes will continue to be subject to
the existing restrictions on transfer thereof and the Company will have no
further obligations to such Holders to provide for the registration of the Old
Notes under the Securities Act. See "The Exchange Offer -- Consequences of Not
Exchanging Old Notes."
The Issuers will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on,
1998, unless the Exchange Offer is extended (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions which may be
waived by the Company. The Company will pay the expenses of the Exchange Offer.
The Old Notes were issued and sold as part of an offering on December 22,
1997 (the "Offering"), in a transaction not registered under the Securities Act
of 1933, as amended (the "Securities Act"), in reliance upon an exemption from
registration under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes are
being offered for exchange in order to satisfy certain obligations of the
Issuers under a Registration Rights Agreement (as defined ) between the Issuers
and the Initial Purchasers (as defined). The New Notes will be obligations of
the Issuers evidencing the same indebtedness as the Old Notes and will be
entitled to the benefits of the same Indenture, which governs both the Old Notes
and the New Notes. The form and terms (including principal amount, interest
rate, maturity and ranking) of the New Notes are the same as the form and terms
of the Old Notes, except that the New Notes (i) will be registered under the
Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes, (ii) will not be entitled to registration
rights and (iii) will not provide for any Liquidated Damages. See "The Exchange
Offer -- Registration Rights; Liquidated Damages."
The Issuers are making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set forth
in certain no-action letters addressed to other parties in other transactions.
However, the Issuers have not sought their own no-action letter and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Based on these interpretations by the staff
of the Commission, the Issuers believe that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
Holders thereof (other than (i) any such Holder that is an "affiliate" of the
Issuers within the meaning of Rule 405 under the Securities Act, (ii) an Initial
Purchaser who acquired the Old Notes directly from the Issuers solely in order
to resell pursuant to Rule 144A of the Securities Act or any other available
exemption under the Securities Act or (iii) a broker-dealer who acquired the Old
Notes as a result of market making or other trading activities) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business and such Holder is not participating and has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such New Notes.
By tendering, each Holder which is not a broker-dealer will represent to the
Issuers that, among other things, the person receiving the New Notes, whether or
not such person is the Holder, (i) is not an
i
<PAGE>
"affiliate," as defined in Rule 405 under the Securities Act, of the Issuers,
(ii) will acquire the New Notes in the ordinary course of such person's
business, and (iii) is not engaged in, does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the New Notes. If any Holder or any such other person has an arrangement or
understanding with any person to participate in a distribution of such New
Notes, is engaged in or intends to engage in a distribution of such New Notes,
is an "affiliate," as defined in Rule 405 under the Securities Act, of the
Issuers, or acquired the Old Notes as a result of market making or other trading
activities, then such Holder or any such other person (i) can not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes are acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date, they will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
ii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA
FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. THE TRANSACTIONS RELATING
TO THE BUYOUT OF THE COMPANY'S PUBLIC UNITHOLDERS (AS DEFINED), WHICH OCCURRED
ON DECEMBER 22, 1997, AND THE ELIMINATION THROUGH A MERGER OF THE COMPANY'S
OPERATING PARTNERSHIP SUBSIDIARY ARE COLLECTIVELY REFERRED TO HEREIN AS THE
"GOING PRIVATE TRANSACTION." SEE "THE GOING PRIVATE TRANSACTION." EXCEPT AS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO OR DESCRIPTIONS OF ASSETS AND
OPERATIONS OF THE COMPANY IN THIS PROSPECTUS REFER TO THE COMBINED ASSETS AND
OPERATIONS OF THE COMPANY AND ITS OPERATING PARTNERSHIP SUBSIDIARY AFTER THE
CONSUMMATION OF THE GOING PRIVATE TRANSACTION. THIS PROSPECTUS INCLUDES FORWARD
LOOKING STATEMENTS. ALTHOUGH THE ISSUERS BELIEVE THAT THEIR PLANS, INTENTIONS
AND EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING STATEMENTS ARE REASONABLE,
THEY CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE
ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE ISSUERS' FORWARD LOOKING STATEMENTS ARE SET FORTH IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company is a leading operator and franchisor of full-service, mid-scale
restaurants located primarily in the Midwest, Pennsylvania, upstate New York and
central Florida. The Company's restaurants operate under the names Perkins
Family Restaurant-Registered Trademark- and Perkins Family Restaurant and
Bakery-Registered Trademark-. Perkins restaurants offer a full menu assortment
of breakfast, lunch, dinner, snack and dessert items and many are open 24 hours
a day. The business of Perkins was founded in 1958, and since then Perkins has
continued to adapt its menus, product offerings, building designs and decor to
meet changing consumer preferences. A substantial majority of Company-operated
restaurants and franchised restaurants have added in-store bakeries which offer
a premium line of freshly prepared baked goods including muffins, cookies and
pies.
As of September 30, 1997, the Company operated 135 full-service restaurants
and franchised 333 full-service restaurants located in 32 states and four
provinces of Canada. For the twelve months ended September 30, 1997, system-wide
restaurant revenues (including franchised restaurants), Company revenues and
Company EBITDA (as defined) were $701.4 million, $262.8 million and $36.3
million, respectively. Company-operated restaurants have achieved comparable
restaurant sales increases in each of the last 25 quarters. The Company
continues to focus on increasing its number of franchised restaurants, which
provide a higher margin of cash flow relative to the required capital investment
and create an additional sales outlet for the products of the Company's Foxtail
Foods ("Foxtail") food manufacturing division. From 1988 to 1996, the average
annual royalties per franchised restaurant increased from approximately $38,500
to approximately $55,100 and the number of franchised restaurants increased from
227 to 329.
The Perkins concept is designed to serve a variety of demographically and
geographically diverse customers for a wide range of dining occasions which are
appropriate for the entire family. The Perkins concept appeals to a wide range
of markets and customer tastes with its large, comfortable dining rooms,
flexible kitchens, broad menu, moderate pricing, extended operating hours, table
service and bakery specialties. Perkins offers a wide menu selection of high
quality, moderately priced food and beverage items consisting of traditional
favorites and seasonal specialties. Perkins offers guests a menu of over 140
items ranging in price from $2.99 to $8.99. The Company also approves additional
items to meet regional and local tastes. Perkins' signature menu items include
buttermilk pancakes, omelettes, bread bowl salads, melt sandwiches and
Butterball-Registered Trademark- turkey dinners. Breakfast items, which are
available throughout the day, account for slightly more than half of the entrees
sold in the Company's restaurants.
Perkins restaurants are primarily located in free-standing buildings with
approximately 90 to 250 seats. Recently, the Company and its franchisees have
begun to test the Perkins concept in various non-traditional locations including
travel plazas, malls, hotels and airports. The Company and its franchisees
operate three alternative formats, including limited menu restaurants and a
stand-alone bakery, in addition
1
<PAGE>
to full-service stand-alone restaurants. These alternative formats are operated
under the names Perkins Cafe and Bakery-Registered Trademark-, Perkins
Bakery-Registered Trademark- and Perkins Express-Registered Trademark-.
In addition to operating and franchising Perkins restaurants, the Company
operates Foxtail and is a partner in a joint venture for the development of Jack
Astor's Bar and Grill-Registered Trademark- restaurants. Foxtail provides cookie
dough, muffin batter, pancake mixes, pies and other bakery products to
Company-operated restaurants, franchisees and third parties. During 1996,
Foxtail accounted for 8.5% of Company revenues. During 1997, the Company entered
into a joint venture with a Canadian casual dining operator for the development
of a minimum of three Jack Astor's Bar and Grill restaurants. Jack Astor's Bar
and Grill is a casual themed dining concept with a high-energy, fun atmosphere
and menu offerings which include chicken, pasta, hamburgers and alcoholic
beverages. The joint venture's first restaurant opened in Greensboro, North
Carolina on October 6, 1997.
In the 12 years under the Company's current leadership, a number of
improvements have been made to the Company's operations, including: (i)
upgrading its menu offerings; (ii) unifying the system's name, restaurant
design, marketing programs, purchasing, training and technology; (iii) creating
in-store bakeries; (iv) strengthening the franchise system; (v) creating
Foxtail; and (vi) developing alternative formats. Also over this time period,
the Company made significant interest payments and distributions to holders (the
"Unitholders") of its limited partnership interests (the "Units"), including 44
consecutive quarterly cash distributions to Unitholders since the Company became
a publicly-traded limited partnership. For the twelve months ended September 30,
1997, the Company's combined interest expense and quarterly cash distributions
to Unitholders was $18.9 million.
COMPETITIVE STRENGTHS
ESTABLISHED, HIGH-VALUE RESTAURANT BRAND. Perkins is a well-established,
highly recognized brand in the geographic areas it serves. Perkins offers its
guests a wide variety of over 140 reasonably priced menu items, including fresh
bakery products, served in a warm and comfortable dining environment with the
convenience of extended operating hours. As of September 30, 1997, entrees
served in Company-operated restaurants ranged in price from $2.99 to $8.99 for
breakfast, $4.29 to $8.99 for lunch and $5.99 to $8.99 for dinner. The Company
operates a 3,000 square foot test kitchen in Memphis, Tennessee which develops
and tests new menu items. Menus are updated at least three times per year and
supplemented with special menus for holiday and promotional events.
STRONG FRANCHISE NETWORK. The Company has 111 franchisees which operate 333
restaurants in 30 states and four Canadian provinces, representing over 70% of
the restaurants in the Perkins system. In addition to providing the Company with
substantial royalty revenues ($18.6 million for the twelve months ended
September 30, 1997), the franchise network allows the Company to significantly
expand the Perkins system without substantial capital investment by the Company.
The Company believes that it enjoys good relations with its franchisees.
UPDATED, MODERN RESTAURANTS. The Company employs an on-going system of
prototype development, testing and remodeling to maintain operationally
efficient, cost-effective and unique interior and exterior facility design and
decor. An accelerated program to upgrade existing Company-operated restaurants
began in 1995 and continues today. The current remodel package features a
modern, distinctive interior and exterior layout that enhances operating
efficiencies and guest appeal. As of September 30, 1997, approximately 86% of
Company-operated restaurants had either been remodeled or initially constructed
since January 1, 1994.
To promote a consistent and current image throughout the Perkins system, the
Company encourages its franchise operators to remodel their restaurants by
providing financial incentives and third-party financing programs. Twenty-two
franchised restaurants were remodeled in 1996 and approximately 35 additional
restaurants were remodeled in 1997, of which 19 were completed by September 30.
2
<PAGE>
MANAGEMENT EXPERTISE. The Company has an experienced management team with
average tenure with the Company of over seven years and average restaurant
industry experience of 20 years. Donald N. Smith, the Company's Chairman and
Chief Executive Officer, has over 30 years of restaurant experience, over 12 of
which have been with the Company. Richard K. Arras, the Company's President and
Chief Operating Officer, has 18 years of restaurant experience, all of which
have been with the Company.
EFFICIENT OPERATIONS. The Company uses a combination of current technology,
on-going operational analyses, hourly employee performance programs and the
operating experience of both its own field management and that of its
franchisees to continuously improve the quality, efficiency and execution of its
operating systems. For example, Company-operated restaurants recently
implemented programs to improve labor efficiency, lower food cost and improve
facility utilization during peak periods.
DAYPART BALANCE. Perkins has successfully evolved over the last 39 years
from its origins as a breakfast-oriented pancake house by developing significant
lunch, dinner and late night product offerings. The flexibility of Perkins'
multi-daypart offerings allows each location to meet the needs of its local
market. During 1996, the revenue breakdown by daypart for Company-operated
restaurants was 25% breakfast, 29% lunch, 32% dinner and 14% late night (10:00
p.m. to 6:00 a.m.).
COMMITMENT TO GUEST SATISFACTION. The Company is focused on continually
improving guest satisfaction. The Company regularly surveys customers to
determine their overall satisfaction with their dining experience, conducts
extensive service quality training programs and operates a toll free number to
monitor guests' dining experiences.
MANAGEMENT INFORMATION SYSTEMS. The Company's information systems not only
provide detailed monthly financial statements for each restaurant but daily
operating statistics such as sales, labor, guest check and average table turns.
The systems also generate weekly restaurant profit and loss statements and food
and labor variance analysis. The Company has also developed a labor scheduling
system which calculates the amount of labor necessary to provide optimal guest
service. The Company's systems are year 2000 compliant.
PURCHASING LEVERAGE. The Company aggregates the purchasing requirements of
all of its Company-operated restaurants and over 90% of its franchised
restaurants to obtain purchasing economies of scale for food items, cleaning
supplies, equipment, maintenance services and regional distribution agreements.
In addition, the Company utilizes outside consultants for information regarding
purchases of commodity items and, together with its franchisees, makes
significant purchases of commodity products, such as sirloin steak or shrimp,
which provide the basis for several product-driven marketing programs throughout
the year.
BUSINESS STRATEGY
INCREASE FRANCHISE REVENUES. The Company plans to continue to add
franchised restaurants in existing and new geographic markets. In addition,
management will continue to encourage franchisees to remodel and renovate
restaurants where appropriate. Franchisees opened 17 new restaurants in 1997, of
which ten had been opened and seven were under construction as of September 30.
Management believes its franchisees will open approximately 40 new franchised
restaurants during 1998. During 1996, ten franchised restaurants closed and, in
1997, six franchised restaurants were closed.
SELECTIVELY DEVELOP NEW COMPANY-OPERATED RESTAURANTS. The Company will
continue to develop and operate new restaurants based upon its current
prototype. Management believes the development of successful Company-operated
restaurants supports the continued development of the Perkins franchise system.
The Company opened three new full-service Company-operated restaurants in 1997
and plans to add six new full-service Company-operated restaurants in 1998.
3
<PAGE>
EXPAND NON-TRADITIONAL LOCATIONS AND ALTERNATIVE FORMATS. The Company and
its franchisees have built, on a limited test basis, restaurants within
non-traditional sites including hotels, airports, travel plazas and strip
shopping centers. Within these non-traditional locations, the Company has
recently opened restaurants with alternative formats, such as limited menu
restaurants and a stand-alone bakery, in addition to full-service, stand-alone
restaurants. The Company intends to continue testing non-traditional locations
and further develop alternative formats in conjunction with its franchisees in
cases where appropriate for the Perkins brand and where anticipated financial
returns are acceptable.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company continually evaluates
potential acquisition opportunities of existing franchised Perkins restaurants
and other restaurant chains. The Company does not currently have any agreements
or understandings to make any acquisitions.
The Company's address is 6075 Poplar Avenue, Suite 800, Memphis, Tennessee
38119-4709, its phone number is (901) 766-6400 and its internet address is
www.perkinsrestaurants.com.
FINANCE CORP.
Finance Corp. is a wholly-owned subsidiary of the Company which has nominal
assets, will not conduct any operations and is acting as co-obligor of the
Notes. As a result, Holders of Old Notes and prospective holders of New Notes
should not expect Finance Corp. to participate in servicing the interest and
principal obligations on the Notes. The Company believes that certain
institutional investors that might otherwise be limited in their ability to
invest in securities issued by limited partnerships by reason of the investment
laws of their states of organization or their charter documents may be able to
invest in the Notes because Finance Corp. is a co-obligor.
THE GOING PRIVATE TRANSACTION
The Company is a limited partnership that currently is indirectly owned
(including its general partner's interest) by The Restaurant Company ("TRC").
Until December 1997, the Company's units of limited partnership interest
("Units") were traded on the New York Stock Exchange under the symbol "PFR." In
September 1997, the Company, TRC and Perkins Acquisition Corp. ("MergerCo.")
entered into an Agreement and Plan of Merger (as amended, the "Merger
Agreement") pursuant to which the Company's operating partnership subsidiary was
eliminated through a merger and a series of transactions were consummated on
December 22, 1997 whereby the Company became an indirect wholly-owned subsidiary
of TRC and the approximately 5.44 million Units held by persons other than TRC
and its subsidiaries were converted into the right to receive $14.00 in cash per
Unit. Such transactions consummated on December 22, 1997 are collectively
referred to herein as the "Going Private Transaction." The offering of the Old
Notes (the "Offering") and the Going Private Transaction were consummated
concurrently. See "The Going Private Transaction."
TRC is owned 33.3% by Donald N. Smith, the Company's Chairman and Chief
Executive Officer, 33.3% by a subsidiary of Harrah's Entertainment, Inc.
("Harrah's"), 28.2% by The Equitable Life Assurance Society of the United States
("Equitable") and 5.2% by others. TRC and Harrah's have entered into discussions
which could lead to the redemption by TRC of Harrah's interest in TRC, but have
reached no agreement on the terms of such a transaction. Should Harrah's
interest be redeemed, Mr. Smith's ownership would be 50%, Equitable's ownership
would be 42.3% and others would own 7.7%. No change in the Company's management
or business strategy is anticipated as a result of the consummation of the Going
Private Transaction.
Approximately $137 million is required to (i) consummate the Going Private
Transaction, (ii) repay existing indebtedness and (iii) pay related fees and
expenses. Such funds are being obtained from the proceeds of the Offering, from
internally generated funds and from the proceeds of a new revolving credit
facility (the "New Credit Facility") entered into concurrently with the closing
of the Offering. See "Use of Proceeds."
4
<PAGE>
Set forth below is a diagram of the organizational structure of TRC and its
principal subsidiaries, after giving effect to the Going Private Transaction.
[LOGO]
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered.................... $130 million principal amount of 10 1/8% Series B
Senior Notes due 2007. The terms of the New Notes
and the Old Notes are identical in all material
respects, except for certain transfer restrictions
and registration rights relating to the Old Notes
and except for certain Liquidated Damages
provisions relating to the Old Notes described
below under "Issuance of Old Notes; Registration
Rights."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Issuance of Old Notes;
Registration Rights................. The Old Notes were issued on December 22, 1997 to
four initial purchasers (the "Initial Purchasers"),
who placed the Old Notes with "qualified
institutional buyers" (as such term is defined in
Rule 144A promulgated under the Securities Act). In
connection therewith, the Issuers executed and
delivered for the benefit of the holders of Old
Notes a registration rights agreement (the
"Registration Rights Agreement"), pursuant to which
the Issuers agreed (i) to file a registration
statement (the "Registration Statement") on or
prior to February 5, 1998 with respect to the
Exchange Offer and (ii) to use their best efforts
to cause the Registration Statement to be declared
effective by the Commission on or prior to April
21, 1998. In certain circumstances, the Issuers
will be required to provide a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Old Notes by the holders
thereof. If the Issuers do not comply with their
obligations under the Registration Rights
Agreement, they will be required to pay liquidated
damages ("Liquidated Damages") to holders of the
Old Notes under certain circumstances. See "The
Exchange Offer -- Registration Rights; Liquidated
Damages." Holders of Old Notes do not have any
appraisal rights in connection with the Exchange
Offer.
The Exchange Offer.................... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance of
the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement. Based upon the
position of the staff of the Commission set forth
in no-action letters issued to other parties in
other transactions substantially similar to the
Exchange Offer, the Issuers believe that the New
Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any
such holder that is an "affiliate" of the Issuers
within the meaning of Rule 405 under the Securities
Act; (ii) an Initial Purchaser who acquired the Old
Notes directly from the Issuers solely in order to
resell pursuant to Rule 144A of the Securities Act
or any other available exemption under the
Securities Act; or (iii) a broker-dealer who
acquired the Old Notes as a result of market making
or other trading activities) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and such
holder is not participating and has no arrangement
or understanding with any person to participate in
a distribution (within the meaning of the
Securities Act) of such New Notes. By tendering,
each
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Holder which is not a broker-dealer will represent
to the Issuers that, among other things, the person
receiving the New Notes, whether or not such person
is the Holder, (i) is not an "affiliate," as
defined in Rule 405 under the Securities Act, of
the Issuers, (ii) will acquire the New Notes in the
ordinary course of such person's business, and
(iii) is not engaged in, does not intend to engage
in, and has no arrangement or understanding with
any person to participate in, a distribution of the
New Notes. If any Holder or any such other person
has an arrangement or understanding with any person
to participate in a distribution of such New Notes,
is engaged in or intends to engage in a
distribution of such New Notes, is an "affiliate,"
as defined in Rule 405 under the Securities Act, of
the Issuers, or acquired the Old Notes as a result
of market making or other trading activities, then
such Holder or any such other person (i) cannot
rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Notes. Although there has been no
indication of any change in the staff's position,
there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the resale of the New Notes. See "Risk
Factors."
Procedures for Tendering.............. Tendering Holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Notes. Holders of the
Old Notes desiring to tender such Old Notes in
exchange for New Notes should allow sufficient time
to ensure timely delivery. Certain brokers,
dealers, commercial banks, trust companies and
other nominees may also effect tenders by
book-entry transfer. Holders of Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes pursuant to the Exchange Offer.
Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
the requests for information
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
should be directed to the Exchange Agent. See "The
Exchange Offer -- Procedures for Tendering Old
Notes."
Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m., New
Withdrawal.......................... York City time, on , 1998 or such later date
and time to which it is extended. The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Note not accepted for exchange for any
reason will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of the
Exchange Offer; Period for Tendering Old Notes" and
"-- Withdrawal Rights."
Certain Conditions to the
Exchange offer...................... The Exchange Offer is subject to certain customary
conditions, all of which may be waived by the
Company, including the absence of (i) threatened or
pending proceedings seeking to restrain the
Exchange Offer or resulting in a material delay to
the Exchange Offer; (ii) a general suspension of
trading on any national securities exchange or in
the over-the-counter market; (iii) a banking
moratorium; (iv) a commencement of war, armed
hostilities or other similar international calamity
directly or indirectly involving the United States;
and (v) change or threatened change in the
business, properties, assets, liabilities,
financial condition, operations, results of
operations or prospects of the Company and its
subsidiaries taken as a whole that, in the sole
judgment of the Issuers, is or may be adverse to
the Issuers. The Issuers shall not be required to
accept for exchange, or to issue New Notes in
exchange for, any Old Notes, if at any time before
the acceptance of such Old Notes for exchange or
the exchange of New Notes for such Old Notes, any
of the foregoing events occurs which, in the sole
judgment of the Issuers, make it inadvisable to
proceed with the Exchange Offer and/or with such
acceptance for exchange or with such exchange. In
the event the Issuers assert or waive a condition
to the Exchange Offer which constitutes a material
change to the terms of the Exchange Offer, the
Issuers will disclose such change in a manner
reasonably calculated to inform prospective
investors of such change, and will extend the
period of the Exchange Offer by five business days.
If the Issuers fail to consummate the Exchange
Offer because the Exchange Offer is not permitted
by applicable law or Commission policy, they are
obligated pursuant to the Registration Rights
Agreement to file with the Commission a Shelf
Registration Statement to cover resales of the
Transfer Restricted Securities (as defined) by the
holders thereof who satisfy certain conditions. If
the Issuers fail to consummate the Exchange
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Offer or file a Shelf Registration Statement in
accordance with the Registration Rights Agreement,
the Issuers will pay Liquidated Damages to each
holder of Transfer Restricted Securities until the
cure of all defaults thereunder. The Exchange Offer
is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer -- Registration
Rights; Liquidated Damages" and "-- Certain
Conditions to the Exchange Offer."
Federal Income Tax Consequences....... The exchange of Old Notes for New Notes pursuant to
the Exchange Offer will not result in any income,
gain or loss to the Holders or the Issuers. See
"Certain Federal Income Tax Considerations" for a
discussion of the material federal tax consequences
expected to result from the Exchange Offer.
Use of Proceeds....................... There will be no proceeds to the Issuers from
exchanges pursuant to the Exchange Offer.
Appraisal Rights...................... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent........................ State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
</TABLE>
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate that
they will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any rights under the Registration Rights Agreement. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, or tendered but unaccepted, Old Notes could
be adversely affected. See "Risk Factors -- Consequences of Exchange and Failure
to Exchange" and "The Exchange Offer -- Consequences of Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by April 21, 1998 (or any other Registration Default (as defined)
has occurred), subject to certain exceptions, with respect to the first 90-day
period immediately following thereafter, the Company will be obligated to pay
liquidated damages to each Holder of Transfer Restricted Securities affected
thereby in an amount equal to $.05 per week for each $1,000 principal amount of
Transfer Restricted Securities, as applicable, held by such Holder ("Liquidated
Damages"). The amount of Liquidated Damages will increase by an additional $.05
per week with respect to each subsequent 90-day period until the Exchange Offer
is consummated, or any other Registration Default (as defined) is cured,
9
<PAGE>
up to a maximum of $.50 per week for each $1,000 principal amount of Transfer
Restricted Securities, as applicable.
<TABLE>
<S> <C>
Issuers............................... Perkins Family Restaurants, L.P. and Perkins
Finance Corp.
Securities Offered.................... $130 million in aggregate principal amount of
10 1/8% Series B Senior Notes due 2007.
Maturity Date......................... December 15, 2007
Payment Dates......................... The Notes bear interest from the date of issuance
at the rate of 10 1/8% per annum, payable
semi-annually in arrears on June 15 and December 15
of each year, commencing June 15, 1998.
Ranking............................... The Notes are general unsecured joint and several
obligations of the Issuers. The Notes will rank
PARI PASSU in right of payment with all current and
future senior indebtedness of the Issuers,
including borrowings under the New Credit Facility.
However, all borrowings under the New Credit
Facility are secured by a first priority Lien on
substantially all of the assets of the Company. As
a result, the claims of Holders (as defined in the
Indenture) are effectively subordinated to the
extent of such security interests. At December 31,
1997, no borrowings were outstanding under the New
Credit Facility. However, assuming all Units had
been surrendered for payment and all expenses had
been paid in connection with the Going Private
Transaction, approximately $6.6 million would have
been outstanding under the New Credit Facility as
of December 22, 1997, excluding approximately $3.0
million of standby letters of credit. The Indenture
pursuant to which the Notes were issued (the
"Indenture") permits additional borrowings by the
Issuers, under the New Credit Facility or
otherwise, in the future.
Optional Redemption................... The Notes will be redeemable, in whole or in part,
at the option of the Issuers, on or after December
15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the
redemption date. In addition, at any time on or
prior to December 15, 2000, the Issuers may redeem
Notes with the net cash proceeds of one or more
public offerings of the Company's equity securities
or the equity securities of any of the Company's
direct or indirect parents (to the extent such net
proceeds have been contributed to the Company as
common equity capital) at 110.125% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
redemption date, provided that at least 65% of the
principal amount of Notes originally issued remains
outstanding immediately following such redemption.
See "Description of Notes -- Optional Redemption."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Mandatory Redemption.................. The Issuers are not required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
Subsidiary Guarantees................. The Issuers' payment obligations under the Notes
will be jointly and severally guaranteed (the
"Subsidiary Guarantees") by the Company's future
Restricted Subsidiaries other than Finance Corp.,
if any (the "Subsidiary Guarantors").
Change of Control..................... Upon a Change of Control, each Holder (as defined
in the Indenture) of Notes will have the right to
require the Issuers to purchase all or any part of
such Holder's Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase. There can be no
assurance that the Issuers will have adequate funds
available to repurchase the Notes. See "Risk
Factors -- Possible Inability to Fund Change of
Control Offer."
Certain Covenants..................... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
defined) to incur additional Indebtedness and issue
preferred stock, pay distributions or make other
restricted payments, engage in sale and leaseback
transactions, create certain liens, enter into
certain transactions with affiliates, sell assets
of the Company or its subsidiaries, incur dividend
and other payment restrictions affecting Restricted
Subsidiaries, issue or sell Equity Interests (as
defined) of the Company's subsidiaries or enter
into certain mergers and consolidations. In
addition, under certain circumstances, the Company
will be required to offer to purchase Notes at a
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase, with the proceeds of certain Asset Sales
(as defined). See "Description of Notes."
Transfer Restrictions................. The Old Notes were not registered under the
Securities Act and are subject to restrictions on
transferability and resale. See "Risk Factors --
Consequences of Exchange and Failure to Exchange."
Use of Proceeds of the Offering....... The proceeds from the Offering, together with
initial borrowings under the New Credit Facility,
are being used to (i) purchase Units from the
public Unitholders in the Going Private
Transaction, (ii) repay existing indebtedness and
(iii) pay related fees and expenses. See "Use of
Proceeds."
</TABLE>
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The historical financial information under the caption "Statement of
Operations Data" for each of the years in the five-year period ended December
31, 1996 has been derived from the Company's audited historical financial
statements, which financial statements have been audited by Arthur Andersen LLP,
independent public accountants. The financial statements for each of the years
in the three-year period ended December 31, 1996, and the report thereon are
included elsewhere herein. The historical financial information under the
captions "Statement of Operations Data," "Other Financial Data" and "Balance
Sheet Data" as of September 30, 1997, and for the nine months ended September
30, 1997 and 1996, has been derived from the unaudited financial statements
which are included elsewhere herein. In the opinion of the Company, such
information reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
such periods. The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of the results to be expected for the entire
year. The summary financial information should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Food sales..................................... $ 181,072 $ 197,090 $ 205,675 $ 228,259 $ 234,164 $ 175,792 $ 185,069
Franchise revenues............................. 14,079 15,544 16,227 17,492 18,629 13,914 14,603
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 195,151 212,634 221,902 245,751 252,793 189,706 199,672
Depreciation and amortization.................... 10,712 11,851 12,107 14,401 15,748 11,748 11,898
Earnings before net interest and taxes(1)........ $ 17,820 $ 15,379 $ 15,274 $ 14,622 $ 18,588 $ 14,340 $ 15,328
OTHER FINANCIAL DATA:
EBITDA(2)........................................ $ 28,687 $ 31,695 $ 29,381 $ 31,441 $ 34,473 $ 26,194 $ 27,995
EBITDA margin(2)(3).............................. 14.7% 14.9% 13.2% 12.8% 13.6% 13.8% 14.0%
Net cash provided by operating activities........ $ 25,101 $ 29,696 $ 24,761 $ 25,277 $ 35,245 $ 25,557 $ 25,899
Capital expenditures
Maintenance.................................... $ 1,512 $ 2,023 $ 2,130 $ 3,435 $ 2,987 $ 2,142 $ 2,673
Renovation..................................... 3,559 4,401 4,118 8,431 4,064 3,273 2,486
New restaurant development..................... 7,037 9,851 20,908 12,626 1,947 1,870 3,324
Manufacturing and other........................ 3,324 3,793 3,643 4,439 2,860 1,997 1,831
--------- --------- --------- --------- --------- --------- ---------
Total capital expenditures................... $ 15,432 $ 20,068 $ 30,799 $ 28,931 $ 11,858 $ 9,282 $ 10,314
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net interest expense............................. $ 2,467 $ 2,777 $ 3,266 $ 4,826 $ 5,066 $ 3,841 $ 3,558
Cash distributions paid to Unitholders........... $ 13,744 $ 13,765 $ 13,780 $ 13,870 $ 13,904 $ 10,428 $ 10,428
Ratio of EBITDA to net interest expense
and cash distributions paid to
Unitholders(2)................................. 1.8x 1.9x 1.7x 1.7x 1.8x 1.8x 2.0x
PRO FORMA DATA:(4)
Net interest expense......................................................................... $ 15,888 $ 12,142 $ 11,661
Ratio of EBITDA to net interest expense(2)................................................... 2.2x 2.2x 2.4x
Ratio of long-term debt and capital lease obligations to EBITDA(2)(5)........................ -- -- 3.9x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
ACTUAL PRO FORMA(6)
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Property and equipment, net.............................................................. $ 114,312 $ 129,011
Total assets............................................................................. 156,204 207,352
Total long-term debt and capital lease obligations....................................... 50,460 144,213
Total partners' capital.................................................................. 63,542 25,561
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CHECK)
<S> <C> <C> <C> <C> <C> <C> <C>
RESTAURANT OPERATING DATA:
Restaurant sales
Company-operated(7)............................ $ 170,765 $ 183,416 $ 187,711 $ 208,057 $ 212,787 $ 160,482 $ 167,843
Franchised..................................... 372,507 404,339 425,812 440,446 465,172 350,912 367,025
--------- --------- --------- --------- --------- --------- ---------
Total........................................ $ 543,272 $ 587,755 $ 613,523 $ 648,503 $ 677,959 $ 511,394 $ 534,868
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Restaurants open (at period end)(7)
Company-operated............................... 123 127 132 139 134 134 135
Franchised..................................... 290 298 300 317 329 324 333
--------- --------- --------- --------- --------- --------- ---------
Total........................................ 413 425 432 456 463 458 468
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Company-operated restaurant data:
Average sales per restaurant(7)................ $ 1,418 $ 1,478 $ 1,535 $ 1,535 $ 1,576 $ 1,185 $ 1,254
Percentage change over prior period.......... 2.1% 4.2% 3.9% 0.0% 2.7% 2.2% 5.8%
Comparable restaurant sales increase(8)........ 4.5% 2.5% 0.8% 0.9% 2.6% 2.1% 5.9%
Average check(7)............................... $ 4.85 $ 5.04 $ 5.16 $ 5.29 $ 5.36 $ 5.35 $ 5.53
Franchised restaurant data:
Average royalties per restaurant............... $ 48.1 $ 51.6 $ 53.3 $ 55.0 $ 55.2 $ 41.6 $ 42.9
Average sales per restaurant................... $ 1,299 $ 1,381 $ 1,418 $ 1,441 $ 1,431 $ 1,083 $ 1,109
</TABLE>
- ------------------------------
(1) Includes unusual items as follows: year ended December 31, 1993 -- provision
for disposition of assets ($4.3 million); year ended December 31, 1994 --
provision for litigation costs ($1.1 million) and provision for disposition
of assets ($0.8 million); year ended December 31, 1995 -- asset write-down
($1.9 million), provision for disposition of assets ($0.6 million) and
benefit from litigation costs ($0.2 million); and nine months ended
September 30, 1997 -- tax-related reorganization costs ($0.7 million). The
Company is not subject to federal income taxes and, accordingly, no income
taxes were recorded for any of the periods presented.
(2) As used herein, "EBITDA" represents net income plus (i) net interest, (ii)
depreciation and amortization, (iii) provision for disposition of assets,
(iv) asset write-down (SFAS No. 121), (v) provision for (benefit from)
litigation costs, (vi) tax-related reorganization costs and (vii) provision
for minority interest. The Company has included information concerning
EBITDA in this Prospectus because it believes that such information is used
by certain investors as one measure of an issuer's historical ability to
service debt. EBITDA should not be considered as an alternative to, or more
meaningful than, earnings from operations or other traditional indications
of an issuer's operating performance.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) Pro forma data gives effect to (i) the Offering, (ii) estimated initial
borrowings under the New Credit Facility, (iii) application of the proceeds
of the foregoing, as set forth in "Use of Proceeds" and (iv) the Going
Private Transaction, as if each occurred on January 1, 1996. The pro forma
data has been derived from the unaudited pro forma financial statements
included elsewhere in this Prospectus.
(5) For purposes of this ratio, EBITDA represents EBITDA for the twelve months
ended September 30, 1997.
(6) Pro forma data gives effect to (i) the Offering, (ii) estimated initial
borrowings under the New Credit Facility, (iii) application of the proceeds
of the foregoing, as set forth in "Use of Proceeds" and (iv) the Going
Private Transaction, as if each occurred on September 30, 1997. The pro
forma data has been derived from the unaudited pro forma financial
statements included elsewhere in this Prospectus.
(7) Represents full-service restaurants only.
(8) Comparable restaurant sales increase for each period is calculated using
sales of restaurants that have been open during such period and the entire
corresponding period of the prior fiscal year. Comparable restaurant sales
data excludes those days and dayparts for which the restaurant was not open
in both periods.
13
<PAGE>
RISK FACTORS
Holders of the Old Notes should consider carefully the risk factors set
forth below as well as the other information set forth in this Prospectus before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below (other than "Consequences of Exchange and Failure to Exchange") are
generally applicable to the Old Notes as well as the New Notes. This Prospectus
contains certain forward-looking statements, including statements containing the
words "believes," "anticipates," "expects" and words of similar import. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
adverse changes in national or local economic conditions, increased competition,
changes in availability, cost and terms of financing, changes in operating
expenses and other factors referenced in this Prospectus, including, without
limitation, under the captions "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Issuers disclaim any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements contained in this Prospectus to reflect
future events or developments.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Issuers do not
currently anticipate that they will register the Old Notes under the Securities
Act. In addition, upon the consummation of the Exchange Offer holders of Old
Notes which remain outstanding will not be entitled to any rights to have such
Old Notes registered under the Securities Act or to any rights under the
Registration Rights Agreement. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. See "The
Exchange Offer -- Consequences of Not Exchanging Old Notes."
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to other parties in other transactions substantially
similar to the Exchange Offer, the Issuers believe that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act; (ii) an Initial Purchaser who acquired the Old Notes directly from the
Issuers solely in order to resell pursuant to Rule 144A of the Securities Act or
any other available exemption under the Securities Act; or (iii) a broker-dealer
who acquired the Old Notes as a result of market making or other trading
activities) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and that such holder
is not participating and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. The Issuers have not, however, sought their own no-action letter
from the staff of the Commission. Although there has been no indication of any
change in the staff's position, there can be no assurance that the staff of the
Commission would make a similar determination with respect to the resale of the
New Notes. By tendering, each Holder which is not a broker-dealer will represent
to the Issuers that, among other things, the person receiving the New Notes,
whether or not such person is a Holder, (i) is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Issuers, (ii) will acquire the New
Notes in the ordinary course of such person's business, and (iii) is not engaged
in, does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the
14
<PAGE>
New Notes. If any Holder or any such other person has an arrangement or
understanding with any person to participate in a distribution of such New
Notes, is engaged in or intends to engage in a distribution of such New Notes,
is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Issuers, or acquired the Old Notes as a result of market making or other trading
activities, then such Holder or any such other person (i) cannot rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction, unless such sale is made
pursuant to an exemption from such requirements. See "The Exchange Offer --
Purpose of the Exchange Offer."
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. On September 30, 1997, after giving pro
forma effect to the Offering and estimated initial borrowings of $6.8 million
under the New Credit Facility, the Company would have had total indebtedness of
approximately $145.6 million (of which $130 million would have consisted of the
Notes) and partners' capital of approximately $25.6 million. On such pro forma
basis, the Company's ratio of earnings to pro forma fixed charges for the year
ended December 31, 1996 and the nine months ended September 30, 1997 would have
been 1.0 to 1.0 and 1.2 to 1.0, respectively. The Company and its subsidiaries
are permitted to incur substantial additional indebtedness in the future. See
"Capitalization" and "Selected Historical and Pro Forma Financial and Other
Data" and "Description of Notes."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations,
management believes that cash flow from operations and available cash, together
with available borrowings under the New Credit Facility, will be adequate to
meet the Company's liquidity needs for the foreseeable future. The Company may,
however, need to refinance all or a portion of the principal of the Notes on or
prior to maturity. There can be no assurance that the Company's business will
generate sufficient cash flow from operations, or that future borrowings will be
available under the New Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at all.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Capital Resources and Liquidity."
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including, but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes, (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions, (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures and
other general corporate requirements, (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other general corporate purposes, (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry, and (vi) placing the Company at a competitive disadvantage as
compared to less leveraged competitors. In addition, the Indenture and the New
Credit Facility contain financial and other restrictive covenants that limit the
ability of the Company to, among other things, borrow additional funds. Failure
by the Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company. In addition, the degree to which the Company is leveraged could prevent
it from repurchasing all of the Notes tendered to it upon the occurrence of a
Change of Control. See "-- Possible Inability to Fund Change of Control Offer,"
"Description of Notes -- Repurchase at the Option of Holders -- Change of
Control" and "Description of Other Indebtedness."
15
<PAGE>
SECURED INDEBTEDNESS; EFFECTIVE SUBORDINATION
Holders of any secured indebtedness of the Company or its subsidiaries will
have claims that are prior to the claims of the Holders of the Notes with
respect to the assets securing such other indebtedness. Notably, the Company is
a party to the New Credit Facility which is secured by liens on substantially
all of the Company's and its subsidiaries' assets. The Notes are effectively
subordinated to all such secured indebtedness. In the event of any distribution
or payment of the assets of the Company in any foreclosure, dissolution,
winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders
of secured indebtedness will have a prior claim to the assets of the Company and
its subsidiaries that constitute their collateral. Holders of the Notes will
participate ratably with all holders of unsecured indebtedness of the Company
that is deemed to be of the same class as the Notes, and potentially with all
other general creditors of the Company, based upon the respective amounts owed
to each holder or creditor, in the remaining assets of the Company. In any of
the foregoing events, there can be no assurance that there would be sufficient
assets to pay amounts due on the Notes. As a result, Holders of the Notes may
receive less, ratably, than holders of secured indebtedness.
As of September 30, 1997, on an as adjusted basis after giving effect to the
Offering and estimated initial borrowings under the New Credit Facility, the
aggregate amount of secured indebtedness of the Company and its subsidiaries
(representing borrowings under the New Credit Facility) would have been
approximately $6.8 million, outstanding standby letters of credit would have
been approximately $3.0 million and approximately $40.2 million would have been
available for additional borrowings and letters of credit under the New Credit
Facility. The Indenture permits the incurrence of substantial additional secured
indebtedness by the Company and its subsidiaries, under the New Credit Facility
or otherwise, in the future. See "Description of Notes."
RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
products and the type, number and location of competing restaurants. The Company
could also be substantially adversely affected by publicity resulting from food
quality, illness, injury or other health concerns or alleged discrimination or
other operating issues stemming from one location or a limited number of
locations, whether or not the Company is liable. In addition, factors such as
increased costs of goods, regional weather conditions and the potential scarcity
of experienced management and hourly employees may also adversely affect the
food service industry in general and the results of operations and financial
condition of the Company.
RELIANCE ON KEY MANAGEMENT
The Company's business is managed, and its business strategies formulated,
by a relatively small number of key executive officers and managers. The loss of
these key management persons, including Mr. Smith and Mr. Arras, could have a
material adverse effect on the Company. See "Management."
COMPETITION
The Company's business (including Foxtail) and the restaurant and food
services industries in general are highly competitive. The Company competes
directly or indirectly with all restaurants, from national and regional chains
to local establishments. Some of its competitors are significantly larger than
the Company and have substantially greater capital resources at their disposal.
EXPOSURE TO COMMODITY PRICING
The Company's purchasing department contracts for the purchase of food
products in large quantities. Although the Company does not hedge its positions
in any of these commodities as a matter of policy,
16
<PAGE>
it may opportunistically contract for some of these items in advance of a
specific need. As a result, the Company is subject to the risk of substantial
and sudden price increases, shortages or interruptions in supply of such items,
which could have a material adverse effect on the Company.
FRANCHISE OPERATIONS
At September 30, 1997, the Company franchised 333 full-service restaurants.
The opening and success of franchised restaurants depends on various factors,
including the availability of suitable sites, the negotiation of acceptable
lease or purchase terms for new locations, permitting and regulatory compliance,
the ability to meet construction schedules and the financial and other
capabilities of the Company's franchisees and developers. There can be no
assurance that developers planning the opening of multiple restaurants under
area development agreements will have the business abilities or sufficient
access to financial resources necessary to open the restaurants required by
their agreements. There can also be no assurances that franchisees will
successfully operate their restaurants in a manner consistent with the Company's
concept and standards.
The Company's largest franchisee operates 41 restaurants, 37 of which are
leased from unaffiliated lessors, pursuant to a temporary license agreement
initially expiring December 31, 1997, but which the Company has agreed to extend
for an additional 90 days. The temporary license agreement was entered into as a
result of negotiations following the franchisee's defaults in its payments and
certain other obligations under its prior agreements with the Company and in
order to give the franchisee an opportunity to seek permanent financing in an
amount sufficient to permit it to refinance its existing obligations to its
creditors, including the Company, and to remodel its restaurants. While the
franchisee has represented to the Company that it is currently in discussions
with possible financing sources, the Company believes that if the franchisee is
ultimately unsuccessful and loses control of its properties, a majority of the
restaurants can continue to be operated as Perkins Family Restaurants pursuant
to arrangements between the Company and the owners of the properties. During the
past three years, the franchisee's average net royalty payments to the Company
were approximately $1.75 million. At December 31, 1997, the franchisee was
delinquent in its royalty obligations in the amount of approximately $250,000,
net of a reserve for loss of $300,000.
SEASONALITY
The Company's revenues are subject to seasonal fluctuations. Customer
traffic and consequently revenues are highest in the summer months and lowest
during the winter months because of the high proportion of restaurants located
in states where inclement weather adversely affects guest visits.
GEOGRAPHIC CONCENTRATION
Perkins restaurants are concentrated in the Midwest, Pennsylvania, upstate
New York and central Florida. As a result, a severe or prolonged economic
recession or changes in demographic mix, employment levels, population density,
weather, real estate market conditions or other factors unique to these
geographic regions may adversely affect the Company more than certain of its
competitors which are more geographically diverse.
ABSENCE OF A PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Old Notes were not registered under the Securities Act. Accordingly, the
Old Notes may only be offered or sold pursuant to an exemption from the
registration requirements of the Securities Act or pursuant to an effective
registration statement. See "-- Consequences of Exchange and Failure to
Exchange" above. Although the Old Notes are eligible for trading in PORTAL,
there can be no assurance as to the liquidity of any markets that may develop
for the Notes, the ability of Holders of the Notes to sell their Notes, or the
prices at which Holders would be able to sell their Notes. Future trading prices
of the
17
<PAGE>
Notes will depend on many factors, including, among other things, the Company's
ability to effect the Exchange Offer, prevailing interest rates, the Company's
operating results and the market for similar securities. However, they are not
obligated to do so and any market making may be discontinued at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act (as defined) and may be
limited during the Exchange Offer and the pendency of any Shelf Registration
Statement. See "Description of Notes -- Registration Rights; Liquidated
Damages." The Company does not intend to apply for listing of the Notes on any
securities exchange.
REGULATION
The restaurant and food distribution industries are subject to numerous
federal, state and local government regulations, including those relating to the
preparation and sale of food and building and zoning requirements. Also, the
Company is subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working conditions and citizenship
requirements. The failure to obtain or retain food licenses or an increase in
the minimum wage rate, employee benefit costs or other costs associated with
employees could adversely affect the Company. In September 1997, the second
phase of an increase in the minimum wage was implemented in accordance with the
Federal Fair Labor Standards Act of 1996. See "Business -- Government
Regulation."
CONTROL OF THE COMPANY; RELATIONSHIP WITH FRIENDLY ICE CREAM CORPORATION;
POTENTIAL CONFLICTS OF INTEREST
Since the consummation of the Going Private Transaction, all of the
Company's outstanding equity interests are indirectly held by TRC. TRC's
outstanding equity interests are owned 33.3%, 33.3% and 28.2% by Donald N.
Smith, Harrah's and Equitable, respectively. These shareholders, if they were to
act together, would have the ability to make significant decisions affecting the
operations of the Company. TRC and Harrah's have entered into discussions which
could lead to the redemption by TRC of Harrah's interest in TRC, but have
reached no agreement on the terms of such a transaction. Should Harrah's
interest be redeemed, Mr. Smith's ownership would be 50%, Equitable's ownership
would be 42.3% and others would own 7.7%. Should Mr. Smith become the 50% owner
of TRC, he would be in a position to exert significant control over TRC and the
Company with little or no assistance from other shareholders.
Mr. Smith and Equitable own 10.3% and 2.1%, respectively, of Friendly Ice
Cream Corporation ("Friendly's"), which operates and franchises full-service
restaurants. Mr. Smith, the Chairman of the Board and Chief Executive Officer of
Perkins Management Company, Inc. ("PMC"), is the Chairman, Chief Executive
Officer and President of Friendly's. In addition, three of the directors of PMC
are directors of Friendly's. In the ordinary course of business, the Company
enters into transactions with Friendly's. The Company's policy is to only enter
into a transaction with an affiliate in the ordinary course of, and pursuant to
the reasonable requirements of, its business and upon terms that are no less
favorable to the Company than could be obtained if the transaction was entered
into with an unaffiliated third party. See "Certain Transactions."
Circumstances could arise in which the interests of TRC and its stockholders
could be in conflict with the interests of the Holders of the Notes. In
addition, Friendly's competes with the Company in certain markets and
circumstances could arise in which the interests of Friendly's could be in
conflict with the interests of the Company. Since Mr. Smith serves as Chairman,
Chief Executive Officer and President of Friendly's and as Chairman and Chief
Executive Officer of PMC and, consequently, devotes a portion of his time to the
affairs of each company, he may be required to limit his involvement in those
areas, if any, where the interests of the Company conflict with those of
Friendly's. Mr. Smith does not have an employment agreement with the Company nor
is he contractually prohibited from engaging in other business ventures in the
future, any of which could compete with the Company or its subsidiaries.
18
<PAGE>
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company, Finance Corp. or any Subsidiary Guarantor, at the time it incurred the
indebtedness evidenced by the Notes or the Subsidiary Guarantees, (i) (a) was or
is insolvent or rendered insolvent by reason of such incurrence or (b) was or is
engaged in a business or transaction for which the assets remaining with the
Company, Finance Corp. or any Subsidiary Guarantor constituted unreasonably
small capital or (c) intended or intends to incur, or believed or believes that
it would incur debts beyond its ability to pay such debts as they mature, and
(ii) received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Notes or the
Subsidiary Guarantees, and any pledge or other security interest securing such
indebtedness, could be voided, or claims in respect of the Notes or the
Subsidiary Guarantees could be subordinated to all other debts of the Company,
Finance Corp. or any Subsidiary Guarantor. In addition, the payment of interest
and principal by the Company, Finance Corp. or any Subsidiary Guarantor pursuant
to the Notes could be voided and required to be returned to the person making
such payment, or to a fund for the benefit of the creditors of the Company,
Finance Corp. or any Subsidiary Guarantor.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company, Finance Corp. or any Subsidiary
Guarantor would be considered insolvent if (i) the sum of its debts, including
contingent liabilities, were greater than the saleable value of all of its
assets at a fair valuation or if the present fair saleable value of its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become absolute
and mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Issuers believe that, after giving effect to the
indebtedness incurred in connection with the Offering and the establishment of
the New Credit Facility, the Company was not insolvent, does not have
unreasonably small capital for the business in which it is engaged and has not
incurred debts beyond its ability to pay such debts as they mature. There can be
no assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with the Issuers' conclusions in this
regard.
POSSIBLE INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of Notes tendered or that restrictions in the New Credit Facility will allow the
Company to make such required repurchases. In addition, under the New Credit
Facility, in the event of circumstances which are similar to a Change of
Control, repayment of borrowings under the New Credit Facility will be subject
to acceleration. Notwithstanding these provisions, the Company could enter into
certain transactions, including certain recapitalizations, that would not
constitute a Change of Control but would increase the amount of debt outstanding
at such time. See "Description of Notes -- Repurchase at the Option of Holders."
19
<PAGE>
THE GOING PRIVATE TRANSACTION
The Company is a limited partnership that currently is indirectly owned
(including its general partner's interest) by The Restaurant Company ("TRC").
Until December 1997, the Company's Units were traded on the New York Stock
Exchange under the symbol "PFR." In September 1997, the Company, TRC and Perkins
Acquisition Corp. ("MergerCo.") entered into an Agreement and Plan of Merger (as
amended, the "Merger Agreement") pursuant to which the Company's operating
partnership subsidiary was eliminated through a merger and a series of
transactions were consummated on December 22, 1997 whereby the Company became an
indirect wholly-owned subsidiary of TRC and the approximately 5.44 million Units
held by persons other than TRC and its subsidiaries were converted into the
right to receive $14.00 in cash per Unit. Such transactions consummated on
December 22, 1997 are collectively referred to herein as the "Going Private
Transaction." The offering of the Old Notes (the "Offering") and the Going
Private Transaction were consummated concurrently. See "The Going Private
Transaction."
TRC is owned 33.3% by Donald N. Smith, the Company's Chairman and Chief
Executive Officer, 33.3% by a subsidiary of Harrah's Entertainment, Inc.
("Harrah's"), 28.2% by The Equitable Life Assurance Society of the United States
("Equitable") and 5.2% by others. TRC and Harrah's have entered into discussions
which could lead to the redemption by TRC of Harrah's interest in TRC, but have
reached no agreement on the terms of such a transaction. Should Harrah's
interest be redeemed, Mr. Smith's ownership would be 50%, Equitable's ownership
would be 42.3% and others would own 7.7%. No change in the Company's management
or business strategy is anticipated as a result of the consummation of the Going
Private Transaction.
Approximately $137 million is required to (i) consummate the Going Private
Transaction, (ii) repay existing indebtedness and (iii) pay related fees and
expenses. Such funds are being obtained from the proceeds of the Offering,
internally generated funds and the New Credit Facility. See "Use of Proceeds."
20
<PAGE>
USE OF PROCEEDS
The Issuers will not receive any proceeds from the Exchange Offer.
The Company is using the proceeds from the issuance of the Old Notes,
together with anticipated initial borrowings under the New Credit Facility, to
(i) purchase Units from the public Unitholders in the Going Private Transaction,
(ii) repay existing indebtedness and (iii) pay related fees and expenses. The
following table sets forth estimated sources and uses of funds based on debt
balances existing at December 22, 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
SOURCES OF FUNDS
- ----------------------------------------------------------------
New Credit Facility(1).......................................... $ 6,585
10 1/8% Senior Notes due 2007................................... 130,000
--------------
Total sources of funds........................................ $136,585
--------------
--------------
USES OF FUNDS
- ----------------------------------------------------------------
Purchase of public Units........................................ $ 76,189
Repayment of existing debt
Existing Credit Facility(2)................................... 13,590
7.19% Senior Notes due 2005................................... 19,394
8.6% Senior Notes due 2002.................................... 9,300
6.99% Senior Notes due 2003................................... 3,550
Fees and expenses(3)............................................ 14,562
--------------
Total uses of funds........................................... $136,585
--------------
--------------
</TABLE>
- ------------------------
(1) Pursuant to the New Credit Facility, a group of banks provided the Company
with a new $50 million revolving line of credit facility which, together
with the proceeds of the Offering, is being used to finance the Going
Private Transaction, refinance the Existing Credit Facility and other
existing indebtedness and provide future capital for general corporate
purposes.
Borrowings under the New Credit Facility mature on January 1, 2003 and the
New Credit Facility contains a $5 million sublimit for letters of credit.
Advances under the New Credit Facility may be borrowed, repaid and
reborrowed until maturity.
(2) Includes the Company's $40 million revolving line of credit facility and $15
million term loan facility existing prior to the closing of the Going
Private Transaction (collectively the "Existing Credit Facility").
(3) Includes fees and expenses of the Going Private Transaction and the
financing thereof, including investment banking fees and expenses, financing
and refinancing fees and expenses, legal fees and expenses, accounting fees
and expenses, filing fees, solicitation, printing and mailing fees and other
expenses.
21
<PAGE>
CAPITALIZATION
The following table sets forth information regarding cash and capitalization
of the Company as of September 30, 1997, and as adjusted to give effect to the
Going Private Transaction, the financing thereof, and the repayment of existing
indebtedness, as if each occurred on September 30, 1997. The information
presented below should be read in conjunction with the financial statements and
related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $ 2,054 $ 2,054
-------- -----------
-------- -----------
Short-term debt:
Current maturities of long-term debt.................. $ 4,624 $ --
Current maturities of capital lease obligations....... 1,430 1,430
-------- -----------
Total short-term debt........................... 6,054 1,430
Long-term debt, less current maturities:
New Credit Facility................................... -- 6,779
10 1/8% Senior Notes due 2007......................... -- 130,000
7.19% Unsecured Senior Notes due 2005................. 17,576 --
8.6% Unsecured Senior Notes due 2002.................. 7,950 --
6.99% Unsecured Senior Notes due 2003................. 3,250 --
Capital lease obligations............................. 7,434 7,434
Existing Credit Facility.............................. 14,250 --
-------- -----------
Total long-term debt.............................. 50,460 144,213
Total Partners' capital................................. 63,542 25,561
-------- -----------
Total capitalization............................ $120,056 $171,204
-------- -----------
-------- -----------
</TABLE>
- ------------------------
(1) Adjusted to give effect to (i) the Offering, (ii) initial borrowings under
the New Credit Facility, (iii) application of the proceeds of the foregoing,
as set forth in "Use of Proceeds" and (iv) the Going Private Transaction, as
if each occurred on September 30, 1997.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The historical financial information under the captions "Statement of
Operations Data" and "Balance Sheet Data" for each of the years in the five-year
period ended December 31, 1996 has been derived from the Company's audited
historical financial statements, which financial statements have been audited by
Arthur Andersen LLP, independent public accountants. The financial statements as
of December 31, 1995 and December 31, 1996 and for each of the years in the
three-year period ended December 31, 1996, and the report thereon, are included
elsewhere herein. The historical financial information under the captions
"Statement of Operation Data," "Other Financial Data" and "Balance Sheet Data"
as of September 30, 1997 and for the nine months ended September 30, 1997 and
1996, has been derived from the unaudited financial statements which are
included elsewhere herein. In the opinion of the Company, such information
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for such periods.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the entire year. The
selected financial information should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Food sales................................ $ 181,072 $ 197,090 $ 205,675 $ 228,259 $ 234,164 $ 175,792 $ 185,069
Franchise revenues........................ 14,079 15,544 16,227 17,492 18,629 13,914 14,603
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 195,151 212,634 221,902 245,751 252,793 189,706 199,672
Cost of sales............................... 150,267 163,290 171,703 192,798 195,710 146,684 152,825
General and administrative expenses......... 16,627 18,337 21,779 22,251 23,741 17,655 19,593
Depreciation and amortization............... 10,712 11,851 12,107 14,401 15,748 11,748 11,898
Asset write-down (SFAS 121)................. -- -- -- 1,900 -- -- --
Provisions for disposition of assets and
litigation................................ -- 4,338 1,879 419 -- -- --
Other expenses (income)..................... (275) (561) (840) (640) (994) (721) 28
--------- --------- --------- --------- --------- --------- ---------
Earnings before net interest and taxes(1)... 17,820 15,379 15,274 14,622 18,588 14,340 15,328
Net interest expense........................ 2,467 2,777 3,266 4,826 5,066 3,841 3,558
--------- --------- --------- --------- --------- --------- ---------
Net income(1)............................... $ 15,353 $ 12,602 $ 12,008 $ 9,796 $ 13,522 $ 10,499 $ 11,770
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per Unit $ 1.48 $ 1.21 $ 1.16 $ .94 $ 1.30 $ 1.01 $ 1.13
OTHER FINANCIAL DATA:
EBITDA(2)................................... $ 28,687 $ 31,695 $ 29,381 $ 31,441 $ 34,473 $ 26,194 $ 27,995
EBITDA margin(2)(3)......................... 14.7% 14.9% 13.2% 12.8% 13.6% 13.8% 14.0%
Net cash provided by operating activities... $ 25,101 $ 29,696 $ 24,761 $ 25,277 $ 35,245 $ 25,557 $ 25,899
Capital expenditures
Maintenance............................... $ 1,512 $ 2,023 $ 2,130 $ 3,435 $ 2,987 $ 2,142 $ 2,673
Renovation................................ 3,559 4,401 4,118 8,431 4,064 3,273 2,486
New restaurant development................ 7,037 9,851 20,908 12,626 1,947 1,870 3,324
Manufacturing and other................... 3,324 3,793 3,643 4,439 2,860 1,997 1,831
--------- --------- --------- --------- --------- --------- ---------
Total capital expenditures............ $ 15,432 $ 20,068 $ 30,799 $ 28,931 $ 11,858 $ 9,282 $ 10,314
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash distributions paid to Unitholders...... $ 13,744 $ 13,765 $ 13,780 $ 13,870 $ 13,904 $ 10,428 $ 10,428
Ratio of EBITDA to net interest expense and
cash distributions paid to
Unitholders(2)............................ 1.8x 1.9x 1.7x 1.7x 1.8x 1.8x 2.0x
Ratio of earnings to fixed charges(4)....... 4.2x 3.2x 2.9x 2.3x 2.8x 2.8x 3.2x
PRO FORMA DATA:(5)
Net income.............................................................................. $ 616 $ 691 $ 2,126
Net income per unit..................................................................... $ 0.12 $ 0.14 $ 0.42
Net interest expense.................................................................... $ 15,888 $ 12,142 $ 11,661
Ratio of EBITDA to net interest expense(2).............................................. 2.2x 2.2x 2.4x
Ratio of long-term debt and capital lease obligations to EBITDA(2)(6)................... -- -- 3.9x
Ratio of earnings to fixed charges(4)................................................... 1.0x 1.0x 1.2x
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1997
----------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(7)
--------- --------- --------- --------- --------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property and equipment, net............... $ 80,700 $ 87,488 $ 105,404 $ 117,435 $ 115,086 $ 114,312 $ 129,011
Total assets.............................. 125,972 131,709 150,407 161,829 155,656 156,204 207,352
Total long-term debt and capital lease
obligations............................. 33,196 35,794 50,737 66,660 56,817 50,460 144,213
Total partners' capital................... 66,960 66,255 64,778 61,096 61,557 63,542 25,561
</TABLE>
- --------------------------
(1) Includes unusual items as follows: year ended December 31, 1993 -- provision
for disposition of assets ($4.3 million); year ended December 31, 1994 --
provision for litigation costs ($1.1 million) and provision for disposition
of assets ($0.8 million); year ended December 31, 1995 -- asset write-down
($1.9 million), provision for disposition of assets ($0.6 million) and
benefit from litigation costs ($0.2 million); and nine months ended
September 30, 1997 -- tax-related reorganization costs ($0.7 million). The
Company is not subject to federal income taxes and, accordingly, no income
taxes were recorded for any of the periods presented.
(2) As used herein, "EBITDA" represents net income plus (i) net interest, (ii)
depreciation and amortization, (iii) provision for disposition of assets,
(iv) asset write-down (SFAS No. 121), (v) provision for (benefit from)
litigation costs, (vi) tax-related reorganization costs and (vii) provision
for minority interest. The Company has included information concerning
EBITDA in this Prospectus because it believes that such information is used
by certain investors as one measure of an issuer's historical ability to
service debt. EBITDA should not be considered as an alternative to, or more
meaningful than, earnings from operations or other traditional indications
of an issuer's operating performance.
(3) EBITDA margin represents EBITDA divided by total revenues.
(4) The ratio of earnings to fixed charges is computed by dividing (i) the sum
of pre-tax income (equivalent to net income as the Company is not subject to
federal income taxes), minority interest, amortization of previously
capitalized interest and fixed charges (excluding capitalized interest) by
(ii) fixed charges. Fixed charges consist of total interest incurred,
amortization of debt financing costs and the portion of rental expense on
operating leases considered to represent interest cost.
(5) Pro forma data gives effect to (i) the Offering, (ii) estimated initial
borrowings under the New Credit Facility, (iii) application of the proceeds
of the foregoing, as set forth in "Use of Proceeds" and (iv) the Going
Private Transaction, as if each occurred on January 1, 1996. The pro forma
data has been derived from the unaudited pro forma financial statements
included elsewhere in this Prospectus.
(6) For purposes of this ratio, EBITDA represents EBITDA for the twelve months
ended September 30, 1997.
(7) Pro forma data gives effect to (i) the Offering, (ii) estimated initial
borrowings under the New Credit Facility, (iii) application of the proceeds
of the foregoing, as set forth in "Use of Proceeds" and (iv) the Going
Private Transaction, as if each occurred on September 30, 1997. The pro
forma data has been derived from the unaudited pro forma financial
statements included elsewhere in this Prospectus.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS OF
THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company is a leading operator and franchisor of full-service, mid-scale
restaurants located primarily in the Midwest, Pennsylvania, upstate New York,
and central Florida. As of September 30, 1997, the Company owned and operated
135 full-service restaurants, franchised 333 full-service restaurants and
manufactured and distributed bakery products which were sold to Company-operated
restaurants, franchisees and third parties. The Company's revenues are derived
primarily from the operation of full-service restaurants, franchise revenues and
the sale of bakery products produced by Foxtail. Foxtail offers cookie dough,
muffin batters, pancake mixes, pies and other food products to Company-operated
and franchised restaurants through food service distributors in order to ensure
consistency and availability of Perkins' proprietary products to each restaurant
in the system. Additionally, Foxtail manufactures certain proprietary and
non-proprietary products for sale to non-Perkins operations. Sales from Foxtail
to Company-operated restaurants are eliminated in the income statements. For the
twelve months ended September 30, 1997, revenues from Company-operated
restaurants, Foxtail and franchise revenues accounted for 84.0%, 8.7% and 7.3%
of total revenues, respectively.
Since January 1, 1996, the Company has opened six full-service Perkins
restaurants, each of which is based upon the Company's current prototype
building design. The average investment, excluding land and pre-opening
expenses, was approximately $1.1 million. The Company purchased five of the
sites for these six restaurants at an average cost of approximately $472,000.
The sixth site was acquired under a ground lease. Management believes the
average investment for new Company-operated full-service restaurants scheduled
to be built during the remainder of 1997 and 1998 will range from $1.1 to $1.3
million and land cost will range from $300,000 to $450,000 in cases in which the
Company purchases the site. The Company targets a minimum sales to investment
ratio of 1:1 or greater for all new Company-operated restaurants for its first
year of operation. Pre-opening expenses consist principally of non-recurring
costs, such as hourly employee recruiting and training, meals, lodging and
travel. Pre-opening costs are amortized over 12 months beginning in the month
the restaurant opens. Average annual revenues for the year ended December 31,
1996 for all Company-operated restaurants were approximately $1.6 million.
The Company employs an on-going system of prototype development, testing and
remodeling to maintain operationally efficient, cost-effective and unique
interior and exterior facility design and decor. An accelerated program to
upgrade existing Company-operated restaurants began in 1995 and continues today.
The current remodel package features a modern, distinctive interior and exterior
layout that enhances operating efficiencies and guest appeal. As of September
30, 1997, approximately 86% of Company-operated restaurants had either been
remodeled or initially constructed since January 1, 1994.
During 1997, the Company entered into a joint venture with a Canadian casual
dining operator for the development of a minimum of three Jack Astor's Bar and
Grill restaurants. Jack Astor's Bar and Grill is a casual themed dining concept
with a high-energy, fun atmosphere and menu offerings which include chicken,
pasta, hamburgers and alcoholic beverages. The joint venture's first restaurant
opened in Greensboro, North Carolina on October 6, 1997.
The Company currently sponsors financing programs on competitive terms
designed to provide its franchisees with access to financing options to support
the remodeling of existing restaurants. The financing is provided by two
financial services companies with extensive experience in franchise and cash
flow based lending. The programs were designed to allow each franchisee's
request for financing to be evaluated solely on the basis of the financial
performance of the franchisee without support from the Company. However, under
both programs, the Company has the option to extend differing levels of support
in its sole discretion, if it determines that such support will have a positive
strategic impact on the
25
<PAGE>
future growth of the Company. Although not specifically part of the current
programs, both financial services companies are also offering competitive
financing options to both new and existing franchisees for equipment and real
estate financing outside of the current remodel initiative.
In the past, the Company has sponsored financing programs offered by certain
lending institutions to help its franchisees obtain funds for the construction
of new franchised restaurants and to purchase and install in-store bakeries. The
Company provided a limited guaranty of the funds borrowed for such purposes. As
of September 30, 1997, there were approximately $3.7 million in borrowings
outstanding under these programs. The Company has guaranteed $1.2 million of
these borrowings. No additional borrowings are available under these programs.
The Company's revenues have increased steadily over the last five years.
System-wide restaurant revenues (including franchised restaurants) have
increased 29.1% from $543.3 million in 1992 to $701.4 million for the twelve
months ended September 30, 1997. Revenues from Company-operated restaurants have
increased 28.9% from $170.8 million to $220.1 million and franchise revenues
have increased 37.2% from $14.1 million to $19.3 million, over the same period.
Average revenue per Company-operated restaurant has increased approximately 16%
from $1.4 million to $1.6 million over the same period. EBITDA (as defined) for
the same periods were $28.7 million and $36.3 million, respectively,
representing a 26.5% increase. Company-operated restaurants have achieved
comparable restaurant sales increases in each of the last 25 quarters.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
and other data of the Company. All revenues, costs and expenses are expressed as
a percentage of total revenues. Certain prior year amounts have been
reclassified to conform to current year presentation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Food sales........................................................... 92.7% 92.9% 92.6% 92.7% 92.7%
Franchise revenues................................................... 7.3 7.1 7.4 7.3 7.3
--------- --------- --------- --------- ---------
Total revenues....................................................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses
Cost of sales:
Food cost.......................................................... 26.1 26.9 27.1 27.0 26.6
Labor and benefits................................................. 32.0 32.1 31.2 31.3 31.4
Operating expenses................................................. 19.2 19.4 19.1 19.1 18.6
General and administrative........................................... 9.8 9.1 9.4 9.3 9.8
Depreciation and amortization........................................ 5.5 5.9 6.2 6.2 6.0
Interest, net........................................................ 1.5 2.0 2.0 2.0 1.8
Tax-related reorganization costs..................................... -- -- -- -- 0.3
Other, net........................................................... 0.5 0.6 (0.3) (0.4) (0.3)
--------- --------- --------- --------- ---------
Total costs and expenses............................................. 94.6 96.0 94.7 94.5 94.2
--------- --------- --------- --------- ---------
Net income............................................................. 5.4% 4.0% 5.3% 5.5% 5.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES
Total revenues for the first nine months of 1997 increased approximately
5.3% over the same period in 1996 due primarily to higher comparable restaurant
sales and the net addition of seven new franchised
26
<PAGE>
restaurants. Comparable restaurant sales for Company-operated restaurants
increased approximately 5.9%, due primarily to selective menu price increases,
guest preferences for higher-priced entrees and an increase in comparable
restaurant guest visits. The shift in customer preference to higher-priced
entrees can be attributed to the Company's development and promotion of
higher-priced menu items. Management believes remodeling of Company-operated
restaurants, increased promotional events and implementation of new products
resulted in increased guest visits.
Revenues from Foxtail increased 9.1% for the nine months ended September 30,
1997 versus the same period in the prior year and comprised approximately 8.4%
of the Company's revenues for the period. The increase in Foxtail revenues can
be primarily attributed to price increases effective in August 1996 and January
1997, increased sales outside the Perkins system and an increased number of
franchised restaurants. The increase in outside sales is due to the Company
developing external sales in order to maintain plant utilization during slower
production periods.
Franchise revenues, which consist primarily of franchise royalties and
initial license fees, increased 5.0% in the first nine months of 1997 versus the
same period in the prior year. Although comparable franchised restaurant sales
remained constant with the prior year, revenues of franchised restaurants opened
during 1995 and 1996 averaged 16% higher than the franchise system average
resulting in overall greater franchise revenues. Additionally, 18 new franchised
restaurants have opened since September 30, 1996. Revenues from these openings
were partially offset by the closing of 11 under-performing franchised
restaurants.
COST AND EXPENSES
FOOD COSTS
Food costs for the nine months ended September 30, 1997 decreased 0.4
percentage points as a percent of total revenues. Restaurant food costs
decreased due to selective menu price increases and a decline in the costs of
certain commodities which include eggs and frozen products. The decrease was
partially offset by higher food costs associated with pork and poultry products.
LABOR AND BENEFITS
Labor and benefits expense, as a percentage of total revenues, increased 0.1
percentage points for the nine months ended September 30, 1997. This increase
was primarily due to increased hourly labor costs in the Company's restaurants.
The wage rates of the Company's hourly employees are impacted by Federal and
state minimum wage laws. Legislation which raised the Federal minimum wage rate
in 1996 and has further increased the minimum wage rate in 1997 has had an
impact on the Company's labor costs. Certain states do not allow tip credits for
servers which results in higher payroll costs as well as greater exposure to
increases in minimum wage rates. In the past, the Company has been able to
offset increases in labor costs through selective menu price increases and
improvements in productivity. The Company anticipates that it can offset the
majority of the current increases through selective menu price increases.
However, there is no assurance that future increases can be mitigated through
raising menu prices.
OPERATING EXPENSES
Operating expenses for the first nine months of 1997 decreased 0.5
percentage points. Operating expenses such as utilities and local restaurant
marketing costs increased at a lower rate than revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 0.5 percentage points for the
nine months ended September 30, 1997. The difference was due to increases in
compensation costs, restaurant development costs, training costs and promotional
expenses for Foxtail.
27
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 1.3% for the nine months ended
September 30, 1997 over the same period in the prior year due primarily to the
continuing refurbishment program to upgrade and maintain existing restaurants as
well as the addition of new Company-operated restaurants.
INTEREST, NET
Net interest expense for the nine months ended September 30, 1997 decreased
7.4% over the same period in 1996 due primarily to lower debt outstanding during
the period. In addition, interest expense associated with capital lease
obligations decreased.
TAX-RELATED REORGANIZATION COSTS
Tax-related reorganization costs of approximately $650,000 were incurred
during 1997 associated with analyzing the alternatives to becoming a tax-paying
entity beginning January 1998.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues increased 2.9% over 1995 due primarily to increased
restaurant food sales, increased sales at Foxtail and increased franchise
royalties. Increased restaurant food sales can be primarily attributed to the
addition of three new restaurants in 1996 and ten new restaurants in 1995,
partially offset by the closing of four Company-operated restaurants and
refranchising of three Company-operated restaurants. Comparable restaurant sales
increased approximately 2.6% over 1995 due primarily to selective price
increases and an increase in comparable guest visits of 0.8%. Revenues from
Foxtail increased approximately 5.8% over 1995 and constituted approximately
8.5% of the Company's total 1996 revenues. This increase can be attributed
primarily to increased bakery sales at franchised restaurants to which Foxtail
sells various mixes, doughs and pies.
Franchise revenues, which increased 6.5% over the prior year due primarily
to the addition of nineteen new franchised restaurants, were partially offset by
a decrease in sales for franchised restaurants open for more than one year. Ten
franchised restaurants were closed during 1996 and three Company-operated
restaurants began operations as franchised restaurants during the year.
COSTS AND EXPENSES
FOOD COSTS
In terms of total revenues, food costs increased 0.2 percentage points over
1995. Restaurant division food costs expressed as a percentage of restaurant
division sales remained relatively constant as compared to 1995. Slight
decreases in commodity costs were partially offset by changes in the menu mix
due to promotions such as steak and eggs, shrimp, and turkey. Additionally, the
costs of certain product enhancements were offset by selective menu price
increases. Promotional discounts remained relatively constant as compared with
1995.
The cost of Foxtail sales, in terms of total Foxtail revenues, increased
approximately 1.7 percentage points from 1995 due primarily to certain commodity
cost and packaging increases. As a manufacturing operation, Foxtail typically
has higher food costs as a percent of revenues than the Company's restaurants.
Although the restaurants provide the majority of the Company's revenues, as
Foxtail becomes a more significant source of revenues to the Company, management
expects total food costs to increase as a percent of total revenues.
28
<PAGE>
LABOR AND BENEFITS
Labor and benefits expense, as a percentage of total revenues, decreased 0.9
percentage points from 1995, primarily due to improved productivity in the
Company's restaurants and pie manufacturing facility. These expenses also
benefited from reduced claims costs associated with the Company's group health
and workers compensation programs. As a percentage of revenues, Foxtail labor
and benefit charges are significantly lower than the Company's restaurants. As
Foxtail becomes a more significant component of the Company's total operations,
labor and benefits expense, expressed as a percent of total revenue, should
decrease.
The wage rates of the Company's hourly employees are impacted by Federal and
state minimum wage laws. Legislation which raised the Federal minimum wage rate
in 1996 has had an impact on the Company's labor costs. In the past, the Company
has been able to offset increases in labor costs through selective menu price
increases and improvements in productivity. The Company anticipates that it can
offset the majority of the current increase through selective menu price
increases. However, there is no assurance that future wage increases can be
mitigated through raising menu prices.
OPERATING EXPENSES
Operating expenses, expressed as a percentage of total revenues, decreased
0.3 percentage points from 1995 to 1996. Decreases in direct operating and
pre-opening expenses, as a percent of restaurant division sales, were partially
offset by an increase in repairs and maintenance expense. A decrease in Foxtail
operating expenses, as a percentage of Foxtail revenue, was primarily due to
decreases in net freight costs, repairs and maintenance and advertising expenses
offset by higher promotional costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased approximately 6.7% over 1995,
which is primarily the result of an increase in incentive costs due to the
Company's positive operating results in 1996. Additional factors contributing to
this increase were increased administrative support related to growth at Foxtail
and an increase in the Company's match of 401(k) contributions from 25% in 1995
to 50% in 1996.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately 9.4% over 1995 due to
the addition of three new Company-operated restaurants and recent refurbishments
to upgrade and improve existing restaurants.
INTEREST, NET
Net interest expense was approximately 5% higher than 1995 primarily as the
result of a higher average debt balance. This increase was partially offset by a
decrease in the interest expense associated with capital lease obligations.
OTHER
Other income increased approximately $354,000 during 1996 due primarily to
rental income on four restaurant properties which were leased to franchisees in
late 1995 and 1996 and one property leased to another restaurant chain in 1996.
Depreciation expense associated with these five properties totaling $324,000 is
included in depreciation and amortization expense.
29
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total revenues increased 10.7% over 1994 due primarily to the addition of
new Company-operated and franchised restaurants, increased comparable restaurant
sales and increased Foxtail sales.
Increased restaurant food sales can be primarily attributed to the addition
of ten new restaurants in 1995 and an approximate 1% increase in comparable
restaurant sales. Comparable restaurant sales increased due primarily to
selective menu price increases, a shift in sales to higher-priced entrees and
decreased promotional discounting, partially offset by a decline in comparable
guest visits.
Revenues in 1995 from Foxtail increased 12.5% over 1994. The increase in
Foxtail's revenue can be primarily attributed to increased production at the pie
plant opened in July 1993 as well as the addition of in-store bakeries at
franchised restaurants, to which Foxtail sells various mixes, doughs, and pies.
Sales to parties outside of the Perkins system increased approximately 11% over
1994.
Franchise revenues increased 7.8% over the prior year due to the addition of
twenty-three new franchised restaurants and bakeries partially offset by
slightly lower sales in franchised restaurants open for more than one year. Five
franchised restaurants were closed and one Company-operated restaurant was
converted to a franchised restaurant during 1995.
COSTS AND EXPENSES
FOOD COSTS
In terms of total revenues, food costs increased 0.8 percentage points over
1994. Restaurant division food costs increased 0.7 percentage points over 1994
due primarily to the higher cost of certain commodities, particularly coffee and
fresh produce, as well as selective product upgrades. Additionally, marketing
promotions during the year, which impact food cost percentages by reducing net
revenue generated, were heavily concentrated on certain entrees that carry
higher food cost percentages. Selective menu price increases partially negated
the increases in food costs. The addition of new Company-operated restaurants
during the year also adversely impacted food costs as new restaurants typically
generate higher food cost percentages due to sales in these restaurants being
weighted more heavily toward higher percentage cost dinner items.
The cost of Foxtail's sales, in terms of total Foxtail revenues, increased
approximately 0.3 percentage points from 1994, due primarily to certain
commodity cost increases that were not completely passed on to customers.
LABOR AND BENEFITS
Labor and benefits expense, as a percentage of total revenues, increased 0.1
percentage points over 1994. This increase can primarily be attributed to
increased production at Foxtail's pie manufacturing facilities which requires
significantly higher labor and benefit costs than the division's other two
manufacturing facilities. Additionally, significantly higher workers'
compensation costs in the state in which Foxtail's manufacturing facilities are
located also contributed to the increase.
While total restaurant division labor and benefits expense, as a percentage
of total revenues, did not increase between 1994 and 1995, wage rate inflation
due to continued low unemployment, a shrinking labor pool and increased
competition for employees, combined with lower than average productivity, in new
Company-operated restaurants increased labor costs as percentage of restaurant
sales by 0.4 percentage points. Programs in place to control group health
insurance and restaurant division workers compensation insurance costs and a
reduction in the Company's match of 401(k) contributions from 50% of employee
contributions in 1994 to 25% in 1995 offset this increase.
30
<PAGE>
OPERATING EXPENSES
Operating expenses, expressed as a percentage of total revenues, increased
0.2 percentage points over 1994. Opening costs related to new franchised
restaurants, pre-opening expenses for new Company-operated restaurants and the
increased cost of paper supplies increased as a percentage of total revenues.
These increases were offset by lower repairs and maintenance expense and
efficiencies gained due to increased production at Foxtail.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 2.2% over 1994, which
primarily reflects the impact of inflation combined with increased
administrative support related to growth at Foxtail. Reduced outside services
and legal expenses related to non-recurring projects in 1994 and a reduction in
the Company's match of 401(k) contributions from 50% in 1994 to 25% in 1995
partially offset these increases.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately 19% over 1994 due to
the addition of new Company-operated restaurants. Significant remodels of older
restaurants undertaken to maintain consistency of appearance within the chain
also contributed to the increase.
INTEREST, NET
Net interest expense was approximately 48% higher than 1994 due to a higher
average debt balance stemming from the Company's expansion during the year. This
increase was partially offset by a decrease in interest expense associated with
capital lease obligations.
OTHER
Results of operations for 1995 reflect a $1.9 million non-cash charge
against earnings as a result of the adoption of SFAS No. 121.
In 1995, the Company recorded losses totaling $609,000 primarily related to
the disposition of an underperforming property and the write-off of
predevelopment costs for cancelled restaurant locations that were estimated to
provide less than acceptable returns.
Net income for the year also included a benefit as a result of a litigation
settlement associated with a lawsuit brought by a former employee. This lawsuit
was settled for $190,000 less than the original reserve expensed in 1994.
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the nine months ended September 30, 1997
included distributions paid to Unitholders, capital expenditures and a net
reduction in long-term debt. Capital expenditures consisted primarily of land,
building and equipment purchases for new Company-operated restaurants,
maintenance capital and costs related to remodels of existing restaurants.
Remodels and restaurant upgrades constituted approximately 24% of the capital
expenditures during the first nine months of 1997. The Company's primary source
of funding was cash provided by operations. The Company's capital budget for
1997 is $18.6 million. Actual capital expenditures for the year were
approximately $16.3 million.
31
<PAGE>
The following table summarizes capital expenditures for each of the years in
the three-year period ended December 31, 1996 and for the nine months ended
September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------
1994 1995 1996 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Maintenance....................................................... $ 2,130 $ 3,435 $ 2,987 $ 2,673
Renovation........................................................ 4,118 8,431 4,064 2,486
New restaurant development........................................ 20,908 12,626 1,947 3,324
Manufacturing..................................................... 809 859 651 328
Other............................................................. 2,834 3,580 2,209 1,503
--------- --------- --------- -------------
Total capital expenditures...................................... $ 30,799 $ 28,931 $ 11,858 $ 10,314
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
The Company expects its capital budget in 1998 to be approximately $21.9
million. The Company plans to add six new full-service Company-operated
restaurants in 1998. The remaining capital budget will be applied to remodels of
existing restaurants and upgrades of restaurant technology. The primary source
of funding for these projects is expected to be cash provided by operations.
Capital spending could vary significantly from planned amounts as certain of
these expenditures are discretionary in nature.
As is typical in the restaurant industry, the Company ordinarily operates
with a working capital deficit since the majority of its sales are for cash,
while credit is received from its suppliers. Therefore, operating with a working
capital deficit does not impair the Company's short-term liquidity. At September
30, 1997, this deficit was $21.5 million, which was primarily the result of
utilizing available cash for capital expenditures, repayment of debt and
distributions to Unitholders.
Pursuant to the New Credit Facility a group of banks provided the Company
with a new $50 million revolving line of credit. See "Description of Other
Indebtedness." The Company anticipates using the proceeds from expected initial
borrowings under the New Credit Facility, together with the proceeds of the
Offering, to repay existing indebtedness and finance the Going Private
Transaction. At December 31, 1997, no borrowings were outstanding under the New
Credit Facility. However, assuming all Units had been surrendered for payment
and all expenses had been paid in connection with the Going Private Transaction,
approximately $6.6 million would have been outstanding under the New Credit
Facility as of December 22, 1997, excluding approximately $3.0 million of
standby letters of credit, and approximately $40.4 million would have been
available for future borrowings and letters of credit under the New Credit
Facility.
Prior to the fourth quarter of 1997, the Company has paid regular quarterly
cash distributions to Unit-holders. Following the consummation of the Going
Private Transaction, the Company does not expect to pay distributions to its
general partner or limited partner except distributions sufficient to satisfy
any tax liabilities of its partners arising out of the allocation of taxable
income or gain from the Company. The Indenture and the New Credit Facility
restrict the Company's ability to pay distributions to its partners.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations,
management believes that cash flow from operations and available cash, together
with available borrowings under the New Credit Facility, will be adequate to
meet the Company's liquidity needs for the forseeable future. The Company may,
however, need to refinance all or a portion of the principal of the Notes on or
prior to maturity. There can be no assurance that the Company will generate
sufficient cash flow from operations, or that future borrowings will be
available under the New Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the
32
<PAGE>
Company will be able to effect any such refinancing on commercially reasonable
terms or at all. See "Risk Factors--Substantial Leverage."
FEDERAL INCOME TAXATION
For state and Federal income tax purposes, the Company is not a taxpaying
entity. As a result, taxable income, which may vary substantially from income
reported for financial reporting purposes, is included in the state and Federal
income tax returns of its partners. Accordingly, no current provision for income
taxes is reflected in the accompanying financial statements. Following the
consummation of the Going Private Transaction, the Company will pay
distributions to its general partner and/or limited partner from available cash
flow in amounts sufficient to satisfy any tax liabilities of the partners
arising out of the allocation of taxable income or gain from the Company.
NEW ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which is discussed in Note 13 to the financial statements.
IMPACT OF INFLATION
Management believes that inflation has not had a material effect on earnings
during the past several years. Inflationary increases in the cost of labor, food
and other operating costs could adversely affect the Company's restaurant
operating margins. In the past, however, the Company generally has been able to
modify its operations to offset increases in its operating costs.
IMPACT OF GOVERNMENTAL REGULATION
A majority of the Company's employees are paid hourly rates as determined by
Federal and state minimum wage rate laws. Future increases in these rates could
materially affect the Company's cost of labor.
SEASONALITY
The Company's revenues are subject to seasonal fluctuations. Customer counts
(and consequently revenues) are higher in the summer months and lower during the
winter months because of the high proportion of restaurants located in northern
states where inclement weather adversely affects guest visits.
33
<PAGE>
BUSINESS
The Company is a leading operator and franchisor of full-service, mid-scale
restaurants located primarily in the Midwest, Pennsylvania, upstate New York and
central Florida. The Company's restaurants operate under the names Perkins
Family Restaurant-Registered Trademark- and Perkins Family Restaurant and
Bakery-Registered Trademark-. Perkins restaurants offer a full menu assortment
of breakfast, lunch, dinner, snack and dessert items and many are open 24 hours
a day. The business of Perkins was founded in 1958, and since then Perkins has
continued to adapt its menus, product offerings, building designs and decor to
meet changing consumer preferences. A substantial majority of Company-operated
restaurants and franchised restaurants have added in-store bakeries which offer
a premium line of freshly prepared baked goods including muffins, cookies and
pies.
As of September 30, 1997, the Company operated 135 full-service restaurants
and franchised 333 full-service restaurants located in 32 states and four
provinces of Canada. For the twelve months ended September 30, 1997, system-wide
restaurant revenues (including franchised restaurants), Company revenues and
Company EBITDA were $701.4 million, $262.8 million and $36.3 million,
respectively. Company-operated restaurants have achieved comparable restaurant
sales increases in each of the last 25 quarters. The Company continues to focus
on increasing its number of franchised restaurants, which provide a higher
margin of cash flow relative to the required capital investment and create an
additional sales outlet for the products of Foxtail. From 1988 to 1996, the
average annual royalties per franchised restaurant increased from approximately
$38,500 to approximately $55,100 and the number of franchised restaurants
increased from 227 to 329.
The Perkins concept is designed to serve a variety of demographically and
geographically diverse customers for a wide range of dining occasions which are
appropriate for the entire family. The Perkins concept appeals to a wide range
of markets and customer tastes with its large, comfortable dining rooms,
flexible kitchens, broad menu, moderate pricing, extended operating hours, table
service and bakery specialties. Perkins offers a wide menu selection of high
quality, moderately priced food and beverage items consisting of traditional
favorites and seasonal specialties. Perkins offers guests a menu of over 140
items ranging in price from $2.99 to $8.99. The Company also approves additional
items to meet regional and local tastes. Perkins' signature menu items include
buttermilk pancakes, omelettes, bread bowl salads, melt sandwiches and
Butterball-Registered Trademark- turkey dinners. Breakfast items, which are
available throughout the day, account for slightly more than half of the entrees
sold in the Company's restaurants.
Perkins restaurants are primarily located in free-standing buildings with
approximately 90 to 250 seats. Recently, the Company and its franchisees have
begun to test the Perkins concept in various non-traditional locations including
travel plazas, malls, hotels and airports. The Company and its franchisees
operate three alternative formats, including limited menu restaurants and a
stand-alone bakery, in addition to full-service stand-alone restaurants. These
alternative formats are operated under the names Perkins Cafe and
Bakery-Registered Trademark-, Perkins Bakery-Registered Trademark- and Perkins
Express-Registered Trademark-.
In addition to operating and franchising Perkins restaurants, the Company
operates Foxtail and is a partner in a joint venture for the development of Jack
Astor's Bar and Grill restaurants. Foxtail provides cookie dough, muffin batter,
pancake mixes, pies and other bakery products to Company-operated restaurants,
franchisees and third parties. During 1996, Foxtail accounted for 8.5% of
Company revenues. During 1997, the Company entered into a joint venture with a
Canadian casual dining operator for the development of a minimum of three Jack
Astor's Bar and Grill restaurants. Jack Astor's Bar and Grill is a casual themed
dining concept with a high-energy, fun atmosphere whose offerings include
chicken, pasta, hamburgers and alcoholic beverages. The joint venture's first
restaurant opened in Greensboro, North Carolina on October 6, 1997.
During the tenure of the Company's current senior management, a number of
improvements have been made to the Company's operations, including: (i)
upgrading its menu offerings; (ii) unifying the system's name, restaurant
design, marketing programs, purchasing, training and technology; (iii) creating
in-store bakeries; (iv) strengthening the franchise system; (v) creating
Foxtail; and (vi) developing
34
<PAGE>
alternative formats. Also over this time period, the Company has made
significant interest payments and Unit distributions, including 44 consecutive
quarterly cash distributions to Unitholders since the Company became a
publicly-traded limited partnership. For the twelve months ended September 30,
1997, the Company's combined interest expense and quarterly cash distributions
to Unitholders was $18.9 million.
COMPETITIVE STRENGTHS
ESTABLISHED, HIGH-VALUE RESTAURANT BRAND. Perkins is a well-established,
highly recognized brand in the geographic areas it serves. Perkins offers its
guests a wide variety of over 140 reasonably priced menu items, including fresh
bakery products served in a warm and comfortable dining environment with the
convenience of extended operating hours. As of September 30, 1997, entrees
served in Company-operated restaurants ranged in price from $2.99 to $8.99 for
breakfast, $4.29 to $8.99 for lunch and $5.99 to $8.99 for dinner. The Company
operates a 3,000 square foot test kitchen in Memphis, Tennessee which develops
and tests new menu items. Menus are updated at least three times per year and
supplemented with special menus for holiday and promotional events.
STRONG FRANCHISE NETWORK. The Company has 111 franchisees which operate 333
restaurants in 30 states and four Canadian provinces, representing over 70% of
the restaurants in the Perkins system. In addition to providing the Company with
substantial royalty revenues ($18.6 million for the twelve months ended
September 30, 1997), the franchise network allows the Company to significantly
expand the Perkins system without significant capital investment by the Company.
The Company believes that it enjoys good relations with its franchisees.
UPDATED, MODERN RESTAURANTS. The Company employs an on-going system of
prototype development, testing and remodeling to maintain operationally
efficient, cost-effective and unique interior and exterior facility design and
decor. An accelerated program to upgrade existing Company-operated restaurants
began in 1995 and continues today. The current remodel package features a
modern, distinctive interior and exterior layout that enhances operating
efficiencies and guest appeal. As of September 30, 1997, approximately 86% of
Company-operated restaurants had either been remodeled or initially constructed
since January 1, 1994.
To promote a consistent and current image throughout the Perkins system, the
Company encourages its franchise operators to remodel their restaurants by
providing financial incentives and third-party capital programs. Twenty-two
franchised restaurants were remodeled in 1996 and [35] additional restaurants
were remodeled in 1997, of which 19 were completed by September 30, 1997.
MANAGEMENT EXPERTISE. The Company has an experienced management team with
average tenure with the Company of over seven years and average restaurant
industry experience of 20 years. Donald N. Smith, the Company's Chairman and
Chief Executive Officer, has over 30 years of restaurant experience, over 12 of
which have been with the Company. Richard K. Arras, the Company's President and
Chief Operating Officer, has 18 years of restaurant experience, all of which
have been with the Company.
EFFICIENT OPERATIONS. The Company uses a combination of current technology,
on-going operational analyses, hourly employee performance programs and the
operating experience of both its own field management and that of its
franchisees to continuously improve the quality, efficiency and execution of its
operating systems. For example, Company-operated restaurants recently
implemented programs to improve labor efficiency, lower food cost and improve
facility utilization during peak periods.
DAYPART BALANCE. Perkins has successfully evolved over the last 39 years
from its origins as a breakfast-oriented pancake house by developing significant
lunch, dinner and late night product offerings. The flexibility of Perkins'
multi-daypart offerings allows each location to meet the needs of its local
market. During 1996, the revenue breakdown by daypart for Company-operated
restaurants was 25% breakfast, 29% lunch, 32% dinner and 14% late night (10:00
p.m. to 6:00 a.m.).
35
<PAGE>
COMMITMENT TO GUEST SATISFACTION. The Company is focused on continually
improving guest satisfaction. The Company regularly surveys customers to
determine their overall satisfaction with their dining experience, conducts
extensive service quality training programs and operates a toll free number to
monitor guests' dining experiences.
MANAGEMENT INFORMATION SYSTEMS. The Company's information systems not only
provide detailed monthly financial statements for each restaurant but daily
operating statistics such as sales, labor, guest check and average table turns.
The systems also generate weekly restaurant profit and loss statements and food
and labor variance analysis. The Company has also developed a labor scheduling
system which calculates the amount of labor necessary to provide optimal guest
service. The Company's systems are year 2000 compliant.
PURCHASING LEVERAGE. The Company aggregates the purchasing requirements of
all of its Company-operated restaurants and over 90% of its franchised
restaurants to obtain purchasing economies of scale for food items, cleaning
supplies, equipment, maintenance services and regional distribution agreements.
In addition, the Company utilizes outside consultants for information regarding
purchases of commodity items and, together with its franchisees, makes
significant purchases of commodity products, such as sirloin steak or shrimp,
which provide the basis for several product-driven marketing programs throughout
the year.
BUSINESS STRATEGY
INCREASE FRANCHISE REVENUES. The Company plans to continue to add
franchised restaurants in existing and new geographic markets. In addition,
management will continue to encourage franchisees to remodel and renovate
restaurants where appropriate. Management believes its franchisees will open 17
new restaurants in 1997, of which ten had been opened and seven were under
construction as of September 30. Management believes its franchisees will open
approximately 40 new franchised restaurants during 1998. During 1996, ten
franchised restaurants closed and, in 1997, six franchised restaurants had been
closed as of September 30.
SELECTIVELY DEVELOP NEW COMPANY-OPERATED RESTAURANTS. The Company will
continue to develop and operate new restaurants based upon its current
prototype. Management believes the development of successful Company-operated
restaurants supports the continued development of the Perkins franchise system.
The Company opened three new full-service Company-operated restaurants in 1997
and plans to add six new full-service Company-operated restaurants in 1998.
EXPAND NON-TRADITIONAL LOCATIONS AND ALTERNATIVE FORMATS. The Company and
its franchisees have built, on a limited test basis, restaurants within
non-traditional sites including hotels, airports, travel plazas and strip
shopping centers. Within these non-traditional locations, the Company has
recently opened restaurants with alternative formats, such as limited menu
restaurants and a stand-alone bakery, in addition to full-service, stand-alone
restaurants. The Company intends to continue testing non-traditional locations
and further develop alternative formats in conjunction with its franchisees in
cases where appropriate for the Perkins brand and where anticipated financial
returns are acceptable.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company continually evaluates
potential acquisition opportunities of existing franchised Perkins restaurants
and other restaurant chains. The Company does not currently have any agreements
or understandings to make any acquisitions.
CONCEPT
The Perkins concept is designed to serve a variety of demographically and
geographically diverse customers for a wide range of dining occasions which are
appropriate for the entire family. The Perkins concept appeals to a wide range
of markets and customer tastes with its large comfortable dining rooms,
36
<PAGE>
flexible kitchens, broad menu, moderate pricing, extended operating hours, table
service and bakery specialties.
MENU. Each Perkins restaurant offers a diverse menu of high quality,
moderately priced food and beverage items consisting of traditional favorites
and seasonal specialties. Each Perkins restaurant offers guests a core menu
consisting of certain required menu items that each Company-operated and
franchised restaurant must offer, providing the consistency necessary to support
the Perkins brand. Additional items are offered to meet regional and local
tastes. All menu items served in franchised restaurants must be approved by the
Company's research and development department. Menu offerings continually evolve
to meet changing consumer tastes.
The menu currently features over 140 items comprised of a broad selection of
breakfast, lunch, dinner and bakery products. Signature breakfast items include
premium omelettes, buttermilk pancakes and traditional egg dishes. Breakfast
entrees generally range in price from $2.99 to $8.99. Signature lunch items
include bread bowl salads, melt sandwiches and specialty burgers generally
ranging in price from $4.29 to $8.99. Signature dinner items include chicken
puff pastry pie, country fried steak, New York Strip steak and
Butterball-Registered Trademark- turkey and dressing. Price points for dinner
entrees generally range from $5.99 to $8.99. Entree selections are complemented
by appetizers and dessert products. Coffee, iced tea and soft drinks are served
as "Bottomless Beverages"-TM- with free refills. Perkins restaurants do not
generally serve alcoholic beverages.
Most Perkins restaurants have an in-store bakery, with bakery products
offered both for in-house consumption and for carry-out. Bakery breakfast
products include freshly baked Mammoth Muffins-Registered Trademark-, cinnamon
rolls and sticky buns. Bakery desserts include freshly prepared cookies,
brownies, eclairs and pies.
RESTAURANT DESIGN. In 1993, the Company began testing a major prototype
redesign which features a series of expandable and differentiated dining rooms
set around a central kitchen and pantry area. This design reduces the distance
servers travel from food pick-up to guest tables. The interior decor package,
which was introduced in 1995 with related but distinct decor for each dining
area, can be utilized in traditional rectangular buildings and other building
designs. Management believes the new prototype and related decor packages add
significantly to the value perceptions of its guests. In addition, the Company
has developed an exterior design which updates its restaurants while maintaining
an identifiable Perkins image. By selectively modifying key concept identifiers,
such as entry construction, roof lines and window treatments, the Company can
upgrade older restaurants, convert existing buildings used for other purposes
into Perkins restaurants and modify non-traditional locations such as shopping
center locations into easily recognizable, modern Perkins restaurants.
RESTAURANT OPERATIONS AND TRAINING. All restaurants are operated pursuant
to uniform operating standards and specifications relating to the quality and
preparation of menu items, selection of menu items, maintenance and cleanliness
of facilities and employee conduct. The Company's operating standards are based
upon the Perkins Promise-Registered Trademark-, a guarantee of 100% guest
satisfaction. This operating and training system utilizes employee empowerment
and feedback to ensure the delivery of a satisfactory dining experience to all
guests. All standards and specifications are developed by the Company, with
input from franchisees, and applied on a system-wide basis.
The Company has an extensive eight to twelve week Management Development
Program for general managers, kitchen managers and other salaried restaurant
managers. This 44-module program consists of in-store, task-oriented training
and formal administrative, customer service and financial training. Upon
completion of this program, management candidates attend Perkins Leadership
Institute, a two-week in-store internship where they can practice skills in a
certified training restaurant. Certified trainers conduct hands-on training for
all hourly restaurant employees using the Foundations Training Program. This
state-of-the-art program utilizes both printed material and video and is
designed to improve the confidence,
37
<PAGE>
productivity and skill level of new employees. The Company provides on-going
training for its restaurant employees on new products and other important topics
such as food sanitation and customer and employee relations.
ADVERTISING. The Company focuses its advertising and marketing efforts on
six to eight food-specific promotions each year. Each promotion features a
specific theme or product. Several commodity buys each year enable the Company
to offer attractive price points on popular products such as steak and eggs or
fried shrimp. Two of the Company's most popular recent promotions have been the
Summer Menu featuring eight new entrees and a new line of "Dill Melt"
sandwiches. The Company advertises on a regional and local basis, utilizing
primarily television, radio and print media. In 1996, the Company spent
approximately 4.0% of Company-operated restaurants' net revenues on advertising,
of which 3.1% was contributed to the system advertising fund which develops and
funds the specific system-wide promotions. Substantially all franchisees are
also required to contribute 3.0% of their gross revenues to the advertising
fund. The remainder of the Company's advertising expenditures are focused on
local advertising in areas with Company-operated restaurants.
AVERAGE CHECK. For the nine months ended September 30, 1997, the average
guest check for Company-operated restaurants was $5.53.
FRANCHISE OPERATIONS
As of September 30, 1997, the Company had 336 franchised restaurants
(including alterative formats) operated by 111 franchisees. The Company actively
seeks experienced multi-unit restaurant operators as franchisees and requires
each franchisee to satisfactorily complete the Company's extensive training
program. Seven of the 111 franchisees operate a total of 143 full-service
Perkins restaurants. The remaining franchisees each currently operate ten or
fewer units.
The majority of the Company's new franchised restaurants are opened by
existing franchisees. Of the 30 new franchised restaurants opened since January
1996, 22 were opened by existing franchisees. In order to attract new
franchisees, the Company employs direct mail, attends trade shows, places print
advertising in industry-specific publications and receives referrals. Applicants
are screened for financial stability and relevant management experience and
undergo training programs between 8 and 12 weeks, depending on prior experience.
In selected markets with candidates of proven experience and ability, the
Company may enter into area development agreements requiring the applicant to
open a specified number of restaurants during the term of the agreement, which
is usually 5 years or less. The Company currently has 6 existing area
development agreements covering 21 restaurants through 2002.
As of September 30, 1997, the Company's three largest franchisees operated a
total of 93 restaurants. The respective distribution of restaurants operated by
such franchisees was: 41 restaurants primarily in upstate New York; 31
restaurants in Pennsylvania, Ohio and New York; and 21 restaurants in Ohio and
Kentucky. During 1996, the Company received net royalties and license fees of
approximately $1.5 million, $2.0 million and $1.0 million, respectively, from
these franchisees. See "Risk Factors -- Franchise Operations."
FRANCHISE ARRANGEMENTS. Franchised restaurants operate pursuant to license
agreements generally having an initial term of 20 years and pursuant to which
each franchisee pays the Company a royalty fee (usually 4.0% of gross revenues)
and an advertising contribution (typically 3.0% of gross revenues). New
franchisees currently pay a non-refundable license fee of $35,000 per
restaurant. Franchisees opening their third and subsequent restaurants pay a
non-refundable license fee of $25,000 per restaurant. Beginning in 1998, these
fees were increased to $40,000 and $30,000, respectively. License agreements are
typically terminable by franchisees on 12 to 15 months prior notice and upon
payment of specified liquidated damages. Franchisees do not typically have
express renewal rights, although franchisees typically apply for and receive new
license agreements at the end of existing contract terms.
38
<PAGE>
DEVELOPMENT OF RESTAURANTS. The Company makes available to franchisees
prototype plans and specifications for a typical restaurant which the franchisee
and its architect adapt to each site. The Company retains the right to approve
all final plans and specifications. Each franchisee, with assistance from the
Company, is responsible for selecting the site for each restaurant within its
territory, subject to Company approval. The Company conducts a physical
inspection, reviews any proposed lease or purchase agreements and makes
available demographic studies. A real estate representative of the Company
assists franchisees in identifying possible sites and trade areas, managing
broker relationships and preparing site packages for submission to the Company
for approval.
DESIGN AND CONSTRUCTION. The Perkins Construction Management Program is
available for a fee to assist franchisees in coordinating the design,
construction and equipping of their restaurants. In conjunction with this
program, the Company provides advice on critical design and contracting
decisions and oversees day-to-day construction work, providing comprehensive
support during all phases of construction.
FINANCING. The Company currently sponsors financing programs on competitive
terms designed to provide its franchisees with access to financing options to
support the remodeling of existing restaurants. The financing is provided by two
financial services companies with extensive experience in franchise and cash
flow based lending. These programs were designed to allow each franchisee's
request for financing to be evaluated solely on the basis of the financial
performance of the franchisee without support from the Company. However, under
both programs, the Company has the option to extend differing levels of support
in its sole discretion, if it determines that such support will have a positive
strategic impact on the future growth of the Company. Although not specifically
part of the current programs, both financial services companies are also
offering competitive financing options to both new and existing franchisees for
equipment and real estate financing outside of the current remodel initiative.
In the past, the Company has sponsored financing programs offered by certain
lending institutions to help its franchisees obtain funds for the construction
of new franchised restaurants and to purchase and install in-store bakeries. The
Company provided a limited guaranty of the funds borrowed for such purposes. As
of September 30, 1997, there were approximately $3.7 million in borrowings
outstanding under these programs. The Company has guaranteed $1.2 million of
these borrowings. No additional borrowings are available under these programs.
RESTAURANT OPENING. Thirteen-member New Store Opening Teams ("NSOT") assist
franchisees in opening their first two restaurants. For approximately six weeks,
team members train staff, help operate the restaurant and help the franchisee
establish control over labor and food costs. The NSOT arrives prior to a
restaurant opening to help ensure a successful opening. The only expense to
franchisees for the NSOT services for their first two restaurants is the cost of
travel, lodging and local transportation for the team members during their days
on site. For each additional restaurant opening in which the franchisee utilizes
the services of the NSOT, the franchisee is required to pay $10,000.
TRAINING. Central to the Perkins system is a comprehensive and continually
evolving training system. All aspects of the program incorporate
state-of-the-art, easy-to-use materials designed to facilitate self-teaching
whenever possible and to gain maximum guest impact from time spent on training.
Training is provided for all restaurant positions.
FRANCHISE ADVISORY COUNCIL. The Franchise Advisory Council (the "Council")
consists of representatives of 15 franchisees who represent a broad cross
section of the franchise organization from both a size and geographic
perspective. The Council meets three times per year along with the Company's
senior management to review and discuss numerous issues that affect the
franchise system. The Council advises the Company with respect to matters such
as menu development, restaurant design and product and equipment purchasing.
39
<PAGE>
REPORTING AND ROYALTY COLLECTIONS. Franchisees are required to report
monthly sales and other operating information, including monthly profit and loss
statements to the Company. Franchisees make monthly royalty payments based on
sales for the previous month. Payments for royalties are typically received at
the Company's corporate headquarters while the advertising fees are paid
directly to a lockbox account.
ACCOUNTING. The Company provides optional accounting services to
franchisees for a monthly fee. These services include the processing of payroll
and accounts payable and the preparation of monthly financial statements.
QUALITY CONTROL
The Company maintains a high level of quality standards and emphasizes the
importance of these standards in all aspects of its purchasing, training and
management development systems. These systems are promoted not only within
Company-operated restaurants but also throughout the franchise system. The
quality standards of the Company-operated restaurants as well as Foxtail are
monitored by the Company's research and development and quality assurance
staffs. The system standards are detailed in The Confidential Management and
Operating Systems Manual maintained in all Company-operated and franchised
restaurants and are reinforced through on-going training programs at both the
salaried and hourly employee levels.
The Company utilizes several quality control systems. All Company-operated
and franchised restaurants are reviewed periodically throughout the year in
quality assurance audits conducted by multi-unit management level personnel.
Additionally, guest and employee comments are collected through toll-free
telephone lines specifically dedicated to employee and guest feedback. Outside
providers also conduct guest service surveys in each Company-operated restaurant
and a separate formal quarterly consumer tracking study covering both
Company-operated and franchised restaurants is monitored closely by management.
Aspects of each of these programs are utilized in performance evaluation and
incentive compensation determination for all levels of field management
personnel.
OTHER FINANCIAL ARRANGEMENTS
The Company's predecessors entered into several agreements with several
different parties under which specified payments are to be made by the Company
based on a percentage of gross sales from certain restaurants and for new
restaurants opened within certain geographic regions. During 1996, the Company
paid an aggregate of $3.2 million under such agreements. In 1997, the Company
terminated two such agreements. Had such agreements been terminated at the
beginning of 1996, payments by the Company during 1996 would have been $1.8
million.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products and raw materials to ensure consistent quality and freshness of
products and to obtain competitive prices. Essential restaurant supplies and
products are available from several sources and the Company is not dependent
upon any one source for its supplies and products. The Company has not
experienced any significant delays in receiving restaurant products, supplies
and equipment. The Company allows its franchisees to benefit from the purchasing
economies it receives by providing and administering purchasing programs and
passing through purchasing rebates to franchisees. All Company-operated
restaurants are supplied through two national distributors.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that its trademarks and service marks, especially the
mark "Perkins-Registered Trademark-," are of substantial economic importance to
its business. These include signs, logos and marks relating to specific
40
<PAGE>
menu offerings in addition to marks relating to the Perkins name. Certain of
these marks are registered in the U.S. Patent and Trademark Office and in
Canada. Common law rights are claimed with respect to other menu offerings and
certain promotions and slogans. The Company has copyrighted architectural
drawings for Perkins restaurants and claims copyright protection for most of its
manuals, menus, advertising and promotional materials. The Company does not have
any patents.
COMPETITION
The Company's business and the restaurant industry in general are highly
competitive and are often affected by changes in consumer tastes and eating
habits, by local and national economic conditions and by population and traffic
patterns. The Company competes directly or indirectly with all restaurants, from
national and regional chains to local establishments. Some of its competitors
are significantly larger than the Company and have substantially greater capital
resources at their disposal.
PROPERTIES
The following table lists the location of each of the Company-operated and
franchised restaurants and bakeries as of September 30, 1997 (excluding
alternative formats):
<TABLE>
<CAPTION>
COMPANY-
OPERATED FRANCHISED TOTAL
------------- ------------- -----
<S> <C> <C> <C>
Arizona........................................................ -- 8 8
Arkansas....................................................... -- 4 4
Colorado....................................................... -- 16 16
Delaware....................................................... -- 1 1
Florida........................................................ 20 21 41
Idaho.......................................................... -- 8 8
Illinois....................................................... 8 -- 8
Indiana........................................................ -- 5 5
Iowa........................................................... 16 1 17
Kansas......................................................... 4 3 7
Kentucky....................................................... -- 4 4
Maryland....................................................... -- 2 2
Michigan....................................................... 5 1 6
Minnesota...................................................... 40 30 70
Mississippi.................................................... -- 1 1
Missouri....................................................... 11 1 12
Montana........................................................ -- 7 7
Nebraska....................................................... 5 2 7
New Jersey..................................................... -- 7 7
New York....................................................... -- 45 45
North Carolina................................................. -- 4 4
North Dakota................................................... 3 5 8
Ohio........................................................... -- 55 55
Oklahoma....................................................... 3 -- 3
Pennsylvania................................................... 6 42 48
South Carolina................................................. -- 1 1
South Dakota................................................... -- 10 10
Tennessee...................................................... 1 11 12
Virginia....................................................... -- 1 1
Washington..................................................... -- 7 7
Wisconsin...................................................... 13 14 27
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
COMPANY-
OPERATED FRANCHISED TOTAL
------------- ------------- -----
<S> <C> <C> <C>
Wyoming........................................................ -- 4 4
Canada......................................................... -- 12 12
--- --- ---
Total.......................................................... 135 333 468
--- --- ---
--- --- ---
</TABLE>
The following table sets forth certain information regarding
Company-operated restaurants and other properties, as of September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF PROPERTIES (1)(2)
-------------------------------------
<S> <C> <C> <C>
USE OWNED LEASED TOTAL
- --------------------------------------------------------------------- ----------- ----------- -----
Offices and Manufacturing Facilities (3)............................. 1 8 9
Restaurants (4)...................................................... 55 80 135
</TABLE>
- ------------------------
(1) In addition, the Company leases 26 properties, 22 of which are subleased to
others (six of which are subleased to franchisees), one of which is vacant,
and three of which are held for future development. The Company also owns 15
properties, 13 of which are leased to others (11 of which are leased to
franchisees) and two of which are held for future development.
(2) The Company currently leases spaces in three malls which are used to operate
Perkins Cafe and Bakeries. These leases are not included in the totals
shown.
(3) The Company's principal office is located in Memphis, Tennessee, and
currently comprises 53,340 square feet of floor area under a lease expiring
on May 31, 2003, subject to renewal by the Company for a maximum of 60
months. In addition, the Company owns a 25,149 square-foot manufacturing
facility in Cincinnati, Ohio and leases two other properties in Cincinnati,
Ohio, consisting of 36,000 square feet and 60,000 square feet for use as
manufacturing facilities.
(4) The average term of the remaining leases is six years, excluding renewal
options. The longest lease term will mature in 44 years and the shortest
lease term will mature in approximately four years, assuming the exercise of
all renewal options.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 9,500 persons,
of whom approximately 310 were administrative and manufacturing personnel and
the balance of whom were restaurant personnel. Approximately 70% of the
restaurant personnel are part-time employees. The Company competes in the job
market for qualified restaurant management and operational employees. The
Company maintains ongoing restaurant management training programs and has on its
staff full-time restaurant training managers and a training director. The
Company believes that its restaurant management compensation and benefits
package compares favorably with those offered by its competitors. Management
believes its employee relations are good. None of the Company's employees are
represented by a union.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting
its business. Restaurants generally are required to comply with a variety of
regulatory provisions relating to zoning of restaurant sites, sanitation, health
and safety and employment. No material amounts have been or are expected to be
expensed to comply with environmental protection regulations.
The Company is subject to a number of state laws regulating franchise
operations and sales. Those laws impose registration and disclosure requirements
on franchisors in the offer and sale of franchises and,
42
<PAGE>
in certain cases, also apply substantive standards to the relationship between
franchisor and franchisee. The Company must also adhere to Federal Trade
Commission regulations governing disclosures in the sale of franchises.
The wage rates of the Company's hourly employees are affected by federal and
state minimum wage rate laws. Future increases in these rates could materially
affect the Company's cost of labor.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary course
of business. Management does not believe that these proceedings, either
individually or in the aggregate, are likely to have a material adverse effect
on the Company's financial position or results of operations.
43
<PAGE>
MANAGEMENT
The following individuals are currently serving as directors and executive
officers of the Company's general partner, PMC:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH PMC
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Donald N. Smith............... 57 Chairman of the Board and Chief Executive
Officer
Lee N. Abrams................. 62 Director
Charles L. Atwood............. 48 Director
Steven L. Ezzes............... 51 Director
Charles A. Ledsinger, Jr...... 47 Director
D. Michael Meeks.............. 55 Director
Richard K. Arras.............. 46 President and Chief Operating Officer
Michael D. Kelly.............. 51 Executive Vice President, Marketing
Steven R. McClellan........... 42 Executive Vice President, Chief Financial
Officer
Jack W. Willingham............ 52 Executive Vice President, Restaurant
Development
James F. Barrasso............. 47 Vice President, Foodservice Development
Michael P. Donahoe............ 47 Vice President, Controller
William S. Forgione........... 44 Vice President, Human Resources
Clyde J. Harrington........... 39 Vice President, Operations Services
Patrick W. Ortt............... 51 Vice President, Operations--Eastern
Division
Steven J. Pahl................ 42 Vice President, Operations--Western
Division
Anthony C. Seta............... 50 Vice President, Research and Development
Robert J. Winters............. 46 Vice President, Franchise Development
Donald F. Wiseman............. 51 Vice President, General Counsel and
Secretary
</TABLE>
DONALD N. SMITH
Donald N. Smith has been the Chairman of the Board and Chief Executive
Officer of PMC, PRI and TRC since 1986. Mr. Smith also has been the Chairman of
the Board and Chief Executive Officer of Friendly's since 1988. Prior to joining
TRC, Mr. Smith was President and Chief Executive Officer of Diversifoods, Inc.
from 1983 to October 1985. From 1980 to 1983, Mr. Smith was a Senior Vice
President of PepsiCo, Inc. and was President of its Food Service Division. Mr.
Smith was responsible for the operations of Pizza Hut Inc. and Taco Bell Corp.,
as well as North American Van Lines, Lee Way Motor Freight, Inc. PepsiCo Foods
International and La Petite Boulangerie. Prior to 1980, Mr. Smith was President
and Chief Executive Officer of Burger King Corporation and Senior Executive Vice
President and Chief Operations Officer for McDonald's Corporation.
LEE N. ABRAMS
Lee N. Abrams was elected a Director of PMC in September 1986 and appointed
Chairman of the Audit Committee for PMC in October 1986. He is a senior partner
in the Chicago, Illinois law firm of
44
<PAGE>
Mayer, Brown & Platt. He has been associated with that firm since his graduation
from the University of Michigan Law School in 1957. He specializes in franchise
and antitrust law. He is also a Certified Public Accountant.
CHARLES L. ATWOOD
Charles L. Atwood was elected a Director of PMC, Perkins Restaurants, Inc.
("PRI") and TRC in July 1997 and was a director of Friendly's from July 1997 to
November 1997. He has been employed by Harrah's and its predecessors as Vice
President and Treasurer and in various other financial related positions for
more than the past five years. Mr. Atwood also serves on the board of directors
of Interactive Entertainment, Ltd.
STEVEN L. EZZES
Steven L. Ezzes was elected a Director of PMC, PRI, TRC and Friendly's.
Since October 1996 Mr. Ezzes has been a Managing Director of Scotia Capital
Markets (U.S.A.), Inc. From January 1995 to October 1996, Mr. Ezzes was a
private investor and from May 1992 to January 1995, Mr. Ezzes was a Managing
Director of Lehman Brothers, Inc. Mr. Ezzes previously served as a Director of
PMC, PRI, TRC and Friendly's from January 1991 to May 1992. Mr. Ezzes is a
director of OzEMail, a company that provides internet telephony in Australia and
New Zealand.
CHARLES A. LEDSINGER, JR.
Charles A. Ledsinger, Jr. was elected a Director of PMC in October 1991.
Since May 1997, Mr. Ledsinger has served as Senior Vice President and Chief
Financial Officer of St. Joe Corporation. From June 1995 until May 1997, Mr.
Ledsinger was Senior Vice President and Chief Financial Officer of Harrah's
Entertainment, Inc. and from August 1996 to October 1996 Mr. Ledsinger served as
Treasurer of Harrah's Entertainment, Inc. For more than three years prior, Mr.
Ledsinger served as Senior Vice President and Chief Financial Officer of The
Promus Companies Incorporated, Harrah's former parent. Mr. Ledsinger is also a
director of Friendly's and of TBC Corporation, a company specializing in the
production and sale of tires and batteries.
D. MICHAEL MEEKS
D. Michael Meeks was elected a Director of PMC and became a member of the
Audit Committee for PMC in August 1996. Mr. Meeks has been a private investor
for more than the past five years. Mr. Meeks previously served as a director of
PMC, PRI, TRC and Friendly's from December 1987 to October 1991.
RICHARD K. ARRAS
Richard K. Arras has been President and Chief Operating Officer of PMC since
November 1988 and has held varying positions with Perkins since 1979. Prior to
being named to his current position, Mr. Arras was Vice President of Operations.
He has also served as a Director of Operations and as a regional manager for
Perkins restaurants in Minnesota.
MICHAEL D. KELLY
Michael D. Kelly was elected Executive Vice President, Marketing, of PMC in
March 1993. From January 1991 to February 1993, Mr. Kelly was Vice President,
Marketing, for Friendly's. Prior to that, Mr. Kelly was Executive Vice President
of Marketing for Bakers Square for four years. He has also held positions at
Pizza Hut, Inc., Weight Watchers, Stouffers and Fuddruckers.
STEVEN R. MCCLELLAN
Steven R. McClellan has served as Executive Vice President and Chief
Financial Officer of PMC since September 1996. From June 1994 to September 1996
Mr. McClellan was Executive Vice President and
45
<PAGE>
General Banking Group Head of First Union National Bank of South Carolina, a
subsidiary of First Union Corporation. For more than two years prior, he was
Senior Vice President of NationsBank.
JACK W. WILLINGHAM
Jack W. Willingham was elected Executive Vice President, Restaurant
Development of PMC in April 1994. From July 1991 to April 1994, Mr. Willingham
served as Vice President, Corporate Development, of PMC.
JAMES F. BARRASSO
James F. Barrasso has been Vice President, Foodservice Development of PMC
since February 1994. For more than two years prior, he served as Vice President,
Operations Administration of PMC.
MICHAEL P. DONAHOE
Michael P. Donahoe has been Vice President, Controller of PMC since October
1993. He has also been Vice President, Controller and Treasurer of TRC and PRI
since January 1986 and November 1988, respectively. From May 1989 to October
1993, he was Vice President, Chief Financial Officer and Treasurer of PMC. He is
a Certified Public Accountant.
WILLIAM S. FORGIONE
William S. Forgione was elected Vice President, Human Resources of PMC
effective August 11, 1997. From 1994 to August 1997, he was Vice President,
Human Resources of UT Medical Group, Inc. and from 1992 to 1994, Worldwide
Program Manager for Digital Equipment Corporation.
CLYDE J. HARRINGTON
Clyde J. Harrington was elected Vice President, Operations Services of PMC
in September 1996. From August 1995 to September 1996 he was Director, Systems
Operations of the Partnership and from March 1995 to August 1995 he served as
Director in Training for PROC. From November 1992 to March 1995 Mr. Harrington
served as Director, Operations for the Restaurant Division of PepsiCo., Inc. and
from March 1992 to November 1992 he served as Director of Delivery Development
for Pizza Hut, Inc.
PATRICK W. ORTT
Patrick W. Ortt was elected Vice President, Operations Eastern Division of
PMC in September 1996. From March 1993 to September 1996, Mr. Ortt served as
Director, Systems Operations of PROC. For more than two years prior, he was Vice
President, Operations of Pasta Lovers Trattoria, Inc.
STEVEN J. PAHL
Steven J. Pahl was elected Vice President, Operations Western Division of
PMC in September 1996. From November 1988 to September 1996 Mr. Pahl served as
Director, System Operations of PROC.
ANTHONY C. SETA
Anthony C. Seta was elected Vice President, Research and Development of PMC
in April 1994. From August 1992 to April 1994 he served as Vice President, Food
and Beverage for Blackeyed Pea Restaurants, Inc. For more than a year prior, he
was the owner and chef of an independent restaurant. Mr. Seta also acted as a
consultant to Kenny Rogers Roasters from January 1992 to August 1992.
ROBERT J. WINTERS
Robert J. Winters was elected Vice President, Franchise Development of PMC
in October 1996. From March 1993 to October 1996 he served as Senior Director,
Franchise Development of PMC. For more than a year prior, he was Director,
Training and Development of PMC.
46
<PAGE>
DONALD F. WISEMAN
Donald F. Wiseman has been Vice President, General Counsel and Secretary of
PMC since December 1991 and the Secretary of TRC and PRI since September 1997.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid or accrued for services
rendered to the Company's general partner in all capacities during each of the
three years in the period ended December 31, 1997 with respect to the Chief
Executive Officer of PMC and the four most highly compensated executive officers
of PMC whose total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------------- RESTRICTED ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER UNIT AWARD (4) COMPENSATION
- -------------------------------------- --------- ---------- ---------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald N. Smith ...................... 1997 $ 267,126 $ 160,000 $ 3,150(2) -- --
Chairman & Chief Executive Officer 1996 212,912 110,000 8,832(1)(2) -- $ 550(5)
1995 205,319 -- 8,832(1)(2) -- 550(5)
Richard K. Arras ..................... 1997 $ 249,171 $ 143,000 $ 9,000(2) -- $ 4,750(6)
President & Chief Operating Officer 1996 226,788 99,000 18,097(1)(2) -- 6,490(5)(6)
1995 216,269 -- 17,529(1)(2) $ 97,335 3,448(5)(6)
Steven R. McClellan .................. 1997 $ 207,001 $ 83,875 $ 10,055(2)(3) -- $ 4,750(6)
Exec. Vice President & 1996 42,500 39,650 30,715(1)(2)(3) $ 120,000 298(5)
Chief Financial Officer 1995 -- -- -- -- --
Michael D. Kelly ..................... 1997 $ 181,836 $ 78,000 $ 9,000(2) -- $ 4,750(6)
Exec. Vice President Marketing 1996 176,287 60,000 12,726(1)(2) -- 4,808(5)(6)
1995 166,250 -- 11,848(1)(2) $ 64,890 2,772(5)(6)
Jack W. Willingham ................... 1997 $ 172,481 $ 59,250 $ 9,000(2) -- $ 4,750(6)
Exec. Vice President Restaurant 1996 161,582 56,500 15,135(1)(2) -- 7,630(5)(6)
Development 1995 153,538 -- 14,345(1)(2) $ 64,890 5,190(5)(6)
</TABLE>
- ------------------------
(1) Includes premiums paid for medical and disability insurance during 1996 for
the named executive officers in the following amounts: Mr. Smith -- $6,312;
Mr. Arras -- $10,447; Mr. McClellan -- $767; Mr. Kelly -- $5,076; and Mr.
Willingham -- $7,485. Premiums paid on behalf of the named executive
officers during 1995 were: Mr. Smith -- $6,312; Mr. Arras -- $10,329; Mr.
Kelly -- $4,648; and Mr. Willingham -- $7,145.
(2) Includes auto allowance paid to the named executive officers during 1997 in
the following amounts: Mr. Smith -- $3,150; Mr. Arras -- $9,000; Mr.
McClellan -- $9,000; Mr. Kelly -- $9,000; and Mr. Willingham -- $9,000.
During 1996, Mr. Smith received an auto allowance of $2,520; Mr. Arras --
$7,650; Mr. McClellan -- $2,550; Mr. Kelly -- $7,650; and Mr. Willingham --
$7,650. During 1995, Mr. Smith received an auto allowance of $2,520; Mr.
Arras -- $7,200; Mr. Kelly--$7,200; and Mr. Willingham--$7,200.
(3) Includes relocation expenses in the amount of $1,055 and $27,398 for 1997
and 1996, respectively for Mr. McClellan.
(4) The restricted period applicable to each award of Units under Perkins Family
Restaurants, L.P. Restricted Limited Partnership Unit Plan (the "Plan") was
established by the Plan Committee and could not exceed ten (10) years. The
Plan was eliminated during 1997 and all restricted Units were repurchased by
the Company in conjunction with the Companies' going private transaction.
Therefore, as of December 31, 1997 no restricted units were outstanding.
Cash payments related to
47
<PAGE>
repurchased unreleased restricted units during 1997 as a result of the going
private transaction were: Mr. Arras -- $118,272; Mr. McClellan -- $131,810;
Mr. Kelly -- $126,448; and Mr. Willingham -- $101,248.
(5) Includes premiums paid for group term life insurance. Premiums paid during
1996 for the named executive officers were: Mr. Smith -- $550; Mr. Arras --
$1,740; Mr. McClellan -- $298; Mr. Kelly -- $58; and Mr. Willingham --
$2,880. Premiums paid on behalf of the named executives for 1995 were as
follows: Mr. Smith -- $550; Mr. Arras -- $1,138; Mr. Kelly -- $1,232; and
Mr. Willingham -- $2,880.
(6) Includes Perkins' discretionary matching contributions allocated to the
named executive officers for the period January 1, 1997 through December 31,
1997 under Perkins Retirement Savings Plan as follows: Mr. Arras -- $4,750;
Mr. McClellan -- $4,750; Mr. Kelly -- $4,750; and Mr. Willingham -- $4,750.
For the period January 1 through December 31, 1996 contributions were as
follows: Mr. Arras -- $4,750; Mr. Kelly -- $4,750; and Mr. Willingham --
$4,750. For the period January 1 through December 31, 1995 matching
contributions allocated to the named executives were: Mr. Arras -- $2,310;
Mr. Kelly -- $1,540; and Mr. Willingham -- $2,310.
COMPENSATION OF DIRECTORS
Lee N. Abrams, D. Michael Meeks, Charles A. Ledsinger, Jr. and Steven L.
Ezzes are paid for their services as members of the Board of Directors of PMC.
Messrs. Abrams, Meeks, Ledsinger and Ezzes were paid for five meetings of the
Board in 1997. Also, these directors participated in a telephonic board meeting
for which they were paid a fee of $1,500. Messrs. Abrams and Meeks are also paid
$1,000 plus expenses for their attendance and participation in each Audit
Committee meeting. No compensation is paid for their participation in Audit
Committee meetings held by telephone or for their attendance when such meetings
are held on the same day as a Board meeting. In 1997, all Audit Committee
meetings were held by telephone or on the same day as a Board meeting.
Mr. Abrams, Mr. Meeks, Steven L. Ezzes and Charles A. Ledsinger, Jr. each
received awards of 500 restricted units on February 4, 1997 under the Plan
valued at $7,000 on the date of the grant. On December 22, 1997, all units owned
by each director were redeemed in the going private transaction at $14.00 per
unit resulting in Mr. Abrams receiving $152,600 (10,900 units), Mr. Ezzes $7,000
(500 units), Mr. Ledsinger $7,000 (500 units) and Mr. Meeks $14,000 (1,000
units).
BENEFICIAL OWNERSHIP OF UNITS
The following sets forth information as of December 31, 1997 with respect to
the beneficial ownership of the Units.
Following consummation of the Going Private Transaction, PRI and PMC own all
of the outstanding Units and the Company is a wholly-owned indirect subsidiary
of TRC. TRC's outstanding common stock is owned 33.3%, 33.3% and 28.2% by Mr.
Smith, Harrah's and Equitable, respectively and 5.2% by others. TRC and Harrah's
have entered into discussions which could lead to the redemption by TRC of
Harrah's interest in TRC, but have reached no agreement on the terms of such a
transaction. Should Harrah's interest be redeemed, Mr. Smith's ownership would
be 50%, Equitable's ownership would be 42.3% and others would own 7.7%. Pursuant
to the terms of a Stockholders Agreement dated November 21, 1985 (the
"Stockholders Agreement") among TRC's stockholders and the Bylaws of TRC, the
voting and disposition of the shares of TRC are subject to numerous
restrictions. Significant stockholder and director actions (including certain
transactions in TRC's assets and the disposition of TRC's indirect investment in
the Company), as defined in the Stockholders Agreement and in the By-Laws of
TRC, PRI and PMC, must be approved by a unanimous vote of the Board of Directors
of the company proposing to take any such action and by at least 75% of the
shareholders.
48
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1995 and 1996, Friendly's purchased layer cakes and muffin and
pancake mixes from the Company for which the Company was paid approximately
$1,909,000 and $1,425,000, respectively. The Company believes that the prices
paid to the Company for these products were no less favorable than the prices
that would have been paid for the same products by a non-affiliated party in an
arm's length transaction.
The Company has subleased certain land, building and equipment to
Friendly's. During 1995 and 1996, the Company received approximately $318,000
and $328,000, respectively, related to those subleases. The Company believes
that the terms of these subleases are no less favorable to the Company than
could be obtained if the transaction was entered into with an unaffiliated third
party.
In 1996, PMC made payments to TRC Realty Co., a subsidiary of TRC, totaling
$467,000 related to the use of an aircraft leased by TRC Realty Co. PMC's use of
this aircraft is solely for Company related purposes, and the Company reimburses
PMC for all airplane expenses paid. Pursuant to an agreement expiring April 14,
2004, the Company is obligated to reimburse monthly an amount equal to 50% of
the fixed costs of the aircraft (consisting principally of lease payments, pilot
salaries, insurance and hangar rental) and its proportionate share of variable
expenses (such as fuel and maintenance) based on PMC's actual usage of the
aircraft.
The Company reimburses TRC for its out-of-pocket expenses related to
management services provided to the Company, including a portion of employee
compensation and office related expenses and related expenses. In addition, TRC
reimburses the Company for certain tax and accounting services. Excluding Mr.
Smith's compensation and expenses, during 1996, the payments due to the Company
exceeded the payments the Company owed TRC by $194,917.
CERTAIN BUSINESS RELATIONSHIPS
Lee N. Abrams, a director of PMC and Chairman of the Audit Committee of PMC,
is a senior partner in the Mayer, Brown & Platt law firm. Mayer, Brown & Platt
represented the Company and its affiliates in several matters during 1996 and
1997, and represented TRC and the Issuers in the Offering, is representing the
Issuers in this Exchange Offer and represented TRC, PMC, PRI and MergerCo. in
the Going Private Transaction.
INDEBTEDNESS OF MANAGEMENT
In December 1992, Jack W. Willingham, Executive Vice President, Restaurant
Development, obtained a loan from the Company in the original principal amount
of $70,000 with interest at the prime rate, which on March 3, 1997 was 8.25%.
This loan, as renegotiated effective July 1, 1995, is secured by his principal
residence and requires yearly interest payments through January 2000, on which
date the entire unpaid principal balance and all accrued interest are due and
payable. The highest outstanding principal balance during 1997 was $63,746 and
the remaining principal balance at December 31, 1997 was zero.
ISSUANCE OF UNITS TO TRC AND ITS AFFILIATES AND PAYMENT OF EXPENSES BY TRC
In order to prevent a termination of the Company's partnership status for
federal income tax purposes, TRC and its affiliates contributed cash in the
amount of $4.4 million to acquire newly issued Units of the Company prior to the
consummation of the Going Private Transaction.
The Merger Agreement also provided that TRC and its affiliates would be
entitled to contribute any amount necessary to pay any costs incurred by the
Company in connection with the repayment of the Company's existing indebtedness
or in connection with any other transaction connected with the Going
49
<PAGE>
Private Transaction and that payment of such expenses would be specially
allocated to the party paying such expense in order to satisfy the "substantial
economic effect" requirement of Section 704(b) of the Internal Revenue Code. The
Company's Amended and Restated Partnership Agreement provides that if any amount
is contributed or deemed to be contributed to the Company or its affiliates to
pay expenses incurred by the Company or its affiliates in connection with the
repayment of debt or any other transaction connected with the Going Private
Transaction, such expenses would be specially allocated to the partner making
such contribution or deemed contribution in accordance with Section 704(b) of
the Internal Revenue Code. Prior to such amendment, the tax benefit of some of
these expenses might have been allocated to all of the partners of the Company,
including the Company's former public Unitholders. The Company's former public
Unitholders therefore will not receive any tax benefit as a result of the
contribution by TRC and its affiliates to the Company of amounts for payment of
expenses in connection with the Going Private Transaction.
50
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
Set forth below is a summary of the terms of the New Credit Facility. The
summary does not purport to be complete and where reference is made to
particular provisions of the New Credit Facility, such provisions, including the
definition of certain terms, are incorporated by reference as part of such
summaries or terms. The summary is qualified in its entirety by reference to the
New Credit Facility. Copies of the credit agreement (the "New Credit Agreement")
relating to the New Credit Facility have been filed as Exhibits to the
Registration Statement of which this Prospectus is a part.
Pursuant to the New Credit Facility, a group of banks provided the Company
with a new $50 million revolving line of credit facility. Anticipated borrowings
under the New Credit Facility and the net proceeds of the Offering are being
used to finance the Going Private Transaction, refinance the Existing Credit
Facility and other existing indebtedness, pay related fees and expenses and
provide future capital for general corporate purposes.
Borrowings under the New Credit Facility mature January 1, 2003 and the New
Credit Facility contains a $5 million sublimit for letters of credit. Advances
under the New Credit Facility may be borrowed, repaid and reborrowed until
maturity.
The New Credit Facility is secured by a common collateral pool consisting of
a first perfected security interest in substantially all of the assets of the
Company, including but not limited to accounts and notes receivable, inventory,
equipment, real property, stock of subsidiaries and intangible assets (including
patents, trademarks, copyrights, etc.) and will be guaranteed by TRC and its
successors, PMC, PRI and by all future subsidiaries, if any, of the Company. The
guarantees of TRC, PMC and PRI are limited to their respective pledge of
partnership Units in the Company. At all times after an event of default (as
defined), and at other times in the agent bank's discretion, the Company will
provide the agent bank, or another bank approved by the agent, with dominion
over its domestic cash receipts through lock box accounts.
Outstanding principal balances under the New Credit Facility bear interest
at floating rates equal to the agent's base rate (as defined) or Eurodollar rate
(as defined) plus, in each case, the applicable margin (as defined). Financial
covenants and provisions contained in the New Credit Agreement restrict (with
certain exceptions), among other things, the Company's ability to incur
indebtedness and other liabilities, make guarantees, make non-cancellable rental
payments due under operating leases, incur liens, make acquisitions, make
investments, pay dividends and other distributions, merge, sell assets, allow
subsidiary distributions, make voluntary payments of other indebtedness
including the Notes, enter into derivative contracts, enter into transactions
with affiliates and enter into negative pledges. The Company is also subject to
covenants regarding payment of claims and taxes, the conduct of its business,
compliance with laws and contracts, the maintenance of insurance and compliance
with ERISA. The Company is permitted to pay tax distributions to its partners to
provide funds for the payment of such partners' tax liability arising from the
taxable income of the Company.
The Company is also required to comply with certain financial covenants. The
financial covenants are (i) maintenance of a maximum consolidated leverage ratio
(as defined), (ii) maintenance of a minimum net worth (as defined), (iii)
maintenance of a consolidated cash flow ratio (as defined) (iv), maintenance of
a consolidated EBITDA to interest expense ratio (as defined), and (v) limits on
maximum consolidated capital expenditures (as defined).
Events of default under the New Credit Facility include the failure to pay
any interest, principal or other amounts when due, the failure to comply with
any covenants, the breach of representations or warranties, defaults on other
indebtedness, the occurrence of a change of control (as defined) the occurrence
of any judgment defaults, the failure to comply with ERISA requirements and the
bankruptcy or insolvency of the Company.
51
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Issuers to satisfy their obligations
pursuant to the Registration Rights Agreement, which requires the Issuers to use
their best efforts to effect the Exchange Offer. See "-- Registration Rights."
The Issuers are making the Exchange Offer in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed to
other parties in other transactions. However, the Issuers have not sought their
own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. Based on these interpretations by the Staff of the Commission, the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) any such holder
that is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act; (ii) an Initial Purchaser who acquired the Old Notes directly
from the Issuers solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act; or
(iii) a broker-dealer who acquired the Old Notes as a result of market making or
other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes. By tendering, each Holder which is not a broker dealer
will represent to the Issuers that, among other things, the person receiving the
New Notes, whether or not such person is the Holder, (i) is not an "affiliate,"
as defined in Rule 405 under the Securities Act, of the Issuers, (ii) will
acquire the New Notes in the ordinary course of such person's business, and
(iii) is not engaged in, does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of New Notes. If
any Holder or any such other person has an arrangement or understanding with any
person to participate in a distribution of such New Notes, is engaged in or
intends to engage in a distribution of such New Notes, is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Issuers, or acquired the
Old Notes as a result of market making or other trading activities, then such
Holder or any such other person (i) cannot rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless such sale is made pursuant to an
exemption from such requirements.
Holders of Old Notes not tendered will not have any further registration
rights and the Old Notes not exchanged will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for the Old
Notes could be adversely affected.
NEITHER THE COMPANY NOR FINANCE CORP. MAKES ANY RECOMMENDATION TO HOLDERS OF
OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR
OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE
LETTER OF TRANSMITTAL AND CONSULTING THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Notes, the Issuers entered into
the Registration Rights Agreement with the Initial Purchasers of the Old Notes.
52
<PAGE>
Holders of the New Notes (other than as set forth below) are not entitled to
any registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to certain
registration rights. Under the Registration Rights Agreement, the Issuers have
agreed, for the benefit of the Holders of the Old Notes, that they will, at
their cost, (i) on or before February 5, 1998, file the Registration Statement
with the Commission and (ii) use their best efforts to cause such Registration
Statement to be declared effective under the Securities Act before April 21,
1998. The Registration Statement of which this Prospectus is a part constitutes
the Registration Statement. If (i) the Issuers are not permitted to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities (as
defined) notifies the Issuers within the specified time period that (A) due to a
change in law or policy it is not entitled to participate in the Exchange Offer,
(B) due to a change in law or policy it may not resell the New Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Registration Statement is not appropriate or
available for such resales by such holder or (C) it is a broker-dealer and
acquired the Notes directly from the Issuers or an affiliate of the Issuers, the
Issuers will file with the Commission a Shelf Registration Statement (as
defined) to cover resales of the Transfer Restricted Securities by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Issuers will use their
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note, until (i) the date
of which such Transfer Restricted Security has been exchanged in the Exchange
Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of a
Transfer Restricted Security for a New Note, the date on which such New Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the Prospectus contained in the Registration Statement,
(iii) the date on which such security has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such security is distributed pursuant to
Rule 144 under the Act.
The Registration Rights Agreement also provides that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Issuers will commence the Exchange Offer and use their best efforts to issue
on or prior to 30 business days after the date on which the Registration
Statement is declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 30 days after such filing obligation arises and use their best efforts
to cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. The Issuers shall use their best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended until the third anniversary of the Closing Date (as
defined) or such shorter period that will terminate when all the Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. If (a) the Issuers fail to file any of the registration
statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such registration statements are not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Issuers fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Registration Statement, or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter, subject to certain exceptions, ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Issuers will
pay Liquidated Damages to each Holder of Transfer Restricted Securities affected
thereby, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week for
each $1,000 principal amount of Transfer Restricted Securities held by such
Holder. The amount of the Liquidated Damages will increase by an additional $.05
per week with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages
53
<PAGE>
of $.50 per week for each $1,000 principal amount of Transfer Restricted
Securities, as applicable. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Transfer
Restricted Securities included in the Shelf Registration Statement and benefit
from the applicable provisions regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuers will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; PROVIDED, HOWEVER, that if the Issuers, in
their sole discretion, have extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended; PROVIDED FURTHER that in no event will the
Exchange Offer be extended beyond , 1998. The Issuers may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement. Without limiting
the manner in which the Issuers may choose to make any public announcement and
subject to applicable law, the Issuers shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
will remain subject to the Exchange Offer. The Issuers intend to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations thereunder.
As of the date of this Prospectus, $130,000,000 in principal amount of the
Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all Holders of Old
Notes known to the Issuers. The Issuers' obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth under "-- Certain Conditions to the Exchange Offer" below.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and certain rights to receive Liquidated Damages. See
"-- Registration Rights; Liquidated Damages" above. The Old Notes were, and the
New Notes will be, issued under the Indenture and all such Notes are entitled to
the benefits of the Indenture.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Issuers expressly reserve the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Issuers
will give oral or written notice of any amendment, nonacceptance or termination
to the Holders of the Old Notes as promptly as practicable. Any amendment to the
Exchange Offer will not limit
54
<PAGE>
the right of Holders to withdraw tendered Old Notes prior to the Expiration
Date. See "-- Withdrawal Rights" below.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuers of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Issuers will constitute a binding
agreement between the tendering Holder and the Issuers upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to State Street Bank and Trust Company
(the "Exchange Agent") at one of the addresses set forth below under "--
Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal; or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date; or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY OR FINANCE CORP.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
the signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuers in their
sole discretion, duly executed by the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding. The Issuers reserve the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes which acceptance might, in the judgment of the Issuers or their
counsel, be unlawful. The Issuers also reserve the absolute right to waive any
defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Issuers shall be final and binding on all parties. Unless
waived, all defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Issuers
shall determine. Neither the Issuers, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability
55
<PAGE>
for failure to give such notification. The Exchange Agent intends to use
reasonable efforts to give notification of such defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered Holder or Holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuers, proper evidence satisfactory to the Issuers of their authority to
so act must be submitted.
By tendering, each Holder which is not a broker dealer will represent to the
Issuers that, among other things, the person receiving the New Notes, whether or
not such person is the Holder, (i) is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Issuers, (ii) will acquire the New Notes in the
ordinary course of such person's business, and (iii) is not engaged in, does not
intend to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of New Notes. If any Holder or any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Issuers, is engaged in or intends to engage in or has an arrangement or
understanding with any person to participate in a distribution of such New Notes
to be acquired pursuant to the Exchange Offer, or acquired the Old Notes as a
result of market making or other trading activities, such Holder or any such
other person (i) cannot rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuers will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Issuers shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Issuers have given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive payment of accrued but unpaid interest from the most
recent interest payment date or, if no interest payment date has yet occurred
from December 22, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility; (ii) a properly completed and duly executed
Letter of Transmittal; and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, or if Old Notes are submitted for a greater amount than
the Holder desires to exchange, such unaccepted or nonexchanged Old Notes will
be returned without
56
<PAGE>
expense to the tendering Holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book Entry
Transfer Facility pursuant to the book-entry procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such Book-
Entry Transfer Facility designated by the tendering Holder) as promptly as
practicable after withdrawal, rejection of tender or expiration or termination
of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form of the corresponding exhibit to the
Registration Statement of which this Prospectus constitutes a part (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth the name
and address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of the withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing Holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the release of such certificates the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
57
<PAGE>
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuers, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account with such Book-Entry Transfer Facility specified by the Holder) as soon
as practicable after withdrawal, rejection of tender, expiration or termination
of the Exchange Offer. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering Old
Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuers shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Issuers to accept for exchange or exchange some or all of the Old Notes
pursuant to the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any government or governmental
authority, domestic or foreign, or any action shall have been taken,
proposed or threatened, by any government, governmental authority, agency or
court, domestic or foreign, that in the sole judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in
clauses (i) or (ii) above or, in the sole judgment of the Issuers, might
result in the holders of New Notes having obligations with respect to
resales and transfers of New Notes which are greater than those described in
the interpretation of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market; (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuers to complete the transactions contemplated by the
Exchange Offer; (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit; or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Issuers, is or may be adverse to the Issuers, or the
Issuers shall have become aware of
58
<PAGE>
facts that, in the sole judgment of the Issuers, have or may have an adverse
effect on the value of the Old Notes or the New Notes.
Holders of Old Notes will have the registration rights and the right to
Liquidated Damages described under "-- Registration Rights; Liquidated Damages"
if the Issuers fail to consummate the Exchange Offer.
To the Issuers' knowledge as of the date of this Prospectus, none of the
above events has occurred.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. The failure by the Issuers at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. In the event the Issuers assert or
waive a condition to the Exchange Offer which constitutes a material change to
the terms of the Exchange Offer, the Issuers will disclose such change in a
manner reasonably calculated to inform prospective investors of such change, and
will extend the period of the Exchange Offer by five business days.
In addition, the Issuers will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
DELIVER TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT:
<TABLE>
<S> <C> <C> <C>
BY REGISTERED OR CERTIFIED BY OVERNIGHT COURIER OR HAND:
MAIL:
State Street Bank State Street Bank *State Street Bank
and Trust Company and Trust Company or and Trust Company
P.O. Box 778 Two International Place 61 Broadway,
Boston, MA 02102-0078 Boston, MA 02110 Concourse Level
Attn: Kelly Mullen Attn: Kelly Mullen Corporate Trust Window
New York, NY 10006
*ONLY DURING BUSINESS HOURS
</TABLE>
BY FACSIMILE FOR ELIGIBLE INSTITUTIONS:
(617) 664-5395
FOR CONFIRMATION CALL:
(617) 664-5587
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
59
<PAGE>
FEES AND EXPENSES
The Issuers will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Issuers will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Issuers will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling tenders for their
customers. The expenses to be incurred in connection with the Exchange Offer,
including the fees and expenses of the Exchange Agent and printing, accounting,
registration, and legal fees, will be paid by the Issuers and are estimated to
be approximately $100,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Issuers to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate that
they will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any rights under the Registration Rights Agreement. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, or tendered but unaccepted, Old Notes could
be adversely affected. Based upon no-action letters issued by the staff of the
Commission to other parties in other transactions, the Issuers believe the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold or otherwise transferred by a Holder thereof (other
than any (i) Holder which is an "affiliate" of the Issuers within the meaning of
Rule 405 under the Securities Act; (ii) an Initial Purchaser who acquired the
Old Notes directly from the Issuers solely in order to resell pursuant to Rule
144A of the Securities Act or any other available exemption under the Securities
Act; or (iii) a broker-dealer who acquired the Old Notes as a result of market
making or other trading activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes. However, the Issuers have not sought their own no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and
60
<PAGE>
does not intend to engage in, a distribution of New Notes, and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Issuers, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, or acquired the Old
Notes as a result of market making or other trading activities, such Holder (i)
could not rely on the relevant determinations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. See "Plan of Distribution." In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the New Notes
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Issuers have agreed to register or qualify
the sale of the New Notes in such jurisdiction only in limited circumstances and
subject to certain conditions.
ACCOUNTING TREATMENT
The exchange of the New Notes for the Old Notes will have no impact on the
Company's or Finance Corp.'s accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized.
Expenses of the Exchange Offer will be amortized, pro rata, over the term of the
New Notes.
61
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Old Notes were and the New Notes will be issued pursuant to an Indenture
dated as of December 22, 1997 (the "Indenture"), among the Issuers and State
Street Bank and Trust Company of Connecticut, N.A., as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). The Notes are subject to all such terms, and holders of the
Notes (the "Holders") are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The Indenture and Registration Rights Agreement are filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions." For purposes of this summary, the term "Company"
refers only to Perkins Family Restaurants, L.P. and not to Finance Corp. and the
term "Holder" or "Holders" refers to Holders (as defined in the Indenture) of
Old Notes and/or New Notes.
The Notes are general unsecured obligations of the Issuers and rank PARI
PASSU in right of payment with all current and future unsecured senior
Indebtedness of the Issuers, including borrowings under the New Credit Facility.
However, all borrowings under the New Credit Facility are secured by a first
priority Lien on substantially all of the assets of the Company and its
Subsidiaries. As a result, the claims of Holders of the Notes will be
effectively subordinated to the extent of such security interests. As of
September 30, 1997, on a pro forma basis after giving effect to the Going
Private Transaction and the financing thereof, including the repayment of
existing indebtedness, approximately $6.8 million would have been outstanding
under the New Credit Facility, outstanding standby letters of credit would have
been approximately $3.0 million and approximately $40.2 million would be
available for future borrowings and letters of credit thereunder. The Indenture
permits the incurrence of substantial additional secured indebtedness by the
Company and its subsidiaries, under the New Credit Facility or otherwise, in the
future. See "Risk Factors -- Effective Subordination."
As of the date hereof, the Company has no Subsidiaries other than Finance
Corp., which is a Restricted Subsidiary (as defined herein). However, under
certain circumstances, the Company will be able to designate future Subsidiaries
as Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to many
of the restrictive covenants set forth in the Indenture.
FINANCE CORP.
Finance Corp. is a Wholly-Owned Restricted Subsidiary of the Company that
was incorporated in Delaware for the purpose of serving as a co-issuer of the
Notes in order to facilitate the Offering. The Company believes that certain
purchasers of the Notes may be restricted in their ability to purchase debt
securities of partnerships, such as the Company, unless such debt securities are
jointly issued by a corporation. Finance Corp. will not have any substantial
operations or assets and will not have any revenues or expenses. As a result,
prospective Holders of Notes should not expect Finance Corp. to participate in
servicing the interest and principal obligations on the Notes.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by any future Restricted
Subsidiaries of the Company (collectively, the "Guarantors"). The obligations of
each Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, "Risk Factors --
Fraudulent Conveyance Matters."
62
<PAGE>
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction), equal to or greater than the
Consolidated Net Worth of such Guarantor immediately preceding the transaction;
and (iv) the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred Equity
Interests."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Interests of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the Capital
Interests of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary Guarantee;
PROVIDED, that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Redemption or
Repurchase at Option of Holders -- Asset Sales."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $150.0 million,
of which $130.0 million were issued in the Offering. The Notes will mature on
December 15, 2007. Interest on the Notes will accrue at the rate of 10 1/8% per
annum and will be payable semi-annually in arrears on June 15 and December 15,
commencing on June 15, 1998, to Holders of record on the immediately preceding
June 1 and December 1. For each Old Note accepted for exchange, the Holder of
such Old Note will receive a New Note having a principal amount equal to that of
the surrendered Old Note. Accordingly, registered Holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive payment of accrued but unpaid
interest from the most recent interest payment date or, if no interest payment
date has yet occurred, from December 22, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Additional Notes may be issued from time to time after the
Offering, subject to the provisions of the Indenture described below under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Equity Interests." Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest and Liquidated Damages on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest and Liquidated
Damages may be made by check mailed to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes; PROVIDED
that all payments of principal, premium, interest and Liquidated Damages with
respect to Notes the Holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Notes are
issued in denominations of $1,000 and integral multiples thereof.
63
<PAGE>
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at the option of the
Issuers, on or after December 15, 2002, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------- ----------
<S> <C>
2002................................................................ 105.063%
2003................................................................ 103.375%
2004................................................................ 101.688%
2005 and thereafter................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to December 15, 2000,
the Issuers may on any one or more occasions redeem Notes with the net cash
proceeds of one or more public offerings of the Company's equity securities or
the equity securities of any of the Company's direct or indirect parents (to the
extent such net proceeds have been contributed to the Company as common equity
capital), at 110.125% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date,
PROVIDED, that at least 65% of the principal amount of Notes originally issued
remains outstanding immediately following such redemption (excluding Notes held
by the Issuers or any of their respective Subsidiaries); and PROVIDED, FURTHER,
that such redemption shall occur within 60 days of the date of the closing of
any such public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
The Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Issuers to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Issuers will mail a notice to each Holder describing the transaction or
64
<PAGE>
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Issuers will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Issuers
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility provides that certain events which are similar to a
Change of Control constitute a default under the New Credit Facility. In
addition, the exercise by the Holders of Notes of their right to require the
Company to repurchase the Notes could cause a default under the New Credit
Facility, even if the Change of Control itself does not, due to the financial
effect of such repurchases on the Company. Finally, the Company's ability to pay
cash to the Holders of Notes upon a repurchase may be limited by the Company's
then existing financial resources. See "Risk Factors -- Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than TRC or a Related Party, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than TRC and its Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) directly or
indirectly, of Capital Interests of the Company entitling the owners thereof to
35% or more of the income or profits of the Company, (iv) the first day on which
a majority of the members of the Board of Directors of the Company are not
Continuing Directors or (v) prior to the reorganization of the Company as a
corporation, the first day on which the Company ceases to own 100% of the
outstanding Equity Interests of Finance Corp.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a
65
<PAGE>
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"BOARD OF DIRECTORS" means (i) with respect to any Person that is a
corporation, the board of directors of such Person or any authorized committee
of such board of directors, and (ii) with respect to any Person that is a
partnership or a limited liability company, the board of directors of the
general partner (or similar Person) of such Person or any authorized committee
of such board of directors.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election, or (iii) was nominated for election to such Board
of Directors by TRC or one of its Related Parties.
"RELATED PARTY" with respect to TRC means (A) any 25% or greater stockholder
(including each of Donald N. Smith, Harrah's Entertainment, Inc. (and its
subsidiaries) and The Equitable Life Assurance Society of the United States) or
80% (or more) owned Subsidiary of TRC or (B) any trust, corporation, partnership
or other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of TRC
and/or such other Persons referred to in the immediately preceding clause (A).
"TRC" means The Restaurant Company.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) except in the case of a Permitted Non-Cash
Transaction, at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash; PROVIDED that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
and (y) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds (a) to permanently reduce Indebtedness
under the New Credit Facility (and to correspondingly reduce commitments with
respect thereto), or (b) to the acquisition of a majority of the assets of, or a
majority of the voting Capital Interests of, another Permitted Business, the
making of a capital expenditure or the acquisition of other tangible long-term
assets, in each case, that are used or useful in a Permitted Business. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the
66
<PAGE>
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be
required to make an offer to all Holders of Notes and all holders of other
Indebtedness containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
and such other Indebtedness that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase, in accordance with the procedures set forth in the
Indenture and such other Indebtedness. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Interests) of the Company
or to the Company or a Restricted Subsidiary of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value (including, without limitation,
in connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly-Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "-- Incurrence of Indebtedness and Issuance of
Preferred Equity Interests"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi), (vii) and (viii) of the second
succeeding paragraph), is less than the sum, without duplication, of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Indenture (the "Measurement Date") to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by
67
<PAGE>
the Company since the Measurement Date as a contribution to its common
equity capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Interests) or from the issue or sale of
Disqualified Interests or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Interests or convertible debt securities) sold to a Subsidiary
of the Company), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the aggregate amount of such Restricted Investment that was
treated as a Restricted Payment when made.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of subordinated Indebtedness or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Interests); PROVIDED that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Subsidiary of the Company to the holders of its
common Equity Interests on a pro rata basis; and (v) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Subsidiary of the Company held by any member of the Company's (or
any of its Subsidiaries') management; PROVIDED that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1,000,000 in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vi)
the declaration of the Jack Astor Vehicle as an Unrestricted Subsidiary on the
date that it becomes a Subsidiary of the Company; PROVIDED that it otherwise
meets the qualifications of an Unrestricted Subsidiary; (vii) distributions to
partners or owners of the Company in an aggregate amount during or with respect
to any fiscal period commencing after December 31, 1996, not to exceed the Tax
Amount for such period or for such prior periods commencing after December 31,
1996 that are subject to adjustments as a result of audits by tax authorities;
(viii) transfers of cash proceeds from the sale of the Notes not to exceed, in
the aggregate, $85.0 million, to finance the purchase of Units from the public
holders of such Units in the Going Private Transaction, as set forth in the
Offering Memorandum under the caption "Use of Proceeds" and (ix) additional
Restricted Payments not to exceed $5.0 million after the date of the Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $1.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver
68
<PAGE>
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED EQUITY INTERESTS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Interests
and will not permit any of its Subsidiaries to issue preferred Equity Interests
(including Disqualified Interests); PROVIDED, HOWEVER, that the Company may
incur Indebtedness (including Acquired Debt) or issue Disqualified Interests and
any of the Company's Restricted Subsidiaries that is a Guarantor may incur
Indebtedness or issue preferred Equity Interests (including Disqualified
Interests) if, in each case, the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Equity Interests are issued would have been at
least 2 to 1, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Equity Interests had been issued, as the case may be, at the
beginning of such four-quarter period.
The Indenture also provides that the Company will not incur any Indebtedness
(nor will the Guarantors guarantee any such Indebtedness) that is contractually
subordinated in right of payment to any other Indebtedness of the Company unless
such Indebtedness is also contractually subordinated in right of payment to the
Notes on substantially identical terms; PROVIDED, HOWEVER, that no Indebtedness
of the Company shall be deemed to be contractually subordinated in right of
payment to any other Indebtedness of the Company solely by virtue of being
unsecured.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company (and the guarantee thereof by the
Guarantors) of revolving credit Indebtedness and letters of credit (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries thereunder)
under Credit Facilities; PROVIDED that the aggregate principal amount of all
revolving credit Indebtedness and letters of credit outstanding under Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to $50.0 million;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Issuers (and the Guarantee thereof by the
Guarantors) of Indebtedness represented by the Notes;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; PROVIDED that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Restricted Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by the
Company or one of its Restricted Subsidiaries; and PROVIDED FURTHER that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (v) and any
69
<PAGE>
Permitted Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (v), does not exceed $10 million;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) or any Indebtedness that was permitted by the
Indenture to be incurred pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of this covenant;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly-Owned Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to
the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Wholly-Owned Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vii);
(viii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding; and
(ix) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x);
(xi) Indebtedness consisting of Permitted Investments of the kind
described in clause (f) of the definition of "Permitted Investments"; and
(xii) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xii), not to exceed $5.0
million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xii) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant. Accrual of interest, accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of dividends or
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock for purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of the Company as accrued.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
70
<PAGE>
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
PROVIDED that the Company may enter into a sale and leaseback transaction if (i)
the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of Additional
Indebtedness and Issuance of Preferred Equity Interests" and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described above under the
caption "-- Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "-- Asset Sale."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries on its
Capital Interests or with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or by
reason of (a) the Indenture and the Notes, (b) applicable law, (c) any
instrument governing Indebtedness or Capital Interests of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (d) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (e) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (f) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (g) Permitted Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced; (h) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption "--
Liens" that limits the right of the debtor to dispose of the assets securing
such Indebtedness; and (i) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary course of
business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
71
<PAGE>
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) the Company or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Equity
Interests."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has either been approved by a majority of the
disinterested members of the Board of Directors or has been approved in an
opinion issued by an accounting, appraisal or investment banking firm of
national standing as being fair to the Holders from a financial point of view
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing. Notwithstanding the foregoing, the following items
shall not be deemed to be Affiliate Transactions: (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary, (ii) transactions between or among the Company
and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees
to Persons who are not otherwise Affiliates of the Company, (iv) any agreement
in effect on the date of the Indenture or any amendment thereto or transaction
contemplated thereby (and any replacement or amendment of any such agreement so
long as any such amendment or replacement thereof is not materially less
favorable to the Holders than the original agreement in effect on the date of
the Indenture), and (v) Restricted Payments that are permitted by the provisions
of the Indenture described above under the caption "-- Restricted Payments."
RESTRICTIONS ON ACTIVITIES OF FINANCE CORP.
The Indenture provides that Finance Corp. may not hold any material assets,
become liable for any material obligations (other than certain indemnity
obligations under the Purchase Agrement (as defined) and the Registration Rights
Agreement) or engage in any significant business activities; PROVIDED that
Finance Corp. may be a co-obligor with respect to Indebtedness if the Company is
the primary obligor with
72
<PAGE>
respect to such Indebtedness and the net proceeds of such Indebtedness are
received by the Company or one of the Company's Restricted Subsidiaries other
than Finance Corp. The Company and Finance Corp. intend to take the position for
tax purposes that Finance Corp. is the Company's nominee. If such
recharacterization is denied, any payment of principal or interest by Finance
Corp. will be deemed to create an identical debt between Finance Corp. and the
Company.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL INTERESTS IN WHOLLY-OWNED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Interests in any Wholly-Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Interests in
such Wholly-Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "-- Asset Sales," and (ii)
will not permit any Wholly-Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, Capital Interests
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly-Owned Restricted Subsidiary of the Company.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create another Subsidiary after the date of the Indenture, then such
newly acquired or created Subsidiary shall become a Guarantor and execute a
Supplemental Indenture and deliver an Opinion of Counsel, in accordance with the
terms of the Indenture; PROVIDED that the foregoing shall not apply to any
Subsidiary that has properly been designated as an Unrestricted Subsidiary in
accordance with the Indenture for so long as it continues to constitute an
Unrestricted Subsidiary.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of
73
<PAGE>
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the exchange
offer contemplated by the Registration Rights Agreement, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Subsidiaries to comply with the provisions described under
the captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments"
or "-- Incurrence of Indebtedness and Issuance of Preferred Equity Interests";
(iv) failure by the Company or any of its Subsidiaries for 30 days after notice
to comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any
of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries; and (viii) except as permitted by the
Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to
be unenforceable or shall cease for any reason to be in full force and effect or
any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligation under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
74
<PAGE>
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to December 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, partner, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States
75
<PAGE>
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions
76
<PAGE>
relating to the covenants described above under the caption "-- Repurchase at
the Option of Holders"), (iii) reduce the rate of or change the time for payment
of interest on any Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders") or (viii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default shall
occur (which shall not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were originally offered and sold to qualified institutional
buyers in reliance on Rule 144A. Except as set forth below, Notes are issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
The Notes are represented by one or more Notes in registered, global form
without interest coupons (collectively, the "Global Notes"). The Global Notes
are deposited upon issuance with the Trustee as custodian for The Depository
Trust Company ("DTC"), in New York, New York, and registered in the name of DTC
or its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below. Through and including the 40th day after
the later of the commencement of the Offering and the Closing (such period
through and including such 40th day, the "Restricted Period"), beneficial
interests in the Regulation S Global Notes may be held only through the
Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as indirect
participants in DTC), unless transferred to a person
77
<PAGE>
that takes delivery through a Rule 144A Global Note in accordance with the
certification requirements described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Certificated Notes
(as defined below).
The Old Notes (including beneficial interests in the Global Notes) are
subject to certain restrictions on transfer and bear a restrictive legend. In
addition, transfers of beneficial interests in the Global Notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Cedel), which may
change from time to time.
Initially, the Trustee is acting as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Issuers take no
responsibility for these operations and procedures and urge investors to contact
the system or their participants directly to discuss these matters.
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Issuers that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. All interests in a Global Note, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Note to pledge
78
<PAGE>
such interests to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Issuers, the Trustee nor any agent of the Issuers or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Issuers that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Issuers. Neither the Issuers nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and the Issuers and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "-- Same Day Settlement
and Payment."
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
79
<PAGE>
DTC has advised the Issuers that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Issuers nor the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Notes or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. In addition,
beneficial interests in a Global Note may be exchanged for Certificated Notes
upon request but only upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary procedures)
and will bear the applicable restrictive legend referred to in "Notice to
Investors," unless the Company determines otherwise in compliance with
applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the Trustee
a written certificate (in the form provided in the Indenture) to the effect that
such transfer will comply with the appropriate transfer restrictions applicable
to such Notes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Notes in
certificated form, the Issuers will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Old Notes represented by the Global Notes are eligible to trade in
the PORTAL market and the Notes represented by the Global Notes are eligible to
trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Notes will also be settled in
immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
80
<PAGE>
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; PROVIDED that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory and leases (or subleases) of
restaurant facilities and related equipment to franchisees, in each case in
the ordinary course of business consistent with past practices (PROVIDED
that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of the Indenture described above
under the caption "-- Change of Control" and/or the provisions described
above under the caption " -- Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant), and (ii) the issue or
sale by the Company or any of its Subsidiaries of Equity Interests of any of
the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds
in excess of $1.0 million. Notwithstanding the foregoing, the following
items shall not be deemed to be Asset Sales: (i) a transfer of assets by the
Company to a Wholly-Owned Restricted Subsidiary or by a Wholly-Owned
Restricted Subsidiary to the Company or to another Wholly-Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly-Owned
Restricted Subsidiary to the Company or to another Wholly-Owned Restricted
Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Restricted Payments."
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
81
<PAGE>
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL INTERESTS" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each
case with any lender party to the New Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the
types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition and (vi) money
market funds at least 95% of the assets of which constitute Cash Equivalents
of the kinds described in clauses (i) - (v) of this definition.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based
on income or profits or the Tax Amount of such Person and its Subsidiaries
for such period, to the extent that such provision for taxes or Tax Amount
was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense, net of interest income, of such Person and
its Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to
the extent that any such expense was deducted in computing such Consolidated
Net Income, plus (iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person
and its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the
82
<PAGE>
extent (and in the same proportion) that the Net Income of such Subsidiary
was included in calculating the Consolidated Net Income of such Person and
only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and government regulations applicable to that Subsidiary or
its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP, less the Tax Amount of such Person for such Period;
PROVIDED that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly-Owned
Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income (but not loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries.
"CONSOLIDATED NET WORTH" means, (a) with respect to a partnership as of
any date, the capital accounts attributable to all common and preferred
partnership interests (other than Disqualified Interests) of such
partnership as of such date, determined on a consolidated basis in
accordance with GAAP, and (b) with respect to any other Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified
Interests) that by its terms is not entitled to the payment of dividends
unless such dividends may be declared and paid only out of net earnings in
respect of the year of such declaration and payment, but only to the extent
of any cash received by such Person upon issuance of such preferred equity,
less (x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the date of the Indenture in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as
of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CREDIT FACILITIES" means, with respect to the Company, one or more
debt facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
83
<PAGE>
"DISQUALIFIED INTERESTS" means any Capital Interests that, by its terms
(or by the terms of any security into which it is convertible, or for which
it is exchangeable, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; PROVIDED, HOWEVER, that any
Capital Interests that would constitute Disqualified Interests solely
because the holders thereof have the right to require the Company to
repurchase such Capital Interests upon the occurrence of a Change of Control
or an Asset Sale shall not constitute Disqualified Interests if the terms of
such Capital Interests provide that the Company may not repurchase or redeem
any such Capital Interests pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under
the caption " -- Certain Covenants -- Restricted Payments."
"EQUITY INTERESTS" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security
that is convertible into, or exchangeable for, Capital Interests).
"EXISTING INDEBTEDNESS" means up to $10.0 million in aggregate
principal amount of Indebtedness of the Company and its Subsidiaries (other
than Indebtedness under the New Credit Facility) in existence on the date of
the Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and
(ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person
or one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred equity of such Person or
any of its Restricted Subsidiaries, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person (or, in
the case of a Person that is a partnership or a limited liability company,
the combined federal, state and local income tax rate that was or would have
been utilized to calculate the Tax Amount of such Person), expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event
that the referrent Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred equity subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred equity, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to
above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such
84
<PAGE>
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, as in effect from time to time.
"GENERAL PARTNER" means Perkins Management Company, Inc., as general
partner of the Company.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge
of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"GUARANTORS" means any Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provision of the Indenture, and
their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"HOLDERS" means a Person in whose name a Note is registered.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing
any Hedging Obligations, except any such balance that constitutes an accrued
expense or trade payable, if and to the extent any of the foregoing (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, as
well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) and, to
the extent not otherwise included, the Guarantee by such Person of any
Indebtedness of any other Person. The amount of any Indebtedness outstanding
as of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount, and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or
85
<PAGE>
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-- Restricted Payments."
"JACK ASTOR VEHICLE" means J.A. Joint Venture, LLC, a Delaware limited
liability company engaged solely in the business of creating, owning,
developing and operating Jack Astor's Bar and Grill restaurants.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of dividends on preferred equity interests,
excluding, however, to the extent included in calculating such Net Income:
(a) any gain (but not loss), together with any related provision for taxes
or Tax Distributions on such gain (but not loss), realized in connection
with (x) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (y) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (b) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes or Tax Distributions on such
extraordinary or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
or Tax Distributions paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"NEW CREDIT FACILITY" means the Revolving Credit Agreement dated as of
December 22, 1997 among the Company, BankBoston N.A. as agent and the
lenders party thereto and any related notes, collateral documents, letters
of credit and guarantees, including any appendices, exhibits or schedules to
any of the foregoing (as the same may be in effect from time to time), in
each case, as such agreements may be amended, modified, supplemented or
restated from time to time (whether with the original agents and lenders or
other agents or lenders or otherwise, and whether provided under the
original credit agreement or other credit agreements or otherwise.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights
86
<PAGE>
that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company of any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means the business of owning, operating and
franchising restaurants and other businesses that are ancillary or related
thereto.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Wholly-Owned Restricted Subsidiary of the Company that is a Guarantor (other
than an Investment in the Jack Astor Vehicle if it is subsequently to be
declared an Unrestricted Subsidiary); (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such
Person becomes a Wholly-Owned Restricted Subsidiary of the Company and a
Guarantor that is engaged in a Permitted Business or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly-Owned Restricted Subsidiary of the Company that is a Guarantor and
that is engaged in a Permitted Business; (d) any Investment made as a result
of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Interests) of the Company; (f) additional
Investments in the Jack Astor Vehicle, either by way of capital contribution
or loan to, or Guarantee of Indebtedness of, the Jack Astor Vehicle;
PROVIDED that the aggregate amount of such capital contributions and loans,
together with the aggregate principal amount of any such Indebtedness that
is so Guaranteed, does not exceed $10.0 million at any time outstanding
(with each such Investment being measured as of the date it was made and
without giving effect to subsequent changes in value); (g) any Investments
in promissory notes acquired in a Permitted Non-Cash Transaction, provided
that not more than $5.0 million in aggregate principal amount of such
promissory notes remains outstanding after giving effect to such Investment
(excluding any such promissory notes outstanding on the date of the
Indenture); and (h) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (h) since the date of the
Indenture, not to exceed $2.0 million.
"PERMITTED LIENS" means (i) Liens securing Indebtedness under Credit
Facilities that were permitted by the terms of the Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; PROVIDED that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company, PROVIDED that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iv) of the third
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Equity Interests" covering only the assets acquired with the
proceeds of such Indebtedness; (vi) Liens to secure additional Capital Lease
Obligations that were permitted to be incurred pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant entitled "Incurrence of
Indebtedness and Issuance of
87
<PAGE>
Preferred Equity Interests" covering only the assets acquired with the
proceeds of such Indebtedness, up to an aggregate of $15.0 million in
principal amount at any one time outstanding; and (vii) Liens existing on
the date of the Indenture.
"PERMITTED NON-CASH TRANSACTION" means (i) any sale, lease or other
disposition of restaurants and related equipment for consideration
consisting of cash and/or promissory notes of the acquiror of such assets,
provided that not more than $5.0 million in aggregate principal amount of
such promissory notes remains outstanding after giving effect to such
transaction (excluding any such promissory notes outstanding on the date of
the Indenture) and (ii) any sale, lease or other disposition of assets that
are no longer used by the Company or any of its Restricted Subsidiaries in a
Permitted Business.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Company or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); PROVIDED that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; (iii)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes, then the
Permitted Refinancing Indebtedness must have a final maturity date later
than the final maturity date of, and be subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the
date of the Indenture.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal
prior to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
88
<PAGE>
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"TAX AMOUNT" means, with respect to any Person for any period, the
aggregate combined federal, state, local and foreign income taxes (including
estimated taxes) actually payable by partners or owners of such Person in
respect of such partners' or owners' Taxable Income for such period, and
aggregate state and local franchise taxes. Notwithstanding anything to the
contrary, Tax Amount shall not include taxes payable as a result of
recognizing gain from such Person's reorganization as or change in the
status to a corporation or attributable to its Taxable Income for any
taxable year commencing prior to January 1, 1997.
"TAX DISTRIBUTION" means a distribution in respect of taxes to the
partners of the Company pursuant to clause (vii) of the second paragraph of
the covenant described above under the caption "Certain Covenants --
Restricted Payments."
"TAXABLE INCOME" means, with respect to any Person for any period, the
taxable income or loss of such Person for such period for federal, state,
foreign or local income tax purposes; provided, that (i) all items of gain,
loss or deduction required to be stated separately pursuant to Section
703(a)(1) of the Code shall be included in taxable income or loss, (ii) any
basis adjustment made in connection with an election under Section 754 of
the Code shall be disregarded and (iii) such taxable income shall be
increased or such taxable loss shall be decreased by the amount of any
interest expense incurred by such Person that is not treated as deductible
for federal income tax purposes by a partner or owner of such person.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary (other than Finance
Corp.) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company; (c)
is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at
least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries, except that clauses
(a)-(d) shall not be applicable to the Jack Astor Vehicle. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that
such designation shall be deemed to be an incurrence of Indebtedness by a
89
<PAGE>
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such
designation; and provided, further, that, to the extent applicable, the
Company shall cause such Subsidiary to comply with the covenant described
above under the caption "-- Subsidiary Guarantees."
"VOTING STOCK" of any Person as of any date means the Capital Interests
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Interests or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly-Owned
Restricted Subsidiaries of such Person and one or more Wholly-Owned
Restricted Subsidiaries of such Person.
90
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in connection
with the Exchange Offer must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Issuers have
agreed that for a period of 180 days after the Expiration Date, they will make
available a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any such resale. In addition, until
1998, all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Issuers will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers and dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
91
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of the material United States federal
income tax consequences of the Exchange Offer, to exchanging and nonexchanging
holders, but does not purport to be a complete analysis of all potential tax
effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service ("Service")
rulings and pronouncements and judicial decisions all in effect as of the date
hereof, all of which are subject to change at any time, and any such change may
be applied retroactively in a manner that could adversely affect a holder of the
New Notes. The discussion does not address all of the federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities and persons
holding the New Notes as part of a "straddle," "hedge" or "conversion
transaction." Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed. The discussion deals only with New Notes held as "capital
assets" within the meaning of section 1221 of the Code.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not be taxable to an exchanging Holder for U.S. federal income tax
purposes. As a result (i) an exchanging Holder will not recognize any gain or
loss on the exchange; (ii) the holding period for the New Note will include the
holding period for the Old Note; and (iii) the basis of the New Note will be the
same as the basis for the Old Note.
The Exchange Offer will result in no federal income tax consequences to a
nonexchanging Holder of Old Notes.
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuers by Mayer, Brown &
Platt, Chicago, Illinois. Lee N. Abrams, a Director of PMC and Chairman of the
Audit Committee of PMC, is a senior partner at Mayer, Brown & Platt. Mayer,
Brown & Platt represents the Company and its affiliates with respect to various
matters from time to time and represented TRC, PMC, PRI and MergerCo. in
connection with the Going Private Transaction. The validity of the Notes will be
passed upon for the Initial Purchasers by Latham & Watkins, New York, New York.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
92
<PAGE>
AVAILABLE INFORMATION
Prior to the Going Private Transaction, the Company has been subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company has filed reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site (http://www.sec.gov)
that contains reports and information statements and other information regarding
registrants, such as the Company, that file electronically with the Commission.
Following the consummation of the Going Private Transaction, the Company was
no longer required by the rules and regulations of the Commission to remain
subject to the periodic reporting and other informational requirements of the
Securities Exchange Act. The Company has agreed that, whether or not it is
required to do so by the rules and regulations of the Commission, for so long as
any of the Notes remain outstanding, it will furnish to the holders of the Notes
and file with the Commission (unless the Commission will not accept such a
filing) (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such forms, including a "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, for so long as any of the Old Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Old Notes or beneficial owner of the Old Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
The Issuers have filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement.
Finance Corp. has requested the Commission's Office of Chief Counsel,
Division of Corporation Finance, to indicate to Finance Corp. that, in
connection with the issuance of the New Notes, it will not raise any objection
if Finance Corp. does not file periodic reports pursuant to Sections 13(a) and
15(d) of the Exchange Act. If such relief is forthcoming, Finance Corp. will not
file such periodic reports.
93
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-9214) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Company's Current Report on Form 8-K dated September 17, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the New Notes shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents which are
incorporated by reference herein, other than exhibits to such documents which
are not specifically incorporated by reference therein. Requests should be
directed to Perkins Family Restaurants, L.P., 6075 Poplar Avenue, Suite 800,
Memphis, TN 38119-4709, Attn: Investor Relations, telephone (888) 279-4542.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PERKINS FAMILY RESTAURANTS, L.P.
Report of independent public accountants............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited)... F-3
Statements of Income for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 (unaudited).......................... F-4
Statements of Changes in Partners' Capital for the years ended December 31, 1994,
1995 and 1996...................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 (unaudited).......................... F-6
Notes to Financial Statements........................................................ F-7
Unaudited Pro Forma Financial Statements............................................. F-21
Unaudited Pro Forma Statement of Income for the year ended December 31, 1996......... F-22
Unaudited Pro Forma Statement of Income for the nine months ended
September 30, 1997................................................................. F-23
Unaudited Pro Forma Balance Sheet as of September 30, 1997........................... F-24
Notes to Unaudited Pro Forma Financial Statements.................................... F-25
PERKINS FINANCE CORP.
Report of independent public accountants............................................. F-27
Balance Sheet as of November 10, 1997................................................ F-28
Note to Financial Statement.......................................................... F-29
PERKINS MANAGEMENT COMPANY, INC.
Report of independent public accountants............................................. F-30
Balance Sheet as of December 31, 1996................................................ F-31
Notes to Financial Statement......................................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Perkins Family Restaurants, L.P.:
We have audited the accompanying balance sheets of PERKINS FAMILY
RESTAURANTS, L.P. ( a Delaware limited partnership) as of December 31, 1996 and
1995, and the related statements of income, changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perkins Family Restaurants,
L.P., as of December 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 13 to the financial statements, in 1995 the Partnership
adopted Statement of Financial Accounting Standards No. 121, and in connection
therewith, recorded an impairment loss of $1,900,000 for certain long-lived
assets.
Arthur Andersen LLP
Memphis, Tennessee
March 27, 1997 (except with respect
to the matter discussed in Note 14,
as to which the date is
November 10, 1997).
F-2
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ 1997
1995 1996 -------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................. $ 1,825 $ 2,737 $ 2,054
Receivables, less allowance for doubtful
accounts of $481, $430 and $604.......... 8,683 6,285 7,446
Inventories, at the lower of first-in,
first-out cost or market................. 4,318 4,234 4,150
Prepaid expenses and other current
assets................................... 1,505 1,551 1,886
-------- -------- -------------
Total current assets....................... 16,331 14,807 15,536
Property and Equipment, at cost, net of
accumulated depreciation and
amortization............................... 117,435 115,086 114,312
Notes Receivable, less allowance for doubtful
accounts of $14, $10 and $6................ 1,883 805 558
Intangible and Other Assets, net of
accumulated amortization of $25,259,
$26,451 and $27,324........................ 26,180 24,958 25,798
-------- -------- -------------
$161,829 $155,656 $156,204
-------- -------- -------------
-------- -------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Current maturities of long-term debt....... $ 3,575 $ 4,356 $ 4,624
Current maturities of capital lease
obligations.............................. 1,984 1,683 1,430
Accounts payable........................... 7,525 8,878 12,546
Accrued expenses........................... 13,099 14,235 14,932
Distributions payable...................... 3,475 3,479 3,478
-------- -------- -------------
Total current liabilities.................. 29,658 32,631 37,010
Capital Lease Obligations, less current
maturities................................. 8,810 8,573 7,434
Long-Term Debt, less current maturities...... 57,850 48,244 43,026
Other Liabilities............................ 4,415 4,651 5,192
Commitments and Contingencies (Notes 4 and
10)........................................
Partners' Capital
General partner............................ 611 615 636
Limited partners (10,481,370, 10,492,930
and 10,487,495 Units issued and
outstanding)............................. 63,373 63,220 64,556
Deferred compensation related to restricted
units.................................... (2,888) (2,278) (1,650)
-------- -------- -------------
Total Partners' Capital...................... 61,096 61,557 63,542
-------- -------- -------------
$161,829 $155,656 $156,204
-------- -------- -------------
-------- -------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues
Food sales......................................... $ 205,675 $ 228,259 $ 234,164 $ 175,792 $ 185,069
Franchise revenues................................. 16,227 17,492 18,629 13,914 14,603
---------- ---------- ---------- ---------- ----------
Total Revenues..................................... 221,902 245,751 252,793 189,706 199,672
---------- ---------- ---------- ---------- ----------
Costs and Expenses
Cost of Sales
Food cost........................................ 57,975 66,204 68,456 51,247 53,099
Labor and benefits............................... 71,113 78,916 78,970 59,290 62,645
Operating expenses............................... 42,615 47,678 48,284 36,147 37,081
General and administrative......................... 21,779 22,251 23,741 17,655 19,593
Depreciation and amortization...................... 12,107 14,401 15,748 11,748 11,898
Interest, net...................................... 3,266 4,826 5,066 3,841 3,558
Provision for (Benefit from) litigation costs...... 1,079 (190) -- -- --
Provision for disposition of assets................ 800 609 -- -- --
Asset write-down (SFAS No. 121).................... -- 1,900 -- -- --
Tax related reorganization costs................... -- -- -- -- 650
Other, net......................................... (840) (640) (994) (721) (622)
---------- ---------- ---------- ---------- ----------
Total Costs and Expenses........................... 209,894 235,955 239,271 179,207 187,902
---------- ---------- ---------- ---------- ----------
Net Income........................................... $ 12,008 $ 9,796 $ 13,522 $ 10,499 $ 11,770
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted Average Equivalent Units.................... 10,275 10,269 10,289 10,289 10,338
Net Income Per Unit.................................. $ 1.16 $ 0.94 $ 1.30 $ 1.01 $ 1.13
Cash Distribution Declared Per Unit.................. $ 1.30 $ 1.30 $ 1.30 $ 0.975 $ 0.975
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993..................................................... $ 663 $ 65,592 $ 66,255
Net income....................................................................... 120 11,888 12,008
Capital contribution............................................................. 1 -- 1
Cash distributions declared ($1.30 per Unit)..................................... (136) (13,509) (13,645)
Issuance of 30,600 restricted Units.............................................. -- 545 545
Retirement of 20,830 restricted Units............................................ -- (341) (341)
Changes in deferred compensation related to restricted Units..................... -- 123 123
Repurchase of 16,800 Units....................................................... -- (168) (168)
--------- --------- ---------
BALANCE AT DECEMBER 31, 1994..................................................... 648 64,130 64,778
Net income....................................................................... 98 9,698 9,796
Capital contribution............................................................. 3 -- 3
Cash distributions declared ($1.30 per Unit)..................................... (138) (13,631) (13,769)
Issuance of 126,970 restricted Units............................................. -- 1,604 1,604
Retirement of 24,725 restricted Units............................................ -- (390) (390)
Changes in deferred compensation related to restricted Units..................... -- (926) (926)
--------- --------- ---------
BALANCE AT DECEMBER 31, 1995..................................................... 611 60,485 61,096
Net income....................................................................... 135 13,387 13,522
Capital contribution............................................................. 7 -- 7
Cash distributions declared ($1.30 per Unit)..................................... (138) (13,633) (13,771)
Issuance of 44,250 restricted Units.............................................. -- 544 544
Retirement of 32,690 restricted Units............................................ -- (451) (451)
Changes in deferred compensation related to restricted Units..................... -- 610 610
--------- --------- ---------
BALANCE AT DECEMBER 31, 1996..................................................... $ 615 $ 60,942 $ 61,557
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 12,008 $ 9,796 $ 13,522 $ 10,499 $ 11,770
Adjustments to reconcile net income to net cash
provided by operating activities:...................
Asset write-down (SFAS No. 121)..................... -- 1,900 -- -- --
Depreciation and amortization....................... 12,088 14,401 15,748 11,748 11,898
Provision for (Benefit from) litigation costs....... 1,079 (190) -- -- --
Provision for disposition of assets................. 800 609 -- -- --
Other non-cash income and expense items............. 1,533 1,498 1,795 1,444 1,254
Changes in other operating assets and liabilities... (2,747) (2,737) 4,180 1,866 977
---------- ---------- ---------- ---------- ----------
Total adjustments..................................... 12,753 15,481 21,723 15,058 14,129
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities............. 24,761 25,277 35,245 25,557 25,899
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment.................. (30,799) (28,931) (11,858) (9,282) (10,314)
Proceeds from sale of property and equipment.......... 389 889 573 573 --
Other investing activities, net....................... 687 723 1,755 1,671 489
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities................. (29,723) (27,319) (9,530) (7,038) (9,825)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.......................... 34,801 59,125 16,250 13,550 34,100
Payments on long-term debt............................ (15,301) (41,000) (25,075) (21,575) (39,050)
Principal payments under capital lease obligations.... (2,367) (1,981) (2,074) (1,553) (1,379)
Distributions to partners............................. (13,780) (13,870) (13,904) (10,428) (10,428)
Cash paid to repurchase Partnership Units............. (168) -- -- -- --
Other financing activities, net....................... (125) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... 3,060 2,274 (24,803) (20,006) (16,757)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... (1,902) 232 912 (1,487) (683)
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS:
Balance, beginning of year............................ 3,495 1,593 1,825 1,825 2,737
---------- ---------- ---------- ---------- ----------
Balance, end of year.................................. $ 1,593 $ 1,825 $ 2,737 $ 338 $ 2,054
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The operations of Perkins Family Restaurants, L.P. ("PFR"), a Delaware
limited partnership, are conducted through Perkins Restaurants Operating
Company, L.P. ("PROC"), a Delaware limited partnership. PFR is the sole limited
partner and owns 99% of PROC. The combined activities of PFR and PROC are
referred to herein as activities of the "Partnership." The Partnership is
managed by Perkins Management Company, Inc. ("PMC"). PMC, a wholly-owned
subsidiary of Perkins Restaurants, Inc. ("PRI"), is the sole general partner and
owns 1% of both PROC and PFR. PRI owns approximately 48% of the Limited
Partnership Units ("Units") of PFR. PRI is a wholly-owned subsidiary of The
Restaurant Company ("TRC").
As general partner of the Partnership, PMC does not receive any compensation
other than distributions attributable to its 1% general partner's interest in
each of PROC and PFR. The Partnership reim-burses PMC for all of its direct and
indirect costs (principally general and administrative costs) allocable to the
Partnership.
The activities of the Partnership are governed by the terms of the
partnership agreements (the "Agreements"). The significant provisions of the
Agreements not described elsewhere are that the general partner has sole and
complete discretion in determining the consideration, terms and conditions with
respect to any future issuance of Units and no preemptive rights to acquire
additional Units exist.
The Partnership owns and franchises family-style restaurants which serve a
wide variety of high quality, moderately priced breakfast, lunch, and dinner
entrees, snacks and bakery products. Perkins restaurants provide table service
and many are open 24 hours a day (except Christmas day and certain late night
hours in selected markets), seven days a week. The restaurants are located in 32
states with the largest number in Minnesota, Ohio, New York, Pennsylvania, and
Florida. There are twelve franchised restaurants located in Canada. The
Partnership also offers cookie doughs, muffin batters, pancake mixes, pies and
other food products for sale to Partnership-operated and franchised restaurants
and bakery and food service distributors through Foxtail Foods, the
Partnership's manufacturing division.
BASIS OF PRESENTATION
The financial statements include the combined accounts of PFR and PROC after
elimination of all material intercompany amounts. Revenues and expenses are
allocated to the general and limited partners on the basis of their respective
ownership interests.
Certain prior year amounts have been reclassified to conform to current year
presentation.
ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Partnership considers highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
FRANCHISE REVENUE
Franchisees are required to pay an initial fee to the Partnership when each
franchise is granted. These fees are not recognized as income until the
restaurants open. The Partnership also receives franchise royalties ranging from
one to six percent of the gross sales of each franchised restaurant. These
royalties are recorded as income monthly.
PROPERTY AND EQUIPMENT
Major renewals and betterments are capitalized; replacements and maintenance
and repairs which do not extend the lives of the assets are charged to
operations as incurred.
PREOPENING COSTS
New store preopening costs are deferred and amortized over twelve months,
starting when the restaurant opens.
INCOME TAXES
For state and Federal income tax purposes, the Partnership is not a
taxpaying entity. As a result, the taxable income, which may vary substantially
from income reported for financial reporting purposes, is includable in the
state and Federal tax returns of the individual partners. Accordingly, no
current provision for income taxes is reflected in the accompanying financial
statements. The tax returns of the Partnership are subject to examination by
state and Federal taxing authorities. If such examinations result in changes to
taxable income, the tax liability of the partners would be changed accordingly.
The net income of publicly traded limited partnerships, such as the Partnership,
is considered portfolio income to their partners and is not available to offset
passive losses of the partners for tax years after 1986.
On December 22, 1987, tax legislation was enacted which will have the effect
of taxing the Partnership as a corporation for tax years beginning after 1997.
The Partnership could be subject to corporate income taxes earlier than 1998 if
it adds a substantial new line of business.
When the Partnership begins being taxed as a corporation on January 1, 1998,
the amount of cash available to the Partnership will be reduced by the amount of
cash necessary to pay taxes.
CASH DISTRIBUTIONS
The Partnership recognizes cash distributions payable to its partners as of
the declaration dates. Cash distributions of $1.30 per Unit were declared during
1996 and 1995 ($.325 per Unit during each quarter). As a limited partner, PRI
received approximately 48% of these total distributions.
F-8
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER UNIT
Net income per Unit is computed based on the weighted average number of
Units outstanding (adjusted for equivalent Units) after deducting the general
partner's 1% interest from Partnership earnings.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities and payments of interest consisted of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(Increase) Decrease in:
Receivables............................................. $ (2,395) $ (877) $ 1,726 $ 1,774 $ (2,158)
Inventories............................................. (688) (239) 84 199 84
Prepaid expenses and other current assets............... (1,159) (1,032) (739) (926) (473)
Other assets............................................ (82) 157 190 250 (1,380)
Increase (Decrease) in:
Accounts payable........................................ 1,228 (341) 1,353 274 3,668
Accrued expenses........................................ (153) (545) 1,294 (111) 697
Other liabilities....................................... 502 140 272 406 539
--------- --------- --------- ----------- ---------
$ (2,747) $ (2,737) $ 4,180 $ 1,866 $ 977
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Interest paid............................................. $ 3,637 $ 5,621 $ 5,443 $ 4,179 $ 3,646
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The Partnership entered into a master capital lease agreement during 1996
primarily to obtain restaurant equipment. The payment terms for each lease
schedule under the master lease provides for 72 monthly payments at interest
rates which vary from 7.1% to 8.9%. The capital lease obligations of two
properties targeted for disposition in 1993 were terminated during 1994 in
accordance with the related lease buyout agreements. The payments required by
the agreements are included in principal payments under capital lease
obligations in the Statements of Cash Flows. Losses on these terminations were
charged to the reserve established specifically for this purpose.
F-9
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
OWNED
Land and land improvements.................................. $ 27,065 $ 28,202
Buildings................................................... 61,543 65,873
Leasehold improvements...................................... 27,560 29,743
Equipment................................................... 51,812 54,387
Construction in progress.................................... 3,501 1,657
-------- --------
171,481 179,862
Less -- Accumulated depreciation and amortization........... (60,766) (70,932)
-------- --------
110,715 108,930
-------- --------
LEASED
Buildings................................................... 25,304 24,945
Equipment................................................... -- 1,564
Less -- Accumulated amortization............................ (18,584) (20,353)
-------- --------
6,720 6,156
-------- --------
$117,435 $115,086
-------- --------
-------- --------
</TABLE>
Depreciation and amortization for financial reporting purposes is computed
using the straight-line method based on the shorter of either the estimated
useful lives or the lease terms of the property, as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
OWNED:
Land improvements...................................................... 3-20
Buildings.............................................................. 20-30
Leasehold improvements................................................. 7-20
Equipment.............................................................. 3-7
LEASED:
Buildings.............................................................. 20-25
Equipment.............................................................. 6
</TABLE>
(4) LEASES
As of December 31, 1996, there were 134 restaurants operated by the
Partnership, as follows:
69 with both land and building leased
54 with both land and building owned
11 with the land leased and building owned
F-10
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) LEASES (CONTINUED)
As of December 31, 1996, there were 35 restaurants either leased or
subleased to others by the Partnership as follows:
19 with both land and building leased
11 with both land and building owned
5 with the land leased and building owned
Most of the restaurant leases have a primary term of 20 years and generally
provide for two to four renewals of five years each. Certain leases provide for
minimum payments plus a percentage of sales in excess of stipulated amounts.
Future minimum payments related to leases that have initial or remaining
lease terms in excess of one year as of December 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
LEASE OBLIGATIONS
------------------
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $ 2,685 $ 5,809
1998........................................................ 2,241 5,602
1999........................................................ 1,989 5,296
2000........................................................ 1,599 4,695
2001........................................................ 1,518 4,308
Thereafter.................................................. 4,820 21,077
------- ---------
Total minimum lease payments................................ 14,852 $46,787
---------
---------
Less: Amounts representing interest......................... (4,596)
-------
Capital lease obligations............................... $10,256
-------
-------
</TABLE>
Capital lease obligations have effective interest rates ranging from 7.1% to
16.1% and are payable in monthly installments through 2011. Maturities of such
obligations at December 31, 1996 for the years 1997 through 2001 and thereafter
were $1,686,000, $1,408,000, $1,299,000, $1,036,000, $1,066,000 and $3,761,000,
respectively.
Future minimum gross rental receipts as of December 31, 1996, were as
follows (in thousands):
<TABLE>
<CAPTION>
AMOUNTS RECEIVABLE
AS
------------------
LESSOR SUBLESSOR
------- ---------
<S> <C> <C>
1997........................................................ $ 952 $ 1,761
1998........................................................ 959 1,575
1999........................................................ 969 1,347
2000........................................................ 980 1,081
2001........................................................ 941 1,053
Thereafter.................................................. 7,945 4,236
------- ---------
Total minimum lease rentals................................. $12,746 $11,053
------- ---------
------- ---------
</TABLE>
F-11
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) LEASES (CONTINUED)
The net rental expense included in the accompanying financial statements for
operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Minimum rentals........................................ $5,144 $5,064 $5,341
Contingent rentals..................................... 1,007 1,004 1,114
Less sublease rentals.................................. (918) (982) (1,041)
------ ------ ------
$5,233 $5,086 $5,414
------ ------ ------
------ ------ ------
</TABLE>
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net of accumulated amortization, were as
follows as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Excess of cost over fair value of net assets acquired, being
amortized evenly over 30 to 40 years........................ $24,618 $23,627
Present value of estimated future royalty fee income of
acquired companies, being amortized evenly over the
remaining lives of the franchise agreements................. 574 423
Other......................................................... 988 908
------- -------
$26,180 $24,958
------- -------
------- -------
</TABLE>
The Partnership periodically reevaluates the realizability of its excess
cost over fair value of net assets acquired by comparing the unamortized balance
with projected undiscounted cash flows from operations. The realizability of
intangible assets related to future royalty fee income is also assessed
periodically based on the performance of the applicable franchise restaurants.
(6) ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Payroll and benefits.......................................... $ 5,451 $ 7,543
Property, real estate and sales taxes......................... 2,093 2,006
Insurance..................................................... 1,475 1,232
Rent.......................................................... 1,025 1,165
Advertising................................................... 521 530
Other......................................................... 2,534 1,759
------- -------
$13,099 $14,235
------- -------
------- -------
</TABLE>
F-12
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
(7) LONG-TERM DEBT
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Unsecured Senior Notes:
7.19%, due in quarterly installments beginning December 13, 1997 $ 20,000 $ 20,000
through December 13, 2005...........................................
8.6%, due in quarterly installments through July 1, 2002.............. 11,850 10,650
6.99%, due in quarterly installments through July 1, 2003............. 4,325 3,950
Revolving credit agreement, due June 30, 1997........................... 18,250 13,000
Term loan, due in quarterly installments through June 30, 1998.......... 7,000 5,000
--------- ---------
61,425 52,600
Less current maturities................................................. (3,575) (4,356)
--------- ---------
$ 57,850 $ 48,244
--------- ---------
--------- ---------
</TABLE>
On March 18, 1997, the Partnership entered into a commitment agreement with
its agent bank to provide a credit facility of up to $60,000,000. This is
composed of a $40,000,000 reducing revolving credit facility, a $15,000,000
revolving growth facility, and a $5,000,000 standby letter of credit facility.
The reducing revolving credit facility matures on March 31, 2002, and will
reduce $2,000,000 per year commencing on September 30, 1998. This facility will
initially be used to repay amounts outstanding under the Partnership's existing
revolving credit agreement and term loan. The revolving growth facility, which
may only be used for the acquisition of existing restaurants, converts to a term
loan on March 31, 2000, and amortizes in equal quarterly installments with final
maturity on March 31, 2004. The standby letter of credit facility matures on
March 31, 2002, and contains terms and conditions similar to the Partnership's
current agreement.
All amounts outstanding under this agreement bear interest at either the
Base Rate or LIBOR rates as defined in the agreement. Other terms and conditions
are similar to the Partnership's existing agreement. As a result of this
commitment, the Partnership has classified $13,000,000 as long-term debt.
During the fourth quarter of 1995, the Partnership issued $20,000,000 of
7.19% Unsecured Senior Notes due December 13, 2005 to an insurance company. The
proceeds were used to repay outstanding borrowings under the Partnership's
revolving line of credit. The note agreement also provides for a $15,000,000
Private Shelf Note Facility which expires December 13, 1997.
During the second quarter of 1994, the Partnership refinanced the
outstanding borrowings under its existing line of credit by entering into a
$40,000,000 revolving line of credit facility and a $10,000,000 term loan
agreement with three banks. The revolving line of credit contains a $6,000,000
sublimit for letters of credit and expires on June 30, 1997, at which time all
amounts become payable. At December 31, 1996, approximately $3,276,000 in
letters of credit were outstanding under the line of credit facility. The
borrowings under the term loan agreement are due in quarterly installments
through June 30, 1998. Pursuant to the revolving line of credit and term loan
facilities, all amounts outstanding under these agreements initially bear
interest at either the Base Rate or Euroloan Rates, as defined in the applicable
agreement.
In order to manage interest costs, the Partnership entered into an interest
rate swap agreement in 1994 with its lender that effectively fixes interest for
the term loan at 7.63%. The notional amount
F-13
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) LONG-TERM DEBT (CONTINUED)
protected by this transaction decreases as quarterly installments of principal
are made, and the LIBOR component is adjusted quarterly. The agreement expires
June 30, 1998.
The Partnership also entered into a participating interest rate swap and cap
agreement that protects the first $10,000,000 of borrowings outstanding under
the revolving line of credit facility. The first $5,300,000 is effectively fixed
at 8.25%, while the next $4,700,000 floats at either the Base Rate or the
Euroloan Rate pursuant to the terms of the line of credit facility, but is
capped at 8.25%. The swap and cap agreement is effective through June 30, 1997,
and the LIBOR component is adjusted quarterly.
These derivative financial instruments have an inherent element of risk that
the counterparties may be unable to meet the terms of the agreements. The
Partnership has minimized such risk exposure by limiting the counterparties to
major financial institutions.
Based on the borrowing rates currently available for debt with similar terms
and maturities, the approximate fair market value of the Partnership's long-term
debt as of December 31 was as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
7.19% Unsecured Senior Notes............................................ $ 20,000 $ 19,412
8.6% Unsecured Senior Notes............................................. 12,398 10,842
6.99% Unsecured Senior Notes............................................ 4,300 3,830
Interest Rate Swap Agreement............................................ 154 126
Participating Interest Rate Swap and Cap Agreement...................... 156 51
</TABLE>
The values associated with the interest rate swaps represent the estimated
contract values as reported to the Partnership by the commercial bank that is
the counterparty to these agreements.
Because the terms of the Partnership's revolving line of credit and term
loan facilities provide that borrowings outstanding under those agreements bear
interest at current market rates, management believes that the related
liabilities reflected in the accompanying balance sheets approximate fair market
value.
Pursuant to both the Unsecured Senior Notes and revolving line of credit
agreements, the Partnership must maintain a minimum tangible net worth and other
specified financial ratios, and is subject to certain restrictions which limit
additional indebtedness.
At December 31, 1996, the Partnership was in compliance with all such
requirements.
F-14
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt subsequent to December 31,
1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 4,356
1998............................................................... 7,674
1999............................................................... 4,824
2000............................................................... 5,049
2001............................................................... 5,199
Thereafter......................................................... 25,498
---------
$ 52,600
---------
---------
</TABLE>
Interest expense capitalized in connection with the Partnership's
construction activities amounted to approximately $136,000, $153,000 and
$331,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
(8) LIMITED PARTNERSHIP UNITS
Limited Partnership Units issued and outstanding were as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Units issued and outstanding, beginning of year................... 10,379,125 10,481,370
Issuance of restricted Units...................................... 126,970 44,250
Retirement of restricted Units.................................... (24,725) (32,690)
------------ ------------
Units issued and outstanding, end of year......................... 10,481,370 10,492,930
------------ ------------
------------ ------------
</TABLE>
(9) INCOME TAXES
As of January 1, 1993, the Partnership recorded the cumulative effect of
adopting SFAS No. 109. SFAS No. 109 requires the Partnership to recognize
deferred tax assets and liabilities for the expected future tax consequences of
existing temporary differences between the carrying amounts and the tax bases of
assets and liabilities that are projected to reverse after January 1, 1998, the
date after which the Partnership will become a taxable entity. As of December
31, 1996, the Partnership had deferred tax assets that equaled or exceeded
deferred tax liabilities. The deferred tax assets and liabilities are related to
existing temporary differences that are projected to reverse after January 1,
1998. Management believes that a conclusion as to the realizability of these
assets based upon current circumstances is highly subjective, and has therefore
established a valuation allowance. Accordingly, no deferred provision for income
taxes has been reflected in the accompanying financial statements.
F-15
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
(9) INCOME TAXES (CONTINUED)
The components of the Partnership's net deferred tax assets as of December
31 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Depreciation............................................................. $ (1,670) $ (1,505)
Capitalized leases....................................................... 1,240 1,303
Reserves................................................................. 795 372
Other, net............................................................... 210 230
--------- ---------
Total deferred tax assets................................................ 575 400
Valuation allowance...................................................... (575) (400)
--------- ---------
Net deferred tax assets.................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
(10) CONTINGENCIES
During 1996, a lawsuit filed in 1995 by two former employees in the U.S.
District Court for the District of North Dakota alleging sexual harassment and
related claims was resolved after a trial in favor of Perkins as to one
plaintiff and a judgement against Perkins as to the other plaintiff of $3,500.
In 1994, the Partnership recorded a provision of $1,079,000 for damages
associated with two separate lawsuits brought against the Partnership. During
the second quarter of 1995, the Partnership settled one of the suits for
$190,000 less than the original provision and the excess accrual was reversed.
The second suit was settled in October 1995 for the amount originally accrued.
The Partnership is a party to various legal proceedings in the ordinary
course of business. Management does not believe it is likely that these
proceedings, either individually or in the aggregate, will have a material
adverse effect on the Partnership's financial position or results of operations.
The Partnership has sponsored financing programs offered by certain lending
institutions to help its franchisees procure funds for the construction of new
franchised restaurants and to purchase and install the Perkins in-store bakery.
The Partnership provides a limited guaranty of the funds borrowed. At December
31, 1996, there were approximately $2,746,000 in borrowings outstanding under
these programs. The Partnership has guaranteed $965,000 of these borrowings
which represents its minimum commitments under these agreements. The Partnership
does not anticipate its guaranties will exceed these minimums in the future.
During 1995, the Partnership entered into a separate agreement with one of
the lending institutions to assist a franchisee in obtaining lease financing to
install in-store bakeries in 28 existing restaurants operated by the franchisee.
Pursuant to the agreement, the Partnership will provide a declining limited
guaranty to the lender for payment of the franchisee's obligations between the
lender and the franchisee, not to exceed $1,350,000. The Partnership's current
maximum liability if the maximum lease commitment is funded would be $945,000.
At December 31, 1996, there were approximately $547,000 in borrowings
outstanding under the program, of which the Partnership has guaranteed
approximately $383,000.
The majority of the Partnership's franchise revenues are generated from
franchisees owning less than 5% of total franchised restaurants and, therefore,
the loss of any one of these franchisees would not have a material impact on the
results of the Partnership's operations. As of December 31, 1996, three
franchisees
F-16
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) CONTINGENCIES (CONTINUED)
owned 94 of the 331 restaurants franchised by Perkins. During 1996, the
Partnership received net royalties and license fees of approximately $1,505,000,
$1,955,000 and $1,033,000 from these franchisees. While the exit of one of these
franchisees from the system would have a material impact on the future revenues
of the Partnership, such an occurrence would not disrupt the normal functioning
of the Partnership.
(11) UNIT PLAN
The Perkins Family Restaurants, L.P. Restricted Limited Partnership Unit
Plan ("Unit Plan") was initially adopted in October 1987. At December 31, 1996 a
total of 450,000 Units were authorized for issuance under the Unit Plan.
Awards of restricted Units under the Unit Plan may be made to officers and
key employees of PMC, PRI and their affiliates as well as certain members of
PMC's Board of Directors. A committee composed of those non-employee directors
of PMC (the "Committee") has been appointed to administer the Unit Plan. At the
time of each award, the Committee determines the applicable award restrictions,
including, without limitation, (i) a restricted period (not to exceed ten years)
during which the Units cannot be sold, transferred or pledged and (ii) the
date(s) on which restrictions on all or a portion of the Units awarded lapse. To
the extent declared, cash distributions are paid on all Units awarded under the
Unit Plan even during the restricted period.
At December 31, 1996, there were 423,730 Units issued and outstanding under
the Unit Plan. The expense related to the Unit Plan is recognized over the
periods in which the restrictions on the Units lapse. As of December 31, 1996,
restrictions had lapsed on 214,910 of the 423,730 Units issued under the Unit
Plan. On January 2, 1997 and February 4, 1997, the Board of Directors removed
restrictions on an additional 13,690 and 32,862 Units, respectively. The
unamortized amount of $2,278,000 related to the remaining 162,268 Units is
reflected as deferred compensation in the accompanying balance sheets.
(12) EMPLOYEE BENEFITS
The Perkins Retirement Savings Plan (the "Plan") as amended and restated
effective January 1, 1992, was established for the benefit of all eligible
employees, both hourly and salaried, of PROC and of any Participating Company,
as defined. At December 31, 1996, Participating Companies were PMC, PFR, TRC
Realty and TRC.
All participating employees at December 31, 1991 remained eligible to
participate in the Plan as amended and restated January 1, 1992. All other
employees of the Partnership and Participating Companies who have satisfied the
participation requirements are eligible for participation in the Plan provided
they (i) have attained the age of 21 and (ii) have completed one Year of
Service, as defined, during which they have been credited with 1,000 Hours of
Service.
Participants may elect to defer from 1% to 15% of their annual eligible
compensation subject to legal maximums. PROC and Participating Companies may
make a matching contribution equal to a percentage of the amount deferred by the
participant or a specified dollar amount as determined each year by their Boards
of Directors. During 1995, the Partnership, PMC, and TRC Realty matched
contributions at a rate of 25%, up to the first 6% deferred by each participant.
During 1996, the Partnership and PMC elected to match contributions at a rate of
50% up to the first 6% deferred by each participant. Neither PFR nor TRC had
employees participating in the Plan at any time during 1996, 1995 or 1994. TRC
Realty had no participating employees during 1994.
F-17
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE BENEFITS (CONTINUED)
Participants are always 100% vested in their salary deferral accounts and
qualified rollover accounts. Vesting in the employer matching account is based
on qualifying Years of Service. A participant vests 60% in the employer matching
account after three years, 80% after four years and 100% after five years.
A participant may apply for a loan from his or her salary deferral and
rollover accounts. Generally, loans are made for a period of five years (ten
years if for the purchase of the principal residence of the participant) subject
to certain restrictions. The interest rate is fixed at the Prime Rate at the
time of the loan plus two percent.
The trust established under the Plan is intended to qualify under the
appropriate section of the Internal Revenue Code (the "IRC") as exempt from
Federal income taxes. The Plan has received a favorable determination by the
Internal Revenue Service with regard to the qualification of the Plan. The
favorable determination applies to the original Plan as well as all amendments
adopted prior to 1995. The fourth amendment to the Plan, adopted in 1995, will
be submitted for determination at a later date. The Partnership's management and
legal counsel believe that the adoption of the aforementioned amendment to the
Plan does not hinder the Plan's ability to operate in compliance with all
applicable provisions of the IRC and that a favorable determination will be
received.
(13) ASSET WRITE-DOWN (SFAS NO. 121)
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires companies to evaluate the recoverability
of assets (including intangibles) based upon their related undiscounted
estimated future cash flows. The Partnership adopted SFAS No. 121 in 1995.
In adopting SFAS No. 121, the Partnership evaluated all material asset
groups, including intangibles associated with specific Partnership-operated
properties and specific franchise agreements. As a result of this review, the
Partnership identified three restaurant properties which were not expected to
generate undiscounted future cash flows sufficient to cover the carrying value
of the underlying assets related to these properties.
As required under SFAS No. 121, the carrying amounts of the assets
associated with these restaurant properties were written down to their estimated
fair market values, based on the Partnership's experience in disposing of
similar under-performing properties, negotiations with lessors of the subject
properties and historical industry lease rates for similarly performing real
estate. The resulting non-cash charge reduced 1995 net income by $1,900,000, of
which $1,290,000 was related to assets to be disposed of. The remaining amounts
were due to write-downs of long-term assets deemed by the Partnership to be
impaired. The major components of the SFAS No. 121 charge were as follows (in
thousands):
<TABLE>
<S> <C>
Reduction of the carrying values of operating assets to fair market
values............................................................ $ 1,428
Net present value of noncancelable lease commitments, less estimated
sublease income................................................... 367
Other disposal costs, including commissions......................... 105
---------
$ 1,900
---------
---------
</TABLE>
Management is aggressively pursuing subleasing one of the properties. Based
on the expected sublease rental income on this property, the carrying amounts of
all owned and leased assets related to this
F-18
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(13) ASSET WRITE-DOWN (SFAS NO. 121) (CONTINUED)
property were concluded to have no fair market value. A provision for future
losses was recorded to reflect the net present value of the future lease
payments less estimated sublease income on this property. The Partnership's
results of operations include losses related to this property of $197,000,
$277,000 and $229,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
During 1994, a provision of $800,000 was recorded to further reduce the
carrying value of assets related to certain underperforming stores which had
been targeted for disposition in 1993. As of December 31, 1995, the Partnership
had substantially completed the disposition of these properties.
There were no additional write-downs during 1996. Management believes that
estimates used in evaluating the adoption of SFAS No. 121 were reasonable.
However, actual expenses and cash flows could differ from these estimates.
(14) SUBSEQUENT EVENT AND RELATED RISK FACTORS
On September 11, 1997, PFR, TRC and Perkins Acquisition Corp. entered into a
merger agreement that provides for a series of transactions (collectively, the
"Going Private Transaction") whereby PROC will be merged into PFR, PFR will
become an indirect wholly owned subsidiary of TRC and the approximately 5.44
million Units held by persons other than TRC and its subsidiaries will be
converted into the right to receive $14.00 in cash per Unit. A special meeting
of the holders of Units is expected to take place in December 1997 to approve
the Going Private Transaction. The consummation of the Going Private Transaction
is conditioned upon the favorable vote of a majority of the public Units voting
at such meeting; accordingly, there can be no assurance that the Going Private
Transaction will be consummated.
If the Going Private Transaction is approved by the public Unitholders,
approximately $89.1 million will be required to consummate the transaction and
to pay related fees and expenses, and approximately $47.6 million will be
required to refinance PFR's existing indebtedness (based on indebtedness
outstanding on September 30, 1997). Such funds are expected to be obtained from
the net proceeds of (a) the sale of $130.0 million of senior notes (the "Notes")
by PFR and Perkins Finance Corp. ("PFC"), a wholly-owned subsidiary of PFR
incorporated on November 6, 1997 (PFR and PFC being collectively referred to as
"the Issuers"), and (b) a new credit facility (the "New Credit Facility") to be
entered into by PFR concurrently with the closing of the sale of the Notes.
If the Going Private Transaction is consummated, and the related Note and
New Credit Facility financings occur, PFR will be highly leveraged.
Additionally, upon a Change of Control (as defined), each Holder of the Notes
would have the right to require the Issuers to purchase all or any part of such
Holder's Notes at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages (as defined),
if any, to the date of purchase. There can be no assurance that the Issuers will
have adequate funds available to repurchase the Notes. Finally, the New Credit
Facility will be secured by liens on substantially all of PFR's and its
subsidiaries' assets. The Notes will be effectively subordinated to all such
secured indebtedness.
F-19
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT NET INCOME PER UNIT)
<TABLE>
<CAPTION>
GROSS NET NET INCOME
1997 REVENUES PROFIT (A) INCOME PER UNIT
- --------------------------------------------------------------------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C>
1st Quarter.......................................................... $ 61,481 $ 13,875 $ 2,725 $ 0.26
2nd Quarter.......................................................... 66,588 15,767 3,464 0.33
3rd Quarter.......................................................... 71,603 17,205 5,581 0.53
1996
- ---------------------------------------------------------------------
1st Quarter.......................................................... $ 59,973 $ 12,761 $ 2,275 $ 0.22
2nd Quarter.......................................................... 63,516 14,469 3,352 0.32
3rd Quarter.......................................................... 66,217 15,792 4,872 0.47
4th Quarter.......................................................... 63,087 14,061 3,023 0.29
1995
- ---------------------------------------------------------------------
1st Quarter.......................................................... $ 56,913 $ 12,093 $ 2,200 $ 0.21
2nd Quarter.......................................................... 60,843 12,999 2,912 0.28
3rd Quarter.......................................................... 66,334 15,064 4,200 0.40
4th Quarter.......................................................... 61,661 12,797 484 0.05
(a) Represents total revenues less cost of sales.
</TABLE>
F-20
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma financial statements have been prepared
to reflect: (a) the issuance of the Notes, (b) estimated initial borrowings
under the New Credit Facility, (c) application of the proceeds of the foregoing,
as set forth in "Use of Proceeds" and (d) the Going Private Transaction (such
transactions being collectively referred to herein as "the Transactions"). The
accompanying unaudited pro forma statements of income for the year ended
December 31, 1996 and the nine months ended September 30, 1997, have been
prepared as if the Transactions had occurred as of the beginning of 1996. The
accompanying unaudited pro forma balance sheet has been prepared as if the
Transactions had occurred as of September 30, 1997.
As a result of the Going Private Transaction, the Company became an indirect
wholly-owned subsidiary of TRC. Accordingly, TRC will treat the Going Private
Transaction as an acquisition of a minority interest of a subsidiary and account
for it in accordance with the purchase method of accounting as a step
acquisition. The accompanying unaudited pro forma financial statements include
adjustments to "push-down" to the Company's financial statements TRC's new basis
in the Company's assets and liabilities.
The unaudited pro forma financial statements should be read in conjunction
with the financial statements of the Company and the related notes thereto and
management's discussion thereof included elsewhere in this Prospectus.
Additionally, the unaudited pro forma financial statements do not purport to
represent what the Company's results of operations or financial position would
have been had the Transactions occurred as of the assumed dates indicated above
or to project the Company's results of operations or financial position in any
future period.
F-21
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER UNIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Food sales............................................................. $ 234,164 $ -- $ 234,164
Franchise revenues..................................................... 18,629 -- 18,629
---------- ----------- -----------
252,793 -- 252,793
---------- ----------- -----------
COST AND EXPENSES
Cost of sales
Food cost............................................................ 68,456 -- 68,456
Labor and benefits................................................... 78,970 -- 78,970
Operating expenses................................................... 48,284 -- 48,284
General and administrative............................................. 23,741 (704)(a) 23,037
Depreciation and amortization.......................................... 15,748 2,788(b) 18,536
Interest, net.......................................................... 5,066 10,822(c) 15,888
Other, net............................................................. (994) -- (994)
---------- ----------- -----------
239,271 12,906 252,177
---------- ----------- -----------
NET INCOME............................................................... $ 13,522 $ (12,906) $ 616
---------- ----------- -----------
---------- ----------- -----------
Weighted Average Equivalent Units........................................ 10,289 (5,246)(e) 5,043
---------- ----------- -----------
---------- ----------- -----------
Net Income Per Equivalent Unit........................................... $ 1.30 $ 0.12
---------- -----------
---------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements.
F-22
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER UNIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ -----------
<S> <C> <C> <C>
REVENUES
Food sales............................................................... $ 185,069 $ -- $ 185,069
Franchise revenues....................................................... 14,603 -- 14,603
---------- ------------ -----------
199,672 -- 199,672
---------- ------------ -----------
COST AND EXPENSES
Cost of sales
Food cost.............................................................. 53,099 -- 53,099
Labor and benefits..................................................... 62,645 -- 62,645
Operating expenses..................................................... 37,081 -- 37,081
General and administrative............................................... 19,593 (550) (a) 19,043
Depreciation and amortization............................................ 11,898 2,091(b) 13,989
Interest, net............................................................ 3,558 8,103(d) 11,661
Other, net............................................................... 28 -- 28
---------- ------------ -----------
187,902 9,644 197,546
---------- ------------ -----------
NET INCOME................................................................. $ 11,770 $ (9,644) $ 2,126
---------- ------------ -----------
---------- ------------ -----------
Weighted Average Equivalent Units.......................................... 10,338 (5,295) (e) 5,043
---------- ------------ -----------
---------- ------------ -----------
Net Income Per Equivalent Unit............................................. $ 1.13 $ 0.42
---------- -----------
---------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements.
F-23
<PAGE>
PERKINS FAMILY RESTAURANTS, L.P.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 2,054 $ -- $ 2,054
Receivables, net....................................................... 7,446 -- 7,446
Inventories............................................................ 4,150 -- 4,150
Prepaid expenses and other current assets.............................. 1,886 -- 1,886
---------- -------------- -----------
Total current assets............................................... 15,536 -- 15,536
Property and Equipment, net.............................................. 114,312 14,699(i) 129,011
Notes Receivable, net.................................................... 558 -- 558
Intangibles and Other Assets............................................. 25,798 10,753(i) 62,247
19,309(i)
6,387(h)
---------- -------------- -----------
$ 156,204 $ 51,148 $ 207,352
---------- -------------- -----------
---------- -------------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Current maturities of long-term debt................................... $ 4,624 $ (4,624) (f) $ --
Current maturities of capital lease obligations........................ 1,430 -- 1,430
Accounts payable....................................................... 12,546 -- 12,546
Accrued expenses....................................................... 14,932 -- 14,932
Distributions payable.................................................. 3,478 -- 3,478
---------- -------------- -----------
Total current liabilities.......................................... 37,010 (4,624) 32,386
Capital Lease Obligations, less current maturities....................... 7,434 -- 7,434
Long-Term Debt, less current maturities.................................. 43,026 136,779(h) 136,779
(47,650) (h)
4,624(f)
Other Liabilities........................................................ 5,192 -- 5,192
Partners' Capital:
Partners' capital...................................................... 65,192 (78,063) (h) 25,561
(4,679) (h)
44,761(i)
(1,650) (g)
Deferred compensation.................................................. (1,650) 1,650(g) --
---------- -------------- -----------
Total partners' capital............................................ 63,542 (37,981) 25,561
---------- -------------- -----------
$ 156,204 $ 51,148 $ 207,352
---------- -------------- -----------
---------- -------------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements.
F-24
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(a) To eliminate amortization of deferred compensation related to restricted
Units which are being repurchased in connection with the Transactions.
(b) To record additional amortization and depreciation related to "push-down"
purchase accounting adjustments resulting in a write-up of property and
equipment and intangibles. The calculation of such amounts is as follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENT
WEIGHTED --------------------------
AMOUNT OF AVERAGE LIFE YEAR ENDED NINE MONTHS
WRITE-UP (YEARS) 12/31/96 ENDED 9/30/97
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Property and equipment......................... $ 14,699 9 $ 1,633 $ 1,225
Franchise agreements........................... 10,753 16 672 504
Goodwill....................................... 19,309 40 483 362
----------- ------
$ 2,788 $ 2,091
----------- ------
----------- ------
</TABLE>
(c) To record interest on the Notes of $13,163 ($130,000 at a rate of 10.125%
per annum), interest on the estimated initial borrowings under New Credit
Facility of $593 ($6,779 at an assumed rate of 8.75% per annum),
amortization of debt financing costs of $809, and eliminate $3,743 of
interest and amortization of debt financing costs on pre-existing debt which
is being refinanced in connection with the Transactions.
(d) To record interest on the Notes of $9,872 ($130,000 at a rate of 10.125% per
annum), interest on the estimated initial borrowings under New Credit
Facility of $445 ($6,779 at an assumed rate of 8.75% per annum),
amortization of debt financing costs of $607, and eliminate $2,821 of
interest and amortization of debt financing costs on pre-existing debt which
is being refinanced in connection with the Transactions.
(e) To eliminate Units which are being repurchased in connection with the
Transactions.
(f) To reclassify long-term debt to appropriately classify current maturities of
long-term debt as a result of the Transactions.
(g) To record the acceleration of amortization of deferred compensation related
to the restricted Units which are being repurchased in connection with the
Transactions.
(h) To record the issuance of the Notes ($130,000) and estimated initial
borrowings under the New Credit Facility ($6,779) and the application of the
estimated proceeds therefrom as follows:
<TABLE>
<S> <C>
Effect the Going Private Transaction (including direct costs of
$1,840)......................................................... $ 78,063
Refinance existing debt........................................... 47,650
Non-capitalizable costs of the Transactions....................... 4,679
Deferred financing costs.......................................... 6,387
---------
Total............................................................. $ 136,779
---------
---------
</TABLE>
F-25
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
(i) To record "push-down" accounting adjustments to reflect TRC's treatment of
the Going Private Transaction as an acquisition of a minority interest of a
subsidiary and accounting for such in accordance with the purchase method of
accounting as a step acquisition.
<TABLE>
<S> <C>
Total purchase price of Units (including direct costs of
$1,840)......................................................... $ 78,063
Less: Minority interest in PFR.................................... (33,302)
---------
$ 44,761
---------
---------
Allocation of step-up of assets:
Property and equipment.......................................... $ 14,699
Franchise agreements............................................ 10,753
Intangibles..................................................... 19,309
---------
$ 44,761
---------
---------
</TABLE>
The allocation of the step-up of assets is preliminary pending receipt of a
final appraisal.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Perkins Finance Corp.:
We have audited the accompanying balance sheet of PERKINS FINANCE CORP. (a
Delaware corporation) as of November 10, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Perkins Finance Corp. as of
November 10, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Memphis, Tennessee,
November 10, 1997.
F-27
<PAGE>
PERKINS FINANCE CORP.
BALANCE SHEET
AS OF NOVEMBER 10, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................. $ 100
---------
---------
STOCKHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding.................................................. $ 1
Additional paid-in capital........................................................... 99
---------
$ 100
---------
---------
</TABLE>
The accompanying note to financial statement is an integral part of this balance
sheet.
F-28
<PAGE>
PERKINS FINANCE CORP.
NOTE TO FINANCIAL STATEMENT
NOVEMBER 10, 1997
(1) ORGANIZATION AND PURPOSE
Perkins Finance Corp. ("PFC") was incorporated in the state of Delaware on
November 6, 1997, and capitalized on November 10, 1997. PFC is a wholly-owned
subsidiary of Perkins Family Restaurants, L.P. ("PFR") and was formed for the
purpose of serving as co-issuer, together with PFR, of $130 million of senior
notes (the "Notes").
PFR is a publicly-traded limited partnership. The Restaurant Company ("TRC")
indirectly owns 48.1% of the outstanding Units of limited partnership interests
and indirectly owns PFR's general partner, which has a 1% interest in PFR. The
remainder of PFR's limited partnership interests are traded on the New York
Stock Exchange. PFR currently conducts its business through an operating
partnership, Perkins Restaurants Operating Company, L.P. (the "Operating
Partnership"). On September 11, 1997, PFR, TRC and Perkins Acquisition Corp.
entered into a Merger Agreement that provides for a series of transactions
(collectively, the "Going Private Transaction") whereby the Operating
Partnership will be merged into PFR, PFR will become an indirect wholly-owned
subsidiary of TRC and the approximately 5.44 million Units of limited
partnership interests in PFR held by persons other than TRC and its subsidiaries
will be converted into the right to receive $14.00 in cash per Unit.
Approximately $89 million will be required to consummate the Going Private
Transaction and to pay related fees and expenses, and approximately $50 million
will be required to refinance PFR's existing credit facility. Such funds are
expected to be obtained from the net proceeds of the sale of the Notes and from
the proceeds of a new credit facility to be entered into by PFR concurrently
with the closing of the sale of the Notes.
PFC does not, and is not expected to, have substantial operations or assets
of any kind.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Perkins Management Company, Inc.:
We have audited the accompanying balance sheet of PERKINS MANAGEMENT
COMPANY, INC. (a Delaware corporation) as of December 31, 1996. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Perkins Management Company, Inc. as
of December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Memphis, Tennessee,
November 7, 1997.
F-30
<PAGE>
PERKINS MANAGEMENT COMPANY, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................................. $ 474
Receivables from affiliates............................................................................ 196
Prepaid expenses and other current assets.............................................................. 617
Deferred income taxes.................................................................................. 21
---------
Total current assets............................................................................... 1,308
INVESTMENT IN AFFILIATES................................................................................. 1,205
RECEIVABLES FROM AFFILIATES.............................................................................. 1,696
---------
$ 4,209
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABLITIES:
Accounts payable....................................................................................... $ 314
Accrued expenses....................................................................................... 621
---------
Total current liabilities.......................................................................... 935
DEFERRED INCOME TAXES.................................................................................... 377
STOCKHOLDER'S EQUITY:
Common stock, no par value, 1,000 shares authorized,
100 shares issued and outstanding.................................................................. --
Additional paid-in capital........................................................................... 6,407
Capital contribution receivable...................................................................... (4,900)
Retained earnings.................................................................................... 1,390
---------
Total stockholder's equity......................................................................... 2,897
---------
$ 4,209
---------
---------
</TABLE>
The accompanying notes to financial statement are an integral part of this
balance sheet.
F-31
<PAGE>
PERKINS MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1996
(1) ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION --
Perkins Management Company, Inc. ("PMC") is the general partner and manager
of Perkins Family Restaurants, L.P. ("PFR"), a Delaware limited partnership, and
Perkins Restaurants Operating Company, L.P. ("PROC"), the entity through which
PFR's operations are conducted. PFR is the sole limited partner and owns 99% of
PROC. The combined activities of PFR and PROC are referred to herein as
activities of the "Partnership." PMC, a wholly-owned subsidiary of Perkins
Restaurants, Inc. ("PRI"), owns 1% of both PROC and PFR, and the remainder of
PFR's limited partnership units are traded on the New York Stock Exchange. PRI
owns approximately 48% of the limited partnership units of PFR. PRI is a
wholly-owned subsidiary of The Restaurant Company ("TRC").
As general partner of the Partnership, PMC does not receive any compensation
other than distributions attributable to its 1% general partner's interest. PROC
reimburses PMC for all of its direct and indirect costs (principally general and
administrative costs) allocable to the Partnership.
BASIS OF PRESENTATION --
The balance sheet has been prepared by PMC's management in accordance with
U.S. generally accepted accounting principles. The preparation of a balance
sheet in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet. Actual results could differ from those estimates.
PMC uses the equity method to account for its investments in PROC and PFR.
(2) ACCRUED EXPENSES:
Accrued expenses consisted of the following as of December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Payroll and benefits.................................................................. $ 454
Property, real estate and state taxes................................................. 27
Other................................................................................. 140
---------
$ 621
---------
---------
</TABLE>
F-32
<PAGE>
PERKINS MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
DECEMBER 31, 1996
(3) INCOME TAXES:
TRC and its subsidiaries file a consolidated Federal income tax return. For
state purposes, each subsidiary generally files a separate return. The
components of PMC's net deferred tax liability as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
----------- -------------
<S> <C> <C>
Capital leases.......................................................... $ -- $ 34
Other................................................................... 21 3
----- -----
Deferred tax assets................................................... 21 37
----- -----
Investment in partnerships.............................................. -- (369)
Depreciation and amortization........................................... -- (45)
----- -----
Deferred tax liabilities.............................................. -- (414)
----- -----
$ 21 $ (377)
----- -----
----- -----
</TABLE>
(4) RECEIVABLES FROM AFFILIATES:
PMC has a note receivable from PRI for $4.9 million related to PRI's
original capital contribution to PMC. Additionally, PMC makes cash advances to
PRI for general corporate purposes. PRI pays interest on the note receivable and
cash advances based on the prime rate.
(5) SUBSEQUENT EVENT:
On September 11, 1997, PFR, TRC and Perkins Acquisition Corp. entered into a
Merger Agreement that provides for a series of transactions (collectively, the
"Going Private Transaction") whereby PROC will be merged into PFR, PFR will
become an indirect wholly-owned subsidiary of TRC and the approximately 5.44
million units of limited partnership interests in PFR held by persons other than
TRC and its subsidiaries will be converted into the right to receive $14.00 in
cash per Unit.
Approximately $89 million will be required to consummate the Going Private
Transaction and to pay related fees and expenses, and approximately $50 million
will be required to refinance PFR's existing credit facility. Such funds are
expected to be obtained from the net proceeds of the sale of $130 million of
senior notes (the "Notes") and from the proceeds of a new credit facility to be
entered into by PFR concurrently with the closing of the sale of the Notes.
F-33
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 14
The Going Private Transaction............................................. 20
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Selected Historical and Pro Forma Financial and Other Data................ 23
Management's Discussion and Analysis
of Results of Operations and Financial Condition........................ 25
Business.................................................................. 34
Management................................................................ 44
Certain Transactions...................................................... 49
Description of Other Indebtedness......................................... 51
The Exchange Offer........................................................ 52
Description of Notes...................................................... 62
Plan of Distribution...................................................... 91
Certain Federal Income Tax Considerations................................. 92
Legal Matters............................................................. 92
Independent Public Accountants............................................ 92
Available Information..................................................... 93
Incorporation of Certain Documents By Reference........................... 94
Index to Financial Statements............................................. F-1
</TABLE>
[LOGO]
PERKINS FAMILY
RESTAURANTS, L.P.
PERKINS FINANCE CORP.
10 1/8% SERIES B
SENIOR NOTES
DUE 2007
------
PROSPECTUS
MARCH , 1998
---------
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
provides that, subject to any applicable restrictions set forth in the
partnership agreement, a Delaware limited partnership may indemnify and hold
harmless any partner or other person from and against any and all claims and
demands whatsoever.
Section 6.9 of the Partnership's Amended and Restated Agreement of Limited
Partnership provides for indemnification of its directors and officers as
follows:
1. To the fullest extent permitted by law, the General Partner, its
Affiliates and its directors, officers, partners, employees and agents
(individually, an "Indemnitee") shall each be indemnified and held harmless by
the Partnership from and against any and all losses, claims, damages,
liabilities, joint and several, expenses (including legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, in which the Indemnitee may be involved, or threatened to be
involved, as a party or otherwise by reason of its status as (x) a General
Partner or an Affiliate thereof or (y) a director, officer, partner, employee or
agent of the General Partner or an Affiliate or (z) a Person serving at the
request of the Partnership in another entity in a similar capacity, which relate
to or arise out of the Partnership, its property, business or affairs,
including, without limitation, the Initial Offering, regardless of whether the
Indemnitee continues to be the General Partner or an Affiliate or a director,
officer, partner, employee or agent of the General Partner or an Affiliate
thereof at the time any such liability or expense is paid or incurred, if (i)
the Indemnitee acted in good faith and in a manner it in good faith believed to
be in, or not opposed to, the best interests of the Partnership, and with
respect to any criminal proceeding, had no reasonable cause to believe that its
conduct was unlawful, and (ii) the Indemnitee's conduct did not constitute gross
negligence or willful or wanton misconduct. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Indemnitee acted in a manner contrary to that specified in (i) or (ii)
above. Any indemnification pursuant to this Section 6.9 shall be made only out
of the assets of the Partnership.
2. To the fullest extent permitted by law, expenses (including legal fees)
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Partnership prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 6.9.
3. The indemnification provided by this Section 6.9 shall be in addition to
any other rights to which an Indemnitee may be entitled under any agreement,
vote of the Partners, as a matter of law or otherwise, both as to action in the
Indemnitee's capacity as the General Partner or an Affiliate or as a director,
officer or employee of the General Partner or an Affiliate and to action in any
other capacity (including, without limitation, any capacity under the
Underwriting Agreement and the Conveyance Agreement), and shall continue as to
an Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.
4. The Partnership may purchase and maintain insurance on behalf of the
General Partner and such other Persons as the General Partner shall determine
against any liability that may be asserted against or expense that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
II-1
<PAGE>
5. For purposes of this Section 6.9, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan, excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall be deemed "fines"
within the meaning of Section 6.9(a); and action taken or omitted by it with
respect to an employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interest of the Partnership.
6. In no event may an Indemnitee subject the Limited Partners or Assignees
to personal liability by reason of these indemnification provisions.
7. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.9 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
8. The provisions of this Section 6.9 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of any
other Persons.
The Company's general partner, Perkins Management Company, Inc. ("PMC")
amended its Certificate of Incorporation on October 7, 1986 to provide that:
1. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
2. (i) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (ii) hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this Section (b) shall be a contract right and shall include the right to be
paid by the corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding
II-2
<PAGE>
shall be made only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section (b) or otherwise. The corporation may, by action
of its Board of Directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
(ii) If a claim under paragraph (i) of this Section (b) is not paid in full
by the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise. The corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 8.1 of PMC's By-Laws provides that it shall indemnify its officers,
directors, employees and agents to the fullest extent permitted by the General
Corporation Law of Delaware.
Section 145 of the Delaware General Corporation Law, as amended, provides as
follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
II-3
<PAGE>
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
4. Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
5. Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
6. The indemnification and advancement of expenses provided by, or granted
pursuant to the other subsections of this section shall be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
7. A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
8. For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership,
II-4
<PAGE>
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
9. For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employer benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
10. The indemnification and advancement of expenses provided by or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Finance Corp.'s Certificate of Incorporation provides that:
(a) A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of a director's duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law;
(iii) under Section 174 of the GCL as it may from time to time be amended or
supplemented or any successor provision thereto; or (iv) for any transaction
from which a director derived an improper personal benefit.
(b) Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of any person thereunder with respect
to any act or omission occurring prior to or at the time of such repeal or
modification.
Finance Corp.'s By-Laws provide that:
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative,
including all appeals (other than an action, suit or proceeding by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he or she is or was an employee or agent of the Corporation or is or was serving
at the request of the Corporation in any other capacity for another corporation,
partnership, joint venture, trust or other enterprise), against expenses
(including attorneys' fees), judgments, decrees, fines, penalties, and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith or in a manner which he or she reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Notwithstanding the foregoing, the Corporation shall be required to
indemnify a director or officer in connection with an action, suit or proceeding
initiated by such person only if such action, suit or proceeding was authorized
by the Board of Directors.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit, including all appeals, by or in the right of the
II-5
<PAGE>
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director or officer of the Corporation (and the Corporation, in
the discretion of the Board of Directors, may so indemnify a person by reason of
the fact that he or she is or was an employee or agent of the Corporation or is
or was serving at the request of the Corporation in any other capacity for
another corporation, partnership, joint venture, trust or other enterprise),
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the defense or settlement of such action or suit
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been finally adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought, or any other court of competent jurisdiction, shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper. Notwithstanding the
foregoing, the Corporation shall be required to indemnify a director or officer
in connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board of Directors.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1 or 2 of this Article, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
(d) Except in a situation governed by Section 3 of this Article, any
indemnification under Section 1 or 2 of this Article (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in Section 1 or 2, as applicable, of this Article. Such
determination shall be made (i) by a majority vote of directors acting at a
meeting at which a quorum consisting of directors who were not parties to such
action, suit or proceeding is present, or (ii) if such a quorum is not
obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. The determination required by clauses (i) and (ii) of this Section
4 may in either event be made by written consent of the majority required by
each clause.
(e) Expenses (including attorneys' fees) of each director and officer
hereunder indemnified actually and reasonably incurred in defending any civil,
criminal, administrative or investigative action, suit or proceeding or threat
thereof shall be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such person to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the Corporation as authorized in
this Article. Such expenses (including attorneys' fees) incurred by employees
and agents may be so paid upon the receipt of the aforesaid undertaking and such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, other Sections of this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may now or hereafter be entitled under any law, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the Delaware Law.
II-6
<PAGE>
(h) For purposes of this Article, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify any or all of its directors, officers, employees and
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation in any other capacity for another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have had with respect to such
constituent corporation if its separate existence had continued.
For purposes of this Article, references to "other capacities" shall include
serving as a trustee or agent for any employee benefit plan; references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a manner
he or she reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
(i) The indemnification and advancement of expenses provided by, or granted
pursuant to, the Delaware Law, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
(j) If any provision hereof is invalid or unenforceable in any jurisdiction,
the other provisions hereof shall remain in full force and effect in such
jurisdiction, and the remaining provisions hereof shall be liberally construed
to effectuate the provisions hereof, and the invalidity of any provision hereof
in any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.
(k) The right to indemnification conferred by this Article shall be deemed
to be a contract between the Corporation and each person referred therein until
amended or repealed, but no amendment to or repeal of these provisions shall
apply to or have any effect on the right to indemnification of any person with
respect to any liability or alleged liability of such person for or with respect
to any act or omission of such person occurring prior to such amendment or
repeal.
Section 145 of the Delaware General Corporate Law, as amended, also applies
to Finance Corp., as set forth above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement is
contained on the Exhibit Index and is incorporated herein by reference.
(b) Financial Statement Schedules:
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the required information has already
been provided elsewhere in the registration statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
II-7
<PAGE>
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 193, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
II-8
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant, will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g) The registrant had not entered into any arrangement or understanding
with any person to distribute the securities to be received in the Exchange
Offer and to the best of the registrant's information and belief, each person
participating in the Exchange Offer is acquiring the securities in its ordinary
course of business and has no arrangement or understanding with any person to
participate in the distribution of the securities to be received in the Exchange
Offer. In this regard, the registrant will make each person participating in the
Exchange Offer aware (through the Exchange Offer Prospectus or otherwise) that
if the Exchange Offer is being registered for the purpose of secondary resales,
any security holder using the exchange offer to participate in a distribution of
the securities to be acquired in the registered exchange offer (1) could not
rely on the staff position enunciated in Exxon Capital Holdings Corporation
(available April 13, 1989) or similar letters and (2) must comply with
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. The registration acknowledges
that such a secondary resale transaction should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 of Regulation S-K.
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT, OR ANY AMENDMENT
THERETO, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MEMPHIS TENNESSEE, ON MARCH 24, 1998.
<TABLE>
<S> <C> <C>
PERKINS FAMILY RESTAURANTS, L.P.
By: Perkins Management Company, Inc.
its General Partner
By: /s/ STEVEN R. MCCLELLAN
-----------------------------------------
Name: Steven R. McClellan
Title:Executive Vice President,
Chief Financial Officer
PERKINS FINANCE CORP.
By: /s/ STEVEN R. MCCLELLAN
-----------------------------------------
Name: Steven R. McClellan
Title: President
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT, OR ANY AMENDMENT THERETO, HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON MARCH 24, 1998.
PERKINS FAMILY RESTAURANTS, L.P.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------------------------------
<C> <S>
*
- ------------------------------ Chief Executive Officer (Principal Executive
Donald N. Smith Officer) and Chairman of the Board
/s/ STEVEN R. MCCLELLAN
- ------------------------------ Executive Vice President, Chief Financial Officer
Steven R. McClellan (Principal Financial Officer)
/s/ MICHAEL P. DONAHOE
- ------------------------------ Vice President, Controller
Michael P. Donahoe (Principal Accounting Officer)
*
- ------------------------------ Director
Lee N. Abrams
*
- ------------------------------ Director
Charles L. Atwood
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------------------------------
<C> <S>
*
- ------------------------------ Director
Steven L. Ezzes
- ------------------------------ Director
Charles A. Ledsinger, Jr.
*
- ------------------------------ Director
D. Michael Meeks
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ STEVEN R. MCCLELLAN
-------------------------
Attorney-in-fact
</TABLE>
PERKINS FINANCE CORP.
<TABLE>
<C> <S>
/s/ STEVEN R. MCCLELLAN
- ------------------------------ President (Principal Executive Officer) and
Steven R. McClellan Director
/s/ MICHAEL P. DONAHOE
- ------------------------------ Vice President and Director (Principal Financial
Michael P. Donahoe and Accounting Officer)
/s/ DONALD F. WISEMAN
- ------------------------------ Director
Donald F. Wiseman
</TABLE>
II-11
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Steven R.
McClellan and Donald F. Wiseman, Esq. his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
with full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ---------------------------
<C> <S> <C>
Chief Executive Officer
/s/ DONALD N. SMITH (Principal Executive
- ------------------------------ Officer and Chairman of January 29, 1998
Donald N. Smith the Board
Executive Vice President,
/s/ STEVEN R. MCCLELLAN Chief Financial Officer
- ------------------------------ (Principal Financial January 29, 1998
Steven R. McClellan Officer)
/s/ MICHAEL P. DONAHOE Vice President, Controller
- ------------------------------ (Principal Accounting January 29, 1998
Michael P. Donahoe Officer)
/s/ LEE N. ABRAMS
- ------------------------------ Director January 29, 1998
Lee N. Abrams
/s/ CHARLES L. ATWOOD
- ------------------------------ Director January 29, 1998
Charles L. Atwood
/s/ STEVEN L. EZZES
- ------------------------------ Director January 29, 1998
Steven L. Ezzes
- ------------------------------ Director January , 1998
Charles A. Ledsinger, Jr.
/s/ D. MICHAEL MEEKS
- ------------------------------ Director January 29, 1998
D. Michael Meeks
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1 Purchase Agreement dated as of December 17, 1997 among the Issuers and the Initial
Purchasers named therein.*.........................................................
3.1(a) Certificate of Incorporation of Perkins Management Company, Inc.(8)..................
3.1(b) Certificate of Amendment of Certificate of Incorporation of Perkins Management
Company, Inc.(8)...................................................................
3.2 Certificate of Incorporation of Perkins Finance Corp.*...............................
3.3 By-Laws, as amended, of Perkins Management Company, Inc.(7)..........................
3.4 By-Laws of Perkins Finance Corp.*....................................................
3.5 Certificate of Limited Partnership of Perkins Family Restaurants, L.P.(9)............
4.1(a) Agreement of Limited Partnership of Perkins Family Restaurants, L.P.(5)..............
4.1(b) Amended and Restated Agreement of Limited Partnership of Perkins Family Restaurants,
L.P.(5)............................................................................
4.2 Indenture dated as of December 22, 1997 among the Issuers and the Trustee named
therein.*..........................................................................
4.3 Form of 10 1/8% Series B Senior Notes due 2007 (included in Exhibit 4.2).............
5 Opinion of Mayer, Brown & Platt*.....................................................
10.1 Lease Agreement dated January 18, 1988 between The Crescent Center, Ltd. and Perkins
Restaurants Operating Company, L.P.(6).............................................
10.2 Modification and Ratification of Lease dated December 21, 1992 between The Travelers
Insurance Company, successor of interest to the Crescent Center, Ltd., and Perkins
Restaurants Operating Company, L.P.(2).............................................
10.3 Finance Program Agreement dated September 14, 1993 among Bell Atlantic TriCon Leasing
Corporation, d/b/a Bell Atlantic Capital Corporation, Perkins Restaurants Operating
Company, L.P. and Perkins Family Restaurants L.P.(1)...............................
10.4 Guaranty by Perkins Family Restaurants, L.P. and Perkins Family Restaurants Operating
Company, L.P. in favor of BancBoston Leasing, Inc. dated as of May 1, 1994.(10)....
10.5 Guaranty dated July 5, 1995 among Perkins Restaurants Operating Company, L.P. and
BancBoston Leasing, Inc.(5)........................................................
10.6 Third Amended and Restated Agreement and Plan of Merger dated as of September 11,
1997.*.............................................................................
10.7 Revolving Credit Agreement, by and among Perkins Family Restaurants, L.P., The
Restaurant Company, Perkins Restaurants, Inc., Perkins Finance Corp., BankBoston,
N.A. and other financial institutions and BankBoston N.A., as Agent and
Administrative Agent with NationsBank, N.A. as Syndication Agent and BancBoston
Securities, Inc. as Arranger dated as of December 22, 1997.*.......................
10.8 Registration Rights Agreement dated as of December 22, 1997 among the Issuers and the
Initial Purchasers named therein*..................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
21 Subsidiaries of the Registrant*......................................................
23 Consent of Arthur Andersen...........................................................
24 Power of Attorney (Included on Page II-12)...........................................
25 Statement of Eligibility of Trustee*.................................................
99.1 Certificate of Incorporation of The Restaurant Company.(8)...........................
99.2 Certificate of Amendment of Certificate of Incorporation of The Restaurant
Company.(8)........................................................................
99.3 By-Laws of The Restaurant Company.(4)................................................
99.4 Articles of Incorporation, as amended, of Perkins Restaurants, Inc.(7)...............
99.5 By-Laws of Perkins Restaurants, Inc.(9)..............................................
99.6 Stockholders Agreement, dated as of November 21, 1985, among The Restaurant Company,
Holiday Inns, Inc., Bass Investment Limited Partnership Donald N. Smith, et
al.(9).............................................................................
99.7 Pledge Agreement dated September 2, 1988 between Perkins Restaurants, Inc. and The
First National Bank of Boston.(6)..................................................
99.8 Form of Letter of Transmittal*.......................................................
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Registrant's Current Report on form
8-K/A dated November 1, 1993.
(2) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.
(3) Incorporated herein by reference to Registrant's Company Report on Form 8-K
dated May 25, 1992.
(4) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(5) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarterly period ending September 30, 1995.
(6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.
(7) Incorporated hereby by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987.
(8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1986.
(9) Incorporated herein by reference to Registrant's Form S-1, Registration No.
33-7333 dated July 17, 1986.
(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1994.
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on Perkins Family Restaurants, L.P., Perkins Finance Corp. and Perkins
Management Company, Inc. (and to all references to our Firm) included in or made
a part of this registration statement.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 24, 1998
